羅斯百貨 (ROST) 2014 Q1 法說會逐字稿

Good afternoon, and welcome to the Ross Stores first-quarter 2014 earnings release conference call.

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

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 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 expectation.

Risk factors are included in today's press release and the Company's FY13 form 10K and FY14 form 8-Ks 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, Executive Vice President Finance and Legal; Michael Hartshorn, Senior Vice President and Chief Financial Officer; and Connie Wong, Director Investor Relations.

Also joining us today is Barbara Rentler, President and Chief Merchandising Officer of Ross Dress for Less.

As announced earlier this month, Barbara will become our new Chief Executive Officer and a member of the Board of Directors effective June 1. She will continue to work closely with Michael O'Sullivan, who will continue as President and Chief Operating Officer, and also join the Board of Directors.

Barbara and Michael are talented executives with complementary skills, and each has made extraordinary contributions to our Company over the course of their long careers here.

The Board and I are confident their successful partnership will enhance our prospects for continued increases in profitability and stockholder returns in the years to come.

As previously announced, I will become Executive Chairman on June 1. In my new role I plan to stay very involved and continue to work closely with the entire senior management team.

Now let's turn to today's financial results.

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

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

Earnings per share for the 13 weeks ended May 3, 2014 were $1.15, up from $1.07 in the prior year.

These results represent 7% growth on top of 15% and 26% gains in the first quarters of 2013 and 2012 respectively.

Net earnings for the 2014 first quarter grew to $243.9 million, up from $234.6 million in the prior-year period.

First quarter sales rose 6% to $2.681 billion.

Comparable store sales grew 1% on top of 3% and 9% increases in the first quarters of 2013 and 2012 respectively.

First quarter earnings per share performed at the high end of our guidance, as strict inventory and expense controls offset the impact from unfavorable weather and a more challenging retail environment.

Sales trends improved in April with more seasonal spring weather that coincided with the late Easter shopping period.

Merchandise and geographic trends were relatively broad-based during the quarter, with the Midwest the top performing region.

Operating margin for the quarter was better than forecasted, declining 25 basis points to 14.6% of sales.

A 35-basis point increase in cost of goods sold was partially offset by a 10-basis point improvement in selling, general, and administrative costs.

As we ended the first quarter, total consolidated inventories increased about 2% compared to the prior year, with average in-store inventories down about 4%.

Packaway as a percentage of total inventories was 45%, even with last year.

Comparable store sales at dd's DISCOUNTS increased in the first quarter, driving solid gains in profits.

These results reflect that customers continue to respond favorably to dd's merchandise assortments.

Our overall expansion program remains on track with 26 net new Ross and 7 dd's DISCOUNTS opening in the first quarter.

We expect to add a total of 95 new locations in 2014, comprised of approximately 75 Ross and 20 dd's DISCOUNTS.

As usual, these opening numbers are before the planned closure or relocation of about 10 existing stores.

Michael Hartshorn will now provide further color on our first quarter results and details on our second quarter guidance.

Thank you, Michael.

Our 1% comparable store sales gain in the first quarter was mainly driven by a low single digit percentage increase in the size of the average basket, with the number of transactions down slightly to last year.

Operating margin for the quarter declined by about 25 basis points to 14.6%, which was at the high end of our guidance.

The 35-basis point increase in cost of goods sold was mainly driven by deleveraging on occupancy and buying costs, which increased 20 and 10 basis points respectively.

Merchandise gross margin declined 10 basis points versus last year, while distribution costs improved by 5 basis points.

Selling, general, and administrative expenses improved by 10 basis points, mainly due to strong cost controls.

During the period, we repurchased 2 million shares for a total purchase price of $139 million.

We expect to buy back a total of $550 million in stock for the year, which will complete the two-year $1.1 billion program authorized by our Board in early 2013.

Let's turn now to our second quarter guidance.

For the 13 weeks ending August 2, 2014, we are targeting same-store sales to increase 1% to 2% on top of 4% and 7% growth in the second quarters of 2013 and 2012 respectively.

Earnings per share for the second quarter of 2014 are projected to be in the range of $1.05 to $1.09, up from $0.98 last year.

