Everyone
Loves a
Bargain
Ross Stores, Inc.
2019 Annual Report
Everyone Loves a Bargain!
We launched our off-price business almost four decades ago based on the premise that
everyone loves a bargain. Since then, we have consistently met customer wants and needs
year after year by offering outstanding values on a wide array of fresh and exciting name
brand fashions in convenient and easy-to-shop stores.
We accomplish this through our two off-price apparel and home fashion chains, Ross Dress
for Less® (“Ross”) and dd’s DISCOUNTS®. The first Ross Dress for Less locations opened
in 1982, and today, Ross is the largest off-price apparel and home fashion chain in the
U.S. with 1,546 stores in 39 states, the District of Columbia, and Guam. We launched dd’s
DISCOUNTS in 2004 and it now operates 259 locations in 19 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 more moderately-priced assortments at savings of 20% to
70% off moderate department and discount store prices every day. With careful execution of
our proven off-price strategies, we remain confident in our prospects for ongoing profitable
market share gains and continued solid growth in both sales and earnings.
To Our Stockholders
Everyone Loves a Bargain
We remain confident that delivering compelling values every day on a wide array of name brand fashions for the
family and the home will always be the key to our continued success – especially since we know that everyone
loves a bargain! During 2019, we continued to effectively deliver on this premise, leading to another year of strong
gains in both sales and earnings.
Solid Financial Results on Top of Strong Multi-Year Gains
For the 2019 fiscal year ended February 1, 2020 sales increased 7% to $16.0 billion, with comparable store
sales up 3% on top of 4% gains in each of the four prior years.
Net earnings in fiscal 2019 grew to $1.7 billion, up from $1.6 billion in the prior year. Earnings per share grew
8% to $4.60, compared to $4.26 in fiscal 2018. The earnings results for both the 2019 and 2018 fiscal years
reflect one-time, non-cash gains of $.02 and $.07 per share, respectively, primarily related to the favorable
resolution of tax matters.
Operating margin for the year declined 25 basis points to 13.4%, as higher merchandise gross margin and
leverage on selling, general and administrative costs were more than offset mainly by increases in distribution
and freight expenses.
Continued Expansion with Significant Long-Term Store Potential
As planned, we added 88 net new locations during the year, consisting of 66 Ross Dress for Less and 22 dd’s
DISCOUNTS. We ended 2019 with a combined 1,805 stores in 39 states, the District of Columbia, and Guam.
Our continued growth in 2019 included entry into a new state, Ohio, with five initial Ross Dress for Less stores.
The other 61 new Ross locations opened in both established regions as well as other newer markets including a
total of 18 Ross stores in Arkansas, Illinois, Indiana, Kentucky, Missouri, Nebraska, North Dakota,
and Wisconsin.
dd’s DISCOUNTS’ expansion plans also remained on track, with a net addition of 22 net new locations,
including entry into Virginia. With these openings, dd’s now operates in 19 states.
2019 Annual Report | 1
Over the long term, we continue to believe we can ultimately grow to approximately 3,000 Ross and dd’s
DISCOUNTS locations combined. This target is based on research that shows there are further opportunities
for expansion in both existing and new markets that could enable us to eventually operate about 2,400
Ross Dress for Less and 600 dd’s DISCOUNTS locations. This long-term store potential provides us with a
considerable amount of growth opportunities given our current store base of 1,546 Ross Dress for Less
and 259 dd’s DISCOUNTS.
dd’s DISCOUNTS Delivers Solid Sales and Profit Gains
dd’s DISCOUNTS’ customers continued to respond positively to its merchandise assortments in 2019, leading
to another year of robust gains in both sales and operating profits.
Strong Cash Flows Fund Ongoing Growth and Stock Repurchases and Dividends
Operating cash flows in 2019 helped to fund new store expansion and additional infrastructure improvements to
support our long-term growth. We invested approximately $555 million in capital projects during the year, including
about $295 million for distribution, information technology, and corporate projects, and approximately $260 million
to open new locations and update existing stores. We ended the year with approximately $1.4 billion in cash
and $313 million in long-term debt.
During 2019, we repurchased $1.275 billion of common stock, or about 12.3 million shares, under the two-year
$2.55 billion stock repurchase program announced in March 2019. In early March 2020 we announced that the
Board declared a higher quarterly cash dividend of $.285 per share, up 12% on top of a 13% increase in the prior
year.
Flexible Business Model Maximizes Long-Term Profitability
Again, we delivered better-than-expected sales and earnings gains for fiscal 2019 on top of strong multi-year
comparisons while navigating a very competitive retail backdrop and uncertainties in the macro-economic
and political environment. These results are a testament to the resilience of our off-price business model and
the talented individuals throughout our organization.
Over the long term, we remain confident in our ongoing ability to achieve profitable market share gains by
continuing to offer customers the best bargains possible throughout our stores. By maintaining our focus on
the careful execution of our proven off-price strategies, we believe we can continue to deliver solid growth in
both sales and earnings over the coming years.
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 1,546 locations at the end of 2019.
dd’s DISCOUNTS, which we launched in 2004, had 259 stores at year end.
2 | Ross Stores
Our success over the past 37 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 92,000 associates by
providing a work environment where they can grow and succeed.
Our greatest asset will always be our people, all of whom play an integral role in delivering outstanding
bargains to our customers. As a result, we continue to look for ways to empower and support our
associates’ well-being. Throughout the years, we have supported the continuing education of hundreds
of our associates and their dependents through the Stuart Moldaw Scholarship program. We are also
committed to providing associates with competitive wages and benefits in each of our geographic markets.
Other initiatives we are pursuing include the growth of internship programs throughout the Company, as well
as other training and development programs that 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.
In addition, we support the communities where we operate through local hiring and philanthropic efforts,
including our foundation that furthers our charitable mission of helping to create a brighter future for
today’s youth.
We also continually look for opportunities to improve the efficiency and sustainability of our operations, 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.
As we enter 2020, the COVID-19 pandemic has created significant disruption across our country that affects
us all. During these times, we are prioritizing the health and well-being of our associates, customers, and
partners. This will be a very difficult period as we’re facing challenges we’ve never experienced in our history.
That said, our long-tenured and talented leadership team, and solid financial foundation gives us confidence
that we will be able to successfully manage through this unprecedented situation.
In closing, our thoughts are with all of our customers, associates, business partners, and investors for their
continued health and safety.
Sincerely,
MICHAEL BALMUTH
Chairman of the Board
BARBARA RENTLER
Chief Executive Officer
2019 Annual Report | 3
4 | Ross Stores
Merchandise Mix
13%
Shoes
14%
Men’s
13%
Accessories,
Lingerie,
Fine Jewelry,
Fragrances
9%
Children’s
26%
Ladies
25%
Home Accents,
Bed and Bath
2019 Annual Report | 5
Store Growth
88
net new
stores in 2019
39
states
Ross Dress for Less
dd’s DISCOUNTS
In 2019, we continued to expand in both existing and new markets by adding 88 net new stores
leading to an ending store count of 1,546 Ross Dress for Less and 259 dd’s DISCOUNTS locations
across 39 states, the District of Columbia, and Guam.
For Ross, within our existing markets, we opened over 34 stores in our largest three states of
California, Florida, and Texas combined. We also opened our first five stores in Ohio, our 39th state.
In other newer markets, the growth was primarily in Illinois, Indiana, Kentucky, and Nebraska.
6 | Ross Stores
1,805
stores
For dd’s, it was an exciting year with the entrance into one new state during 2019—Virginia. Further,
growth continued in dd’s largest markets of California, Florida, and Texas with the opening of 15
stores during the year.
Over the long term, we believe we can operate up to 3,000 locations between the two chains, 2,400
Ross Dress for Less and 600 dd’s DISCOUNTS, which provides considerable additional growth
opportunities over the long term.
2019 Annual Report | 7
Financial Highlights1
TOTAL SALES
($ billions)
EARNINGS PER SHARE2
$16.0
$4.60
$15.0
$14.1
$12.9
$11.9
$4.26
$3.55
$2.83
$2.51
15
16
17
18
19
15
16
17
18
19
RETURN ON AVERAGE STOCKHOLDERS’ EQUITY
CASH RETURNED TO STOCKHOLDERS3
($ millions)
50%
47%
50%
43%
43%
$1,645
$1,412
$1,123
$915
$892
15
16
17
18
19
15
16
17
18
19
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.
2019 Annual Report
Directors and Officers
Gregory L. Quesnel 1, 3
Former Chief Executive Officer,
CNF, Inc.;
Board Member,
SYNNEX Corporation and
Potlatch Corporation
Larree M. Renda 5
Former Executive Vice President,
Safeway, Inc.;
Board Member,
Casey’s General Stores, Inc.
Barbara Rentler
Chief Executive Officer,
Ross Stores, Inc.
Sharon D. Garrett 1, 3
Management Consultant;
Former Board Member,
Jerome’s Furniture and
Scott’s Liquid Gold-Inc
Stephen D. Milligan 1, 3
Former Chief Executive Officer,
Western Digital Corporation;
Board Member,
Western Digital Corporation and
Autodesk, Inc.
Patricia H. Mueller 5
Management Consultant;
Board Member,
Dave & Buster’s Entertainment
George P. Orban 2, 3, 4
Managing Partner,
Orban Partners
Michael Kobayashi
President, Operations
and Technology
Travis Marquette
Group Senior Vice President and
Chief Financial Officer
Board of Directors
Norman A. Ferber
Chairman Emeritus,
Ross Stores, Inc.
Michael Balmuth
Chairman of the Board and
Senior Advisor,
Ross Stores, Inc.
K. Gunnar Bjorklund 2, 3
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;
Former Executive Chairman,
Trumaker, Inc.;
Board Member,
Home Franchise Concepts and
Phoeben, Inc. dba Armenta
Corporate Officers
Michael Balmuth
Chairman of the Board and
Senior Advisor
Barbara Rentler
Chief Executive Officer
Brian Morrow
President,
dd’s DISCOUNTS
Michael Hartshorn
Group President and
Chief Operating Officer
1 Audit Committee
2 Compensation Committee
3 Nominating & Corporate Governance Committee
4 Lead Independent Director
5 Joined the Board of Directors on 3/11/2020
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
12
28
30
41
45
62
68
69
73
Index to Other Information
Directors and Officers
Corporate Data
76
Inside Back Cover
10
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 01, 2020
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)
Delaware
(State or other jurisdiction of incorporation or organization)
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
Trading symbol
ROST
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 ☒ 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 ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes ☒ No ☐
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 ☒ 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 ☒
The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of August 3, 2019 was
$36,753,366,881, 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 9, 2020 was 355,896,821.
Documents incorporated by reference:
Portions of the Proxy Statement for the Registrant’s 2020 Annual Meeting of Stockholders, which will be filed on or before
June 1, 2020, 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 1,546 locations in 39 states, the
District of Columbia, and Guam, as of February 1, 2020. 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 259 dd’s DISCOUNTS stores in 19 states as of February 1, 2020. 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 operations for Ross and dd’s DISCOUNTS are separate. The two chains share
certain 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 1, 2020, February 2, 2019, and February 3, 2018 as fiscal 2019, fiscal 2018, and
fiscal 2017, respectively. Fiscal 2017 was a 53-week year. Fiscal 2019 and 2018 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.
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
12
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, jewelry and watches.
Purchasing. We have a combined network of about 7,500 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 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 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 2019, we continued our emphasis on this important sourcing strategy in response to compelling opportunities
available in the marketplace. Packaway accounted for approximately 46% of total inventories as of February 1, 2020 and
February 2, 2019. 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 2019, we had approximately 900 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 seven years of experience, including merchandising
positions with other retailers such as Bloomingdale’s, Burlington Stores, Kohl’s, Lord & Taylor, Macy’s, Saks, and Target. We
expect to continue to make additional targeted investments in our merchant organization to further develop our relationships
with our 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 merchandise that is 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.
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
13
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 1, 2020, we operated a total of 1,805 stores comprised of 1,546 Ross stores and 259 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. Our
stores have shopping carts and/or baskets 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 or store credit 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 continued 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 operate distribution processing facilities where we receive and ship all of our merchandise to our stores. These
distribution centers are large, highly automated, and built to suit our specific off-price business model. An additional
distribution center in Brookshire, Texas is currently under construction and expected to open in 2021. We also operate
warehouse facilities for packaway storage.
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 and warehouses with their current expansion capabilities will provide adequate
processing and storage 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.
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 grow additional channels, including social and digital media, to communicate our brand position.
Advertising for dd’s DISCOUNTS is primarily focused on radio and new store grand openings.
14
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 1, 2020, we had approximately 92,500 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
merchandising systems 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 report, 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 2019, 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, including the rapidly developing challenges with and our plans and
responses to the COVID-19 pandemic and related economic disruptions, our financial performance, operations, competitive
position, and our projected growth, that are all subject to risks and uncertainties that could cause our actual results to differ
materially from those forward-looking statements and from 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:
The current, major health pandemic from the novel coronavirus (COVID-19) is severely and adversely affecting our
sales and our operations, and will have serious adverse effects on our business and our financial condition.
