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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 OCTOBER 28, 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, if N/A
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
November 25, 2000 was 81,011,317.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROSS STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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OCTOBER 28, January 29, OCTOBER 30,
($000) 2000 2000 1999
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<S> <C> <C> <C>
ASSET
(UNAUDITED) (Note A) (UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 34,758 $ 79,329 $ 31,645
Accounts receivable 18,748 15,689 15,884
Merchandise inventory 594,428 500,494 570,965
Prepaid expenses and other 19,576 17,682 16,591
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Total Current Assets 667,510 613,194 635,085
PROPERTY AND EQUIPMENT
Land and buildings 54,795 49,919 49,593
Fixtures and equipment 287,009 262,022 236,611
Leasehold improvements 172,382 161,571 150,481
Construction-in-progress 33,306 26,040 46,991
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547,492 499,552 483,676
Less accumulated depreciation and amortization 255,366 226,388 217,004
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292,126 273,164 266,672
Deferred income taxes and other assets 60,953 61,320 51,723
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TOTAL ASSETS $ 1,020,589 $ 947,678 $ 953,480
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 287,955 $ 254,293 $ 263,121
Accrued expenses and other 89,062 102,178 97,755
Accrued payroll and benefits 50,001 48,283 46,176
Income taxes payable 7,879 17,716 20,579
Short-term debt 20,000 - 28,900
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Total Current Liabilities 454,897 422,470 456,531
Long-term debt 80,000 - 24,000
Long-term liabilities 50,224 51,777 47,200
STOCKHOLDERS' EQUITY
Common stock 811 888 887
Additional paid-in capital 225,888 234,635 220,641
Retained earnings 208,769 237,908 204,221
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435,468 473,431 425,749
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,020,589 $ 947,678 $ 953,480
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</TABLE>
See notes to condensed consolidated financial statements.
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ROSS STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
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OCTOBER 28, October 30, OCTOBER 28, October 30,
($000, except per share data, unaudited) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
SALES $ 639,469 $ 608,720 $ 1,929,932 $ 1,774,121
COSTS AND EXPENSES
Cost of goods sold and occupancy 439,379 416,442 1,329,601 1,219,963
General, selling and administrative 138,449 125,833 390,541 349,702
Depreciation and amortization 11,279 9,459 32,529 27,911
Interest expense 1,531 147 2,371 167
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590,638 551,881 1,755,042 1,597,743
Earnings before taxes 48,831 56,839 174,890 176,378
Provision for taxes on earnings 19,093 22,224 68,382 68,964
----------------------------- --------------------------------
Net earnings $ 29,738 $ 34,615 $ 106,508 $ 107,414
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Net earnings per share:
Basic $ .36 $ .38 $ 1.28 $ 1.18
Diluted $ .36 $ .38 $ 1.27 $ 1.16
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Weighted average shares outstanding:
Basic 81,837 89,986 83,292 91,015
Diluted 82,389 91,138 84,025 92,444
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Stores open at end of period 411 381 411 381
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See notes to condensed consolidated financial statements.
3
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ROSS STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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<CAPTION>
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NINE MONTHS ENDED
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OCTOBER 28, October 30,
($000, unaudited) 2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 106,508 $ 107,414
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization of property and equipment 32,529 27,911
Other amortization 7,495 7,442
Change in assets and liabilities:
Merchandise inventory (93,934) (104,505)
Other current assets - net (4,954) (5,083)
Accounts payable 36,990 18,023
Other current liabilities - net (12,779) 20,372
Other 2,164 2,206
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Net cash provided by operating activities 74,019 73,780
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (63,501) (58,918)
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Net cash used in investing activities (63,501) (58,918)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under lines of credit 20,000 28,900
Proceeds of long-term debt 80,000 24,000
Issuance of common stock related to stock plans 4,027 9,536
Repurchase of common stock (149,741) (116,845)
Dividends paid (9,375) (8,891)
-------------------------------
Net cash used in financing activities (55,089) (63,300)
-------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (44,571) (48,438)
Cash and cash equivalents:
Beginning of year 79,329 80,083
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End of quarter $ 34,758 $ 31,645
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SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 2,296 $ 374
Income taxes paid $ 78,239 $ 66,863
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ROSS STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended October 28, 2000 and October 30, 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 October 28, 2000
and October 30, 1999; the results of operations for the three and nine months
ended October 28, 2000 and October 30, 1999; and changes in cash flows for the
nine months ended October 28, 2000 and October 30, 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 nine-month periods herein
presented are not necessarily indicative of the results to be expected for the
full year.
