UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one) | |||
X | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the fiscal year ended February 1, 2014 | |||
or | |||
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)
Delaware | 94-1390387 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
5130 Hacienda Drive, Dublin, California | 94568-7579 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant's telephone number, including area code | (925) 965-4400 | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common stock, par value $.01 | Nasdaq Global Select Market | |
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes X No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No X
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes X No
Indicate by check mark if disclosure of delinquent filers 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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X
The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of August 3, 2013 was $14,570,821,195, based on the closing price on that date as reported by the NASDAQ Global Select Market®. Shares of voting stock held by each director and executive officer have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares of Common Stock, with $.01 par value, outstanding on March 12, 2014 was 212,969,295.
Documents incorporated by reference:
Portions of the Proxy Statement for the Registrant's 2014 Annual Meeting of Stockholders, which will be filed on or before June 2, 2014, are incorporated herein by reference into Part III.
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PART I
ITEM 1. BUSINESS
Ross Stores, Inc. and its subsidiaries (“we” or the “Company”) operate 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 1,146 locations in 33 states, the District of Columbia and Guam, as of February 1, 2014. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20% to 60% off department and specialty store regular prices. Ross target customers are primarily from middle income households.
We also operate 130 dd’s DISCOUNTS stores in 10 states as of February 1, 2014. dd's DISCOUNTS features more moderately-priced first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20% to 70% off moderate department and discount store regular prices. The typical dd’s DISCOUNTS store is located in an established shopping center in a densely populated urban or suburban neighborhood and its target customers typically come from households with more moderate incomes than Ross customers.
The merchant, store, and distribution organizations for Ross and dd’s DISCOUNTS are separate and distinct. The two chains share certain other corporate and support services.
Both our Ross and dd's DISCOUNTS brands target value-conscious women and men between the ages of 18 and 54. The decisions we make, from merchandising, purchasing, and pricing, to the locations of our stores, are based on these customer profiles. We believe that both brands derive a competitive advantage by offering a wide assortment of product within each of our merchandise categories in organized and easy-to-shop store environments.
Our mission is to offer competitive values to our target customers by focusing on the following key strategic objectives:
• Maintain an appropriate level of recognizable brands, labels, and fashions at strong discounts throughout the store.
• Meet customer needs on a local basis.
• Deliver an in-store shopping experience that reflects the expectations of the off-price customer.
• Manage real estate growth to compete effectively across all our markets.
We refer to our fiscal years ended February 1, 2014, February 2, 2013, and January 28, 2012 as fiscal 2013, fiscal 2012, and fiscal 2011, respectively. Fiscal 2012 was a 53-week year. Fiscal 2013 and 2011 were each 52-week years.
Merchandising, Purchasing, and Pricing
We seek to provide our customers with a wide assortment of first-quality, in-season, brand name and designer apparel, accessories, footwear, and home merchandise for the entire family at everyday savings of 20% to 60% below department and specialty store regular prices at Ross, and 20% to 70% below moderate department and discount store regular prices at dd’s DISCOUNTS. We sell recognizable brand name merchandise that is current and fashionable in each category. New merchandise typically is received from three to six times per week at both Ross and dd’s DISCOUNTS stores. Our buyers review their merchandise assortments on a weekly basis, enabling them to respond to selling trends and purchasing opportunities in the market. Our merchandising strategy is reflected in our advertising, which emphasizes a strong value message. Our stores offer a treasure-hunt shopping experience where customers can find great savings every day on a broad assortment of brand name bargains for the family and the home.
Merchandising. Our merchandising strategy incorporates a combination of off-price buying techniques to purchase advance-of-season, in-season, and past-season merchandise for both Ross and dd’s DISCOUNTS. We believe nationally recognized name brands sold at compelling discounts will continue to be an important determinant of our success. We generally leave the brand name label on the merchandise we sell.
We have established merchandise assortments that we believe are attractive to our target customers. Although we offer fewer classifications of merchandise than most department stores, we generally offer a large selection within each classification with a wide assortment of vendors, labels, prices, colors, styles, and fabrics within each size or item. The mix of comparable store sales by department in fiscal 2013 was approximately as follows: Ladies 29%, Home Accents and Bed and Bath 24%, Accessories, Lingerie, Fine Jewelry, and Fragrances 13%, Shoes 13%, Men's
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13%, and Children's 8%. Our merchandise offerings also include, but are not limited to, small furniture and furniture accents, educational toys and games, luggage, gourmet food and cookware, watches, and sporting goods.
Purchasing. We have a combined network of approximately 7,900 merchandise vendors and manufacturers for both Ross and dd’s DISCOUNTS and believe we have adequate sources of first-quality merchandise to meet our requirements. We purchase the vast majority of our merchandise directly from manufacturers, and we have not experienced any difficulty in obtaining sufficient merchandise inventory.
We believe that our ability to effectively execute certain off-price buying strategies is a key factor in our success. Our buyers use a number of methods that enable us to offer our customers brand name and designer merchandise at strong everyday discounts relative to department and specialty stores for Ross and moderate department and discount stores for dd’s DISCOUNTS. By purchasing later in the merchandise buying cycle than department, specialty, and discount stores, we are able to take advantage of imbalances between retailers’ demand for products and manufacturers’ supply of those products.
Unlike most department and specialty stores, we typically do not require that manufacturers provide promotional allowances, co-op advertising allowances, return privileges, split shipments, drop shipments to stores, or delayed deliveries of merchandise. For most orders, only one delivery is made to one of our four distribution centers. These flexible requirements further enable our buyers to obtain significant discounts on in-season purchases.
The majority of the apparel and apparel-related merchandise that we offer in all of our stores is acquired through opportunistic purchases created by manufacturer overruns and canceled orders both during and at the end of a season. These buys are referred to as "close-out" and "packaway" purchases. Close-outs can be shipped to stores in-season, allowing us to get in-season goods into our stores at lower prices. Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date, which may even be the beginning of the same selling season in the following year. Packaway purchases are an effective method of increasing the percentage of prestige and national brands at competitive savings within our merchandise assortments. Packaway merchandise is mainly fashion basics and, therefore, not usually affected by shifts in fashion trends.
In fiscal 2013, we continued our emphasis on this important sourcing strategy in response to compelling opportunities available in the marketplace. Packaway accounted for approximately 49% and 47% of total inventories as of February 1, 2014 and February 2, 2013, respectively, and reflects our merchants’ continued ability to take advantage of a large amount of close-out opportunities in the marketplace. We believe the strong discounts we are able to offer on packaway merchandise are one of the key drivers of our business results.
Our primary buying offices are located in New York City and Los Angeles, the nation's two largest apparel markets. These strategic locations allow our buyers to be in the market on a daily basis, sourcing opportunities and negotiating purchases with vendors and manufacturers. These locations also enable our buyers to strengthen vendor relationships—a key element to the success of our off-price buying strategies.
Over the past year, we continued to make strategic investments in our merchandising organization to further enhance our ability to deliver name brand bargains to our customers. At the end of fiscal 2013, we had approximately 660 merchants for Ross and dd’s DISCOUNTS combined. The Ross and dd’s DISCOUNTS buying organizations are separate and distinct, and each includes merchandise management, buyers, and assistant buyers. Ross and dd’s DISCOUNTS buyers have on average eight years of experience, including merchandising positions with other retailers such as Bloomingdale's, Burlington Coat Factory, Foot Locker, Kohl’s, Loehmann’s, Lord & Taylor, Macy's, Marshalls, Nordstrom, Saks, and T.J. Maxx. We expect to continue to make additional targeted investments in new merchants to further develop our relationships with an expanding number of manufacturers and vendors. Our ongoing objective is to strengthen our ability to procure the most desirable brands and fashions at competitive discounts.
The off-price buying strategies utilized by our experienced team of merchants enable us to purchase Ross merchandise at net prices that are lower than prices paid by department and specialty stores, and to purchase dd’s DISCOUNTS merchandise at net prices that are lower than prices paid by moderate department and discount stores.
Pricing. Our policy is to sell brand name merchandise at Ross that is priced 20% to 60% below most department and specialty store regular prices. At dd’s DISCOUNTS, we sell more moderate brand name product and fashions that are priced 20% to 70% below most moderate department and discount store regular prices. Our pricing policy is reflected on the price tag displaying our selling price as well as the comparable selling price for that item in department and
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specialty stores for Ross merchandise, or in more moderate department and discount stores for dd’s DISCOUNTS merchandise.
Our pricing strategy at Ross differs from that of a department or specialty store. We purchase our merchandise at lower prices and mark it up less than a department or specialty store. This strategy enables us to offer customers consistently low prices and compelling value. On a weekly basis our buyers review specified departments in our stores for possible markdowns based on the rate of sale as well as at the end of fashion seasons to promote faster turnover of merchandise inventory and to accelerate the flow of fresh product. A similar pricing strategy is in place at dd’s DISCOUNTS where prices are compared to those in moderate department and discount stores.
Stores
As of February 1, 2014, we operated a total of 1,276 stores comprised of 1,146 Ross stores and 130 dd’s DISCOUNTS stores. Our stores are located predominantly in community and neighborhood shopping centers in heavily populated urban and suburban areas. Where the size of the market and real estate opportunities permit, we cluster Ross stores to benefit from economies of scale in advertising, distribution, and field management. We do the same for dd’s DISCOUNTS stores.
