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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 July 31, 2021
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 August 13, 2021 was 355,365,961.
1


Ross Stores, Inc.
Form 10-Q
Table of Contents
Page
Item 1.
Condensed Consolidated Statements of Operations–Three and six months ended July 31, 2021 and August 1, 2020
Condensed Consolidated Statements of Comprehensive Income (Loss)–Three and six months ended July 31, 2021 and August 1, 2020
Condensed Consolidated Balance Sheets–July 31, 2021, January 30, 2021, and August 1, 2020
Condensed Consolidated Statements of Stockholders Equity–Six months ended July 31, 2021 and August 1, 2020
Condensed Consolidated Statements of Cash FlowsSix months ended July 31, 2021 and August 1, 2020
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 EndedSix Months Ended
($000, except stores and per share data, unaudited)July 31, 2021August 1, 2020July 31, 2021August 1, 2020
Sales$4,804,974 $2,684,712 $9,321,054 $4,527,385 
Costs and Expenses
Cost of goods sold3,410,871 2,080,120 6,609,267 3,970,111 
Selling, general and administrative717,788 519,495 1,392,841 934,800 
Interest expense, net18,707 28,855 37,756 35,521 
Total costs and expenses4,147,366 2,628,470 8,039,864 4,940,432 
Earnings (loss) before taxes657,608 56,242 1,281,190 (413,047)
Provision (benefit) for taxes on earnings (loss) 163,350 34,195 310,453 (129,252)
Net earnings (loss) $494,258 $22,047 $970,737 $(283,795)
Earnings (loss) per share
Basic$1.40 $0.06 $2.75 $(0.81)
Diluted$1.39 $0.06 $2.73 $(0.81)
Weighted-average shares outstanding (000)
Basic352,865 352,276 352,927 352,239 
Diluted354,935 354,232 355,161 352,239 
Store count at end of period1,896 1,832 1,896 1,832 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


Condensed Consolidated Statements of Comprehensive Income (Loss)
Three Months EndedSix Months Ended
($000, unaudited)July 31, 2021August 1, 2020July 31, 2021August 1, 2020
Net earnings (loss)$494,258 $22,047 $970,737 $(283,795)
Other comprehensive income (loss)    
Comprehensive income (loss)
$494,258 $22,047 $970,737 $(283,795)
The accompanying notes are an integral part of these condensed consolidated financial statements.
4


Condensed Consolidated Balance Sheets
($000, except share data, unaudited)July 31, 2021January 30, 2021August 1, 2020
Assets
Current Assets
Cash and cash equivalents$5,569,071 $4,819,293 $3,793,043 
Accounts receivable159,163 115,067 162,723 
Merchandise inventory1,751,027 1,508,982 1,117,983 
Prepaid expenses and other193,588 249,149 273,612 
Total current assets7,672,849 6,692,491 5,347,361 
Property and Equipment
Land and buildings1,189,666 1,187,045 1,177,863 
Fixtures and equipment3,295,078 3,243,206 3,137,495 
Leasehold improvements1,280,505 1,278,134 1,241,819 
Construction-in-progress493,629 376,076 363,000 
  6,258,878 6,084,461 5,920,177 
Less accumulated depreciation and amortization3,512,670 3,373,965 3,214,072 
Property and equipment, net2,746,208 2,710,496 2,706,105 
Operating lease assets2,973,907 3,084,819 3,053,735 
Other long-term assets248,436 230,061 215,044 
Total assets$13,641,400 $12,717,867 $11,322,245 
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable$2,588,551 $2,256,928 $1,009,704 
Accrued expenses and other609,719 592,122 557,475 
Current operating lease liabilities608,123 598,120 579,277 
Accrued payroll and benefits445,307 400,273 204,109 
Income taxes payable19,526 54,680  
Short-term debt  802,507 
Current portion of long-term debt64,964 64,910  
Total current liabilities4,336,190 3,967,033 3,153,072 
Long-term debt2,450,245 2,448,175 2,286,295 
Non-current operating lease liabilities2,503,332 2,621,594 2,601,254 
Other long-term liabilities292,715 268,558 258,869 
Deferred income taxes154,932 121,867 155,556 
Commitments and contingencies
Stockholders’ Equity
Common stock, par value $.01 per share
   Authorized 1,000,000,000 shares
   Issued and outstanding 355,698,000, 356,503,000
   and 356,006,000 shares, respectively
3,557 3,565 3,560 
Additional paid-in capital1,645,118 1,579,824 1,512,699 
Treasury stock(527,565)(478,550)(465,674)
Retained earnings2,782,876 2,185,801 1,816,614 
Total stockholders’ equity3,903,986 3,290,640 2,867,199 
Total liabilities and stockholders’ equity$13,641,400 $12,717,867 $11,322,245 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


