Q1 2022 Ross Stores Inc Earnings Call

May 19, 2022

Okay.

Good afternoon, and welcome to the Ross stores first quarter 2020 earnings release Conference call. The call will begin with prepared comments by management, followed by a question and answer session. At this time all participants are in a listen only to ask a question. During the Q&A session you will need to press star one on your telephone.

If you require any further assistance. Please press star zero. Please be advised that today's call is being recorded.

Before we get sorry on behalf of Ross stores I would like to note that the comments made in this call will contain forward looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts, new store openings 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 or current expectations risk factors are included in today's press release, and the company's fiscal 2021 and Form 10-K and fiscal 2020 248 case.

On file with the SEC.

Now I would like to turn the call over to Barbara <unk> Chief Executive Officer. Please go ahead.

Good afternoon, joining me on our call today are Michael Hartshorn Group, President and Chief Operating Officer, Adam <unk>, Our executive Vice President and Chief Financial Officer, and Connie Kao, Vice President Investor Relations.

We will begin our call today with a review of our first quarter 2022 performance followed by our outlook for the second quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have.

As today as noted in today's press release, we are disappointed with our lower than expected first quarter results.

We knew 2022 would be a difficult year to predict, especially the first half while we were facing last year's record levels of government stimulus and significant customer pent up demand as COVID-19 restrictions ease.

The external environment has also proven extremely challenging as the Russia, Ukraine conflict.

Exasperate exasperated inflationary pressures on the consumer not seen in 40 years.

As a result of these factors our first quarter results underperformed our expectations.

Total sales for the first quarter were $4 3 billion with comparable store sales down <unk>, 7% on top of a robust 13% gain in the first quarter of 2021 that were versus 2019.

Earnings per share for the 13 weeks ended April 32022 were <unk> 97 on.

Net income of $338 million.

The quarter includes an approximate benefit of <unk> <unk> per share from the favorable timing of expenses that are expected to reverse in subsequent quarters.

These results compare to $1 34 per share on net earnings of $476 million for the 13 weeks ended may one 2021.

Men's was the strongest merchandise area during the quarter, while Florida was the top performing region.

Dd's discounts performance in the first quarter trailed that abroad as the significant benefit of last year's stimulus and escalating inflationary pressures had a larger impact on lower income households.

At quarter end total consolidated inventories were up 57% versus the same period in 2021, mainly from higher pack away inventory.

Pathway Merck just merchandize represented 43% of total inventories versus 34% last year, when we use a substantial amount of pack away to meet robust consumer demand.

Additionally, supply chain congestion eased somewhat during the first quarter, resulting in the early receipt of merchandise that we stored in pack away and will flow to stores later in the year.

Average store inventories during the quarter were up that we saw.

Still operated with significantly less inventory in store than we did pre pandemic.

Yes.

Turning to store growth. Our 2022 inspection program is on schedule with the addition of 22, new Ross and eight Dd's discounts locations in the first quarter.

We remain on track to open a total of approximately 100 locations this year.

Price of about 75, Ross and 25 Dd's.

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

Now Adam will provide further details on our first quarter results and additional color on our outlook for the remainder of fiscal 2022.

Thank you Barbara <unk>.

Previously mentioned, our comparable store sales were down 7% for the quarter as average basket growth was more than offset by the decline in transactions versus the prior year.

First quarter operating margin of 10, 8% was down from 14, 2% in 2021, mainly due to the deleveraging effect of the same store sales decline along with ongoing cost pressures from higher freight and wages that began to escalate in the second half of 2021.

As Barbara commented earlier the quarter benefited from the favorable timing of expenses most of which were in gross margin.

Cost of goods sold in the first quarter increased by 295 basis points due to a combination of factors.

Merchandise margin declined 170 basis points, primarily due to higher ocean freight cost.

Domestic freight rose 80 basis points, while occupancy Deleveraged 40 basis points on the same store sales decline.

Distribution cost increased 25 basis points, mainly due to wage actions taken last year.

These unfavorable items were partially offset by buying expenses that improved by 20 basis points.

SG&A for the period rose 50 basis points due to higher wages and the deleveraging effect of lower comparable sales.

During the first quarter, we repurchased two 5 million shares of common stock for an aggregate cost of $240 million.

We remain on track to buy back a total of $950 million in stock for the year.

Now, let's discuss our outlook for the remainder of 2022.

As Barbara noted in today's press release, given our first quarter results and todays increasingly uncertain macroeconomic and geopolitical environment. We believe it is prudent to adopt a more conservative outlook for the balance of the year.

We are now forecasting comparable sales for the 13 weeks ending July 32022 to.

The decrease for 4% to 6% on top of a very strong 15% gain in the prior year period.

Second quarter earnings per share are projected to be 99 to $1 seven versus $1 39 last year.

Our guidance assumptions for the second quarter of 2022 include the following.

Total sales are forecast to decline, 1% to 4% versus the prior year.

We plan to open 29 locations in the second quarter, including 21, Ross and eight Dd's discounts locations.

Operating margin for the second quarter is planned to be in the $10 four to 10, 8% range down from 2021 due to deleverage on lower same store sales and ongoing expense headwinds that are expected to continue through the first half of 2022.

Net interest expense is expected to be approximately $15 million.

Tax rate is projected to be about 25%.

And diluted shares outstanding are expected to be approximately $348 million.

For the full year, we are now planning comparable store sales to decline, 2% to 4% and earnings per share in the range of $4 34 to $4 58.

As Barbara mentioned this reflects our continued expectation for sales and profitability to improve as we move through the balance of the year.

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

Adam looking ahead, while the landscape in early 2022 has been tougher than expected.

The year may prove to be more difficult than initially anticipated we remain confident in our ability to successfully navigate through this period.

We have shown in the past that our value focused business model has served us well in both healthy and more uncertain external climates and believes the current challenging conditions will be no difference.

Despite the slower than expected start to 2022, we operate in an attractive sector of retailing.

Our mission continues to be delivering the best bargains possible to leverage our favorable market position.

As demonstrated by our long successful track record, we believe our steadfast focus on the execution of this core strategy will be the key driver of our success at this point, we'd like to open up the call and respond to any questions you may have.

As a reminder, if you have a question at this time. Please press star one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue press. The pound key we kindly request that you limit your questions to one only thank you once again Thats star one to ask a question.

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

Great. Thank you so much Barbara I wanted to ask about product and merchandise execution.

Could you just comment on how you feel.

The team is executing and merchandising and how how did merchandise margin perform here in the quarter.

Exclude let's say inbound freight and domestic transportation costs are.

Are there any.

Pockets of inventory.

Where you wish you had a little bit more and how in aggregate are you feeling about your overall inventory position. Thank you.

And Barbara this is Adam I can jump in on the merchandise margin question and then throw it back to you so Kimberly.

