UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


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

For the quarterly period ended ~~November~~May 02, ~~2019~~2020


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

						For the transition period from __________ to __________


						Commission file number:			0-14678

Ross Stores, Inc.

(Exact name of registrant as specified in its charter)

Delaware

94-1390387

(State or other jurisdiction of incorporation or

(I.R.S. Employer Identification No.)

organization)

5130 Hacienda Drive,

Dublin,

California

94568-7579

(Address of principal executive offices)

(Zip Code)

Registrant's telephone number, including area code

(925)

965-4400

Former name, former address and former

N/A

fiscal year, if changed since last report.

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

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock,

par value $.01

ROST

Nasdaq Global Select Market

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

Yes ý No o

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

Yes ý No o

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

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

Emerging growth company ☐

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

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

Yes ☐ No ☒

The number of shares of Common Stock, with $.01 par value, outstanding on ~~November 20, 2019~~May 18, 2020 was ~~358,882,342.~~

355,921,611.

Ross Stores, Inc.

Form 10-Q

Table of Contents

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Statements of ~~Earnings–~~Operation s–Three ~~and~~ ~~nine~~months ended May 2, 2020 ~~months ended~~and ~~November 2~~, May 4, 2019 an ~~d November 3, 2018~~

Condensed Consolidated Statements of Comprehensive (Loss) Income–Three ~~and~~ ~~nine~~months ended ~~November~~May 2,~~, 2019 and~~ ~~November 3,~~ 2020 ~~2018~~and May 4, 2019

Condensed Consolidated Balance Sheets–~~November~~May 2, 2020 , ~~2019,~~ February ~~2, 2019,~~1 , 20 20 , and ~~November 3~~May 4 , ~~2018~~2019

Condensed Consolidated Statements of Stockholders' Equity–~~Nine~~M ~~months ended~~ ~~November~~ay 2,, 2020 and May 4, 2019

~~Condensed Consolidated Statements of Stockholders' Equity–Nine months ended November 3, 2018~~

Condensed Consolidated Statements of Cash Flows–~~Nine~~Three months ended ~~November~~May 2, 2020 , and May 4, 2019 ~~and~~ ~~November 3, 2018~~

Notes to Condensed Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

2016

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

2825

Item 4.

Controls and Procedures

2826

PART II. OTHER INFORMATION

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

Exhibits

Signatures

3132

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Statements of ~~Earnings~~Operations


		Three Months Ended						Nine Months Ended							Three Months Ended
($000, except stores and per share data, unaudited)	($000, except stores and per share data, unaudited)	November 2, 2019		November 3, 2018		November 2, 2019		November 3, 2018		($000, except stores and per share data, unaudited)	May 2, 2020		May 4, 2019
Sales	Sales	$	3,849,117	$	3,549,608	$	11,625,628	$	10,876,153	Sales	$	1,842,673	$	3,796,642

Costs and Expenses	Costs and Expenses									Costs and Expenses
Cost of goods sold	Cost of goods sold	2,766,432		2,547,331		8,311,950		7,736,533		Cost of goods sold	1,889,991		2,701,668
Selling, general and administrative	Selling, general and administrative	604,605		561,577		1,754,825		1,640,581		Selling, general and administrative	415,305		558,250
Interest income, net		(4,402)		(2,953)		(14,819)		(4,849)
Interest expense (income), net										Interest expense (income), net	6,666		(5,635)
Total costs and expenses	Total costs and expenses	3,366,635		3,105,955		10,051,956		9,372,265		Total costs and expenses	2,311,962		3,254,283

Earnings before taxes		482,482		443,653		1,573,672		1,503,888
Provision for taxes on earnings		111,550		105,545		368,877		358,124
Net earnings		$	370,932	$	338,108	$	1,204,795	$	1,145,764
(Loss) earnings before taxes										(Loss) earnings before taxes	(469,289)		542,359
(Benefit) provision for taxes on (loss) earnings										(Benefit) provision for taxes on (loss) earnings	(163,447)		121,217
Net (loss) earnings										Net (loss) earnings	$	(305,842)	$	421,142

Earnings per share
(Loss) earnings per share										(Loss) earnings per share
Basic	Basic	$	1.04	$	0.92	$	3.35	$	3.09	Basic	$	(0.87)	$	1.16
Diluted	Diluted	$	1.03	$	0.91	$	3.32	$	3.06	Diluted	$	(0.87)	$	1.15

Weighted average shares outstanding (000)	Weighted average shares outstanding (000)									Weighted average shares outstanding (000)
Basic	Basic	356,879		368,102		359,919		370,977		Basic	352,202		363,085
Diluted	Diluted	359,299		371,061		362,455		373,936		Diluted	352,202		365,912

Stores open at end of period		1,810		1,720		1,810		1,720
Store count at end of period										Store count at end of period	1,832		1,745

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

Condensed Consolidated Statements of Comprehensive (Loss) Income

Three Months Ended Nine Months Ended
($000, unaudited) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Net earnings $ 370,932 $ 338,108 $ 1,204,795 $ 1,145,764
Other comprehensive (loss) income:
Change in unrealized gain (loss) on investments, net of tax — (4) — (27)
Comprehensive income $ 370,932 $ 338,104 $ 1,204,795 $ 1,145,737


	Three Months Ended
($000, unaudited)	May 2, 2020		May 4, 2019
Net (loss) earnings	$	(305,842)	$	421,142

Other comprehensive (loss) income:	—		—

Comprehensive (loss) income	$	(305,842)	$	421,142

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

Condensed Consolidated Balance Sheets


($000, except share data, unaudited)	($000, except share data, unaudited)	November 2, 2019		February 2, 2019		November 3, 2018		($000, except share data, unaudited)	May 2, 2020		February 1, 2020		May 4, 2019
Assets	Assets							Assets
Current Assets	Current Assets							Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,142,709	$	1,412,912	$	1,349,196	Cash and cash equivalents	$	2,669,535	$	1,351,205	$	1,366,592

Accounts receivable	Accounts receivable	124,853		96,711		117,825		Accounts receivable	49,624		102,236		121,607
Merchandise inventory	Merchandise inventory	2,168,796		1,750,442		1,979,080		Merchandise inventory	1,757,263		1,832,339		1,813,773
Prepaid expenses and other	Prepaid expenses and other	170,304		143,954		177,206		Prepaid expenses and other	111,493		147,048		160,733

Total current assets	Total current assets	3,606,662		3,404,019		3,623,307		Total current assets	4,587,915		3,432,828		3,462,705

Property and Equipment	Property and Equipment							Property and Equipment
Land and buildings	Land and buildings	1,173,131		1,126,051		1,117,801		Land and buildings	1,177,847		1,177,262		1,129,049
Fixtures and equipment	Fixtures and equipment	3,032,151		2,783,198		2,719,545		Fixtures and equipment	3,125,333		3,115,003		2,844,135
Leasehold improvements	Leasehold improvements	1,199,591		1,175,921		1,150,142		Leasehold improvements	1,238,313		1,219,736		1,139,600
Construction-in-progress	Construction-in-progress	145,756		171,538		146,323		Construction-in-progress	281,692		189,536		148,021
		5,550,629		5,256,708		5,133,811			5,823,185		5,701,537		5,260,805
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	2,984,747		2,781,507		2,715,585		Less accumulated depreciation and amortization	3,126,467		3,048,101		2,824,433
Property and equipment, net	Property and equipment, net	2,565,882		2,475,201		2,418,226		Property and equipment, net	2,696,718		2,653,436		2,436,372

Operating lease assets	Operating lease assets	3,042,298		—		—		Operating lease assets	3,078,373		3,053,782		2,942,980
Other long-term assets	Other long-term assets	200,999		194,471		194,234		Other long-term assets	365,040		208,321		207,063
Total assets	Total assets	$	9,415,841	$	6,073,691	$	6,235,767	Total assets	$	10,728,046	$	9,348,367	$	9,049,120

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current Liabilities	Current Liabilities							Current Liabilities
Accounts payable	Accounts payable	$	1,480,205	$	1,177,104	$	1,394,029	Accounts payable	$	706,267	$	1,296,482	$	1,296,183
Accrued expenses and other	Accrued expenses and other	496,623		431,596		455,743		Accrued expenses and other	374,811		462,111		450,762
Current operating lease liabilities	Current operating lease liabilities	559,433		—		—		Current operating lease liabilities	570,832		564,481		536,900
Accrued payroll and benefits	Accrued payroll and benefits	321,977		363,035		317,525		Accrued payroll and benefits	166,707		364,435		220,376
Income taxes payable	Income taxes payable	—		37,749		—		Income taxes payable	—		14,425		89,290
Current portion of long-term debt		—		—		84,997
Short-term debt								Short-term debt	805,000		—		—
Total current liabilities	Total current liabilities	2,858,238		2,009,484		2,252,294		Total current liabilities	2,623,617		2,701,934		2,593,511

Long-term debt	Long-term debt	312,778		312,440		312,328		Long-term debt	2,285,614		312,891		312,552
Non-current operating lease liabilities	Non-current operating lease liabilities	2,601,372		—		—		Non-current operating lease liabilities	2,631,769		2,610,528		2,514,530
Other long-term liabilities	Other long-term liabilities	225,934		321,713		371,844		Other long-term liabilities	206,504		214,086		226,788
Deferred income taxes	Deferred income taxes	140,740		124,308		112,138		Deferred income taxes	163,150		149,679		134,213

Commitments and contingencies	Commitments and contingencies							Commitments and contingencies

Stockholders’ Equity	Stockholders’ Equity							Stockholders’ Equity
Common stock, par value $.01 per share Authorized 1,000,000,000 shares Issued and outstanding 359,378,000, 368,242,000 and 371,058,000 shares, respectively		3,594		3,682		3,711
Common stock, par value $.01 per share Authorized 1,000,000,000 shares Issued and outstanding 355,922,000, 356,775,000 and 365,260,000 shares, respectively								Common stock, par value $.01 per share Authorized 1,000,000,000 shares Issued and outstanding 355,922,000, 356,775,000 and 365,260,000 shares, respectively	3,559		3,568		3,653
Additional paid-in capital	Additional paid-in capital	1,435,713		1,375,965		1,354,669		Additional paid-in capital	1,484,911		1,458,307		1,391,558
Treasury stock	Treasury stock	(429,583)		(372,663)		(371,959)		Treasury stock	(465,645)		(433,328)		(423,543)

Retained earnings	Retained earnings	2,267,055		2,298,762		2,200,742		Retained earnings	1,794,567		2,330,702		2,295,858
Total stockholders’ equity	Total stockholders’ equity	3,276,779		3,305,746		3,187,163		Total stockholders’ equity	2,817,392		3,359,249		3,267,526
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	9,415,841	$	6,073,691	$	6,235,767	Total liabilities and stockholders’ equity	$	10,728,046	$	9,348,367	$	9,049,120

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

Condensed Consolidated Statements of Stockholders' Equity


		Nine Months Ended November 2, 2019
					Additional paid-in capital								Accumulated other comprehensive income (loss)																	Additional paid-in capital
		Common stock													Treasury stock								Retained earnings						Common stock					Additional paid-in capital							Treasury stock					Retained earnings
(000)	(000)	Shares	Amount																							Total		(000)								Amount											Total
Balance at February 2, 2019		368,242	$	3,682			$	1,375,965			$	(372,663)			$	—			$	2,298,762			$	3,305,746
Net earnings		—	—		—				—				—				421,142				421,142
Cumulative effect of adoption of
accounting standard
(leases), net		—	—		—				—				—				(19,614)				(19,614)
Balance at February 1, 2020																							Balance at February 1, 2020		356,775		$	3,568				$	1,458,307				$	(433,328)				$	2,330,702	$	3,359,249
Net loss																							Net loss		—		—			—				—					(305,842)			(305,842)

Common stock issued under stock	Common stock issued under stock																						Common stock issued under stock
plans, net of shares	plans, net of shares																						plans, net of shares
used for tax withholding	used for tax withholding	390	4		5,291				(50,880)				—				—				(45,585)		used for tax withholding		318		3			5,441				(32,317)					—			(26,873)
Stock-based compensation	Stock-based compensation	—	—		19,689				—				—				—				19,689		Stock-based compensation		—		—			24,739				—					—			24,739
Common stock repurchased	Common stock repurchased	(3,372)	(33)		(9,387)				—				—				(310,710)				(320,130)		Common stock repurchased		(1,171)		(12)			(3,576)				—					(128,879)			(132,467)
Dividends declared ($0.255 per share)		—	—		—				—				—				(93,722)				(93,722)
Balance at May 4, 2019		365,260	$	3,653	$	1,391,558			$	(423,543)			$	—			$	2,295,858			$	3,267,526
Net earnings		—	—		—				—				—				412,721				412,721
Common stock issued under stock
plans, net of shares
used for tax withholding		98	1		5,610				(1,469)				—				—				4,142
Stock-based compensation		—	—		24,924				—				—				—				24,924
Common stock repurchased		(3,192)	(32)		(9,116)				—				—				(310,981)				(320,129)
Dividends declared ($0.255 per share)		—	—		—				—				—				(92,920)				(92,920)
Balance at August 3, 2019		362,166	$	3,622	$	1,412,976			$	(425,012)			$	—			$	2,304,678			$	3,296,264
Net earnings		—	—		—				—				—				370,932				370,932
Common stock issued under stock
plans, net of shares
used for tax withholding		227	2		5,543				(4,571)				—				—				974
Stock-based compensation		—	—		25,987				—				—				—				25,987
Common stock repurchased		(3,015)	(30)		(8,793)				—				—				(316,827)				(325,650)
Dividends declared ($0.255 per share)		—	—		—				—				—				(91,728)				(91,728)
Balance at November 2, 2019		359,378	$	3,594	$	1,435,713			$	(429,583)			$	—			$	2,267,055			$	3,276,779
The accompanying notes are an integral part of these condensed consolidated financial statements.
Dividends declared ($0.285 per share)																							Dividends declared ($0.285 per share)		—		—			—				—					(101,414)			(101,414)
Balance at May 2, 2020																							Balance at May 2, 2020		355,922		$	3,559		$	1,484,911			$	(465,645)				$	1,794,567		$	2,817,392





