Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Statements of Earnings

		Year Ended				Year Ended				Year Ended
($000, except per share data)		February 3, 2018				January 28, 2017				January 30, 2016
Sales		$	14,134,732			$	12,866,757			$	11,939,999
Costs and Expenses
Cost of goods sold		10,042,638				9,173,705				8,576,873
Selling, general and administrative		2,043,698				1,890,408				1,738,755
Interest expense, net		7,676				16,488				12,612
Total costs and expenses		12,094,012				11,080,601				10,328,240
Earnings before taxes		2,040,720				1,786,156				1,611,759
Provision for taxes on earnings		677,967				668,502				591,098
Net earnings		$	1,362,753			$	1,117,654			$	1,020,661
Earnings per share
Basic		$	3.58			$	2.85			$	2.53
Diluted		$	3.55			$	2.83			$	2.51
Weighted average shares outstanding (000)
Basic		381,174				392,124				403,034
Diluted		384,329				394,958				406,405
The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Comprehensive Income

		Year Ended				Year Ended				Year Ended
($000)		February 3, 2018				January 28, 2017				January 30, 2016
Net earnings		$	1,362,753			$	1,117,654			$	1,020,661
Other comprehensive income (loss):
Change in unrealized loss on investments, net of tax		(64		)		(91		)		(148		)
Comprehensive income		$	1,362,689			$	1,117,563			$	1,020,513
The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Balance Sheets

($000, except share data)	February 3, 2018				January 28, 2017
Assets
Current Assets
Cash and cash equivalents	$	1,290,294			$	1,111,599
Short-term investments	512				—
Accounts receivable	87,868				75,154
Merchandise inventory	1,641,735				1,512,886
Prepaid expenses and other	130,748				113,410
Total current assets	3,151,157				2,813,049
Property and Equipment
Land and buildings	1,109,173				1,101,334
Fixtures and equipment	2,603,318				2,421,645
Leasehold improvements	1,093,634				998,508
Construction-in-progress	102,054				69,767
	4,908,179				4,591,254
Less accumulated depreciation and amortization	2,525,715				2,263,206
Property and equipment, net	2,382,464				2,328,048
Long-term investments	712				1,288
Other long-term assets	187,718				166,966
Total assets	$	5,722,051			$	5,309,351
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	1,059,844			$	1,021,735
Accrued expenses and other	431,706				398,126
Accrued payroll and benefits	349,879				316,492
Income taxes payable	—				16,153
Current portion of long-term debt	84,973				—
Total current liabilities	1,926,402				1,752,506
Long-term debt	311,994				396,493
Other long-term liabilities	348,541				290,950
Deferred income taxes	85,806				121,385
Commitments and contingencies
Stockholders’ Equity
Common stock, par value $.01 per share	3,796				3,919
Authorized 1,000,000,000 shares
Issued and outstanding 379,618,000 and
391,893,000 shares, respectively
Additional paid-in capital	1,292,364				1,215,715
Treasury stock	(318,279		)		(272,846		)
Accumulated other comprehensive income	27				91
Retained earnings	2,071,400				1,801,138
Total stockholders’ equity	3,049,308				2,748,017
Total liabilities and stockholders’ equity	$	5,722,051			$	5,309,351
The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Stockholders’ Equity

									Additional paid-in capital								Accumulated other comprehensive income (loss)
		Common stock								Treasury stock					Retained earnings
(000)		Shares			Amount								Total
Balance at January 31, 2015		414,939			$	4,149			$	1,013,607			$	(160,600	)		$330			$	1,421,724			$	2,279,210
Net earnings		—			—				—				—				—			1,020,661				1,020,661
Unrealized investment loss, net		—			—				—				—				(148	)		—				(148		)
Common stock issued under stock
plans, net of shares
used for tax withholding		1,053			11				20,175				(68,925		)		—			—				(48,739		)
Tax benefit from equity issuance		—			—				42,382				—				—			—				42,382
Stock-based compensation		—			—				70,937				—				—			—				70,937
Common stock repurchased		(13,653	)		(137		)		(24,772		)		—				—			(675,091		)		(700,000		)
Dividends declared ($0.470 per share)		—			—				—				—				—			(192,312		)		(192,312		)
Balance at January 30, 2016		402,339			$	4,023			$	1,122,329			$	(229,525	)		$182			$	1,574,982			$	2,471,991
Net earnings		—			—				—				—				—			1,117,654				1,117,654
Unrealized investment loss, net		—			—				—				—				(91	)		—				(91		)
Common stock issued under stock
plans, net of shares
used for tax withholding		1,192			12				18,527				(43,321		)		—			—				(24,782		)
Tax benefit from equity issuance		—			—				23,331				—				—			—				23,331
Stock-based compensation		—			—				74,554				—				—			—				74,554
Common stock repurchased		(11,638	)		(116		)		(23,026		)		—				—			(676,858		)		(700,000		)
Dividends declared ($0.540 per share)		—			—				—				—				—			(214,640		)		(214,640		)
Balance at January 28, 2017		391,893			$	3,919			$	1,215,715			$	(272,846	)		$91			$	1,801,138			$	2,748,017
Net earnings		—			—				—				—				—			1,362,753				1,362,753
Cumulative effect of adoption of
accounting standard		—			—				1,789				—				—			(1,113		)		676
Unrealized investment loss, net		—			—				—				—				(64	)		—				(64		)
Common stock issued under stock
plans, net of shares
used for tax withholding		1,214			12				18,456				(45,433		)		—			—				(26,965		)
Stock-based compensation		—			—				87,417				—				—			—				87,417
Common stock repurchased		(13,489	)		(135		)		(31,013		)		—				—			(843,852		)		(875,000		)
Dividends declared ($0.640 per share)		—			—				—				—				—			(247,526		)		(247,526		)
Balance at February 3, 2018		379,618			$	3,796			$	1,292,364			$	(318,279	)		$27			$	2,071,400			$	3,049,308
The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Cash Flows

