Q3 2023 Ross Stores Inc Earnings Call

November 16, 2023

Good afternoon, and welcome to the Ross stores third quarter 2023 earnings release Conference call. The call will begin with prepared comments by management, followed by a question and answer session.

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 2022 Form 10-K, and fiscal 2023 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 Rattler, Chief Executive Officer.

Good afternoon, joining me on the call today are Michael Hartshorn Group, President Chief Operating Officer, Adam Executive Vice President and Chief Financial Officer.

<unk> Group, Vice President Investor Relations.

We'll begin our call today with a review of our third quarter performance, followed by an update on our outlook for the fourth quarter of fiscal year. Afterwards, we'll be happy to respond to any questions you may have.

As noted in today's press release.

Pleased that both sales and earnings outperformed our expectations for the quarter.

Customers responded favorably to the terrific value we offer throughout our store.

Operating margin for the period was 11, 2% up from nine 8% last year.

<unk> from the same store sales gain.

Our freight costs were partially offset by higher incentives in store wages.

Earnings per share for the 13 weeks ended October 28, 2023 for $1 33.

Earnings per share of $1 last year.

Net income for the period rose to $447 million versus $342 million in the prior year period.

Total sales for the quarter were $4 $9 billion up from $4 6 billion last year with a comparable store sales gain of 5%.

The first nine months earnings per share were $3 74.

Net earnings of $1 $3 billion.

Compared to $3.08 per share.

Net income of $1 1 billion for the same period last year.

Sales for the year to date period grew to $14 4 billion with comparable store sales up 4% over last year.

For the third quarter at Roth cosmetics accessories, and shoes for again, the strongest performing businesses.

Geographic results were broad based.

Like Ross Dd's discounts also responded favorably to its strong value offerings driving improved sales trends during the quarter.

At quarter end total consolidated inventories were up 5% versus last year, while average store inventories were up 2%.

Pack away merchandise represents 39% of total inventory versus 41% in the same period of the prior year.

During the third quarter. We also completed our expansion program for 2023 with the addition of 43, new Ross and eight Dd's discounts.

For the year, we added a total of 97 locations comprised of 72, Ross and 25 Dd's.

We now expect to end the year with 1764, Ross stores and 345 Dd's discounts locations for a net increase of 94 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 rose, 5% in the quarter, primarily driven by higher traffic.

Operating margin increased 135 basis points to 11, 2%.

Cost of goods sold improved by 260 basis points in the quarter merchandise margin was the main driver with a 235 basis point increase primarily from lower ocean freight costs.

Distribution expenses improved by 45 basis points, mainly due to favorable timing of pack away related cost.

Domestic freight and occupancy levered by 40, and 25 basis points respectively.

Partially offsetting these benefits were higher buying costs that increased 85 basis points, mainly from higher incentives.

SG&A costs for the period increased by 125 basis points, primarily driven by higher incentive costs and store wages.

During the third quarter, we repurchased $2 1 million shares of common stock for an aggregate cost of $239 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 face macroeconomic volatility persistent inflation and more recently geopolitical uncertainty.

In addition, we are up against our most difficult quarterly sales comparisons versus 2022 in the fourth quarter.

As a result, and while we hope to do better. We believe it is prudent to maintain a cautious approach in forecasting our business and are reiterating our prior sales guidance for the fourth quarter.

For the 13 weeks ending January 27th 2024, we continue to plan same store sales to be up 1% to 2%.

Earnings per share for the 14 weeks ending February three 2024 are projected to be in the range of $1 56 to $1 62 compared to $1 31 in the fourth quarter of 2022.

This guidance range includes an approximate <unk> <unk> per share unfavorable impact from the timing of expenses that benefited the third quarter.

Based on our year to date results and our fourth quarter forecast earnings per share for the 53 weeks ending February three 2024 are now expected to be in the range of $5 30.

To $5 36 versus $4 38 last year.

Incorporated in this guidance for both the fourth quarter and full year as an estimated earnings per share benefit of <unk> 16 from the 50 <unk> week in fiscal 2023.

