Ross Stores, Inc.

Q3 2021 Earnings Conference Call

11/18/2021

spk14: 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.
spk15: 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.
spk04: 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.
spk15: As Adam noted, uncertainty remains on how industry-wide supply chain congestion may negatively affect our business in the fourth quarter. That said, we believe we are well positioned as a value retailer, and our confident customers will find a broad assortment of great branded bargains in our stores for the holiday season. Moving forward, consumers' increasing focus on value and convenience, along with a large number of recent retail closures and bankruptcies, Make us confident about our prospects for continued market share gains in the future. At this point, we'd like to open up the call and respond to any questions you may have.
spk14: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Again, that is star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We have our first question coming from the line of Matthew Voss, With JP Morgan, your line is open.
spk10: Thanks, and congrats on a nice quarter. So, Barbara, with three straight quarters, 13% to 15% two-year comps, could you elaborate on market share gains tied to value and convenience that you're seeing? And then given the closures and bankruptcies that you cited, how would you best characterize product availability in the marketplace today?
spk13: Matthew, hi, it's Michael Hartshorn. On market share gains, longer term, we're very excited about the market share opportunity ahead of us. We're in a very healthy sector of retail with the consumer even more focused, as you mentioned, on value and convenience. We've clearly gained market share during the pandemic and are confident about our future prospects for further gains given the significant number of retail closures and bankruptcies.
spk15: Matthew, in terms of product availability, I would put it this way. It's a good time to be a buyer. Maybe not in every category, but some areas are very good, others are inconsistent. But overall, it's favorable. Even with store closures, one would expect that over time, after COVID, as retail settles, that the market will get more bullish on creating more goods. But right now, we really feel good about market availability.
spk10: That's great. Best of luck.
spk14: Thank you. We have our next question coming from the line of Mark Altschweiger with Baird. Your line is open.
spk07: Thanks for taking the question and welcome, Adam. I'm curious, just with the more inflationary backdrop, are you seeing more opportunities to raise ticket while still maintaining the strong value proposition? Or how are you thinking about this lever to offset some of the ongoing freight and expense pressures? Thank you.
spk15: Sure. Look, our pricing model is really built off of other mainstream retailers, and then we provide a discount. We're very aware of pricing at different levels of distribution, and we watch it closely. With that, we've continued to experiment with higher retail in all areas in the organization. In some cases, it's been absolutely fine, and in some cases, not quite as fine. And I wouldn't elaborate more on that in this forum, but what I would say is we would adjust pricing over time once we understand it. We don't know where it's really all going at this point, but we are definitely experimenting with different retails.
spk14: Thank you. We have our next question coming from the line of Paul Adjouis with Citi. Your line is open.
spk03: Hey guys, thanks. You referenced ongoing strength of consumer demand. I was curious if that was a comment on fourth quarter to date, if you were seeing that continue. You also referenced worsening industry-wide supply chain congestion, and I'm curious if that's hurting you thus far in 4Q to a greater degree than what you saw in 3Q. And big picture, I'm wondering if you think that congestion will ultimately be good for your business either in fourth quarter or into 22. Thanks.
spk13: Hi, Paul. We are seeing a very healthy consumer. You know, when we came into the quarter, we were worried about the Delta variant and also the receding government stimulus. But we've continued to see a very healthy consumer with strong demand for us across geographies, merchandise areas, and you can see relatively across retail, one that is increasingly focused on price value. On the freight front, you know, we've taken a number of actions to ready ourselves for the holiday selling period, including adjusting our ordering times. We chartered our own ocean vessel, and we've been purchasing at market rates capacity to make sure we had enough ocean freight to move goods. You can see that certainly in our margins for the quarter, merchant margin was impacted by ocean freight that we weren't able to offset with merchant margin down about 40 basis points. I wouldn't comment on the impact in the third quarter. The congestion right now is squarely focused on the port and getting goods out of the port.
spk03: Thanks. And the merchandise margin, you said, is down 40 base points. You said that was impacted by ocean. Can you separate the pure merch margin versus the ocean piece?
spk13: We wouldn't break that out separately. Ocean trade is actually included in our merchant margin. Merchant margin ended up better than we expected for the quarter as we had more full price selling and faster turns with the inventory ahead of plan or sales ahead of plan.
spk15: And then I would say as it pertains to supply chain congestion, it should create more closeout opportunities for us in the future.
spk03: Okay. Thanks, guys. Good luck.