		Year Ended				Year Ended				Year Ended
($000)		February 3, 2018				January 28, 2017				January 30, 2016
Cash Flows From Operating Activities
Net earnings		$	1,362,753			$	1,117,654			$	1,020,661
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		313,163				302,515				274,828
Stock-based compensation		87,417				74,554				70,937
Gain on sale of assets		(6,328		)		—				—
Deferred income taxes		(34,903		)		(8,703		)		56,358
Change in assets and liabilities:
Merchandise inventory		(128,849		)		(93,782		)		(46,429		)
Other current assets		(31,796		)		(928		)		(13,496		)
Accounts payable		41,322				83,085				(41,464		)
Other current liabilities		49,068				76,676				7,796
Other long-term, net		29,431				7,780				(2,939		)
Net cash provided by operating activities		1,681,278				1,558,851				1,326,252
Cash Flows From Investing Activities
Additions to property and equipment		(371,423		)		(297,880		)		(366,960		)
Proceeds from sale of property and equipment		15,981				—				—
Decrease in restricted cash and investments		2,310				3,388				4,065
Purchases of investments		—				—				(718		)
Proceeds from investments		40				1,729				1,104
Net cash used in investing activities		(353,092		)		(292,763		)		(362,509		)
Cash Flows From Financing Activities
Excess tax benefit from stock-based compensation		—				23,331				42,302
Issuance of common stock related to stock plans		18,468				18,539				20,186
Treasury stock purchased		(45,433		)		(43,321		)		(68,925		)
Repurchase of common stock		(875,000		)		(700,000		)		(700,000		)
Dividends paid		(247,526		)		(214,640		)		(192,312		)
Net cash used in financing activities		(1,149,491		)		(916,091		)		(898,749		)
Net increase in cash and cash equivalents		178,695				349,997				64,994
Cash and cash equivalents:
Beginning of year		1,111,599				761,602				696,608
End of year		$	1,290,294			$	1,111,599			$	761,602
Supplemental Cash Flow Disclosures
Interest paid		$	18,105			$	18,105			$	18,035
Income taxes paid		$	714,566			$	628,441			$	523,597
The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

Note A: Summary of Significant Accounting Policies

Business. Ross Stores, Inc. and its subsidiaries (the “Company”) is an off-price retailer of first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family. At the end of fiscal 2017, the Company operated 1,409 Ross Dress for Less® (“Ross”) locations in 37 states, the District of Columbia, and Guam, and 213 dd’s DISCOUNTS® stores in 16 states. The Ross and dd’s DISCOUNTS stores are supported by six distribution centers. The Company’s headquarters, one buying office, three operating distribution centers, two warehouses, and 23% of its stores are located in California.

Segment reporting. The Company has one reportable segment. The Company’s operations include only activities related to off-price retailing in stores throughout the United States.

Basis of presentation and fiscal year. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. Intercompany transactions and accounts have been eliminated. The Company follows the National Retail Federation fiscal calendar and utilizes a 52-53 week fiscal year whereby the fiscal year ends on the Saturday nearest to January 31. The fiscal years ended February 3, 2018, January 28, 2017 and January 30, 2016 are referred to as fiscal 2017, fiscal 2016, and fiscal 2015, respectively. Fiscal 2017 was a 53-week year. Fiscal 2016 and 2015 were each 52-week years.

Use of accounting estimates. The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles in the United States of America (“GAAP”) requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant accounting estimates include valuation reserves for inventory shortage, packaway inventory costs, useful lives of fixed assets, insurance reserves, and reserves for uncertain tax positions.

Purchase obligations. As of February 3, 2018, the Company had purchase obligations of approximately $2.7 billion. These purchase obligations primarily consist of merchandise inventory purchase orders, commitments related to construction projects, store fixtures and supplies, and information technology service, transportation, and maintenance contracts.

Cash and cash equivalents. Cash equivalents consist of highly liquid, fixed income instruments purchased with an original maturity of three months or less.

Restricted cash, cash equivalents, and investments. The Company has restricted cash, cash equivalents, and investments that serve as collateral for certain insurance obligations of the Company. These restricted funds are invested in bank deposits, money market mutual funds, U.S. Government and agency securities, and corporate securities and cannot be withdrawn from the Company’s account without the prior written consent of the secured parties. The following table summarizes total restricted cash, cash equivalents, and investments which were included in Prepaid expenses and other and Other long-term assets in the Consolidated Balance Sheets as of February 3, 2018 and January 28, 2017:

Restricted Assets ($000)		2017				2016
Prepaid expenses and other		$	11,847			$	13,642
Other long-term assets		53,969				54,567
Total		$	65,816			$	68,209

The classification between current and long-term is based on the timing of expected payments of the insurance obligations.

Estimated fair value of financial instruments. The carrying value of cash and cash equivalents, short- and long-term investments, restricted cash and cash equivalents, restricted investments, accounts receivable, other long-term assets, accounts payable, and other long-term liabilities approximates their estimated fair value. See Note B and Note D for additional fair value information.

Cash and cash equivalents were $1,290.3 million and $1,111.6 million, at February 3, 2018 and January 28, 2017, respectively, and include bank deposits and money market funds for which the fair value was determined using quoted prices for identical assets in active markets, which are considered to be Level 1 inputs under the fair value measurements and disclosures guidance.

Investments. The Company’s investments are comprised of various debt securities. At February 3, 2018 and January 28, 2017, these investments were classified as available-for-sale and are stated at fair value. Investments are classified as either short- or long-term based on their maturity dates and the Company’s intent. Investments with a maturity of less than one year are classified as short-term. See Note B for additional information.

