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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 29, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-14678
ROSS STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1390387
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8333 CENTRAL AVENUE, NEWARK, CALIFORNIA 94560-3433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 505-4400
Former name, former address and former fiscal year, N/A
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of Common Stock, with $.01 par value, outstanding on May
26, 2000 was 82,967,000.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROSS STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------------------------------------------------- ------------------ ---------------- -----------------
($000) APRIL 29, January 29, May 1,
ASSETS 2000 2000 1999
---------------------------------------------------------------- ------------------ ---------------- -----------------
(UNAUDITED) (Note A) (Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 32,632 $ 79,329 $ 33,307
Accounts receivable 17,003 15,689 15,199
Merchandise inventory 555,619 500,494 516,107
Prepaid expenses and other 19,068 17,682 16,301
------------------ ---------------- -----------------
Total Current Assets 624,322 613,194 580,914
PROPERTY AND EQUIPMENT
Land and buildings 50,079 49,919 48,937
Fixtures and equipment 272,495 262,022 225,571
Leasehold improvements 164,088 161,571 146,020
Construction-in-progress 23,644 26,040 30,878
------------------ ---------------- -----------------
510,306 499,552 451,406
Less accumulated depreciation and amortization 234,164 226,388 201,613
------------------ ---------------- -----------------
276,142 273,164 249,793
Deferred income taxes and other assets 63,666 61,320 50,439
------------------ ---------------- -----------------
TOTAL ASSETS $964,130 $947,678 $881,146
---------------------------------------------------------------- ------------------ ---------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $291,508 $254,293 $253,473
Accrued expenses and other 119,667 102,178 101,316
Accrued payroll and benefits 33,901 48,283 31,262
Income taxes payable 24,803 17,716 21,233
------------------ ---------------- -----------------
Total Current Liabilities 469,879 422,470 407,284
Long-term debt 20,000 - -
Long-term liabilities 54,762 51,777 45,570
STOCKHOLDERS' EQUITY
Common stock 834 888 915
Additional paid-in capital 226,137 234,635 217,410
Retained earnings 192,518 237,908 209,967
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419,489 473,431 428,292
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $964,130 $947,678 $881,146
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ROSS STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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APRIL 29, MAY 1,
($000 except per share data, unaudited) 2000 1999
-------------------------------------------------- --------------- ------------------
<S> <C> <C>
SALES $633,428 $550,825
COSTS AND EXPENSES
Cost of goods sold and occupancy 434,425 379,378
General, selling and administrative 121,446 106,192
Depreciation and amortization 10,478 9,320
Interest expense (income) 5 (162)
--------------- ------------------
566,354 494,728
Earnings before taxes 67,074 56,097
Provision for taxes on earnings 26,226 21,934
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Net earnings $40,848 $34,163
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Net earnings per share:
Basic $.48 $.37
Diluted $.47 $.37
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Weighted average shares outstanding:
Basic 85,287 91,928
Diluted 86,177 93,480
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Stores open at end of period 385 355
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</TABLE>
See notes to condensed consolidated financial statements.
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ROSS STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------------------------------- ----------------------------------
THREE MONTHS ENDED
------------------
APRIL 29, MAY 1,
($000, unaudited) 2000 1999
------------------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES
Net earnings $40,848 $34,163
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization of property and equipment 10,478 9,320
Other amortization 2,641 2,498
Change in assets and liabilities:
Merchandise inventory (55,125) (49,647)
Other current assets - net (2,701) (4,109)
Accounts payable 40,544 8,376
Other current liabilities - net (3,375) (10,882)
Other 1,361 1,025
----------------- ----------------
Net cash provided by (used in) operating activities 34,671 (9,256)
------------------------------------------------------------------------- ----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITES
Additions to property and equipment (18,031) (17,247)
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Net cash used in investing activities (18,031) (17,247)
------------------------------------------------------------------------- ----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITES
Borrowing under lines of credit 17,200 15,600
Proceeds from long-term debt 20,000 -
Issuance of common stock related to stock plans 2,090 3,118
Repurchase of common stock (99,439) (36,000)
Dividends paid (3,188) (2,991)
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Net cash used in financing activities (63,337) (20,273)
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Net decrease in cash and cash equivalents (46,697) (46,776)
Cash and cash equivalents:
Beginning of year 79,329 80,083
----------------- ----------------
End of quarter $32,632 $33,307
------------------------------------------------------------------------- ----------------- ----------------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $95 $42
Income taxes paid $19,226 $19,535
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</TABLE>
See notes to condensed consolidated financial statements.