Merchandise margin as stated in the comments dropped 170 basis points versus last year, but we would have been flat versus last year's significant gain without the impact of ocean freight.

In terms of <unk>.

Okay in terms of let's start with the pockets of inventory in aggregate.

At this stage it Kimberly in the market, there's a lot of availability and it's very broad based whether it's in home or whether it's in apparel. There's a lot of supply out there. So I wouldn't really say that there are problems in any pockets of inventory that we have.

In terms of of execution and product and merchandise.

Here's what I would say I would say that we.

We didn't execute at the level that we're capable of.

We're digging we're digging into the business now.

And we feel that we can we can improve the assortments and we can improve our execution.

So at this point, it's really about us it's about us.

Taking different actions and in some of our Assortments overall I would say.

Thank you.

Thank you Harry next question comes from the line of Mark <unk> with Baird. Please go ahead.

Thank you good afternoon.

Obviously, a very tough environment out there, especially for lower income consumers.

We've heard from other retailers that the initial shock of inflation following Russia, Ukraine led to a pause I'm curious if you've seen any notable change in trend a positive change in trend as you move through April and into May and then bigger picture Ross has navigated weaker economic environments in the past benefited from the trade down.

The value.

How do you view the potential for that as the year unfolds. Thank you.

Mark It's Michael Hartshorn.

On our on our trend during the quarter.

Ours was following a fairly strong start to the period.

The start to the quarter.

For our sales underperformed over the balance of the quarter.

And I think most importantly, there was us anniversarying the government stimulus.

And customer and pent up demand.

Last year, we also didn't see a pickup during Easter that we that we had planned into the business and we wouldn't comment on <unk>.

Reported trends at this point on the on the trade down customer.

It's hard to say, obviously with higher fuel and food prices.

<unk> spending for the lower end customer is being squeezed.

We saw customers at both change pull back on spending in the first quarter.

In terms of trade down.

The best proxy.

We would have although every recession is different would be 2008.

When the fall of 2000, it was very difficult when we started to see some improvement in the first half of 2009.

Thank you.

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

Thanks, Good afternoon.

I wanted to follow up on your comment Barbara that sales and profitability.

Within your guidance sales and profitability will improve as the year progression progresses can you just.

Provide us with.

Just some context on what gets you comfortable especially on the top line and that things will improve as senior components.

Lorraine on the on.

On the on the topline.

The guidance assumes a fairly steady pace in the fourth quarter, we know.

For instance, we have opportunity because we were up against <unk> and we had supply chain congestion that we know we lost business in the fourth quarter last year in terms of profitability.

As we said when we started the year, we do have.

We did make wage increases in the back half.

2021, and we also that is also where we started it started to see the freight increases.

So the guidance assumes that we lap those increases from last year overall, what you see in our change guidance is really just sales.

We haven't changed our expense assumptions when we came into the year. We thought we had a good grasp on on freight ocean freight wages and the only thing Thats slightly changed there is fuel, but we've been able to offset those.

In other cost in the business. So the updated guidance really as the sales flow through.

And Lorraine in terms of the assortment what happened what happened last year is as merchandize slid as I'm sure. It did all retailers.

Product category has created real gaps in the assortment. So as you get into the fall and the inventories catch up with where those gaps are.

It gives you the confidence in certain businesses that the performance should be better.

Thank you.

Thank you. Your next question comes from the line of Matthew Boss with Jpmorgan. Please go ahead.

Great. Thanks so.

So Barbara on the magnitude of the comp slowdown as the quarter progressed I guess were there any notable changes by category or specific geographical callouts as you dissect the first quarter and then just looking back if we take a maybe a broader picture.

Thought process are there any timeframe that you would compare the magnitude of the sharp slowdown how many quarters or how long does it take for your model to respond just kind of thinking about the duration in the past and then the subsequent improvement that youre baking in as the year progresses.

Okay.

In terms of the slow in terms of a slowdown Michael from one quarter to another I can't really think of a period of time, where it baked in baked in that other than in 2016, where we had difficulty in the ladies business, where we had to Matthew.

Yes, Matthew we knew there was going to be a slowdown.

At least on a comp level with all the government stimulus.

That came out last year, so we had actually planned that.

In the business and also with the customer pent up demand as COVID-19 restrictions ease so even even in our initial guidance.

The low end of the range of the minus four so we missed that by about.

Three points in terms of where the business has slowed down it was pretty broad based.

We did see pockets of opportunity.

If you look at our larger markets.

Texas, and Florida outperformed we had expected as the border opened up that we'd see improvement there. We in fact did in.

In Florida as tourism and travel started to increase we had planned increases there.

We saw.

We saw we saw improvement.

And then in terms of in terms of the assortment.

Apparel apparel outperformed Paul we were up against very large comps in home in Q1, and so that's really where we saw we saw a large difference in performance.

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

Hey, guys. Thanks for taking our questions here so.

As we look at the quarter on paper. This is it looks pretty far from where we were on the narrative in early April I think I think there's been a pretty consistent narrative that you felt good on an inventory and I think you felt like you came in the spring with the right mix of goods for the categories. The consumer is clearly drawing the line.

Between wanting back office apparel dresses for women.

Good thing so it does sound like demand was the issue.

I think.

You did however, you did however talk about in the initial guidance an acceleration through the year and I think at the time one of the inputs was by <unk> last year hedged one stimulus kind of cleaned out some of the inventory you were in chase mode on some real.

Meat and potatoes items that would just stocked out and I think that fueled a lot of your optimism baked in to the acceleration through the year.

So it seems like the demand line has changed quite a bit here, just having inventory may not be sufficient at this point, but how do you. How do you true that up bring that forward and say look we were missing some categories a year ago into Q.

Is the expectation for sales and continue to be very very slow here in the second quarter.

Michael I would just say overall I mean it serves.

Gives us.

Well to be given our underperformance in Q1 to be cautious with the rest of the year.

And that's why you saw us bring down the guidance and Thats true from buying inventory running the company with.

With lower expenses, so we'll see how it plays out I mean, it's very uncertain out there the inflationary environment.

Was much more than.

And then we expected when we entered the year.

And we're going to put ourselves in a position to chase business.

And to chase trends, and we think that will allow us to maximize our potential in this environment.

And as we dig into the opportunities of the businesses that we did miss and we didn't have last year that would be part of.

What we're looking at to improve the business from making the shift in your example into more dress versus casual <unk>.

And making the appropriate moves so we're digging into that piece now.

Okay. Thanks, a lot.

If I could follow that is.

Is it safe to say the AUR strategy might you might have rolled it back a little bit given some of the commentary we've heard across the space at this point it sounds like a sharper focus on value versus what you were thinking.

From the consumer sure.

To give you our strategy.

Strategically increased prices.

So we didn't do it just straight across the board. So we really did was.