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

Total sales are projected to grow 8% to 10%, including an estimated $260 million benefit from the 50 <unk> week.

We expect operating margin to be in the range of 11, three to 11, 5% versus 10, 7% last year.

This range includes a 65 basis point benefit from the extra week.

We are planning for higher merchandize margins, given lower ocean freight costs, though moderating from the improvement earlier this year.

In addition, lower domestic freight and distribution costs, partially due to favorable pack away timing are expected to benefit margin.

Partially offsetting these lower cost as our forecast for higher incentive compensation.

Net interest income is estimated to be about $45 million as we continued to benefit from higher interest rates on our cash balance.

Our tax rate is expected to be approximately 23% to 24% and.

And weighted average diluted shares outstanding are projected to be about $335 million.

Now I will turn the call back to Barbara for closing comments. Thank you Ed.

Looking ahead, despite all the challenges in the external environment. We are encouraged by our healthy above planned results to date this year.

We also remain confident in the resilience of the off price sector and our ability to operate successfully within it.

Especially given consumers' heightened focus on value and convenience.

As a result, we remain optimistic about the companys future prospects and our ability to expand market share and profitability over time.

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 the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Information tone will indicate that your line is in the queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

One moment, please pull for questions.

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

Great Thanks, and congrats on another nice quarter.

So Barbara could you elaborate on changes across categories that you've made to increase your value focus it seems like that was a clear takeaway from from your comments.

Maybe also if you could speak to the cadence of traffic that you saw as the third quarter progressed and just how you see your assortments positioned into holiday to take share.

Okay.

Matthew ill start with the.

Traffic as we said in the commentary traffic was the primary driver of comp.

For the quarter on a stacked basis base.

Basis, the comps were fairly consistent across the quarter.

With a couple of fits and starts late in the quarter regionally with weather.

As it always is this time of year.

That said for the entire quarter weather was neutral.

By change across categories, you mean performance.

More of the value of folks I think you talked about.

Later value focused starting in the second quarter it sounds like it resonated further in the third quarter. So just maybe changes that you've made as it relates to that.

Well the value changes that we've made across the entire box.

So the merchants are out there really looking for.

Great branded product, where they can offer compelling values.

So that's really it's not in any one area it's across a box out obviously some businesses are further along than others as you would expect.

That's a companywide focus now offer the most compelling value to the customer at this time.

And changes to the assortment.

Quarter forecast sure, it's really Africa thing.

We've expanded some of our products and gifting category, which I wouldn't talk about on the call, but it is really a focus on gifting.

Great and then maybe as a follow up Adam how best to think about merchandise margin recapture opportunity in the fourth quarter.

Just given the environment a year ago and any change in terms of flow through in the model on 3% to 4% same store sales as we think more multiyear.

Yeah on the latter part no change in that flow through the model right, we still expect to lever on the three to four comp.

And your question on merchandise margin was fourth quarter specific.

Yes.

Yes, so ocean freight, which we benefited from all year.

We will still be a benefit in the fourth quarter, but as we said in the call comments will moderate considerably we started to see pretty significant rate reductions.

At this time last year, so will there be further benefit in the fourth quarter, but not like we have seen in the first three quarters of the year.

Would expect.

That really to be the main driver on merchandise margin all of our components should be pretty consistent with last year.

Great Best of luck.

Thanks.

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

Great. Thanks for taking the question I.

I guess first.

Your plan for the fourth quarter topline Hasnt really changed despite comps exceeding the high end of your plan by a couple of hundred basis points in the third quarter. I'm curious does that give you more confidence in the upside case or other things you've seen in recent trends that would suggest a more material quarter over quarter deceleration is the right expectation.

It's Michael again, I would say for the most part it's there's a lot going on in the external environment, whether it's macro economy.

We expect it to be a very promotional retail environment and now you have geo politics.

Into the mix and it is our toughest compare for the year.

