rost-20220730
false2022Q200007457321/28P3YP3YP2Y00007457322022-01-302022-07-3000007457322022-08-12xbrli:shares00007457322022-05-012022-07-30iso4217:USD00007457322021-05-022021-07-3100007457322021-01-312021-07-31iso4217:USDxbrli:shares00007457322022-07-30rost:number_of_store00007457322021-07-3100007457322022-01-290000745732us-gaap:CommonStockMember2022-01-290000745732us-gaap:AdditionalPaidInCapitalMember2022-01-290000745732us-gaap:TreasuryStockMember2022-01-290000745732us-gaap:RetainedEarningsMember2022-01-290000745732us-gaap:RetainedEarningsMember2022-01-302022-04-3000007457322022-01-302022-04-300000745732us-gaap:CommonStockMember2022-01-302022-04-300000745732us-gaap:AdditionalPaidInCapitalMember2022-01-302022-04-300000745732us-gaap:TreasuryStockMember2022-01-302022-04-300000745732us-gaap:CommonStockMember2022-04-300000745732us-gaap:AdditionalPaidInCapitalMember2022-04-300000745732us-gaap:TreasuryStockMember2022-04-300000745732us-gaap:RetainedEarningsMember2022-04-3000007457322022-04-300000745732us-gaap:RetainedEarningsMember2022-05-012022-07-300000745732us-gaap:CommonStockMember2022-05-012022-07-300000745732us-gaap:AdditionalPaidInCapitalMember2022-05-012022-07-300000745732us-gaap:TreasuryStockMember2022-05-012022-07-300000745732us-gaap:CommonStockMember2022-07-300000745732us-gaap:AdditionalPaidInCapitalMember2022-07-300000745732us-gaap:TreasuryStockMember2022-07-300000745732us-gaap:RetainedEarningsMember2022-07-300000745732us-gaap:CommonStockMember2021-01-300000745732us-gaap:AdditionalPaidInCapitalMember2021-01-300000745732us-gaap:TreasuryStockMember2021-01-300000745732us-gaap:RetainedEarningsMember2021-01-3000007457322021-01-300000745732us-gaap:RetainedEarningsMember2021-01-312021-05-0100007457322021-01-312021-05-010000745732us-gaap:CommonStockMember2021-01-312021-05-010000745732us-gaap:AdditionalPaidInCapitalMember2021-01-312021-05-010000745732us-gaap:TreasuryStockMember2021-01-312021-05-010000745732us-gaap:CommonStockMember2021-05-010000745732us-gaap:AdditionalPaidInCapitalMember2021-05-010000745732us-gaap:TreasuryStockMember2021-05-010000745732us-gaap:RetainedEarningsMember2021-05-0100007457322021-05-010000745732us-gaap:RetainedEarningsMember2021-05-022021-07-310000745732us-gaap:CommonStockMember2021-05-022021-07-310000745732us-gaap:AdditionalPaidInCapitalMember2021-05-022021-07-310000745732us-gaap:TreasuryStockMember2021-05-022021-07-310000745732us-gaap:CommonStockMember2021-07-310000745732us-gaap:AdditionalPaidInCapitalMember2021-07-310000745732us-gaap:TreasuryStockMember2021-07-310000745732us-gaap:RetainedEarningsMember2021-07-310000745732rost:LadiesMember2022-05-012022-07-30xbrli:pure0000745732rost:LadiesMember2021-05-022021-07-310000745732rost:LadiesMember2022-01-302022-07-300000745732rost:LadiesMember2021-01-312021-07-310000745732rost:HomeAccentsandBedandBathMember2022-05-012022-07-300000745732rost:HomeAccentsandBedandBathMember2021-05-022021-07-310000745732rost:HomeAccentsandBedandBathMember2022-01-302022-07-300000745732rost:HomeAccentsandBedandBathMember2021-01-312021-07-310000745732rost:MensMember2022-05-012022-07-300000745732rost:MensMember2021-05-022021-07-310000745732rost:MensMember2022-01-302022-07-300000745732rost:MensMember2021-01-312021-07-310000745732rost:AccessoriesLingerieFineJewelryAndCosmeticsMember2022-05-012022-07-300000745732rost:AccessoriesLingerieFineJewelryAndCosmeticsMember2021-05-022021-07-310000745732rost:AccessoriesLingerieFineJewelryAndCosmeticsMember2022-01-302022-07-300000745732rost:AccessoriesLingerieFineJewelryAndCosmeticsMember2021-01-312021-07-310000745732rost:ShoesMember2022-05-012022-07-300000745732rost:ShoesMember2021-05-022021-07-310000745732rost:ShoesMember2022-01-302022-07-300000745732rost:ShoesMember2021-01-312021-07-310000745732rost:ChildrensMember2022-05-012022-07-300000745732rost:ChildrensMember2021-05-022021-07-310000745732rost:ChildrensMember2022-01-302022-07-300000745732rost:ChildrensMember2021-01-312021-07-310000745732us-gaap:PropertyPlantAndEquipmentMember2022-01-302022-07-300000745732us-gaap:PropertyPlantAndEquipmentMember2021-01-312021-07-3100007457322022-03-012022-03-3100007457322022-05-022022-05-3100007457322021-03-012021-03-3100007457322021-08-012021-08-3100007457322021-11-012021-11-3000007457322021-05-022021-05-310000745732us-gaap:SubsequentEventMember2022-08-172022-08-1700007457322022-03-3100007457322021-05-3100007457322021-01-312022-01-290000745732us-gaap:FairValueInputsLevel1Member2022-07-300000745732us-gaap:FairValueInputsLevel1Member2022-01-290000745732us-gaap:FairValueInputsLevel1Member2021-07-310000745732us-gaap:RestrictedStockMember2022-05-012022-07-300000745732us-gaap:RestrictedStockMember2021-05-022021-07-310000745732us-gaap