Merchandise inventory. Merchandise inventory is stated at the lower of cost (determined using a weighted average basis) or net realizable value. The Company purchases inventory that can either be shipped to stores or processed as packaway merchandise with the intent that it will be warehoused and released to stores at a later date. The timing of the release of packaway inventory to the stores is principally driven by the product mix and seasonality of the merchandise, and its relation to the Company’s store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchase, but typically packaway remains in storage less than six months. Merchandise inventory includes acquisition, processing, and storage costs related to packaway inventory. The cost of the Company’s merchandise inventory is reduced by valuation reserves for shortage based on historical shortage experience from the Company’s physical merchandise inventory counts and cycle counts.

Cost of goods sold. In addition to product costs, the Company includes in cost of goods sold its buying, distribution, and freight expenses as well as occupancy costs, and depreciation and amortization related to the Company’s retail stores, buying, and distribution facilities. Buying expenses include costs to procure merchandise inventories. Distribution expenses include the cost of operating the Company’s distribution centers and warehouse facilities.

Property and equipment. Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful life of the asset, typically ranging from three to 12 years for equipment and information systems and 20 to 40 years for land improvements and buildings. Depreciation and amortization expense on property and equipment was $313.2 million, $302.5 million, and $274.8 million for fiscal 2017, 2016, and 2015, respectively. The cost of leasehold improvements is amortized over the useful life of the asset or the applicable lease term, whichever is less. The Company capitalizes interest during the construction period. Interest capitalized was $0.7 million, $0.0 million and $6.5 million in fiscal 2017, 2016, and 2015, respectively. As of February 3, 2018, January 28, 2017, and January 30, 2016 the Company had $24.3 million, $25.7 million, and $35.8 million, respectively, of property and equipment purchased but not yet paid. These purchases are included in Property and Equipment and in Accounts payable and Accrued expenses and other in the accompanying Consolidated Balance Sheets.

Other long-term assets. Other long-term assets as of February 3, 2018 and January 28, 2017 consisted of the following:

($000)		2017				2016
Deferred compensation (Note B)		$	120,613			$	100,423
Restricted cash and investments		53,969				54,567
Other		13,136				11,976
Total		$	187,718			$	166,966

Property and other long-term assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Intangible assets that are not subject to amortization, including goodwill, are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. Based on the Company’s evaluation during fiscal 2017, 2016, and 2015, no impairment charges were recorded.

Store closures. The Company continually reviews the operating performance of individual stores. For stores that are closed, the Company records a liability for future minimum lease payments net of estimated sublease recoveries and related ancillary costs at the time the liability is incurred. The lease loss liability was $0.6 million and $1.2 million, as of February 3, 2018 and January 28, 2017, respectively. Operating costs, including depreciation, of stores to be closed are expensed during the period they remain in use. In fiscal 2017, the Company closed seven stores. In fiscal 2016, the Company closed six stores.

Accounts payable. Accounts payable represents amounts owed to third parties at the end of the period. Accounts payable includes book cash overdrafts (checks issued under zero balance accounts not yet presented for payment) in excess of cash balances in such accounts of approximately $74.5 million and $96.3 million at February 3, 2018 and January 28, 2017, respectively. The Company includes the change in book cash overdrafts in operating cash flows.

Insurance obligations. The Company uses a combination of insurance and self-insurance for a number of risk management activities, including workers’ compensation, general liability, and employee-related health care benefits. The self-insurance and deductible liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. Self-insurance and deductible reserves as of February 3, 2018 and January 28, 2017 consisted of the following:

($000)		2017				2016
Workers’ compensation		$	94,430			$	94,920
General liability		40,763				39,679
Medical plans		6,725				4,899
Total		$	141,918			$	139,498

Workers’ compensation and self-insured medical plan liabilities are included in Accrued payroll and benefits and accruals for general liability are included in Accrued expenses and other in the accompanying Consolidated Balance Sheets.

Other long-term liabilities. Other long-term liabilities as of February 3, 2018 and January 28, 2017 consisted of the following:

($000)		2017				2016
Income taxes		$	120,660			$	97,502
Deferred compensation (Note G)		120,613				100,423
Deferred rent		73,059				67,941
Tenant improvement allowances		21,668				20,554
Other		12,541				4,530
Total		$	348,541			$	290,950

Lease accounting. When a lease contains “rent holidays” or requires fixed escalations of the minimum lease payments, the Company records rental expense on a straight-line basis over the term of the lease and the difference between the average rental amount charged to expense and the amount payable under the lease is recorded as deferred rent. The Company begins recording rent expense on the lease possession date. Tenant improvement allowances are included in Other long-term liabilities and are amortized over the lease term. Changes in tenant improvement allowances are included as a component of operating activities in the Consolidated Statements of Cash Flows.

Revenue recognition. The Company recognizes revenue at the point of sale and maintains an allowance for estimated future returns. Sales of stored value cards are deferred until they are redeemed for the purchase of Company merchandise. The Company’s stored value cards do not have expiration dates. Based upon historical redemption rates, a small percentage of stored value cards will never be redeemed, which represents breakage. The Company recognizes income from stored value card breakage as a reduction of operating expenses when redemption by a customer is considered to be remote. Income recognized from breakage was not significant in fiscal 2017, 2016, and 2015.

Sales tax collected is not recognized as revenue and amounts outstanding are included in Accrued expenses and other in the Consolidated Balance Sheets.

Allowance for sales returns. An allowance for the gross margin loss on estimated sales returns is included in Accrued expenses and other in the Consolidated Balance Sheets. The allowance for sales returns consists of the following:

($000)		Beginning Balance				Additions				Returns				Ending Balance
Year ended:
February 3, 2018		$	8,406			$	784,076			$	(782,580	)		$	9,902
January 28, 2017		$	7,955			$	761,350			$	(760,899	)		$	8,406
January 30, 2016		$	8,594			$	737,727			$	(738,366	)		$	7,955

Store pre-opening. Store pre-opening costs are expensed in the period incurred.

