Ross Stores (ROST) Earnings Report: Q1 2016 - TheStreet, Inc.

Ross Stores (ROST) Earnings Report: Q1 2016 - TheStreet, Inc.

C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail Event Description: Q1 20 16 Ear nings Call Market ...

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

Ross Stores (ROST) Earnings Report: Q1 2016 Conference Call Transcript The following Ross Stores conference call took place on May 19, 2016, 04:15 PM ET. This is a transcript of that earnings call: Co mpany Par t ic ipant s Barbara Rentler; Ross Stores; C EO Michael Hartshorn; Ross Stores; Vice President & C EO Ot he r Par t ic ipant s Paul Lejuez; C iti; Analyst Neely Kanega; Piper Jeffrey; Analyst Ike Boruchow; Wells Fargo; Analyst Daniel Hofkin; William Blair & C ompany; Analyst Stephen Grambling; Goldman Sachs; Analyst Kimberly Greenberger; Morgan Stanley; Analyst Brian Tunick; RBC ; Analyst Matthew Boss; JP Morgan; Analyst Bob Drbul; Nomura; Analyst Richard Jaffe; Stifel Nicolaus; Analyst Michael Binetti; UBS; Analyst O mar Saad; Evercore ISI; Analyst Mike Baker; Deutsche Bank; Analyst Marni Shapiro; Retail Tracker; Analyst Roxanne Meyer; MKM; Analyst David Mann; Johnson Rice; Analyst Randy Koenig; Jeffries; Analyst MANAGEMENT DISC USSIO N SEC TIO N Ope r at o r : Welcome to the Ross Stores First Q uarter 2016 Earnings Release conference call. The call will begin with prepared comments by management, followed by a question-and-answer session. (O perator Instructions) Before we get started, on behalf of Ross Stores , I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results including sales and earnings forecasts, and other matters that are based on the C ompany's current forecasts of aspects of its future business. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today's press release and the C ompany's fiscal 2015 Form 10-K, and fiscal 2016 Form 8-Ks on file with the SEC . Now I'd like to turn the call over to Barbara Rentler, C hief Executive O fficer. © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

Bar bar a Re nt le r (C EO ): Good afternoon. Joining me on our call today are Michael Balmuth, Executive C hairman; Michael O 'Sullivan, President and C hief O perating O fficer; Gary C ribb, Executive Vice President, Stores and Loss Prevention; John C all, Executive Vice President, Finance and Legal; Michael Hartshorn, Group Senior Vice President and C hief Financial O fficer; and C onnie Kao, Vice President, Investor Relations. We'll begin our call today with a review of our first quarter performance, followed by our outlook for the second quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have. Earnings per share for the first quarter were $0.73 for a 6% gain on top of a robust 19% in the prior year period. Net earnings for the quarter were $291 million, up from $282 million last year. Sales have increased 5% to $3,089,000,000, with comparable store sales up 2% on top of a strong 5% gain in the first quarter of 2015.Despite facing our strongest prior year comparisons along with merchandising execution issues in ladies apparel, sales performed at the high end of guidance, while earnings per share was slightly above our targeted range. During the quarter, home and shoes were the best performing merchandise categories at Ross, while ladies apparel under performed. Geographically, the Midwest and Mid-Atlantic were the strongest regions. Although our first quarter of 15.4% was down from last year it was slightly above plan, mainly due to higher merchandise margins that partially off-set the expected impact from the unfavorable timing of [pack-way] related expenses. At we ended the first quarter, total consolidated inventory were flat versus the prior year with average in-store inventories down slightly. Packaway as a percent of total inventories was 46% compared to 45% at this time last year. Both sales and operating profits at dd's Discounts were better than expected in the first quarter, as customers continued to respond positively to dd's value offering. O ur store expansion program remains on track as he opened 22 new Ross and 6 dd's Discount stores in the first quarter. We continue to expect to add a total of 90 new locations in 2016, comprised of approximately 70 Ross and 20 dd's Discounts. As usual, these numbers do not reflect our plans to close or relocate about 10 older stores during the year. Now Michael Hartshorn will provide further color on our first quarter results and details on our second quarter guidance. Mic hae l Har t s ho r n (Vice President & C EO ): Thank you Barbara. O ur 2% comparable store sales gain was driven by an increase in the size of the average basket. As Barbara mentioned, first quarter operating margin of 15.4% was down 30 basis points from last year, which was better than our guidance for 50 to 70 basis point decline. C ost of goods sold increased 10 basis points in the quarter, mainly due to a 55 basis point increase in distribution expenses from the expected impact of a new distribution center we opened in the second quarter of last year, as well as the unfavorable timing of packaway related costs that benefited this period in 2015. These expense pressures were partially offset by merchandise margins that rose a better than expected 35 basis points and 10 basis points in lower buying costs. Selling, general and administrative expenses during the period increased by 20 basis points, due to a combination of the leverage from the 2% increase in comparable store sales and also higher wages. During the first quarter we re-purchased 3.1 million shares for a total purchase price of $176 million. This keeps us on track to buyback as planned, a total of $700 million in stock for the year which will complete © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