The condensed consolidated financial statements at October 28, 2000 and October
30, 1999, and for the three-months and nine-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.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133, as amended by SFAS No. 138 issued
in June 2000, defines derivatives, requires that all derivatives be carried at
fair value, and provides for hedging accounting when certain conditions are met.
Ross Stores, Inc. will adopt this statement in its first fiscal quarter of its
fiscal year ending February 2, 2002. Management is completing its assessment of
the implications of adopting this new standard, and does not anticipate any
material impact to its financial results.
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 October 28, 2000 and October 30, 1999, and
the related condensed consolidated statements of earnings for the three-month
and nine-month periods then ended and the condensed consolidated statements of
cash flows for the nine-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 consolidated balance sheet from which it has been derived.
/s/Deloitte & Touche LLP
San Francisco, CA
November 17, 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
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PERCENTAGES OF SALES
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THREE MONTHS ENDED NINE MONTHS ENDED
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OCTOBER 28, October 30, OCTOBER 28, October 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
SALES
Sales ($000) $ 639,469 $ 608,720 $ 1,929,932 $ 1,774,121
Sales growth 5.1% 14.6% 8.8% 14.3%
Comparable store sales increase (decrease) (2%) 7% 1% 7%
Cost of goods sold and occupancy 68.7% 68.4% 68.9% 68.8%
General, selling and administrative 21.7% 20.7% 20.2% 19.7%
Depreciation and amortization 1.8% 1.6% 1.7% 1.6%
Interest expense 0.2% 0.0% 0.1% 0.0%
EARNINGS BEFORE TAXES 7.6% 9.3% 9.1% 9.9%
PROVISION FOR TAXES ON EARNINGS 3.0% 3.7% 3.5% 3.9%
NET EARNINGS 4.7% 5.7% 5.5% 6.1%
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</TABLE>
SALES
The increase in sales for the three months ended October 28, 2000, compared to
the same period in the prior year, reflects an increase in the number of stores
open during the period, partially offset by a decrease in comparable store
sales. The increase in sales for the nine months ended October 28, 2000,
compared to the same period in the prior year, reflects an increase in the
number of stores open during the period and 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 nine months ended October 28, 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 nine months ended October 28, 2000, compared to the same
periods in the prior year, primarily reflects higher store, benefit and
distribution costs as a percentage of sales, partially
7
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offset by leverage on advertising, and elimination of Year 2000 ("Y2K") related
expense in fiscal 2000.
Depreciation and amortization as a percentage of sales for the three and nine
months ended October 28, 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 nine
months ended October 28, 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 and higher capital expenditures.
NET EARNINGS
The decrease in net earnings as a percentage of sales in the three and nine
months ended October 28, 2000, compared to the same periods in the prior year,
is primarily due to a decline in the rate of comparable store sales growth,
increases in both the cost of goods sold and occupancy expenses ratio and the
general, selling, and administrative expenses ratio.
INCOME TAXES PAID
The Company paid $78.2 million in income taxes in the nine months ended October
28, 2000, versus $66.9 million in the nine months ended October 30, 1999. 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 nine months ended October 28, 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 4% at October 28, 2000 from October 30,
1999, due mainly to an 8% increase in the number of stores open at the end of
each period and a planned decrease in the level of in-store merchandise. The
increase in accounts payable at October 28, 2000 from October 30, 1999 resulted
mainly from the higher level of inventory purchases over the prior year.
The decrease in income taxes payable at October 28, 2000 from October 30, 1999
resulted mainly from an increase in income taxes paid due to a reduction in
inventory and fixed asset related timing differences.
In January 2000, the Company announced a $300.0 million common stock repurchase
program to be completed over the next two years. In the nine months ended
October 28, 2000, the Company repurchased approximately 9.0 million shares for
an aggregate purchase price of approximately $149.7 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 October 28, 2000, the Company had $100.0 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 41% 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 factors underlying any forecasts or forward-looking statements are dynamic
and subject to change. As a result, any forecasts or forward-looking statements
speak only as of the date they are given and do not necessarily reflect the
Company's outlook at any other point in time. The Company does not undertake to
update these forward-looking statements.
9
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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) as
of October 28, 2000 is not material.
ITEM 4. 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 12 of this Report.
(b) Reports on Form 8-K
None.
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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 by the undersigned thereunto
duly authorized.
ROSS STORES, INC.
Registrant
Date: December 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
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Exhibit
Number Exhibit
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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 Employment Agreement effective August 14, 2000 between James
C. Peters and Ross Stores, Inc.
10.4 Executive Relocation Loan Agreement between James C. Peters
and Ross Stores, Inc.
10.5 Form of Employment Agreement between Ross Stores, Inc. and
Senior Vice Presidents.
15 Letter re: Unaudited Interim Financial Information.
27 Financial Data Schedules (submitted for SEC use only).
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