Advertising. Advertising costs are expensed in the period incurred and are included in Selling, general and administrative expenses. Advertising costs for fiscal 2017, 2016, and 2015 were $76.4 million, $73.0 million, and $77.1 million, respectively.

Stock-based compensation. The Company recognizes compensation expense based upon the grant date fair value of all stock-based awards, typically over the vesting period. See Note C for more information on the Company’s stock-based compensation plans.

Taxes on earnings. The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than changes in the tax law or tax rates. ASC 740 clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s consolidated financial statements. ASC 740 prescribes a recognition threshold of more-likely-than-not, and a measurement standard for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the consolidated financial statements. See Note F.

Treasury stock. The Company records treasury stock at cost. Treasury stock includes shares purchased from employees for tax withholding purposes related to vesting of restricted stock grants.

Earnings per share (“EPS”). The Company computes and reports both basic EPS and diluted EPS. Basic EPS is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the total potential dilution that could occur from outstanding equity plan awards, including unexercised stock options and unvested shares of both performance and non-performance based awards of restricted stock.

In fiscal 2017, 2016, and 2015 there were 2,800, 2,500, and 25,000 weighted average shares, respectively, that were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive for those years.

The following is a reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations:

Shares in (000s)		Basic EPS				Effect of dilutive common stock equivalents				Diluted EPS
2017
Shares		381,174				3,155				384,329
Amount		$	3.58			$	(0.03	)		$	3.55
2016
Shares		392,124				2,834				394,958
Amount		$	2.85			$	(0.02	)		$	2.83
2015
Shares		403,034				3,371				406,405
Amount		$	2.53			$	(0.02	)		$	2.51

Comprehensive income. Comprehensive income includes net earnings and components of other comprehensive income (loss), net of tax, consisting of unrealized investment gains or losses.

Recently issued accounting standards. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606). The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue when the customer obtains control of promised goods or services in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. ASC 606 is effective for the Company’s annual and interim reporting periods beginning in fiscal 2018. Adoption will result in a change in the timing of recognizing revenue from breakage for stored value cards. Breakage will be estimated and recognized based upon the historical pattern of redemption, rather than when redemption is considered remote. Additionally, the Company will recognize allowances for estimated sales returns on a gross rather than net basis in its Consolidated Financial Statements. The impact of estimating sales returns on a gross basis is not expected to be material. The Company plans to adopt ASC 606 under the modified retrospective method and will recognize a cumulative-effect adjustment to increase retained earnings by approximately $20 million, net of income taxes as of February 4, 2018.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU requires balance sheet recognition for all leases with lease terms greater than one year including a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for the Company’s annual and interim reporting periods beginning in fiscal 2019. The Company is currently working on its adoption plan and evaluating the effect adoption of this new guidance will have on its consolidated financial statements. Due to the substantial number of leases that it has, the Company believes this ASU will increase assets and liabilities by the same material amount on its consolidated balance sheet. The Company’s current undiscounted minimum commitments under noncancelable operating leases is approximately $3.7 billion. The Company does not believe adoption of this ASU will have a significant impact to its consolidated statements of earnings, stockholders’ equity, and cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 requires restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts on the statement of cash flows. The standard also requires companies who report cash and restricted cash separately on the balance sheet to reconcile those amounts to the statement of cash flows. ASU 2016-18 is effective for the Company’s annual and interim reporting periods beginning in fiscal 2018. The Company does not believe adoption of this ASU will have a significant impact to its consolidated financial statements.

Recently adopted accounting standards. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 provides for changes to accounting for stock compensation including 1) excess tax benefits and tax deficiencies related to share based payment awards will be recognized as income tax benefit or expense in the reporting period in which they occur (previously such amounts were recognized in additional paid-in capital); 2) excess tax benefits will be classified as an operating activity in the statement of cash flows; and 3) the option to elect to estimate forfeitures or account for them when they occur. The impact of recording excess tax benefits in income taxes in our consolidated statement of earnings may be material, depending upon our future stock price on vest date in relation to the fair value of awards on grant date and our future grants of stock-based compensation.

The Company adopted ASU 2016-09 in the first quarter of fiscal 2017, and elected to apply this adoption prospectively, except for forfeitures which it adopted on a modified retrospective basis. Accordingly, prior periods have not been adjusted. As a result of adoption, for the fiscal year ended February 3, 2018, the Company recognized $16.3 million of excess tax benefits related to stock-based payments as a reduction to its provision for income taxes. These items were historically recorded in additional paid-in capital. The Company also presented cash flows related to excess tax benefits as an operating activity in the Consolidated Statement of Cash Flows and elected to account for forfeitures as incurred beginning on January 29, 2017. The impact of this accounting policy election for forfeitures was a cumulative-effect adjustment to decrease retained earnings by $1.1 million, net of tax, as of January 29, 2017.

