羅斯百貨 (ROST) 2008 Q1 法說會逐字稿

Good morning, and welcome to the Ross Stores first quarter 2008 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.

(OPERATOR INSTRUCTIONS) As a reminder, ladies and gentlemen, this call is being recorded today, Wednesday, May 21, 2008.

At this time I would like to call the turn over to Michael Balmuth.

Good morning.

Thank you for joining us today.

Also on our call 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 with a brief review of our first quarter performance followed by our outlook for the balance of the year.

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

Before we begin, I want to note our comments on 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 forecast 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 and our fiscal 2007 Form 10-K and 2008 Form 8-Ks on file with the SEC.

Today we reported that earnings per share for the 13 weeks ended May 3, 2008 grew 25% to $0.60 from $0.48 per share for the 13 weeks ended May 5, 2007.

As noted in today's press release, our first quarter 2008 results include a real estate settlement that added income equivalent to about $0.02 per share during the period.

Net earnings for the quarter were $79.5 million compared to $67 million for the prior year period.

Sales for the 13 weeks ended May 3, 2008 increased 10% to $1.556 billion with comparable store sales up a solid 3% over the prior year and ahead of our original forecast.

Our ongoing focus on expanding and strengthening the brand content of our assortments throughout the store while improving the fashion content in our core apparel businesses contributed to the healthy sales gains in the quarter.

Dresses and shoes remained the top performing merchandise categories with strong double-digit same-store sales gains.

We also are seeing positive results in home and accessories where comparable store sales rose in the mid to high single-digits.

We believe our other core apparel businesses in ladies and men's are moving in the right direction with gradual improvement expected as the year progresses.

The Mid-Atlantic and Texas were the strongest geographic regions with comparable store sales up in the high single-digits.

California same-store sales rose a respectable 2% during the quarter.

We are pleased that we were able to leverage our solid sales gains into healthy profit growth in the quarter.

Strong execution of our merchandising strategies combined with strict inventory and expense management were the main drivers of our ahead of plan earnings for the period.

As a result, we were able to realize larger than planned increases in operating margin which grew about 45 basis points to 8.2%.

Profit margins benefited mainly from better than expected improvement in merchandise margins, lower distribution cost as a percent of sales, leverage on corporate expenses and income from a real estate settlement related to a store closure.

As we ended the first quarter total consolidated inventories were down about 7% which was slightly lower than planned.

We continue to operate our business with leaner inventory levels compared to prior years promoting faster in-store turns and lower markdowns.

This contributed to considerably lower clearance levels, clearance inventories at the end of April versus last year which bodes well for merchandise margin in the second quarter.

Average selling store inventories were down about 13% as we ended the quarter.

Pack away was about 36% of total inventories which was flat compared to last year's first quarter.

As expected, we opened 28 new stores in the first quarter, 26 Ross Dress for Less and 2 dd's DISCOUNTS.

First quarter overall sales trends at dd's DISCOUNTS were in line with forecast but the performance was mixed.

While our comparable dd's DISCOUNTS stores posted increases over the prior year they were somewhat less than planned.

This was offset, however, by the new dd's stores we opened in 2007 which performed slightly better than projected.

We continue to conduct research to better understand the dd's customer and the demographic differences between regions.

Over the next several months we believe this work will provide us with a better insight into the key drivers of this business.

Now, let talk about our financial condition.

We are pleased to report that both our balance sheet and cash flows remain healthy.

We ended the period with $308 million of cash and short-term investments.

Our cash position is benefiting from reduced working capital needs as we operate the business on lower inventories.

During the first three months of 2008, we repurchased 2.5 million shares of common stock for an aggregate purchase price of $77 million.

We remain on track to complete half of our new two-year $600 million buyback program for a total of $300 million this year.

In addition, we expect to complete this full two-year buyback without taking on any incremental long-term debt.

Now our CFO, John Call, will provide some additional color on our first quarter results and details on our guidance for the second quarter.

Thank you, Michael.

As discussed, operating margin improved by about 45 basis points driven by a 40-basis-point decline in selling, general and administrative costs and a 5-basis-point improvement in gross margin.

Merchandise margin increased about 15 basis points in the quarter.

Our comparison versus the prior year was impacted by timing issues related to markdowns taken in the first quarter of 2007 that sold during last year's second quarter.

