Q3 2022 Ross Stores Inc Earnings Call

November 17, 2022

Good afternoon, and welcome to the Ross stores third quarter 2022 earnings release Conference call.

I will begin with prepared comments by management, followed by a question and answer session. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

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 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 Form 10-K, and fiscal 2022 Form 10-Q's, and 8-K's on file with the SEC.

And now I'd like to turn the call over to Barbara <unk> Chief Executive Officer. Thank you Ma'am. Please go ahead.

Good afternoon joining.

Joining me on our call today are Michael Hartshorn Group, President Chief Operating Officer, Adam <unk>, Executive Vice President and Chief Financial Officer, and Connie Kao Group, Vice President Investor Relations.

We will 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 results were above our expectations as we delivered stronger values throughout our stores.

Operating margin for the period was nine 8% versus 11, 4% last year, reflecting the deleveraging effect from the comparable sales decline as well as pressure from higher Mark Downs and unfavorable timing of pathway related costs.

Earnings per share for the 13 weeks ended October 29, 2022 for one dollar on net income of $342 million.

This compares to $1 nine per share on net earnings of $385 million.

<unk> week ended October 32021.

Total sales for the quarter were $4 6 billion in.

In line with the prior year with.

With comparable sales down 3% on top of a robust 14% gain in the third quarter of 2021.

For the first nine months earnings per share were $3 eight.

Our net earnings of $1 1 billion compared.

Compared to $3.82 per share on net income of $1 4 billion for the same period in 2021.

Sales for the year to date period totaled $13 5 billion with comparable store sales down 5% versus a strong 14% increase last year.

For the third quarter at Ross shoes was the best performing business, while Florida, and Texas for the top performing region as they were bolstered by the outperformance of border and Forex losses.

At Dd's discounts sales trends improved versus the first half, but continued to trail Ross with Brazil due to ongoing inflationary pressures that are having a larger impact on TD lower income customers.

Inventory levels moderated significantly from the first half of the year with total consolidated inventories at the end of the quarter up 12% compared to last year.

Average store inventories during the quarter were up 4% versus 2021 and down compared to pre pandemic levels.

Halfway merchandise represented 41% of the total compared to 31% last year, when we used tactfully merchandize to fuel a robust asking.

Turning to store growth, we completed our expansion program for 2022 with the addition of 28, new Ross and 12 Dd's discounts in the third quarter.

For the year, we added a total of 99 locations.

Price of 71, Ross in 2008 <unk> systems.

We now expect to end the year with 693, Ross stores and 322 Dd's discount locations for a net increase of 92 stores.

Now Adam will provide further details on our third quarter results and fourth quarter guidance.

Thank you Barbara as previously stated comparable store sales were down 3% in the quarter, although traffic improved from the second quarter, it's still declined versus the prior year.

Surely offsetting these declines was a higher average basket size.

Operating margin of nine 8% for the third quarter was down 160 basis points from last year.

Cost of goods sold grew by 230 basis points in the quarter.

Merchandise margin declined 165 basis points, primarily due to higher markdowns.

Distribution costs were up 140 basis points, mainly due to unfavorable timing of pack away related costs and deleverage from our new distribution center.

Occupancy deleveraged by 20 basis points.

These higher expenses were partially offset by a 75 basis point decrease in buying costs, mainly from lower incentives.

Lastly pressure from domestic freight expenses eased in the third quarter and improved 20 basis points as we anniversaried the freight headwinds that began in the second half of last year.

SG&A for the period improved by 70 basis points as deleverage from the negative comparable sales was more than offset by lower incentives.

During the third quarter, we repurchased two 8 million shares of common stock for an aggregate cost of $244 million. We remain on track to buy back a total of $950 million in stock for the year.

Now, let's discuss our fourth quarter guidance.

We continue to expect a very promotional holiday selling season, and ongoing inflationary headwinds to pressure our low to moderate income customers.

That said, we face our easiest sales and earnings comparisons in the fourth quarter and are raising our guidance given our third quarter sales momentum and improved holiday assortments.

For the 13 weeks ending January 28, 2023, we now expect comparable store sales to be flat to down 2% on top of a 9% gain in the prior year.

As a result earnings per share are forecasted to be in the range of $1 13 to $1 26.

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

Total sales are projected to be flat to up 3%.

We expect operating margin to be in the range of nine 7% to 10, 5% versus nine 8% last year.

This mainly reflects the anniversarying of significant cost pressures from ocean freight.

And lower incentives, partially offset by the deleveraging effect from lower same store sales.

Unfavorable timing of pack away related costs and higher markdowns.

Net interest income is estimated to be about $14 million or.

Our tax rate is expected to be approximately 23%.

And weighted average diluted shares outstanding are projected to be about $342 million.

Based on our year to date results and fourth quarter guidance earnings per share for fiscal 2022 are now projected to be in the range of $4 21.

To $4 34.

Compared to $4 87 last year.

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

Quite the many challenges over the last few years, coupled with today's uncertain macroeconomic and geopolitical environment, we remain optimistic about our future growth prospects.

Our top priority is and always will be delivering fresh and exciting name brand merchandise at compelling discount everyday and our growing store base of over 2000 locations.

With consumers' heightened focus on value and convenience this bodes well for our ability to expand our market share and profitability in the future at this point, we'd like to open up the call and respond to any questions you may have.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if you would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

We ask that you please limit yourself to one question only thank you.

One moment, please where we pull for questions.

And our first question comes from the line of Matthew Boss with Jpmorgan. Please proceed with your question.

Thanks, and congrats on a nice quarter, it's great to see the return to beat and raise.

So Barbara maybe.

Maybe relative to your internal expectations, what did you see from traffic or maybe could you speak to the cadence of comp trends as the third quarter progressed, and then could you just elaborate on the improved holiday Assortments that you cited in the release.

On the on the traffic trends as we mentioned this is Michael large unmanned.

As we mentioned in the prepared comments with.

With the comp down 3%.

As we mentioned traffic did improve for the quarter.

But it's still declined versus the prior year, so offsetting the traffic declines.

It was a higher average basket.

The back basket was driven by higher AUR as well <unk> were flattish.

The increase in the average basket was more than offset by the decline in the number of transactions.

As we move through the quarter, what we saw on a stacked basis, so compared to 2019, our trends improved as we progressed through the quarter.

