Ross Stores 10-Q 2022-10-29

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2022

☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

			Commission file number:			0-14678

Ross Stores, Inc.

(Exact name of registrant as specified in its charter)

Delaware												94-1390387
(State or other jurisdiction of incorporation or												(I.R.S. Employer Identification No.)
organization)
5130 Hacienda Drive,			Dublin,			California						94568-7579
(Address of principal executive offices)												(Zip Code)
Registrant’s telephone number, including area code												(925)			965-4400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class									Trading symbol						Name of each exchange on which registered
Common stock,			par value $.01						ROST						NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o Non-accelerated filer o Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares of Common Stock, with $.01 par value, outstanding on November 11, 2022 was 344,371,009.

Ross Stores, Inc.

Form 10-Q

Table of Contents

												Page
PART I. FINANCIAL INFORMATION
Item 1.						Financial Statements (unaudited)
						Condensed Consolidated Statements of Earnings–Three and nine months ended October 29, 2022 and October 30, 2021						3
						Condensed Consolidated Statements of Comprehensive Income–Three and nine months ended October 29, 2022 and October 30, 2021						4
						Condensed Consolidated Balance Sheets–October 29, 2022, January 29, 2022, and October 30, 2021						5
						Condensed Consolidated Statements of Stockholders’ Equity–Nine months ended October 29, 2022 and October 30, 2021						6
						Condensed Consolidated Statements of Cash Flows–Nine months ended October 29, 2022 and October 30, 2021						8
						Notes to Condensed Consolidated Financial Statements						9
						Report of Independent Registered Public Accounting Firm						16
Item 2.						Management’s Discussion and Analysis of Financial Condition and Results of Operations						17
Item 3.						Quantitative and Qualitative Disclosures about Market Risk						25
Item 4.						Controls and Procedures						25
PART II. OTHER INFORMATION
Item 1.						Legal Proceedings						26
Item 1A.						Risk Factors						26
Item 2.						Unregistered Sales of Equity Securities and Use of Proceeds						26
Item 6.						Exhibits						27
						Signatures						28

PART I. FINANCIAL INFORMATION

Condensed Consolidated Statements of Earnings

			Three Months Ended												Nine Months Ended
($000, except stores and per share data, unaudited)			October 29, 2022						October 30, 2021						October 29, 2022						October 30, 2021
Sales			$	4,565,489					$	4,574,541					$	13,481,598					$	13,895,595
Costs and Expenses
Cost of goods sold			3,424,046						3,326,004						10,020,027						9,935,271
Selling, general and administrative			693,367						725,761						2,029,926						2,118,602
Interest (income) expense, net			(2,802)						18,744						25,561						56,500
Total costs and expenses			4,114,611						4,070,509						12,075,514						12,110,373
Earnings before taxes			450,878						504,032						1,406,084						1,785,222
Provision for taxes on earnings			108,842						119,002						341,086						429,455
Net earnings			$	342,036					$	385,030					$	1,064,998					$	1,355,767
Earnings per share
Basic			$	1.00					$	1.10					$	3.09					$	3.85
Diluted			$	1.00					$	1.09					$	3.08					$	3.82
Weighted-average shares outstanding (000)
Basic			342,120						351,071						344,686						352,308
Diluted			343,720						353,081						346,212						354,477
Store count at end of period			2,019						1,924						2,019						1,924

The accompanying notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statements of Comprehensive Income

			Three Months Ended												Nine Months Ended
($000, unaudited)			October 29, 2022						October 30, 2021						October 29, 2022						October 30, 2021
Net earnings			$	342,036					$	385,030					$	1,064,998					$	1,355,767
Other comprehensive income			—						—						—						—
Comprehensive income			$	342,036					$	385,030					$	1,064,998					$	1,355,767

The accompanying notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Balance Sheets