Because we were on the cost method of accounting, markdowns do not reduce gross margin until they sell.

So we are forecasting even stronger merchandise margin gains in this year's second quarter compared to the higher than planned markdown activity in the prior year period.

In the first quarter, higher freight costs related to fuel surcharges were offset by lower distribution costs which improved about 10 basis points.

Both occupancy and buying costs experienced a slight increase of about 5 basis points over the prior year.

Selling, general and administrative costs in total declined about 40 basis points compared to last year's first quarter.

The real estate settlement benefited the period by about 30 basis points.

Slight deleveraging and store costs was more than offset by lower corporate expenses as a percent of sales in the quarter.

Store costs in the first half of 2008 are being pressured by the large number of new stores we opened in 2007 including 26 new dd's DISCOUNTS.

Interest income of $1.6 million in the quarter also was better than planned benefiting mainly from higher cash balances resulting from the progress we have made in inventory management that is driving faster turns, fresh receipts and higher accounts payable leverage.

As planned, earnings also benefited from a slightly lower tax rate in the quarter.

With the adoption of FIN 48 there's now more variability in our quarterly tax rate.

We continue to forecast our tax rate for the year to be relatively flat to 2007 at about 39%.

Finally, our buyback program drove a 4.5% reduction in shares outstanding leveraging earnings per share growth in the quarter.

Let's turn now to our second quarter guidance for the 13 week ending August 2, 2008.

Although we remain cautious regarding the macro environment, we are now projecting second quarter same-store sales to increase 1% to 3% and earnings per share to grow 16% to 27% for a targeted range of $0.43 to $0.47 compared to $0.37 in the prior year.

The assumptions that support these projections include total sales are expected to grow about 8% to 10% driven by a combination of new store growth and as mentioned, a 1% to 3% increase in same-store sales.

We are forecasting about 25 net new stores to open during the period including 24 Ross Dress for Less locations and one dd's DISCOUNTS.

We are planning comparable store sales in May to increase 4% to 5%.

This guidance reflects favorable weather across many of our markets and an easier comparison versus May of 2007 when same-store sales rose 1%.

For June, we are targeting comparable store sales to grow 1% to 3% on top of a strong 4% gain in the prior year.

With inventory management driving faster turns and lower markdowns we expect to end the quarter with less clearance than last year.

So because July is typically a transitional clearance driven period we have planned same-store sales that month to be flattish to the prior year.

Operating margin is expected to increase about 20 to 50 basis points for a forecast range of 6% to 6.4% compared to 5.8% last year.

As previously mentioned, we are planning even stronger gains in gross margin during the second quarter that are expected to be partially offset by an increase in selling, general and administrative cost as a percent of sales.

Our 2007 second quarter results included income from insurance proceeds related to a store loss and a lower than planned settlement for a legal matter that combined added about 25 basis points to last year's second quarter operating margin.

Interest income for the second quarter of 2008 is planned to be approximately $500,000 and our tax rate is expected to be about 39%.

We also estimate weighted average diluted shares outstanding of about 132 million.

Now I will turn the call back to Michael for some closing comments.

Thank you, John.

Based on our second quarter guidance and above planned results in the first quarter we are now projecting earnings per share for fiscal 2008 to be in the range of $2.19 to $2.29 for a forecasted growth of 15% to 21% over $1.90 in fiscal 2007.

Again, to sum up our comments today we are pleased with our solid, ahead of plan sales and earnings results in the first quarter that were achieved despite the difficult retail environment.

We believe this reflects the resilience of our off-price business model.

Our history shows we have been able to manage successfully in many types of business climates with less volatility in our financial results than a comparable full-price retailer.

During these times, we benefit from the increased supply of great brands at strong discounts.

This makes our stores attractive destinations for customers seeking compelling bargains for their family and their home as shown by our solid performance in the last two quarters.

In addition, because we can buy even closer to need today, we can be more defensive and operate our stores with leaner inventory levels.

This in turn increases our open-to-buy capacity giving us even more flexibility to take advantage of the great close outs available in the market.

As a result, we can realize faster turns and lower markdowns with a more rapid flow of fresh and exciting bargains to our stores which we have done and continue to do.

Looking ahead, we remain confident that solid execution of our merchandise strategies, always the key ingredient for success in this business, along with continued strict inventory and expense controls will enable us to maximize our prospects for sales and earnings growth over the balance of 2008 and beyond.

