Q3 2021 Ross Stores Inc Earnings Call
[music].
Good afternoon, and welcome to the Eros door third quarter 2021 earnings release conference call.
Our call will begin with prepared comments by management, followed by a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
For 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 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 historical performance our current expectation.
Risk factors are included in today's press release, and the company's fiscal 'twenty 'twenty Form 10-K, and fiscal 2021 form 10, Qs and eight case on file with the S E T.
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.
And I'd also like to welcome Adam former our recently appointed Executive Vice President and Chief Financial Officer.
We'll begin our call today with a review of our third quarter performance, followed by an update on our outlook for the fourth quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have.
As noted in today's press release third quarter sales and profitability significantly exceeded our expectations.
Consumers continued to respond favorably to our broad assortment of great bargain.
We achieved these results despite waning government stimulus and uncertainty related to the spread of Covid variance.
Earnings per share for the 13 weeks ended October 30th 'twenty, 'twenty, one or a dollar nine on net income of $385 million.
This compares to $1 three per share a net earnings of $371 million with a 13 week ended November 2nd 2019.
Total sales for the quarter rose, 19% to $4 6 billion with strong comparable store sales increase of 14%.
For the first nine months earnings per share were $3.82 on net earnings of $1 $4 billion up from $3.32 per share a net income of $1 2 billion for the same period in 2019.
Okay.
Sales for the first nine months of this year rose, 20% to $13 9 billion with comparable store sales up 14%.
For the third quarter at law children and men's were the best performing businesses, while the Midwest and southeast were the top performing regions.
Okay.
Dd's discounts trends remained strong during the period as their sales performance also significantly exceeded our expectation.
However, like Ross Dd's profitability was negatively impacted by cost pressures related to freight wages and COVID-19.
At quarter end total consolidated inventories were up 3%, while average selling store inventory, we're down 1% versus 2019.
Parkway level ended at 31% of the total compared to 39% for the same period in 2019.
As we continue to 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.
Turning to store growth, we completed our expansion program for 2021 with the addition of 18, new Bra and 10 Dd's discounts in the third quarter.
For the full year, we added 65 locations comprised of 44, Ross and 21 Dd's discounts.
Additionally, we plan to close one store by year end.
As previously mentioned, we expect to return to our normal annual opening program of approximately 100 stores in 2022.
Now Adam will provide further detail on our third quarter results.
First quarter guidance and updated outlook for the year.
Thank you Barbara as previously stated comparable store sales were up 14% in the quarter. The increase was mainly driven by a larger average baskets with traffic down slightly versus 2019.
Operating margin of 11, 4% was well above our guidance range as expected the decline in overall profitability versus 2019 was mainly due to ongoing headwinds from higher freight and wage and COVID-19 related costs.
Cost of goods sold grew by 85 basis points in the quarter domestic freight expenses increased 125 basis points, while higher ocean freight costs negatively impacted merchandise margin, which declined by 40 basis points.
Buying also rose by 10 basis points. These higher expenses were partially offset by occupancy and distribution leverage of 65, and 25 basis points respectively.
SG&A for the period grew 15 basis points as leverage from the strong sales gain was offset by COVID-19 expenses and higher incentive costs, given our better than expected third quarter results.
Total net COVID-19 related costs for the period were approximately 35 basis points, the vast majority of which impacted SG&A.
During the third quarter, we repurchased $2 1 million shares of common stock for an aggregate cost of $241 million. We remain on track to buy back a total of $650 million in stock for the year.
Now, let's discuss our fourth quarter guidance as a reminder, our projections compared to the same period in 2019.
Looking ahead, while we are encouraged by the ongoing strength of consumer demand there remains significant uncertainty related to the worsening industry wide supply chain congestion as we enter the important holiday season.
As a result, and while we hope to do better we are forecasting comparable store sales to be up 7% to 9% with earnings per share projected in the range of 83 to 93 for.
For the 13 weeks ending January 29th 2022.
The operating statement assumptions that support our fourth quarter guidance include the following.
Total sales are projected to grow 10% to 13%.
We expect operating margin to be eight 1% to eight 8%. This forecast primarily reflects ongoing pressure from the previously mentioned supply chain headwinds as well as holiday pay incentives in our stores and distribution centers.
In addition covered related costs are projected to negatively impact EBIT margin.
Approximately 30 basis points in the period.
Net interest expense is estimated to be about $18 million, our tax rate is expected to be approximately 22% to 23%.
Weighted average diluted shares outstanding are projected to be about $352 million.
Based on our year to date results and fourth quarter guidance. We are now forecasting full year comparable store sales gains of 12%, 13% and earnings per share in the range of $4 65 to $4 75.
Compared to $4 60 in 2019, now I will turn the call back to Barbara for closing comments. Thank.
Thank you Adam.
We're encouraged by our above plan sales year to date as Adam noted uncertainty remains on how industry wide supply chain congestion may negatively affect our business in the fourth quarter.
That said, we believe we are well positioned as a value retailer and our constant customers will find a broad assortment of great branded bargains in our stores for the holiday season.
Moving forward consumers, increasing focus on value and convenience along with a large number of retail recent retail closures and bankruptcies make us confident about our prospects for continued market share gains in the future at this point, we'd like to open up the call and respond to any questions you may have.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again that is star then number one on your telephone keypad.
Pause for just a moment to compile the Q&A roster.
We have our first question coming from the line of Matthew Boss with JP Morgan Your line is open.
Thanks, and congrats on a nice quarter.
So Barbara with three straight quarters of 13% to 15% two year comps could you elaborate on market share gains tied to value and convenience that you're seeing and then given the closures and bankruptcies that you cited how would you best characterized product availability in the marketplace today.
Matthew Hi.
It's Michael Hartshorn on.
Market share gains.
Longer term, we're very excited about the market share opportunity ahead of us.
We're in a very healthy sector of retail with with the consumer even more focus as you mentioned on value and convenience, we clearly gained market share during the pandemic and.
And are confident about our future prospects for further gains given the significant number of retail closures and bankruptcies.
Matthew in terms of product availability.
I haven't put it this way it's a good time to be a buyer.
Maybe not in every category, but some areas are you know are very good others are consistent.
Overall the favorable.
Even with store closure, you know one would expect that over time as you know.
After COVID-19 is retail settle that.
The market will get more bullish on creating creating market, but right now we really feel good about market availability.
That's great best of luck.
Okay.
Thank you we have our next question coming from the line of Mark All swagger with Baird. Your line is open.
Thanks for taking the question and welcome Adam.
