<PAGE>
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 JULY 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 August
25, 2000 was 82,153,230.
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROSS STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
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JULY 29, January 29, JULY 31,
($000) 2000 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET
(UNAUDITED) (Note A) (UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 41,948 $ 79,329 $ 30,119
Accounts receivable 16,217 15,689 14,824
Merchandise inventory 577,569 500,494 522,904
Prepaid expenses and other 19,061 17,682 16,177
----------------- ----------------- ---------------
Total Current Assets 654,795 613,194 584,024
PROPERTY AND EQUIPMENT
Land and buildings 54,361 49,919 49,111
Fixtures and equipment 278,377 262,022 228,456
Leasehold improvements 167,080 161,571 147,488
Construction-in-progress 28,404 26,040 38,672
----------------- ----------------- ---------------
528,222 499,552 463,727
Less accumulated depreciation and amortization 244,730 226,388 208,708
----------------- ----------------- ---------------
283,492 273,164 255,019
Deferred income taxes and other assets 62,338 61,320 51,772
----------------- ----------------- ---------------
TOTAL ASSETS $ 1,000,625 $ 947,678 $ 890,815
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 280,855 $ 254,293 $ 245,182
Accrued expenses and other 84,564 102,178 85,522
Accrued payroll and benefits 42,184 48,283 37,466
Income taxes payable 20,071 17,716 21,803
Short-term debt 11,800 - 17,200
----------------- ----------------- ---------------
Total Current Liabilities 439,474 422,470 407,173
Long-term debt 80,000 - -
Long-term liabilities 53,704 51,577 47,703
STOCKHOLDERS' EQUITY
Common stock 820 888 453
Additional paid-in capital 226,187 234,635 222,666
Retained earnings 200,440 237,908 212,820
----------------- ----------------- ---------------
427,447 473,431 435,939
----------------- ----------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,000,625 $ 947,678 $ 890,815
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</TABLE>
See notes to condensed consolidated financial statements.
2
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ROSS STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
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JULY 29, JULY 31, JULY 29, JULY 31,
($000, except per share data, unaudited) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
SALES $ 657,035 $ 614,576 $ 1,290,463 $ 1,165,401
COSTS AND EXPENSES
Cost of goods sold and occupancy 455,797 424,143 890,222 803,521
General, selling and administrative 130,646 117,677 252,092 223,869
Depreciation and amortization 10,772 9,132 21,250 18,452
Interest expense 835 182 840 20
---------------- --------------- --------------- -----------
598,050 551,134 1,164,404 1,045,862
Earnings before taxes 58,985 63,442 126,059 119,539
Provision for taxes on earnings 23,063 24,806 49,289 46,740
---------------- --------------- --------------- -----------
Net earnings $ 35,922 $ 38,636 $ 76,770 $ 72,799
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Net earnings per share:
Basic $ .43 $ .42 $ .91 $ .80
Diluted $ .43 $ .42 $ .90 $ .78
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Weighted average shares outstanding:
Basic 82,753 91,132 84,020 91,530
Diluted 83,530 92,734 84,853 93,102
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Stores open at end of period 392 363 392 363
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</TABLE>
See notes to condensed consolidated financial statements.
3
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ROSS STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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SIX MONTHS ENDED
----------------
JULY 29, JULY 31,
($000, unaudited) 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 76,770 $ 72,799
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization of property and equipment 21,250 18,452
Other amortization 5,016 4,984
Change in assets and liabilities:
Merchandise inventory (77,075) (56,445)
Other current assets - net (1,907) (3,609)
Accounts payable 29,890 85
Other current liabilities - net (16,429) (1,066)
Other 2,985 2,201
----------------------------------
Net cash provided by operating activities 40,500 37,401
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (39,008) (35,421)
----------------------------------
Net cash used in investing activities (39,008) (35,421)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under lines of credit 11,800 17,200
Proceeds of long-term debt 80,000 -
Issuance of common stock related to stock plans 3,586 8,803
Repurchase of common stock (127,966) (71,988)
Dividends paid (6,293) (5,959)
----------------------------------
Net cash used in financing activities (38,873) (51,944)
----------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (37,381) (49,964)
Cash and cash equivalents:
Beginning of year 79,329 80,083
----------------------------------
End of quarter $ 41,948 $ 30,119
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SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 784 $ 105
Income taxes paid $ 49,146 $ 43,741
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</TABLE>
See notes to condensed consolidated financial statements.
4
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ROSS STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended July 29, 2000 and July 31, 1999
(Unaudited)
1. 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 July 29, 2000
and July 31, 1999; the results of operations for the three and six months ended
July 29, 2000 and July 31, 1999; and changes in cash flows for the six months
ended July 29, 2000 and July 31, 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.
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 and six-month periods herein
presented are not necessarily indicative of the results to be expected for the
full year.
The condensed consolidated financial statements at July 29, 2000 and July 31,
1999, and for the three-months and six-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.
5
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INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders of Ross Stores, Inc.
Newark, California
We have reviewed the accompanying condensed consolidated balance sheets of Ross
Stores, Inc. (the "Company") as of July 29, 2000 and July 31, 1999, and the
related condensed consolidated statements of earnings and cash flows for the
three-month and six 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 auditing standards generally
accepted in the United States of America, 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.
