羅斯百貨 (ROST) 2013 Q2 法說會逐字稿

Good afternoon, and welcome to the Ross Stores second-quarter 2013 earnings release conference call.

The call will begin with prepared remarks by Management, followed by a question-and-answer session.

(Operator Instructions)

Before we get started, on behalf of Ross Stores I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts, and other matters that are based on the Company's current forecast as of aspects of its future business.

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

Risk factors are included in today's press release and the Company's fiscal 2012 Form 10-K, and fiscal 2013 Form 10-Q and 8-K on file with the SEC.

Now, I'd like to turn the call over to Michael Balmuth, Vice Chairman and Chief Executive Officer.

Good afternoon.

Joining me on our call today are Norman Ferber, Chairman of the Board; Michael O'Sullivan, President and Chief Operating Officer; Gary Cribb, Executive Vice President, Stores and Loss Prevention; John Call, Group Senior Vice President and Chief Financial Officer; Michael Hartshorn, Senior Vice President and Deputy CFO; and Connie Wong, Director of Investor Relations.

We'll begin with a brief review of our second quarter and year-to-date performance, followed by our outlook for the second half and fiscal year.

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

As noted in today's press release, we are pleased with our better-than-expected results for the second quarter and first half of the year, which were mainly driven by above-planned sales and merchandise gross margin.

Our performance for both the quarter and year-to-date periods continues to benefit from the solid execution of our core off-price strategy of delivering compelling name-brand bargains to today's value-focused consumers.

Earnings per share for the 13-weeks ended August 3, 2013, were $0.98, up 21% on top of a 27% gain in the prior year.

Net earnings for the 2013 second quarter grew 17% to $213.1 million.

Second-quarter sales rose 9% to $2.551 billion up from $2.341 billion in the second quarter of 2012.

Comparable store sales for the 13-weeks ended August 3, 2013, rose 4% over the 13-weeks ended August 4, 2012.

This compared to a strong same-store sales gain of 7% for the 13-weeks ended July 28, 2012.

For the six months ended August 3, 2013, earnings per share were $2.06, up from $1.74 last year.

These results represent an 18% increase on top of a 26% gain in the first half of 2012.

Net earnings for the period rose 15% to $447.7 million, up from $390.6 million last year.

Sales for the first six months of 2013 increased 8% to $5.091 billion, with comparable store sales up 3%, which was on top of a robust 8% gain in the prior-year period.

The strongest merchandise categories for the quarter were juniors and accessories, while Texas and Florida were the top performing regions.

For the second quarter, earnings before interest and taxes grew to a record 13.6% of sales, up from 12.8% last year.

This increased level of profitability was driven by a 70 basis point improvement in cost of goods sold.

Mainly due to higher merchandise gross margin, and a 10 basis point decline in selling, general, and administrative expenses.

John will provide some additional color on these operating margin trends in a few minutes.

As we ended the second quarter, total consolidated inventories increased about 9% compared to the prior year, with average in-store inventories down about 4%.

Packaway as a percentage of total was 46%, compared to 48% for the same period last year.

Like Ross, dd's sales and profitability also improved in the second quarter, as both chains continue to benefit from our ability to flow a larger percentage of fresh and exciting product to our stores.

With respect to our expansion program, we now expect to open 88 Ross and dd's Discounts locations combined in 2013.

As usual, this growth does not include our plans to close or relocate about 10 older stores by the end of the year.

Now John will provide further color on our second-quarter results, and details on our second-half guidance.

Thank you, Michael.

While we realized a slight increase in the number of transactions during the quarter, the 4% comparable store sales gain was mainly driven by growth in the size of the average basket.

Operating margin grew about 80 basis points in the quarter to a record 13.6%.

A 70 basis point improvement in cost of goods sold was mainly driven by higher merchandise margin.

Which grew by about 80 basis points over last year, including approximately 5 basis points from a lower shrink accrual.

This improvement was partially offset by higher distribution costs that were up approximately 10 basis points, mainly due to timing of packaway-related expenses.

Freight, occupancy, and buying costs were all relatively even with last year as a percent of sales.

Selling, general and administrative costs improved by about 10 basis points as a result of leverage on the 4% increase in same-store sales.