I'm curious just with the more inflationary backdrop are you seeing more opportunities to raise ticket while still maintaining the strong value proposition or how are you thinking about this lever to offset some of the ongoing freight and expense pressures. Thank you.
Sure.
Look our pricing model is really built off of other mainstream retailer and then we provided discounts. So we're very aware of pricing at different levels of distribution and we watch it closely with that you know we've continued to experiment with higher retail.
In all areas and in the new organization.
Some cases, its been absolutely fine and in some cases, not quite as spine and I wouldn't elaborate more on that in this forum, but what I would say is we would adjust pricing over time.
Once we understand it you know we don't know where it's really all going at this point, but we are definitely experimenting with with different with different retail.
Thank you we have our next question coming from the line of apologies with Citi. Your line is open.
Hey, guys. Thanks.
You referenced the ongoing strength of consumer demand and I was curious if that was a comment on fourth quarter. Two to date. If you were seeing that continue you also referenced worsening industry wide supply chain congestion and I'm curious if that's hurting you thus far in <unk> too.
Greater degree than what you saw in Q3, Q and Big picture I'm wondering if you think that congestion will ultimately be good for your business either in the fourth quarter or into 'twenty two.
Hi, Paul.
We are seeing a very healthy consumer.
When we came into the quarter, we were worried about the Delta there is also the.
Receiving government stimulus, but we've continued to see a very healthy consumer with strong demand for us across.
Geographies merchandise areas and you can see relatively across retail.
One that is increasingly focused on price value.
On the on the freight front.
We've taken a number of actions to ready ourselves for the holiday selling period, including adjusting our order anytime we chartered our one ocean vessel.
And we've been purchasing at market rate capacity to make sure we had enough.
Ocean freight to move goods.
You can see that certainly in our our our margins for the quarter merchant margin was impacted.
Via Ocean freight.
That we werent able to offset with merchant margin down about 40 basis points.
I wouldn't comment on the impact in <unk>.
The third quarter.
Congestion right now is squarely focused on the port and getting goods out of the court.
Thanks in the merchandise margin you said it was down 40 basis points, but you said that was impacted by ocean could you separate the pure merch margin versus the ocean piece.
We wouldn't break that out separately Ocean freight is actually included in our merchant margin merchant margin ended up better than we expected for the quarter as we had more full price selling and faster turns with the inventory ahead of plan. Our sales ahead of plan.
And then I would say as it pertains to the spike tank congestion.
It should create more closeout opportunities for us in the future.
Alright, Thanks, guys. Good luck.
Yeah.
Thank you we have our next question coming from the line of Lorraine Hutchinson with Bank of America. Your line is open.
Thank you Barbara I know you said, it's a good time to be a buyer, but I just wanted to focus in on any risk around receipt timing ahead of holiday and then what are you hearing from your vendor is going into the spring of next year vis vis product availability in the category if you really want.
A focus on.
Hmm.
Timing ahead of holiday.
You know I think we've taken all the appropriate Atkins as it pertains to two receipt timing.
Michael just said charter charter in vessel building in longer lead time.
Everything to get goods through the port, but with that you know we have concerns.
Not a given but we have some concerns.
As we think about product for spring I think vendors have gotten very aggressive in terms of pricing I think there are some vendors that are really looking to gain some market share in this timeframe and have taken.
Bigger risk in terms of making commitments. So I think it's very much on who the vendor is and what their what their strategy is.
But in terms of again in terms of.
Timing for holiday and we've taken the access we think we need to take them.
Again, we have some concerns, but it's not a given.
Thank you.
Thank you we have our next question coming from the line of Kimberly Greenberger with Morgan Stanley. Your line is open.
Okay, great. Thanks, so much I just wanted to follow up on on the range question, just about about holiday, Barbara and and I'm just want to make sure I understand you're clearly so.
How are you feeling about your your in stock levels. Currently here call. It middle of November and and how do you feel about your inventory position here for the next sort of six weeks of holiday selling.
Could you just give us a little bit of color just on the short term and then I wanted to.
Ask a couple of other questions if I could.
Kimberly on inventory position.
Currently.
We're in good shape, we ended the quarter with averages in store inventories down.
About 1%, which is where we wanted them to be and we continue to have a fresh flow of product.
There are a lot of receipts between now and the next six weeks.
There could be some risk in areas like home that Barbara mentioned theyre, not a given but we reflected that risk in our guidance at seven to nine.
Okay got it and is it are the new receipts.
The receipt risk concentrated at home because that's where you would have you know call. It more of a direct import or more of the direct imports would be impacting that area and those would be the items that would be either stuck in ports or an ocean.
Going Bustles correct.
Okay.
Great with six week with six week last mainly stuck in the court.
Maybe okay, mainly second part okay perfect.
That is great, Okay, and then on the quarter.
Hmm.
Michael or Adam whoever wants to address this you've talked about larger basket size I'm wondering if you can talk about the average unit retail versus the units per transaction, what's driving that.
And then you know.
Longer term following up on the question with regard to pricing.
I'm not sure if you have taken a look at where you're sitting.
Competitively versus peers, but it is there.
I know there are some of your peers looking at some surgical price increases in some categories I'm just wondering if you've.
If you've taken a look at your pricing and re benchmarked. It recently and if you have any thoughts on that thanks. So much.
Yeah. This is Adam let me jump in on the first part of that question. So our strong comps were driven by size of basket, which was primarily driven by number of units per transaction.
Did have a slight increase in AUR driven by the better full price selling given the above plan sales and then as we mentioned there was a slight decline in traffic in the quarter.
And then as it pertains to the pricing issue.
Our definitely experimenting with higher retails and I said you know.
Some in some areas. It's working it's fine in some areas. It's not time I think we'll continue to do that Kimberly and fine tune what the customer what the customer is willing to accept as we watch what goes on in mainstream retailer and we are there any war, where theyre AUR sit.
And after we get comfortable over time, we will consider adjusting the pricing once we really understand it.
But as we get ready to enter into into Q4, we're not expecting mainstream retailers to promote but we don't really know that as you get into Q4, and that's really the compressed period of time, so with that again merchants are out there trying new things trying retail thing, but the customers willing.
To accept.
But we kind of need to see both of those things to take a I would take a larger step.
Perfect makes perfect sense. Thanks Barbara.
Thank you we have our next question coming from the line of Chuck Grom with Gordon Haskett. Your line is open.
Okay. Thanks, very much what have you guys could speak to the trend of your comp during the quarter and if you think weather had any impact adverse impact, particularly in September and October and early thoughts on the first couple of weeks of November it sounds like trying to stay strong, but just wanted to confirm that.
This is Adam I can take that so comps were strong throughout the quarter.
And really.
