羅斯百貨 (ROST) 2006 Q4 法說會逐字稿

Good morning, and welcome to the Ross Stores fourth quarter and fiscal 2006 earnings release conference call.

The call will begin with prepared comments by Michael Balmuth, Vice Chairman, President and Chief Executive Officer, followed by a question-and-answer session.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period.

(OPERATOR INSTRUCTIONS).

At this time, I would like to turn the call over to Michael Balmuth, Vice Chairman, President and Chief Executive Officer.

Good morning.

Joining me on our call today are Norman Ferber, Chairman of the Board; Gary Cribb, Executive Vice President and Chief Operations Officer; Michael O'Sullivan, Executive Vice President and Chief Administrative Officer; John Call, Senior Vice President and Chief Financial Officer; and Katie Loughnot, Vice President of Investor Relations.

We will begin our call today with a review of our fourth-quarter and year-to-date performance, followed by our outlook for the 2007 fiscal year.

Afterwards, we will be happy to respond to any questions you may have.

Before we begin, I want to note that our comments in this call will contain forward-looking statements regarding expectations about future growth and financial results, and other matters that are based on management's current forecasts of aspects of the Company's future business.

These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from historical results or current expectations.

These risk factors are detailed in today's press release, in our fiscal 2005 Form 10-K and fiscal 2006 Form 8-Ks and 10-Qs, on file with the SEC.

Today, we reported that fourth-quarter 2006 earnings per share grew 35% to $0.66 from $0.49 in the fourth quarter of 2005.

Net earnings for the quarter totaled $93.1 million compared to $71 million in the prior-year period.

For the 53 weeks ended February 3, 2007, earnings per share grew 25% to $1.70 from $1.36 for the 52 weeks ended January 28, 2006.

Net earnings for fiscal 2006 were a record $241.6 million compared to $199.6 million in fiscal 2005.

We estimate that the 53rd week in fiscal 2006 added approximately $88 million in sales and $0.07 in earnings per share to both our fourth-quarter and fiscal-year results.

In addition, we recognized expenses related to adoption of FAS 123(R), equivalent to about $0.01 per share for the fourth quarter and $0.06 for the 2006 fiscal year.

Adjusting for both the extra week and stock-option-related costs, earnings per share increased about 22% in the fourth quarter and 24% for the full year.

Fourth-quarter sales increased 14% to $1.6 billion.

Our comparable store sales gain of 1% was in line with expectations and on top of a 6% increase in the prior year.

Sales during the quarter were in line with our expectations.

Our operating margin grew by about 115 basis points in the quarter, driven by a total gross margin increase of 60 basis points and a decline in selling, general and administrative costs of about 55 basis points.

Gross margin benefited from a combination of improvements in distribution center costs, markdowns, shortage accrual and leverage from the extra week, partially offset by higher freight costs and stock-option-related expenses.

As a percent of sales, selling, general and administrative costs for the quarter benefited mainly from lower workers' compensation costs and leverage on the extra week, partially offset by increases in store payroll and stock-option-related expenses.

For the full year, our sales rose 13% to $5,570,000,000, with same-store sales up 4% on top of a 6% gain in 2005.

We ended 2006 with 797 stores, including 771 Ross Dress For Less and 26 dd's DISCOUNTS locations, for about a 9% unit growth compared to the prior year.

For both the fourth quarter and the fiscal year, the Southwest and the mid-Atlantic were two of the strongest regions, and the best-performing merchandise businesses were home and shoes.

Fiscal 2006 operating margin grew about 40 basis points, all due to improvement on the gross margin line.

Lower markdowns, distribution costs and shortage accrual as a percent of sales more than offset higher freight and stock-option-related costs.

Selling, general and administrative expenses as a percent of sales were flat to the prior year, mainly due to leverage from the extra week that offset the impact of stock-option-related expenses.

Our balance sheet and cash flows as we ended the fiscal year remained healthy.

In 2006, cash flows from operations funded $224 million in capital expenditures to open 63 net new stores and to make ongoing infrastructure investments in systems and distribution, including $87 million to acquire our Fort Mill, South Carolina distribution center from the lessor.

