Ross Stores, Inc.

Good afternoon, and welcome to the Raw Stores first quarter 2024 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 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, 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 risks and uncertainties that could cause actual results that differ materially from historical performance or current expectations. Risk factors are included in today's press release and the company's Fiscal 2023 Form 10-K and Fiscal 2024 Form 8-Ks on file with the SEC. And now I'd like to turn the call over to Barbara Rentler, Chief Executive Officer.

Good afternoon. Joining me in our call today are Michael Hartron, Group President, Chief Operating Officer, Adam Orvos, Executive Vice President and Chief Financial Officer, and Connie Kao, Group Vice President, Investor Relations. We'll begin our call today with a review of our first quarter 2024 results, 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, though we had hoped to do better, first quarter sales were still in line with our guidance, despite macroeconomic headwinds that continued to pressure our customers' discretionary spending. Earnings results for the period were better than expected, primarily due to lower expenses relative to our plan. Total sales grew 8% to $4.9 billion up from 4.5 billion last year, while comparable store sales rose 3%. Earnings per share for $1.46 on net earnings of $488 million for the 13 weeks ended May 4th, 2024. These results compared to earnings per share of $1.09 on net income of $371 million for the 13 weeks ended April 29th, 2023. Accessories and children's were the strongest merchandise areas during the quarter, while California and the Pac Northwest were the top-performing regions. CDs discount sales trends in the first quarter were ahead of Ross as shoppers responded favorably to its improved value offerings. In the newer markets, we are in the process of updating the assortments to better address the different tastes and preferences of this diverse customer base. We will continue to make ongoing adjustments over time to better position DDs for the future. At quarter end, total consolidated inventories were up 10% versus last year, while average store inventories were up 4% at the end of the quarter due to the 53rd week calendar shift. Hackaway merchandise represented 41% of total inventories versus 42% last year. Turning to store growth, we opened 11 new Ross and seven DDs discount locations in the first quarter. We continue to plan for approximately 90 new stores this year, comprised of about 75 Ross and 15 DDs. As usual, these numbers do not reflect our plans to close or relocate about 10 to 15 older stores. Now Adam will provide further details on our first quarter results and additional color on our outlook for the remainder of fiscal 2024.

Thank you, Barbara. As previously mentioned, our comparable store sales were up 3% for the quarter, primarily driven by an increase in traffic. First quarter operating margin of 12.2% was up 205 basis points from 10.1% in 2023. This improvement was due to lower distribution, incentive, and freight costs that were partially offset by the planned merchandise margin decline. Cost of goods sold during the period improved by 140 basis points. Distribution costs levered by 75 basis points while buying improved by 50 basis points. Domestic freight improved by 30 basis points and merchandise margin declined by 15 basis points as pressure from offering more sharply priced brands was partially offset by lower ocean freight costs. SG&A for the period levered by 65 basis points, mainly due to higher sales. In addition, SG&A benefited from lower incentives versus last year when we significantly outperformed our plans. During the first quarter, we repurchased 1.9 million shares of common stock for an aggregate cost of $262 million under the new two-year $2.1 billion authorization approved by our Board of Directors in March of this year. We remain on track to buy back a total of $1.05 billion in stock during 2024. Now let's discuss our outlook for the remainder of 2024. Ongoing uncertainty in today's macroeconomic and geopolitical environments, including prolonged inflation, continue to squeeze our low to moderate income customers' purchasing power. As a result, we will remain especially focused on delivering a wide assortment of branded values throughout our stores. For the 13 weeks ending August 3, 2024, comparable sales are forecast to be up 2% to 3%. Second quarter 2024 earnings per share are projected to be $1.43 to $1.49 versus $1.32 for the 13 weeks ended July 23, 2023. Our guidance assumptions for the second quarter of 2024 include the following. Total sales are forecast to increase 5% to 7% versus the prior year. We expect to open 24 locations in the second quarter, including 21 Ross and three DeeDees locations. If same-store sales perform in line with our forecast, Operating margin for the second quarter is projected to be in the 11.5 to 11.8% range compared to 11.3% in 2023. Higher sales and lower incentive and distribution costs are expected to be partially offset by a decline in merchandise margin as we build on our efforts to offer more sharply priced brands. We expect net interest income to be approximately $37 million The tax rate is projected to be about 25%, and diluted shares outstanding are expected to be approximately $332 million. Now turning to the full year. Based on our first quarter results and forward guidance, comparable store sales for the 52 weeks ending February 1, 2025 remain unchanged at up 2% to 3%. We now project earnings per share for the 52 weeks ending February 1, 2025 to be in the range of $5.79 to $5.98, compared to $5.56 for the 53 weeks ended February 3, 2024. This guidance range includes an approximate two cent per share favorable impact from the timing of expenses that benefited the first quarter. As a reminder, fiscal 2023 earnings per share included a benefit of approximately 20 cents from the 53rd week. Now I will turn the call back to Barbara Rentler for closing comments.