the two-year, $1.4 billion program authorized by a Board of Directors in February 2015. Let's turn now to our second-quarter guidance. We continue to forecast same-store sales for the 13 weeks ending July 30, 2016 to be up 1% to 2% on top of a 4% gain in the second quarter of 2015, with earnings per share of $0.64 to $0.67, compared to $0.63 last year. O ur guidance for the second quarter is based on the following assumptions; total sales are projected to increase 4% to 5%. We expect to open 31 new stores during the period, including 24 Ross & 7 dd's Discount locations. Second-quarter operating margin is projected to be relatively flat at 13.8% to 14.0%, compared to last year's 13.9%. In addition, net interest expense for the quarter is estimated to be about $4 million. O ur tax rate is expected to be approximately 38% to 39% and weighted average diluted shares outstanding are projected to be about 397 million. Based on first-quarter results and the second quarter guidance, we now project fiscal 2016 earnings per share to be in the range of $2.63 to $2.72, compared to $2.51 last year. Now, I'll turn the call back to Barbara for closing comments. Bar bar a Re nt le r (C EO ): Thank you Michael. As mentioned earlier, even though we faced our toughest prior year comparison with earnings per share performing slightly above our targeted range, we feel we should have done better. In hindsight, we know that we had some merchandising execution issues in Ladies' apparel during the quarter. They're now the in process of being addressed. Looking ahead, we have plenty open-to-buys which gives our merchants the ability to select the best values from the large volume of products available in the marketplace today. Being in this position will enable us to offer customers even more fresh and exciting new bargains as we move through the second quarter and the balance of 2016. As always, providing customers with the most compelling name brand values possible is the key driver of both our short and long-term success. At this point, we'd like to open up the call and respond to any questions you might have. Q UESTIO NS & ANSWERS Ope r at o r : (O perator Instructions) Paul Lejuez with C iti. Paul Le jue z (Analyst - C iti): O n the last call I believe you mentioned that you were holding back a little bit on some of your potential packaway busy which I (inaudible) were going to get even better. I'm just wondering if that came to fruition throughout the quarter, and if so when do you plan to flow those goods into the stores? Also, kind of curious about performance in some of your larger states, C alifornia, Texas, Florida. Thanks. Bar bar a Re nt le r (C EO ): Paul, as it pertains to packaway, yes we did buy packaway goods in the first quarter that we would use for © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

