Total stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Earnings for the three and nine month periods ended November 2, 2024 and October 28, 2023 is as follows:
Three Months Ended
Nine Months Ended
Statements of Earnings Classification ($000)
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Cost of goods sold
$
19,125
$
20,254
$
55,816
$
58,885
Selling, general and administrative
19,619
18,623
61,396
52,484
Total
$
38,744
$
38,877
$
117,212
$
111,369
The tax benefits related to stock-based compensation expense for the three and nine month periods ended November 2, 2024 were $7.2 million and $22.2 million, respectively. The tax benefits related to stock-based compensation expense for the three and nine month periods ended October 28, 2023 were $7.9 million and $23.2 million, respectively.
12
Restricted stock awards. The Company grants shares of restricted stock or restricted stock units to directors, officers, and key employees. The market value of shares of restricted stock and restricted stock units at the date of grant is amortized to expense over the vesting period of generally three to five years.
Performance share awards. The Company has a performance share award program for senior executives. A performance share award represents a right to receive shares of restricted stock on a specified settlement date based on the Company’s attainment of a performance goal during the performance period, which is the Company’s fiscal year. If attained, the restricted stock then vests over a service period, generally three years from the date the performance award was granted.
The Company’s effective tax rate for the three and nine month periods ended November 2, 2024 was approximately 24%, and was approximately 25% for the three and nine month periods ended October 28, 2023. The Company’s effective tax rate is impacted by changes in tax laws and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and the resolution of tax positions with various tax authorities.
As of November 2, 2024, February 3, 2024, and October 28, 2023, the reserves for unrecognized tax benefits were $67.1 million, $58.6 million, and $65.3 million, inclusive of $9.0 million, $6.2 million, and $8.4 million of related interest and penalties, respectively. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $53.1 million would impact the Company’s effective tax rate. It is reasonably possible that certain federal and state tax matters may be concluded or statutes of limitations may lapse during the next 12 months. Accordingly, the total amount of unrecognized tax benefits may decrease by up to $8.5 million. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred income tax assets and liabilities. These amounts are net of federal and state income taxes.
The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2021 through 2023. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2019 through 2023. Certain state tax returns are currently under audit by various tax authorities. The Company does not expect the results of these audits to have a material impact on the condensed consolidated financial statements.
In December 2021, the Organization for Economic Co-operation and Development released Pillar Two Model Rules (“Pillar Two”), which provide for a global minimum tax of 15% on multinational entities. Although the United States has not yet adopted Pillar Two, several countries enacted Pillar Two with an initial effective date of January 1, 2024. The impact of Pillar Two on the Company’s effective tax rate is expected to be minimal for fiscal 2024. The Company will continue to monitor future Pillar Two legislation in relevant jurisdictions for any impacts to its effective tax rate.
15
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Ross Stores, Inc.:
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheets of Ross Stores, Inc. and subsidiaries (the “Company”) as of November 2, 2024 and October 28, 2023, the related condensed consolidated statements of earnings, comprehensive income, and stockholders’ equity, for the three and nine month periods ended November 2, 2024 and October 28, 2023, and cash flows for the nine month periods ended November 2, 2024 and October 28, 2023 and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of February 3, 2024, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated April 1, 2024, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 3, 2024, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/Deloitte & Touche LLP
San Francisco, California
December 10, 2024
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed below under the caption “Forward-Looking Statements” and also those in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for fiscal 2023. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for fiscal 2023. All information is based on our fiscal calendar.
Overview
Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores—Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,836 locations in 43 states, the District of Columbia, and Guam, as of November 2, 2024. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 356 dd’s DISCOUNTS stores in 22 states as of November 2, 2024 that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.
Our low-to-moderate income customers continue to face persistently high costs on necessities, pressuring their discretionary spending. However, we believe there are opportunities to grow our market share through the execution of our merchandising initiatives and remain confident that our ongoing focus and commitment to deliver the most compelling values possible will best position our Company for profitable growth.
On October 28, 2024, we announced the appointment of James G. Conroy as our next Chief Executive Officer (“CEO”). Following a two-month transition period, Mr. Conroy will assume the CEO role at the beginning of the next fiscal year on February 2, 2025, at which time our current CEO, Barbara Rentler, will transition into an advisory role through March 2027.
Results of Operations
The following table summarizes our financial results for the three and nine month periods ended November 2, 2024 and October 28, 2023:
Three Months Ended
Nine Months Ended
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Sales
Sales (millions)
$
5,071
$
4,925
$
15,217
$
14,354
Sales growth
3.0
%
7.9
%
6.0
%
6.5
%
Comparable store sales growth1
1
%
5
%
3
%
4
%
Costs and expenses (as a percent of sales)
Cost of goods sold
71.7
%
72.4
%
71.7
%
72.6
%
Selling, general and administrative
16.4
%
16.5
%
16.1
%
16.5
%
Interest income, net
(0.8
%)
(0.9
%)
(0.9
%)
(0.8
%)
Earnings before taxes (as a percent of sales)
12.7
%
12.0
%
13.1
%
11.7
%
Net earnings (as a percent of sales)
9.6
%
9.1
%
9.9
%
8.8
%
1 Comparable stores are stores open for more than 14 complete months.
17
Stores.Our long-term strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria.