Condensed Consolidated Statements of Stockholders’ Equity
Six Months Ended July 31, 2021
Additional
paid-in
capital
Common stockTreasury
stock
Retained
earnings
(000)Shares  AmountTotal
Balance at January 30, 2021356,503 $3,565 $1,579,824 $(478,550)$2,185,801 $3,290,640 
Net earnings— — — — 476,479 476,479 
Common stock issued under stock
plans, net of shares
used for tax withholding614 6 6,057 (47,378)— (41,315)
Stock-based compensation— — 28,674 — — 28,674 
Dividends declared ($0.285 per share)
— — — — (101,657)(101,657)
Balance at May 1, 2021357,117 $3,571 $1,614,555 $(525,928)$2,560,623 $3,652,821 
Net earnings— — — — 494,258 494,258 
Common stock issued under stock
plans, net of shares
used for tax withholding30 — 6,471 (1,637)— 4,834 
Stock-based compensation— — 29,584 — — 29,584 
Common stock repurchased(1,449)(14)(5,492)— (170,278)(175,784)
Dividends declared ($0.285 per share)
— — — — (101,727)(101,727)
Balance at July 31, 2021355,698 $3,557 $1,645,118 $(527,565)$2,782,876 $3,903,986 

Six Months Ended August 1, 2020
Additional
paid-in
capital
Common stockTreasury
stock
Retained
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 
Net earnings— — — — 22,047 22,047 
Common stock issued under stock
plans, net of shares
used for tax withholding84 1 5,630 (29)— 5,602 
Stock-based compensation— — 22,158 — — 22,158 
Balance at August 1, 2020356,006 $3,560 $1,512,699 $(465,674)$1,816,614 $2,867,199 
The accompanying notes are an integral part of these condensed consolidated financial statements.







6


Condensed Consolidated Statements of Cash Flows
Six Months Ended
($000, unaudited)July 31, 2021August 1, 2020
Cash Flows From Operating Activities
Net earnings (loss) $970,737 $(283,795)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation and amortization174,094 179,626 
Stock-based compensation58,258 46,897 
Deferred income taxes33,065 5,877 
Change in assets and liabilities:
Merchandise inventory(242,045)714,356 
Other current assets(63,420)(51,924)
Accounts payable360,891 (289,710)
Other current liabilities77,963 (44,671)
Income taxes(27,596)(145,001)
Operating lease assets and liabilities, net2,654 5,569 
Other long-term, net794 35,197 
Net cash provided by operating activities1,345,395 172,421 
Cash Flows From Investing Activities
Additions to property and equipment(254,437)(250,047)
Net cash used in investing activities(254,437)(250,047)
Cash Flows From Financing Activities
Issuance of common stock related to stock plans12,534 11,075 
Treasury stock purchased(49,015)(32,346)
Repurchase of common stock(175,784)(132,467)
Dividends paid(203,384)(101,414)
Net proceeds from issuance of short-term debt 805,601 
Payments of short-term debt  (3,094)
Net proceeds from issuance of long-term debt 1,976,030 
Payments of debt issuance costs (3,254)
Net cash (used in) provided by financing activities(415,649)2,520,131 
Net increase in cash, cash equivalents, and restricted cash and cash equivalents675,309 2,442,505 
Cash, cash equivalents, and restricted cash and cash equivalents:
Beginning of period4,953,769 1,411,410 
End of period$5,629,078 $3,853,915 
Supplemental Cash Flow Disclosures
Interest paid$42,051 $10,069 
Income taxes paid $304,984 $9,872 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7