:RestrictedStockMember2022-01-302022-07-300000745732us-gaap:RestrictedStockMember2021-01-312021-07-310000745732rost:PerformanceAwardsMember2022-05-012022-07-300000745732rost:PerformanceAwardsMember2021-05-022021-07-310000745732rost:PerformanceAwardsMember2022-01-302022-07-300000745732rost:PerformanceAwardsMember2021-01-312021-07-310000745732us-gaap:EmployeeStockMember2022-05-012022-07-300000745732us-gaap:EmployeeStockMember2021-05-022021-07-310000745732us-gaap:EmployeeStockMember2022-01-302022-07-300000745732us-gaap:EmployeeStockMember2021-01-312021-07-310000745732us-gaap:CostOfSalesMember2022-05-012022-07-300000745732us-gaap:CostOfSalesMember2021-05-022021-07-310000745732us-gaap:CostOfSalesMember2022-01-302022-07-300000745732us-gaap:CostOfSalesMember2021-01-312021-07-310000745732us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-05-012022-07-300000745732us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-05-022021-07-310000745732us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-01-302022-07-300000745732us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-312021-07-310000745732us-gaap:RestrictedStockMembersrt:MinimumMember2022-01-302022-07-300000745732us-gaap:RestrictedStockUnitsRSUMembersrt:MinimumMember2022-01-302022-07-300000745732us-gaap:RestrictedStockUnitsRSUMembersrt:MaximumMember2022-01-302022-07-300000745732us-gaap:RestrictedStockMembersrt:MaximumMember2022-01-302022-07-300000745732us-gaap:PerformanceSharesMembersrt:MinimumMember2022-01-302022-07-300000745732us-gaap:PerformanceSharesMembersrt:MaximumMember2022-01-302022-07-300000745732rost:RestrictedStockRestrictedStockUnitsAndPerformanceSharesMember2022-07-300000745732rost:RestrictedStockRestrictedStockUnitsAndPerformanceSharesMember2022-01-290000745732rost:RestrictedStockRestrictedStockUnitsAndPerformanceSharesMember2022-01-302022-07-300000745732rost:RestrictedStockRestrictedStockUnitsAndPerformanceSharesMember2021-07-310000745732rost:RestrictedStockRestrictedStockUnitsAndPerformanceSharesMember2021-01-312021-07-310000745732rost:SeriesBUnsecuredSeniorNotesMemberrost:SeniorNotesdue2021Member2022-07-300000745732rost:SeriesBUnsecuredSeniorNotesMemberrost:SeniorNotesdue2021Member2022-01-290000745732rost:SeriesBUnsecuredSeniorNotesMemberrost:SeniorNotesdue2021Member2021-07-310000745732rost:SeniorNotesdue2024Memberus-gaap:SeniorNotesMember2022-07-300000745732rost:SeniorNotesdue2024Memberus-gaap:SeniorNotesMember2022-01-290000745732rost:SeniorNotesdue2024Memberus-gaap:SeniorNotesMember2021-07-310000745732rost:SeniorNotesDue2025Memberus-gaap:SeniorNotesMember2022-07-300000745732rost:SeniorNotesDue2025Memberus-gaap:SeniorNotesMember2022-01-290000745732rost:SeniorNotesDue2025Memberus-gaap:SeniorNotesMember2021-07-310000745732rost:SeniorNotesDue2026Memberus-gaap:SeniorNotesMember2022-07-300000745732rost:SeniorNotesDue2026Memberus-gaap:SeniorNotesMember2022-01-290000745732rost:SeniorNotesDue2026Memberus-gaap:SeniorNotesMember2021-07-310000745732rost:SeniorNotesDue2027Memberus-gaap:SeniorNotesMember2022-07-300000745732rost:SeniorNotesDue2027Memberus-gaap:SeniorNotesMember2022-01-290000745732rost:SeniorNotesDue2027Memberus-gaap:SeniorNotesMember2021-07-310000745732rost:SeniorNotesDue2030Memberus-gaap:SeniorNotesMember2022-07-300000745732rost:SeniorNotesDue2030Memberus-gaap:SeniorNotesMember2022-01-290000745732rost:SeniorNotesDue2030Memberus-gaap:SeniorNotesMember2021-07-310000745732us-gaap:SeniorNotesMemberrost:SeniorNotesDue2031Member2022-07-300000745732us-gaap:SeniorNotesMemberrost:SeniorNotesDue2031Member2022-01-290000745732us-gaap:SeniorNotesMemberrost:SeniorNotesDue2031Member2021-07-310000745732rost:SeniorNotesDue2050Memberus-gaap:SeniorNotesMember2022-07-300000745732rost:SeniorNotesDue2050Memberus-gaap:SeniorNotesMember2022-01-290000745732rost:SeniorNotesDue2050Memberus-gaap:SeniorNotesMember2021-07-310000745732us-gaap:SeniorNotesMember2022-07-300000745732us-gaap:SeniorNotesMember2022-01-290000745732us-gaap:SeniorNotesMember2021-07-31rost:note0000745732us-gaap:FairValueInputsLevel1Memberus-gaap:SeniorNotesMember2022-07-300000745732us-gaap:FairValueInputsLevel1Memberus-gaap:SeniorNotesMember2022-01-290000745732us-gaap:FairValueInputsLevel1Memberus-gaap:SeniorNotesMember2021-07-310000745732rost:SeniorUnsecuredRevolvingCreditFacilityMember2022-02-280000745732rost:UnsecuredRevolvingCreditFacilityMember2022-01-31rost:renewal_option0000745732rost:SeniorUnsecuredRevolvingCreditFacilityMember2022-02-012022-02-280000745732us-gaap:StandbyLettersOfCreditMemberrost:SeniorUnsecuredRevolvingCreditFacilityMember2022-02-280000745732rost:UnsecuredRevolvingCreditFacilityMember2022-07-300000745732us-gaap:StandbyLettersOfCreditMember2022-07-30

