UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) _X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 3, 1997 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 (I.R.S. Employer Identification No.) incorporation or organization) 8333 Central Avenue, Newark, California 94560-3433 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (510) 505-4400 Former name, former address and N/A former fiscal year, if changed since last report. 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 __ The number of shares of Common Stock, with $.01 par value, outstanding on May 30, 1997 was 49,693,516.
2 PART I. FINANCIAL INFORMATION <TABLE> <CAPTION> ITEM 1. FINANCIAL STATEMENTS. ROSS STORES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ($000) May 3, February 1, May 4, ASSETS 1997 1997 1996 (Unaudited) (Note A) (Unaudited) <S> <C> <C> <C> CURRENT ASSETS Cash and cash equivalents $26,879 $44,777 $35,036 Accounts receivable 9,583 7,832 11,555 Merchandise inventory 409,014 373,689 332,623 Prepaid expenses and other 13,405 13,289 13,001 __________ __________ __________ Total Current Assets 458,881 439,587 392,215 PROPERTY AND EQUIPMENT Land and buildings 24,115 24,115 24,102 Fixtures and equipment 176,756 164,980 152,625 Leasehold improvements 137,714 135,810 122,489 Construction-in-progress 12,654 23,798 17,833 __________ __________ __________ 351,239 348,703 317,049 Less accumulated depreciation 157,806 156,056 137,674 and amortization __________ __________ __________ 193,433 192,647 179,375 Other assets 30,842 27,244 22,307 __________ __________ __________ $ 683,156 $ 659,478 $593,897 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 197,926 $184,101 $165,036 Accrued expenses and other 60,540 61,761 42,498 Accrued payroll and benefits 26,772 36,356 23,940 Income taxes payable 19,911 22,567 12,137 __________ __________ __________ Total Current Liabilities 305,149 304,785 243,611 Long-term debt 19,736 Deferred income taxes and other liabilities 29,356 25,850 24,033 STOCKHOLDERS' EQUITY Capital stock 496 493 504 Additional paid-in capital 167,361 164,166 148,609 Retained earnings 180,794 164,184 157,404 __________ __________ __________ 348,651 328,843 306,517 __________ __________ __________ $ 683,156 $659,478 $593,897 </TABLE> See notes to condensed consolidated financial statements.
3 ROSS STORES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS Three Months Ended May 3, May 4, ($000 except per share data, unaudited) 1997 1996 SALES $442,841 $370,948 COSTS AND EXPENSES Cost of goods sold and occupancy 309,513 264,058 General, selling and administrative 86,664 76,219 Depreciation and amortization 7,275 7,261 Interest (200) 184 __________ _________ $403,252 $347,722 Earnings before taxes 39,589 23,226 Provision for taxes on earnings 15,836 9,290 __________ _________ Net earnings $23,753 $13,936 Net earnings per share: Primary $.47 $.27 Fully diluted $.47 $.27 Weighted average shares outstanding: Primary 50,486 51,294 Fully diluted 50,510 51,616 Stores open at end of period 315 296 See notes to condensed consolidated financial statements.
4 ROSS STORES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended May 3, May 4, ($000, unaudited) 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $23,753 $13,936 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization of property 7,275 7,261 and equipment Other amortization 1,832 1,515 Change in current assets and current liabilities: Merchandise inventory (35,324) (36,658) Other current assets - net (1,868) (3,483) Accounts payable 16,045 29,119 Other current liabilities - net (13,627) 1,076 Other (4) 233 ________ ________ Net cash provided by (used in) (1,918) 12,999 operating activities CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (10,688) (9,334) Net cash used in investing activities (10,688) (9,334) CASH FLOWS FROM FINANCING ACTIVITIES Borrowing under line of credit agreement 2,500 10,000 (Repayment) of long-term debt (47) (110) Issuance of common stock related to stock 2,754 18,130 plans Repurchase of common stock (8,286) (18,327) Dividends paid (2,213) (1,748) ________ ________ Net cash provided by (used in) financing (5,292) 7,945 activities NET INCREASE (DECREASE) IN CASH (17,898) 11,610 Cash Beginning of year 44,777 23,426 ________ ________ End of quarter $26,879 $35,036 Interest Paid $40 $267 Income Taxes Paid $18,491 $7,709 See notes to condensed consolidated financial statements.