Make sure that they would be appropriate price separation from traditional retailer.

And so we monitor that very very closely and so the merchants can see on the churn line every single week, whether something is working or not.

And so that piece will continue to do.

In both companies.

Really with a high focus on value right. So that a slightly higher AUR might be a very strong value based on what's going on to the rest of the world. So I think the value equation to your point is really what our customer looks foreign comes to expect from us and so we are highly focused.

The value equation, but that doesn't mean that potentially in AUR could could be higher.

They're not mutually exclusive it could be.

Waste, you really have to know where and why.

Thank you.

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

Okay. Thanks, very much good afternoon. It seems like the buying environment is about the turn from from just okay to potentially extremely good given where retail inventory levels are going to exit the first quarter, particularly.

So I'm curious how quickly the merchant buying teams can pivot to take advantage of this have you baked any of that into the guide for <unk> and beyond.

Well the merchants can take advantage of the closeout opportunities.

As they as they become available and there are closeouts in home and that that's more unusual than it is in apparel supply lines right now a very broad base base of all the things that you know that's coming in early people, bringing in fall early so it's kind of all highlighted at the same time at the same time into the.

Into the marketplace, but the merchants can take advert advantage of that.

As quickly as possible if it's the right merchandise and byproduct so theres nothing nothing in their way to keep them keep them from doing that.

And on.

On your question on the guidance, we have not built any upside on the tour.

Thank you Kieran.

Your next question comes from the line of Ikea <unk> Wells Fargo. Please go ahead.

Hey, guys. Thanks.

Two quick ones just on the merchandize margin in the quarter. So 170 was fully ocean freight can.

Can you based on the contracts of the visibility what should that headwind kind of look like.

Big picture or as specific as you guys can get as we move into Q2 and beyond.

And then the Michael's question on AUR can you kind of help us with the inventory I mean, it looks heavy but it's hard to kind of.

Between the lines, sometimes are you guys comfortable with your inventory position do you see a need to maybe mid to clear more product in Q2, just kind of trying to make.

Trying to understand where exactly your comfort is on the inventory you guys right.

Right now yes.

I'll start with your last question first on inventory there so.

Overall the growth in inventories was really pack away.

We ended with 43% of the total inventories versus 34% last year.

And if you can remember from last year, we used them.

Stansell amount of that pack away.

Ted.

Backstop the demand we saw at the end of the first quarter when the stimulus came out so the 34% was lower than our historical levels.

The second piece relates to supply chain congestion when we came into the year, we planned longer lead times based on what we saw in the fourth quarter.

So what that meant for us for businesses, where we directly import mainland home.

What happened in Q1 as the supply chain eased somewhat.

And we received early second quarter goods and home.

And we store them in pack away and will flow them later in the year.

Hi.

As far as in store inventories in store inventories, we operated up from last year, but remember again, they were lower than we.

Anticipated with the frenzy demand.

But well below 2000 pre pre pandemic levels.

And so I would say overall we're.

We're happy with our with our overall inventory levels and touching on the Ocean freight question.

They will remain elevated throughout the balance of 2022, but as we anniversary that spike that we had in the second half last year.

We remain elevated but improved through the balance of the year and on the domestic freight side as Michael commented.

Fuel costs are higher than our expectations at the beginning of the year, but we've offset that in the guidance that we've provided to you and by the second half we don't really we don't see any pressure on domestic freight.

And then in terms of takeaway.

We're very comfortable with the content with <unk> also.

Great. Thank you very much.

Thank you. Your next question comes from the line of Simeon.

With BMO capital markets. Please go ahead.

Thanks.

Quick ones if possible.

Growth in units versus dollars and then what percent of the freight cost generally our ocean versus domestic.

We wouldn't we wouldn't give you the the unit growth that's not something we disclose.

Okay great.

Freight cost just ocean versus domestic in general.

Okay can you repeat the question.

When you think about your total freight cost just roughly what is the ocean versus domestic breakdown what percentage of your freight cost tend to be ocean versus domestic.

We don't we don't have we don't disclose that externally.

Okay Fine I'll try one last one that I think you've talked about deleverage.

What are you can you what do you expect <unk> dollar growth to look like for the year built into that are embedded in the comments you guys.

Could you could you repeat that question.

Yes, sure so embedded in the full year guide just how do you think that SG&A dollar growth.

I don't know.

We call you after the call and get specific modeling questions.

Sounds good.

Sure.

Thank you. Your next question comes from the line of Adrienne <unk> with Barclays. Please go ahead.

Good afternoon.

I wanted to dig into the correct.

Re directing or reallocating some of the penetration.

It was.

Penetration during the quarter, maybe versus ladies apparel.

I'm, assuming that that apparel piece with the stronger piece of it and then secondly, how where store traffic trends or was it the pacing over the quarter.

All participants to that'd be great. Thanks.

In terms of in terms of overall.

Home.

Apparel, I think Barbara mentioned earlier that apparel outperformed.

Whom although home was up against very strong.

Comps last year, Adrian we also talked a little bit about the trend and that was similar for traffic in that we had a strong start to the year so year over year.

And then.

That dropped in later in the quarter as we started to anniversary.

The stimulus and also customer pent up demand.

Okay.

Collaboration is around 25% of the <unk>.

Okay. So similar.

Pre pandemic.

In that range.

Yeah.

And then I.

I guess on pack away.

There is a portion of the pathway to the the number I think if I got it correctly was 43% at the end of this quarter.

That is obviously the early receipts in Homegoods were you able to take advantage of any of the unfavorable kind of transition to spring.

I know you don't have a large exposure to the northeast, but picking up some of those good office northeast retailers. We've seen this happened in the past for you with that.

Short stay really does work to your benefit as you redeploy it into Q is that an opportunity.

I think that doesn't just come from northeast retailers I think I think there's a lot of spring goods that came into the country.

And spring.

Last fall plus early spring kind of all.

<unk> came into the country pretty much at the same time, so part of it I'm sure. It comes from northeast to retailers and part of it just comes in from the supply that came into the country as as the congestion ease.

At the same time.

And we've been able to buy appropriately at the things, we want and spring products. So yes, there will be spring product that we can use from Q1 into Q2.

Okay. Thank you very much and best of luck.

Thank you. Your next question comes from the lines of Marni Shapiro with retail tracker. Please go ahead.

Hi, everybody.

One clarification I think someone on the call mentioned you did not see the lift around Easter that you normally do and I was curious if that was related to traffic or assortment I'm just trying to think through to other holidays that are coming up and the more traditional cadence of retail this is getting back to where it was.

Then if you could just talk a little bit.

About any excess inventory you have going into the second quarter will it be liquidated in the second quarter or does it go is it current enough that it doesn't have to markdown and this is contemplated in the operating margin guidance.

Marni.

Inventory, we actually ended.

