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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 28, 1995
OR
TRANSITION REPORT PURSUANT TO
SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from _______ to _______
Commission file number 0-14678
ROSS STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1390387
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
8333 Central Avenue, Newark, California 94560-3433
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including (510) 505-4400
area code:
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
---------------------------- --------------------------------
Common stock, par value $.01 NASDAQ/NMS
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 X No
Indicate by check mark if disclosure of delinquent files pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 31, 1995 was $270,946,654.
The number of shares of Common Stock, with $.01 par value, outstanding on
March 31, 1995 was 24,631,514.
Documents incorporated by reference:
Portions of the Proxy Statement for Registrant's Annual
Meeting of Stockholders, to be held Thursday, May 25, 1995,
are incorporated herein by reference into Part III.
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2
PART I
ITEM 1. BUSINESS
Ross Stores, Inc. operates a chain of off-price retail apparel
stores which target value conscious men and women between the ages
of 25 and 54 in white collar, middle-to-upper middle income
households, which the company believes to be the largest customer
segment in the retailing industry. The decisions of the company,
from merchandising, purchasing and pricing, to the location of its
stores, are aimed at its customer base. The company offers its
merchandise at low everyday prices, generally 20% to 60% below
regular prices of most department and specialty stores. The
company believes it derives a competitive advantage by offering a
wide assortment of quality brand-name merchandise within each of
its merchandise categories in an attractive easy-to-shop
environment.
Ross Stores' mission is to offer competitive values to its
target customers by focusing on the following key strategic
objectives: achieve an appropriate level of brands and labels at
strong discounts throughout the store; meet customer needs on a
more regional basis; deliver an in-store shopping experience that
reflects the expectations of the off-price customer; and manage
real estate growth to maintain dominance or achieve parity with the
competition in key markets.
The original Ross Stores, Inc. was incorporated in California
in 1957. In August 1982, the company was purchased by some of its
current stockholders and restaffed with a new management team. The
six stores acquired at the time were completely refurbished in the
company's current off-price format and stocked with new
merchandise.
At the stockholders' meeting in May 1989, the company's
stockholders approved the reincorporation of Ross Stores, Inc., in
the state of Delaware. The reincorporation was completed in June
1989.
Merchandising, Purchasing and Pricing
Ross seeks to provide its target customers with a wide
assortment of first quality, in-season, name brand apparel,
accessories and footwear for the entire family at everyday savings
of 20% to 60% from regular department and specialty store prices,
as well as similar savings on fragrances and gift items for the
home. In 1994 Ross introduced its new Bed and Bath Department in
72 stores, featuring tabletop, bed and bath linens and bath
accessories. The company reviews its merchandise mix each week,
enabling it to respond to merchandise trends and purchasing
opportunities in the market. The company's merchandising strategy
is reflected in its television and newspaper advertising, which
emphasizes a strong value message: Ross' customers get great prices
everyday of the year. Although not a fashion leader, the company
sells recognizable branded merchandise that is current and
fashionable in each category.
Merchandising. The Ross merchandising strategy incorporates
mainly in-season apparel, shoes and accessories for the entire
family, as well as fragrances and giftware and linens for the home.
The company's emphasis on brand names reflects management's
conviction that brand-name merchandise sold at affordable prices
will continue to be an important determinant of its success. Ross
leaves the brand-name label on the merchandise it sells.
The company has established a merchandise assortment which it
believes is attractive to its target customer group. Although Ross
Stores offers fewer classifications of merchandise than most
department stores, the company generally offers a large selection
of brand names within each classification with a wide assortment of
vendors, prices, colors, styles and fabrics within each size.
During the year ended January 28, 1995, the overall merchandise
sales mix was approximately 95% first quality merchandise and 5%
irregulars. Ross clears out all in-store seasonal inventory on a
semi-annual basis. During the past year, the respective
departments accounted for total sales approximately as follows:
Ladies 40%, Men's 24%, Accessories, Hosiery and Lingerie 10%, Shoes
10%, Children's 8%, and Fragrances, Home Accents and Bed and
Bath 8%.
3
Purchasing. During the past three years, no single vendor has
accounted for more than 2% of the company's purchases. The company
continues to add new vendors and believes it has adequate sources
of first quality merchandise to meet its requirements. The company
purchases the vast majority of its merchandise directly from
manufacturers and has not experienced any difficulty in obtaining
sufficient inventory.
The company believes that its ability to effectively execute
certain off-price buying strategies is a key factor in its
business. Ross buyers use a number of methods that enable the
company to offer customers name brand merchandise at strong
everyday discounts relative to department and specialty stores. By
purchasing later in the merchandise buying cycle than department
and specialty stores, Ross is able to take advantage of imbalances
of manufacturer-projected supply of merchandise.
The company has increased its emphasis in recent years on
opportunistic purchases created by manufacturer overruns and
canceled orders during and at the end of a season. These buys are
referred to as "closeout" or "packaway" purchases. Closeouts can
be shipped to stores in season or stored in the company's
warehouses until the beginning of the next selling season (i.e.,
packaway). The company has put more emphasis on packaway purchases
as this technique is an effective method of increasing the
percentage of prestige and national brands at competitive savings
within the merchandise assortments. Purchases of packaway
merchandise are goods that are not usually affected by seasonal
shifts in fashion trends.
Ross, unlike most department and specialty stores, does not
require that manufacturers provide it with promotional and markdown
allowances, return privileges and delayed deliveries. In addition,
Ross requires only one invoice for each delivery and deliveries are
made to one of the company's two distribution centers. These
flexible requirements further enable the company's buyers to obtain
significant discounts on in-season purchases.
Ross Stores' buying offices are located in New York City and
Los Angeles, the nation's two largest apparel markets. These
strategic locations allow buyers to be in the market on a daily
basis, sourcing opportunities and negotiating purchases with
vendors and manufacturers. These locations also enable the
company's buyers to strengthen vendor relationships, a key
determinant in the success of its off-price buying strategies.
The company's buyers have an average of 15 years of
experience, including experience with other retailers such as
Bloomingdale's, Burlington Coat Factory, Dayton Hudson, Lord &
Taylor, Macy's, Marshalls and TJ Maxx. The company has recently
increased the size of its merchandising staff, which is comprised
of general and divisional merchandise managers, buyers and
assistant buyers. Management believes that these increased
resources will enable its merchants to spend even more time in the
market, which should strengthen the company's ability to procure
the most desirable brands at competitive discounts.
The combination of the above off-price buying strategies
enables the company to purchase merchandise at net prices which are
lower than prices paid by department and specialty stores.
As a summary, important factors in the company's ability to
execute its purchasing strategy are the following:
An enlarged merchandising staff strategically located in the
New York and Los Angeles garment districts;
Experienced buyers who select and price the merchandise for
the company's stores and make markdown decisions with pre-arranged
budgets as a guide;
Off-price buying techniques that enable the company to offer
strong discounts everyday on name brand merchandise;
4
A fully-integrated, on-line management information system
which provides buyers with accurate and timely information on a
weekly basis; and
The company's ability to pay its vendors quickly.
Pricing. The company's policy is to sell merchandise which
can generally be priced at 20% to 60% less than most department and
specialty store regular prices. The Ross pricing policy is to
affix to all brand name merchandise a ticket displaying the
company's selling price as well as the estimated comparable selling
price of that item at department and specialty stores.
The Ross pricing strategy differs from that of a department or
specialty store. Ross purchases its merchandise at lower prices
and marks it up less than a department or specialty store. This
strategy enables Ross to offer customers consistently low prices.
Ticketed prices are not increased and are reviewed weekly for
possible markdowns based on the rate of sales to promote faster
turnover of inventory and accelerate the flow of fresh merchandise.
Operating Costs
Consistent with the other aspects of its business strategy,
Ross strives to keep operating costs as low as possible. Among the
factors which have enabled the company to operate at low costs to
date are:
Reduced in-store labor costs resulting from a store design which
directs customers to merchandise, a self-selection retail format
and utilization of labor saving technologies;
Economies of scale with respect to general and administrative
costs as a result of centralized merchandising, marketing and
purchasing decisions;
Model store layout criteria which facilitate conversion of
existing buildings to the Ross format; and
A fully-integrated, on-line management information system which
enables the company to respond quickly when making purchasing,
merchandising and pricing decisions.