				Additional paid-in capital
	Common stock							Treasury stock					Retained earnings
(000)	Shares	Amount												Total
Balance at February 2, 2019	368,242	$	3,682	$	1,375,965	$	(372,663)		$	2,298,762	$	3,305,746
Net earnings	—	—		—		—			421,142		421,142
Cumulative effect of adoption of
accounting standard
(leases), net	—	—		—		—			(19,614)		(19,614)

Common stock issued under stock
plans, net of shares
used for tax withholding	390	4		5,291		(50,880)			—		(45,585)
Stock-based compensation	—	—		19,689		—			—		19,689
Common stock repurchased	(3,372)	(33)		(9,387)		—			(310,710)		(320,130)
Dividends declared ($0.255 per share)	—	—		—		—			(93,722)		(93,722)
Balance at May 4, 2019	365,260	$	3,653	$	1,391,558	$	(423,543)		$	2,295,858	$	3,267,526























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

Condensed Consolidated Statements of Stockholders' Equity
Nine Months Ended November 3, 2018
Additional paid-in capital Accumulated
other comprehensive income (loss)
Common stock Treasury stock Retained earnings
(000) Shares Amount Total
Balance at February 3, 2018 379,618 $ 3,796 $ 1,292,364 $ (318,279) $ 27 $ 2,071,400 $ 3,049,308
Net earnings — — — — — 418,252 418,252
Cumulative effect of adoption of
accounting standard
(revenue recognition), net — — — — — 19,884 19,884
Unrealized investment loss, net
— — — — (20) — (20)
Common stock issued under stock
plans, net of shares
used for tax withholding 732 8 4,674 (44,798) — — (40,116)
Stock-based compensation — — 23,760 — — — 23,760
Common stock repurchased (3,271) (33) (8,093) — — (247,244) (255,370)
Dividends declared ($0.225 per share) — — — — — (85,410) (85,410)
Balance at May 5, 2018 377,079 $ 3,771 $ 1,312,705 $ (363,077) $ 7 $ 2,176,882 $ 3,130,288
Net earnings — — — — — 389,404 389,404
Unrealized investment loss, net — — — — (3) — (3)
Common stock issued under stock
plans, net of shares
used for tax withholding 20 — 5,135 (6,263) — — (1,128)
Stock-based compensation — — 23,820 — — — 23,820
Common stock repurchased (3,231) (32) (8,331) — — (264,847) (273,210)
Dividends declared ($0.225 per share) — — — — — (84,561) (84,561)
Balance at August 4, 2018 373,868 $ 3,739 $ 1,333,329 $ (369,340) $ 4 $ 2,216,878 $ 3,184,610
Net earnings — — — — — 338,108 338,108
Unrealized investment loss, net — — — — (4) — (4)
Common stock issued under stock
plans, net of shares
used for tax withholding 85 1 5,097 (2,619) — — 2,479
Stock-based compensation — — 23,782 — — — 23,782
Common stock repurchased (2,895) (29) (7,539) — — (270,352) (277,920)
Dividends declared ($0.225 per share) — — — — — (83,892) (83,892)
Balance at November 3, 2018 371,058 $ 3,711 $ 1,354,669 $ (371,959) $ — $ 2,200,742 $ 3,187,163
The accompanying notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statements of Cash Flows


		Nine Months Ended							Three Months Ended
($000, unaudited)	($000, unaudited)	November 2, 2019		November 3, 2018		($000, unaudited)	May 2, 2020		May 4, 2019
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net earnings		$	1,204,795	$	1,145,764
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net (loss) earnings						Net (loss) earnings	$	(305,842)	$	421,142
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:						Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:
Depreciation and amortization	Depreciation and amortization	255,089		246,151		Depreciation and amortization	90,598		82,757
Stock-based compensation	Stock-based compensation	70,600		71,361		Stock-based compensation	24,739		19,689
Deferred income taxes	Deferred income taxes	23,070		19,607		Deferred income taxes	13,471		16,543

Change in assets and liabilities:	Change in assets and liabilities:					Change in assets and liabilities:
Merchandise inventory	Merchandise inventory	(418,354)		(337,345)		Merchandise inventory	75,076		(63,331)
Other current assets	Other current assets	(46,161)		(62,081)		Other current assets	88,286		(41,777)
Accounts payable	Accounts payable	305,648		328,062		Accounts payable	(600,918)		122,654
Other current liabilities	Other current liabilities	43,968		35,758		Other current liabilities	(268,925)		(108,208)
Income taxes	Income taxes	(42,619)		(5,338)		Income taxes	(175,142)		56,206
Operating lease assets and liabilities, net	Operating lease assets and liabilities, net	12,911		—		Operating lease assets and liabilities, net	3,001		2,855
Other long-term, net	Other long-term, net	1,983		8,133		Other long-term, net	(2,786)		457
Net cash provided by operating activities		1,410,930		1,450,072
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(1,058,442)		508,987

Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Additions to property and equipment	Additions to property and equipment	(401,251)		(293,366)		Additions to property and equipment	(139,729)		(95,629)

Proceeds from investments	Proceeds from investments	517		739		Proceeds from investments	—		517
Net cash used in investing activities	Net cash used in investing activities	(400,734)		(292,627)		Net cash used in investing activities	(139,729)		(95,112)

Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities

Net proceeds from issuance of short-term debt						Net proceeds from issuance of short-term debt	805,601		—
Payments of short-term debt						Payments of short-term debt	(615)		—
Net proceeds from issuance of long-term debt						Net proceeds from issuance of long-term debt	1,976,030		—
Payments of debt issuance costs						Payments of debt issuance costs	(3,135)		—
Issuance of common stock related to stock plans	Issuance of common stock related to stock plans	16,451		14,915		Issuance of common stock related to stock plans	5,444		5,295
Treasury stock purchased	Treasury stock purchased	(56,920)		(53,680)		Treasury stock purchased	(32,317)		(50,880)
Repurchase of common stock	Repurchase of common stock	(965,909)		(806,500)		Repurchase of common stock	(132,467)		(320,130)
Dividends paid	Dividends paid	(278,370)		(253,863)		Dividends paid	(101,414)		(93,722)
Net cash used in financing activities		(1,284,748)		(1,099,128)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	2,517,127		(459,437)

Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents		(274,552)		58,317
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents						Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents	1,318,956		(45,562)

Cash, cash equivalents, and restricted cash and cash equivalents:	Cash, cash equivalents, and restricted cash and cash equivalents:					Cash, cash equivalents, and restricted cash and cash equivalents:
Beginning of period	Beginning of period	1,478,079		1,353,272		Beginning of period	1,411,410		1,478,079
End of period	End of period	$	1,203,527	$	1,411,589	End of period	$	2,730,366	$	1,432,517

Supplemental Cash Flow Disclosures	Supplemental Cash Flow Disclosures					Supplemental Cash Flow Disclosures
Interest paid	Interest paid	$	10,560	$	13,271	Interest paid	$	4,235	$	4,219
Income taxes paid		$	388,426	$	343,848
Income taxes (refunded) paid						Income taxes (refunded) paid	$	(1,777)	$	48,468

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

Notes to Condensed Consolidated Financial Statements

Three ~~and Nine~~ Months Ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018~~May 4, 2019

(Unaudited)

Note A: Summary of Significant Accounting Policies

Basis of presentation. The accompanying unaudited interim condensed consolidated financial statements have been prepared from the records of Ross Stores, Inc. and subsidiaries (the “Company”) without audit and, in the opinion of management, include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the Company’s financial position as of ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018,~~May 4, 2019, the results of operations, comprehensive (loss) income, ~~and~~ stockholders' equity, ~~for the three and nine month periods ended November 2, 2019 and November 3, 2018,~~ and cash flows for the ~~nine~~three month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018.~~May 4, 2019. The Condensed Consolidated Balance Sheet as of February ~~2, 2019,~~1, 2020, presented herein, has been derived from the Company’s audited consolidated financial statements for the fiscal year then ended.

Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted for purposes of these interim condensed consolidated financial statements. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, contained in the Company’s Annual Report on Form 10-K for the year ended February ~~2, 2019.~~1, 2020.

The results of operations, comprehensive (loss) income, ~~and~~ stockholders' equity, ~~for the three and nine month periods ended November 2, 2019 and November 3, 2018~~ and cash flows for the ~~nine~~three month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018~~May 4, 2019 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

~~Recently adopted~~Use of accounting ~~standards.~~estimates. ~~In February 2016,~~The preparation of financial statements in conformity with GAAP requires the ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,~~ ~~Leases~~ ~~(Accounting Standards Codification "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~~Company to make ~~lease payments arising from a lease, measured on a discounted basis;~~estimates and ~~a right-of use asset~~assumptions that ~~represents~~affect the ~~lessee’s right to use, or control the use~~reported amounts 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 leaseassets, liabilities, based on the present value of the remaining minimum rental payments, using discount 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~~of contingent assets and ~~continue to be reported under ASC 840. ASC 842 did not have a significant impact to~~liabilities at the ~~Company’s condensed consolidated statements~~date of ~~earnings or to~~ the condensed consolidated ~~statements of cash flows.~~

~~Significant accounting policies.~~ Except for the updates to accounting policies for leases as a result of adopting ASC 842 described below, there have been no significant changes to the accounting policies followed by the Company as described in Note A to the audited consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company’s significant accounting estimates include valuation reserves for ~~the fiscal year ended February 2, 2019.~~

~~Leases.~~ 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 valueinventory (including shortage), packaway inventory costs, useful lives of ~~lease payments~~fixed assets, insurance reserves, reserves for ~~use in the calculation~~uncertain tax positions, estimates for provisions of the ~~lease liabilities~~Coronavirus Aid, Relief, and ~~right-of-use assets. This rate is determined using a portfolio approach based on~~Economic Security Act (the "CARES Act"), and legal claims. Given the ~~risk-adjusted rate of interest that~~global economic climate and additional, or unforeseen effects, from the ~~Company would have to pay to borrow an amount equal to~~COVID-19 pandemic, these estimates are more challenging, and actual results could differ materially from 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.~~

estimates.

Prior to the adoption of ASC 842, 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 Condensed Consolidated Statements of Cash Flows.

Revenue recognition. All of the Company's store locations, its primary source of revenue, were temporarily closed from March 20, 2020 through the end of the quarter due to the COVID-19 pandemic. The following sales mix table disaggregates revenue by merchandise category for the three ~~and nine~~ month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018:~~May 4, 2019:


		Three Months Ended						Nine Months Ended								Three Months Ended
		November 2, 2019		November 3, 2018		November 2, 2019		November 3, 2018			May 2, 2020		¹	May 4, 2019
Home Accents and Bed and Bath										Home Accents and Bed and Bath	27	%		25	%
Ladies	Ladies	26	%	27	%	27	%	28	%	Ladies	25	%		27	%
Home Accents and Bed and Bath		24	%	25	%	24	%	24	%
Shoes	Shoes	14	%	13	%	14	%	14	%	Shoes	14	%		14	%
Accessories, Lingerie, Fine Jewelry, and Fragrances										Accessories, Lingerie, Fine Jewelry, and Fragrances	13	%		13	%
Men's	Men's	14	%	14	%	14	%	13	%	Men's	12	%		13	%
Accessories, Lingerie, Fine Jewelry, and Fragrances		13	%	13	%	13	%	13	%
Children's	Children's	9	%	8	%	8	%	8	%	Children's	9	%		8	%
Total	Total	100	%	100	%	100	%	100	%	Total	100	%		100	%
¹ Sales mix for the three months ended May 2, 2020 represents sales through the temporary closure of all stores on March 20, 2020.										¹ Sales mix for the three months ended May 2, 2020 represents sales through the temporary closure of all stores on March 20, 2020.