At this point, we would like to open up the call and respond to any question you may have.

(OPERATOR INSTRUCTIONS).

Your first question is from Jeff Black with Lehman Brothers.

Congratulations, guys.

Just a couple of questions.

I guess for Michael, where specifically are we seeing some improvement or some better traction in the ladies business and can you update us on juniors?

I don't think you called that out but I think that has been tough in the past.

Have we seen a light at the end of the tunnel there?

And for John on the inventory, that came in a lot lower than we would have thought.

Can we expect to see you build a little bit more inventory in the second quarter and in the back half of the year, just an overall update on what to think about in terms of inventory per square foot?

Thanks.

Okay.

This is Michael.

I, we are starting to go see traction in the misses, we certainly have performed very well in dresses.

There's a national trend in dresses and we are, I think, capturing more than the average in that.

And we are very pleased with that.

We are seeing movement in our assortments and consequently in our business, both in misses and special sizes.

It's moving.

It is a slow move but getting better.

Juniors, we planned conservatively and the results have been pretty much in line with our conservative plans and our, on a comparable basis are considerably down, but that was our strategy going in.

Jeff, on inventory levels we ended the quarter slightly below where we had planned the quarter.

As we look forward, inventory levels are planned to be down high singles to low double-digits.

And moderate more to kind of a high, high single levels in the back half.

Great.

Thanks for the clarity.

Good luck.

Thank you.

The next question is from Brian Tunick with JPMorgan.

Hi, thanks, guys.

I guess my question, Michael for you, is with the May comp guidance and maybe as you outlook to June, any thoughts of the stimulus checks that everyone is going be getting.

Historically, do you expect your business and have seen the pick up from that historically, and then the second question is maybe update us on the micro merchandising or the systems initiatives that we are expecting to see in the second half?

All right.

Actually I will take that, Brian.

It is Michael O'Sullivan.

First on the rebate checks, the truth is we just don't know.

There are so many things that affect our business, supply, weather, gas prices, rebate checks.

It is hard for us to pull that out.

Having said that, we are students of our business so we have gone back and looked at previous occasions where there have been similar rebate checks.

So in 2001 for example, there were 90 million rebate checks issued between July and September.

The back half of 2001, our comps did pretty well, but I warn you, that was also a pretty soft prior year period in 2000 and frankly 9/11 was right in the middle of that.

So it is very hard to parse that out and figure out what the impact was.

So I think it is going to be good but it is hard to quantify.

That's the rebate check side.

Your second question was about micro merchandising.

Right now we are about to launch the pilot businesses for micro merchandising.

There are two businesses that we are piloting the tools and processes with which represent about 15% of our business.

We will then move to some other major businesses in '09 which would represent about 50% of our business and the balance of the businesses would be in 2010.

The next question is from Kimberly Greenberger with Citigroup.

Great.

Thank you.

Congratulations on a nice quarter.

I was hoping you could give us transaction metrics for Q1 if you could, and secondarily, on the lower clearance inventory year-over-year, Michael, is there anyway to quantify that either give us clearance inventories or percentage of total this year or last year or anyway to quantify that at this time?

Secondarily, I wanted to confirm your updated annual EPS guidance of $2.19 to $2.29 includes the $0.60 from Q1, that's the basis you are using here for Q1, and lastly, the CapEx numbers have been somewhat elevated here '06 '07 and that's what we're modeling here for '08.

When do you think longer term we might be able to see that CapEx number decline back below the $200 million mark?

Thanks.

Kimberly, on the transaction metrics, our price per item was relatively flat for the quarter.

Our transactions size was flat.

It really was volume that took the comps up.

Relative to the question about whether or not the annual guidance includes the $0.02 from the real estate transaction, the answer is, yes, it does.

Kimberly, I think your third question was around capital expenditure.

One of the big drivers of our CapEx the last couple of years has been DC capacity, distribution capacity and building out new distribution centers.

This year's CapEx includes a chunk of spending to expand one of our distribution centers in southern California, the Moreno Valley distribution center.

We expect that expansion to be completed by early '09 and then as we look forward, as to how much DC capacity we are going to need in the next couple of years we are not anticipating another major processing center in the next couple of years.

We might need to add a storage facility but that would be less expensive.

