Q2 2021 Ross Stores Inc Earnings Call

August 19, 2021

[music].

Good afternoon, and welcome to the Ross stores second quarter 2021 earnings release Conference call.

Call will begin with prepared comments by management, followed by a question and answer session.

Ask the question during the session you will need to press star one on your telephone 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 forecast new store.

Opening COVID-19 related costs and other matters that are based on the company's 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 store called performance or current expectations risk factors are included.

<unk> entities press release, and the company's fiscal 2020 Form 10-K, and fiscal 2021 and Form 10-Q, and eight case I'm followed with the SEC Now I'd like to turn the call over to Barbara <unk> Chief Executive Officer.

Good afternoon.

Joining me on our call today are Michael Hartshorn Group, President Chief operating Officer, and Connie Kao Group, Vice President Investor Relations.

Well begin our call today with a review of our second quarter performance, followed by our outlook for the third quarter and fiscal year <unk>.

Afterwards, we'll be happy to respond to any questions you might have.

As noted in today's press release, we are pleased that both second quarter sales and earnings substantially exceeded our expectations.

Sales benefited from customers' positive response to our broad assortment of great bargains.

In addition, our results were bolstered by a number of external factors, including ongoing government stimulus.

Creasing vaccination rates and the diminishing COVID-19 restrictions.

Earnings per share for the 13 weeks ended July 31, 2021 grew 22% to $1.39 on net income of $494 million.

This compares to $1.14 per share on net earnings of $413 million for the 13 weeks ended August three 2019.

Total sales for the quarter rose, 21% to $4.8 billion with comparable store sales up a robust 15%.

For the first six months earnings per share were $2.73.

Our net earnings of $971 million.

Up from 229 up from $2.29 per share on net income of $834 million for the same period in 2019.

Sales for the first half of 2021 rose, 20% to $9.3 billion with comparable store sales up 14%.

For the second quarter, Ross's sales trends across merchandise areas and regions are fairly broad based with children's and the Midwest performing the best.

Additionally, dd's discounts trends remained robust during the period as both sales and operating profit gains significantly exceeded our expectations.

At quarter end total consolidated inventories were down 5%, while average selling store inventories were up 3% versus 2019.

Pack away levels ended at 30% of the total compared to 43% for the same period in 2019.

We use a substantial amount of pack away merchandise to support ahead of planned sales in.

In addition, they were receipt delays due to supply chain congestion congestion.

Turning to store growth, we now expect to open approximately 65 total locations. This year comprised of about 45, Ross and 20 Dd's discounts.

As usual these numbers do not reflect our plans to close or relocate about 10 stores.

As mentioned in last quarter's call in 'twenty 'twenty, two we expect to return to our normal annual opening program of approximately 100 new stores.

Now Michael Hartshorn will provide further details on our second quarter results third quarter guidance and updated outlook for the year.

Thank you Barbara as we previously stated comparable store sales increased 15% in the quarter, mainly driven by a larger average basket with traffic up slightly versus 2019 operating margin was well above plan and up versus 2019 at 14.

1%.

Cost of goods sold decreased by 45 basis points in the quarter.

Merchandise margin and occupancy improved by 80 basis points, each while volume cost declined by 10 basis points.

Partially offsetting these items were higher distribution expenses, which grew 40 basis points primarily from wage increases.

Worsening industry wide supply chain congestion drove higher freight costs of 85 basis points.

SG&A for the period rose five basis points of leverage from strong sales gains.

This was offset by Covid expenses and higher incentives given our better than expected.

Second quarter results.

Total net COVID-19 related expenses for the period were approximately 45 basis points, the vast majority of which impacted us yet.

During the quarter, we repurchased one 4 million shares of common stock for a total purchase price of $176 million.

We remain on track to buy back a total of $650 million in stock for the year.

Now, let's discuss our third quarter guidance as a reminder, our projections compared to the same period in 2019.

Looking ahead, there remains much uncertainty on the sustainability of the positive external factors that benefited our first half results.

As well as the potential risks, we could say from the spread of Covid variance and worsening industry wide supply chain congestion.

As a result, we are forecasting comparable store sales to be up 5% to 7% for the third quarter with earnings per share projected to be in the range of 61 to 69.

The operating statement assumptions that support our third quarter guidance include the following.

Total sales are projected to grow 9% to 12%.

We expect operating margin to be seven three to seven 9%.

This forecast reflects significant escalation of freight costs as well as higher distribution expenses in.