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 30, 2022
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 12, 2022 was 347,062,803.
1


Ross Stores, Inc.
Form 10-Q
Table of Contents
Page
Item 1.
Condensed Consolidated Statements of Earnings–Three and six months ended July 30, 2022 and July 31, 2021
Condensed Consolidated Statements of Comprehensive Income–Three and six months ended July 30, 2022 and July 31, 2021
Condensed Consolidated Balance Sheets–July 30, 2022, January 29, 2022, and July 31, 2021
Condensed Consolidated Statements of Cash FlowsSix months ended July 30, 2022 and July 31, 2021
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Statements of Earnings
Three Months EndedSix Months Ended
($000, except stores and per share data, unaudited)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Sales$4,583,009 $4,804,974 $8,916,109 $9,321,054 
Costs and Expenses
Cost of goods sold3,399,535 3,410,871 6,595,981 6,609,267 
Selling, general and administrative667,063 717,788 1,336,559 1,392,841 
Interest expense, net10,667 18,707 28,363 37,756 
Total costs and expenses4,077,265 4,147,366 7,960,903 8,039,864 
Earnings before taxes505,744 657,608 955,206 1,281,190 
Provision for taxes on earnings121,227 163,350 232,244 310,453 
Net earnings$384,517 $494,258 $722,962 $970,737 
Earnings per share
Basic$1.11 $1.40 $2.09 $2.75 
Diluted$1.11 $1.39 $2.08 $2.73 
Weighted-average shares outstanding (000)
Basic344,884 352,865 345,969 352,927 
Diluted346,106 354,935 347,470 355,161 
Store count at end of period1,980 1,896 1,980 1,896 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


Condensed Consolidated Statements of Comprehensive Income
Three Months EndedSix Months Ended
($000, unaudited)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Net earnings$384,517 $494,258 $722,962 $970,737 
Other comprehensive income    
Comprehensive income
$384,517 $494,258 $722,962 $970,737 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4