spk14: Thank you. We have our next question coming from the line of Lorraine Hutchinson with Bank of America. Your line is open.
spk17: Thank you. Barbara, I know you said it's a good time to be a buyer, but I just wanted to focus in on any risk around receipt timing ahead of holiday, and then what are you hearing from your vendors going into the spring of next year vis-a-vis product availability and the categories you really want to focus on?
spk15: Receipt timing ahead of holiday? You know, I think we've taken all the appropriate actions as it pertains to receipt timing, you know, whether Michael just said chartering the vessel, building in longer lead time, everything to get goods through the port. But with that, you know, we have concerns. Not a given, but we have some concerns. As we think about products, for spring, I think vendors have gotten very aggressive in terms of placing goods. I think there's some vendors that are really looking to gain some market share in this timeframe and have taken, you know, bigger risks in terms of making commitments. So I think it's very much on who the vendor is and what their strategy is. But in terms of, again, in terms of timing for holiday, you know, we've taken the assets we think we need to take. But again, we have some concerns, but it's not a given.
spk17: Thank you.
spk14: Thank you. We have our next question coming from the line of Kimberly Greenberger with Morgan Stanley. Your line is open.
spk18: Okay, great. Thanks so much. I just wanted to follow up on Lorraine's question just about holiday, Barbara, and just want to make sure I understand you clearly. How are you feeling about your in-stock levels currently here, you know, call it middle of November, and how do you feel about your inventory position here for the next sort of six weeks of holiday selling? You know, if you could just give us a little bit of color just on the short term, and then I wanted to ask a couple of other questions if I could.
spk13: Kimberly, on inventory position here, Currently, we're in good shape. We ended the quarter with average in-store inventories down about 1%, which is where we wanted them to be, and we continue to have a fresh flow of product. There are a lot of receipts between now and the next six weeks, and there could be some risk in areas like home that, as Barbara mentioned, are not a given, but we reflected that risk in our guidance at 7 to 9. Okay, got it.
spk18: And is it, are the receipts, the receipt risk concentrated at home because that's where you would have, you know, call it more of a direct import or more of the direct imports would be impacting that area and those would be the items that would be either stuck in ports or on ocean going vessels? Correct.
spk11: Okay. Great. With six weeks left, mainly stuck in ports.
spk18: Okay, mainly stuck in ports. Okay, perfect. That is great. Okay. And then on the quarter, Michael or Adam, whoever wants to address this, you talked about larger basket size. I'm wondering if you can talk about the average unit retail versus the units per transaction. What's driving that? And then just longer term, following up on the question with regard to pricing, I'm not sure if you... have taken a look at where you're sitting competitively versus peers. But is there, I know there are some of your peers looking at some surgical price increases in some categories. I'm just wondering if you've, you know, if you've taken a look at your pricing and re-benchmarked it recently and if you have any thoughts on that. Thanks so much.
spk04: Yeah, this is Adam. Let me jump in on the first part of that question. So our strong comps were driven by size of basket, which was primarily driven by number of units per transaction. We did have a slight increase in AUR driven by the better full price selling given the above planned sales. And then as we mentioned, there was a slight decline in traffic in the quarter.
spk15: And then as it pertains to the pricing issue, We are definitely experimenting with higher retails. And I said in some areas it's working, it's fine. In some areas it's not fine. I think we'll continue to do that, Kimberly, and fine-tune what the customer is willing to accept as we watch what goes on in mainstream retailers and where their AURs sit and after we get comfortable. Over time, we would consider adjusting the pricing once we really understand it. But as we get ready to enter into Q4, we're not expecting mainstream retailers to promote, but we don't really know that as you get into Q4 and there's really this compressed period of time. So with that, again, merchants are out there trying new things, trying retail, seeing what the customer is willing to accept. But, you know, we kind of need to see both of those things to take a, I would say, you know, a larger step.
spk18: Perfect. Makes perfect sense. Thanks, Barbara.
spk14: Thank you. We have our next question coming from the line of Chuck Grum with Gordon Haskett. Your line is open.
spk02: Hey, thanks very much. One of you guys could speak to the trend of your comp there in the quarter, and if you think whether it had any adverse impact, particularly in September and October. And any early thoughts on the first couple of weeks of November? It sounds like the trend has stayed strong, but just wanted to confirm that.
spk04: This is Adam. I can take that. So comps were strong throughout the quarter.
spk13: And really, no weather impact was very immaterial in the quarter. And we wouldn't comment on inter-quarter trends.