The Ross Store
As of January 28, 1995, the company operated 275 stores. The
typical new Ross store is approximately 28,160 square feet,
yielding approximately 22,300 square feet of selling space. All
stores are leased, with the exception of one. They are
conveniently located predominantly in community and neighborhood
strip shopping centers in heavily populated urban and suburban
areas. Where the size of the market permits, the company clusters
stores to maximize economies of scale in advertising, distribution
and management. During the year, the average Ross store employs
approximately 37 full-and part-time people.
The company believes a key element of its success is the
attractive, easy-to-shop environment in its stores which allows
each customer to shop at his or her own pace. The Ross store's
sales area is based on a prototype single floor design with a
racetrack aisle layout. A customer can locate desired departments
by signs displayed just below the ceiling of each department. Ross
encourages its customers to select among sizes and prices through
prominent category and sizing markers, promoting a self-service
atmosphere. Shopping carts are available at the entrance for
customer convenience. Checkout stations are located at store
entrances for customer ease and efficient employee assignment.
The Ross store is designed for customer convenience in its
merchandise presentation, dressing rooms, and checkout and
merchandise return areas. Racks, displays and dressing rooms are
kept neat and orderly. It is the company's policy to minimize
transaction time for the customer at the checkout counter by
opening a new register whenever a line has three or more customers
and by using electronic systems for scanning each ticket at the
point of sale and authorizing credit for personal checks and credit
cards in a matter of seconds. Approximately one-third of payments
are made with credit cards. Ross provides full cash or credit card
refunds on all merchandise returned with a receipt within 30 days
and believes this policy appeals to its customers.
5
Distribution
Each Ross store is serviced by the company's two distribution
centers located in Newark California (approximately 494,000 square
feet) and Carlisle, Pennsylvania (approximately 424,000 square
feet). Having a distribution center on each coast enhances cost
efficiencies per unit and decreases turn-around time in getting the
merchandise from the vendors to the stores.
Turn-around time between receipt of goods at the distribution
centers and when they are staged and ready for shipment to the
stores is approximately five days. Shipments are made by contract
carriers to the stores three to five times a week depending on
location.
Ross is developing new systems to improve its distribution
process. The company's objective is to automate as many functions
as possible thereby reducing paper flow and its associated costs.
The new Distribution Center Information System should contribute to
improved merchandise flow, faster and more accurate processing of
receipts, reduced labor costs and shrinkage, and better reporting
to facilitate decision-making by managers. The initial phase of
the new Distribution Center Information System is expected to be in
place by the end of 1995. The company expects that it will begin
to realize cost benefits from these improvements in 1996.
Advertising
During the fiscal years 1994, 1993 and 1992, advertising costs
were approximately $36.5 million, $33.8 million and $34.1 million.
The company utilizes extensive advertising which emphasizes
quality, brand-name merchandise at low everyday prices. The
company predominantly uses television advertising. This reflects
the company's belief that television is the best medium for
presenting Ross' everyday low price message.
Control Systems
The company's management information system fully integrates
data from significant phases of its operations and is a key element
in the company's planning, purchasing, distribution and pricing
decisions. The system enables Ross to respond to changes in the
retail market and to increase speed and accuracy in its merchandise
distribution.
Data from the current and last fiscal year can be monitored on
levels ranging from merchandise classification units to overall
totals for the company. Data important to the decision-making
process is on-line, real time data to all authorized users.
Merchandise is tracked by the system from the creation of its
purchase order, through its receipt at the distribution center,
through the distribution planning process, and ultimately to the
point of sale.
In addition to its new distribution center technology, the
company is also developing new store-based systems which are
designed to speed up, simplify and automate most transactions at
the point of sale and the stores' back offices. Ross plans to
conduct a pilot test in the summer of 1995 followed by a limited
roll-out for the remainder of 1995 and a chain-wide roll-out in
1996. The company expects that it will begin to realize cost
benefits from these improvements in 1996 as the technology is
phased into more stores.
Stores
From August 1982 to January 28, 1995, the company expanded
from six stores in California to 275 stores in 18 states: Arizona,
California, Colorado, Florida, Georgia, Hawaii, Idaho, Maryland,
Nevada, New Jersey, New Mexico, Oklahoma, Oregon, Pennsylvania,
Texas, Utah, Virginia and Washington.
The company's real estate strategy is to open additional
stores in existing market areas, to increase its market penetration
and reduce overhead and advertising expenses as a percentage of
sales in each market. Important considerations in evaluating a new
market are the availability of potential sites, demographic
characteristics, competition and population density of the market.
6
During 1994, store expansion accelerated with the addition of
35 new Ross `Dress For Less' stores. Ross acquired the lease rights
to six former Builder's Emporium stores in Southern California in
late 1993 and eight former Solo Serve stores in the company's
newest market -- Houston, Texas -- in mid-1994. In 1995 and 1996,
the company plans to focus on opening its new stores in existing
markets.
Competition
The national apparel retail market is highly fragmented. Ross
faces intense competition for business from department stores,
specialty stores, discount stores, other off-price retailers and
manufacturer-owned outlet stores, many of which are units of large
national or regional chains that have substantially greater
resources than the company. The retail apparel business may become
even more competitive in the future. The company believes that the
principal competitive factors in the off-price retail apparel
industry are offering large discounts on name brand merchandise
appealing to its target customer and consistently providing a store
environment that is convenient and easy to shop. To execute this
concept, the company has strengthened its buying organization and
is making buying decisions based on regional and/or local factors
as well as improving cost efficiencies to leverage expenses and
mitigate competitive pressures on gross margin. The company
believes that it is well positioned to compete on the basis of each
of these factors.
Trademarks and Service Marks
The service mark and trademark for Ross Shoes For Less and Ross
Dress For Less has been registered, or has an application pending,
with the United States Patent and Trademark Office.
Employees
At January 28, 1995, the company had 10,574 employees which
includes an estimated 6,073 part-time employees. Of the full-time
employees, approximately 428 are administrative employees, 509 are
distribution center employees and 3,564 are store employees. The
company's employees are non-union. Management of the company
considers the relationship between the company and its employees to
be excellent.
Seasonality
The combined sales of the company for the third and fourth
(holiday) fiscal quarters are higher than the combined sales for
the first two fiscal quarters. The company has realized a
significant portion of its profits in each fiscal year during the
fourth quarter. Intensified price competition, lower-than-
anticipated consumer demand or other seasonal factors, if they were
to occur during the last six months, and in particular during the
fourth quarter, could adversely affect the company's fiscal year
results.
ITEM 2. PROPERTIES
The company currently leases its Newark, California
distribution center, corporate and buying offices, store
facilities, and some of its fixtures and equipment. The company
owns its distribution center in Carlisle, Pennsylvania, which has
an outstanding mortgage value of $10.1 million at the end of the
1994 fiscal year. As of January 28, 1995, the company's 275 stores
generally range in size from 24,000 to 30,000 gross square feet,
and have an average of 22,000 square feet of selling space. During
the fiscal year ended January 28, 1995, no one store accounted for
more than 2% of the company's sales.
Where possible, the company has obtained sites in existing
buildings requiring minimal alterations. This has allowed Ross to
establish stores in new locations in a relatively short period of
time at reasonable costs in a given market.
At January 28, 1995, the majority of the company's stores had
unexpired original lease terms ranging from one to ten years with
two to three renewal options of five years each. The average
unexpired original lease term of its leased stores is six years, or
19 years if renewal options are included. See Note D of Notes to
Consolidated Financial Statements. Most of the company's store
leases contain a provision for
7
percentage rental payments after a specified sales level has been
achieved. To date, the company has been able to secure leases in
suitable locations for its stores.
The company's two distribution centers provide the company
with the potential warehouse/distribution capacity to support its
growth through 1996 at which time Ross anticipates it will need to
add more space. Management currently is studying its options on
the best way to expand its warehouse and distributions facilities.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
EXECUTIVE OFFICERS OF THE REGISTRANT
The following list sets forth the names and ages of all
executive officers of the company, indicating each person's
principal occupation or employment during the past five years. The
term of office is at the pleasure of the Board of Directors.