Condensed Consolidated Balance Sheets
($000, except share data, unaudited)July 30, 2022January 29, 2022July 31, 2021
Assets
Current Assets
Cash and cash equivalents$3,903,670 $4,922,365 $5,569,071 
Accounts receivable167,503 119,247 159,163 
Merchandise inventory2,716,878 2,262,273 1,751,027 
Prepaid expenses and other197,020 169,291 193,588 
Total current assets6,985,071 7,473,176 7,672,849 
Property and Equipment
Land and buildings1,486,450 1,240,246 1,189,666 
Fixtures and equipment3,759,071 3,425,762 3,295,078 
Leasehold improvements1,366,999 1,332,687 1,280,505 
Construction-in-progress158,446 574,333 493,629 
  6,770,966 6,573,028 6,258,878 
Less accumulated depreciation and amortization3,841,192 3,674,501 3,512,670 
Property and equipment, net2,929,774 2,898,527 2,746,208 
Operating lease assets3,025,814 3,027,272 2,973,907 
Other long-term assets239,263 241,281 248,436 
Total assets$13,179,922 $13,640,256 $13,641,400 
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable$2,085,680 $2,372,302 $2,588,551 
Accrued expenses and other611,186 613,089 609,719 
Current operating lease liabilities647,504 630,517 608,123 
Accrued payroll and benefits300,611 588,772 445,307 
Income taxes payable 10,249 19,526 
Current portion of long-term debt  64,964 
Total current liabilities3,644,981 4,214,929 4,336,190 
Long-term debt2,454,413 2,452,325 2,450,245 
Non-current operating lease liabilities2,525,512 2,539,297 2,503,332 
Other long-term liabilities231,285 236,013 292,715 
Deferred income taxes196,780 137,642 154,932 
Commitments and contingencies
Stockholders’ Equity
Common stock, par value $.01 per share
   Authorized 1,000,000,000 shares
   Issued and outstanding 347,552,000, 351,720,000
   and 355,698,000 shares, respectively
3,475 3,517 3,557 
Additional paid-in capital1,769,424 1,717,530 1,645,118 
Treasury stock(574,529)(535,895)(527,565)
Retained earnings2,928,581 2,874,898 2,782,876 
Total stockholders’ equity4,126,951 4,060,050 3,903,986 
Total liabilities and stockholders’ equity$13,179,922 $13,640,256 $13,641,400 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


Condensed Consolidated Statements of Stockholders’ Equity
Six Months Ended July 30, 2022
Common stockAdditional
paid-in
capital
Treasury
stock
Retained
earnings
(000)Shares  AmountTotal
Balance at January 29, 2022351,720 $3,517 $1,717,530 $(535,895)$2,874,898 $4,060,050 
Net earnings— — — — 338,445 338,445 
Common stock issued under stock
plans, net of shares
used for tax withholding1,131 11 5,906 (38,113)— (32,196)
Stock-based compensation— — 36,071 — — 36,071 
Common stock repurchased(2,524)(25)(10,266)— (229,274)(239,565)
Dividends declared ($0.310 per share)
— — — — (108,908)(108,908)
Balance at April 30, 2022350,327 $3,503 $1,749,241 $(574,008)$2,875,161 $4,053,897 
Net earnings— — — — 384,517 384,517 
Common stock issued under stock
plans, net of shares
used for tax withholding153 1 5,974 (521)— 5,454 
Stock-based compensation— — 26,803 — — 26,803 
Common stock repurchased(2,928)(29)(12,594)— (222,812)(235,435)
Dividends declared ($0.310 per share)
— — — — (108,285)(108,285)
Balance at July 30, 2022347,552 $3,475 $1,769,424 $(574,529)$2,928,581 $4,126,951 
The accompanying notes are an integral part of these condensed consolidated financial statements.

Six Months Ended July 31, 2021
Common stockAdditional
paid-in
capital
Treasury
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 01, 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 
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 30, 2022July 31, 2021
Cash Flows From Operating Activities
Net earnings$722,962 $970,737 
Adjustments to reconcile net earnings to net cash (used in) provided
by operating activities:
Depreciation and amortization189,181 174,094 
Stock-based compensation62,874 58,258 
Deferred income taxes59,138 33,065 
Change in assets and liabilities:
Merchandise inventory(454,605)(242,045)
Other current assets(71,290)(63,420)
Accounts payable(288,454)360,891 
Other current liabilities(265,399)77,963 
Income taxes(13,941)(27,596)
Operating lease assets and liabilities, net4,660 2,654 
Other long-term, net(1,391)794 
Net cash (used in) provided by operating activities(56,265)1,345,395 
Cash Flows From Investing Activities
Additions to property and equipment(243,346)(254,437)
Net cash used in investing activities(243,346)(254,437)
Cash Flows From Financing Activities
Issuance of common stock related to stock plans11,892 12,534 
Treasury stock purchased(38,634)(49,015)
Repurchase of common stock(475,000)(175,784)
Dividends paid(217,193)(203,384)
Net cash used in financing activities(718,935)(415,649)
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents(1,018,546)675,309 
Cash, cash equivalents, and restricted cash and cash equivalents:
Beginning of period4,982,382 4,953,769 
End of period$3,963,836 $5,629,078 
Supplemental Cash Flow Disclosures
Interest paid$40,158 $42,051 
Income taxes paid $187,047 $304,984 
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 30, 2022 and July 31, 2021
(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 30, 2022 and July 31, 2021, the results of operations, comprehensive income, and stockholders’ equity for the three and six month periods ended July 30, 2022 and July 31, 2021, and cash flows for the six month periods ended July 30, 2022 and July 31, 2021. The Condensed Consolidated Balance Sheet as of January 29, 2022, 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 29, 2022.

