rost-20200502
false2020Q10000745732--01-30P3YP5YP2YP3Y00007457322020-02-022020-05-02xbrli:shares00007457322020-05-18iso4217:USD00007457322019-02-032019-05-04iso4217:USDxbrli:sharesrost:stores00007457322020-05-0200007457322019-05-0400007457322020-02-010000745732us-gaap:CommonStockMember2020-02-010000745732us-gaap:AdditionalPaidInCapitalMember2020-02-010000745732us-gaap:TreasuryStockMember2020-02-010000745732us-gaap:RetainedEarningsMember2020-02-010000745732us-gaap:RetainedEarningsMember2020-02-022020-05-020000745732us-gaap:CommonStockMember2020-02-022020-05-020000745732us-gaap:AdditionalPaidInCapitalMember2020-02-022020-05-020000745732us-gaap:TreasuryStockMember2020-02-022020-05-0200007457322020-03-012020-03-310000745732us-gaap:CommonStockMember2020-05-020000745732us-gaap:AdditionalPaidInCapitalMember2020-05-020000745732us-gaap:TreasuryStockMember2020-05-020000745732us-gaap:RetainedEarningsMember2020-05-020000745732us-gaap:CommonStockMember2019-02-020000745732us-gaap:AdditionalPaidInCapitalMember2019-02-020000745732us-gaap:TreasuryStockMember2019-02-020000745732us-gaap:RetainedEarningsMember2019-02-0200007457322019-02-020000745732us-gaap:RetainedEarningsMember2019-02-032019-05-040000745732srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2019-02-020000745732srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2019-02-020000745732us-gaap:CommonStockMember2019-02-032019-05-040000745732us-gaap:AdditionalPaidInCapitalMember2019-02-032019-05-040000745732us-gaap:TreasuryStockMember2019-02-032019-05-040000745732us-gaap:CommonStockMember2019-05-040000745732us-gaap:AdditionalPaidInCapitalMember2019-05-040000745732us-gaap:TreasuryStockMember2019-05-040000745732us-gaap:RetainedEarningsMember2019-05-04xbrli:pure0000745732rost:HomeAccentsandBedandBathMember2020-02-022020-05-020000745732rost:HomeAccentsandBedandBathMember2019-02-032019-05-040000745732rost:LadiesMember2020-02-022020-05-020000745732rost:LadiesMember2019-02-032019-05-040000745732rost:ShoesMember2020-02-022020-05-020000745732rost:ShoesMember2019-02-032019-05-040000745732rost:AccessoriesLingerieFineJewelryandFragrancesMember2020-02-022020-05-020000745732rost:AccessoriesLingerieFineJewelryandFragrancesMember2019-02-032019-05-040000745732rost:MensMember2020-02-022020-05-020000745732rost:MensMember2019-02-032019-05-040000745732rost:ChildrensMember2020-02-022020-05-020000745732rost:ChildrensMember2019-02-032019-05-040000745732us-gaap:PropertyPlantAndEquipmentMember2020-02-022020-05-020000745732us-gaap:PropertyPlantAndEquipmentMember2019-02-032019-05-0400007457322019-03-012019-03-3100007457322019-11-012019-11-3000007457322019-08-012019-08-3100007457322019-05-012019-05-310000745732us-gaap:FairValueInputsLevel1Member2020-05-020000745732us-gaap:FairValueInputsLevel1Member2020-02-010000745732us-gaap:FairValueInputsLevel1Member2019-05-040000745732us-gaap:FairValueInputsLevel2Member2020-05-020000745732us-gaap:FairValueInputsLevel2Member2020-02-010000745732us-gaap:FairValueInputsLevel2Member2019-05-040000745732us-gaap:RestrictedStockMember2020-02-022020-05-020000745732us-gaap:RestrictedStockMember2019-02-032019-05-040000745732rost:PerformanceAwardsMember2020-02-022020-05-020000745732rost:PerformanceAwardsMember2019-02-032019-05-040000745732us-gaap:EmployeeStockMember2020-02-022020-05-020000745732us-gaap:EmployeeStockMember2019-02-032019-