Bargains
Growth
Results
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ROSS STORES, INC.
2017 Annual Report
For more than 35 years, our customers have shopped with us knowing
they can always find a wide array of terrific bargains for their entire
family. Since 1982, this focus on delivering the best name brand fashions
at incredible values every day has not changed. We accomplish this
through our two off-price apparel and home fashion chains, Ross
Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross Dress for Less
is the largest off-price apparel and home fashion chain in the U.S.
with 1,409 stores in 37 states, the District of Columbia, and Guam,
while dd’s DISCOUNTS operates 213 stores in 16 states. Ross offers
name brand apparel, accessories, footwear, and home fashions for
the entire family at savings of 20% to 60% off department store and
specialty store regular prices every day. dd’s DISCOUNTS features
a more moderately-priced assortment at savings of 20% to 70% off
moderate department and discount store prices every day. We believe
we are favorably positioned in today’s competitive environment to
expand our business profitability by continuing to focus on our top
priority—delivering the best bargains, which will always be the key to
our growth and results.
2017 Annual Report | 1
Merchandise Mix
8%
Children’s
13%
Shoes
13%
Men’s
13%
Accessories, Lingerie,
Fine Jewelry, Fragrances
27%
Ladies
26%
Home Accents,
Bed and Bath
2 | Ross Stores
2017 Annual Report | 3
To Our Stockholders
Bargains, Growth, Results
Offering our customers the best bargains possible every day
will always be the catalyst for achieving profitable growth
and solid financial results. During 2017, we continued to
successfully deliver on this premise, leading to another year
of healthy gains in both sales and earnings.
Record Financial Results on Top of Strong
Multi-Year Gains
For the 53-week fiscal year ended February 3, 2018, sales
grew 10% to $14.1 billion, up from $12.9 billion for the 52-
week fiscal year ended January 28, 2017. Comparable store
sales for the 52 weeks ended January 27, 2018 increased 4%
on top of a 4% gain in the prior year.
Net earnings in fiscal 2017 grew to $1.4 billion, up from $1.1
billion in 2016. Earnings per share grew to $3.55, compared to
$2.83 in the prior year. Fiscal 2017 operating margin rose 50
basis points to a new record of 14.5%, benefiting from higher
merchandise gross margin and expense leverage from solid
gains in same store sales and the impact of the 53rd week.
The aforementioned earnings results for fiscal 2017 are
inclusive of a per share benefit of approximately $.10 from
the 53rd week and $.21 from the recently enacted tax reform
legislation. Excluding these items, earnings per share on a 52-
week basis increased 14% in 2017 versus the prior year.
Continued Store Growth
As planned, the Company opened 89 net new locations during
the year, consisting of 69 Ross Dress for Less and 20 dd’s
DISCOUNTS. We ended 2017 with a combined 1,622 stores in
37 states, the District of Columbia, and Guam.
Our store growth included continued expansion of Ross Dress
for Less in established regions as well as newer markets,
including the Midwest, which we entered beginning in 2011.
Our successful growth in these newer markets continued in
2017, when we opened our first four stores in Iowa while also
adding a total of 19 new locations in Illinois, Indiana, Kansas,
Kentucky, Missouri, South Dakota, and Wisconsin.
dd’s DISCOUNTS expansion plans also remained on track,
with a net addition of 20 new locations including its initial entry
into Pennsylvania, its 16th state.
For 2018, we expect to open about 100 new locations,
consisting of 75 new Ross Dress for Less and 25
4 | Ross Stores
dd’s DISCOUNTS stores. As usual, these numbers do not
reflect our plans to close or relocate about ten older stores.
Over the long term, we continue to believe that Ross Dress for
Less can grow to a chain of at least 2,000 locations across
the United States and dd’s DISCOUNTS can eventually
increase to about 500 stores. This reflects the opportunity
to expand both our chains to about 2,500 locations
domestically, providing us with significant store growth
opportunities over the next several years.
dd’s DISCOUNTS Delivers Solid Sales and Profit Gains
In 2017, dd’s DISCOUNTS posted another year of solid
increases in sales and operating profits. Like Ross, dd’s
DISCOUNTS’ customers responded favorably to its
merchandise offering.
Strong Cash Flows Fund Ongoing Growth and Higher
Stock Repurchases and Dividends
Operating cash flows in 2017 helped to fund new store
expansion and additional infrastructure improvements to
support our long-term growth. We invested approximately
$371 million of capital during the year, including about $263
million to open new locations and update existing stores, and
approximately $108 million for distribution and information
technology projects. We ended the year with approximately
$1.3 billion in cash and short-term investments and $397
million in long-term debt.
For fiscal 2018, capital expenditures are expected to be
approximately $475 million to fund new store openings, update
existing stores, as well as make ongoing distribution, and
information technology investments.
In 2017, we repurchased $875 million of common stock, or
about 13.5 million shares, under the two-year $1.75 billion
stock repurchase program authorized by our Board of
Directors at the beginning of 2017. In March 2018, our Board
approved an increase in the stock repurchase authorization for
fiscal 2018 to $1.075 billion, up from the previous $875 million.
Further, the Board declared a higher quarterly cash dividend
of $.225 per share, up 41% on top of a 19% increase in the
prior year. This quarterly dividend was paid to stockholders on
March 30, 2018.
The continued growth of our stockholder payouts reflects our
ongoing confidence in the Company’s ability to generate future
increases in sales and earnings that will generate significant
amounts of cash after funding our growth and the other capital
needs of our business. We have repurchased stock as planned
every year since 1993 and have also raised our quarterly cash
dividend annually since its inception in 1994.
Flexible Business Model Maximizes
Long-Term Profitability
Again, we are pleased with the record sales and earnings
results we achieved in 2017 on top of strong multi-year
comparisons and against a very competitive retail backdrop.
These results were driven by our ongoing ability to deliver the
best bargains possible to today’s value-focused shoppers. Our
better-than-expected performance in 2017 is also a testament
to the resilience of our off-price business model and the
talented individuals throughout our organization.
Over the long term, we are confident that the off-price sector
will remain a strong-performing segment of retail, especially
given consumers’ continued focus on value. Our performance
over the past several years demonstrates our proven ability to
achieve ongoing profitable market share gains by consistently
offering the exceptional values our customers have come to
expect. This remains our top priority and keeps us optimistic
about our prospects for future growth.
Social Responsibility at Ross
The six Ross Dress for Less stores we opened in Northern
California in 1982 have grown into the largest off-price apparel
and home fashion chain in the United States, with 1,409
locations at the end of 2017. dd’s DISCOUNTS, which we
launched in 2004, had 213 stores at year end. Our success
over the past 35 years has been driven by an unwavering
commitment to creating value, with a focus on excellence,
ethics, and integrity in all we do. This extends far beyond our
mission of offering customers great name brand bargains.
It also means enhancing the lives of over 82,000 associates
by providing a work environment where they can grow
and succeed.
Our greatest assets are the people that work in our stores,
distribution centers, and corporate and buying offices. All of
our associates play an integral role in delivering great value to
our customers.
To maximize our ability to attract, motivate, and retain the best
retail talent, we recently announced a number of competitive
wage and benefit-related investments we are making in 2018.
In addition, we continue to pursue a number of career
initiatives, including the growth of our internship programs
in our buying and corporate offices, distribution center, and
stores. Our training and development programs provide
associates with the resources and skills to take on additional
responsibilities, and enhance their potential for long-term
career growth. We also offer transitional career opportunities
for former military service members, recognizing that their
experience and talent as leaders can be a good fit for
our business.
We support the communities where we operate through local
hiring and philanthropic efforts, including our foundation that
supports our charitable mission to help create a brighter future
for today’s youth. In addition, we continually look for ways to
improve our operations to be more efficient and sustainable,
while minimizing our impact on the environment. Our
commitment to use less energy and fewer natural resources
dates back more than 20 years, and we continue to make
improvements on these initiatives.
In closing, we would like to thank all of our associates,
customers, business partners, and stockholders for their
continued support.
Sincerely,
MICHAEL BALMUTH
Executive Chairman
BARBARA RENTLER
Chief Executive Officer
2017 Annual Report | 5
Locations
ROSS DRESS FOR LESS
Alabama
Arizona
Arkansas
California
Colorado
Delaware
District of Columbia
Florida
Georgia
Guam
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maryland
Mississippi
Missouri
Montana
Nevada
New Jersey
New Mexico
North Carolina
North Dakota
Oklahoma
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
Wyoming
23
65
8
291
32
2
1
164
51
2
20
11
67
14
4
11
11
15
22
9
23
6
29
13
12
44
1
25
30
46
23
2
30
183
19
38
43
16
3
TOTAL
1,409
6 | Ross Stores
1,622 stores 37 states
DD’S DISCOUNTS
Arizona
California
Colorado
Florida
Georgia
Louisiana
Maryland
Nevada
New Jersey
New Mexico
North Carolina
Oklahoma
Pennsylvania
South Carolina
Tennessee
Texas
13
88
2
31
8
3
2
8
1
2
2
1
2
1
2
47
TOTAL
213
2017 Annual Report | 7
89 new stores in 2017
Financial Highlights1
$14.1
$3.55
$12.9
$11.9
$11.0
$10.2
$2.83
$2.51
$2.21
$1.94
13
14
15
16
17
13
14
15
16
17
Total Sales
($ billions)
Earnings Per Share2
47%
$1,123
44%
43%
43%
43%
$892
$915
$698
$718
13
14
15
16
17
13
14
15
16
17
Return on Average
Stockholders’ Equity
Cash Returned
to Stockholders3
($ millions)
1 2017 results are based on a 53-week fiscal year; all other years are on a 52-week basis.
2 Adjusted for 2-for-1 stock split effective June 2015.
3 Includes cash dividends and stock repurchases.
8 | Ross Stores
Form 10-K
Ross Stores, Inc.
Table of Contents
Business
Selected Financial Data
Management’s Discussion and Analysis
Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Signatures
Index to Exhibits
Certifications
Index to Other Information
Directors and Officers
12
29
31
42
46
62
68
69
73
76
Corporate Data
Inside Back Cover
10
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 3, 2018
or
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)
(State or other jurisdiction of incorporation or organization)
Delaware
94-1390387
(I.R.S. Employer Identification No.)
5130 Hacienda Drive, Dublin, California
(Address of principal executive offices)
Registrant's telephone number, including area code
94568-7579
(Zip Code)
(925) 965-4400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $.01
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes X No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No X
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 X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such files).
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or emerging growth company. See 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 X Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company)
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X
The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of July 29, 2017 was
$20,709,068,267, based on the closing price on that date as reported by the NASDAQ Global Select Market®. Shares of voting
stock held by each director and executive officer have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares of Common Stock, with $.01 par value, outstanding on March 12, 2018 was 378,713,373.
Documents incorporated by reference:
Portions of the Proxy Statement for the Registrant's 2018 Annual Meeting of Stockholders, which will be filed on or before June 4,
2018, are incorporated herein by reference into Part III.
11
PART I
ITEM 1. BUSINESS
Ross Stores, Inc. and its subsidiaries (“we” or the “Company”) operate 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 1,409 locations in 37 states, the
District of Columbia, and Guam, as of February 3, 2018. 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. Ross' target customers are primarily from middle income households.
We also operate 213 dd’s DISCOUNTS stores in 16 states as of February 3, 2018. dd's DISCOUNTS features more
moderately-priced 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. The typical dd’s
DISCOUNTS store is located in an established shopping center in a densely populated urban or suburban neighborhood and
its target customers typically come from households with more moderate incomes than Ross customers.
The merchant, store field, and distribution organizations for Ross and dd’s DISCOUNTS are separate and distinct. The two
chains share certain other corporate and support services.
Both our Ross and dd's DISCOUNTS brands target value-conscious women and men between the ages of 18 and 54. The
decisions we make, from merchandising, purchasing, and pricing, to the locations of our stores, are based on these
customer profiles. We believe that both brands derive a competitive advantage by offering a wide assortment of product
within each of our merchandise categories in organized and easy-to-shop store environments.
Our mission is to offer competitive values to our target customers by focusing on the following key strategic objectives:
• Maintain an appropriate level of recognizable brands, labels, and fashions at strong discounts throughout the store.
• Meet customer needs on a local basis.
• Deliver an in-store shopping experience that reflects the expectations of the off-price customer.
• Manage real estate growth to compete effectively across all our markets.
We refer to our fiscal years ended February 3, 2018, January 28, 2017, and January 30, 2016 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.
Merchandising, Purchasing, and Pricing
We seek to provide our customers with a wide assortment of first-quality, in-season, brand name and designer apparel,
accessories, footwear, and home merchandise for the entire family at savings of 20% to 60% below department and
specialty store regular prices every day at Ross, and 20% to 70% below moderate department and discount store regular
prices at dd’s DISCOUNTS. We sell recognizable brand name merchandise that is current and fashionable in each category.
New merchandise typically is received from three to six times per week at both Ross and dd’s DISCOUNTS stores. Our
buyers review their merchandise assortments on a weekly basis, enabling them to respond to selling trends and purchasing
opportunities in the market. Our merchandising strategy is reflected in our advertising, which emphasizes a strong value
message. Our stores offer a treasure-hunt shopping experience where customers can find great savings every day on a
broad assortment of brand name bargains for the family and the home.
Merchandising. Our merchandising strategy incorporates a combination of off-price buying techniques to purchase
advance-of-season, in-season, and past-season merchandise for both Ross and dd’s DISCOUNTS. We believe nationally
recognized name brands sold at compelling discounts will continue to be an important determinant of our success. We
generally leave the brand name label on the merchandise we sell.
12
We have established merchandise assortments that we believe are attractive to our target customers. Although we offer
fewer classifications of merchandise than most department stores, we generally offer a large selection within each
classification with a wide assortment of vendors, labels, prices, colors, styles, and fabrics within each size or item. Our
merchandise offerings include, but are not limited to, apparel (including footwear and accessories), small furniture, home
accents, bed and bath, beauty, toys, luggage, gourmet food, cookware, and watches.
Purchasing. We have a combined network of about 8,000 merchandise vendors and manufacturers for both Ross and dd’s
DISCOUNTS and believe we have adequate sources of first-quality merchandise to meet our requirements. We purchase
the vast majority of our merchandise directly from manufacturers, and we have not experienced any difficulty in obtaining
sufficient merchandise inventory.
We believe our ability to effectively execute certain off-price buying strategies is a key factor in our success. Our buyers use
a number of methods that enable us to offer our customers brand name and designer merchandise at strong discounts every
day relative to department and specialty stores for Ross and moderate department and discount stores for dd’s
DISCOUNTS. By purchasing later in the merchandise buying cycle than department, specialty, and discount stores, we are
able to take advantage of imbalances between retailers’ demand for products and manufacturers’ supply of those products.
Unlike most department and specialty stores, we typically do not require that manufacturers provide promotional allowances,
co-op advertising allowances, return privileges, split shipments, drop shipments to stores, or delayed deliveries of
merchandise. For most orders, only one delivery is made to one of our six distribution centers. These flexible requirements
further enable our buyers to obtain significant discounts on purchases.