Great and then just a follow up maybe relative to the third quarter could you just elaborate on that and maybe the macro or the competitive landscape assumptions that you've embedded in your fourth quarter comp guide. It does embed a moderation does that prudence is it something that you've seen where are you embedding more competitive backdrop in and maybe.

Deterioration in the macro and the fourth quarter.

I would say that from our point of view the macroeconomic environment, obviously remains uncertain, but we do think that the holiday period is going to be.

Very promotional.

So that's what we have embedded into the guidance and then just as a reminder, last year.

Sales at the end of the quarter did trail off its or easiest quarterly compare.

Trailed off for two main reasons, one was the spike in Omicron cases, and then at this point last year. The supply chain continued to be a real challenge for us and other retailers.

Great. Congrats again, Oh, sorry go ahead, Barbara Okay. The holidays.

Holiday assortment. So look we believe our holiday assortment. This year really hasnt improved offering of both branded bargains based off of availability in the marketplace.

And also particularly our gift, giving because of the imbalances, we had from the supply chain congestion as Michael alluded.

So we feel between the two of those will be able to offer great brands.

<unk> values and a broader assortment.

Best of luck.

Thank you.

And our next question comes from the line of Alex Stratton with Morgan Stanley . Please proceed with your question.

Great. Thanks, so much for taking my question just as it relates to the updated guidance, perhaps could you kind of talk about what the key swing factors are there that could drive you either to the higher or the lower end of that new range.

Thank you Alex Yes, sure Alex This is Adam Hey, so given our guidance of flat to minus 2% comps, we'll have some deleverage impact from sales markdowns will be higher than last year in fourth quarter, but not as impactful as in third.

Third quarter.

Domestic freight we see is slightly neutral seeing some benefit in rate.

But offset by it's still elevated fuel prices.

Ocean freight will probably be the most tangible.

<unk> for us.

Remember last year, we're getting into the period where rates were.

Escalating significantly demand was high so.

That will be.

Tailwind for us.

And then given our outperformance last year and our underperformance this year incentive costs will be lower in Q4 versus last year.

And then finally.

Depending how the end of the year plays out we'll likely see some pressure from pack away timing in fourth quarter also.

Great. That's super helpful. Maybe could I just follow up on your inventory levels. I think you said they were up low double digits year over year or exiting the quarter.

Which seems like a pretty lean level. So maybe could you tell us do you feel like you have enough heading into the fourth quarter or how are you feeling about the levels and then just a broader assortment.

Overall, we feel really good about where we are.

At the end of the third quarter.

As we said in the prepared remarks, we ended up about 12%.

Which was a big improvement when we from the second quarter when we were.

55%.

And the increase over last year is really pack away inventory. So we were at 41% versus 31% last year.

And last year was relatively low versus our historical levels, because we use a substantial amount of our pack away too to chase sales that were well above our plan.

Thank you so much.

And our next question comes from the line of Mark <unk> with Robert W. Baird. Please proceed with your question.

Good afternoon, Thanks for taking my question.

What do you view as the key drivers to the improving comp trends you saw this quarter.

Are you seeing evidence that the trade down is now recurring do you think this is a reflection of the AUR strategy you outlined last quarter.

Just if you could expand on your overall assessments there that would be great. Thank you.

Sure from the second quarter to the third quarter from an assortment perspective, we went in and reset our values and got them to where we believe they need to be very promotional environment. So we've right sized our values through some markdowns in some places and in some places we rightsize some of our inventory as well.

We're watching steps to come on in the.

In the business and the other big chested apparel and home for us.

In the quarter.

Relatively the same but our <unk> business, which was our best performing business with really really fueled by strong values on branded products and availability in the market.

And in terms of the trade down customer with so many moving parts in the economy, it's difficult to parse out the individual drivers.

Of the improvement we have not seen a material shift to spending trends across different.

Income different demographics, but.

Delivering better bargains to our consumer likely played the most significant role as it typically does.

Great. Thank you best of luck over holiday.

And our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Thank you good afternoon.

Just hoping you could square a couple of comments for US you talked about resetting values and really focusing on the sharp price points and your AUR was up so can you talk about.

The drivers of AUR in the quarter and then your views on the pricing strategy on a go forward basis.

Sure so the range value value and price are two different things so the.

The merchants are out constantly assessing what's going on from pricing and competitive shopping and seeing what that is so in some places where we felt that our AUR was just too high.

We went ahead and took markdowns, but in other places based off of Assortments and opportunities that we've gotten in the marketplace.

AUR might be higher but the value is different and then the last component would be some of the shift in the mix of some of the business system itself. So for example, our shoe business.

As Ben has been strong and shoes, obviously want a much higher AUR. So there are variety of things, but what I would say in total is that.

With back to being such a highly promotional environment that we're in the merchants will be in the market really assessing where the values are moving and what that looks like and trying to stay ahead of that so with the again back to the your AUR question that it depends on mix and that can depend on brand. So there's a variety of issues.

Yeah.

Thank you.

And our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Hey, Thanks, good afternoon, congrats on a great quarter, you called out, Florida, and Texas as being strong regions, but you didn't call out, California, which is a little bit surprising given the checks that were sent out.

In the month of October . So just wondering if you could just give us a little bit more color on geographic performance for quarter.

Yeah. This is Adam Chuck.

Yes, Florida, and Texas, clearly outperform for US we're seeing the benefit in border locations, we're seeing the benefit in tourism locations and those were clearly the outperformers on the flipside, California underperformed in the quarter.

And on California, the checks Didnt come out to the end of the quarter. So it didn't have a material impact on Q3.

In California, and fuel prices have remained significantly more elevated than the rest of the country that that is.

We believe squeezing the lower to moderate income customer.

Okay. Thank you very much.

And our next question comes from the line of Paul <unk> with Citigroup. Please proceed with your question.

Hey, guys I'm curious, what's going on from a shrink perspective, you know we've had a couple of companies call out I think.

Drag from from shrink I think you guys, usually do with physical count in <unk>. So curious what you're seeing on that front and then also just on inventory.

<unk> third quarter inventory is a few hundred million bucks above Q.

Q now that's a few hundred million below so I'm just kind of curious about what your thinking is in terms of quantity and quality and how youre thinking about inventory levels relative to sales go forward. Thanks.

Well on physical inventory, we did take our physical inventory during the third quarter and it was slightly higher.

Then last year.

And then on inventory levels in Q2, we were.

We believe we had too much inventory, which is why it's down versus versus the second quarter.

And then go forward Michael.

I wouldn't comment on the on year end.

