Q3 2020 Ross Stores Inc Earnings Call

[music].

Good afternoon.

Welcome to the Ross stores third quarter fiscal year 2020 earnings release conference call the.

I'll begin with prepared comments by management, followed by a question and answer session.

The ask the question during the session you will need to press star one on your telephone you for.

For we get started on behalf of Ross stores I would like to note that the comments made on this call may contain forward looking statements regarding expectations about future operations and financial results and other matters. The there based on the company is current forecast 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 those Stephens, Inc. From historical performance or current expectations.

Additional information about risk really that's really the risk factors is included in today's press release, maybe on the company's fiscal 2019 form 10-K, and fiscal 2020 form 10, Qs and eight Ks on file with the SEC.

Now I'd like to turn call over to Barbara Rentler, Chief Executive Officer.

Good afternoon joining.

Joining me on our call today for Michael hard trend for President and Chief Operating Officer, Travis Marquette Group Senior Vice President and Chief Financial Officer, Ekati cash group, Vice President Investor Relations well.

We'll begin our call today with the review of our third quarter and year to date performance. Afterwards, we'll be happy to respond to any questions you may have.

The vast majority of our stores were operating throughout the third quarter.

That said given the worsening of pandemic, we will remain vigilant in monitoring local developments to access any potential changes that might be necessary to our operations.

Based on local state or other government directive.

The we'll continue to make the health and well being of our associates and customers a top priority.

Turning now to of financial results.

Total sales for the third quarter declined 2% to $3.8 billion with comparable store sales down 3%.

Sales improved substantially compared to the second quarter following a slower start in August.

This acceleration was driven by several factors Inc.

Clothing and improvement of our merchandise assortments.

The later back to school season.

For underperformance in our larger markets and our return to more normal store hours.

In October of the company refinanced $775 million in senior notes to significantly reduced the annual interest expense and total cash outlays over the life of the debt.

This action resulted in a onetime charge of $240 million or 65 cents per share impact on net earnings in the third quarter of fiscal 2020.

Including the impact for the.

13 weeks ended October 31st 2020, net income was $131 million for 37 cents per share compared to $371 million for a dollar three for share for the same period last year.

Year to date the loss per share of was 43 cents on a net loss of $153 million.

Also including the aforementioned onetime charge.

This compares to net income of 1.2 billion for $3 of 32 cents per share for the same period in 2019.

Sales for the first nine months of 2020 for $8.3 billion versus 11.6 billion of last year.

[noise] [noise] third quarter operating margin of 4.4% was down from 12.4% last year and was negatively impacted by the onetime debt refinancing charge.

Which was equivalent to 640 basis points.

In addition, the year over year margin decline reflects higher Cobra related operating costs and 2020.

And the de leveraging effect on expenses throughout the business from the decline in the same store sales.

At quarter end total consolidated inventories were down 25% from the prior year with average store inventories down 8%.

During the period, we continued to make progress on the distribution capabilities to support peak sales during the holiday selling season.

Packaway levels at quarter end were 26% of the total compared to last year of 39%.

For the third quarter, the strongest merchandise areas at Ross was home, while the Midwest and the South East, where the best performing geographic regions.

Similar to Ross D. These discounts for form it's accelerated during the quarter as their value offering also resonated well with customers.

Overall, our proof core business results demonstrates consumers continued focus on value and our ongoing the ability to deliver the bargains our customers come to expect from us.

Turning to store growth as expected, we opened 30, Ross and 90 day discount locations in the third quarter completing our expansion program for 2020.

After the plant closing of about 10 existing stores in the fourth quarter, we anticipate ending the year with 1500 85, Ross and 270 for de discount locations for a net increase of 50 for for fiscal 2020.

Now Travis will provide further color on third quarter results.

Thank you Barbara and flow.

The noden comparable store sales decreased 3% versus last year.

This decline was driven by a lower number of transaction that was partially offset by a larger average basket size.

Again as mentioned earlier operating margin for the quarter was 4.4% down from 12.4 for thought last year.

Cost of goods sold increased 35 basis points in the period [noise].

Merchandise margin grew by 190 basis points, driven by the favorable buying environment and lower inventory shortage.

For more than offset by free call that rose 90 basis points on higher distribution expenses of 70 basis points.

In addition, buying and occupancy de Levered by 40, and 25 basis points. That's the most.

Selling and general administrative expenses increased the 765 basis points, which includes the previously mentioned the <unk> 40 basis point impact from the ones on debt refinancing charge. In addition to the de leveraging effect from the decline in same store sales and higher corporate related operating costs of 20 point.

Total net corporate related expenses for the quarter were approximately $25 million with a slightly higher impact the cost of goods sold then of the unit.

We expect net corporate related costs to be significantly higher in Q4 relative to Q3.

These increases primarily relates to manage the impact of industry wide capacity constraints, the congestion as well as ways and then set of actions in our supply chain and store.

Turning to our balance sheet. In addition to the refinancing of a portion of our senior notes during the third quarter. We also took several actions to reduce our ongoing the costs, including the repayment of the $800 million revolving credit facility and terminating the undrawn part of the million dollar revolver.

Overall, we remain on a strong financial position ending the quarter with over $5.2 billion of liquidity, which include the unrestricted cash balance of about 4.4 billion and the $800 million revolver that remains available.

As mentioned on our personally entering the fourth quarter or month for the comparable store sales on the number are down mid single digits.

In addition, the remain the high level of uncertainty related to the worsening of friends the yeah.

We're concerned with how the approved of the pandemic might impact of consumer demand during what we expect to be highly competitive holiday shopping season.

Given the lack of visibility we have concerning these are sort of risk and how they may evolve of impact of business. We will continue to manage for operations conservatively in the will not be providing specific sales of rooms for share guidance for the fourth quarter.

Now I will turn the call back the bulk of the closing of them.

Thank you Travis.

As we look ahead for the holiday season, we expect a highly competitive retail environment in a difficult economic and political atmosphere both.

Both of which are complicated bar or lack of visibility surrounding the worsening pandemic.

Despite these near term challenges I want to emphasize that we have a talented and seasoned management team that we believe will enable us to effectively navigate through any short term headwind.

Over the longer term, we remain well positioned in the off price sector to gain market share as we believe consumers will continue to favour retail is focused on delivering value and convenience both.

Both of which we have and will continue to provide to our customers at this point, we'd like to open up the call on respond to any questions you might have.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key.

In order to allow everyone time for questions. We ask that you. Please limit yourselves to one question.

The standby, what we compile the QD roster.

Your first question comes from the line of Matthew Boss from JP Morgan. Please go ahead.

Great. Thanks, again, and congrats on the improvement.

So Barbara could you help bridge improvement from negative mid teens to start August and more or less flat comps for the remainder of the quarter I think would be the math for you.

Happy with your inventory assortment today on the availability that you see out there, but close out product and then larger picture to touch on your comments just given the stability. The your model is showing in the midst of depends on mix. How do you see opportunity for the off price model post and on that as it relates to market share.

Sure first in terms of of our inventory assortment of.

I think as the quarter went on the merchant said of fine job of actually chasing chasing the.

Goods in the market and shifting the assortments into the classifications that the customer is desiring which is more home and things that are casual activewear.

In terms of availability in the market, we're seeing availability.

Pretty broad based.

It must classifications and there's there's plenty of supply so we're not as worried about the supply.

And in terms of the stability of the model for off price as we go forward what I think.

When we get to the other side post pandemic, there's a customer who really likes shopping in stores, who enjoys the off price model because it was the treasure hunt and the excitement that I'll call. It the fun and also for retail stores that really focus on value and convenience and that's really all of those metrics of what the Ross model.

Yes.

Matt It's Mike alerts and also added with the extraordinary large number of the current and future retail closures. It does mean, she has fewer places the shop and we think that the off price in general and Ross and DD, specifically are well positioned to gain market share post kind on the.

Perfect and then just to follow up on the gross margin could you just walk through any puts and takes for us to consider in the fourth quarter gross margin anything preventing the underlying the merchandise margin expansion.