Cash, restricted cash, and restricted 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, and restricted cash and cash equivalents in the Condensed Consolidated Balance Sheets that reconcile to the amounts shown on the Condensed Consolidated Statements of Cash Flows:


($000)	($000)	November 2, 2019		February 2, 2019		November 3, 2018		($000)	May 2, 2020		February 1, 2020		May 4, 2019
Cash and cash equivalents	Cash and cash equivalents	$	1,142,709	$	1,412,912	$	1,349,196	Cash and cash equivalents	$	2,669,535	$	1,351,205	$	1,366,592
Restricted cash and cash equivalents included in:	Restricted cash and cash equivalents included in:							Restricted cash and cash equivalents included in:
Prepaid expenses and other	Prepaid expenses and other	10,947		11,402		8,933		Prepaid expenses and other	10,341		10,235		11,867
Other long-term assets	Other long-term assets	49,871		53,765		53,460		Other long-term assets	50,490		49,970		54,058
Total restricted cash and cash equivalents	Total restricted cash and cash equivalents	60,818		65,167		62,393		Total restricted cash and cash equivalents	60,831		60,205		65,925
Total cash, cash equivalents, and restricted cash and equivalents		$	1,203,527	$	1,478,079	$	1,411,589
Total cash, cash equivalents, and restricted cash and cash equivalents								Total cash, cash equivalents, and restricted cash and cash equivalents	$	2,730,366	$	1,411,410	$	1,432,517

~~In addition to the restricted cash and equivalents in the table above, the Company had restricted investments included in the Condensed Consolidated Balance Sheets as shown below:~~

($000) November 2, 2019 February 2, 2019 November 3, 2018
Prepaid expenses and other $ — $ 400 $ 2,801
Total restricted investments $ — $ 400 $ 2,801

Property and equipment. As of ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018,~~May 4, 2019, the Company had ~~$11.1~~$34.5 million and ~~$13.0~~$14.8 million, respectively, of property and equipment purchased but not yet paid. These purchases are included in Property and Equipment, Accounts payable, and Accrued expenses and other in the accompanying Condensed Consolidated Balance Sheets.

~~Cash dividends.~~Operating leases. ~~Dividends included~~Operating lease assets obtained in ~~the Condensed Consolidated Statements~~exchange for new operating lease liabilities (includes new leases and remeasurements or modifications of ~~Cash Flows reflect cash dividends paid~~existing leases) during the three month periods ~~shown. Dividends per share reported on the Condensed Consolidated Statements of Earnings reflect cash dividends declared during the periods shown.~~ended May 2, 2020 and May 4, 2019 were $165.0 million and $207.8 million, respectively.

Cash dividends.The Company’s Board of Directors declared a cash dividend of ~~$0.255~~$0.285 per common share in March ~~May,~~2020, and ~~August 2019, and $0.225~~$0.255 per common share in March, May, August, and November ~~2018,~~2019, respectively.

In ~~November 2019,~~May 2020, the ~~Company’s Board~~Company announced the suspension of ~~Directors declared a cash dividend of $0.255 per common share, payable on December 31, 2019.~~its quarterly dividends.

Litigation, claims, and assessments. Like many retailers, the Company has been named in ~~class~~class/representative action lawsuits, primarily in California, alleging violation of wage and hour/employment laws and consumer protection laws. ~~Class~~Class/representative action litigation remains pending as of ~~November~~May 2, ~~2019.~~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~~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.

Recently adopted accounting standards. In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes (Accounting Standards Codification "ASC" 740). ASU 2019-12 eliminates certain exceptions in ASC 740 related to the methodology for calculating income taxes in an interim period. It also clarifies and simplifies other aspects of the accounting for income taxes. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period. The Company adopted ASU 2019-12 on a prospective basis in the first quarter of fiscal 2020. The most significant impact to the Company is the removal of a limit on the tax benefit recognized on pre-tax losses in interim periods. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements for the first quarter of fiscal 2020 and is not expected to have a material impact on the Company's fiscal 2020 results.

Recently issued accounting standards. The Company considers the applicability and impact of all ASUs issued by the FASB. For the three ~~and nine~~ month ~~periods~~period ended ~~November~~May 2, ~~2019,~~2020, the ASUs issued by the FASB were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's condensed consolidated financial results.

~~Reclassifications.~~ ~~Certain items related to income taxes in the prior year’s condensed consolidated statements of cash flows have been reclassified to conform to the current year's presentation.~~

119

Note B: Fair Value Measurements

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.

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 three ~~and nine~~ month ~~periods~~period ended ~~November~~May 2, ~~2019.~~2020. The fair value of the Company’s financial instruments are as follows:


($000)	($000)	November 2, 2019		February 2, 2019		November 3, 2018		($000)	May 2, 2020		February 1, 2020		May 4, 2019

Cash and cash equivalents (Level 1)	Cash and cash equivalents (Level 1)	$	1,142,709	$	1,412,912	$	1,349,196	Cash and cash equivalents (Level 1)	$	2,669,535	$	1,351,205	$	1,366,592

Restricted cash and cash equivalents (Level 1)	Restricted cash and cash equivalents (Level 1)	$	60,818	$	65,167	$	62,393	Restricted cash and cash equivalents (Level 1)	$	60,831	$	60,205	$	65,925

Investments (Level 2)	Investments (Level 2)	$	8	$	125	$	475	Investments (Level 2)	$	8	$	8	$	8

Restricted investments (Level 2)		$	—	$	400	$	2,801

The underlying assets in the Company’s non-qualified deferred compensation program as of ~~November~~May 2, ~~2019,~~2020, February 2,1, 2020, and May 4, 2019 ~~and November 3, 2018~~ (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) November 2, 2019 February 2, 2019 November 3, 2018
Level 1 $ 129,461 $ 114,181 $ 111,490
Level 2 7,409 10,377 12,218
Total $ 136,870 $ 124,558 $ 123,708


($000)	May 2, 2020		February 1, 2020		May 4, 2019
Level 1	$	121,198	$	134,440	$	127,785
Level 2	11,068		7,003		10,626
Total	$	132,266	$	141,443	$	138,411

Note C: Stock-Based Compensation

Stock-based compensation. For the three ~~and nine~~ month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018,~~May 4, 2019, the Company recognized stock-based compensation expense as follows:


		Three Months Ended						Nine Months Ended							Three Months Ended
($000)	($000)	November 2, 2019		November 3, 2018		November 2, 2019		November 3, 2018		($000)	May 2, 2020		May 4, 2019
Restricted stock	Restricted stock	$	15,030	$	12,288	$	39,388	$	36,224	Restricted stock	$	16,482	$	9,449
Performance awards	Performance awards	9,979		10,594		28,308		32,504		Performance awards	7,296		9,304
Employee stock purchase plan	Employee stock purchase plan	978		900		2,904		2,633		Employee stock purchase plan	961		936
Total	Total	$	25,987	$	23,782	$	70,600	$	71,361	Total	$	24,739	$	19,689

1210

Total stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of ~~Earnings~~Operations for the three ~~and nine~~ month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018,~~May 4, 2019, is as follows:


		Three Months Ended						Nine Months Ended							Three Months Ended
Statements of Earnings Classification ($000)		November 2, 2019		November 3, 2018		November 2, 2019		November 3, 2018
Statements of Operations Classification ($000)										Statements of Operations Classification ($000)	May 2, 2020		May 4, 2019
Cost of goods sold	Cost of goods sold	$	13,823	$	11,434	$	40,757	$	33,481	Cost of goods sold	$	12,666	$	13,122
Selling, general and administrative	Selling, general and administrative	12,164		12,348		29,843		37,880		Selling, general and administrative	12,073		6,567
Total	Total	$	25,987	$	23,782	$	70,600	$	71,361	Total	$	24,739	$	19,689

The tax benefits related to stock-based compensation expense for the three ~~and nine~~ month periods ended ~~November~~May 2, 2020 and May 4, 2019 were ~~$5.5~~$5.4 million and ~~$14.2 million, respectively. The tax benefits related to stock-based compensation expense for the three and nine month periods ended November 3, 2018 were $5.1 million and $15.0~~$3.7 million, respectively.

Restricted stock awards. The Company grants shares of restricted stock to directors, officers, and key employees. The market value of shares of restricted stock at the date of grant is amortized to expense over the vesting period of generally three to five years.

During the three ~~and nine~~ month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018,~~May 4, 2019, shares purchased by the Company for tax withholding totaled ~~42,300~~349,513 and ~~612,924, and27,234 and 688,613,~~555,997, respectively, and are considered treasury shares which are available for reissuance.

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.

As of ~~November~~May 2, ~~2019,~~2020, shares related to unvested restricted stock and performance share awards totaled ~~4.4~~4.1 million shares. A summary of restricted stock and performance share award activity for the ~~nine~~three month period ended ~~November~~May 2, ~~2019,~~2020, is presented below:


(000, except per share data)	(000, except per share data)	Number of shares	Weighted average grant date fair value		(000, except per share data)	Number of shares	Weighted-average grant date fair value
Unvested at February 2, 2019		5,130	$	62.50
Unvested at February 1, 2020					Unvested at February 1, 2020	4,394	$	76.20
Awarded	Awarded	1,288	93.87		Awarded	592	97.85
Released	Released	(1,712)	52.70		Released	(891)	61.03
Forfeited	Forfeited	(332)	70.20		Forfeited	(7)	79.37
Unvested at November 2, 2019		4,374	$	74.99
Unvested at May 2, 2020					Unvested at May 2, 2020	4,088	$	82.63

The unamortized compensation expense at ~~November~~May 2, ~~2019,~~2020, was ~~$169.6~~$209.5 million, which is expected to be recognized over a weighted-average remaining period of ~~2.2~~2.4 years. The unamortized compensation expense at ~~November 3, 2018,~~May 4, 2019, was ~~$137.2~~$178.7 million, which was expected to be recognized over a weighted-average remaining period of ~~2.0~~2.5 years.

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.

Note D: (Loss) Earnings Per Share

The Company computes and reports both basic (loss) earnings per share ("EPS") and diluted EPS. Basic EPS is computed by dividing net (loss) earnings by the ~~weighted average~~weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net (loss) earnings by the sum of the ~~weighted average~~weighted-average number of common shares and dilutive common stock equivalents outstanding during the ~~period.~~period, except in cases where the effect of the common stock equivalents would be antidilutive. 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. For periods of net loss, basic and diluted EPS are the same as the effect of the assumed vesting of restricted stock units is anti-dilutive.

For the three ~~and nine~~ month ~~periods~~period ended ~~November~~May 2, ~~2019, approximately 11,800~~2020, basic and ~~19,100, respectively, weighted average shares were excluded from the calculation of~~ diluted EPS ~~because their effect would have been anti-dilutive for~~are the ~~periods presented.~~same due to the Company's net loss per share. For the three ~~and nine~~ month ~~periods~~period ended ~~November 3, 2018,~~May 4, 2019, approximately ~~4,800 and 10,000, respectively, weighted average~~700 weighted-average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive for the period presented.

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

Three Months Ended Nine Months Ended
Shares in (000s) Basic EPS Effect of
dilutive
common stock
equivalents Diluted
EPS Basic EPS Effect of
dilutive
common
stock
equivalents Diluted
EPS
November 2, 2019
Shares 356,879 2,420 359,299 359,919 2,536 362,455
Amount $ 1.04 $ (0.01) $ 1.03 $ 3.35 $ (0.03) $ 3.32
November 3, 2018
Shares
368,102 2,959 371,061 370,977 2,959 373,936
Amount
$ 0.92 $ (0.01) $ 0.91 $ 3.09 $ (0.03) $ 3.06


	Three Months Ended
Shares in (000s)	Basic EPS		Effect of dilutive common stock equivalents		Diluted EPS
May 2, 2020
Shares	352,202		—		352,202
Amount	$	(0.87)	$	—	$	(0.87)

May 4, 2019
Shares	363,085		2,827		365,912
Amount	$	1.16	$	(0.01)	$	1.15

Note E: ~~Leases~~

The Company currently leases all but 2 of its store locations with original, non-cancelable terms that in general range from three to ten years. Store leases typically contain provisions for 3 to 4 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 value guarantees or material restrictive covenants. The Company does not have any financing leases.

The Company leases 5 warehouses, and has 4 third-party warehousing arrangements. 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~~						~~Lease Expiration Date~~
~~Leased Warehouses~~
~~Carlisle, Pennsylvania~~						~~2020~~
~~Carlisle, Pennsylvania~~						~~2021~~
~~Fort Mill, South Carolina~~						~~2024~~
~~Rock Hill, South Carolina~~						~~2028~~
~~Shafter, California~~						~~2029~~

~~Third-Party Warehouses~~
~~Fort Mill, South Carolina~~						~~2020~~
~~Moreno Valley, California~~						~~2023~~
~~Moreno Valley, California~~						~~2029~~
~~Shafter, California~~						~~2020~~

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 these facilities expire in 2022 and 2020, respectively, and contain renewal provisions. In addition, the Company has a ground lease related to its New York buying office.

~~The following table presents operating lease costs included in the Condensed Consolidated Statement of Earnings for the three and nine month periods ended November 2, 2019:~~

Three Months Ended Nine Months Ended
($000) November 2, 2019 November 2, 2019
Operating lease cost ¹
$ 161,514 $ 476,728
Variable lease costs ²
44,381 131,167
Net lease cost ³
$ 205,895 $ 607,895
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 November 2, 2019, are as follows:~~

($000)
Operating Leases ¹
2020 $ 604,022
2021 616,088
2022 547,653
2023 461,997
2024 355,736
Thereafter 1,653,544
Total lease payments 4,239,040
Less: interest 1,078,235
Present value of lease liabilities $ 3,160,805
Less: current operating lease liabilities 559,433
Non-current operating lease liabilities $ 2,601,372
¹ Operating lease payments exclude $197.3 million of minimum lease payments for leases signed that have not yet commenced.

At November 2, 2019, the weighted-average remaining lease term and the weighted average discount rate for operating leases is 10.8 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 6.2 years and 3.2%, respectively.