second quarter and fall. We're actually pleased with the packaway assortment that we have. In terms of... Mic hae l Har t s ho r n (Vice President & C EO ): I think your other question Paul was on regions, Michael here if you want to comment. Unidentified C ompany Representative The Midwest has been very strong over the last several years, while the Mid-Atlantic benefited from a favorable weather comparison versus last year. In terms of other states, you mentioned C alifornia, our largest region performed slightly below the chain average. Texas was above the chain average, on top of a strong performance last year. Florida trailed the chain average, we believe some of the merchandising issues that Barbara mentioned in her comments had a bigger impact to Florida as we transitioned spring product over there. Paul Le jue z (Analyst - C iti): What's the timing on when feel like you might have the merchandising issues fixed on the Ladies' apparel side? Bar bar a Re nt le r (C EO ): At this point we're working on the issue, so they're in the process of being addressed. We're working to fix them as quickly as possible and it's embedded in our guidance for Q 2, so we hope to do better. Ope r at o r : Neely Kanega with Piper Jeffrey. Ne e ly Kane ga (Analyst - Piper Jeffrey): I was wondering if you could elaborate a little bit more on the Ladies apparel merchandising issue? Was it within specific categories? O r is kind of more broad based. We're just trying to better understand that issue. Thanks. Bar bar a Re nt le r (C EO ): What I would say is that we could've done a much better job of executing our merchandise game in Ladies, and it was mainly in the transition to spring products that we made some execution errors. Ne e ly Kane ga (Analyst - Piper Jeffrey): O kay, thank you. Ope r at o r : Ike Boruchow with Wells Fargo . Ike Bo r uc ho w (Analyst - Wells Fargo): Sorry guys, can you here me. Bar bar a Re nt le r (C EO ): Yes. Ike Boruchow Mic hae l Har t s ho r n (Vice President & C EO ): © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

Ike, as we mentioned in our remarks, the 2% comp was driven by the size of the average basket. Transactions our proxy for traffic was flat during the quarter. The higher basket was driven mainly by higher units per transaction. Bar bar a Re nt le r (C EO ): What I would add Ike is that I believe in our assortment in Ladies apparel are not up to the standards that our customer come to expect. That probably makes us a little less compelling to shop. Ike Bo r uc ho w (Analyst - Wells Fargo): Got it, thanks. Ope r at o r : Daniel Hofkin with William Blair & C ompany. Danie l Ho f kin (Analyst - William Blair & C ompany): C ould you maybe quantify what comps might have been in other categories or give us some sense of what that impact would've have been from Ladies apparel? Moving forward, how you see that, it sounds like you're in process of fixing it. Do you think it's realistically fixable by holidays, third, fourth quarter? Mic hae l Har t s ho r n (Vice President & C EO ): Sure, in terms of other merchandise performance, we did have categories that performed well, home and shoes did very well for us. In terms of trying to understand the impact it's always hard to do. That said, our comparable store sales did slow one to two points from our trend in the back half of last year. Bar bar a Re nt le r (C EO ): What I would say is we're working to address the issues and to fix them as quickly as possible. We've been doing this for a long time, we've made mistakes before. And we're going to get it fixed. Danie l Ho f kin (Analyst - William Blair & C ompany): O kay, thanks. Ope r at o r : Stephen Grambling with Goldman Sachs . St e phe n Gr ambling (Analyst - Goldman Sachs): Just to clarify on an earlier question, as you think about the distribution headwinds, as well as the packaway headwinds, could you just clarify how that should progress over the course of the year? Mic hae l Har t s ho r n (Vice President & C EO ): Sure, Stephen. So in the quarter, distribution costs were 55 basis points higher than last year and that's split fairly evenly between anniversary our -- the opening of our distribution center in the second quarter of last year and also the timing of packaway related costs. As we get into the second quarter, the impact of that DC will be about half of what it was in the first quarter and we'll have it fully [anniversaryied] when we get back -- to the back-half of the year. In terms © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