Sure. This is for US we're not providing specific guidance for the fourth quarter, but a couple of comments on merchandise margin. We mentioned merch margin was up 190 basis points driven by the favorable buying environment. You know, we think there's a that can continue for a little bit over the longer term.

Remains the same.

How long the last but we think that will continue.

We also mentioned the shrink benefit which was about one third of the gain that we saw during the quarter. That's others. The specific to Q3 and would not repeat in Q4.

Just a little color on the the benefit was due to the significant markdowns that we took earlier this year, which reduced the value of the items that we recognized in true during the quarter of it.

If you exclude the markdowns the the impact on unit for it was relatively flat.

Great that's the once again.

Your next question comes from the line of Mark Altschwager from Baird. Please go ahead.

Great. Good afternoon. Thanks for taking my question on just burst on.

On it on inventory I, just a follow up there you know pack and hold remains fairly low relative to where its been historically is wondering if you could speak to that and how you see that evolving on here as you move forward and then just given the the current buying environment, which sounds like it's pretty favorable I'm. Just wondering if you could speak to your level of confidence in.

Being able to generate you know merchandise margin as we move into the spring of next year. Thank you.

On the Packaway levels similar to the last quarter, we use packaway.

The Chase ahead of plan sales as the sales the the acceleration of the quarter was well ahead of our internal plans overall availability is is plentiful and we expect packaway the continue to build the historical levels.

And then in terms of the current buying environments.

And and margin I think what we'll see is that over time.

That the the margin part of it will not be quite as favorable as it is today because the buying environment in the Q3.

It was really favorable so we expect over time that it would.

More normalized.

Thank you.

Your next question comes from the line of keep it sounds from RBC. Please go ahead.

Yes, hi, thanks, very much for taking my question I guess, you know last quarter, you guys had called out underperformance in California, Texas, Florida, and Arizona can you just give us an update on the how some of those lagging markets were faring in the third quarter and then just in terms of the negative mid single digit quarter to date you know.

Is there any region that is you know we deem the decline that would be helpful. Just the frame up the the regional complexion. Thank you.

But at the the.

At the time of our Q2 call in early August we had begun to see some stabilize the stabilization.

In the <unk> in those markets in our in our larger markets in California, Florida, Texas, and Arizona, but tourist in border locations continue to signaling significantly underperform the.

The rest of the chain for the quarter, California performed above the chain average.

Well, the Florida, and Texas continue to be impacted by their higher concentration of border in tourist locations.

And then on the a monthly day trend, we wouldn't get into the details of the is recorded trends of the other than say the you know the current trend has done the single digits.

Great. Thanks very much.

Your next question comes from the line of Paul the swing from Citi. Please go ahead.

Hey, Thanks, guys for come true.

In terms of there's anything within your supply chain, that's not functioning as you would hope at this point, whether it be your ability to buy the items you want to buy for getting the products. The DC right out of the store is there anything that you don't you're not happy with for anything because there's room to improve and the.

The fourth quarter and beyond.

Then bigger picture truth. The the current situation makes you think any different about growth and do you do you sort of in the next few years either of faster or slower.

Well on the supply chain, if you recall at the end of the second quarter of.

We had some staffing challenges, but we took a number of wage both wage and incentive actions in Q3 and actually feel really good about our staffing levels as we move into Q for throughput has improved and we also feel good about our receipt flow to the stores. If there's one thing I would say about the supply chain is.

The there has been and continues to be port congestion like you've seen across retail that is the.

Causing product delays in certain areas, but with our flexible business model. Our overall inventory levels are positioned in line with their plans coming into the quarter of that congestion not only on the ports, but across the transportation modes means that we are seeing cost pressures due to the higher rates to move free across the.

U.S.

On DDS growth.

I think it's too early to talk about the these growth will be in a better position.

The do that on our year end conference call on March.

Thanks, Michael on just just one follow up any of them quantification of the number of new vendors that Youve added this year and where do you stand now in terms of total vendor count.

Well in during the course of the year we've added.

Hundreds of vendors, a pretty broad based across all areas and turns or a total of vendor accounts at this moment.

I don't know if I can answer that exact number at this moment.

In our annual report we had.

I think it was 75 million yeah little over it we're a little over 8000 no.

Paul So it's about of.

But a 5% increase that we've seen since some of it.

Got it. Thank you guys. Good luck.

Your next question comes from the line of Kimberly Greenberger from Morgan Stanley. Please go ahead.

Great. Thank you so much the on the inventory levels still looks obviously very very lean.

But I it sounds like you are quite happy with the inventory the he's got I'm wondering if you can help us understand what you have packed away for spring and summer that you could bring out in early 2021 to help kick off that that season is it similar to what you would have had less.

Last year or is it is the leaner just thinking about the first half of the year next year.

And you talked about some.

Port delays on some some challenges that vendors have relayed to you I think a.

Just moving goods does that you know in any way create opportunities for Ross or on the other hand are you experiencing some delivery delays to your stores that could be a slightly holding back sales trends.

On Wednesday, or your second question first and then turn.

Turning to the Barbara on on Packaway, you know historically anytime there's disruptions like these it has always created supply opportunities for off price and I don't think this would be any different issues with the port delays there will be missed the holiday dates and we'd expect there to be.

And inventory opportunities for.

For us is there could be some risk of in the fourth quarter, but again with our we have a lot of flexibility to move goods in the now you know we have to make sure. Obviously, we have the right assortments of for the customer but.

Oh coming into the quarter, we feel good about the inventory levels.

And in terms of sprinkler free weights Kimberly.

Well the I think it's it's similar to every year you know it moves based on what you find in the market and I don't think it's consistent year to year I would say overall that it it's slightly less than what we had the year before because the flow with a lot of good into into the third quarter.

That's pretty much where we are today and then in terms of the port and disruptions at the Port you would think you know disruption for us equal supply.

So what goes on in the first quarter, depending on how long. The ports are are jammed up we may wind up even getting some spring supply earlier, we'll have we'll have to wait and see what happens.

Great. Thank you Barbara and then just given the the really materially improved financial position of the business on wondering how you're thinking about the dividend and when you would expect to re evaluate potentially reinstating the dividend.

Kimberly of our near term focus is is continues to be preserving liquidity, especially.

Given the current upsurge in the virus and potential for impact of the additional government restrictions could have on consumer demand during the holidays. So we'll wait and see Oh holiday pans out, but based on that it's too early to comment on future payouts of we'd expect to have.

Commentary on our or you're in the earnings conference.

Great. Thank you so much.

[noise] and as a reminder to ask the question Press Star one energy.

In order to a lot of everyone time for questions. We ask that you. Please limit yourselves to one question for.

Your next question comes from the line of like for her show from Wells Fargo. Please go ahead.

Oh, Hey, how are you guys doing Travis just for you on the on the extra day side could you possibly quantify.

The cobot costs that you guys are incurring right now and the if there's anything any color you can add on the on what you mean, when you say you shouldn't the call should accelerate them for Q4, and then just big picture on the topic should be consider those to be one time, assuming you don't there is of vaccine of life goes back to normal by the time you start lapping these results come next year.

Thank you.

Yeah sure I think as we mentioned the cost for the third quarter, the sort of net cobi cost is that we've been talking about it for about $25 million that of some pluses and then some savings the minuses the get to that number.

In terms of the fourth quarter again, we expect inc. The of the costs to be significantly higher in Q4, I'm really related to a couple of things within stores on we expect higher cost related to ongoing investments for personal protective equipment and other payroll on incentive action and then on the supply chain again, we're forecasting higher.

I'll do the kovar, who bid related labor actions as well as cost the respond to the industry wide supply chain capacity constraints.

On your question around Ur Cobot and are they one time generally speaking yeah, we would expect the that as the pandemic.

And the these costs would start to fade out of the business.

Sure. Thank you.

Your next question comes from the line of Michael Binetti from Credit Suisse. Please go ahead.

Hey, guys great quarter, Thanks for taking the question on.

On the real estate outlook as you look at 2021, you know it should we think the that's the like a normal year 90 stores per year Lucky you were doing roughly for coal.

Total bid or is it because there's some catch up next year or is the is it a slower year, you kind of restart operations I'm.

Just trying to think of isn't above or below normal year.