The results of operations, comprehensive income, and stockholders’ equity for the three and six month periods ended July 30, 2022 and July 31, 2021, and cash flows for the six month periods ended July 30, 2022 and July 31, 2021 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 uncertainties and potential impacts from inflation, the Russia-Ukraine conflict, and the ongoing 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 30, 2022 and July 31, 2021:

Three Months EndedSix Months Ended
July 30, 2022

July 31, 2021July 30, 2022July 31, 2021
Ladies25 %27 %25 %25 %
Home Accents and Bed and Bath24 %24 %25 %25 %
Men’s16 %15 %15 %14 %
Accessories, Lingerie, Fine Jewelry, and Cosmetics14 %14 %14 %14 %
Shoes13 %12 %13 %13 %
Children’s8 %8 %8 %9 %
Total100 %100 %100 %100 %

Cash and cash equivalents. Cash equivalents consist of highly liquid, fixed income instruments purchased with an original maturity of three months or less.

8


Restricted cash, cash equivalents, and investments. Restricted cash, cash equivalents, and investments serve as collateral for certain insurance obligations. 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.

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 30, 2022January 29, 2022July 31, 2021
Cash and cash equivalents$3,903,670 $4,922,365 $5,569,071 
Restricted cash and cash equivalents included in:
  Prepaid expenses and other11,432 11,403 10,801 
  Other long-term assets48,734 48,614 49,206 
Total restricted cash and cash equivalents60,166 60,017 60,007 
Total cash and cash equivalents, and restricted cash and cash equivalents$3,963,836 $4,982,382 $5,629,078 
Property and equipment. As of July 30, 2022 and July 31, 2021, the Company had $24.4 million and $11.7 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. Supplemental cash flow disclosures related to 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 30, 2022July 31, 2021July 30, 2022July 31, 2021
Operating lease assets obtained in exchange for new operating lease liabilities
$126,236 $117,491 $314,081 $186,661 

Cash dividends. The Company’s Board of Directors declared a cash dividend of $0.310 per common share in March and May 2022, and $0.285 per common share in March, May, August, and November 2021.

On August 17, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.310 per common share, payable on September 30, 2022.

Stock repurchase program. In March 2022, the Company's Board of Directors approved a new two-year program to repurchase up to $1.9 billion of the Company's common stock through fiscal 2023. This new program replaced the previous $1.5 billion stock repurchase program, effective at the end of fiscal 2021 (at which time the Company had repurchased $650 million of stock under the $1.5 billion program). The Company repurchased 5.5 million shares of common stock for $475.0 million during the six month period ended July 30, 2022. The Company repurchased 1.4 million shares of common stock for $175.8 million during the six month period ended July 31, 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 30, 2022.

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
9


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 issued accounting standards. In November 2021, the FASB issued Accounting Standards Update (ASU) 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, to increase the transparency of the effects of government assistance, including disclosure of the types of assistance an entity receives, an entity’s method of accounting for government assistance, and the effect of government assistance on an entity’s financial statements. The guidance in this ASU will be effective for the Company for its fiscal 2022 Form 10-K. The Company is currently evaluating the impact of this guidance on its disclosures in the consolidated financial statements.

Note B: Fair Value Measurements

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 30, 2022January 29, 2022July 31, 2021
Cash and cash equivalents (Level 1)
$3,903,670 $4,922,365 $5,569,071 
Restricted cash and cash equivalents (Level 1)
$60,166 $60,017 $60,007 

The underlying assets in the Company’s non-qualified deferred compensation program as of July 30, 2022, January 29, 2022, and July 31, 2021 (included in Other long-term assets and in Other long-term liabilities) primarily consist of participant-directed money market, stock, and bond funds. The fair value measurement for funds with quoted market prices in active markets (Level 1) are as follows:

($000)July 30, 2022January 29, 2022July 31, 2021
Level 1$158,223 $163,891 $176,095 

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 2022, the Compensation Committee of the Board of Directors established the performance measures for determining cash incentive bonuses and performance share awards based on profitability-based performance goals.