05-040000745732us-gaap:CostOfSalesMember2020-02-022020-05-020000745732us-gaap:CostOfSalesMember2019-02-032019-05-040000745732us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-02-022020-05-020000745732us-gaap:SellingGeneralAndAdministrativeExpensesMember2019-02-032019-05-040000745732srt:MinimumMemberus-gaap:RestrictedStockMember2020-02-022020-05-020000745732us-gaap:RestrictedStockMembersrt:MaximumMember2020-02-022020-05-020000745732us-gaap:PerformanceSharesMembersrt:MinimumMember2020-02-022020-05-020000745732us-gaap:PerformanceSharesMembersrt:MaximumMember2020-02-022020-05-020000745732us-gaap:RestrictedStockMember2020-05-020000745732us-gaap:RestrictedStockMember2020-02-010000745732us-gaap:RestrictedStockMember2019-05-040000745732rost:UnsecuredRevolvingCreditFacilityMember2020-05-020000745732rost:UnsecuredRevolvingCreditFacilityMember2020-05-020000745732rost:UnsecuredRevolvingCreditFacilityMember2020-02-010000745732rost:UnsecuredRevolvingCreditFacilityMember2019-05-040000745732rost:OtherShortTermDebtFinancingMember2020-05-020000745732rost:OtherShortTermDebtFinancingMember2020-02-010000745732rost:OtherShortTermDebtFinancingMember2019-05-040000745732rost:SeriesBUnsecuredSeniorNotesMemberrost:SeniorNotesdue2021Member2020-05-020000745732rost:SeriesBUnsecuredSeniorNotesMember2020-05-020000745732rost:SeriesBUnsecuredSeniorNotesMember2020-02-010000745732rost:SeriesBUnsecuredSeniorNotesMember2019-05-040000745732rost:SeniorNotesdue2024Member2020-05-020000745732rost:SeniorNotesdue2024Member2020-05-020000745732rost:SeniorNotesdue2024Member2020-02-010000745732rost:SeniorNotesdue2024Member2019-05-040000745732rost:SeniorNotesDue2025Member2020-05-020000745732rost:SeniorNotesDue2025Member2020-05-020000745732rost:SeniorNotesDue2025Member2020-02-010000745732rost:SeniorNotesDue2025Member2019-05-040000745732rost:SeniorNotesDue2027Member2020-05-020000745732rost:SeniorNotesDue2027Member2020-05-020000745732rost:SeniorNotesDue2027Member2020-02-010000745732rost:SeniorNotesDue2027Member2019-05-040000745732rost:SeniorNotesDue2030Member2020-05-020000745732rost:SeniorNotesDue2030Member2020-05-020000745732rost:SeniorNotesDue2030Member2020-02-010000745732rost:SeniorNotesDue2030Member2019-05-040000745732rost:SeniorNotesDue2050Member2020-05-020000745732rost:SeniorNotesDue2050Member2020-05-020000745732rost:SeniorNotesDue2050Member2020-02-010000745732rost:SeniorNotesDue2050Member2019-05-040000745732rost:UnsecuredRevolvingCreditFacilityMember2020-05-010000745732rost:UnsecuredRevolvingCreditFacilityMember2019-06-300000745732rost:UnsecuredRevolvingCreditFacilityMember2019-07-31rost:renewal_option0000745732rost:UnsecuredRevolvingCreditFacilityMember2019-07-012019-07-310000745732rost:UnsecuredRevolvingCreditFacilityMember2020-03-012020-03-310000745732us-gaap:StandbyLettersOfCreditMember2020-05-020000745732rost:SeniorRevolvingCreditFacilityMember2020-05-010000745732rost:SeniorRevolvingCreditFacilityMember2020-02-022020-05-020000745732rost:SeniorRevolvingCreditFacilityMember2020-05-020000745732rost:UnsecuredRevolvingCreditFacilityMember2020-04-012020-04-300000745732rost:SeniorNotesDue2025Member2020-04-300000745732rost:SeniorNotesDue2027Member2020-04-300000745732rost:SeniorNotesDue2030Member2020-04-300000745732rost:SeniorNotesDue2050Member2020-04-3000007457322020-04-012020-04-30rost:note00007457322019-11-032020-02-01