($000, except share data, unaudited)			October 29, 2022						January 29, 2022						October 30, 2021
Assets
Current Assets
Cash and cash equivalents			$	3,906,490					$	4,922,365					$	5,259,595
Accounts receivable			168,483						119,247						158,765
Merchandise inventory			2,494,002						2,262,273						2,231,242
Prepaid expenses and other			192,214						169,291						195,309
Total current assets			6,761,189						7,473,176						7,844,911
Property and Equipment
Land and buildings			1,491,927						1,240,246						1,194,125
Fixtures and equipment			3,882,127						3,425,762						3,357,986
Leasehold improvements			1,402,653						1,332,687						1,317,979
Construction-in-progress			171,185						574,333						506,903
			6,947,892						6,573,028						6,376,993
Less accumulated depreciation and amortization			3,939,154						3,674,501						3,592,707
Property and equipment, net			3,008,738						2,898,527						2,784,286
Operating lease assets			3,101,882						3,027,272						3,032,175
Other long-term assets			228,286						241,281						254,362
Total assets			$	13,100,095					$	13,640,256					$	13,915,734
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable			$	1,927,757					$	2,372,302					$	2,652,881
Accrued expenses and other			616,753						613,089						625,426
Current operating lease liabilities			656,837						630,517						620,675
Accrued payroll and benefits			251,479						588,772						512,336
Income taxes payable

Showing the first 8K of 61K characters. Open the full section

OPERATIONS

This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed below under the caption “Forward-Looking Statements” and also those in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for 2021. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for 2021. All information is based on our fiscal calendar.

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores -- Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,696 locations in 40 states, the District of Columbia, and Guam as of October 29, 2022. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 323 dd’s DISCOUNTS stores in 21 states that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Results of Operations

Comparable store sales declined 3% in the third quarter of fiscal 2022, compared to a 14% gain in the third quarter of 2021 (versus 2019), reflecting the continued impact of inflationary pressures our customers are facing as well as an increasingly promotional retail environment. During the quarter, we experienced the deleveraging effects from the comparable store sales decline as well as higher merchandise markdowns, which were partially offset by lower incentive compensation costs. These factors resulted in diluted earnings per share of $1.00 in the third quarter of fiscal 2022, compared to $1.09 per share in the third quarter of fiscal 2021. We expect our customers and operations will continue to be impacted by ongoing inflationary headwinds.

There remains significant uncertainty in the current macro-economic environment, driven by inflation, increasing interest rates, the continuing impacts from the Russia-Ukraine conflict, and concerns of a possible recession. These factors impact both consumer demand and many of the costs in our business. In addition, there continues to be uncertainty surrounding the COVID-19 pandemic, including its unknown duration, the potential for future resurgences and new virus variants, its potential impact on consumer behavior and shopping patterns, and the potential adverse impact on our business.

The following table summarizes the financial results for the three and nine month periods ended October 29, 2022 and October 30, 2021:

			Three Months Ended															Nine Months Ended
			October 29, 2022						October 30, 2021									October 29, 2022						October 30, 2021
Sales
Sales (millions)			$	4,566					$	4,575								$	13,482					$	13,896
Comparable store sales (decline) growth			(3		%)	1			14		%	2						(5		%)	1			14		%	2
Costs and expenses (as a percent of sales)
Cost of goods sold			75.0		%				72.7		%							74.3		%				71.5		%
Selling, general and administrative			15.2		%				15.9		%							15.1		%				15.2		%
Interest (income) expense, net			(0.1		%)				0.4		%							0.2		%				0.4		%
Earnings before taxes (as a percent of sales)			9.9		%				11.0		%							10.4		%				12.9		%
Net earnings (as a percent of sales)			7.5		%				8.4		%							7.9		%				9.8		%
1 Amounts shown are for the three and nine month periods of fiscal 2022 compared to the same periods of fiscal 2021 for stores that have been open for more than 14 complete months.
2 Amounts shown are for the three and nine month periods of fiscal 2021 compared to the same periods of fiscal 2019. Comparable store sales for this purpose represents sales from stores that were open at the end of fiscal 2018, plus new stores opened in fiscal 2019, less stores closed in fiscal 2019 and fiscal 2020.