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ROSS STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended April 29, 2000 and May 1, 1999
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared from the records of the company without audit and, in the opinion of
management, include all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at April 29, 2000
and May 1, 1999; the interim results of operations for the three months ended
April 29, 2000 and May 1, 1999; and changes in cash flows for the three months
ended April 29, 2000 and May 1, 1999. The balance sheet at January 29, 2000,
presented herein, has been derived from the audited financial statements of the
company for the fiscal year then ended. Certain reclassifications have been made
to the 1999 presentation to conform to the 2000 presentation.
Accounting policies followed by the company are described in Note A to the
audited consolidated financial statements for the fiscal year ended January 29,
2000. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for purposes of the interim condensed
consolidated financial statements. The interim condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements, including notes thereto, for the year ended January 29, 2000.
The results of operations for the three-month period herein presented are not
necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements at April 29, 2000 and May 1,
1999, and for the three months then ended, have been reviewed, prior to filing,
by the registrant's independent accountants whose report covering their review
of the financial statements is included in this report on page 6.
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INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders of Ross Stores, Inc.
Newark, California
We reviewed the accompanying condensed consolidated balance sheets of Ross
Stores, Inc. (the "Company") as of April 29, 2000 and May 1, 1999, and the
related condensed consolidated statements of earnings and cash flows for the
three-month periods then ended. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, 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.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Ross Stores, Inc. as of January 29,
2000, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for the year then ended (not presented herein); and in our report
dated March 10, 2000, 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 January 29, 2000 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Deloitte & Touche LLP
San Francisco, California
May 19, 2000
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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. The Company's actual results
may vary significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in the subsection entitled "Forward-Looking
Statements and Factors Affecting Future Performance" below. The following
discussion should be read in conjunction with the condensed consolidated
financial statements and notes thereto included elsewhere in this Form 10-Q and
the consolidated financial statements in the Company's 1999 Form 10-K. All
information is based on the Company's fiscal calendar.
RESULTS OF OPERATIONS
PERCENTAGE OF SALES
<TABLE>
<CAPTION>
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THREE MONTHS ENDED
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APRIL 29, MAY 1,
2000 1999
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<S> <C> <C>
SALES
Sales ($000) $633,428 $550,825
Sales growth 15.0% 13.7%
Comparable store sales growth 7% 7%
COSTS AND EXPENSES
Cost of goods sold and occupancy 68.6% 68.9%
General, selling and administrative 19.2% 19.3%
Depreciation and amortization 1.7% 1.7%
Interest expense (income) 0% (0)%
EARNINGS BEFORE TAXES 10.6% 10.2%
PROVISION FOR TAXES ON EARNINGS 4.1% 4.0%
NET EARNINGS 6.4% 6.2%
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</TABLE>
SALES
The increase in sales for the three months ended April 29, 2000, compared to the
same period in the prior year, reflects an increase in the number of stores open
during the current period of approximately 8% plus the 7% increase in comparable
store sales.
COSTS AND EXPENSES
Cost of goods sold and occupancy expenses as a percentage of sales for the three
months ended April 29, 2000 decreased compared to the same period in the prior
year, primarily due to (i) leverage on occupancy costs realized from the
increase in comparable store sales; and (ii) improved merchandise margins,
mainly from a lower rate of markdowns.
The decrease in general, selling and administrative expenses as a percentage of
sales for the three months ended April 29, 2000, compared to the same period in
the prior year, primarily
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reflects leverage due to the increase in comparable store sales, partially
offset by higher distribution expense, benefits costs and bankcard fees.
EARNINGS BEFORE TAXES AND NET EARNINGS
The increase in earnings before taxes and net earnings as a percentage of sales
in the three months ended April 29, 2000, compared to the same period in the
prior year, is primarily due to the improvement in the cost of goods sold and
occupancy and general, selling and administrative expense ratios. The company's
effective tax rate was 39.1% in both years.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The primary uses of cash during the three months ended April 29, 2000 were for
(i) the repurchase of the company's common stock; (ii) the purchase of
inventory; and (iii) capital expenditures for new stores, improvements to
existing store locations, and various other capital expenditures at the
company's central office and distribution centers.
In January 2000, the company announced a $300.0 million common stock repurchase
program to be completed over the next two years. In the three months ended April
29, 2000, the company repurchased approximately 5.9 million shares for an
aggregate purchase price of approximately $99.4 million.