Name Age Position
Norman A. Ferber 46 Director, Chairman of the Board and
Chief Executive Officer
Melvin A. Wilmore 49 Director, President and Chief
Operating Officer
Michael A. Balmuth 44 Executive Vice President,
Merchandising
Earl T. Benson 47 Senior Vice President, Chief
Financial Officer and Corporate
Secretary
Michael J. Bush 34 Senior Vice President, Marketing and
Strategic Planning
James S. Fassio 40 Senior Vice President, Property
Development
Barry S. Gluck 42 Senior Vice President and General
Merchandising Manager
Peter C.M. Hart 44 Senior Vice President, Management
Information Systems and Distribution
James S. Jacobs 50 Senior Vice President, Store
Operations
Irene Jamieson 44 Senior Vice President and General
Merchandising Manager
Stephen F. Joyce 53 Senior Vice President, Human
Resources
Barbara Levy 40 Senior Vice President and General
Merchandising Manager
John M. Vuko 44 Senior Vice President, Controller
and Principal Accounting Officer
_____________________________
Mr. Ferber has served as Chairman of the Board of Directors
and Chief Executive Officer since March 1993. Prior to March 1993,
he served as President and Chief Executive Officer since January
1988. From February 1987 to January 1988, he served as President
and Chief Operating Officer. Prior to February 1987, Mr. Ferber
was Executive Vice President, Merchandising, Marketing and
Distribution of the company. Mr. Ferber joined the company in
October 1982.
Mr. Wilmore has served as President, Chief Operating Officer
and a member of the Board of Directors since March 1993. Prior to
this, he served as Executive Vice President and Chief Operating
Officer since December 1991. From October 1989 to December 1991,
he was Chief Executive Officer of Live Specialty Retail, a division
of LIVE Entertainment, Inc. From March 1988 to June 1989, he was
President/General Partner of Albert's Acquisition Corporation.
From March 1987 to March 1988, Mr. Wilmore was engaged in the
acquisition of Albert's Hosiery and Bodywear by Albert's
Acquisition Corporation. From April 1984 to March 1987, he was the
President and Chief Operating Officer of Zale Jewelry Stores, a
division of Zale Corporation.
9
Mr. Balmuth became Executive Vice President, Merchandising in
July 1993. Prior to this he served as Senior Vice President and
General Merchandise Manager since November 1989. Before joining
Ross, he was Senior Vice President and General Merchandise Manager
at Bon Marche in Seattle from September 1988 through November 1989.
From April 1986 to September 1988, he served as Executive Vice
President and General Merchandise Manager for Karen Austin Petites.
Mr. Benson has served as Senior Vice President, Chief
Financial Officer, and Corporate Secretary since May 1988. He
joined the company in June 1984 as Controller, Treasurer and
Assistant Secretary and became a Vice President in October 1987.
Mr. Bush has served as Senior Vice President, Marketing and
Strategic Planning since March 1993. He joined the company in
April 1991 as Vice President, Strategic Planning. Prior to joining
Ross, Mr. Bush was affiliated with the consulting firm, Bain &
Company, Inc.
Mr. Fassio has served as Senior Vice President, Property
Development since March 1991. He joined the company in June 1988
as Vice President of Real Estate. Prior to joining Ross, Mr.
Fassio was Vice President, Real Estate and Construction at
Craftmart and Property Director of Safeway Stores, Inc.
Mr. Gluck has served as Senior Vice President and General
Merchandise Manager since August 1993. He joined the company in
February 1989 as Vice President and Divisional Merchandise Manager.
Prior to joining Ross, Mr. Gluck served as General Merchandise
Manager, Vice President for Today's Man from May 1987 to February
1989.
Mr. Hart has served as Senior Vice President, Management
Information Systems (MIS) and Distribution since November 1988.
From January 1987 to November 1988, he served as Senior Vice
President of MIS. Mr. Hart joined the company in February 1983.
Mr. Jacobs has served as Senior Vice President, Store
Operations since November 1988. From November 1986 to October
1988, he served as Regional Vice President, Director of Stores for
the J.W. Robinson's division of May Department Stores.
Ms. Jamieson became Senior Vice President and General
Merchandise Manager in January 1995. From December 1992 to January
1995, she served as Vice President and Divisional Merchandise
Manager. Prior to joining Ross, Ms. Jamieson served as Vice
President and Divisional Merchandise Manager of the Home Store for
Lord & Taylor from September 1983 to December 1992.
Mr. Joyce has served as Senior Vice President, Human Resources
since July 1988. Before joining Ross, he was Vice President, Human
Resources at Denny's, Inc. since February 1983.
Ms. Levy has served as Senior Vice President and General
Merchandise Manager since May 1993. Prior to joining Ross, Ms.
Levy was with R. H. Macy & Co., Inc. most recently as Senior Vice
President and General Merchandise Manager from January 1992 to
April 1993 and before that as their Regional Director - Stores from
May 1989 to January 1992 and from August 1985 to May 1989 she was
their Divisional Merchandise Manager - Better Sportswear.
Mr. Vuko has served as Senior Vice President, Controller and
Principal Accounting Officer since June 1992. He joined the
company in October 1989 as Vice President, Treasurer and
Controller.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
See the information set forth under the caption "Quarterly
Financial Data (Unaudited)" under Note J of Notes to Consolidated
Financial Statements in Item 8 of this document which is
incorporated herein by reference. The company's stock is traded on
the Nasdaq National Market System under the symbol ROST. The
number of stockholders of record as of April 10, 1995 was 1,186.
The company's Board of Directors declared an initial quarterly cash
dividend of $0.05 per common share on January 27, 1994. On January
26, 1995, the quarterly cash dividend was increased to $0.06 per
common share.
ITEM 6. SELECTED FINANCIAL DATA
($000, except per share data) 1994 1993 1992 1991 1990 1989
Operations
Sales $1,262,544 $1,122,033 $1,043,062 $926,377 $798,350 $733,469
Cost of goods sold and
occupancy 920,265 814,745 742,749 656,504 568,896 508,788
Percent of sales 72.9% 72.6% 71.2% 70.9% 71.3% 69.4%
General, selling and
administrative 263,777 235,558 221,795 203,120 184,140 159,560
Percent of sales 20.9% 21.0% 21.3% 21.9% 23.1% 21.8%
Depreciation and
amortization 24,017 20,539 18,740 15,922 13,140 11,961
Interest 3,528 2,318 3,071 5,395 6,955 5,907
Insurance Proceeds (10,412)
Earnings before taxes 61,369 48,873 56,707 45,436 25,219 47,253
Percent of sales 4.9% 4.4% 5.4% 4.9% 3.2% 6.4%
Provision for taxes
on earnings 24,548 19,549 22,683 17,720 8,574 17,413
Net earnings 36,821 29,324 34,024 27,716 16,645 29,840
Percent of sales 2.9% 2.6% 3.3% 3.0% 2.1% 4.1%
Earnings per fully-diluted
common share $1.49 $1.14 $1.30 $1.09 $ .72 $1.24
Cash dividends declared per
common share $ .21 $ .05
Fiscal 1989 is a 53-week year; all other fiscal years are 52 weeks.
11
($000, except per share data) 1994 1993 1992 1991 1990 1989
Financial Position
Merchandise inventory $275,183 $228,929 $221,048 $185,041 $157,899 $129,413
Property and equipment, net 171,251 144,152 128,070 126,848 114,913 88,342
Total assets 506,241 437,371 419,870 357,690 309,543 249,766
Working capital 131,776 125,047 121,012 77,448 67,002 60,373
Current ratio 1.7:1 1.8:1 1.8:1 1.6:1 1.6:1 1.7:1
Total debt 46,069 33,308 33,525 40,723 57,600 53,900
Stockholders' equity 254,551 228,222 209,595 162,583 123,064 103,768
Book value per common share
outstanding at year-end $10.42 $9.24 $8.23 $6.64 $5.33 $4.53
Total debt as a percent of
total capitalization 15% 13% 14% 20% 32% 34%
Return on average stockholders'
equity 15% 13% 18% 19% 15% 27%
Other Statistics
Number of stores opened 35 22 23 20 29 17
Number of stores closed 3 2 3 2 1
Number of stores at year-end 275 243 223 203 185 156
Comparable store sales increase
(decline) (52-week basis) 2% (1%) 3% 2% (3%) 7%
Sales per square foot of selling
space (52-week basis) $227 $222 $222 $214 $208 $215
Square feet of selling space
at year-end (000) 5,901 5,210 4,879 4,518 4,155 3,590
Number of employees at year- 10,516 8,949 8,156 7,397 7,164 6,054
end
Number of average fully-diluted
shares at year-end (000) 24,723 25,791 26,249 25,496 23,251 24,142
Number of common stockholders
of record at year-end 1,168 1,275 1,381 1,340 1,715 1,511
Fiscal 1989 is a 53-week year; all other fiscal years are 52 weeks.