Stores. Our long-term strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria.

The following table summarizes the stores opened and closed during the three and nine month periods ended October 29, 2022 and October 30, 2021:

			Three Months Ended												Nine Months Ended
Store Count			October 29, 2022						October 30, 2021						October 29, 2022						October 30, 2021
Beginning of the period			1,980						1,896						1,923						1,859
Opened in the period			40						28						99						65
Closed in the period			(1)						—						(3)			1			—
End of the period			2,019						1,924						2,019						1,924
1 Includes a temporary closure of a store impacted by a weather event.

Sales. Sales for the three and nine month periods ended October 29, 2022 decreased $9.1 million and $414.0 million, or 0.2% and 3.0%, respectively, compared to the three and nine month periods ended October 30, 2021. The respective 3% and 5% comparable store sales declines for the three and nine month periods ended October 29, 2022 were primarily due to escalating inflationary pressures impacting our customers in the current quarter and fiscal year to date combined with the prior year benefiting from government stimulus as well as pent-up customer demand as COVID-19 restrictions eased. These comparable store sales declines were partially offset by the opening of 95 net new stores between October 30, 2021 and October 29, 2022.

Our sales mix for the three and nine month periods ended October 29, 2022 and October 30, 2021 is shown below:

			Three Months Ended												Nine Months Ended
			October 29, 2022						October 30, 2021						October 29, 2022						October 30, 2021
Ladies			25		%				26		%				25		%				26		%
Home Accents and Bed and Bath			25		%				25		%				25		%				25		%
Men’s			15		%				15		%				15		%				14		%
Accessories, Lingerie, Fine Jewelry, and Cosmetics			13		%				13		%				13		%				14		%
Shoes			13		%				11		%				13		%				12		%
Children’s			9		%				10		%				9		%				9		%
Total			100		%				100		%				100		%				100		%

We intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies, and by continuing to strengthen our merchant organization, adjust our merchandise mix, and more fully develop our systems to improve our merchandise offerings. We cannot be sure that our strategies and our store expansion program will result in a continuation of our historical sales growth or an increase in net earnings.

Cost of goods sold. Cost of goods sold for the three and nine month periods ended October 29, 2022 increased $98.0 million and $84.8 million, respectively, compared to the three and nine month periods ended October 30, 2021, primarily due to increased distribution costs, higher ocean freight costs, and the opening of 95 net new stores between October 30, 2021 and October 29, 2022.

Cost of goods sold as a percentage of sales for the three month period ended October 29, 2022 increased approximately 230 basis points compared to the three month period ended October 30, 2021, due to a 165 basis point decline in merchandise margin primarily due to increased markdowns, a 140 basis point increase in distribution expenses primarily due to a combination of timing of packaway inventory carrying costs and additional costs from our new distribution center, and deleverage of 20 basis points in occupancy costs. These increases were partially offset by a 75 basis point decrease in buying costs primarily due to lower incentive compensation expenses and a 20 basis point decrease in domestic freight costs.

Cost of goods sold as a percentage of sales for the nine month period ended October 29, 2022 increased approximately 280 basis points compared to the nine month period ended October 30, 2021, due to a 180 basis point decline in merchandise margin primarily due to higher ocean freight costs and increased markdowns, an 85 basis point increase in distribution expenses primarily due to timing of packaway inventory carrying costs, additional costs from our new distribution center, and higher wages, deleverage of 40 basis points in occupancy costs, and a 30 basis point increase in domestic freight costs mainly driven by higher fuel prices and costs associated with industry-wide supply chain congestion. These increases were partially offset by a 55 basis point decrease in buying costs primarily due to lower incentive compensation expenses.

We expect the unfavorable timing of packaway-related costs and higher merchandise markdowns to impact margins through the fourth quarter of fiscal 2022.

