Gross margin comparison
Ross Stores’ gross margin declined by 40 basis points to 28.9% in the first nine months of fiscal 2018. The decline was due to higher freight costs, a rise in distribution expenses, and an increase in buying costs. These unfavorable factors more than offset the positive impact of the higher merchandise margin and lower occupancy costs on the gross margin in the first nine months of fiscal 2018.
Burlington Stores’ gross margin increased by 40 basis points to 41.7% in the first nine months of fiscal 2018. The expansion in Burlington Stores’ gross margin was due to the higher merchandise margin, which was partially offset by increased freight costs.
Ross Stores’ higher operating margin
So far, Ross Stores has delivered a better operating margin compared to Burlington Stores in fiscal 2018. Ross Stores’ operating margin of 13.8% in the first nine months of fiscal 2018 was higher than Burlington Stores’ operating margin of 6.2%. However, Ross Stores’ operating margin declined by ~60 basis points on a year-over-year basis in the first nine months of fiscal 2018. The decline in Ross Stores’ operating margin was due to the lower gross margin and higher wages.
Burlington Stores’ reported operating margin (as a percentage of sales) increased by 80 basis points to 6.2% in the first three quarters of fiscal 2018. The operating margin improved due to the higher gross margin and efficient cost management. The improvement was partially offset by the impact of $2.5 million in debt amendments.
Higher freight costs and increased wages are expected to drag retailers’ margins in the future. Ross Stores and Burlington Stores are looking for opportunities to enhance efficiencies in their operations to improve their margins. Burlington Stores is implementing several measures to improve its operating margin including optimizing markdowns and driving the efficiency in its inventory management.
Next, we’ll discuss analysts’ recommendations for Ross Stores.