The majority of the apparel and apparel-related merchandise that we offer in all of our stores is acquired through
opportunistic purchases created by manufacturer overruns and canceled orders both during and at the end of a season.
These buys are referred to as "close-out" purchases. Close-outs can be shipped to stores in-season, allowing us to get in-
season goods into our stores at great values or can be stored as packaway merchandise.
Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date, which may
even be the beginning of the same selling season in the following year. Packaway purchases are an effective method of
increasing the percentage of prestige and national brands at competitive savings within our merchandise assortments.
Packaway merchandise is mainly fashion basics and, therefore, not usually affected by shifts in fashion trends.
In fiscal 2017, we continued our emphasis on this important sourcing strategy in response to compelling opportunities
available in the marketplace. Packaway accounted for approximately 49% and 49% of total inventories as of February 3,
2018 and January 28, 2017, respectively. We believe the strong discounts we offer on packaway merchandise are one of the
key drivers of our business results.
Our primary buying offices are located in New York City and Los Angeles, the nation's two largest apparel markets. These
strategic locations allow our buyers to be in the market on a daily basis, sourcing opportunities and negotiating purchases
with vendors and manufacturers. These locations also enable our buyers to strengthen vendor relationships—a key element
to the success of our off-price buying strategies.
At the end of fiscal 2017, we had approximately 800 merchants for Ross and dd’s DISCOUNTS combined. The Ross and
dd’s DISCOUNTS buying organizations are separate and distinct, and each includes merchandise management, buyers, and
assistant buyers. Ross and dd’s DISCOUNTS buyers have on average eight years of experience, including merchandising
positions with other retailers such as Bloomingdale's, Burlington Stores, Foot Locker, Kohl’s, Lord & Taylor, Macy's,
Nordstrom, Saks, and TJX. We expect to continue to make additional targeted investments in our merchant organization to
further develop our relationships with an expanding number of manufacturers and vendors. Our ongoing objective is to
strengthen our ability to procure the most desirable brands and fashions at competitive discounts.
The off-price buying strategies utilized by our experienced team of merchants enable us to purchase Ross merchandise at
net prices that are lower than prices paid by department and specialty stores, and to purchase dd’s DISCOUNTS
merchandise at net prices that are lower than prices paid by moderate department and discount stores.
Pricing. Our policy is to sell brand name merchandise at Ross that is priced 20% to 60% below most department and
specialty store regular prices. At dd’s DISCOUNTS, we sell more moderate brand name product and fashions that are priced
20% to 70% below most moderate department and discount store regular prices. Our pricing policy is reflected on most of
our price tags which display our selling price as well as the comparable value for that item in department and specialty stores
for Ross merchandise, or in more moderate department and discount stores for dd’s DISCOUNTS merchandise.
13
Our pricing strategy at Ross differs from that of a department or specialty store. We purchase our merchandise at lower
prices and mark it up less than a department or specialty store. This strategy enables us to offer customers consistently low
prices and compelling value. On a weekly basis our buyers review specified departments in our stores for possible
markdowns based on the rate of sale as well as at the end of fashion seasons to promote faster turnover of merchandise
inventory and to accelerate the flow of fresh product. A similar pricing strategy is in place at dd’s DISCOUNTS where prices
are compared to those in moderate department and discount stores.
Stores
As of February 3, 2018, we operated a total of 1,622 stores comprised of 1,409 Ross stores and 213 dd’s DISCOUNTS
stores. Our stores are located predominantly in community and neighborhood shopping centers in heavily populated urban
and suburban areas. Where the size of the market and real estate opportunities permit, we cluster Ross stores to benefit
from economies of scale in advertising, distribution, and field management. We do the same for dd’s DISCOUNTS stores.
We believe a key element of our success at both Ross and dd’s DISCOUNTS is our organized, attractive, easy-to-shop, in-
store environments which allow customers to shop at their own pace. While our stores promote a self-service, treasure hunt
shopping experience, the layouts are designed to enhance customer convenience in their merchandise presentation,
dressing rooms, checkout, and merchandise return areas. Our store's sales area is based on a prototype single floor design
with a racetrack aisle layout. A customer can locate desired departments by signs displayed just below the ceiling of each
department. We enable our customers to select among sizes and prices through prominent category and sizing markers. At
most stores, shopping carts and/or baskets are available at the entrance for customer convenience. Cash registers are
primarily located at store exits for customer ease and efficient staffing.
We accept a variety of payment methods. We provide refunds on all merchandise (not used, worn, or altered) returned with a
receipt within 30 days. Merchandise returns having a receipt older than 30 days are exchanged or refunded with store credit.
Operating Costs
Consistent with the other aspects of our business strategy, we strive to keep operating costs as low as possible. Among the
factors which have enabled us to do this are: labor costs that are generally lower than full-price department and specialty
stores due to a store design that creates a self-service retail format and due to the utilization of labor saving technologies;
economies of scale with respect to general and administrative costs resulting from centralized merchandising, marketing,
and purchasing decisions; and flexible store layout criteria which facilitate conversion of existing buildings to our formats.
Information Systems
We continue to invest in new information systems and technology to provide a platform for growth over the next several
years. Recent initiatives include enhancements to our information and data security, merchandising, distribution,
transportation, store, and financial systems. These initiatives support future growth, the execution and achievement of our
plans, as well as ongoing stability and compliance.
Distribution
We own and operate six distribution processing facilities—three in California, one in Pennsylvania, and two in South
Carolina. We ship all of our merchandise to our stores through these distribution centers, which are large, highly automated,
and built to suit our specific off-price business model.
We own four and lease three other warehouse facilities for packaway storage. We also use other third-party facilities,
including two warehouses, for storage of packaway inventory.
We utilize a combination of our own and third-party cross dock facilities to distribute merchandise to stores on a regional
basis. Shipments are made by contract carriers to the stores three to six times per week depending on location.
We believe that our distribution centers with their current expansion capabilities will provide adequate processing capacity to
support our current store growth. Information on the size and locations of our distribution centers and warehouse facilities is
found under “Properties” in Item 2.
14
Advertising
Advertising for Ross Dress for Less relies primarily on television to communicate the Ross value proposition—savings off the
same brands carried at leading department or specialty stores every day. This strategy reflects our belief that television is
the most efficient and cost effective medium for communicating our brand position. While television is our primary advertising
medium, we continue to utilize additional channels, including social media, to communicate our brand position. Advertising
for dd’s DISCOUNTS is primarily focused on new store grand openings and local media initiatives.
Trademarks
The trademarks for ROSS®, Ross Dress For Less®, and dd’s DISCOUNTS® have been registered with the United States
Patent and Trademark Office.
Employees
As of February 3, 2018, we had approximately 82,700 total employees, which includes both full and part-time employees.
Additionally, we hire temporary employees especially during the peak seasons. Our employees are non-union. Management
considers the relationship between the Company and our employees to be good.
Competition
We believe the principal competitive factors in the off-price retail apparel and home fashion industry are offering significant
discounts on brand name merchandise, offering a well-balanced assortment that appeals to our target customers, and
consistently providing store environments that are convenient and easy to shop. To execute this concept, we continue to
make strategic investments in our merchandising organization. We also continue to make improvements to our core
merchandising system to strengthen our ability to plan, buy, and allocate product based on more local versus regional
trends. We believe that we are well-positioned to compete based on each of these factors.
Nevertheless, the retail apparel market is highly fragmented and competitive. We face a challenging macro-economic and
retail environment that creates intense competition for business from on-line retailers, department stores, specialty stores,
discount stores, warehouse stores, other off-price retailers, and manufacturer-owned outlet stores, many of which are units
of large national or regional chains that have substantially greater resources. The retail apparel and home-related
businesses may become even more competitive in the future.
Available Information
The internet address for our corporate website is www.rossstores.com. Our Annual Reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, Proxy Statements, and any amendments to those reports are made available
free of charge on or through the Investors section of our corporate website promptly after being electronically filed with the
Securities and Exchange Commission. The information found on our corporate website is not part of this, or any other report
or regulatory filing we file with or furnish to the Securities and Exchange Commission.
15
ITEM 1A. RISK FACTORS
Our Annual Report on Form 10-K for fiscal 2017, and information we provide in our Annual Report to Stockholders, press
releases, and other investor communications, including those on our corporate website, may contain forward-looking
statements with respect to anticipated future events and our projected growth, financial performance, operations, and
competitive position that are subject to risks and uncertainties that could cause our actual results to differ materially from
those forward-looking statements and our prior expectations and projections. Refer to Management’s Discussion and
Analysis for a more complete identification and discussion of “Forward-Looking Statements.”
Our financial condition, results of operations, cash flows, and the performance of our common stock may be adversely
affected by a number of risk factors. Risks and uncertainties that apply to both Ross and dd's DISCOUNTS include, without
limitation, the following:
Competitive pressures in the apparel and home-related merchandise retailing industry are high.
The retail industry is highly competitive and the marketplace is highly fragmented, as many different retailers compete for
market share by utilizing a variety of store and on-line formats and merchandising strategies. We expect competition to
increase in the future. There are no significant economic barriers for others to enter our retail sector. We compete with many
other local, regional, and national retailers, traditional department stores, upscale mass merchandisers, other off-price
retailers, specialty stores, internet and catalog businesses, and other forms of retail commerce, for customers, associates,
store locations, and merchandise. Our retail competitors constantly adjust their pricing, business strategies and promotional
activity (particularly during holiday periods) in response to changing market conditions or their own financial condition. The
substantial sales growth in the e-commerce industry within the last decade has also encouraged the entry of many new
competitors, new business models, and an increase in competition from established companies looking for ways to create
successful on-line off-price shopping alternatives. Intense pressures from our competitors, our inability to adapt effectively
and quickly to a changing competitive landscape, or a failure to effectively execute our off-price model, could reduce demand
for our merchandise, decrease our inventory turnover, cause greater markdowns, and negatively affect our sales and
margins.
Unexpected changes in the level of consumer spending on or preferences for apparel and home-related
merchandise could adversely affect us.
Our success depends on our ability to effectively buy and resell merchandise that meets customer demand. We work on an
ongoing basis to identify customer trends and preferences, and to obtain merchandise inventory to meet anticipated
customer needs. It is very challenging to successfully do this well and consistently across our diverse merchandise
categories and in the multiple markets in which we operate throughout the United States. Although our off-price business
model provides us certain advantages and could allow us greater flexibility than traditional retailers in adjusting our
merchandise mix to ever-changing consumer tastes, our merchandising decisions may still fail to correctly anticipate and
match consumer trends and preferences, particularly in our newer geographic markets. Failure to correctly anticipate and
match the trends, preferences, and demands of our customers could adversely affect our business, financial condition, and
operating results.
Adverse and/or unseasonable weather may affect shopping patterns and consumer demand for seasonal apparel
and other merchandise, and may result in temporary store closures and disruptions in deliveries of merchandise to
our stores.
Unseasonable weather and prolonged, extreme temperatures, and events such as storms, affect consumers’ buying patterns
and willingness to shop, and could adversely affect the demand for merchandise in our stores, particularly in apparel and
seasonal merchandise. Among other things, weather conditions may also affect our ability to deliver our products to our
stores or require us to close certain stores temporarily, thereby reducing store traffic. Even if stores are not closed, many
customers may be unable to go, or may decide to avoid going to stores in bad weather. As a result, adverse or
unseasonable weather in any of our markets could lead to disappointing sales and increase our markdowns, which may
negatively affect our sales and margins.
16
We are subject to impacts from the macro-economic environment, financial and credit markets, and geopolitical
conditions that affect consumer confidence and consumer disposable income.
Consumer spending habits for the merchandise we sell are affected by many factors, including prevailing economic
conditions, recession and fears of recession, levels of unemployment, salaries and wage rates, housing costs, energy and
fuel costs, income tax rates and the timing of tax refunds, inflation, consumer confidence in future economic conditions,
consumer perceptions of personal well-being and security, availability of consumer credit, consumer debt levels, and
consumers’ disposable income. Adverse developments in any of these areas could reduce demand for our merchandise,
decrease our inventory turnover, cause greater markdowns, and negatively affect our sales and margins. All of our stores
are located in the United States and its territories, so we are especially susceptible to changes in the U.S. economy.
In order to achieve our planned gross margins, we must effectively manage our inventories, markdowns, and
inventory shortage.
We purchase the majority of our inventory based on our sales plans. If our sales plans significantly differ from actual
demand, we may experience higher inventory levels and need to take markdowns on excess or slow-moving inventory,
resulting in decreased profit margins. We also may have insufficient inventory to meet customer demand, leading to lost
sales opportunities. As a regular part of our business, we purchase “packaway” inventory 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 varies by merchandise
category and by season, but it typically remains in storage less than six months. Packaway inventory is frequently a
significant portion of our overall inventory. If we make packaway purchases that do not meet consumer preferences at the
later time of release to our stores, we could have significant inventory markdowns. Changes in packaway inventory levels
could impact our operating cash flow. Although we have various systems to help protect against loss or theft of our inventory,
both when in storage and once distributed to our stores, we may have damaged, lost, or stolen inventory (called “shortage”)
in higher amounts than we forecast, which would result in write-offs, lost sales, and reduced margins.
We depend on the market availability, quantity, and quality of attractive brand name merchandise at desirable
discounts, and on the ability of our buyers to purchase merchandise to enable us to offer customers a wide
assortment of merchandise at competitive prices.
Opportunistic buying, lean inventory levels, and frequent inventory turns are critical elements of our off-price business
strategy. Maintaining an overall pricing differential to department and specialty stores is also key to our ability to attract
customers and sustain our sales and gross margins. Our opportunistic buying places considerable discretion on our
merchants, who are in the marketplace continually and who are generally purchasing merchandise for the current or
upcoming season. Our ability to meet or exceed our operating performance targets depends upon the continuous, sufficient
availability of high quality merchandise that we can acquire at prices sufficiently below those paid by conventional retailers
and that represent a value to our customers. To the extent that certain of our vendors are better able to manage their
inventory levels and reduce the amount of their excess inventory, the amount of high quality merchandise available to us
could be materially reduced. To the extent that certain of our vendors decide not to sell to us or go out of business, the
amount of high quality merchandise available to us could also be materially reduced. Because a significant portion of the
apparel and other goods we sell is originally manufactured in other countries, changes in U.S. tariffs, trade relationships, or
tax policies that reduce the supply or increase the relative cost of imported goods, could also result in disruptions to our
existing supply relationships. Shortages or disruptions in the availability to us of high quality, value-priced merchandise
would likely have a material adverse effect on our sales and margins.
17
Information or data security breaches, including cyber-attacks on our transaction processing and computer
information systems, 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, disrupt our operations,
damage our reputation, and increase our costs.