But it's going to be dependent on the pack away opportunities in the marketplace.

Alright, Thanks, good luck.

And our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Good afternoon, and thank you so much for taking our question.

Barbara I was wondering if you could contemplate and reflect on based on the availability of branded goods in the market. Today can you talk to the outlook that you see from merch margins for the next few quarters, how are you thinking about.

That mark on and passing that along through the P&L versus passing that value on to the consumer and competing for additional comp opportunity over the next few quarters. Thank you.

Sure.

As you know Theres a lot of availability in the market and it's really broad based and.

All categories all brands, it's really broad in terms of in terms of margin I think the way we think about it now is.

The customer our customer, especially the moderate to low income customer is really for.

On values.

So we will look at every brand based off of how that brand in the world and the competitive nature of the pricing of that brand and then we'll evaluate appropriately because that's really what the customer told us.

Went in and we rightsize some of our values that we werent as <unk>.

Competitive as we would have been historically, so I would look at it more from the opportunity of getting great brands on the floor, putting better values better values out there to make to please the customer and that ultimately to drive sales.

Great and then just one quick follow up I think in the prepared remarks, you mentioned the sequential improvement at Dd's can you talk to the drivers of that and any change that you're seeing in the behavior of your low income customer versus maybe more of a middle to high income customer within your portfolio.

Sure on Dd's the improvement from.

Q2 to Q3 with similar then Ross although it continues to trail as a reminder, the Dd's customers average household income is 40% to 45000 versus 60% to 65.

For Ross.

So very similar improvement between Q2 and in Q3.

Thank you and as a reminder, we ask that you. Please limit yourself to one question only thank you.

Our next question comes from the line of Michael Binetti with Credit Suisse. Please proceed with your question.

Hey, guys. Thanks for the question and congrats on a great quarter.

You guys tend to be really conservative when it comes to the forward guidance.

Today, and yesterday and spoken to stop you start the fourth quarter, Michael I know you won't speak specifically about intra quarter, but you've mentioned maybe that fuel is going to neutralize some of the stimulus stimulus benefit in your biggest market. This year your macro thoughts there, but what gives you the confidence to raise in the fourth quarter, knowing what we know about the industry here a little different than how you approach a couple of months.

Quarters, and then I guess, Michael you've also spoken to us in the past about what your view is of a normal algorithm for this business what flow through looks like a new normal sales target any initial thoughts on how slow through could look next year, if we're lucky enough to be back to you.

The market for a normal comp.

Sure.

What gives us confidence on the guidance so the.

Multiyear stack in Q4 is lower than what we actually achieved.

In the third quarter.

We're confident about our assortment.

That we have for the holidays.

And any conservatism would be based on the macroeconomic environment and what we think is going to be a very very promotional holiday.

In terms of the flow through for next year as you would expect operating margin improvements will be highly dependent on sustained strong sales growth over time, and then how quickly.

Some of the inflationary cost pressures.

Subside, but I'd say over the longer term, we think we can achieve gradual.

Improvement in profitability.

As for 2023, specifically, we're in the midst of our budgeting process.

Your next year currently.

And we'll be able to provide an update on our year end call. When we will have a better sense of the macro economy.

Entering the year and to the opportunities we have in places like Ocean.

Domestic freight I would say also keep in mind with lower incentive costs that had benefited our profitability. This year, we will reset the baseline next year and thus incentives will be Ah ha.

Headwind in SG&A.

Okay. Thanks, Mike.

And our next question comes from the line of Adrienne <unk> with Barclays. Please proceed with your question.

Good afternoon, and thank you very much [laughter] give me Barbara can you talk about the buying environment and how much better it has gotten perhaps in the past 60 to 90 days since last quarter.

And then how long does it take from say a contract negotiation.

But to get that project ready and available for sale in your stores. Thank you very much.

Sure.

Yes, the buying environment has gotten even even better broader.

More brands all classifications. So it has absolutely in the last 60 to 90 days more vendors want to move more merchandise.

And also some new resources that perhaps we weren't doing business with before also want us to.

Purchase of merchandise. So yes, there's a lot of a lot of.

A lot of supply out there.

Just as a second part of your question again.

Yeah I was wondering from the time that you actually Nick I was just wondering.

Thanks Tommy.

Well it depends how quickly it vendor a vendor can ship right, so assuming stemming I buy the goods on Monday.

The vendor could ship.

And a week you know probably takes about three to four weeks, depending and put depending upon but there's a lot of variables here Adrian here.

Shifting somewhat.

But basically as a general rule I would say somewhere between three three to four weeks.

Okay Fantastic that's good luck for holiday congrats.

Thank you.

And our next question comes from the line of Laura Champion with Loop capital. Please proceed with your question.

Thanks for taking my question.

I'm interested in the contrast between what looks like more promotional department stores this year versus last.

In the off price kind of effort to raise the range a bit.

How is your pricing umbrella holding up versus those are mall based stores this year.

Well, Laura we went in and actually went in and rightsize some of our some of our values.

We'll continue to do that in in the fourth quarter, which is why we're saying built into our guidance we have some additional markdowns in there.

The promotional calendar I mean, you know what's going on out there you can see it as everyone's trying to move through inventory in some places.

Emotional counsel as sharp as 19, his deepest 19, coupled business as you say to yourself well keep at the 19.

So the merchants are out there assessing that and then we're either buying to the values that we think we need to be based off of all the supply that's out there or we're going to reevaluate some of the things that we have that we think we need to get to the right price value, but it is just as promotional as it's been historically.

So that's kind of the headset the merchants have as they are out there now making purchases in the outside world.

And then of course, the logic of every value is dependent upon the brand and how that fits.

You know in the outside World.

Got it thank you.

And the next question comes from the line of Marni Shapiro with retail tracker. Please proceed with your question.

Hey, guys congratulations on a great quarter and best of luck for holiday.

Could just I know youre, not giving guidance here for 'twenty three but is it fair to assume that store openings will be about the same for next year or is there any change to your thinking on dd's given the environment and then I think Barbara I, just wanted to chase a little bit more into the improved mix. He said for the holiday season, you know clearly there's a lot of <unk>.

Product out there, but what are you referring to improve mix versus.

'twenty, one versus the first half versus the third quarter or just in general there's so much inventory and we're having a good time.

Good morning.

On the on the REIT real estate fund.

We remain very confident in both chains and currently have no changes to our expansion plans.

Certainly we will provide more details for 23, when we report year end.