So we'd expect at least from a DC CapEx perspective for spending to ramp down a little bit over the next couple of years.

I think your final question was on clearance levels, Kimberly.

Clearance levels are slightly down for us in the chain as we accelerate inventory levels and bring the total inventory levels down which is helping us manage the markdown line as well.

Anyway to quantify that change, John?

I would say slightly down.

Okay, thanks.

Good luck here in the second quarter.

Thanks.

The next question is from Paul Lejuez with Credit Suisse.

Hey, guys, thanks.

Just want to dig into California a little bit.

Are you seeing anything different in that market in terms of transactions per ticket and also just wondering what you are seeing there in terms of shopping by existing customers versus attracting a new trade down customer?

Well, it is Michael O'Sullivan.

I will take the second piece on the trade down customer.

You know, it would be speculative.

We don't really know.

We do pretty regular research on our customers and that allows us to look at over a longer time horizon where our customers are coming from.

We know historically are our customers have come from everywhere, our customers typically shop at every store pretty much.

And they're only really loyal to one thing, and that's a bargain which is what we try to focus on, that we can get a bigger share of their wallet if we put bargains in front of them.

So that research tells us that much and other a longer period of time where customers are coming from disproportionately, but it is not really sensitive enough to figure out on a short time horizon whether it is a trade down customer or a trade up customer, it's probably both.

We don't know.

Are you able to track sales from existing customers?

Not really, no.

No, we know we have a pretty loyal core customer base, but we don't really have that level of detail to figure that out.

And how about on the transaction versus ticket, the average ticket in California?

We estimate that, that those levels would be similar to the rest of the chain.

Then last just product availability at dd's versus Ross, anything different in the dd's market?

Not really.

It is Ross, it is a good opportunity, a good time to be an off-price buyer.

Great.

Thanks and good luck.

The next question is from David Mann with Johnson Rice.

Yes.

Thank you, good morning.

In terms of the corporate expense leverage was that all due to the comp or were there some areas where you had some unusual cost savings or control?

So on that, David, there are some timing issues in the quarter related to kind of self-funded health care plans, et cetera, that gave us some leverage in the quarter.

Actually, when we looked at the second quarter, SG&A will be up slightly, given that we are up against a 25 basis points of income we have last year.

So, if we look at that across the first half, G&A is relatively flat.

Okay.

And then, Michael, I think in the last couple of calls you have talked about perhaps doing a little bit better in the Southeast markets, can you give an update on how some of those underperforming stores might be doing?

Actually, we, the Southeast at least in the first quarter was a little behind the chain, not materially from a comp basis, but a little bit behind the chain.

You know, the Mid-Atlantic which is another region we called out in the past was actually well ahead of the chain.

So it is hard for us to draw any sort of long-term, sustainable conclusions from that.

Yes, that is kind of what I would say about those two regions.

Very good.

Thank you.

Thank you.

Also, Kimberly, let me give some more clarity around where clearance levels are.

I said slightly, they are probably down on a per store basis, probably down low double-digits as a percentage term.

Your next question is from Jeff Klinefelter with Piper Jaffray.

Hi, yes, thank you, just three quick questions, one on the dd's comment the '07 stores slightly better than expected.

Can you just remind us where those stores opened and any other insights in helping to describe their better performance and what you are gleaning from that going forward with store openings?

In terms of, Michael, in terms of product at this point going into the fall season, you and your buying organization kind of what are you sensing, what are you seeing out there in terms of product availability?

Is it as good or better than last year going into the second half and then just lastly on second half guidance, John, maybe I missed this, but the gross margin versus SG&A leverage potential second half versus first half?

Okay.

Jeff, it is Michael.

I will take the first part of that regarding our dd's new stores.

Last year we doubled the size of the dd's chain.

So we added 26 stores, and the vast majority of those were actually outside of California, which is the first time we opened dd's outside of California.

As we've said on previous calls we were disappointed with that performance.

They didn't perform anything like as well as the initial 26 stores had opened, had performed.

As we came into '07, the first quarter at least, they performed better.

And we are happy with that, but it is one quarter.

So we don't know if it is sustainable.

We've certainly made some adjustments to the assortments.

We think that has helped, but we don't know how that will play out in the remaining quarters of the year.

In terms of the plans for dd's going forward.