of timing of pathway, as you recall last year we got a benefit in the first quarter, we get a benefit in the third quarter and took the charge in the fourth quarter. So we're up against those this year. So we had about half of the 55 basis points was a drag in this first quarter and our upcoming second quarter, the guidance assumes packaways relatively flat. St e phe n Gr ambling (Analyst - Goldman Sachs): Turning back to the top line, is there any comments you can provide on the trend throughout the quarter, especially as it relates to traffic? Was it pretty consistent or was there any particularly strong changes as the quarter progressed? Thanks. Mic hae l Har t s ho r n (Vice President & C EO ): Sales were relatively consistent throughout the quarter, comp sales for March and April combined, which removes the impact of the Easter calendar shift, were very similar to what we saw in February. St e phe n Gr ambling (Analyst - Goldman Sachs): Best of luck on back half. Ope r at o r : Kimberly Greenberger with Morgan Stanley . Kimbe r ly Gr e e nbe r ge r (Analyst - Morgan Stanley): Great. Thank you. Barbara, I'm not sure if there's anything else that you'd like to share about just your observations on the transit, the spring transition apparel or so. O bviously, we'd love to hear them. I'm wondering obviously that is impacting I would imagine that start here to the second quarter. Do you think there's an opportunity, perhaps for that ladies business to get back on track by the time we get to the July time frame, or do you really think that the full second quarter will be impacted? I would imagine that the issue here do not -- you would not expect them to continue into the back half of the year, but I just want to make sure that's a fair assumption. Thanks so much. Bar bar a Re nt le r (C EO ): In terms of the transition of Ladies, the only other flavor I would put to it is that really what we found is that we had wrong fabrication and colors. They were not appropriate. So our assortment was I would say off-course. In terms of the start to the second quarter, we obviously wouldn't comment that in the quarter that we're in. In terms of the back half, on the on what that ran on into the back half, we're working on it. We're drilling in, figuring out what's wrong, working on it, trying to fix things as quickly as possible but it's hard to predict. So, we've got it embedded in our guidance and hoping to do better. Kimbe r ly Gr e e nbe r ge r (Analyst - Morgan Stanley): Great, thank you so much. Just one last question, obviously this execution challenge relates to current, in-season product that you've got in the stores. C an you reflect on the product that's put into packaway and do you think there's some risk that some of the product that's been put into the packaway could also © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

have suffered from a similar execution issue or do you have different guardrails around the product that goes into the packaway, relative to what you've got in the stores at this time? Bar bar a Re nt le r (C EO ): No, we're comfortable with what we have in packaway, we don't think the two issues relate. Kimbe r ly Gr e e nbe r ge r (Analyst - Morgan Stanley): O kay, thanks Barbara. Ope r at o r : Brian Tunick with RBC . Br ian T unic k (Analyst - RBC ): Thanks, good afternoon. A couple of questions, I guess number one, from an in-store inventory-reduction opportunity, can you maybe just give us an update there on sort of what we should think about the rest of the year could look like, obviously you've made great strides, how area you thinking we should expect in-store inventories to play out? Then, Q 1 is usually choppy between the tax refunds and obviously there's was the gas price relief. Did you guys have any chance to parse out I guess C alifornia saw the wage hikes first, you called that I think out under performing the chain, just you any perspective as you think about the tax refunds, the gas price relief, the wage hikes for your consumer. Mic hae l Har t s ho r n (Vice President & C EO ): Second part of your question first. Maybe Michael will respond on expectations for inventory reductions for the rest of the year. But in terms you raised like gas prices, raises, et cetera, him missing the issues you raise. O ur business is always affected by external variables and we came into the year we raised some concerns about the economic and the consumer outlook. It's difficult as you say parse out those different components and quantify their impact. What I would say though is that we've always acknowledged that our performance is more than anything driven by our own execution, although many of those things that you mentioned were important in Q 1. I think our own execution was the most important thing, that's why Barbara called it out in her comments. Unide nt if ie d Par t ic ipant : Brian, on inventory levels, we came into the year our expectation is that after many, many years of inventory reduction expectation we're going to operate the business with slightly lower inventory this year and that expectation hasn't changed. Br ian T unic k (Analyst - RBC ): O kay and then lastly on dd's, does it have any of the same women's sportswear issues that Barbara's talking about at Ross? Bar bar a Re nt le r (C EO ): No. Br ian T unic k (Analyst - RBC ):

