Ross Stores, Inc.

Good afternoon, and welcome to the Ross Stores second 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 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 of 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 in the company's fiscal 2023 Form 10-K and fiscal 2024 Form 10-Q and 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 second quarter 2024 results, followed by our outlook for the second half and full fiscal year. Afterwards, we'll be happy to respond to any questions you may have. As noted in today's press release, Second quarter sales and earnings were above our expectations as our stronger value offerings resonated with our customers. Operating margin improved versus last year, increasing 115 basis points to 12.5%. Total sales for the period grew 7% to $5.3 billion, up from $4.9 billion last year, with comparable store sales up 4%. Earnings per share for the 13 weeks ended August 3, 2024, for $1.59 on net income of $527 million. These results are up from $1.32 per share on net earnings of $446 million in last year's second quarter. For the first six months, earnings per share were $3.05 on net income of $1 billion. These results compared to earnings per share of $2.41 on net earnings of $818 million for the first half of 2023. Sales for the 2024 year-to-date period grew to $10.1 billion, up from $9.4 billion in the prior year. Comparable sales for the first half of 2024 were up 3%. Cosmetics and children's were the strongest merchandise areas during the quarter, while geographic performance was broad-based. Like Ross, DD's discount performance also improved, as shoppers responded favorably to the stronger values and fashions offered in stores. In addition, DD's faced easier compares versus last year, benefiting their recent performance. While we are encouraged by the improved trends, we continue to adjust assortments in the newer markets to address this more diverse customer base. At quarter end, total consolidated inventories were up 8% versus last year, while average store inventories were up 3% due to the 53rd week calendar shift. Packaway merchandise were 39% of total inventories at quarter end, up slightly from 38% last year. Turning to store growth, We opened 21 new Ross and three DDs discount locations in the second quarter. We remain on track to open a total of approximately 90 new locations 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 second quarter results and additional color on our updated outlook for the remainder of fiscal 2024.

Thank you, Barbara. As previously mentioned, our comparable store sales were up 4% for the quarter, driven by a combination of higher traffic and basket size. Second quarter operating margin of 12.5% was up 115 basis points over 11.3% last year. Our improved profitability benefited from higher sales and lower distribution and incentive costs that were partially offset as planned by lower merchandise margins. Cost of goods sold during the period improved by 60 basis points. Distribution and buying costs levered by 70 and 55 basis points, respectively, while domestic freight costs declined by 15 basis points. As expected, merchandise margin decreased by 80 basis points. SG&A for the period improved by 55 basis points, mainly due to higher sales and lower incentive costs. During the second quarter, we repurchased 1.8 million shares of common stock for an aggregate cost of $262 million. As a result, we remain on track to buy back a total of $1.05 billion in stock for the year. Now let's discuss our outlook for the remainder of 2024. As Barbara noted in today's press release, our low to moderate income customers continue to face high costs for necessities, pressuring their discretionary spending. Looking ahead, our prior year sales comparisons also become more challenging during the second half of the year amidst an external environment that is highly uncertain. As a result, we continue to maintain a cautious approach in forecasting our sales. For both the third and fourth quarters, we are planning comparable sales growth of 2% to 3% on top of 5% and 7% gains respectively in 2023. If sales perform in line with this guidance, third quarter earnings per share are expected to be in the range of $1.35 to $1.41 versus $1.33 last year, and $1.60 to $1.67 for the fourth quarter, compared to $1.82 in 2023. This updated earnings guidance now reflects additional efficiencies we expect to achieve in the second half of 2024. If the second half performs in line with these projections, earnings per share for the full year are now forecast to be in the range of $6 to $6.13, up from $5.56 in fiscal 2023. As a reminder, both the 2023 fourth quarter and full year results included an approximate 20 cent per share benefit from the 53rd week. Now let's turn to our guidance assumptions for the third quarter of 2024. Total sales are forecast to increase 3% to 5% versus the prior year. We expect to open 47 stores during the quarter, including 43 Ross and 4 DDs locations. Operating margin for the 2024 third quarter is planned to be in the 10.9% to 11.2% range, compared to 11.2% in 2023. This outlook reflects lower incentive, freight, and distribution costs that are offset by lower merchandise margins as we build on our efforts to offer more sharply priced branded bargains. Net interest income is estimated to be approximately $39 million. The tax rate is projected to be 24% to 25%. and diluted shares outstanding are expected to be approximately $331 million. Now I will turn the call over to Barbara for closing comments.