Based on average annual selling square footage.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the fiscal years ended January 28, 1995, January 29, 1994 and
January 30, 1993 (referred to as 1994, 1993 and 1992).
Results of Operations
Stores. Total stores open at the end of 1994, 1993 and 1992
were 275, 243 and 223. During 1994, the company opened 35 new
stores and closed 3 stores, which included the fall 1994 openings
of eight locations in the company's newest market, Houston, Texas.
During 1993, the company opened 22 new stores and closed 2 stores.
In 1992, the company opened 23 new stores and closed 3 stores.
Sales. Sales were $1.263 billion, $1.122 billion and $1.043
billion in 1994, 1993 and 1992, with each year consisting of 52
weeks. Comparable store sales increased 2% for 1994, decreased 1%
for 1993 and increased 3% for 1992. The increase in sales for 1994
was due to a greater number of stores in operation and an increase
in comparable store sales. In 1993, the increase in sales was due
to a greater number of stores in operation which offset a decline
in comparable store sales caused by increased competition. The
increase in sales for 1992 was due to a greater number of stores in
operation and an increase in comparable store sales. The company
anticipates that the competitive climate for apparel and off-price
retailers will continue in 1995.
Cost of Goods Sold and Occupancy. Cost of goods sold and
occupancy as a percentage of sales was 73%, 73% and 71% for 1994,
1993 and 1992. Despite the increasingly competitive climate for
apparel retailers, the company was able to minimize the increased
pressures on markdown levels in 1994. The company believes this is
a result of the contributions made by the company's expanded
merchandise organization. In 1993, the change was due to increased
pressures on price points and markdown levels, resulting from the
competitive retail climate in 1993.
General, Selling and Administrative Expenses. General,
selling and administrative expenses were 21% of sales for 1994,
1993 and 1992. In 1994, management focused on strong expense
controls which allowed expenses overall to be flat as a percent of
sales for the year despite the increased costs that resulted from
entering the Houston market in the fall of 1994 and increased costs
from the expanded merchandise organization. In 1993, management
focused store growth primarily in existing markets and also
maintained strong expense controls, which helped to offset the
unfavorable percentage increase normally associated with a same
store sales decline.
The largest component of general, selling and administrative
expenses is payroll. The total number of employees, including both
full and part-time, at year-end 1994, 1993 and 1992 was
approximately 10,500, 8,900 and 8,200.
Depreciation and Amortization. Depreciation and amortization
as a percentage of sales has remained relatively constant over the
last three years, due primarily to the consistent level of assets
in each store.
Interest. The increase in interest expense in 1994 from 1993
resulted from higher interest rates and higher average borrowings,
due in part to the completion of the company's stock repurchase
program. The decrease in interest expense in 1993 from 1992 was
due to lower interest rates from the prior year partially offset by
increased borrowings due primarily to the company's repurchases of
its common stock.
Insurance Proceeds. In March 1994, a section of the roof at
the company's distribution center in Carlisle, Pennsylvania
collapsed due to unusually heavy snow accumulation. In October
1994, the company entered into a settlement agreement with its
insurance carrier for claims related to the impact on business that
resulted from the roof collapse. This settlement included net
proceeds of $10.4 million for business interruption.
13
Taxes on Earnings. The company's effective rate for 1994,
1993 and 1992 was 40%, which represents the applicable statutory
rates reduced by the federal benefit received for state taxes and
targeted jobs tax credits. In August 1993, the federal government
enacted a new income tax law which raised the 34% corporate income
tax rate to 35%. The change in both the mix of state income taxes
and available tax credits allowed the company to maintain its 40%
effective tax rate.
Financial Condition
Liquidity and Capital Resources. During 1994, 1993 and 1992,
liquidity and capital requirements were provided by cash flows from
operations, bank borrowings and trade credit. The company's store
sites, central office, and California distribution center, as well
as the buying offices, are leased and, except for certain leasehold
improvements and equipment, do not represent fixed capital
investments. Commitments related to operating leases are described
in Note D of Notes to Consolidated Financial Statements. The
company's east coast distribution center is owned by the company
and was financed by a ten-year mortgage (see Note C of Notes to
Consolidated Financial Statements). Short-term trade credit
represents a significant source of financing for investments in
merchandise inventories. Trade credit arises from customary trade
practices with the company's vendors. Management regularly reviews
the adequacy of credit available to the company from all sources
and has been able to maintain adequate lines to meet the capital
and liquidity requirements of the company.
During 1994, the primary uses of cash, other than for
operating expenditures, were for merchandise inventory and property
and equipment to open 35 new stores, the remodeling of 32 stores, a
planned increase in "packaway merchandise" inventory, repurchases
in the open market of 820,000 shares of the company's common stock,
the acquisition of lease rights for eight new stores, and quarterly
dividend payments. During 1993, the primary uses of cash, other
than operating expenditures, were for merchandise inventory and
property and equipment to open 22 new stores, the remodeling of 12
stores, timing of accounts payable payments, and repurchases in the
open market of 1.2 million shares of the company's common stock.
In 1992, the primary uses of cash, other than operating
expenditures, were for merchandise inventory and property and
equipment to open 23 new stores, prepaying $7 million of senior
debt, and making opportunistic inventory purchases, thereby
increasing the level of packaway inventory. In 1994, 1993 and
1992, the company spent approximately $52 million, $33 million and
$22 million for capital expenditures, net of leased equipment, that
included fixtures and leasehold improvements to open 35, 22 and 23
stores, remodeling costs for 32, 12 and 0 stores and modifications
to the New York buying office, purchase of previously leased
equipment and various expenditures for existing stores and the
central office.
The company currently intends to open 15 to 20 stores annually
through 1996. The company anticipates that this growth will be
financed primarily from cash flows from operating activities,
available credit facilities, and lease commitments.
The company's Board of Directors declared quarterly dividends
of $.05 per common share beginning in January 1994. In January
1995, a 20% increase in the quarterly dividend payment to $.06 per
common share was declared by the Board of Directors, payable on
April 3, 1995. The company uses cash flows from operations and
available cash resources to provide for dividends.
The company has available under its principal bank credit
agreement a $110 million revolving credit facility, which expires
in July 1997. At the company's option, the bank credit agreement
can be extended for one year to July 1998. In March 1992, the
company obtained two short-term revolving credit facilities of $10
million and $15 million each. A third short-term credit facility
of $15 million was added in November 1992. In June 1994, the
company obtained its fourth short-term credit facility of $10
million. These facilities are available until canceled by either
party. At year-end 1994, 1993 and 1992, there were no outstanding
balances under any revolving credit facility. In June 1994, the
company signed a $60 million term loan credit agreement with a bank
due June 1999, of which $36 million was outstanding at year-end
1994. This term loan replaced the $23 million term loan that was
outstanding at year-ends 1993 and 1992. For additional information
relating to these obligations, refer to Note C of Notes to
Consolidated Financial Statements.
Working capital was approximately $132 million at the end of
1994 compared to $125 million at the end of 1993 and $121 million
at the end of 1992. At year-end 1994, 1993 and 1992, the company's
current ratios were 1.7:1, 1.8:1 and 1.8:1. The percentage of long-
term debt to total capitalization at year-end 1994, 1993 and 1992
was 15% , 13% and 14%.
14
The company's primary source of liquidity is the sale of its
merchandise inventories. Management regularly reviews the age and
condition of the merchandise and is able to maintain current
inventory in its stores through the replenishment processes and
liquidation of non-current merchandise through markdowns and
clearances.
In March 1994, a section of the roof at the company's
distribution center in Carlisle, Pennsylvania collapsed due to
unusually heavy snow accumulation. In October 1994, the company
entered into a settlement agreement with its insurance carrier for
claims related to the impact on business that resulted from the
roof collapse. This settlement included net proceeds of $10.4
million for business interruption.