We opened 47 new stores in the third quarter of fiscal 2024. For the nine month period ended November 2, 2024, we opened 89 new locations.
The following table summarizes the stores opened and closed during the three and nine month periods ended November 2, 2024 and October 28, 2023:
Three Months Ended
Nine Months Ended
Store Count
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Ross Dress for Less
Beginning of the period
1,795
1,722
1,764
1,693
Opened in the period
43
43
75
72
1
Closed in the period
(2)
—
(3)
—
Total Ross Dress for Less stores end of period
1,836
1,765
1,836
1,765
dd’s DISCOUNTS
Beginning of the period
353
339
345
322
Opened in the period
4
8
14
25
Closed in the period
(1)
—
(3)
—
Total dd’s DISCOUNTS stores end of period
356
347
356
347
Total stores end of period
2,192
2,112
2,192
2,112
1 Includes the reopening of a store previously temporarily closed due to a weather event.
Sales. Sales for the three month period ended November 2, 2024 increased $146.5 million, or 3.0%, compared to the three month period ended October 28, 2023, primarily due to the opening of 80 net new stores between October 28, 2023 and November 2, 2024 and a 1% comparable store sales increase.
Sales for the nine month period ended November 2, 2024 increased $862.5 million, or 6.0%, compared to the nine month period ended October 28, 2023, primarily due to the opening of 80 net new stores between October 28, 2023 and November 2, 2024 and a 3% comparable store sales increase.
Our sales mix for the three and nine month periods ended November 2, 2024 and October 28, 2023 is shown below:
Three Months Ended
Nine Months Ended
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Home Accents and Bed and Bath
25
%
25
%
25
%
25
%
Ladies
23
%
23
%
23
%
24
%
Men’s
16
%
16
%
16
%
15
%
Accessories, Lingerie, Fine Jewelry, and Cosmetics
14
%
14
%
14
%
14
%
Shoes
13
%
13
%
13
%
13
%
Children’s
9
%
9
%
9
%
9
%
Total
100
%
100
%
100
%
100
%
18
Cost of goods sold. Cost of goods sold for the three and nine month periods ended November 2, 2024 increased $70.0 million and $490.6 million, respectively, compared to the three and nine month periods ended October 28, 2023, primarily due to higher sales from the opening of 80 net new stores between October 28, 2023 and November 2, 2024, and the respective 1% and 3% comparable store sales increases, partially offset by lower buying costs primarily due to lower incentive compensation expense, lower distribution costs, and lower domestic freight costs.
Cost of goods sold as a percentage of sales for the three month period ended November 2, 2024 decreased approximately 70 basis points compared to the three month period ended October 28, 2023, primarily due to a 65 basis point decrease in buying costs mainly due to lower incentive compensation expense, a 50 basis point decrease in distribution costs, and a 40 basis point decrease in domestic freight costs. Partially offsetting these items was a 60 basis point decrease in merchandise margin primarily due to our continued efforts to offer more sharply priced branded bargains and a 25 basis point increase in occupancy costs.
Cost of goods sold as a percentage of sales for the nine month period ended November 2, 2024 decreased approximately 90 basis points compared to the nine month period ended October 28, 2023, primarily due to a 65 basis point decrease in distribution costs, a 60 basis point decrease in buying costs mainly due to lower incentive compensation expense, and a 30 basis point decrease in domestic freight costs. Partially offsetting these items was a 55 basis point decrease in merchandise margin primarily due to our continued efforts to offer more sharply priced branded bargains and a 10 basis point increase in occupancy costs.
In fiscal 2024, we expect lower distribution costs, domestic freight costs, and incentive compensation expense as a percentage of sales, partially offset by lower merchandise margins as we continue to build on our efforts to offer more sharply priced branded bargains throughout our stores.
Selling, general and administrative expenses. For the three and nine month periods ended November 2, 2024, selling, general and administrative expenses (“SG&A”) increased $22.4 million and $80.9 million, respectively, compared to the three and nine month periods ended October 28, 2023, primarily due to the opening of 80 net new stores between October 28, 2023 and November 2, 2024, partially offset by lower incentive compensation expense.
SG&A as a percentage of sales for the three month period ended November 2, 2024 decreased 5 basis points compared to the three month period ended October 28, 2023, primarily due to lower incentive compensation expense.
SG&A as a percentage of sales for the nine month period ended November 2, 2024 decreased 40 basis points compared to the nine month period ended October 28, 2023, primarily due to higher sales and lower incentive compensation expense.
We expect lower incentive compensation expense as a percentage of sales to continue through fiscal 2024.
On September 30, 2024, Michael J. Hartshorn, Group President and Chief Operating Officer, and a member of our Board of Directors, adopted a trading plan intended to satisfy the affirmative defense of Rule 10b5-1(c) to sell up to 40,000 shares of common stock. Unless otherwise terminated pursuant to its terms, the plan will terminate on September 30, 2025, or when all shares under the plan are sold.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.