Ross Stores (ROST) 10-Q 9 Jun 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended May. 01, 2010	May. 20, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-05-01
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Entity Registrant Name	ROSS STORES INC
Entity Central Index Key	0000745732
Current Fiscal Year End Date	--01-29
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		122,094,664

Condensed Consolidated Statemen

Condensed Consolidated Statements of Earnings (USD $)
In Thousands, except Per Share data	3 Months Ended May. 01, 2010	3 Months Ended May. 02, 2009
Sales	$1,934,778	$1,691,599
Costs and Expenses
Costs of goods sold	1,406,082	1,268,709
Selling, general and administrative	294,472	272,030
Interest expense, net	2,388	1,656
Total costs and expenses	1,702,942	1,542,395
Earnings before taxes	231,836	149,204
Provision for taxes on earnings	89,489	57,817
Net earnings	$142,347	$91,387
Earnings per share
Basic	1.19	0.73
Diluted	1.16	0.72
Weighted average shares outstanding (000)
Basic	119,829	124,692
Diluted	122,332	126,564
Dividends
Cash dividends declared per share	$0	$0
Stores open at end of period	1,021	974

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (USD $)
In Thousands	3 Months Ended May. 01, 2010	3 Months Ended May. 02, 2009	12 Months Ended Jan. 30, 2010
Assets
Cash and cash equivalents	$823,652	$459,302	$768,343
Short-term investments	1,941	1,033	1,754
Accounts receivable	54,268	50,098	44,234
Merchandise inventory	908,065	917,661	872,498
Prepaid expenses and other	67,895	65,557	58,618
Deferred income taxes	3,923	13,487	0
Total current assets	1,859,744	1,507,138	1,745,447
Property and Equipment
Land and buildings	240,381	202,004	239,688
Fixtures and equipment	1,205,234	1,092,652	1,189,538
Leasehold improvements	541,906	513,324	536,979
Construction-in-progress	21,345	73,431	21,812
Total property and equipment	2,008,866	1,881,411	1,988,017
Less accumulated depreciation and amortization	1,075,212	938,979	1,045,018
Property and equipment, net	933,654	942,432	942,999
Long-term investments	15,857	33,411	16,848
Other long-term assets	73,352	59,139	63,339
Total assets	2,882,607	2,542,120	2,768,633
Liabilities and Stockholders' Equity
Accounts payable	748,779	682,251	658,299
Accrued expenses and other	231,927	225,564	259,582
Accrued payroll and benefits	148,913	134,571	218,234
Income taxes payable	99,932	46,333	51,505
Deferred income taxes	0	0	2,894
Total current liabilities	1,229,551	1,088,719	1,190,514
Long-term debt	150,000	150,000	150,000
Other long-term liabilities	185,375	163,687	174,543
Deferred income taxes	88,328	103,956	96,283
Commitments and contingencies
Stockholders' Equity
Common stock	1,223	1,265	1,229
Additional paid-in capital	704,982	647,136	681,908
Treasury stock	(43,640)	(34,892)	(36,864)
Accumulated other comprehensive income (loss)	198	(965)	170
Retained earnings	566,590	423,214	510,850
Total stockholders' equity	1,229,353	1,035,758	1,157,293
Total liabilities and stockholders' equity	$2,882,607	$2,542,120	$2,768,633

1_Condensed Consolidated Statem

Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands	3 Months Ended May. 01, 2010	3 Months Ended May. 02, 2009
Cash Flows From Operating Activities
Net earnings	$142,347	$91,387
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	39,844	37,556
Stock-based compensation	8,910	6,497
Deferred income taxes	(14,772)	7,405
Tax benefit from equity issuance	6,810	2,821
Excess tax benefit from stock-based compensation	(6,482)	(2,064)
Change in assets and liabilities:
Merchandise inventory	(35,567)	(36,603)
Other current assets	(19,311)	(19,244)
Accounts payable	110,149	159,514
Other current liabilities	(43,557)	(6,455)
Other long-term, net	810	(82)
Net cash provided by operating activities	189,181	240,732
Cash Flows From Investing Activities
Additions to property and equipment	(35,519)	(33,914)
Proceeds from sales of property and equipment	0	10
Purchases of investments	0	(1,481)
Proceeds from investments	848	6,058
Net cash used in investing activities	(34,671)	(29,327)
Cash Flows From Financing Activities
Excess tax benefit from stock-based compensation	6,482	2,064
Issuance of common stock related to stock plans	15,004	19,689
Treasury stock purchased	(6,776)	(4,073)
Repurchase of common stock	(94,298)	(77,171)
Dividends paid	(19,613)	(13,967)
Net cash used in financing activities	(99,201)	(73,458)
Net increase in cash and cash equivalents	55,309	137,947
Cash and cash equivalents:
Beginning of period	768,343	321,355
End of period	823,652	459,302
Supplemental Cash Flow Disclosures
Interest paid	0	0
Income taxes paid	47,250	9,866
Non-Cash Investing Activities
Increase in fair value of investment securities	$44	$209