No no.
Weather impact was very immaterial in the quarter and.
And we wouldn't comment on intra quarter trends.
Okay.
Okay.
Got it thank you.
Thank you we have our next question coming from the line of Michael Binetti with Credit Suisse. Your line is open.
Hey, guys. Thanks for taking my questions here.
I'm just curious as you look at the guidance what your what you guys are seeing in the business.
That helps you build to a 7% and nine guidance for fourth quarter I think the last prior two quarters was five to seven.
Just any change in how you built up with it but then I guess.
Michael would you.
Can you help I know you won't give us some number to Paul's question earlier, but when you think about what you baked in to freight in the fourth quarter, maybe just some directional idea of.
How that looks relative to third quarter, and then as you look out.
Maybe just thinking about when your contracts for how much visibility you have into the first half of next year and help us understand if it's if we should think that that's still going to be an incremental headwind into the first half based on what you guys know today.
Sure Michael.
Let me generally talk about the <unk>.
Fourth quarter guidance, obviously in these uncertain times, we believe it is prudent to be conservative as we always have with our guidance and hope to exceed these estimates obviously the large difference between Q3 is a cautious comp estimate given the potential impact of unpredictable.
Supply chain congestion. The guidance also includes ongoing freight pressure related to the congestion.
I would say, it's not significantly worse than it was in Q3.
Also include elevated wage related costs due to holiday incentives in both our stores and distribution centers to acknowledge our associates is extraordinary.
Dedication throughout the pandemic.
What we'd expect on that is above.
Bob.
Sales above the estimates we would expect 15 to 20 basis points of leverage.
On freight congestion I think our view at this point is.
We would not expect freight to subside.
Probably through the first half of next year and then we'll have to see how it trends after that in terms of what impact that could have a we will have more to say.
Our yearend yearend call as we finish up wrapping up our budget cycle okay.
If I could just follow that.
As you look at some of the AUR initiatives that you are seeing success with Barb are the duties do you feel like you have enough at this point it to combat that that freight pressure in the first half as needed.
Okay.
No I think I think where we are now is that we're going to continue to test to test. The AUR and then make it may probably slower moves to really understand.
What that looks like in mainstream retailers.
Got it okay. Thanks, a lot everybody.
Thank you we have our next question coming from the line of Jay sole with UBS. Your line is open.
Great. Thank you so much.
I don't know if you can share with us high level not looking for any specific guidance, but going into first quarter next year.
Lapping the stimulus.
Much of a benefit you got from the stimulus in the first quarter of this year and how do you think it might play out next year as you're out there what kind of impact would have on sales.
Yeah at this point, we wouldn't comment on next year as I said, we'll have we'll have more to say after we wrap up wrap up the fourth quarter and provide guidance in our year end call in early March.
Okay, and maybe if I can just ask one more then there's a lot of talk about how.
The pandemic has changed shopping and consumers maybe adopting more of an omnichannel method. If you look at the operating income growth for your department store competitors over the last three quarters, it's up over 100%.
Off price, it's up more like 10% do you feel at all like something has changed where you need maybe the department stores are catching up a little bit and if not why not.
Catching up in what regard.
We're just catching up in a way that like you've outgrown them in terms of sales you mentioned the market share gains you've taken outgrown them in terms of profit, but maybe they are getting closer to competing in there.
Maybe not necessarily.
We maintain the same level of sales, but maybe getting more profitable, which ultimately could be at an advantage that could use to sort of catch up in other ways as well.
Yeah, I think overall, we'll have to see how it plays out I mean, we're still in this burst of economic activity were.
Demand is exceeding supply I think we'd have to understand what happens when it's a more.
Greater balance between supply and demand, which.
We'll see if that first quarter second quarter next year. So it's hard to say at this point.
Okay. Thank you so much.
Yeah.
Thank you we have our next question coming from the line of Marni Shapiro with retail tracker. Your line is open.
Guys congratulations.
Can we just talk a little bit about two things have a consumers back out and about them working events parties have you seen a shift in what she's buying or are you can see continuing to see strength across the board and then if you could also just touch on with all of the late deliveries and the market have you been able to still get into very.
Holiday rich type of items Christmas themed items or were you able to tap into pack away as from last year's holiday to make sure that that was on the floor in time.
Oh sure Marni.
We have seen a shift to the customer.
We've always had a big casualty.
That's always been a big business for us and certainly during the pandemic.
That business has gotten bigger and stronger for us.
And but what we have seen is we have seen the custom maker ship back into what you are looking for a holiday glitz restaurant.
We have seen we have seen the customer may make that shift into into holiday product and also just more into more mainstream.
Mainstream sportswear.
A little bit of both so casual still very good still still a business that we believe in and ill expand and get greater but but she is making a test whether it's back to work which is going out.
Whatever she's doing we haven't seen that yet.
What about like in the home and like bags like those kinds of bags to go back to work or the home area, she's going back to work and not thinking about her whole mismatch I don't know.
You're saying like in handbags, yes has shifted into handbags as she's going out again or out of home and into a paramour those kinds of bigger ships as well.
I think anything where she is leaving our house is in on the apparel side has taken a shift whether it's been whether it's in footwear, whether it's in handbags. You know she hasn't been replenished replaced a lot of those products in a long time exactly.
Yes, we're seeing we are seeing a shift in back into some of those businesses.
S T. A C. You know goes out and she wants to do so.
Whether at home or apparel, though marni I would say, it's both both businesses.
Both businesses had been you know really relatively similar.
And sales gains so he's kind of she's kind of toggling between both groups now.
Third in parallel.
Caroline.
Because it just doesn't pony.
Yeah that makes sense.
And then just on the pack away.
Oh, okay.
And then on.
Pathway.
We in Hologic.
Tim if I could just remind me that piece again on pathways, because I think I might've interpreted as the holiday piece.
Let me tackle the question again.
Good morning.
Thank you we have our next question comes from the line of Laura Champine with loop capital. Your line is open.
Should we hold up and trying to get Marni back or would you prefer fr.
Higher Ed.
Find out later.
Okay here goes.
I thought the SG&A.
<unk> level was really impressive given that I think you're saying that COVID-19 is still an incremental hit are we is this kind of a base level that we can look at them as we start to model for next year or what are kind of some of the puts and takes that are keeping despite you know really strong topline I'm dead SG&A.
Spence is staying fairly flat.
Yeah, Yeah, no I was just going to jump in and say the COVID-19 has been pretty.
Consistent impact throughout the year and it will be in fourth quarter, we talked about the actions we've taken from a wage standpoint and from an incentive standpoint in our Dcs in our stores.