Selling, general and administrative expenses. For the three and nine month periods ended October 29, 2022, selling, general and administrative expenses ("SG&A") decreased $32.4 million and $88.7 million, respectively, compared to the three and nine month periods ended October 30, 2021. These decreases were primarily due to lower incentive compensation, partially offset by the opening of 95 net new stores between October 30, 2021 and October 29, 2022.

SG&A as a percentage of sales for the three month period ended October 29, 2022 decreased 70 basis points, compared to the three month period ended October 30, 2021, primarily due to lower incentive compensation costs which were partially offset by the deleveraging effect of lower comparable store sales.

SG&A as a percentage of sales for the nine month period ended October 29, 2022 decreased 20 basis points, compared to the nine month period ended October 30, 2021, primarily due to both lower incentive compensation and COVID-19 costs, partially offset by higher wages and the deleveraging effect of lower comparable store sales.

We expect our operating costs in fiscal 2022 to continue to reflect the impact from higher wages and inflation.

Interest (income) expense, net. Interest (income) expense, net for the three and nine month periods ended October 29, 2022 decreased $21.5 million and $30.9 million, respectively, compared to the same periods in the prior year. These decreases were primarily due to higher interest income and lower interest expense on long-term debt due to the repayment of the principal on the $65.0 million notes in the fourth quarter of fiscal 2021, partially offset by lower capitalized interest.

Interest (income) expense, net for the three and nine month periods ended October 29, 2022 and October 30, 2021 consists of the following:

			Three Months Ended															Nine Months Ended
($000)			October 29, 2022						October 30, 2021									October 29, 2022						October 30, 2021
Interest expense on long-term debt			$	21,150					$	22,227								$	63,429					$	66,626
Other interest expense			448						391									1,242						1,012
Capitalized interest			(663)						(3,682)									(4,489)						(10,511)
Interest income			(23,737)						(192)									(34,621)						(627)
Interest (income) expense, net			$	(2,802)					$	18,744								$	25,561					$	56,500

Taxes on earnings. Our effective tax rate for the three and nine month periods ended October 29, 2022 and October 30, 2021 was approximately 24%. Our effective tax rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and uncertain tax positions.

Net earnings. Net earnings as a percentage of sales for the three month period ended October 29, 2022 and October 30, 2021 were 7.5% and 8.4%, respectively. Net earnings as a percentage of sales for the three month period ended October 29, 2022 was lower primarily due to higher cost of goods sold, partially offset by lower SG&A expenses and higher interest income.

Net earnings as a percentage of sales for the nine month periods ended October 29, 2022 and October 30, 2021 were 7.9% and 9.8%, respectively. Net earnings as a percentage of sales for the nine month period ended October 29, 2022 was lower primarily due to higher cost of goods sold, partially offset by lower SG&A expenses and lower interest expense.

Earnings per share. Diluted earnings per share for the three month period ended October 29, 2022 was $1.00 compared to $1.09 for the three month period ended October 30, 2021. Diluted earnings per share for the nine month period ended October 29, 2022 was $3.08 compared to $3.82 for the nine month period ended October 30, 2021. The $0.09 and $0.74 decreases in the diluted earnings per share for the three and nine month periods ended October 29, 2022 were primarily attributable to an 11% and 21% decrease in net earnings, respectively, partially offset by the 3% and 2%, respectively, reductions in weighted-average diluted shares outstanding, largely due to stock repurchases under our stock repurchase program.

Financial Condition

Liquidity and Capital Resources

The primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, operating and variable lease costs, taxes, capital expenditures in connection with new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to pay dividends, to repay debt as it becomes due, and to repurchase stock under active stock repurchase programs.

			Nine Months Ended
($000)			October 29, 2022						October 30, 2021
Cash provided by operating activities			$	472,667					$	1,503,653
Cash used in investing activities			(417,901)						(377,916)
Cash used in financing activities			(1,070,415)						(759,965)
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents			$	(1,015,649)					$	365,772

Operating Activities

Net cash provided by operating activities was $0.5 billion for the nine month period ended October 29, 2022. This was primarily driven by net earnings (excluding non-cash expenses for depreciation, amortization, and stock-based compensation), partially offset by merchandise inventory payments and payment of fiscal 2021 incentive bonuses. Net cash provided by operating activities was $1.5 billion for the nine month period ended October 30, 2021. This was primarily driven by net earnings (excluding non-cash expenses for depreciation and amortization).