We believe a key element of our success at both Ross and dd’s DISCOUNTS, is our organized, attractive, easy-to-shop, in-store environments which allow customers to shop at their own pace. While our stores promote a self-service, treasure hunt shopping experience, the layouts are designed to enhance customer convenience in their merchandise presentation, dressing rooms, checkout, and merchandise return areas. Our 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. We enable our customers to select among sizes and prices through prominent category and sizing markers. At most stores, shopping carts and / or baskets are available at the entrance for customer convenience. Cash registers are primarily located at store exits for customer ease and efficient staffing.
We use point-of-sale (“POS”) hardware and software systems in all stores, which minimizes transaction time for the customer at the checkout counter by electronically scanning each ticket at the point of sale and authorizing personal checks, debit, credit, and stored-value cards in a matter of seconds. For Ross and dd’s DISCOUNTS combined, approximately 62% and 61% of payments in fiscal 2013 and fiscal 2012, respectively, were made with credit cards and debit cards. We provide cash, credit card, and debit card refunds on all merchandise (not used, worn, or altered) returned with a receipt within 30 days. Merchandise returns having a receipt older than 30 days are exchanged or refunded with store credit.
Operating Costs
Consistent with the other aspects of our business strategy, we strive to keep operating costs as low as possible. Among the factors which have enabled us to do this are: labor costs that are generally lower than full-price department and specialty stores due to a store design that creates a self-service retail format and due to the utilization of labor saving technologies; economies of scale with respect to general and administrative costs resulting from centralized merchandising, marketing, and purchasing decisions; and flexible store layout criteria which facilitate conversion of existing buildings to our formats.
Information Systems
We continue to invest in new information systems and technology to provide a platform for growth over the next several years. Recent initiatives include enhancements to our merchandise planning, core merchandising, allocation management, and store labor management systems. These initiatives support our expansion in both new and existing markets and our assortment execution and plan achievement, while also supporting future growth. In addition, we completed the build-out and relocation of our new data center in fiscal 2013.
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Distribution
We have four distribution processing facilities – two in California, one in Pennsylvania, and one in South Carolina. We ship all of our merchandise to our stores through these distribution centers, which are large, highly automated, and built to suit our specific off-price business model. Two additional distribution centers in Rock Hill, South Carolina and Shafter, California are currently under construction and expected to open in 2014 and 2015, respectively.
Currently we own two and lease three other warehouse facilities for packaway storage. We are in the process of building two additional warehouses which we plan to open in 2014. We also use other third-party facilities as needed for storage of packaway inventory.
We also utilize third-party cross dock facilities to distribute merchandise to stores on a regional basis. Shipments are made by contract carriers to the stores three to six times per week depending on location.
We believe that our distribution centers with their current expansion capabilities will provide adequate processing capacity to support our current store growth. Information on the size and locations of our distribution centers and warehouse facilities is found under “Properties” in Item 2.
Advertising
Advertising for Ross Dress for Less relies primarily on television to communicate the Ross value proposition—everyday savings off the same brands carried at leading department stores. This strategy reflects our belief that television is the most efficient and cost effective medium for communicating our brand position. We continue to utilize additional channels to build awareness. Advertising for dd’s DISCOUNTS is primarily focused on new store grand openings and local grass roots initiatives.
Trademarks
The trademarks for Ross Dress For Less® and dd’s DISCOUNTS® have been registered with the United States Patent and Trademark Office.
Employees
As of February 1, 2014, we had approximately 66,300 total employees, including an estimated 48,900 part-time employees. Additionally, we hire temporary employees especially during the peak seasons. Our employees are non-union. Management considers the relationship between the Company and our employees to be good.
Competition
We believe the principal competitive factors in the off-price retail apparel and home fashion industry are offering significant discounts on brand name merchandise, offering a well-balanced assortment that appeals to our target customers, and consistently providing store environments that are convenient and easy to shop. To execute this concept, we continue to make strategic investments in our merchandising organization. We also continue to make improvements to our core merchandising system to strengthen our ability to plan, buy, and allocate product based on more local versus regional trends. We believe that we are well positioned to compete on the basis of each of these factors.
Nevertheless, the retail apparel market is highly fragmented and competitive. We face a challenging macro-economic and retail environment that creates intense competition for business from department stores, specialty stores, discount stores, warehouse 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. We also compete to some degree with retailers that sell apparel and home fashions through catalogs or online. The retail apparel and home-related businesses may become even more competitive in the future.
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Available Information
The internet address for our corporate website is www.rossstores.com. Our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements, and amendments to those reports are made available free of charge on or through the Investors section of our corporate website promptly after being electronically filed with the Securities and Exchange Commission. The information found on our corporate website is not part of this, or any other report or regulatory filing we file with or furnish to the Securities and Exchange Commission.
ITEM 1A. RISK FACTORS
Our Annual Report on Form 10-K for fiscal 2013, and information we provide in our Annual Report to Stockholders, press releases, telephonic reports, and other investor communications, including those on our corporate website, may contain forward-looking statements with respect to anticipated future events and our projected financial performance, operations, and competitive position that are subject to risks and uncertainties that could cause our actual results to differ materially from those forward-looking statements and our prior expectations and projections. Refer to Management’s Discussion and Analysis for a more complete identification and discussion of “Forward-Looking Statements.”
Our financial condition, results of operations, cash flows, and the performance of our common stock may be adversely affected by a number of risk factors. Risks and uncertainties that apply to both Ross and dd's DISCOUNTS include, without limitation, the following:
We are subject to the economic and industry risks that affect large retailers operating in the United States.
Our business is exposed to the risks of a large, multi-store retailer, which must continually and efficiently obtain and distribute a supply of fresh merchandise throughout a large and growing network of stores and distribution centers. These risk factors include:
• | An increase in the level of competitive pressures in the apparel or home-related merchandise retailing industry. |
• | Changes in the level of consumer spending on or preferences for apparel or home-related merchandise. |
• | The impacts from the macro-economic environment and financial and credit markets that affect consumer disposable income and consumer confidence, including but not limited to interest rates, recession, inflation, deflation, energy costs, tax rates and policy, unemployment trends, and fluctuating commodity costs. |
• | Changes in geopolitical and geoeconomic conditions. |
• | Unseasonable weather trends that could affect consumer demand for seasonal apparel and apparel-related products. |
• | Changes in the availability, quantity, or quality of attractive brand name merchandise at desirable discounts that could impact our ability to purchase product and continue to offer customers a wide assortment of merchandise at competitive prices. |
• | Potential disruptions in the supply chain or in information systems that could impact our ability to deliver product to our stores in a timely and cost-effective manner. |
• | A change in the availability, quality, or cost of new store real estate locations. |
• | A downturn in the economy or a natural disaster in California or in another region where we have a concentration of stores or a distribution center. Our corporate headquarters, Los Angeles buying office, two distribution centers, one warehouse, and 25% of our stores are located in California. |
We are subject to operating risks as we attempt to execute on our merchandising and growth strategies.
The continued success of our business depends in part upon our ability to increase sales at our existing store locations, to open new stores, and to operate stores on a profitable basis. Our existing strategies and store and distribution center expansion programs may not result in a continuation of our anticipated revenue or profit growth. In executing our off-price retail strategies and working to improve efficiencies, expand our store network, and reduce our costs, we face a number of operational risks, including our ability to:
• | Attract, train, and retain associates with the retail talent necessary to execute our strategies. |
• | Effectively operate and continually upgrade our various supply chain, store, core merchandising, and other information systems. |
• | Improve our merchandising and transaction processing capabilities, and the reliability and security of our data communication systems, through implementation of new processes and systems enhancements. |
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• | Protect against security breaches, including cyber-attacks on our transaction processing and computer information systems, that could result in the theft, transfer or unauthorized disclosure of customer, credit card, employee or other private and valuable information that we collect and process in the ordinary course of our business, and avoid resulting damage to our reputation, loss of customer confidence, exposure to litigation and regulatory action, unanticipated costs and disruption of our operations. |
• | Improve new store sales and profitability, especially in newer regions and markets. |
• | Add capacity to our existing distribution centers, find new distribution center sites, and build out planned additional distribution centers timely and cost effectively. |
• | Achieve and maintain targeted levels of productivity and efficiency in our existing and future distribution centers. |
• | Lease or acquire acceptable new store sites with favorable demographics and long-term financial returns. |
• | Identify and successfully enter new geographic markets. |
• | Achieve planned gross margins by effectively managing inventories, markdowns, and inventory shortage. |
• | Effectively manage all operating costs of the business, the largest of which are payroll and benefit costs for store and distribution center employees. |
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
At February 1, 2014, we operated a total of 1,276 stores, of which 1,146 were Ross locations in 33 states, the District of Columbia and Guam, and 130 were dd’s DISCOUNTS stores in 10 states. All stores are leased, with the exception of three locations which we own.
During fiscal 2013, we opened 65 new Ross stores and closed 10 existing stores. The average approximate Ross store size is 29,100 square feet.
During fiscal 2013, we opened 23 new dd’s DISCOUNTS stores and closed one existing store. The average approximate dd’s DISCOUNTS store size is 23,600 square feet.
During fiscal 2013, no one store accounted for more than 1% of our sales.
We carry earthquake insurance to help mitigate the risk of financial loss due to an earthquake.
Our real estate strategy in 2014 is to open stores in states where we currently operate to increase our market penetration and to reduce overhead and advertising expenses as a percentage of sales in each market. We also expect to continue our store expansion in newer markets in 2014. Important considerations in evaluating a new store location in both newer and more established markets are the availability and quality of potential sites, demographic characteristics, competition, and population density of the local trade area. In addition, we continue to consider opportunistic real estate acquisitions.
