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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 02, 2019
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)
Delaware94-1390387
(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 classTrading symbolName of each exchange on which registered
 Common stock, par value $.01ROSTNasdaq 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 was 358,882,342.
1


Ross Stores, Inc.
Form 10-Q
Table of Contents

Page
Item 1.
Condensed Consolidated Statements of Stockholders' Equity–Nine months ended November 3, 20187
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Statements of Earnings

Three Months EndedNine Months Ended
($000, except stores and per share data, unaudited)November 2, 2019November 3, 2018November 2, 2019November 3, 2018
Sales$3,849,117  $3,549,608  $11,625,628  $10,876,153  
Costs and Expenses
Cost of goods sold2,766,432  2,547,331  8,311,950  7,736,533  
Selling, general and administrative604,605  561,577  1,754,825  1,640,581  
Interest income, net  (4,402) (2,953) (14,819) (4,849) 
Total costs and expenses3,366,635  3,105,955  10,051,956  9,372,265  
Earnings before taxes482,482  443,653  1,573,672  1,503,888  
Provision for taxes on earnings111,550  105,545  368,877  358,124  
Net earnings$370,932  $338,108  $1,204,795  $1,145,764  
Earnings per share
Basic$1.04  $0.92  $3.35  $3.09  
Diluted$1.03  $0.91  $3.32  $3.06  
Weighted average shares outstanding (000)
Basic356,879  368,102  359,919  370,977  
Diluted359,299  371,061  362,455  373,936  
Stores open at end of period1,810  1,720  1,810  1,720  
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


Condensed Consolidated Statements of Comprehensive Income

Three Months EndedNine Months Ended
($000, unaudited)November 2, 2019November 3, 2018November 2, 2019November 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  
The accompanying notes are an integral part of these condensed consolidated financial statements.
4


Condensed Consolidated Balance Sheets

($000, except share data, unaudited)November 2, 2019February 2, 2019November 3, 2018
Assets
Current Assets
Cash and cash equivalents$1,142,709  $1,412,912  $1,349,196  
Accounts receivable124,853  96,711  117,825  
Merchandise inventory2,168,796  1,750,442  1,979,080  
Prepaid expenses and other170,304  143,954  177,206  
Total current assets3,606,662  3,404,019  3,623,307  
Property and Equipment
Land and buildings1,173,131  1,126,051  1,117,801  
Fixtures and equipment3,032,151  2,783,198  2,719,545  
Leasehold improvements1,199,591  1,175,921  1,150,142  
Construction-in-progress145,756  171,538  146,323  
  5,550,629  5,256,708  5,133,811  
Less accumulated depreciation and amortization2,984,747  2,781,507  2,715,585  
Property and equipment, net2,565,882  2,475,201  2,418,226  
Operating lease assets3,042,298      
Other long-term assets200,999  194,471  194,234  
Total assets$9,415,841  $6,073,691  $6,235,767  
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable$1,480,205  $1,177,104  $1,394,029  
Accrued expenses and other496,623  431,596  455,743  
Current operating lease liabilities559,433      
Accrued payroll and benefits321,977  363,035  317,525  
Income taxes payable  37,749    
Current portion of long-term debt    84,997  
Total current liabilities2,858,238  2,009,484  2,252,294  
Long-term debt312,778  312,440  312,328  
Non-current operating lease liabilities2,601,372      
Other long-term liabilities225,934  321,713  371,844  
Deferred income taxes140,740  124,308  112,138  
Commitments and contingencies
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  
Additional paid-in capital1,435,713  1,375,965  1,354,669  
Treasury stock(429,583) (372,663) (371,959) 
Retained earnings2,267,055  2,298,762  2,200,742  
Total stockholders’ equity3,276,779  3,305,746  3,187,163  
Total liabilities and stockholders’ equity$9,415,841  $6,073,691  $6,235,767  
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


Condensed Consolidated Statements of Stockholders' Equity

Nine Months Ended November 2, 2019
Additional paid-in capitalAccumulated other comprehensive income (loss)
Common stockTreasury stockRetained earnings
(000)Shares  AmountTotal
Balance at February 2, 2019368,242  $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 withholding390  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, 2019365,260  $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 withholding98  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, 2019362,166  $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 withholding227  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, 2019359,378  $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.