Notes to Condensed Consolidated Financial Statements

Three and Six Months Ended July 31, 2021 and August 1, 2020
(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 July 31, 2021 and August 1, 2020, the results of operations, comprehensive income (loss), and stockholders’ equity for the three and six month periods ended July 31, 2021 and August 1, 2020, and cash flows for the six month periods ended July 31, 2021 and August 1, 2020. The Condensed Consolidated Balance Sheet as of January 30, 2021, 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 January 30, 2021.

The results of operations, comprehensive income (loss), and stockholders’ equity for the three and six month periods ended July 31, 2021 and August 1, 2020, and cash flows for the six month periods ended July 31, 2021 and August 1, 2020 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, packaway and other inventory carrying costs, useful lives of fixed assets, insurance reserves, reserves for uncertain tax positions, employee retention credits under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and legal claims. The ongoing uncertainties and potential impacts from the COVID-19 pandemic increase the challenge of making these estimates; actual results could differ materially from the Company’s estimates.

Revenue recognition. The following sales mix table disaggregates revenue by merchandise category for the three and six month periods ended July 31, 2021 and August 1, 2020:

Three Months EndedSix Months Ended
July 31, 2021

August 1, 2020
1
July 31, 2021August 1, 2020
1
Ladies27 %25 %25 %25 %
Home Accents and Bed and Bath24 %25 %25 %26 %
Men’s15 %14 %14 %13 %
Accessories, Lingerie, Fine Jewelry, and Cosmetics14 %13 %14 %13 %
Shoes12 %14 %13 %14 %
Children’s8 %9 %9 %9 %
Total100 %100 %100 %100 %
1 Sales mix for the three and six month periods ended August 1, 2020 represents sales for the period the stores were open.

Cash, restricted cash, and restricted investments. Restricted cash, cash equivalents, and investments serve as collateral for certain insurance and trade payable 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 obligations.

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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)July 31, 2021January 30, 2021August 1, 2020
Cash and cash equivalents$5,569,071 $4,819,293 $3,793,043 
Restricted cash and cash equivalents included in:
  Prepaid expenses and other10,801 85,711 10,348 
  Other long-term assets49,206 48,765 50,524 
Total restricted cash and cash equivalents60,007 134,476 60,872 
Total cash and cash equivalents, and restricted cash and cash equivalents$5,629,078 $4,953,769 $3,853,915 
Property and equipment. As of July 31, 2021 and August 1, 2020, the Company had $11.7 million and $22.6 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. In response to the COVID-19 pandemic, the Financial Accounting Standards Board (“FASB”) provided relief under Accounting Standards Update (“ASU”) 2016-02, Leases (Accounting Standards Codification “ASC” 842). Under this relief, companies can make a policy election on how to treat lease concessions resulting directly from the COVID-19 pandemic, provided that the modified contracts result in total cash flows that are substantially the same or less than the cash flows in the original contract.

The Company made the policy election to account for lease concessions that result from the COVID-19 pandemic as if they were made under enforceable rights in the original contract. Additionally, the Company made the policy election to account for these concessions outside of the lease modification framework described under ASC 842. The Company recorded accruals for deferred rental payments and recognized rent abatements or concessions as variable lease costs in the periods incurred. Accruals for rent payment deferrals are included in Accrued expenses and other in the accompanying Condensed Consolidated Balance Sheets.