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The following table summarizes the locations of our stores by state/territory as of February 1, 2014 and February 2, 2013.
State/Territory | February 1, 2014 | February 2, 2013 | ||||
Alabama | 20 | 20 | ||||
Arizona | 67 | 64 | ||||
Arkansas | 4 | 4 | ||||
California | 315 | 304 | ||||
Colorado | 27 | 29 | ||||
Delaware | 1 | 1 | ||||
District of Columbia | 1 | 1 | ||||
Florida | 156 | 145 | ||||
Georgia | 51 | 48 | ||||
Guam | 1 | 1 | ||||
Hawaii | 15 | 13 | ||||
Idaho | 10 | 10 | ||||
Illinois | 37 | 23 | ||||
Indiana | 2 | 1 | ||||
Kansas | 4 | 2 | ||||
Kentucky | 3 | 2 | ||||
Louisiana | 13 | 12 | ||||
Maryland | 22 | 20 | ||||
Mississippi | 6 | 5 | ||||
Missouri | 14 | 8 | ||||
Montana | 6 | 6 | ||||
Nevada | 29 | 28 | ||||
New Jersey | 11 | 11 | ||||
New Mexico | 9 | 8 | ||||
North Carolina | 36 | 34 | ||||
Oklahoma | 19 | 19 | ||||
Oregon | 28 | 26 | ||||
Pennsylvania | 39 | 40 | ||||
South Carolina | 22 | 20 | ||||
Tennessee | 29 | 26 | ||||
Texas | 189 | 180 | ||||
Utah | 15 | 15 | ||||
Virginia | 34 | 33 | ||||
Washington | 39 | 38 | ||||
Wyoming | 2 | 2 | ||||
Total | 1,276 | 1,199 | ||||
Where possible, we obtain sites in buildings requiring minimal alterations, allowing us to establish stores in new locations in a relatively short period of time at reasonable costs in a given market. At February 1, 2014, the majority of our stores had unexpired original lease terms ranging from three to ten years with three to four renewal options of five years each. The average unexpired original lease term of our leased stores is five years or 21 years if renewal options are included. See Note E of Notes to Consolidated Financial Statements.
See additional discussion under “Stores” in Item 1.
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The following table summarizes the location and approximate sizes of our distribution centers, warehouses, and office locations as of February 1, 2014. Square footage information for the distribution centers and warehouses represents total ground floor area of the facility. Square footage information for office space represents total space occupied. See additional discussion in Management’s Discussion and Analysis.
Location | Approximate Square Footage | Own / Lease | |||
Distribution centers | |||||
Carlisle, Pennsylvania | 425,000 | Own | |||
Fort Mill, South Carolina | 1,300,000 | Own | |||
Moreno Valley, California | 1,300,000 | Own | |||
Perris, California | 1,300,000 | Own | |||
Rock Hill, South Carolina¹ | 1,200,000 | Own | |||
Warehouses | |||||
Carlisle, Pennsylvania | 239,000 | Lease | |||
Carlisle, Pennsylvania | 246,000 | Lease | |||
Fort Mill, South Carolina | 255,000 | Lease | |||
Fort Mill, South Carolina | 423,000 | Own | |||
Fort Mill, South Carolina² | 428,000 | Own | |||
Perris, California² | 699,000 | Own | |||
Riverside, California | 449,000 | Own | |||
Office space | |||||
Dublin, California | 414,000 | Own | |||
Los Angeles, California | 52,000 | Lease | |||
New York City, New York³ | 411,000 | Lease | |||
Pleasanton, California4 | 192,000 | Lease | |||
Truck trailer parking lots | |||||
Perris, California | 10 acres | Lease | |||
Moreno Valley, California | 20 acres | Lease | |||
¹We are currently in the process of completing the infrastructure build-out of this distribution center site with an estimated occupancy of 2014.
²We are currently in the process of completing construction of these warehouses with an estimated occupancy of 2014.
³We plan to purchase our New York buying office in 2014.
4Our former corporate headquarters is leased under several facility leases the majority of which expire in June 2014. The lease term for the remaining space of approximately 11,000 square feet expires in March 2015. We do not plan to renew any of these leases. In January 2014, we moved to our current corporate headquarters in Dublin, California.
See additional discussion under “Distribution” in Item 1.
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ITEM 3. LEGAL PROCEEDINGS
Like many California retailers, we have been named in class action lawsuits alleging violation of wage and hour and other employment laws. Class action litigation remains pending as of February 1, 2014.
We are also party to various other legal and regulatory proceedings arising in the normal course of business. Actions filed against us include commercial, product and product safety, customer, intellectual property, and labor and employment-related claims, including lawsuits in which private plaintiffs or governmental agencies allege that we violated local, state or federal laws. Actions against us are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties.
We believe that the resolution of our pending class action litigation and other currently pending legal proceedings will not have a material adverse effect on our financial condition, results of operations, or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Executive Officers of the Registrant
The following sets forth the names and ages of our executive officers, indicating each person's principal occupation or employment during at least the past five years. The term of office is at the discretion of our Board of Directors.
Name | Age | Position | |||
Michael Balmuth | 63 | Vice Chairman and Chief Executive Officer | |||
Douglas Baker | 55 | President and Chief Merchandising Officer, dd’s DISCOUNTS | |||
James S. Fassio | 59 | President and Chief Development Officer | |||
Michael O’Sullivan | 50 | President and Chief Operating Officer | |||
Barbara Rentler | 56 | President and Chief Merchandising Officer, Ross Dress for Less | |||
Lisa Panattoni | 51 | Group Executive Vice President, Merchandising | |||
John G. Call | 55 | Executive Vice President, Finance and Legal, and Corporate Secretary | |||
Michael J. Hartshorn | 46 | Senior Vice President, Chief Financial Officer and Principal Accounting Officer | |||
Mr. Balmuth joined the Board of Directors as Vice Chairman and became Chief Executive Officer in September 1996. From February 2005 to December 2009, he also served as President. He was Executive Vice President, Merchandising from July 1993 to September 1996 and Senior Vice President and General Merchandise Manager from November 1989 to July 1993. Before joining Ross, he was Senior Vice President and General Merchandising Manager at Bon Marché in Seattle from September 1988 to November 1989. From April 1986 to September 1988, he served as Executive Vice President and General Merchandising Manager for Karen Austin Petites.
Mr. Baker has served as President and Chief Merchandising Officer, dd’s DISCOUNTS, since March 2011. He was Executive Vice President, Merchandising dd’s DISCOUNTS from June 2009 to March 2011 and Senior Vice President and General Merchandise Manager of dd's DISCOUNTS from December 2006 to June 2009. Mr. Baker joined Ross in November 1995 as Vice President and Divisional Merchandise Manager. Prior to joining Ross, he worked for Value City Department Stores from 1984 to 1995. His previous retail experience also includes Marshalls and Hills Department Stores.
Mr. Fassio became President and Chief Development Officer in December 2009. Prior to this, he was Executive Vice President, Property Development, Construction and Store Design from February 2005 to December 2009. From March 1991 to February 2005, he served as Senior Vice President, Property Development, Construction and Store Design. He joined the Company in June 1988 as Vice President of Real Estate. Prior to joining Ross, Mr. Fassio held various retail and real estate positions with Safeway Stores, Inc.
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Mr. O’Sullivan became President and Chief Operating Officer in December 2009. From February 2005 to December 2009, he served as Executive Vice President and Chief Administrative Officer, after joining Ross in September 2003 as Senior Vice President, Strategic Planning and Marketing. From 1991 to 2003, Mr. O’Sullivan was with Bain & Company, most recently as a partner, providing consulting advice to retail, consumer goods, financial services and private equity clients.
Ms. Rentler has served as President and Chief Merchandising Officer, Ross Dress for Less, since December 2009, with responsibility for all merchandising categories at Ross. From December 2006 to December 2009, she was Executive Vice President, Merchandising, with responsibility for all Ross Apparel and Apparel-related products. She also served as Executive Vice President and Chief Merchandising Officer of dd’s DISCOUNTS from February 2005 to December 2006, Senior Vice President and Chief Merchandising Officer of dd's DISCOUNTS from January 2004 to February 2005 and Senior Vice President and General Merchandise Manager at Ross Dress for Less from February 2001 to January 2004. Prior to that, she held various merchandising positions since joining the Company in February 1986.
Ms. Panattoni was named Group Executive Vice President, Merchandising for Ross Home and Men’s in December 2009. She joined the Company in January 2005 as Senior Vice President and General Merchandise Manager of Ross Home and was promoted to Executive Vice President in October 2005. Prior to joining Ross, Ms. Panattoni was with The TJX Companies, where she served as Senior Vice President of Merchandising and Marketing for HomeGoods from 1998 to 2004 and as Divisional Merchandise Manager of the Marmaxx Home Store from 1994 to 1998.
Mr. Call has served as Executive Vice President, Finance and Legal, and Corporate Secretary since March 2014. From February 2012 to February 2014, Mr. Call was Group Senior Vice President and Chief Financial Officer, with oversight for Legal and the Corporate Secretary function added in November 2012. From June 1997 to January 2012, he was Senior Vice President and Chief Financial Officer and also served as Corporate Secretary from June 1997 to February 2009. Mr. Call was Senior Vice President, Chief Financial Officer, Secretary and Treasurer of Friedman’s from 1993 until 1997. For five years prior to joining Friedman’s, Mr. Call held various positions with Ernst & Young LLP.