The decrease in cash flow from operating activities for the nine month period ended October 29, 2022, compared to the same period in the prior year, was primarily driven by lower accounts payable leverage, payment of fiscal 2021 incentive bonuses, and lower net earnings. Accounts payable leverage was 77% and 119% as of October 29, 2022 and October 30, 2021, respectively. The decrease in accounts payable leverage from the prior year was primarily driven by higher packaway receipts and associated merchandise payments combined with shorter payment terms.

As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling opportunities in the marketplace and our decisions on the timing for release of that inventory. Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to our store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchases, but typically packaway remains in storage less than six months. We expect to continue to take advantage of packaway inventory opportunities to maximize our ability to deliver bargains to our customers.

Changes in packaway inventory levels impact our operating cash flow. As of October 29, 2022, packaway inventory was 41% of total inventory compared to 40% at the end of fiscal 2021. As of October 30, 2021, packaway inventory was 31% of total inventory compared to 38% at the end of fiscal 2020. The year-over-year increase reflects higher receipts used to build our packaway inventory to more normal operating levels and the earlier than expected arrival of merchandise that will flow to stores later in fiscal 2022. The prior year reflects our use of a substantial amount of packaway merchandise to support the increased level of sales.

Investing Activities

Net cash used in investing activities was $417.9 million and $377.9 million for the nine month periods ended October 29, 2022 and October 30, 2021, respectively, and was related to our capital expenditures. Our capital expenditures include costs to build, expand, and improve distribution centers, open new stores and improve existing stores, and for various other expenditures related to our information technology systems, and buying and corporate offices. The increase in cash used in investing activities for the nine month period ended October 29, 2022, compared to the same period in the prior year, was primarily driven by higher capital expenditures related to construction of new stores and existing store projects, partially offset by lower expenditures related to the construction of our Brookshire, Texas distribution center, which opened in the first quarter of fiscal 2022.

Capital expenditures for fiscal 2022 are currently projected to be approximately $700 million. Our planned capital expenditures for fiscal 2022 are expected to be used for investments in our supply chain to support long-term growth, including construction of our next distribution center, costs for fixtures and leasehold improvements to open planned new Ross and dd’s DISCOUNTS stores, investments in certain information technology systems, and for various other needed expenditures related to our stores, distribution centers, and buying and corporate offices. We expect to fund capital expenditures with available cash.

Financing Activities

Net cash used in financing activities was $1.1 billion and $760.0 million for the nine month periods ended October 29, 2022 and October 30, 2021, respectively. The increase in cash used in financing activities for the nine month period ended October 29, 2022, compared to the nine month period ended October 30, 2021, was primarily due to stock repurchases under our current $1.9 billion stock repurchase program.

Revolving credit facilities. In February 2022, we entered into a new, $1.3 billion senior unsecured revolving Credit Agreement (the “2022 Credit Facility”), which replaced our previous $800 million unsecured revolving credit facility. The 2022 Credit Facility expires in February 2027, and may be extended, at our request and with the consent of the lenders, for up to two additional one year periods, subject to customary conditions. The new facility contains a $300 million sublimit for issuance of standby letters of credit. It also contains an option allowing us to increase the size of our credit facility by up to an additional $700 million, with the agreement of the committing lenders. The interest rate on borrowings under the 2022 Credit Facility is a term rate based on the Secured Overnight Financing Rate (“Term SOFR”) (or an alternate benchmark rate, if Term SOFR is no longer available) plus an applicable margin, and is payable quarterly and upon maturity. The 2022 Credit Facility is subject to a quarterly Consolidated Adjusted Debt to Consolidated EBITDAR financial leverage ratio covenant. As of October 29, 2022, we were in compliance with this financial covenant.