So given everything going on externally, we think it's prudent to remain very conservative and running the business in the fourth quarter.

Thank you and maybe a follow up for Barbara.

North American wholesale channel continues to be challenging for many vendors given the dynamic macro im curious what youre hearing with respect to product availability heading into calendar 'twenty four.

Currently there is a lot of availability in the market is as I know you know that.

Here's how I look at availability at this point vendors in this environment vendors are really looking for ways to increase their market share.

So they've shifted some of their business towards the growing retail channels.

So if in fact, they get less bookings.

About them, having less bookings for fall and there's still availability.

Bookings are one thing Dan how much they decided to bring in to drive market share or to ship channels is another thing so I don't necessarily think there the.

Jud just five five bookings what they say about their bookings and theyre quite frankly, there are some vendors that are really looking to gain market share. In this period in time are and are taking greater risks I'm, bringing in monthly. So it's kind of a it's kind of a mixed bag, but they're really looking to expand who they do business with and to shift.

So I think Thats the reason why.

Fifth continue to become available.

Thank you.

And ladies and gentlemen, as a reminder, please limit yourself to one question. Thank you. The next question comes from the line of Paul Lajoie with Citigroup. Please proceed with your question.

Hey, Thanks, I'm, sorry, if I missed it but could you talk about performance in the home category and then also I was curious about store performance based on income demographics location. So I mean any change in terms of.

How any specific income cohorts behave during the quarter.

So on the income as we said in the commentary the comp performance was fairly broad based across geographies, but also.

What I'd say is trade area demographics, including income so.

Got it.

Your bigger question is are you seeing a trade down we saw.

Very broad based performance across income levels.

And in terms of the hone performance.

<unk> performed slightly below the chain average.

Got it thanks, and then just a follow up on the merch margin I think you mentioned freight.

Driver, but can you talk about pure merch margin.

Outside of freight just high.

Hi, amused markdowns, what would be out the door.

Margin was on a pure product basis.

Yes, Paul I won't go through a component by component, but merch margin. In addition to the ocean freight.

Benefit, but a feedback ocean freight out, but we were we were better than last year as we anniversary that.

Markdowns that we took last year. So we had third quarter last year was kind of our peak quarter for incremental markdowns last year.

Got it thanks good luck.

Thanks.

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

Thank you good afternoon, what were the drivers of Dd's improved sales trends during the quarter and is that now running in line with Ross.

Sure Lorraine.

As dd's.

As we said also improved and were relatively in line with performance at Ross.

We believe the improved performance here like it is it for US is the customers responding.

Two the broad assortment of values throughout the stores and I would also add easing inflation certainly doesn't hurt this customer.

Thank you and then any update on shrink from your recent physical inventory.

Yes.

Lorraine.

In third quarter. So we took our second physical inventory of the year and third quarter and <unk>. Those results expect their results were in line with our.

Expectations and in line with last year.

Thank you.

Ladies and gentlemen, just a quick reminder to please limit yourself to one question. Thank you. The next question comes from the line of John Kernan with TD Cowen. Please proceed with your question.

Thanks, Amit Sharma and <unk>.

Barbara you bought as you're obviously doing a great job.

Passing on value to the consumer I am wondering how initial markup trends are.

As you focus on value.

Well, obviously, we're not going to talk about we're not going to talk about <unk>, but I think that the merchants are in the market and they are really looking for compelling deal.

They obviously have metrics.

And I would say that they do that.

But it isn't really unbelievable deal, we're going to price. It the way, we think we need to price. It our strategy now is really to continue to deliver value and so again.

If metrics everyone's hitting the metrics but.

That's the focus what is the right price what is the right values to drive the customer in the store to gain market share. So that's the headset.

Understood and Adam when you look at the model what do you think is the line item in either clogs are SG&A that has the most potential for improvement if you maintain the 3% to 4% same store sales going forward.

We're just we're just getting into the.

We're working our way through the planning process that will come back and talk to you at the end of the year and kind of frame up how we see that go forward.