We also repaid a $50 million term loan that was used to finance equipment and systems at our Paris, California distribution center.

We have continued our long-term practice of returning capital to shareholders through both our stock repurchase and dividend programs.

During 2006, we repurchased 7.1 million shares of common stock for an aggregate of $200 million as part of the two-year $400 million program authorized by our Board of Directors in the fourth quarter of 2005.

We ended the fiscal year with 139.4 million shares of common stock issued and outstanding.

As we began 2007, $200 million remained available under the current stock repurchase authorization, which we expect to complete by the end of fiscal year 2007.

Our Board also approved in January 2007 a 25% increase to our quarterly cash dividend to $0.075 per share, our 13th consecutive annual dividend increase.

Looking ahead to 2007, we plan to open about 90 net new stores, including 63 Ross Dress For Less and 27 dd's DISCOUNTS.

This accelerated unit growth is driven primarily by the opportunistic real estate acquisition we made in the latter part of 2006 of a number of former Albertsons sites.

Approximately 40 of these sites will open in 2007, all in established top-performing Sunbelt markets, including California, Florida, Texas, Arizona, Colorado and Oklahoma.

About half will be Ross Dress For Less and half dd's DISCOUNTS stores.

We are pleased with our better-than-expected fiscal 2006 sales and profit trends at dd's DISCOUNTS.

The Albertsons real estate opportunity gives us the ability to accelerate the growth of this promising concept into additional new markets that, like California, feature a range of demographics that we believe are favorable for both Ross Dress For Less and dd's DISCOUNTS.

On a four-wall pretax basis, our dd's DISCOUNTS stores are contributing to earnings.

However, with only 26 locations today, their buying and distribution costs are still creating some earnings drag -- about 25 basis points in 2006.

We estimate that dd's can break even when the business reaches 80 to 100 locations.

We believe that our stronger-than-expected operating performance to date at dd's confirms that we have identified a customer demographic that we were not reaching with our core Ross concept.

These results gave us the confidence to take advantage of the Albertsons' real estate opportunity to accelerate dd's growth and more than double the size of this chain in 2007, including entry into new markets in Florida, Texas and Arizona.

Now I would like to turn to our earnings guidance for the 2007 first quarter and full year.

At the beginning of February, we stated our target for a 1% to 2% increase in same-store sales for the first quarter, on top of a strong 6% gain in the prior year.

We also communicated monthly comparable store sales targets of 1% to 2% for February, 4% to 5% for March, and down 2% to 3% for April, reflecting the Easter calendar shift.

Because the holiday is two weeks earlier in 2007, it shifts all of our Easter-related sales into fiscal March.

Same-store sales for March and April combined are planned to be up 1% to 2%, in line with our forecast for the quarter.

In early March, we reported that February same-store sales increased 1%, on top of a 6% gain in the prior year.

For the first quarter ending May 5th, 2007, we continue to project that earnings per share will be in the range of $0.46 to $0.48 compared to $0.41 in the prior year.

We are adding 33 net new stores during the quarter, consisting of about 25 Ross and 8 dd's DISCOUNTS, including the first two new dd's in Florida.

Our earnings per share target of $1.85 to $1.95 for the 2007 fiscal year ending February 2, 2008 also remains unchanged.

On a 52-week basis, this range is in line with our long-term goal of 15% to 20% annual EPS growth.

Underlying assumptions for 2007 including store growth of 11% to 12% and comparable store sales gains of 2% to 3%.

Operating margin is forecast to increase by 10 to 30 basis points on a 52- to 53-week basis, or, more importantly, 30 to 50 basis points on a 52-week basis, which is again in line with our long-term goal.

To sum up, we believe our 2006 financial results confirm that we are moving in the right direction.

We continue to deliver attractive off-price bargains to our customers and to make progress on the initiatives we have put in place to improve operating profitability.

These include ongoing inventory controls to reduce markdowns, the rollout of engineered standards to improve productivity and lower costs in our distribution centers, and implementation of shortage control initiatives to reduce shortage expenses.