Summary of Significant Accounti

Summary of Significant Accounting Policies
	3 Months Ended May. 01, 2010
Summary of Significant Accounting Policies	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 May 1, 2010 and May 2, 2009, and the results of operations and cash flows for the three month periods then ended. The Condensed Consolidated Balance Sheet as of January 30, 2010, presented herein, has been derived from the Company's audited consolidated financial statements for the fiscal year then ended. Accounting policies followed by the Company are described in Note A to the audited consolidated financial statements for the fiscal year ended January 30, 2010. 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 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 January 30, 2010. The results of operations for the three month periods ended May 1, 2010 and May 2, 2009 presented herein are not necessarily indicative of the results to be expected for the full fiscal year. Total comprehensive income. The components of total comprehensive income for the three month periods ended May 1, 2010 and May 2, 2009 are as follows (in $000): Three Months Ended May 1, 2010 May 2, 2009 Net income $ 142,347 $ 91,387 Change in unrealized gain on investments, net of taxes 28 128 Total comprehensive income $ 142,375 $ 91,515 Estimated fair value of financial instruments. The carrying value of cash and cash equivalents, short- and long-term investments, accounts receivable, and accounts payable approximates their estimated fair value. Sales Mix. The Company's sales mix is shown below for the three month periods ended May 1, 2010 and May 2, 2009: Three Months Ended May 1, 2010 May 2, 2009 Ladies 31% 33% Home accents and bed and bath 23% 22% Shoes 13% 12% Accessories, lingerie, fine jewelry, and fragrances 12% 12% Men's 12% 12% Children's 9% 9% Total 100% 100% Dividends. Dividends included in the Condensed Consolidated Statements of Cash Flows reflect dividends paid during the periods shown. Dividends per share reported in the Condensed Consolidated Statements of Earnings reflect dividends declared during the periods shown. In January 2010 the Company's Board of Directors declared a quarterly cash dividend of $.16 per common share that was paid in March 2010. In January 2009 the Company's Board of Directors declared a quarterly cash dividend of

Investments

Investments
	3 Months Ended May. 01, 2010
Investments	Note B: Investments The amortized cost and fair value of the Company's available-for-sale securities as of May 1, 2010 were: Amortized Unrealized Unrealized ($000) cost gains losses Fair value Short-term Long-term Auction-rate securities $ 1,050 $ - $ (150) $ 900 $ - $ 900 Corporate securities 9,352 583 (54) 9,881 1,016 8,865 U.S. Government and agency securities 5,243 31 (178) 5,096 353 4,743 Mortgage-backedsecurities 1,849 75 (3) 1,921 572 1,349 Total $ 17,494 $ 689 $ (385) $ 17,798 $ 1,941 $ 15,857 The amortized cost and fair value of the Company's available-for-sale securities as of January 30, 2010 were: Amortized Unrealized Unrealized ($000) cost gains losses Fair value Short-term Long-term Auction-rate securities $ 1,050 $ - $ (158) $ 892 $ - $ 892 Corporate securities 9,704 567 (67) 10,204 1,073 9,131 U.S. Government andagency securities 5,247 30 (187) 5,090 - 5,090 Mortgage-backed securities 2,340 79 (3) 2,416 681 1,735 Total $ 18,341 $ 676 $ (415) $ 18,602 $ 1,754 $ 16,848 The amortized cost and fair value of the Company's available-for-sale securities as of May 2, 2009 were: Amortized Unrealized Unrealized ($000) cost gains losses Fair value Short-term Long-term Auction-rate securities $ 1,050 $ - $ - $ 1,050 $ - $ 1,050 Asset-backed securities 984 5 (216) 773 390 383 Corporate securities 11,701 145 (542) 11,304 346 10,958 U.S. Government and agencysecurities 15,003 351 (98) 15,256 - 15,256 Mortgage-backed securities 6,671 103 (713) 6,061 297 5,764 Total $ 35,409 $ 604 $ (1,569) $ 34,444 $ 1,033 $ 33,411 At May 1, 2010, the Company had investments of approximately $17.5 million, of which $5.3 million had gross unrealized losses of $0.2 million that had been in a continuous unrealized loss position for more than twelve months. Of the remaining $12.2 million, $1.5 million of investments had gross unrealized losses of $0.2 million which had been in a continuous unrealized loss position for less than twelve months. These unrealized losses on investments were caused primarily by the decline in market values of floating rate corporate and auction rate securities and the impact of interest yield fluctuations on long-term treasury securities. The Company does not consider these investments to be other than temporarily impaired at May 1, 2010. In a