And then in terms of the next morning I'd say.

Going back to this two answers going back to Q4, we made a lot of gifting opportunity last year because of the whole.

<unk> carrier, so specifically to Q4, that's one piece of it in terms of versus the entire year. There's just a lot more brands out there. So I think I think it's a combination of both being able to get really great closeout with better pricing and better brand and the other piece of where Theyre just for.

Our whole literally health in our Assortments and stuff.

That's great best of luck for holiday guys.

Thank you Marni.

And our next question comes from the line of John Kernan with Cowen. Please proceed with your question.

Great. Thanks for taking my question congrats on the momentum into holiday.

So Michael if we look at your sales productivity just simply.

The sales per square foot sales per store, it's above pre COVID-19 levels.

The operating margin obviously.

Is below but it seems like there's momentum into the fourth quarter and next year and you might have line of sight in terms of.

How to get back to pre Covid levels of operating margin. What do you think what do you have the clear line.

Your line of sight in terms of is it freight is the.

Merchandise margin is it.

SG&A leverage what you think.

Create the clearest path back to pre COVID-19 levels of profitability.

Well sales sales number one.

There are structural changes.

In wages across the U S.

I don't think youre going to get that back to the.

Labor that you had pre Covid certainly ocean freight is going to be.

A tailwind for us going into.

2023, I would say domestic freight should be a tailwind as well, but that will be partly dependent on.

Diesel fuel prices that are above $5 now and so it will be partly dependent on what happens with fuel but.

Importantly, it will depend on top line sales.

Got it thank you.

And our next question comes from the line of Jay sole with UBS. Please proceed with your question.

Great. Thank you. So much my question is just with all the inventory out there not just in terms of apparel and footwear, but many categories are you seeing any opportunities to expand the business into new areas new categories that maybe.

You have it before just because the buys are so good.

Mhm.

Look I would say that the merchants are out there out there looking for all kinds of buys and yes that does happen often.

Windup opening up some new resources, which we have.

As it is availability and the vendors are looking to partner with people. So.

It's both I mean, we're absolutely doing that and yeah. That's that's a piece of it.

And Barbara do you think that can continue.

Well I think I think one.

Once you open up a resource or even start shopping a resource even if even if the richest doesn't have merchandise that minutes usually things.

Time, if we keep going back.

<unk> opened a resource up I think after this supply bubble really really dive down and we do expect it to go into next year. Because there is so much merchandise and I think theres a lot of.

We don't really have full line of sight to what will be fall product that you know that's in front of us been since November .

Okay.

Yeah, I just I think I think there is just I don't know that.

I think theres opportunities and there are some businesses, we could go into some different categories not hold list whole businesses the categories within businesses that we can expand upon.

Got it thank you so much.

And our next question comes from the line of Ike bore a child with Wells Fargo. Please proceed with your question.

Hi, everyone. This is Jesse <unk> on for Ike.

Thanks for taking our question.

Wondering as we look to pre Covid margins I think it was mentioned that earlier in the Q&A are hovering around 13% pre COVID-19, but you mentioned some higher structural costs such as wages, just pre COVID-19 margins still attainable sometime over the next few years or should we be thinking about a recovery, but maybe landing somewhere below those pre COVID-19 levels.

How are you guys thinking about.

Sure Jeff.

I wouldn't predict where it's going to land other than any any return would happen.

Over a number of years and wouldn't happen overnight, we would expect to have improved profitability.

Overtime is the way I'd answer that question.

Alright, well thank you.

And our next question comes from the line of Nishu Sherman with Bernstein. Please proceed with your question.

Yeah. Thank you.

Barbara on your point about resetting the value proposition have you seen turns pick up sequentially through the quarter and is that what drove the in store inventories to be so lean as you can.

Continue to lean in on markdowns and then Adam you mentioned earlier on in the expectation of an easing of markdowns in Q4 should we interpret that you are now reaching the level of turns that you know that continue to be strong through the quarter and now you're you're happy with where your value proposition is have you seen the trend stays strong kind of exiting the quarter and into.

Q4, thank you.

Yes.

Our niche on absolute inventory levels.

These are the these are the inventory levels, we have been running throughout the year, we always prefer to be in a chase.

And this is the way we will you know we.

We typically run run the model and we'll continue to do so going forward, but the inventory levels.

Again in store in front of the customer we're up over last year, but down versus pre pandemic levels, yeah in the shipbuilding and in that a little bit your question about the markdown. So we've layered in some additional markdowns versus last year into our fourth quarter guidance and that's that's really largely driven.

We know this is going to be a highly promotional environment.

We'll see how highly promotional it is but just want to be prepared for that.

Can I clarify Adam so if it's up versus last year, but is it right to say that it's easing sequentially versus where you were this quarter.

Absolutely okay. Thank you.

And our next question comes from the line of Cory <unk> with Jefferies. Please proceed with your question.

Hi, good afternoon, congrats on the quarter and thanks for taking my question.

So on the new stores I was wondering if you I know you talked about completing our 2022 store growth plans I was wondering if you could discuss a little bit about new store productivity.

Looking versus what your benchmarks are and any additional color that you can add specifically on just the new store performance.

Sure so for us our new store.

Overall in the fleet of stores will typically come out of the out of the box that 60% to 65% of the chain average.

And that continues to be the case.

Even on the new store openings over the last couple of years.

Yeah.

Great. Thank you very much.

Okay.

And our next question comes from the line of Bob <unk> with Guggenheim Securities. Please proceed with your question.

Hi, Chris.

Good afternoon, just two quick questions on I guess dd's versus Ross or the state performances, Texas, Florida versus California. What you said is it is there are holding.

True for both formats in terms of the sales performance and then just on the other side of it is in terms of your mix or your your opportunity in categories.

What do you think in terms of where you outperformed your expectation in the third quarter like which categories surprised you. The most I would say.

Could you share that with us. Thanks.

Sure on the <unk> question.

We typically the state performance is really on a consolidated basis, which is what we discussed we don't get into the BD, but again I would just reiterate that overall.

Dd's improvement I would say across the board was very similar to Ross, but continues to trail.

And in terms of merchandise.

Mix of performance outperformed I mean to really outperform.

Other businesses and outperformed would be.

Some of the center core businesses.

From a term perspective.

And it beat the plan.

Great. Thank you.

Yeah.

And our final question comes from the line of Simeon Siegel with BMO capital markets. Please proceed with your question.

