The timing of off-priced merchandise expenses helped offset headwinds from the cost of freight during the fiscal first quarter, Ross Stores Inc. CFO Michael Hartshorn said during a May 24 analyst call.
Ross faces tight capacity in the freight market, driven by a driver shortage, increased regulation and "perhaps" a stronger economy, Hartshorn said. The price of diesel is also up about 20% from the prior-year quarter, he added.
"Freight has been a headwind for over a year," he said. "We expect freight to be a headwind for the remainder of the year."
Hartshorn had already addressed high freight costs during a fourth-quarter earnings call with analysts on March 6.
Ross did not quantify the impact from freight costs, but Hartshorn said that it is included in the company's guidance. Ross increased its 2018 full-year guidance to a range of $3.92 to $4.05 per share, including benefits from tax reform. The company previously anticipated EPS in the range of $3.86 to $4.03.
In the fiscal first quarter, the favorable timing of "packaway" expenses helped to reduce the hit from freight costs, Hartshorn said.
Packaway inventory is merchandise that off-price retailers buy at a low cost from manufacturers. The retailer then lets the inventory sit in a warehouse to sell in next year's season.
The company said that it had a 2 cent per share benefit from the timing of distribution costs for this merchandise during the fiscal first quarter. Ross expects that to reverse and to be a negative impact over the remainder of the year, Hartshorn said.
Manufacturers found themselves with excess merchandise during Ross' fiscal first quarter, which meant that Ross could buy more to sell next year. Ross' total consolidated inventory shot up 19% year over year, mainly due to higher packaway levels, Ross CEO Barbara Rentler said during the call.
"There is an abundance of merchandise in the marketplace," she said. "We were able to able to take advantage of those opportunities."