The company believes that cash flows from operations, bank
credit lines and trade credit are adequate to meet operating cash
needs as well as to provide for dividend payments and planned
capital additions during 1995.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CONSOLIDATED BALANCE SHEETS
January 28, January 29,
($000, except per share data) 1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 23,581 $ 32,307
Accounts receivable 5,360 4,016
Merchandise inventory 275,183 228,929
Prepaid expenses and other 12,157 15,224
________ _______
Total Current Assets 316,281 280,476
PROPERTY AND EQUIPMENT
Land and buildings 23,723 22,502
Fixtures and equipment 145,427 120,493
Leasehold improvements 111,615 89,588
Construction-in-progress 12,490 10,739
_______ _______
293,255 243,322
Less accumulated depreciation and amortization 122,004 99,170
_______ _______
171,251 144,152
Intangibles and other assets 18,709 12,743
_________ ________
$ 506,241 $ 437,371
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 109,589 $ 89,561
Accrued expenses and other 48,472 43,262
Accrued payroll and benefits 21,705 16,202
Income taxes payable 4,739 6,404
_______ _______
Total Current Liabilities 184,505 155,429
Long-term debt 46,069 33,308
Deferred income taxes and other liabilities 21,116 20,412
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share
Authorized 100,000,000 shares
Issued and outstanding 24,433,000 and
24,695,000 shares 244 247
Additional paid-in capital 125,451 122,073
Retained earnings 128,856 105,902
_______ _______
254,551 228,222
_________ _________
$ 506,241 $ 437,371
See notes to consolidated financial statements.
16
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended Year Ended Year Ended
($000, except share data) January 28, January 29, January 30,
1995 1994 1993
SALES $1,262,544 $1,122,033 $1,043,062
COSTS AND EXPENSES
Cost of goods sold and occupancy 920,265 814,745 742,749
General, selling and administrative 263,777 235,558 221,795
Depreciation and amortization 24,017 20,539 18,740
Interest 3,528 2,318 3,071
Insurance proceeds (10,412)
_________ _________ ________
1,201,175 1,073,160 986,355
_________ _________ ________
Earnings before taxes 61,369 48,873 56,707
Provision for taxes on earnings 24,548 19,549 22,683
__________ _________ __________
Net earnings $ 36,821 $ 29,324 $ 34,024
EARNINGS PER SHARE
Primary $ 1.49 $ 1.14 $ 1.32
Fully-diluted $ 1.49 $ 1.14 $ 1.30
WEIGHTED AVERAGE SHARES OUTSTANDING (000)
Primary 24,707 25,715 25,683
Fully-diluted 24,723 25,791 26,249
See notes to consolidated financial statements.
17
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
___________________
Additional
(000's) Paid-In Retained
Shares Amount Capital Earnings Total
BALANCE AT FEBRUARY 1, 1992 24,491 $245 $106,765 $55,573 $162,583
Common stock issued under stock
plans, including tax benefit 970 10 12,957 12,967
Payment on stock purchased 21 21
Net earnings 34,024 34,024
_______ ___ _______ ______ _______
BALANCE AT JANUARY 30, 1993 25,461 255 119,743 89,597 209,595
Common stock issued under stock
plans, including tax benefit 414 4 8,101 8,105
Stock repurchased (1,180) (12) (5,771) (11,791) (17,574)
Net earnings 29,324 29,324
Dividends declared (1,228) (1,228)
______ ___ _______ _______ _______
BALANCE AT JANUARY 29, 1994 24,695 247 122,073 105,902 228,222
Common stock issued under stock
plans, including tax benefit 558 5 7,500 7,505
Stock repurchased (820) (8) (4,122) (8,725) (12,855)
Net earnings 36,821 36,821
Dividends declared (5,142) (5,142)
______ ____ _______ ________ ________
BALANCE AT JANUARY 28, 1995 24,433 $244 $125,451 $128,856 $254,551
See notes to consolidated financial statements.
18
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended
January 28, January 29, January 30,
($000) 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $36,821 $29,324 $34,024
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of property and
equipment 24,017 20,539 18,740
Other amortization 4,995 8,741 8,424
Deferred income taxes 923 669 2,911
Change in assets and liabilities:
(Increase) in merchandise inventory (46,254) (7,881) (36,007)
(Increase) decrease in other current assets - net 1,720 (6,528) (5,385)
Increase (decrease) in accounts payable 19,787 (7,398) 5,427
Increase (decrease) in other current liabilities - net 8,154 (361) 11,615
Other (4,947) 1,080 3,609
________ ______ ______
Net cash provided by operating activities 45,216 38,185 43,358
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (52,055) (33,391) (21,657)
_______ ________ ________
Net cash used in investing activities (52,055) (33,391) (21,657)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of senior notes (7,000)
Proceeds (repayment) of long-term debt 12,666 (303) (296)
Issuance of common stock related to stock plans 3,202 4,933 9,678
Repurchase of common stock (12,855) (17,574)
Dividends paid (4,900)
________ ________ ______
Net cash provided by (used in) financing activities (1,887) (12,944) 2,382
________ _________ _______
Net increase (decrease) in cash and cash equivalents (8,726) (8,150) 24,083
Cash and cash equivalents:
Beginning of year 32,307 40,457 16,374
_______ ________ ________
End of year $23,581 $32,307 $40,457
See notes to consolidated financial statements.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended January 28, 1995, January 29, 1994
and January 30, 1993 (referred to as 1994, 1993 and 1992).
Note A: Summary of Significant Accounting Policies
Business. The company is an off-price retailer of first
quality, in-season, branded apparel, shoes, gift items for the
home, bed and bath items, fragrances and accessories for the entire
family. At January 28, 1995, the company operated 275 stores.
Principles of Consolidation. The consolidated financial
statements include the accounts of all subsidiaries. Intercompany
transactions and accounts have been eliminated. Certain
reclassifications have been made in the 1993 and 1992 financial
statements to conform to the 1994 presentation. The years 1994,
1993 and 1992 consisted of 52 weeks.
Cash Equivalents. Cash equivalents are highly liquid, fixed
income instruments purchased with a maturity of three months or
less.
Merchandise Inventory. Merchandise inventory is stated at the
lower of cost or market determined under the unit cost method.
Store Opening Expenses. Store opening expenses are deferred
until the store's grand opening date, and then the deferred costs
are expensed. During 1993, the company changed its accounting
treatment from deferring and amortizing store opening expenses,
resulting in all pre-opening expenses for 1993 new stores and any
prior year deferred costs being expensed in 1993. The effect of
this change in accounting principle did not have a material impact
on any of the periods presented.
Advertising. All advertising expenses are expensed when
incurred, resulting in no advertising amounts recorded as assets.
In 1994, 1993 and 1992, advertising expenses were $36.5 million,
$33.8 million and $34.1 million.
Deferred Rent. Many of the company's leases signed since 1988
contain fixed escalations of the minimum annual lease payments
during the original term of the lease. For these leases, the
company recognizes rental expense on a straight-line basis and
records the difference between the average rental amount charged to
expense and the amount payable under the lease as deferred rent.
At the end of 1994 and 1993, the balance of deferred rent was $7.5
million and $6.4 million. Deferred rent is included in other
liabilities.
Intangibles and Other Assets. Intangibles and other assets
include lease rights and interests and the excess of cost over the
acquired net assets. Lease rights and interests consist of
payments made to acquire store leases, which are amortized over the
remaining applicable life of the lease. The excess of cost over
the acquired net assets is amortized on a straight-line basis over
a period of 40 years.
Property and Equipment. Property and equipment are stated at
cost. Depreciation is calculated using the straight-line method
over the estimated useful life of the asset, typically ranging from
five to twelve years for equipment and 20 to 40 years for real
property. The cost of leasehold improvements is amortized over the
estimated useful life of the asset or the applicable lease term,
whichever is less. Computer hardware and software costs are
included in fixtures and equipment and are amortized over their
estimated useful life of five years.
Estimated Fair Value of Financial Instruments. Statement of
Financial Accounting Standards No. 107 (SFAS 107), Disclosures
About Fair Value of Financial Instruments, requires disclosure of
the estimated fair value of financial instruments. The carrying
value of cash and cash equivalents, accounts receivable, accounts
payable and long-term debt approximates their estimated fair value.
20
Taxes on Earnings. Income taxes are accounted for under
Statement of Financial Accounting Standards No. 109 (SFAS 109),
Accounting for Income Taxes. SFAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the company's financial statements or tax
returns. In estimating future tax consequences, SFAS 109 generally
considers all expected future events other than changes in the tax
law or rates.
Earnings Per Share. Earnings per share are based on primary
and fully-diluted weighted average common shares and common stock
equivalents outstanding during the year, as calculated under the
treasury stock method. The company's common stock equivalents
consist of outstanding stock options.