Sure you know at this point, it's it's too early to say what our plans are for next year, but we'll be in a position to discuss in March at our year end conference call.

Okay, and then I guess.

For that is there any consideration about you know the northeast has been the out there as the market that you guys haven't been in for a while I know some good thinking has been you know on the value we off for the are you ours like what can they support the rents that are a little bit higher in that market. It is this the more attractive time for you to look at that market.

Yeah, I mean, I I think we're going to see opportunities across the U.S., including the most especially on the existing markets that we're in a and also in our newer more markets of the you know certainly over the next couple of years that will continue to the our priority at some point, we'll get the north.

And Michael you won't get we'd had a bunch of brands that of you know.

Commented on pulling back from off price as much as possible I'm not sure that they stuck to the discipline under non they seem to be.

Net of a renewed focus but as you look at that and they're all the.

I've been going on in the think about packaway versus the ones. Some close out do you think a little differently about how you want the mix of that to look going forward than the pass through revenue and anything structural that you're looking at on that might be a little bit different going forward. The we should think about.

Well actually let's let's talk about friends first you know branch strategy of fluctuate.

You know from year to year, so yeah different brands of doing different things. The yes. The world keeps evolving in terms of Packaway versus close out. The first is flowing upfront all of the mixes of it.

Really we don't see a major material change on our main thing is that what we want to deliver are really being able to live of the best branded bargains possible to the customer.

And so that kind of for a different buying strategies and we don't really see that mix as of today changing that much.

Okay. Thanks.

Your next question comes from the line of genes to true from Jefferies. Please go ahead.

Hi, Thanks for taking my question, one to ask a little bit about the complexion of the comp it seems like the improvement in Threeq versus Twoq. He was mostly traffic driven but I'm curious if you're seeing anything change in terms of either basket on conversion. Thank you.

Oh, Yeah sure I'm sure you're correct. The the biggest change from Q2, the Q3 was on the.

The traffic number of transaction side for us on.

There was not a.

Yeah that was the biggest driver.

So none of it and that is not as many of you can take that.

Yeah.

Okay. Thank you and then the just follow up I apologize if I missed it but I think on the last call you talked about overall inventory availability being very strong, but there being some gaps in the assortment on some of the the hotter categories are you still seeing that or do you feel like on the category basis on the availability is where you'd like it to be.

I think there's some small inconsistency of now not the way it what the before you know I think it's it's more broad based though but the yeah, it's sort of categories, but in every day.

Every season, there are some in certain categories. So.

Okay. Thank you very much.

Your next question comes from the line of Paul Trussell from Deutsche Bank. Please go ahead.

[noise] of good afternoon and of good quarter of.

Just be looking for on maybe just overall comments on the balance sheet and where we stand today of.

The comments, maybe on the on debt position of potential timetables are oh, and thought process or on dividends and return of the buyback.

And then separately you know I'm just curious if you had any gauge or gas just on what percentage of your core customers have returned to shop.

In the stores over the past few months.

Yeah, I'll start with the balance sheet again, we feel very good with our financial position as I mentioned on the ER and the comments for point 4 billion of of unrestricted cash of about 5.2 billion in liquidity. So we feel very good about that.

You know we talked about the debt actions that we took on during the quarter, we refinance the portion of our senior notes the significantly reduced the overall long term cost of that.

We feel good about that I think as we talked about a little bit earlier on the call in terms of go forward and dividends and.

Buybacks and whatnot, but again, our current focus remains on on preservation of of cash and liquidity. There's just a tremendous amount of uncertainty regarding the virus and how that will progress yeah.

And.

[noise] the Paul on the on on the consumer HM, We obviously speak to our customer.

The often true through survey work.

I would say at this point, we don't have a comprehensive information to share at this time, but we know that she continues to prioritize the value when deciding where to shop.

And given as I mentioned earlier, the the large number of retail closures. The mean she has fewer places.

The shop, now and Thats benefited us.

Thank you best of luck.

Your next question comes from the line of Lorraine Hutchinson from Bank of America. Please go ahead.

Thanks, Good afternoon on.

Hi, once where the post vaccine environment many of the corporate costs will fall off but is there any reason why some of the game of you've seen in merchandise margins wouldn't necessarily follow on <unk> I guess, what I'm asking is the couldn't margins over the long term exceed your prior peaks coming out of the.

Oh pardon the right I think.

A big piece of the the margin that we're seeing in the off price sector right now the way the availability of good and the chase back into Q3, I think over time as as.

Apply levels.

And vendors are more.

Proactive I think in managing through different sectors of inventory in stores I think it's I think the supply will become more normalized and I think with that the margins will become the.

I'm, not saying they couldn't be better than than they were historically, but I think versus where they stand today I guess I just don't see that whole thing.

Thanks.

Your next question comes from the line of Marni Shapiro from retail tracker. Please go ahead.

Hey, guys, Congrats and best of luck for holiday case, I forgot to add the at the end.

Travis I just wanted to clarify on one thing you said about shrink I think you said that the value was down but that was due to the fact that.

What I guess went missing was already marked down.

So if you can clarify the and then Barbara I'm just curious at a high level are you seeing sales also very strong I think you called out home, but other no what people are calling cobiz categories like kids beauty an active.

Yeah sure on on screen you have the about right. So because of the significant markdowns that we took earlier in the year that reduced the the resale value of the items that we reported the strength during the quarter, which give us the benefit the mentioned if you look at it on a sort of unit basis compared to last for the last year. It was relatively simple.

Okay.

And in terms of the classifications marni.

That was the those are the classifications are strong also beauty continues to be strong okay. The strong as well the comp.

Fantastic. Thank.

Thanks, guys.

Your next question comes from the line of Chase for me from Yes. Please go ahead.

Great. Thank you. So much of my question is about in store inventory levels of how.

How did you feel about the in store inventory levels in the corner of.

Did you feel like there was nothing the turn the store to capture all the demand or or could have been opportunities to do even more sales had there been even more inventory of the store.

Hi, Oh.

On on inventory as you know historically, we've managed to or in store inventory levels, very conservatively and and that that's not going to change going forward I'd say, we you know we got a inventory levels of two where we one of them during the quarter were obviously trying to manage the business very can.

Thirdly.

I'm sure there's pockets of of inventory or areas of of the store, where if we had more we could have turned faster, but overall, we were we were pleased with the the inventory levels.

I think the way using the way we should think about it is for the way we think about it is you know because we take.

Chase the sales to above plan.

We drove a lot of fresh receipts into the store. So the customer can kind of every week and see something new and something different and so every business might not have been positioned exactly the way.

I'm not even sure of the way I'd say, we'd want to do because I think the off price customers used for coming into the store on seeing variances in inventory levels on product, but I think the things that helped to drive the the core sales because really the fresh receipts and and the fact that she could come in every week into the treasure on and find something different.

Got it thank you so much.

Your next question comes from the line of Simeon Siegel from BMO capital markets. Please go ahead.

Thanks, Good evening I'm, sorry, if I missed the how was that you are of this quarter and then Barbara do you have a view on the industry wide promotional cadence for holiday and how you see your your opportunity for holiday and into next year. Thanks.

Yeah sure anywhere was down it was down during the quarter.

And the current any thoughts on the.

Yeah, Thanks for that.

Good God.

No just going after about the holiday just how you're viewing or on probably yeah, well, we think it's going to be very promotional holiday season. I mean, it's it's been promotional for a number of years and I don't expect this year to be any different I think the most important thing for us to do is to be able to deliver a really compelling bargains to the customer and if we.

Do that what we'll do fine in terms of the day you are yeah the war.

Moving a lot with the deals that you get based on the values you put on the floor and we are highly focused on value and because that's what the customer focused on and also the you are also can move around within the total box based on the businesses that you're driving.

So in terms of aspect of forward, we're going to buy in to drive into the business is that the customer is responding to and the war will will move with that.

Great. Thanks, a lot best of luck for holiday.

Your next question comes from the line of losses Champagne for loop capital. Please go ahead.

Thanks for taking my question when you were contemplating your inventory plan for this holiday period, how were you thinking about the potential for store closures capacity limitations and how quickly can you adjust assuming there are adjustments needed given the the.