Our EPS targets for this year's second quarter are based on the following assumptions: Total sales are expected to grow 5% to 6%, driven by a combination of new store growth and, as previously mentioned, same-store sales that are forecasted to be up 1% to 2%.

We plan to open 29 net new stores during the period, including 22 Ross Dress for Less and 7 dd's DISCOUNTS.

We are targeting operating margin to be flat to up 20 basis points on top of a strong 80 basis point increase in the prior year, for a projected range of 13.6% to 13.8%.

We are planning net interest expense to be negligible, and our tax rate is expected to be about 39%.

We also estimated weighted average diluted shares outstanding of about 210 million.

Moving to our outlook for the year, as noted in today's press release and based on our first-quarter results and second quarter guidance, we now project earnings per share for the 52 weeks ending January 31, 2015 to be in the range of $4.09 to $4.21 compared to earnings per share of $3.88 in FY13.

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

Thank you, Michael.

As mentioned earlier, we were able to maximize earnings during the first quarter, despite a modest 1% increase in same-store sales, which were impacted by unfavorable weather and a more challenging retail environment.

Looking ahead, we remain confident in the resilience of our off-price business model and our ability over time to successfully execute the proven strategies that have enabled us to deliver solid financial results in both favorable and more difficult climates.

By far, our most important priority is our unwavering focus on offering customers the best bargains possible.

Consistently delivering on this mission will always be the key to optimizing our opportunities for future sales and earnings growth.

At this point, we'd like to open up the call and respond to any questions you might have.

(Operator Instructions)

Brian Tunick, JPMorgan.

Great.

Thanks very much.

And Michael, best of luck as well to you.

I guess our two questions, number one, you called out the Midwest as your best performing region.

So I know the weather had been an impact the last couple of quarters.

Could you maybe talk about what has changed there?

Are you happier now with how your new stores are performing?

And anything else you could add about the micro-merchandising that might be applying?

And then the second question, just sort of on this potentially new trend of the business, this more low single-digit comp run rate.

Can you maybe talk about what kind of either marketing initiatives or things you're going to be doing from a category perspective, that could potentially re-accelerate the business back to a more mid-single digit comp trend.

Or do you think we've seen maybe the easy market share gains behind us?

Thanks very much.

Okay, Brian.

This is Michael O'Sullivan to take the first part of your question about the Midwest.

Yes, we were pleased with how the Midwest performed in the first quarter.

As Michael said in his remarks, it had the highest comp performance of our regions, which is great, especially given the weather.

We made some assortment changes to the Midwest, which I would say we're pleased about.

But I caution you, it's really just a single quarter and we still think we have plenty of opportunity left to improve that region.

Let me take a step back, though.

When we entered the Midwest two years ago, we said we expected to build a very successful business there, but it would take time.

So we're certainly very pleased with the progress we've made so far, but I would say the recent performance just reinforces our confidence in the longer term.

Then on the second part of the question, in terms of changes to our marketing program, there will be no radical changes, okay?

We have a marketing program we've been running with for a long time.

We think it's effective.

We're experimenting with a little more social marketing, but that's the extent of it.

Relative to a new run rate, first of all, I think we've adjusted well.

We adjusted well in the quarter to the business trends.

We were able to preserve our margins and run our business quite effectively at this level.

When our business gets tougher than we'd like it to be, we use this as a very good time for really tearing apart all our businesses, whether they're performing at a reasonable level, but especially the ones that are underperforming.

So if we do our work carefully during this timeframe, when the customer is ready to shop, we will be in a better position than we are today.

Mike Baker, Deutsche Bank.

Thanks, guys.

I wondered if in general throughout the country you could quantify for us, have any good sense as to how much you think weather impacted?

And maybe one way you could do that is just talk about the trends.

You said April was better, but any color on what February or March, or even into early May, may have looked like as weather's has gotten better?

Thanks.

Sure.

So like other retailers, the unfavorable weather impacted our business early in the quarter.

As we mentioned in our release, sales improved in April as the weather improved, and also with the Easter shift.

It's difficult to quantify the precise impact of weather, but we are not immune to it based on our regional breakouts.

