Ross Stores, Inc.

Good afternoon and welcome to the Ross Stores first quarter 2021 earnings release conference call. The call will begin with prepared comments by management, followed by a question and answer session. To ask a question during the session, you will need to press star one on your telephone. 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, COVID-related costs, 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 on the company's fiscal 2020 form 10-K and fiscal 2021 form 8-Ks on file with the SEC. Now I'd like to turn the call over to Barbara Lentner, Chief Executive Officer.

Good afternoon. Joining me on our call today are Michael Hartron, Group President and Chief Operating Officer, Travis Marquette, Executive Vice President and Chief Financial Officer, and Connie Cowell, Group Vice President, Investor Relations. We'll begin our call today with a review of our first quarter performance, followed by our outlook for the second quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have. As noted in today's press release, First quarter sales significantly exceeded our expectations as we benefited considerably from a combination of government stimulus payments, ongoing vaccine rollouts, easing of COVID restrictions, and pent-up consumer demand. In addition, customers responded enthusiastically to the broad assortments of great bargains we offered throughout our stores. Earnings per share for the 13 weeks ended May 1, 2021, grew 17% to $1.34, a net income of $476 million. This compares to $1.15 per share or net earnings of $421 million for the 13 weeks ended May 4th, 2019. Total sales for the quarter were $4.5 billion with comparable store sales up a robust 13% versus 2019. As previously announced, financial results and guidance throughout fiscal 21 will be compared against fiscal 2019. We believe the significant impact from the extended closure of our operations in the spring of 2020 and the disruptions caused by COVID-19 throughout last year make this a more relevant basis for comparison. For the first quarter, home was the best performing major merchandise area, while the Midwest was the strongest region. Similar to Roth, DD's discounts business trends significantly improved during the quarter. Results were far above our expectations with outstanding sales gains and a rebound in operating profits for the period. At quarter end, consolidated inventories were down 6% versus 2019. Packaway levels ended at 34% of the total compared to 44% for the same period in 2019, as we used a substantial amount of pack-away merchandise to support ahead-of-plan sales. Average selling store inventories were down 1% relative to 2019. As noted in today's release, our Board authorized a new program to repurchase $1.5 billion of our common stock through fiscal 2022 with plans to buy back $650 million this year and $850 million in 2022. The reinstatement of our share repurchase program reflects the current strength of our balance sheet, confidence in the company's ability to generate excess cash after funding growth and other capital needs of the business, and our longstanding commitment to enhancing stockholder value and returns. Turning to store growth, our 2021 expansion program is unchanged, with plans to open approximately 20 total locations comprised of 40 Ross and 20 DDs discounts. As usual, these numbers do not reflect our plans to close or relocate about 10 stores. As a reminder, our conservative opening plans this year, especially for the spring season, were set in 2020 during the onset of the pandemic when it was impossible to predict when the health crisis would subside. Looking forward to 2022, we expect to return to our normal annual opening program of approximately 100 new stores. Now, Travis Marquette will provide further details on our first quarter results, second quarter guidance, and outlook for the year.

Thank you, Barbara. As previously mentioned, comparable store sales increased 13% in the quarter, driven by a larger average basket. While traffic was down slightly compared to 2019, it accelerated significantly relative to the fourth quarter. Operating margin was well above plan at 14.2% compared to 14.1% for the same period in 2019. Cost of goods sold levered 35 basis points in the quarter. Merchandise margin was up 85 basis points and occupancy levered by 60. These improvements were partially offset by higher freight costs of 75 basis points mainly driven by the ongoing industry-wide supply chain congestion. In addition, distribution expenses grew 25 basis points, primarily due to higher wages, while buying costs increased by 10. SG&A for the quarter delevered by 25 basis points, mainly due to the operating expenses associated with the pandemic and higher incentive costs given our better-than-expected first quarter results. Total net COVID-related expenses for the period were approximately 35 basis points, the vast majority of which impacted SG&A. Now let's discuss our guidance. As Barbara just mentioned, our projections compare to the same period in 2019. For the 13 weeks ended July 31st, 2021, we are forecasting comparable store sales to be up 5% to 7%. Earnings per share for the second quarter are projected to be in the range of 80 to 89 cents. The operating statement assumptions that support our second quarter guidance include the following. Total sales are projected to grow 9 to 12%. We are projecting operating margin to be 9.2 to 9.9% compared to 13.7% in 2019. This forecast reflects ongoing expense headwinds from increased rate costs and higher wages. In addition, COVID-related expenses are projected to negatively impact EBIT margins by approximately 100 basis points in the period as we return to pre-pandemic store operating standards while still maintaining many of the extra cleaning routines. We expect to open 30 stores during the second quarter, consisting of 22 raw and eight DDs discount. Net interest expense is estimated to be about $19 million. our tax rate is expected to be approximately 25%. And weighted average diluted shares outstanding are projected to be about $355 million. For the full year, we are projecting annual comparable store sales gains of 7% to 9% versus 2019, and earnings per share of $3.93 to $4.20. Operating statement assumptions that support our fiscal 2021 guidance include the following. Total sales are projected to grow 11 to 13%. We project that operating margin for 2021 will be in the range of 10.7 to 11.2% compared to 13.4% in 2019. The forecasted decline, again, reflects our expectations for continued freight, wage, and COVID cost headwinds through the balance of the year. Net interest expense is estimated to be about $75 million. Our tax rate is projected to be approximately 24% to 25%, and we expect average diluted shares outstanding to be about $354 million. Now I'll turn the call back to Barbara for closing comments.