Congestion do you think that you run the risk of missing out on sales because inventories of just to light.

Yeah, I mean, the way we approach the holiday season is very cautiously you know it, especially with the recent upsurge in restrictions of.

We're going to balance sales with managing the business managing our liquidity and managing inventory. So there is the chance that we could miss the sales, but we're going to take a very cautious approach and make sure we're positioned well the react or what's the what's in front of the.

Understood. Thank you.

Your next question comes from the line of Bob Drbul from Guggenheim. Please go ahead.

Hi, Good afternoon, I'm, just a couple of quick questions. Tom on the home category you may begin the call. It out of strong I'm. Just wondering if you can maybe give us the more color in terms of you really what you're seeing in the home and maybe even inventory availability around the home and also separately just.

Wage rates I think you talked about higher wages and some of the staffing levels throughout the supply chain. Just generally the you know in terms of what you're seeing overall throughout the the staff.

The staff would be very helpful. In the stores, thanks very much.

In terms of the home business.

The the business is healthy across all classifications I think that's the customer is home and there you know on.

Going to work on the working from home I think every every classification.

It's good I mean, maybe with the exception of probably probably the weakest business would be travelers it would make sense because people aren't really traveling but it's very broad based in terms of availability part of the home businesses is.

Direct import business so.

So some lead times have gotten longer in some of those businesses for future.

And then for shorter term, we did the merchants did a very good job of getting Closeouts on Closeouts on the third quarter, which we were pleased with.

But that business. It is really of is really much.

The much more of the upfront business and its lead for the route.

On on wages of where we're seeing the most market pressure as I mentioned is in our distribution centers and supply chains in the supply chain and as I mentioned, we we did make base wage increases we also have Ur cobot incentives.

For the for the D.C. associates and in in stores are both stores and Dcs. We're we're very happy with our staffing levels are and have been able to staff up for holiday Inn in both or is great.

Great. Thank you.

Your next question comes from the line of Alexandra Wallace of Goldman Sachs. Please go ahead.

Good evening. Thanks, so much for taking my question I had a question also on top of degree you know you mentioned the opponents of high of an active and you know on the performance elsewhere as you move through the quota on you saw the improvement in the comp the dot improvement come from incremental strength on the strong Kathy.

Agreed on a little bit of recovery in some of those we can tap degrees.

And then second question is any thoughts on the freight costs.

The next year.

Oh in terms of the company and the trending businesses as the quarter went on those businesses got stronger as we.

Chased after them more aggressively when we sort of the customers trend.

And so those those businesses, obviously Beth home was our best performing business. So those businesses helped to drive the comp forward.

I'm on the transportation in free charges, obviously, the the significant the both the import and domestic congestion is driving up the free cost now we're paying surcharges the make sure we can get free through.

The supply chain and onto the stores HM our expectation would be that that would continue likely through the first quarter or because of the because the that's the expectation for for port congestion or.

We'll have more to say on the full year impact in our yearend conference.

Great. Thank you for much.

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Your next question comes from the line of cheating here I'm from Bernstein. Please go ahead.

Thanks, very much on cash to update us on where home is now at the percentage of the mix and whether you see on even when net on that as the category you know could it get the you know 40% of sales. The it's on planar or you know what do you need on its too big.

And then in terms of the star cleaning I appreciate it's too early to say what your plan is for 2021, but can you remind US you know how you thought historically about what youre sort of capacity constraint is around opening new stores, you know faster income.

Sure in terms of in terms of home the home business escalate in the fourth quarter and get much closer to 30% or 31% market. It's traditionally around 25, 26% for us.

On it comes up as we go forward our expectation is that business will continue to grow at a at a faster rate.

Then then the rest of the company the company because that's what the customer is after and also there's a lot of businesses on home that you can that you can you know price.

Could you repeat your question on the on the store growth.

Sure. So you know historically when you've talked about you know how you think about the pace of store openings you you've talked about on you know wanting to have management attention around you know number of stores. They're open. He can you just remind us what the sort of capacity constraints are at the business in terms of you know ability to accelerate.

Great store openings to the extent that there are more opportunities than you know 2021 or 2022.

Yeah, I would you know for us the.

Our historical level of store openings is around the 100 per year.

You know typically 80 per cent Ross the 20% the Dts that's the level that we're comfortable with we like our ability to execute at that level. Both in getting the right side and also open or the the stores successfully of from a store operation standpoint.

So I'd say, that's the level that we're comfortable with.

Thank you.

Your next question comes from the line of Dana Telsey from Telsey Advisory Group. Please go ahead.

Hello.

Hello.

Yeah. The tells the airlines open.

Hi wanted to get some color on how you're thinking about occupancy cost on the ability given lease renegotiations the leverage those costs is that an s. DNA.

Tailwind for you going into 2021 and are you at all thinking about any adjustments in store size or or.

The the structure of the store in 2021 of the on for Ross for duties and how you're seeing the real estate landscape. Thank you.

Sure Dana you know I think it's too early to.

Two of predict what's going to happen in the in terms of occupancy cost. The just the you know the occupancy for US is in cost the cost of goods sold not in the US you name on but I think it's it's too early to Ah.

ER to predict what what's gonna happen, obviously with the store closures, there's going to be we think there's going to be plenty of opportunities. So I think it's too early to call. It the school.

Got it.

And just when you when you're thinking about the buying for next year and planning for Easter or are the other holidays going forward, how do you see the overall chain.

Change in inventory levels compared to what you have now.

Are you seeing differences in vendor Assortments are you seeing differences in terms of what you'll be able to get your hands on for goods in the first half of 2021.

Oh sure so buying for Easter, obviously, Q1 is normally a tough quarter and with the unknown of what will happen with the virus in the pandemic Ivan invasion of having very conservative planning Q1, particularly.

Inventory since we don't know really you know how things will be playing out buying.

Buying for Easter I think that you know Easter.

If people if people really can't go out and celebrate holidays still at that point I think Easter well, we'll not be quite as big as it normally historically has been so that whole first quarter period I think it's just a conservative period that we'll have to see how big we want that to be.

In terms of vendor assortments.

Yeah look we have a very large merchant team, we haven't really very strong relationships in the market. We've tried to be very good partners. During this you know during this period of time and I see the Assortments for 2021 being.

No.

Pretty balanced in terms of in terms of a good better best and and the brands that we have on they'll always be in the vendor assortment. There will always be certain things you don't have the only be certain times, you don't have it and all of that but I don't see any major shift.

And the brands and the values that we can offer the customer.

Thank you.

Your next question comes from the line of Chuck Grom from Gordon Haskett. Please go ahead.

Okay. Thanks, Great credit recovery on the business for a quick on for me just for you spoke for the longer or more hours of operation was one of the well the drivers of the sales recovery of as the quarter progressed curious if you're back the normal hours at this point of time or if that's still a potential tailwind to come. Thanks.

Sure.

Yeah during the third quarter, we returned to normal operating hours of going into the holiday season. We we historically have extended them further we plan to do the same this holiday season, we're allowed to do so.

Your last question comes from the line of Roxanne Meyer from MKM Partners. Please go ahead.

Great. Thanks for taking my question and congrats on the improvement you saw current building.

Building off of that I wanted to see you know how good do you feel about your ability you know the process traffic you do get you know assuming the pandemic doesn't disrupt that you know I imagine that you're putting.

Incremental safeguards in your stores the logistics to move people through the store, but how should we think about you know the overall capacity in that you're able to you know to get the process people through that want to get in your store.

Yeah. It's a good question Ross and I'd say, you know store capacity limits are changing on the daily basis is very dynamic based on a local restrictions or you know like the 25% of occupancy is is pretty common but we feel good.

About the changes we made were going on we're certainly going to invest in front of your front end cashiering to make sure we move people through the lines, but there is peak or peak days in peak hours. During the day days, where we expect to have lines and we'll do our best of.

Moving people through.

That's mainly in high volume stores and again on peak days, but.

We feel good about the strategies, we put in place during the holidays.

Great Thanks, and best of luck.

I will turn the call back over to Barbara Rentler for closing remarks.