Again, because we doubled the size of the chain in '07, as we said earlier this year, we are really using '08 to take a little bit of a breather to make sure we bed those stores in, really make sure we understand what is driving that performance and then we will make a decision from there in terms of how many dd's stores to open up over the next few years.

And this is Michael, the product availability versus a year ago what we have seen so far through the first 4.5 months of the year is it is considerably better than a year ago.

How long it will stay like that, no one knows but my instinct would say we have got a good ways to go, okay based on how mainstream retailers are performing.

So I think it is actually going to, my instinct would say we will have a good buying opportunity for a bit of more time ahead of us.

And on guidance, so we haven't given guidance on the second half specifically.

What was given the annual earnings per share guidance.

But coming closer into the second quarter, we expect about, as I said, 20 to 60 basis points of improvement in EBIT margin, that's up against 25 basis points of income we had last year.

Most of that leverage will come from the gross margin line, as G&A will be actually pressured a bit, we think, in the second half.

Okay.

Thank you.

Excuse me, the second quarter not the second half.

Your next question is from Mark Montagna with CL King.

Hi, just a question about your pricing power.

Typically you try to maintain a certain spread between your prices and the department stores.

Wondering considering the consumer is so price driven right now do you need to maintain that same spread or are you getting increasing pricing power that you can allow that spread to narrow?

Allow the spread to narrow, no, at most with something like this we would widen the spread, meaning from department store pricing to our pricing.

If we are able to take advantage of better pricing from the market we usually pass it on.

Okay.

All right.

That was all I needed.

Thanks.

The next question is from Patrick McKeever with MKM Partners.

Patrick, your line is open.

Okay.

Thank you.

Just wondering if you could talk a little bit more about your shoe business which has been comping very well.

How big is that now as a percent of sales, what's driving the business?

That is a little counter to the broader trend in retail which is weakness in shoes.

So what is driving your shoe business?

Are you adding SKUs, are you adding new brands?

And then lastly, same basic question, how are the price points holding up in shoes?

Okay.

Our shoe business is approximately in the 10% range of our store.

Why are we doing better in shoes when in off-price, or in our business we are executing better than we have before.

And it boils down to that.

Our SKU levels really are not a lot different.

Our pricing has been very sharp, there's been a lot of opportunities based on the shoe conditions in the market.

What's going to happen going forward in shoes, in pricing who knows.

I know this, price increasing coming out of the Far East in shoes.

What I think will happen then is there will be more opportunities because retailers will rise in mainstream stores, will create backup, which hopefully we will be able to take advantage of.

I think a multiple things have been going on, market condition and improved execution is really the drivers for us.

Okay.

Then, thanks, Michael.

On the fuel surcharges that you mentioned in the quarter, is it the first time you have called that out as an issue as a material issue and what are you seeing there?

Is it going to get worse here?

What are you hearing?

On the second last piece maybe you can tell us whether it is going to get worse or not.

We certainly knew that fuel prices would be high coming into the year so we planned for that to some degree, but we didn't plan they would be $130 a barrel.

So, that is why there has been some impact on Q1.

Having said that, Patrick, we did, I would say 18 months, 24 months ago, when we first saw fuel prices rise, at that point, they were blowing through the $50 a barrel mark, where we first saw them rise we took a step back and look at our transportation costs and we put a number of initiatives in place that are coming to fruition now that relate to how we flow goods into our distribution centers, how we pack pack goods onto trucks, that kind of thing.

So to some degree we were able to use those initiatives to offset some of the fuel increases in Q1 and that will help us in the remainder of the year as well.

But it won't be enough to offset it completely as long as prices remain at the levels they're at or if they increase further.

Okay.

Thanks very much.

The next question is from Marni Shapiro with The Retail Tracker.

Hey, guys, congratulations on a great quarter.

Can you give me a little bit more insight into the inventory levels, your planned down is very conservative there.

I was curious if that was a combination of units planned down as well as better prices from buying, and if it was planned down equally across the board or were there pockets of home or apparel, men's versus women's, accessories that are planned up where others are planned down more significantly?

So relative to inventory levels, it is really a function of taking the total levels down not really a price function so we just took absolute levels down to increase the turn and increase the freshness of the store.

And on the inventory cut whether it was across the board or selected areas, every area in the Company was hit significantly.

Certain areas were considerably more aggressive than that though.

Is there anything you are planning up as you go into next quarter?