5 ROSS STORES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended May 3, 1997 and May 4, 1996 (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared from the records of the company without audit and, in the opinion of management, include all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at May 3, 1997 and May 4, 1996; the interim results of operations for the three months ended May 3, 1997 and May 4, 1996; and changes in cash flows for the three months then ended. The balance sheet at February 1, 1997, presented herein, has been derived from the audited financial statements of the company for the fiscal year then ended. Accounting policies followed by the company are described in Note A to the audited consolidated financial statements for the fiscal year ended February 1, 1997. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted for purposes of the condensed consolidated interim financial statements. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, for the year ended February 1, 1997. The results of operations for the three month periods herein presented are not necessarily indicative of the results to be expected for the full year. The condensed consolidated financial statements at May 3, 1997 and May 4, 1996, and for the three months then ended have been reviewed, prior to filing, by the registrant's independent accountants whose report covering their review of the financial statements is included in this report on page 6. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, (SFAS 128), Earnings per Share (EPS). SFAS 128 requires dual presentation of basic EPS and diluted EPS on the face of all income statements issued after December 15, 1997 for all entities with complex capital structures. Basic EPS is computed as net income divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities. The pro forma effect assuming adoption of SFAS 128 at the beginning of each period is presented below. Three Months Ended May 3, 1997 May 4, 1996 _______________________________________________ Pro forma EPS: Basic $.48 $.28 Diluted $.47 $.27
6 INDEPENDENT AUDITORS' REVIEW REPORT Board of Directors and Stockholders of Ross Stores, Inc. Newark, California We have reviewed the accompanying condensed consolidated balance sheets of Ross Stores, Inc. (the "Company") as of May 3, 1997 and May 4, 1996, and the related condensed consolidated statements of earnings and cash flows for the three-month periods then ended. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Ross Stores, Inc. as of February 1, 1997, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 7, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 1, 1997 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Deloitte & Touche LLP San Francisco, CA May 23, 1997
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Percentage Of Sales Three Months Ended May 3, May 4, 1997 1996 SALES Sales ($000) $442,841 $370,948 Sales growth 19.4% 24.7% Comparable store sales growth 11% 14% COSTS AND EXPENSES Cost of goods sold and occupancy 69.9% 71.2% General, selling and administrative 19.6% 20.5% Depreciation and amortization 1.6% 2.0% Interest 0% 0% NET EARNINGS 5.4% 3.8% Sales The results of operations for the three months ended May 3, 1997, over the same period last year, reflect an increase in comparable store sales and a greater number of open stores during the current period. Costs and Expenses The decline from the comparable period in the prior year in the cost of goods sold and occupancy percentage for the three months ended May 3, 1997 was due to the combination of (i) leverage on occupancy costs and (ii) lower markdowns as a percentage of sales. General, selling and administrative expenses as a percentage of sales also declined from the comparable quarter in the prior year. This improvement was due to the company's continued focus on strict expense controls and the leverage realized from the strong comparable store sales gain of 11%. Net earnings for the three months ended May 3, 1997, totaled $23.8 million, or $.47 per share, compared to net earnings of $13.9 million, or $.27 per share, for the three months ended May 4, 1996. Taxes on Earnings The company's effective tax rate for the first quarter of 1997 and 1996 was 40%. The rate for both periods reflects the applicable statutory tax rates.
8 LIQUIDITY AND CAPITAL RESOURCES The primary uses of cash, other than for operating expenses, during the first three months of fiscal 1997 were for (i) purchase of inventory; (ii) a decrease in other current liabilities primarily resulting from payments of accrued expenses including incentive bonuses and income taxes; (iii) capital expenditures for new stores and improvements to existing locations; and (iv) repurchase of the company's common stock. Total consolidated inventories were up 23% at the end of the first quarter from the same quarter last year driven by (i) a planned increase in packaway inventories and (ii) a larger number of open stores over the prior year. The decline in interest expense reflects a decline in borrowings resulting primarily from the higher earnings levels. The company believes it can fund its capital needs for the remainder of the fiscal year and the current stock repurchase program through internally generated cash, trade credit, established bank lines and lease financing.