Like other large retailers, we rely on commercially available computer and telecommunications systems to process, transmit,
and store payment card and other personal and confidential information, and to provide information or data security for those
transactions. Some of the key information systems and processes we use to handle payment card transactions and check
approvals, and the levels of security technology utilized in payment cards, are controlled by the banking and payment card
industry, not by us. Cyber criminals may attempt to penetrate our point of sale and other information systems to
misappropriate customer or business information, including but not limited to credit/debit card, personnel, or trade
information. Despite security measures we have in place and our efforts to prevent, monitor, and mitigate attacks and errors,
our facilities and systems (or those of third-party service providers we utilize or connect to) may be vulnerable to security
breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, phishing and
similar fraudulent attacks, or other similar events. It is also possible that an associate within our Company or a third party we
do business with may purposefully or inadvertently cause a security breach involving such information. The increasing
sophistication of cyber criminals and advances in computer capabilities and remote access increases these risks. A breach
of our information or data security, a system shut down or other response we may take, or our failure or delay in detecting
and mitigating a loss of personal or business information, could result in damage to our reputation, loss of customer
confidence, violation (or alleged violation) of applicable laws, and expose us to civil claims, litigation, and regulatory action,
and to unanticipated costs and disruption of our operations.
Disruptions in our supply chain or in our information systems could impact our ability to process sales and to
deliver product to our stores in a timely and cost-effective manner.
Various information systems are critical to our ability to operate and to manage key aspects of our business. We depend on
the integrity and consistent operations of these systems to process transactions in our stores, track inventory flow, manage
merchandise allocation and distribution logistics, generate performance and financial reports, and support merchandising
decisions.
We are currently making, and will continue to make, significant technology investments to improve or replace information
processes and systems that are key to managing our business. We must monitor and choose the right investments and
implement them at the right pace. The risk of system disruption is increased whenever significant system changes are
undertaken. Excessive technological change could impact the effectiveness of adoption, and could make it more difficult for
us to realize benefits from new technology. Targeting the wrong opportunities, failing to make the best investments, or
making an investment commitment significantly above or below our needs could damage our competitive position and
adversely impact our business and results of operations. Additionally, the potential problems and interruptions associated
with implementing technology system changes could disrupt or reduce the efficiency of our operations in the short term.
These initiatives might not provide the anticipated benefits or may provide them on a delayed schedule or at a higher cost.
Our information systems, including our back-up systems, are subject to damage or interruption from power outages,
computer and telecommunications failures, computer viruses, internal or external security breaches, catastrophic events
such as severe storms, fires, earthquakes, floods, acts of terrorism, and design or usage errors by our employees or by third
parties. If our information systems or our back-up systems are damaged or cease to function properly, we may have to make
significant investments to fix or replace them, and we may suffer interruptions in our operations in the interim. Any material
interruption in our computer systems could have a material adverse effect on our business and results of operations.
A disruption within our logistics or supply chain network could adversely affect our ability to timely and efficiently transport
merchandise to our stores or our distribution centers, which could impair our ability to meet customer demand for products
and result in lost sales or increased supply chain costs. Such disruptions may result from: damage or destruction to our
distribution centers; weather-related events; natural disasters; trade restrictions; tariffs; third-party strikes or ineffective cross
dock operations, work stoppages or slowdowns; shipping capacity constraints; supply or shipping interruptions or costs; or
other factors beyond our control. Any such disruptions could negatively impact our financial performance or financial
condition.
18
We need to obtain acceptable new store sites with favorable consumer demographics to achieve our planned
growth.
Successful growth requires us to find appropriate real estate sites in our targeted market areas. We compete with other
retailers and businesses for acceptable store locations. For the purpose of identifying locations we rely, in part, on consumer
demographics. While we believe consumer demographics are helpful indicators of acceptable store locations, we recognize
that this information cannot predict future consumer preferences and buying trends with complete accuracy. Time frames for
negotiations and store development vary from location to location and can be subject to unforeseen delays or unexpected
cancellations. We may not be able to open new stores or, if opened, operate those stores profitably. Construction and other
delays in store openings could have a negative impact on our business and operating results. Additionally, we may not be
able to renegotiate our current lease terms which could negatively impact our operating results. New stores may not achieve
the same sales or profit levels as our existing stores, and adding stores to existing markets may adversely affect the sales
and profitability of other existing stores. If we cannot acquire sites on attractive terms, it could limit our ability to grow or
adversely affect the economics of our new stores in various markets.
To achieve growth, we need to expand in existing markets and enter new geographic markets.
Our growth strategy is based on successfully expanding our off-price model in current markets and in new geographic
regions. There are significant risks associated with our ability to continue to expand our current business and to enter new
markets. Stores we open in new markets may take longer to reach expected sales and profit levels on a consistent basis and
may have higher construction, occupancy, advertising, or operating costs than stores we open in existing markets, thereby
affecting our overall profitability. New markets may have competitive conditions, consumer tastes and discretionary spending
patterns that are more difficult to predict or satisfy than our existing markets. Our limited operating experience and limited
brand recognition in new markets may require us to build brand awareness in that market through greater investments in
advertising and promotional activity than we originally planned. We may find it more difficult in new markets to hire, motivate,
and retain qualified associates.
Consumer problems or legal issues involving the quality, safety, or authenticity of products we sell could harm our
reputation, result in lost sales, and/or increase our costs.
Various governmental authorities regulate the quality and safety of merchandise we sell. These laws and regulations
frequently change, and the ultimate cost of compliance cannot be precisely estimated. Because of our opportunistic buying
strategy, we sometimes obtain merchandise in new categories or from new vendors that we have not dealt with before.
Although our vendor arrangements typically place contractual responsibility on the vendor for resulting liability and we
generally rely on our vendors to provide authentic merchandise that matches the stated quality attributes and complies with
applicable product safety and other laws, vendor non-compliance with consumer product safety laws may subject us to
product recalls, make certain products unsalable, or require us to incur significant compliance costs.
Regardless of fault, any real or perceived issues with the quality and safety of merchandise, particularly products such as
food and children’s items, issues with the authenticity of merchandise, or our inability, or that of our vendors, to comply on a
timely basis with such laws and regulatory requirements, could adversely affect our reputation, result in lost sales, inventory
write-offs, uninsured product liability or other legal claims, penalties or losses, merchandise recalls, and increased costs.
An adverse outcome in various legal, regulatory, or tax matters could damage our reputation or brand and
increase our costs.
As an ordinary part of our business, we are involved in various legal proceedings, regulatory reviews, tax audits, or other
legal matters. These may include lawsuits, inquiries, demands, or other claims or proceedings by governmental entities and
private plaintiffs, including those relating to employment and employee benefits (including classification, employment rights,
discrimination, wage and hour, and retaliation), securities, real estate, tort, commercial, consumer protection, privacy,
product compliance and safety, advertising, comparative pricing, intellectual property, tax, escheat, and whistle-blower
claims. We continue to be involved in a number of employment-related lawsuits, including class actions which are primarily in
California.
We are subject to federal, state, and local rules and regulations in the United States, and to various international laws, which
change from time to time. These legal requirements collectively affect multiple aspects of our business, including the cost of
health care, workforce management and employee benefits, minimum wages, advertising, comparative pricing,
import/export, sourcing and manufacturing, data protection, intellectual property, and others. If we fail to comply (or are
alleged not to comply) with any of these requirements, we may be subject to fines, settlements, penalties, or other costs. In
addition, an adverse outcome (or the adverse publicity from the claims) in any of these matters may harm and damage our
reputation or brand. We are also subject to the continuous examination of our tax returns and reports by federal, state, and
local tax authorities, and these examining authorities may challenge positions we take.
19
Significant judgment is required in evaluating and estimating our provision and accruals for both legal claims and for taxes.
Actual results may differ and our costs may exceed the reserves we establish in estimating the probable outcomes. In
addition, applicable accounting principles and interpretations may change from time to time, and those changes could have
material effects on our reported operating results and financial condition.
Damage to our corporate reputation or brands could adversely affect our sales and operating results.
Our reputation is partially based on perceptions of various subjective qualities and overall integrity. Any incident that erodes
the trust or confidence of our customers or the general public could adversely affect our reputation and business, particularly
if the incident results in significant adverse publicity or governmental inquiry. Such an incident could also include alleged acts
or omissions by or situations involving our suppliers (or their contractors or subcontractors). The use of social media
platforms, including blogs, social media websites, and other forms of internet-based communications which allow individuals
access to a broad audience of consumers and other interested persons, continues to increase. The availability of information
(whether correct or erroneous) on social media platforms is virtually immediate, as is its impact. Many social media platforms
immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the
content posted. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and
readily available. Information concerning our Company may be posted on such platforms at any time. Information posted
may be adverse to our interests or may be inaccurate, each of which could negatively impact sales, diminish customer trust,
reduce employee morale and productivity, and lead to difficulties in recruiting and retaining qualified associates. The harm
may be immediate, without affording us an opportunity for redress or correction.
We must continually attract, train, and retain associates with the retail talent necessary to execute our off-price
retail strategies.
Like other retailers, we face challenges in recruiting and retaining sufficient talent in our buying organization, management,
and other key areas. Many of our retail store associates are in entry level or part-time positions with historically high rates of
turnover. Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates and health
and other insurance costs, as well as the impact of legislation or regulations governing minimum wage or healthcare
benefits.
Any increase in labor costs may adversely impact our profitability or, if we fail to pay such higher wages, may result in
increased turnover. Excessive turnover may result in higher costs associated with finding, hiring, and training new
associates. If we cannot hire enough qualified associates, or if there is a disruption in the supply of personnel we hire from
third-party providers, especially during our peak season, our operations could be negatively impacted.
Because of the distinctive nature of our off-price model, we must also attract, train, and retain our key associates across the
Company, including within our buying organization. The loss of one or more of our key personnel or the inability to effectively
identify a suitable successor for a key role could have a material adverse effect on our business. There is no assurance that
we will be able to attract or retain highly qualified associates in the future, and any failure to do so could have a material
adverse effect on our growth, operations, or financial position.
We must effectively advertise and market our business.
Customer traffic and demand for our merchandise is influenced by our advertising and marketing activities, the name
recognition and reputation of our brands, and the location of our stores. Although we use marketing and advertising
programs to attract customers to our stores, particularly through television, our competitors may spend more or use different
approaches, which could provide them with a competitive advantage. Our advertising and other promotional programs may
not be effective or may be perceived negatively, or could require increased expenditures, which could adversely affect sales
or increase costs.
We are subject to risks associated with selling and importing merchandise produced in other countries.
These risks and uncertainties include import duties and quotas, compliance with anti-dumping regulations, work stoppages,
economic uncertainties and adverse economic conditions (including inflation and recession), foreign government regulations,
employment and labor matters, concerns relating to human rights, working conditions, and other issues in factories or
countries where merchandise is produced, transparency of sourcing and supply chains, exposure on product warranty and
intellectual property issues, consumer perceptions of the safety of imported merchandise, wars and fears of war, political
unrest, natural disasters, regulations to address climate change, and trade restrictions.
20
A predominant portion of the apparel and other goods we sell (even when we purchase it domestically, often as excess
inventory sold to us by a domestic vendor) is originally manufactured in other countries. In addition, we directly source a
portion of the products sold in our stores from foreign vendors predominantly in Asia (including China). We also buy product
from foreign sources indirectly through domestic vendors and manufacturers' representatives. Although our foreign
purchases of merchandise are negotiated and paid for in U.S. dollars, decreases in the value of the U.S. dollar relative to
foreign currencies could increase the cost of products we purchase from overseas vendors. When we are the importer of
record, we may be subject to regulatory or other requirements similar to those applicable to a manufacturer.
To the extent that our vendors are located overseas or rely on overseas sources for a large portion of their products, any
event causing a disruption of imports, including the imposition of import restrictions, war, and acts of terrorism could
adversely affect our business. The flow of merchandise from our vendors could also be adversely affected by financial or
political instability in any of the countries in which the goods we purchase are manufactured, if the instability affects the
production or export of merchandise from those countries. Trade restrictions in the form of tariffs or quotas, or both,
applicable to the products we sell could also affect the importation of those products and could increase the cost and reduce
the supply of products available to us. We cannot predict whether any of the countries from which our products are sourced,
or in which our products are currently manufactured or may be manufactured in the future, will be subject to trade restrictions
imposed by the U.S. or foreign governments or the likelihood, type or effect of any such restrictions.
We require our vendors (for both import and domestic purchasing) to adhere to various conduct, compliance, and other
requirements including those relating to environmental, employment and labor (including wages and working conditions),
health, safety, and anti-bribery standards. From time to time, our vendors, their contractors, or their subcontractors may be
alleged to not be in compliance with these standards or applicable local laws. Although we have implemented policies and
procedures to facilitate our compliance with laws and regulations relating to doing business in foreign markets and importing
merchandise, there can be no assurance that suppliers and other third parties with whom we do business will not violate
such laws and regulations or our policies. Significant or continuing noncompliance with such standards and laws by one or
more vendors could have a negative impact on our reputation, could subject us to claims and liability, and could have an
adverse effect on our results of operations.
Changes in U.S. tax or tariff policy regarding apparel and home-related merchandise produced in other countries
could adversely affect our business.
A predominant portion of the apparel and other goods we sell is originally manufactured in other countries. The U.S.
government has at times indicated a willingness to significantly change existing trade policies. This exposes us to risks of
disruption and cost increases in our established patterns for sourcing our merchandise, and creates increased uncertainties
in planning our sourcing strategies and forecasting our margins. Changes in U.S. tariffs, quotas, trade relationships, or tax
provisions that reduce the supply or increase the relative cost of goods produced in other countries could increase our cost
of goods and/or increase our effective tax rate. Although such changes would have implications across the entire industry,
we may fail to effectively adapt and to manage the adjustments in strategy that would be necessary in response to those
changes. In addition to the general uncertainty and overall risk from potential changes in U.S. laws and policies, as we make
business decisions in the face of uncertainty as to potential changes, we may incorrectly anticipate the outcomes, miss out
on business opportunities, or fail to effectively adapt our business strategies and manage the adjustments that are necessary
in response to those changes. These risks could adversely affect our revenues, increase our effective tax rates, and reduce
our profitability.
We may experience volatility in revenues and earnings.
Our business has slower and busier periods based on holiday and back-to-school seasons, weather, and other factors.
Although our off-price business is historically subject to less seasonality than traditional retailers, we may still experience
unexpected decreases in sales from time to time, which could result in increased markdowns and reduced margins.
Significant operating expenses, such as rent expense and associate salaries, do not adjust proportionately with our sales. If
sales in a certain period are lower than our plans, we may not be able to adjust these operating expenses concurrently,
which may impact our operating results.
A natural or man-made disaster in California or in another region where we have a concentration of stores, offices,
or a distribution center could harm our business.
Our corporate headquarters, Los Angeles buying office, three operating distribution centers, two warehouses, and
approximately 23% of our stores are located in California. Natural or other disasters, such as earthquakes and hurricanes,
tornadoes, floods, or other extreme weather and climate conditions, or fires, explosions, and acts of war or terrorism, or
public health issues (such as epidemics), in any of our markets could disrupt our operations or our supply chain, or could
shut down, damage, or destroy our stores or distribution facilities.
21
To support our continuing operations, our new store and distribution center growth plans, and our stock
repurchase program and quarterly dividends, we must maintain sufficient liquidity.