Supplemental cash flow disclosures related to leases: Operating lease assets obtained in exchange for new operating lease liabilities (includes new leases and remeasurements or modifications of existing leases) were as follows:

Three Months EndedSix Months Ended
($000)July 31, 2021August 1, 2020July 31, 2021August 1, 2020
Operating lease assets obtained in exchange for new operating lease liabilities
$117,491 $119,377 $186,661 $284,351 

Cash dividends. The Company’s Board of Directors declared a quarterly cash dividend of $0.285 per common share in March 2020. In May 2020, the Company suspended its quarterly dividends due to the economic uncertainty stemming from the COVID-19 pandemic. On March 2, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.285 per common share, payable on March 31, 2021, resuming quarterly dividends. In May 2021, the Company’s Board of Directors declared a cash dividend of $0.285 per common share, payable on June 30, 2021.

In August 2021, the Company’s Board of Directors declared a cash dividend of $0.285 per common share, payable on September 30, 2021.

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 July 31, 2021.

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,
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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 FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (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 fiscal 2020 results.

Recently issued accounting standards. The Company considers the applicability and impact of all ASUs issued by the FASB. For the three and six month periods ended July 31, 2021, 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.

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, 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.

The fair value of the Company’s financial instruments are as follows:

($000)July 31, 2021January 30, 2021August 1, 2020
Cash and cash equivalents (Level 1)
$5,569,071 $4,819,293 $3,793,043 
Restricted cash and cash equivalents (Level 1)
$60,007 $134,476 $60,872 
Investments (Level 2)
$8 $8 $8 

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The underlying assets in the Company’s non-qualified deferred compensation program as of July 31, 2021, January 30, 2021, and August 1, 2020 (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)July 31, 2021January 30, 2021August 1, 2020
Level 1$176,095 $159,116 $135,650 
Level 2  10,329 
Total$176,095 $159,116 $145,979 

Note C: Management Incentive Plan and Stock-Based Compensation

The Company has incentive compensation programs which provide cash incentive bonuses and performance share awards to key management and employees based on Company and individual performance.

For fiscal 2021, the Compensation Committee of the Board of Directors established the performance measures for determining incentive compensation amounts as based on a combination of profitability-based performance goals and the attainment of specific management priorities related to business challenges from the COVID-19 pandemic, as measured and approved by the Compensation Committee. As of July 31, 2021, the Company has established an accrual for this incentive compensation based on its forecasted attainment of the profitability-based performance goals and the Compensation Committee’s assessment of progress towards achievement of the specific business priorities.

For the fiscal 2020 management incentive bonus plan and performance share awards, the Compensation Committee approved modifications in August 2020 to the performance measurement goals, to be based on the attainment of specific management priorities related to business challenges from the COVID-19 pandemic, as measured and approved by the Compensation Committee, as an alternative to the previously established profitability-based performance goals for 2020.

Stock-based compensation. For the three and six month periods ended July 31, 2021 and August 1, 2020, the Company recognized stock-based compensation expense as follows:

Three Months EndedSix Months Ended
($000)July 31, 2021August 1, 2020July 31, 2021August 1, 2020
Restricted stock$16,057 $17,638 $34,646 $34,120 
Performance awards12,385 3,526 21,399 10,822 
Employee stock purchase plan1,142 994 2,213 1,955 
Total$29,584 $22,158 $58,258 $46,897 

Total stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Operations for the three and six month periods ended July 31, 2021 and August 1, 2020, is as follows:

Three Months EndedSix Months Ended
Statements of Operations Classification ($000)July 31, 2021August 1, 2020July 31, 2021August 1, 2020
Cost of goods sold$15,088 $11,849 $29,760 $24,515 
Selling, general and administrative14,496 10,309 28,498 22,382 
Total$29,584 $22,158 $58,258 $46,897 

The tax benefits related to stock-based compensation expense for the three and six month periods ended July 31, 2021 were $5.7 million and $11.0 million, respectively. The tax benefits related to stock-based compensation expense for the three and six month periods ended August 1, 2020 were $4.8 million and $10.2 million, respectively.