Cash paid for amounts included in the measurement of operating lease liabilities was $152.1 million and $453.9 million, respectively, for the three and nine month periods ended November 2, 2019 and is included in Net cash provided by operating activities in the Condensed 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 the three and nine month periods ended November 2, 2019 were $251.4 million and $586.8 million, respectively.

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 were as follows:

($000) Total operating leases
2019 $ 555,812
2020 580,712
2021 499,678
2022 424,695
2023 339,340
Thereafter 1,575,673
Total minimum lease payments $ 3,975,910

~~Note F:~~ Debt

~~Senior notes.~~Short-term debt and long-term debt. ~~Unsecured~~Short-term debt and unsecured senior debt, net of unamortized discounts and debt issuance costs, consisted of the following:

($000) November 2, 2019 February 2, 2019 November 3, 2018
6.38% Series A Senior Notes due 2018 $ — $ — $ 84,997
6.53% Series B Senior Notes due 2021 64,958 64,942 64,937
3.375% Senior Notes due 2024 247,820 247,498 247,391
Total long-term debt $ 312,778 $ 312,440 $ 397,325
Less: current portion — — 84,997
Total due beyond one year $ 312,778 $ 312,440 $ 312,328

As of November 2, 2019, the Company 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 6.53%. Borrowings under these Senior Notes are subject to certain financial covenants, including interest coverage and other financial ratios. As of November 2, 2019, the Company was in compliance with these covenants.

As of November 2, 2019, the Company had outstanding unsecured 3.375% Senior Notes due September 2024 (the “2024 Notes”) with an aggregate principal amount of $250 million. Interest on the 2024 Notes is payable semi-annually.

~~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 November 2, 2019, February 2, 2019, and November 3, 2018, total unamortized discount and debt issuance costs were $2.2 million, $2.6 million, and $2.7 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.~~


($000)	May 2, 2020		February 1, 2020		May 4, 2019
$800 million revolving credit facility	$	800,000	$	—	$	—
Other short-term debt financing	5,000		—		—
Total short-term debt	$	805,000	$	—	$	—

6.530% Series B Senior Notes due 2021	$	64,968	$	64,963	$	64,947
3.375% Senior Notes due 2024	248,037		247,928		247,605
4.600% Senior Notes due 2025	693,676		—		—
4.700% Senior Notes due 2027	394,953		—		—
4.800% Senior Notes due 2030	394,635		—		—
5.450% Senior Notes due 2050	489,345		—		—
Total long-term debt	$	2,285,614	$	312,891	$	312,552

~~The aggregate fair value of the two outstanding series of Senior Notes was approximately $333 million and $316 million, as of November 2, 2019and~~February 2, 2019, respectively, compared to $402 million for the then three outstanding series of Senior Notes as of November 3, 2018. 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 table below shows the components of interest expense and income for the three and nine month periods ended November 2, 2019 and November 3, 2018:~~

Three Months Ended Nine Months Ended
($000) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Interest expense on long-term debt $ 3,284 $ 4,646 $ 9,850 $ 13,937
Other interest expense 216 233 756 768
Capitalized interest (1,186) (700) (3,069) (1,832)
Interest income (6,716) (7,132) (22,356) (17,722)
Interest income, net $ (4,402) $ (2,953) $ (14,819) $ (4,849)

Revolving credit ~~facility.~~facilities. 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~~current 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. The revolving credit facility may be extended, at the Company's option, for up to 2 additional ~~one-year~~one year periods, subject to customary conditions.

In March 2020, the Company borrowed $800 million available under its revolving credit facility. The loan bears interest at LIBOR plus 0.875% (currently 1.76%). As of ~~November~~May 2, ~~2019,~~2020, the Company had $800 million outstanding, and 0 standby letters of credit were outstanding, under the revolving credit facility.

On May 1, 2020, the Company amended its $800 million unsecured revolving credit facility (the “Amended Credit Facility”) to temporarily suspend, for the second and third quarters of fiscal 2020, the Consolidated Adjusted Debt to EBITDAR ratio financial covenant, and to apply a transitional modification to that ratio effective in the fourth quarter of fiscal 2020. The Amended Credit facility also established a new temporary minimum liquidity requirement, effective for the first quarter of fiscal 2020 and through the end of April 2021. As of May 2, 2020, the Company was in compliance with these covenants.

On May 1, 2020, the Company also entered into an additional new $500 million 364-day senior revolving credit facility which expires in April 2021. Interest on borrowings under this new facility is based on LIBOR (or an alternate benchmark rate, if LIBOR is no longer available) plus an applicable margin (currently 175 basis points) and is payable quarterly and upon maturity. As of May 2, 2020, the Company had 0 borrowings ~~or standby letters of credit outstanding~~ under this facility and the ~~$800~~$500 million credit facility remains in place and available.

The new revolving credit facility is subject to athe same minimum liquidity and Consolidated Adjusted Debt to EBITDAR ratio financial ~~leverage ratio covenant.~~covenants as are provided in the Amended Credit Facility. In addition, the new revolving credit facility contains restrictions on stock repurchases and restrictions on post draw down cash balances on the new revolving credit facility. As of ~~November~~May 2, ~~2019,~~2020, the Company was in compliance with ~~this covenant.~~these covenants.

Senior notes. As of May 2, 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 6.530%. Borrowings under these Senior Notes are subject to certain financial covenants, including interest coverage and other financial ratios. As of May 2, 2020, the Company was in compliance with these covenants.

As of May 2, 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.

In April 2020, the Company issued an aggregate of $2.0 billion in unsecured senior notes in four tenors as follows: 4.600% Senior Notes due April 2025 (the “2025 Notes”) with an aggregate principal amount of $700 million, 4.700% Senior Notes due April 2027 (the “2027 Notes”) with an aggregate principal amount of $400 million, 4.800% Senior Notes due April 2030 (the “2030 Notes”) with an aggregate principal amount of $400 million, and 5.450% Senior Notes due April 2050 (the “2050 Notes”) with an aggregate principal amount of $500 million. Cash proceeds, net of discounts and other issuance costs, were approximately $1.973 billion. Interest on the 2025, 2027, 2030, and 2050 Notes is payable semi-annually beginning October 2020.

The 2024, 2025, 2027, 2030, and 2050 Notes and the Series B Senior Notes are all subject to prepayment penalties for early payment of principal.

As of May 2, 2020, February 1, 2020, and May 4, 2019, total unamortized discount and debt issuance costs were $29.4 million, $2.1 million, and $2.4 million, respectively, and were classified as a reduction of Long-term debt.

The aggregate fair value of the 6 outstanding series of Senior Notes was approximately $2.5 billion as of May 2, 2020. The aggregate fair value of the two then outstanding series of Senior Notes was approximately $335 million and $318 million as of February 1, 2020 and May 4, 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 table below shows the components of interest expense and income for the three month periods ended May 2, 2020 and May 4, 2019:


	Three Months Ended
($000)	May 2, 2020		May 4, 2019
Interest expense on long-term debt	$	10,181	$	3,283
Interest expense on short-term debt	1,697		—
Other interest expense	278		313
Capitalized interest	(2,154)		(765)
Interest income	(3,336)		(8,466)
Interest expense (income), net	$	6,666	$	(5,635)

Note G:F: Taxes on (Loss) Earnings

On March 27, 2020, the CARES Act was signed into law. The CARES Act made several significant changes to business tax provisions including modifications for net operating losses, employee retention credits, and deferral of employer payroll tax payments. The modifications for net operating losses eliminate the taxable income limitation for certain net operating losses and allow the carry back of net operating losses arising in 2018, 2019, and 2020 to the five prior tax years.

The Company's effective tax rate for the three month periods ended May 2, 2020 and May 4, 2019, was approximately 35% and 22%, respectively. The increase in the effective tax rate was primarily due to the CARES Act and the expected carry back of net operating losses to a prior year in which the U.S. federal tax rate was 35%. The effective tax 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.

As of ~~November~~May 2, ~~2019,~~2020, February 2,1, 2020, and May 4, 2019, ~~and November 3, 2018,~~ the reserves for unrecognized tax benefits were ~~$83.4~~$68.8 million, ~~$78.8~~$67.1 million, and ~~$130.5~~$83.5 million, inclusive of ~~$13.9~~$8.0 million, ~~$13.0~~$7.2 million, and ~~$25.4~~$13.7 million of related interest and penalties, respectively. In November ~~2018,~~2019, the Company resolved uncertain tax positions ~~related to fiscal 2015~~ with ~~the Internal Revenue Service.~~a tax authority. As a result, the Company recognized a decrease in reserves for tax positions in prior periods of ~~$52.4~~$16.2 million, inclusive of ~~$12.6~~$6.6 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, ~~$66.8~~$54.6 million would impact the Company’s effective tax rate. It is reasonably possible that certain state tax matters may be concluded or statutes of limitations may lapse during the next 12 months. Accordingly, the total amount of unrecognized tax benefits may decrease by up to $10.3 million. 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 income tax assets and liabilities. These amounts are net of federal and state income taxes.

Certain state tax returns are under audit by various tax authorities. Subsequent to the three month period ended November 2, 2019, the Company resolved uncertain tax positions with a state tax authority. As a result, the Company expects to recognize a tax benefit of an approximate $10.0 million in the Consolidated Statement of Earnings, and a decrease in unrecognized tax benefits of approximately $16.2 million, inclusive of $6.6 million of interest and penalties, in the three month period ending February 1, 2020.

The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2016 through ~~2018.~~2019. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years ~~2014~~2015 through ~~2018. It is reasonably possible that certain~~2019. Certain state tax ~~matters may be concluded or statutes~~returns are currently under audit by various tax authorities. The Company does not expect the results of ~~limitations may lapse during~~these audits to have a material impact on the next 12 months. Accordingly, excluding the impact of the aforementioned state tax resolution to be recognized in the quarter ended February 1, 2020, the total amount of unrecognized tax benefits may decrease by up to $4.9 million.

condensed consolidated financial statements.

1814

Report of Independent Registered Public Accounting Firm

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

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated balance sheets of Ross Stores, Inc. and subsidiaries (the “Company”) as of ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018,~~May 4, 2019, the related condensed consolidated statements of ~~earnings,~~operations, comprehensive (loss) income, ~~and~~ stockholders' equity, ~~for the three~~ and ~~nine month periods ended November 2, 2019 and November 3, 2018, and of~~ cash flows for the ~~nine~~three month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018,~~May 4, 2019, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of February ~~2, 2019,~~1, 2020, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated ~~April 2, 2019,~~March 31, 2020, we expressed an unqualified opinion on those consolidated financial ~~statements.~~statements and included an explanatory paragraph regarding a change in accounting principle. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February ~~2, 2019~~1, 2020 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the 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 reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Deloitte & Touche LLP

San Francisco, California

~~December 11, 2019~~

June 10, 2020

1915

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed below under the caption "Forward-Looking Statements" and in Part II, Item 1A (Risk Factors) of this Form 10-Q, and also those in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for ~~2018.~~2019. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for ~~2018.~~2019. All information is based on our fiscal calendar.

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores -- Ross Dress for Less^® (“Ross”) and dd’s DISCOUNTS^®. Ross is the largest off-price apparel and home fashion chain in the United States, with ~~1,550~~1,566 locations in 39 states, the District of Columbia and Guam as of ~~November~~May 2, ~~2019.~~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 ~~260~~266 dd’s DISCOUNTS stores in 1920 states that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Effects of the COVID-19 Pandemic on Our Business

The United States and other countries are experiencing an ongoing, major global health pandemic related to the outbreak of a novel strain of coronavirus, COVID-19. Governmental authorities in affected regions have taken and continue to take dramatic actions in an effort to slow down the spread of the disease. Like other retailers across the country, we temporarily closed all store locations, our distribution centers, and buying and corporate offices. Our closures took effect March 20, 2020, and we remained closed through the end of our fiscal first quarter. We also instituted “work from home” measures for many of our associates.

The impacts from the COVID-19 pandemic and the related economic disruption have had a material adverse impact on our results of operations, financial position, and cash flows in the first quarter of fiscal 2020. The condensed consolidated results reflect the significant revenue decline and other impacts from our temporary store closures (for approximately half of the first quarter), and an inventory valuation charge of $313 million for the portion of inventory held as of May 2, 2020 that we expect to sell below original cost. We expect material adverse effects from the pandemic to continue for an extended period of time, and through the current fiscal year. This will cause our results for interim periods throughout fiscal 2020 to not be comparable to our results in the corresponding prior year periods.

The temporary closure of our stores significantly impacted our ability to sell seasonal inventory in a timely manner. As we reopen our stores and resume operations, a significant portion of the merchandise inventory in our stores is now aged and out of season. We anticipate that we will need to aggressively reduce our selling prices in order to clear that inventory. It may be more (or less) difficult than we anticipate to sell through our existing inventory as the reopening of our stores progresses, and it will be several months before the results are known. We will have decreased merchandise gross margins on sales of this inventory, which will adversely affect our results of operations in the next few months. We anticipate that we will sell through most of the aged and seasonal inventory by the end of the second fiscal quarter of 2020.