The United States and other countries are experiencing a major global health pandemic related to the outbreak of a novel
strain of coronavirus (COVID-19), and related, severe disruptions to retail operations and supply chains and to general
economic activities, as the affected regions take increasingly dramatic action in an effort to slow down the spread of the
disease. As the COVID-19 pandemic continues, many of our customers are impacted by recommendations and/or mandates
from federal, state, and local authorities to stay home ("shelter in place" or "safer at home") and to avoid non-essential social
contact and gatherings of people, and to self-quarantine. In recent weeks starting in March 2020, we have experienced a
broad-based deceleration in sales trends from consumer response to the COVID-19 pandemic throughout the country.
Governmental authorities in affected regions are taking increasingly dramatic action in an effort to slow down the spread of
the disease. As part of a growing number of retailers across the country, we have temporarily closed all store locations
effective March 20, 2020 through April 3, 2020. We have closed our buying and corporate offices, and our distribution
centers, for the same period, and we have instituted “work from home” measures for many of our associates. We are
monitoring the situation and will reopen stores as conditions permit; however, extended or further closures may be required
nationally, regionally, or in specific locations. The situation is unprecedented and rapidly changing, and has unknown
duration and severity. This significant reduction in customer visits to our stores will result in a loss of sales and profits and
have material adverse effects to our financial condition. In addition, the COVID-19 pandemic will potentially adversely affect
our ability to adequately staff our stores and our distribution, merchant, and other support operations. Further, the COVID-19
pandemic is currently severely impacting China and other countries, which may also adversely affect our ability to access
and ship products from the impacted countries. A prolonged, widespread pandemic will adversely impact global economies
and financial markets, which will result in an economic downturn that will reduce demand for our products. The extent of the
impact from the COVID-19 pandemic on our business and financial results will depend largely on future developments,
including the duration and spread of the outbreak within the U.S., the response by all levels of government in their efforts to
contain the outbreak and to mitigate the economic disruptions, and the related impact on consumer confidence and
spending, all of which are highly uncertain and cannot be predicted. Such impacts are expected to adversely affect our
profitability, cash flows, financial results, and our capital resources.
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 for
customers, associates, store locations, and merchandise 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. 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 e-commerce 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 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 us to take greater markdowns, and negatively affect our sales and
margins.
16
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 and its territories. Although our off-
price business model provides us certain advantages and may allow us greater flexibility than traditional retailers have 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, as well as events such as storms, affect consumers’ buying
patterns and willingness to shop, and may 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 cause us to increase our markdowns,
which may negatively affect our sales and margins.
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 the reaction and
repercussions from the COVID-19 pandemic, 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. The COVID-19
pandemic, or other potential, 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 actual demand is lower than our sales plans, we
may experience excess 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 align with 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 with 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
17
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, and natural disasters, or public health issues such as the current COVID-19 pandemic (or other, future
pandemics), 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.
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, continuous availability, 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 sound investments and
implement them at the right pace. The risk of system disruption is increased whenever significant system changes are
undertaken. An excessive rate of technological change could detract from the effectiveness of adoption, and could make it
more difficult for us to realize benefits from new technology. Poorly targeting opportunities, failing to make good 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 us with 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: public health issues such as the
current COVID-19 pandemic (or other, future pandemics), 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 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 new 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 regulations and related laws
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 we offer, 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 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, harassment, 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/representative
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 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 tax provisions and reserves for legal claims. 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 landlord for our stores, or our
associates outside of work, and may pertain to social or political issues or protests largely unrelated to our business. 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. 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, which could negatively affect our 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.
Our inability to continually attract, train, and retain associates with the retail talent necessary to execute our off-
price retail strategies along with labor shortages, increased turnover, or increased labor costs could adversely
affect our operating results.
Like other retailers, we face challenges in recruiting and retaining sufficient talent in our buying organization, management,
stores, distribution centers, 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 seasons, 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, especially 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, any of which could adversely affect
sales or increase costs.
We are subject to risks associated with selling and importing merchandise produced in other countries.
Risks in importing and selling such merchandise include import duties and quotas, compliance with anti-dumping regulations,
economic uncertainties and adverse economic conditions (including inflation, recession, and exchange rate fluctuations),
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.
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 products
20
that originate 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, acts of terrorism, natural disasters,
or public health issues such as the current COVID-19 pandemic (or other, future pandemics) 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. 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 contractually confirm that they 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 with applicable local laws. Although
we have implemented policies and procedures to facilitate compliance with laws and regulations relating to doing business in
foreign markets and importing merchandise, and to monitor our suppliers, this does not guarantee 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 trade 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, including those with China.
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 and
expenses, 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 could adversely affect our operating results.
A pandemic, 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, nine distribution centers/warehouses, and approximately 23% of our
stores are located in California. Natural or other disasters, such as the current COVID-19 pandemic (or other, future
pandemics), 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 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. At the time of this filing, more than
40 million residents in California are under governmental orders to stay at home (“shelter in place” or “safer at home”) and to
avoid non-essential social contact and gatherings of people. The duration of this situation is unknown, and it is severely and
adversely affecting our sales and our financial results.
21
To support our continuing operations, our new store and distribution center growth plans, our quarterly dividends,
and any resumption of our stock repurchase program, we must maintain sufficient liquidity; the COVID-19 pandemic
and related economic disruption are adding significant uncertainty and challenges.
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. In recent weeks starting in March 2020, we have experienced a
broad-based deceleration in sales trends from consumer response to the COVID-19 pandemic throughout the country.
Governmental authorities in affected regions are taking increasingly dramatic action in an effort to slow down the spread of
the disease. As part of a growing number of retailers across the country, we have temporarily closed all store locations
effective March 20, 2020 through April 3, 2020. We have closed our buying and corporate offices, and our distribution
centers, for the same period, and we have instituted “work from home” measures for many of our associates. We are
monitoring the situation and will reopen stores as conditions permit; however, extended or further closures may be required
nationally, regionally, or in specific locations. The situation is unprecedented and rapidly changing, and has unknown
duration and severity. If we are unable to generate sufficient cash flows from operations to support our activities, our growth
plans and our financial performance would be adversely affected. We have already temporarily suspended our stock
repurchase program. If necessary to support our operations, we could be forced to discontinue payment of our quarterly
cash dividends. The failure to repurchase stock, and any failure to pay dividends may negatively impact our reputation and
investor confidence in us, and may negatively affect our stock price.
We have borrowed on occasion to finance some of our activities. In March 2020, we borrowed $800 million from our
revolving credit facility to add to our cash balances in order to provide enhanced financial flexibility due to uncertain market
conditions arising from the impact of the COVID-19 pandemic. 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 1, 2020, we operated a total of 1,805 stores, of which 1,546 were Ross stores in 39 states, the District of
Columbia, and Guam, and 259 were dd’s DISCOUNTS stores in 19 states. All stores are leased, with the exception of two
locations which we own.
During fiscal 2019, we opened 74 new Ross stores and closed eight existing stores. The average approximate Ross store
size is 28,000 square feet.
During fiscal 2019, we opened 24 new dd’s DISCOUNTS stores, closed one existing store, and temporarily closed one store
impacted by a weather event. The average approximate dd’s DISCOUNTS store size is 23,000 square feet.
During fiscal 2019, no one store accounted for more than 1% of our sales.
We carry fire, flood, wind, and earthquake insurance to help mitigate the risk of financial loss that may result from such
events.
Our real estate strategy in 2020 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 2020. 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 1, 2020 and February 2, 2019.
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
Nebraska
Nevada
New Jersey
New Mexico
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
Wyoming
Total
February 1, 2020
24
82
9
417
38
3
2
221
64
2
22
12
83
20
6
12
15
19
26
9
27
6
5
39
14
18
48
3
5
27
31
50
27
2
36
255
22
40
42
19
3
February 2, 2019
24
80
8
400
37
3
2
205
61
2
22
12
79
15
6
12
11
18
25
9
26
6
1
39
14
15
47
2
—
26
31
48
27
2
34
244
21
39
43
18
3
1,805
1,717
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 1, 2020, 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 approximately six years, or approximately 20 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 1, 2020. 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
Approximate Square Footage
Own/Lease
Distribution centers/Warehouses
Moreno Valley, California
Moreno Valley, California1
Moreno Valley, California1
Perris, California
Perris, California
Riverside, California
Shafter, California
Shafter, California
Shafter, California1
Carlisle, Pennsylvania
Carlisle, Pennsylvania
Carlisle, Pennsylvania
Fort Mill, South Carolina
Fort Mill, South Carolina
Fort Mill, South Carolina
Fort Mill, South Carolina
Fort Mill, South Carolina1
Rock Hill, South Carolina
Rock Hill, South Carolina
Brookshire, Texas2
Office space
Dublin, California
Los Angeles, California
Boston, Massachusetts
New York City, New York
1,300,000
740,000
1,110,000
1,300,000
699,000
449,000
1,700,000
1,003,000
350,000
465,000
239,000
246,000
1,200,000
428,000
423,000
255,000
160,000
1,200,000
431,000
1,850,000
414,000
103,000
5,000
572,000
Own
Lease
Lease
Own
Own
Own
Own
Lease
Lease
Own
Lease
Lease
Own
Own
Own
Lease
Lease
Own
Lease
Own
Own
Lease
Lease
Own
1 Operated by a third party.
2 We are currently in the process of completing the construction of this distribution center with an estimated occupancy of
2021.
See additional discussion under “Distribution” in Item 1.
ITEM 3. LEGAL PROCEEDINGS
Like many retailers, we have been named in class/representative action lawsuits, primarily in California, alleging violation of
wage and hour laws and consumer protection laws. Class/representative action litigation remains pending as of February 1,
2020
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, environmental, 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/representative 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.0
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
Michael J. Hartshorn
Michael Kobayashi
Brian Morrow
Travis Marquette
69
62
52
55
60
48
Chairman of the Board and Senior Advisor
Chief Executive Officer
Group President and Chief Operating Officer
President, Operations and Technology
President and Chief Merchandising Officer, dd’s DISCOUNTS
Group Senior Vice President and Chief Financial Officer
Mr. Balmuth has served as Chairman of the Board and Senior Advisor since November 2019. From 2014 to November 2019,
Mr. Balmuth was Executive Chairman of the Board of Directors and 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. Hartshorn has served as Group President and Chief Operating Officer since August 2019. Previously, he was Group
Executive Vice President, Finance and Legal, Chief Financial Officer in 2019; Executive Vice President, Chief Financial
Officer from 2018 to 2019; 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.
Mr. Kobayashi has served as President, Operations and Technology since August 2019. Prior to that, he served as Group
Executive Vice President, Supply Chain, Merchant Operations, and Technology since 2014. Previously, he was Executive
Vice President, Supply Chain, Allocation, and Chief Information Officer from 2010 to 2014; Group Senior Vice President,
Supply Chain and Chief Information Officer from 2008 to 2010; and Senior Vice President and Chief Information Officer from
2004 to 2008. Before joining Ross in 2004, Mr. Kobayashi was a Partner with Accenture in their Retail and Consumer Goods
practice where he spent 18 years in a variety of management consulting roles.
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. Marquette has served as Group Senior Vice President and Chief Financial Officer since August 2019. Prior to that, he
was Group Senior Vice President and Deputy Chief Financial Officer from 2018 to 2019, and Senior Vice President, Finance
from 2017 to 2018. He was also Senior Vice President, Store Operations from 2015 to 2017, Group Vice President, Store
Operations from 2013 to 2015, and Vice President, Store Operations Finance from 2009 to 2013. Prior to joining Ross in
2008 as Director, Strategic Planning, Mr. Marquette held various consulting and management roles over a 12-year period
with Bain & Company, Carter’s Inc., and PricewaterhouseCoopers.
25
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 on Form 10-K, which is incorporated herein by
reference. Our stock is traded on The NASDAQ Global Select Market® under the symbol ROST. There were 977
stockholders of record as of March 9, 2020 and the closing stock price on that date was $94.81 per share.
Cash dividends. On March 3, 2020, our Board of Directors declared a quarterly cash dividend of $0.285 per common share,
payable on March 31, 2020. Our Board of Directors declared cash dividends of $0.255 per common share in March, May,
August, and November 2019, cash dividends of $0.225 per common share in March, May, August, and November 2018, and
cash dividends of $0.160 per common share in February, May, August, and November 2017.
Issuer purchases of equity securities. Information regarding shares of common stock we repurchased during the fourth
quarter of fiscal 2019 is as follows:
Maximum
number (or
approximate
dollar value)
of shares (or
units) that
may yet be
purchased
under the
plans or
programs
($000)
Total number
of shares
(or units)
purchased as
part of publicly
announced
plans or
programs
Total number
of shares
(or units)
purchased¹
Average price
paid per share
(or unit)
684,197
$112.94
684,197
$1,506,818
1,103,752
$115.01
1,103,752
$1,379,870
926,215
$117.27
892,826
$1,275,000
2,714,164
$115.26
2,680,775
$1,275,000
Period
November
(11/03/2019 - 11/30/2019)
December
(12/01/2019 - 01/04/2020)
January
(01/05/2020 - 02/01/2020)
Total
1 We acquired 33,389 shares of treasury stock during the quarter ended February 1, 2020. Treasury stock includes shares acquired from employees for tax
withholding purposes related to vesting of restricted stock grants. All remaining shares were repurchased under our publicly announced stock repurchase
program.