Mr. Hartshorn has served as Senior Vice President, Chief Financial Officer since February 2014. He was Senior Vice President and Deputy Chief Financial Officer from January 2012 to February 2014. Prior to this, he was Group Vice President, Finance and Treasurer from March 2011 to January 2012 and Vice President, Finance and Treasurer from April 2006 to March 2011. From 2002 to 2006, he held a number of management roles in our information technology and supply chain organizations. He initially joined the Company in 2000 as Director and Assistant Controller. For seven years prior to joining Ross, Mr. Hartshorn held various financial roles at the May Department Stores Company.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
General information. See the information set forth under the caption "Quarterly Financial Data (Unaudited)" under Note K of Notes to Consolidated Financial Statements in Item 8 of this Annual Report, which is incorporated herein by reference. Our stock is traded on The NASDAQ Global Select Market® under the symbol ROST. There were 822 stockholders of record as of March 12, 2014 and the closing stock price on that date was $72.38 per share.
Cash dividends. In February 2014, our Board of Directors declared a quarterly cash dividend of $0.20 per common share, payable on March 31, 2014. Our Board of Directors declared cash dividends of $0.17 per common share in January, May, August, and November 2013, cash dividends of $0.14 per common share in January, May, August, and November 2012, and cash dividends of $0.11 per common share in January, May, August, and November 2011.
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Issuer purchases of equity securities. Information regarding shares of common stock we repurchased during the fourth quarter of fiscal 2013 is as follows:
Period | Total number of shares (or units) purchased¹ | Average price paid per share (or unit) | Total number of shares (or units) purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs ($000) | ||||||||
November | ||||||||||||
(11/03/2013 - 11/30/2013) | 331,931 | $77.98 | 329,948 | $652,900 | ||||||||
December | ||||||||||||
(12/01/2013 - 01/04/2014) | 799,775 | $73.11 | 791,782 | $595,000 | ||||||||
January | ||||||||||||
(01/05/2014 - 02/01/2014) | 633,334 | $71.11 | 633,215 | $550,000 | ||||||||
Total | 1,765,040 | $73.31 | 1,754,945 | $550,000 | ² | |||||||
1 | We acquired 10,095 shares of treasury stock during the quarter ended February 1, 2014. Treasury stock includes shares purchased from employees for tax withholding purposes related to vesting of restricted stock grants. All remaining shares were repurchased under our publicly announced stock repurchase program. | |
2 | In January 2013, our Board of Directors approved a two-year $1.1 billion stock repurchase program for fiscal 2013 and 2014. | |
See Note H of Notes to Consolidated Financial Statements for equity compensation plan information. The information under Item 12 of this Annual Report on Form 10-K under the caption “Equity compensation plan information” is incorporated herein by reference.
Stockholder Return Performance Graph
The following information in this Item 5 shall not be deemed filed for purposes of Section 18 of the Securities Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.
Total stockholder returns for our common stock outperformed the Standard & Poor’s (“S&P”) 500 Index and the S&P Retailing Group over the last five years as set forth in the graph below. The cumulative total return listed below assumed an initial investment of $100 and reinvestment of dividends at each fiscal year end and measures the performance of this investment as of the last trading day in the month of January for each of the following five years. These measurement dates are based on the historical month-end data available and may vary slightly from our actual fiscal year-end date for each period. Data with respect to returns for the S&P indexes is not readily available for periods shorter than one month. The graph is a historical representation of past performance only and is not necessarily indicative of future performance.
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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Ross Stores, Inc., the S&P 500 Index, and S&P Retailing Group
Indexed Returns for Years Ended | ||||||||||||||||||
Base Period | ||||||||||||||||||
Company / Index | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | ||||||||||||
Ross Stores, Inc. | 100 | 158 | 228 | 360 | 422 | 487 | ||||||||||||
S&P 500 Index | 100 | 133 | 163 | 170 | 198 | 241 | ||||||||||||
S&P Retailing Group | 100 | 158 | 205 | 238 | 307 | 388 | ||||||||||||
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from our consolidated financial statements. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the section “Forward-Looking Statements” in this Annual Report on Form 10-K and our consolidated financial statements and notes thereto.
($000, except per share data) | 2013 | 2012¹ | 2011 | 2010 | 2009 | ||||||||||||||
Operations | |||||||||||||||||||
Sales | $ | 10,230,353 | $ | 9,721,065 | $ | 8,608,291 | $ | 7,866,100 | $ | 7,184,213 | |||||||||
Cost of goods sold | 7,360,924 | 7,011,428 | 6,240,760 | 5,729,735 | 5,327,278 | ||||||||||||||
Percent of sales | 72.0 | % | 72.1 | % | 72.5 | % | 72.8 | % | 74.2 | % | |||||||||
Selling, general and administrative | 1,526,366 | 1,437,886 | 1,304,065 | 1,229,775 | 1,130,813 | ||||||||||||||
Percent of sales | 14.9 | % | 14.8 | % | 15.2 | % | 15.6 | % | 15.7 | % | |||||||||
Interest (income) expense, net | (247 | ) | 6,907 | 10,322 | 9,569 | 7,593 | |||||||||||||
Earnings before taxes | 1,343,310 | 1,264,844 | 1,053,144 | 897,021 | 718,529 | ||||||||||||||
Percent of sales | 13.1 | % | 13.0 | % | 12.2 | % | 11.4 | % | 10.0 | % | |||||||||
Provision for taxes on earnings | 506,006 | 478,081 | 395,974 | 342,224 | 275,772 | ||||||||||||||
Net earnings | 837,304 | 786,763 | 657,170 | 554,797 | 442,757 | ||||||||||||||
Percent of sales | 8.2 | % | 8.1 | % | 7.6 | % | 7.1 | % | 6.2 | % | |||||||||
Basic earnings per share² | $ | 3.93 | $ | 3.59 | $ | 2.91 | $ | 2.35 | $ | 1.80 | |||||||||
Diluted earnings per share² | $ | 3.88 | $ | 3.53 | $ | 2.86 | $ | 2.31 | $ | 1.77 | |||||||||
Cash dividends declared | |||||||||||||||||||
per common share² | $ | 0.510 | ³ | $ | 0.590 | $ | 0.470 | $ | 0.350 | $ | 0.245 | ||||||||
¹ Fiscal 2012 was a 53-week year; all other fiscal years presented were 52 weeks. | |||||||||||||||||||
² All per share amounts have been adjusted for the two-for-one stock split effective December 15, 2011. | |||||||||||||||||||
³ Dividend declaration of $0.20 per share for the fourth quarter which historically had been declared in January was declared in February 2014. | |||||||||||||||||||
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Selected Financial Data
($000, except per share data) | 2013 | 2012¹ | 2011 | 2010 | 2009 | |||||||||||||||
Financial Position | ||||||||||||||||||||
Cash and cash equivalents | $ | 423,168 | $ | 646,761 | $ | 649,835 | $ | 833,924 | $ | 768,343 | ||||||||||
Merchandise inventory | 1,257,155 | 1,209,237 | 1,130,070 | 1,086,917 | 872,498 | |||||||||||||||
Property and equipment, net | 1,875,299 | 1,493,284 | 1,241,722 | 983,776 | 942,999 | |||||||||||||||
Total assets | 3,896,797 | 3,670,561 | 3,301,209 | 3,116,204 | 2,768,633 | |||||||||||||||
Return on average assets | 22 | % | 23 | % | 20 | % | 19 | % | 17 | % | ||||||||||
Working capital | 474,102 | 608,845 | 578,319 | 690,919 | 554,933 | |||||||||||||||
Current ratio | 1.3:1 | 1.4:1 | 1.4:1 | 1.5:1 | 1.5:1 | |||||||||||||||
Long-term debt | 150,000 | 150,000 | 150,000 | 150,000 | 150,000 | |||||||||||||||
Long-term debt as a percent | ||||||||||||||||||||
of total capitalization | 7 | % | 8 | % | 9 | % | 10 | % | 11 | % | ||||||||||
Stockholders' equity | 2,007,302 | 1,766,863 | 1,493,012 | 1,332,692 | 1,157,293 | |||||||||||||||
Return on average | ||||||||||||||||||||
stockholders' equity | 44 | % | 48 | % | 47 | % | 45 | % | 41 | % | ||||||||||
Book value per common share | ||||||||||||||||||||
outstanding at year-end² | $ | 9.41 | $ | 8.00 | $ | 6.58 | $ | 5.64 | $ | 4.71 | ||||||||||
Operating Statistics | ||||||||||||||||||||
Number of stores opened | 88 | 82 | 80 | 56 | 56 | |||||||||||||||
Number of stores closed | 11 | 8 | 10 | 6 | 7 | |||||||||||||||
Number of stores at year-end | 1,276 | 1,199 | 1,125 | 1,055 | 1,005 | |||||||||||||||
Comparable store sales increase³ | ||||||||||||||||||||
(52-week basis) | 3 | % | 6 | % | 5 | % | 5 | % | 6 | % | ||||||||||
Sales per average square foot of | ||||||||||||||||||||
selling space (52-week basis) | $ | 362 | $ | 355 | $ | 338 | $ | 324 | $ | 311 | ||||||||||
Square feet of selling space | ||||||||||||||||||||
at year-end (000) | 28,900 | 27,800 | 26,100 | 24,800 | 23,700 | |||||||||||||||
Number of employees at year-end | 66,300 | 57,500 | 53,900 | 49,500 | 45,600 | |||||||||||||||
Number of common stockholders | ||||||||||||||||||||
of record at year-end | 823 | 831 | 817 | 804 | 767 | |||||||||||||||
¹ Fiscal 2012 was a 53-week year; all other fiscal years presented were 52 weeks. | ||||||||||||||||||||
² All per share amounts have been adjusted for the two-for-one stock split effective December 15, 2011. | ||||||||||||||||||||
³ Comparable stores are stores open for more than 14 complete months. | ||||||||||||||||||||
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 1,146 locations in 33 states, the District of Columbia and Guam as of February 1, 2014. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20% to 60% off department and specialty store regular prices. We also operate 130 dd’s DISCOUNTS stores in 10 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 everyday savings of 20% to 70% off moderate department and discount store regular prices as of February 1, 2014.