We depend upon our operations to generate strong cash flows to support our general operating activities, and to supply
capital to finance our operations, make capital expenditures and acquisitions, manage our debt levels, and return value to
our stockholders through dividends and stock repurchases. If we are unable to generate sufficient cash flows from
operations to support these activities, our growth plans and our financial performance would be adversely affected. If
necessary to support our operations, we could be forced to suspend our stock repurchase program and/or discontinue
payment of our quarterly cash dividends. Any failure to pay dividends or repurchase stock, after we have announced our
intention to do so, may negatively impact our reputation and investor confidence in us, and may negatively impact our stock
price.
We have borrowed on occasion to finance some of our activities. If our access to capital is restricted or our borrowing costs
increase, our operations and financial condition could be adversely impacted. In addition, if we do not properly allocate our
capital to maximize returns, our operations, cash flows, and returns to stockholders could be adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
At February 3, 2018, we operated a total of 1,622 stores, of which 1,409 were Ross stores in 37 states, the District of
Columbia, and Guam, and 213 were dd’s DISCOUNTS stores in 16 states. All stores are leased, with the exception of two
locations which we own.
During fiscal 2017, we opened 74 new Ross stores and closed five existing stores. The average approximate Ross store size
is 28,200 square feet.
During fiscal 2017, we opened 22 new dd’s DISCOUNTS stores and closed two existing stores. The average approximate
dd’s DISCOUNTS store size is 23,100 square feet.
During fiscal 2017, no one store accounted for more than 1% of our sales.
We carry earthquake insurance to help mitigate the risk of financial loss due to an earthquake.
Our real estate strategy in 2018 is to primarily open stores in states where we currently operate, to increase our market
penetration and leverage overhead and advertising expenses as a percentage of sales in each market. We also expect to
continue our store expansion in newer markets in 2018. Important considerations in evaluating a new store location in both
newer and more established markets are the availability and quality of potential sites, demographic characteristics,
competition, and population density of the local trade area. In addition, we continue to consider opportunistic real estate
acquisitions.
22
The following table summarizes the locations of our stores by state/territory as of February 3, 2018 and January 28, 2017.
State/Territory
Alabama
Arizona
Arkansas
California
Colorado
Delaware
District of Columbia
Florida
Georgia
Guam
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maryland
Mississippi
Missouri
Montana
Nevada
New Jersey
New Mexico
North Carolina
North Dakota
Oklahoma
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
Wyoming
Total
February 3, 2018
23
78
8
379
34
2
1
195
59
2
20
11
67
14
4
11
11
18
24
9
23
6
37
14
14
46
1
26
30
48
24
2
32
230
19
38
43
16
3
January 28, 2017
23
74
8
364
33
2
1
185
56
1
17
11
62
9
0
10
9
18
24
8
21
6
33
13
12
45
1
23
30
44
23
1
31
222
17
38
42
13
3
1,622
1,533
Where possible, we obtain sites in buildings requiring minimal alterations, allowing us to establish stores in new locations in
a relatively short period of time at reasonable costs in a given market. At February 3, 2018, the majority of our stores had
unexpired original lease terms ranging from three to ten years with three to four renewal options of five years each. The
average unexpired original lease term of our leased stores is five years or 21 years if renewal options are included. See Note
E of Notes to Consolidated Financial Statements.
See additional discussion under “Stores” in Item 1.
23
The following table summarizes the location and approximate sizes of our distribution centers, warehouses, and office
locations as of February 3, 2018. Square footage information for the distribution centers and warehouses represents total
ground floor area of the facility. Square footage information for office space represents total space owned and leased. See
additional discussion in Management’s Discussion and Analysis.
Location
Distribution centers
Carlisle, Pennsylvania
Fort Mill, South Carolina
Moreno Valley, California
Perris, California
Rock Hill, South Carolina
Shafter, California
Warehouses
Carlisle, Pennsylvania
Carlisle, Pennsylvania
Fort Mill, South Carolina
Fort Mill, South Carolina
Fort Mill, South Carolina
Perris, California
Riverside, California
Office space
Boston, Massachusetts
Dublin, California
Los Angeles, California
New York City, New York
Approximate Square Footage
Own / Lease
465,000
1,200,000
1,300,000
1,300,000
1,200,000
1,700,000
239,000
246,000
255,000
423,000
428,000
699,000
449,000
5,000
414,000
87,000
572,000
Own
Own
Own
Own
Own
Own
Lease
Lease
Lease
Own
Own
Own
Own
Lease
Own
Lease
Own
See additional discussion under “Distribution” in Item 1.
ITEM 3. LEGAL PROCEEDINGS
Like many retailers, we have 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.
We are also party to various other legal and regulatory proceedings arising in the normal course of business. Actions filed
against us 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 we violated federal, state,
and/or local laws. Actions against us are in various procedural stages. Many of these proceedings raise factual and legal
issues and are subject to uncertainties.
We believe that the resolution of our pending class action litigation and other currently pending legal and regulatory
proceedings will not have a material adverse effect on our financial condition, results of operations, or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
24
Executive Officers of the Registrant
The following sets forth the names and ages of our executive officers, indicating each person's principal occupation or
employment during at least the past five years. The term of office is at the discretion of our Board of Directors.
Name
Age
Position
Michael Balmuth
Barbara Rentler
Bernie Brautigan
James S. Fassio
Brian Morrow
Michael O’Sullivan
Lisa Panattoni
John G. Call
Michael J. Hartshorn
67 Executive Chairman of the Board
60 Chief Executive Officer
53 President, Merchandising, Ross Dress for Less
63 President and Chief Development Officer
58 President and Chief Merchandising Officer, dd's DISCOUNTS
54 President and Chief Operating Officer
55 President, Merchandising, Ross Dress for Less
59 Executive Vice President, Finance and Legal, and Corporate Secretary
50 Executive Vice President, Chief Financial Officer and Principal Accounting Officer
Mr. Balmuth has served as Executive Chairman of the Board of Directors since 2014. From 1996 to 2014, he was Vice
Chairman of the Board of Directors and Chief Executive Officer. He also served as President from 2005 to 2009. Previously,
Mr. Balmuth was Executive Vice President, Merchandising from 1993 to 1996 and Senior Vice President and General
Merchandise Manager from 1989 to 1993. Before joining Ross, he was Senior Vice President and General Merchandising
Manager at Bon Marché in Seattle from 1988 to 1989 and Executive Vice President and General Merchandising Manager for
Karen Austin Petites from 1986 to 1988.
Ms. Rentler has served as Chief Executive Officer and a member of the Board of Directors since 2014. From 2009 to 2014,
she was President and Chief Merchandising Officer, Ross Dress for Less and Executive Vice President, Merchandising, from
2006 to 2009. She also served at dd’s DISCOUNTS as Executive Vice President and Chief Merchandising Officer from 2005
to 2006 and Senior Vice President and Chief Merchandising Officer from 2004 to 2005. Prior to that, she held various
merchandising positions since joining the Company in 1986.
Mr. Brautigan has served as President, Merchandising, Ross Dress for Less since March 2016 with responsibility for the
Ladies and Children’s apparel businesses, Shoes, Lingerie, and Accessories. Previously he was Group Executive Vice
President, Merchandising, Ross Dress for Less from 2014 to 2016. He was also Executive Vice President of Merchandising
at Ross from 2009 to 2014, Senior Vice President and General Merchandise Manager, from 2006 to 2009, and Group Vice
President of Shoes from 2003 to 2006. Prior to Ross, he spent 20 years in various merchandising positions at Macy’s East.
Mr. Fassio has served as President and Chief Development Officer since 2009. Prior to that, he was Executive Vice
President, Property Development, Construction and Store Design from 2005 to 2009 and Senior Vice President, Property
Development, Construction and Store Design from 1991 to 2005. He joined the Company in 1988 as Vice President of Real
Estate. Prior to joining Ross, Mr. Fassio held various retail and real estate positions with Safeway Stores, Inc.
Mr. Morrow has served as President and Chief Merchandising Officer, dd’s DISCOUNTS since December 2015. Prior to
joining Ross, Mr. Morrow served as President, Chief Merchandising Officer of Stein Mart from 2014 to 2015 and Executive
Vice President and Chief Merchandising Officer from 2010 to 2014. From 2008 to 2009, he served as Executive Vice
President, General Merchandise Manager at Macy’s West. He also held roles as Senior Vice President, General
Merchandise Manager at Mervyn’s in 2008 and Macy’s North/Marshall Field’s from 2006 to 2008. For approximately 20
years prior to this, Mr. Morrow held various merchandising roles at The May Department Stores Company.
Mr. O’Sullivan has served as President and Chief Operating Officer since 2009 and a member of the Board of Directors
since 2014. From 2005 to 2009, he was Executive Vice President and Chief Administrative Officer, and Senior Vice
President, Strategic Planning and Marketing from 2003 to 2005. Before joining Ross, Mr. O’Sullivan was a partner with Bain
& Company, providing consulting advice to retail, consumer goods, financial services, and private equity clients since 1991.
25
Ms. Panattoni has served as President, Merchandising, Ross Dress for Less since 2014 with responsibility for all of the
Home businesses, Men’s, and Cosmetics. Previously, she was Group Executive Vice President, Merchandising at Ross from
2009 to 2014. She joined the Company in 2005 as Senior Vice President and General Merchandise Manager of Home and
was promoted to Executive Vice President later that same year. Prior to joining Ross, Ms. Panattoni was with The TJX
Companies, where she served as Senior Vice President of Merchandising and Marketing for HomeGoods from 1998 to 2004
and as Divisional Merchandise Manager of the Marmaxx Home Store from 1994 to 1998.
Mr. Call has served as Executive Vice President, Finance and Legal, and Corporate Secretary since 2014. From 2012 to
2014, Mr. Call was Group Senior Vice President and Chief Financial Officer, with additional oversight for Legal and the
Corporate Secretary function. From 1997 to 2012, he was Senior Vice President and Chief Financial Officer and also served
as Corporate Secretary from 1997 to 2009. Mr. Call was Senior Vice President, Chief Financial Officer, Secretary and
Treasurer of Friedman’s from 1993 until 1997. For ten years prior to joining Friedman’s, Mr. Call held various positions with
Ernst & Young LLP.
Mr. Hartshorn has served as Executive Vice President, Chief Financial Officer since March 2018. Previously, he was Group
Senior Vice President, Chief Financial Officer from 2015 to 2018, Senior Vice President and Chief Financial Officer from
2014 to 2015, and Senior Vice President and Deputy Chief Financial Officer from 2012 to 2014. He was also Group Vice
President, Finance and Treasurer from 2011 to 2012, and Vice President, Finance and Treasurer from 2006 to 2011. From
2002 to 2006, he held a number of management roles in the Ross IT and supply chain organizations. He initially joined the
Company in 2000 as Director and Assistant Controller. For seven years prior to joining Ross, Mr. Hartshorn held various
financial roles at The May Department Stores Company.
26
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
General information. See the information set forth under the caption "Quarterly Financial Data (Unaudited)" under Note K of
Notes to Consolidated Financial Statements in Item 8 of this Annual Report, which is incorporated herein by reference. Our
stock is traded on The NASDAQ Global Select Market® under the symbol ROST. There were 886 stockholders of record as
of March 12, 2018 and the closing stock price on that date was $76.43 per share.
Cash dividends. On March 6, 2018, our Board of Directors declared a quarterly cash dividend of $0.2250 per common
share, payable on March 30, 2018. Our 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.
Issuer purchases of equity securities. Information regarding shares of common stock we repurchased during the fourth
quarter of fiscal 2017 is as follows:
Period
November
(10/29/2017 - 11/25/2017)
December
(11/26/2017 - 12/30/2017)
January
(12/31/2017 - 02/03/2018)
Total
Total number of
shares
(or units)
purchased¹
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)
782,134
$66.37
782,134
$1,049,300
1,151,156
$77.30
1,151,156
$960,300
1,034,865
2,968,155
$82.40
$76.20
1,034,865
2,968,155
$875,000 2
$1,075,000 2
¹ All shares were repurchased under our publicly announced stock repurchase program. We did not acquire any shares of treasury stock during the quarter ended
February 3, 2018. Treasury stock includes shares acquired from employees for tax withholding purposes related to vesting of restricted stock grants.
² In March 2018, our 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 as of February 3, 2018.
In February 2017, our Board of Directors approved a two-year $1.75 billion stock repurchase program through fiscal 2018. In
March 2018, our 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.
See Note H of Notes to Consolidated Financial Statements for equity compensation plan information. The information under
Item 12 of this Annual Report on Form 10-K under the caption “Equity compensation plan information” is incorporated herein
by reference.
27
Stockholder Return Performance Graph
The following information in this Item 5 shall not be deemed filed for purposes of Section 18 of the Securities Act of 1934, nor
shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.
The graph below compares total stockholder returns over the last five years for our common stock with the Standard &
Poor's (“S&P”) 500 Index, the Dow Jones Apparel Retailers Index, and the S&P Retailing Group.
We are using the Dow Jones Apparel Retailers Index for the first time in our performance graph this year because we
believe the retail companies comprising that index are more closely aligned with the segment of the retail industry in which
we operate, and it provides a more relevant comparison against which to measure our stock performance. For comparison
purposes, we have also included the S&P Retailing Group in our fiscal 2017 performance graph. We do not plan to include
the S&P Retailing Group Index in next year's performance graph.
The cumulative total return listed below assumed an initial investment of $100 and reinvestment of dividends at each fiscal
year end, and measures the performance of this investment as of the last trading day in the month of January for each of the
following five years. These measurement dates are based on the historical month-end data available and vary slightly from
our actual fiscal year-end date for each period. Data with respect to returns for the S&P indexes and the Dow Jones Apparel
Retailers Index is not readily available for periods shorter than one month. The graph is a historical representation of past
performance only and is not necessarily indicative of future performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Ross Stores, Inc., the S&P 500 Index, S&P Retailing Group, and Dow Jones Apparel Retailers
Company / Index
2013
2014
2015
2016
2017
2018
Base Period
Indexed Returns for Years Ended
Ross Stores, Inc.
S&P 500 Index
S&P Retailing Group
Dow Jones Apparel Retailers
100
100
100
100
115
122
128
114
158
139
154
138
195
138
184
136
229
166
219
134
279
209
321
153
28
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from our consolidated financial statements. The data set forth below should
be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the
section “Forward-Looking Statements” in this Annual Report on Form 10-K and our consolidated financial statements and
notes thereto.