During the second quarter, we repurchased 2.1 million shares for a total purchase price of $138 million.

Year to date, we have bought back a total of 4.4 million shares for $277 million.

We remain on track in 2013 to buy back about $550 million in common stock, or about half of the two-year, $1.1 billion authorization approved at the beginning of 2013.

Let's turn now to our second-half guidance.

As a reminder, due to the 53rd week in 2012, all fiscal quarters are one week later in 2013 versus the prior year.

While this shift is relatively neutral for the full year, it added about 1% to total sales growth in the first half.

This benefit is expected to reverse and reduce fiscal sales growth by a similar amount in the second half, which is embedded in the following guidance.

For the 13-weeks ending November 2, 2013, we are projecting a same-store sales increase of 2% to 3%, on top of a 6% increase in the third quarter of 2012.

Third-quarter 2013 earnings per share are forecast to be in the range of $0.75 to $0.78, up from $0.72 in last year's third quarter.

For the 13-weeks ending February 1, 2014, we are also planning same-store sales to be up 2% to 3%, on top of a 5% gain last year.

Earnings per share are projected to be in the range of $0.99 to $1.03, compared to $1.07 for the 14-weeks ended February 2, 2013.

As a reminder, the 53rd week last year added about $149 million in sales, and $0.10 in earnings per share to the 2012 fourth quarter and fiscal year.

Now I'll provide some additional operating statement assumptions for our third-quarter EPS targets.

Total sales are expected to grow about 5% to 6%, driven by a combination of new-store growth, and as previously mentioned, same-store sales that are forecast to be up 2% to 3%, versus the same 13-week period last year that ended November 3, 2012.

We plan to open 33 new stores during the period, including 24 Ross Dress for Less and 9 dd's Discounts.

We are targeting operating margin to decline 50 to 70 basis points versus last year, for a projected range of 10.6% to 10.8%.

About 40 basis points of the planned decline is due to the shortage comparison versus last year, when our physical inventory results were better than expected, and added about $0.02 to third-quarter 2012 EPS.

The remainder reflects some deleveraging on expenses, as same-store sales are in line with our guidance for a 2% to 3% increase.

We are planning no net interest expense in the quarter.

Our tax rate is expected to be about 36%, and weighted average diluted shares outstanding are estimated to be about 215 million.

Moving to our outlook for the full year, we are now projecting earnings per share for the 52-weeks ending February 1, 2014, to be in the range of $3.80 to $3.87.

Again, if sales perform in line with our guidance for the second half, our updated forecast for fiscal 2013 would represent estimated EPS growth of 11% to 13% on a 52-week basis.

This compares to strong prior-year gains of 20% and 24%, respectively, in 2012 and 2011.

Now I'll turn the call back to Michael for closing comments.

Thank you, John.

While we are pleased with our better-than-expected year-to-date results, we believe it is prudent to maintain a somewhat cautious outlook for the remainder of the year, for a number of reasons.

These include the ongoing uncertainty in the macroeconomic environment, our own challenging multi-year comparisons, and the potential for a more promotional and competitive retail climate.

This is especially true for the fourth quarter, which has a compressed holiday selling period due to six fewer shopping days between Thanksgiving and Christmas this year.

Throughout the second half, we will continue to run our business with selling-store inventories down in the low single-digit range.

As an off-price retailer, we have the flexibility to buy closer to need, and at this point have plenty of open-to-buy to take advantage of potential dislocations and opportunities in the market place over the balance of the year.

We are also staying intently focused on the key areas of our business that have allowed us to perform well for the past several years.

Merchandising remains our top priority, and we plan to further strengthen the organization through investments in people, processes, and technology.

In addition, we continue to fine-tune and upgrade our planning and allocation systems, and implement productivity enhancements and efficiencies throughout the Company.

Going forward, we plan to carefully execute these proven strategies, as they are the key to maximizing our prospects for earnings and revenue growth over -- for both the near and long term.

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

(Operator Instructions)

Daniel Hofkin, William Blair.

Okay, nice quarter.

Just wanted to follow up a little bit on some of the category trends.

Can you discuss -- I know the Home department has been a particular area of focus since last fall.

Can you update us on how that's been performing relative to your expectations, relative to the overall comp, for example?