© 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

Thanks, good luck this summer. Ope r at o r : Matthew Boss with JP Morgan. Mat t he w Bo s s (Analyst - JP Morgan): Your forward-looking caution on the overall retail backdrop last quarter proved pretty spot on. I guess any changes to your larger picture outlook today versus what you know where you were three months ago? How are you guys thinking about price competition in the back half and then just any categories of particular closeout opportunity they you're seeing right now in the landscape? Unide nt if ie d Par t ic ipant : So Matthew on the first piece, again I'd say the external environment is one of a number of things that affects our performance. If consumer spending goes down and that leads to a more promotional competitive environment and that's generally not good. But having said that we showed in the past that we can perform well even in a tough economic environment. Again in Q 1, we performed at the high end, but we feel like we should've done better. But the execution issues that Barbara described. We remain cautious as we were when we came into the year in terms of the rest of the year and that again is factored into our [packed] into our guidance. Bar bar a Re nt le r (C EO ): In terms of supply, the supply is very broad based. There's a lot of supply in the market. Mat t he w Bo s s (Analyst - JP Morgan): Great, best of luck. Ope r at o r : Bob Drbul with Nomura. Bo b Dr bul (Analyst - Nomura): I just had a couple questions. The first one is in the strength in shoes, is it the women shoes or is it athletic, can you talk a little bit about your trends in athletic overall? And then strength in home, is it hard home or soft home, like what are you seeing in home and do you feel like that's a sustainable trend that should continue for the rest of the year? Bar bar a Re nt le r (C EO ): Actually our strength in shoes is broad-based, both in brown shoe and athletic, as is our strength in home, it's broad-based between decorative home and bed and bath. So, it's both businesses are pretty healthy across the board. Bo b Dr bul (Analyst - Nomura): O K. When you look at the wage pressures that your business is seeing do you feel like that's still a containable issue for you as the year progresses or do you think it's getting any worse? How do you have © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

that planned in for the rest of the year? Unide nt if ie d Par t ic ipant : Bob, we feel pretty good about our guidance with respect to the impact of wages this year. O bviously as you'd expect, we're looking at the longer term as well and we're working on our various plans to deal with wage pressures over a longer period of time. More to come on that in the future, but for this year we feel very comfortable. Ope r at o r : Richard Jaffe with Stifel Nicolaus. Ric har d Jaf f e (Analyst - Stifel Nicolaus): C ould you talk about the trends at average retail price at Ross and at dd? And then could you just comment on the cash balance which seems to be growing and wondering if you could perhaps want to get more aggressive on buybacks or dividends, or what's your thought on the cash balances? Mic hae l Har t s ho r n (Vice President & C EO ): AUR trend at Ross and dd's look pretty stable, pretty consistent with the prior year. In terms of the cash balance, we look at it time to time. We typically -- we're in the middle of a two-year authorization. We'll look at it next year along with our longer-term plans and make a decision at that point. Ope r at o r : Michael Binetti from UBS. Mic hae l Bine t t i (Analyst - UBS): Maybe I can ask about -- I guess on the inventory a little bit of a different way but this is I guess two quarters in a row where you've commented I think that the inventory in the store has been negative. I don't know if that's related to the women's apparel call-out, but were there any other categories where you felt like maybe you were a little bit too light on inventory to drive the comp? Mic hae l Har t s ho r n (Vice President & C EO ): No, that was unrelated and that's how we operate the business. That was our plan and (so why we got to do it again). Mic hae l Bine t t i (Analyst - UBS): O k. And then maybe if I just look a little longer term, I want to think about maybe 2017, if we just take a look at inventory in the past nine months in the channel, the department stores have really missed their business plan by a significant amount. We can already see in your comps in the fourth quarter you benefited from that. You just said first quarter sounds like inventories fairly plentiful. If we assume a more rational inventory ordering pattern from the department stores heading into this holiday and also a fairly common theme from the brands like [PDH] and Ralph Lauren lately that their big corporate strategies are too slow. Inventory flows into the department stores going forward. Do you have a point in history and say here's what a year like 2017 might look like as we lap a period of © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