Note B: Investments and Restricted Investments

Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The inputs used to measure fair value include: Level 1, observable inputs such as quoted prices in active markets; Level 2, inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, unobservable inputs in which little or no market data exists. This fair value hierarchy requires the Company to develop its own assumptions and maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Corporate, U.S. government and agency, and mortgage-backed securities are classified within Level 1 or Level 2 because these securities are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

There were no transfers between Level 1 and Level 2 categories during the fiscal year ended February 3, 2018. The fair value of the Company’s financial instruments as of February 3, 2018 and January 28, 2017 are as follows:

($000)		2017				2016
Cash and cash equivalents (Level 1)		$	1,290,294			$	1,111,599
Investments (Level 2)		$	1,224			$	1,288
Restricted cash and cash equivalents (Level 1)		$	62,978			$	64,581
Restricted investments (Level 2)		$	2,838			$	3,628

The underlying assets in the Company’s non-qualified deferred compensation program as of February 3, 2018 and January 28, 2017 (included in Other long-term assets and in Other long-term liabilities) primarily consist of participant-directed money market, stable value, stock, and bond funds. The fair value measurement for funds with quoted market prices in active markets (Level 1) and for funds without quoted market prices in active markets (Level 2) are as follows:

($000)	2017				2016
Level 1	$	104,590			$	84,933
Level 2	16,023				15,490
Total	$	120,613			$	100,423

Note C: Stock-Based Compensation

For fiscal 2017, 2016, and 2015, the Company recognized stock-based compensation expense as follows:

($000)	2017				2016				2015
Restricted stock	$	44,356			$	38,234			$	37,204
Performance awards	39,871				33,379				31,056
ESPP	3,190				2,941				2,677
Total	$	87,417			$	74,554			$	70,937

Capitalized stock-based compensation cost was not significant in any year.

At February 3, 2018, the Company had one active stock-based compensation plan, which is further described in Note H. The Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date.

Total stock-based compensation recognized in the Company’s Consolidated Statements of Earnings for fiscal 2017, 2016, and 2015 is as follows:

Statements of Earnings Classification ($000)	2017				2016				2015
Cost of goods sold	$	41,067			$	34,077			$	32,922
Selling, general and administrative	46,350				40,477				38,015
Total	$	87,417			$	74,554			$	70,937

The tax benefits related to stock-based compensation expense for fiscal 2017, 2016, and 2015 were $29.5 million, $25.9 million, and $24.7 million, respectively.

Note D: Debt

Senior notes. Unsecured senior debt, net of unamortized discounts and debt issuance costs, as of February 3, 2018 and January 28, 2017 consisted of the following:

($000)		2017				2016
6.38% Series A Senior Notes due 2018		$	84,973			$	84,939
6.53% Series B Senior Notes due 2021		64,922				64,902
3.375% Senior Notes due 2024		247,072				246,652
Total long-term debt		$	396,967			$	396,493
Less: current portion		84,973				—
Total due beyond one year		$	311,994			$	396,493

As of February 3, 2018, the Company had outstanding unsecured 3.375% Senior Notes due September 2024 (the “2024 Notes”) with an aggregate principal amount of $250 million. Interest on the 2024 Notes is payable semi-annually.

As of February 3, 2018, the Company also had outstanding two other series of unsecured senior notes in the aggregate principal amount of $150 million, held by various institutional investors. The Series A notes totaling $85 million are due in December 2018 and bear interest at a rate of 6.38%. The Series B notes totaling $65 million are due in December 2021 and bear interest at a rate of 6.53%. Borrowings under these senior notes are subject to certain financial covenants, including interest coverage and other financial ratios. As of February 3, 2018, the Company was in compliance with these covenants.

As of February 3, 2018 and January 28, 2017, total unamortized discount and debt issuance costs were $3.0 million and $3.5 million, respectively, and were classified as a reduction of long-term debt.

The 2024 Notes, Series A, and Series B senior notes are all subject to prepayment penalties for early payment of principal.

The aggregate fair value of the three outstanding senior note issuances was approximately $411 million and $419 million as of February 3, 2018 and January 28, 2017, respectively. The fair value is estimated by obtaining comparable market quotes which are considered to be Level 1 inputs under the fair value measurements and disclosures guidance.

The following table shows scheduled annual principal payments on Long-term debt:

($000)
2018			$	85,000
2019			$	—
2020			$	—
2021			$	65,000
2022			$	—
Thereafter			$	250,000

The table below shows the components of interest expense and income for fiscal 2017, 2016, and 2015:

($000)		2017				2016				2015
Interest expense on long-term debt		$	18,578			$	18,573			$	18,568
Other interest expense		979				1,022				1,252
Capitalized interest		(710		)		(26		)		(6,530		)
Interest income		(11,171		)		(3,081		)		(678		)
Interest expense, net		$	7,676			$	16,488			$	12,612

Revolving credit facility. The Company’s existing $600 million unsecured revolving credit facility expires in April 2021, and contains a $300 million sublimit for issuance of standby letters of credit (subject to increase in proportion to any increase in the size of the credit facility). The facility also contains an option allowing the Company to increase the size of its credit facility by up to an additional $200 million, with the agreement of the lenders. Interest on any borrowings under this facility is based on LIBOR plus an applicable margin (currently 100 basis points) and is payable quarterly and upon maturity. As of February 3, 2018, the Company had no borrowings or standby letters of credit outstanding under this facility and the $600 million credit facility remains in place and available.

The revolving credit facility is subject to a financial leverage ratio covenant. As of February 3, 2018, the Company was in compliance with this covenant.

Standby letters of credit and collateral trust. The Company uses standby letters of credit outside of its revolving credit facility in addition to a funded trust to collateralize its insurance obligations. As of February 3, 2018 and January 28, 2017, the Company had $8.7 million and $11.6 million, respectively, in standby letters of credit and $57.1 million and $56.6 million, respectively, in a collateral trust. The standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash, cash equivalents, and investments.

Trade letters of credit. The Company had $20.7 million and $26.5 million in trade letters of credit outstanding at February 3, 2018 and January 28, 2017, respectively.

Note E: Leases

The Company currently leases all but two of its store locations with original, non-cancelable terms that in general range from three to ten years. In November 2017, the Company entered into a sale-leaseback transaction on one of its previously owned stores. The Company received net cash proceeds of $16.0 million, recognized a gain on sale of $6.3 million, and deferred the residual $7.5 million gain over the remaining ten-year lease term. Store leases typically contain provisions for three to four renewal options of five years each. Most store leases also provide for minimum annual rentals and for payment of certain expenses. In addition, some store leases also have provisions for additional rent based on a percentage of sales.

