Ross Stores, Inc.

Good afternoon and welcome to the raw source first quarter 2022 earnings release conference call the call will begin with prepared comments by management, followed by a question and answer session. At this time, all participants are in a lesson on the moon to ask a question during the Q amp a session, you will need to press star one on your telephone if you require any further assistance, please press star zero, please be advised that today's call is being recorded. Before we get started, on behalf of FrostSource, I would like to note that the comment 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, and other matters that are based on the company's current forecasts 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 2021 Form 10-K and fiscal 2022 Form 8-Ks on file with the SEC. Now, I would like to turn the call over to Barbara Rentler, Chief Executive Officer. Please go ahead, ma'am.

Good afternoon. Joining me on our call today or Michael Hartshorne, Group President and Chief Operating Officer, Adam Orvost, Executive Vice President and Chief Financial Officer, and Connie Cao, Group Vice President, Investor Relations. We'll begin our call today with a review of our first quarter 2022 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, We are disappointed with our lower than expected first quarter results. We knew 2022 would be a difficult year to predict, especially the first half when we were facing last year's record levels of government stimulus and significant customer pent-up demand as COVID restrictions eased. The external environment has also proven extremely challenging as the Russia-Ukraine conflict has exacerbated inflationary pressures on the consumer not seen in 40 years. As a result of these factors, our first quarter results underperformed our expectations. Total sales for the first quarter were $4.3 billion with comparable store sales down 7% on top of a robust 13% gain in the first quarter of 2021 that were versus 2019. Earnings per share for the 13 weeks ended April 30, 2022, were 97 cents on net income of $338 million. The quarter includes an approximate benefit of 6 cents per share from the favorable timing of expenses that are expected to reverse in subsequent quarters. These results compared to $1.34 per share on net earnings of $476 million for the 13 weeks ended May 1st, 2021. Men's was the strongest merchandise area during the quarter, while Florida was the top performing region. DD's discounts performance in the first quarter trailed that of Ross as a significant benefit of last year's stimulus and escalating inflationary pressures had a larger impact on lower income households. At quarter end, total consolidated inventories were up 57% versus the same period in 2021, mainly from higher pack-away inventory. Pack-away merchandise represented 43% of total inventories versus 34% last year when we used a substantial amount of pack-away to meet robust consumer demand. Additionally, supply chain congestion eased somewhat during the first quarter, resulting in the early receipt of merchandise that we stored and packed away and will flow to stores later in the year. Average store inventories during the quarter were up, though we still operated with significantly less inventory in stores than we did pre-pandemic. Turning to store growth, our 2022 expansion program is on schedule with the addition of 22 new Roths and eight DDs discount locations in the first quarter. We remain on track to open a total of approximately 100 locations this year, comprised of about 75 Ross and 25 Deedee's. As usual, these numbers do not reflect our plans to close or relocate about 10 stores. Now Adam will provide further details on our first quarter results and additional color on our outlook for the remainder of fiscal 2022.

Thank you, Barbara. As previously mentioned, Our comparable store sales were down 7% for the quarter as average basket growth was more than offset by the decline in transactions versus the prior year. First quarter operating margin of 10.8% was down from 14.2% in 2021, mainly due to the deleveraging effect of the same store sales decline, along with ongoing cost pressures from higher freight and wages that began to escalate in the second half of 2021. As Barbara commented earlier, the quarter benefited from the favorable timing of expenses, most of which were in gross margin. Cost of goods sold in the first quarter increased by 295 basis points due to a combination of factors. Merchandise margin declined 170 basis points, primarily due to higher ocean freight costs. Domestic freight rose 80 basis points, while occupancy delevered 40 basis points on the same-store sales decline. Distribution costs increased 25 basis points, mainly due to wage actions taken last year. These unfavorable items were partially offset by buying expenses that improved by 20 basis points. SG&A for the period rose 50 basis points due to higher wages and the deleveraging effect of lower comparable sales. During the first quarter, we repurchased 2.5 million shares of common stock for an aggregate cost of $240 million. We remain on track to buy back a total of $950 million in stock for the year. Now let's discuss our outlook for the remainder of 2022. As Barbara noted in today's press release, given our first quarter results, In today's increasingly uncertain macroeconomic and geopolitical environment, we believe it is prudent to adopt a more conservative outlook for the balance of the year. We are now forecasting comparable sales for the 13 weeks ending July 30, 2022, to decrease 4 to 6% on top of a very strong 15% gain in the prior year period. Second quarter earnings per share are projected to be $0.99 to $1.07 versus $1.39 last year. Our guidance assumptions for the second quarter of 2022 include the following. Total sales are forecast to decline 1% to 4% versus the prior year. We plan to open 29 locations in the second quarter, including 21 Ross and 8 DeeDees discounts locations. Operating margin for the second quarter is planned to be in the 10.4% to 10.8% range down from 2021 due to deleverage on lower same-store sales and ongoing expense headwinds that are expected to continue through the first half of 2022. Net interest expense is expected to be approximately $15 million. The tax rate is projected to be about 25%. and diluted shares outstanding are expected to be approximately $348 million. For the full year, we are now planning comparable store sales to decline 2 to 4 percent in earnings per share in the range of $4.34 to $4.58. As Barbara mentioned, this reflects our continued expectation for sales and profitability to improve as we move through the balance of the year. Now I will turn the call back to Barbara Rentler for closing comments.