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SEC Filings

10-Q
ROSS STORES INC filed this Form 10-Q on 12/12/2018
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increase in distribution expenses, and a 10 basis point increase in buying costs. These increases were partially offset by a 20 basis point improvement in merchandise margin and 10 basis points of lower occupancy costs.

We cannot be sure that the gross profit margins realized for the three and nine month periods ended November 3, 2018, will continue in the future.

Selling, general and administrative expenses. For the three and nine month periods ended November 3, 2018, selling, general and administrative expenses ("SG&A") increased $44 million and $150 million compared to the same periods in the prior year, mainly due to increased store operating costs reflecting the opening of 93 net new stores between October 28, 2017 and November 3, 2018.

Selling, general and administrative expenses as a percentage of sales for the three and nine month periods ended November 3, 2018, increased approximately 30 basis points from the same periods in the prior year primarily due to wage investments.

Interest (income) expense, net. Interest (income) expense, net for the three and nine month periods ended November 3, 2018, increased compared to the same periods in the prior year primarily due to an increase in interest income. Interest (income) expense, net for the three and nine month periods ended November 3, 2018 and October 28, 2017, consists of the following:

 
Three Months Ended
 
 
Nine Months Ended
($000)
November 3, 2018

 
October 28, 2017

 
 
November 3, 2018

 
October 28, 2017

Interest expense on long-term debt
$
4,646

 
$
4,645

 
 
$
13,937

 
$
13,933

Other interest expense
233

 
233

 
 
768

 
735

Capitalized interest
(700
)
 
(205
)
 
 
(1,832
)
 
(387
)
Interest income
(7,132
)
 
(2,893
)
 
 
(17,722
)
 
(6,991
)
Interest (income) expense, net
$
(2,953
)
 
$
1,780

 
 
$
(4,849
)
 
$
7,290


Taxes on earnings. Our effective tax rates for the three month periods ended November 3, 2018 and October 28, 2017, were approximately 24% and 38%, respectively. Our effective tax rates for the nine month periods ended November 3, 2018 and October 28, 2017, were approximately 24% and 37%, respectively. The decrease in effective tax rate was primarily due to the reduced U.S. federal corporate income tax rate from 35% to 21%. The effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns. The effective tax rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, and the resolution of tax positions with various taxing authorities. Subsequent to the three month period ended November 3, 2018, we received notice that uncertain tax positions related to fiscal 2015 were resolved with the Internal Revenue Service. As a result, we expect to recognize a tax benefit of approximately $26.2 million in the Consolidated Statement of Earnings, and a decrease in unrecognized tax benefits of approximately $53.3 million, inclusive of $12.8 million of interest and penalties, in the three month period ending February 2, 2019. We anticipate that our effective tax rate for fiscal 2018 will be between 22% and 23%.

The Tax Cuts and Jobs Act (the “Tax Act” or "tax reform") was signed into law on December 22, 2017. The Tax Act made significant changes to U.S. corporate taxation, including reducing the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. For the three and nine month periods ended November 3, 2018, our provision for taxes on earnings differed from the federal corporate income tax rate of 21%, primarily because of the effects of state and local taxes, the net tax benefit associated with share-based compensation, and resolution of tax positions with taxing authorities. These items resulted in an effective tax rate for the three and nine month periods ended November 3, 2018 of 24% as compared to 38% and 37% for the three and nine month periods ended October 28, 2017, respectively.
Also on December 22, 2017, the SEC staff issued Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which provides guidance on accounting for the impact of the Tax Act. As permitted by SAB 118, we recorded provisional amounts for both current and deferred income taxes related to the reduced U.S. federal corporate income tax rate in fiscal 2017. The recorded provisional amounts totaling $80.1 million of tax benefit reflected assumptions made based upon our interpretation of the Tax Act.  As of November 3, 2018, we have not recorded any adjustment to the provisional amounts recorded in fiscal 2017. With the completion and filing of the 2017 federal return during the quarter ended November 3, 2018, we consider the deferred tax remeasurements and other adjustments related to the Tax Act to be complete.


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