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 May 02, 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)
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 May 18, 2020 was 355,921,611.
1


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

Page
Item 1.
7
8
15
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 Operations

Three Months Ended
($000, except stores and per share data, unaudited)May 2, 2020May 4, 2019
Sales$1,842,673  $3,796,642  
Costs and Expenses
Cost of goods sold1,889,991  2,701,668  
Selling, general and administrative415,305  558,250  
Interest expense (income), net 6,666  (5,635) 
Total costs and expenses2,311,962  3,254,283  
(Loss) earnings before taxes(469,289) 542,359  
(Benefit) provision for taxes on (loss) earnings(163,447) 121,217  
Net (loss) earnings$(305,842) $421,142  
(Loss) earnings per share
Basic$(0.87) $1.16  
Diluted$(0.87) $1.15  
Weighted average shares outstanding (000)
Basic352,202  363,085  
Diluted352,202  365,912  
Store count at end of period1,832  1,745  
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


Condensed Consolidated Statements of Comprehensive (Loss) Income

Three Months Ended
($000, unaudited)May 2, 2020May 4, 2019
Net (loss) earnings$(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.
4


Condensed Consolidated Balance Sheets

($000, except share data, unaudited)May 2, 2020February 1, 2020May 4, 2019
Assets
Current Assets
Cash and cash equivalents$2,669,535  $1,351,205  $1,366,592  
Accounts receivable49,624  102,236  121,607  
Merchandise inventory1,757,263  1,832,339  1,813,773  
Prepaid expenses and other111,493  147,048  160,733  
Total current assets4,587,915  3,432,828  3,462,705  
Property and Equipment
Land and buildings1,177,847  1,177,262  1,129,049  
Fixtures and equipment3,125,333  3,115,003  2,844,135  
Leasehold improvements1,238,313  1,219,736  1,139,600  
Construction-in-progress281,692  189,536  148,021  
  5,823,185  5,701,537  5,260,805  
Less accumulated depreciation and amortization3,126,467  3,048,101  2,824,433  
Property and equipment, net2,696,718  2,653,436  2,436,372  
Operating lease assets3,078,373  3,053,782  2,942,980  
Other long-term assets365,040  208,321  207,063  
Total assets$10,728,046  $9,348,367  $9,049,120  
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable$706,267  $1,296,482  $1,296,183  
Accrued expenses and other374,811  462,111  450,762  
Current operating lease liabilities570,832  564,481  536,900  
Accrued payroll and benefits166,707  364,435  220,376  
Income taxes payable  14,425  89,290  
Short-term debt805,000      
Total current liabilities2,623,617  2,701,934  2,593,511  
Long-term debt2,285,614  312,891  312,552  
Non-current operating lease liabilities2,631,769  2,610,528  2,514,530  
Other long-term liabilities206,504  214,086  226,788  
Deferred income taxes163,150  149,679  134,213  
Commitments and contingencies
Stockholders’ Equity
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 capital1,484,911  1,458,307  1,391,558  
Treasury stock(465,645) (433,328) (423,543) 
Retained earnings1,794,567  2,330,702  2,295,858  
Total stockholders’ equity2,817,392  3,359,249  3,267,526  
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.
5


Condensed Consolidated Statements of Stockholders' Equity

Additional paid-in capital
Common stockTreasury stockRetained earnings
(000)Shares  AmountTotal
Balance at February 1, 2020356,775  $3,568  $1,458,307  $(433,328) $2,330,702  $3,359,249  
Net loss—  —  —  —  (305,842) (305,842) 
Common stock issued under stock
plans, net of shares
used for tax withholding318  3  5,441  (32,317) —  (26,873) 
Stock-based compensation—  —  24,739  —  —  24,739  
Common stock repurchased(1,171) (12) (3,576) —  (128,879) (132,467) 
Dividends declared ($0.285 per share)
—  —  —  —  (101,414) (101,414) 
Balance at May 2, 2020355,922  $3,559  $1,484,911  $(465,645) $1,794,567  $2,817,392  


Additional paid-in capital
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  
The accompanying notes are an integral part of these condensed consolidated financial statements.

6


Condensed Consolidated Statements of Cash Flows
Three Months Ended
($000, unaudited)May 2, 2020May 4, 2019
Cash Flows From Operating Activities
Net (loss) earnings$(305,842) $421,142  
Adjustments to reconcile net (loss) earnings to net cash (used in) provided
by operating activities:
Depreciation and amortization90,598  82,757  
Stock-based compensation24,739  19,689  
Deferred income taxes13,471  16,543  
Change in assets and liabilities:
Merchandise inventory75,076  (63,331) 
Other current assets88,286  (41,777) 
Accounts payable(600,918) 122,654  
Other current liabilities(268,925) (108,208) 
Income taxes(175,142) 56,206  
Operating lease assets and liabilities, net3,001  2,855  
Other long-term, net(2,786) 457  
Net cash (used in) provided by operating activities(1,058,442) 508,987  
Cash Flows From Investing Activities
Additions to property and equipment(139,729) (95,629) 
Proceeds from investments  517  
Net cash used in investing activities(139,729) (95,112) 
Cash Flows From Financing Activities
Net proceeds from issuance of short-term debt805,601    
Payments of short-term debt (615)   
Net proceeds from issuance of long-term debt1,976,030    
Payments of debt issuance costs(3,135)   
Issuance of common stock related to stock plans5,444  5,295  
Treasury stock purchased(32,317) (50,880) 
Repurchase of common stock(132,467) (320,130) 
Dividends paid(101,414) (93,722) 
Net cash provided by (used in) financing activities2,517,127  (459,437) 
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents1,318,956  (45,562) 
Cash, cash equivalents, and restricted cash and cash equivalents:
Beginning of period1,411,410  1,478,079  
End of period$2,730,366  $1,432,517  
Supplemental Cash Flow Disclosures
Interest paid$4,235  $4,219  
Income taxes (refunded) paid$(1,777) $48,468  
The accompanying notes are an integral part of these condensed consolidated financial statements.
7