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

During the three and six month periods ended July 31, 2021 and August 1, 2020, shares purchased by the Company for tax withholding totaled 13,627 and 400,593, and 308 and 349,821, 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 performance goals 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 July 31, 2021, shares related to unvested restricted stock, restricted stock units, and performance share awards totaled 4.1 million shares. A summary of restricted stock, restricted stock units, and performance share award activity for the six month period ended July 31, 2021, is presented below:

(000, except per share data)Number of
shares
Weighted-average
grant date
fair value
Unvested at January 30, 20214,230 $85.15 
Awarded994 122.36 
Released(1,062)75.19 
Forfeited(106)94.62 
Unvested at July 31, 20214,056 $96.67 

The unamortized compensation expense at July 31, 2021, was $204.9 million, which is expected to be recognized over a weighted-average remaining period of 2.2 years. The unamortized compensation expense at August 1, 2020, was $152.4 million, which was expected to be recognized over a weighted-average remaining period of 2.2 years.

Employee stock purchase plan. Under the Employee Stock Purchase Plan (“ESPP”), eligible employees participating in the quarterly offering period can choose to have up to the lesser of 10% of their annual base earnings or the IRS annual share purchase limit of $25,000 in aggregate market value to purchase the Company’s common stock. The purchase price of the stock is 85% of the closing market price on the date of purchase. Purchases occur on a quarterly basis (on the last trading day of each calendar quarter). The Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date.

Note D: Earnings (Loss) Per Share

The Company computes and reports both basic earnings (loss) per share (“EPS”) and diluted EPS. Basic EPS is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings (loss) 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 anti-dilutive. 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 and restricted stock units. For periods of net loss, basic and diluted EPS are the same as the effect of the assumed vesting of restricted stock, restricted stock units, and performance share awards are anti-dilutive.

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For the three and six month periods ended July 31, 2021, approximately 4,400 and 2,200 weighted-average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive for the periods presented. For the three month period ended August 1, 2020, approximately 628,900 weighted-average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive for the period presented. For the six month period ended August 1, 2020, basic and diluted EPS were the same due to the Company’s net loss.

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

Three Months EndedSix Months Ended
Shares in (000s)Basic EPSEffect of
dilutive
common stock
equivalents
Diluted
EPS
Basic EPSEffect of
dilutive
common
stock
equivalents
Diluted
EPS
July 31, 2021
Shares352,865 2,070 354,935 352,927 2,234 355,161 
Amount$1.40 $(0.01)$1.39 $2.75 $(0.02)$2.73 
August 1, 2020 
     Shares
352,276 1,956 354,232 352,239  352,239 
     Amount
$0.06 $ $0.06 $(0.81)$ $(0.81)

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)July 31, 2021January 30, 2021August 1, 2020
$800 million revolving credit facility
$ $ $800,000 
Other short-term debt financing  2,507 
Total short-term debt$ $ $802,507 
6.530% Series B Senior Notes due 2021
$64,964 $64,910 $64,868 
3.375% Senior Notes due 2024
248,586 248,365 248,146 
4.600% Senior Notes due 2025
695,255 694,624 693,991 
0.875% Senior Notes due 2026
494,203 493,595  
4.700% Senior Notes due 2027
239,259 239,049 395,124 
4.800% Senior Notes due 2030
132,346 132,262 394,759 
1.875% Senior Notes due 2031
494,411 494,132  
5.450% Senior Notes due 2050
146,185 146,148 489,407 
Total long-term debt$2,515,209 $2,513,085 $2,286,295 
Less: current portion64,964 64,910  
Total due beyond one year$2,450,245 $2,448,175 $2,286,295 

Revolving credit facilities. The Company's $800 million unsecured revolving credit facility expires in July 2024, and contains a $300 million sublimit for issuance of standby letters of credit. The facility also contains an option allowing the Company to increase the size of its credit facility by up to an additional $300 million, with the agreement of the lenders. Interest on borrowings under this facility is based on LIBOR (or an alternate benchmark rate, if LIBOR is no longer available)
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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. Interest on the loan was based on LIBOR plus 0.875% (or 1.76%).