That would be my first question.

Home?

We're pleased with the progress we've made.

Home planned -- performed in line with the total store for the quarter.

We're happy with the progress we've made.

We're right on track.

Okay, great.

In terms of the regional detail, can you just discuss quickly how, obviously, the West Coast is a particularly important region for you, but how was that relative to your overall comp?

The West Coast was pretty much in line with the chain comp.

Actually, regionally our comp performance is pretty broad-based.

I think in Michael's comments he mentioned Florida and Texas as particularly strong, but frankly other regions were -- did pretty well, too.

Okay, and then can you just update us, in terms of the systems -- kind of ongoing systems enhancements that you touched on -- where do you feel like you are in that progression relative to -- is this just something that you see being having a long runway ahead, or do you think -- where do you stand on that?

Daniel, I think we're pretty far along in terms of the planning and allocation systems that we have in place.

As you know, we rolled out micro-merchandising across the chain about three years ago.

But part of the benefit of planning and allocating at a more detailed level is that allows you to go off for opportunities you wouldn't otherwise see.

I think there are, I think we expect that over the next few years there are going to be opportunities down at individual classification levels, or down at individual store or regional levels, or even frankly looking at different clusters of stores, different segments of stores, and spotting opportunities to turn faster and to drive margin and drive sales.

I think we feel pretty good about where we are from a systems point of view, but we think there's quite a lot of opportunity to use those systems to really drive the business.

Okay, thank you very much.

David Mann, Johnson Rice.

Yes, thank you.

Nice quarter.

Question about the promotional environment.

Most of the other major apparel retailers are talking about the fact that there was promotional pressure in the second quarter.

Just curious if how you feel like there was any impact on you in the quarter, and whether you think -- what you're looking at going into the rest of the year?

We thought it was typically promotional, not unusually rugged, okay, but fairly typical.

I think coming out of the second quarter, where all the major department stores and discounters struggled in the second quarter, they have plenty of time to be preparing and ramping up for a more promotional fourth quarter than they did -- than they were able to for the second quarter, which I think caught a lot of people off guard.

Okay, and then in terms of the merchandise margin, there was, it looks like, a little bit of an acceleration there.

It was a nice gain relative to the last few quarters.

Perhaps, John, you can talk a little bit about was that just better buying in IMU, or better sell-through and less mark-downs?

I think it was a bit of both, David.

We saw a bit of both increase in the second quarter.

Okay, and last question, on the ticket gain, on the gain in average ticket driven by same store sales, are you seeing more units per transaction or average increase in price, how should we think that and going forward as well?

Yes, so with that, that was mix as well.

We had slightly more SKUs being purchased per basket, and also the AURs were up a little bit, as well.

We were happy to see that actually traffic was positive, as well.

Thank you very much.

Jeff Stein, Northcoast Research.

Yes, guys, a couple questions.

First of all, I want to make sure I heard this correctly.

Because of the calendar shift, is there going to be a narrowing of the spread between comp and total, because of that shift in the back half of the year?

Explain that?

What are you trying to get at, Jeff?

I think you mentioned -- somebody mentioned that there was -- you were going to get penalized by a percentage point in sales because of the calendar shift.

Is that because you're giving up a week of higher volume in August and picking up a week of lower volume in November?

I just want to make sure I'm understanding that correctly.

That's exactly right, Jeff.

Okay.

The calendar switches out those weeks.

Okay.

My second question would be on the SG&A line, why only 10 basis points of leverage on a 4% comp?

I guess, what's embedded in your SG&A that is preventing you from seeing more leverage?

On that, we think we lever typically around a 3%, so we did get some leverage on the 4% in the quarter.

I wouldn't say there's anything unusual in the quarter that would either promote that or bring that down, so we actually felt pretty good about the leverage we got.

Okay.

Final question, and that is on the subject of outerwear.

The industry has had two consecutive years of warmer-than-expected weather.

I'm just kind of wondering what the close-out environment is for outerwear this year.

Are the vendors producing less and therefore you have less, or do you have more in pack-away from last year?

How do you see the seasonal apparel business shaping up for you this year?

We're a little better -- we're better positioned than a year ago in pack-away based on last year's performance globally.