Notes to Condensed Consolidated Financial Statements

Three Months Ended May 2, 2020 and 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 May 2, 2020 and May 4, 2019, the results of operations, comprehensive (loss) income, stockholders' equity, and cash flows for the three month periods ended May 2, 2020 and May 4, 2019. The Condensed Consolidated Balance Sheet as of February 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 1, 2020.

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

Use of accounting estimates. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the condensed 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 inventory (including shortage), packaway inventory costs, useful lives of fixed assets, insurance reserves, reserves for uncertain tax positions, estimates for provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), and legal claims. Given the global economic climate and additional, or unforeseen effects, from the COVID-19 pandemic, these estimates are more challenging, and actual results could differ materially from the Company's estimates.

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 month periods ended May 2, 2020 and May 4, 2019:

Three Months Ended
May 2, 2020
1
May 4, 2019
Home Accents and Bed and Bath27 %25 %
Ladies25 %27 %
Shoes14 %14 %
Accessories, Lingerie, Fine Jewelry, and Fragrances13 %13 %
Men's12 %13 %
Children's9 %8 %
Total100 %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.

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.

8


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)May 2, 2020February 1, 2020May 4, 2019
Cash and cash equivalents$2,669,535  $1,351,205  $1,366,592  
Restricted cash and cash equivalents included in:
  Prepaid expenses and other10,341  10,235  11,867  
  Other long-term assets50,490  49,970  54,058  
Total restricted cash and cash equivalents60,831  60,205  65,925  
Total cash, cash equivalents, and restricted cash and cash equivalents$2,730,366  $1,411,410  $1,432,517  

Property and equipment. As of May 2, 2020 and May 4, 2019, the Company had $34.5 million and $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.

Operating leases. Operating lease assets obtained in exchange for new operating lease liabilities (includes new leases and remeasurements or modifications of existing leases) during the three month periods 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 $0.285 per common share in March 2020, and $0.255 per common share in March, May, August, and November 2019, respectively.

In May 2020, the Company announced the suspension of its quarterly dividends.

Litigation, claims, and assessments. Like many retailers, the Company has been named in class/representative action lawsuits, primarily in California, alleging violation of wage and hour/employment laws and consumer protection laws. Class/representative action litigation remains pending as of May 2, 2020.

The Company is also party to various other legal and regulatory proceedings arising in the normal course of business. Actions filed against the Company may include commercial, product and product safety, consumer, intellectual property, environmental, and labor and employment-related claims, including lawsuits in which private plaintiffs or governmental agencies allege that the Company violated federal, state, and/or local laws. Actions against the Company are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties.

In the opinion of management, the resolution of pending class/representative action litigation and other currently pending legal and regulatory proceedings will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

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 month period ended May 2, 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.
9



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 month period ended May 2, 2020. The fair value of the Company’s financial instruments are as follows:

($000)May 2, 2020February 1, 2020May 4, 2019
Cash and cash equivalents (Level 1)
$2,669,535  $1,351,205  $1,366,592  
Restricted cash and cash equivalents (Level 1)
$60,831  $60,205  $65,925  
Investments (Level 2)
$8  $8  $8  

The underlying assets in the Company’s non-qualified deferred compensation program as of May 2, 2020, February 1, 2020, and May 4, 2019 (included in Other long-term assets and in Other long-term liabilities) primarily consist of participant-directed money market, stable value, stock, and bond funds. The fair value measurement for funds with quoted market prices in active markets (Level 1) and for funds without quoted market prices in active markets (Level 2) are as follows:

($000)May 2, 2020February 1, 2020May 4, 2019
Level 1$121,198  $134,440  $127,785  
Level 211,068  7,003  10,626  
Total$132,266  $141,443  $138,411  

Note C: Stock-Based Compensation

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

Three Months Ended
($000)May 2, 2020May 4, 2019
Restricted stock$16,482  $9,449  
Performance awards7,296  9,304  
Employee stock purchase plan961  936  
Total$24,739  $19,689  