In addition, ongoing COVID-19 related costs are projected to negatively impact EBIT margin by approximately 45 basis points in the period.

We plan to open 28 stores during the third quarter, consisting of 18 raw.

10 Dd's discounts.

Net interest expense is estimated to be about $19 million, our tax rate is expected to be approximately 24% to 25%.

And weighted average diluted shares outstanding are projected to be about $354 million.

Based on our first half results and third quarter guidance, we now project full year comparable store sales gain of 10% to 11%.

And earnings per share to be in the range of $4.20.

The $4.38 compared to $4.67 in 2019.

Now I'll turn the call back to Barbara for closing comments.

Thank you Michael.

Well, we're pleased by the better than expected results. We reported today as Michael noted Theres a high level of uncertainty on a number of external factors and how they may affect our business over the balance of the year.

That said, we believe we are well positioned as a value retailer and remain confident in our ability to continue to deliver great branded bargains.

Moving forward, we remain optimistic about our prospects for continued growth in both sales and profitability over the longer term, especially given consumers' increasing focus on value and convenience.

Moreover, the significant number of retail closures and bankruptcies in recent years.

Further enhances our ability to gain additional market share in the future.

At this point, we'd like to open up the call and respond to any questions you might have.

As a reminder to ask a question you will need to press star one on your telephone so we draw a question for Mr. Pankey for anybody.

In order to allow everyone time for questions. We ask that you. Please limit yourself to one question. Please standby, while we compile the Q&A roster.

Your first question is from the line of Lorraine Hutchinson Lorraine Hutchinson from Bank of America. Your line is open.

Thanks, Good afternoon.

It's quite a different tone with the <unk> <unk> beat versus the three <unk> guidance I was just curious how much of these sales and margin pressures are you seeing today versus how much you're baking in just in case things get worse.

Kimberly it's Michael on the sales front.

The guidance is really based on the high level of uncertainty.

And risk that could happen.

In the third and fourth quarter, and it's really based on the risk that the external factors that benefited the first half how sustainable those are and then also with the delta variant and supply chain congestion what other risks exist.

Says.

We hope to do better than the guidance as we have a year to date, thus far.

Yeah.

Your next question is from more couch Wagner from Baird. Your line is open.

Hi, good afternoon. Thanks for taking my question so.

A lot of focus out there on kind of the cost side of the current supply chain backdrop.

Was hoping you could speak to some of the opportunities this is creating or expected to create in the months.

Two quarters ahead.

Canceled orders late deliveries inventory tracking nodes throughout the system. How do you see this really playing out from an inventory availability standpoint in the coming quarters. Thank you.

Well listen obviously, you know the supply chain congestion is causing all kinds of receipt delays right now.

We expect those actually to worsen as the year goes on so at some point in time.

Those goods go back up and we will see those as potentially an opportunity either for pack away or to flow, depending upon business or what the types of products or so.

At this moment, you would think that that would happen probably either late in the year at the beginning of next year, if I had to pick a timeframe.

Yeah.

Your next question is from the line of Paul Lewis from Citigroup. Your line is open.

Hey.

Thanks, guys can you maybe talk about.

Performance by State curious your three big States how different the performance was in the second quarter and also curious if there are any states in particular, where you might be seeing some sort of change in trend in the third quarter to date.

Kind of.

Guiding how you are thinking about.

Comps in <unk> and was also curious if you could just talk about home versus apparel performance in the quarter.

Paul on the regional performance, So, Texas, Florida, California, they make up about 50% of our sales what we saw during the quarter, Texas and California, we're relatively in line with the chain.

Florida, which trailed in the first quarter saw a significant improvement as the tourism.

Increased.

So still a bit below the chain in the second quarter and we wouldn't comment on.

Current quarter trends at this point.

And home versus a power apparel home continues to be one of our top performing merchandise areas you know similar to trends that we've seen throughout the entire pandemic.

Apparel however.

Continued to accelerate.

From Q1 to Q2, so I think what we're seeing in apparel or.

Pre COVID-19 there was already a shift towards casual wear.

And then you know activewear and what's happening now is that more traditional sports Reclassifications have also improved so that's starting to make to build the to build the sales from one quarter to the other.

Barbara are you seeing the supply chain disruption impact.

Certain categories more than others any anything you can share there.

You know it.

Overall, there's plenty of supply.

It's not consistent to your point across merchandise departments, but in reality, what's happening is that you know.

Merchandise deliveries are sliding.