6


Condensed Consolidated Statements of Stockholders' Equity
Nine Months Ended November 3, 2018
Additional paid-in capitalAccumulated
other comprehensive income (loss)
Common stockTreasury stockRetained earnings
(000)Shares  AmountTotal
Balance at February 3, 2018379,618  $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 withholding732  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, 2018377,079  $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 withholding20  —  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, 2018373,868  $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 withholding85  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, 2018371,058  $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.

7


Condensed Consolidated Statements of Cash Flows
Nine Months Ended
($000, unaudited)November 2, 2019November 3, 2018
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:
Depreciation and amortization255,089  246,151  
Stock-based compensation70,600  71,361  
Deferred income taxes23,070  19,607  
Change in assets and liabilities:
Merchandise inventory(418,354) (337,345) 
Other current assets(46,161) (62,081) 
Accounts payable305,648  328,062  
Other current liabilities43,968  35,758  
Income taxes(42,619) (5,338) 
Operating lease assets and liabilities, net12,911    
Other long-term, net1,983  8,133  
Net cash provided by operating activities1,410,930  1,450,072  
Cash Flows From Investing Activities
Additions to property and equipment(401,251) (293,366) 
Proceeds from investments517  739  
Net cash used in investing activities(400,734) (292,627) 
Cash Flows From Financing Activities
Issuance of common stock related to stock plans16,451  14,915  
Treasury stock purchased(56,920) (53,680) 
Repurchase of common stock(965,909) (806,500) 
Dividends paid(278,370) (253,863) 
Net 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  
Cash, cash equivalents, and restricted cash and cash equivalents:
Beginning of period1,478,079  1,353,272  
End of period$1,203,527  $1,411,589  
Supplemental Cash Flow Disclosures
Interest paid$10,560  $13,271  
Income taxes paid$388,426  $343,848  
The accompanying notes are an integral part of these condensed consolidated financial statements.



8


Notes to Condensed Consolidated Financial Statements

Three and Nine Months Ended November 2, 2019 and November 3, 2018
(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 2, 2019 and November 3, 2018, the results of operations, comprehensive 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 month periods ended November 2, 2019 and November 3, 2018. The Condensed Consolidated Balance Sheet as of February 2, 2019, 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 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.

The results of operations, comprehensive 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 month periods ended November 2, 2019 and November 3, 2018 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

Recently adopted accounting standards. In February 2016, 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 to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

The Company adopted ASC 842 as of February 3, 2019 (the "effective date"), using the optional transition method on a modified retrospective basis. The Company did not elect the transitional package of practical expedients or the use of hindsight upon adoption of the ASC. The Company elected to not record a lease liability and corresponding right-of-use asset for leases with terms of 12 months or less, and to account for lease and non-lease components as a single lease component. Upon adoption, the Company recorded lease liabilities based on the present value of the remaining minimum rental payments, using 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 and continue to be reported under ASC 840. ASC 842 did not have a significant impact to the Company’s condensed consolidated statements 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 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 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 the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar lease term. Operating lease liabilities and corresponding right-of-use assets include options to extend lease terms that are reasonably certain of being exercised. The Company does not record a lease liability and corresponding right-of-use asset for leases with terms of 12 months or
9


less, and accounts for lease and non-lease components as a single lease component. The Company's lease portfolio is comprised of operating leases with the lease cost recorded on a straight-line basis over the lease term.

Prior to the adoption of 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. The following sales mix table disaggregates revenue by merchandise category for the three and nine month periods ended November 2, 2019 and November 3, 2018:

Three Months EndedNine Months Ended
November 2, 2019November 3, 2018November 2, 2019November 3, 2018
Ladies26 %27 %27 %28 %
Home Accents and Bed and Bath24 %25 %24 %24 %
Shoes14 %13 %14 %14 %
Men's14 %14 %14 %13 %
Accessories, Lingerie, Fine Jewelry, and Fragrances13 %13 %13 %13 %
Children's9 %8 %8 %8 %
Total100 %100 %100 %100 %

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, restricted cash and equivalents in the Condensed Consolidated Balance Sheets that reconcile to the amounts shown on the Condensed Consolidated Statements of Cash Flows:
($000)November 2, 2019February 2, 2019November 3, 2018
Cash and cash equivalents$1,142,709  $1,412,912  $1,349,196  
Restricted cash and cash equivalents included in:
  Prepaid expenses and other10,947  11,402  8,933  
  Other long-term assets49,871  53,765  53,460  
Total restricted cash and cash equivalents60,818  65,167  62,393  
Total cash, cash equivalents, and restricted cash and equivalents$1,203,527  $1,478,079  $1,411,589