9 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Incorporated herein by reference to the list of Exhibits contained in the Exhibit Index which begins on page 10 of this Report. (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. ROSS STORES, INC. _____________________ Registrant Date: June 16, 1997 /s/Melvin A. Wilmore Melvin A. Wilmore, President, Chief Operating Officer and Principal Accounting Officer
10 INDEX TO EXHIBITS Exhibit Number Exhibit 3.1 Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 8-B (the "Form 8-B") filed September 1, 1989 by Ross Stores, Inc., a Delaware corporation ("Ross Stores"). 3.2 Amended By-laws, dated August 25, 1994, incorporated by reference to Exhibit 3.2 to the Form 10-Q filed by Ross Stores for its quarter ended July 30, 1994. 10.1 Agreement of Lease, dated November 24, 1986, for Ross Stores' corporate headquarters and distribution center in Newark, CA, incorporated by reference to Exhibit 10.5 to the Form 8-B. 10.2 Revolving Credit Agreement, dated July 31, 1993, among Ross Stores, Wells Fargo Bank, National Association, Bank of America, National Trust and Savings Association, and Security Pacific National Bank ("Banks"); and Wells Fargo Bank, National Association ("Wells Fargo"), as agent for Banks, incorporated by reference to Exhibit 10.17 on the Form 10-Q filed by Ross Stores for its quarter ended July 31, 1993. 10.3 First Amendment to Revolving Credit Agreement, effective on July 31, 1994, by and among Ross Stores, Banks and Wells Fargo, as agent for Banks, incorporated by reference to Exhibit 10.5 to the Form 10-Q filed by Ross Stores for its quarter ended July 30, 1994. 10.4 Second Amendment to Revolving Credit Agreement, effective on June 15, 1995, by and among Ross Stores, Banks and Wells Fargo, as agent for Banks, incorporated by reference to Exhibit 10.4 to the Form 10-Q filed by Ross Stores for its quarter ended July 29, 1995. 10.5 Third Amendment to Revolving Credit Agreement, effective on December 2, 1996, by and among Ross Stores, Banks and Wells Fargo, as agent for Banks, incorporated by reference to Exhibit 10.5 to the Form 10-K405 filed by Ross Stores for its fiscal year ended February 1, 1997. 10.6 Credit Agreement, dated as of June 22, 1994, among Ross Stores, Bank of America National Trust and Savings Association as Agent, the Industrial Bank of Japan as Co-Agent and the other financial institutions party thereto, incorporated by reference to Exhibit 10.6 to the Form 10-Q filed by Ross Stores for its quarter ended July 30, 1994. 10.7 First Amendment to Credit Agreement, dated as of June 20, 1995, among Ross Stores, Bank of America National Trust and Savings Association as Agent, the Industrial Bank of Japan as Co-Agent, incorporated by reference to Exhibit 10.6 to the Form 10-Q filed by Ross Stores for its quarter ended July 29, 1995. 10.8 Second Amendment to Credit Agreement, dated as of June 12, 1996, Ross Stores, Bank of America National Trust and Savings Association as Agent, the Industrial Bank of Japan as Co- Agent, incorporated by reference to Exhibit 10.7 to the Form 10-Q filed by Ross Stores for its quarter ended August 3, 1996.
11 MANAGEMENT CONTRACTS AND COMPENSATORY PLANS (EXHIBITS 10.9 - 10.34) Exhibit Number Exhibit 10.9 Amended and Restated 1992 Stock Option Plan, incorporated by reference to the appendix to the Proxy Statement filed by Ross Stores on April 24, 1995 for its Annual Stockholders Meeting held May 25, 1995 ("1995 Proxy Statement"). 10.10 Third Amended and Restated Ross Stores Employee Stock Purchase Plan, incorporated by reference to the appendix to the 1995 Proxy Statement. 10.11 Third Amended and Restated Ross Stores 1988 Restricted Stock Plan, incorporated by reference to the appendix to the Proxy Statement filed by Ross Stores on April 24, 1996 for its Annual Stockholders Meeting held May 30, 1996 ("1996 Proxy Statement"). 10.12 1991 Outside Directors Stock Option Plan, incorporated by reference to the appendix to the 1996 Proxy Statement. 10.13 Ross Stores Executive Medical Plan, incorporated by reference to Exhibit 10.13 to the 1993 Form 10-K filed by Ross Stores for its year ended January 29, 1994 ("1993 Form 10-K"). 10.14 Third Amended and Restated Ross Stores Executive Supplemental Retirement Plan, incorporated by reference to Exhibit 10.14 to the 1993 Form 10-K. 10.15 Ross Stores Non-Qualified Deferred Compensation Plan, incorporated by reference to Exhibit 10.15 to the 1993 Form 10-K. 10.16 Ross Stores Incentive Compensation Plan, incorporated by reference to the appendix to the 1996 Proxy Statement. 10.17 Amended and Restated Employment Agreement between Ross Stores and Norman A. Ferber, effective as of June 1, 1995, incorporated by reference to Exhibit 10.17 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.18 Amendment to Amended and Restated Employment Agreement between Ross Stores and Norman A. Ferber, entered into July 29, 1996, incorporated by reference to Exhibit 10.17 to the Form 10-Q filed by Ross Stores for its quarter ended August 3, 1996. 10.19 Amendment to Amended Restated Employment Agreement between Ross Stores and Norman A. Ferber, effective as of March 20, 1997. 10.20 Third Amendment to Amended and Restated Employment Agreement between Ross Stores and Norman A. Ferber, effective as of April 15, 1997. 10.21 Employment Agreement between Ross Stores and Melvin A. Wilmore, effective as of March 15, 1994, incorporated by reference to Exhibit 10.20 to the Form 10-Q filed by Ross Stores for its quarter ended April 30, 1994.