With store inventory, where we wanted them so.

There isn't any liquidation path.

The first quarter.

And then on Easter.

Commented earlier on Easter and that was versus our expectations typically when theres. A later Easter you have less weather weakness.

We missed our own expectations there.

Yeah.

I'm just curious do you think was that.

Because overall traffic was lower or was it the assortments.

It was more specific to just traffic in general and the late Easter or the.

The Assortments that you had in place for Easter.

Okay.

I think go ahead could you what you would define as the Easter Assortments Marni.

The fresh chilled.

Children's children stresses yes.

We're fine.

So that was fine. So you had the lift for that but the overall traffic lifts as people kind of have a little bit of time off for a holiday is coming up that you didn't see.

I would say overall the traffic is probably.

A large function of the consumer being squeezed with inflation.

Okay Fantastic. Thank you guys best of luck for the summer season.

Thank you.

Thank you. Your next question comes from the line of furniture Sherman with Bernstein. Please go ahead.

Hi, Thanks for taking my question I have two please so I'm trying to square the model.

Of your FY guide versus the Q2 guide implies that Youre modeling about flat comps in the second half of the year and I'm trying to square that with your view of your lapping assortment gaps last year. So you should be able to pick up more at the back half of the year. So how does that how does that square with the view of flat comps and then.

My next question is around pack away. So you picked up a lot of pack away in Q4, when does that start to flow through is that fall winter assortment that we should start to see that margin benefit from that flowing through in the second half. Thank you.

On the back half that it does include our easiest compare in the fourth quarter. So.

Fourth quarter would be the stronger comp on pack away on average.

<unk> away, we hold it for about four months so.

That's the way you should think about the timing of when we typically flow goods.

But so just to follow up on the pack away. So if you add the <unk>.

<unk> way that you are picking up and Q4 most of that will have already flowed through is that right.

It depends it depends on the product so the pathway that we picked up in Q4, so youre thinking it's like outerwear. So we feel yes outerwear is no.

Seasonal that pathway would obviously ship.

Ship from the vendor at the end of December , let's say and would release in the fall season, but if you get there are other classifications of product like denim.

Fleece.

Nick.

Or parts of home that are season less that.

That can flow all along.

So that can flow in Q1 can flow in Q2, a lot of a lot of pathway products are seasonally.

Thank you Alex and stuff.

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

Good afternoon, everyone last quarter, we had talked about taking price.

Where are we in that journey, given the slowdown is that being adjusted at all.

Are you seeing and how does it differ for Dd's versus Ross brand.

Sure.

No.

So as we've talked about before we started to increase some of our AUR.

Keeping in mind that it has to be the appropriate value separation from traditional retailers.

And in both companies.

And we are strategically doing it it's not just straight across the board and obviously.

Examining that very closely does it makes sense or not and you can do that simply by how quickly the good churn in the markdown rate.

The merchants are managing that.

Every week.

While they're going through they are selling and then we're reviewing it obviously at a higher level to make sure that that that that hasn't been an issue, but in both companies and particularly in <unk>, where the customer is very price sensitive.

We really look at that.

At a pretty low level.

Got it and then just the health of your consumer what are you seeing there and how do you define the household incomes of Dd's and Ross customers.

Sure.

First of all our overall customers very broad.

<unk> in income wise on average the Ross customer.

Makes between 60 household income, 60% to 65 and.

The customer is south of that in the 40 to $45000 range.

But I would say the houses.

Our customer, they're being squeezed too well.

Sure.

Oil prices.

With inflation there means they have less to spend on discretionary items.

And then just lastly.

As you think about the real estate portfolio. So then keep.

Keep it maintaining the same level in new store openings is there anything that would make you adjust your rate of new store openings or given that as a glide path for the future no adjustment and the strong balance sheet that you have how do you think of that real estate portfolio.

Yeah at this point Dana we wouldn't change our glide path, where we're planning to open 100 this year.

And we will we will execute to that.

And then we will revisit our long term plans, but we think theres market share.

Favorable we think there's market share opportunities.

<unk> value as well.

Becoming increasingly important for the customer as it has over the last number of years.

And we think we have a great opportunity ahead of us. So we would continue with their store opening plan.

Thank you.

Once again, if you would like to ask a question. Please press star one on your telephone keypad and wait for your name to be announced we kindly request that you. Please limit your questions to one only thank you. Your next question comes from the lineup from Laura Champine with loop capital. Please go ahead.

Thanks for taking my question I'm wondering if weather had an impact on your comp this quarter the strength of Florida would seem to point to that but the comment that the comp decelerate as the quarter progressed sort of fights against that theory.

Laura the weather did not have a material impact on the business in the quarter.

How are your more mature markets like some of the California market is holding up well.

Relative to the whole.

California was relatively in line with the chain.

Then the other one.

Bigger markets, which you mentioned, Texas, Texas and Florida.

Great. Thank you.

Thank you. Your next question comes from the lineup.

Serna with UBS. Please go ahead.

Hi, good afternoon.

My question I was wondering if you could comment on any.

Divergence in performance between.

Stores and discounts curious in one on one began slowing down.

And then maybe.

A question on the second I'm looking into the numbers.

Implies.

Roughly in second half of the year flat comp sales, but I think it also implies double digit EPS growth I'm wondering like.

What are the.

Puts and takes there to dry.

The EPS Goldman second half of the year. Thank you.

On Dd's Dd's did.

Rail Ross.

Sure.

But they were up against.

Stronger gains last year, especially with with the government stimulus that has.

An outsized impact on that consumer.

And also last year's stimulus.

At their income levels they were.

Also awesome more impacted by inflation in the raw customer yes.

Later in the year profitability improvement really on that flattish sales, we're going to get we're going to go up against the anniversary of not only the wage side of it but also domestic and ocean freight costs. So we'll anniversary of those.

Significant increases versus last year, so that's really providing the lift that you're seeing in the model.

Got it thank you very much.

Thank you. Your next question comes from the line of Corey <unk> with Jefferies. Please go ahead.

Hi, good afternoon, and thank you for taking my question I believe in the prepared remarks, you talked about supply chain congestion easing somewhat I was wondering if you could provide some incremental details about what you meant by that.

You witnessed in the quarter and then perhaps maybe what youre expecting going forward.

Thanks sure.

Sure.

<unk>.

It's best to start from last year, So last year.

The lead times.

Designated as we move through the years, so they've got they got longer. So we plan the year based on what we saw in the fourth quarter.

And what we saw in the first quarter is it did ease somewhat which meant.

We received a goods early expectations for going forward I think will be highly dependent on how China.

It comes back from from their shutdown. So we're watching that very closely we're going to be very cautious.

With our lead times, but I think it's going to be dependent on whether when they open back up and the timing of when it opens back up.

And what type of congestion that causes.

Understood. Thank you very much.