As of October 29, 2022, we had no borrowings or standby letters of credit outstanding under the 2022 Credit Facility and the $1.3 billion credit facility remains in place and available.

Senior notes. As of October 29, 2022, we had $2.5 billion of outstanding unsecured Senior Notes. Refer to Note E: Debt, for further information on the unsecured senior debt.

Other financing activities. In March 2022, our Board of Directors approved a new two-year program to repurchase up to $1.9 billion of our common stock through fiscal 2023, with the expectation to buy back $950 million of common stock in fiscal 2022. This new program replaced the previous $1.5 billion two-year stock repurchase program, effective at the end of fiscal 2021 (at which time we had repurchased $650 million of stock under the previous $1.5 billion program).

We repurchased 8.2 million and 3.5 million shares of common stock for $718.7 million and $417.0 million during the nine month periods ended October 29, 2022 and October 30, 2021, respectively. We also acquired 0.5 million and 0.5 million shares of treasury stock under our employee equity compensation programs, for aggregate purchase prices of approximately $45.4 million and $57.1 million during the nine month periods ended October 29, 2022 and October 30, 2021, respectively.

Our Board of Directors declared a cash dividend of $0.310 per common share in March, May, and August 2022, and $0.285 per common share in March, May, August, and November 2021.

In November 2022, our Board of Directors declared a cash dividend of $0.310 per common share, payable on December 30, 2022.

For the nine month periods ended October 29, 2022 and October 30, 2021, we paid cash dividends of $324.6 million and $304.5 million, respectively.

Short-term trade credit represents a significant source of financing for merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit, bank credit facility, and other credit sources to meet our capital and liquidity requirements, including lease and interest payment obligations.

We ended the third quarter of fiscal 2022 with $3.9 billion of unrestricted cash balances, and we have $1.3 billion available under our senior unsecured revolving credit facility. We estimate that existing cash and cash equivalent balances, cash flows from operations, bank credit facility, and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments, common stock repurchases, and quarterly dividend payments for at least the next 12 months.

Contractual Obligations and Off-Balance Sheet Arrangements

The table below presents our significant contractual obligations as of October 29, 2022:

($000)			Less than one year						Greater than one year						Total¹
Recorded contractual obligations:
Senior notes			$	—					$	2,474,991					$	2,474,991
Operating leases			684,692						2,611,399						3,296,091
New York buying office ground lease2			7,552						1,111,490						1,119,042
Unrecorded contractual obligations:
Real estate obligations3			7,343						197,130						204,473
Interest payment obligations			80,316						435,134						515,450
Purchase obligations4			3,617,969						136,049						3,754,018
Total contractual obligations			$	4,397,872					$	6,966,193					$	11,364,065
1 We have a $67.6 million liability for unrecognized tax benefits that is included in Other long-term liabilities on our interim Condensed Consolidated Balance Sheet. This liability is excluded from the schedule above as the timing of payments cannot be reasonably estimated.
2 Our New York buying office building is subject to a 99-year ground lease.
3 Minimum lease payments for leases signed that have not yet commenced.
4 Purchase obligations primarily consist of merchandise inventory purchase orders, commitments related to construction projects, store fixtures and supplies, and information technology services, transportation, and maintenance contracts.

Other than the unrecorded contractual obligations noted above, we do not have any material off-balance sheet arrangements as of October 29, 2022.

Standby letters of credit and collateral trust. We use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize some of our insurance obligations. As of October 29, 2022, January 29, 2022, and October 30, 2021, we had $3.0 million, $3.3 million, and $3.3 million, respectively, in standby letters of credit outstanding and $57.2 million, $56.7 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. We had $7.8 million, $19.3 million, and $30.6 million in trade letters of credit outstanding at October 29, 2022, January 29, 2022, and October 30, 2021, respectively.