12 Exhibit Number Exhibit 10.22 Amendment to Employment and Stock Grant Agreements by and between Ross Stores and Melvin A. Wilmore, effective as of March 16, 1995, incorporated by reference to Exhibit 10.20 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.23 Second Amendment to Employment Agreement by and between Ross Stores and Melvin A. Wilmore, effective as of June 1, 1995, incorporated by reference to Exhibit 10.21 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.24 Third Amendment to Employment Agreement by and between Ross Stores and Melvin A. Wilmore, entered into July 29, 1996, incorporated by reference to Exhibit 10.22 to the Form 10-Q filed by Ross Stores for its quarter ended August 3, 1996. 10.25 Employment Agreement between Ross Stores and Michael Balmuth, effective as of February 1, 1995, incorporated by reference to Exhibit 10.15 to the Form 10-Q filed by Ross Stores for its quarter ended April 29, 1995. 10.26 Amendment to Employment Agreement between Ross Stores and Michael Balmuth, effective as of June 1, 1995, incorporated by reference to Exhibit 10.24 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.27 Second Amendment to Employment Agreement between Ross Stores and Michael Balmuth, entered into July 29, 1996, incorporated by reference to Exhibit 10.26 to the Form 10-Q filed by Ross Stores for its quarter ended August 3, 1996. 10.28 Employment Agreement between Ross Stores and Barry S. Gluck, effective as of March 1, 1996, incorporated by reference to Exhibit 10.23 to the Form 10-Q filed by Ross Stores for its quarter ended May 4, 1996. 10.29 First Amendment to Employment Agreement between Ross Stores and Barry S. Gluck, dated September 1, 1996, incorporated by reference to Exhibit 10.28 to the Form 10-Q filed by Ross Stores for its quarter ended October 2, 1996. 10.30 Employment Agreement between Ross Stores and Irene A. Jamieson, effective as of March 1, 1996, incorporated by reference to Exhibit 10.24 to the Form 10-Q filed by Ross Stores for its quarter ended May 4, 1996. 10.31 First Amendment to Employment Agreement between Ross Stores and Irene A. Jamieson, dated September 1, 1996, incorporated by reference to Exhibit 10.30 to the Form 10-Q filed by Ross Stores for its quarter ended October 2, 1996. 10.32 Employment Agreement between Ross Stores and Barbara Levy, effective as of March 1, 1996, incorporated by reference to Exhibit 10.25 to the Form 10-Q filed by Ross Stores for its quarter ended May 4, 1996.
13 Exhibit Number Exhibit 10.33 First Amendment to Employment Agreement between Ross Stores and Barbara Levy, dated September 1, 1996, incorporated by reference to Exhibit 10.32 to the Form 10-Q filed by Ross Stores for its quarter ended October 2, 1996. 10.34 Consulting Agreement between Ross Stores and Stuart G. Moldaw, effective as of April 1, 1997. 11 Statement re: Computation of Per Share Earnings. 15 Letter re: Unaudited Interim Financial Information. 27 Financial Data Schedules (submitted for SEC use only).