spk15: Got it. Thank you.
spk14: Thank you. We have our next question coming from the line of Michael Benetti with Credit Suisse. Your line is open.
spk19: Hey, guys. Thanks for taking all our questions here. I'm just curious as you look at the guidance, what you guys are seeing in the business that helped you build to a seven to nine guidance for fourth quarter. I think the last prior two quarters was five to seven. Just any change in how you built up with it. But then I guess... Michael, I know you won't give us a number to Paul's question earlier, but when you think about what you baked into freight in the fourth quarter, maybe just some directional idea of how that looks relative to third quarter. And then as you look out, maybe just thinking about when your contracts roll, how much visibility you have into the first half of next year, and help us understand if we should think that that's still going to be an incremental headwind into the first half based on what you guys know today.
spk13: Sure, Michael. Let me generally talk about the fourth quarter guidance. Obviously, in these uncertain times, we believe it's prudent to be conservative as we always have with our guidance and hope to exceed these estimates. Obviously, the large difference between Q3 is a cautious comp estimate given the potential impact of unpredictable The guidance also includes ongoing freight pressure related to the congestion. I would say it's not significantly worse than it was in Q3. It also includes elevated wage-related costs due to holiday incentives in both our stores and distribution centers to acknowledge our associates' extraordinary dedication throughout the pandemic. What we'd expect on that is sales above the estimates, we'd expect 15 to 20 basis points of leverage. On freight congestion, I think our view at this point is we would not expect freight to subside probably through the first half of next year, and then we'll have to see how it trends after that in terms of what impact that could have. We'll have more to say in our year-end call as we finish up wrapping up our budget cycle.
spk19: Okay. If I could follow that, you know, just as you look at some of the AUR initiatives that you are seeing success with, Barb, do you feel like you have enough at this point to combat that freight pressure in the first half if needed?
spk15: No, I think where we are now is that we can continue to test the AUR and then make probably slower moves so we really understand what that looks like in mainstream retailers.
spk19: Got it. Okay, thanks a lot, everybody.
spk14: Thank you. We have our next question coming from the line of Jay Sol with UBS. Your line is open.
spk00: Great, thank you so much. I just want to know, can just share with us high level, not looking for any specific guidance, but going into the first quarter of next year, lapping the stimulus, how much of a benefit do you think you got from the stimulus in the first quarter of this year, and how do you think it might play out next year as you lap that? What kind of impact would it have on sales?
spk13: Yeah, at this point, we wouldn't comment on next year. As I said, we'll have more to say after we wrap up the fourth quarter and provide guidance in our year-end call and early month.
spk00: Okay. And maybe if I can just ask one more then, you know, there's a lot of talk about, you know, how the pandemic has changed shopping and, you know, consumers may be adopting more of an omni-channel method. If you look at the operating income growth for your department store competitors over the last three quarters, it's up over a hundred percent versus, you know, off price, it's up more like 10%. You know, do you feel at all like something has changed where, you know, maybe the department stores are catching up a little bit? And if not, why not?
spk13: Catching up in what regard?
spk00: We're just catching up in a way that you've outgrown them in terms of sales. You mentioned the market share gains that you've taken, outgrown them in terms of profit, but maybe they're getting closer to competing and maybe not necessarily maintain the same level of sales, but maybe getting more profitable, which ultimately could be an advantage they could use to catch up in other ways as well.
spk13: I think overall, we'll have to see how it plays out. We're still in this burst of economic activity where demand is exceeding supply. I think we'd have to understand what happens when it's a greater balance between supply and demand, which we'll see if that's first quarter or second quarter of next year. So it's hard to say at this point.
spk09: Okay. Thank you so much.
spk14: Thank you. We have our next question coming from the line of Marnie Shapiro with Retail Tracker. Your line is open.
spk01: Hey, guys. Congratulations. talk a little bit about two things. As the consumers back out and about working events, parties, have you seen a shift in what she's buying or are you continuing to see strength across the board? And then if you can also just touch on with all of the late deliveries in the market, have you been able to still get in the very holiday rich type of items, Christmas themed items, or were you able to tap into from last year's holiday to make sure that that was on the floor in time.
