Thomas Steyer’s Farallon Capital opens a position in Ross Stores

Market Realist

Must-know: Assessing Farallon Capital's 4Q13 positions (Part 3 of 7)

(Continued from Part 2)

Farallon Capital Management and Ross Stores

Farallon Capital initiated new positions in eBay Inc. (EBAY), Ross Stores Inc, (ROST), and Actavis Plc (ACT) and it sold its positions in Visa Inc. (V) and Equinix (EQIX). Farallon also increased its stake in Time Warner Cable (TWC).

Farallon Capital Management added a new 2.38% position in Ross Stores Inc. (ROST) last quarter.

Ross is the largest off-price apparel and home fashion chain in the United States, with 1,146 locations in 33 states, the District of Columbia, and Guam. Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores—Ross Dress for Less and dd’s DISCOUNTS. Ross intends to address the competitive climate for off-price apparel and home goods by pursuing and refining its existing strategies and by continuing to strengthen the organization, diversify its merchandise mix, and more fully develop its organization and systems to improve regional and local merchandise offerings.

Ross reported a decline in fourth quarter earnings per share of $1.02 for the 13 weeks ended February 1, 2014, versus $1.07 for the 14 weeks ended February 2, 2013. Sales totaled $2.741 billion, compared to $2.761 billion in the same quarter a year before. Comparable-store sales rose 2%, compared to the same quarter a year ago. Management said earnings were slightly better than expected, primarily due to above-plan merchandise gross margin. Despite a very promotional retail environment throughout the holiday season, customers responded favorably to the compelling bargains offered on a wide assortment of name-brand fashions and gifts.

ROST hedge

Ross provided conservative guidance due to its own challenging multiyear sales and earnings comparisons and an uncertain macroeconomic and retail climate. Management said on its earnings call that the strength of Ross’ business model lies in the flexibility of its off-price strategies. To maximize sales, the company is staying liquid in its open-to-buy stance (or OTB), which enables its merchants to capitalize on the best opportunities in a marketplace currently flushed with bargains. Operating the business with lean inventories has helped in maximizing sales, and this is also driving faster inventory turns, resulting in higher merchandise margins. Ross is in the process of making the necessary infrastructure investments to support its long-term expansion goal.

Continue to Part 4

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