Hi, This is Dan stroller on for Simeon Thanks for taking my question.

On the topic of margin recapture I think in the past you've talked about leveraging added technology in store or at the Dcs for efficiency and cost reductions just wondering where you stand in that regard or there's more to come basically what inning youre in in that chapter.

I would I would answer that by saying we're constantly in the third or fourth inning. So we always have.

New new investments, we're making those include automation in the D C.

In stores.

The ranging from automated robotics in the D C.

We're piloting self checkouts in the stores.

And.

Also in the stores more efficient ways to check inventory and take markdowns for our store associates.

And we constantly have.

Investments, where we're trying to be more productive and efficient in the business.

Great. Thank you best of luck.

There are no further questions at this time I would like to turn the floor back over to Barbara rent in there for any closing comments.

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

Okay.

Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.

Yeah.

Okay.

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Good afternoon, and welcome to the Ross stores third quarter 2022 earnings release Conference call.

Call will begin with prepared comments by management, followed by a question and answer session. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

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.

And 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.

And now I'd like to turn the call over to Barbara <unk> Chief Executive Officer. Thank you Ma'am. Please go ahead.

Good afternoon joining.

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

As noted in today's press release third quarter results were above our expectations as we delivered stronger value throughout our stores.

Operating margin for the period was nine 8% versus 11, 4% last year, reflecting the deleveraging effect from the comparable sales decline as well as pressure from higher markdowns and unfavorable timing of pathway related costs.

Earnings per share for the 13 weeks ended October 29, 2022 for one dollar on net income of $342 million.

This compares to $1 nine per share on net earnings of $385 million with the <unk>.

13 week ended October 32021.

Total sales for the quarter were $4 6 billion.

In line with the prior year with.

With comparable sales down 3% on top of a robust 14% gain in the third quarter of 2021.

For the first nine months earnings per share were $3 eight.

On net earnings of $1 1 billion.

Compared to $3 82 per share on net income of $1 4 billion for the same period in 2021.

Sales for the year to date period totaled $13 5 billion with comparable store sales down 5% versus a strong 14% increase last year.

For the third quarter at Ross shoes was the best performing business, while Florida, and Texas for the top performing region as they were bolstered by the outperformance of border and Forex losses.

At Dd's discounts sales trends improved versus the first half, but continued to trail rock. This result, due to ongoing inflationary pressures that are having a larger impact on TD lower income customers.

Inventory levels moderated significantly from the first half of the year with total consolidated inventories at the end of the quarter up 12% compared to last year.

Average store inventories during the quarter were up 4% versus 2021 and down compared to pre pandemic levels.

Halfway merchandise represented 41% of the total compared to 31% last year, when we use pack away merchandise to fuel a robust sales gains.

Turning to store growth, we completed our expansion program for 2022 with the addition of 28, new Ross and 12 Dd's discounts in the third quarter.

For the year, we added a total of 99 locations comprised of 71 Ross from 2008 Dd's discounts.

We now expect to end the year with 693, <unk> and 322 Dd's discount locations for a net increase of 92 stores.

Now Adam will provide further details on our third quarter results and fourth quarter guidance.

Thank you Barbara as previously stated comparable store sales were down 3% in the quarter, although traffic improved from the second quarter, it's still declined versus the prior year.

Marshall the offsetting these declines was a higher average basket size.

Operating margin of nine 8% for the third quarter was down 160 basis points from last year.

Cost of goods sold grew by 230 basis points in the quarter.

Merchandise margin declined 165 basis points, primarily due to higher markdowns.

Distribution costs were up 140 basis points, mainly due to unfavorable timing of pack away related costs and deleverage from our new distribution center, while occupancy deleveraged by 20 basis points.

These higher expenses were partially offset by a 75 basis point decrease in buying costs, mainly from lower incentives.

Lastly pressure from domestic freight expenses eased in the third quarter and improved 20 basis points as we anniversaried the freight headwinds that began in the second half of last year.

SG&A for the period improved by 70 basis points as deleverage from the negative comparable sales was more than offset by lower incentives.

During the third quarter, we repurchased two 8 million shares of common stock for an aggregate cost of $244 million. We remain on track to buy back a total of $950 million in stock for the year.

Now, let's discuss our fourth quarter guidance.

We continue to expect a very promotional holiday selling season, and ongoing inflationary headwinds to pressure our low to moderate income customers.

That said, we face our easiest sales and earnings comparisons in the fourth quarter and are raising our guidance given our third quarter sales momentum and improved holiday assortments.

For the 13 weeks ending January 28, 2023, we now expect comparable store sales to be flat to down 2% on top of a 9% gain in the prior year.

As a result earnings per share are forecasted to be in the range of $1 13 to $1 26.

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

Total sales are projected to be flat to up 3%.

We expect operating margin to be in the range of nine 7% to 10, 5% versus nine 8% last year.

This mainly reflects the anniversarying of significant cost pressures from ocean freight.

And lower incentives, partially offset by the deleveraging effect from lower same store sales.

Unfavorable timing of pack away related costs and higher markdowns.

Net interest income is estimated to be about $14 million or.

Our tax rate is expected to be approximately 23%.

And weighted average diluted shares outstanding are projected to be about $342 million.

Based on our year to date results and fourth quarter guidance earnings per share for fiscal 2022 are now projected to be in the range of $4 21.

To $4 34, compared to $4 87 last year.

Now I'll turn the call back to Barbara for closing comments. Thank you Adam despite the many challenges over the last few years, coupled with today's uncertain macroeconomic and geopolitical environment, we remain optimistic about our future growth prospects.

Our top priority is and always will be delivering fresh and exciting name brand merchandise at compelling discount every day and our growing store base of over 2000 locations.

With consumers' heightened focus on value and convenience it bodes well for our ability to expand our market share and profitability in the future at this point, we'd like to open up the call and respond to any questions you may have.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that Youre line is in the queue. You May press star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

We ask that you please limit yourself to one question only thank you.

One moment, please where we pull for questions.

And our first question comes from the line of Matthew Boss with Jpmorgan. Please proceed with your question.

Thanks, and congrats on a nice quarter, it's great to see the return to beat and raise.

So Barbara.

On the on the traffic trends as we mentioned this is Michael Hartshorn method.

As we mentioned in the prepared comments.

With the comp down 3%.

As we mentioned traffic did improve for the quarter.

But it still declined versus the prior year, so offsetting the traffic declines was.

It was a higher average basket.