Note B: Statements of Cash Flows Supplemental Disclosures
Total cash paid for interest and taxes is as follows:
($000) 1994 1993 1992
Interest $3,828 $ 2,850 $ 3,229
Income taxes $24,614 $21,014 $14,871
Note C: Long-Term Debt
Long-term debt consists of the following:
($000) 1994 1993
Mortgage $10,069 $10,308
Term loan 36,000 23,000
_______ ______
$46,069 $33,308
The weighted average interest rates on borrowings outstanding at
1994 and 1993 year-ends were 7.1% and 6.0%.
Mortgage. On August 8, 1991, the company obtained a $10.8
million mortgage at 9.5% interest, collateralized by the land and
building of its east coast distribution center. Interest and
principal are based on a 20-year amortization period. The mortgage
is due in 2001 with principal payments of $263,000, $288,000,
$318,000, $349,000 and $384,000 due in 1995, 1996, 1997, 1998 and
1999, respectively. In 1996, the interest rate will be reset at
the lender's best prevailing interest rate or repaid, at the
company's option.
Term Loan. On June 22, 1994, the company signed a $60 million
term loan credit agreement with a bank due in June 1999, of which
$36 million was outstanding at year-end 1994. Repayment is not
required until June 1999. The interest rate, which is based on the
London Interbank Offered Rate (LIBOR), was 6% at January 28, 1995.
This term loan replaced the $23 million term loan that was
outstanding at year-end 1993.
Bank Credit Facilities. The company has available under its
principal credit agreement a $110 million revolving credit facility
which expires in July 1997 and is renewable at the company's option
for a one-year period. The credit facility is also available for
the issuance of letters of credit. Interest is payable monthly
under several pricing options, including the bank's prime rate. At
year-end 1994 and 1993, the company had $13.6 million and $11.7
million in outstanding letters of credit. Borrowing under the
credit facility is subject to the company maintaining certain
levels of tangible net worth, pretax earnings and leverage ratios.
21
In addition, the company has $50 million in short-term bank
lines of credit which are available until canceled by either party.
When utilized, interest is payable monthly under several pricing
options.
Included in accounts payable are checks outstanding in excess
of cash balances of approximately $22.6 million and $13.9 million
at year-end 1994 and 1993. The company can utilize its revolving
line of credit to cover payment of these checks as they clear the
bank.
Note D: Leases
The company leases its distribution center and corporate
office located in Newark, California under a 15-year, noncancelable
lease agreement expiring 2002. The lease contains six renewal
options of five years each. In addition, the company leases its
store sites, selected computer and related equipment, and
distribution center equipment under operating leases with original,
noncancelable terms that in general range from three to fifteen
years, expiring through 2009. Store leases typically contain
provisions for two to three renewal options of five years each.
Most store leases also provide for minimum annual rentals, with
provisions for additional rent based on percentage of sales and for
payment of certain expenses.
The aggregate future minimum annual lease payments under leases in
effect at year-end 1994 are as follows:
($000) Amounts
1995 $ 80,618
1996 77,551
1997 71,181
1998 67,626
1999 63,387
Later years 188,413
________
Total $548,776
Total rent expense for all operating leases is as follows:
($000) 1994 1993 1992
Minimum rentals $76,593 $70,856 $65,329
Note E: Taxes on Earnings
The provision for taxes consists of the following:
($000) 1994 1993 1992
CURRENTLY PAYABLE
Federal $18,987 $14,885 $14,342
State 4,638 3,995 3,660
______ ______ ______
23,625 18,880 18,002
DEFERRED
Federal 565 506 4,065
State 358 163 616
______ ______ ______
923 669 4,681
______ ______ ______
$24,548 $19,549 $22,683
22
In 1994, 1993 and 1992, tax benefits of $0.7 million, $2.7
million and $2.9 million related to stock options exercised and the
vesting of restricted stock were credited to additional paid-in
capital.
The provisions for income taxes for financial reporting
purposes are different from the tax provision computed by applying
the statutory federal income tax rate. The differences are
reconciled as follows:
1994 1993 1992
Federal income taxes at the statutory rate 35% 35% 34%
Increase in income taxes resulting from:
State income taxes, net of federal 5% 5% 5%
benefit
Other, net 1%
___ ___ ___
40% 40% 40%
The components of the net deferred tax liability at year-end are as
follows:
($000) 1994 1993
DEFERRED TAX ASSETS
California franchise taxes $ 883 $ 688
Inventory 207 203
Straight-line rent 3,206 2,737
Deferred compensation 3,873 2,625
Reserve for uninsured losses 1,455 1,615
Employee benefits 3,601 2,346
Other 1,748 1,230
______ ______
14,973 11,444
DEFERRED TAX LIABILITIES
Depreciation (15,393) (11,382)
Prepaid expenses (4,859) (5,811)
Supplies (1,380)
Other (42) (29)
________ _______
(21,674) (17,222)
_________ _________
NET DEFERRED TAX LIABILITIES ($ 6,701) ($ 5,778)
Note F: Insurance Proceeds
In March 1994, a section of the roof at the company's
distribution center in Carlisle, Pennsylvania collapsed due to
unusually heavy snow accumulation. In October 1994, the company
entered into a settlement agreement with its insurance carrier for
claims related to the impact on business that resulted from the
roof collapse. This settlement included net proceeds of $10.4
million for business interruption.
23
Note G: Employee Benefit Plans
The company has available to certain employees a profit
sharing retirement plan. Under the Plan, employee and company
contributions and accumulated Plan earnings qualify for favorable
tax treatment under Section 401(k) of the Internal Revenue Code.
In 1987, the company adopted an Incentive Compensation Program,
which provides cash awards to key management employees based on the
company's and the individual's performance. In 1991, the company
Dbegan offering an Executive Supplemental Retirement Plan, which
allows eligible employees to purchase individual life insurance
policies and/or annuity contracts. In 1993, the company made
available to management a Nonqualified Deferred Compensation Plan
which allows management to contribute on a pre-tax basis in
addition to the 401(k) Plan. This Plan does not qualify under
Section 401(k) of the Internal Revenue Code.
Note H: Stockholders' Equity
The company's Board of Directors declared dividends of $.05
per common share in January, June, August and November 1994. In
January 1995, a quarterly dividend payment of $.06 per common share
was declared by the Board of Directors, payable on or about April
3, 1995.
Preferred Stock. The company has four million shares of
preferred stock authorized, with a par value of $.01 per share. No
preferred stock has been issued or outstanding during the past
three years.
Common Stock. On February 4, 1993, the company announced that
its Board of Directors approved a repurchase of up to one million
shares of common stock. On November 17, 1993, the company
announced that the Board extended the repurchase program and
authorized the buyback of an additional one million shares.
Approximately 1.2 million shares were repurchased at an average
price of $14.89 per share in 1993 and the remaining 820,000 shares
were repurchased in 1994 at an average price of $15.68 per share.
Stock Options. The company's Stock Option Plan allows for the
granting of incentive and nonqualified stock options at prices not
less than the fair market value of the common shares on the date
the option is granted, and normally vest over a period not
exceeding four years from the date of grant. Options under the
Plan are exercisable upon grant, subject to the company's
conditional right to repurchase unvested shares. The following is
a summary of stock option activity under the Plan for 1994, 1993
and 1992.
Number of Average
(000) Shares Price
Outstanding and exercisable at
February 1, 1992 2,049 $ 9.13
Granted 705 $18.85
Exercised (681) $ 8.47
Canceled (57) $12.39
Outstanding and exercisable at
January 30, 1993 2,016 $12.67
Granted 584 $18.49
Exercised (185) $ 7.59
Canceled (117) $16.04
Outstanding and exercisable at
January 29, 1994 2,298 $14.38
Granted 738 $15.59
Exercised (170) $ 8.49
Canceled (91) $17.80
Outstanding and exercisable at
January 28, 1995 2,775 $14.95
At year-end 1994, 1993 and 1992, 1.1 million, 1.7 million and 2.2
million shares remained available for grant under the Plan.
24
Restricted Stock. During 1994, 1993 and 1992, the company
awarded 278,000, 194,000, and 234,000 shares to certain employees
under the Restricted Stock Plan, of which 8,000, 49,000 and 7,000
were subsequently canceled and returned to the share reserve. At
year-end 1994, 1993 and 1992, 225,000, 495,000 and 640,000 shares
remained available for grant under the Plan. The compensation
associated with these awards is amortized over vesting periods of
generally two to five years. At year-end 1994, 1993 and 1992, the
unamortized compensation expense was $4.7 million, $4.8 million and
$5.1 million and was included in additional paid-in capital.