In March 2019, our Board of Directors approved a two-year $2.55 billion stock repurchase program through fiscal 2020. Due
to the current economic uncertainty stemming from the COVID-19 pandemic, we have temporarily suspended our stock
repurchase program as of March 2020, and plan to continue to monitor the situation based on business conditions and
regard for our financial liquidity needs.
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.
26
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 to the Standard & Poor’s
500 Index (“S&P Index”) and the Dow Jones Apparel Retailers Index.
We use the Dow Jones Apparel Retailers Index in our performance graph because we believe the retail companies
comprising that index are aligned with the segment of the retail industry in which we operate, and it provides a relevant
comparison against which to measure our stock performance.
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 Index 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, and Dow Jones Apparel Retailers
Company/Index
Ross Stores, Inc.
S&P 500 Index
Dow Jones Apparel Retailers
Base
Period
2015
100
100
100
Indexed Returns for Years Ended
2016
124
99
99
2017
2018
2019
2020
145
119
97
177
151
111
208
147
120
257
179
134
27
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)
2019
2018
20171
2016
2015
Operations
Sales
Cost of goods sold
Percent of sales
Selling, general and administrative
Percent of sales
Interest (income) expense, 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
$ 16,039,073 $
11,536,187
71.9%
2,356,704
14.7%
(18,106)
2,164,288
13.5%
503,360
1,660,928 $
10.4%
4.635 $
4.605 $
$
$
$
14,983,541 $ 14,134,732 $ 12,866,757 $ 11,939,999
8,576,873
10,726,277
71.8%
71.6%
1,738,755
2,216,550
14.6%
14.8%
12,612
(10,162)
1,611,759
2,050,876
13.5%
13.7%
591,098
463,419
1,020,661
1,587,457 $
8.5%
10.6%
2.53
2.51
10,042,638
71.0%
2,043,698
14.5%
7,676
2,040,720
14.4%
677,967
1,362,753 $
9.6%
3.583 $
3.553 $
9,173,705
71.3%
1,890,408
14.7%
16,488
1,786,156
13.9%
668,502
1,117,654 $
8.7%
2.85 $
2.83 $
4.304 $
4.264 $
$
1.02 $
0.90 $
0.64 $
0.54 $
0.47
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 Includes a per share benefit of approximately $0.21 from tax reform legislation enacted in December 2017 and $0.10 from the 53rd week.
4 Includes a per share benefit of approximately $0.70 from tax reform legislation enacted in December 2017 and $0.07 from the favorable resolution
of a tax matter.
5 Includes a per share benefit of approximately $0.02 primarily related to the favorable resolution of a tax matter.
28
Selected Financial Data
($000, except per share data)
2019
2018
20171
2016
2015
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-end3
Operating Statistics
Number of stores opened
Number of stores closed
Number of stores at year-end
Comparable store sales increase5
(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
$ 1,351,205
1,832,339
2,653,4362
9,348,3672
22%2
730,8942
1.3:12
312,891
$ 1,412,912 $ 1,290,294 $ 1,111,599 $ 761,602
1,750,442 1,641,735 1,512,886 1,419,104
2,475,201 2,382,464 2,328,048 2,342,906
6,073,691 5,722,051 5,309,351 4,869,119
21%
769,348
1.5:1
396,025
22%
1,060,543
1.6:1
396,493
25%
1,224,755
1.6:1
396,967
27%
1,394,535
1.7:1
312,440
9%
3,359,249
9%
3,305,746
12%
3,049,308
13%
2,748,017
14%
2,471,991
50%
50%
47%
43%
43%
$
9.42
$
8.98
$
8.03
$
7.01
$
6.14
98
104
1,805
3%
99
4
1,717
96
7
1,622
93
6
1,533
90
6
1,446
4%
4%
4%
4%
$
432
$
422 $
409 $
395 $
383
37,900
92,500
36,300
88,100
34,700
82,700
33,300
78,600
31,900
77,800
976
902
880
848
842
¹ Fiscal 2017 was a 53-week year; all other fiscal years presented were 52 weeks.
2 Fiscal 2019 reflects the impact of adoption of ASU 2016-02, Leases (Accounting Standards Codification "ASC" 842) on a modified retrospective
basis; all other fiscal years presented were not restated.
3 All per share amounts have been adjusted for the two-for-one stock split effective June 11, 2015.
4 Includes the temporary closure of a store impacted by a weather event.
5 Comparable stores are stores open for more than 14 complete months.
29
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 1,546
locations in 39 states, the District of Columbia, and Guam, as of February 1, 2020. 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 259 dd’s DISCOUNTS stores in 19
states as of February 1, 2020 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 2019 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 1, 2020, February 2, 2019, and February 3, 2018 as fiscal 2019, fiscal 2018,
and fiscal 2017, respectively. Fiscal 2017 was a 53-week year. Fiscal 2019 and 2018 were each 52-week years.
Current Material Development – the COVID-19 Pandemic is Disrupting Our Business
The United States and other countries are experiencing a major global health pandemic related to the outbreak of a novel
strain of coronavirus, COVID-19. Governmental authorities in affected regions are taking increasingly dramatic action in an
effort to slow down the spread of the disease. As part of a growing number of retailers across the country, we have
temporarily closed all store locations effective March 20, 2020 through April 3, 2020. We have closed our buying and
corporate offices, and our distribution centers, for the same period, and we have instituted “work from home” measures
for many of our associates. We are monitoring the situation and will reopen stores as conditions permit; however, extended
or further closures may be required nationally, regionally, or in specific locations. Given the unprecedented uncertainty of
this situation, including the unknown duration and severity of the pandemic and the unknown overall impact on consumer
demand, we are unable to forecast the full impact on our business; however, we now expect that impacts from the COVID-19
pandemic and the related economic disruption will have a material adverse impact on our consolidated results of operations,
consolidated financial position, and consolidated cash flows in fiscal 2020.
To preserve our financial liquidity, and out of an abundance of caution, we are temporarily suspending our stock repurchase
program, and in mid-March 2020 we borrowed $800 million from our revolving credit facility, which bears interest at LIBOR
plus 0.75% (currently 1.61%), to add to our cash balances. In addition, we are reducing our expense, inventory receipts, and
capital expenditure plans.
30
Results of Operations
The following table summarizes the financial results for fiscal 2019, 2018, and 2017:
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 (income) expense, net
Earnings before taxes (as a percent of sales)
Net earnings (as a percent of sales)
2019
2018
2017
$
16,039 $
7.0%
3%
14,984 $
6.0%
4%
14,135
9.9%
4%
71.9%
14.7%
(0.1%)
71.6%
14.8%
(0.1%)
13.5%
10.4%
13.7%
10.6%
71.0%
14.5%
0.1%
14.4%
9.6%
Stores. Total stores open at the end of fiscal 2019, 2018, and 2017 were 1,805, 1,717, and 1,622, respectively. The
number of stores at the end of fiscal 2019, 2018, and 2017 increased by 5%, 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
Selling square footage at the end of the period (000)
1 Includes the temporary closure of a store impacted by a weather event.
2019
1,717
98
(10) 1
2018
1,622
99
(4)
1,805
1,717
37,900
36,300
2017
1,533
96
(7)
1,622
34,700
31
Sales. Sales for fiscal 2019 increased $1.1 billion, or 7.0%, compared to the prior year due to the opening of 88 net new
stores during 2019 and a 3% increase in comparable store sales (defined as stores that have been open for more than 14
complete months). Sales for fiscal 2018 increased $0.8 billion, or 6.0%, compared to the prior year due to the opening of 95
net new stores during 2018 and a 4% increase in sales from comparable stores.
Our sales mix is shown below for fiscal 2019, 2018, and 2017:
Ladies
Home Accents and Bed and Bath
Men’s
Accessories, Lingerie, Fine Jewelry, and Fragrances
Shoes
Children’s
Total
2019
26%
25%
14%
13%
13%
9%
2018
26%
26%
14%
13%
13%
8%
2017
27%
26%
13%
13%
13%
8%
100%
100%
100%
We intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing
strategies and by continuing to strengthen our merchant organization, diversify our merchandise mix, and more fully develop
our systems to improve our merchandise offerings. Although our strategies and store expansion program contributed to
sales gains in fiscal 2019, 2018, and 2017, we cannot be sure that they will result in a continuation of sales growth or in an
increase in net earnings.
As part of a growing number of retailers across the country, we have temporarily closed all store locations effective March
20, 2020 through April 3, 2020, in response to the COVID-19 pandemic. We have closed our buying and corporate offices,
and our distribution centers, for the same period, and we have instituted “work from home” measures for many of our
associates. Given the unprecedented uncertainty of this situation, including the unknown duration and severity of the
pandemic, which may require extended and further store closures nationally, regionally, or in specific locations, and the
unknown overall impact on consumer demand, we are unable to forecast the full impact on our business; however, we now
expect that impacts from the COVID-19 pandemic and the related economic disruption will have a material adverse impact
on our consolidated results of operations, consolidated financial position, and consolidated cash flows in fiscal 2020.
Cost of goods sold. Cost of goods sold in fiscal 2019 increased $809.9 million compared to the prior year mainly due to
increased sales from the opening of 88 net new stores during the year and a 3% increase in sales from comparable stores.
Cost of goods sold as a percentage of sales for fiscal 2019 increased approximately 35 basis points from the prior year
primarily due to a 35 basis point increase in distribution expenses and a 15 basis point increase in freight costs. These
increases were partially offset by a 10 basis point improvement in merchandise gross margin and a five basis point reduction
in buying costs.
Cost of goods sold in fiscal 2018 increased $683.6 million compared to the prior year mainly due to increased sales from the
opening of 95 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 2018 increased approximately 55 basis points from the prior year
primarily due to a 40 basis point increase in freight costs, a 15 basis point increase in distribution expenses, higher buying
costs of 10 basis points, and higher occupancy costs of five basis points. These increases were partially offset by an
increase of 15 basis points in merchandise gross margin.
We cannot be sure that the gross profit margins realized in fiscal 2019, 2018, and 2017 will continue in future years.
Selling, general and administrative expenses. For fiscal 2019, selling, general and administrative expenses (“SG&A”)
increased $140.2 million compared to the prior year, mainly due to increased store operating costs reflecting the opening of
88 net new stores during the year. SG&A as a percentage of sales for fiscal 2019 decreased by approximately 10 basis
points compared to the prior year primarily due to leverage on higher sales.
For fiscal 2018, SG&A increased $172.9 million compared to the prior year, mainly due to increased store operating costs
reflecting the opening of 95 net new stores during the year. SG&A as a percentage of sales for fiscal 2018 increased by
approximately 30 basis points compared to the prior year primarily due to higher wages.
32
Interest (income) expense, net. In fiscal 2019, net interest income improved by $7.9 million compared to 2018 primarily
due to lower interest expense on long-term debt due to the repayment of the Series A 6.38% unsecured Senior Notes in
December 2018 and higher capitalized interest primarily related to the construction of our Brookshire, Texas distribution
center. In fiscal 2018, net interest income improved by $17.8 million compared to 2017 primarily due to an increase in
interest income and higher capitalized interest on information systems projects. The table below shows the components of
interest expense and income for fiscal 2019, 2018, and 2017:
($000)
2019
2018
2017
Interest expense on long-term debt
$
13,139 $
17,900 $
18,578
Other interest expense
Capitalized interest
Interest income
968
(4,367)
1,004
(2,497 )
979
(710 )
(27,846)
(26,569 )
(11,171 )
Interest (income) expense, net
$
(18,106) $
(10,162 ) $
7,676
Taxes on earnings. Our effective tax rates for fiscal 2019, 2018, and 2017 were approximately 23%, 23% and 33%,
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 tax law and
accounting guidance, location of new stores, level of earnings, tax effects associated with share-based compensation, and
the resolution of tax positions with various tax authorities. We anticipate that our effective tax rate for fiscal 2020 will be
approximately 24%.
In November 2019, we resolved uncertain tax positions with a state tax authority. As a result, we recognized a tax benefit of
approximately $10.0 million in the Consolidated Statement of Earnings. In fiscal 2018, we resolved uncertain federal tax
positions related to fiscal 2015 with the Internal Revenue Service. As a result, we recognized a tax benefit of approximately
$26.0 million in the Consolidated Statement of Earnings.
In fiscal 2017, the Tax Cuts and Jobs Act (the “Tax Act” or "tax reform") was signed into law. 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, the last month of fiscal 2017. U.S. GAAP requires that the impact of tax legislation be recognized in the
period in which the law was enacted. We applied a U.S. federal income tax rate of 21% for fiscal 2018 and a blended U.S.
federal income tax rate of approximately 34% for fiscal 2017. This reduced tax rate resulted in a benefit of $24.9 million in
fiscal 2017. We recorded an additional tax benefit of $55.2 million due to the remeasurement of our deferred tax assets and
liabilities in fiscal 2017.
Net earnings. Net earnings as a percentage of sales for fiscal 2019 were lower than in fiscal 2018, primarily due to higher
cost of goods sold, partially offset by lower SG&A expenses and higher interest income. Net earnings as a percentage of
sales for fiscal 2018 were higher compared to fiscal 2017, primarily due to lower taxes as a result of tax reform, and higher
interest income, partially offset by higher cost of goods sold and higher SG&A expenses.