Those are clearly kind of the biggest movers within SG&A.
Okay.
I would say.
The 14 comp help helps us leverage yes, G&A significantly.
Got it thank you.
Again to ask a question that is star then the number one on your telephone keypad.
Please limit yourself to one question only thank you.
We have our next question coming from the line of Bob drill well.
With Guggenheim Your line is open.
Hi, good afternoon.
Just wondering if you could maybe spend a little bit more time on the labor component and just sort of the wage pressures that youre seeing in labor availability, maybe just give us some.
Insights on that that would be helpful. Thanks.
Sure Bob.
It is.
It's a very competitive market.
And we've seen the most competition and are in our distribution centers. We made some permanent wage increases early this year. We also have some.
Retention and incentives to get us through this.
The peak we're in.
In really good shape, we've been able to staff up the peak the distribution centers.
Where they need to be in the stores. Obviously, we have holiday selling ahead of us we weave.
Also have incentives hiring incentives there.
To make sure we can staff up for peak and we're confident AR.
That we're in a good place there as well.
Given the competition will remain competitive to make sure that we can.
We will remain competitive with their pay to make sure we can attract talent and we feel really good about the workforce.
Great. Thank you.
Thank you we have our next question coming from the line of Adrienne <unk> with Barclays. Your line is open.
Congratulations on the progress on top line quarter, Barbara you made a comment during the prepared remarks, you said you should see improvement in kind of closed up buying them.
I'm wondering are you seeing any incremental <unk> and that in and increase supply flow from either canceled orders are stranded inventory that could be used for short stay buys and redeployed earlier next year.
And then just a clarification question on the Adam on the freight the 160 basis point of freight pressure. This quarter fourth quarter is similar and then carrying that same level through the first half of 'twenty two.
Is that is that the implication that you were intending thank you.
I'll start with the freight I was making no commentary on what the freight cost level will be next year.
I was really.
And then in terms of what congestion could look like obviously will have some catch up different options.
Are there versus before.
And then in terms of the content the closeout buying.
Certainly our expectation is that there'll be the fall product is as retailers have canceled because they are late and they can't get to the selling floor.
That would be real pathway for fall.
For Q3 Q4 of next year.
But if we do see we do see opportunities on.
I would guess what youre thinking of is kind of seasonal apparel.
Could well now through Q1.
I believe that the combination of both.
Okay. Fantastic last question, if you would where is the average hourly rate I seem to recall a few years ago, maybe 2018 or 19, you had sort of committed to the $12 number and that was typically the almost a dollar higher than the average across the nation. I know you were at the better end of it.
Hey, I'm, just wondering where that number sits today, maybe relative to where Walmart target and some others are in that mid teen range. Thanks.
Yes, we don't disclose the specific wage we do have a base level at $11, but a significant portion of the chain.
<unk> is under minimum wage, California for instance is that.
<unk> so.
The average wage is well well above that.
That baseline.
Fair enough. Thank you very much and best of luck for holiday.
Thank you.
Okay.
Thank you we have our next question coming from the line of Simeon Siegel with BMO capital markets. Your line is open.
Hi, Thanks, everyone and sorry, if I missed it did you say, where you expect inventory to end <unk> and then over the next few quarters and then.
To the earlier point about outperforming despite waiting stimulus have you guys quantified what you think the benefit was from stimulus and just how youre thinking about the potential impacts as we cycle through that early next year. Thanks a lot.
On next year, we wouldn't comment we'll comment.
Again at year end on inventory.
<unk> typically don't guide ahead on inventory levels.
So I guess, where the stimulus have you quantified what it was this year.
Think about the benefit this year.
It's really hard because there's a lot of moving parts because it's not only stimulus that's customer pent up demand.
Well, we'll end up developing plans around it.
As we move into next year, but we haven't quantified that.
Understood. Thanks, a lot guys best of luck for holiday.
Yeah.
Thank you we have our next question coming from the line of Ikea for auto.
Wells Fargo. Your line is open.
Hi, everyone. This is Jesse Olson on for Ike and I was just wondering as we look forward and begin to model next year.
Would you guys be able to quantify.
Quantify the timing of when COVID-19 costs might be able to revert or are you expecting that to sustain these costs and just kind of be a part of the business going forward.
We wouldn't comment specifically on next year, but we would expect.
I will say generally we would expect COVID-19 costs to come down there are not.
Holy permanently part of the cost.
Thank you.
Thank you we have our next question coming from the line of John Kernan with Cowen Your line is open.
Thanks, Doug Good afternoon, Thanks for taking my question.
Just curious on the.
The margin picture.
You, obviously outperformed your comp guidance and.
EBIT margin was down roughly 100 basis points from the pre Covid based on 19, you're guiding it.
Much lower than that albeit on a lower comp guidance for the fourth quarter.
Just curious what do you think the biggest levers are to recapture that low teens operating.
Operating margin that you generated in 2019, and there's a lot of inflation.
Ross retail the factories your vendors supply chain just curious.
How do you think youre going to recapture that pre COVID-19 level of profitability is it really just through <unk>.
<unk> com comp store sales gains.
How do we quantify that.
Sure John.
As I said, obviously, we're in a.
Very healthy sector of retail and are confident in our prospects for further market share gains as we sit here today.
It's difficult to predict how much of the inflationary cost headwinds, we're experiencing from the burst of economic activity or transitory versus permanent some margin recovery will be dependent on where and when those costs stabilize and of course, our sales volume where we once again.
We believe we have a long.
Long range large market share opportunity.
Ahead of us over time, we would expect to return to double digit EPS growth on a three to four comp.
We do have initiatives in the company to try to increase efficiencies and are big areas of expense, including our stores and distribution centers, but it's going to be largely dependent on.
The transitory nature of the inflation that we're seeing today.
Got it thank you.
Thank you we have our last question coming from the line of Tim very Garneau with Northcoast Research. Your line is open.
Thank you can you guys remind us of how you're thinking about the store footprint and unit growth and then maybe.
Highlights for us that's bad environments are setup is getting easier or more difficult.
You know as you look forward. Thank you.
Sure on the on the real estate front as we said in our comments we ended up.
We wrapped up our program for this year, we opened 65 stores. We also said that we expect to return to historical annual program in 2022 opening 100 stores annually overall, the real estate market is good.
And we.
We would expect there to be increased supply of available sites given the level of store closures.
Thanks, sorry, I missed that.
Thank you there are no further questions on queue I would now like to turn the call back over to Barbara <unk> for any closing remarks.
Thank you for joining us today and for your interest in Ross stores happy holidays.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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Okay.
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Good afternoon, and welcome to the Eros door third quarter 2021 earnings release conference call.
