Discount clothing retailer Ross Stores Inc. has taken a hit on its bottom line because of ongoing problems surrounding the implementation of a merchandising system.

The Pleasanton, Calif.-based company Tuesday announced earnings for the third quarter, which ended Oct. 30, of US$38.1 million, down from $50.5 million for the same period a year earlier. In a statement, Ross Stores CEO Michael Balmuth cited "merchant reporting issues" as an problem that plagued the company during the quarter.

"We continued to make progress during the third quarter in remedying the merchant reporting issues related to our Core Merchandising System, and we are currently on track with our target of completing this work by the end of the fiscal year," Balmuth said in a statement. "As previously reported, our merchants have been receiving the information and trend data we consider most important to the buying process since the end of August."

Both sales and gross margins were affected by what Balmuth called "merchandise imbalances." Additional details weren"t immediately available, and the statement didn"t identify the vendor of the troubled application or exactly what the software"s role was.

However, according to a February 2004 presentation to investors, Ross was implementing the Core Merchandising System from retail software maker Retek Inc. Minneapolis-based Retek had also announced in 2002 that Ross had chosen its merchandising operations management and supply chain management application to improve pricing, markdown management and core merchandising performance.

A Retek spokeswoman said her company"s software does serve as the retailer"s central merchandising system, but Ross does not use it for merchant reporting. "The problems are not with Retek as far as we"re aware," she said.