($000, except per share data)
2017 1
2016
2015
2014
2013
Operations
Sales
Cost of goods sold
Percent of sales
Selling, general and administrative
Percent of sales
Interest expense (income), net
Earnings before taxes
Percent of sales
Provision for taxes on earnings
Net earnings
Percent of sales
Basic earnings per share²
Diluted earnings per share²
Cash dividends declared
per common share²
71.9%
71.0%
2,043,698
14.5%
7,676
2,040,720
14.4%
677,967
9,173,705
71.3%
1,890,408
14.7%
16,488
1,786,156
13.9%
668,502
8,576,873
71.8%
1,738,755
14.6%
12,612
1,611,759
13.5%
591,098
$ 1,362,753 $ 1,117,654 $ 1,020,661 $
$ 14,134,732 $ 12,866,757 $ 11,939,999 $ 11,041,677 $ 10,230,353
7,937,956 7,360,924
10,042,638
72.0%
1,615,371 1,526,366
14.9%
(247 )
1,485,366 1,343,310
13.1%
506,006
837,304
8.2%
1.97
1.94
13.5%
560,642
924,724 $
8.4%
2.24 $
2.21 $
8.7%
2.85 $
2.83 $
8.5%
2.53 $
2.51 $
9.6%
3.58 4 $
3.55 4 $
14.6%
2,984
$
$
$
0.640 $
0.540 $
0.470 $
0.400 $
0.255 3
1 Fiscal 2017 was a 53-week year; all other fiscal years presented were 52 weeks.
2 All per share amounts have been adjusted for the two-for-one stock split effective June 11, 2015.
3 Dividend declaration of $0.10 per share for the fourth quarter, which historically had been declared in January, was declared in February 2014.
4 Includes a per share benefit of approximately $0.21 from tax reform legislation enacted in December 2017 and $0.10 from the 53rd week.
29
Selected Financial Data
($000, except per share data)
Financial Position
Cash and cash equivalents
Merchandise inventory
Property and equipment, net
Total assets
Return on average assets
Working capital
Current ratio
Long-term debt
Long-term debt as a percent
of total capitalization
Stockholders' equity
Return on average
stockholders' equity
Book value per common share
outstanding at year-end2
Operating Statistics
Number of stores opened
Number of stores closed
Number of stores at year-end
Comparable store sales increase3
(52-week basis)
Sales per average square foot of
selling space (52-week basis)
Square feet of selling space
at year-end (000)
Number of employees at year-end
Number of common stockholders
of record at year-end
2017 1
2016
2015
2014
2013
696,608 $
761,602 $
$ 1,290,294 $ 1,111,599 $
423,168
1,641,735 1,512,886 1,419,104 1,372,675 1,257,155
2,382,464 2,328,048 2,342,906 2,273,752 1,875,299
5,722,051 5,309,351 4,869,119 4,687,370 3,886,251
22%
463,875
1.3:1
149,681
1,224,755 1,060,543
1.6:1
396,493
22%
590,471
1.4:1
395,562
21%
769,348
1.5:1
396,025
1.6:1
396,967
25%
22%
7%
3,049,308 2,748,017 2,471,991 2,279,210 2,007,302
12%
13%
14%
15%
47%
43%
43%
43%
44%
$
8.03 $
7.01 $
6.14 $
5.49 $
4.70
96
7
1,622
93
6
1,533
90
6
1,446
95
9
1,362
88
11
1,276
4%
4%
4%
3%
3%
$
409 $
395 $
383 $
372 $
362
34,700
82,700
33,300
78,600
31,900
77,800
30,400
71,400
28,900
66,300
880
848
842
817
823
1 Fiscal 2017 was a 53-week year; all other fiscal years presented were 52 weeks.
2 All per share amounts have been adjusted for the two-for-one stock split effective June 11, 2015.
3 Comparable stores are stores open for more than 14 complete months.
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 1,409
locations in 37 states, the District of Columbia, and Guam, as of February 3, 2018. 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 213 dd’s DISCOUNTS stores in 16 states as of
February 3, 2018 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.
Our primary objective is to pursue and refine our existing off-price strategies to maintain and improve both profitability and
financial returns over the long term. In establishing appropriate growth targets for our business, we closely monitor market
share trends for the off-price industry and believe our share gains over the past few years were driven mainly by continued
focus on value by consumers. Our sales and earnings gains in 2017 continued to benefit from efficient execution of our off-
price model throughout all areas of our business. Our merchandise and operational strategies are designed to take
advantage of the expanding market share of the off-price industry as well as the ongoing customer demand for name brand
fashions for the family and home at compelling discounts every day.
We refer to our fiscal years ended February 3, 2018, January 28, 2017, and January 30, 2016 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.
Results of Operations
The following table summarizes the financial results for fiscal 2017, 2016, and 2015:
Sales
Sales (millions)
Sales growth
Comparable store sales growth (52-week basis)
Costs and expenses (as a percent of sales)
Cost of goods sold
Selling, general and administrative
Interest expense, net
2017
2016
2015
$
14,135 $
9.9%
4%
71.0%
14.5%
0.1%
12,867 $
7.8%
4%
71.3%
14.7%
0.1%
11,940
8.1%
4%
71.8%
14.6%
0.1%
Earnings before taxes (as a percent of sales)
14.4%
13.9%
13.5%
Net earnings (as a percent of sales)
9.6%
8.7%
8.5%
31
Stores. Total stores open at the end of fiscal 2017, 2016, and 2015 were 1,622, 1,533, and 1,446, respectively. The number
of stores at the end of fiscal 2017, 2016, and 2015 increased by 6%, 6%, and 6% from the respective prior years. Our
expansion 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.
Store Count
Beginning of the period
Opened in the period
Closed in the period
End of the period
2017
2016
1,533
96
(7 )
1,446
93
(6 )
1,622
1,533
2015
1,362
90
(6 )
1,446
Selling square footage at the end of the period (000)
34,700
33,300
31,900
Sales. Sales for fiscal 2017 increased $1.3 billion, or 9.9%, compared to the prior year due to the opening of 89 net new
stores during 2017, a 4% increase in comparable store sales (defined as stores that have been open for more than 14
complete months), and the impact of the 53rd week. Sales for fiscal 2016 increased $0.9 billion, or 7.8%, compared to the
prior year due to the opening of 87 net new stores during 2016 and a 4% increase in sales from comparable stores.
Our sales mix is shown below for fiscal 2017, 2016, and 2015:
Ladies
Home Accents and Bed and Bath
Accessories, Lingerie, Fine Jewelry, and Fragrances
Men's
Shoes
Children's
2017
2016
2015
27%
26%
13%
13%
13%
8%
28%
25%
13%
13%
13%
8%
29%
25%
13%
13%
12%
8%
Total
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 organization, diversify our merchandise mix, and more fully develop our
systems to improve regional and local merchandise offerings. Although our strategies and store expansion program
contributed to sales gains in fiscal 2017, 2016, and 2015, we cannot be sure that they will result in a continuation of sales
growth or in an increase in net earnings.
32
Cost of goods sold. Cost of goods sold in fiscal 2017 increased $868.9 million compared to the prior year mainly due to
increased sales from the opening of 89 net new stores during the year, a 4% increase in sales from comparable stores, and
the impact of the 53rd week.
Cost of goods sold as a percentage of sales for fiscal 2017 decreased approximately 25 basis points from the prior year
primarily due to a 25 basis point increase in merchandise gross margin, a 25 basis point decrease in occupancy costs, and a
five basis point decrease in distribution expenses. These improvements were partially offset by a 25 basis point increase in
freight costs and higher buying costs of five basis points.
Cost of goods sold in fiscal 2016 increased $596.8 million compared to the prior year mainly due to increased sales from the
opening of 87 net new stores during the year and a 4% increase in sales from comparable stores.
Cost of goods sold as a percentage of sales for fiscal 2016 decreased approximately 55 basis points from the prior year
primarily due to a 35 basis point increase in merchandise gross margin, a 10 basis point decrease in buying expenses, and
lower distribution and occupancy costs by five basis points each.
We cannot be sure that the gross profit margins realized in fiscal 2017, 2016, and 2015 will continue in future years.
Selling, general and administrative expenses. For fiscal 2017, selling, general and administrative expenses (“SG&A”)
increased $153.3 million compared to the prior year, mainly due to increased store operating costs reflecting the opening of
89 net new stores during the year, and the impact of the 53rd week. SG&A as a percentage of sales for fiscal 2017
decreased by approximately 25 basis points compared to the prior year primarily due to leverage resulting from the 4%
increase in comparable store sales.
For fiscal 2016, SG&A increased $151.7 million compared to the prior year, mainly due to increased store operating costs
reflecting the opening of 87 net new stores during the year. SG&A as a percentage of sales for fiscal 2016 increased by
approximately 15 basis points compared to the prior year primarily due to higher wages.
Interest expense (income), net. In fiscal 2017, net interest expense decreased by $8.8 million primarily due to an increase
in interest income. The table below shows the components of interest expense and income for fiscal 2017, 2016, and 2015:
($000)
2017
2016
Interest expense on long-term debt
$
18,578 $
18,573 $
Other interest expense
Capitalized interest
Interest income
Interest expense, net
979
(710 )
1,022
(26 )
(11,171 )
(3,081 )
2015
18,568
1,252
(6,530 )
(678 )
$
7,676 $
16,488 $
12,612
33
Taxes on earnings. Our effective tax rates for fiscal 2017, 2016, and 2015 were approximately 33%, 37% and 37%,
respectively. The effective tax rate represents the applicable combined federal and state statutory rates reduced by the
federal benefit of state taxes deductible on federal returns. The effective rate is impacted by changes in laws, location of new
stores, level of earnings, and the resolution of tax positions with various taxing authorities. We anticipate that our effective
tax rate for fiscal 2018 will be between 24% and 25%.
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. We recorded an additional tax
benefit of $55.2 million due to the remeasurement of our 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 us in fiscal 2017, represent
provisional amounts based on our 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 our current interpretation of the Tax Act,
and may change as we receive additional clarification and guidance in the form of technical corrections to the Tax Act or
regulations issued by the U.S. Treasury.
Net earnings. Net earnings as a percentage of sales for fiscal 2017 were higher than in fiscal 2016 primarily due to lower
taxes due to tax reform, lower cost of goods sold, and lower SG&A expenses. Net earnings as a percentage of sales for
fiscal 2016 were higher compared to fiscal 2015 primarily due to lower cost of goods sold, partially offset by higher SG&A
expenses.
Earnings per share. Diluted earnings per share in fiscal 2017 was $3.55 compared to $2.83 in the prior year, which includes
a per share benefit of approximately $0.21 from the recently enacted tax reform legislation and $0.10 from the 53rd week.
The 25% increase in diluted earnings per share is attributable to an increase of approximately 22% in net earnings (which
included a 7% impact from tax reform and a 4% impact from the 53rd week) and a 3% reduction in weighted average diluted
shares outstanding, largely due to the repurchase of common stock under our stock repurchase program. Diluted earnings
per share in fiscal 2016 was $2.83 compared to $2.51 in fiscal 2015. The 13% increase in diluted earnings per share is
attributable to an increase of approximately 10% in net earnings and a 3% reduction in weighted average diluted shares
outstanding, largely due to the repurchase of common stock under our stock repurchase program.
Financial Condition
Liquidity and Capital Resources
Our primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our
primary ongoing cash requirements are for merchandise inventory purchases, payroll, rent, taxes, and capital expenditures
in connection with new and existing stores, and investments in distribution centers, information systems, and buying and
corporate offices. We also use cash to repurchase stock under our stock repurchase program and to pay dividends, and for
the repayment of debt as it becomes due.
($ millions)
2017
2016
2015
Cash provided by operating activities
$
1,681.3 $
1,558.9 $
1,326.2
Cash used in investing activities
Cash used in financing activities
(353.1 )
(1,149.5 )
(292.8 )
(916.1 )
Net increase in cash and cash equivalents
$
178.7 $
350.0 $
(362.5 )
(898.7 )
65.0
34
Operating Activities
Net cash provided by operating activities was $1,681.3 million, $1,558.9 million, and $1,326.2 million in fiscal 2017, 2016,
and 2015, respectively, and was primarily driven by net earnings excluding non-cash expenses for depreciation and
amortization and for deferred taxes. Our primary source of operating cash flow is the sale of our merchandise inventory. We
regularly review the age and condition of our merchandise and are able to maintain current merchandise inventory in our
stores through replenishment processes and liquidation of slower-moving merchandise through clearance markdowns.
The increase in cash flow from operating activities in 2017 compared to fiscal 2016 was primarily driven by higher earnings,
partially offset by the timing of merchandise receipts and related payments versus last year and by the timing of income tax
payments. The timing of merchandise receipts and related payments versus last year resulted in lower accounts payable
leverage (defined as accounts payable divided by merchandise inventory) which was 65%, 68%, and 67% as of February 3,
2018, January 28, 2017, and January 30, 2016, respectively.
The increase in cash flow from operating activities in fiscal 2016 compared to fiscal 2015 was primarily driven by higher
earnings, the timing of receipts and related payments versus the prior year, and by higher income taxes payable.
As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling
merchandise purchase opportunities in the marketplace. 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 purchase, 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. At the end of fiscal 2017, packaway inventory was
49% of total inventory compared to 49% and 47% at the end of fiscal 2016 and 2015, respectively.
Investing Activities
Net cash used in investing activities was $353.1 million, $292.8 million, and $362.5 million in fiscal 2017, 2016, and 2015,
respectively. The increase in cash used for investing activities in fiscal 2017 compared to fiscal 2016 and fiscal 2015 was
primarily due to an increase in our capital expenditures.
In fiscal 2017, 2016, and 2015, our capital expenditures were $371.4 million, $297.9 million, and $367.0 million, respectively.
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, buying, and corporate
offices. The increase in capital expenditures in fiscal 2017 compared to fiscal 2016 was primarily due to information
technology infrastructure investments for our stores, buying, and corporate offices. The decrease in capital expenditures in
fiscal 2016 compared to fiscal 2015 was primarily due to the completion in 2015 of the rollout of new point of sale equipment
in our stores and construction of a distribution center. We opened 96, 93, and 90 new stores in fiscal 2017, 2016, and 2015,
respectively.
In November 2017, we entered into a sale-leaseback transaction for one of our previously owned stores and received net
cash proceeds of $16.0 million, recognized a gain on sale of $6.3 million, and deferred the residual $7.5 million gain over the
remaining ten-year lease term.
Our capital expenditures over the last three years are set forth in the table below:
($ millions)
New stores
Existing stores
Information systems, corporate, and other
Distribution and transportation
Total capital expenditures
$
2017
137.1 $
126.0
66.4
41.9
2016
117.7 $
90.3
48.5
41.4
$
371.4 $
297.9 $
2015
105.8
124.0
44.3
92.9
367.0
35
We are forecasting approximately $475 million in capital expenditures for fiscal year 2018 to fund costs for fixtures and
leasehold improvements to open new Ross and dd’s DISCOUNTS stores, the upgrade or relocation of existing stores,
investments in information technology systems, and for various other expenditures related to our stores, distribution centers,
buying and corporate offices. We expect to fund capital expenditures with available cash and cash flows from operations.
Financing Activities
Net cash used in financing activities was $1,149.5 million, $916.1 million, and $898.7 million in fiscal 2017, 2016, and 2015,
respectively. During fiscal 2017, 2016, and 2015, our liquidity and capital requirements were provided by available cash and
cash flows from operations.
We repurchased 13.5 million, 11.6 million, and 13.7 million shares of common stock for aggregate purchase prices of
approximately $875 million, $700 million, and $700 million in fiscal 2017, 2016, and 2015, respectively. We also acquired 0.7
million, 0.7 million, and 1.3 million shares in fiscal 2017, 2016, and 2015, respectively, of treasury stock from our employee
stock equity compensation programs, for aggregate purchase prices of approximately $45.4 million, $43.3 million, and $68.9
million during fiscal 2017, 2016, and 2015, respectively.