very favorable inventory situation? Unide nt if ie d Par t ic ipant : No, I can't really think a period in history that would be analogous. What I would say is many of the things that you just said Michael are things that frankly people say at the beginning of every year, in terms of here's why supply is going to tighten up. C ertainly we haven't seen any sign of that so far this year, so, we're not expecting to see a major reduction in supply opportunities, either for the remainder of this year. Maybe it's too late to tell for 2017, but at least no signs of that at this point. Bar bar a Re nt le r (C EO ): Actually our history would show that the supply will keep coming. As department store, even though they pull back, their business lay off and I don't -- it's very difficult for a vendor to get ahead of that. So history would show that they would be plenty of size to go forward. Ope r at o r : O mar Saad with Evercore ISI. Omar Saad (Analyst - Evercore ISI): I was wondering if you could talk a little bit about how you track your customer data, customer behavior and you've ever thought about doing something along the lines of a loyalty program or a rewards program? Unide nt if ie d Par t ic ipant : We periodically look at various programs like loyalty programs, credit card, et cetera. And it's something we'll continue to look at. O ur experience and what's worked for us I would say over many years is to keep it simple, and to focus on having the right assortment and great values. At least all of our customer research tells us, more than anything else, that's what the off-price customer cares about and that's what's going to drive our loyalty over time, quite apart from any loyalty program on the side. It's really all about the right assortment and great values. And if I just think about the most recent quarter, it is clear that in Q 1 we didn't miss opportunities because we didn't have a loyalty program. If we missed an opportunity, it was because we may have had assortment misses. Ope r at o r : Mike Baker with Deutsche Bank. Mike Bake r (Analyst - Deutsche Bank): So as mentioned, comps slowed to 2% from the end of last year. How much of that do you think is because of the ladies apparel assortment issue and how much is that, the you mentioned a couple times that you correctly predicted the consumer was a little bit soft. So is this all because of the ladies issue, is it a little bit and then I'll follow-up. Unide nt if ie d Par t ic ipant :

© 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

It's hard for us to say. I would say that what we typically try to do in our business is just focus on what we can control. It is not very helpful for us to dwell on external things that we can't do anything about. What we think we can do something about and what we could've done something about in Q 1 is making sure that we execute as well as possible. That's really the focus rather than any external issues. Mike Bake r (Analyst - Deutsche Bank): But did you see a similar slowdown that you saw in ladies apparel, do you see anything even close out or any kind of slowdown in any other major categories? Unide nt if ie d Par t ic ipant : No. Bar bar a Re nt le r (C EO ): No, actually we felt good about our home business, or [shoes] business and we're pretty pleased with our junior business. It really was ladies apparel. Mike Bake r (Analyst - Deutsche Bank): O kay, so that helps us triangulate that. In the past and I understand these things happen, you can't get the buy-right every time, but how long does it typically take to fix it? Is this just you live with the bad buys for the season and then you hope the ride is better for the next season or can it be fixed in inter-season with some late buys right now? Bar bar a Re nt le r (C EO ): What I would say is that we're working to fix it as quickly as possible. So, we are a 1,300 store chain, it takes a little bit of time but we've done this before and that's why we have it built in our guidance… (Multiple Speakers) Mike Bake r (Analyst - Deutsche Bank): It won't last into the next season because that's a different buy presumably. Bar bar a Re nt le r (C EO ): Yes, I would say that's a fair -- so you're saying just pure product to product? Mike Bake r (Analyst - Deutsche Bank): C orrect. Bar bar a Re nt le r (C EO ): I would say that's a fair assessment. Ope r at o r : Marni Shapiro with Retail Tracker. Mar ni Shapir o (Analyst - Retail Tracker): I just want to dig in a little bit to what was going on at the store level away from women's'. Are you finding © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