Thank you for joining us today and for your interest the Ross stores, we wish all of you on your family the happy healthy and safe holiday season.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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Good afternoon.

Welcome to the Ross stores third quarter fiscal year 2020 earnings release conference call the.

I'll begin with prepared comments by management, followed by a question and answer session.

Ask the question during the session you'll need to press star one on your telephone you for.

Or we get started on behalf of Ross stores I would like to note that the comments made on this call may contain forward looking statements regarding expectations about future operations and financial results the other.

The matters that are based on the company is current forecast of aspects of the teacher business.

These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the state and from historical performance or current expectations.

Additional information about risk we like the related risk factors is included in today's press release, maybe of the company's fiscal 2000, <unk> form 10-K, and in fiscal 2020 form 10, Qs and eight Ks on file with the FCC.

Now I'd like the turn call over to Barbara Rentler, Chief Executive Officer.

Good afternoon joining.

Joining me on our call today on Michael <unk> Group, President and Chief Operating Officer, Travis Marquette groups, Senior Vice President and Chief Financial Officer, Ekati cash group, Vice President Investor Relations well.

Well begin our call today with the review of our third quarter and year to date performance. Afterwards, we'll be happy to respond to any questions you may have.

The vast majority of our stores are operating throughout the third quarter.

That said given the worsen the pandemic, we will remain vigilant in monitoring local development two assets any potential changes that might be necessary to our operations.

Based on local stage or other government directive.

The will continue to make the health and well being of our associates and customers a top priority.

Turning now to of financial result.

Total sales for the third quarter declined 2% to $3.8 billion with comparable store sales down 3%.

Sales improved substantially compared to the second quarter following a slower start in August.

This acceleration was driven by several factors.

Flooding and improvement of our merchandise assortments.

The later back to school season.

For underperformance in our larger markets and our return to more normal store hours.

In October of the company refinance the $775 million in senior note to significantly reduced the annual interest expense and total cash outlays over the life of the debt.

This action resulted in a onetime charge of $240 million for 65 cents per share impact on net earnings in the third quarter of fiscal 2020.

Including the impact of the.

13 weeks ended October 31, 2020, net income was $131 million for 37 cents per share compared to $371 million for a dollar three per share for the same period last year.

Year to date the loss per share of was 43 cents on a net loss of $153 million.

Also including the aforementioned onetime charge.

This compares to net income of 1.2 billion for $3 of 32 cents per share for the same period in 2019.

Sales for the first nine months of 2020 for $8.3 billion versus 11.6 billion last year.

[noise] third quarter operating margin of 4.4% was down from 12.4% last year and was negatively impacted by the one time debt refinancing charge.

Which was equivalent to 640 basis points.

In addition, the year over year margin decline reflects higher covered the related operating costs in 2020.

And the de leveraging effect on expenses throughout the business from the decline in the same store sales.

At quarter end total consolidated inventories were down 25% from the prior year with average store inventories down 8%.

During the period, we continued to make progress on our distribution capabilities to support peak sales during the holiday selling season.

Packaway levels at quarter end were 26% of the total compared to last year's 39%.

For the third quarter, the strongest merchandise areas that Ross was how well the Midwest and the southeast for the best performing geographic regions.

Similar to Ross DDS discounts performance accelerated during the quarter as their value offering also resonated well with customers.

Overall, our improved core business result demonstrates consumers continued focus on value and our ongoing the ability to deliver the bargains our customers come to expect from us.

Turning to store growth as expected, we opened 30, Ross and 90 day discount locations in the third quarter completing our expansion program for 2020.

After the plant closing of about 10 existing stores in the fourth quarter, we anticipate ending the year with 1500, 85, Ross and 270 for duties discount locations for a net increase of 50 for for fiscal 2020.

Now Travis will provide further color on third quarter results.

Thank you Barbara.

The note in the comparable store sales decreased 3% versus last year.

The decline was driven by a lower number of transaction that was partially offset by a larger average basket size.

Again as mentioned earlier operating margin for the quarter was 4.4% sales and 12.4% last year.

Cost of goods sold increased 35 basis points in the period.

Merchandise margin grew by 190 basis points, driven by favorable buying environment and lower inventory shortage.

For more than offset by free cost that rose 90 basis points on higher distribution expenses of 70 basis points.

In addition, buying and occupancy de lever by 40, and 25 basis points respectively.

Selling general and administrative expenses increased the 765 basis points, which includes the previously mentioned the good.

40 basis point impact from the once on the debt refinancing charge. In addition for the de leveraging effect from the decline in same store sales and higher corporate related operating costs of 20 point.

Total net corporate related expenses for the quarter were approximately $25 million.

For the slightly higher impact the cost of goods sold then of the unit.

We expect net corporate related costs to be significantly higher on Q4 relative to Q group.

These increases primarily relates to manage the impact of industry wide capacity constraints on congestion as well as ways and then sets of actions and our supply chain and store.

Turning to our balance sheet. In addition to the refinancing of a portion of our senior notes during the third quarter, we all.

As for several actions to reduce our ongoing debt costs.

Including the repayment of the $800 million revolving credit facility and terminating the undrawn on $500 million revolver.

Overall, we remain on a strong financial position ending the quarter with over $5.2 billion on liquidity, which includes an unrestricted cash balance of about $4.4 billion and of the $800 million revolver that remains available.

As mentioned on our press release entering the fourth quarter, our most of the comparable store sales on November are down mid single digits.

In addition, the remains a high level of uncertainty related to the worsening milk prices and we are concerned with how the upper to the the pandemic might impact consumer demand during what we expect to the highly competitive holiday shopping season.

Given the lack of visibility we have concerning the external revenue and how that may evolve of impact our business. We will continue to manage for operations conservatively and will not be providing specific sales of earnings per share guidance for the fourth quarter.

Now I will turn the call back the Barbara for closing comments.

Thank you Travis as.

As we look ahead for the holiday season, we expect the highly competitive retail environment in a difficult economic and political atmosphere.

Both of which are complicated by our lack of visibility surrounding the worsening pandemic.

Despite these near term challenges I want to emphasize that we have a talented and seasoned management team that we believe will enable us to effectively navigate through any short term headwind.

Over the longer term, we remain well positioned in the off price sector to gain market share as we believe consumers will continue to favour retail is focused on delivering value and convenience.

Both of which we have and will continue to provide to our customers at this point, we'd like to open up the call on respond to any questions you might have.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or cash.

In order to allow everyone time for questions. We ask for you. Please limit yourselves to one question.

The standby, what we compile the kuni roster.

Your first question comes from the line of the Matthew Boss from JP Morgan. Please go ahead.

Great. Thanks.

Congrats on the improvement.

So Barbara could you help bridge improvement from negative mid teens to start August and more or less flat comps for the remainder of the quarter I think would be the math are you happy with your inventory assortment today and the availability that you see out there with close out product and then larger picture to touch on your comments just given the.

The ability that your model is showing in the midst of the pandemic, how do you see opportunity for the off price model poets pandemic as it relates to market share.

Sure for.

For us in terms of of our inventory assortment.

I think as the quarter went on the merchant set of fine job of actually chasing chasing the.

Good day, and the market and shifting the assortments into the classifications that the customer is desiring which is more home and things that are casual activewear.

In terms of availability in the market, we're seeing availability.

For the broad based.

It must classifications and there's there's plenty of supply so we're not as worried about the supply.

And in terms of stability of the model for off price as we go forward looking for.

Thank you.

When we get to the other side post pandemic theres, a customer for really likes shopping in stores, who.

So enjoy the off price model because it was the treasure hunt the in the excitement that I'll call. It the fun and also for retail stores that really focus on value and convenience and that's really all of those metrics of what the Ross model does.

Matt It's Michael Larsen also add with the extraordinary large number of the current and future retail closures. It does mean, she has fewer places the shop and we think that the off price in general and Ross and DD, specifically are well positioned to gain market share post kind on that.

Perfect and then just to follow up on gross margin could you just walk through any puts and takes for us to consider in the fourth quarter gross margin anything preventing underlying the merchandise margin expansion.

Sure. This is for US, we're not providing specific guidance for the fourth quarter, but.

Couple of comments on.

For todays margin.