Regionally the Midwest and Florida were the strongest markets, while the Mid-Atlantic and Pacific Northwest trailed the chain.

California lastly, was in line with the chain.

Okay.

And if I could follow up with one more.

What are you seeing out of some of the department stores?

In particular, I guess I will just specifically ask about JCPenney?

They've gone from comping down 30% to now comping up 6%.

It's got to have some impact on your business.

How do you think about that?

Is there any way to quantify or measure that?

Thanks.

Look, it's certainly not a plus.

We tried to quantify it when they weren't doing as well, and we had difficulty quantifying it, but we knew it was helping.

So, really the answer to your question is, we really don't have a precise answer.

Okay.

But probably to the previous question, maybe it makes it harder to pick up market share?

Is that fair to say?

It's hard to tell until we get through a more stable weather quarter.

Okay?

Okay.

It was such a radically unusual weather quarter.

I would rather answer that on our next call.

Fair enough.

Good point.

Okay.

Thanks, guys.

David Mann, Johnson Rice.

Yes, thank you.

Let me add my congratulations to Michael, and well-deserved promotions to Barbara and Michael as well.

A question about gross margin.

Can you talk about the components of gross margin, how we should think about them going forward?

Especially given, that it looks like your inventory to sales ratio is the best it's been in like five quarters.

Sure, David.

So as we got into this quarter, we ended last quarter, remember January was the slowest month of that quarter so we underperformed a bit.

We were carrying a bit more clearance into this quarter, so we took a few more mark-downs to clear that inventory this quarter.

Having said that, in the first quarter, April was our strongest month, so we are in a different position going into the second quarter.

I would comment that with inventories down, we should be able to pick up a slight amount in mark-down lines similar to what we've done over the past several years.

And specifically, any comments you give us about the direction of merch margin over the course of the year and the other components of gross margin?

For the year, I think the guidance was slightly up from a merchandise standpoint, given the 1% to 2% comp guidance, would expect little bit of deleverage on the expense line.

Having said that, during the first quarter, we were able to manage expenses pretty aggressively and we'll look to do that throughout the back half of the year and the second quarter as well.

And on that issue, the 1% comp, you were able to get down to a 1% comp.

You haven't really been able to do that in the past.

Is that sort of a guide now going forward that you might be able to delever, or to lever on a 1% type of comp?

Now, on the expense side, David, long term we think that number is still around 3%.

So although we were aggressive during the quarter, and as we look out, at least in the near term, we're optimistic about where expenses will be.

But I think for your long-term modeling, it's just better to use a 3% leverage point.

Great.

Thank you very much.

Daniel Hofkin, William Blair.

Hi.

Good afternoon.

Nice job on the quarter.

So if I could, just kind of following up on an earlier question, specifically about JC Penney.

Maybe, just more broadly, can you talk about -- I know going into the quarter you were talking about seeing higher promotional levels broadly than the same time last year.

How did things play out compared to what you thought, and what are you seeing going into this part of the year?

That's my first question.

Well, Penney's promoted through the entire quarter, and obviously they're increased promotional activities for us; not a positive from us from a competitive point of view.

I would just add, also, when Penney's is taking this kind of action on their promotional positioning, it's affecting other moderate retailers who are also becoming more aggressive.

So that is really the domino that we look at within what off-price spaces.

And so, for us to get a handle on how people will be promoting in the future, we're usually pretty good at that, and then we'll be able to adjust our prices into a zone that keeps the value differential between the two, between mainstream and us.

So I think Penney's is really more rattling other mainstream retailers, and then we'll figure it out.

The other point to make on that, Daniel, is we've lived through promotional and competitive periods before.

And we are very confident we have a volume level and we have an expense structure that allows us to succeed in those environments; and frankly to compete fairly sustainably.

When other moderate retailers promote, it is not necessarily sustainable for them to keep doing that.

And that's the main factor kind of affecting the near-term merch margin for you?

Kind of the pricing umbrella?

No.

I think availability of merchandise has a lot to do with the merch margin.

We think it is very good right now.

We think that with the inventory controls in place, we'll be able to turn at the same levels or faster.

So I think we feel pretty good about merch margin, as long as we can deliver top-line comp.