that when she's coming into the store, if she's not finding what she wants she's moving into home? And with that in mind, or into non-apparel with that in mind, could you shed any light on how the accessories business, handbags and jewelry and what have you, how that business did? And any insights you have as to what might be driving up the UPT? Is it a function of fewer trips, buying more when she comes in, or just great product that she has to have everything? Bar bar a Re nt le r (C EO ): O kay Marni, that's a few different things. I would say she's coming into the store, in Q 1 if she wasn't buying ladies appeal based on our performance in home and in shoes and other areas of the C ompany that she bought other products. In terms of accessories, our accessory business is still difficult, really based on our handbag business in particularly, which is pretty much the industry-wide issue. In terms of the UPT, Michael? Mic hae l Har t s ho r n (Vice President & C EO ): So Marni, the UPT has grown for us for a while. It helped drive our comp last year. O ur perspective is that the consumer is coming in and that we have great bargains in the store and they're buying more per transaction. It's hard to delineate the pieces of that. Mar ni Shapir o (Analyst - Retail Tracker): Just on like for like items, your pricing has remained as I recall -- I think you mentioned -- but your pricing has remained fairly stable like for like, sweater for sweater or bag for bag kind of thing. Barbara Rentler Bar bar a Re nt le r (C EO ): I would say the AUR sweater for sweater might be the same, the value might be better. .So when there's a lot of supply in the market and you get closeouts on say better or branded product that you can put out at a lower retail, the AUR could be the same but the value could be significantly better. Mar ni Shapir o (Analyst - Retail Tracker): Fair and just one last follow-up on that note. Are you finding that -- there's a lot of inventory out there -have you been able to open vendors that you haven't been able to get into before over the course of the last couple months and even six months? Bar bar a Re nt le r (C EO ): I would say that the vendor community is pretty much open to doing business with us everywhere... Mar ni Shapir o (Analyst - Retail Tracker): Fantastic. Ope r at o r : Roxanne Meyer with MKM. Ro xanne Me ye r (Analyst - MKM): Great good afternoon. Two questions, one I'm just wondering what your 2Q or 3Q guidance assumes about merchandise margin decline related to getting out of some of the women's apparel that's not working. © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

And then secondly as it relates to the Midwest markets, it's been out-performing for about nine quarters now, just wondering what it is that's really driving the out performance and whether or not you see that continuing, thanks a lot. Mic hae l Har t s ho r n (Vice President & C EO ): Roxanne, on guidance so, we only give one quarter at a time. We'll talk about Q 3 after the second quarter, but the second quarter of guidance assumes some increase in merchandise margin for the quarter. Unide nt if ie d Par t ic ipant : O n the Midwest, hi Roxanne, as you say we're very happy with how the Midwest has performed. Not just in Q 1 but over the last couple of years, it's been one of our top performing regions. When we entered the Midwest in 2011, we said it would be a very successful business, but it would take time. We're certainly very pleased with the progress so far. I think it's about having the right values in front of the customer, so we're very pleased with we've done in the Midwest. Ope r at o r : Your next question is from David Mann with Johnson Rice. David Mann (Analyst - Johnson Rice): In terms of the comment you made about the ladies issue being included in guidance, I guess I see that your full-year guidance seemed to have gone up equal to the amount of the beat in the first quarter. So where in the guidance for the rest of the year would we see changes in assumptions for this ladies issue, and what else might have what you've changed to offset any impact from that? Mic hae l Har t s ho r n (Vice President & C EO ): So David, what I think we're saying is we expect to achieve our original guidance despite the ladies issue… (Multiple Speakers) …that's what happens for the full year, we raised our full year guidance by the penny and a quarter. David Mann (Analyst - Johnson Rice): I'm curious where in -- what would be some of the factors that might give you the confidence that you would be able off-set that? Unide nt if ie d Par t ic ipant : We were able to in the first quarter. In the first quarter we hit the high-end of our comp guidance at 2%, despite the issues that Barbara's described on the ladies side, partly because there were other businesses that did very well. So you play that out over the year, we feel good about our original guidance. David Mann (Analyst - Johnson Rice): Very good. Then one other question on the wages issue. Do you have any initial thoughts on the © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