Earnings per share. Diluted earnings per share in fiscal 2019 was $4.60, which included a per share benefit of
approximately $0.02 primarily related to the favorable resolution of a tax matter, compared to $4.26 in the prior year, which
included a per share benefit of approximately $0.07 from the favorable resolution of a tax matter. The 8% increase in diluted
earnings per share is attributable to an increase of approximately 5% in net earnings and 3% from the 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 2018 was $4.26, which included a per share benefit of approximately $0.70 from tax
reform and $0.07 from the favorable resolution of a tax matter, compared to $3.55 in the prior year, which included a per
share benefit of approximately $0.21 from tax reform and a $0.10 benefit from the 53rd week. The 20% increase in diluted
earnings per share was attributable to an increase of approximately 16% in net earnings (which included a 14% impact from
tax reform and a 2% impact from the favorable resolution of a tax matter) and 4% from the reduction in weighted-average
diluted shares outstanding, largely due to the repurchase of common stock under our stock repurchase program.
33
Financial Condition
Liquidity and Capital Resources
As previously noted, the United States and other countries are experiencing the COVID-19 pandemic and related economic
disruptions. Governmental authorities in affected regions are taking increasingly dramatic action in an effort to slow down the
spread of the disease. As part of a growing number of retailers across the country, we have temporarily closed all store
locations effective March 20, 2020 through April 3, 2020. We have closed our buying and corporate offices, and our
distribution centers, for the same period, and we have instituted “work from home” measures for many of our associates. We
are monitoring the situation and will reopen stores as conditions permit; however, extended or further closures may be
required nationally, regionally, or in specific locations. Given the unprecedented uncertainty of this situation, including the
unknown duration and severity of the pandemic and the overall impact on consumer demand, we are unable to forecast the
full impact on our business; however, this represents a known area of uncertainty and we now expect that impacts from the
COVID-19 pandemic and the related economic disruption will have a material adverse impact on our business. This
uncertainty includes the potential need for significant additional capital resources to maintain our operations during a period
of declining revenue from sales. We began fiscal 2020 with $1.4 billion in cash and cash equivalents. To preserve our
financial liquidity, we are temporarily suspending our stock repurchase program, and in mid-March 2020 we borrowed $800
million from our revolving credit facility, which bears interest at LIBOR plus 0.75% (currently 1.61%), to add to our cash
balances. In addition, we are reducing our expense, inventory receipts, and capital expenditure plans. We plan to continue to
monitor the rapidly developing situation and to take further action to reduce our expenses and preserve our financial
flexibility, as necessary.
In normal times and historically, our primary sources of funds for our business activities are cash flows from operations and
short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, operating
and variable lease costs, taxes, and capital expenditures in connection with new and existing stores, and investments in
distribution centers, information systems, and buying and corporate offices. We also use cash to repurchase stock under our
stock repurchase program and to pay dividends, and we may use cash for the repayment of debt as it becomes due. Due to
the COVID-19 pandemic and related economic disruptions, and with the temporary closure of all store locations effective
March 20, 2020 through April 3, 2020, (and with extended or further closures possibly necessary), we anticipate that we will
be required to rely far more heavily on our cash reserves and lines of credit, and we expect to carefully monitor and manage
our cash position in light of ongoing conditions and levels of operations.
20171
1,681.3
(354.8)
($ millions)
2019
2018
Cash provided by operating activities
$
2,171.5 $
2,066.7 $
Cash used in investing activities
Cash used in financing activities
(555.0)
(410.4 )
(1,683.2) $
(1,531.5 )
(1,149.4)
Net (decrease) increase in cash, cash equivalents, and restricted
cash and cash equivalents
$
(66.7) $
124.8 $
177.1
1 As the result of the adoption of ASU 2016-18, Statement of Cash Flow (Topic 230): Restricted Cash, in fiscal 2018, the prior year amounts were
retrospectively adjusted. See Note A in Notes to Consolidated Financial Statements.
Operating Activities
Net cash provided by operating activities was $2,171.5 million, $2,066.7 million, and $1,681.3 million in fiscal 2019, 2018,
and 2017, 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 2019 compared to fiscal 2018 was primarily driven by higher earnings
and the timing of merchandise receipts and related payments versus last year. The timing of merchandise receipts and
related payments versus last year resulted in accounts payable leverage (defined as accounts payable divided by
merchandise inventory) of 71%, 67%, and 65% as of February 1, 2020, February 2, 2019, and February 3, 2018,
respectively.
34
The increase in cash flow from operating activities in fiscal 2018 compared to fiscal 2017 was primarily driven by higher
earnings, the timing of merchandise receipts and related payments versus last year, and lower income tax payments.
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 in normal times and historically,
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 2019, packaway inventory was
46% of total inventory compared to 46% and 49% at the end of fiscal 2018 and 2017, respectively.
Investing Activities
Net cash used in investing activities was $555.0 million, $410.4 million, and $354.8 million in fiscal 2019, 2018, and 2017,
respectively. The increase in cash used for investing activities in fiscal 2019 compared to fiscal 2018 and fiscal 2017 was
primarily due to an increase in our capital expenditures.
In fiscal 2019, 2018, and 2017, our capital expenditures were $555.5 million, $413.9 million, and $371.4 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 2019 compared to fiscal 2018 was primarily due to investments in our
distribution centers, and information technology infrastructure investments for our stores, buying, corporate offices, and
transportation. The increase in capital expenditures in fiscal 2018 compared to fiscal 2017 was primarily due to investments
in our distribution centers, and information technology infrastructure investments for our stores, buying, corporate offices,
and transportation. We opened 98, 99, and 96 new stores in fiscal 2019, 2018, and 2017, 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. As of February 3, 2019, the effective date of the adoption of Financial Accounting Standards
Board issued Accounting Standards Update 2016-02, Leases (Accounting Standards Codification "ASC" 842), we wrote-off
the remaining $6.5 million deferred gain on the sale-leaseback transaction that met the sale definition under ASC 842 to
beginning retained earnings.
Our capital expenditures over the last three years are set forth in the table below:
($ millions)
New stores
Existing stores
Information systems, corporate, and other
Distribution and transportation
Total capital expenditures
$
$
2019
137.4 $
125.3
91.8
201.0
555.5 $
2018
134.5 $
130.5
84.9
64.0
413.9 $
2017
137.1
126.0
66.4
41.9
371.4
As previously noted, due to the COVID-19 pandemic and related economic disruptions, and to preserve our financial
liquidity, we are reviewing and reducing our capital expenditure plans for fiscal 2020. Our capital expenditures would be to
fund commitments related to the construction of our Brookshire, Texas distribution center, costs for fixtures and leasehold
improvements to open planned new Ross and dd’s DISCOUNTS stores, investments in certain information technology
systems, and for various other needed expenditures related to our stores, distribution centers, buying, and corporate offices.
We expect to fund capital expenditures with available cash, including cash we obtained by drawing from our revolving credit
facility, and cash flows from operations.
35
Financing Activities
Net cash used in financing activities was $1,683.2 million, $1,531.5 million, and $1,149.4 million in fiscal 2019, 2018, and
2017, respectively. During fiscal 2019, 2018, and 2017, our liquidity and capital requirements were provided by available
cash and cash flows from operations.
In March 2019, our Board of Directors approved a two-year $2.55 billion stock repurchase program through fiscal 2020. As of
the end of fiscal 2019, we have $1.275 billion remaining under the stock repurchase program. Due to the current economic
uncertainty stemming from the severe impact of the COVID-19 pandemic, we are temporarily suspending our stock
repurchase program.
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.
We repurchased 12.3 million, 12.5 million, and 13.5 million shares of common stock for aggregate purchase prices of
approximately $1,275 million, $1,075 million, and $875 million in fiscal 2019, 2018, and 2017, respectively. We also acquired
0.6 million, 0.7 million, and 0.7 million shares in fiscal 2019, 2018, and 2017, respectively, of treasury stock from our
employee stock equity compensation programs, for aggregate purchase prices of approximately $60.7 million, $54.4 million,
and $45.4 million during fiscal 2019, 2018, and 2017, respectively.
On March 3, 2020, our Board of Directors declared a quarterly cash dividend of $0.285 per common share, payable on
March 31, 2020. Our Board of Directors declared cash dividends of $0.255 per common share in March, May, August, and
November 2019, cash dividends of $0.225 per common share in March, May, August, and November 2018, and cash
dividends of $0.160 per common share in February, May, August, and November 2017.
During fiscal 2019, 2018, and 2017, we paid dividends of $369.8 million, $337.2 million, and $247.5 million, respectively.
On December 13, 2018, we repaid at maturity the $85 million principal amount of the Series A 6.38% unsecured Senior
Notes.
Short-term trade credit normally represents a significant source of financing for our 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. Due to the COVID-19 pandemic and related economic disruptions, we face uncertainty
about the levels of trade credit we can maintain and liquidity available from sales of merchandise. As noted below, we have
drawn from our available bank lines to add to our current cash balance.
In July 2019, we entered into a new $800 million unsecured revolving credit facility, which replaced our previous $600 million
unsecured revolving credit facility. This new credit facility expires in July 2024, and contains a $300 million sublimit for
issuance of standby letters of credit. The facility also contains an option allowing us to increase the size of our revolving
credit facility by up to an additional $300 million, with the agreement of the lenders. Interest on borrowings under this facility
is based on LIBOR (or an alternate benchmark rate, if LIBOR is no longer available) plus an applicable margin (currently 75
basis points) and is payable quarterly and upon maturity. The revolving credit facility may be extended, at our option, for up
to two additional one-year periods, subject to customary conditions. As of February 1, 2020, we had no borrowings or
standby letters of credit outstanding on this facility and our $800 million credit facility remained in place and available.
Subsequent to year end, in March 2020, we borrowed $800 million from our revolving credit facility, which bears interest at
LIBOR plus 0.75% (currently 1.61%), to add to our cash balances in order to provide enhanced financial flexibility due to
uncertain market conditions arising from the impact of the COVID-19 pandemic.
The revolving credit facility is subject to a financial leverage ratio covenant. As of February 1, 2020, we were in
compliance with this covenant.
The COVID-19 pandemic and related economic disruptions, including the temporary closure of all of our store locations
effective March 20, 2020 through April 3, 2020, (and with extended or further closures possibly necessary), are creating
significant uncertainty and challenges. We believe that existing cash balances, cash flows from operations, bank credit lines,
and trade credit are adequate to meet our near-term operating cash needs and capital investments; further prolonged and
extensive temporary store closures may require access to additional corporate credit markets.
36
Contractual Obligations and Off-Balance Sheet Arrangements
The table below presents our significant contractual obligations as of February 1, 2020:
($000)
Recorded contractual obligations:
Less than
1 year
1 - 3
years
3 - 5
years
After 5
years
Total¹
Senior notes
Operating leases
$
— $
65,000 $
250,000 $
— $
315,000
601,607 1,178,104
814,134
665,649 3,259,494
New York buying office ground lease²
5,883
13,226
14,178
947,527
980,814
Unrecorded contractual obligations:
Real estate obligations3
13,410
49,035
49,993
154,400
266,838
Interest payment obligations
12,682
21,120
16,875
—
50,677
Purchase obligations4
2,655,629
49,554
3,998
— 2,709,181
Total contractual obligations
$ 3,289,211 $ 1,376,039 $ 1,149,178 $ 1,767,576 $ 7,582,004
1 We have a $66.0 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.
3 Minimum lease payments for operating leases signed that have not yet commenced.
4 Purchase obligations primarily consist of merchandise inventory purchase orders, commitments related to construction projects, store fixtures and
supplies, and information technology services, transportation, and maintenance contracts.
Other than the unrecorded contractual obligations noted above, we do not have any material off-balance sheet arrangements
as of February 1, 2020.
Senior notes. As of February 1, 2020, 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 1, 2020, we also had outstanding Series B unsecured Senior Notes in the aggregate principal amount of $65
million, held by various institutional investors. The Series B notes 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 1, 2020, we were in compliance with those covenants.
The 2024 Notes, and Series B Senior Notes are subject to prepayment penalties for early payment of principal.
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 1, 2020 and February 2, 2019, we had
$4.2 million and $7.3 million, respectively, in standby letters of credit outstanding and $56.0 million and $58.3 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 $11.2 million and $13.3 million in trade letters of credit outstanding at February 1, 2020 and
February 2, 2019, 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.
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
37
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 46%, 46%, and 49% of total inventories as of February 1, 2020, February 2, 2019, and February 3, 2018,
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
undiscounted 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. For stores that are
closed, we record an impairment charge, if appropriate, or accelerate depreciation over the revised useful life of the asset. In
the course of performing our annual analysis, we determined that no long-lived asset impairment charge was required for
fiscal 2019, 2018, or 2017.