The inventory valuation charge of $313 million recorded in the first fiscal quarter of 2020 is based on our estimate of the portion of inventory held as of May 2, 2020 that we now expect to sell below our original cost. However, that valuation charge relates to the portion of our overall inventory that we now expect to sell below our original cost, and does not fully reflect the impact to gross margins of additional markdowns that we anticipate will be needed to sell through our existing aged and seasonal inventory. The ultimate impact of these markdowns will depend on the pace of sell-through of this inventory.

We started a phased process of reopening our store locations (beginning on May 14, 2020), based on guidance from health officials and advisors, as well as directives and recommendations from federal, state, and local governments and with the safety of our customers and associates as a top priority. As of the date of this filing, 1,465 Ross and 258 dd's DISCOUNTS store locations as well as all distribution centers have reopened. Starting in late May 2020, there have been demonstrations

in cities throughout the United States. While they have generally been peaceful, in some locations demonstrations have become violent and resulted in governmental restrictions. We plan to reopen additional store locations, and buying and corporate offices, as conditions permit. We expect the cadence of reopenings to vary by state and locality, as affected by the local health conditions and also by local instances of demonstrations. Whether and how quickly customers may resume shopping, and the effect of the pandemic and of recent demonstrations on consumer behavior and spending patterns remains highly uncertain. We expect customer demand to be suppressed for an extended period. In addition, it is possible that there will be resurgences in the spread of COVID-19 again in the future, in one or more regions, and instances of governmental restrictions in response to demonstrations, any of which could require stores to close again nationally, regionally, or in specific locations, and further negatively impact our revenue.

As we reopen our store, distribution center, buying office, and corporate locations, we are implementing additional processes and procedures to facilitate social distancing, enhance cleaning and sanitation activities, and to provide personal protective equipment to all associates. These actions will significantly increase our costs to operate these locations on an ongoing basis.

To preserve our financial liquidity and improve our financial flexibility, we borrowed $800 million under our revolving credit facility in March 2020, completed a $2.0 billion public bond offering in April 2020, and entered into a new $500 million 364-day senior revolving credit facility on May 1, 2020 (on which no amounts are currently drawn).

In addition, we suspended our stock repurchase program in March 2020 and suspended quarterly dividends in May 2020. We have also taken measures to reduce our expenses, inventory receipts, and planned capital expenditures. Beginning April 5, 2020, we implemented temporary furloughs of a large portion of our hourly store and distribution center and other associates in our buying and corporate offices who could not work productively while our stores and distribution centers were closed. Employee health benefits for eligible associates have continued during the temporary furlough at no cost to the impacted associates. We also reduced payroll expenses through temporary salary reductions for senior executives and other personnel, which remained in effect until more than half of our stores reopened, on May 24, 2020. In conjunction with these payroll expense reduction measures, effective April 1, 2020, the non-employee members of our Board of Directors suspended the cash elements of their director compensation until further notice.

In May 2020, in connection with the phased reopening of our store and distribution center locations, we began recalling many of these furloughed associates as they are able to resume productive work.

Given the unprecedented impact the COVID-19 pandemic has had on our business, and the continued uncertainty surrounding the pandemic, including its unknown duration and severity, and the unknown overall impact on consumer demand and store productivity, we are unable to forecast the full impact on our business. We 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, financial position, and cash flows throughout the remainder of fiscal 2020, in each interim period, and potentially beyond.

Results of Operations

The following table summarizes the financial results for the three ~~and nine~~ month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018:~~May 4, 2019:


		Three Months Ended									Nine Months Ended										Three Months Ended
		November 2, 2019			November 3, 2018			November 2, 2019			November 3, 2018				May 2, 2020			May 4, 2019
Sales	Sales													Sales
Sales (millions)	Sales (millions)	$	3,849		$	3,550		$	11,626		$	10,876		Sales (millions)	$	1,843		$	3,797
Sales growth		8.4		%	6.6		%	6.9		%	8.0		%
Comparable store sales growth		5		%	3		%	3		%	3		%
Sales (decline) growth														Sales (decline) growth	(51.5		%)	5.8		%

Costs and expenses (as a percent of sales)	Costs and expenses (as a percent of sales)													Costs and expenses (as a percent of sales)
Cost of goods sold	Cost of goods sold	71.9		%	71.8		%	71.5		%	71.1		%	Cost of goods sold	102.6		%	71.2		%
Selling, general and administrative	Selling, general and administrative	15.7		%	15.8		%	15.1		%	15.1		%	Selling, general and administrative	22.5		%	14.7		%
Interest income, net		(0.1		%)	(0.1		%)	(0.1		%)	(0.0		%)
Interest expense (income), net														Interest expense (income), net	0.4		%	(0.2		%)

Earnings before taxes (as a percent of sales)		12.5		%	12.5		%	13.5		%	13.8		%
(Loss) earnings before taxes (as a percent of sales)														(Loss) earnings before taxes (as a percent of sales)	(25.5		%)	14.3		%

Net earnings (as a percent of sales)		9.6		%	9.5		%	10.4		%	10.5		%
Net (loss) earnings (as a percent of sales)														Net (loss) earnings (as a percent of sales)	(16.6		%)	11.1		%

Stores. In response to the impacts from the COVID-19 pandemic, we have reduced our planned new store openings for fiscal 2020. We do not expect to open any new stores in the second quarter of fiscal 2020 and now plan to open about 39 stores in the fiscal third quarter. Our longer term 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.

Three Months Ended Nine Months Ended
Store Count November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Beginning of the period 1,772 1,680 1,717 1,622
Opened in the period 42 40 98 99
Closed in the period (4)
¹
— (5)
¹
(1)
End of the period 1,810 1,720 1,810 1,720

¹ ~~Includes a temporary closure of a store impacted by a weather event.~~


	Three Months Ended
Store Count	May 2, 2020	May 4, 2019
Beginning of the period	1,805	1,717
Opened in the period	27	28
Closed in the period	—	—
End of the period	1,832	1,745

Sales. Sales for the three month period ended ~~November~~May 2, ~~2019, increased $299 million,~~2020, decreased $2.0 billion, or ~~8.4%~~51.5%, compared to the three month period ended ~~November 3, 2018,~~May 4, 2019. This was due to the ~~opening~~closing of 90all store locations effective March 20, 2020 through the end of the first quarter of fiscal 2020. We opened 87 net new stores between ~~November 3, 2018 and November 2,~~May 4, 2019 and ~~a 5% increase in “comparable” store~~March 20, 2020, which contributed to our sales ~~(defined as stores that have been open~~ for ~~more than 14 complete months).~~the first quarter of fiscal 2020 until our temporary closure.

~~Sales~~Given that stores were open for less than seven weeks of the ~~nine month~~13-week period ended ~~November~~May 2, ~~2019, increased $750 million, or 6.9%, compared to~~2020, the ~~nine month period ended November 3, 2018, due to the opening of 90 net new stores between November 3, 2018~~comparable store sales metric is not meaningful, and ~~November 2, 2019, and a 3% increase in “comparable” store sales.~~is therefore not provided.

Our sales mix for the three ~~and nine~~ month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018~~May 4, 2019 is shown below:


		Three Months Ended						Nine Months Ended								Three Months Ended
		November 2, 2019		November 3, 2018		November 2, 2019		November 3, 2018			May 2, 2020		¹	May 4, 2019
Home Accents and Bed and Bath										Home Accents and Bed and Bath	27	%		25	%
Ladies	Ladies	26	%	27	%	27	%	28	%	Ladies	25	%		27	%
Home Accents and Bed and Bath		24	%	25	%	24	%	24	%
Shoes	Shoes	14	%	13	%	14	%	14	%	Shoes	14	%		14	%
Accessories, Lingerie, Fine Jewelry, and Fragrances										Accessories, Lingerie, Fine Jewelry, and Fragrances	13	%		13	%
Men's	Men's	14	%	14	%	14	%	13	%	Men's	12	%		13	%
Accessories, Lingerie, Fine Jewelry, and Fragrances		13	%	13	%	13	%	13	%
Children's	Children's	9	%	8	%	8	%	8	%	Children's	9	%		8	%
Total	Total	100	%	100	%	100	%	100	%	Total	100	%		100	%
¹ Sales mix for three months ended May 2, 2020 represents sales through the temporary closure of all stores on March 20, 2020.										¹ Sales mix for three months ended May 2, 2020 represents sales through the temporary closure of all stores on March 20, 2020.

We intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies and by continuing to strengthen our organization, diversify our merchandise mix, and more fully develop our systems to improve our merchandise offerings. Although ourOur historic strategies and store expansion program have contributed to our sales gains in the past. However, given the impacts from the COVID-19 pandemic on our results for the ~~three~~first quarter of fiscal 2020, and ~~nine month periods ended November 2, 2019,~~the significant ongoing impacts and uncertainties, including the unknown overall impact on consumer demand and shopping behavior, and the unknown duration of the pandemic and responses to it (which may require stores to close again nationally, regionally, or in specific locations), we cannot be sure that ~~they~~our strategies and our reopening plans and eventual resumption of our store expansion program will result in a continuation of our historical sales growth or in a recovery of, or an increase in net earnings.

Cost of goods sold. Cost of goods sold for the three ~~and nine~~ month ~~periods~~period ended ~~November~~May 2, ~~2019, increased $219 million and $575~~2020, decreased $811.7 million compared to the same ~~periods~~period in the prior year, mainly due to ~~increased~~the lack of sales from the ~~opening~~closing of ~~90 net new stores~~all store locations starting on March 20, 2020 through the end of the first quarter of fiscal 2020 and ~~a 5%~~the temporary furlough of most hourly associates in our distribution centers and ~~3% increase~~some associates in ~~comparable store sales, respectively.~~

Cost of goods sold as a percentage of sales for the three month period ended November 2, 2019, increased approximately 10 basis points from the same period in the prior year, primarily due to a 45 basis point increase in distribution expenses,our buying offices, partially offset by ~~a 20 basis point improvement in merchandise margin, a 10 basis point decrease in occupancy costs, and a five basis point decrease in buying costs.~~

~~Cost of goods sold as a percentage of sales~~the $313 million inventory valuation charge for the ~~nine month period ended November~~portion of inventory held as of May 2, ~~2019, increased approximately 35 basis points from the same period in the prior year, primarily due~~2020, that we expect to ~~a 30 basis point increase in distribution expenses, a~~

sell below original cost.

~~20 basis point increase in freight costs, and a five basis point increase in occupancy costs. These increases were partially offset by a 20 basis point improvement in merchandise margin.~~

~~We cannot be sure that the gross profit margins realized for the three and nine month periods ended November 2, 2019, will continue in the future.~~

Selling, general and administrative expenses. For the three ~~and nine~~ month ~~periods~~period ended ~~November~~May 2, ~~2019,~~2020, selling, general and administrative expenses ("SG&A") ~~increased $43 million and $114~~decreased $142.9 million compared to the same ~~periods~~period in the prior year, mainly due to ~~increased store~~payroll-related cost reduction measures in response to the COVID-19 pandemic (including the temporary furlough of most hourly associates in our stores and some associates in our corporate offices) and reduction in non-business critical operating ~~costs reflecting~~expenses, partially offset by payments to associates while our stores were closed net of the ~~opening of 90 net new stores between November 3, 2018~~expected employee retention credits under the Coronavirus Aid, Relief, and ~~November 2, 2019.~~Economic Security Act (the “CARES Act”).

~~Selling, general and administrative expenses as a percentage of sales~~Interest expense (income), net. Interest expense (income), net for the three month period ended ~~November~~May 2, ~~2019, decreased approximately 10 basis points from~~2020, increased $12.3 million compared to the same period in the prior year primarily due to leverage on higher sales. Selling, general and administrative expenses as a percentage of sales for the nine month period ended November 2, 2019, was unchanged from the same period in the prior year.

~~Interest income, net.~~ ~~Interest income, net for the three and nine month periods ended November 2, 2019, increased compared to the same periods in the prior~~ year. ~~The~~This increase ~~for the three month period ended November 2, 2019~~ was primarily due to ~~lower~~higher interest expense on long-term debt due to the ~~repayment~~issuance of ~~Series A 6.38% unsecured~~$2.0 billion of Senior Notes in ~~December 2018. The increase for the nine month period ended November 2, 2019 was primarily due to an increase in~~April 2020, lower interest income due to ~~higher~~lower interest rates, and ~~lower~~higher interest expense on ~~long-term~~short-term debt due to the ~~repayment~~draw down on our $800 million revolving credit facility in March 2020, partially offset by higher capitalized interest primarily related to the construction of ~~Series A 6.38% unsecured Senior Notes in December 2018.~~our Brookshire, Texas distribution center. Interest ~~income,~~expense (income), net for the three ~~and nine~~ month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018,~~May 4, 2019, consists of the following:


		Three Months Ended						Nine Months Ended							Three Months Ended
($000)	($000)	November 2, 2019		November 3, 2018		November 2, 2019		November 3, 2018		($000)	May 2, 2020		May 4, 2019
Interest expense on long-term debt	Interest expense on long-term debt	$	3,284	$	4,646	$	9,850	$	13,937	Interest expense on long-term debt	$	10,181	$	3,283
Interest expense on short-term debt										Interest expense on short-term debt	1,697		—
Other interest expense	Other interest expense	216		233		756		768		Other interest expense	278		313
Capitalized interest	Capitalized interest	(1,186)		(700)		(3,069)		(1,832)		Capitalized interest	(2,154)		(765)
Interest income	Interest income	(6,716)		(7,132)		(22,356)		(17,722)		Interest income	(3,336)		(8,466)
Interest income, net		$	(4,402)	$	(2,953)	$	(14,819)	$	(4,849)
Interest expense (income), net										Interest expense (income), net	$	6,666	$	(5,635)

Taxes on (loss) earnings. On March 27, 2020, the CARES Act was signed into law. The CARES Act made several significant changes to business tax provisions including modifications for net operating losses, employee retention credits, and deferral of employer payroll tax payments. The modifications for net operating losses eliminate the taxable income limitation for certain net operating losses and allow the carry back of net operating losses arising in 2018, 2019, and 2020 to the five prior tax years.