Employee Stock Purchase Plan. During 1994, employees
purchased approximately 116,000 shares of the company's common
stock through payroll deductions under the Employee Stock Purchase
Plan. Through January 28, 1995, approximately 511,000 shares had
been issued under this Plan, and 89,000 shares remained available
for future issuance under the Plan.
Outside Directors Stock Option Plan. Under this Plan, stock
options are to be granted at exercise prices not less than the fair
market value of the common shares on the date the option is
granted, and normally vest over a period not exceeding three years
from the date of the grant. Through January 28, 1995, the company
had granted options for approximately 97,000 shares at exercise
prices ranging from $8.63 to $20.88 per share. During 1994,
options for 11,000 shares were exercised at $8.63 per share, and
options for 3,000 shares were canceled and returned to the share
reserve. At year-end 1994, 31,000 shares remained available for
grants under the Plan, and options for 83,000 shares remained
outstanding and exercisable.
Note I: Legal Proceedings
The company is party to various legal proceedings arising from
normal business activities. In the opinion of management,
resolution of these matters will not have a material adverse effect
on the company's consolidated financial condition.
Note J: Quarterly Financial Data (Unaudited)
13 Weeks 13 Weeks 13 Weeks 13 Weeks 52 Weeks
($000, except per share Ended Ended Ended Ended Ended
data) April 30, July 30, October January 28, January
1994 1994 29, 1995 28, 1995
1994
Sales $264,207 $312,296 $294,960 $391,080 $1,262,544
Gross margin, after
occupancy 72,621 86,345 80,050 103,263 342,279
Net earnings 4,408 8,847 11,085 12,481 36,821
Net earnings per fully-
diluted share .18 .36 .45 .51 1.49
Dividends declared per
share on common stock .05 .05 .11 .21
Closing stock price
High 17 1/2 17 17 14 3/8 17 1/2
Low 13 1/4 13 1/4 13 7/8 10 3/8 10 3/8
Includes after-tax net insurance proceeds of $6.247 million or $.25 per
share.
Includes $.05 per share dividend declared November 1994 and a $.06 per share
dividend declared in January 1995.
Ross Stores, Inc. common stock trades on the NASDAQ National Market System
(NMS) under the symbol ROST.
25
13 Weeks 13 Weeks 13 Weeks 13 Weeks 52 Weeks
($000, except per share Ended Ended Ended Ended Ended
data) May 1, July 31, October January 29, January 29,
1993 1993 30, 1994 1994
1993
Sales $239,552 $275,965 $262,244 $344,272 $1,122,033
Gross margin, after
occupancy 67,368 75,045 71,498 93,378 307,288
Net earnings 3,594 8,153 4,786 12,791 29,324
Net earnings per fully-
diluted share .14 .31 .19 .51 1.14
Dividends declared per
share on common stock .05 .05
Closing stock price
High 23 1/2 16 1/8 15 5/8 18 23 1/2
Low 15 12 7/8 13 1/8 12 5/8 12 5/8
Includes after-tax net insurance proceeds of $6.247 million or $.25 per
share.
Includes $.05 per share dividend declared November 1994 and a $.06 per share
dividend declared in January 1995.
Ross Stores, Inc. common stock trades on the NASDAQ National Market System
(NMS) under the symbol ROST.
26
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Ross Stores, Inc.
Newark, California
We have audited the accompanying consolidated balance sheets of
Ross Stores, Inc. and subsidiaries (the "company") as of January
28, 1995 and January 29, 1994, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended January 28, 1995.
These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
company as of January 28, 1995 and January 29, 1994, and the
results of their operations and their cash flows for each of the
three years in the period ended January 28, 1995 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Francisco, California
March 13, 1995
27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the executive officers of the
Registrant, see "Executive Officers of the Registrant" at the end
of Part I of this report. Information with respect to the
Directors of the Registrant is incorporated herein by reference to
the section entitled "Information Regarding Nominees and Incumbent
Directors" of the Ross Stores, Inc. Proxy Statement for the Annual
Meeting of Stockholders to be held on Thursday, May 25, 1995 (the
"Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the sections of the Proxy
Statement entitled (i) "Compensation Committee Interlocks and
Insider Participation"; (ii) "Compensation of Directors"; (iii)
"Employment Contracts, Termination of Employment and Change-in-
Control Arrangements"; and (iv) the following tables, and their
footnotes, Summary Compensation, Option Grants in Last Fiscal Year
and Aggregated Option Exercises and Year-End Value.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated herein by reference to the section of the Proxy
Statement entitled "Stock Ownership of Certain Beneficial Owners
and Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the sections of the Proxy
Statement entitled (i) "Compensation of Directors" and (ii)
"Certain Transactions".
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following financial statements, schedules and exhibits
are filed as part of this report or are incorporated
herein as indicated:
1. List of Financial Statements.
The following consolidated financial statements included
herein as Item 8:
Consolidated Balance Sheets at January 28, 1995 and
January 29, 1994.
Consolidated Statements of Earnings for the years ended
January 28, 1995, January 29, 1994 and January 30, 1993.
Consolidated Statements of Stockholders' Equity for the
years ended January 28, 1995, January 29, 1994 and January 30,
1993.
Consolidated Statements of Cash Flows for the years ended
January 28, 1995, January 29, 1994 and January 30, 1993.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. List of Financial Statement Schedules.
Schedules are omitted because they are not required, not
applicable, or shown in the financial statements or
notes thereto which are contained in this Report.
3. List of Exhibits (in accordance with Item 601 of
Regulation S-K)
3.1 Certificate of Incorporation, as amended,
incorporated by reference to Exhibit 3.1 to
the Registration Statement on Form 8-B (the
"Form 8-B") filed September 1, 1989 by Ross
Stores, Inc., a Delaware corporation ("Ross
Stores").
3.2 Amended Bylaws, dated August 25, 1994, incorporated by
reference to Exhibit 3.2 to the Form 10-Q filed by Ross
Stores for its quarter ended July 30, 1994.
10.1 Agreement of Lease, dated November 24, 1986, for Ross
Stores' corporate headquarters and distribution center in
Newark, CA, incorporated by reference to Exhibit 10.5 to
the Form 8-B.
10.2 Revolving Credit Agreement, dated July 31, 1993, among Ross
Stores, Wells Fargo Bank, National Association ("Wells
Fargo"), Bank of America, N.T. & S.A., Nationsbank of
Texas, N.A., and Banque Nationale de Paris ("Banks"); and
Wells Fargo Bank as agent for Banks, incorporated by
reference to Exhibit 10.17 to the Form 10-Q filed by Ross
Stores for its quarter ended July 31, 1993.
10.3 First Amendment to Revolving Credit Agreement, effective on
July 31, 1994, by and among Ross Stores, Banks and Wells
Fargo Bank as agent for Banks, incorporated by reference to
Exhibit 10.5 to the Form 10-Q filed by Ross Stores for its
quarter ended July 30, 1994.
10.4 Credit Agreement, dated as of June 22, 1994, among Ross
Stores, Bank of America National Trust and Savings
Association as Agent, the Industrial Bank of Japan as Co-
Agent and the other financial institutions party thereto,
incorporated by reference to Exhibit 10.6 to the Form 10-Q
filed by Ross Stores for its quarter ended July 30, 1994.
29
Management Contracts and Compensatory Plans (Exhibits 10.5
- 10.15)
10.5 Ross Stores 1992 Stock Option Plan, incorporated by
reference to Exhibit 19.1 to the Form 10-Q filed by Ross
Stores for its quarter ended August 1, 1992.
10.6 Third Amended and Restated Ross Stores Employee Stock
Purchase Plan, incorporated by reference to Exhibit 19.2 to
the Form 10-Q filed by Ross Stores for its quarter ended
August 1, 1992.
10.7 Third Amended and Restated Ross Stores 1988 Restricted
Stock Plan, incorporated by reference to Exhibit 19.3 to
the Form 10-Q filed by Ross Stores for its quarter ended
August 1, 1992.
10.8 1991 Outside Directors Stock Option Plan, incorporated by
reference to Exhibit 10.13 to the 1991 Form 10-K filed by
Ross Stores for its year ended February 1, 1992.
10.9 Ross Stores Executive Medical Plan, incorporated by
reference to Exhibit 10.13 to the 1993 Form 10-K filed by
Ross Stores for its year ended January 29, 1994 ("1993 Form
10-K").
10.10 Third Amended and Restated Ross Stores Executive
Supplemental Retirement Plan, incorporated by reference to
Exhibit 10.14 to the 1993 Form 10-K.