In February 2017, our Board of Directors approved a two-year $1.75 billion stock repurchase program through fiscal 2018. In
March 2018, our 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.
On March 6, 2018, our Board of Directors declared a quarterly cash dividend of $0.2250 per common share, payable on
March 30, 2018. Our 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.
During fiscal 2017, 2016, and 2015, we paid dividends of $247.5 million, $214.6 million, and $192.3 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 lines, and other credit sources to meet our
capital and liquidity requirements, including lease payment obligations, in 2018.
Our 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 us to increase the size of our revolving 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, we had no
borrowings or standby letters of credit outstanding on this facility and our $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, we were in compliance
with this covenant.
We estimate that existing cash balances, cash flows from operations, bank credit lines, and trade credit are adequate to
meet our operating cash needs and to fund our planned capital investments, repayment of debt, common stock repurchases,
and quarterly dividend payments for at least the next twelve months.
36
Contractual Obligations
The table below presents our significant contractual obligations as of February 3, 2018:
($000)
Senior notes
Less than
1 year
1 - 3
years
3 - 5
years
After 5
years
Total¹
$
85,000 $
— $
65,000 $ 250,000 $ 400,000
Interest payment obligations
18,105
25,364
21,120
16,875
81,464
Operating leases (rent obligations)
509,954
970,621
649,773
554,783
2,685,131
New York buying office ground lease²
Purchase obligations
6,418
2,630,985
12,835
32,976
13,209
14,685
939,359
971,821
2,705
2,681,351
Total contractual obligations
$ 3,250,462 $ 1,041,796 $ 763,787 $ 1,763,722
$ 6,819,767
1 We have a $120.7 million liability for unrecognized tax benefits that is included in Other long-term liabilities on our Consolidated Balance Sheets. 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.
Senior notes. As of February 3, 2018, we had outstanding unsecured 3.375% Senior Notes due September 2024 with an
aggregate principal amount of $250 million. Interest on the 2024 Notes is payable semi-annually.
As of February 3, 2018, we also had outstanding two 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, we were in compliance with those covenants.
The 2024 Notes, Series A, and Series B senior notes are all subject to prepayment penalties for early payment of principal.
Off-Balance Sheet Arrangements
Operating leases. We currently lease all but two of our store locations. We also lease three warehouse facilities and two
buying offices. In addition, we have a ground lease related to our New York buying office. Except for certain leasehold
improvements and equipment, these leased locations do not represent long-term capital investments.
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.
We currently lease approximately 87,000 and 5,000 square feet of office space for our Los Angeles and Boston buying
offices, respectively. The lease terms for these facilities expire in 2022 and 2020, respectively, and contain renewal
provisions.
Purchase obligations. As of February 3, 2018 we 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.
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 our insurance obligations. As of February 3, 2018 and January 28, 2017, we had
$8.7 million and $11.6 million, respectively, in standby letters of credit outstanding 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. We had $20.7 million and $26.5 million in trade letters of credit outstanding at February 3, 2018 and
January 28, 2017, respectively.
Effects of inflation or deflation. We do not consider the effects of inflation or deflation to be material to our financial
position and results of operations.
37
Other
Critical Accounting Policies
The preparation of our 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. We believe the following
critical accounting policies describe the more significant judgments and estimates used in the preparation of our consolidated
financial statements and are not intended to be a comprehensive list of all of our accounting policies.
In many cases, the accounting treatment of a particular transaction is specifically dictated by Generally Accepted Accounting
Principles (“GAAP”), with no need for management’s judgment in their application. There are also areas in which
management’s judgment in selecting one alternative accounting principle over another would not produce a materially
different result. See our audited consolidated financial statements and notes thereto under Item 8 in this Annual Report on
Form 10-K, which contain descriptions of our accounting policies and other disclosures required by GAAP.
Merchandise inventory. Our merchandise inventory is stated at the lower of cost (determined using a weighted average
basis) or net realizable value. We purchase 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 our 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. Packaway inventory accounted for
approximately 49%, 49%, and 47% of total inventories as of February 3, 2018, January 28, 2017, and January 30, 2016,
respectively. Merchandise inventory includes acquisition, processing, and storage costs related to packaway inventory.
Included in the carrying value of our merchandise inventory is a provision for shortage. The shortage reserve is based on
historical shortage rates as evaluated through our annual physical merchandise inventory counts and cycle counts. If actual
market conditions, markdowns, or shortage are less favorable than those projected by us, or if sales of the merchandise
inventory are more difficult than anticipated, additional merchandise inventory write-downs may be required.
Long-lived assets. We review our long-lived assets for a potential impairment charge when events or changes in
circumstances indicate that the carrying amount of a long-lived asset may not be recoverable based on estimated future
cash flows. If analysis of the undiscounted cash flow of an asset group was less than the carrying value of the asset group,
an impairment loss would be recognized to write the asset group down to its fair value. If our actual results differ materially
from projected results, an impairment charge may be required in the future. In the course of performing our annual analysis,
we determined that no long-lived asset impairment charge was required for fiscal 2017, 2016, or 2015.
Depreciation and amortization expense. 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. The cost of leasehold improvements is amortized over the lesser of the useful life of the asset or the applicable
lease term.
Lease accounting. When a lease contains “rent holidays” or requires fixed escalations of the minimum lease payments, we
record 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. We begin 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. See Recently issued accounting standards below.
Insurance obligations. We use 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. Our self-insurance and
deductible liability is determined actuarially, based on claims filed and an estimate of claims incurred but not reported.
Should a greater amount of claims occur compared to what is estimated or the costs of medical care increase beyond what
was anticipated, our recorded reserves may not be sufficient and additional charges could be required.
Stock-based compensation. We recognize compensation expense based upon the grant date fair value of all stock-based
awards and account for forfeitures as incurred. All stock-based compensation awards are expensed over the service and
performance periods of the awards.
38
Income taxes. We account for our uncertain tax positions in accordance with Accounting Standards Codification (“ASC”)
740. We are required to make assumptions and judgments regarding our income tax exposures. Our policy is to recognize
interest and/or penalties related to all tax positions in income tax expense. To the extent that accrued interest and penalties
do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax
provision in the period that such determination is made.
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 our 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, we will recognize
allowances for estimated sales returns on a gross rather than net basis in our Consolidated Financial Statements. The
impact of recognizing sales returns on a gross basis is not expected to be material. We plan 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 our annual
and interim reporting periods beginning in fiscal 2019. We are currently working on our adoption plan and evaluating the
effect adoption of this new guidance will have on our consolidated financial statements. Due to the substantial number of
leases that we have, we believe this ASU will increase assets and liabilities by the same material amount on our
consolidated balance sheet. Our current undiscounted minimum commitments under noncancelable operating leases is
approximately $3.7 billion. We do not believe adoption of this ASU will have a significant impact to our 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 our annual and interim reporting periods beginning in fiscal 2018. We do not believe adoption of this ASU will
have a significant impact to our 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.
We adopted ASU 2016-09 in the first quarter of fiscal 2017 and elected to apply this adoption prospectively, except for
forfeitures which we 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, we recognized $16.3 million of excess tax benefits related to
stock-based payments as a reduction to our provision for income taxes. These items were historically recorded in additional
paid-in capital. We 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.
39
Forward-Looking Statements
Our Annual Report on Form 10-K for fiscal 2017, and information we provide in our Annual Report to Stockholders, press
releases, and other investor communications including those on our corporate website, may contain a number of forward-
looking statements regarding, without limitation, planned store growth, new markets, expected sales, projected earnings
levels, capital expenditures, and other matters. These forward-looking statements reflect our then current beliefs, projections,
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 economic and industry trends that could potentially impact revenue, profitability, and growth remain 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 and projections. Refer to Item 1A in this Annual Report
on Form 10-K for a more complete discussion of risk factors for Ross and dd's DISCOUNTS. 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.
40
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 occasionally use forward contracts to hedge against fluctuations in foreign currency prices. We had no outstanding
forward contracts as of February 3, 2018.
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 February 3, 2018, we had no borrowings outstanding under our revolving credit
facility.
We have two outstanding series of unsecured notes held by institutional investors: Series A Senior Notes due December
2018 for $85 million accrue interest at 6.38% and Series B Senior Notes due December 2021 for $65 million accrue interest
at 6.53%. The amount outstanding under these notes as of February 3, 2018 was $150 million. We also have unsecured
3.375% Senior Notes due September 2024 with an aggregate principal amount of $250 million. Interest that is payable on
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 a material impact on
our consolidated financial position, results of operations, cash flows, or the fair values of our short- and long-term
investments as of and for the year ended February 3, 2018. 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.
41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Earnings
($000, except per share data)
Sales
Costs and Expenses
Cost of goods sold
Selling, general and administrative
Interest expense, net
Total costs and expenses
Earnings before taxes
Provision for taxes on earnings
Net earnings
Earnings per share
Basic
Diluted
Year Ended
February 3, 2018
Year Ended
January 28, 2017
Year Ended
January 30, 2016
$
14,134,732 $
12,866,757 $
11,939,999
10,042,638
2,043,698
7,676
9,173,705
1,890,408
16,488
8,576,873
1,738,755
12,612
12,094,012
11,080,601
10,328,240
2,040,720
677,967
1,786,156
668,502
1,611,759
591,098
$
1,362,753 $
1,117,654 $
1,020,661
$
$
3.58 $
3.55 $
2.85 $
2.83 $
2.53
2.51
Weighted average shares outstanding (000)
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
381,174
384,329
392,124
394,958
403,034
406,405
Consolidated Statements of Comprehensive Income
($000)
Net earnings
Other comprehensive income (loss):
Year Ended
February 3, 2018
Year Ended
January 28, 2017
Year Ended
January 30, 2016
$
1,362,753 $
1,117,654 $
1,020,661
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.
42
Consolidated Balance Sheets
($000, except share data)
Assets
Current Assets
Cash and cash equivalents
Short-term investments
Accounts receivable
Merchandise inventory
Prepaid expenses and other
Total current assets
Property and Equipment
Land and buildings
Fixtures and equipment
Leasehold improvements
Construction-in-progress
Less accumulated depreciation and amortization
Property and equipment, net
Long-term investments
Other long-term assets
Total assets
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable
Accrued expenses and other
Accrued payroll and benefits
Income taxes payable
Current portion of long-term debt
Total current liabilities
Long-term debt
Other long-term liabilities
Deferred income taxes
Commitments and contingencies
Stockholders’ Equity
Common stock, par value $.01 per share
Authorized 1,000,000,000 shares
Issued and outstanding 379,618,000 and
391,893,000 shares, respectively
Additional paid-in capital
Treasury stock
Accumulated other comprehensive income
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
February 3, 2018 January 28, 2017
$
1,290,294 $
512
87,868
1,641,735
130,748
1,111,599
—
75,154
1,512,886
113,410
3,151,157
2,813,049
1,109,173
2,603,318
1,093,634
102,054
4,908,179
2,525,715
2,382,464
1,101,334
2,421,645
998,508
69,767
4,591,254
2,263,206
2,328,048
712
187,718
1,288
166,966
$
5,722,051 $
5,309,351
$
1,059,844 $
431,706
349,879
—
84,973
1,021,735
398,126
316,492
16,153
—
1,926,402
1,752,506
311,994
348,541
85,806
396,493
290,950
121,385
3,796
3,919
1,292,364
(318,279 )
27
2,071,400
1,215,715
(272,846 )
91
1,801,138
3,049,308
2,748,017
$
5,722,051 $
5,309,351
43
Consolidated Statements of Stockholders' Equity
(000)
Balance at January 31, 2015
Net earnings
Unrealized investment loss, net
Common stock issued under stock
plans, net of shares
used for tax withholding
Common stock
Shares Amount
Additional
paid-in
capital
Treasury
stock
Accumulated
other com-
prehensive
income (loss)
Retained
earnings
Total
414,939 $ 4,149 $ 1,013,607 $ (160,600 ) $
—
—
—
—
—
—
—
—
330 $ 1,421,724 $ 2,279,210
— 1,020,661 1,020,661
(148 )
—
(148 )
Tax benefit from equity issuance
Stock-based compensation
Common stock repurchased
Dividends declared ($0.470 per share)
1,053
—
—
(13,653 )
—
11
—
—
(137 )
—
20,175
42,382
70,937
(24,772 )
—
(68,925 )
—
—
—
—
Balance at January 30, 2016
Net earnings
Unrealized investment loss, net
Common stock issued under stock
plans, net of shares
used for tax withholding
402,339 $ 4,023 $ 1,122,329 $ (229,525 ) $
—
—
—
—
—
—
—
—
Tax benefit from equity issuance
Stock-based compensation
Common stock repurchased
Dividends declared ($0.540 per share)
1,192
—
—
(11,638 )
—
12
—
—
(116 )
—
18,527
23,331
74,554
(23,026 )
—
(43,321 )
—
—
—
—
391,893 $ 3,919 $ 1,215,715 $ (272,846 ) $
—
—
—
—
Balance at January 28, 2017
Net earnings
Cumulative effect of adoption of
accounting standard
Unrealized investment loss, net
Common stock issued under stock
—
—
(48,739 )
—
—
42,382
70,937
—
—
— (675,091 ) (700,000 )
— (192,312 ) (192,312 )
182 $ 1,574,982 $ 2,471,991
— 1,117,654 1,117,654
(91 )
—
(91 )
(24,782 )
—
—
23,331
—
—
—
74,554
—
— (676,858 ) (700,000 )
— (214,640 ) (214,640 )
91 $ 1,801,138 $ 2,748,017
— 1,362,753 1,362,753
—
—
—
—
1,789
—
—
—
—
(64 )
(1,113 )
—
676
(64 )
plans, net of shares
used for tax withholding
Stock-based compensation
Common stock repurchased
Dividends declared ($0.640 per share)
1,214
—
(13,489 )
—
12
—
(135 )
—
18,456
87,417
(31,013 )
—
(45,433 )
—
—
—
(26,965 )
—
—
87,417
—
—
— (843,852 ) (875,000 )
— (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.
44
Consolidated Statements of Cash Flows
($000)
Cash Flows From Operating Activities
Net earnings
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization
Stock-based compensation
Gain on sale of assets
Deferred income taxes
Change in assets and liabilities:
Merchandise inventory
Other current assets
Accounts payable
Other current liabilities
Other long-term, net
Year Ended
February 3, 2018
Year Ended
January 28, 2017
Year Ended
January 30, 2016
$
1,362,753 $
1,117,654 $
1,020,661
313,163
87,417
(6,328 )
(34,903 )
(128,849 )
(31,796 )
41,322
49,068
29,431
302,515
74,554
—
(8,703 )
(93,782 )
(928 )
83,085
76,676
7,780
274,828
70,937
—
56,358
(46,429 )
(13,496 )
(41,464 )
7,796
(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
Proceeds from sale of property and equipment
Decrease in restricted cash and investments
Purchases of investments
Proceeds from investments
(371,423 )
15,981
2,310
—
40
(297,880 )
—
3,388
—
1,729
(366,960 )
—
4,065
(718 )
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
Issuance of common stock related to stock plans
Treasury stock purchased
Repurchase of common stock
Dividends paid
—
18,468
(45,433 )
(875,000 )
(247,526 )
23,331
18,539
(43,321 )
(700,000 )
(214,640 )
42,302
20,186
(68,925 )
(700,000 )
(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
End of year
Supplemental Cash Flow Disclosures
Interest paid
Income taxes paid
1,111,599
761,602
696,608
$
1,290,294 $
1,111,599 $
761,602
$
$
18,105 $
714,566 $
18,105 $
628,441 $
18,035
523,597
The accompanying notes are an integral part of these consolidated financial statements.