During 2006, these efforts drove solid results in the form of double-digit sales gains, a 40-basis-point improvement in operating margin and 25% growth in earnings per share.

As we look ahead, we see considerable opportunity for further expansion in operating margin.

We seek to achieve that by continuing to work on the recent initiatives that resulted in reductions in markdowns, distribution and shortage costs in 2006.

In addition, over the next couple of years, we will be developing new capabilities and system enhancements with the goal of getting closer to our customers at a more local level.

We believe all of these efforts will contribute to incremental operating margin gains of 30 to 50 basis points annually over the next few years.

This rate of improvement, combined with our plans for 9% to 10% annual unit growth, a 2% to 3% increase in comparable store sales each year and our ongoing stock repurchase program, support our long-term growth objective of 15% to 20% earnings per share growth over the next several years.

Now we would like to open up the call and respond to any questions you may have.

(OPERATOR INSTRUCTIONS) Tim Geyer, Piper Jaffray.

Good morning, and congratulations on a solid quarter.

Just a couple questions for you.

First of all, I was wondering if you could give us any more color on the content of your current packaway inventory in terms of what percent is spring versus fall merchandise.

And also, do you see any key categories within that inventory that could help position you in the upcoming season or is there more of a branded focus within that inventory content?

Our balance of spring to fall packaway, candidly, I don't have that number on me, but it is consistent with where it has been over the past several years.

We have been taking advantage of opportunities as we've seen fit in the market.

Could you give me question number two again, please?

Yes, I was just kind of wondering if there are any key categories that you are seeing that you were able to build up on previously that you think could help position you for these upcoming seasons.

Actually, what I would say is it has been broadbased and it has been a very good buyers' market.

Great.

One follow-up -- I was wondering have you explored the opportunity to bring in some exclusive brands, as many other retailers have done recently, given industry consolidation has improved the availability of some of these brands?

Actually, we still believe our business is brands that are traded in department specialty stores, and we have not gone forward on proprietary brand.

Great.

Thank you very much.

Jeff Black, Lehman Brothers.

Great.

Just a couple of questions.

First for, I guess, John Call.

The lower workers' comp that impacted the expense rate, can you just explain or remind us what that is occurring -- or why that is occurring, and how much we see that benefit going forward?

And then second, for Michael, this year we are upping the unit growth rate in the 11% range -- or square footage, rather.

What does it look like beyond '07?

It sounds to us like dd's gets more stores.

I just wasn't certain when dd's hit that 80 to 100 mark.

And the overall question is are we continuing to see above 10% unit growth beyond '07, when you haven't made an acquisition of stores?

Thanks.

This is John, addressing the workers' comp question.

There are kind of three main drivers of the benefit there.

First, we have experienced a reduction in the frequency of accidents and also in the severity of accidents, both in our distribution centers and our stores, based on programs that we put in place 24 to 36 months ago.

Additionally, we have had the benefit of the favorable impact of California legislation on work comp.

So all combined, the actuaries have dialed that into their actuarial assumptions, which drive a lower work comp expense.

We believe that those expenses are sustainable and have been actually included in our guidance that was issued for '07.

Relative to our unit growth rate after, '07, where we took advantage of this opportunistic acquisition, we would expect to go back to a 9% to 10% unit growth rate.

And Mike, when might we see the 80 to 100 -- excuse me -- stores for dd's and reach profitability on the dd's side?

Is that '08/'09 timeframe?

It will be the next few years.

We are putting that together.

That is a moving target on stores right now, but we are putting that together.

Next few years I think would be safe.

Okay, thanks.

Good luck.

Brian Tunick, JPMorgan.

I guess two questions.

Just trying to understand, are you raising your EBIT margin goal here?

It sounded like you have said 10 to 30 bps, I thought, a year.

And now, it sounds like you are saying 30 to 50 bps a year.

And we were just curious, given where your SG&A is now, is there any more SG&A opportunity to cut?