Our primary objective is to pursue and refine our existing off-price strategies to maintain or improve both profitability and financial returns over the long term. In establishing appropriate growth targets for our business, we closely monitor market share trends for the off-price industry and believe our share gains over the past few years were driven mainly by continued focus on value by consumers. Our sales and earnings gains in 2013 continued to benefit from efficient execution of our off-price model throughout all areas of our business. Our merchandise and operational strategies are designed to take advantage of the expanding market share of the off-price industry as well as the ongoing customer demand for name brand fashions for the family and home at compelling everyday discounts.
Looking ahead to 2014, we are planning additional incremental reductions in average store inventory levels while continuing to maintain strict controls on operating expenses as part of our strategy to maximize our profitability.
We refer to our fiscal years ended February 1, 2014, February 2, 2013, and January 28, 2012 as fiscal 2013, fiscal 2012, and fiscal 2011, respectively. Fiscal 2012 was 53 weeks. Fiscal 2013 and 2011 were 52 weeks.
Results of Operations
The following table summarizes the financial results for fiscal 2013, 2012, and 2011:
2013 | 2012 | ¹ | 2011 | |||||||||
Sales | ||||||||||||
Sales (millions) | $ | 10,230 | $ | 9,721 | $ | 8,608 | ||||||
Sales growth | 5.2 | % | 12.9 | % | 9.4 | % | ||||||
Comparable store sales growth (52-week basis) | 3 | % | 6 | % | 5 | % | ||||||
Costs and expenses (as a percent of sales) | ||||||||||||
Cost of goods sold | 72.0 | % | 72.1 | % | 72.5 | % | ||||||
Selling, general and administrative | 14.9 | % | 14.8 | % | 15.2 | % | ||||||
Interest (income) expense, net | — | 0.1 | % | 0.1 | % | |||||||
Earnings before taxes (as a percent of sales) | 13.1 | % | 13.0 | % | 12.2 | % | ||||||
Net earnings (as a percent of sales) | 8.2 | % | 8.1 | % | 7.6 | % | ||||||
¹Fiscal 2012 was a 53-week year; all other fiscal years presented were 52 weeks.
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Stores. Total stores open at the end of fiscal 2013, 2012, and 2011 were 1,276, 1,199, and 1,125, respectively. The number of stores at the end of fiscal 2013, 2012, and 2011 increased by 6%, 7%, and 7% from the respective prior years. Our expansion strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria.
Store Count | 2013 | 2012 | 2011 | |||||
Beginning of the period | 1,199 | 1,125 | 1,055 | |||||
Opened in the period | 88 | 82 | 80 | |||||
Closed in the period | (11) | (8 | ) | (10 | ) | |||
End of the period | 1,276 | 1,199 | 1,125 | |||||
Selling square footage at the end of the period (000) | 28,900 | 27,800 | 26,100 | |||||
Sales. Sales for fiscal 2013 increased $0.5 billion, or 5.2%, compared to the prior year due to the opening of 77 net new stores during 2013 and a 3% increase in comparable store sales (defined as stores that have been open for more than 14 complete months). Sales for fiscal 2012 increased $1.1 billion, or 12.9%, compared to the prior year due to the opening of 74 net new stores during 2012, a 6% increase in sales from comparable stores, and approximately $149 million in sales from the 53rd week.
Our sales mix is shown below for fiscal 2013, 2012, and 2011:
2013 | 2012 | 2011 | |||||||
Ladies | 29 | % | 29 | % | 29 | % | |||
Home Accents and Bed and Bath | 24 | % | 24 | % | 25 | % | |||
Accessories, Lingerie, Fine Jewelry, and Fragrances | 13 | % | 13 | % | 13 | % | |||
Shoes | 13 | % | 13 | % | 12 | % | |||
Men's | 13 | % | 13 | % | 13 | % | |||
Children's | 8 | % | 8 | % | 8 | % | |||
Total | 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 organization, diversify our merchandise mix, and more fully develop our systems to improve regional and local merchandise offerings. Although our strategies and store expansion program contributed to sales gains in fiscal 2013, 2012, and 2011, we cannot be sure that they will result in a continuation of sales growth or in an increase in net earnings.
Cost of goods sold. Cost of goods sold in fiscal 2013 increased $349.5 million compared to the prior year mainly due to increased sales from the opening of 77 net new stores during the year and a 3% increase in sales from comparable stores.
Cost of goods sold as a percentage of sales for fiscal 2013 decreased approximately 15 basis points from the prior year. This improvement was due primarily to a 45 basis point increase in merchandise gross margin, which was partially offset by increases in occupancy of about 20 basis points and increases in distribution and buying expenses of about 5 basis points each.
Cost of goods sold in fiscal 2012 increased $770.7 million compared to the prior year mainly due to increased sales from the opening of 74 net new stores during the year and a 6% increase in sales from comparable stores.
Cost of goods sold as a percentage of sales for fiscal 2012 decreased approximately 40 basis points from the prior year. This improvement was due primarily to a 40 basis point increase in merchandise gross margin. In addition, occupancy leveraged 25 basis points and distribution expenses as a percent of sales also declined approximately 15
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basis points. These favorable items were partially offset by increases in buying and freight costs of 25 and 10 basis points, respectively, and 5 basis points related to the year over year true-up in our shortage reserve.
We cannot be sure that the gross profit margins realized in fiscal 2013, 2012, and 2011 will continue in future years.
Selling, general and administrative expenses. For fiscal 2013, selling, general and administrative expenses (“SG&A”) increased $88.5 million compared to the prior year, mainly due to increased store operating costs reflecting the opening of 77 net new stores during the year. SG&A as a percentage of sales for fiscal 2013 increased by approximately 15 basis points compared to the prior year primarily due to higher costs related to the relocation of our data center.
For fiscal 2012, SG&A increased $133.8 million compared to the prior year, mainly due to increased store operating costs reflecting the opening of 74 net new stores during the year. SG&A as a percentage of sales for fiscal 2012 decreased by approximately 35 basis points compared to the prior year primarily due to leverage on store operating expenses.
The largest component of SG&A is payroll. The total number of employees, including both full and part-time, as of fiscal year end 2013, 2012, and 2011 was approximately 66,300, 57,500, and 53,900, respectively.
Interest (income) expense, net. In fiscal 2013, interest expense decreased by $7.2 million primarily due to higher capitalization of interest related to construction of our new distribution centers. Interest income decreased by $0.1 million primarily due to lower investment yields as compared to the prior year. As a percentage of sales, net interest expense in fiscal 2013 decreased by approximately five basis points compared to the same period in the prior year. The table below shows interest expense and income for fiscal 2013, 2012, and 2011:
($ millions) | 2013 | 2012 | 2011 | |||||||||
Interest expense | $ | 0.3 | $ | 7.5 | $ | 11.0 | ||||||
Interest income | (0.5 | ) | (0.6 | ) | (0.7 | ) | ||||||
Total interest (income) expense, net | $ | (0.2 | ) | $ | 6.9 | $ | 10.3 | |||||
Taxes on earnings. Our effective tax rate for fiscal 2013, 2012 and 2011 was approximately 38% in each year, which represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns. The effective rate is impacted by changes in laws, location of new stores, level of earnings, and the resolution of tax positions with various taxing authorities. We anticipate that our effective tax rate for fiscal 2014 will be about 38%.
Net earnings. Net earnings as a percentage of sales for fiscal 2013 were higher than fiscal 2012 primarily due to lower cost of goods sold partially offset by higher SG&A. Net earnings as a percentage of sales for fiscal 2012 were higher compared to fiscal 2011 primarily due to both lower cost of goods sold and lower SG&A expenses.
Earnings per share. Diluted earnings per share in fiscal 2013 was $3.88 compared to $3.53 in the prior year period. The 10% increase in diluted earnings per share is attributable to an approximate 6% increase in net earnings and a 4% reduction in weighted average diluted shares outstanding, largely due to the repurchase of common stock under our stock repurchase program. Diluted earnings per share in fiscal 2012 was $3.53 compared to $2.86 in fiscal 2011. The 23% increase in diluted earnings per share is attributable to a 20% increase in net earnings and a 3% reduction in weighted average diluted shares outstanding, largely due to the repurchase of common stock under our stock repurchase program.
Financial Condition
Liquidity and Capital Resources
Our primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, rent, taxes, and capital expenditures in connection with new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to repurchase stock under our stock repurchase program and to pay dividends.
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($ millions) | 2013 | 2012 | 2011 | ||||||||
Cash provided by operating activities | $ | 1,022.0 | $ | 979.6 | $ | 820.1 | |||||
Cash used in investing activities | (563.8 | ) | (425.7 | ) | (471.8 | ) | |||||
Cash used in financing activities | (681.8 | ) | (557.0 | ) | (532.4 | ) | |||||
Net decrease in cash and cash equivalents | $ | (223.6 | ) | $ | (3.1 | ) | $ | (184.1 | ) | ||
Operating Activities
Net cash provided by operating activities was $1,022.0 million, $979.6 million, and $820.1 million in fiscal 2013, 2012, and 2011 respectively, and was primarily driven by net earnings excluding non-cash expenses for depreciation and amortization. Our primary source of operating cash flow is the sale of our merchandise inventory. We regularly review the age and condition of our merchandise and are able to maintain current merchandise inventory in our stores through replenishment processes and liquidation of slower-moving merchandise through clearance markdowns.