Yes I think, Daniel, the impact of promotions is more on the top line rather than our margins.

Which is what you see in Q1, that the margins were actually pretty healthy.

It was the top line.

Okay.

That actually was my follow-up question, on the availability side.

So it sounds like that remains quite positive.

Good to hear.

Thank you.

Stephen Grambling, Goldman Sachs.

Good afternoon.

And this is really just kind of a quick follow-up to that line of questions, which is on the merchandise margin versus competition, was it just harder to keep the pricing gap?

And as you think about weather playing an impact on gross margin, can you just elaborate on any impact that you saw, whether it was related to transportation or even just promotions by geographies?

So Stephen, back to gross margins specifically in the first quarter.

We came into the quarter carrying more clearance balances than we typically would, based on a below plan January.

So that put pressure on the merchandise margins during the first quarter.

Mark-ups were in line.

But we had to take a little bit more mark-down during the first quarter.

So I would not attribute that to a trend, or for the rest of the year.

That's helpful.

And then just longer term as you think about the operating margin the last year, actually in this quarter.

There was kind of a three-pronged commentary about the drivers over the past couple of years.

And as you look forward, maybe you can talk about how you think of op margins and where they can go?

Thanks.

Yes.

Let me comment on that, Stephen.

I think when you look at what's driven our operating margin over the last few years, it really has been the three things that you've referenced.

It's been lower mark-downs driven by tighter inventories, and we don't think that's going away.

We are not going to loosen up inventories anytime soon.

So we think were going to hold those gains.

It's been, secondly, lower shrink based upon our shortage initiatives, and again, we're not planning on taking our eye off the ball there.

And then thirdly, it's been margin and expense leverage based upon ahead of planned sales.

If we look at which of those we still have more opportunity on, it's really the third.

It all depends on sales.

If we are able to get ahead of planned sales, we will get margin leverage.

I think there's probably limited opportunity left in mark-downs and in shrink, some but limited.

So going forward, it's really about the top line.

Great.

Thanks.

Best of luck.

Thank you.

Paul Lejeuz, Wells Fargo.

Hello.

Thanks guys.

Sorry if I missed it, but did you talk about the home category versus apparel?

And within home, I'm just wondering what's working and what's not?

And then also second, where is your AUR and your average ticket these days in both Ross and dd's?

Do you see an opportunity there, and what would be the driver?

Thanks.

So Paul, this is Michael.

I will take the transaction piece.

As we mentioned in the comments, comp was driven by an increase in the basket with transactions down slightly.

The increase in the basket was mainly driven by increase in units per transaction.

But to your question on AUR, that was up slightly during the quarter.

Going forward, currently Ross is about 20% to 25% higher in terms of average AUR.

And I think, our focus is really on the price differentiation between department stores versus absolute prices.

On the home aspects, for the first quarter our home performance was well ahead of the chain.

We're making progress there, and we are making faster progress, I would say, on the parts of home that are really the more gift and functional end versus domestics.

Domestics looks like it will be the section of the business that will come on last in terms of where we were trying to improve it.

That's how I would divide it out to how it's going.

What's included in domestics?

Sheets, towels, pillows.

Got you.

Thanks guys.

Good luck.

Thanks.

Bridget Weishaar, Morningstar.

Good morning.

Congratulations on the quarter.

Just a question on SG&A.

It seemed a little bit better than expected.

Could you identify where the savings came from?

Did you pull back from any marketing, given the weather overhang, and shifting it into a different quarter?

Or was there something else in that line item?

Bridget, on the specific on marketing, no we didn't pull anything back.

We were more productive in stores in terms of some productivity initiatives that we had in place.

Michael, I don't know if there's anything else?

No, I would say it was broad-based.

I would say in this competitive environment you should expect us to be very vigilant about controlling expenses throughout the year.

And do you see more room in there that you could cut back from?

Or are you pretty close to running as lean as you can?

I would say, John mentioned, that on our long-term model is really to lever SG&A to about 3%.

I think there's a good opportunity for us to lever below that this year.

Great.

Thank you.

Lorraine Hutchinson, Bank of America.

Thank you.

Good afternoon.

Given the strength of some of your new store openings throughout the Midwest, does this give you more confidence to look at other geographies that are perhaps underpenetrated?