potential impact on over -- this [said] new overtime regulation, how it might affect your business? Mic hae l Har t s ho r n (Vice President & C EO ): We've looked at it and any impact at all would be non-material and we're comfortable with our guidance as we go forward. David Mann (Analyst - Johnson Rice): Very good. Thank you. Ope r at o r : Randy Koenig with Jeffries. Randy Ko e nig (Analyst - Jeffries): Hey, quick question. Just want to clarify, when you made the comment the issues are embedded in the guidance, what does that mean exactly for the ladies apparel? Does that means that it assumes it states at the same trend it was the first quarter or even assume incremental [degregation] in the category? Just can we get some color there? And then just a little bit more around the execution side comments, can we just get a little bit more clarity what you exactly meaning part of the execution was it, some sort of systems issue, you just bought the wrong things, got in the wrong stores at the wrong time, just a little more meat on the bone of what the actual issue is, thanks. Mic hae l Har t s ho r n (Vice President & C EO ): (Randy), on the guidance, just to repeat what Barbara said earlier, the issues are going to take some time to fix and we're focus on as an organization to try to get that done quickly. Despite that, like in the first quarter, we obviously missed some opportunities, thought we could've done better, thought we've could've beat our original guidance. The guidance going forward is unchanged and we hope we can do better. Bar bar a Re nt le r (C EO ): In terms of the execution issues in ladies, really it's a mix issue. We just bought wrong product, in fabrications, in colors. We just didn't transition into spring product appropriately. Randy Ko e nig (Analyst - Jeffries): O kay and then your outlook for merchandise margin already accounts for potential -- the issues around this category, so everything you feel for the second quarter guidance -- you're properly accounting for the issue to be -- this ladies apparel issue to stay confined, is that correct? Mic hae l Har t s ho r n (Vice President & C EO ): That's correct… (Multiple Speakers) Randy Ko e nig (Analyst - Jeffries): Just lastly, how should we be thinking about some of the items that we're seeing out there in the marketplace around different geographic performance? O ne of your competitor had I guess more strength in traffic trends versus your talked more about the © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

baskets size driving the comp. What do you think a little bit of a difference in the disparity in traffic trends you might've seen versus others? Bar bar a Re nt le r (C EO ): I think as I said before, I believe that when our assortments in ladies apparel are up to the standards a customer comes to expect, that probably makes us a less compelling place to shop and that would effect our traffic trend. Unide nt if ie d Par t ic ipant : I'd also - there are some other factors. We're up against very strong prior year comparisons, which I think you always have to look at when you're comparing our performance with other retailers. Then you also factor in the point Barbara's been making about the ladies business being a pretty important business and a pretty key driver of traffic. You take those two things together, I think that explains why our traffic had tailed off a little bit in the first quarter. Randy Ko e nig (Analyst - Jeffries): Are you able to see that potentially in tracking let's say customer visits per quarter, where you're saying if the customers filling up in the store month of one of the quarter. She loves what she sees, she's probably be back a month later or something -- you saw visits per store, per person, per quarter, in the quarter decelerate? The same person, did you see that? Were you able to see there or track credit card data to look at that? Unide nt if ie d Par t ic ipant : No, we can't -- our business doesn't lend itself do that kind of -- it would be quite interesting but our business doesn't lend itself to that kind of scientific approach. When we [meta] traffic, just to be clear, we're measuring number of transactions. We're not looking at actual visits. We don't the capability to track actual visits, we're looking at number of transactions and use that as a proxy for traffic, but it's an imperfect proxy. Randy Ko e nig (Analyst - Jeffries): Got you. No, I understand. Thanks for your help. (Appreciated. Ope r at o r : There are no further questions at this time, I will turn the call back over to Barbara Rentler for closing comments. Bar bar a Re nt le r (C EO ): Thank you for joining us today and your interest in Ross Stores . Have a great day. Ope r at o r : This concludes today's conference call. You may now disconnect. All rights reserved (c) 2014 TheStreet, Inc. Please feel free to quote up to 200 words per transcript. Any quote should be accompanied by "Provided © 2014 TheStr eet, I nc. Al l R i ghts R eser ved

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C ompany Name: Ro s s St o r e s Inc C ompany Ticker: ROST Sector: Se r vic e s Industry: Re t ail

Event Description: Q1 20 16 Ear nings Call Market C ap as of Event Date: 21.79B Price as of Event Date: 55.52

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