Net cash from operations increased in 2013 compared to 2012 and in 2012 compared to 2011 primarily due to higher net earnings.
The change in total merchandise inventory, net of the change in accounts payable, resulted in a use of cash of approximately $52 million, $39 million, and $55 million for fiscal 2013, 2012, and 2011, respectively. Accounts payable leverage (defined as accounts payable divided by merchandise inventory) was 62%, 67%, and 67% as of February 1, 2014, February 2, 2013, and January 28, 2012, respectively. Changes in accounts payable leverage are primarily driven by timing of packaway receipts and payments. Accounts payable leverage at the end of fiscal 2013 was also impacted due to the timing shift of the dividend declaration from January 2014 to February 2014.
As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling opportunities in the marketplace. Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to our store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchase, but typically packaway remains in storage less than six months. We expect to continue to take advantage of packaway inventory opportunities to deliver bargains to our customers.
Changes in packaway inventory levels impact our operating cash flow. At the end of fiscal 2013, packaway inventory was 49% of total inventory compared to 47% and 49% at the end of fiscal 2012 and 2011, respectively.
Investing Activities
Net cash used in investing activities was $563.8 million, $425.7 million, and $471.8 million in fiscal 2013, 2012, and 2011, respectively. The increase in cash used for investing activities in fiscal 2013 compared to fiscal 2012 was primarily due to an increase in our capital expenditures. The decrease in cash used for investing activities for fiscal 2012 compared to fiscal 2011 was primarily due to a transfer of funds in fiscal 2011 into restricted accounts to serve as collateral for our insurance obligations.
In fiscal 2013, 2012, and 2011, our capital expenditures were $550.5 million, $424.4 million, and $416.3 million, respectively. Our capital expenditures include costs to build or expand distribution centers, develop our new data center, open new stores and improve existing stores, and for various other expenditures related to our information technology systems, buying, and corporate offices. We opened 88, 82, and 80 new stores in fiscal 2013, 2012, and 2011, respectively. In 2013 we purchased the land and building of our previously leased 1.3 million square foot Perris, California distribution center for $70 million; we also spent approximately $60 million building out our new corporate headquarters. Our buying offices, our former corporate headquarters, two truck and trailer parking facilities, three warehouse facilities, and all but three of our store locations are leased and, except for certain leasehold improvements and equipment, do not represent capital investments.
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Our capital expenditures over the last three years are set forth in the table below:
($ millions) | 2013 | 2012 | 2011 | |||||||||
Distribution | $ | 248.4 | $ | 157.9 | $ | 86.1 | ||||||
New stores | 121.3 | 118.7 | 114.2 | |||||||||
Existing stores | 59.1 | 86.9 | 126.8 | |||||||||
Information systems, corporate, and other | 121.7 | 60.9 | 89.2 | |||||||||
Total capital expenditures | $ | 550.5 | $ | 424.4 | $ | 416.3 | ||||||
In October 2013, we entered into a Sale-Purchase Agreement under which we have the right to purchase the office building where our New York buying office is located for $222 million. The building is subject to a 99 year ground lease through June 2111. The Sale-Purchase Agreement contemplates completion of the sale and purchase of the building on or before September 20, 2014, subject to satisfaction of various closing conditions. Under the Sale-Purchase Agreement, we provided a deposit of 10% of the purchase price. In the event we are unable or choose not to complete the purchase of the building, we would forfeit the deposit but have no further liability to the seller or obligation to complete the purchase. In September 2013, we deposited $11.1 million and provided an $11.1 million standby letter of credit to meet the 10% deposit obligation. In January 2014, we deposited an additional $2.2 million in escrow for the building bringing our total deposit to $13.3 million. We plan to finance the purchase of the building in 2014.
We are forecasting approximately $800 million in capital expenditures for fiscal year 2014, up from $550.5 million in fiscal 2013. In addition to funding costs for fixtures and leasehold improvements to open both new Ross and dd’s DISCOUNTS stores, the upgrade or relocation of existing stores, investments in information technology systems, and for various other expenditures related to our stores, distribution centers, buying and corporate offices, this higher capital spending is primarily driven by the expected purchase of our New York buying office and continued construction of our two new distribution centers. We expect to primarily fund capital expenditures with available cash and cash flows from operations and with proceeds from our planned financing of the purchase of our New York buying office.
We purchased $12.0 million and $5.4 million of investments in fiscal 2013 and fiscal 2012, respectively. We purchased no investments in fiscal 2011. We had proceeds from investments of $1.6 million, $6.2 million, and $4.6 million in fiscal 2013, 2012, and 2011, respectively.
Financing Activities
Net cash used in financing activities was $681.8 million, $557.0 million, and $532.4 million in fiscal 2013, 2012, and 2011, respectively. During fiscal 2013, 2012, and 2011, our liquidity and capital requirements were provided by available cash and cash flows from operations.
In January 2013, our Board of Directors approved a two-year $1.1 billion stock repurchase program for fiscal 2013 and 2014. We repurchased 8.2 million, 7.5 million, and 11.3 million shares of common stock for aggregate purchase prices of approximately $550 million, $450 million, and $450 million in fiscal 2013, 2012, and 2011, respectively. We also acquired 496,000, 505,000, and 442,000 shares of treasury stock from our employee stock equity compensation programs, for aggregate purchase prices of approximately $29.9 million, $29.4 million, and $15.9 million during fiscal 2013, 2012, and 2011, respectively.
In February 2014, our Board of Directors declared a quarterly cash dividend of $0.20 per common share, payable on March 31, 2014. Our Board of Directors declared cash dividends of $0.17 per common share in January, May, August, and November 2013, cash dividends of $0.14 per common share in January, May, August, and November 2012, and cash dividends of $0.11 per common share in January, May, August, and November 2011.
During fiscal 2013, 2012, and 2011, we paid dividends of $147.9 million, $125.7 million, and $102.0 million, respectively.
Short-term trade credit represents a significant source of financing for merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade, bank, and other credit lines to meet our capital and liquidity requirements, including lease payment obligations in 2014.
Our existing $600 million unsecured revolving credit facility expires in June 2017 and contains a $300 million sublimit for issuance of standby letters of credit. Interest on this facility is based on LIBOR plus an applicable margin (currently
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100 basis points) and is payable quarterly and upon maturity. As of February 1, 2014, we had no borrowings or standby letters of credit outstanding on this facility and our $600 million credit facility remains in place and available.
We estimate that existing cash balances, cash flows from operations, bank credit lines, and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments, common stock repurchases, and quarterly dividend payments for at least the next twelve months.
Contractual Obligations
The table below presents our significant contractual obligations as of February 1, 2014:
Less than 1 year | 1 - 3 years | 3 - 5 years | After 5 years | Total¹ | |||||||||||||||
($000) | |||||||||||||||||||
Senior notes | $ | — | $ | — | $ | 85,000 | $ | 65,000 | $ | 150,000 | |||||||||
Interest payment obligations | 9,668 | 19,335 | 18,657 | 12,203 | 59,863 | ||||||||||||||
Operating leases (rent obligations) | 417,443 | 801,735 | 569,380 | 498,371 | 2,286,929 | ||||||||||||||
Purchase obligations | 1,792,423 | 19,260 | — | — | 1,811,683 | ||||||||||||||
Total contractual obligations | $ | 2,219,534 | $ | 840,330 | $ | 673,037 | $ | 575,574 | $ | 4,308,475 | |||||||||
1We have a $104.9 million liability for unrecognized tax benefits that is included in other long-term liabilities on our consolidated balance sheet. This liability is excluded from the schedule above as the timing of payments cannot be reasonably estimated.
Senior notes. We have issued two series of unsecured senior notes in the aggregate principal amount of $150 million, held by various institutional investors. The Series A notes totaling $85 million are due in December 2018 and bear interest at a rate of 6.38%. The Series B notes totaling $65 million are due in December 2021 and bear interest at a rate of 6.53%. Interest on these notes is included in Interest payment obligations in the table above. These notes are subject to prepayment penalties for early payment of principal.
Borrowings under these notes are subject to certain operating and financial covenants, including interest coverage and other financial ratios. As of February 1, 2014, we were in compliance with these covenants.
Off-Balance Sheet Arrangements
Operating leases. We currently lease our buying offices, our former corporate headquarters, three warehouse facilities, all but three of our store locations, and two truck and trailer parking facilities. Except for certain leasehold improvements and equipment, these leased locations do not represent long-term capital investments.
We lease three warehouses. Two of the warehouses are in Carlisle, Pennsylvania with leases expiring in 2016 and 2017. The third warehouse is in Fort Mill, South Carolina, with a lease expiring in 2016. The leases for all three warehouses contain renewal provisions.
We lease a 10-acre parcel for trailer parking adjacent to our Perris, California distribution center that expires in 2017 and a 20-acre facility located in Moreno Valley, California primarily for ancillary truck and trailer parking that expires in 2015. Both of these leases contain renewal provisions.
We lease approximately 192,000 square feet of office space for our former corporate headquarters in Pleasanton, California, under several facility leases. The term for the majority of these leases expires in June 2014. The lease term for the remaining space of approximately 11,000 square feet expires in March 2015. We do not plan to renew any of these leases.
