Ross Stores, Inc.

Good afternoon and welcome to the Ross Storrs second 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 1 on your telephone. Before we get started, on behalf of Ross Storrs, 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 risk 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 and the company's fiscal 2020 form 10-K, and Cisco 2021 Form 10Q and eight case on file with the SEC. Now, I'd like to turn the call over to Barbara Rentler, Chief Executive Officer.

Good afternoon. Joining me on our call today are Michael Hartron, Group President, Chief Operating Officer, and Connie Cao, Group Vice President, Investor Relations. We'll begin our call today with a review of our second quarter performance, followed by our outlook for the third quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have. As noted in today's press release, we are pleased that both second quarter sales and earnings substantially exceeded our expectations. Sales benefited from customers' positive response to our broad assortment of great bargains. In addition, our results were bolstered by a number of external factors including ongoing government stimulus, increasing vaccination rates, and diminishing COVID restrictions. Earnings per share for the 13 weeks ended July 31st, 2021 grew 22% to $1.39 on net income of $494 million. This compares to $1.14 per share on net earnings of $413 million for the 13 weeks ended August 3rd, 2019. Total sales for the quarter rose 21% to $4.8 billion, with comparable store sales up a robust 15%. For the first six months, earnings per share were $2.73 on net earnings of $971 million, up from $229 million up from $2.29 per share on net income of $834 million for the same period in 2019. Sales for the first half of 2021 rose 20% to $9.3 billion, with comparable store sales up 14%. For the second quarter, Ross's sales trends across merchandise areas and regions were fairly broad-based, with Children's and the Midwest performing the best. Additionally, DD's discount trends remained robust during the period as both sales and operating profit gains significantly exceeded our expectations. At quarter end, total consolidated inventories were down 5%, while average selling store inventories were up 3% versus 2019. Pack-away levels ended at 30% of the total, compared to 43% for the same period in 2019, as we used a substantial amount of pack-away merchandise to support ahead-of-plan sales. In addition, there were receipt delays due to supply chain congestion. Turning to store growth, we now expect to open approximately 65 total locations this year, comprised of about 45 Ross and 20 DDs discounts. As usual, these numbers do not reflect our plans to close or relocate about 10 stores. As mentioned in last quarter's call, in 2022, we expect to return to our normal annual opening program of approximately 100 new stores. Now Michael Hawthorne will provide further details on our second quarter results, third quarter guidance, and updated outlook for the year.

Thank you, Barbara. As we previously stated, comparable store sales increased 15 percent in the quarter, mainly driven by a larger average basket with traffic up slightly versus 2019. Operating margin was well above plan and up versus 2019 at 14.1 percent. Cost of goods sold decreased by 45 basis points in the quarter. Merchandise margin and occupancy improved by 80 basis points each, while buying costs declined by 10 basis points. Partially offsetting these items were higher distribution expenses, which grew 40 basis points primarily from wage increases, while worsening industry-wide supply chain congestion drove higher freight costs of 85 basis points. SG&A for the period rose five basis points as leverage from strong sales gains was offset by COVID expenses and higher incentives given our better than expected second quarter results. Total net COVID related expenses for the period were approximately 45 basis points, the vast majority of which impacted SG&A. During the quarter, we repurchased 1.4 million shares of common stock for a total purchase price of $176 million. We remain on track to buy back a total of $650 million in stock for the year. Now let's discuss our third quarter guidance. As a reminder, our projections compare to the same period in 2019. Looking ahead, there remains much uncertainty on the sustainability of the positive external factors that benefited our first half results, as well as the potential risk we could face from the spread of COVID variants and worsening industry-wide supply chain congestion. As a result, we are forecasting comparable store sales to be up 5 to 7 percent for the third quarter, with earnings per share projected to be in the range of 61 to 69 cents. The operating statement assumptions that support our third quarter guidance include the following. Total sales are projected to grow 9% to 12%. We expect operating margins to be 7.3% to 7.9%. This forecast reflects significant escalation of freight costs, as well as higher distribution expenses. In addition, ongoing COVID-related costs are projected to negatively impact EBIT margins by approximately 45 basis points in the period. We plan to open 28 stores during the third quarter consisting of 18 Roth and 10 CDs discount. Net interest expense is estimated to be about $19 million. Our tax rate is expected to be approximately 24 to 25 percent. and weighted average diluted shares outstanding are projected to be about $354 million. Based on our first half results and third quarter guidance, we now project full-year comparable store sales gains of 10 to 11 percent and earnings per share to be in the range of $4.20 to $4.38 compared to $4.60 in 2019. Now I'll turn the call back to Barbara for closing comments.