Thank you and your last question comes from the line of Daniel Hopkins with William Blair. Please go ahead.

Good afternoon.

You may have addressed this earlier so I apologize if this has already been asked.

But.

When you talked about execution issues.

Is that strictly.

A matter of kind of not enough.

To better selling products to much slower selling product or are there other issues you would point to and then.

Second would be how would you.

Breakdown.

Sales shortfall between execution and the consumer shortly.

Thank you.

Yes, I think I think what we are.

Saying is we know we can do better so.

So.

In this environment inflationary environment that would be minimal.

Been in this for 40 years. So we know we can.

Offer are.

Customer bad.

Bargains and we'll do that so it's.

We wouldn't be able to break out execution versus the impact on inflation on the consumer.

And then in terms of just the nature of the mesh execution was it all related to.

Or how much of the better selling product you had or how big bite on it or was it also pricing jumped.

Okay.

I think it goes back to what Michael was saying it is not we had one major mistake or one major business that's really underperforming.

We don't feel that we executed at the level that we're capable of.

So that might be something as simple as.

You should have bought more career versus casual or.

A shift of penetration.

A few points.

Pulling up filling up the delivery of something it just just not quite as Chris as we normally are there is no. If the real question is are there any real.

Assortment issues in select businesses.

<unk>.

We need to execute at a higher level.

And we need to to the level that we're capable of doing and that we have been doing.

And so that's really what we need to do as an organization.

And that concludes our question and answer session for today I will now turn the call back over to Barbara <unk> for final remarks.

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

And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

[music].

Good afternoon, and welcome to the Ross stores first quarter 2022 earnings release Conference call. The call will begin with prepared comments by management, followed by a question and answer session. At this time all participants are in a listen only to ask a question. During the Q&A session you will need to press star one on your telephone.

If you require any further assistance. Please press star zero. Please be advised that today's call is being recorded.

Before we get started on that Ross stores I would like to note that the comments made in this call will contain forward looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts, new store openings and other matters. There based on the company's current forecast of aspects of its future business.

On file with the SEC now I would like to turn the call over to Barbara <unk> Chief Executive Officer. Please go ahead ma'am.

Good afternoon, joining me on our call today are Michael Hartshorn Group, President and Chief operating officer, Adam or vote, Executive Vice President and Chief Financial Officer, and Connie Kao, Vice President Investor Relations.

We'll begin our call today with a review of our first quarter 2022 performance followed by our outlook for the second quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have.

As today as noted in today's press release, we are disappointed with our lower than expected first quarter results.

The external environment has also proven extremely challenging as the Russia, Ukraine conflict has exasperate, it's exasperated inflationary pressures on the consumer not seen in 40 years.

As a result of these factors our first quarter results underperformed our expectations.

Total sales for the first quarter were $4 3 billion with comparable store sales down 7% on top of a robust 13% gain in the first quarter 2021 that were versus 2019.

Earnings per share for the 13 weeks ended April 32022, or 97 cents on net income of $338 million.

The quarter includes an approximate benefit of six cents per share from the favorable timing of expenses that are expected to reverse in subsequent quarters.

These results compare to $1 34 per share on net earnings of $476 million for the 13 weeks ended may one 2021.

Men's was the strongest merchandise area during the quarter, while Florida was the top performing region.

Dd's discounts performance in the first quarter trailed that abroad as the <unk>.

Significant benefit of last year's stimulus and escalating inflationary pressures had a larger impact on lower income households.

At quarter end total consolidated inventories were up 57% versus the same period in 2021, mainly from higher pack away inventory.

Yeah.

Pack away Merck just merchandize represented 43% of total inventories versus 34% last year, when we use a substantial amount of pack away to meet robust consumer demand.

Additionally, supply chain congestion eased somewhat during the first quarter, resulting in the early receipt of merchandise that restored in pack away and will flow to stores later in the year.

Average store inventories during the quarter were up but we still operated with significantly less inventory in store it though it did pre pandemic.

Yeah.

Turning to store growth. Our 2022 inspection program is on schedule with the addition of 22, new Ross and eight Dd's discounts locations in the first quarter.

We remain on track to open a total of approximately 100 locations this year.

Rise of about 75, Ross and 25 Dd's.

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

Now Adam will provide further details on our first quarter results and additional color on our outlook for the remainder of fiscal 2022.

Thank you Barbara as previously mentioned, our comparable store sales were down 7% for the quarter as average basket growth was more than offset by the decline in transactions versus the prior year.

As Barbara commented earlier the quarter benefited from the favorable timing of expenses most of which were in gross margin.

Cost of goods sold in the first quarter increased by 295 basis points due to a combination of factors.

Merchandise margin declined 170 basis points, primarily due to higher ocean freight cost.

Domestic freight rose 80 basis points, while occupancy Deleveraged 40 basis points on the same store sales decline.

Distribution cost increased 25 basis points, mainly due to wage actions taken last year. These.

These unfavorable items were partially offset by buying expenses that improved by 20 basis points.

SG&A for the period rose 50 basis points due to higher wages and the deleveraging effect of lower comparable sales.

During the first quarter, we repurchased two 5 million shares of common stock for an aggregate cost of $240 million.

We remain on track to buy back a total of $950 million in stock for the year.

Now, let's discuss our outlook for the remainder of 2022.

We are now forecasting comparable sales for the 13 weeks ending July 32022 to.

To decrease for 4% to 6% on top of a very strong 15% gain in the prior year period.

Second quarter earnings per share are projected to be 99 to $1 seven versus $1 39 last year.

Our.

<unk> assumptions for the second quarter of 2022 include the following.

Total sales are forecast to decline, 1% to 4% versus the prior year.

We plan to open 29 locations in the second quarter, including 21, Ross and eight Dd's discounts locations.

Net interest expense is expected to be approximately $15 million.

The tax rate is projected to be about 25% and.

And diluted shares outstanding are expected to be approximately $348 million.

For the full year, we are now planning comparable store sales to decline, 2% to 4% and earnings per share in the range of $4 34.

To $4 58.

As Barbara mentioned this reflects our continued expectation for sales and profitability to improve as we move through the balance of the year.

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

Thank you Adam.

Looking ahead, while the landscape in early 2022 has been tougher than expected and the year may prove to be more difficult than initially anticipated we remain confident in our ability to successfully navigate through this period.

Despite the slower than expected start to 2022, we operate in an attractive sector of retailing.

Our mission continues to be delivering the best bargains possible to leverage our favorable market position.

Yeah.

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

Great. Thank you so much Barbara I wanted to ask about product and merchandise execution.

Could you just comment on how you feel.

The team is executing and merchandising and how how did merchandize margin perform here in the quarter. If you exclude let's say inbound freight and domestic transportation costs.

Are there any.

Pockets of inventory.

