Ross Stores, Inc.

Good afternoon, and welcome to the Ross Stores third 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 the company's fiscal 2023 Form 10-K and fiscal 2024 Form 10-Qs 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. Before we get started, on behalf of our board and the entire company, we are excited to welcome Jim Conroy to Ross Storrs as CEO-elect next month. Following a two-month transition, Jim will assume the CEO role on February 2nd, 2025. Jim is a talented and proven retail executive with a demonstrated track record of developing and leading successful management teams and creating tremendous value for shareholders. As I previously announced, I will move into an advisory role at the beginning of fiscal 2025 and will support Jim and our other senior executives on merchandising-related strategies through March of 2027. Now let's turn to our earnings results. As noted in today's press release, we are disappointed with our third quarter sales results as business slowed from the solid gains we reported in the first half of 2024. Although our low-to-moderate income customers continue to face persistently high costs, on necessities, pressuring the discretionary spending, we believe we should have better executed some of our merchandising initiatives. In addition, we estimate a combination of severe weather during the quarter from Hurricane Helene and Milton, along with unseasonably warm temperatures, also negatively impacted comps by about 1%. Despite the below planned sales results, earnings were ahead of our expectations. Operating margin for the quarter was up 75 basis points to 11.9% versus 11.2% last year, as lower incentives, freight, and distribution costs more than offset the planned decline in merchandise margins. Total sales for the period grew to $5.1 billion, up from $4.9 billion in the prior year, with comparable store sales up 1%. Earnings per share for the 13 weeks ended November 2nd, 2024 for $1.48 compared to earnings per share of $1.33 last year. Net income for the period rose to $489 million versus $447 million in the prior year period. For the first nine months, earnings per share were $4.53 on net earnings of $1.5 billion compared to $3.74 per share on net income of $1.3 billion for the same period last year. Sales for the year-to-date period grew to $15.2 billion, with comparable store sales up 3% over last year. For the third quarter at Ross, cosmetics, accessories, and children were the strongest merchandise areas, while California and Texas were the best-performing ingredients. Similar to the second quarter, DD's discount's strong value of fashion offering continues to resonate with its shoppers, with comp gains exceeding Ross's results. At quarter end, total consolidated inventories were up 9% versus last year, while average store inventories were up 1%. Packaway merchandise represented 38% of total inventories compared to 39% last year. During the third quarter, we also completed our expansion program for 2024 with the addition of 43 new Roths and four DDs discount stores. For the year, we added a total of 89 locations comprised of 75 Roths and 14 DDs. We plan to close and or relocate seven locations in the fourth quarter and expect to end the year with 1,831 Roth stores and 354 DDs discount locations. Now Adam will provide further details on our third quarter results and fourth quarter guidance.

Thank you, Barbara. As previously stated, comparable store sales rose 1% in the quarter. Operating margin increased 75 basis points to 11.9%. Cost of goods sold improved by 70 basis points in the quarter. Buying levered by 65 basis points, mainly due to lower incentives while distribution and domestic freight costs declined by 50 and 40 basis points, respectively. Occupancy rose by 25 basis points, while merchandise margin decreased by 60 basis points. SG&A costs for the period improved by five basis points, primarily due to lower incentive costs. During the third quarter, we repurchased 1.8 million shares of common stock for an aggregate cost of $262 million. We remain on track to buy back a total of $1.05 billion in stock for the year. Now let's discuss our fourth quarter guidance. For the 13 weeks ending February 1, 2025, we continue to project comparable store sales to increase 2% to 3%. Earnings per share for the fourth quarter are planned to be in the range of $1.57 to $1.64, compared to $1.82 in the fourth quarter of 2023. This guidance range includes an unfavorable impact of approximately three cents per share, primarily from the timing of pack-away related expenses that benefited the third quarter. Based on our year-to-date results and our fourth quarter forecast, Earnings per share for the 52 weeks ending February 1st, 2025 are now expected to be in the range of $6.10 to $6.17 versus $5.56 last year. As a reminder, last year's fourth quarter and full year results included an extra week that benefited earnings by approximately 20 cents. The operating statement assumptions that support our fourth quarter guidance include the following. Total sales are projected to decline 1 to 3%. As a reminder, last year's extra week contributed $308 million to sales. We expect operating margin to be in the range of 11.2 to 11.5% versus 12.4% last year. Last year's fourth quarter included an 80 basis point benefit from the extra week. This outlook reflects lower merchandise margin as we continue to increase the penetration of quality branded merchandise, partially offset by lower incentive and freight expenses. Net interest income is estimated to be about $35 million. Our tax rate is expected to be approximately 24%. and weighted average diluted shares outstanding are projected to be about 329 million. Now I'll turn the call back to Barbara for closing comments.