New York, April 02, 2020 -- Moody's Investors Service, ("Moody's") today
affirmed Ross Stores, Inc.'s ("Ross") senior
unsecured rating at A2 and assigned a rating of A2 to its proposed senior
unsecured notes offering. The outlook remains stable. The
net proceeds from the proposed offering are expected to be used for working
capital and other general corporate purposes.
"Ross benefits from its strong position in the healthy off-price
sector, and conservative balance sheet " said Vice President
Christina Boni. "Its excellent liquidity will enable the
company to navigate the unprecedented disruption caused by the coronavirus
pandemic and the potential for suppressed consumer demand",
Boni added.
Assignments:
..Issuer: Ross Stores, Inc.
....Senior Unsecured Regular Bond/Debenture,
Assigned A2
Affirmations:
..Issuer: Ross Stores, Inc.
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2
Outlook Actions:
..Issuer: Ross Stores, Inc.
....Outlook, Remains Stable
RATINGS RATIONALE
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The off-price sector
has been one of the sectors most significantly affected by the shock given
its sensitivity to consumer demand and sentiment. More specifically,
the weaknesses in Ross's credit profile, including its exposure
widespread store closures and to China have left it vulnerable to shifts
in market sentiment in these unprecedented operating conditions and Ross
remains vulnerable to the outbreak continuing to spread. We regard
the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
Today's action reflects the impact on Ross Stores, Inc.
of the breadth and severity of the shock, and the broad deterioration
in credit quality it has triggered.
Ross' A2 senior unsecured rating is supported by governance considerations
which include its suspension of its stock repurchase program and historically
high cash balances relative to its funded debt. The rating also
reflects its participation in the off-price apparel and home fashion
industry, a sector that is well positioned and is expected to continue
to gain long term market share. The rating also reflects Ross'
significant scale - with in excess of $15 billion of sales
- as well as its strong #2 position in the US off-price
segment behind the combined sales of T.J. Maxx and Marshalls
--(collectively "Marmaxx"), both owned by The TJX
Companies, Inc., Ross' meaningful scale and solid execution
provide it with sustainable advantages in product sourcing evidenced by
its large and growing base of vendor relationships. The Company's
solid execution is evidenced by a long track record of growth with solid
EBIT margins that compare favorably to peers across the investment grade
rated retail universe. Despite Ross's scale, the company
still lacks full national coverage in the US. While Ross has a
strong #2 position, it trails Marmaxx by some margin in total
sales.
The stable outlook reflects the risk that Ross has excellent liquidity
which will enable the company to sustain the disruption caused by Covid-19
and weakening consumer demand. Financial strategy is expected to
remain conservative with any reinstatement of share repurchases only following
a return to sales and operating income growth. The outlook also
reflects the assumption that the company would suspend its common dividend
to the extent COVID-19 continues for a protracted period.
Factors that would lead to an upgrade or downgrade of the rating:
Ratings could be downgraded if Ross' financial policies were to become
meaningfully more aggressive or if its expansion plans were to encounter
unexpected challenges. Quantitatively ratings could be downgraded
if retained cash flow to net debt fell below 40% or interest coverage
fell below 10 times.
The Company's moderate scale and lack of full national coverage currently
significantly limit upward rating momentum. Ratings could be upgraded
over time if Ross was able to meaningfully increase its geographic footprint
while sustaining RCF/Net Debt above 90% and interest coverage above
15 times.
Ross Stores, Inc. is headquartered in Dublin, California
with revenues of over $16 billion for the FY 2019 ending February
1, 2020. The Company operates Ross Dress for Less with 1,565
locations in 39 states, the District of Columbia and Guam also operates
266 dd's DISCOUNTS in 20 states.
The principal methodology used in this rating was Retail Industry published
in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating outcome
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Christina Boni
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Margaret Taylor
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653