This year's situation in close-outs, it's premature.

Nobody is closing out outerwear this early, so it's a wait and see.

Actually, the seasonal business has happened later and later every year.

It makes it more difficult to secure close-outs in season.

More is done in pack-away, so we'll just have to wait and see.

Okay.

Thank you.

Your next question comes from the line of Mike Baker from Deutsche Bank.

Hi, Mike Baker.

Two or three questions.

One, you kicked up your store count a little bit what you're going to open, to 88 from 80, I believe.

Can you discuss that?

Secondly, and maybe more importantly, can you talk about how your stores performed in the Midwest?

We can calculate new store productivity, but at some of these stores -- I think in Chicago are starting to enter the comp base -- are you seeing out-sized comps because of the inventory?

I think last quarter you said that they were slightly above plan.

Can you update us on how those Chicago Midwest stores are doing?

Thanks.

Sure.

Mike, you're right.

We took our new store count up to 88.

That's just a few more than we planned at the beginning of the year, and that's really just driven by real estate opportunities.

In terms of your broader question about the Midwest, as you know we entered the Midwest in the fall of 2011, so a little over a year and a half ago.

There's really just a handful of stores that are now in the comp base.

Rather than commenting on those, I think what I'd say is we've been very happy with the performance in general of the stores that we've opened in that region over the past year and a half, both in terms of how they've done against their sales and earnings plans, but also in terms of the customer feedback we've had in those Markets.

We're feeling pretty good about our ability to build a strong business in that region over time.

Great, good news.

Fair enough, thanks.

Kimberly Greenberger, Morgan Stanley.

Thank you so much, and congratulations to everyone on a great quarter.

Michael, I'm wondering if you can talk about the juniors business.

It seems like Ross and TJX are the only two businesses out there that have a really strong juniors business.

I'm just wondering, is there some sort of focus on the category in particular inside the organization, or are you seeing just better product available for this customer that's allowing you to drive this business?

Stepping back, I think you've been doing a great job at cutting in-store inventory.

I want to say that I think you started it back in the second half of 2007, and you've just been managing sort of at ever-more-conservative levels on in-store inventory.

Do you still see an opportunity to cut inventory levels further?

Is that helping you guys to reduce clearance mark-downs?

Will the distribution centers that you have coming on line over the next one to two years -- do they actually help you manage even more conservative inventory levels?

Thanks.

Okay first on the junior question, I really can't speak for what other people are doing differently in juniors.

The way we've approached it, we saw an opportunity a few years ago.

We felt the junior business was an opportunity for at least us.

We organized our staffing that way.

We positioned ourselves so we could take advantage of market opportunities, and that's really how we've done it.

We funded it appropriately, in addition.

Where we run much more of a pure classification junior business than maybe other people do, who maybe run more of a collections junior business, and that has served us well.

On your second question, Kimberly, about inventories, you're right.

We've reduced inventories by about -- actually, a little bit over 40% since the back half of 2007.

Actually, this year we're planning to reduce inventories further -- sort of in the low-single-digit range.

Longer term, we haven't put together our plans for next year, but I think we're absolutely going to look at whether there's additional opportunity.

There may be.

I think we feel good about our ability to sort of flow fresh merchandise to the stores.

That's really helped drive our sales over the last few years.

In terms of what would be the driver of being able to reduce inventories further, the DCs may help; but I also think that just improved merchandising, in terms of making sure we have the right product in the right store, will also be a key enabler as well.

That's really helpful.

Thanks, Michael.

I'm wondering if I can just ask one follow-up on the general environment.

I know that there's a lot of volatility in general out in the retail environment, and in particular it seems like in the department store space.

I know there's always plenty of inventory for you guys to buy, and there's substantially more available out there in any given season than you could possibly buy for your own stores.

But are you seeing any kind of incremental dislocation, just given the volatility we're seeing in the environment, or does it feel very much the same as one or two years ago?

It's hard to answer.

What I would say is that the dislocation that was really just reported -- in the time I've been in off-price, for a while -- leads to a lot of opportunities.

Since a lot of people were not forecasting this kind of performance, it invariably leads to a lot of product for the off-price sector.

We've been comfortable at the level of product we've seen so far this year.