Lease accounting. As our leases generally do not provide an implicit discount rate; we use the estimated collateralized
incremental borrowing rate based on information available at the lease commencement date in determining the present
value of lease payments for use in the calculation of the operating lease liabilities and right-of-use assets. This rate is
determined using a portfolio approach based on the risk-adjusted rate of interest and requires estimates and assumptions
including credit rating, credit spread, and adjustments for the impact of collateral. We believe that this is the rate we would
have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar lease term. Operating
lease liabilities and corresponding right-of-use assets include options to extend lease terms that are reasonably certain of
being exercised. We do not record a lease liability and corresponding right-of-use asset for leases with terms of 12 months
or less, and account for lease and non-lease components as a single lease component. Our lease portfolio is comprised of
operating leases with the lease cost recorded on a straight-line basis over the lease term.
Prior to our adoption of Accounting Standards Codification ("ASC") 842 in the beginning of fiscal 2019, when a lease
contained “rent holidays” or required fixed escalations of the minimum lease payments, we recorded rental expense on a
straight-line basis over the term of the lease and the difference between the average rental amount was charged to expense
and the amount payable under the lease was recorded as deferred rent. We began recording rent expense on the lease
possession date. Tenant improvement allowances were amortized over the lease term. Changes in deferred rent and tenant
improvement allowances were included as a component of operating activities in the Consolidated Statements of Cash
Flows. See "Recently adopted 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.
Income taxes. We account for our uncertain tax positions in accordance with 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
38
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. We consider the applicability and impact of all Accounting Standards Updates
(“ASU”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not listed below were assessed and
determined to be either not applicable or are expected to have minimal impact on our consolidated financial results.
Recently adopted accounting standards. In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842), which
along with subsequent amendments, supersedes the lease accounting requirements in ASC 840, Leases. The updated
guidance 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 that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
We adopted ASC 842 as of February 3, 2019 (the "effective date"), using the optional transition method on a modified
retrospective basis. We did not elect the transitional package of practical expedients or the use of hindsight upon adoption of
the ASC. We elected to not record a lease liability and corresponding right-of-use asset for leases with terms of 12 months or
less, and to account for lease and non-lease components as a single lease component. Upon adoption, we recorded lease
liabilities based on the present value of the remaining minimum rental payments, using incremental borrowing rates as of the
effective date, of $2.9 billion, and the corresponding right-of-use assets of $2.9 billion. We also recorded a cumulative-effect
adjustment to decrease beginning retained earnings of $19.6 million, primarily related to the write-off of previously capitalized
initial direct costs that are no longer capitalized under ASC 842, partially offset by the write-off of the deferred gain on a
previous sale-leaseback transaction that meets the sale definition under ASC 842. Reporting periods beginning on or after
February 3, 2019 are presented under ASC 842, while prior period amounts and disclosures were not adjusted and continue
to be reported under ASC 840. Adoption of ASC 842 did not have a significant impact to the Company’s consolidated
statements of earnings or to the consolidated statements of cash flows.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606) which, along with
subsequent amendments, supersedes the revenue recognition requirements in “Revenue Recognition (ASC 605).” This
guidance provides a five-step analysis of transactions to determine when and how revenue is recognized and requires
entities to recognize revenue when the customer obtains control of promised goods or services in an amount that reflects the
consideration the entity expects to receive in exchange for those goods or services. We adopted ASC 606 as of February 4,
2018, using the modified retrospective method. Results for reporting periods beginning on or after February 4, 2018 are
presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with
ASC 605. Upon adoption of ASC 606, we recorded a cumulative-effect adjustment to increase beginning retained earnings
by $20 million as of February 4, 2018, primarily due to the change in the timing of the recognition of stored value card
breakage. The impact of applying ASC 606 was not material to our consolidated financial statements for the year
ended February 2, 2019.
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. We adopted
ASU 2016-18 as of February 4, 2018, using the retrospective method.
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 as of January 29, 2017.
39
Forward-Looking Statements
Our Annual Report on Form 10-K for fiscal 2019, 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, the rapidly developing challenges and our plans and responses to the
COVID-19 pandemic and related economic disruptions, 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.
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 1, 2020.
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 1, 2020, we had no borrowings outstanding under our revolving credit
facility.
As of February 1, 2020, we have one outstanding series of unsecured 6.53% Series B Senior Notes due December 2021
with an aggregate principal amount of $65 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.
We receive interest 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 1, 2020. 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.
40
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 (income) expense, net
Total costs and expenses
Earnings before taxes
Provision for taxes on earnings
Net earnings
Earnings per share
Basic
Diluted
Year Ended
Year Ended
February 1, 2020 February 2, 2019 February 3, 2018
Year Ended
$ 16,039,073 $ 14,983,541 $ 14,134,732
11,536,187
10,726,277
10,042,638
2,356,704
2,216,550
2,043,698
(18,106)
(10,162)
7,676
13,874,785
12,932,665
12,094,012
2,164,288
2,050,876
2,040,720
503,360
463,419
677,967
$
1,660,928 $
1,587,457 $
1,362,753
$
$
4.63 $
4.60 $
4.30 $
4.26 $
3.58
3.55
Weighted-average shares outstanding (000)
Basic
Diluted
358,462
369,533
361,182
372,678
381,174
384,329
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Comprehensive Income
($000)
Net earnings
Other comprehensive income (loss):
Year Ended
Year Ended
February 1, 2020 February 2, 2019 February 3, 2018
Year Ended
$
1,660,928 $
1,587,457 $
1,362,753
Change in unrealized gain (loss) on investments, net of tax
—
(27)
(64)
Comprehensive income
$
1,660,928 $
1,587,430 $
1,362,689
The accompanying notes are an integral part of these consolidated financial statements.
41
Consolidated Balance Sheets
($000, except share data)
Assets
Current Assets
Cash and cash equivalents
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
Operating lease assets
Other long-term assets
Total assets
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable
Accrued expenses and other
Current operating lease liabilities
Accrued payroll and benefits
Income taxes payable
Total current liabilities
Long-term debt
Non-current operating lease liabilities
Other long-term liabilities
Deferred income taxes
Commitments and contingencies
Stockholders’ Equity
Common stock, par value $0.01 per share
Authorized 1,000,000,000 shares
Issued and outstanding 356,775,000 and
368,242,000 shares, respectively
Additional paid-in capital
Treasury stock
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
42
February 1, 2020
February 2, 2019
$
1,351,205 $
102,236
1,832,339
147,048
3,432,828
1,412,912
96,711
1,750,442
143,954
3,404,019
$
$
1,177,262
3,115,003
1,219,736
189,536
5,701,537
3,048,101
2,653,436
1,126,051
2,783,198
1,175,921
171,538
5,256,708
2,781,507
2,475,201
3,053,782
208,321
9,348,367 $
—
194,471
6,073,691
1,296,482 $
462,111
564,481
364,435
14,425
2,701,934
312,891
2,610,528
214,086
149,679
1,177,104
431,596
—
363,035
37,749
2,009,484
312,440
—
321,713
124,308
3,568
3,682
1,458,307
(433,328)
2,330,702
3,359,249
9,348,367 $
1,375,965
(372,663)
2,298,762
3,305,746
6,073,691
$
Cumulative effect of adoption of
accounting standard (stock-
compensation), net
Unrealized investment loss, net
Common stock issued under
stock plans, net of shares
used for tax withholding
Cumulative effect of adoption of
accounting standard (revenue
recognition), net
Unrealized investment loss, net
Common stock issued under
stock plans, net of shares
used for tax withholding
Cumulative effect of adoption of
accounting standard (leases),
net
Common stock issued under
stock plans, net of shares
used for tax withholding
Stock-based compensation
Consolidated Statements of Stockholders’ Equity
(000)
Shares
Balance at January 28, 2017
391,893 $
Common stock
Additional
paid-in
Amount
capital
3,919 $ 1,215,715 $ (272,846) $
stock
Treasury
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
91 $ 1,801,138 $ 2,748,017
Net earnings
—
—
—
—
— 1,362,753 1,362,753
—
—
—
—
1,789
—
—
—
—
(1,113)
(64)
—
676
(64 )
Stock-based compensation
—
—
87,417
Common stock repurchased
(13,489)
(135)
(31,013)
—
—
1,214
12
18,456
(45,433)
—
—
—
—
(26,965 )
87,417
—
(843,852)
(875,000 )
Dividends declared
($0.64 per share)
—
—
—
—
—
(247,526)
(247,526 )
Balance at February 3, 2018
379,618 $
3,796 $ 1,292,364 $ (318,279) $
27 $ 2,071,400 $ 3,049,308
Net earnings
—
—
—
—
— 1,587,457 1,587,457
—
—
—
—
—
—
—
—
—
19,884
19,884
(27)
—
(27 )
Stock-based compensation
—
—
95,585
Common stock repurchased
(12,473)
(125)
(32,085)
—
—
1,097
11
20,101
(54,384)
—
—
—
—
(34,272 )
95,585
— (1,042,790) (1,075,000 )
Dividends declared
($0.90 per share)
—
—
—
—
—
(337,189)
(337,189 )
Balance at February 2, 2019
368,242 $
3,682 $ 1,375,965 $ (372,663) $
— $ 2,298,762 $ 3,305,746
Net earnings
—
—
—
—
— 1,660,928 1,660,928
—
—
—
—
—
(19,614)
(19,614 )
Common stock repurchased
(12,260)
(122)
(35,297)
793
—
8
22,201
(60,665)
—
95,438
—
—
—
—
—
—
(38,456 )
95,438
— (1,239,581) (1,275,000 )
Dividends declared
($1.02 per share)
—
—
—
—
—
(369,793)
(369,793 )
Balance at February 1, 2020
356,775 $
3,568 $ 1,458,307 $ (433,328) $
— $ 2,330,702 $ 3,359,249
The accompanying notes are an integral part of these consolidated financial statements.
43
Consolidated Statements of Cash Flows
($000)
Cash Flows From Operating Activities
Net earnings
Adjustments to reconcile net earnings to net cash provided by
Year Ended
February 1, 2020
Year Ended
Year Ended
February 2, 2019 February 3, 2018 1
$
1,660,928 $
1,587,457 $
1,362,753
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
Income taxes
Operating lease assets and liabilities, net
Other long-term, net
Net cash provided by operating activities
Cash Flows From Investing Activities
Additions to property and equipment
Proceeds from sale of property and equipment
Proceeds from investments
Net cash used in investing activities
Cash Flows From Financing Activities
Payment of long-term debt
Issuance of common stock related to stock plans
Treasury stock purchased
Repurchase of common stock
Dividends paid
Net cash used in financing activities
350,892
95,438
—
32,009
(81,897 )
(10,315 )
114,153
30,513
(35,239 )
15,631
(567 )
2,171,546
330,357
95,585
—
31,777
(108,707)
(30,789)
110,483
37,080
3,706
—
9,728
2,066,677
313,163
87,417
(6,328)
(34,903)
(128,849)
(23,051)
41,322
65,221
(1,740)
—
6,333
1,681,338
(555,483 )
—
517
(554,966 )
(413,898)
—
3,489
(410,409)
(371,423)
15,981
687
(354,755)
—
22,209
(60,665 )
(1,275,000 )
(369,793 )
(1,683,249 )
(85,000)
20,112
(54,384)
(1,075,000)
(337,189)
(1,531,461)
—
18,468
(45,433)
(875,000)
(247,526)
(1,149,491)
Net (decrease) increase in cash, cash equivalents, and restricted
cash and cash equivalents
(66,669 )
124,807
177,092
Cash and cash equivalents, and restricted cash and cash
equivalents:
Beginning of year 1
End of year
Supplemental Cash Flow Disclosures
Interest paid
Income taxes paid
1,478,079
1,411,410 $
1,353,272
1,478,079 $
1,176,180
1,353,272
12,682 $
506,591 $
18,105 $
427,930 $
18,105
714,566
$
$
$
1 As the result of the adoption of ASU 2016-18, Statement of Cash Flow (Topic 230): Restricted Cash, in fiscal 2018, the prior year amounts were
retrospectively adjusted to include restricted cash and cash equivalents. See Note A.
The accompanying notes are an integral part of these consolidated financial statements.
44
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 2019, the
Company operated 1,546 Ross Dress for Less® (“Ross”) locations in 39 states, the District of Columbia, and Guam, and 259
dd’s DISCOUNTS® stores in 19 states. The Ross and dd’s DISCOUNTS stores are supported by the Company’s
headquarters, buying offices, and its network of distribution centers/warehouses.
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 1, 2020, February 2, 2019 and February 3, 2018 are
referred to as fiscal 2019, fiscal 2018, and fiscal 2017, respectively. Fiscal 2017 was a 53-week year. Fiscal 2019 and 2018
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, reserves for uncertain tax
positions, and legal claims.
Purchase obligations. As of February 1, 2020, 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 services, 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. Restricted cash, cash equivalents, and investments 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 classification between current and long-term
is based on the timing of expected payments of the insurance obligations.
The following table provides a reconciliation of cash, cash equivalents, restricted cash and cash equivalents in the
Consolidated Balance Sheets that reconcile to the amounts shown on the Consolidated Statements of Cash Flows:
($000)
Cash and cash equivalents
Restricted cash and cash equivalents included in:
Prepaid expenses and other
Other long-term assets
Total restricted cash and cash equivalents
2019
2018
2017
$
1,351,205 $
1,412,912 $
1,290,294
10,235
49,970
60,205
11,402
53,765
65,167
9,412
53,566
62,978
Total cash, cash equivalents and restricted cash and equivalents
$
1,411,410 $
1,478,079 $
1,353,272
In addition to the restricted cash and cash equivalents in the table above, the Company had restricted investments of $0.4
million as of February 2, 2019 included in Prepaid expenses and other in the Consolidated Balance Sheets. The Company
had no restricted investments as of February 1, 2020.