So I'll, we'll begin with prepared comments by management.
A question and answer session.
To ask a question. During this 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 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.
Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations.
I mean, the factors are included in today's press release, and the company's fiscal 'twenty 'twenty forms 10-K, and fiscal 2021 form 10, Qs and eight Ks on file with the S E T.
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, first President and Chief operating Officer, and Connie Kao Group, Vice President Investor Relations.
And I'd also like to welcome Adam former our recently appointed Executive Vice President and Chief Financial Officer.
We'll begin our call today with a review of our third quarter performance, followed by an update on our outlook for the fourth quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have.
As noted in today's press release.
Third quarter sales and profitability significantly exceeded our expectations.
Consumers continue to respond favorably to our broad assortment of great bargain.
We achieved these results despite waning government stimulus and uncertainty related to the spread of Covid variance.
Earnings per share for the 13 weeks ended October 30th 'twenty, 'twenty, one or $1 nine on net income of $385 million.
This compares to $1 three per share on net earnings of $371 million with a 13 week ended November <unk> two.
2019.
Total sales for the quarter rose, 19% to $4 6 billion with strong comparable store sales increase of 14%.
For the first nine months earnings per share were $3 82.
Net earnings of $1 4 billion.
Up from $3.32 per share on net income of $1 2 billion for the same period in 2019.
Sales for the first nine months of this year rose, 20% to $13 9 billion with comparable store sales up 14%.
For the third quarter at Roth children, and men's were the best performing businesses, while the Midwest and southeast were the top performing regions.
Dd's.
Discount trends remained strong during the period as their sales performance also significantly exceeded our expectation.
However, like rock.
Profitability was negatively impacted by cost pressures related to freight wages and COVID-19.
At quarter end total consolidated inventories were up 3%, while average selling store inventories were down 1% versus 2019.
Parkway level ended at 31% of the total compared to 39% for the same period in 2019.
We continue to use a substantial amount of parkway merchandise to support ahead of planned sales.
In addition, they were receipt delays due to supply chain congestion.
Turning to store growth, we completed our expansion program for 2021 with the addition of 18, new Ross and 10 Dd's discounts in the third quarter.
For the full year, we added 65 locations comprised of 44, Ross and 21 Dd's discounts.
Additionally, we plan to close one store by year end.
As previously mentioned, we expect to return to our normal annual opening program of approximately 100 stores in 2022.
Now item or both will provide further details on our third quarter results fourth quarter guidance and updated outlook for the year.
Thank you Barbara as previously stated comparable store sales were up 14% in the quarter. The increase was mainly driven by a larger average basket with traffic down slightly versus 2019 operating margin of 11, 4% was well above our guidance range as expected the decline in <unk>.
Overall profitability versus 2019 was mainly due to ongoing headwinds from higher freight.
<unk> and Covid related costs.
Cost of goods sold grew by 85 basis points in the quarter domestic freight expenses increased 125 basis points, while higher ocean freight costs negatively impacted merchandise margin, which declined by 40 basis points buying also rose by 10 basis points. These higher expense.
These were partially offset by occupancy and distribution leverage of 65, and 25 basis points respectively.
SG&A for the period grew 15 basis points as leverage from the strong sales gain was offset by COVID-19 expenses and higher incentive costs, given our better than expected third quarter results.
Total net COVID-19 related costs for the period were approximately 35 basis points, the vast majority of which impacted SG&A.
During the third quarter, we repurchased two 1 million shares of common stock for an aggregate cost of $241 million. We remain on track to buy back a total of $650 million in stock for the year.
Now, let's discuss our fourth quarter guidance as a reminder, our projections compared to the same period in 2019.
Looking ahead, while we are encouraged by the ongoing strength of consumer demand there remains significant uncertainty related to the worsening industry wide supply chain congestion as we enter the important holiday season.
As a result, and while we hope to do better we are forecasting comparable store sales to be up 7% to 9% with earnings per share projected in the range of 83 to 93.
For the 13 weeks ending January 29 2022.
The operating statement assumptions that support our fourth quarter guidance include the following.
Total sales are projected to grow 10% to 13% we.
We expect operating margin to be eight 1% to eight 8%. This forecast primarily reflects ongoing pressure from the previously mentioned supply chain headwinds as well as holiday pay incentives in our stores and distribution centers.
In addition covered related costs are projected to negatively impact EBIT margin.
Approximately 30 basis points in the period.
Net interest expense is estimated to be about $18 million, our tax rate is expected to be approximately 22% to 23%.
Weighted average diluted shares outstanding are projected to be about $352 million.
Based on our year to date results and fourth quarter guidance. We are now forecasting full year comparable store sales gains of 12%, 13% and earnings per share in the range of $4 65 to $4 75.
Compared to $4 60 in 2019, now I will turn the call back to Barbara for closing comments. Thank.
Thank you Adam.
We're encouraged by our above plan sales year to date as Adam noted uncertainty remains on how industry wide supply chain congestion may negatively affect our business in the fourth quarter.
That said, we believe we are well positioned as a value retailer and are confident customers will find a broad assortment of great branded bargains in our stores for the holiday season.
Moving forward consumers, increasing focus on value and convenience along with a large number of retail recent retail closures and bankruptcies make us confident about our prospects for continued market share gains in the future.
At this point, we'd like to open up the call and respond to any questions you may have.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again that is star then number one on your telephone keypad.
Pause for just a moment to compile the Q&A roster.
We have our first question coming from the line of Matthew Boss with Jpmorgan. Your line is open.
Thanks, and congrats on a nice quarter.
So Barbara with three straight quarters of 13% to 15% two year comps could you elaborate on market share gains tied to value and convenience that youre seeing and then given the closures and bankruptcies that you cited how would you best characterized product availability in the marketplace today.
Matthew Hi.
It's Michael Hartshorn on.
Market share gains.
Longer term, we're very excited about the market share opportunity ahead of us.
We're in a very healthy sector of retail with the consumer even more focused as you mentioned on value and convenience, we clearly gained market share during the pandemic in.
And are confident about our future prospects for further gains given the significant number of retail closures and bankruptcies.
And Matthew in terms of product availability.
I have a particular space. It's a good time to be a buyer maybe maybe not in every category, but some areas are.
Our very good others are inconsistent.
Overall is favorable.
Even with store closure.
One would expect that over time as you know.
After COVID-19 is retail settle that.
The market will get more bullish on creating creating market, but right now we really feel good about market availability.
That's great best of luck.
Thank you we have our next question coming from the line of Mark <unk> with Baird. Your line is open.
Thanks for taking the question and welcome Adam.