spk15: Sure, Marnie. We have seen a shift to the customer. Look, we've always had a big casual business. Let me stress that. That's always been a big business for us. And certainly during the pandemic, that business got even bigger and stronger for us. But what we have seen is we have seen the customer make a shift back into what you're looking for is holiday, glitz, dress up, social, I'm going out. We have seen the customer make that shift into holiday products and also just more into more mainstream sportswear. So a little bit of both. So casual is still very good, still a business that we believe in, and it will expand and get greater. But she is making a shift, whether it's back to work or she's going out for evening, whatever she's doing. We haven't seen that yet.
spk01: What about like in the home and like bags, like those kinds of bags to go back to work or the home area if she's going back to work and not thinking about her home as much? I don't know.
spk15: You're saying like in handbags?
spk01: Yeah. Has she shifted, you know, into handbags as she's going out again or out of home and into apparel more? Those kinds of, you know, bigger shifts as well.
spk15: I think anything where she's leaving her house on the apparel side has taken a shift, whether it's in footwear, whether it's in handbags. You know, she hasn't replaced a lot of those products in a long time. Exactly. So, yes, we are seeing a shift back into some of those businesses as she, you know, goes out and she wants new things. So whether it's home or apparel, though, Marnie, I would say, you know, both businesses are Both businesses, you know, have been, you know, relatively similar in sales games. So she's kind of talking between both worlds now. I think the surge in, you know, peril is because she just doesn't own it.
spk01: Yeah, that makes sense. And then just on the Packaway.
spk15: Oh, and then on Packaway, in how it just... Just do me a favor. Just remind me of that piece again on PacWay, because I think I might have interpreted it as the holiday piece. Tell me a PacWay question again.
spk14: Marnie? Thank you. We have our next question, coming from the line of Laura Champagne. We loop Capital. Your line is open.
spk16: Should we hold up and try to get Marnie back, or would you prefer a fire ahead? Fire ahead. We'll follow up tomorrow. We'll find out later. Okay, here goes. I thought the SG&A expense level was really impressive given that I think you're saying that COVID is still an incremental hit. Is this kind of a base level that we can look at as we start to model for next year? What are kind of some of the puts and takes that are keeping despite, you know, really strong top line? that SG&A expense is staying fairly flat.
spk04: Yeah. Go ahead. Yeah, and I was just going to jump in and say COVID's been pretty consistent impact throughout the year, and it will be in fourth quarter. We talked about the actions we've taken from a wage standpoint and from an incentive standpoint in our DCs and our stores. Those are clearly kind of the biggest movers within SG&A.
spk13: And then, obviously, I would say the 14 comp helps us leverage the SG&A significantly.
spk16: Got it. Thank you.
spk14: Again, to ask a question, that is star, then the number one on your telephone keypad. And please do limit yourself to one question only. Thank you. We have our next question coming from the line of Bob Drool with Guggenheim. Your line is open.
spk20: Hi. Good afternoon. Just wondering if you could maybe spend a little bit more time on the labor component and just sort of the wage pressures that you're seeing and labor availability. Maybe just give us some insights on that. That would be helpful. Thanks.
spk13: Sure, Bob. It's a very competitive market for talent companies. and we've seen the most competition in our distribution centers. We made some permanent wage increases early this year. We also have some retention and incentive to get us through the peak. We're in really good shape. We've been able to staff up the peak. The distribution centers are where they need to be. In the stores, obviously, we have holiday selling ahead of us. We've We also have hiring incentives there to make sure we can staff up our peak, and we're confident that we're in a good place there as well. Given the competition, we'll remain competitive with our pay to make sure we can attract talent, and we feel really good about the workforce right now. Great. Thank you.
spk14: Thank you. We have our next question coming from the line of Adrienne Yee with Barclays. Your line is open.
spk12: Congratulations on the progress on the top line in the quarter. Barbara, you made a comment during the prepared remarks. You said you should see improvement in kind of closed out buying and I'm wondering, are you seeing any incrementality in that in increased supply flow from either canceled orders or stranded inventory? that could be used for short stay-bys and redeployed earlier next year. And then just a clarification question on the freight. The 160 basis point of freight pressure this quarter, fourth quarter is similar, and then carrying that same level through the first half of 22, is that the implication that you were intending? Thank you.
spk13: I'll start with the freight. I was making no commentary on what the freight cost level will be next year. I was really answering that in terms of what congestion could look like. Obviously, we'll have some different options.
spk15: And then in terms of the content of closeout buying, certainly our expectation is that there will be the full product as retailers have canceled goods because they're late and they can't get to the selling floor. So that would be real pack away for fall, you know, for Q3, Q4 of next year. But we do see opportunities on, I would guess, what you're thinking of as kind of seasonless apparel that could flow now through Q1.