Dividends. In November 2022, our Board of Directors declared a cash dividend of $0.310 per common share, payable on December 30, 2022.

Critical Accounting Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable. The uncertainties and potential impacts from inflation, interest rate increases, the Russia-Ukraine conflict, and the ongoing COVID-19 pandemic increase the challenge of making these estimates; actual results could differ materially from our estimates. During the third quarter of fiscal 2022, there have been no significant changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the year ended January 29, 2022.

Forward-Looking Statements

This report contains a number of forward-looking statements regarding, without limitation, the continuing challenges from the COVID-19 pandemic and related economic disruptions, and our plans and responses to them, planned new store growth, capital expenditures, and other matters. These forward-looking statements reflect our then-current beliefs, plans, and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” “looking ahead,” and similar expressions identify forward-looking statements.

Future impact from the ongoing COVID-19 pandemic, military conflicts and economic sanctions, inflation, interest rate increases, and other economic and industry trends that could potentially impact revenue, profitability, operating conditions, and growth are difficult to predict. Our forward-looking statements are subject to risks and uncertainties which could cause our actual results to differ materially from those forward-looking statements and our previous expectations, plans, and projections. Such risks are not limited to but may include:

• The uncertainties and potential for the recurrence of significant business disruptions arising from the COVID-19 pandemic, including its unknown duration, the potential for new virus variants and future resurgences, and the potential adverse impact on consumer demand and our business.

• Unexpected changes in the level of consumer spending on, or preferences for, apparel and home-related merchandise, which could adversely affect us.

• Impacts from the macro-economic environment, including inflation, interest rates, housing costs, energy and fuel costs, financial and credit market conditions, recession concerns, geopolitical conditions (including the current Russia-Ukraine conflict), pandemics, or public health and public safety issues, that affect consumer confidence and consumer disposable income.

• Our need to effectively manage our inventories, markdowns, and inventory shortage in order to achieve our planned gross margins.

• Competitive pressures in the apparel and home-related merchandise retailing industry.

• Risks associated with importing and selling merchandise produced in other countries, including risks from supply chain disruptions due to port of exit/entry congestion, shipping delays, and ocean freight cost increases, and risks from other supply chain related disruptions in other countries, including those due to COVID-19 closures.

• Unseasonable weather that may affect shopping patterns and consumer demand for seasonal apparel and other merchandise.

• Our dependence on the market availability, quantity, and quality of attractive brand name merchandise at desirable discounts, and on the ability of our buyers to anticipate consumer preferences and to purchase merchandise to enable us to offer customers a wide assortment of merchandise at competitive prices.

• Information or data security breaches, including cyber-attacks on our transaction processing and computer information systems, which could result in theft or unauthorized disclosure of customer, credit card, employee, or other private and valuable information that we handle in the ordinary course of our business.

• Disruptions in our supply chain or in our information systems, including from ransomware or other cyber-attacks, that could impact our ability to process sales and to deliver product to our stores in a timely and cost-effective manner.

• Our need to obtain acceptable new store sites with favorable consumer demographics to achieve our planned new store openings.

• Our need to expand in existing markets and enter new geographic markets in order to achieve planned market penetration.

• Consumer problems or legal issues involving the quality, safety, or authenticity of products we sell, which could harm our reputation, result in lost sales, and/or increase our costs.

• An adverse outcome in various legal, regulatory, or tax matters, or the adoption of new federal or state tax legislation that increases tax rates or adds new taxes, that could increase our costs.

• Damage to our corporate reputation or brands that could adversely affect our sales and operating results.

• Our need to continually attract, train, and retain associates with the retail talent necessary to execute our off-price retail strategies.

• Our need to effectively advertise and market our business.

• Changes in U.S. tax, tariff, or trade policy regarding apparel and home-related merchandise produced in other countries, which could adversely affect our business.

• Possible volatility in our revenues and earnings.

• An additional public health or public safety crisis, demonstrations, natural or man-made disaster in California or in another region where we have a concentration of stores, offices, or a distribution center that could harm our business.