And then the second question, maybe Michael, just on the new markets, maybe what is happening with the store productivity and four-wall returns versus your mature stores.

Maybe just those two questions.

Thank you.

Brian, this is John.

On the operating margin, both answers are actually correct.

It is actually 10 to 30 basis points if we compare a 53-week year to our upcoming 52-week year.

On a sustained basis, 52 weeks to 52 weeks, it's 30 to 50 basis points, and that is our target and that is what we achieved this year.

And is all of that coming on the SG&A line?

Not all of it.

In fact, this year, it came out of the margin line, where we had improvements in markup, distribution center shrink, etc.

Okay.

Brian, it's Michael O'Sullivan.

I'll answer your second question about new markets.

I think we are happy with some of the progress we've made in the new markets.

In 2006, the Southeast comped at the same level as the chain; the mid-Atlantic actually did better than the chain.

So we are pleased with that.

But as we've said in the past, we'd like the productivity of new stores in those markets to be better.

We believe fundamentally the customers in those markets are the same as off-price customers elsewhere; they want bargains.

So we think we can do more, particularly in terms of assortment, to drive more business in those markets.

But we were happy with the progress we made in '06.

And you have those assortment planning tools now?

We're building them.

And actually, it is a combination of two things.

One is we are continuing to backfill in those markets, which naturally will help raise our awareness and our customer traffic.

And secondly, we are making improvements to assortments over time.

There are some tools that are going to take, frankly, a few years for us to roll out -- to build and roll out.

So we don't have the full tool set yet, but we are trying to make improvements over time.

Terrific.

Thanks, and good luck, guys.

Paul Lejuez, Credit Suisse.

What can you tell us about -- we are hearing a lot about the sub-prime issue in the market.

How do you think that could impact your customers?

And I don't know any kind of data that you might be able to share in terms of any changes in patterns that you are seeing and customers that pay cash versus credit -- do you know what percentage of your customers own homes?

Thinking about some of the macro data, trying to link it back to you guys.

Paul, we look of that kind of thing all the time, looking at what is happening in the macro economy.

And the truth is our business is sufficiently diverse and sufficiently complex that it's almost impossible to isolate a single variable.

So obviously, we are watching what is happening in the sub-prime market, but I can't see -- we haven't seen any drop-off in our business that we can track back and say that is what drove it.

I will say off-price is even doubly difficult to predict, because on the one hand, something like that could affect your customers and therefore your sales, but it could also affect your supply in a positive way.

So it is almost impossible for us to pass through that and figure out what effect it will have.

And then just a follow-up.

Inventory, it looked like it was up per square foot overall.

What is the plan going forward?

Inventory was up as we ended the year; a couple things going on.

We had more in transit into our DCs to get ready for the Easter holiday.

We also had a calendar shift in terms of when the year ended.

So those two things drove inventories up at year-end.

We will have a calendar shift going forward, so it may be slightly different than it was last year.

But overall, we are planning in-store inventories flat.

Thanks, and good luck.

Kimberly Greenberger, Citigroup.

This is Meg for Kimberly.

Just a couple of questions.

First, can you provide us with more detail on the gross margin line and maybe quantify how each component contributed to the 60 basis points' increase in the quarter?

Secondly, can you remind us when exactly you began to see efficiencies in your supply chains that allowed you to get product into stores more quickly last year?

And lastly, can you give us end-of-quarter square footage?

Thank you.

Let me dissect the margin element.

Merchant margin increased about 20 basis points.

That is inclusive of shrink and freight.

Distribution levered by between 40 and 50 basis points.

And stock options included in gross margin cost us about 10 basis points.

Add that up, that is a 60 basis point improvement in the quarter in G&A.

What was your follow-on to that, Meg?

I think it was around supply chain (multiple speakers).

The short answer is it was about -- in the spring of last year was when we saw the supply chain improvement, so we are coming up on the anniversary of that now.

And I think the third piece was selling square footage as we ended the year was about 18.6 million feet.

Great.

Thank you.

David Mann, Johnson Rice.