45
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)
Prepaid expenses and other
Other long-term assets
Total
2017
$
11,847 $
53,969
2016
13,642
54,567
$
65,816 $
68,209
The classification between current and long-term is based on the timing of expected payments of the insurance obligations.
46
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)
Deferred compensation (Note B)
Restricted cash and investments
Other
Total
$
2017
2016
120,613 $
53,969
13,136
100,423
54,567
11,976
$
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.
47
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)
Workers’ compensation
General liability
Medical plans
Total
2017
$
94,430 $
40,763
6,725
2016
94,920
39,679
4,899
$
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)
Income taxes
Deferred compensation (Note G)
Deferred rent
Tenant improvement allowances
Other
Total
2017
2016
$
120,660 $
97,502
120,613
100,423
73,059
21,668
12,541
67,941
20,554
4,530
$
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.
48
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)
Year ended:
February 3, 2018
January 28, 2017
January 30, 2016
Beginning Balance
Additions
Returns
Ending Balance
$
$
$
8,406
$
784,076
$
(782,580 ) $
7,955
$
761,350
$
(760,899 ) $
8,594
$
737,727
$
(738,366 ) $
9,902
8,406
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)
2017
Shares
Amount
2016
Shares
Amount
2015
Shares
Amount
Effect of dilutive
common stock
Basic EPS
equivalents
Diluted EPS
381,174
3,155
384,329
$
3.58
$
(0.03 )
$
3.55
392,124
2,834
394,958
$
2.85
$
(0.02 )
$
2.83
403,034
3,371
406,405
$
2.53
$
(0.02 )
$
2.51
49
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.
50
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)
Restricted cash and cash equivalents (Level 1)
Restricted investments (Level 2)
$
$
$
1,224
$
1,288
62,978
$
64,581
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)
Level 1
Level 2
Total
2017
104,590 $
16,023
2016
84,933
15,490
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)
Restricted stock
Performance awards
ESPP
Total
2017
2016
2015
44,356 $
38,234 $
39,871
3,190
33,379
2,941
37,204
31,056
2,677
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.
51
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)
Cost of goods sold
Selling, general and administrative
Total
2017
2016
41,067 $
34,077 $
46,350
40,477
87,417 $
74,554 $
2015
32,922
38,015
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)
6.38% Series A Senior Notes due 2018
6.53% Series B Senior Notes due 2021
3.375% Senior Notes due 2024
Total long-term debt
Less: current portion
Total due beyond one year
$
2017
84,973 $
64,922
2016
84,939
64,902
247,072
246,652
$
396,967 $
396,493
84,973
—
$
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.
52
85,000
—
—
65,000
—
250,000
2015
18,568
1,252
(6,530 )
(678 )
The following table shows scheduled annual principal payments on Long-term debt:
($000)
2018
2019
2020
2021
2022
Thereafter
$
$
$
$
$
$
The table below shows the components of interest expense and income for fiscal 2017, 2016, and 2015:
($000)
2017
2016
Interest expense on long-term debt
$
18,578 $
18,573 $
Other interest expense
Capitalized interest
Interest income
Interest expense, net
979
(710 )
(11,171 )
1,022
(26 )
(3,081 )
$
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.
53
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)
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
Total operating leases
$
516,372
531,311
452,145
372,038
290,944
1,494,142
$
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)
Current
Federal
State
Deferred
Federal
State
Total
54
2017
2016
2015
$
660,017 $
632,872 $
497,710
52,853
44,333
37,030
712,870
677,205
534,740
(40,468 )
5,565
(34,903 )
(8,350 )
(353 )
(8,703 )
55,404
954
56,358
$
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:
Federal income taxes at the statutory rate
Impact of the Tax Cuts and Jobs Act on deferred taxes
State income taxes (net of federal benefit) and other, net
Total
2017
34%
(3)%
2%
33%
2016
35%
—
2%
37%
2015
35%
—
2%
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.
55
The components of deferred taxes at February 3, 2018 and January 28, 2017 are as follows:
($000)
Deferred Tax Assets
Accrued liabilities
Deferred compensation
Stock-based compensation
Deferred rent
State taxes and credits
Employee benefits
Other
Gross Deferred Tax Assets
Less: Valuation allowance
Deferred Tax Assets
Deferred Tax Liabilities
Depreciation
Merchandise inventory
Supplies
Other
Deferred Tax Liabilities
Net Deferred Tax Liabilities
2017
2016
$
46,489 $
28,094
34,986
18,013
20,206
15,242
5,224
71,796
36,101
44,865
25,221
28,484
23,987
8,223
168,254
238,677
(4,659 )
(3,730 )
163,595
234,947
(217,332 )
(313,526 )
(19,055 )
(9,529 )
(3,485 )
(28,853 )
(13,418 )
(535 )
(249,401 )
(356,332 )
$
(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
Tax positions in prior period
Gross decreases:
Tax positions in prior periods
Lapse of statute limitations
Settlements
26,837
—
12,394
2,897
14,990
—
(2,755 )
(6,068 )
(470 )
(3,231 )
(6,310 )
—
(10,589 )
(4,216 )
(2,929 )
Unrecognized tax benefits - end of year
$
98,666 $
81,122 $
75,372
56
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
2017
2016
2015
Shares repurchased
(in millions)
13.5
11.6
13.7
Average repurchase
price
$64.87
$60.15
$51.27
Repurchased
(in millions)
$875
$700
$700
57
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:
Unvested at January 28, 2017
Awarded
Released
Forfeited
Unvested at February 3, 2018
Number of
shares (000)
Weighted
average
grant date
fair value
5,563
$
43.19
1,543
(1,583 )
(40 )
65.56
37.97
50.21
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.
58
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.
59
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
Total costs and expenses
Earnings before taxes
Provision for taxes on earnings
3,169
2,341
1,780
386
2,807,954
2,921,559
2,888,225
3,476,274
498,475
177,457
510,044
193,505
440,669
166,220
591,532
140,785
Net earnings
$
321,018 $
316,539 $
274,449 $
450,747
Earnings per share – basic1
Earnings per share – diluted1
Cash dividends declared per share
on common stock
Stock price
High
Low
$
$
$
$
$
0.83 $
0.82 $
0.83 $
0.82 $
0.72 $
0.72 $
2
1.20
2
1.19
0.1600 $
0.1600 $
0.1600 $
0.1600
69.15 $
62.53 $
66.05 $
53.07 $
65.99 $
53.03 $
85.46
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.
60
Year ended January 28, 2017:
($000, except per share data)
April 30, 2016
July 30, 2016
October 29, 2016
January 28, 2017
Quarter Ended
Sales
Cost of goods sold
Selling, general and administrative
Interest expense, net
Total costs and expenses
Earnings before taxes
Provision for taxes on earnings
$
3,088,995 $
2,176,205
436,924
3,180,917 $
2,251,845
469,511
3,086,687 $
2,206,092
490,171
3,510,158
2,539,563
493,802
4,364
4,213
4,156
3,755
2,617,493
2,725,569
2,700,419
3,037,120
471,502
455,348
180,868
173,442
386,268
141,722
473,038
172,470
Net earnings
$
290,634 $
281,906 $
244,546 $
300,568
Earnings per share – basic1
Earnings per share – diluted1
Cash dividends declared per share
on common stock
Stock price
High
Low
$
$
0.73 $
0.73 $
0.72 $
0.71 $
0.63 $
0.62 $
0.77
0.77
$
0.1350 $
0.1350 $
0.1350 $
0.1350
$
$
59.30 $
52.56 $
61.98 $
52.34 $
65.06 $
60.68 $
69.53
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.
61
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.
62
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.
63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
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.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external
purposes in accordance with generally accepted accounting principles.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in
Internal Control — Integrated Framework (2013). Based on our evaluation under the framework in Internal Control —
Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as
of February 3, 2018.
Our internal control over financial reporting as of February 3, 2018 has also been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, and their opinion as to the effectiveness of our internal control over financial
reporting is stated in their report, dated April 3, 2018, which is included in Item 8 in this Annual Report on Form 10-K.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
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 fourth fiscal
quarter of 2017 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 fourth fiscal
quarter.
64
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by Item 401 of Regulation S-K is incorporated herein by reference to the sections entitled “Executive
Officers of the Registrant” at the end of Part I of this report; and to the sections of the Ross Stores, Inc. Proxy Statement for
the Annual Meeting of Stockholders to be held on Wednesday, May 23, 2018 (the “Proxy Statement”) entitled “Information
Regarding Nominees and Incumbent Directors.” Information required by Item 405 of Regulation S-K is incorporated by
reference to the Proxy Statement under the section titled “Section 16(a) Beneficial Ownership Reporting Compliance.” Since
our last Annual Report on Form 10-K, we have not made any material changes to the procedures by which our stockholders
may recommend nominees to the Board of Directors. Information required by Item 407(d)(4) and (d)(5) of Regulation S-K is
incorporated by reference to the Proxy Statement under the section entitled “Information Regarding Nominees and
Incumbent Directors” under the caption “Audit Committee.”
Our Board of Directors has adopted a Code of Ethics for Senior Financial Officers that applies to the Company's Executive
Chairman; Chief Executive Officer; Chief Operating Officer; Chief Merchandising Officer; President, Merchandising; Chief
Development Officer; Executive Vice President, Finance and Legal; Chief Financial Officer; Senior Vice President,
Controller; Senior Vice President, Finance; Group Vice President, Accounting and Assistant Controller; Vice President,
Finance (FP&A); Group Vice President, Tax; Assistant Treasurer; Investor and Media Relations personnel; and successor
and other positions that may be designated by the Company. This Code of Ethics is posted on our corporate website
(www.rossstores.com) under Corporate Governance in the Investors Section. We intend to satisfy the disclosure
requirements of Item 5.05 of Form 8-K regarding any future amendments to, or waivers from, our Code of Ethics for Senior
Financial Officers by posting any changed version on the same corporate website.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is incorporated herein by reference to the sections of the Proxy
Statement entitled “Compensation of Directors” and “Executive Compensation” under the captions “Compensation
Discussion and Analysis,” “Summary Compensation Table,” “All Other Compensation,” “Perquisites,” “Discussion of
Summary Compensation,” “Grants of Plan-Based Awards During Fiscal Year,” “Outstanding Equity Awards at Fiscal Year-
End,” “Option Exercises and Stock Vested,” “Non-Qualified Deferred Compensation,” and “Potential Payments Upon
Termination or Change in Control.”
The information required by Items 407(e)(4) and (e)(5) of Regulation S-K are incorporated herein by reference to the
sections of the Proxy Statement entitled “Compensation Committee Interlocks and Insider Participation” and “Compensation
Committee Report.”
65
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Equity compensation plan information. The following table summarizes the equity compensation plans under which the
Company’s common stock may be issued as of February 3, 2018:
Shares in (000s)
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
(a)
Number of securities
to be issued upon
exercise of
outstanding options
and rights
(b)
Weighted average
exercise price per
share of outstanding
options and rights
(c)
Number of securities
remaining available
for future issuance
(excluding securities
reflected in column
(a))1
655
2
—
655
—
—
17,203
3
—
—
17,203
1 After approval by stockholders of the 2017 Equity Incentive Plan in May 2017, any shares remaining available for grant in the share reserves of the
2008 Equity Incentive Plan were automatically canceled.
2 Securities include shares underlying outstanding performance share awards where the performance measurement has occurred but that remain
unsettled and unissued as of February 3, 2018. The weighted-average exercise price in column (b) does not take these awards into account.
3 Includes 5.3 million shares reserved for issuance under the Employee Stock Purchase Plan and 11.9 million shares reserved for issuance under the
2017 Equity Incentive Plan.
The information required by Item 403 of Regulation S-K is incorporated herein by reference to the section of the Proxy
Statement entitled "Stock Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Items 404 and 407(a) of Regulation S-K is incorporated herein by reference to the section of the
Proxy Statement entitled “Information Regarding Nominees and Incumbent Directors” including the captions “Audit
Committee,” “Compensation Committee,” and “Nominating and Corporate Governance Committee,” and the section of the
Proxy Statement entitled “Certain Transactions.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning principal accountant fees and services will appear in the Proxy Statement in the Ross Stores, Inc.
Board of Directors Audit Committee Report under the caption “Summary of Audit, Audit-Related, Tax and All Other Fees.”
Such information is incorporated herein by reference.
66
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following consolidated financial statements, schedules, and exhibits are filed as part of this report or are
incorporated herein as indicated:
1. List of Consolidated Financial Statements.
The following consolidated financial statements are included herein under Item 8:
Consolidated Statements of Earnings for the years ended February 3, 2018, January 28, 2017, and
January 30, 2016.
Consolidated Statements of Comprehensive Income for the years ended February 3, 2018, January 28,
2017, and January 30, 2016.
Consolidated Balance Sheets at February 3, 2018 and January 28, 2017.
Consolidated Statements of Stockholders' Equity for the years ended February 3, 2018, January 28,
2017, and January 30, 2016.
Consolidated Statements of Cash Flows for the years ended February 3, 2018, January 28, 2017, and
January 30, 2016.
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm.
2. List of Consolidated Financial Statement Schedules.
Schedules are omitted because they are not required, not applicable, or such information is included in
the consolidated financial statements or notes thereto which are included in this Report.
3. List of Exhibits (in accordance with Item 601 of Regulation S-K).
Incorporated herein by reference to the list of Exhibits contained in the Exhibit Index within this Report.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Date: April 3, 2018
ROSS STORES, INC.
(Registrant)
By: /s/Barbara Rentler
Barbara Rentler
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/Barbara Rentler
Barbara Rentler
Chief Executive Officer, Director
April 3, 2018
/s/Michael J. Hartshorn
Michael J. Hartshorn
Executive Vice President, Chief Financial Officer,
and Principal Accounting Officer
April 3, 2018
Executive Chairman of the Board, Director
April 3, 2018
Director
Director
April 3, 2018
April 3, 2018
Chairman Emeritus of the Board, Director
April 3, 2018
Director
Director
Director
April 3, 2018
April 3, 2018
April 3, 2018
President and Chief Operating Officer, Director
April 3, 2018
Director
Director
April 3, 2018
April 3, 2018
/s/Michael Balmuth
Michael Balmuth
/s/K. Gunnar Bjorklund
K. Gunnar Bjorklund
/s/Michael J. Bush
Michael J. Bush
/s/Norman A. Ferber
Norman A. Ferber
/s/Sharon D. Garrett
Sharon D. Garrett
/s/Stephen D. Milligan
Stephen D. Milligan
/s/G. Orban
George P. Orban
/s/Michael O'Sullivan
Michael O'Sullivan
/s/Larry S. Peiros
Lawrence S. Peiros
/s/G. L. Quesnel
Gregory L. Quesnel
68
INDEX TO EXHIBITS
Exhibit
Number
3.1
Exhibit
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.