We mentioned merch margin was up 190 basis points, driven by the favorable buying environment.

We think theres.

That can continue for a little bit over the longer term remains of the scene.

How long that the last but we think that will continue.

We also much of the shrink benefit which was about one third of the gain that we saw during the quarter. That's obviously specific to Q3 and would not repeat in Q for just.

Just a little color on that the benefit was due to the significant markdowns that we took earlier this year, which reduced the value of the items that we recognized on shrink during the quarter.

If you exclude the markdowns the the.

Impact on unit strength was relatively flat.

Great that's the once again.

Your next question comes from the line of Mark Altschwager from Baird. Please go ahead.

Great. Good afternoon, Thanks for taking my question.

Just the first.

On the on inventory just to follow up their pack and hold remains fairly low relative to where its been historically is wondering if you could speak to that and how you see that evolving here as you move forward and then just given the the current buying environment, which sounds like it's pretty favorable swing.

Wondering if you could speak to your level of confidence and being able to generate merchandise margins, we move into the spring of next year. Thank you.

On the Packaway levels.

Similar to the last quarter, we use packaway.

The Chase ahead of plan sales as the sales the the acceleration of the quarter was well ahead of our internal plans overall availability is is plentiful on we expect takeaway the continue to build the historical levels.

And then in terms of the current buying environment.

And margin I think what we'll see is that over time.

That the the margin part of it will not be quite as favorable as it is today because the buying environment in the Q3.

Was really favorable so we expect over time that it would.

More normalized.

Thank you.

Your next question comes from the line of Kate Fitzsimmons from RBC. Please go ahead.

Yes, hi, thanks, very much for taking my question I.

I guess last quarter, you guys had called out underperformance in California, Texas, Florida, and Arizona can you just give us an update on the how some of those lagging markets were faring in the third quarter and then just in terms of the negative mid single digit quarter to date. You know is there any region that is leading the decline on that would be.

A couple of the frame up the the regional completion. Thank you.

The.

At the.

At the time of our Q2 call in early August we had begun to see some stabilize the stabilization.

In the in those markets in our in our larger markets in California, Florida, Texas, and Arizona, but tourist in border locations continue to signaling significantly underperform.

The rest of the chain for the quarter, California performed above the chain average well, Florida, and Texas continue to be impacted by their higher concentration of border in tourist locations.

And then on the Montney day trend, we wouldn't get into the details of the inter quarter trends of the other than say the the.

The current trends is done the supervision.

Great. Thanks very much.

Your next question comes from the line of Paul the shrink from Citi. Please go ahead.

Hey, Thanks, guys come on.

During the if there is anything within your supply chain Thats not functioning as you would hope at this point, whether it be your ability to buy the items you want to buy or getting the product of the Dcs on out of the store is there anything that you on.

On you're not happy with for anything because theres room to add.

True of.

In the fourth quarter of the on and then bigger picture curious if the the current situation makes you think any different about growth at TD use over the next few years either faster or slower.

Paul on the supply chain.

If you recall at the end of the second quarter.

We had some staffing challenges, but we took a number of.

Wage both wage and incentive actions in Q3, and actually feel really good about our staffing levels as we move into Q4 throughput.

Throughput has improved and we also feel good about our receipt flow to the stores. If theres one thing I would say about the supply chain is there has been and continues to be port congestion.

Like you've seen across retail.

That is.

Causing product delays in certain areas, but with our flexible business model. Our overall inventory levels are positioned in line with our plans coming into the quarter.

That congestion not only in the port but across transportation modes means that we are seeing cost pressures due to the higher rates to move freight across the U.S.

On DVS of growth.

I think it's too early to talk about these growth will be in a better position.

To do that on our year end conference call on March.

Thanks, Michael on just just one follow up any quantification of the number of new vendors that Youve added this year and where do you stand now in terms of total vendor count.

Well.

During the course of the year we've added.

Hundreds of vendors a pretty broad based across all areas and parents are a total of vendor accounts at this moment.

On the if I can answer that exact number at this moment.

In our annual report we add.

I think it was 75 minutes, yes little over it we're a little over 8000 now.

Paul So it's about.

By the 5% increase that we've seen since covance.

Got it. Thank you guys. Good luck.

Your next question comes from the line of Kimberly Greenberger from Morgan Stanley. Please go ahead.

Great. Thank you so much.

The on the inventory levels still looks obviously very very lean.

I It sounds like you are quite happy with the inventory that you've got.

I'm wondering if you can help us understand what Ah you have packed away for spring and summer that you could bring out in early 2021 to help kick off that that season is it similar to what you would have had last year or is that is it leaner just thinking about.

The first half of the year next year.

And you talked about some.

The port delays on some some challenges the vendors have relayed to you I think Jim.

Just with moving goods does that.

Anyway create opportunities for Ross or on the other hand are you experiencing some delivery delays to your stores that could be slightly holding back sales trends.

I'll answer your second question first and then.

Turn it over to Barbara on on Packaway.

You know historically anytime there's disruptions like these.

As always created supply opportunities for off price and I don't think this will be any different the with the port delays there will be the miss the holiday dates and we'd expect there to be in inventory opportunities.

For us there could be some risk of.

In the fourth quarter, but again with our we have a lot of flexibility to move goods in the now we have to make sure. Obviously, we have the right assortments for the customer but the.

Coming into the quarter, we feel good about the inventory levels.

And in terms of strength Greenway Kimberly.

Kimberly I think of it Tim.

Similar to every year you know.

It moves based on what you find in the market and I don't think it's consistent year to year I would say overall that it it's slightly less than what we had the year before because the flow with a lot of goods into into the third quarter.

On.

That's pretty much where we are today and then in terms of the port and disruptions at the Port you would think disruption for us the equal supply.

So what goes on in the first quarter, depending on how long. The ports are are jammed up we may wind up even getting set of spring supply earlier, we'll have we'll have to wait and see what happens.

Great. Thank you Barbara and then just given the the really materially improved financial position of the business on wondering how you're thinking about the dividend and when you would expect to re evaluate potentially reinstating the dividend.

Kimberly.

Our near term focus is is continues to be preserving liquidity, especially.

Given the current upsurge in the virus and potential for impact of the additional government restrictions could have on consumer demand during the holidays, So we'll wait and see the.

Oh holiday pans out, but based on that it's too early to comment on future payouts of we'd expect to have.

Commentary on our our year end earnings conference call.

Great. Thank you so much.

And as a reminder to ask a question press star one.

The orders to allow everyone time for questions. We ask that you. Please limit yourselves to one question for it.

Next question comes from the line of Mike for her show from Wells Fargo. Please go ahead.

Hey, how are you guys doing Travis just for you on the on the extra day side could you possibly quantify.

The cobot cost that you guys are incurring.

Right now and if there's anything any color you can add on on what you mean, when you say it shouldn't the cost of accelerate the Q4, and then just big picture on that topic.

Should we consider those to be one time, assuming there is of vaccine and life goes back to normal by the time you start lapping. These results come next year. Thank you.

Yeah sure I think as we mentioned the costs for the third quarter, the sort of net corporate costs is that we've been talking about it for about $25 million and at some pluses and then some savings the minuses that get to that number.

In terms of the fourth quarter again, we expect inc. The costs to be significantly higher in Q4, I'm really related to a couple of things within the stores, we expect higher costs related to the ongoing investments for personal protective equipment and other payroll and incentive actions and then in the supply chain again, we're forecasting higher.

Due to the cover who bid related labor actions as well as cost of respond to the industry wide supply chain capacity constraints.

On your question around.

Some of it and are they one time generally speaking.

Yeah, we would expect that as the pandemic.

And that these costs would start to fade out of the business.

Sure. Thank you.

Your next question comes from the line of Michael Binetti from Credit Suisse. Please go ahead.

Hey, guys great quarter. Thanks for taking my question on.

On the real estate outlook as you look at 2021.

It should we think that that's the like a normal year 90 stores per year like you you were doing roughly the for co.

Total bid or is it is there some catch up next year or is the isn't a slower year, you kind of restart operations.

Just trying to think of it is above or below normal year.

Sure.