So it could slide two weeks 30 days there is fighting and so what the merchants are really doing is theyre constantly flexing based off of what theyre seeing in the market the availability and theyre chasing into classifications that they need so it's a little bit it's a little bit of a moving target, but overall overall, there's plenty of supply.

Okay. Thank you good luck.

Again in order to allow everyone time for questions. We ask that you. Please limit yourself to one question.

Your next question is from the line of Kimberly Greenberger from Morgan Stanley. Your line is open.

Okay, great. Thank you.

I wanted to hear if you've given any further thought to potentially some price.

Hum.

Some price actions just to help absorb some of the higher cost even if it's just.

A little bit here or there or sort of surgically done based on what comparison prices you're seeing in the marketplace. I just wanted to see if you had.

<unk> thought about that any differently as compare to your comments back in may.

And then can I, just get a clarification on the full year, 10% to 11% comp guidance.

What does that embed for the fourth quarter. Thank you so much.

Okay in terms of in terms of pricing Kimberly.

We still strongly believe that price value is critical to our customers. So you know as you know over the years talked about how the merchants comp shop regularly and really they really understand that our target shopper.

Is really price savvy, so if she's not getting the best deal out there she knows it.

The higher prices that traditional retailers could increase the pricing gap that we offer and strengthened the values that we provide to our shoppers.

And quite frankly, the merchants are constantly making those price value assessments of their assortments.

All the time.

You know, they're prioritizing guys will always prioritize you know really having sharply priced assortments for our entire store so.

At this point I wouldn't talk anything more about it for competitive reasons, but the one comment that I would say.

And we won't be the leader in terms of raising prices the merchants will do their job and Elisa it and they will price it the way they see it.

Kimberly on the comp guidance for the fourth quarter, it looks very similar to the.

Q3 Hudson.

Thank you.

Yeah.

Your next question is from Chuck Grom from Gordon Haskett. Your line is open.

Hey, Thank you very much good quarter, just wonder if you guys could speak to the magnitude of the of the DC and freight costs that youre anticipating in the third quarter. It looks like over the past couple of quarters. Its been about 100 to 125 basis point drag just wondering if you could speak to how big of a drag you're expecting here in this quarter. Thank you.

We didn't give a specific guidance in the.

In the second quarter, obviously, Dcs, where we're 40 basis points of <unk>.

Drag and freight was 85 basis points.

So we would expect both the Dcs.

And the freight costs to worsen in the back half some of that is driven by the leverage on comp but.

We would expect.

We've raised wages further in the Dcs and we're seeing specifically ocean freight costs significantly escalated in the back half.

So those are those expectations for worsening or built into the guidance that we get.

Your next.

Question is from the line of Matthew Boss from Jpmorgan. Your line is open.

Great Thanks, and congrats on a nice quarter.

So Barbara any early thoughts on overall back to school trends, maybe what you've seen so far in August and some of the states that have gone back earlier and then Michael on gross margin have you embedded any change in the external promotional or pricing backdrop for the third quarter relative to what we saw in the front half.

For the year just in your merchandise margin outlook.

So some at the back to school trends look we're we've been pleased with our younger businesses performance for a while and so that obviously bodes well for back to school.

In terms of classifications I would say you know the customers still buying we're now but has started to make that conversion to go forward in a more.

Traditional back to school fashion that we might have seen from a product perspective.

In and let's say 2019.

We feel good about those businesses because obviously our younger businesses are doing well there for back to school, we feel pretty good about.

And Matt on margin, obviously, we have built in what we can see today with the current on an order I think our big opportunity as it was in the second quarter is if we can exceed the sales plans are there.

It should be a benefit as.

As we turn faster and take lower lower margin.

Yeah.

Your next question is from Janine Stichter from Jefferies. Your line is open.

Hi, Thanks for taking my question I wanted to ask about the Covid costs. If you had any thoughts about the timeline for potentially starting to moderate the expense you are putting into the cleaning and sanitation aspect in the stores. Thank you.

Sure I think thats changed overtime.

Obviously, if you would ask me that two months ago. It would have been sooner than later.

But right now we have the cleaning assets built in.

Throughout the rest of the year, which we think is appropriate given the.

<unk>.

There in spirit.

Got it thank you.

Yes.

Your next question is from Michael Binetti from Credit Suisse. Your line is open.

Hey, guys. Thanks for taking our questions here.

Michael I'm curious what you think are the biggest opportunities to get the business. If we try to look beyond a lot of the noise in the margin right now to get the business back to that kind of 14% plus operating margin that you guys saw.