Just on that last question, in terms of the distribution efficiencies, can you give us a sense on how much more of the recovery there you have over the next couple of years in terms of gross margin improvement?

Relative to gross margin, we, again, in the quarter got 40 to 50 basis points.

On the year, we got about 35 basis points.

We are looking at that.

We think in '07 the improvement will be more incremental than that -- in other words, not as much as that.

And we keep our foot on the pedal in terms of productivity.

So we think there is more to come over the next coming years.

I would hate to put a cap on it.

And in terms of shrink, have you been able to take cycle counts to give a sense on how you're doing relative to -- I guess it is what -- about a 10 basis point accrual lower than last year?

We don't really take [a shot] at cycle counts.

We will take our full physical in the September/October timeframe.

We do have a feeling that the shortage initiatives that we've put in place have taken hold and are contributing to the improvement that we saw last year, and anticipate that we will see continued improvement going forward, as well.

Okay.

And then one other balance sheet question.

The accrued liabilities jumped a lot.

Is there anything to parse out there or is that just the timing issues tied to inventory?

Most of that, David, in payables, our payables leverage was 66% this year versus 51% last year.

So it is timing relative to working capital and the inventory build.

Okay, great.

Thank you.

Mark Montagna, C.L.

King.

Just wanted to kind of narrow the results for the Southeast and mid-Atlantic.

Wondering if you could tell us what percent of the chain's productivity those two regions are operating at.

Because I guess last year, you said that they were at about 75% at the beginning of 2006.

So I'm wondering where they ended up by the end of the year.

It's about that.

Like I said, last year, one of those regions was in line with the chain -- Southeast was in line with the chain; the mid-Atlantic was slightly better.

So they stayed around about the mid-70s.

Okay.

And then can you tell us what your year-end cash target is and what your free cash flow projection is?

If we look at where we ended the year and comment about payables contributing to that cash balance, you would probably have to take $140 million off of that balance relative to the payables leverage, which is not sustainable.

We are thinking about $290 million in CapEx, so you roll that out.

Relative to our cash target during the next year, we have not really talked about that.

But clearly, something more in line with more normal levels, more nominal levels.

Okay.

And for your store openings for this year, are they all slated for existing markets or are you going to expand into some new markets at all?

For Ross, all of the openings will be in existing markets.

For dd's, obviously, we have talked about we're opening in Florida, Texas and Arizona.

So those are new markets for dd's, although not new markets for the corporation.

Okay.

That is all I needed.

Thanks.

Margaret Mager, Goldman Sachs.

I just wanted to get a little bit more color on the success that you're seeing in your home area.

What are the important factors driving that?

And especially in light of (technical difficulty) situation, it seems a little bit surprising.

If you could just talk about the home category broadly, that would be interesting.

And also, just wanted to make sure I understood clearly the complexion of same-store sales in March/April.

March up, I think, what 4% to 5%.

And then April is what, and the combined is up 1% to 2%, and that is because of the Easter shift, if I am reading it correctly from you.

Is there anything that you would say at all regarding the economy or the weather or the impact on business to date in the month of March?

Thanks.

Margaret, you can't -- I got the second part of the question clearly.

The first part, there was some noise in the phone.

So if you could repeat the first part about home again.

I just wanted to get a little bit more color on what is happening in the home area, where you are finding success, how you're going to continue to drive that business, and why do you think it is doing well in the context of the housing market having its challenges at the moment.

Thanks.

Our home business, we really have not added new classifications.

We have not gone into any new categories.

We have really strengthened areas within our buying team that actually has really improved execution, is how we've been getting our growth there.

There have been reasonable opportunities in the market which supports our -- the home business is a little more upfront driven than the rest of the Company, so -- but there has been the opportunity to take advantage, as home business has been not quite as good around the horn.

So that is really the key of what's been happening.

It has just been improved execution, improved opportunities for us to purchase.

So when you say it is a bit more of an upfront business, normally you're buying out farther on home -- is that interpreted correctly?

Yes, we would -- we and I think everyone else buys out further.

There is importing there, in the home business.