The Company leases three warehouses. Two of the warehouses are in Carlisle, Pennsylvania with leases expiring in 2018 and 2019. The third warehouse is in Fort Mill, South Carolina, with a lease expiring in 2024. All of the warehouse leases contain renewal provisions.

The Company leases approximately 87,000 and 5,000 square feet of office space for its Los Angeles and Boston buying offices, respectively. The lease term for these facilities expire in 2022 and 2020, respectively, and contain renewal provisions. In addition, the Company has a ground lease related to its New York buying office.

The aggregate future minimum annual lease payments under leases, including the ground lease related to the New York buying office, in effect at February 3, 2018 are as follows:

($000)		Total operating leases
2018		$	516,372
2019		531,311
2020		452,145
2021		372,038
2022		290,944
Thereafter		1,494,142
Total minimum lease payments		$	3,656,952

Rent expense, including contingent rent and net of sublease income, was $532.4 million, $505.2 million, and $473.2 million in fiscal 2017, 2016, and 2015, respectively. Contingent rent and sublease income was not significant in any year.

Note F: Taxes on Earnings

The provision for income taxes consisted of the following:

($000)		2017				2016				2015
Current
Federal		$	660,017			$	632,872			$	497,710
State		52,853				44,333				37,030
		712,870				677,205				534,740
Deferred
Federal		(40,468		)		(8,350		)		55,404
State		5,565				(353		)		954
		(34,903		)		(8,703		)		56,358
Total		$	677,967			$	668,502			$	591,098

Prior to adoption of ASU 2016-09, the Company realized tax benefits of $23.3 million and $42.4 million in 2016 and 2015, respectively, related to employee equity programs that were recorded in additional paid-in capital. In fiscal 2017, the Company adopted ASU 2016-09 and realized tax benefits of $16.3 million as a reduction to its provision for income taxes.

The provision for taxes for financial reporting purposes is different from the tax provision computed by applying the statutory federal income tax rate. The differences are reconciled below:

		2017			2016			2015
Federal income taxes at the statutory rate		34	%		35	%		35	%
Impact of the Tax Cuts and Jobs Act on deferred taxes		(3	)%		—			—
State income taxes (net of federal benefit) and other, net		2	%		2	%		2	%
Total		33	%		37	%		37	%

The Tax Cuts and Jobs Act (the “Tax Act” or "tax reform") was signed into law on December 22, 2017. The Tax Act made significant changes to U.S. corporate taxation including reducing the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, permitting immediate capital expensing of certain qualified property, and limiting the tax deductions available for certain executive compensation and employee fringe benefits. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result, the Company applied a blended U.S. federal income tax rate of approximately 34% for fiscal 2017, due to the lower tax rate of 21% becoming effective in the last month of that fiscal year. This reduced tax rate resulted in a tax benefit of $24.9 million. The Company recorded an additional tax benefit of $55.2 million due to the remeasurement of its deferred tax assets and liabilities. Both of these tax benefits were recorded in the fourth quarter of fiscal 2017. Also on December 22, 2017, the SEC staff issued Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which provides guidance on accounting for the impact of the Tax Act. As permitted by SAB 118, both of the tax benefits recorded by the Company in fiscal 2017, represent provisional amounts based on the Company’s current best estimates. Any adjustments made to those provisional amounts will be included in income from operations and recorded as an adjustment to tax expense through the fiscal year ending February 2, 2019. The recorded, provisional amounts reflect assumptions made based upon the Company’s current interpretation of the Tax Act, and may change as the Company receives additional clarification and guidance in the form of technical corrections to the Tax Act or regulations issued by the U.S. Treasury.

The components of deferred taxes at February 3, 2018 and January 28, 2017 are as follows:

($000)		2017				2016
Deferred Tax Assets
Accrued liabilities		$	46,489			$	71,796
Deferred compensation		28,094				36,101
Stock-based compensation		34,986				44,865
Deferred rent		18,013				25,221
State taxes and credits		20,206				28,484
Employee benefits		15,242				23,987
Other		5,224				8,223
Gross Deferred Tax Assets		168,254				238,677
Less: Valuation allowance		(4,659		)		(3,730		)
Deferred Tax Assets		163,595				234,947
Deferred Tax Liabilities
Depreciation		(217,332		)		(313,526		)
Merchandise inventory		(19,055		)		(28,853		)
Supplies		(9,529		)		(13,418		)
Other		(3,485		)		(535		)
Deferred Tax Liabilities		(249,401		)		(356,332		)
Net Deferred Tax Liabilities		$	(85,806	)		$	(121,385	)

At the end of fiscal 2017 and 2016, the Company’s state tax credit carryforwards for income tax purposes were approximately $14.7 million and $22.8 million, respectively. The state tax credit carryforwards will begin to expire in fiscal 2019. The Company has provided a valuation allowance of $4.7 million as of the end of fiscal 2017 for deferred tax assets related to state tax credits that are not expected to be realized.

The changes in amounts of unrecognized tax benefits (gross of federal tax benefits and excluding interest and penalties) at fiscal 2017, 2016, and 2015 are as follows:

($000)		2017				2016				2015
Unrecognized tax benefits - beginning of year		$	81,122			$	75,372			$	78,116
Gross increases:
Tax positions in current period		26,837				12,394				14,990
Tax positions in prior period		—				2,897				—
Gross decreases:
Tax positions in prior periods		(2,755		)		(3,231		)		(10,589		)
Lapse of statute limitations		(6,068		)		(6,310		)		(4,216		)
Settlements		(470		)		—				(2,929		)
Unrecognized tax benefits - end of year		$	98,666			$	81,122			$	75,372

At the end of fiscal 2017, 2016, and 2015, the reserves for unrecognized tax benefits were $121.3 million, $98.6 million, and $94.2 million inclusive of $22.6 million, $17.5 million, and $18.8 million of related interest and penalties, respectively. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $81.3 million would impact the Company’s effective tax rate. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred tax assets and liabilities. These amounts are net of federal and state income taxes.