At this point, it's too early to say what our plans are for next year, but we'll be in a position to discuss in March at our year end conference for them.

Okay, and then I guess.

Thanks for that is there any consideration about you know the northeast of spend out there as a market that you guys haven't been in for a while I know some good thinking is Ben on the.

Value, we offer the EU ours like what can they support the rents that are a little bit higher in that market. It is this the more attractive time free to look at that market.

Yeah, I mean, I I think we're going to see opportunities across the U.S., including the most especially in the existing markets that we're in and also in our newer Meyer markets of the you know certainly over the next couple of years that will continue to the our priority at some point, we will get the noises.

And Michael you will get we'd had a bunch of brands that of you know.

Commented on pulling back from off price as much as possible I'm not sure that they stuck to the discipline on or not they seem to be a bit of the renewed focus but as you look at that and they're all of them going on and think about packaways versus the ones and close out do you think a little differently about how you want the mix of that to look going forward than the pass through revenue and anything.

The structural that you're looking at.

On the might be little the difference going forward. The we should think about.

Well actually let's talk about brands for branch.

Branch strategy of fluctuate.

You know from year to year, so yeah different brands of doing different things the that's on the.

The world keeps evolving in terms of packaway versus closeouts versus flowing upfront all of the mixes of it.

Really we don't see a major material change on our main thing is that what we want to deliver are really being able to deliver on the best branded bargains possible to the customer.

And so that kind of for a different buying strategies and we don't really see that mix as of today changing that much.

Okay. Thanks.

Your next question comes from the line of genes picture from Jefferies. Please go ahead.

Hi, Thanks for taking my question I wanted to ask a little bit about the complexion of the comp it seems like the improvement in Threeq versus Twoq. He was mostly traffic driven but I'm curious if you're seeing anything change on in terms of the their basket our conversion. Thank you.

Yeah sure you're you're correct. The biggest change from Q2, the Q3 was on the.

The traffic number of transaction side for us there.

There was not a.

Yes that was the biggest driver.

So none of it and that is not as many of you can take that.

Yes.

Okay. Thank you and then the to the follow up I apologize if I missed it but I think on the last call you talked about overall inventory availability being very strong, but there being some gaps in the assortment on some of the the hotter categories are you still seeing that or do you feel like on the category basis on the availability is where you'd like it to be.

I think the some small inconsistency of now not the way it what the before you know I think it's it's more broad based now, but the yeah and certain categories, but in every day.

Every season, there are some in certain categories. So.

Okay. Thank you very much.

Your next question comes from the line of Paul Trussell from Deutsche Bank. Please go ahead.

Good afternoon and of good quarter.

Just be looking for on maybe just overall comments on the balance sheet and where we stand the day.

The comments, maybe on the on debt position.

Potential timetables are on thought process or on dividends and return of the buyback.

And then separately.

Just curious if you have any gauge or gas just on what percentage of your core customers have returned to shop.

In the stores over the past few months.

Yeah, I'll start with the balance sheet again, we feel very good with our financial position as I mentioned on the.

On the comments for point 4 billion of of unrestricted cash of about 5.2 billion in liquidity for we feel very good about that.

We.

Talk about the debt actions that we took on during the quarter, we refinance the portion of our senior notes to significantly reduce the overall long term cost of that.

We feel good about that.

I think as we talked about a little bit earlier on the call in terms of go forward and dividends and buybacks and whatnot again, our current focus remains on on preservation of of cash and liquidity. There's just a tremendous amount of uncertainty regarding the virus and how that will progress.

And.

Right.

The Paul on the on on the consumer we.

We obviously speak to our customers often true through survey work.

I would say at this point, we don't have a comprehensive information to share. The at this time, but we know that she continues to prioritize the value of.

When deciding where to shop.

And given as I mentioned earlier, the the large number of retail closures of mean, she has fewer places.

The shop now and that's benefited us.

Thank you best of luck.

Your next question comes from the line of Lorraine Hutchinson from Bank of America. Please go ahead.

Thanks, Good afternoon on.

Like once where the post vaccine environment many of the cold the costs will fall off but is there any reason why some of the game of you've seen in merchandise margins would necessarily fall off the I guess, what I'm asking is the margins over the long term exceed your prior peaks coming out of the.

Oh pardon the Ryan I think.

A big piece of the the margin that we're seeing in the off price sector right. Now is the with the availability of good and the chase back into Q3, I think over time as as.

Applied levels.

And vendors are more.

Proactive I think in managing through different sectors of inventory in the stores I think it's I think the supply will become more normalized and I think with that the margins will become the I'm not saying they couldn't be better than than they were historically, but I think versus where they stand today I guess I just don't see that whole thing.

Thanks.

Your next question comes from the line of Marni Shapiro from retail tracker. Please go ahead.

Hey, guys, Congrats and best of luck for the holiday kits I forgot to add the at the end.

The Travis I just wanted to clarify on one thing you said about shrink I think you said that the value was down but that was due to the fact that.

What I guess, what I'm missing was already marked down so.

So if you can clarify the and then Barbara I'm just curious at a high level are you seeing sales also very strong I think you called out home, but other no what people are calling cobiz categories like kids beauty an active.

Yeah sure on on trade you have it about right. So because of the significant markdowns that we took earlier in the year that reduce the resale value of the items that we reported the strength during the quarter, which give us the benefit the mentioned if you look at it on a sort of unit basis compared to last for the with last year. It was relatively simple.

Okay.

And in terms of the classifications marni.

Those are the classifications are strong also feared it continues to be strong kids the strong as well accounts.

Fantastic.

Thanks, guys.

Your next question comes from the line of Chase the Lee from Yes. Please go ahead.

Great. Thank you. So much of my question is about in store inventory levels.

You feel about the in store inventory levels in the quarter did.

Did you feel like there was enough inventory on the store to capture all the demand or could have been opportunities to do even more sales had there been even more inventory of the store.

Hi.

On on inventory as you know historically, we've managed the or in store inventory levels, very conservatively and and that that's not going to change going forward I'd say, we you know we got to inventory levels of two where we one of them during the quarter were obviously trying to manage the business very can.

Separately.

I'm sure there's pockets of of inventory or areas of of the store, where if we had more we could have turned faster, but overall, we were we were pleased with the the.

The inventory levels.

I think the way you should the way we should think about it is for the way we think about it is you know because we.

Chase the sales to above plan.

We drove a lot of fresh receipts into the store. So the the customer could kind of every week and see something new and something different and so every business might not have been positioned exactly the way.

I'm not even sure of the wet I'd say, we quantity of because I think the off price customers used for coming into the store and seeing the variances in inventory levels on product, but I think the things that helped to drive the the core sales because really the fresh receipts and the fact that she could come in every week into the treasurer on and find something different.

Got it thank you so much.

Your next question comes from the line of Simeon Siegel from BMO capital markets. Please go ahead.

Thanks, Good evening I'm, sorry, if I missed the how was the you are of this quarter and then Barbara do you have a view on the industry wide promotional cadence for holiday and how you see your your opportunity for holiday and the next year. Thanks.

Yeah sure anyone of us down it was down during the quarter.

And the current any thoughts on the.

Yes, thanks, sorry the.

Got it got it.

Now just going after about the holiday just how you're viewing your on probably on well.

Well, we think it's going to be very promotional holiday season, I mean, it's it's been promotional for a number of years and I don't expect this year to be any different I think the most important thing for us to do is to be able to deliver a really compelling bargains to the customer and if we do that we'll do fine in terms of the day you are yeah.

The war.

Moving a lot with the deals that you get based on the values you put on the floor and we are highly focused on value. It because that's what the customer is focused on and also the you are also can move around within the total box based on the businesses that you're driving.

So in terms of asked the go forward, we're going to buy and to drive into the business is that the customer is responding to and the war will will move with that.

Great. Thanks, a lot of best luck for holiday.

Your next question comes from the line of losses Champagne from loop capital. Please go ahead.

Thanks for taking my question when you were contemplating your inventory plan for this holiday period [laughter], how were you thinking about the potential for store closures capacity limitations and how quickly can you adjust assuming there are adjustments needed given the the.

Congestion do you think that you run the risk of missing out on sales because inventories are just too light.