Our effective tax rate for the three ~~and nine~~ month periods ended ~~November~~May 2, 2020 and May 4, 2019, was approximately ~~23%. Our effective tax rate for the three~~35% and ~~nine month periods ended November 3, 2018, was approximately 24%.~~22%, respectively. The ~~decreases~~increase in the effective tax rate ~~for the three and nine month periods ended November 2, 2019 compared to the same periods in the prior year were~~was primarily due to the ~~resolution~~CARES Act and the expected carry back of ~~tax positions with various tax authorities. The effective~~net operating losses to a prior year in which the U.S. federal tax rate ~~represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns.~~was 35%. The effective tax 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. Subsequent to the three month period ended November 2, 2019, we resolved uncertain tax positions with a state tax authority. As a result, we expect to recognize a tax benefit of approximately $10.0 million in the Consolidated Statement of Earnings, and a decrease in unrecognized tax benefits of approximately $16.2 million, inclusive of $6.6 million of interest and penalties, in the three month period ending February 1, 2020. We anticipate that our effective tax rate for fiscal 2019 will be approximately 23%.positions.

Net ~~earnings.~~(loss) income. Net ~~earnings as a percentage of sales~~loss for the three month period ended ~~November~~May 2, ~~2019,~~2020 was ~~higher~~$(305.8) million compared to net income of $421.1 million for the ~~same~~three month period ~~in the prior year~~ended May 4, 2019, primarily due to ~~lower taxes on earnings. Net earnings as a percentage~~the lack of sales from the closing of all store locations starting on March 20, 2020 through the end of the first quarter of fiscal 2020, the $313 million inventory valuation charge for the ~~nine month period ended November 2, 2019, was lower compared~~portion of inventory we expect to sell below original cost, and payments to associates while our stores were closed net of the ~~same period in~~expected employee retention credits under the ~~prior year primarily due to higher cost of goods sold,~~CARES Act, partially offset by ~~lower taxes on earnings and higher net interest~~ income ~~as a percentage of sales.~~tax benefits.

~~Earnings~~(Loss) earnings per share. Diluted ~~earnings~~loss per share for the three ~~and nine~~ month ~~periods~~period ended ~~November~~May 2, ~~2019 were $1.03 and $3.32, respectively,~~2020 was $(0.87) compared to ~~$0.91 and $3.06, respectively,~~diluted earnings per share of $1.15, for the three ~~and nine~~ month ~~periods~~period ended ~~November 3, 2018.~~May 4, 2019. The ~~13% and 8% increases in~~ diluted ~~earnings~~loss per share for the three ~~and nine~~ month ~~periods~~period ended ~~November~~May 2, ~~2019, were~~2020, was primarily attributable to ~~10% and 5% increases in net earnings, and 3% increases~~the lack of sales from the ~~reduction in~~

~~weighted average diluted shares outstanding, largely due~~closing of all store locations starting on March 20, 2020 through the end of the first quarter of fiscal 2020, the $313 million inventory valuation charge for the portion of inventory we expect to ~~stock repurchases~~sell below original cost, and payments to associates while our stores were closed net of the expected employee retention credits under ~~our stock repurchase program for both~~ the ~~three and nine month periods.~~CARES Act, partially offset by income tax benefits.

Financial Condition

Liquidity and Capital Resources

As previously noted, 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 have taken, and continue to take, dramatic actions in an effort to slow down the spread of the disease. Similar to other retailers across the country, we temporarily closed all store locations, our distribution centers, and buying and corporate offices, effective March 20, 2020. We also instituted “work from home” measures for many of our associates.

The impacts from the COVID-19 pandemic and the related economic disruption have had a material adverse impact on our results of operations, financial position, and cash flows in the first quarter of fiscal 2020. Our results reflect the impact of the significant revenue decline from our temporary store closures and an inventory valuation charge for the portion of inventory held as of May 2, 2020, that we expect to sell below original cost.

To preserve our financial liquidity and enhance our financial flexibility, we borrowed $800 million from our revolving credit facility in March 2020, completed a $2.0 billion public bond offering in April 2020, and entered into a new $500 million 364-day senior revolving credit facility on May 1, 2020.

In addition, we suspended our stock repurchase program in March 2020 and suspended quarterly dividends in May 2020, and we have taken measures to reduce our expenses, inventory receipts, and planned capital expenditures. Beginning April 5, 2020, we implemented temporary furloughs of a large portion of our hourly store and distribution center and other associates in our buying and corporate offices who could not work productively while our stores and distribution centers were closed. Employee health benefits for eligible associates have continued during the temporary furlough at no cost to the impacted associates. We also reduced payroll expenses through temporary salary reductions for senior executives and other personnel. In conjunction with these payroll expense reduction measures, effective April 1, 2020 the non-employee members of our Board of Directors suspended the cash elements of their director compensation until further notice.

We ended the first quarter of fiscal 2020 with over $3.0 billion in liquidity, which in addition to our unrestricted cash balances, includes the new $500 million 364-day senior revolving credit facility.

Historically, our primary sources of funds for our business activities ~~are~~were 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 for capital expenditures in connection with new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also ~~use~~used 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.

Nine Months Ended
($000) November 2, 2019 November 3, 2018
Cash provided by operating activities $ 1,410,930 $ 1,450,072
Cash used in investing activities (400,734) (292,627)
Cash used in financing activities (1,284,748) (1,099,128)
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents $ (274,552) $ 58,317
Due to the COVID-19 pandemic and related economic disruptions, and with the temporary closure of all store locations effective March 20, 2020 (and with the possibility that stores and other facilities may need to close again), we anticipate interruptions to our cash flows from operations, and that we will be required to rely far more heavily on our cash reserves, and we expect to carefully monitor and manage our cash position in light of ongoing conditions and levels of operations. We are in the process of a planned reopening of our stores in several phases during the second fiscal quarter.


	Three Months Ended
($000)	May 2, 2020		May 4, 2019
Cash (used in) provided by operating activities	$	(1,058,442)	$	508,987
Cash used in investing activities	(139,729)		(95,112)
Cash provided by (used in) financing activities	2,517,127		(459,437)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents	$	1,318,956	$	(45,562)

Operating Activities

Net cash used in operating activities was $1.1 billion for the three month period ended May 2, 2020. This was primarily driven by the net loss due to the lack of sales from the closing of all store locations starting on March 20, 2020 through the end of the first quarter and merchandise payments for receipts prior to the shutdown of our operations. Net cash provided by operating activities was ~~$1,410.9 million and $1,450.1~~$509.0 million for the ~~nine~~three month ~~periods~~period ended ~~November 2,~~May 4, 2019 ~~and November 3, 2018, respectively,~~ and was primarily driven by net earnings excluding non-cash expenses for depreciation and amortization. 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 decrease in cash flow from operating activities for the ~~nine~~three month period ended ~~November~~May 2, ~~2019,~~2020, compared to the same period in the prior year was primarily driven by the ~~timing~~net loss due to the lack of ~~merchandise receipts~~sales from the closing of all store locations starting on March 20, 2020 through the end of the first quarter (compared to net earnings last year) and ~~related payments associated with higher inventory versus last year, partially offset by higher net earnings. The timing of merchandise receipts and related payments versus last year resulted in~~lower accounts payable leverage. Accounts payable leverage (defined as accounts payable divided by merchandise inventory) ~~of 68%~~was 40%, ~~67%~~71%, and ~~70%~~71% as of ~~November~~May 2, 2020, February 1, 2020, and May 4, 2019, ~~February 2, 2019,~~respectively. The decrease in accounts payable leverage from the prior year was primarily driven by the merchandise payments for receipts prior to the shutdown of our operations and ~~November 3, 2018, respectively.~~stoppage of new merchandise receipts due to the temporary closure of our stores and distribution centers.

As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling 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,~~purchases, but typically packaway remains in storage less than six months. However, due to the temporary closure of all our store locations and distribution centers in response to the COVID-19 pandemic, a portion of our current packaway inventory may remain in storage longer than our historical cycles. We expect to continue to take advantage of packaway inventory opportunities to maximize our ability to deliver bargains to our customers.

Changes in packaway inventory levels impact our operating cash flow. As of ~~November~~May 2, ~~2019,~~2020, packaway inventory was ~~39%~~42% of total inventory compared to 46% at the end of fiscal ~~2018.~~2019. As of ~~November 3, 2018,~~May 4, 2019, packaway inventory was ~~41%~~44% of total inventory compared to ~~49%~~46% at the end of fiscal ~~2017.~~2018.

Investing Activities

Net cash used in investing activities was ~~$400.7~~$139.7 million and ~~$292.6~~$95.1 million for the ~~nine~~three month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018,~~May 4, 2019, respectively. The increase in cash used for investing activities for the ~~nine~~three month period ended ~~November~~May 2, ~~2019~~2020 compared to the ~~nine~~three month period ended ~~November 3, 2018~~May 4, 2019 was due to an increase in our capital expenditures.

2321

Our capital expenditures were ~~$401.3~~$139.7 million and ~~$293.4~~$95.6 million for the ~~nine~~three month periods ended ~~November~~May 2, ~~2019~~2020 and ~~November 3, 2018,~~May 4, 2019, respectively. Our capital expenditures include costs to build, expand, and improve distribution ~~centers;~~centers (primarily related to the ongoing construction of our Brookshire, Texas distribution center); open new stores and improve existing stores; and for various other expenditures related to our information technology systems, buying and corporate offices.

WeAs previously noted, due to the COVID-19 pandemic and related economic disruptions, and to preserve our financial liquidity, we are ~~forecasting approximately $580 million in~~reducing our capital expenditure plans for fiscal 2020. Capital expenditures for fiscal ~~year 2019~~2020 are now projected to be approximately $420 million, compared to our original plan of approximately $730 million. Our remaining, planned capital expenditures are expected to be used to fund ~~initial investments in~~commitments related to the construction of our ~~next~~Brookshire, Texas distribution center, costs for fixtures and leasehold improvements to open planned new Ross and dd’s DISCOUNTS stores, ~~the upgrade or relocation of existing 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 from our recent public debt offering and ~~cash equivalents, and cash flow from operations.~~the draw down on our credit facility.

Financing Activities

Net cash provided by financing activities was $2.5 billion for the three month period ended May 2, 2020. Net cash used in financing activities was ~~$1,284.7 million and $1,099.1~~$459.4 million for the ~~nine~~three month ~~periods~~period ended November 2, 2019 and November 3, 2018, respectively. For the nine month periods ended November 2, 2019 and November 3, 2018, our liquidity and capital requirements were provided by available cash and cash equivalents, and cash flows from operations.May 4, 2019. The increase in cash ~~used for~~provided by financing activities for the ~~nine~~three month period ended ~~November~~May 2, ~~2019,~~2020, compared to the ~~nine~~three month period ended ~~November 3, 2018,~~May 4, 2019, was primarily due to ~~an increase in~~ the ~~repurchase~~completion of our ~~common stock under~~$2.0 billion public debt offering, and draw down on our ~~stock repurchase program~~$800 million revolving credit facility, partially offset by share repurchases and ~~higher cash~~ dividends.

We repurchased 9.6 million and 9.4 million shares of common stock for aggregate purchase prices of approximately $965.9 millions and $806.5 million during the nine month periods ended November 2, 2019 and November 3, 2018, respectively. We also acquired 0.6 million and 0.7 million shares of treasury stock under our employee stock equity compensation programs, for aggregate purchase prices of approximately $56.9 million and $53.7 million during the nine month periods ended November 2, 2019 and November 3, 2018, respectively. In March 2019, our Board of Directors approved a new, two-year $2.55 billion stock repurchase program through fiscal 2020.

~~For the nine month periods ended November 2, 2019 and November 3, 2018, we paid cash dividends of $278.4 million and $253.9 million, respectively.~~

Short-term trade credit represents a significant source of financing for merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit, bank lines, and other credit sources to meet our capital and liquidity requirements, including lease payment obligations, in 2019.

In July 2019, we entered into ~~a new~~an $800 million unsecured revolving credit facility, which replaced our previous $600 million unsecured revolving credit facility. ~~This new~~The current 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 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.

In March 2020, we borrowed $800 million under our revolving credit facility. This loan bears interest at LIBOR plus 0.875% (currently 1.76%). No standby letters of credit were outstanding under this facility as of May 2, 2020.

In April 2020, we issued an aggregate of $2.0 billion in unsecured senior notes in four tenors as follows: $700 million of 4.600% Senior Notes due April 2025, $400 million of 4.700% Senior Notes due April 2027, $400 million of 4.800% Senior Notes due April 2030, and $500 million of 5.450% Senior Notes due April 2050.