I'm curious just with the more inflationary backdrop are you seeing more opportunities to raise ticket while still maintaining the strong value proposition.
How are you thinking about this lever to offset some of the ongoing freight in expense pressures. Thank you.
Sure.
Look our pricing model is really built off of other mainstream retailer and then we provide a discount so.
We're very aware of pricing at different levels of distribution and we watch it closely with that we've continued to experiment with higher retail.
In all areas in the new organization in some cases, it's been.
Absolutely fine and in some cases not quite a fine.
And I wouldn't elaborate more on that in this forum, but what I would say is we would adjust pricing over time.
Once we understand it you know, we don't know where its really all going at this point, but we are definitely experimenting with with different with different retail.
Thank you we have our next question coming from the line of Paul <unk> with <unk>.
Your line is open.
Hey, guys. Thanks.
You referenced the ongoing strength of consumer demand and I was curious if that was a comment on fourth quarter to date. If you are seeing that continue you also referenced worsening industry wide supply chain congestion and I'm curious if that's hurting you thus far in <unk>.
A greater degree than what you saw in Q3, Q and Big picture I'm wondering if you think that congestion will ultimately be good for your business either in the fourth quarter or into 'twenty two.
Hi, Paul.
We are seeing a very healthy consumer.
When we came into the quarter, we were worried about the delta there.
Also the.
Receiving government stimulus, but we've continued to see a very healthy consumer with strong demand for us across.
Geographies merchandise areas and you can see relatively across retail.
One that is increasingly focused on price value.
On the on the freight front.
We've taken a number of actions to ready ourselves for the holiday selling period, including adjusting our order anytime we chartered our one ocean vessel and we've been purchasing at market rate capacity to make sure we had.
Ocean freight to move goods.
You can see that certainly in our our our margins for the quarter merchant margin was impacted.
Via Ocean freight.
That we werent able to offset with merchant margin down about 40 basis points.
I wouldn't comment on the impact in the third quarter that that congestion right. Now is squarely focused on the court and getting goods out of the quarter.
Thanks in the merchandise margin you said it was down 40 basis points.
Said that was impacted by ocean could you separate the pure merch margin versus the ocean piece.
We wouldn't break that out separately Ocean freight is actually included in our merchant margin merchant margin ended up better than we expected for the quarter as we had more full price selling and faster turns with the inventory ahead of plan. Our sales ahead of plan.
And then I would say as it pertains to the supply chain congestion.
Should create more closeout opportunities for us in the future.
Okay. Thanks, guys. Good luck.
Thank you we have our next question coming from the line of Lorraine Hutchinson with Bank of America. Your line is open.
Thank you Barbara I know you said, it's a good time to be a buyer, but I just wanted to focus in on any risk around receipt timing ahead of holiday and then what are you hearing from your vendors going into the spring of next year vis vis product availability in the categories you really want.
Our focus on.
Receipt timing ahead of holiday.
I think we've taken all the appropriate Atkins as it pertains to two receipt timing.
Michael just said charter charter in vessel building in longer lead time.
Everything to get goods through the port, but with that we have.
Have concern.
Not a given but we have some concern.
As we think about product for spring I think vendors have gotten very aggressive in terms of placing good I think there are some vendors that are really looking to gain some market share in this timeframe and have taken.
Bigger risks in terms of making commitments. So I think it is very much on who the vendor is and what their what their strategy is.
But in terms of again in terms of.
Timing for holiday, we've taken the actions, we think we need to take.
But again, we have some concerns but it is not a given.
Thank you.
Thank you we have our next question coming from the line of Kimberly Greenberger with Morgan Stanley. Your line is open.
Okay, great. Thanks, so much I just wanted to follow up on on the reins question just about holiday Barbara and I'm just wanted to make sure I understand you're clearly so.
How are you feeling about your in stock levels currently here call. It middle of November and and how do you feel about your inventory position here for the next sort of six weeks of holiday selling.
Could just give us a little bit of color just on the short term and then I wanted to.
Ask a couple of other questions if I could.
Kimberly on inventory position.
Currently.
We're in good shape, we ended the quarter with averages in store inventories down.
About 1%, which is where we wanted them to be and we.
We continue to have a fresh flow of product.
There are a lot of receipts between now and the next six weeks.
And there could be some risk in areas like home that Barbara mentioned theyre, not a given but we reflected that risk in our guidance.
Seven to nine.
Okay got it and is it are the receipts.
The receipt risk concentrated at home because that's where you would have you know call. It more of a direct import or more of the direct imports would be impacting that area and those would be the items that would be either stuck stuck in ports or an ocean.
Going versus correct.
Okay.
Great was sexually with six week last mainland stuff in Florida.
Maybe okay.
Mainly second part okay perfect.
That is great, Okay, and then on the quarter.
Michael or Adam whoever wants to address this you've talked about larger basket size I'm wondering if you can talk about the average unit retail versus the units per transaction, what's driving that.
And then you know.
<unk>.
Just longer term following up on the question with regard to pricing.
I'm not sure if you have taken a look at where you're sitting.
Competitively versus peers, but it is there.
I know there are some of your peers looking at some surgical price increases in some categories I'm just wondering if you.
If you've taken a look at your pricing and re benchmarked. It recently and if you have any thoughts on that thanks. So much.
This is Adam let me jump in on the first part of that question. So our strong comps were driven by size of basket, which was primarily driven by number of units per transaction there we.
We did have a slight increase in AUR driven by the better full price selling given the above plan sales and then as we mentioned there was a slight decline in traffic in the quarter.
And then as it pertains to the pricing issue.
We are definitely experimenting with higher retails and I said.
Some in some areas. It's working it's fine in some areas. Its not time I think we'll continue to do that Kimberly and fine tune what the customer you know what the customers willing to accept as we watch what goes on in mainstream retailer and we are their AUR, where theyre AUR sit.
And after we get comfortable over time, we would consider adjusting the pricing once we really understand it.
But as we get ready to enter into into Q4.
Not expecting.
Mainstream retailers to promote but we don't really know that as you get into Q4 and this really this compressed period of time, so with that again merchants are out there trying new things trying retail thing, but the customers willing to accept.
But we kind of need to see both of those things to take a I would say a larger step.
Perfect. It makes perfect sense. Thanks Barbara.
Thank you we have our next question is coming from the line of Chuck Grom with Gordon Haskett. Your line is open.
Great. Thanks, very much I wonder if you guys could speak to the trend of your comp during the quarter and if you think weather had any impact adverse impact, particularly in September and October and any early thoughts on the first couple of weeks of November it sounds like I'm trying to stay strong, but just wanted to confirm that.