Yeah, I mean, the way we approach the holiday season is very cautiously you know, especially with the recent upsurge in restrictions.

We're going to balance the sales with managing the business managing our liquidity and managing inventory. So there is a chance that we could miss on the sales, but we're going to take a very cautious approach and make sure we're positioned well the react to what's in front of the.

Understood. Thank you.

Your next question comes from the line of of Triple from Guggenheim. Please go ahead.

Hi, Good afternoon, just a couple of quick questions. Tom on the home category do you may begin the call. It out of strong I'm. Just wondering if you could maybe give us in the more color in terms of really what you're seeing in the home and maybe even inventory availability around the home and also separately just.

Wage rates I think you talked about higher wages and some of the staffing levels throughout the supply chain. Just generally the you know in terms of what you're seeing overall throughout the sort of staff would be very helpful. In the stores. Thanks very much.

In terms of the home business.

The the business is healthy across all classifications I think on a customer is home and there you know.

Not going to work in the working from home I think every day every classification.

It's good I mean, maybe with the exception of probably probably the weakest business would be traveling that would make sense because people aren't really traveling but it's very broad based in terms of availability.

Part of the home businesses is.

A direct import business so.

So some lead times have gotten longer in some of those businesses for future.

And then for shorter term, we did the merchants did a very good job of getting Closeouts on Closeouts on the third quarter, which we were pleased with.

But that business. It is really of is really much.

Much more of the upfront business and its laid for the route.

On on wages.

Where we're seeing the most market pressure as I mentioned is in our.

The distribution centers in the supply chains in the supply chain and as I mentioned, we did make base wage increases. We also have ur cobot incentives for the for the D.C. associates.

And in in stores.

Both stores and the seas, we're we're very happy with our staffing levels are and have been able to staff up for holiday Inn in both areas.

Thank you.

Your next question comes from the line of Alexander <unk> from Goldman Sachs. Please go ahead.

Good evening. Thanks, so much for taking my question on I had a question on so on categories. You know you mentioned the outperformance of sort of an active and you know on the performance elsewhere. You know he moved through the quarter on you saw the improvement in the comp the dot improvement come from incremental strength in the strong Catholic.

He is or a little bit of recovery in some of those categories.

And then second question is any thoughts on the freight cost.

The next year.

In terms of the company and the trending businesses.

For the quarter went on those businesses got stronger as we.

Chased after them more aggressively when we sort of the customers trend.

And so those those businesses, obviously best home with our best performing business. So those businesses helped to drive the comp forward.

I'm on the transportation in freight charges, obviously, the the significant the both the import and domestic congestion is driving up the freight costs now we're paying surcharges the make sure we can get free through.

The supply chain and onto the stores, our expectation would be that that would continue likely through the first quarter or because the the.

Because the that's the expectation for for for congestion.

We'll have more to say on the full year impact in the yearend conference call.

Great. Thank you so much.

It's.

Your next question comes from the line of cheating here I'm from Bernstein. Please go ahead.

Thanks, very much on cash update us on where the home is now at the percentage of the mix and whether you see any one net on that as the category no.

Could it get to you know 40% of sales the ITSM planar or what you know what do you need on its two big and then in terms of start planning I. Appreciate the too early to say what your plan is for 2021, but can you remind us how you thought historically about what youre sort of capacity constraint is around opening.

The new stores.

The faster day.

Jim.

Sure in terms in terms of home.

On the home business escalate in the fourth quarter and get much closer to 30% Mark 31% market. It's traditionally around 25, 26% for US. It comes up as we go forward our expectations that business will continue to grow at a at a faster rate.

Then then the rest of the company the company because that's what the customers. After and also there is a lot of businesses on home that you can that you can you know tribe.

Could you repeat your question on the on the store growth.

Sure it's still on.

You know historically when you've talked about you know how you think about the pace of store openings I think you've you've talked about on wanting to have management attention around the number of stores. They are opening he can you just remind us what the sort of kept passing the constraints are at the business in terms of you know ability to accelerate store openings to the extent the there.

Our more opportunities and 2021 or 2022.

Yeah, I would you know for us the.

Our historical level of store openings is around 100 per year, you know typically 80% Ross the 20% the Dts the.

Thats the level that we're comfortable with we like our ability to execute at that level, both in getting the right site and also open.

The stores successfully.

From a store operation standpoint, so I'd say, that's the level that we're comfortable with.

Thank you.

Your next question comes from the line of Dana Telsey from Telsey Advisory Group. Please go ahead.

Hello.

Hello.

Yeah. The tells me the airlines open.

Hi wanted to get some color on how you're thinking about occupancy cost and the ability given lease renegotiations to leverage those costs is that an SDN a true.

Tailwind for you going into 2021 and are you at all thinking about any adjustments in store size or or.

The the structure of the store in 2021 of the on for Ross or Dts, and how you're seeing the real estate landscape. Thank you.

Sure Dana you know I think it's too early.

To predict what's going to happen in the in terms of the occupancy cost just seen of the occupancy for US has been caused the cost of goods sold not in the US you know you on.

But I think it's too early to.

The to predict what what's going to happen, obviously with the store closures, there's going to be we think there's going to be plenty of opportunities.

So I think it's too early to call at this point.

Got it.

And just when you when you're thinking about the buying for next year and planning for Easter or are the other holidays going forward, how do you see the overall chain.

Change in inventory levels compared to what you have now.

Are you seeing differences in vendor Assortments are you seeing differences in terms of what you'll be able to get your hands on for goods in the first half of 2021.

Oh sure so buying for Easter, obviously, Q1 is normally a tough quarter and with the unknown of what will happen with the virus and the pandemic I would envision us having very conservative planning Q1, particularly.

Inventory since we don't know really.

How things the thing playing out buying.

Buying for Easter I think that you know.

Easter.

If people if people really can't go out the celebrate holidays still at that point, I think Easter well will not be quite as big as it normally historically has been so that whole first quarter period I think it's just a conservative period that we'll have to see how big we want that to be in.

In terms of vendor assortment.

Yeah look we have a very large merchant team, we haven't really very strong relationships in the market. We've tried to be very good partners. During the as you know during this period of time and I see the assortment for 2021 being.

Yeah.

Pretty balanced in terms of in terms of of good better best and and the brands that we bought they'll always be in the vendor assortment. There will always be certain things you don't have the only be certain times it on habit and all of that but I don't see any major shift.

And the brands on the values that we can offer of the customer.

Thank you.

Your next question comes from the line of Chuck Grom from Gordon Haskett. Please go ahead.

Hey, Thanks, great great recovery on the business for a quick one for me just you spoke for the longer longer hours of operation was one of the drivers of the sales recovery as the quarter progressed curious if you're back to normal hours at this point in time or if that's still a potential tailwind for Tom. Thanks.

Sure.

Yeah during the third quarter, we returned to normal operating hours of.

Going into the holiday season, we we historically have extended them further we plan to do the same this holiday season, we are allowed to do so.

Your last question comes from the line of Roxanne Meyer from MKM Partners. Please go ahead.

Great. Thanks for taking my question and congrats on the improvement you saw current.

Building off of that I wanted to see you know how good do you feel about your ability.

The process of traffic you do get you know assuming the pandemic doesn't disrupt that you know I imagine that you're putting.

Incremental safeguards and your stores logistics to move people through the store, but how should we think about you know the overall capacity and that you're able to you know to get the process people through that want to get in your store.

Yeah. It's a good question Roxanne I'd say, you know store capacity limits are changing on the daily basis is very dynamic based on a local restrictions or you know is the 25% of occupancy is is pretty common but we feel good.

About the changes we made were going on we're certainly going to invest in front of your front end cashiering to make sure we move of people through the lines, but there is peak the peak days in peak hours during the day days, where we expect to have lines and we'll do our best of.

Moving people through.

That's mainly in high volume stores and again on peak days, but.

We feel good about the strategies, we put in place during the holidays.

Great Thanks, and best of luck.

Now I will turn the call back over to Barbara Rentler for closing remarks.

Thank you for joining us today and for your interest of Ross stores, we wish all of you and your families the happy healthy and safe holiday season.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.