It is reasonably possible that certain federal and state tax matters may be concluded or statutes of limitations may lapse during the next twelve months. Accordingly, the total amount of unrecognized tax benefits may decrease by up to $8.8 million.

The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2013 through 2017. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2013 through 2017. Certain federal and state tax returns are currently under audit by various tax authorities. The Company does not expect the results of these audits to have a material impact on the consolidated financial statements.

Note G: Employee Benefit Plans

The Company has a defined contribution plan that is available to certain employees. Under the plan, employee and Company contributions and accumulated plan earnings qualify for favorable tax treatment under Section 401(k) of the Internal Revenue Code. This plan permits employees to make contributions up to the maximum limits allowable under the Internal Revenue Code. The Company matches up to 4% of the employee’s salary up to the plan limits. Company matching contributions to the 401(k) plan were $15.4 million, $13.9 million, and $12.7 million in fiscal 2017, 2016, and 2015, respectively.

The Company also has an Incentive Compensation Plan which provides cash awards to key management and employees based on Company and individual performance.

The Company also makes available to management a Non-qualified Deferred Compensation Plan which allows management to make payroll contributions on a pre-tax basis in addition to the 401(k) plan. Other long-term assets include $120.6 million and $100.4 million at February 3, 2018 and January 28, 2017, respectively, of long-term plan investments, at market value, set aside or designated for the Non-qualified Deferred Compensation Plan (See Note B). Plan investments are designated by the participants, and investment returns are not guaranteed by the Company. The Company has a corresponding liability to participants of $120.6 million and $100.4 million at February 3, 2018 and January 28, 2017, respectively, included in Other long-term liabilities in the Consolidated Balance Sheets.

In addition, the Company has certain individuals who receive or will receive post-employment medical benefits. The estimated liability for these benefits of $7.3 million and $8.0 million is included in Accrued expenses and other in the accompanying Consolidated Balance Sheets as of February 3, 2018 and January 28, 2017, respectively.

Note H: Stockholders’ Equity

Common stock. In February 2017, the Company’s Board of Directors approved a two-year $1.75 billion stock repurchase program through fiscal 2018. In March 2018, the Company’s Board of Directors approved an increase in the stock repurchase authorization for fiscal 2018 by $200 million to $1.075 billion, up from the previously available $875 million.

The following table summarizes the Company’s stock repurchase activity in fiscal 2017, 2016, and 2015:

Fiscal Year		Shares repurchased (in millions)			Average repurchase price		Repurchased (in millions)
2017		13.5			$64.87		$875
2016		11.6			$60.15		$700
2015		13.7			$51.27		$700

Preferred stock. The Company has four million shares of preferred stock authorized, with a par value of $.01 per share. No preferred stock is issued or outstanding.

Dividends. On March 6, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.2250 per common share, payable on March 30, 2018. The Company’s Board of Directors declared cash dividends of $0.1600 per common share in February, May, August, and November 2017, cash dividends of $0.1350 per common share in March, May, August, and November 2016, and cash dividends of $0.1175 per common share in February, May, August, and November 2015.

2017 Equity Incentive Plan. On May 17, 2017, the Company’s stockholders approved the Ross Stores, Inc. 2017 Equity Incentive Plan (the “2017 Plan”) which replaced the Company’s 2008 Equity Incentive Plan (“Predecessor Plan”). The 2017 Plan, which was authorized to issue a maximum of 12.0 million shares, was immediately effective upon approval and no further awards were granted under the Predecessor Plan, which was terminated.

The 2017 Plan has an initial share reserve of 12.0 million shares of the Company’s common stock which can be increased by a maximum of 5.5 million shares from certain expired, withheld, or forfeited shares from the 2017 Plan or the Predecessor Plan. The 2017 Plan provides for various types of incentive awards, which may potentially include the grant of stock options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units, and deferred compensation awards. As of February 3, 2018, there were 11.9 million shares available for grant under the 2017 Plan.

As of February 3, 2018, all remaining options under the 2017 Plan or Predecessor Plan had been exercised and there were no remaining outstanding and exercisable options.

A summary of restricted stock and performance share award activity for fiscal 2017 is presented below:

		Number of shares (000)			Weighted average grant date fair value
Unvested at January 28, 2017		5,563			$43.19
Awarded		1,543			65.56
Released		(1,583	)		37.97
Forfeited		(40	)		50.21
Unvested at February 3, 2018		5,483			$51.19

The market value of shares of restricted stock and performance shares at the date of grant is amortized to expense over the vesting period of generally three to five years. The unamortized compensation expense at February 3, 2018 and January 28, 2017 was $114.0 million and $101.6 million, respectively, which is expected to be recognized over a weighted average remaining period of 1.8 years. Intrinsic value for restricted stock, defined as the closing market value on the last business day of fiscal year 2017 (or $79.08), was $433.6 million. A total of 11.9 million, 12.1 million, and 12.7 million shares were available for new restricted stock awards at the end of fiscal 2017, 2016, and 2015, respectively. During fiscal 2017, 2016, and 2015, shares purchased by the Company for tax withholding totaled 0.7 million, 0.7 million, and 1.3 million shares, respectively, and are considered treasury shares which are available for reissuance.

As of February 3, 2018 and January 28, 2017, the Company held 12.5 million and 11.8 million shares of treasury stock, respectively.

Performance share awards. The Company has a performance share award program for senior executives. A performance share award represents a right to receive shares of restricted stock on a specified settlement date based on the Company’s attainment of a profitability-based performance goal during the performance period, which is the Company’s fiscal year. If attained, the restricted stock then vests over a service period, generally two to three years from the date the performance award was granted. The Company issued approximately 655,000, 682,000, and 601,000 shares in settlement of the fiscal 2017, 2016, and 2015 awards.