So it has been a very good buyer's market based on difficulties the home retailers have had.

Interesting.

Thanks.

And then on the same-store sales, just understanding that.

And to date, how is March going?

I don't know if you look at retail traffic data at all, but it is showing some declining trends in retail traffic for mall and retail broadly.

I am just wondering what you're seeing.

Thanks.

We really are not choosing to comment mid-month on how our performance is, but relative to what is going on, we are not economists.

We were in February, running, as we said, along the lines of our plan.

In these kinds of things, our business might not be an interesting barometer.

Some customers, a difficult economy will trade down to off-price.

So we are not really the bellwether, I think, on it.

Okay, thanks.

Patrick McKeever, Avondale Partners.

On dd's, as you accelerate the growth of that business, I am just wondering if you have made any refinements or significant changes to the store prototype.

I guess that is the question.

I would say that we continue to make small changes, tweaks in the prototype, nothing that is dramatic or extremely different from what we initially went to market with.

But as we have done with Ross, we will continue to refine it over time.

So the prototype will be pretty similar to some of the first stores -- I'm sorry -- the new stores will be pretty similar to some of the first stores that you opened in the San Francisco Bay area, then?

They might be a drop smaller, okay?

But that is about it.

And Michael, you said that it is a buyer's market out there for your merchandise.

And I guess my question is that a year ago, the big event for the off-price space -- I guess the industry overall, the apparel industry -- was the merger of Federated and May and the divestitures that occurred and so forth.

What is the big event out there right now as it relates to -- what is contributing to the good opportunities that are out there in the marketplace or is it just a bunch of different things?

Is there any one specific event that is kind of helping the supply right now?

I think always it is a bunch of different things.

But I think the same thing that was the big driver a year ago, I think people are growing into that change in the retail landscape, and that creates supply imbalances, and that is where we come in.

Okay.

And then last question, just back to the new stores and new markets.

So those continue -- there hasn't been a big change in the way those stores are performing relative to the overall -- or relative to the stores in your existing markets then, the productivity metrics still around 75%.

Is that right?

Yes, there hasn't been a change.

Our expectation, like we said a little bit earlier, we believe we can drive performance in those markets, but we believe it is going to take some time.

And a lot of still is tied to implementing more micromerchandising and just merchandising the stores differently -- is that correct?

Yes, it is a combination of things.

Certainly, the assortments are a big piece of it and we are working on that.

Frankly, that is going to take a few years.

But also building awareness, building presence in those markets, which is why we continue to backfill.

So it is a combination of things, but certainly assortment is the biggest.

Okay.

Thank you so much.

Rob Wilson, Tiburon Research.

Thank you.

Could you go over the comp store sales components in Q4, transaction versus average transaction size?

Sure, in Q4 the transaction size was pretty flat.

The comp was driven by traffic.

Okay, and you mentioned earlier that your merchandise margin was up 20 basis points in Q4.

But you also mentioned that a couple of those components were shrink and freight, if I'm not mistaken.

That's correct.

Could you break out those three components?

Merchandise margin overall was up 20.

That is all the goods related items.

Shrink was up 15'ish -- excuse me, shrink was better by 15'ish, and freight offset that completely.

And are you willing to give us an earnings per share drag on dd's in FY '06?

I think what we have said is dd's was a drag about 25 basis points in '06, about $0.06.

So it was about the same as option.

So it was about $0.06 drag?

Yes.

Okay, and one final question.

Last year in Q1, you said the West Coast had a cold and wet Q1.

Are you seeing higher comps in California this year versus last year and versus maybe the rest of the chain?

California was wet and cold last year, and California is sunny and warm this year.

So at the beginning of the month, what we said is we are going to outline our comp guidance and sales reporting to kind of month-end levels.

So I think we will leave it at that.

No comment maybe on February, California?

February in California, the weather we didn't think was a big deal year-over-year.

Okay, fair enough.

Thanks for taking my call.

Dana Telsey, Telsey Advisory Group.

Good afternoon, everyone.

Can you please talk a little bit about minimum wage and any potential impact that changes there might have just on the expense structure?

