Ross Stores, Inc.

good afternoon and welcome to the raw store third 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 raw 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 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 fiscal 2021 form 10Qs and 8Ks on file with the SEC. Now I'd like to turn the call over to Barbara Rensler, Chief Executive Officer.

Good afternoon. Joining me in our call today are Michael Hartsburn, Group President, Chief Operating Officer, and Connie Kao, Group Vice President, Investor Relations. And I'd also like to welcome Adam Ormer, our recently appointed Executive Vice President and Chief Financial Officer. We'll begin our call today with a review of our third quarter performance, followed by an update on our outlook for the fourth quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have. As noted in today's press release, third quarter sales and profitability significantly exceeded our expectations as consumers continued to respond favorably to our broad assortment of great bargains. We achieved these results despite waning government stimulus and uncertainty related to the spread of COVID variants. Earnings per share for the 13 weeks ended October 30th, 2021 were $1.09 on net income of $385 million. This compares to $1.03 per share on net earnings of 371 million for the 13 weeks ended November 2nd, 2019. Total sales for the quarter rose 19% to $4.6 billion, with strong comparable store sales increase of 14%. For the first nine months, earnings per share were $3.82 on net earnings of $1.4 billion, up from $3.32 per share on net income of $1.2 billion for the same period in 2019. Sales for the first nine months of this year rose 20% to $13.9 billion, with comparable store sales up 14%. For the third quarter at Ross, children and men's were the best-performing businesses, while the Midwest and Southeast were the top-performing regions. DD's discount trends remained strong during the period as their sales performance also significantly exceeded our expectations. However, like Roth, DD's profitability was negatively impacted by cost pressures related to freight, wages, and COVID. At quarter end, total consolidated inventories were up 3% while average selling store inventories were down 1% versus 2019. Pack-away levels ended at 31% of the total compared to 39% for the same period in 2019, as we continued to use a substantial amount of pack-away merchandise to support ahead of planned sales. In addition, there were receipt delays due to supply chain congestion. Turning to store growth, we completed our expansion program for 2021 with the addition of 18 new Roths and 10 DDs discounts in the third quarter. For the full year, we added 65 locations comprised of 44 Roths and 21 DDs discounts. Additionally, we plan to close one store by year end. As previously mentioned, we expect to return to our normal annual opening program of approximately 100 stores in 2022. Now Adam Orvos will provide further details on our third quarter results, fourth quarter guidance, and updated outlook for the year.

Thank you, Barbara. As previously stated, comparable store sales were up 14% in the quarter. The increase was mainly driven by a larger average basket with traffic down slightly versus 2019. Operating margin of 11.4% was well above our guidance range. As expected, the decline in overall profitability versus 2019 was mainly due to ongoing headwinds from higher freight, wage, and COVID-related costs. Cost of goods sold grew by 85 basis points in the quarter. Domestic freight expenses increased 125 basis points, while higher ocean freight costs negatively impacted merchandise margin, which declined by 40 basis points. Buying also rose by 10 basis points. These higher expenses were partially offset by occupancy and distribution leverage of 65 and 25 basis points respectively. SG&A for the period grew 15 basis points as leveraged from the strong sales gain was offset by COVID expenses and higher incentive costs given our better than expected third quarter results. Total net COVID related costs for the period were approximately 35 basis points the vast majority of which impacted SG&A. During the third quarter, we repurchased 2.1 million shares of common stock for an aggregate cost of $241 million. We remain on track to buy back a total of $650 million in stock for the year. Now let's discuss our fourth quarter guidance. As a reminder, our projections compare to the same period in 2019. Looking ahead, while we are encouraged by the ongoing strength of consumer demand, there remains significant uncertainty related to the worsening industry-wide supply chain congestion as we enter the important holiday season. As a result, and while we hope to do better, we are forecasting comparable store sales to be up 7 to 9 percent, with earnings per share projected in the range of 83 to 93 cents for the 13 weeks ending January 29th, 2022. The operating statement assumptions that support our fourth quarter guidance include the following. Total sales are projected to grow 10 to 13%. We expect operating margin to be 8.1 to 8.8%. This forecast primarily reflects ongoing pressure from the previously mentioned supply chain headwinds as well as holiday pay incentives in our stores and distribution centers. In addition, COVID-related costs are projected to negatively impact EBIT margin by approximately 30 basis points in the period. Net interest expense is estimated to be about $18 million. Our tax rate is expected to be approximately 22 to 23 percent. And weighted average diluted shares outstanding are projected to be about 352 million. Based on our year-to-date results and fourth quarter guidance, we are now forecasting full-year comparable store sales gains of 12% to 13% in earnings per share in the range of $4.65 to $4.75 compared to $4.60 in 2019. Now I'll turn the call back to Barbara for closing comments. Thank you, Adam. We're encouraged by our above-planned sales year-to-date.