The back basket was driven by higher AUR is while <unk> were flattish.

The increase in the average basket was more than offset by the decline in the number of transactions.

As we move through the quarter, what we saw on a stacked basis, so compared to 2000 1919, our trends improved as we progressed through the quarter.

Deterioration in the macro and the fourth quarter.

I would say that.

From our point of view the macroeconomic environment, obviously remains uncertain, but we do think that the holiday period is going to be.

Very promotional.

So that's what we've embedded into the guidance and then just as a reminder, last year.

Sales at the end of the quarter did trail off its or easiest quarterly compare.

Trailed off for two main reasons, one was the spike in <unk> cases, and then at this point last year. The supply chain continued to be a real challenge for us and other retailers.

Great color and congrats again, Oh, sorry go ahead Barbara holidays.

Holiday assortment. So look we believe our holiday assortment. This year really have an improved offering of both branded bargains based off of availability in the marketplace.

And also particularly our gift, giving because of the imbalances, we had from the supply chain congestion as Michael just alluded to so we feel between the two of those will be able to offer great brands.

Strong values and a broader assortment.

Best of luck.

Thank you.

And our next question comes from the line of Alex Stratton with Morgan Stanley . Please proceed with your question.

Domestic freight we see is slightly neutral seeing some benefit in rate.

But offset by it's still elevated fuel prices.

Ocean freight will probably be the most tangible.

<unk> for US as you remember last year, we're getting into the period where rates were.

Escalating significantly demand was high.

So that will be a.

Tailwind for us.

And then given our outperformance last year and our underperformance this year incentive costs will be lower in Q4 versus last year.

And then finally.

Depending how the end of the year plays out we'll likely see some pressure from pack away timing in fourth quarter also.

Okay.

Great. That's super helpful. Maybe could I just follow up on your inventory levels. I think you said they were up low double digits year over year or exiting the quarter.

Overall, we feel really good about where we are.

At the end of the third quarter.

As we said in the prepared remarks, we ended up about 12%.

It was a big improvement when we from the second quarter when we were.

55%.

And the increase over last year is really pack away inventory. So we were at 41% versus 31% last year and.

And last year was relatively low versus our historical levels, because we use a substantial amount of our pack away too to chase sales that were well above our plan.

Thank you so much.

And our next question comes from the line of Mark <unk> with Robert W. Baird. Please proceed with your question.

Good afternoon, Thanks for taking my question.

What do you view as the key drivers to the improving comp trends you saw this quarter.

Are you seeing evidence that the trade down is now recurring do you think this is a reflection of the AUR strategy you outlined last quarter.

Just if you could expand on your overall assessments there that would be great. Thank you.

So from the second quarter to the third quarter from an assortment perspective, we went in and reset our values and got them to where we believe they need to be in a very promotional environment. So we've right sized our values through some markdowns in some places and in some places we rightsize some of our inventory as well.

We will watch and shifts to go on in the <unk> and.

In the business and the other big shifted apparel and home for Austin and.

In the quarter performed relatively the same but our shoe business, which was our best performing business was really really fueled by strong values on branded products and availability in the market.

And in terms of the trade down customer with so many moving parts in the economy, it's difficult to parse out the individual drivers.

Of the improvement we have not seen a material shift of spending trends across different.

Income different demographics, but.

Delivering better bargains to our consumer likely played the most significant role as it typically does.

Great. Thank you best of luck over holiday.

And our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Thank you. Good afternoon, I was just hoping you could square a couple of comments for US you talked about resetting values and really focusing on the sharp price points and your AUR was up so can you talk about.

The drivers of AUR in the quarter and then your views on the pricing strategy on a go forward basis.

Sure so lorraine value value and price are two different things so the.

The merchants are out constantly assessing what's going on from pricing and competitive shopping and seeing what that is so in some places where we felt that.

Our AUR was just too high.

And we went ahead and took markdowns, but in other places based off of Assortments and opportunities that we've gotten in the marketplace.

Warner might be higher but the value is different and then the last component would be some of the shift in the mix of some of the business system itself. So for example, our shoe business.

As Ben has been strong and shoes, obviously want a much higher rate. So there are a variety of things, but what I would say in total is that.

With back to being such a highly promotional environment that we're in the merchants will be in the market really assessing where the values are moving and what that looks like and trying to stay ahead of that so with the again back to the Euro EUR question Zach it depends on mix and that can depend on brand. So there's a variety of issues.

Alastair.

Thank you.

And our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Hey, Thanks, good afternoon, congrats on a great quarter, you called out, Florida infections as being strong regions, but you didn't call out, California, which is a little bit surprising given the trucks that were sold out.

In the month of October . So just wondering if you could just give us a little bit more color on geographic performance for quarter.

Yes. This is Adam Chuck.

Yes.

Laura.

Texas clearly outperformed for us.

Seeing the benefit in border locations, we're seeing the benefit in tourism locations and those were clearly the outperformers on the flipside, California underperformed in the quarter.

And on California, the checks Didnt come out to the end of the quarter. So it didn't have a material impact on Q3.

In California, and fuel prices have remained significantly more elevated than the rest of the country that is.

We believe squeezing the lower to moderate income customer.

Okay. Thank you very much.

And our next question comes from the line of Paul <unk> with Citigroup. Please proceed with your question.

Hey, guys curious, what's going on from a shrink perspective <unk> had a couple of companies call out I think.

Drag from from shrink I think you guys, usually do with physical count in <unk>. So curious what you're seeing on that front and then also just on inventory.

Currently third quarter inventory is a few hundred million bucks above <unk>.

<unk>.

A few hundred million dollars below so I'm just kind of curious about what youre thinking is in terms of.

Quantity and quality and how youre thinking about inventory levels relative to sales go forward. Thanks.

Well on physical inventory, we did take our physical inventory during the third quarter and it was slightly higher.

Then last year.

And then on inventory levels in Q2, we were.

We believe we had too much inventory, which is why it's down versus versus the second quarter.

And then go forward Michael.

I wouldn't comment on the on year end.

But it's going to be dependent on.

Pack away opportunities in the marketplace.

Alright, Thanks, good luck.

And our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Good afternoon, and thank you so much for taking our question.

Barbara I was wondering if you could contemplate and reflect on based on the availability of branded goods in the market. Today can you talk to the outlook that you see for merch margins for the next few quarters, how are you thinking about.

That mark on and passing that along through the P&L versus passing that value on to the consumer and competing for additional comp opportunity over the next few quarters. Thank you.