We currently lease approximately 411,000 and 52,000 square feet of office space for our New York City and Los Angeles buying offices, respectively. The lease terms for these facilities expire in 2022 and 2017, respectively, and contain renewal provisions. We plan to purchase our New York buying office in 2014.
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Purchase obligations. As of February 1, 2014 we had purchase obligations of approximately $1,812 million. These purchase obligations primarily consist of merchandise inventory purchase orders, commitments related to construction projects, store fixtures and supplies, and information technology service and maintenance contracts.
Commercial Credit Facilities
The table below presents our significant available commercial credit facilities at February 1, 2014:
Amount of Commitment Expiration Per Period | |||||||||||||||||||
Less than 1 year | Total amount committed | ||||||||||||||||||
($000) | 1 - 3 years | 3 - 5 years | After 5 years | ||||||||||||||||
Revolving credit facility | $ | — | $ | — | $ | 600,000 | $ | — | $ | 600,000 | |||||||||
Total commercial commitments | $ | — | $ | — | $ | 600,000 | $ | — | $ | 600,000 | |||||||||
For additional information relating to this credit facility, refer to Note D of Notes to Consolidated Financial Statements. | |||||||||||||||||||
Revolving credit facility. Our existing $600 million unsecured revolving credit facility expires in June 2017 and contains a $300 million sublimit for issuance of standby letters of credit. Interest on this facility is based on LIBOR plus an applicable margin (currently 100 basis points) and is payable quarterly and upon maturity. As of February 1, 2014 we had no borrowings outstanding or standby letters of credit issued under this facility.
Our revolving credit facility and senior notes have covenant restrictions requiring us to maintain certain interest coverage and other financial ratios. In addition, the interest rates under the revolving credit facility may vary depending on actual interest coverage ratios achieved. As of February 1, 2014 we were in compliance with these covenants.
Standby letters of credit and collateral trust. We use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize our insurance obligations. As of February 1, 2014 and February 2, 2013, we had $24.3 million and $33.8 million, respectively, in standby letters of credit outstanding and $47.2 million and $34.9 million, respectively, in a collateral trust. The standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash, cash equivalents, and investments.
As of February 1, 2014, we also had an $11.1 million standby letter of credit in connection with our New York buying office Sale-Purchase Agreement.
Trade letters of credit. We had $31.6 million and $38.0 million in trade letters of credit outstanding at February 1, 2014 and February 2, 2013, respectively.
Effects of inflation or deflation. We do not consider the effects of inflation or deflation to be material to our financial position and results of operations.
Other
Critical Accounting Policies
The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable. We believe the following critical accounting policies describe the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Merchandise inventory. Our merchandise inventory is stated at the lower of cost (determined using a weighted average basis) or net realizable value. We purchase manufacturer overruns and canceled orders both during and at the end of a season which are referred to as "packaway" inventory. Packaway inventory is purchased with the intent that it will be stored in our warehouses until a later date. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to the Company’s store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchase, but typically packaway remains in storage less than six months. Packaway inventory accounted for
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approximately 49%, 47%, and 49% of total inventories as of February 1, 2014, February 2, 2013, and January 28, 2012, respectively. Merchandise inventory includes acquisition, processing, and storage costs related to packaway inventory.
Included in the carrying value of our merchandise inventory is a provision for shortage. The shortage reserve is based on historical shortage rates as evaluated through our annual physical merchandise inventory counts and cycle counts. If actual market conditions, markdowns, or shortage are less favorable than those projected by us, or if sales of the merchandise inventory are more difficult than anticipated, additional merchandise inventory write-downs may be required.
Long-lived assets. We record a long-lived asset impairment charge when events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable based on estimated future cash flows. An impairment loss would be recognized if analysis of the undiscounted cash flow of an asset group was less than the carrying value of the asset group. If our actual results differ materially from projected results, an impairment charge may be required in the future. In the course of performing our annual analysis, we determined that no long-lived asset impairment charge was required for fiscal 2013, 2012, or 2011.
Depreciation and amortization expense. Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful life of the asset, typically ranging from three to 12 years for equipment and 20 to 40 years for land improvements and buildings. The cost of leasehold improvements is amortized over the lesser of the useful life of the asset or the applicable lease term.
Lease accounting. When a lease contains “rent holidays” or requires fixed escalations of the minimum lease payments, we record rental expense on a straight-line basis over the term of the lease and the difference between the average rental amount charged to expense and the amount payable under the lease is recorded as deferred rent. We begin recording rent expense on the lease possession date. Tenant improvement allowances are included in other long-term liabilities and are amortized over the lease term. Changes in tenant improvement allowances are included as a component of operating activities in the consolidated statements of cash flows.
Insurance obligations. We use a combination of insurance and self-insurance for a number of risk management activities, including workers’ compensation, general liability, and employee-related health care benefits. Our self-insurance and deductible liability is determined actuarially, based on claims filed and an estimate of claims incurred but not reported. Should a greater amount of claims occur compared to what is estimated or the costs of medical care increase beyond what was anticipated, our recorded reserves may not be sufficient and additional charges could be required.
Stock-based compensation. We recognize compensation expense based upon the grant date fair value of all stock-based awards. We use historical data to estimate pre-vesting forfeitures and to recognize stock-based compensation expense. All stock-based compensation awards are expensed over the service or performance periods of the awards.
Income taxes. We account for our uncertain tax positions in accordance with Accounting Standards Codification (“ASC”) 740. We are required to make assumptions and judgments regarding our income tax exposures. Our policy is to recognize interest and/or penalties related to all tax positions in income tax expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made.
The critical accounting policies noted above are not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by Generally Accepted Accounting Principles (“GAAP”), with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting one alternative accounting principle over another would not produce a materially different result. See our audited consolidated financial statements and notes thereto under Item 8 in this Annual Report on Form 10-K, which contain accounting policies and other disclosures required by GAAP.
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Forward-Looking Statements
Our Annual Report on Form 10-K for fiscal 2013, and information we provide in our Annual Report to Stockholders, press releases, telephonic reports, and other investor communications including those on our corporate website, may contain a number of forward-looking statements regarding, without limitation, planned store growth, new markets, expected sales, projected earnings levels, capital expenditures, and other matters. These forward-looking statements reflect our then current beliefs, projections, and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” “looking ahead” and similar expressions identify forward-looking statements.
Future economic and industry trends that could potentially impact revenue, profitability, and growth remain difficult to predict. As a result, our forward-looking statements are subject to risks and uncertainties which could cause our actual results to differ materially from those forward-looking statements and our previous expectations and projections. Refer to Item 1A in this Annual Report on Form 10-K for a more complete discussion of risk factors for Ross and dd's DISCOUNTS. The factors underlying our forecasts are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks, which primarily include changes in interest rates. We do not engage in financial transactions for trading or speculative purposes.
We occasionally use forward contracts to hedge against fluctuations in foreign currency prices. We had no outstanding forward contracts as of February 1, 2014.
Interest that is payable on our revolving credit facility is based on variable interest rates and is, therefore, affected by changes in market interest rates. As of February 1, 2014, we had no borrowings outstanding under our revolving credit facility.
In addition, we have two outstanding series of unsecured notes held by institutional investors: Series A for $85 million accrues interest at 6.38% and Series B for $65 million accrues interest at 6.53%. The amount outstanding under these notes as of February 1, 2014 was $150 million.
Interest is receivable on our short- and long-term investments. Changes in interest rates may impact interest income recognized in the future, or the fair value of our investment portfolio.