A few years back it.

It sounds like you I guess when you look at the pricing commentary in the in the soft lines group you seem to think that.

There is no real urgency here.

Move towards it so maybe that's maybe that's maybe that implies youre thinking that some of these costs, we're seeing are quite transitory.

Sure Michael as you as you mentioned, obviously, we have a transitory costs of the business right now whether it's COVID-19.

At some point there'll be some equilibrium in the freight world, especially with ocean freight that we.

Expect to have to be an opportunity going forward and then I would say the return to 2019 margin levels will be highly dependent on strong sales performance over time.

And given we're in a very vibrant sector of retail.

Market share up for grab with store closings and bankruptcies and the customer who is focused on value.

And convenience we feel good about our opportunities now that is not to say that we don't have a lot of work going on in the business defined.

Places to be more efficient to offset some of these costs.

But I think it's dependent on how long some of this inflation last and then certainly on the top line growth.

Thank you.

Your next question is from John Kernan from Cowen Your line is open.

Excellent. Thanks for taking my question.

Just curious on.

The quantification of <unk>.

Great and distribution headwinds into next year.

Is this.

The impact that you're guiding to in the back half of the year is that.

Ballpark, how we should think about it for the first half of next year.

I wouldn't comment on <unk>.

Next year at.

At this point.

In the in the Dcs the wages.

That we've made are permanent.

And that said, we do have productivity initiatives that will build into our budget and plans for next year.

On the freight cost I'd say it is.

It's hard to say at this point.

I gave you my view at this point I think some of the ocean and congestion will bleed into the first part of next year.

Got it one quick follow up just.

As we stay on the theme of supply chain here are you concerned at all about deliveries into.

Holiday in early part of next year given.

Some of the things, we're seeing of course et cetera.

Well I think.

We all know there's the supply chain problems and it's backed up and all the issues with Covid overseas, which kind of you know.

Made all of the not all but a large majority of goods coming out of China Slide I think I think the the issues are real and I think they'll continue for a while and so what we have to do is really make sure that we're paying attention to what it is and that the merchants are.

Adjusting and flexing based off of what Theyre seeing and what's happening are happening around them and the majority of our businesses Closeouts. So.

A lot of these things are a timing issue of how goods. Both slide you know what goods might be might be late that might be available for us to buy in season. There. So it's kind of like.

A moving target I think that that challenge as you go into Q1 is that Chinese new year's is is a couple of weeks earlier. So those two things are going to kill I'd expect a little bit in terms of in terms of deliveries and the kind of goods that have to get out of China in particular so.

I think the answer is.

We're going to watch it.

Got to adjust as we go and as you know.

We're in a flexible business model so as long as we can offer a treasure hunt and a broad assortment.

You know that.

That's what we're going to do.

Excellent. Thank you.

Again in order to allow everyone time for questions. We ask that you. Please limit yourself to one question. Your next question is from Adrian <unk> from Barclays. Your line is open.

Thank you very much.

Barbara I was wondering if you.

I had seen any changes in basket R. A T V. This quarter versus first quarter and then towards the end of the quarter were you seeing any impact in particularly Texas and Florida.

The Delta variant on late July trends, I know that for a quarter.

Seem to be fine, but any trailing off at the end of the quarter. Thank you very much.

Adrian on the.

The components of comp it was mainly driven by.

The size of the basket.

<unk> was up slightly.

And the basket was driven.

<unk> was up slightly but it was basically driven by units per transaction and that was a consistent trend with comps throughout the quarter. We wouldnt say, specifically the sequential trend other than to say it was fairly robust throughout the quarter may.

May was.

Slightly higher than the other months.

In terms of absolute cost.

Thank you very much and best of luck.

Your next question is from the line of Marni Shapiro from retail tracker. Your line is open.

Hey, guys congrats on a great quarter.

Could you I just want to clarify one thing Michael that you said, you said, Texas, California, Florida made up what percent of yourself you guys used to talk about this in the past I just want to clarify the number that I heard.

About 50% of our.

Uh huh.

Can we talk just a little bit about marketing I know, it's not a big ambitious push for you guys like it is for other retailers I'm curious just thrilled.

Through Covid coming into this year, where it was your marketing spend has it ticked up through this year as the stores have all now.

For the most part being opened.

And.

Have you been spending against that or has demand been so strong that you haven't picked up the marketing and how should we think about it in the back half of the year. If you could just talk a little bit about that.

In terms of in terms of marketing for competitive reasons, we wouldnt.

