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 4, 1996 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 (State or other jurisdiction of 94-1390387 incorporation or organization) (I.R.S. Employer Identification No.) 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 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 June 1, 1996 was 25,296,480.
2 <TABLE> PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. ROSS STORES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS <CAPTION> ($000) May 4, February 3, April 29, ASSETS 1996 1996 1995 (Unaudited) (Note A) (Unaudited) <S> <C> <C> <C> CURRENT ASSETS Cash and cash equivalents $35,036 $23,426 $ 25,093 Accounts receivable 16,883 9,901 8,058 Merchandise inventory 332,623 295,965 320,831 Prepaid expenses and other 13,001 13,474 12,357 _______ _______ _______ Total Current Assets 397,543 342,766 366,339 PROPERTY AND EQUIPMENT Land and buildings 24,102 24,102 23,932 Fixtures and equipment 152,625 156,811 145,099 Leasehold improvements 122,489 123,829 113,928 Construction-in-progress 17,833 16,808 6,472 ______ _______ _______ 317,049 321,550 289,431 Less accumulated depreciation and amortization 137,674 140,174 122,285 _______ _______ _______ 179,375 181,376 167,146 Other assets 16,979 17,010 18,407 ________ ________ ________ $593,897 $541,152 $551,892 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $165,036 $137,653 $145,563 Accrued expenses and other 42,498 42,944 41,868 Accrued payroll and benefits 29,322 30,064 17,959 Income taxes payable 12,137 10,555 4,612 _______ _______ _______ Total Current Liabilities 248,993 221,216 210,002 Long-term debt 19,736 9,806 61,004 Deferred income taxes and other liabilities 18,651 18,614 21,323 STOCKHOLDERS' EQUITY Capital stock 252 246 246 Additional paid-in capital 148,861 133,409 126,590 Retained earnings 157,404 157,861 132,727 _______ _______ _______ 306,517 291,516 259,563 ________ ________ ________ $593,897 $541,152 $551,892 See notes to condensed consolidated financial statements. </TABLE>
3 <TABLE> ROSS STORES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS <CAPTION> Three Months Ended May 4, April 29, ($000 except per share data, unaudited) 1996 1995 <S> <C> <C> SALES $370,948 $297,435 COSTS AND EXPENSES Cost of goods sold and occupancy 264,058 218,618 General, selling and administrative 76,219 64,659 Depreciation and amortization 7,261 6,685 Interest 184 1,029 ________ ________ $347,722 $290,991 Earnings before taxes 23,226 6,444 Provision for taxes on earnings 9,290 2,578 _______ _________ Net earnings $13,936 $ 3,866 ============================================================================== Net earnings per share: Primary $.54 $.16 Fully diluted $.54 $.16 ============================================================================== Weighted average shares outstanding: Primary 25,647 24,653 Fully diluted 25,808 24,653 ============================================================================== Stores open at end of period 296 278 See notes to condensed consolidated financial statements. </TABLE>
4 <TABLE> ROSS STORES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS <CAPTION> Three Months Ended May 4, April 29, ($000, unaudited) 1996 1995 <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $13,936 $ 3,866 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization of property and equipment 7,261 6,685 Other amortization 1,515 1,258 Change in current assets and current liabilities: Merchandise inventory (36,658) (45,648) Other current assets - net (6,509) (2,899) Accounts payable 29,119 37,445 Other current liabilities - net 4,013 (3,173) Other 322 1,320 ______ _______ Net cash provided by (used in) operating activities 12,999 (1,146) CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (9,334) (10,929) ------- -------- Net cash used in investing activities (9,334) (10,929) CASH FLOWS FROM FINANCING ACTIVITIES Borrowing under line of credit agreement 10,000 15,000 (Repayment) of long-term debt (110) (63) Issuance of common stock related to stock plans 18,130 116 Repurchase of common stock (18,327) 0 Dividends paid (1,748) (1,466) ________ ________ Net cash provided by financing activities 7,945 13,587 ________ ________ NET INCREASE IN CASH 11,610 1,512 Cash Beginning of year 23,426 23,581 ________ ________ End of quarter $35,036 $25,093 See notes to condensed consolidated financial statements. </TABLE>
5 ROSS STORES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended May 4, 1996 and April 29, 1995 (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 4, 1996 and April 29, 1995; the interim results of operations for the three months ended May 4, 1996 and April 29, 1995; and changes in cash flows for the three months then ended. The balance sheet at February 3, 1996, 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 3, 1996. 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 3, 1996. 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 4, 1996 and April 29, 1995, 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. NOTE B - STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES Total cash paid for interest and income taxes is as follows: Three Months Ended ($000, unaudited) May 4, 1996 April 29, 1995 Interest $267 $1,103 Income Taxes $7,709 $2,704
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 4, 1996 and April 29, 1995, 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 3, 1996, 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 15, 1996, 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 3, 1996 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 24, 1996