Where you wish you had a little bit more and how in aggregate are you feeling about your overall inventory position. Thank you.

And Barbara this is Adam I can jump in on the merchandise margin question and then throw it back to you so Kimberly.

Merchandize margin.

Stated in the comments dropped 170 basis points versus last year, but we would have been flat versus last year's significant gain without the impact of ocean freight.

In terms of that.

Okay in terms of let's start with the pockets of inventory in aggregate.

In terms of.

<unk> execution and product and merchandise.

Here's what I would say I would say that.

We didn't execute at the level that we're capable of.

We're digging we're digging into the business now.

And we feel that we can we can improve the assortments and we can improve our execution.

So at this point, it's really about us it's about us.

Taking different actions and in some of our Assortments overall I would say.

Thank you.

Thank you Harry next question comes from the line of Mark <unk> with Baird. Please go ahead.

Thank you good afternoon.

Obviously, a very tough environment out there, especially for lower income consumers.

The value.

How do you view the potential for that as the year unfolds. Thank you.

Mark It's Michael Hartshorn.

On our on our trend during the quarter.

Ours was following a fairly strong start to the period.

The start to the quarter.

For our sales underperformed over the balance of the quarter.

And I think most importantly, there was us anniversarying the government stimulus.

And customer pent up demand.

Last year, we also didn't see a pickup during Easter that we that we had planned into the business and we wouldn't comment on <unk>.

<unk> recorded trends at this point on the on the trade down customer.

It's hard to say, obviously with higher fuel and food prices.

<unk> spending for the lower end customer is being squeezed.

We saw customers at both change pull back on spending in the first quarter.

In terms of trade down.

The best proxy.

We would have although every recession is different would be 2008.

When the fall of 2000, it was very difficult and we started to see some improvement in the first half of 2009.

Thank you.

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

Thanks, Good afternoon.

I wanted to follow up on your comment Barbara that sales and profitability.

Within your guidance sales and profitability will improve as the year progression progresses can you just.

Provide us with.

Just some context on what gets you comfortable especially on the top line and that things will improve as senior components.

Lorraine on the on.

On the on the topline.

The guidance assumes a fairly steady pace in the fourth quarter, we know.

For instance, we have opportunity because we were up against <unk> and we had supply chain congestion that we know we lost business in the fourth quarter last year in terms of profitability.

As we said when we started the year, we do have.

We did make wage increases in the back half.

2021, and we also that is also where we started to started to see the freight increases.

So the guidance assumes that we lap those increases from last year overall, what you see in our change guidance is really just sales.

In other cost in the business. So the updated guidance really as the sales flow through.

And the range in terms of the assortment what happened what happened last year is as merchandize slid as I'm sure. It did for all retailers.

Product categories created real gaps in the assortment. So as you get into the fall and the inventories catch up with where those gaps are.

It gives you the confidence in certain businesses that the performance should be better.

Thank you.

Thank you. Your next question comes from the line of Matthew Boss with Jpmorgan. Please go ahead.

Great. Thanks so.

Thought process are there any time frames that you would compare the magnitude of the sharp slowdown how many quarters or how long does it take for your model to respond just kind of thinking about the duration in the past and then the subsequent improvement that youre baking in as the year progresses.

Okay.

Yes, Matthew we knew there was going to be a slowdown.

At least on a comp level with.

All the government stimulus that.

That came out of last year, So we had actually planned that.

In the business and also with the customer pent up demand as COVID-19 restrictions ease.

So even even in our initial guidance.

The low end of the range was a minus four so we missed that by about.

Three points in terms of where the business has slowed down it was pretty broad based.

We did see pockets of opportunity.

If you look at our larger markets.

Texas, and Florida outperformed we had expected as the border opened up that we'd see improvement there. We in fact did in.

In Florida as tourism and travel started to increase we had planned increases there.

We saw.

We saw we saw improvement.

And then in terms of in terms of the Assortments.

Apparel apparel outperformed Paul we were up against very large comps in home in Q1, and so that's really where we saw we saw a large difference in performance.

Thank you. Your next question comes from the lineup of Michael Binetti with Credit Suisse. Please go ahead.

Hey, guys. Thanks for taking our questions here so.

As we look at the quarter on paper. This is it looks pretty far from where we were on the narrative in early April I think I think there's been a pretty consistent narrative that you felt good on an inventory and I think he felt like he came in the spring with the right mix of goods for the categories. The consumer is clearly drawing the line.

Between wanting back office apparel dresses for women those kinds of things. So it does sound like demand was the issue.

I think.

You did however, you did however talk about in the initial guidance an acceleration through the year and I think at the time one of the inputs was by <unk> last year had one stimulus kind of cleaned out some of the inventory you were in chase mode on some real.

Meat and potatoes items that would just stocked out and I think that fueled a lot of your optimism baked in to the acceleration through the year.

So it seems like the demand line has changed quite a bit here and thats, just having inventory may not be sufficient at this point, but how do you. How do you true that up bring that forward and say look we were missing some categories a year ago into Q.

Is the expectation for sales and continue to be very very slow here in the second quarter.

Michael I would just say overall I mean it serves.

Yes.

Well to be given our underperformance in Q1 to be cautious with the rest of the year.

And that's why you saw us bring down the guidance and Thats true from buying inventory to running the company with with lower expenses. So we'll see how it plays out I mean, it's very uncertain out there the inflationary environment.

Was much more than we expected when we entered the year and we're going to put ourselves in a position to chase business.

To chase trends, and we think that will allow us to maximize our potential in this environment.

As we dig into the opportunities of the businesses that we did miss.

We didn't have last year that would be part of what we're looking at to improve the business. So making the shift in your example into more dress versus casual.

And making the appropriate moves so we're digging into that piece now.

Okay. Thanks, a lot.

If I could follow that is.

Is it safe to say the AUR strategy might you might have pulled it back a little bit given some of the commentary we've heard across the space at this point it sounds like a sharper focus on value versus what you were thinking.

From the consumer.

Sure.

To give you our strategy.

Strategically increased prices. So we didn't do it just straight across the board. So we really did was.

Make sure that there was the appropriate price separation from traditional retailer.

And so we monitor that very very closely and so you know the merchants can see on the <unk> line every single week, whether something is working or not.

And so that piece will continue to do.

In both companies.

The value equation, but that doesn't mean that potentially in AUR could could be higher so.

They're not mutually exclusive it could be.

Waste, you really have to know where and what.

Thank you.

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

So I'm curious how quickly the merchant bar includes can pivot to take advantage of this have you baked any of that into the guide for <unk> and beyond.

Well the merchants can take advantage of the closeout opportunities.

As they as they become available and there aren't closeouts and home and that's that's more neutral than it is in apparel supply lines right now a very broad base based of all the things that you know that's coming in early people, bringing in fall early so it's kind of all highlighted at the same time at the same time into the.