On May 1, 2020, we amended the revolving credit facility (the “Amended Credit Facility”) to temporarily suspend for the second and third quarters of fiscal 2020 the Consolidated Adjusted Debt to EBITDAR ratio financial covenant, and to apply a transitional modification to that ratio effective in the fourth quarter of fiscal 2020. The Amended Credit facility also established a new temporary minimum liquidity requirement effective for the first quarter of fiscal 2020 and through the end of April 2021. As of ~~November~~May 2, ~~2019,~~2020, we were in compliance with these covenants.

On May 1, 2020, we entered into an additional $500 million 364-day senior revolving credit facility which expires in April 2021. Interest on borrowings under this facility will be based on LIBOR (or an alternate benchmark rate, if LIBOR is no longer available) plus an applicable margin (currently 175 basis points) and is payable quarterly and upon maturity. As of May 2, 2020, we had no borrowings ~~or standby letters of credit outstanding~~ under this facility, and the ~~$800~~$500 million credit facility remains in place and available.

The new revolving credit facility is subject to athe same minimum liquidity and Consolidated Adjusted Debt to EBITDAR ratio financial ~~leverage ratio covenant.~~covenants as in the Amended Credit Facility. In addition, the new revolving credit facility contains restrictions on stock repurchases and restrictions on post draw down cash balances on the new revolving credit facility. As of ~~November~~May 2, ~~2019,~~2020, we were in compliance with ~~this covenant.~~these covenants.

We ~~estimate~~repurchased 1.2 million and 3.4 million shares of common stock for aggregate purchase prices of approximately $132.5 million and $320.1 million during the three month periods ended May 2, 2020 and May 4, 2019, respectively. We also acquired 0.3 million and 0.6 million shares of treasury stock under our employee stock equity compensation programs, for aggregate purchase prices of approximately $32.3 million and $50.9 million during the three month periods ended May 2, 2020 and May 4, 2019, respectively. 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 the first quarter of fiscal 2020, we had $1.143 billion remaining

under the stock repurchase program. Due to the current economic uncertainty stemming from the severe impact of the COVID-19 pandemic, we suspended our stock repurchase program in March 2020. We have no plans to repurchase any additional shares for the remainder of the fiscal year.

For the three month periods ended May 2, 2020 and May 4, 2019, we paid cash dividends of $101.4 million and $93.7 million, respectively. Due to the current economic uncertainty stemming from the severe impact of the COVID-19 pandemic, we suspended our quarterly dividends in May 2020.

The COVID-19 pandemic and related economic disruptions, including the temporary closure of all of our store locations effective March 20, 2020, have and continue to create significant uncertainty and challenges. We believe that existing cash ~~and cash equivalent~~ balances, ~~cash flows from operations,~~ bank credit lines, and trade credit are adequate to meet our near-term operating cash needs and to fund our planned capital ~~investments, repayment of debt, common stock repurchases, and quarterly dividend payments for at least the next 12 months.~~investments.

Contractual Obligations and Off-Balance Sheet Arrangements

The table below presents our significant contractual obligations as of ~~November~~May 2, ~~2019:~~2020:

($000) Less than
one year 1 - 3
years 3 - 5
years After 5
years Total¹
Recorded contractual obligations:
   Senior notes $ — $ 65,000 $ 250,000 $ — $ 315,000
   Operating leases 598,139 1,150,682 803,555 704,245 3,256,621
   New York buying office ground lease²
5,883 13,059 14,178 949,299 982,419
Unrecorded contractual obligations:
   Real estate obligations³
10,185 36,880 36,969 113,291 197,325
   Interest payment obligations 12,682 23,242 16,875 — 52,799
   Purchase obligations⁴
2,974,646 59,115 4,503 — 3,038,264
Total contractual obligations $ 3,601,535 $ 1,347,978 $ 1,126,080 $ 1,766,835 $ 7,842,428

¹~~We have a $82.3 million~~liability for unrecognized tax benefits that is included in Other long-term liabilities on our interim Condensed Consolidated Balance Sheet. This liability is excluded from the schedule above as the timing of payments cannot be reasonably estimated, except for the subsequent event item discussed in Note G.

~~² Our New York buying office building is subject to a 99-year ground lease.~~

³~~Minimum lease payments for leases signed that have not yet commenced.~~

⁴Purchase 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.


($000)	Less than one year		1 - 3 years		3 - 5 years		After 5 years		Total¹

Recorded contractual obligations:
Senior notes	$	—	$	65,000	$	950,000	$	1,300,000	$	2,315,000
Short-term debt²	805,000		—		—		—		805,000
Operating leases	655,686		1,187,657		812,892		685,684		3,341,919
New York buying office ground lease³	5,883		13,394		14,178		945,755		979,210
Unrecorded contractual obligations:
Real estate obligations⁴	10,041		38,798		39,552		119,216		207,607
Interest payment obligations	127,002		216,020		207,556		814,850		1,365,428
Purchase obligations⁵	1,105,190		34,074		5,286		—		1,144,550
Total contractual obligations	$	2,708,802	$	1,554,943	$	2,029,464	$	3,865,505	$	10,158,714

¹We have a $67.6 million liability for unrecognized tax benefits that is included in Other long-term liabilities on our interim Condensed Consolidated Balance Sheet. This liability is excluded from the schedule above as the timing of payments cannot be reasonably estimated.
² Includes $800 million draw down on our revolving credit facility and other short-term debt financing.
³ Our New York buying office building is subject to a 99-year ground lease.
⁴Minimum lease payments for leases signed that have not yet commenced.
⁵Purchase 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 ~~November~~May 2, ~~2019.~~2020.

Senior notes. As of ~~November~~May 2, ~~2019, 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 November 2, 2019,~~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 ~~6.53%~~6.530%. Borrowings under these Senior Notes are subject to certain financial covenants, including interest coverage and other financial ratios. As of ~~November~~May 2, ~~2019,~~2020, we were in compliance with these covenants.

~~The~~We also 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.

In April 2020, we issued an aggregate of $2.0 billion in unsecured senior notes in four tenors as follows: $700 million of 4.600% Senior Notes due April 2025, $400 million of 4.700% Senior Notes due April 2027, $400 million of 4.800% Senior Notes due April 2030, and ~~Series B~~$500 million of 5.450% Senior Notes due April 2050.

All our senior notes are subject to prepayment penalties for early payment of principal.

Interest on these notes is included in interest payment obligations in the table above.

Standby letters of credit and collateral trust. We use standby letters of credit outside of our $800 million revolving credit facility in addition to a funded trust to collateralize our insurance obligations. As of ~~November~~May 2, ~~2019,~~2020, February 2,1, 2020, and May 4, 2019, ~~and November 3, 2018,~~ we had ~~$4.6~~$4.2 million, ~~$7.3~~$4.2 million, and ~~$7.3~~$5.5 million, respectively, in standby letters of credit outstanding and ~~$56.2~~$56.6 million, ~~$58.3~~$56.0 million and ~~$57.9~~$58.6 million, respectively, in a collateral trust. The standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash, cash equivalents, and investments.

Trade letters of credit. We had ~~$23.5~~$5.9 million, ~~$13.3~~$11.2 million, and ~~$25.4~~$12.1 million in trade letters of credit outstanding at ~~November~~May 2, ~~2019,~~2020, February 2,1, 2020, and May 4, 2019, ~~and November 3, 2018,~~ respectively.

Dividends. In ~~November 2019,~~May 2020, we announced the suspension of our ~~Board of Directors declared a cash dividend of $0.255 per common share, payable on December 31, 2019.~~quarterly dividends.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable. ~~Actual~~Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, these estimates are more challenging, and actual results ~~may~~could differ ~~significantly~~materially from ~~these~~our estimates. ~~Other than changes to our lease accounting policies as a result~~During the first quarter of ~~adoption of Accounting Standards Update ("ASU") No. 2016-02,~~ ~~Leases~~ ~~(AccountingStandards Codification "ASC" 842)described below,~~fiscal 2020, there have been no significant changes to the critical accounting policies discussed in our Annual Report on Form 10-K for the year ended February ~~2, 2019.~~

As our leases generally do not provide an implicit discount rate, we use the estimated collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments for use in the calculation of the lease liabilities and right-of-use assets. This rate is determined using a portfolio approach based on the risk-adjusted rate of interest that 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 the adoption of ASC 842, 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 Condensed Consolidated Statements of Cash Flows.1, 2020.

See Note A to the Condensed Consolidated Financial Statements - Summary of Significant Accounting Policies (Recently Adopted Accounting Standards) ~~and Note E - Leases in the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q~~ for ~~additional~~ information regarding our adoption of ~~ASC 842.~~ASU 2019-12.

Forward-Looking Statements

This report 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, including our plans to reopen our operations over the coming weeks, planned curtailment of new store growth, ~~new markets, expected sales, projected earnings levels,~~ capital expenditures, and other matters. These forward-looking statements reflect our then-current beliefs, ~~projections,~~plans, and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” ~~"outlook,"~~ “looking ~~ahead”~~ahead,” and similar expressions identify forward-looking statements.

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

•~~Competitive pressures in~~The uncertainties and potential for further significant business disruptions arising from the ~~apparel~~recent and ~~home-related merchandise retailing industry, which are high.~~ongoing COVID-19 pandemic, including store closures and restrictions on customer access.

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

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

•Impacts from the macro-economic environment, financial and credit markets, ~~and~~ geopolitical conditions, pandemics, or public health and public safety issues, that affect consumer confidence and consumer disposable income.

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

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

•Risks associated with selling and importing merchandise produced in other countries and from supply chain disruptions in other countries, including those due to COVID-19 closures.

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

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

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

•Disruptions in our supply chain or in our information systems that could impact our ability to process sales and to deliver product to our stores in a timely and cost-effective manner.

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

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

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

•An adverse outcome in various legal, regulatory, or tax matters that could increase our costs.

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

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

•Our need to effectively advertise and market our business.

•~~Risks associated with selling and importing merchandise produced in other countries.~~

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

•Possible volatility in our revenues and earnings.

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

•Our need to maintain sufficient liquidity to support our continuing operations and our new store openings, and store and distribution center ~~growth plans, and our stock repurchase program and quarterly dividends.~~reopening plans.

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 3. 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 may occasionally use forward contracts to hedge against fluctuations in foreign currency prices. We had no outstanding forward contracts as of ~~November~~May 2, ~~2019.~~2020.

Interest that is payable on our revolving credit ~~facility~~facilities is based on variable interest rates and is, therefore, affected by changes in market interest rates. As of ~~November~~May 2, ~~2019,~~2020, we had $800 million outstanding under our $800 million revolving credit facility and no borrowings outstanding under our new $500 million 364-Day revolving credit facility.

As of ~~November~~May 2, ~~2019,~~2020, we have outstanding six series of unsecured ~~6.53% Series B~~ Senior ~~Notes due December 2021 with an aggregate principal amount of $65 million, and unsecured 3.375% Senior Notes due September 2024 with an aggregate principal amount of $250 million.~~Notes. Interest that is payable on ~~both~~all series of our Senior Notes is based on fixed interest rates, and is therefore unaffected by changes in market interest rates.

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

A hypothetical 100 basis point increase or decrease in prevailing market interest rates would not have a material impact on our condensed consolidated financial position, results of operations, cash flows, or the fair values of our short- and long-term investments as of and for the three month ~~or nine month periods~~period ended ~~November~~May 2, ~~2019.~~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.

ITEM 4. 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.

Quarterly Evaluation of Changes in Internal Control Over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during the ~~third~~first fiscal quarter of ~~2019~~2020 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 ~~2019 third~~first fiscal ~~quarter.~~quarter of 2020.

2826

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

See Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February ~~2, 2019~~1, 2020 for a description of the risks and uncertainties associated with our business. Except as presented below, there have been no material changes to the risk factors described in our most recent Annual Report on Form 10-K.

The current, major health pandemic from the novel coronavirus (COVID-19) continues to severely and adversely affect our sales and our operations, and we expect it to continue to 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), with related, severe disruptions to retail operations and supply chains and to general economic activities, as the affected regions have taken dramatic actions 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"), to avoid non-essential social contact and gatherings of people, and to self-quarantine. We temporarily closed all our store locations, distribution centers, and buying and corporate offices, effective March 20, 2020. We instituted “work from home” measures for many of our associates. During May 2020, various states have started to allow gradual relaxation of restrictions on activities and a resumption of retail business. We began a phased reopening of our stores in mid-May 2020 and we plan to continue to reopen stores as conditions permit. However, the pandemic is not over, and resurgences may occur; stores closures may be required again nationally, regionally, or in specific locations. Health officials are warning of possible "second waves" of outbreak and spreading of the disease, which will result in further disruptions and quarantine responses. The situation continues to be unprecedented and rapidly changing, and has unknown duration and severity. The temporary closure of our stores has already resulted in a significant loss of sales and profits and has had material adverse effects on our financial condition. In addition, the COVID-19 pandemic may potentially adversely affect our ability to adequately staff our stores and our distribution, merchant, and other support operations as we resume operations. Further, the COVID-19 pandemic has severely impacted China and other countries, which may also adversely affect our ability to access and ship products from the impacted countries. The prolonged, widespread pandemic has adversely impacted global economies and financial markets, which has resulted in an economic downturn that may reduce consumer demand for our products as our stores reopen. 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 have and are expected to adversely affect our profitability, cash flows, financial results, and our capital resources.