45
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 $1,351.2 million and $1,412.9 million, at February 1, 2020 and February 2, 2019,
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 1, 2020 and February 2,
2019, 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, warehouses, and cross-dock 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, 20 to 40 years for land improvements and buildings, and three to seven years for computer
software costs incurred in developing or obtaining software for internal use. The cost of leasehold improvements is amortized
over the useful life of the asset or the applicable lease term, whichever is less. Depreciation and amortization expense on
property and equipment was $350.9 million, $330.4 million, and $313.2 million for fiscal 2019, 2018, and 2017, respectively.
The Company capitalizes interest during the construction period of facilities and during the development and implementation
phase of software projects. Interest capitalized was $4.4 million, $2.5 million and $0.7 million in fiscal 2019, 2018, and 2017,
respectively. As of February 1, 2020, February 2, 2019, and February 3, 2018 the Company had $40.3 million, $33.7 million,
and $24.3 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 1, 2020 and February 2, 2019 consisted of the following:
($000)
Deferred compensation (Note B)
Restricted cash and investments
Other
Total
2019
2018
$
141,443 $
124,558
49,970
16,908
53,765
16,148
$
208,321 $
194,471
Impairment of long-lived assets. Property and other long-term assets that are subject to depreciation and amortization are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable based on estimated undiscounted future cash flows. For stores that are closed, the Company records an
impairment charge, if appropriate, or accelerates depreciation over the revised useful life of the asset. 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 2019, 2018, and
2017, no impairment charges were recorded.
46
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 $138.8 million and $83.2 million at February 1, 2020 and February 2, 2019,
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 1, 2020 and February 2, 2019 consisted of the following:
($000)
Workers’ compensation
General liability
Medical plans
Total
2019
$
87,063 $
44,371
6,430
2018
89,993
42,877
6,515
$
137,864 $
139,385
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 1, 2020 and February 2, 2019 consisted of the
following:
($000)
Income taxes (Note F)
Deferred compensation (Note G)
Deferred rent
Tenant improvement allowances
Other
Total
2019
$
65,956 $
141,443
—1
—1
6,687
2018
77,872
124,558
81,442
25,418
12,423
$
214,086 $
321,713
1 Fiscal 2019 reflects the impact of adoption of ASU 2016-02, Leases (Accounting Standards Codification "ASC" 842) on a modified retrospective
basis; fiscal 2018 was not restated.
Lease accounting. As the Company’s leases generally do not provide an implicit discount rate, the Company uses the
estimated collateralized incremental borrowing rate based on information available at the lease commencement date in
determining the present value of lease payments for use in the calculation of the operating lease liabilities and right-of-use
assets. This rate is determined using a portfolio approach based on the risk-adjusted rate of interest and requires estimates
and assumptions including credit rating, credit spread, and adjustments for the impact of collateral. The Company believes
that this is the rate it would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a
similar lease term. Operating lease liabilities and corresponding right-of-use assets include options to extend lease terms
that are reasonably certain of being exercised. The Company does not record a lease liability and corresponding right-of-use
asset for leases with terms of 12 months or less, and accounts for lease and non-lease components as a single lease
component. The Company's lease portfolio is comprised of operating leases with the lease cost recorded on a straight-line
basis over the lease term.
Prior to the adoption of Accounting Standards Codification "ASC" 842 in the beginning of fiscal 2019, when a lease
contained “rent holidays” or required fixed escalations of the minimum lease payments, the Company recorded rental
expense on a straight-line basis over the term of the lease and the difference between the average rental amount was
charged to expense and the amount payable under the lease was recorded as deferred rent. The Company began recording
rent expense on the lease possession date. Tenant improvement allowances were amortized over the lease term. Changes
in deferred rent and tenant improvement allowances were included as a component of operating activities in the
Consolidated Statements of Cash Flows.
47
Revenue recognition. The Company recognizes revenue at the point of sale, net of sales taxes collected and an allowance
for estimated future returns as required by ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606). The
Company recognizes allowances for estimated sales returns on a gross basis as a reduction to sales. The asset recorded for
the expected recovery of merchandise inventory was $10.7 million and $10.2 million and the liability recorded for the refund
due to the customer was $20.9 million and $19.8 million as of February 1, 2020 and February 2, 2019, respectively. Prior to
the adoption of ASC 606, the Company recognized allowances for sales returns on a net margin basis, which was $9.9
million as of February 3, 2018. Sales taxes collected that are outstanding and the allowance for estimated future returns are
included in Accrued expenses and other and the asset for expected recovery of merchandise is included in Prepaid
expenses and other in the Consolidated Balance Sheets.
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. As a result of adopting ASC 606, breakage is
estimated and recognized as revenue based upon the historical pattern of customer redemptions. In prior periods, breakage
was recorded as a reduction of operating expense when customer redemption was considered remote. Breakage was not
material to the consolidated financial statements in fiscal 2019, 2018, and 2017.
The following sales mix table disaggregates revenue by merchandise category for fiscal 2019, 2018, and 2017:
Ladies
Home Accents and Bed and Bath
Men’s
Accessories, Lingerie, Fine Jewelry, and Fragrances
Shoes
Children’s
Total
2019
26%
25%
14%
13%
13%
9%
2018
26%
26%
14%
13%
13%
8%
2017
27%
26%
13%
13%
13%
8%
100%
100%
100%
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 2019, 2018, and 2017 were $74.0 million, $79.9 million, and $76.4 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 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.
48
In fiscal 2019, 2018, and 2017 there were 27,400, 23,700, and 2,800 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)
2019
Shares
Amount
2018
Shares
Amount
2017
Shares
Amount
Effect of dilutive
common stock
Basic EPS
equivalents
Diluted
EPS
358,462
4.63 $
2,720
(0.03) $
361,182
4.60
369,533
4.30 $
3,145
(0.04) $
372,678
4.26
381,174
3.58 $
3,155
(0.03) $
384,329
3.55
$
$
$
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. The Company considers the applicability and impact of all Accounting Standards
Updates (“ASU”) issued by the FASB. ASUs not listed below were assessed and determined to be either not applicable or
are expected to have minimal impact on the Company's consolidated financial results.
Recently adopted accounting standards. In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842), which
along with subsequent amendments, supersedes the lease accounting requirements in ASC 840, Leases. The updated
guidance 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.
The Company adopted ASC 842 as of February 3, 2019 (the "effective date"), using the optional transition method on a
modified retrospective basis. The Company did not elect the transitional package of practical expedients or the use of
hindsight upon adoption of the ASC. The Company elected to not record a lease liability and corresponding right-of-use
asset for leases with terms of 12 months or less, and to account for lease and non-lease components as a single lease
component. Upon adoption, the Company recorded lease liabilities based on the present value of the remaining minimum
rental payments, using incremental borrowing rates as of the effective date, of $2.9 billion, and the corresponding right-of-
use assets of $2.9 billion. The Company also recorded a cumulative-effect adjustment to decrease beginning retained
earnings of $19.6 million, primarily related to the write-off of previously capitalized initial direct costs that are no longer
capitalized under ASC 842, partially offset by the write-off of the deferred gain on a previous sale-leaseback transaction that
meets the sale definition under ASC 842. Reporting periods beginning on or after February 3, 2019 are presented under
ASC 842, while prior period amounts and disclosures were not adjusted and continue to be reported under ASC
840. Adoption of ASC 842 did not have a significant impact to the Company’s consolidated statements of earnings or to the
consolidated statements of cash flows.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606) which, along with
subsequent amendments, supersedes the revenue recognition requirements in “Revenue Recognition (ASC 605).” This
guidance provides a five-step analysis of transactions to determine when and how revenue is recognized and requires
entities to recognize revenue when the customer obtains control of promised goods or services in an amount that reflects the
consideration the entity expects to receive in exchange for those goods or services. The Company adopted ASC 606 as of
February 4, 2018, using the modified retrospective method. Results for reporting periods beginning on or after February 4,
2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in
accordance with ASC 605. Upon adoption of ASC 606, the Company recorded a cumulative-effect adjustment to increase
beginning retained earnings by $20 million as of February 4, 2018, primarily due to the change in the timing of the
recognition of stored value card breakage. The impact of applying ASC 606 was not material to the Company's consolidated
financial statements for the year ended February 2, 2019.
49
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. The
Company adopted ASU 2016-18 as of February 4, 2018, using the retrospective method.
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 the Company's consolidated statement of earnings may be material, depending upon the Company's future
stock price on vest date in relation to the fair value of awards on grant date and the 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 as of January 29, 2017.
Reclassifications. Certain items related to income taxes in the prior year’s consolidated statements of cash flows have
been reclassified to conform to the current year's presentation.
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 1, 2020. The fair
value of the Company’s financial instruments as of February 1, 2020 and February 2, 2019 are as follows:
($000)
Cash and cash equivalents (Level 1)
Investments (Level 2)
Restricted cash and cash equivalents (Level 1)
Restricted investments (Level 2)
2019
2018
1,351,205 $
1,412,912
8 $
125
60,205 $
65,167
— $
400
$
$
$
$
50
The underlying assets in the Company’s non-qualified deferred compensation program as of February 1, 2020 and
February 2, 2019 (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
2019
2018
$
134,440 $
114,181
7,003
10,377
$
141,443 $
124,558
Note C: Stock-Based Compensation
For fiscal 2019, 2018, and 2017, the Company recognized stock-based compensation expense as follows:
($000)
Restricted stock
Performance awards
ESPP
Total
2019
2018
$
54,975 $
36,542
3,921
48,585 $
43,450
3,550
$
95,438 $
95,585 $
2017
44,356
39,871
3,190
87,417
Capitalized stock-based compensation cost was not significant in any year.
At February 1, 2020, the Company had one active stock-based compensation plan, which is further described in Note H. The
Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date.
Total stock-based compensation recognized in the Company’s Consolidated Statements of Earnings for fiscal 2019, 2018,
and 2017 is as follows:
Statements of Earnings Classification ($000)
Cost of goods sold
Selling, general and administrative
Total
2019
2018
54,265 $
41,173
45,052 $
50,533
95,438 $
95,585 $
2017
41,067
46,350
87,417
$
$
The tax benefits related to stock-based compensation expense for fiscal 2019, 2018, and 2017 were $18.5 million, $19.6
million, and $29.5 million, respectively.
51
Note D: Debt
Senior notes. Unsecured senior debt, net of unamortized discounts and debt issuance costs, as of February 1, 2020 and
February 2, 2019 consisted of the following:
($000)
6.53% Series B Senior Notes due 2021
3.375% Senior Notes due 2024
Total long-term debt
2019
2018
$
64,963 $
64,942
247,928
247,498
$
312,891 $
312,440
As of February 1, 2020, the Company had outstanding Series B unsecured Senior Notes in the aggregate principal amount
of $65 million, held by various institutional investors. The Series B notes 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 1, 2020, the Company was in compliance with these covenants.
As of February 1, 2020, the Company also 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.
On December 13, 2018, the Company repaid at maturity the $85 million principal amount of the Series A 6.38% unsecured
Senior Notes.
As of February 1, 2020 and February 2, 2019, total unamortized discount and debt issuance costs were $2.1 million and $2.6
million, respectively, and were classified as a reduction of long-term debt.
The 2024 Notes, and the Series B Senior Notes are subject to prepayment penalties for early payment of principal.
The aggregate fair value of the two outstanding series of Senior Notes was approximately $335 million and $316 million as of
February 1, 2020 and February 2, 2019, respectively. The fair value is estimated by obtaining comparable market quotes
which are considered to be Level 1 inputs under the fair value measurements and disclosures guidance.
The following table shows scheduled annual principal payments on long-term debt:
($000)
2020
2021
2022
2023
2024
Thereafter
$
$
$
$
$
$
—
65,000
—
—
250,000
—
The table below shows the components of interest expense and income for fiscal 2019, 2018, and 2017:
($000)
2019
2018
2017
Interest expense on long-term debt
$
13,139 $
17,900 $
18,578
Other interest expense
Capitalized interest
Interest income
968
(4,367 )
1,004
(2,497)
979
(710)
(27,846 )
(26,569)
(11,171)
Interest (income) expense, net
$
(18,106 ) $
(10,162) $
7,676
52
Revolving credit facility. In July 2019, the Company entered into a new $800 million unsecured revolving credit facility,
which replaced the Company's previous $600 million unsecured revolving credit facility. This new credit facility expires in July
2024, and contains a $300 million sublimit for issuance of standby letters of credit. The facility also contains an option
allowing the Company to increase the size of its credit facility by up to an additional $300 million, with the agreement of the
lenders. Interest on borrowings under this facility is based on LIBOR (or an alternate benchmark rate, if LIBOR is no longer
available) plus an applicable margin (currently 75 basis points) and is payable quarterly and upon maturity. As of February 1,
2020, the Company had no borrowings or standby letters of credit outstanding under this facility and the $800 million credit
facility remained in place and available.