Sure.

As you know Theres, a lot of availability and Mark and it's really broad based and.

All categories all brands, it's really broad in terms of in terms of margin I think the way we think about it now is.

The customer our customer, especially the moderate to low income customer is really <unk>.

On value so.

We will look at every brand based off of how the brand fits in the world and the competitive nature of the pricing of that brand and then we will evaluate appropriately because that's really what the customer told US we went in and we rightsize some of our values that we werent as <unk>.

Great and then just one quick follow up I think in the prepared remarks, you mentioned the sequential improvement at Dd's can you talk to the drivers of that and any changes that youre seeing in the behavior of your low income customer versus maybe more of a middle to high income customer within your portfolio.

Sure on Dd's the improvement from.

Q2 to Q3 was similar.

Ross, although it continues to trail as a reminder, the Dd's customers average household income is 40% to 45000 versus $60 to 65.

For Ross.

So very similar improvement between Q2 and in Q3.

Thank you and as a reminder, we ask that you. Please limit yourself to one question only thank you.

Our next question comes from the line of Michael Binetti with Credit Suisse. Please proceed with your question.

Hey, guys. Thanks for the question and congrats on a great quarter.

You guys seem to be really conservative when it comes to the forward guidance.

Today, and yesterday and spoken to soft start to fourth quarter, Michael I know you won't speak specifically about intra quarter, but you've mentioned maybe that fuel is going to neutralize some of the stimulus stimulus benefit in your biggest market in a few of your macro thoughts there, but what gives you the confidence to raise in the fourth quarter, knowing what we know about the industry here a little different than how you approach a couple of months.

<unk> quarters, and then I guess, Michael you've also spoken to us in the past about what your view is of a normal algorithm for this business what flow through looks like a new normal sales target any initial thoughts on how slow through could look next year, if we're lucky enough to be back to <unk>.

The market's very normal comps.

Sure.

What gives us confidence on the guidance so the.

Multiyear stack in Q4 is lower than what we actually achieved.

In the third quarter.

We're confident about our assortment.

That we have for the holidays.

And any conservatism would be based on the macroeconomic environment and what we think is going to be a very very promotional holiday.

In terms of the flow through for next year as you would expect operating margin improvements will be highly dependent on sustained strong sales growth over time, and then how quickly.

Some of the inflationary cost pressures.

Subside, but I'd say over the longer term, we think we can achieve gradual improvement.

And profitability.

As for 2023, specifically, we're in the midst of our budgeting process.

Your next year currently.

And we'll be able to provide an update on our year end call. When we will have a better sense of the macro economy.

Entering the year and to the opportunities we have in places like Ocean.

Domestic freight I would say also keep in mind with lower incentive costs that had benefited our profitability. This year, we will reset the baseline next year and thus incentives will be Ah ha.

Headwinds in SG&A.

Okay. Thanks, Michael.

And our next question comes from the line of Adrienne <unk> with Barclays. Please proceed with your question.

Good afternoon, Thank you very much.

Barbara can you talk about the buying environment and how much better it has gotten perhaps in the past.

The 90 days since last quarter.

And then how long does it take from say a contract negotiation to being able to get that project ready and available for sale in your stores. Thank you very much.

Sure.

Yes, the buying environment has gotten even even better broader.

More brands all classifications. So it has absolutely in the last 60 to 90 days more vendors want to move more merchandise.

And also some new resources that perhaps we weren't doing business with before also wants to purchase.

Purchase of merchandise. So yes, there's a lot of a lot of.

A lot of supply out there Adrian just as a second part of your question again.

Yes, I was wondering from the time that you actually Nick I was just wondering yes.

Yes.

Thanks Tommy.

Well it depends how quickly a vendor a vendor can ship right. So assuming stemming I buy the goods on Monday.

The vendor could ship.

In a week.

I'll, probably take about three to four weeks, depending upon depending upon but there's a lot of variables here Adrian.

Where they're shipping somewhat napa.

Basically as a general rule I would say somewhere between three three to four weeks.

Okay Fantastic best of luck for holiday Congrats.

Thank you.

And our next question comes from the line of Laura Champion with Loop capital. Please proceed with your question.

Thanks for taking my question.

Im interested in the contrast between what looks like more promotional department stores this year versus last and the off price kind of effort to raise the ring a bit.

How is your pricing umbrella holding up versus those.

Mall based stores this year.

Well, Laura we went in and actually went in and rightsize some of our some of our values and.

We will continue to do that in in the fourth quarter, which is why we're saying built into our guidance we have some additional markdowns in there.

<unk>.

The promotional calendar I mean, what's going on out there you can see it as everyone's trying to move through inventory in some places.

The promotional calendar.

Sharp is 19 his deepest 19, coupled business as you said yourself, it's a little deeper than 19.

And so that's kind of the headset the merchants have as they are out there now making purchases in the outside world.

And then of course, the logic of every value is dependent upon the brand and how that fits.

And the outside World.

Got it thank you.

And the next question comes from the line of Marni Shapiro with retail tracker. Please proceed with your question Hey.

Hey, guys congratulations on a great quarter and best of luck for holiday.

If you could just I know youre, not giving guidance here for 'twenty three but is it fair to assume that store openings will be about the same for next year or is there any chance you are thinking on dd's given the environment and then I think Barbara just wanted chase a little bit more into the improved mix you said for the holiday season.

Clearly, there's a lot of product out there, but what are you referring to improve mix versus <unk>.

<unk> 21 versus the first half versus the third quarter or just in general there's so much inventory and we're having a good time.

Marty on the.

On the on the REIT real estate.

We remain very confident in both chains and currently have no changes to our expansion plans.

Certainly we will provide more details for 2003, when we report year end okay.

Okay and then.

In terms of the next morning I'd say.

Going back to two answers going back to Q4, we made a lot of gifting opportunity last year because of the whole.

Slide <unk> carrier issues, so specifically to Q4, that's one piece of it in terms of.

Versus the entire year, there's just a lot more brands out there. So I think I think it's a combination of both.

Being able to get really great closeout with better pricing and better brands.

And the other piece of where Theyre just for holes literally holes in our assortment. So it's both.

That's great best of luck for holiday guys.

Thank you Martin.

And our next question comes from the line of John Kernan with Cowen. Please proceed with your question.

Great. Thanks for taking my question congrats on the momentum into holiday.

So Michael if we look at your sales productivity just simply through.