A hypothetical 100 basis point increase or decrease in prevailing market interest rates would not have a material impact on our consolidated financial position, results of operations, cash flows, or the fair values of our short- and long-term investments as of and for the year ended February 1, 2014. We do not consider the potential losses in future earnings and cash flows from reasonably possible, near-term changes in interest rates to be material.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Earnings
Year Ended | Year Ended | Year Ended | ||||||||||
($000, except per share data) | February 1, 2014 | February 2, 2013 | January 28, 2012 | |||||||||
Sales | $ | 10,230,353 | $ | 9,721,065 | $ | 8,608,291 | ||||||
Costs and Expenses | ||||||||||||
Costs of goods sold | 7,360,924 | 7,011,428 | 6,240,760 | |||||||||
Selling, general and administrative | 1,526,366 | 1,437,886 | 1,304,065 | |||||||||
Interest (income) expense, net | (247 | ) | 6,907 | 10,322 | ||||||||
Total costs and expenses | 8,887,043 | 8,456,221 | 7,555,147 | |||||||||
Earnings before taxes | 1,343,310 | 1,264,844 | 1,053,144 | |||||||||
Provision for taxes on earnings | 506,006 | 478,081 | 395,974 | |||||||||
Net earnings | $ | 837,304 | $ | 786,763 | $ | 657,170 | ||||||
Earnings per share | ||||||||||||
Basic | $ | 3.93 | $ | 3.59 | $ | 2.91 | ||||||
Diluted | $ | 3.88 | $ | 3.53 | $ | 2.86 | ||||||
Weighted average shares outstanding (000) | ||||||||||||
Basic | 212,881 | 219,130 | 225,915 | |||||||||
Diluted | 215,805 | 222,784 | 229,982 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||
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Consolidated Statements of Comprehensive Income
Year Ended | Year Ended | Year Ended | ||||||||||
($000) | February 1, 2014 | February 2, 2013 | January 28, 2012 | |||||||||
Net earnings | $ | 837,304 | $ | 786,763 | $ | 657,170 | ||||||
Other comprehensive income: | ||||||||||||
Change in unrealized (loss) gain on investments, net of tax | (196 | ) | (50 | ) | 147 | |||||||
Comprehensive income | $ | 837,108 | $ | 786,713 | $ | 657,317 | ||||||
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||
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Consolidated Balance Sheets
($000, except share data) | February 1, 2014 | February 2, 2013 | |||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 423,168 | $ | 646,761 | |||
Short-term investments | 12,006 | 1,087 | |||||
Accounts receivable | 62,612 | 59,617 | |||||
Merchandise inventory | 1,257,155 | 1,209,237 | |||||
Prepaid expenses and other | 101,991 | 94,318 | |||||
Deferred income taxes | 10,227 | 20,407 | |||||
Total current assets | 1,867,159 | 2,031,427 | |||||
Property and Equipment | |||||||
Land and buildings | 478,973 | 372,659 | |||||
Fixtures and equipment | 1,678,397 | 1,551,590 | |||||
Leasehold improvements | 813,972 | 732,671 | |||||
Construction-in-progress | 510,221 | 258,691 | |||||
3,481,563 | 2,915,611 | ||||||
Less accumulated depreciation and amortization | 1,606,264 | 1,422,327 | |||||
Property and equipment, net | 1,875,299 | 1,493,284 | |||||
Long-term investments | 3,710 | 4,374 | |||||
Other long-term assets | 150,629 | 141,476 | |||||
Total assets | $ | 3,896,797 | $ | 3,670,561 | |||
Liabilities and Stockholders’ Equity | |||||||
Current Liabilities | |||||||
Accounts payable | $ | 779,455 | $ | 807,534 | |||
Accrued expenses and other | 359,929 | 320,415 | |||||
Accrued payroll and benefits | 235,324 | 241,129 | |||||
Income taxes payable | 18,349 | 53,504 | |||||
Total current liabilities | 1,393,057 | 1,422,582 | |||||
Long-term debt | 150,000 | 150,000 | |||||
Other long-term liabilities | 287,567 | 246,815 | |||||
Deferred income taxes | 58,871 | 84,301 | |||||
Commitments and contingencies | |||||||
Stockholders’ Equity | |||||||
Common stock, par value $.01 per share | 2,134 | 2,207 | |||||
Authorized 600,000,000 shares | |||||||
Issued and outstanding 213,420,000 and | |||||||
220,721,000 shares, respectively | |||||||
Additional paid-in capital | 935,591 | 866,519 | |||||
Treasury stock | (121,559 | ) | (91,708 | ) | |||
Accumulated other comprehensive income | 389 | 585 | |||||
Retained earnings | 1,190,747 | 989,260 | |||||
Total stockholders’ equity | 2,007,302 | 1,766,863 | |||||
Total liabilities and stockholders’ equity | $ | 3,896,797 | $ | 3,670,561 | |||
The accompanying notes are an integral part of these consolidated financial statements. | |||||||
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Consolidated Statements of Stockholders' Equity
Additional paid-in capital | Accumulated other comprehensive income (loss) | |||||||||||||||||||||||||
Common stock | Treasury stock | Retained earnings | ||||||||||||||||||||||||
(000) | Shares | Amount | Total | |||||||||||||||||||||||
Balance at January 29, 2011 | 236,126 | $ | 2,362 | $ | 739,545 | $ | (46,408 | ) | $488 | $ | 636,705 | $ | 1,332,692 | |||||||||||||
Net earnings | — | — | — | — | — | 657,170 | 657,170 | |||||||||||||||||||
Unrealized investment gain, net | — | — | — | — | 147 | — | 147 | |||||||||||||||||||
Common stock issued under stock | ||||||||||||||||||||||||||
plans, net of shares | ||||||||||||||||||||||||||
used for tax withholding | 2,002 | 20 | 17,270 | (15,854 | ) | — | — | 1,436 | ||||||||||||||||||
Tax benefit from equity issuance | — | — | 19,040 | — | — | — | 19,040 | |||||||||||||||||||
Stock-based compensation | — | — | 40,404 | — | — | — | 40,404 | |||||||||||||||||||
Common stock repurchased | (11,264 | ) | (113 | ) | (27,364 | ) | — | — | (422,523 | ) | (450,000 | ) | ||||||||||||||
Dividends declared ($0.47 per share) | — | — | — | — | — | (107,877 | ) | (107,877 | ) | |||||||||||||||||
Balance at January 28, 2012 | 226,864 | $ | 2,269 | $ | 788,895 | $ | (62,262 | ) | $635 | $ | 763,475 | $ | 1,493,012 | |||||||||||||
Net earnings | — | — | — | — | — | 786,763 | 786,763 | |||||||||||||||||||
Unrealized investment loss, net | — | — | — | — | (50 | ) | — | (50 | ) | |||||||||||||||||
Common stock issued under stock | ||||||||||||||||||||||||||
plans, net of shares | ||||||||||||||||||||||||||
used for tax withholding | 1,315 | 13 | 19,030 | (29,446 | ) | — | — | (10,403 | ) | |||||||||||||||||
Tax benefit from equity issuance | — | — | 29,989 | — | — | — | 29,989 | |||||||||||||||||||
Stock-based compensation | — | — | 48,952 | — | — | — | 48,952 | |||||||||||||||||||
Common stock repurchased | (7,458 | ) | (75 | ) | (20,347 | ) | — | — | (429,578 | ) | (450,000 | ) | ||||||||||||||
Dividends declared ($0.59 per share) | — | — | — | — | — | (131,400 | ) | (131,400 | ) | |||||||||||||||||
Balance at February 2, 2013 | 220,721 | $ | 2,207 | $ | 866,519 | $ | (91,708 | ) | $585 | $ | 989,260 | $ | 1,766,863 | |||||||||||||
Net earnings | — | — | — | — | — | 837,304 | 837,304 | |||||||||||||||||||
Unrealized investment loss, net | — | — | — | — | (196 | ) | — | (196 | ) | |||||||||||||||||
Common stock issued under stock | ||||||||||||||||||||||||||
plans, net of shares | ||||||||||||||||||||||||||
used for tax withholding | 878 | 9 | 19,065 | (29,851 | ) | — | — | (10,777 | ) | |||||||||||||||||
Tax benefit from equity issuance | — | — | 27,661 | — | — | — | 27,661 | |||||||||||||||||||
Stock-based compensation | — | — | 46,847 | — | — | — | 46,847 | |||||||||||||||||||
Common stock repurchased | (8,179 | ) | (82 | ) | (24,501 | ) | — | — | (525,417 | ) | (550,000 | ) | ||||||||||||||
Dividends declared ($0.51 per share) | — | — | — | — | — | (110,400 | ) | (110,400 | ) | |||||||||||||||||
Balance at February 1, 2014 | 213,420 | $ | 2,134 | $ | 935,591 | $ | (121,559 | ) | $389 | $ | 1,190,747 | $ | 2,007,302 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||||||||||||||
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Consolidated Statements of Cash Flows
Year Ended | Year Ended | Year Ended | |||||||||
($000) | February 1, 2014 | February 2, 2013 | January 28, 2012 | ||||||||
Cash Flows From Operating Activities | |||||||||||
Net earnings | $ | 837,304 | $ | 786,763 | $ | 657,170 | |||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 206,111 | 185,491 | 159,892 | ||||||||
Stock-based compensation | 46,847 | 48,952 | 40,404 | ||||||||
Deferred income taxes | (15,250 | ) | (39,028 | ) | 21,722 | ||||||
Tax benefit from equity issuance | 27,661 | 29,989 | 19,040 | ||||||||
Excess tax benefit from stock-based compensation | (26,906 | ) | (29,103 | ) | (18,180 | ) | |||||
Change in assets and liabilities: | |||||||||||
Merchandise inventory | (47,918 | ) | (79,167 | ) | (43,153 | ) | |||||
Other current assets | (9,875 | ) | (14,474 | ) | (10,329 | ) | |||||
Accounts payable | (4,104 | ) | 40,109 | (11,614 | ) | ||||||
Other current liabilities | (18,562 | ) | 18,146 | (2,109 | ) | ||||||
Other long-term, net | 26,695 | 31,966 | 7,262 | ||||||||
Net cash provided by operating activities | 1,022,003 | 979,644 | 820,105 | ||||||||
Cash Flows From Investing Activities | |||||||||||
Additions to property and equipment | (550,515 | ) | (424,434 | ) | (416,271 | ) | |||||
Increase in restricted cash and investments | (2,895 | ) | (2,107 | ) | (60,086 | ) | |||||
Purchases of investments | (12,012 | ) | (5,430 | ) | — | ||||||
Proceeds from investments | 1,614 | 6,247 | 4,589 | ||||||||
Net cash used in investing activities | (563,808 | ) | (425,724 | ) | (471,768 | ) | |||||
Cash Flows From Financing Activities | |||||||||||
Excess tax benefit from stock-based compensation | 26,906 | 29,103 | 18,180 | ||||||||
Issuance of common stock related to stock plans | 19,074 | 19,043 | 17,290 | ||||||||
Treasury stock purchased | (29,851 | ) | (29,446 | ) | (15,854 | ) | |||||
Repurchase of common stock | (550,000 | ) | (450,000 | ) | (450,000 | ) | |||||
Dividends paid | (147,917 | ) | (125,694 | ) | (102,042 | ) | |||||
Net cash used in financing activities | (681,788 | ) | (556,994 | ) | (532,426 | ) | |||||