/s/Deloitte & Touche LLP
San Francisco, CA
August 18, 2000
6
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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 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 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
---------------------
PERCENTAGES OF SALES
<TABLE>
<CAPTION>
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THREE MONTHS ENDED SIX MONTHS ENDED
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JULY 29, JULY 31, JULY 29, JULY 31,
2000 1999 2000 1999
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<S> <C> <C> <C>
SALES
Sales ($000) $657,035 $614,576 $1,290,463 $1,165,401
Sales growth 6.9% 14.5% 10.7% 14.1%
Comparable store sales growth 0% 7% 3% 7%
Cost of goods sold and occupancy 69.4% 69.0% 69.0% 68.9%
General, selling and administrative 19.9% 19.1% 19.5% 19.2%
Depreciation and amortization 1.6% 1.5% 1.7% 1.6%
Interest expense 0.1% 0.0% 0.1% 0.0%
EARNINGS BEFORE TAXES 9.0% 10.3% 9.8% 10.3%
PROVISION FOR TAXES ON EARNINGS 3.5% 4.0% 3.8% 4.0%
NET EARNINGS 5.5% 6.3% 6.0% 6.3%
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</TABLE>
SALES
The increase in sales for the three and six months ended July 29, 2000, compared
to the same periods in the prior year, reflects an increase in the number of
stores open during the current periods. The increase in sales for the six months
ended July 29, 2000 also reflects an increase in comparable store sales.
COSTS AND EXPENSES
Cost of goods sold and occupancy expenses as a percentage of sales for the three
and six months ended July 29, 2000, increased compared to the same periods in
the prior year, primarily due to reduced leverage on occupancy costs resulting
from lower comparable store sales than in the prior periods.
The increase in general, selling and administrative expenses as a percentage of
sales for the three and six months ended July 29, 2000, compared to the same
periods in the prior year, primarily reflects higher store, benefit and
distribution costs as a percentage of sales, partially offset by leverage on
advertising, lower incentive plan costs and elimination of Year 2000 ("Y2K")
related expense in fiscal 2000.
7
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Depreciation and amortization as a percentage of sales for the three and six
months ended July 29, 2000, compared to the same periods in the prior year,
increased primarily due to reduced leverage on lower comparable store sales than
in the prior periods.
The increase in interest expense as a percentage of sales for the three and six
months ended July 29, 2000, compared to the same periods in the prior year, is
due to higher average borrowings primarily to fund the increase in the company's
stock repurchase program.
NET EARNINGS
The decrease in net earnings as a percentage of sales in the three and six
months ended July 29, 2000, compared to the same periods in the prior year, is
primarily due to a slowdown in the rate of comparable store sales growth during
the second quarter and the increase in the cost of goods sold and occupancy
expenses ratio, and the general, selling, and administrative expenses ratio.
INCOME TAXES PAID
The company paid $49.1 million in income taxes in the six months ended July 29,
2000, versus $43.7 million in the six months ended July 31, 1999. The increase
in income taxes paid primarily resulted from the timing of estimated tax
payments. The Company's effective tax rate in both periods was approximately
39%.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------
The primary uses of cash during the six months ended July 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 stores,
improvements in management information systems, and various expenditures to
improve the central office and distribution centers.
Total consolidated inventories increased 10% at July 29, 2000 from July 31,
1999, due mainly to an 8% increase in the number of stores open at the end of
each period and a planned increase in the level of packaway merchandise. The
increase in accounts payable at July 29, 2000 from July 31, 1999 resulted mainly
from the higher level of inventory purchases over the prior year.
In January 2000, the company announced a $300 million common stock repurchase
program to be completed over the next two years. In the six months ended July
29, 2000, the company repurchased approximately 7.5 million shares for an
aggregate purchase price of approximately $128 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 July 29, 2000, the company had $91.8 million
outstanding under these credit agreements, of which $80.0 million is classified
as long-term debt under the company's revolving credit facility.
8
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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.
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. In addition, the company's
corporate headquarters, one of its distribution centers and 40% 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 July 29, 2000 is not material.
9
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on June 7, 2000 (the "2000 Annual
Meeting"), the stockholders of the company voted on and approved the following
proposals:
Proposal 1 to elect two class II directors (Michael Balmuth and Lawrence M.
Higby) for a three-year term.
Proposal 2 to amend the Employee Stock Purchase Plan to increase the share
reserve by 1,000,000 shares.
Proposal 3 to ratify the appointment of Deloitte & Touche LLP as the company's
independent certified public accountants for the fiscal year ended February 3,
2001.
2000 ANNUAL MEETING ELECTION RESULTS -
--------------------------------------
PROPOSAL 1: ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR IN FAVOR WITHHELD
<S> <C> <C>
Michael Balmuth 77,965,233 344,820
Lawrence M. Higby 77,963,755 346,298
</TABLE>
PROPOSAL 2: AMENDMENTS TO THE EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
IN FAVOR AGAINST ABSTAIN
<S> <C> <C>
76,599,999 1,314,387 395,667
</TABLE>
PROPOSAL 3: RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDED FEBRUARY 3,
2001.
<TABLE>
<CAPTION>
IN FAVOR AGAINST ABSTAIN
<S> <C> <C>
78,237,741 37,163 35,149
</TABLE>
10
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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 14 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: September 11, 2000 /s/ John G. Call
John G. Call, Senior Vice President,
Chief Financial Officer, Corporate
Secretary and Principal Accounting Officer
11
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INDEX TO EXHIBITS
<TABLE>
<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.
10.3 Fourth Amended and Restated Employee Stock Purchase Plan.
15 Letter re: Unaudited Interim Financial Information.
27 Financial Data Schedules (submitted for SEC use only).
</TABLE>
12