In inventory levels?

Besides the dresses, I assume.

Inventory levels.

(inaudible)

Excuse me.

Any inventory areas you are planning up as you go into second quarter and beyond?

No.

Okay.

Great, guys, good luck with second quarter then.

The next question is from Dana Telsey with Telsey Advisory.

Hi, good morning, everyone.

Can you talk a little bit about as you think about the brands overall and the apparel side, where I think this was going to be a little bit of an emphasis on a little more fashion or trend right merchandise, where are you there and how much further do you have to go, and also can you talk a little bit about what you are seeing out there in terms of product costs?

Are you seeing anything from who you buy from, are the product cost increases in terms of sourcing from China?

Thank you.

On the brand movement, I think we are, we are part of the way there, we are probably 50% of the way there or maybe slightly higher, in ladies a little higher than that in men's, but that is, I am talking about today on the floor, we know what we have in the pipeline and it is moving nicely in the direction we want it to go.

In terms of price increases from China, we are seeing it across, we are seeing it, okay.

Which is for, I think, it has certainly been in the press about footwear.

Footwear there is significant price increases coming out of China and we are seeing in other categories, it, for if we have (inaudible) effectively we are more on the sidelines waiting.

We will see how it plays out at traditional retail.

Certainly there are pockets of the business in the home area where there's price increases and in our business, we can adjust our mix to help mitigate some of that, but the price increases are what they are.

What's the magnitude of the price increases?

It varies by category.

I think the most severe place in the store is in the shoe area, and I am not recalling exactly, but I think it is somewhere in mid single-digits.

Mid to slightly higher than that.

All right.

Depending on the, a lot of variables.

Okay.

Thank you.

And then just the trend right product any more discussion there?

Well, as I said, it is, we are comfortable that we are moving in the right direction.

I'm not comfortable in every area today on the floor.

In ladies apparel it is still a little further behind men's.

Young men's has considerably moved the needle.

Ladies is moving the needle and I would say, I can, I didn't see the path this clearly on our last call.

I see it on the transition on the floor and I see it, I know it is in the pipeline so I feel very comfortable that over the next quarter or so we will be in a better position there.

Do you see it being 5% of the mix or --?

Excuse me?

Should it be around 5% of the mix?

No, depending on the area it should be considerably more than that, okay.

Certain pockets of the store, it should be 15%, 20%, okay.

And certain pockets actually would be slightly higher.

And in very few places, in ladies, I would say it would be as low as 5% going forward.

Should it be in margin benefit as you see it?

I don't see it as a margin benefit, okay.

I see it as a sales benefit.

Thank you very much.

Your next question is from Richard Jaffe with Stifel Nicolaus.

Thanks, very much.

Just a follow-on question with dd's DISCOUNTS and what seems to be a little bit of an inflection point here.

Are you seeing differences in the more mature stores in the California markets, have the new stores been a source of success, any insight in terms of merchandising mix, how that's playing out, things that you've learned that will give you some traction going forward?

On the first part of your question, Richard, I'm not sure what you are driving at but just some commentary.

The comp stores which are all California stores, as a group have actually been a pretty strong group of stores.

They have been slightly below their comp plan in the first quarter, but it is hard for us to project from that and I am not sure what more we can conclude other than to say they were a little bit below their comp plan.

The, the new stores, the '07 stores, most of which have been open for less than a year, opened up pretty at disappointing levels and they have done better.

We think they have done better because we have made some assortment changes, but it is one quarter.

And, again, it is hard for us to project off one quarter, but they have been slightly better than we planned.

Great.

And I would just add that even though the comparable stores were off what we had projected, they were still positive and also, we are doing a lot of research on this customer.

And there are differences by region and there are ethnicity differences that we are working through to understand better.

And the merchandise assortments are pretty similar to the Ross mix?

No, no.

The categories we carry are similar to Ross, but the mix is very different.

That's what I meant, that by category, obviously, different brands and different price points, of course.

Right.

Got it.

Thank you.

(OPERATOR INSTRUCTIONS).

At this time, there are no further questions.

I would like to turn the conference back over to Mr.

Balmuth for any closing remarks.

Thank you all for attending.

Have a very good day.

Ladies and gentlemen, thank you for participating in today's Ross Stores first quarter 2008 earnings release conference.

You may now disconnect.