Sales per square foot sales per store, it's above pre COVID-19 levels.

The operating margin obviously.

Is below but it seems like there is momentum into the fourth quarter and next year and you might have line of sight in terms of.

How to get back to pre Covid levels of operating margin. What do you think is what do you have the clearest.

Line of sight in terms of is it freight is the merchandise margin is it <unk>.

G&A leverage what you think.

The clearest path back to pre COVID-19 levels of profitability.

Well sales sales number one.

There are structural changes.

In wages across the U S.

I don't think youre going to get that back to the.

Labor that you had pre Covid certainly ocean freight is going to be.

A tailwind for us going into two.

2023, I would say domestic freight should be a tailwind as well, but that will be partly dependent on.

Diesel fuel prices that are above $5 now and so it will be partly dependent on what happens with fuel but.

Most importantly, it will depend on top line sales.

Got it thank you.

And our next question comes from the line of Jay sole with UBS. Please proceed with your question.

Have it before just because the buys are so good.

Okay.

Hum.

Look I would say that the merchants are out there out there looking for all kinds of buys and yes that does happen often you wind up opening up some new resources, which we have.

As it is availability and the vendors are looking to partner with people.

I mean, we're absolutely doing that.

And that's.

That's a piece of it.

And Barbara do you think that can continue.

Well I think I think one.

Once you open up a resource or even start shopping to restart even if even if the research doesn't have merchandise set minutes, usually things over time, if we keep going back to what Youll open.

Open open a resource up I think after this supply bubble really really dive down and we do expect it to go into next year. Because there is so much merchandise and I think theres a lot of.

We don't really have full line of sight to what will be fall product that you know that's in front of us and since November .

Okay.

Yes, I just I think I think there is just.

Yes.

I think theres opportunities and there are some businesses, we could go into some different categories not hold with whole businesses or categories within businesses that we can expand upon.

Got it thank you so much.

And our next question comes from the line of Ike <unk> with Wells Fargo. Please proceed with your question.

Hi, everyone. This is Jesse <unk> on for Ike.

Thanks for taking our question.

Wondering as we look to pre Covid margins I think it was mentioned that earlier in the Q&A are hovering around.

13% pre COVID-19, but you mentioned some higher structural costs such as wages. This pre COVID-19 margins still attainable sometime over the next few years or should we be thinking about a recovery, but maybe landing somewhere below those pre COVID-19 levels. How are you guys thinking about.

Jesse.

I wouldn't predict where it's going to land other than any any return would happen.

Over a number of years and wouldn't happen overnight, we would expected.

The improved profitability.

Overtime is the way I'd answer that question.

Alright, thank you.

And our next question comes from the line of Nishu Sherman with Bernstein. Please proceed with your question.

Yes. Thank you.

Barbara on your point about resetting the value proposition have you seen turns pick up sequentially through the quarter and is that what drove the in store inventories to be so lean as you.

We continue to lean in on markdowns and then Adam you mentioned earlier on an expectation of an easing of markdowns in Q4 should we interpret that you are now reaching the level of turns that that continue to be strong through the quarter and now you're you're happy with where your value proposition is have you seen the trend stays strong kind of exiting the quarter and into.

Q4, thank you.

Yes.

Sean absolute inventory levels.

These are the these are the inventory levels, we have been running throughout the year, we always prefer to be in a chase.

And this is the way we will.

We typically run run the model and we'll continue to do so going forward, but the inventory levels again in store in front of the customer we're up over last year, but down versus pre pandemic levels and.

In the shipbuilding in that a little bit your question about the Mark Downs, we've layered in some additional markdowns versus last year into our fourth quarter guidance and that's that's really largely driven.

We know this is going to be a highly promotional environment.

And we will see how highly promotional it is but just want to be prepared for that.

But can I clarify Adam so if it's up versus last year, but is it right to say that it's easing sequentially versus where you were this quarter.

Absolutely okay. Thank you.

And our next question comes from the line of Cory <unk> with Jefferies. Please proceed with your question.

Hi, good afternoon, congrats on the quarter and thanks for taking my question.

Okay.

So on the new stores I was wondering if you I know you talked about completing our 2022 store growth plans I was wondering if you could discuss a little bit about new store productivity.

Thats looking versus what your benchmarks are and any additional color that you can add specifically on just the new store performance.

Sure so for us a new store.

Overall in the fleet of stores will typically come out of the out of the box at 60% to 65% of the chain average.

And that continues to be the case.

Even on the new store openings over the last couple of years.

Yes.

Great. Thank you very much.

Best of luck.

And our next question comes from the line of Bob <unk> with Guggenheim Securities. Please proceed with your question.

Hi, Congrats.

Good afternoon, just two quick questions.

I guess dd's versus Ross.

Are the the state performances, Texas, Florida versus California, What you said is it is there are holding.

True for both formats in terms of the sales performance and then just on the other side of it is in terms of your mix or your opportunity in categories.

What do you think in terms of where you outperformed your expectation in the third quarter like which categories surprised you. The most I would say.

Could you share that with us. Thanks.

Sure on the <unk> question.

We typically the state performance is really on a consolidated basis, which is what we discussed we don't get into the detail, but again I would just reiterate that overall.

Dd's improvement I would say across the board was very similar to Ross, but continues to trail.

And in terms of merchandise.

Mix of performance outperformed I mean, <unk> really outperformed.

Other businesses and outperformed would be.

Some of the center core businesses.

From a term perspective.

And it beat the plan.

Great. Thank you.

Yeah.

And our final question comes from the line of Simeon Siegel with BMO capital markets. Please proceed with your question.

Hi, This is Dan stroller on for Simeon Thanks for taking our question.

The topic of margin recapture.

You've talked about leveraging technology in store or at the Dcs for efficiency and cost reductions just wondering where you stand in that regard or there's more to come basically what inning youre in in that chapter.

I would I would answer that by saying we're constantly in the third or fourth inning. So we always have.

New new investments, we're making those include automation in the Dcs.

In stores.

The ranging from automated robotics in the Dcs.

We're piloting self checkout in the stores.

And.

Also in the stores more efficient ways to check the inventory and take markdowns for our store associates.

And we constantly have.

Investments, where we're trying to be more <unk>.

<unk> and efficient in the business.

Great. Thank you best of luck.

There are no further questions at this time I would like to turn the floor back over to Barbara retina for any closing comments.

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

Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.

Q3 2022 Ross Stores Inc Earnings Call

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