Employee Stock Purchase Plan. Under the Employee Stock Purchase Plan (“ESPP”), eligible employees participating in the quarterly offering period can choose to have up to the lesser of 10% of their annual base earnings or the IRS annual share purchase limit of $25,000 in aggregate market value to purchase the Company’s common stock. The purchase price of the stock is 85% of the closing market price on the date of purchase. Purchases occur on a quarterly basis (on the last trading day of each calendar quarter). The Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date.

During fiscal 2017, 2016, and 2015, employees purchased approximately 0.3 million, 0.3 million, and 0.4 million shares, respectively, of the Company’s common stock under the plan at weighted average per share prices of $56.42, $51.86, and $43.16, respectively. Through February 3, 2018, approximately 39.7 million shares had been issued under this plan and 5.3 million shares remained available for future issuance.

Note I: Related Party Transactions

The Company has a consulting agreement with Norman Ferber, its Chairman Emeritus of the Board of Directors, under which the Company pays him an annual consulting fee of $1.6 million through May 2019. In addition, the agreement provides for administrative support and health and other benefits for him and his dependents, which totaled approximately $0.4 million, $0.4 million, and $0.3 million in fiscal 2017, 2016, and 2015, respectively, along with amounts to cover premiums through May 2019 on a life insurance policy with a death benefit of $2.0 million. On termination of Mr. Ferber’s consultancy with the Company, the Company will pay Mr. Ferber $75,000 per year for a period of 10 years.

Robert Ferber, the son of Norman Ferber, is a buyer with the Company. The Company paid Robert Ferber compensation including salary and bonus of approximately $159,000, $148,000, and $131,000 in fiscal 2017, 2016, and 2015, respectively.

Note J: Litigation, Claims, and Assessments

Like many retailers, the Company has been named in class action lawsuits, primarily in California, alleging violation of wage and hour laws and consumer protection laws. Class action litigation remains pending as of February 3, 2018.

The Company is also party to various other legal and regulatory proceedings arising in the normal course of business. Actions filed against the Company may include commercial, product and product safety, consumer, intellectual property, and labor and employment-related claims, including lawsuits in which private plaintiffs or governmental agencies allege that the Company violated federal, state, and/or local laws. Actions against the Company are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties.

In the opinion of management, the resolution of pending class action litigation and other currently pending legal and regulatory proceedings will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Note K: Quarterly Financial Data (Unaudited)

Summarized quarterly financial information for fiscal 2017 and 2016 is presented in the tables below.

Year ended February 3, 2018:

		Quarter Ended
($000, except per share data)		April 29, 2017				July 29, 2017				October 28, 2017				February 3, 2018
Sales		$	3,306,429			$	3,431,603			$	3,328,894			$	4,067,806
Cost of goods sold		2,329,966				2,420,942				2,369,148				2,922,582
Selling, general and administrative		474,819				498,276				517,297				553,306
Interest expense, net		3,169				2,341				1,780				386
Total costs and expenses		2,807,954				2,921,559				2,888,225				3,476,274
Earnings before taxes		498,475				510,044				440,669				591,532
Provision for taxes on earnings		177,457				193,505				166,220				140,785
Net earnings		$	321,018			$	316,539			$	274,449			$	450,747
Earnings per share – basic1		$	0.83			$	0.83			$	0.72			$	1.20		²
Earnings per share – diluted1		$	0.82			$	0.82			$	0.72			$	1.19		²
Cash dividends declared per share
on common stock		$	0.1600			$	0.1600			$	0.1600			$	0.1600
Stock price
High		$	69.15			$	66.05			$	65.99			$	85.46
Low		$	62.53			$	53.07			$	53.03			$	63.42

¹	EPS is computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in average quarterly shares outstanding.
²	Includes a per share benefit of approximately $0.21 from tax reform legislation enacted in December 2017 and $0.10 from the 53rd week.

Year ended January 28, 2017:

		Quarter Ended
($000, except per share data)		April 30, 2016				July 30, 2016				October 29, 2016				January 28, 2017
Sales		$	3,088,995			$	3,180,917			$	3,086,687			$	3,510,158
Cost of goods sold		2,176,205				2,251,845				2,206,092				2,539,563
Selling, general and administrative		436,924				469,511				490,171				493,802
Interest expense, net		4,364				4,213				4,156				3,755
Total costs and expenses		2,617,493				2,725,569				2,700,419				3,037,120
Earnings before taxes		471,502				455,348				386,268				473,038
Provision for taxes on earnings		180,868				173,442				141,722				172,470
Net earnings		$	290,634			$	281,906			$	244,546			$	300,568
Earnings per share – basic1		$	0.73			$	0.72			$	0.63			$	0.77
Earnings per share – diluted1		$	0.73			$	0.71			$	0.62			$	0.77
Cash dividends declared per share
on common stock		$	0.1350			$	0.1350			$	0.1350			$	0.1350
Stock price
High		$	59.30			$	61.98			$	65.06			$	69.53
Low		$	52.56			$	52.34			$	60.68			$	61.28

¹	EPS is computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in average quarterly shares outstanding.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Ross Stores, Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Ross Stores, Inc. and subsidiaries (the "Company") as of February 3, 2018 and January 28, 2017, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the years ended February 3, 2018, January 28, 2017, and January 30, 2016 and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of February 3, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 3, 2018 and January 28, 2017, and the results of its operations and its cash flows for each of the years ended February 3, 2018, January 28, 2017, and January 30, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 3, 2018, based on the criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/DELOITTE & TOUCHE LLP

San Francisco, California

April 3, 2018

We have served as the Company’s auditor since 1982.