Subsequent to year end, in March 2020, the Company borrowed $800 million from its revolving credit facility, which bears
interest at LIBOR plus 0.75% (currently 1.61%), to add to its cash balances in order to provide enhanced financial flexibility
due to uncertain market conditions arising from the impact of the COVID-19 pandemic.
The revolving credit facility is subject to a financial leverage ratio covenant. As of February 1, 2020, 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 1, 2020 and February 2, 2019,
the Company had $4.2 million and $7.3 million, respectively, in standby letters of credit and $56.0 million and $58.3 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 $11.2 million and $13.3 million in trade letters of credit outstanding at February 1,
2020 and February 2, 2019, respectively.
Note E: Leases
The Company currently leases all but two of its store locations with original, non-cancelable terms that in general range from
three to ten years. Store leases typically contain provisions for three to four renewal options of five years each. The exercise
of lease renewal options is at the sole discretion of the Company. Most store leases also provide for minimum annual rentals
and for payment of variable lease costs. In addition, some store leases also have provisions for additional rent based on a
percentage of sales ("percentage rent") and others include rental payments adjusted periodically for inflation. The
Company's lease agreements do not contain any material residual guarantees or material restrictive covenants. The
Company does not have any financing leases.
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. As of February 3, 2019, the effective date of the adoption of ASC
842, the Company wrote-off the remaining $6.5 million deferred gain on the sale-leaseback transaction that met the sale
definition under ASC 842 to beginning retained earnings.
The Company leases nine distribution centers/warehouses. All of these contain renewal provisions, except for the third-party
warehouse in Fort Mill, South Carolina. The following table summarizes the location and expiration date of the Company's
leased warehouses:
Location
Leased Distribution Centers/Warehouses
Lease Expiration Date
Moreno Valley, California1
Moreno Valley, California1
Shafter, California
Shafter, California1
Carlisle, Pennsylvania
Carlisle, Pennsylvania
Fort Mill, South Carolina
Fort Mill, South Carolina1
Rock Hill, South Carolina
1 Operated by a third party.
2023
2029
2029
2020
2022
2021
2024
2020
2028
53
The Company leases approximately 103,000 and 5,000 square feet of office space for its Los Angeles and Boston buying
offices, respectively. The lease term for both of these facilities expire in 2022, and contain renewal provisions. In addition,
the Company has a ground lease related to its New York buying office.
The following table presents net operating lease costs included in the Consolidated Statement of Earnings for fiscal 2019:
($000)
Operating lease cost1
Variable lease costs2
Net lease cost3
$
2019
639,545
174,438
$
813,983
1 Net of sublease income which was immaterial.
2 Includes property and rent taxes, insurance, common area maintenance, and percentage rent.
3 Excludes short-term lease costs which were immaterial.
The maturity of operating lease liabilities, including the ground lease related to the New York buying office as of February 1,
2020, are as follows:
($000)
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: interest
Present value of lease liabilities
Less: current operating lease liabilities
Non-current operating lease liabilities
Operating Leases1
$
607,490
633,846
557,484
469,211
359,101
1,613,176
$
4,240,308
1,065,299
$
3,175,009
564,481
$
2,610,528
1 Operating leases exclude $266.8 million of minimum lease payments for leases signed that have not yet commenced.
At February 1, 2020, the weighted-average remaining lease term and the weighted-average discount rate for operating
leases is 10.7 years and 3.5%, respectively. The weighted-average remaining lease term and the weighted-average discount
rate, excluding the long-term ground lease related to the New York buying office, were 6.1 years and 3.1%, respectively.
Cash paid for amounts included in the measurement of operating lease liabilities was $608.6 million for fiscal 2019 and is
included in Net cash provided by operating activities in the Consolidated Statements of Cash Flows.
Operating lease assets obtained in exchange for new operating lease liabilities (includes new leases and remeasurements or
modifications of existing leases) during fiscal 2019 was $739.3 million.
54
In accordance with ASC 840, the aggregate undiscounted future minimum annual lease payments under leases, including
the ground lease related to the New York buying office, in effect at February 2, 2019 are as follows:
($000)
2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments
Total operating leases
$
555,812
580,712
499,678
424,695
339,340
1,575,673
$
3,975,910
Rent expense under ASC 840, including contingent rent and net of sublease income, was $569.8 million and $532.4 million
in fiscal 2018 and 2017, 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
2019
2018
2017
$
414,823 $
357,170 $
660,017
56,528
74,472
52,853
471,351
431,642
712,870
28,244
3,765
32,009
33,913
(2,136)
(40,468)
5,565
31,777
(34,903)
$
503,360 $
463,419 $
677,967
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
State income taxes (net of federal benefit) and other, net
Tax audit settlements
Impact of the Tax Act on deferred taxes
Total
2019
21%
2
—
—
23%
2018
21%
3
(1)
—
23%
2017
34%
2
—
(3)
33%
In November 2019, the Company resolved uncertain tax positions with a state tax authority. As a result, the Company
recognized a tax benefit of approximately $10.0 million in the Consolidated Statement of Earnings. In fiscal 2018, the
Company resolved uncertain tax positions related to fiscal 2015 with the Internal Revenue Service. As a result, the Company
recognized a tax benefit of approximately $26.0 million in the Consolidated Statement of Earnings.
55
In fiscal 2017, The Tax Cuts and Jobs Act (the “Tax Act” or "tax reform") was signed into law. 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, the last month of fiscal 2017. U.S. GAAP requires that the impact of tax legislation be recognized in the
period in which the law was enacted. The Company applied a blended U.S. federal income tax rate of approximately 34% for
fiscal 2017. This reduced tax rate resulted in a tax benefit of $24.9 million in fiscal 2017. The Company recorded an
additional tax benefit of $55.2 million due to the remeasurement of its deferred tax assets and liabilities in fiscal 2017.
Also, in fiscal 2017, the Company adopted ASU 2016-09. Prior to adoption of ASU 2016-09, the Company recorded tax
benefits related to employee equity programs in additional paid-in capital. As a result of adopting ASU 2016-09, the
Company recorded tax benefits of $13.3 million, $12.6 million and $16.3 million in 2019, 2018 and 2017, respectively, as a
reduction to its provision for income taxes.
The components of deferred taxes at February 1, 2020 and February 2, 2019 are as follows:
($000)
Deferred Tax Assets
Accrued liabilities
Deferred compensation
Stock-based compensation
Deferred rent
State taxes and credits
Employee benefits
Operating lease liabilities
Other
Gross Deferred Tax Assets
Less: Valuation allowance
Deferred Tax Assets
Deferred Tax Liabilities
Depreciation
Merchandise inventory
Supplies
Operating lease assets
Other
Deferred Tax Liabilities
Net Deferred Tax Liabilities
2019
2018
$
35,242 $
33,108
35,290
—
20,178
18,425
797,4671
3,353
38,367
30,886
36,118
19,824
20,310
18,845
—
1,412
943,063
165,762
(4,590)
(4,639)
938,473
161,123
(273,255)
(238,631)
(26,376)
(10,972)
(766,874)1
(25,686)
(10,308)
—
(10,675)
(10,806)
(1,088,152)
(285,431)
$
(149,679) $
(124,308)
1 Fiscal 2019 reflects the impact of adoption of ASU 2016-02, Leases (ASC 842) on a modified retrospective basis; fiscal 2018 was not restated.
At the end of fiscal 2019 and 2018, the Company’s state tax credit carryforwards for income tax purposes were
approximately $12.8 million and $13.6 million, respectively. The state tax credit carryforwards will begin to expire in fiscal
2020. The Company has provided a valuation allowance of $4.6 million as of the end of fiscal 2019 for deferred tax assets
related to state tax credits that are not expected to be realized.
56
The changes in amounts of unrecognized tax benefits (gross of federal tax benefits and excluding interest and penalties) at
fiscal 2019, 2018, and 2017 are as follows:
($000)
2019
2018
2017
Unrecognized tax benefits - beginning of year
$
65,787 $
98,666 $
81,122
Gross increases:
Tax positions in current period
Tax positions in prior period
Gross decreases:
Tax positions in prior periods
Lapse of statutes of limitations
Settlements
13,864
2,672
14,722
1,843
(9,559 )
(8,653 )
(4,224 )
(40,600)
(8,584)
(260)
26,837
—
(2,755)
(6,068)
(470)
Unrecognized tax benefits - end of year
$
59,887 $
65,787 $
98,666
At the end of fiscal 2019, 2018, and 2017, the reserves for unrecognized tax benefits were $67.1 million, $78.8 million, and
$121.3 million inclusive of $7.2 million, $13.0 million, and $22.6 million of related reserves for interest and penalties,
respectively. In November 2019, the Company resolved uncertain tax positions with a state tax authority. As a result, the
Company recognized a decrease in reserves for tax positions in prior periods of $16.2 million, inclusive of $6.6 million of
related reserves for interest and penalties. In fiscal 2018, the Company resolved uncertain tax positions related to fiscal 2015
with the Internal Revenue Service. As a result, the Company recognized a decrease in reserves for tax positions in prior
periods of $52.4 million, inclusive of $12.6 million of related reserves for interest and penalties. The Company accounts for
interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized,
$53.3 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 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 $10.3 million.
The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2016 through
2019. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal
years 2015 through 2019. Certain 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 $19.2 million, $17.1 million, and $15.4 million in fiscal 2019, 2018, and 2017,
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
$141.4 million and $124.6 million at February 1, 2020 and February 2, 2019, 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 $141.4 million and $124.6 million at February 1, 2020 and February 2, 2019,
respectively, included in Other long-term liabilities in the Consolidated Balance Sheets.
57
In addition, the Company has certain individuals who receive or will receive post-employment medical benefits. The
estimated liability for these benefits of $8.2 million and $6.7 million is included in Accrued expenses and other in the
accompanying Consolidated Balance Sheets as of February 1, 2020 and February 2, 2019, respectively.
Note H: Stockholders’ Equity
Common stock. In March 2019, the Company's Board of Directors approved a two-year $2.55 billion stock repurchase
program through fiscal 2020. As of the end of fiscal 2019, the Company has $1.275 billion remaining under the stock
repurchase program. Due to the current economic uncertainty stemming from the severe impact of the COVID-19 pandemic,
the Company is temporarily suspending its stock repurchase program. 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 2019, 2018, and 2017:
Fiscal Year
2019
2018
2017
Shares
repurchased
Average
repurchase
(in millions)
12.3
12.5
13.5
price
$103.99
$86.19
$64.87
Repurchased
(in millions)
$1,275
$1,075
$875
Preferred stock. The Company has 4.0 million shares of preferred stock authorized, with a par value of $.01 per share. No
preferred stock is issued or outstanding.
Dividends. On March 3, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $0.285 per common
share, payable on March 31, 2020. The Company’s Board of Directors declared cash dividends of $0.255 per common share
in March, May, August, and November 2019, cash dividends of $0.225 per common share in March, May, August, and
November 2018, and cash dividends of $0.160 per common share in February, May, August, and November 2017.
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 1, 2020, there were 10.7 million shares
available for grant under the 2017 Plan.
A summary of restricted stock and performance share award activity for fiscal 2019 is presented below:
Unvested at February 2, 2019
Awarded
Released
Forfeited
Unvested at February 1, 2020
58
Number of
shares (000)
5,130
1,422
(1,782)
(376)
4,394
Weighted
average grant
date fair value
$62.50
95.25
53.14
70.90
$76.20
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 1, 2020 and February 2,
2019 was $158.4 million and $138.1 million, respectively, which is expected to be recognized over a weighted-average
remaining period of 2.0 years. Intrinsic value for restricted stock, defined as the closing market value on the last business
day of fiscal year 2019 (or $112.19), was $493.0 million. A total of 10.7 million, 11.2 million, and 11.9 million shares were
available for new restricted stock awards at the end of fiscal 2019, 2018, and 2017, respectively. During fiscal 2019, 2018,
and 2017, shares purchased by the Company for tax withholding totaled 0.6 million, 0.7 million, and 0.7 million shares,
respectively, and are considered treasury shares which are available for reissuance. As of February 1, 2020 and February 2,
2019, the Company held 13.8 million and 13.2 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 414,000, 556,000, and 655,000 shares in settlement of the fiscal
2019, 2018, and 2017 awards.
Employee Stock Purchase Plan. Under the Employee Stock Purchase Plan (“ESPP”), eligible employees participating in
the quarterly offering period can choose to have up to the lesser of 10% of their annual base earnings or the IRS annual
share purchase limit of $25,000 in aggregate market value to purchase the Company’s common stock. The purchase price of
the stock is 85% of the closing market price on the date of purchase. Purchases occur on a quarterly basis (on the last
trading day of each calendar quarter). The Company recognizes expense for ESPP purchase rights equal to the value of the
15% discount given on the purchase date.
During fiscal 2019, 2018, and 2017, employees purchased approximately 0.3 million, 0.3 million, and 0.3 million shares,
respectively, of the Company’s common stock under the plan at weighted-average per share prices of $88.45, $72.89, and
$56.42, respectively. Through February 1, 2020, approximately 40.2 million shares had been issued under this plan and 4.8
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 paid him $2.1 million, $1.9 million, and $1.6 million in fiscal 2019, 2018, and 2017, respectively. 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 $0.4 million in fiscal 2019, 2018, and 2017, respectively, along with
amounts to cover premiums through May 2021 on a life insurance policy with a death benefit of $2.0 million. Mr. Ferber's
current consulting agreement pays him an annual consulting fee of $2.3 million through May 2021. 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 $209,000, $180,000, and $159,000 in fiscal 2019, 2018, and 2017, respectively.