I only expect that it should be a little more advantageous than it's been, even.

Terrific, great.

Well, we'll watch for the results here in the second half.

Thanks so much.

Thank you.

Ike Boruchow, Sterne Agee.

Hi.

Thanks so much, and congrats guys.

A question on your comp guidance.

You're guiding a 2% to 3% comp for next quarter.

The last three quarters you guys have been guiding 1% to 2%.

Just curious -- are you feeling a little bit better right now about your end market demographic, or has anything changed with how you view the world right now?

I don't think anything changed with how we view the world.

Actually as we laid out the year it was pretty consistent.

I think we did a 3% in the first quarter, a 4% in the second quarter, and we just think a 2% to 3% is probably more appropriate place to position the Company.

Okay, and then real quick follow-up.

It looks like new-store productivity was pretty strong in the quarter.

Can you talk about the new store openings that you've seen in new markets and existing markets, and how those stores are performing relative to plan?

Sure.

Yes, I would say actually over the last couple of years, we've been pretty happy with how new stores have performed, both in existing markets and in new markets.

Part of it is the same trends that are driving our comp store performance have helped our new stores as well -- the fact that we have great merchandise and great values.

I also think with new stores, I think we've done a better job of planning and operationally opening those stores.

I think all of those things have contributed to a pretty satisfactory new-store performance.

Great.

Good luck.

Thank you.

Brian Tunick, JPMorgan.

Thanks, good afternoon guys.

Curious.

It sounds like in the comments that you're saying the traffic has been moderating.

I think this is a quarter or two now.

Wondering why you think the traffic might be moderating?

Any comments on your marketing-spend plans for the second half, vis-a-vis trying to bring in a new customer, et cetera?

I know you've talked about the junior side.

On the second one, maybe just talk about on the 2,500 store target that you recently updated, what exactly is preventing you guys from accelerating even faster from a square-footage-growth perspective?

Is it site availability, district managers, waiting for the distribution center?

Just maybe talk about what's prohibiting a faster roll-out?

Thanks very much.

All right, Brian.

I'll try and answer your questions on traffic and marketing, and then I'll hand it over to John on the store potential.

On traffic, we've had over the last few years, we've had pretty significant traffic growth.

If you look at our annual comp growth, just over the last four years, what you see is 6%, 5%, 5%, 6% -- so pretty strong comp performance, and traffic has been the major driver of that comp growth.

Clearly that was never going to go on forever.

At some point traffic was going to moderate, and that's how we viewed the last couple of quarters.

Obviously as a retailer, we'd like to drive traffic higher, so the better way we can do that is to make sure we have great bargains in the stores, and that's what we're focused on doing.

I should say on the flip side we're pretty happy we're seeing increases in the average basket, which suggests that when customers are coming to the store, they are finding opportunities to spend more.

On your point about marketing, I think we've said in the past that we think paid marketing can be very helpful as a way of reminding customers to come to Ross, to remind them that we have great values and great merchandise.

But frankly, we've always thought the best marketing for us is sort of unpaid marketing -- word of mouth -- and that really comes from making sure we have great values in the stores, the customer buys the goods, they go and tell their friends, et cetera.

That really remains our focus from a marketing point of view.

Our paid marketing really hasn't changed in the last few years, so nothing new or radical in terms of marketing campaign.

As to the growth question, Brian, we stated we can basically double the size of the chain.

That gives us, obviously, plenty of room to grow.

The way we like to grow is not attack too many markets at one specific time, to not get too distracted by multiple fronts.

Our growth pattern in the past has been growing to contiguous markets, and it's worked well for us.

We have the ability and the systems and the people in place to sustain a 6% to 7% growth rate and do that well.

That's what we're oriented around, so we'll be steady and consistent with that growth pattern.

We're pretty comfortable with where we are today.

Great.

That's very helpful.

Thanks very much and good luck.

Thanks.

Lorraine Hutchinson, Bank of America.

Thank you, good afternoon.

I just wanted to follow up on your somewhat cautious back-half outlook.

Is that based on what you're seeing today in the macro environment, or is that just anticipation of what could be a very heated promotional holiday season?

Lorraine, it's a combination of things.