We need to successfully implement new health and safety measures in our stores and across all our operations to comply with new regulatory requirements and with the goal of keeping our customers and associates safe from the spread of the COVID-19 virus.

As we restart operations after the period of Company-wide temporary store closures, we are implementing a variety of measures with the goal of keeping our associates, customers, and the communities we serve safe from spreading the COVID-19 virus. These measures will include additional cleaning and sanitation of stores and workspaces, return merchandise quarantining, providing associates with personal protective equipment based on CDC or other federal, state, or local health guidelines, and implementing physical distancing practices, in our stores and in our other operations. This will be very challenging to do, and there is significant risk, incremental costs, and uncertainty regarding implementation requirements. Not only are these measures new and evolving, but they often require change to established habits and patterns of behavior by large groups of people, who may not fully understand or agree with the requested changes. Whatever measures we adopt, there will also be challenges in effecting consistent compliance by our customers and our associates. We will no doubt adapt and change these measures over time and as we learn from experience. And despite our efforts and best intentions, incidents of infection will occur at our stores or in our other facilities, potentially resulting in serious illness for those affected, including our associates. This may result in required temporary closure of specific stores or other facilities, and in temporary or longer term loss of key personnel during illness. We may also face claims (with or without merit) that our retail stores or our other facilities and workplaces are operating in an unsafe manner or are not in

compliance with applicable laws and regulations. Any such incidents may adversely affect our operating results, increase our costs, and damage our reputation and competitive position.

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. The COVID-19 pandemic may have prolonged and significant negative effects on consumer confidence, shopping behavior, and spending, which may adversely affect our sales and gross margins.

Consumer spending habits for the merchandise we sell are affected by many factors. Currently, the repercussions from the COVID-19 pandemic are unknown and present significant risks and uncertainty. There is significant uncertainty over consumer behavior and shopping patterns as stores reopen. Other factors include levels of unemployment, salaries and wage rates, prevailing economic conditions, recession and fears of recession, housing costs, energy and fuel costs, income tax rates and the timing of tax refunds and stimulus programs, 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, and 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. As a result of our recent temporary store closures due to the COVID-19 pandemic, we anticipate inventory imbalances and will need significantly higher than normal levels of markdowns to sell through our current inventory, which will negatively affect our gross margins and our operating results.

We purchase the majority of our inventory based on our sales plans. If 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 fresh inventory to meet current customer demand, leading to lost sales opportunities. As a result of the temporary closure of our stores in response to the COVID-19 pandemic, we were unable to sell our inventory in a timely manner according to our plans as to seasonal demand and consumer preferences. A higher than planned portion of our inventory is now stale and slow-moving or non-salable at our prior planned price levels. We will need to aggressively and progressively reduce our selling prices in order to clear out that inventory. In the first fiscal quarter of 2020, we took a charge of $313 million based on our aggregate estimate of inventory items that are anticipated to sell at below our cost. However, that charge relates to only a portion of our overall current inventory, and does not reflect the full amount of markdowns that are anticipated to be needed. It may be more (or less) difficult than we anticipate to sell through our existing inventory as the reopening of our stores progresses, and it will be several months before the results are known. It may be necessary to reduce the selling prices on our existing inventory significantly beyond our current estimates, including on the portion of our inventory as to which we have already taken a charge. We will have decreased profit margins or losses on sales of our current inventory, that will adversely affect our results of operations in future periods.

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 are subject to impacts from instances of damage to our stores and losses of merchandise accompanying protests or demonstrations, which may result in temporary store closures or delays in our store reopening plans.

There have been recent demonstrations and protests in cities throughout the United States. While they have generally been peaceful, in some locations they have been accompanied by violence, damage to retail stores, and the loss of merchandise. While generally subject to coverage by insurance, the repair of damage to our stores and replacement of merchandise may also increase our costs and temporarily disrupt store operations, and we may incur increased operating costs for additional security. Governmental authorities in affected cities and regions may take actions in an effort to protect people and property while permitting lawful and non-violent protest, including curfews and restrictions on business operations, which may be disruptive to our operations and may also harm consumer confidence and perceptions of personal well-being and security, which may negatively affect our sales.

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

Information regarding shares of common stock we repurchased during the ~~third~~first quarter of fiscal ~~2019~~2020 is as follows:

Total number of shares
(or units) purchased¹
Average price
paid per share
(or unit) Total number of
shares
(or units)
purchased as
part of publicly
announced
plans or
programs
Maximum number
(or approximate
dollar value) of
shares (or units)
that may yet be
purchased under
the plans or
programs ($000)²
Period
August
(8/04/2019 - 8/31/2019) 807,580 $104.25 794,524 $1,826,948
September
(9/01/2019 - 10/05/2019) 1,254,035 $108.17 1,224,791 $1,694,481
October
(10/06/2019 - 11/02/2019) 996,215 $110.81 996,215 $1,584,091
Total 3,057,830 $107.99 3,015,530 $1,584,091


	Total number of shares (or units) purchased¹	Average price paid per share (or unit)	Total number of shares (or units) purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs ($000)²
Period
February
(2/02/2020 - 2/29/2020)	881,839	$118.92	881,839	$1,170,130
March
(3/01/2020 - 4/04/2020)	638,941	$93.78	289,428	$1,142,533
April
(4/05/2020 - 5/02/2020)	—	$.00	—	$1,142,533
Total	1,520,780	$108.36	1,171,267	$1,142,533

¹We acquired ~~42,300~~349,513 shares of treasury stock during the quarter ended ~~November~~May 2, ~~2019.~~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.

²In 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 suspended our stock repurchase program as of March 2020. We have no plans to purchase any additional shares for the remainder of the fiscal year.

ITEM 6. EXHIBITS


Exhibit
Number	Exhibit
3.1	Certificate of Incorporation of Ross Stores, Inc. as amended (Corrected First Restated Certificate of Incorporation, dated March 17, 1999, together with amendments thereto through Amendment of Certificate of Incorporation dated May 29, 2015) incorporated by reference to Exhibit 3.1 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended August 1, 2015.

3.2	Amended and Restated Bylaws of Ross Stores, Inc. (as amended March 8, 2017), incorporated by reference to Exhibit 3.2 to the Form 10-K filed by Ross Stores, Inc. for its fiscal year ended January 28, 2017.

~~10.1~~	4.1	Indenture, dated 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.

4.2	Officers’ Certificate, dated as of April 6, 2020, establishing the ag gregate amounts, terms and form of the Notes, incorporated by reference to Exhibit 4.2 to the Form 8-K filed by Ross Stores , Inc. on April 7, 2020.

4.3	Form of 4.600% Senior Notes Due 2025, included in Exhibit 4.2 and incorporated by reference to Exhibit 4.2 to the Form 8-K filed by Ross Stores , Inc. on April 7, 2020.

4.4	Form of 4.700% Senior Notes Due 2027, included in Exhibit 4.2 and incorporated by reference to Exhibit 4.2 to the Form 8-K filed by Ross Stores , Inc.on April 7, 2020.

4.5	Form of 4.800% Senior Notes Due 2030, included in Exhibit 4.2 and incorporated by reference to Exhibit 4.2 to the Form 8-K filed by Ross Stores , Inc. on April 7, 2020.

4.6	Form of 5.450% Senior Notes Due 2050, included in Exhibit 4.2 and incorporated by reference to Exhibit 4.2 to the Form 8-K filed by Ross Stores , Inc. on April 7, 2020.

10.1	364-Day Credit Agreement dated as of May 1, 2020 among Ross Stores, Inc., various lenders, and Bank of America, N.A., as Administrative Agent.

10.2	First Amendment to the Amended and Restated Credit Agreement dated as of May 1, 2020 among Ross Stores, Inc., various lenders, and Bank of America, N.A., as Administrative Agent.

10.3	Underwriting Agreement, dated as of April 2, 2020, by and among Ross Stores, Inc., BofA Securities, Inc. and J.P. Morgan Securities LLC, as representatives of the underwriters named therein, incorporated by reference to Exhibit 1.1 to the Form 8-K filed by Ross Stores on April 7, 2020.

10.4	Form of Executive Employment Agreement for Executive Officers (CA).

10.5	For m of Executive Employment Agreement for Executive Officers (NON-CA).

10.6	Form of Addendum to Executive Employment Agreement.

10.7	Addendum to Independent Contractor Consultancy Agreement effective April 1, 2020 between Norman A. Ferber and Ross Stores, Inc.

10.8	Addendum to Employment Agreement effective ~~August 16, 2019~~April 1, 2020 between Michael Balmuth and Ross Stores, Inc.


10.9			Addendum to Employment Agreement effective April 1, 2020 between Barbara Rentler and Ross Stores, Inc.

10.10			Addendum to Employment Agreement effective April 1, 2020 between Michael Hartshorn and Ross Stores, Inc.

~~10.2~~10.11			Employment Agreement effective March 16, 2020 between Brian Morrow and Ross Stores, Inc.

10.12			Addendum to Employment Agreement effective April 1, 2020 between Brian Morrow and Ross Stores, Inc.

10.13			Employment Agreement effective August 16, 2019 between Michael Kobayashi and Ross Stores, Inc.

10.14			E ~~mployment~~Addendum to Employment Agreement effective April 1, 2020 between Michael Kobayashi and Ross Stores, Inc.

10.15			~~August 16,2019~~ b ~~etween~~ Addendum to Employment Agreement effective April 1, 2020 between Travis Marquette and Ross Stores,I Inc.nc.

15			Letter re: Unaudited Interim Financial Information from Deloitte & Touche LLP dated ~~December~~June 10, 2020 ~~11, 2019.~~.

31.1			Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a).

31.2			Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley Act Section 302(a).

32.1			Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.

32.2			Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

101.INS			XBRL Instance Document. (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.)

101.SCH			Inline XBRL Taxonomy Extension Schema

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase

104			Cover Page Interactive Data File. (The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.)

SIGNATURES

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

ROSS STORES, INC.

(Registrant)

Date:

~~December 11, 2019~~June 10, 2020

By:

/s/Travis R. Marquette

Travis R. Marquette

Group Senior Vice President and Chief Financial Officer, and Principal Accounting Officer

3132


Condensed Consolidated Statements of Stockholders' Equity

	Nine Months Ended November 3, 2018
				Additional paid-in capital				Accumulated other comprehensive income (loss)
	Common stock									Treasury stock				Retained earnings
(000)	Shares	Amount													Total
Balance at February 3, 2018	379,618	$	3,796	$	1,292,364	$	(318,279)	$	27	$	2,071,400	$	3,049,308
Net earnings	—	—		—		—		—		418,252		418,252
Cumulative effect of adoption of
accounting standard
(revenue recognition), net	—	—		—		—		—		19,884		19,884
Unrealized investment loss, net	—	—		—		—		(20)		—		(20)
Common stock issued under stock
plans, net of shares
used for tax withholding	732	8		4,674		(44,798)		—		—		(40,116)
Stock-based compensation	—	—		23,760		—		—		—		23,760
Common stock repurchased	(3,271)	(33)		(8,093)		—		—		(247,244)		(255,370)
Dividends declared ($0.225 per share)	—	—		—		—		—		(85,410)		(85,410)
Balance at May 5, 2018	377,079	$	3,771	$	1,312,705	$	(363,077)	$	7	$	2,176,882	$	3,130,288
Net earnings	—	—		—		—		—		389,404		389,404


Unrealized investment loss, net	—	—		—		—		(3)		—		(3)
Common stock issued under stock
plans, net of shares
used for tax withholding	20	—		5,135		(6,263)		—		—		(1,128)
Stock-based compensation	—	—		23,820		—		—		—		23,820
Common stock repurchased	(3,231)	(32)		(8,331)		—		—		(264,847)		(273,210)
Dividends declared ($0.225 per share)	—	—		—		—		—		(84,561)		(84,561)
Balance at August 4, 2018	373,868	$	3,739	$	1,333,329	$	(369,340)	$	4	$	2,216,878	$	3,184,610
Net earnings	—	—		—		—		—		338,108		338,108


Unrealized investment loss, net	—	—		—		—		(4)		—		(4)
Common stock issued under stock
plans, net of shares
used for tax withholding	85	1		5,097		(2,619)		—		—		2,479
Stock-based compensation	—	—		23,782		—		—		—		23,782
Common stock repurchased	(2,895)	(29)		(7,539)		—		—		(270,352)		(277,920)
Dividends declared ($0.225 per share)	—	—		—		—		—		(83,892)		(83,892)
Balance at November 3, 2018	371,058	$	3,711	$	1,354,669	$	(371,959)	$	—	$	2,200,742	$	3,187,163

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


($000)	Operating Leases ¹
2020	$	604,022
2021	616,088
2022	547,653
2023	461,997
2024	355,736
Thereafter	1,653,544
Total lease payments	4,239,040
Less: interest	1,078,235
Present value of lease liabilities	$	3,160,805
Less: current operating lease liabilities	559,433
Non-current operating lease liabilities	$	2,601,372

¹ Operating lease payments exclude $197.3 million of minimum lease payments for leases signed that have not yet commenced.



($000)	Total operating leases
2019	$	555,812
2020	580,712
2021	499,678
2022	424,695
2023	339,340
Thereafter	1,575,673
Total minimum lease payments	$	3,975,910