Provide the details there marni, but we have made strategic investments we've made channel shifts.

And we have used.

Put more money into places like digital versus broadcast.

So we have made some shifts during the Covid and we'll continue to find what works best for us.

Going forward.

Has it picked up now that the stores are opened compared to a year ago. When I say the first half of the year for sure storyteller No doubt, yes, marni no doubt about it when the stores were closed we obviously took it as an opportunity, but not not spend when the stores were closed. So it certainly has picked up versus last year. So that's all rolled back in here okay.

And it should be about your usual levels then from here out without the stores opened.

Correct Okay.

Okay Fantastic. Thank you best of luck with the rest of the fall season.

Thank you. Thank you.

Your next question is from Laura Champine from loop capital. Your line is open.

Thanks for taking my question I'm still trying to get my head around the significant decline almost 50% sequentially and EBIT margins that you're sort of looking to in Q3, I certainly heard the 45 basis point of Covid costs, but are you expecting a big reversal in merchandise margin or what are some of the assumptions.

<unk> within.

That EBIT margin assumption.

On the on an EBIT margin in between Q2 and Q3 for instance, obviously the five to seven comp is lower than our year to date performance.

15% or 15% in the second quarter, so that that drives a significant portion of it and then as I mentioned, our ocean freight costs.

Where we have embedded the assumption that that will significantly escalate over Q2, and then we expect a higher wages in the D C to drive a bit more deleverage than we had year to date.

Got it do you have can you give me total logistics costs as a percentage of sales sort of normally and where it's tracking now.

That's not something we can provide.

Okay got it. Thank you the best guidance I can give you at this point is.

Again freight was 85 basis points worse than the second quarter and we've embedded significantly.

Escalation from that and then on the Dcs as I mentioned, there was 40 basis points and we expect additional deleverage because of higher wages.

Got it.

Yeah.

Your next question is from Dana Telsey from Telsey Advisory <unk>. Your line is open.

Good afternoon.

It seems like for a couple of quarters in a row now Dd's has had Sydney has had terrific performance.

Thing to note there and.

Changes to their plans in terms of what's driving that or is it the child tax credit some stimulus and then secondly, just on tack away I think it's 30% this quarter I think it was 34% in the first quarter. How do you. How do you. How are you thinking about pathway to the balance of the year and the rate it would be it. Thank you.

Sure Dana on on Dd's as we mentioned.

<unk> continued to have a robust sales trend and like Ross EBIT margin improvement.

Improvement.

I would say relative to raws.

Then fairly consistent throughout the pandemic, obviously the external stimulus.

<unk> has impacted the dd's customer, but also help the raws customer as well the one thing they have in common.

Is that that customer is.

He is very focused on value in them.

Dave.

They've been attracted to what we've had in the stores. So no changes that I would note.

In the second quarter on inventory levels.

As you mentioned pack away was at 30% of our total inventory.

With ahead of planned sales, we obviously use some of that inventory to fuel.

Some of the sales growth.

Was also impacted by.

Receipts delayed receipts.

Within the inventory number we have a higher level of in transits than we have had historically.

And then the return we would expect to return to historical levels over time, but that is going to be somewhat dependent on how we perform on the top line and whether we beat the plan and then also what supply chain congestion looks like at the end of the year.

Yeah.

Your next question is from Simeon Siegel from BMO capital markets. Your line is open.

Hi, This is Christian on for Simeon I'm, just wondering if we could get some color potentially on where youre seeing most opportunities kind of captured arts here with new customers.

Sure.

Screening.

Current customer.

Wallet within the current even though most customers and kind of what youre thinking about that going forward.

Okay.

Yeah.

Yes, I would say what we've seen during the pandemic as we've seen a younger customer and a part of that early on in the pandemic was driven by the older customer with restrictions in.

Hesitancy to shop.

We've moved moved along we've seen in the customers is that older shopper is extra return.

Back to the store. So I think we have an opportunity of cross.

Across our customer base and to the extent that we can provide them the bargains, but they've come to expect.

Great. Thank you.

Yeah.

Your next question is from Jay sole from UBS. Your line is open.

Great. Thank you Michael is it possible to quantify it for us.

The magnitude of the worsening of the inflationary pressures that you called out between Q2 and Q3.

Yeah, I would only just point to the overall EBIT margin.

You know it is significant.

The escalation right now.

7379.

$4.50 to 510 versus 2019.

<unk> deleverage.

Deleverage so.

The main drivers out of that.

Obviously the comp differ.