Stock-Based Compensation

Stock-Based Compensation
	3 Months Ended May. 01, 2010
Stock-Based Compensation	Note C: Stock-Based Compensation 2008 Equity Incentive Plan. In May 2008, the Company's stockholders approved the adoption of the Ross Stores, Inc. 2008 Equity Incentive Plan (the "2008 Plan") with an initial share reserve of 8.3 million shares of the Company's common stock, of which 6.0 million shares can be issued as full value awards. The 2008 Plan provides for various types of incentive awards, which may potentially include the grant of stock options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units, and deferred compensation awards. Restricted stock. The Company grants restricted shares to directors, officers and key employees. The market value of restricted shares at the date of grant is amortized to expense ratably over the vesting period of generally three to five years. The unamortized compensation expense at May 1, 2010 and May 2, 2009 was $75.8 million and $47.4 million, respectively, which is expected to be recognized over a weighted-average period of 2.3 years. During the quarter ended May 1, 2010, shares purchased by the Company for tax withholding totaled approximately 123,000 shares and are considered treasury shares which are available for reissuance. As of May 1, 2010, shares subject to repurchase related to unvested restricted stock totaled 3.0 million shares. Weighted average Number of grant date (000, except per share data) shares fair value Unvested at January 30, 2010 2,568 $ 33.83 Awarded 716 $ 53.59 Released (319) $ 36.28 Forfeited (6) $ 30.80 Unvested at May 1, 2010 2,959 $ 38.36 Performance shares. The Company has a performance share award program for senior executives. A performance share award represents a right to receive shares of common stock on a specified settlement date based on the Company's attainment of a profitability-based performance goal during a performance period. If attained, the common stock then granted vests over a specified remaining service period, generally two years. For the three month periods ended May 1, 2010 and May 2, 2009, the Company recognized $1.4 million and $1.3 million, respectively, of expense related to performance share awards. Employee stock purchase plan. Under the Employee Stock Purchase Plan ("ESPP"), eligible full-time employees participating in the annual offering period can choose to have up to the lesser of 10% or $21,250 of their annual base earnings withheld 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. In addition, 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. Stock-based compensation. For the three month periods ended May 1, 2010 and May 2, 2009, the Company recognized stock-based compensation expense as follows: Three Months Ended ($000) May 1, 2010 May 2, 20

Earnings Per Share

Earnings Per Share
	3 Months Ended May. 01, 2010
Earnings Per Share	Note D: Earnings Per Share Basic Earnings Per Share ("EPS") is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the total potential dilution that could occur from outstanding equity plan awards, including unexercised stock options and unvested shares of both performance and non-performance based awards of restricted stock. For the three month periods ended May 1, 2010 and May 2, 2009, approximately 82,400 and 541,600 weighted average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive in the periods presented. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations: Three Months Ended Effect of Dilutive Common Basic Stock Diluted Shares in (000s) EPS Equivalents EPS May 1, 2010 Shares 119,829 2,503 122,332 Amount $ 1.19 $ (0.03 ) $ 1.16 May 2, 2009 Shares 124,692 1,872 126,564 Amount $ 0.73 $ (0.01 ) $ 0.72

Debt

Debt
	3 Months Ended May. 01, 2010
Debt	Note E: Debt The Company has a $600 million revolving credit facility with an expiration date of July 2011 and interest pricing at LIBOR plus 45 basis points. The credit facility contains a $300 million sublimit for issuance of standby letters of credit, of which $216.7 million was available at May 1, 2010. The Company had no borrowings outstanding under this facility as of May 1, 2010, January 30, 2010, and May 2, 2009. The Company has two series of unsecured senior notes with various institutional investors for $150 million. The Series A notes, totaling $85 million are due in December 2018 and bear interest at a rate of 6.38%. The Series B notes totaling $65 million are due in December 2021 and bear interest at a rate of 6.53%. The fair value of these notes as of May 1, 2010 of approximately $169 million is estimated by obtaining comparable market quotes. The senior notes are subject to prepayment penalties for early payment of principal. Borrowings under the credit facilities and these notes are subject to certain covenants, including interest coverage and other financial ratios. As of May 1, 2010, the Company was in compliance with these covenants.

Taxes on Earnings

Taxes on Earnings
	3 Months Ended May. 01, 2010
Taxes on Earnings	Note F: Taxes on Earnings As of May 1, 2010 and May 2, 2009, the reserves for unrecognized tax benefits (net of federal tax benefits) were $35.4 million and $26.5 million inclusive of $10.8 million and $6.9 million of related interest, respectively. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $29.0 million would impact the Company's effective tax rate. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred income tax assets and liabilities. These amounts are net of federal and state income taxes. During the next twelve months, it is reasonably possible that the statute of limitations may lapse pertaining to positions taken by the Company in prior year tax returns. If this occurs, the total amount of unrecognized tax benefits may decrease, reducing the provision for taxes on earnings by up to $1.4 million. The Company is generally open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2006 through 2009. The Company's state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2005 through 2009. Certain state tax returns are currently under audit by state tax authorities. The Company does not expect the results of these audits to have a material impact on the consolidated financial statements.

Recently Issued Accounting Stan

Recently Issued Accounting Standards
	3 Months Ended May. 01, 2010
Recently Issued Accounting Standards	Note G: Recently Issued Accounting Standards In June 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") Topic 810 (originally issued as Statement of Financial Accounting Standards No. 167, "Amendments to FASB Interpretation No. 46(R)"). Among other items, ASC 810 responds to concerns about the application of certain key provisions of FIN 46(R), including those regarding the transparency of the involvement with variable interest entities. ASC 810 is effective for fiscal years beginning after November 15, 2009. The Company adopted the standard for the interim period ended May 1, 2010. Adoption of ASC 810 did not have a material impact on the Company's interim consolidated financial statements.