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 4, April 29, 1996 1995 SALES Sales ($000) $370,948 $297,435 Sales growth 24.7% 12.5% Comparable store sales growth 14% 0% COSTS AND EXPENSES Cost of goods sold and occupancy 71.2% 73.5% General, selling and administrative 20.5% 21.7% Depreciation and amortization 2.0% 2.2% Interest 0% .3% NET EARNINGS 3.8% 1.3% Sales The results of operations for the three months ended May 4, 1996, over the same period last year, reflect an increase in the level of sales which was due to the increase in comparable store sales as well as a greater number of open stores during the current period. Costs and Expenses The decline from the prior year in the cost of goods sold and occupancy percentage for the three month period was primarily due to (i) an increase in the initial mark-up from purchasing more opportunistically; (ii) lower markdowns as a percentage of sales; and (iii) leverage on occupancy costs. 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 14%. Net earnings for the three months ended May 4, 1996, totaled $13.9 million, or $.54 per share, compared to net earnings of $3.9 million, or $.16 per share, for the three months ended April 29, 1995. Taxes on Earnings The company's effective tax rate for the first quarter of 1996 and 1995 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 1996 were for (i) purchase of inventory, (ii) repurchase of the company's common stock, and (iii) capital expenditures for new stores and improvements to existing locations. Total consolidated inventories were up only 3.7% at the end of the first quarter from last year driven primarily by an increase in the number of open stores over the prior year. The strength of sales during the first quarter ended May 4, 1996 produced faster inventory turnover which in turn increased accounts payable. The increase in the accounts receivable was due in part to increased credit card sales which were in line with the higher volume in business relative to last year. Cash received from stock option exercises offset the expenditures for the company's stock repurchase program. The decline in interest expense reflects lower interest rates and the decline in borrowings resulting primarily from the higher earnings levels and the items mentioned above. 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 17, 1996 /s/John M. Vuko John M. Vuko, Senior Vice President, Controller 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, 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 Bank, National Association, 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 Bank, National Association, 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 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. 10.6 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. MANAGEMENT CONTRACTS AND COMPENSATORY PLANS (EXHIBITS 10.7 - 10.26) 10.7 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"). 10.8 Third Amended and Restated Ross Stores Employee Stock Purchase Plan, incorporated by reference to the appendix to the 1995 Proxy Statement.
11 Exhibit Number Exhibit 10.9 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"). 10.10 1991 Outside Directors Stock Option Plan, incorporated by reference to the appendix to the 1996 Proxy Statement. 10.11 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"). 10.12 Third Amended and Restated Ross Stores Executive Supplemental Retirement Plan, incorporated by reference to Exhibit 10.14 to the 1993 Form 10-K. 10.13 Ross Stores Non-Qualified Deferred Compensation Plan, incorporated by reference to Exhibit 10.15 to the 1993 Form 10-K. 10.14 Ross Stores Incentive Compensation Plan, incorporated by reference to the appendix to the 1996 Proxy Statement. 10.15 Amended and Restated Employment Agreement between Ross Stores, Inc. 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. 10.16 Agreement between Ross Stores, Inc. and Norman A. Ferber, dated August 22, 1995, incorporated by reference to Exhibit 10.18 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.17 Employment Agreement between Ross Stores and Melvin A. Wilmore, effective as of March 15, 1994, incorporated by reference to Exhibit 10.20 to the Form 10-Q filed by Ross Stores for its quarter ended April 30, 1994. 10.18 Amendment to Employment and Stock Grant Agreement 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. 10.19 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. 10.20 Agreement between Ross Stores, Inc. and Melvin A. Wilmore, dated August 22, 1995, incorporated by reference to Exhibit 10.22 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.21 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.
12 Exhibit Number Exhibit 10.22 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. 10.23 Employment Agreement between Ross Stores and Barry S. Gluck, effective as of March 1, 1996. 10.24 Employment Agreement between Ross Stores and Irene S. Jamieson, effective as of March 1, 1996. 10.25 Employment Agreement between Ross Stores and Barbara Levy, effective as of March 1, 1996. 10.26 Consulting Agreement between Ross Stores and Stuart G. Moldaw, effective as of March 16, 1995, incorporated by reference to Exhibit 10.16 to the Form 10-Q filed by Ross Stores for its quarter ended April 29, 1995. 11 Statement re: Computation of Per Share Earnings. 15 Letter re: Unaudited Interim Financial Information. 27 Financial Data Schedules (submitted for SEC use only).