For fiscal 2021, the Compensation Committee of the Board of Directors established the performance measures for determining cash incentive bonuses and performance share awards based on 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.
10



Stock-based compensation. For the three and six month periods ended July 30, 2022 and July 31, 2021, the Company recognized stock-based compensation expense as follows:

Three Months EndedSix Months Ended
($000)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Restricted stock$20,947 $16,057 $41,160 $34,646 
Performance awards4,801 12,385 19,614 21,399 
Employee stock purchase plan1,055 1,142 2,100 2,213 
Total$26,803 $29,584 $62,874 $58,258 

Total stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Earnings for the three and six month periods ended July 30, 2022 and July 31, 2021, is as follows:

Three Months EndedSix Months Ended
Statements of Earnings Classification ($000)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Cost of goods sold$15,675 $15,088 $34,221 $29,760 
Selling, general and administrative11,128 14,496 28,653 28,498 
Total$26,803 $29,584 $62,874 $58,258 

The tax benefits related to stock-based compensation expense for the three and six month periods ended July 30, 2022 were $5.3 million and $12.8 million, respectively. 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.

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 30, 2022 and July 31, 2021, shares purchased by the Company for tax withholding totaled 6,751 and 415,216, and 13,627 and 400,593, 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 30, 2022, shares related to unvested restricted stock, restricted stock units, and performance share awards totaled 4.6 million shares. A summary of restricted stock, restricted stock units, and performance share award activity for the six month period ended July 30, 2022, is presented below:

(000, except per share data)Number of
shares
Weighted-average
grant date
fair value
Unvested at January 29, 20224,378 $99.58 
Awarded1,466 89.00 
Released(1,106)89.76 
Forfeited(96)101.43 
Unvested at July 30, 20224,642 $98.40 

11


The unamortized compensation expense at July 30, 2022 was $239.1 million, which is expected to be recognized over a weighted-average remaining period of 2.2 years. The unamortized compensation expense at July 31, 2021, was $204.9 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 Per Share

The Company computes and reports both basic earnings per share (“EPS”) and diluted EPS. Basic EPS is computed by dividing net earnings by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period, 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 the three and six month periods ended July 30, 2022, approximately 1,509,000 and 747,000 weighted-average shares were excluded from the calculation of diluted EPS, respectively, because their effect would have been anti-dilutive for the periods presented. 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, respectively, because their effect would have been anti-dilutive for the periods presented.

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 30, 2022
Shares344,884 1,222 346,106 345,969 1,501 347,470 
Amount$1.11 $ $1.11 $2.09 $(0.01)$2.08 
July 31, 2021 
     Shares
352,865 2,070 354,935 352,927 2,234 355,161 
     Amount
$1.40 $(0.01)$1.39 $2.75 $(0.02)$2.73 

12


Note E: Debt

Long-term debt. Unsecured senior debt, net of unamortized discounts and debt issuance costs, consisted of the following:

($000)July 30, 2022January 29, 2022July 31, 2021
6.530% Series B Senior Notes due 2021
$ $ $64,964 
3.375% Senior Notes due 2024
249,032 248,808 248,586 
4.600% Senior Notes due 2025
696,523 695,888 695,255 
0.875% Senior Notes due 2026
495,425 494,814 494,203 
4.700% Senior Notes due 2027
239,684 239,470 239,259 
4.800% Senior Notes due 2030
132,516 132,431 132,346 
1.875% Senior Notes due 2031
494,972 494,691 494,411 
5.450% Senior Notes due 2050
146,261 146,223 146,185 
Total long-term debt$2,454,413 $2,452,325 $2,515,209 
Less: current portion  64,964 
Total due beyond one year$2,454,413 $2,452,325 $2,450,245 

As of July 30, 2022, January 29, 2022, and July 31, 2021, total unamortized discount and debt issuance costs were $20.6 million, $22.7 million, and $24.8 million, respectively, and were classified as a reduction of Long-term debt.

As of July 30, 2022 and January 29, 2022 the aggregate fair value of the seven outstanding series of Senior Notes was approximately $2.4 billion and $2.6 billion, respectively. As of July 31, 2021 the aggregate fair value of the eight then outstanding series of Senior Notes was approximately $2.7 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.

See Note D: Debt, in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022, for additional information regarding the terms of the Company’s unsecured senior notes.

Revolving credit facilities. In February 2022, the Company entered into a new, $1.3 billion senior unsecured revolving Credit Agreement (the “2022 Credit Facility”), which replaced its previous $800 million unsecured revolving credit facility. The 2022 Credit Facility expires in February 2027, and may be extended, at the Company's request and with the consent of the lenders, for up to two additional one year periods, subject to customary conditions. The new facility contains a $300 million sublimit for issuance of standby letters of credit. It also contains an option allowing the Company to increase the size of its credit facility by up to an additional $700 million, with the agreement of the committing lenders. The interest rate on borrowings under the 2022 Credit Facility is a term rate based on the Secured Overnight Financing Rate (“Term SOFR”) (or an alternate benchmark rate, if Term SOFR is no longer available) plus an applicable margin, and is payable quarterly and upon maturity. The 2022 Credit Facility is subject to a quarterly Consolidated Adjusted Debt to Consolidated EBITDAR financial leverage ratio covenant. As of July 30, 2022, the Company was in compliance with this financial covenant.