This is Adam I can take that so comps were strong throughout the quarter.
And really.
No no.
Weather impact was very immaterial in the quarter.
And we wouldn't comment on inter quarter trends.
Okay.
Got it thank you.
Thank you we have our next question coming from the line of Michael Binetti with Credit Suisse. Your line is open.
Hey, guys. Thanks for taking my questions here.
I'm just curious as you look at the guidance what your what you guys are seeing in the business.
That helps you build to a seven to nine guidance for fourth quarter I think the last prior two quarters was 5% to seven.
Just any change in how you built up with it but then I guess.
Michael.
Can you help I know you won't give us some number to Paul's question earlier, but when you think about what you baked in to freight in the fourth quarter, maybe just some directional idea of.
How that looks relative to third quarter, and then as you look out.
Maybe just thinking about one year contracts roll how much visibility you have into the first half of next year and help us understand if it's if we should think that thats still going to be an incremental headwind into the first half based on what you guys know today.
Sure Michael.
Let me generally talk about the <unk>.
Fourth quarter guidance, obviously in these uncertain times, we believe it's prudent to be conservative as we always have with our guidance and hope to exceed these estimates obviously the large difference between Q3 is a cautious comp estimate given the potential impact of unpredictable.
Supply chain congestion. The guidance also includes ongoing freight pressure related to the congestion.
I would say, it's not significantly worse than it was in Q3.
Also include elevated wage related costs due to holiday incentives in both our stores and distribution centers to acknowledge our associates extraordinary.
Dedication throughout the pandemic.
What we'd expect on that is above.
Bob.
Sales above the estimates we would expect 15 to 20 basis points of leverage.
On freight congestion I think our view at this point is.
We would not expect freight to subside.
Probably through the first half of next year and then we'll have to see how it trends after that in terms of what impact that could have we will have more to say.
Year end year end call as we finish up wrapping up our budget cycle. Okay.
If I could just follow that.
As you look at some of the AUR initiatives that you are seeing success with Barb are those do you feel like you have enough at this point it to combat that freight pressure in the first half as needed.
No I think I think where we are now is that we're going to continue to test to test the AUR and then make and make probably slower moves so we really understand.
What that looks like in mainstream retailers.
Okay. Thanks, a lot everybody.
Thank you we have our next question is coming from the line of Jay sole with UBS. Your line is open.
Yes.
Great. Thank you so much.
I don't know if you can share with us high level not looking for any specific guidance, but going into first quarter next year.
Capping the stimulus.
Much of a benefit you got from midstream you us in the first quarter of this year and how do you think it might play out next year as you're out there what kind of impact would it have on sales.
Yeah at this point, we wouldn't comment on next year as I said, we will we'll have more to say after we wrap up wrap up the fourth quarter and provide guidance in our year end call in early March.
Okay, and maybe if I can just ask one more then there's a lot of talk about how.
The pandemic has changed shopping and consumers maybe adopting more of an omnichannel method. If you look at the operating income growth for your department store competitors over the last three quarters, it's up over 100%.
Off price is up more like 10% do you feel at all like something has changed where you need maybe the department stores are catching up a little bit and if not why not.
Catching up in what regard.
We're just catching up in a way that like you've outgrown them in terms of sales you mentioned the market share gains that you've taken algorithm in terms of profit, but maybe they are getting closer to competing and maybe maybe not necessarily maintain.
Maintain the same level of sales, but maybe getting more profitable, which ultimately could be at an advantage that could use to sort of catch up in other ways as well.
Yeah, I think overall, we'll have to see how it plays out I mean, we're still in this burst of economic activity were.
Demand is exceeding supply I think we'd have to understand what happens when it's a more.
Greater balance between supply and demand, which.
Well see if thats first quarter second quarter next year. So it's hard to say at this point.
Okay. Thank you so much.
Yeah.
Thank you we have our next question coming from the line of Marni Shapiro with retail tracker. Your line is open hey.
Guys congratulations.
Can we just talk a little bit about two things have a consumers back out and about them working events parties have you seen a shift in what she's buying or you can see continuing to see strength across the board and then if you could also just touch on with all of the late deliveries in the market.
Have you been able to still get into very holiday rich type of items.
Christmas themed items or were you able to tap into pack away as from last year's holiday to make sure that that was on the floor in time.
Luster Marni.
We have seen a shift to the customer look we've always had a big casualty.
That's always been a big business for us and certainly during the pandemic.
That business got even bigger and stronger for us.
And but what we have seen is we have seen the custom maker ship back into what Youre looking for a holiday glitz throughout southern Hills. So we.
We have seen we have seen the customer make make that shift into into holiday product and also just more into more.
Mainstream sportswear.
Well a bit of both so casual is still very good still still a business that we believe in and I'll expand and get greater but but she is making a test whether it's back to work, which is going out for evening, whatever she's done we've not seen that yet.
What about like in the home and like bags like those kinds of bags to go back to work or the home area, she's going back to work and not thinking about her home mismatch I don't know.
Youre, saying like in like a handbag, yeah has shifted into handbags as she's going out again or out of home and into a paramour those kinds of bigger ships as well.
I think anything where she is leaving our house is in on the apparel side has taken a shift whether it's been whether it's in footwear, whether it's in handbags.
She hasn't been replenished replaced a lot of those products in a long time exactly.
Yes, we're seeing we are seeing a shift in back into some of those businesses.
S T a C.
So that she wants to understand so.
Whether it's home or apparel Marni I would say both.
Both businesses.
Both businesses had been.
Relatively similar.
The sales gain so he's kind of she's kind of toggling between both worlds now.
Third.
Harold.
Christy just doesn't pony.
Yes that makes sense.
And then just on the pack away.
Oh.
And then on.
Pathway.
In Hollywood.
Just Tim if I could just remind me that piece again on pack away, because I think I might've interpreted as the holiday season.
Let me tackle the question again.
Good morning.
Thank you we have our next question comes from the line of Laura Champine with loop capital. Your line is open.
Should we hold up and I'm trying to get Marni back or would you prefer fr head.
Fire ahead Luke.
Later.
Okay here goes.
I thought the SG&A expense level was really impressive given that I think youre, saying that COVID-19 is still an incremental hit are we is this kind of a base level that we can look at them as we start to model for next year or what are kind of some of the puts and takes that are keeping despite you know really.
Strong top line.
That SG&A expenses staying fairly flat.
Yeah. I'll go ahead, yes, I was just going to jump in and say Covid has been pretty <unk>.
Consistent impact throughout the year and it will be in fourth quarter, we talked about the actions we've taken from a wage standpoint and from an incentive standpoint in our Dcs in our stores.