The company has available under its principal bank credit agreement a $160.0
million revolving credit facility and a $30.0 million credit facility for the
issuance of letters of credit, both of which expire in September 2002.
Additionally, the company has uncommitted short-term bank lines of credit
totaling $45.0 million. At April 29, 2000, the company had $37.2 million
outstanding under these credit agreements, of which $20.0 million is classified
as long-term debt under the company's revolving credit facility.
The company estimates that cash flow from operations, bank credit lines and
trade credit are adequate to meet operating cash needs as well as to provide for
the two-year stock repurchase program of up to $300.0 million in 2000 and 2001,
dividend payments and planned capital additions during the upcoming year.
FORWARD-LOOKING STATEMENTS AND FACTORS AFFECTING FUTURE PERFORMANCE
In this report and from time to time the company may make forward-looking
statements, which reflect the company's current beliefs and estimates with
respect to future events and the company's future financial performance,
operations and competitive strengths. The words "expect," "anticipate,"
"estimate," "believe," "looking ahead," "forecast," "plan" and similar
expressions identify forward-looking statements.
The company's continued success depends, in part, upon its ability to increase
sales at existing locations, to open new stores and to operate stores on a
profitable basis. There can be no assurance that the company's existing
strategies and store expansion program will result in a continuation of revenue
and profit growth. Future economic and industry trends that could potentially
impact revenue and profitability remain difficult to predict.
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As a result, these forward-looking statements are subject to certain risks
and uncertainties that could cause the company's actual results to differ
materially from historical results or current expectations. These factors
include, without limitation, ongoing competitive pressures in the apparel
industry, obtaining acceptable store locations, the company's ability to
continue to purchase attractive name-brand merchandise at desirable
discounts, successful implementation of the company's merchandise
diversification strategy, the company's ability to successfully extend its
geographic reach, unseasonable weather trends, changes in the level of
consumer spending on or preferences in apparel or home-related merchandise,
the company's ability to complete the two-year $300.0 million repurchase
program in 2000 and 2001 at purchase prices that result in accretion to
earnings per share in line with planned expectations, and greater than
planned costs, including higher settlement costs than anticipated in the
company's preliminary understanding to resolve a class action complaint
alleging store managers and assistant managers in California are incorrectly
classified as exempt from state overtime laws. In addition, the company's
corporate headquarters, one of its distribution centers and 42% of its stores
are located in California. Therefore, a downturn in the California economy or
a major natural disaster there could significantly affect the company's
operating results and financial condition.
In addition to the above factors, the apparel industry is highly seasonal. The
combined sales of the company for the third and fourth (holiday) fiscal quarters
are historically higher than the combined sales for the first two fiscal
quarters. The company has realized a significant portion of its profits in each
fiscal year during the fourth quarter. If intensified price competition, lower
than anticipated consumer demand or other factors, were to occur during the
third and fourth quarters, and in particular during the fourth quarter, the
company's fiscal year results could be adversely affected.
The company does not undertake to publicly update or revise these
forward-looking statements even if experience or future changes indicate that
any projected results expressed or implied therein will not be realized.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management believes that the market risk associated with the company's ownership
of market-risk sensitive financial instruments (including interest rate risk and
equity price risk) as of April 29, 2000 is not material.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Incorporated herein by reference to the list of Exhibits contained in
the Exhibit Index that begins on page 13 of this Report.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
ROSS STORES, INC.
Registrant
Date: June 12, 2000 /s/ J. Call
John G. Call, Senior Vice President,
Chief Financial Officer and Principal
Accounting Officer
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INDEX TO EXHIBITS
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<CAPTION>
Exhibit
Number Exhibit
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<S> <C>
3.1 Corrected First Restated Certificate of Incorporation,
incorporated by reference to Exhibit 3.1 to the Form 10-K
filed by Ross Stores for its year ended January 30, 1999.
3.2 Amended By-laws, dated August 25, 1994, incorporated by
reference to Exhibit 3.2 to the Form 10-Q filed by Ross
Stores for its quarter ended July 30, 1994.
10.41 Independent Contractor Consultancy Agreement effective
February 1, 2000 between Norman A. Ferber and Ross Stores,
Inc.
10.42 Retirement Benefit Package Agreement effective February 1,
2000 between Norman A. Ferber and Ross Stores, Inc.
15 Letter re: Unaudited Interim Financial Information.
27 Financial Data Schedules.
</TABLE>
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