spk12: I believe there's a combination of both. Okay, fantastic. Last question, if you would. Where is the average hourly rate? I think I recall a few years ago, maybe 2018 or 19, you had sort of committed to this $12 number, and that was typically almost a dollar higher than the average across the nation. I know you were at the better end of pay. I'm just wondering, you know, where that number sits today, maybe relative to where Walmart, Target, and some others are in that mid-teen range. Thanks.
spk13: Yeah, we don't disclose the specific wage. We do have a base level at $11, but a significant portion of the chain is under minimum wage. California, for instance, is at $15, so the average wage is well above that baseline.
spk12: Fair enough. Thank you very much, and best of luck for holiday.
spk13: Thank you.
spk14: Thank you. We have our next question coming from the line of Simeon Siegel with BMO Capital Markets. Your line is open.
spk06: Hi, thanks, everyone. Sorry if I missed it. Did you see where you expect inventory to end for Q and then over the next few quarters? And then to the earlier point about outperforming despite waning stimulus, have you guys quantified what you think the benefit was from stimulus and just how you're thinking about the potential impacts as we cycle through that early next year? Thanks a lot.
spk13: On next year, we wouldn't comment. We'll comment again at year end. On inventory, we typically don't guide ahead on inventory levels.
spk06: So I guess for the stimulus, have you quantified what it was this year? How do you think about the benefit this year?
spk13: It's really hard because there's a lot of moving parts because it's not only stimulus, it's customer pent-up demand. We'll end up developing... plans around it as we move into next year, but we haven't quantified that.
spk06: Understood. Thanks a lot, guys. Best of luck for holiday.
spk14: Thank you. We have our next question coming from the line of Ike Baracha with Wells Fargo. Your line is open.
spk08: Hi, everyone. This is Jesse Sobolson on for Ike. And I was just wondering, as we look forward and begin to model next year, would you guys be able to quantify timing of when COVID costs might be able to revert, or are you expecting that to sustain and these costs to just kind of be a part of the business going forward?
spk13: We wouldn't comment specifically on next year, but we would expect, I will say generally, we would expect COVID costs to come down. They are not wholly permanently part of the cost. Thank you.
spk14: Thank you. We have our next question coming from the line of John Kernan with Cowan. Your line is open.
spk05: Excellent. Good afternoon. Thanks for taking my question. Just curious on the margin picture. You obviously outperformed your comp guidance, and the EBIT margin was down roughly 100 basis points from the pre-COVID base in 19. You're guiding it much lower than that, albeit on lower comp guidance for the fourth quarter. Just curious, what do you think the biggest levers are to recapture that low team's operating margin that you generated in 2019? There's a lot of inflation across retail, the factories, your vendors, supply chain. Just curious how you think you're going to recapture that pre-COVID level of profitability. Is it really just through more comp? comp store sales gains? How do we quantify that?
spk13: Sure, John. As I said, obviously we're in a very healthy sector of retail and are confident in our prospects for the market share gains. As we sit here today, it's difficult to predict how much of the inflationary cost headwinds we're experiencing from the burst of economic activity are transitory versus permanent. So margin recovery will be dependent on where and when those costs stabilize. And, of course, our sales volume where we once again, we believe we have a long-range, large market share opportunity ahead of us. Over time, we would expect to return to double-digit EPS growth on a three to four comp. We do have initiatives in the company to try to increase efficiencies in our big areas of expense, including our stores and distribution centers, but it's going to be largely dependent on the transitory nature of the inflation that we're seeing today.
spk05: Got it. Thank you.
spk14: Thank you. We have our last question coming from the line of Tim Vergano with North Coast Research. Your line is open.
spk09: Thank you. Can you guys remind us of how you're thinking about storefront print and unit growth, and then maybe highlight for us if that environment or setup is getting easier or more difficult as you look forward? Thank you.
spk13: Sure. On the real estate front, as we said in our comments, we ended up – We wrapped up our program for this year. We opened 65 stores. We also said that we expect to return the historical annual program in 2022 of opening 100 stores annually. Overall, the real estate market is good, and we would expect there to be increased supply of available sites given the level of store closures.
spk09: Thanks. Sorry, I missed that.
spk14: Thank you. There are no further questions on queue. I would now like to turn the call back over to Barbara Rensler for any closing remarks.
spk15: Thank you for joining us today and for your interest in raw stores. Happy holidays.
spk14: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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