The difference between Q2 and Q3.

The higher ocean freight as a significant portion of that and then as I mentioned the higher <unk>.

<unk>.

I'd say the heightened the largest single.

Single de Leverages coming from Ocean freight.

Yeah.

Our last question is from Roxanne Meyer from N. P. M partners. Your line is open.

Great. Thanks, and congratulations on a solid two Q.

My question is on the merchandise margin that you delivered a very robust game there on top of a sizable gain in the first quarter and and really on top of a significant increase in merch margin last year.

Sure.

Is that coming from is that being helped by utilizing pack away and how should we think about merchandise margin going forward.

Yeah in the quarter that really the upside versus our original expectations and again versus last year is that we've been able to operate.

In a.

With inventory very close to need we've operated with lower inventories in stores, we've been able to chase the business.

And that has that.

That is driven faster turns and lower markdowns.

What we've done throughout the pandemic is tried to operate very close to need them and we think that we can do that not only during the pandemic, but post pandemic, which will benefit margin.

The future, but that the lower markdowns and faster turns was the main driver of the margin.

<unk> in the second quarter.

Okay.

There are no further questions at this time I would now like to turn the call over to Barbara Retzlaff for her closing remarks.

Thank you for joining us today and for your interest in Ross stores.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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Yeah.

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Yes.

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Okay.

Yes.

[music].

Good afternoon, and welcome to the Ross stores second quarter 2021 earnings release conference call. The call will begin with prepared comments by management, followed by a question and answer session to ask questions. During the session you will need to press star one on your telephone before we get started on behalf of Ross.

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, new store openings COVID-19 related costs and other matters that are based on the company's 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 store called performance or current expectations risk factors are included entities press release, and the company's fiscal 2020 Form 10-K, and fiscal 2021 and Form 10-Q.

Eight case on fall over the S. E C. Now I'd like to turn the call over to Barbara <unk> Chief Executive Officer.

Good afternoon.

Joining me on our call today are Michael Hartshorn Group, President Chief operating Officer, and Connie Kao Group, Vice President Investor Relations.

Well begin our call today with a review of our second quarter performance, followed by our outlook for the third quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you might have.

As noted in today's press release, we are pleased that both second quarter sales and earnings substantially exceeded our expectations.

Sales benefited from customers' positive response to our broad assortment of great bargains.

In addition, our results were bolstered by a number of external factors, including ongoing government stimulus, increasing vaccination rates and the diminishing COVID-19 restrictions.

Earnings per share for the 13 weeks ended July 31, 2021 grew 22% to $1.39 on net income of $494 million.

This compares to $1.14 per share on net earnings of $413 million for the 13 weeks ended August three 2019.

Total sales for the quarter rose, 21% to $4.8 billion with comparable store sales up a robust 15%.

For the first six months earnings per share were $2.73 on.

Our net earnings of $971 million.

Up from 229 up from $2.29 per share on net income of $834 million for the same period in 2019.

Sales for the first half of 2021 rose, 20% to $9.3 billion with comparable store sales up 14%.

For the second quarter, Ross's sales trends across merchandise areas and regions.

Fairly broad base with children's and the Midwest performing the best.

Additionally, dd's discounts trends remained robust during the period as both sales and operating profit gains significantly exceeded our expectations.

At quarter end total consolidated inventories were down 5%, while average selling store inventories were up 3% versus 2019.

Pack away levels ended at 30% of the total compared to 43% for the same period in 2019, as we use a substantial amount of pack away merchandise to support ahead of planned sales.

In addition, they were receipt delays due to supply chain congestion congestion.

Turning to store growth, we now expect to open approximately 65 total locations. This year comprised of about 45, Ross and 20 Dd's discounts.

As usual these numbers do not reflect our plans to close or relocate about 10 stores.

As mentioned in last quarter's call in 'twenty 'twenty, two we expect to return to our normal annual opening program of approximately 100 new stores.

Now Michael Hartshorn will provide further details on our second quarter results third quarter guidance and updated outlook for the year.

1%.

Cost of goods sold decreased by 45 basis points in the quarter.

Merchandise margin and occupancy improved by 80 basis points, each while buying costs declined by 10 basis points.

Partially offsetting these items were higher distribution expenses, which grew 40 basis points primarily from wage increases.

Worsening industry wide supply chain congestion drove higher freight costs of 85 basis points.

SG&A for the period rose five basis points of leverage from strong sales gains.

This was offset by Covid expenses and higher incentives given our better than expected.

First quarter results.