10


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

Three Months Ended
Statements of Operations Classification ($000)May 2, 2020May 4, 2019
Cost of goods sold$12,666  $13,122  
Selling, general and administrative12,073  6,567  
Total$24,739  $19,689  

The tax benefits related to stock-based compensation expense for the three month periods ended May 2, 2020 and May 4, 2019 were $5.4 million and $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 month periods ended May 2, 2020 and May 4, 2019, shares purchased by the Company for tax withholding totaled 349,513 and 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 May 2, 2020, shares related to unvested restricted stock and performance share awards totaled 4.1 million shares. A summary of restricted stock and performance share award activity for the three month period ended May 2, 2020, is presented below:

(000, except per share data)Number of
shares
Weighted-average
grant date
fair value
Unvested at February 1, 20204,394  $76.20  
Awarded592  97.85  
Released(891) 61.03  
Forfeited(7) 79.37  
Unvested at May 2, 20204,088  $82.63  

The unamortized compensation expense at May 2, 2020, was $209.5 million, which is expected to be recognized over a weighted-average remaining period of 2.4 years. The unamortized compensation expense at May 4, 2019, was $178.7 million, which was expected to be recognized over a weighted-average remaining period of 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.


11


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 number of common shares outstanding for the period. Diluted EPS is computed by dividing net (loss) earnings by the sum of the weighted-average number of common shares and dilutive common stock equivalents outstanding during the 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 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 month period ended May 2, 2020, basic and diluted EPS are the same due to the Company's net loss per share. For the three month period ended May 4, 2019, approximately 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
Shares in (000s)Basic EPSEffect of
dilutive
common stock
equivalents
Diluted
EPS
May 2, 2020
Shares352,202    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: Debt

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

($000)May 2, 2020February 1, 2020May 4, 2019
$800 million revolving credit facility
$800,000  $  $  
Other short-term debt financing5,000      
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  

Revolving credit facilities. In July 2019, the Company entered into a $800 million unsecured revolving credit facility, which replaced the Company’s previous $600 million unsecured revolving credit facility. This 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
12


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 and is payable quarterly and upon maturity. The revolving credit facility may be extended, at the Company's option, for up to two additional 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 May 2, 2020, the Company had $800 million outstanding, and no 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 no borrowings under this facility and the $500 million credit facility remains in place and available.

The new revolving credit facility is subject to the same minimum liquidity and Consolidated Adjusted Debt to EBITDAR ratio financial 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 May 2, 2020, the Company was in compliance with 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 six 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.

13


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, 2020May 4, 2019
Interest expense on long-term debt$10,181  $3,283  
Interest expense on short-term debt1,697    
Other interest expense278  313  
Capitalized interest(2,154) (765) 
Interest income(3,336) (8,466) 
Interest expense (income), net$6,666  $(5,635) 

Note 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 May 2, 2020, February 1, 2020, and May 4, 2019, the reserves for unrecognized tax benefits were $68.8 million, $67.1 million, and $83.5 million, inclusive of $8.0 million, $7.2 million, and $13.7 million of related interest and penalties, respectively. In November 2019, the Company resolved uncertain tax positions with a tax authority. As a result, the Company recognized a decrease in reserves for tax positions in prior periods of $16.2 million, inclusive of $6.6 million of related reserves for interest and penalties. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $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.

The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2016 through 2019. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2015 through 2019. Certain state tax returns are currently under audit by various tax authorities. The Company does not expect the results of these audits to have a material impact on the condensed consolidated financial statements.
14


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 May 2, 2020 and May 4, 2019, the related condensed consolidated statements of operations, comprehensive (loss) income, stockholders' equity, and cash flows for the three month periods ended May 2, 2020 and 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 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 March 31, 2020, we expressed an unqualified opinion on those consolidated financial 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 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
June 10, 2020
15


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 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 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 1,566 locations in 39 states, the District of Columbia and Guam as of May 2, 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 266 dd’s DISCOUNTS stores in 20 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
16


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.

17


Results of Operations

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

Three Months Ended
May 2, 2020May 4, 2019
Sales
Sales (millions)$1,843  $3,797  
Sales (decline) growth(51.5 %)5.8 %
Costs and expenses (as a percent of sales)
Cost of goods sold102.6 %71.2 %
Selling, general and administrative22.5 %14.7 %
Interest expense (income), net 0.4 %(0.2 %)
(Loss) earnings before taxes (as a percent of sales)(25.5 %)14.3 %
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
Store Count