At that point in time I think.

Just to give you some generalities.

Feel like we've recaptured most of the ocean freight at this point.

When we look at container rates now are.

Very similar to where they were in 2019.

By the end of the year will capture all of that benefit.

On the domestic side of freight.

We have recaptured some but certainly not at 2019 levels given the elevated fuel cost and elevated driver wages since 2019.

So.

We're pushing very hard on the other components will come back and tell you more about the puts and takes at the end of the year.

Alright best of luck in the holiday. Thank you.

Thanks.

Yeah.

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

Thanks, a lot less print congratulations can you provide color on the trend the basket size and the composition between AUR and <unk> this quarter and if you see that changing going forward going forward over the next few quarters. Thanks.

Sure and as.

We said traffic was the primary driver of the 5% comp average basket was up just slightly.

An increase in the units per transaction was partially offset by slightly lower average unit retails.

And if we think about it going forward.

We'd like it to be driven by traffic, but we don't plan our business around.

The components.

<unk>.

We plan the business on offering the best value and if we get traffic in our basket size increase.

That's great for the business.

Great. Thanks.

And the next question comes from the line of Brook Roche with Goldman Sachs. Please proceed with your question.

Good afternoon, and thank you for taking my question I was hoping you could discuss the puts and takes behind your SG&A growth now that we've lived through periods of elevated incentive comp investment. This summer how should we be thinking about the growth of that line item going forward and in particular can you elaborate on what youre seeing in terms of store wage.

Inflation. Thank you.

Hi, Mark this is Adam.

Yes, so store wage continued as we said in the comments they will continue to put pressure on us.

That's largely driven by minimum wage changes that we need to take in the marketplace.

But I would say overall on SG&A the biggest moving part this year, it's been incentive comp right. So as you'll remember.

Yes.

Very little bonus incentive comp last year and not only did we have to reset the bar this year, but we're obviously outperforming our financial plan. So that's the biggest kind of volatility in the SG&A line I'll.

I'll just add on the on the wage front I mean generally speaking wages have stabilized throughout.

The stores and the Dcs and any increases we're seeing are really driven by minimum wages.

On SG&A going forward I think we'd expect that we'd be able to lever between the three and four tough comp as we have in the past.

Thank you very much.

And the next question comes from the line of Michael Binetti with Evercore. Please proceed with your question.

Hey, guys congrats on a great quarter, it's nice to talk to you.

I just wanted to ask you.

Do you think Michael or Adam jump ball, what do you think about when you look at today to inform you as to whether there's some opportunity in the in the pier merch margin for next year puts and takes.

Youre thinking about.

Barbara you mentioned seeing some.

You mentioned some great comments on some of the brand availability is there is an opportunity for AUR as you guys get better access to quality brands.

And then I noticed you opened a bunch of a handful of stores in Michigan in a few months ago and one single store in Minnesota. These are new markets, even though we've heard you guys talk to favorably about how the Midwest has gone since you launched it maybe 12 years ago. It seems like Youre starting to move into some new markets. Some fairly big ones, maybe just some thoughts on the new market strategy.

Sure.

On merchant margin for next year, we're in the middle of our planning process now so I'd wait until our year end call and we can give you some more feedback on that as you mentioned, we entered Michigan and Minnesota during the third quarter, it's very early.

On those so hard to comment at this stage other than we're very optimistic about our new market growth.

And then in terms of brands and the AUR increase.

Really I know it sounds like we'll go back to that I think we really are looking at every deal based on the value we put out on the floor and so obviously, if theyre higher end brand purpose.

Even at great values would have higher AUR, but it's really a mix up.

All were all brands, whether they are moderate and better are there there.

Good better best whether that.

That's how we're really approaching it so I'm trying to just saying I'm going to raise the AUR because the increase in total.

That's not how we're thinking about it we're thinking about it more holistically.

That's a piece of customers responding.

Thanks, a lot guys congrats.

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

Great. Thank you very much and I'll add my congratulations.