Note J: Litigation, Claims, and Assessments
Like many retailers, the Company has been named in class/representative action lawsuits, primarily in California, alleging
violation of wage and hour laws and consumer protection laws. Class/representative action litigation remains pending as of
February 1, 2020.
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,
environmental, 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/representative 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 2019 and 2018 is presented in the tables below.
Year ended February 1, 2020:
($000, except per share data)
May 4, 2019
August 3, 2019 November 2, 2019
February 1, 2020
Sales
$
3,796,642 $
3,979,869 $
3,849,117 $
4,413,445
Quarter Ended
Cost of goods sold
2,701,668
2,843,850
2,766,432
3,224,237
Selling, general and administrative
558,250
591,970
604,605
601,879
Interest income, net
Total costs and expenses
Earnings before taxes
(5,635)
(4,782)
(4,402)
(3,287 )
3,254,283
3,431,038
3,366,635
3,822,829
542,359
548,831
482,482
590,616
134,483
Provision for taxes on earnings
121,217
136,110
111,550
Net earnings
$
421,142 $
412,721 $
370,932 $
456,133
Earnings per share – basic1
Earnings per share – diluted1
Cash dividends declared per share
on common stock
$
$
$
1.16 $
1.15 $
1.15 $
1.14 $
1.04 $
1.03 $
1.29 2
1.28 2
0.255 $
0.255 $
0.255 $
0.255
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.
Includes a per share benefit of approximately $0.02 primarily related to the favorable resolution of a tax matter.
²
60
Year ended February 2, 2019:
($000, except per share data)
May 5, 2018
August 4, 2018 November 3, 2018
February 2, 2019
Sales
$
3,588,619 $
3,737,926 $
3,549,608 $
4,107,388
Quarter Ended
Cost of goods sold
2,522,219
2,666,983
2,547,331
2,989,744
Selling, general and administrative
524,423
554,581
561,577
575,969
Interest income, net
Total costs and expenses
Earnings before taxes
(503 )
(1,393 )
(2,953)
(5,313)
3,046,139
3,220,171
3,105,955
3,560,400
542,480
517,755
443,653
546,988
105,295
Provision for taxes on earnings
124,228
128,351
105,545
Net earnings
Earnings per share – basic1
Earnings per share – diluted1
Cash dividends declared per share
on common stock
$
$
$
$
418,252 $
389,404 $
338,108 $
441,693
1.12 $
1.11 $
1.05 $
1.04 $
0.92 $
0.91 $
1.212
1.202
0.225 $
0.225 $
0.225 $
0.225
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.
Includes a per share benefit of approximately $0.07 from the favorable resolution of a tax matter.
²
Note L: Subsequent Events
The United States and other countries are experiencing a major global health pandemic related to the outbreak of a novel
strain of coronavirus, COVID-19. Governmental authorities in affected regions are taking increasingly dramatic action in an
effort to slow down the spread of the disease. As part of a growing number of retailers across the country, the Company has
temporarily closed all store locations effective March 20, 2020 through April 3, 2020. The Company has closed its buying
and corporate offices, and its distribution centers, for the same period. The Company is monitoring the situation and will
reopen stores as conditions permit; however, extended or further closures may be required nationally, regionally, or in
specific locations. Given the unprecedented uncertainty of this situation, including the unknown duration and severity of the
pandemic and the unknown overall impact on consumer demand, the Company is unable to forecast the full impact on its
business; however, the Company now expects that impacts from the COVID-19 pandemic and the related economic
disruption will have a material adverse impact on its consolidated results of operations, consolidated financial position, and
consolidated cash flows in fiscal 2020.
Due to the current economic uncertainty stemming from the severe impact of the COVID-19 pandemic, and to provide
enhanced financial flexibility, the Company borrowed $800 million from its revolving credit facility in March 2020, which bears
interest at LIBOR plus 0.75% (currently 1.61%), and is temporarily suspending its stock repurchase program.
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 1, 2020 and February 2, 2019, and the related consolidated statements of earnings, comprehensive income,
stockholders’ equity, and cash flows for each of the fiscal years ended February 1, 2020, February 2, 2019, and February 3,
2018 and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s
internal control over financial reporting as of February 1, 2020, 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 financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of February 1, 2020 and February 2, 2019, and the results of its operations and its cash flows for each of the
fiscal years ended February 1, 2020, February 2, 2019, and February 3, 2018, 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 1, 2020, based on the criteria established in Internal Control -
Integrated Framework (2013) issued by COSO.
Change in Accounting Principle
As discussed in Note A to the financial statements, effective February 3, 2019, the Company adopted FASB ASC 842,
Leases, using the modified retrospective basis. Recently adopted accounting standards – ASC 842, Leases, is also
communicated as a critical audit matter below.
Basis for Opinions
The Company’s management is responsible for these 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
62
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of the effectiveness to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures
that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
Recently adopted accounting standards – ASC 842, Leases – Incremental Borrowing Rate — Refer to Note A and
Note E to the consolidated financial statements (also see Change in Accounting Principle explanatory paragraph
above)
Critical Audit Matter Description
The Company adopted the provisions of ASC 842, Leases ("ASC 842"), as of February 3, 2019. The Company recorded
lease liabilities for the present value of its lease commitments and corresponding right-of-use (ROU) assets of approximately
$2.9 billion, upon adoption. The Company developed estimated collateralized incremental borrowing rates (IBR) for each
lease portfolio to present value the lease payments as required by ASC 842 when the discount rate is not implicit in the
lease. The determination of an IBR required management to use significant estimates and assumptions including its credit
rating, credit spread, and adjustments for the impact of collateral.
We identified the IBRs used in the adoption of ASC 842 as a critical audit matter because of the significant impact of
management’s assumptions and estimates in determining the selected IBRs for each lease portfolio and the related material
impact upon the lease liabilities and corresponding right-of-use (ROU) assets recorded upon adoption.
Management’s assumptions and estimates used in determining the selected IBRs were the Company’s credit rating, credit
spread, and adjustments for the impact of collateral. Given these significant judgments made by management in determining
the IBR, performing audit procedures to evaluate the reasonableness of the methods and assumptions related to these
assumptions and estimates involved a high degree of auditor judgment and an increased extent of effort, including the need
to involve our fair value specialists.
63
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the IBRs used in the adoption of ASC 842 included the following, among others:
• We tested the effectiveness of controls over the methods and assumptions used by management to estimate
the IBRs, including those over the credit rating, credit spreads and adjustments for the impact of collateral.
• With the assistance of our fair value specialists, we evaluated the methods and assumptions used by
management to estimate the IBRs and tested the inputs used by management to develop the IBRs as follows:
- Assessed the reasonableness of the methodology and models used to estimate the IBRs based on
the definition and guidance in ASC 842 and other reference materials.
- Assessed the reasonableness of the significant inputs used to estimate the IBRs by comparing to
Company specific benchmarks, comparable companies and other market information:
o The credit rating ascribed to the Company.
o The credit spreads applied in determining the IBRs.
o The collateral adjustment applied in determining the IBRs.
/s/DELOITTE & TOUCHE LLP
San Francisco, California
March 31, 2020
We have served as the Company’s auditor since 1982.
64
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 1, 2020.
Our internal control over financial reporting as of February 1, 2020 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 March 31, 2020, 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 2019 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.
ITEM 9B. OTHER INFORMATION
None
65
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 20, 2020 (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 our Chief Executive Officer
and our Chief Financial Officer (who is also our principal accounting officer), along with other of our senior operating and
financial executives. 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.”
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 1, 2020:
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
(b)
Weighted-average
exercise price per
share of
outstanding
options and rights
options and rights
(c)
Number of
securities
remaining available
for future issuance
(excluding
securities reflected
in column (a))1
4122
—
412
—
—
—
15,5453
—
15,545
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 1, 2020. The weighted-average exercise price in column (b) does not take these awards into account.
3 Includes 4.8 million shares reserved for issuance under the Employee Stock Purchase Plan and 10.7 million shares reserved for issuance under the
2017 Equity Incentive Plan.
66
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.
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 1, 2020, February 2,
2019, and February 3, 2018.
Consolidated Statements of Comprehensive Income for the years ended February 1, 2020,
February 2, 2019, and February 3, 2018.
Consolidated Balance Sheets at February 1, 2020 and February 2, 2019.
Consolidated Statements of Stockholders’ Equity for the years ended February 1, 2020,
February 2, 2019, and February 3, 2018.
Consolidated Statements of Cash Flows for the years ended February 1, 2020, February 2,
2019, and February 3, 2018.
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:
March 31, 2020
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
Chief Executive Officer, Director
March 31, 2020
Group Senior Vice President and Chief Financial
Officer, and Principal Accounting Officer
March 31, 2020
Chairman of the Board and Senior Advisor, Director
March 31, 2020
Director
Director
March 31, 2020
March 31, 2020
Chairman Emeritus of the Board, Director
March 31, 2020
Director
Director
Director
Director
March 31, 2020
March 31, 2020
March 31, 2020
March 31, 2020
/s/Barbara Rentler
Barbara Rentler
/s/Travis R. Marquette
Travis R. Marquette
/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/George P. Orban
George P. Orban
/s/Gregory 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.
4.5
Description of Common Stock of Ross Stores, Inc.
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.
10.2
Revolving Credit Agreement dated July 1, 2019 among Ross Stores, Inc. and various lenders, incorporated by
reference to Exhibit 10.3 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended August 3, 2019.
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS (EXHIBITS 10.3 - 10.36)
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), incorporated by reference to
Exhibit 10.3 filed by Ross Stores, Inc. for its fiscal year ended February 3, 2018.
10.4
Second Amended and Restated Ross Stores, Inc. Incentive Compensation Plan (as amended effective May
18, 2016), incorporated by reference to 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 3, 2014.
10.8
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.
10.9
Form of Restricted Stock Agreement, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed by Ross
Stores, Inc. for its quarter ended May 5, 2018.
10.10
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.
10.11
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.
10.12
Form of Performance Shares Grant Agreement, incorporated by reference to Exhibit 10.2 to the Form 10-Q
filed by Ross Stores, Inc. for its quarter ended May 5, 2018.
10.13
Form of Indemnity Agreement 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.
10.14
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 May 5, 2018.
69
10.15
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 May 4, 2019.
10.16
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.
10.17
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.
10.18
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.
10.19
10.20
10.21
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.
10.22
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.
10.23
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.
10.24
Amendment to Independent Contractor Consultancy Agreement effective February 1, 2018 between Norman A.
Ferber and Ross Stores, Inc., incorporated by reference to Exhibit 10.28 to the Form 10-K filed by Ross Stores,
Inc. for its fiscal year ended February 2, 2019.
10.25
Amendment to Independent Contractor Consultancy Agreement effective July 30, 2019 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 August 3, 2019.
10.26
10.27
10.28
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.
10.29
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.
10.30
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.
10.31
Fifth Amendment to the Employment Agreement effective July 3, 2018 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 August 4, 2018.
10.32
Sixth Amendment to the Employment Agreement effective November 23, 2018 between Michael Balmuth and
Ross Stores, Inc., incorporated by reference to Exhibit 10.35 to the Form 10-K filed by Ross Stores, Inc. for its
fiscal year ended February 2, 2019.
70
10.33
Seventh Amendment to the Employment Agreement effective July 13, 2019 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 August 3, 2019.
10.34
Employment Agreement effective March 16, 2019 between Barbara Rentler 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 May
4, 2019.
10.35
Employment Agreement effective August 16, 2019 between Michael Hartshorn 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
November 2, 2019.
10.36
Employment Agreement effective August 16, 2019 between Travis Marquette 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
November 2, 2019.
21
23
Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
31.1
Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
31.2
Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.INS XBRL Instance Document. (The instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.)
101.SCH
Inline XBRL Taxonomy Extension Schema
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
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.
Ross Distribution Company, LLC
EXHIBIT 23
Domiciled
Delaware
Delaware
Virginia
Hawaii
Date of Incorporation
November 22, 2004
January 12, 2004
January 14, 2004
October 15, 1991
Delaware
March 15, 2018
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 March 31, 2020, 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 1, 2020.
/s/DELOITTE & TOUCHE LLP
San Francisco, California
March 31, 2020
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: March 31, 2020
/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, Travis R. Marquette, 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: March 31, 2020
74
/s/Travis R. Marquette
Travis R. Marquette
Group Senior Vice President and 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 1, 2020
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) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78m); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 31, 2020
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 1, 2020
as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Travis R. Marquette, 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. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78m); and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 31, 2020
/s/Travis R. Marquette
Travis R. Marquette
Group Senior Vice President and Chief Financial Officer,
and Principal Accounting Officer
75
Corporate Data
Corporate Headquarters
Transfer Agent and Registrar
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
New York, NY 10018-6141
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
Los Angeles Buying Office
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#)
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 2019
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
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 2019 Annual Report
was printed on paper containing fibers from environmentally appropriate,
socially beneficial and economically viable forest resources.