I think Michael in his remarks mentioned there is sort of continuing economic uncertainty.

We are going to be anniversarying some big comp numbers over the last three or four years.

There is a more compressed holiday shopping calendar.

Then we are anticipating that there's at least a risk that the retail and competitive environment could be more promotional.

We've taken all those factors, and tried to weigh them into our guidance.

Now we always hope to do better.

I think over the last few years we've demonstrated that when we plan conservatively we're still able to chase the business if the sales are there.

That approach has certainly helped us drive margins when the sales trend has run ahead of our plan.

Thank you.

John Kernan from Cowen.

Good afternoon, guys.

Thanks for taking my question.

I just wanted to get your thoughts on what you thought the long-term potential for merch margin, and continued advances in that rate -- it's been on -- obviously been on an upward trajectory since 2006.

How much more room is there to take that merch margin higher over time?

John, we're happy with where it is.

We believe it's sustainable.

You're right, it has grown significantly over the past several years.

It's really a function of what the top line can drive.

If we can accelerate comps at a more meaningful level, then we'll get the fall-through.

But at the comps we have planned out today, we think that the margin is somewhat sustainable at those levels.

One follow-up would be any update on dd's and the sales trajectory within that chain, and margin trajectory there as well?

Sure.

John, as you know, we don't disclose dd's financials separately, just because at this point it's not really material to the corporation.

Overall, I'd say we continue to be happy with dd's performance.

This year it's continuing to execute our sales and profit plans for the business.

Actually, one other notable point is that like Ross over the last two years, dd's has benefited from lower inventories and therefore fresher merchandise.

That has certainly helped it from a margin perspective.

I think overall we're very happy with dd's, as we have been the last few years.

Okay, thank you.

Jessica Schoen, Barclays.

Hi, good afternoon.

I had a follow-up question on the inventory levels in the quarter.

In store, I believe you said they were down about 4%.

I was wondering if you could tell us if that was in line with your expectations, and if there's any further reduction you're expecting as you continue to control your inventory levels?

The inventory levels were in line with our expectation for the quarter, and as I think Michael O'Sullivan mentioned, we are anticipating inventories to be down in the low singles in the back half.

As you continue to manage it, how much going forward in years to come do you feel like there's a lot of incremental reduction that you could do?

I wouldn't use the word a lot.

I think we think there might be some additional opportunity, based upon doing a better job of buying great merchandise and trying to flow merchandise to the store more rapidly.

We may be able to squeeze out more inventory.

We haven't put together plans for next year yet, but that's certainly something we're going to look at.

Great.

Thanks very much.

Laura Champine, Canaccord.

Good afternoon.

John, could you give us an update on the CapEx budget for this year, and then where it should settle out in years beyond?

Sure.

The CapEx budget is around $670 million this year, as we're building on a couple of DCs.

We actually bought out the lease of one DC.

As Michael mentioned, we're putting together a plan for next year, and as we announce those towards the end of the year we'll have more updates on our CapEx plans going forward.

If I can ask a second question then, the margin pressure you mentioned about 40 basis points comes from the change in shortage.

Is the balance of the margin pressure just a typical lack of sales leverage on that 2% to 3% comp?

Yes, that's where it's coming from -- that's EBIT margin leverage, and you actually get some deleverage on some of the expense line with the 2% to 3% comp.

Got it.

Thank you.

Oliver Chen, Citigroup.

Hi, everyone.

This is Nancy Hilliker filling in for Oliver Chen.

Thanks for taking my question.

We'd like to know a little bit more about your view in expansion.

Are you targeting any regions in particular that you're thinking about going into?

Are you seeing real estate opportunities, given any retailers and the macro environment right now?

Also, if you could comment on you've done so well in your current categories, is there any room for expansion either in adjacent categories or bringing in a new brand?

Nancy on the first part of your question about regions and real estate, historically our strategy when we moved into new markets has been to expand in a fairly targeted way.

We open up in a market, and then build up our presence and share in that market before we move on to a whole new region.

Given that we only entered the Midwest market a year and a half ago, that's probably going to be our focus, I would say, for the next several years.

On real estate, we continue to be happy with the real estate opportunities we're seeing.