Barbara I often on the topic of your pack away and Youre short today, historically, when we have sort of disruptive weather.

And kind of like the unseasonable weather early in the quarter you are able to use your short stay flexibility to kind of pay. It then to that I'm. Just wondering how advantageous has that then this season or is the macro kind of more challenging macro type of overwhelming that thank you very much.

Just wanted to make sure I understand what youre, saying, Youre, saying did we get seasonal product early.

Sure.

Yes.

I think that I think it's more of that.

And the weather has not transitioned to cold for any long permanent period of time. So we are hearing frontline retailers talk about that lowered their fourth quarters and there is a disconnect between how much they've ordered.

But things that they need to get rid of it. So I'm wondering if is that a benefit to you.

At this point in time.

The good obviously building because the weather is since the weather has been warmer than people anticipated.

He is a moment in time with vendors decide to really move the goods.

And that really becomes really more longer term pathway. So if you're thinking outerwear sweater classifications like that yeah.

Yes.

Longer term versus versus shorter term deals could still get deals in front of us, but really that's really more of a longer term play that vendors at the end of the year decided that they wanted to do when they are figuring out what they're going to buy for the next year or so short term I think people have.

Victoria, having a reality check of where they are with some of those classifications of products. So the real answer I guess, there's more news to follow.

Moment in time, it hasn't been they haven't had a big movement, if thats, what youre looking for a big movement.

Yeah.

All right very helpful. Thanks, So much happy Thanksgiving.

Thank you.

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

Great. Thanks, all for taking the question and nice quarter guys maybe for.

Barbara some peers have highlighted opportunities in new or adjacent categories.

Just wondering Rob entered any newer categories recently or what kind of thoughts do you have on opportunities in general and then any changes in category mix shift that you guys have done thanks a lot.

Sure, Yes, we have entered into some new categories, obviously, I'm not going to talk about talk about it on the call.

But yes for the fourth quarter, we entered seven different categories for gifting, which are going on the floor now and into December and then just opportunities in general as we move into next year I think we have some opportunity in expanding certain businesses and then also coming back into some businesses that we exited I would say sometimes.

During during Covid.

I think I think there is an opportunity for Tim on newness on the floor, which is really what the customer that park.

It's really about the customer responses. So every year, we go in and look and say what else what else can we expand what else can we do but this.

This year, we have.

Yes, we have our at our categories in mind, if we are not in mind of where we are going to spring.

Thanks, a lot good luck.

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

Hey, guys. Congratulations and then if I forget best of luck for the holiday season.

But I'm curious just on <unk>, if we can dig in a little bit there are.

Are you.

With people looking to trade down with their wallets, a little tighter are you finding that you are attracting more new customers into that brand and the traffic trends that drove the comp in the quarter.

Was that also true for <unk>, and then I recall dd's tends to have a more family a little bit more family focus you tend to have a little bit more kids.

Toy focus even I'm curious how you feel about the lead up to holiday with the Assortments and <unk>.

Values, there and is that still the case and Dd's actually.

Hi.

Marty on traffic so traffic.

Like Ross the comp for Dd's was entirely driven by traffic excellent and then inherent in terms of assortment, yes. It is.

It is a family focused.

And the Dd's customer does have more children, so businesses like toys in the fourth quarter becomes okay.

For the total.

They also holiday dresses do to that business as well in DDS.

We do all of our businesses all the traditional business as you would expect to expect holiday dresses you would expect toys, you expect anything alcoholic family further suite and then and then you know.

Or is there other little things that they did they give kit.

And then okay.

Okay.

And can I just ask a follow up on that are you seeing a D. D is that the customer is now coming to <unk> for these big holiday events like for Halloween for Christmas does that customer.

Come to Dd's more regularly is it part of their <unk>.

Their regular type of stores to go to.

I think it's part of their regular source to go through and do they like seasonal product Halloween and harvest Christmas, Obviously Christmas as very big Yes, yes.

Fantastic.