10.11 Ross Stores Non-Qualified Deferred Compensation Plan,
incorporated by reference to Exhibit 10.15 to the 1993 Form
10-K.
10.12 Ross Stores Incentive Compensation Plan, incorporated by
reference to Exhibit 10.16 to the 1993 Form 10-K.
10.13 Employment Agreement between Ross Stores and Norman A.
Ferber, effective as of June 8, 1994, incorporated by
reference to Exhibit 10.15 to the Form 10-Q filed by Ross
Stores for its quarter ended July 30, 1994.
10.14 Employment Agreement between Ross Stores and Melvin A.
Wilmore, effective as of March 15, 1994 incorporated by
reference to Exhibit 10.20 to the Form 10-Q filed by Ross
Stores for its quarter ended April 30, 1994.
10.15 Consulting Agreement between Ross Stores and Stuart G.
Moldaw, effective as of March 12, 1993, incorporated by
reference to Exhibit 10.16 to the Form 10-Q filed by Ross
Stores for its quarter ended July 31, 1993.
11 Statement re: Computation of Per Share Earnings.
23 Independent Auditors' Consent.
27 Financial Data Schedule (submitted for SEC use only).
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ROSS STORES, INC.
(Registrant)
Date: April 24, 1995 By /s/Norman A. Ferber
(Norman A. Ferber, Chairman of the Board
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/Norman A. Ferber Chairman, Chief Executive April 24, 1995
Norman A. Ferber Officer and Director
/s/M. Wilmore President, Chief Operating April 24, 1995
Melvin A. Wilmore Officer and Director
/s/Earl Benson Senior Vice President, April 24, 1995
Earl T. Benson Chief Financial Officer
and Secretary
/s/John M. Vuko Senior Vice President, April 24, 1995
John M. Vuko Controller and
Principal Accounting Officer
/s/Stuart G. Moldaw Chairman Emeritus, Director April 24, 1995
Stuart G. Moldaw
/s/Donald G. Fisher Director April 24, 1995
Donald G. Fisher
/s/G. Orban Director April 24, 1995
George P. Orban
/s/Donald H. Seiler Director April 24, 1995
Donald H. Seiler
/s/Philip Schlein Director April 24, 1995
Philip Schlein
/s/D. L. Weaver Director April 24, 1995
Donna L. Weaver
31
INDEX TO EXHIBITS
Exhibit
Number Exhibit
3.1 Certificate of Incorporation, as amended, incorporated by
reference to Exhibit 3.1 to the Registration Statement on Form 8-B
(the "Form 8-B") filed September 1, 1989 by Ross Stores, Inc., a
Delaware corporation ("Ross Stores").
3.2 Amended Bylaws, dated August 25, 1994, incorporated by reference
to Exhibit 3.2 to the Form 10-Q filed by Ross Stores for its
quarter ended July 30, 1994.
10.1 Agreement of Lease, dated November 24, 1986, for Ross Stores'
corporate headquarters and distribution center in Newark, CA,
incorporated by reference to Exhibit 10.5 to the Form 8-B.
10.2 Revolving Credit Agreement, dated July 31, 1993, among Ross
Stores, Wells Fargo Bank, National Association ("Wells Fargo"),
Bank of America, N.T. & S.A., Nationsbank of Texas, N.A., and
Banque Nationale de Paris ("Banks"); and Wells Fargo Bank as agent
for Banks, incorporated by reference to Exhibit 10.17 to the Form
10-Q filed by Ross Stores for its quarter ended July 31, 1993.
10.3 First Amendment to Revolving Credit Agreement, effective on July
31, 1994, by and among Ross Stores, Banks and Wells Fargo Bank as
agent for Banks, incorporated by reference to Exhibit 10.5 to the
Form 10-Q filed by Ross Stores for its quarter ended July 30,
1994.
10.4 Credit Agreement, dated as of June 22, 1994, among Ross Stores,
Bank of America National Trust and Savings Association as Agent,
the Industrial Bank of Japan as Co-Agent and the other financial
institutions party thereto, incorporated by reference to Exhibit
10.6 to the Form 10-Q filed by Ross Stores for its quarter ended
July 30, 1994.
Management Contracts and Compensatory Plans (Exhibits 10.5 -
10.15)
10.5 Ross Stores 1992 Stock Option Plan, incorporated by reference to
Exhibit 19.1 to the Form 10-Q filed by Ross Stores for its quarter
ended August 1, 1992.
10.6 Third Amended and Restated Ross Stores Employee Stock Purchase
Plan, incorporated by reference to Exhibit 19.2 to the Form 10-Q
filed by Ross Stores for its quarter ended August 1, 1992.
10.7 Third Amended and Restated Ross Stores 1988 Restricted Stock Plan,
incorporated by reference to Exhibit 19.3 to the Form 10-Q filed
by Ross Stores for its quarter ended August 1, 1992.
10.8 1991 Outside Directors Stock Option Plan, incorporated by
reference to Exhibit 10.13 to the 1991 Form 10-K filed by Ross
Stores for its year ended February 1, 1992.
10.9 Ross Stores Executive Medical Plan, incorporated by reference to
Exhibit 10.13 to the 1993 Form 10-K filed by Ross Stores for its
year ended January 29, 1994 ("1993 Form 10-K").
10.10 Third Amended and Restated Ross Stores Executive Supplemental
Retirement Plan, incorporated by reference to Exhibit 10.14 to the
1993 Form 10-K.
32
Exhibit
Number Exhibit
10.11 Ross Stores Non-Qualified Deferred Compensation Plan, incorporated
by reference to Exhibit 10.15 to the 1993 Form 10-K.
10.12 Ross Stores Incentive Compensation Plan, incorporated by reference
to Exhibit 10.16 to the 1993 Form 10-K.
10.13 Employment Agreement between Ross Stores and Norman A. Ferber,
effective as of June 8, 1994, incorporated by reference to Exhibit
10.15 to the Form 10-Q filed by Ross Stores for its quarter ended
July 30, 1994.
10.14 Employment Agreement between Ross Stores and Melvin A. Wilmore,
effective as of March 15, 1994 incorporated by reference to
Exhibit 10.20 to the Form 10-Q filed by Ross Stores for its
quarter ended April 30, 1994.
10.15 Consulting Agreement between Ross Stores and Stuart G. Moldaw,
effective as of March 12, 1993, incorporated by reference to
Exhibit 10.16 to the Form 10-Q filed by Ross Stores for its
quarter ended July 31, 1993.
11 Statement re: Computation of Per Share Earnings.
23 Independent Auditors' Consent.
27 Financial Data Schedule (submitted for SEC use only).
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended
___________________________________________
January 28, January 29, January 30,
1995 1994 1993
(In thousands, except per share amounts)
Primary
Net Earnings $36,821 $29,324 $34,024
======= ======= =======
Weighted average shares
outstanding:
Common Shares 24,495 25,229 24,921
Common equivalent shares:
Stock Options 212 486 762
Weighted average common and
common equivalent shares
outstanding, as adjusted 24,707 25,715 25,683
====== ====== ======
Earnings per common and common
equivalent share $1.49 $1.14 $1.32
===== ===== =====
Fully Diluted
Net Earnings $36,821 $29,324 $34,024
======= ======= =======
Weighted average shares
outstanding:
Common shares 24,495 25,287 25,346
Common equivalent shares:
Stock Options 228 504 903
Weighted average common and
common equivalent shares
outstanding, as adjusted 24,723 25,791 26,249
====== ====== ======
Earnings per common and common
equivalent share $1.49 $1.14 $1.30
===== ===== =====
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement Nos. 33-51916, 33-51896, 33-51898, 33-41415, 33-41413 and
33-29600 of Ross Stores, Inc. on Form S-8 of our report dated March
13, 1995, appearing in this Annual Report on Form 10-K of Ross
Stores, Inc. for the year ended January 28, 1995.
Deloitte & Touche LLP
San Francisco, California
April 18, 1995
5
0000745732
ROSS STORES, INC.
1,000
12-MOS
JAN-28-1995
JAN-30-1995
JAN-28-1995
23,581
0
5,360
0
275,183
316,281
293,255
122,004
506,241
184,505
46,069
244
0
0
254,551
506,241
1,262,544
1,262,544
920,265
1,201,175
0
0
3,528
61,369
24,548
36,821
0
0
0
36,821
1.49
1.49