In May 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. In October 2020, the Company repaid in full the $800 million it borrowed under the unsecured revolving credit facility. As of July 31, 2021, the Company had no borrowings or standby letters of credit outstanding under this facility, the $800 million credit facility remains in place and available, and the Company was in compliance with the amended covenant.

In May 2020, the Company also entered into an additional $500 million 364-day senior revolving credit facility which was scheduled to expire in April 2021. In October 2020, the Company terminated this senior revolving credit facility. The Company had no borrowings under that credit facility at any time.

Senior notes. As of July 31, 2021, 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 a rate of 6.530%. Borrowings under these Senior Notes are subject to certain financial covenants that were amended in June 2020. As of July 31, 2021, the Company was in compliance with these covenants.

As of July 31, 2021, 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.

In October 2020, the Company accepted for repurchase approximately $775 million in aggregate principal amount of the senior notes issued in April 2020, pursuant to cash tender offers as follows: $351 million of the 2050 Notes, $266 million of the 2030 Notes, and $158 million of the 2027 Notes. The Company paid approximately $1.003 billion in aggregate consideration (including transaction costs, and accrued and unpaid interest) and recorded an approximately $240 million loss on the early extinguishment for the accepted senior notes.

In October 2020, the Company issued an aggregate of $1.0 billion in unsecured senior notes in two tenors as follows: 0.875% Senior Notes due April 2026 (the “2026 Notes”) with an aggregate principal amount of $500 million and 1.875% Senior Notes due April 2031 (the “2031 Notes”) with an aggregate principal amount of $500 million. Cash proceeds, net of discounts and other issuance costs, were approximately $987.2 million. Interest on the 2026 and 2031 Notes is payable semi-annually beginning April 2021. The Company used the net proceeds from the offering of the 2026 and 2031 Notes to fund the purchase of the accepted senior notes from its tender offers.

As of July 31, 2021, January 30, 2021, and August 1, 2020, total unamortized discount and debt issuance costs were $24.8 million, $26.9 million, and $28.7 million, respectively, and were classified as a reduction of Long-term debt.

All of the Senior Notes are subject to prepayment penalties for early payment of principal.

As of July 31, 2021 and January 30, 2021, the aggregate fair value of the eight outstanding series of Senior Notes was approximately $2.7 billion and $2.8 billion, respectively. As of August 1, 2020, the aggregate fair value of the six then outstanding series of Senior Notes was approximately $2.8 billion. 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.

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The table below shows the components of interest expense and income for the three and six month periods ended July 31, 2021 and August 1, 2020:

Three Months EndedSix Months Ended
($000)July 31, 2021August 1, 2020July 31, 2021August 1, 2020
Interest expense on long-term debt$22,205 $28,331 44,399 $38,512 
Interest expense on short-term debt 3,599  5,296 
Other interest expense291 1,031 621 1,309 
Capitalized interest(3,590)(3,349)(6,829)(5,503)
Interest income(199)(757)(435)(4,093)
Interest expense, net$18,707 $28,855 $37,756 $35,521 

Note F: Taxes on Earnings (Loss)

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, respectively. Subsequently, the Consolidated Appropriations Act of 2021 (“CAA”) and the American Rescue Plan Act (“ARPA”) were signed into law on December 27, 2020 and March 11, 2021, respectively. The CAA and ARPA made several changes to business tax provisions, including increasing and extending the employee retention credits through December 31, 2021, extending certain employment-related tax credits through December 31, 2025, and limiting certain executive compensation deductions, effective fiscal 2027.