Those are clearly kind of the biggest movers within SG&A.
Okay.
I would say.
The 14 comp help helps us leverage.
Yes, G&A significantly.
Got it thank you.
Again to ask a question that is star then the number one on your telephone keypad.
Please do limit yourself to one question only thank you.
We have our next question coming from the line of Bob <unk> with Guggenheim. Your line is open.
Hi, good afternoon.
Just wondering if you could maybe spend a little bit more time on the labor component and just sort of the way.
<unk> pressures that youre seeing in labor availability, maybe just give us some insights on that that would be helpful. Thanks.
Sure Bob.
It is.
It's a very competitive market for talent.
And we've seen the most competition and our and our distribution centers. We made some permanent wage increases early this year. We also have some.
Retention and incentive to get us through that.
The peak, we're in really good shape, we've been able to staff up to peak the distribution centers.
Or where they need to be in the stores. Obviously, we have holiday selling ahead of us.
We've.
Also have incentives hirings incentives there.
To make sure we can staff up for peak and we're confident.
We're in a good place there as well.
Given the competition will remain competitive to make sure that we can.
We will remain competitive with their pay to make sure we can attract talent and we feel really good about the workforce.
Alright, thank you.
Thank you we have our next question coming from the line of Adrienne <unk> with Barclays. Your line is open.
Congratulations on the progress on top line quarter, Barbara you made a comment during the prepared remarks, you said you should see improvement in kind of closed up buying in.
I'm wondering are you seeing any incremental <unk> and that increased supply flows from either canceled orders are stranded inventory.
Could be used for short stay buys and redeployed earlier next year.
And then just a clarification question on the Adam on the freight the 160 basis point of freight pressure. This quarter fourth quarter is similar and then carrying that same level through the first half of 'twenty two.
Is that is that the implication that you were intending thank you.
I'll start with the freight I was making no commentary on what the freight cost level will be next year.
I was really got answered that in terms of what congestion could look like obviously will have some different options.
Versus the fourth.
And then in terms of the content of closeout buying.
Certainly our expectation is that there will be the fall product is as retailers have canceled goods because they are late and they can't get to the selling floor. So that that would be real real pathway for fall.
For Q3 Q4 of next year.
But if we do see we do see opportunities on.
I would guess that youre thinking of is kind of seasonal with apparel.
Could slow now through Q1.
I believe this combination of both.
Okay Fantastic last question, if you would.
Is the average hourly rate.
You may recall, a few years ago, maybe 2018 or 19, you had sort of committed to this 12 dollar number and that was typically at the almost a dollar higher than the average across the nation I know you're at the better end of PE and I'm, just wondering where that number sits today, maybe relative to where Walmart target and some others are in that mid teen rate.
Thanks.
Yes, we don't disclose the specific wage we do have a base level at $11, but a significant portion of the chain.
Is under minimum wage, California for instance is that.
At 15 so.
The.
The average wage is well well above that.
That baseline.
Fair enough. Thank you very much and best of luck for holiday.
Thank you.
Okay.
Thank you we have our next question coming from the line of Simeon Siegel with BMO capital markets. Your line is open.
Hi, Thanks, everyone, sorry, if I missed it did you say, where you expect inventory to end <unk> and then over the next few quarters and then.
To the earlier point about outperforming despite winning stimulus have you guys quantified what you think the benefit was from stimulus and just how youre thinking about the potential impacts as we cycled through that early next year. Thanks a lot.
On next year, we wouldn't comment we'll comment.
Again at year end on inventory, we typically don't guide ahead on inventory levels.
So I guess, where the stimulus have you quantified what it was this year.
Think about the benefit this year.
It's really hard because there's a lot of moving parts because it's not only stimulus that's customer pent up demand.
We will we will end up developing plans around it.
As we move into next year, but we haven't quantified that.
Understood. Thanks, a lot guys best of luck for holiday.
Okay.
Thank you we have our next question coming from the line of Ikea for Awesome.
With Wells Fargo. Your line is open.
Hi, everyone. This is Jesse <unk> on for Ike and I was just wondering as we look forward and begin to model next year.
Would you guys be able to quantify.
Quantify the timing of when COVID-19 costs might be able to revert or are you expecting that to sustain these costs just kind of be a part of the business going forward.
We wouldn't comment specifically on next year, but we would expect.
I will say generally we would expect COVID-19 costs to come down there are not.
Holy permanently part of the cost.
Thank you.
Thank you we have our next question coming from the line of John Kernan with Cowen Your line is open.
Thanks, Doug Good afternoon, Thanks for taking my question.
Just curious on the.
The margin picture.
You, obviously outperformed your comp guidance and.
EBIT margin was down roughly 100 basis points from the pre Covid based on 19, you're guiding it.
Much lower than that albeit on a lower comp guidance for the fourth quarter.
Just curious what do you think the biggest levers are to recapture that low teens.
Operating margin that you generated in 2019, and there's a lot of inflation.
<unk> retail the factories your vendors.
Why change just curious.
How do you think youre going to recapture that pre COVID-19 level of profitability is it really just true.
More com comp store sales gains.
How do we quantify that.
Sure John.
As I said, obviously, we're in a.
Very healthy sector of retail.
We are confident in our prospects for further market share gains as we sit here today.
It's difficult to predict how much of the inflationary cost headwinds, we're experiencing from the burst of economic activity or transitory versus permanent some margin recovery will be dependent on where and when those costs stabilize and of course, our sales volume where we once again.
We believe we have a long.
Long range large market share opportunity.
Ahead of us over time, we would expect to return to double digit EPS growth on a 3% to four comp.
We do have initiatives in the company to try to increase efficiencies and are big areas of expense, including our stores and distribution centers, but it's going to be largely dependent.
On the.
The transitory nature of the inflation that we're seeing today.
Got it thank you.
Thank you we have our last question coming from the line of Tim Goodnow.
With Northcoast research your line is open.
Thank you can you guys remind us of how you're thinking about the store footprint and unit growth and then maybe.
Highlights for us.
Environments are set up is getting easier or more difficult.
You know as you look forward. Thank you.
Sure on the on the real estate front as we said in our comments we ended up.
We wrapped up our program for this year, we opened 65 stores. We also said that we expect to return to historical annual program in 2022 opening 100 stores annually overall, the real estate market is good.
And.
We would expect there to be increased supply of available sites given the level of store closures.
Thanks, sorry, I missed that.
Thank you there are no further questions on queue I would now like to turn the call back over to Barbara <unk> for any closing remarks.
Thank you for joining us today and for your interest in Ross stores happy holidays.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.