Ross Stores, Inc.

Good afternoon and welcome to the Ross Stores first quarter 2023 earnings release conference call. The call will begin with prepared comments by management, followed by a question and answer session. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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, and other matters that are based on the company's current forecast 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 and the company's fiscal 2022 Form 10-K and fiscal 2023 Form 8-Ks on the file with the SEC. And now I'd like to turn the call over to Barbara Rentler, Chief Executive Officer. Please go ahead.

Good afternoon. Joining me in our call today are Michael Horkstrom, Group President, Chief Operating Officer, Adam Orvos, 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 2023 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, Despite continued inflationary pressures impacting our low to moderate income customers, first quarter sales were relatively in line with our expectations. Total sales were $4.5 billion, up from $4.3 billion last year, while comparable store sales rose 1%. Earnings per share for the 13 weeks ended April 29, 2023, for $1.09, a net income of $371 million. These results compare to $0.97 per share on net earnings of $338 million for the 13-week ended April 30, 2022. Cosmetics and accessories were the strongest merchandise areas during the quarter, while the Midwest was the top-performing region. CDs discounts performance in the first quarter continued to trail Roth. reflecting the aforementioned inflationary pressures that continues to have a larger impact on our lower income households. At quarter end, total consolidated inventories were down 16% versus last year. Average store inventories were up 2% at the end of the quarter. Packaway merchandise represented 42% of total inventories versus 43% last year. Turning to store growth, We opened 11 new Ross and eight DDs discount locations in the first quarter. We continue to plan for approximately 100 new stores this year, comprised of about 75 Ross and 25 DDs. 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 2023.

Thank you, Barbara. As previously mentioned, our comparable store sales were up 1% for the quarter, driven by an increase in transactions. First quarter operating margin of 10.1% was down from 10.8% in 2022. As expected, this decline primarily reflects higher incentive compensation versus last year when we underperformed our expectations. Cost of goods sold improved by 50 basis points due to a combination of factors. Merchandise margin was up 120 basis points, primarily due to lower ocean freight costs, while domestic freight costs declined by 60 basis points. Partially offsetting these two favorable items were higher distribution expenses of 65 basis points driven primarily by unfavorable timing of pack-away related costs and deleverage from the opening of our Houston distribution center. Buying increased by 60 basis points due to higher incentive compensation and occupancy deleveraged five basis points. SG&A for the period rose 115 basis points mainly due to higher incentive compensation and store wages versus last year. During the first quarter, we repurchased 2.2 million shares of common stock for an aggregate cost of $234 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 2023. For the 13 weeks ending July 29, 2023, comparable sales are forecast to be relatively flat. Second quarter 2023 earnings per share are projected to be $1.07 to $1.14 versus $1.11 for the 13 weeks ended July 30, 2022. Our guidance assumptions for the second quarter of 2023 include the following. Total sales are forecast to increase 1% to 4% versus the prior year. We plan to open 27 locations in the second quarter, including 18 Ross and nine DDs discounts locations. Operating margin for the second quarter is planned to be in the 9.8 to 10.1% range, down from 11.3% in 2022, as higher merchandise margin from lower ocean freight costs is forecast to be offset by an increase in expenses, primarily related to incentive compensation and store wages. We expect net interest income to be approximately $31 million. The tax rate is projected to be about 25%. And diluted shares outstanding are expected to be approximately $339 million. Now turning to the full year. Based on our first quarter results and guidance for the second quarter, comparable store sales for the 52 weeks ending January 27, 2024 are still planned to be relatively flat. We now project earnings per share for the 53 weeks ending February 3rd, 2024 to be $4.77 to $4.99 compared to $4.38 for the 52 weeks ended January 28th, 2023. This guidance includes an estimated benefit to full year 2023 earnings per share of approximately 15 cents from the 53rd week. Now I'll turn the call back to Barbara Rettler for closing comments.