We have a great and very experienced real estate team who have done a great job of finding good locations for us the last few years, and what we see in the pipeline remains very strong.

Relative to new categories in the business, we're always testing and experimenting with new categories and looking for new brands.

Fortunately, we have a very large team of merchants scouring the market and building relationships.

We expect to have some new fresh and exciting things next year, but the forum would prevent me from going into it right now.

Okay, thanks so much.

Congratulations.

Thanks.

Marni Shapiro, Retail Tracker.

Hi.

Good afternoon, everybody.

It's Mark Friedman, great quarter.

Two questions, just one on the up-tick in the store openings.

Is that spread throughout, or is any of that higher proportion to the Midwest, given the performance to date?

On the second half, any particular categories where you see bigger opportunity, either because of the first-half performance, or because of changes in the market?

Thanks.

I'll take the question on the additional new stores.

It isn't really concentrated in any one area.

It just represented an opportunity for us to move up stores into this year, and it was relatively minor.

On the categories, I believe you asked about for fourth quarter.

Home would be one of them, based on performance last year and the improvement schedule we're on, and the improvement we've had in the previous quarter; and ladies apparel and accessories, we feel good about them, also.

Great.

Thanks guys.

Good luck with the back half.

Thank you.

(Operator Instructions)

Neely Taminga.

Great, thank you.

I just had a few follow-up questions here to today's conversation.

First, if you could give us a little sense on dd's.

As I was thinking about the chain hitting about 122 stores and heading towards 200 or so, does that put that chain in a competitive advantage to take on more better product, as it can be a one-stop solution for vendors looking for opportunities to clear?

If I may also a follow-up here, could you just comment on the digital side of your business of marketing.

Any thoughts on maybe this year or next year to shift a little bit more towards digital marketing, really to help expand some of your social media footprint?

That would be really helpful, thank you.

On the first question relative to dd's, was that relative to dd's carrying better product?

Yes.

Okay.

The customer who dd's caters to is somewhat below the Ross customer, and we market very carefully all these different urban areas, have a very different balance of product in each of the stores.

I would say as we're expanding, we're getting better at micro-marketing in dd's, as opposed to elevating the product line to a higher price line.

Our emphasis is really getting it right for the customer base we have, which is below the Ross customer.

Neely, on your question about digital marketing, we have been investing in digital marketing over the last few years.

It's become a bigger part of our marketing mix.

We actually think there's some very interesting aspects, particularly of social marketing.

We're testing a number of things, and I would say that yes, I think it's quite likely over the next few years you'll see more growth in that area.

Thank you very much.

Best wishes in the second half.

Thank you.

Patrick McKeever, MKM Partners.

Okay, thank you.

You have commented on past calls that the performance of your stores near a JCPenney store, and those that are not so near is fairly similar.

Was that still the case?

Did that continue to be the case in the second quarter?

I'm just wondering if you had any views on some of the recent changes there, with the return to promotional pricing, and what not?

Patrick, we haven't seen any major change in terms of our stores' performance based upon their proximity to JCPenney.

Our only view on the changes that are going on there is that over the long term, we don't think our long-term trend will be affected.

It's true that we actually performed very well last year when JCPenney was pursuing its new strategy, but frankly we've been performing very well for multiple years before that.

Even if they return to their old strategy, we don't expect it to impact our long-term performance.

That said, we do think there's some risk in the back half that the overall retail environment will get more promotional, not only driven by JCPenney, but potentially by other retailers, too.

We try to factor that risk into our guidance.

Then just back to the juniors area.

Was that a good area for you in the second quarter?

Are you doing anything different to target that customer?

It was a good business for us in the second quarter, as it's been for quite some time.

We're not doing anything materially different to market that customer.

I think that customer, we're presenting a product that we believe is trend-right at very strong values.

I think to the young consumer who is very pressed economically, so value, coupled with trend-right is really our focus.

But you didn't see any change in trend like it appears -- as appears to have been the case across the teen apparel space in the quarter?

No, not for us.

Okay, great.

Thank you very much.

Thank you.

There are no further questions at this time.

I turn the call back over to the presenters.

Thank you for joining us today and for your interest in Ross Stores.

Have a wonderful remainder of the day.

This concludes today's conference call.

You may now disconnect.