I think they get up in the morning, and say I need to go buy some Halloween I think.

Things are going.

The things that they like and I think its impulse purchases probably for everyone.

Fantastic Love that thank you so much best of luck for the holidays for Black Friday weekend.

Thank you. Thank you.

And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.

Hi, congratulations on the nice results can you give some color on the regional performance and what you saw California, maybe Texas and and any of the other areas and then also on categories. I think last time on last quarters call you mentioned that apparel trailed but improved sequentially. What did you see this quarter.

Thank you.

Regionally Dana.

Our largest markets, California was above the chain average.

Texas and Florida, we're in line.

And as we mentioned in the call. It was very broad based across the country.

And then in terms of apparel slightly trailed the chain average and the comps were relatively similar between Q2 and Q3, but they did exceed plan.

Okay. Thank you.

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

Thank you so Barbara as retailers and brands has been talking about clearing excess stock are you seeing any change in your inventory mix and your percent of close out through the year are you seeing more importing and more upfront buying an.

And I have a quick follow up for Adam you mentioned labor costs and wages stabilizing can you talk about some of the new labour cost saving models <unk> been piloting like self checkout and any any update you can share on the rollout of those thank you.

On the self checkout, we are in a very small number of stores and as you can imagine we're going very slowly to make sure we get it right.

We're in about 100 stores right now and we're going to continue to pilot the operating model that we have there and we're very cognizant of the shrink environment. So we're going to go slow.

And then in terms of the upfront price is close to us as the year progressed.

It's pretty similar I can pick up and down a little bit in the fourth quarter, you had our home business. Some of that is more ti. So that gets bigger you know versus the rest of the year, but I would say, it's similar I think closeouts of come across.

All year pretty much.

In most businesses and so I think.

Yes.

See our biggest shifts it could have gone up or down two to three points, but nothing major.

And then.

Just building on those comments.

Within our Capex, we are definitely investing in technology more automation in our distribution centers, we are spending money in our storage just to automate.

A lot of our non customer facing tasks.

Just to be more efficient ways to take markdowns in and check inventory.

And also just.

And more analytics in the business.

Great. Thank you.

And the next question comes from the line of Cory Tarlow with Jefferies. Please proceed with your question.

Great. Thanks.

I was wondering if you could talk a little bit about what you saw.

Footwear I'm not sure. If you did highlight it if I missed it but it'd be great to get color there.

Sure.

<unk> again was one of our best performing businesses.

And that would predict that was broad based across all of you.

Yeah.

Got it. Thank you and then just as it relates to higher buying costs. I believe you highlighted could you discuss what drove that.

The higher buying with all incentive cost related.

Got it understood. Thank you very much.

And the next question comes from the line of Laura Champine with loop capital markets. Please proceed with your question. Thanks.

Thanks for taking my question, it's really about California wage rates not just with the minimum wage increase but also the fast food wage increase slated for the new year, how much of that.

How much of a material impact do you think that might have on your expense lines for next year.

Laura obviously, we've been tracking up in California for some time with their minimum increases there it's been a competitive market for us for a long time.

I think in regards to the fast food workers, we will have to see how that spills over but we believe we recruit from a different pool than the fast food industry.

That's helpful. If I could get a clarification of a general sense of what percentage of your employees of your store level employees are in California.

Will that lineup with your store count.

It will be a little higher than our store count because those tend to be higher volume stores, but.

Slightly above our store count.

Thank you.

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

Hi, this is <unk>.

On for Bob.

It looks like inventories are up five 5% comp increase could you. Please expand on <unk> given the great brand availability, the recent back which have been trending down a couple percentage points.

Below last year in every quarter. This year any changes in approach factor, Ohio default deployment of product.

Better inventory productivity at stores any additional color would be super helpful. Thank you.

But really no change no change to how we're running pathway.

<unk> within your business is very good and we've taken a lot of business this year.

With that we buy a packet flow.