As of July 30, 2022, the Company had no borrowings or standby letters of credit outstanding under the 2022 Credit Facility, and the $1.3 billion credit facility remains in place and available.

13


The table below shows the components of interest expense and income for the three and six month periods ended July 30, 2022 and July 31, 2021:

Three Months EndedSix Months Ended
($000)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Interest expense on long-term debt$21,125 $22,205 42,279 $44,399 
Other interest expense406 291 794 621 
Capitalized interest(1,175)(3,590)(3,826)(6,829)
Interest income(9,689)(199)(10,884)(435)
Interest expense, net$10,667 $18,707 $28,363 $37,756 

Note F: Taxes on Earnings

The Company’s effective tax rates for the three month periods ended July 30, 2022 and July 31, 2021, were approximately 24% and 25%, respectively. The Company’s effective tax rate for the six month periods ended July 30, 2022 and July 31, 2021, was approximately 24%. 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 stock-based compensation, and uncertain tax positions.

As of July 30, 2022, January 29, 2022, and July 31, 2021, the reserves for unrecognized tax benefits were $69.3 million, $68.1 million, and $75.6 million, inclusive of $8.5 million, $7.6 million, and $9.7 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, $55.5 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 $11.5 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 2018 through 2021. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2017 through 2021. Certain federal and 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 July 30, 2022 and July 31, 2021, the related condensed consolidated statements of earnings, comprehensive income, and stockholders’ equity for the three and six month periods ended July 30, 2022 and July 31, 2021, and cash flows for the six month periods ended July 30, 2022 and July 31, 2021, 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 29, 2022, 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 29, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 29, 2022 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 7, 2022
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 also those in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for 2021. 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 in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for 2021. 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 1,669 locations in 40 states, the District of Columbia, and Guam as of July 30, 2022. 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 311 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

Sales underperformed our operating plans in the second quarter of fiscal 2022, and were impacted by the inflationary pressures our customers faced as well as an increasingly promotional retail environment. During the quarter, we experienced the deleveraging effects from a comparable store sales decline of 7% after a 15% gain in the second quarter of 2021 (versus 2019), which benefited from record government stimulus and pent-up customer demand as COVID-19 restrictions eased. In addition, we experienced ongoing headwinds from higher freight costs, which were partially offset by lower incentive compensation and COVID-19 costs. These factors resulted in diluted earnings per share of $1.11 in the second quarter of fiscal 2022, compared to $1.39 per share in the second quarter of fiscal 2021. We expect the higher freight costs and distribution expenses, which began rising in the second half of 2021, to continue through the third quarter of fiscal 2022, along with higher merchandise markdowns, which will continue through fiscal 2022.

There remains significant uncertainty in the current macro-economic environment, driven by inflation and the contributing impacts from the Russia-Ukraine conflict, increasing interest rates, and concerns of a possible recession. These factors impact both consumer demand and many of the costs in our business. In addition, there continues to be uncertainty surrounding the COVID-19 pandemic, including its unknown duration, the potential for future resurgences and new virus variants, its potential impact on consumer behavior and shopping patterns, and the potential adverse impact on our business.
16


The following table summarizes the financial results for the three and six month periods ended July 30, 2022 and July 31, 2021:

Three Months EndedSix Months Ended
July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Sales
Sales (millions)$4,583$4,805$8,916$9,321
Comparable store sales (decline) growth(7 %)
1
15 %
2
(7 %)
1
14 %
2
Costs and expenses (as a percent of sales)
Cost of goods sold74.2 %71.0 %74.0 %70.9 %
Selling, general and administrative14.5 %14.9 %15.0 %14.9 %
Interest expense, net0.3 %0.4 %0.3 %0.4 %
Earnings before taxes (as a percent of sales)11.0 %13.7 %10.7 %13.8 %
Net earnings (as a percent of sales)8.4 %10.3 %8.1 %10.4 %
1 Amounts shown are for the three and six month periods of fiscal 2022 compared to the same periods of fiscal 2021 for stores that have been open for more than 14 complete months.
2 Amounts shown are for the three and six month periods of fiscal 2021 compared to the same periods of fiscal 2019. Comparable store sales for this purpose represents sales from stores that were open at the end of fiscal 2018, plus new stores opened in fiscal 2019, less stores closed in fiscal 2019 and fiscal 2020.

Stores. We opened 29 new stores in the second quarter of fiscal 2022 and expect to open approximately 100 new stores for the year. Our longer-term 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 EndedSix Months Ended
Store CountJuly 30, 2022July 31, 2021July 30, 2022July 31, 2021
Beginning of the period 1,951 1,866 1,923 1,859 
Opened in the period29 30 59 37 
Closed in the period
 — (2)
1
— 
End of the period1,980 1,896 1,980 1,896 
1 Includes a temporary closure of a store impacted by a weather event.