The Company’s effective tax rates for the three month periods ended July 31, 2021 and August 1, 2020, were approximately 25% and 61%, respectively. The decrease in the effective tax rate of 36% for the three month period ended July 31, 2021 compared to the three month period ended August 1, 2020 was primarily due to fluctuations in pre-tax earnings (loss), partially offset by a revaluation of deferred taxes related to the CARES Act in the three month period ended August 1, 2020.

The Company’s effective tax rates for the six month periods ended July 31, 2021 and August 1, 2020, were approximately 24% and 31%, respectively. The decrease in the effective tax rate of 7% for the six month period ended July 31, 2021 compared to the six month period ended August 1, 2020 was primarily due to fluctuations in pre-tax earnings (loss). The Company's 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 uncertain tax positions.

As of July 31, 2021, January 30, 2021, and August 1, 2020, the reserves for unrecognized tax benefits were $75.6 million, $67.9 million, and $71.6 million, inclusive of $9.7 million, $7.7 million, and $8.5 million of related interest and penalties, 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, $60.3 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 $11.1 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 2017 through 2020. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2016 through 2020. 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.
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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 July 31, 2021 and August 1, 2020, the related condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and six month periods ended July 31, 2021 and August 1, 2020, and cash flows for the six month periods ended July 31, 2021 and August 1, 2020, 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 January 30, 2021, 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 30, 2021, 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 January 30, 2021 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
September 8, 2021
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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 also those in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for 2020. 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, in our Quarterly Report on Form 10-Q for the second quarter of fiscal 2019, and in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for 2020. 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 1,611 locations in 40 states, the District of Columbia and Guam as of July 31, 2021. 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 285 dd’s DISCOUNTS stores in 21 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.

Results of Operations

We believe sales for the second quarter of fiscal 2021 benefited substantially from a combination of ongoing government stimulus, increasing vaccination rates, diminishing COVID-19 restrictions, and strong execution of our merchandising strategies. During the quarter, we also experienced expense pressures from higher freight costs and distribution expenses primarily due to higher wages, of approximately 85 and 40 basis points, respectively (which impacted cost of goods sold) as well as ongoing COVID-related operating costs of approximately 45 basis points (the vast majority of which impacted our selling, general and administrative expenses (“SG&A”)). We expect higher freight costs to increase further, and higher distribution expenses and the ongoing COVID-related operating costs to continue throughout fiscal 2021.

It is difficult to predict the lasting impact from the factors that benefited our results for the second quarter and first half of fiscal 2021, in particular the government stimulus payments. In addition, there continues to be significant uncertainty surrounding the COVID-19 pandemic, including its unknown duration, the potential for future resurgences and new virus variants, and its potential impact on consumer demand. We also face potential risks from the worsening industry-wide supply chain congestion.

17


In this quarterly report, and in our reports throughout fiscal 2021, we will compare our results of operations to fiscal 2020 and also to fiscal 2019. We believe the extended closure of our operations in the spring of 2020, and the disruptions caused by COVID-19 throughout fiscal 2020, make fiscal 2019 a more useful and relevant basis for comparison in assessing our ongoing results of operations. The following table summarizes the financial results for the three and six month periods ended July 31, 2021, August 1, 2020, and August 3, 2019:

Three Months EndedSix Months Ended
July 31, 2021August 1, 2020August 3, 2019July 31, 2021August 1, 2020August 3, 2019
Sales
Sales (millions)$4,805$2,685$3,980$9,321$4,527$7,777
Comparable store sales growth (decline)15.0 %
1
(12 %)
2
%
3
14.0 %
1
n/a
4
%
3
Costs and expenses (as a percent of sales)
Cost of goods sold71.0 %77.4 %71.4 %70.9 %87.7 %71.3 %
Selling, general and administrative14.9 %19.4 %14.9 %14.9 %20.6 %14.8 %
Interest expense (income), net0.4 %1.1 %(0.1 %)0.4 %0.8 %(0.1 %)
Earnings (loss) before taxes (as a percent of sales)13.7 %2.1 %13.8 %13.8 %