4.1
Note Purchase Agreement dated October 17, 2006, incorporated by reference to Exhibit 10.2 to the Form 10-Q
filed by Ross Stores, Inc. for its quarter ended October 28, 2006.
4.2
Officers’ Certificate, dated as of September 18, 2014, establishing the terms and form of the Notes,
incorporated by reference to Exhibit 4.2 to the Form 8-K filed by Ross Stores on September 18, 2014.
4.3
Form of the 3.375% Senior Notes Due 2024, included in Exhibit 4.2 and incorporated by reference to Exhibit 4.2
to the Form 8-K filed by Ross Stores on September 18, 2014.
4.4
Indenture, dated as of September 18, 2014, between Ross Stores, Inc. and U.S. Bank National Association,
incorporated by reference to Exhibit 4.1 to the Form 8-K filed by Ross Stores on September 18, 2014.
10.1
Revolving Credit Agreement dated April 1, 2016 among Ross Stores, Inc. and various lenders, incorporated by
reference to Exhibit 10.2 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended April 30, 2016.
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS (EXHIBITS 10.2 - 10.33)
10.2
Amended and Restated Ross Stores, Inc. Employee Stock Purchase Plan (amended and restated on March 11,
2015), incorporated by reference to Exhibit 10.1 filed by Ross Stores, Inc. for its quarter ended August 1, 2015.
10.3
Third Amended and Restated Ross Stores, Inc. Non-Qualified Deferred Compensation Plan effective December
31, 2008, as amended effective January 1, 2015 and October 1, 2017.
10.4
Second Amended and Restated Ross Stores, Inc. Incentive Compensation Plan (as amended effective May 18,
2016), incorporated by reference Exhibit 10.1 to the Form 10-Q filed by Ross Stores, Inc. on July 30, 2016.
10.5
Ross Stores, Inc. 2008 Equity Incentive Plan (as amended through May 21, 2014), incorporated by reference to
Exhibit 10.18 to the Form 10-K filed by Ross Stores, Inc. for its fiscal year ended January 30, 2016.
10.6
Ross Stores, Inc. 2017 Equity Incentive Plan, incorporated by reference to Exhibit 99 to the Registration
Statement on Form S-8 filed by Ross Stores, Inc. on May 17, 2017 (Registration No. 333-218052).
10.7
Form of Restricted Stock Agreement, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by Ross
Stores, Inc. for its quarter ended May 2, 2009.
10.8
Form of Restricted Stock Agreement, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by Ross
Stores, Inc. for its quarter ended May 3, 2014.
10.9
Form of Restricted Stock Agreement, incorporated by reference to Exhibit 10.4 to the Form 10-Q filed by Ross
Stores, Inc. for its quarter ended July 29, 2017.
10.10
Form of Restricted Stock Agreement for Nonemployee Director.
10.11
Form of Restricted Stock Agreement for Nonemployee Director, incorporated by reference to Exhibit 10.5 to the
Form 10-Q filed by Ross Stores, Inc. for its quarter ended July 29, 2017.
10.12
Form of Performance Shares Grant Agreement, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed
by Ross Stores, Inc. for its quarter ended May 3, 2014.
10.13
Form of Performance Share Agreement, incorporated by reference to Exhibit 10.6 to the Form 10-Q filed by
Ross Stores, Inc. for its quarter ended July 29, 2017.
10.14
Form of Indemnity Agreement between Ross Stores, Inc. for Directors and Executive Officers, incorporated by
reference to Exhibit 10.26 to the Form 10-K filed by Ross Stores, Inc. for its fiscal year ended February 2, 2013.
69
10.15
Forms of Executive Employment Agreement for Executive Officers, incorporated by reference to Exhibit 10.3 to
the Form 10-Q filed by Ross Stores, Inc. for its quarter ended April 30, 2016.
10.16
Forms of Executive Employment Agreement for Executive Officers, incorporated by reference to Exhibit 10.1 to
the Form 10-Q filed by Ross Stores, Inc. for its quarter ended April 29, 2017.
10.17
Amended and Restated Independent Contractor Consultancy Agreement effective January 6, 2010 between
Norman A. Ferber and Ross Stores, Inc., incorporated by reference to Exhibit 10.47 to the Form 10-K filed by
Ross Stores, Inc. for its fiscal year ended January 30, 2010.
10.18
Amended Independent Contractor Consultancy Agreement effective January 30, 2012 between Norman A.
Ferber and Ross Stores, Inc., incorporated by reference to Exhibit 10.52 to the Form 10-K filed by Ross Stores,
Inc. for its fiscal year ended January 28, 2012.
10.19
Amendment to Independent Contractor Consultancy Agreement effective February 17, 2015 between Norman
A. Ferber and Ross Stores, Inc., incorporated by reference to Exhibit 10.3 to the Form 10-Q filed by Ross
Stores, Inc. for its quarter ended May 2, 2015.
10.20
10.21
10.22
Amended and Restated Retirement Benefit Package Agreement effective January 6, 2010 between Norman A.
Ferber and Ross Stores, Inc., incorporated by reference to Exhibit 10.48 to the Form 10-Q filed by Ross Stores,
Inc. for its quarter ended May 1, 2010.
Amended Retirement Benefits Package Agreement effective January 30, 2012 between Norman A. Ferber and
Ross Stores, Inc., incorporated by reference to Exhibit 10.53 to the Form 10-K filed by Ross Stores, Inc. for its
fiscal year ended January 28, 2012.
Amendment to Retirement Benefit Package Agreement effective February 17, 2015 between Norman A. Ferber
and Ross Stores, Inc., incorporated by reference to Exhibit 10.4 to the Form 10-Q filed by Ross Stores, Inc. for
its quarter ended May 2, 2015.
10.23
Third Amendment to Retirement Benefit Package Agreement effective January 1, 2016 between Norman A.
Ferber and Ross Stores, Inc., incorporated by reference to Exhibit 10.39 to the Form 10-K filed by Ross Stores,
Inc. for its fiscal year ended January 30, 2016.
10.24
Amendment to Independent Contractor Consultancy Agreement effective March 1, 2017 between Norman A.
Ferber and Ross Stores, Inc., incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by Ross Stores,
Inc. for its quarter ended July 29, 2017.
10.25
10.26
10.27
Employment Agreement effective June 1, 2012 between Michael Balmuth and Ross Stores, Inc., incorporated
by reference to Exhibit 10.1 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended October 27, 2012.
First Amendment to Employment Agreement between Michael Balmuth and Ross Stores, Inc. dated March 15,
2015, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended
August 1, 2015.
Second Amendment to Employment Agreement effective January 1, 2016 between Michael Balmuth and Ross
Stores, Inc., incorporated by reference to Exhibit 10.49 to the Form 10-K filed by Ross Stores, Inc. for its fiscal
year ended January 30, 2016.
10.28
Third Amendment to the Employment Agreement effective May 18, 2016 between Michael Balmuth and Ross
Stores, Inc., incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by Ross Stores, Inc. for its quarter
ended July 30, 2016.
10.29
Fourth Amendment to the Employment Agreement effective April 15, 2017 between Michael Balmuth and Ross
Stores, Inc., incorporated by reference to Exhibit 10.4 to the Form 10-Q filed by Ross Stores, Inc. for its quarter
ended April 29, 2017.
10.30
Employment Agreement effective March 16, 2017 between Barbara Rentler and Ross Stores, Inc., incorporated
by reference to Exhibit 10.1 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended July 29, 2017.
10.31
Employment Agreement effective March 16, 2017 between Michael O'Sullivan and Ross Stores, Inc.,
incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended April
29, 2017.
10.32
Employment Agreement effective March 16, 2017 between Michael Hartshorn and Ross Stores, Inc.,
incorporated by reference to Exhibit 10.3 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended April
29, 2017.
70
10.33
Executive Employment Agreement effective March 16, 2016 between Bernard Brautigan and Ross Stores, Inc.
21
23
31.1
31.2
32.1
32.2
Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
71
EXHIBIT 21
SUBSIDIARIES & AFFILIATES
Certain subsidiaries and affiliates of the Registrant and their subsidiaries are listed below. The names of certain
subsidiaries, which considered in the aggregate would not constitute a significant subsidiary, have been omitted.
Subsidiary Name
Ross Procurement, Inc.
Ross Merchandising, Inc.
Ross Dress For Less, Inc.
Retail Assurance Group, Inc.
EXHIBIT 23
Domiciled
Delaware
Delaware
Virginia
Hawaii
Date of Incorporation
November 22, 2004
January 12, 2004
January 14, 2004
October 15, 1991
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 33-61373, No. 333-06119, No. 333-34988,
No. 333-51478, No. 333-56831, No. 333-115836, No. 333-151116, No. 333-210465, and No. 333-218052 on Form S-8, and
No. 333-198738 on Form S-3 of our report dated April 3, 2018, relating to the consolidated financial statements of Ross
Stores, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial
reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended February 3, 2018.
/s/DELOITTE & TOUCHE LLP
San Francisco, California
April 3, 2018
72
EXHIBIT 31.1
Ross Stores, Inc.
Certification of Chief Executive Officer
Pursuant to Sarbanes-Oxley Act Section 302(a)
I, Barbara Rentler, certify that:
1.
I have reviewed this annual report on Form 10-K of Ross Stores, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: April 3, 2018
/s/Barbara Rentler
Barbara Rentler
Chief Executive Officer
73
EXHIBIT 31.2
Ross Stores, Inc.
Certification of Chief Financial Officer
Pursuant to Sarbanes-Oxley Act Section 302(a)
I, Michael J. Hartshorn, certify that:
1.
I have reviewed this annual report on Form 10-K of Ross Stores, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: April 3, 2018
74
/s/Michael J. Hartshorn
Michael J. Hartshorn
Executive Vice President, Chief Financial Officer,
and Principal Accounting Officer
EXHIBIT 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report of Ross Stores, Inc. (the “Company”) on Form 10-K for the year ended February 3, 2018
as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Barbara Rentler, as Chief
Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (“Section 906”), that, to the best of my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78m); and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: April 3, 2018
EXHIBIT 32.2
/s/Barbara Rentler
Barbara Rentler
Chief Executive Officer
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report of Ross Stores, Inc. (the “Company”) on Form 10-K for the year ended February 3, 2018
as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael J. Hartshorn, as Chief
Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (“Section 906”), that, to the best of my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78m); and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: April 3, 2018
/s/Michael J. Hartshorn
Michael J. Hartshorn
Executive Vice President, Chief Financial Officer,
and Principal Accounting Officer
75
Directors and Officers
Board of Directors
Norman A. Ferber
Chairman Emeritus,
Ross Stores, Inc.
Michael Balmuth
Executive Chairman of the Board,
Ross Stores, Inc.
K. Gunnar Bjorklund 2, 3, 4
Executive Chairman,
Rev360 LLC
Michael J. Bush 1, 3
Former President and
Chief Executive Officer,
and Director, NTN Buzztime;
Managing Member,
B IV Investments, LLC;
Executive Chairman,
Trumaker, Inc.;
Board Member,
Home Franchise Concepts and
Phoeben, Inc. dba Armenta
Corporate Officers
Michael Balmuth
Executive Chairman of the Board
Barbara Rentler
Chief Executive Officer
Bernie Brautigan
President
Merchandising,
Ross Dress for Less
James S. Fassio
President and
Chief Development Officer
1 Audit Committee
2 Compensation Committee
3 Nominating & Corporate Governance Committee
4 Lead Independent Director
76
Sharon D. Garrett 1, 3
Management Consultant;
Board Member,
Jerome’s Furniture
Stephen D. Milligan 1, 3
Chief Executive Officer,
Western Digital Corporation
Michael O’Sullivan
President and
Chief Operating Officer,
Ross Stores, Inc.
George P. Orban 2, 3
Managing Partner,
Orban Partners
Lawrence S. Peiros 2, 3
Former Chief Operating Officer,
The Clorox Company;
Board Member,
Potlatch Corporation
Brian Morrow
President and
Chief Merchandising Officer,
dd’s DISCOUNTS
Michael O’Sullivan
President and
Chief Operating Officer
Lisa Panattoni
President
Merchandising,
Ross Dress for Less
Gregory L. Quesnel 1, 3
Former Chief Executive Officer,
CNF, Inc.;
Board Member,
SYNNEX Corporation and
Potlatch Corporation
Barbara Rentler
Chief Executive Officer,
Ross Stores, Inc.
John G. Call
Executive Vice President
Finance and Legal, and
Corporate Secretary
Michael Hartshorn
Executive Vice President
Chief Financial Officer
Corporate Data
Corporate Headquarters
Transfer Agent and Registrar
Computershare
P. O. Box 505000
Louisville, KY 40233-5000
or
Overnight Correspondence
426 South 4th Street, Suite 1600
Louisville, KY 40202
Inquiries by:
Website
www.computershare.com/investor
or
Online
https://www-us.computershare.com/investor/Contact
Telephone
1-866-455-3120 (domestic holders)
1-800-231-5469 (TDD#)
1-201-680-6578 (foreign holders)
1-201-680-6610 (foreign TDD#)
Gregory L. Quesnel 1, 3
Former Chief Executive Officer,
CNF, Inc.;
Board Member,
SYNNEX Corporation and
Potlatch Corporation
Barbara Rentler
Chief Executive Officer,
Ross Stores, Inc.
John G. Call
Executive Vice President
Finance and Legal, and
Corporate Secretary
Michael Hartshorn
Executive Vice President
Chief Financial Officer
Ross Stores, Inc.
5130 Hacienda Drive
Dublin, CA 94568-7579
(925) 965-4400
Corporate Website
www.rossstores.com
New York Buying Office
Ross Stores, Inc.
1372 Broadway, 2nd Floor
New York, NY 10018-6141
Los Angeles Buying Office
Ross Stores, Inc.
110 East 9th Street, Suite A-979
Los Angeles, CA 90079-1711
Annual Report (Form 10-K)
A copy of the Company’s 2017
Annual Report on Form 10-K as
filed with the Securities and
Exchange Commission is available
on our corporate website,
or without charge, by contacting
the following:
Investor Relations Department
Ross Stores, Inc.
5130 Hacienda Drive
Dublin, CA 94568-7579
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Ross Stores, Inc.
5130 Hacienda Drive
Dublin, CA 94568-7579
(925) 965-4400
www.rossstores.com
Sustainable Choice. Reduce, Reuse & Recycle.
To minimize our environmental impact, the Ross Stores 2017 Annual Report
was printed on paper containing fibers from environmentally appropriate,
socially beneficial, and economically viable forest resources.