Into the marketplace, but the merchants can take advert advantage of that.

As quickly as possible if it's the right merchandise and byproduct so theres nothing nothing in their way to keep them keep them from doing that.

And on your question on the guidance, we have not built any upside on the <unk>.

Thank you. Thank you hear it.

Your next question comes from the line of Ikea <unk> Wells Fargo. Please go ahead.

Hey, guys. Thanks.

Two quick ones just on the merchandize margin in the quarter. So 170 was fully ocean freight can.

Can you based on the contracts of the visibility you have what should the headwind kind of look like.

Big picture or a specific as you guys can get as we move into Q2 and beyond.

And then the Michael's question on AUR can you kind of help us with the inventory I mean, it looks heavy but it's hard to kind of.

Between the lines, sometimes are you guys comfortable with your inventory position do you see a need to maybe need to clear more product in Q2, just kind of trying to trying to.

Where exactly your comfort is on the inventory.

Right now yes.

I'll start with your last question first on inventory there so.

Overall the growth in inventories was really pack away.

We ended with a 43% of the total inventories versus 34% last year.

And if you can remember from last year, we used a substantial amount of that pack away.

Ted.

Backstop the demand we saw at the end of the first quarter when the stimulus came out so the 34% was lower than our historical levels.

The second piece relates to supply chain congestion when we came into the year, we planned longer lead times based on what we saw in the fourth quarter.

So what that meant for us for businesses, where we directly import mainland home.

What happened in Q1 as the supply chain eased somewhat.

And we received early second quarter goods and home.

And we store them in pack away and will slow them later in the year.

Hi.

As far as in store inventories in store inventories, we operated up from last year, but remember again, they were lower than we.

Anticipated with the frenzy demand.

But well below 2000 pre pre pandemic levels.

And so I would say overall we're.

We're happy with our with our overall inventory levels.

And touching on the Ocean freight question.

They will remain elevated throughout the balance of 2022, but as we anniversary that spike that we had in the second half last year.

They remain elevated but.

Proved through the balance of the year and on the domestic freight side as Michael commented fuel cost are higher than our expectations at the beginning of the year, but we've offset that in the guidance that we've provided to you and by the second half we don't really we don't see any pressure on domestic freight.

And then in terms of takeaway, we're very comfortable with the contract with <unk> also.

Great. Thank you very much.

Thank you. Your next question comes from the line of.

<unk> <unk> with BMO capital markets. Please go ahead.

Thanks.

Two quick ones if possible.

Inventory growth in units versus dollars and then what percent of the freight cost generally our ocean versus domestic.

We wouldn't we wouldn't give you the the unit growth that's not something we disclose.

Okay.

Freight cost just ocean versus domestic in general.

Okay can you repeat the question.

When you think about your total freight cost just roughly what is the ocean versus domestic breakdown what percentage of your freight costs tend to be ocean versus domestic.

We don't we don't we don't disclose that externally.

Okay Fine I'll try one last one that I think you've talked about deleverage.

What are you can you what do you expect for SG&A dollar growth to look like for the year built into that are embedded in the comments you guys.

Could you could you repeat that question.

Yes, sure so embedded in the full year guide just how do you think that SG&A dollar growth.

I don't know okay.

We call you after the call and get specific modeling questions for you.

Sounds good.

Sure.

Thank you. Your next question comes from the line of Adrienne <unk> with Barclays. Please go ahead.

Good afternoon.

I wanted to dig into it.

Kind of re directing or reallocating some of the penetration.

It was.

Penetration during the quarter, maybe versus ladies apparel.

I'm, assuming that that apparel piece with the stronger piece of it and then secondly, how where store traffic trends over the under the pacing over the quarter.

Hepatitis C that'd be great. Thanks.

In terms of in terms of overall.

Home.

Apparel, I think Barbara mentioned earlier that apparel outperformed.

Whom although whom was up against very strong.

Comps last year, Adrian we also talked a little bit about the trend and that was similar for traffic in that we had a strong start to the year so year over year and then.

That dropped in later in the quarter as we started to anniversary.

The stimulus and also customer pent up demand.

Okay.

I had recently is around 25%.

Okay. So similar.

And then wanted to pre pandemic.

In that range.

And then I guess on tack away.

There is a portion of the pathway to the the number I think if I got it correctly was 43% at the end of this quarter.

That is obviously the early receipts in Homegoods were you able to take advantage of any of the unfavorable kind of transition to spring.

I know you don't have a large exposure to the northeast that picking up some of those goods off of northeast retailers. We've seen has happened in the past for you without that short stay really does work to your benefit as you redeploy it into Q is that an opportunity.

I think that doesn't just come from northeast retailers I think I think there's a lot of spring goods that came into the country.

And spring.

Last fall plus early spring kind of all.

Glided and came into the country pretty much at the same time, so part of it I'm sure. It comes from northeast to retailers and part of it just comes in from the supply that came into the country as as the congestion ease.

At the same time.

And we've been able to buy appropriately at the things, we want and spring products. So yes, there will be spring product that we can use from Q1 into Q2.

Okay. Thank you very much and best of luck.

Thank you. Your next question comes from the line of mining Shapiro with retail tracker. Please go ahead.

Hi, everybody.

<unk>.

About any excess inventory you have going into the second quarter will it be liquidated in the second quarter or does it go is it.

Sure enough that it doesn't have to markdown and this is contemplated in the operating margin guidance.

Marni on the inventory we actually ended.

With store inventory, where we wanted them so there isn't any liquidation path.

The first quarter.

And then on Easter.

I commented earlier on Easter and that was versus our expectations typically when theres. A later Easter you have less weather weakness, we missed our own expectations there.

Well I'm just curious do you think was that.

Because overall traffic was lower or was it. The assortments do you think it was more specific to just traffic in general and the late Easter or the Assortments that you had in place for Easter.

Okay.

I think go ahead could you what you would define as the Easter Assortments Marni.

The dress shoes.

<unk> children stresses, yes, we're fine.

So that was fine. So you had the lift for that but the overall traffic lifts as people kind of have a little bit of time off for a holiday is coming up that you didn't see.

I would say overall the traffic is probably.

A large function of.

The consumer being squeezed with inflation.

Right. Okay fantastic. Thank you guys best of luck for the summer season.

Thank you.

Thank you. Your next question comes from the line of furniture Sherman with Bernstein. Please go ahead.

Hi, Thanks for taking my question I have two please so I'm trying to square the model.

Your your FY guide versus the Q2 guide implies that you're modeling about flat comps in the second half of the year and I'm trying to square that with your view of your lapping assortment gaps last year. So you should be able to pick up more at the back half of the year. So how does that how does that square with the view of flat comps and then my next.

Question is around pack away. So you picked up a lot of pack away in Q4, when does that start to flow through is that fall winter assortment that we should start to see that margin benefit from that flowing through in the second half. Thank you.