I know that the merchant organization always continues to be refined.

What spaces do you see needing to be filled for dd's or for Ross, and are there any new categories that you're looking into for merchants in either area?

Thank you.

On the minimum wage, we did experience some of that pressure this year, and we haven't dialed into our estimates next year.

So it does have some impact to us, and we think we have it perfectly calibrated.

Dana, I believe your second question related to areas within merchandising that would be looking for new merchants?

Yes, exactly.

It's really not something I would talk about in a forum like this, for internal reasons and external reasons.

And in terms of categories, what do you think -- you had mentioned the home.

What are you seeing in footwear and juniors, and is the landscape changing at all?

I don't see dramatic changes in the landscape.

There are certainly trend changes in juniors going on, but no dramatic change in the landscape that we are seeing.

Thank you.

Rob Schwartz, JL Advisors.

Congratulations on a strong finish to the year.

I had two questions.

First, regarding dd's margins over time, once as it starts to mature, do you think margins should approach those of Ross?

And secondly, over the long-term do you think your past peak margins of 9.5% are achievable again?

Relative to dd's margins, as we look at how dd's is doing, what the sales levels are in that box and we look at the results we expect out of that box over time, they are very similar to the Ross margins that we would achieve over time.

Relative to your second question on margin expansion, we believe that there is room for margin expansion for the next couple of years.

We're targeting 30 to 50 basis points, and we feel pretty good about that, and clearly the biggest impact on margin or the upside to margin could be top-line growth.

So that is where we are with that.

Richard Jaffe, Stifel.

It's a good end to the quarter -- or good end to the year, rather.

Just a follow-on with dd's DISCOUNTS, could you compare dd's to Ross in terms of inventory investment, sales per store, dollars and units per transaction?

Richard, it is a little bit difficult to make an apples-to-apples comparison between dd's and Ross, probably because the dd's we've opened so far are all in California.

dd's is a new chain; Ross is 25 years old.

So I would stay away from making comparisons between the two businesses for all those reasons.

It is hard to come up with any meaningful comparison.

Well, just trying to gauge the level of dollar investment a store would require in terms of inventory.

And perhaps you've answered the question -- your expectations for sales per square foot would be comparable to Ross over time.

Is that fair to say?

On sales per square foot?

Yes, over time.

And I guess the inventory commitment in terms of the cost of a dd's versus the cost of a new Ross, inventory plus buildout?

For the same volume store, comparable, yes.

But that is my point -- because Ross is in 27 states and dd's is currently in one, it is hard to make that direct comparison, because you have to pick a store that looks exactly like dd's to make a comparison.

But if it is a same-volume store, then the inventory investment would be similar.

I would also say on the buildout costs where we are to date is they look a lot more like Ross Stores that we take under own construction, so there is a little bit higher cash upfront commitment that will -- the return on that cash takes a little bit longer.

If you look over the life of that lease of just typically 10 years, it looks very similar to Ross where we own the construction.

That is very helpful.

Thank you.

Just a quick question on the debt.

Obviously, incurred some debt on the balance sheet and, if I understand, eliminated some of the off-balance sheet liabilities.

Is that complete -- that is to say, there is no off-balance liabilities related to the DCs or for any other reason at this point, and the debt has covered all that?

We put on $150 million of long-term notes; we took that down in December.

Earlier in the year, we paid off a synthetic lease of $87 million, and we also paid off a short-term note for $50 million.

So that debt basically replaced a piece of the off-balance-sheet debt and a piece of the on-balance-sheet debt.

We still have $70 million of off-balance-sheet liability related to our Southwest DC.

Is there any intention to do a similar transaction to eliminate that?

No, that is long-term.

I think that is 10-year money.

So it is as we see it now.

Okay.

Thanks very much.

(OPERATOR INSTRUCTIONS) There appear to be no further questions.

I will turn the floor back over to you for any further or final remarks.

Thank you all for attending and have a very good day.

Thank you.

That does conclude today's teleconference.

You may disconnect your lines at this time, and have a wonderful day.