Sales. Sales for the three and six month periods ended July 30, 2022 decreased $0.2 billion and $0.4 billion, respectively, or 4.6% and 4.3%, respectively, compared to the three and six month periods ended July 31, 2021, primarily due to the 7% same store sales declines versus the prior year periods (which benefited from record government stimulus and pent-up customer demand as COVID-19 restrictions eased), combined with escalating inflationary pressures on consumer disposable income in the current quarter and fiscal year to date. These same store sales declines were partially offset by the opening of 84 net new stores between July 31, 2021 and July 30, 2022.
17


Our sales mix for the three and six month periods ended July 30, 2022 and July 31, 2021 is shown below:

Three Months EndedSix Months Ended
July 30, 2022

July 31, 2021July 30, 2022July 31, 2021
Ladies25 %27 %25 %25 %
Home Accents and Bed and Bath24 %24 %25 %25 %
Men’s16 %15 %15 %14 %
Accessories, Lingerie, Fine Jewelry, and Cosmetics14 %14 %14 %14 %
Shoes13 %12 %13 %13 %
Children’s8 %%8 %%
Total100 %100 %100 %100 %

We intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies, and by continuing to strengthen our merchant organization, adjust our merchandise mix, and more fully develop our systems to improve our merchandise offerings. We cannot be sure that our strategies and our store expansion program will result in a continuation of our historical sales growth or an increase in net earnings.

Cost of goods sold. Cost of goods sold for the three and six month periods ended July 30, 2022 decreased $11.3 million and $13.3 million, respectively, compared to the three and six month periods ended July 31, 2021, primarily due to lower sales, partially offset by the opening of 84 net new stores between July 31, 2021 and July 30, 2022.

Cost of goods sold as a percentage of sales for the three month period ended July 30, 2022 increased approximately 320 basis points compared to the three month period ended July 31, 2021, primarily due to a 205 basis point decline in merchandise margin primarily due to higher ocean freight costs and increased markdowns, an 85 basis point increase in distribution expenses primarily due to a combination of unfavorable timing of packaway inventory carrying costs and deleverage from our new distribution center, deleverage of 55 basis points in occupancy costs, and a 35 basis point increase in domestic freight costs mainly driven by higher fuel costs. These increases were partially offset by a 60 basis point decrease in buying costs primarily due to lower incentive compensation expenses.

Cost of goods sold as a percentage of sales for the six month period ended July 30, 2022 increased approximately 305 basis points compared to the six month period ended July 31, 2021, primarily due to a 185 basis point decline in merchandise margin primarily due to higher ocean freight costs and increased markdowns, a 60 basis point increase in domestic freight costs mainly driven by higher fuel and costs associated with the industry-wide supply chain congestion, a 55 basis point increase in distribution expenses primarily due to deleverage from our new distribution center and higher wages, and deleverage of 50 basis points in occupancy costs. These increases were partially offset by a 45 basis point decrease in buying costs primarily due to lower incentive compensation expenses.

We expect higher freight costs and distribution expenses to continue to impact cost of goods sold in the third quarter of fiscal 2022, along with increased merchandise markdowns, which will continue through fiscal 2022.

Selling, general and administrative expenses. For the three and six month periods ended July 30, 2022, selling, general and administrative expenses ("SG&A") decreased $50.7 million and $56.3 million, respectively, compared to the three and six month periods ended July 31, 2021. These decreases were primarily due to lower incentive compensation and COVID-19 costs, partially offset by the opening of 84 net new stores between July 31, 2021 and July 30, 2022.

SG&A as a percentage of sales for the three month period ended July 30, 2022 decreased 40 basis points, compared to the three month period ended July 31, 2021, primarily due to lower incentive compensation and COVID-19 costs which more than offset the deleveraging effect of lower comparable store sales.

SG&A as a percentage of sales for the six month period ended July 30, 2022 increased 5 basis points, compared to the six month period ended July 31, 2021, primarily due to higher wages and the deleveraging effect of lower comparable store sales, partially offset by lower incentive compensation and COVID-19 costs.

We expect our operating costs in fiscal 2022 to continue to reflect the impact from higher wages and inflation.

18


Interest expense, net. Interest expense, net for the three and six month periods ended July 30, 2022 decreased $8.0 million and $9.4 million, respectively, compared to the same periods in the prior year. These decreases were primarily due to higher interest income, lower interest expense on long-term debt due to the repayment of the principal on the $65.0 million notes in fiscal 2021, partially offset by lower capitalized interest.

Interest expense, net for the three and six month periods ended July 30, 2022 and July 31, 2021 consists of the following:

Three Months EndedSix Months Ended
($000)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Interest expense on long-term debt$21,125 $22,205 $42,279 $44,399 
Other interest expense