On the back half.

It does include our easiest compare in the fourth quarter. So.

Fourth quarter would be the stronger comp on pack away on average.

Pack away, we hold it for about four months so.

That's the way you should think about the timing of when we typically flow goods.

But so just to follow up on the pack away. So if you <unk>.

<unk> way that you are picking up and Q4 most of that will have already flowed through is that right.

It depends it depends on the product so the pathway that we picked up in Q4, so youre thinking it's like outerwear. So we feel yes outerwear.

Seasonal that pathway would obviously ship.

Ship from the vendor. It you know at the end of December , let's say and would release in the fall season, but if you get there are other classifications of product like denim.

Fleece.

Nick.

Or parts of home that are season less that.

That can flow all along.

So that can flow in Q1 can flow in Q2, a lot of a lot of pathway products are seasonally.

Thank you Alex and stuff.

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

Good afternoon, everyone last quarter, we had talked about taking price.

Where are we in that journey, given the slowdown is that being adjusted at all.

Are you seeing and how does it differ for Dd's versus Ross brand.

Sure.

So that's what we've talked about before we started to increase some of our AUR It's Keith.

Keeping in mind that it has to be the appropriate value separation from traditional retailers.

And in both companies.

And we are strategically doing it it's not just straight across the board and obviously.

Examining that very closely does it makes sense or not and you can do that simply by how quickly the good churn in the markdown rate.

The merchants are managing that.

Every week.

While they're going through they are selling and then we're reviewing it obviously at a higher level to make sure that that that that hasnt been an issue, but in both companies and particularly in <unk>, where the customer is very price sensitive.

We really look at that.

At a pretty low level.

Got it and then just.

Health of your consumer what are you seeing there and how do you define the household incomes of Dd's and Ross customers.

Sure on the.

First of all our overall customers very broad age wise ethnicity in income wise on average the Ross customer.

Mix between 60 household income, 60% to 65 and.

The customer is south of that in the 40 to $45000 range.

But I would say the houses.

Our customer, they're being squeezed too well.

Food and fuel prices.

With inflation there means they have less to spend on discretionary items.

And then just lastly.

Do you think about the real estate portfolio, but then.

Keep it maintaining the same level in new store openings is there anything that would make you adjust your rate of new store openings or given that's a glide path for the future no adjustment and the strong balance sheet that you have how do you think of that real estate portfolio.

Yes at this point Dana we wouldn't change our glide path, where we're planning to open 100 this year.

And we will we will execute to that.

And then we'll revisit our long term plans, but we think theres market share.

Available, we think there's market share opportunities.

Think value is it will be.

Becoming increasingly important for the customer as it has over the last number of years.

And we think we have a great opportunity ahead of us. So we would continue with our store openings.

Thank you.

Once again, if you would like to ask a question. Please press star one on your telephone keypad and wait for you need to be announce we kindly request that you. Please limit your questions to one only thank you. Your next question comes from the lineup from Laura Champine with loop capital. Please go ahead.

Fights against that theory.

Laura the weather did not have a material impact on the business in the quarter.

How how are your more mature markets like some of the California market is holding up.

Relative to the whole.

California was relatively in line with the chain.

Then.

Our other bigger markets, which you mentioned, Texas and Florida.

Great. Thank you.

Okay.

Thank you. Your next question comes from the line of <unk>.

Serna with UBS. Please go ahead.

Hi, good afternoon, thanks for taking them.

My question I was wondering if you could comment on those.

Divergence in performance between Ross stores.

Accounts curious one on one began slowing down earlier.

The other and then maybe.

A question on the second I'm looking into the numbers.

It implies.

Roughly in second half of the year flat comp sales, but I think it also implies double digit EPS growth I'm wondering like.

What are the puts and takes there to drive the EPS growth in the second half of the year. Thank you.

On Dd's Dd's did trail Ross.

But they were up against.

Stronger gains last year, especially with with the government stimulus that has.

An outsized impact on that consumer.

And also last year's stimulus.

With at their income levels they were.

Also awesome more impacted by inflation in the raw customer.

The later in the year of profitability improvement really on that flattish sales, we're going to get we're going to go up against the anniversary of not only the wage side of it but also domestic and ocean freight costs. So we'll anniversary of those.

Significant increases versus last year, so that's really providing the lift that youre seeing in the model.

Got it thank you very much.

Thank you. Your next question comes from the line of Cory <unk> with Jefferies. Please go ahead.

Hi, good afternoon, and thank you for taking my question.

Believe in the prepared remarks, you talked about supply chain congestion easing somewhat I was wondering if you could provide some incremental details about what you meant by that.

In the quarter, and then perhaps maybe what youre expecting going forward. Thanks.

Sure.

It's best to start from the last year, so last year.

The lead times.

Designated as we move through the year, so they've got they got longer. So we plan the year based on what we saw in the fourth quarter.

And what we saw in the first quarter is it did ease somewhat which meant.

We received a goods early expectations for going forward I think will be highly dependent on how China.

It comes back from from their shutdown. So we're watching that very closely we're going to be very cautious.

With our lead times, but I think it's going to be dependent on whether when they open back up and the timing of when it opens back up.

And what type of congestion that causes.

Understood. Thank you very much.

Thank you and your last question comes from the line of Daniel Hopkins with William Blair. Please go ahead.

Good afternoon.

You may have addressed this earlier so I apologize if this has already been asked.

But.

When you talked about execution issues.

Is that strictly.

A matter of kind of not enough.

To better selling products to much slower selling product or are there other issues you would point to.

Second would be how would you.

Breakdown.

Sales shortfall between execution and some are slightly down.

Yes.

Yes, I think I think what we are.

Saying is we know we can do better so.

So.

In this environment inflationary environment I mean minimal.

Been in this for 40 years. So we know we can.

Offer are.

Customer bad.

Bargains and we'll do that so it's.

We wouldn't be able to break out execution versus the impact on inflation and the consumer.

Okay, and then in terms of just the nature of the mesh execution was it all related to.

Having this or how much of the better selling product you had or how big bite on it or was it also pricing.

That would be helpful.

Yeah.

I think it goes back to what Michael was saying it is not we had one major mistake or one major business that's really underperforming.

We don't feel that we executed at the level that we're capable of.

So that might be something as simple as.

We should have bought more career versus casual or shift of penetration of a few points.

Pulling up filling up the delivery of something it just just not quite as Chris as we normally are there is no. If the real question is are there any real.

Saltman issues in select businesses.

Right.

We need to execute at a higher level.

And we need to to the level that we're capable of doing and that we have been doing.

And so that's really what we need to do as an organization.

And that concludes our question and answer session for today I will now turn the call back over to Barbara <unk> for final remarks.

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

And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

Q1 2022 Ross Stores Inc Earnings Call

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