• Our need to maintain sufficient liquidity to support our continuing operations and our new store openings.

The factors underlying our forecasts are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.

We are exposed to market risks, which primarily include changes in interest rates. We do not engage in financial transactions for trading or speculative purposes.

We may occasionally use forward contracts to hedge against fluctuations in foreign currency prices. We had no outstanding forward contracts as of October 29, 2022.

Interest that is payable on our revolving credit facility is based on variable interest rates, and is therefore affected by changes in market interest rates. As of October 29, 2022, we had no borrowings outstanding under our revolving credit facility.

As of October 29, 2022, we have outstanding seven series of unsecured Senior Notes. Interest that is payable on all series of our Senior Notes is based on fixed interest rates, and is therefore unaffected by changes in market interest rates.

Interest is receivable on our short- and long-term investments. Changes in interest rates may impact interest income recognized in the future, or the fair value of our investment portfolio.

A hypothetical 100 basis point increase or decrease in prevailing market interest rates would not have had a material negative impact on our condensed consolidated financial position, results of operations, cash flows, or the fair values of our short- and long-term investments as of and for the three and nine month periods ended October 29, 2022. We do not consider the potential losses in future earnings and cash flows from reasonably possible, near-term changes in interest rates to be material.

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at that reasonable assurance level as of the end of the period covered by this report.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

Quarterly Evaluation of Changes in Internal Control Over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during the third fiscal quarter of 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our management concluded that there was no such change during the third fiscal quarter of 2022.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The matters under the caption “Litigation, claims, and assessments” in Note A of Notes to Condensed Consolidated Financial Statements are incorporated herein by reference.

See Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 for a description of the risks and uncertainties associated with our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Information regarding shares of common stock we repurchased during the third quarter of fiscal 2022 is as follows:

						Total number of shares (or units) purchased****1						Average price paid per share (or unit)						Total number of shares (or units) purchased as part of publicly announced plans or programs						Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or **programs ($000)**2
			Period
			August
			(7/31/2022 - 8/27/2022)			719,413						$86.12						719,413						$	1,363,044
			September
			(8/28/2022 - 10/01/2022)			1,195,691						$88.27						1,124,640						$	1,263,915
			October
			(10/02/2022- 10/29/2022)			951,184						$87.19						947,391						$	1,181,307
			Total			2,866,288						$87.37						2,791,444						$	1,181,307

1 We acquired 74,844 shares of treasury stock during the quarter ended October 29, 2022. Treasury stock includes shares acquired from employees for tax withholding purposes related to vesting of restricted stock grants. All remaining shares were repurchased under our publicly announced stock repurchase program.

2 In March 2022, our Board of Directors approved a new two-year program to repurchase up to $1.9 billion of our common stock through fiscal 2023, replacing the $850 million that remained available at the end of fiscal 2021 under the previous $1.5 billion program.

Exhibit
Number			Exhibit
3.1			Certificate of Incorporation of Ross Stores, Inc. as amended (Corrected First Restated Certificate of Incorporation, dated March 17, 1999, together with amendments thereto through Amendment of Certificate of Incorporation dated May 29, 2015) incorporated by reference to Exhibit 3.1 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended August 1, 2015.
3.2			Amended and Restated Bylaws of Ross Stores, Inc. (as amended March 8, 2017), incorporated by reference to Exhibit 3.2 to the Form 10-K filed by Ross Stores, Inc. for its fiscal year ended January 28, 2017.
15			Letter re: Unaudited Interim Financial Information from Deloitte & Touche LLP dated December 6, 2022.
31.1			Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
31.2			Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
32.1			Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2			Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.INS			XBRL Instance Document. (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.)
101.SCH			Inline XBRL Taxonomy Extension Schema
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase
104			Cover Page Interactive Data File. (The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

						ROSS STORES, INC.
						(Registrant)
Date:			December 6, 2022			By:			/s/Adam Orvos
									Adam Orvos
									Executive Vice President, Chief Financial Officer