So we've been in constant change and the thing about pathways, when you're buying pitches that youre going to hold so you have to be absolutely sure that the values. The correct. So the merchants are very discerning in what they buy and they put in pack away because when you are bringing it back out we wanted to make sure that the value is right. So I don't think there's any any.

Any way to look at <unk>, there's a lot of goods out there could be pathway.

Put more goods into our practically cut I think is the merchant job to really put the best products in there at the best possible values and you know we're focused very focused on value and so yeah.

I don't think there's any anything to.

<unk>, we feel very good about our content, possibly that beyond this year, because there's been a lot of very good deals and a lot of good products out there. So.

We have plenty of money to buy pathways, we'd like to buy some but that's really that is really comes to the merchant team. It's their call on what they believe is the right value and then that's why therefore can fluctuate that plan to chase that we had in sales in the quarter.

Got it got it so would you say that the product this year resonates better with the consumer like from the value perspective.

You mean, the pathway process with this product in general just talk in general.

I think the customers really responding to to the better values clearly sees see press financially pressed and even though inflation has eased increase still is still under pressure and so whenever you can give the customer a better branded bargain at an unbelievable value. She's got a response, which is why we are highly focused on that.

And that would therefore take us to a stronger market share.

Got it thank you so much and happy Thanksgiving.

And ladies and gentlemen, there are no further questions at this time I'd like to pass the call back over to Barbara <unk> for any closing comments.

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

And this concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

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If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Turn the call over to Barbara <unk>, Chief Executive Officer.

Good afternoon, joining me on our call today, a Microfracture group President Chief operating officer.

<unk> Executive Vice President and Chief Financial Officer.

Ronnie <unk> group, Vice President Investor Relations.

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

As noted in today's press release.

Pleased that both sales and earnings outperformed our expectations for the quarter.

As customers responded favorably to the terrific values, we offer throughout our store.

Operating margin for the period was 11, 2% up from nine 8% last year.

Average from the same store sales gain.

Our freight costs were partially offset by higher incentives in store wages.

Earnings per share for the 13 weeks ended October 28, 2023 for $1 33 compared to earnings per share of $1 last year.

Net income for the period rose to $447 million versus $342 million in the prior year period.

Total sales for the quarter were $4 $9 billion up from $4 6 billion last year with a comparable store sales gain of 5%.

For the first nine months earnings per share were $3.74 on net earnings of $1 3 billion.

Compared to $3 eight per share on net income of $1 1 billion for the same period last year.

Sales for the year to date period grew to $14 4 billion with comparable store sales up 4% over last year.

For the third quarter at Roth cosmetics accessories, and shoes were again, the strongest performing businesses.

<unk> graphic results were broad based.

Like Ross Dd's discounts also responded favorably to our strong value offerings driving improved sales trends during the quarter.

At quarter end total consolidated inventories were up 5% versus last year, while average store inventories were up 2%.

Pack away merchandise represents 39% of total inventory versus 41% in the same period of the prior year.

During the third quarter. We also completed our expansion program for 2023 with the addition of 43, new Ross and eight Dd's discounts.

For the year, we added a total of 97 locations comprised of 72, Ross and 25 Dd's.

We now expect to end the year with 1764, Ross stores and 345 Dd's discounts locations for a net increase of 94 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 rose, 5% in the quarter, primarily driven by higher traffic.

Operating margin increased 135 basis points to 11, 2%.

Cost of goods sold improved by 260 basis points in the quarter merchandise margin was the main driver with a 235 basis point increase primarily from lower ocean freight costs.

Distribution expenses improved by 45 basis points, mainly due to favorable timing of pack away related cost <unk>.

Domestic freight and occupancy levered by 40, and 25 basis points respectively.

Partially offsetting these benefits were higher buying costs that increased 85 basis points, mainly from higher incentives.

SG&A costs for the period increased by 125 basis points, primarily driven by higher incentive costs and store wages.

During the third quarter, we repurchased $2 1 million shares of common stock for an aggregate cost of $239 million. We remain on track to buy back a total of $950 million in stock for the year.