Yes, Lorraine.

Our geographic expansion strategy going back, way back when, has always been to, when we move into a new market to try and build out our presence in that market before we move onto another market, so to speak.

We've found that's worked well for us because there are numerous benefits and synergies that come with that in terms of building awareness, building out our operating team, et cetera.

So, I think you should expect that most of our activity for the next few years, with regard to new markets will be in that Midwest region.

Even though we're happy with the results, I don't see us jumping out of that region into other regions prematurely.

Thank you.

Oliver Chen, Citi.

Thank you.

We just had a question regarding the planning and allocation side of the business.

You've been great pioneers in micro merchandising.

What are your thoughts about what inning you're in there and if that's a potential driver?

Also just from a strategy perspective, we understand that the shipping costs are prohibitive from an online basis, but would there be a scenario in which a bigger online presence would make sense for you down the road?

Sure.

Oliver, can you just repeat your specific question on micro merchandising?

If there's a lot of opportunity in that vein going forward in terms of further tailoring the assortments on a local basis?

Sure.

So on that piece, on micro merchandising, we have had the micro merchandising processes and tools in place for about 2.5 to 3 years at this point, and we are very happy with how they've been working for us, how they've been helping us.

And I think we believe that they been a key enabler of allowing us to turn faster, in particular, and therefore many of the inventory reductions that we've achieved and we've spoken about, I think you can tie back to micro merchandising.

Now one of the things that we described early on was that the micro merchandising system we have learns from experience.

So the more years you have, the more years of accumulated data; the better it gets at projecting what sells and inventory levels we should plan to.

So yes, I think there is some incremental opportunity as we move forward.

Separately, e-commerce.

So we continue to look at e-commerce.

We run a business that has a $10 average unit retail.

And when we put together the economics currently, we think it's very hard for people to make money, not just shipping cost but return costs, processing costs, marketing costs, et cetera.

Now maybe things will change, maybe someone will innovate in some way that leads us to change our mind, but at least as we look at the data right now, it doesn't seem very compelling to us.

So, our focus is really to put our resources against our bricks-and-mortar business where we know we can be very successful.

We know we can make money, and we have plenty of opportunity ahead of us.

Okay, thanks.

And would you mind just updating us on your thoughts on the health of the consumer in terms of pressures you're seeing?

Do you feel like there's still a lot of volatility, or do you think housing has been a helper, the wealth effect, and just your thoughts on where you think sentiment is with your customer base.

We are not economists.

But what we know is the customer who is the moderate-based customer, appears to have some difficulties right now.

And so, if the word is health, they seem to have a little bit of a health problem right now.

Thank you.

Best regards.

Thank you.

Ike Boruchow, Sterne Agee.

Hi.

This is actually Tom Nikic, on for Ike.

Thanks for taking my call.

I was just wondering about the packaway inventory.

I guess we would have thought that with the disruption that sort of happened in the retail space, that maybe the packaway, as a percentage of inventory, would tick up.

But it's been sort of flat for a couple years in a row now.

I was wondering if you'd just discuss the packaway situation?

Thanks very much.

So we've been pretty happy with our packaway availability, Tom.

It does fluctuate.

It can move around.

And typically we see more packaway opportunities in the second half of the season rather than the first half of the season.

But I would say that our availability has been reasonably strong and we are pretty happy with what were seeing; that we're packing away.

And what we're seeing, we're happy in what we're seeing both in quantity and just the actual quality of what's out there these days.

Okay.

As you would expect, as mainstream retail is suffering a bit.

Thanks very much.

Kimberly Greenberger, Morgan Stanley.

Great.

Thank you.

Michael, I'm trying to just understand a little bit more your weather comment.

Maybe you could help us by dimensionalizing, perhaps, the differential between Mid-Atlantic comps and some of your warmer weather markets, not necessarily Florida because that's been the standout for a while.

But just so we can understand the magnitude of the difference.

And then did you say California was just was not sure if I heard that correctly?

Kimberly, we wouldn't talk about specifics on regionals, other than to say they are higher or lower than the chain.

But on your California question, it was in line with the chain.

Okay, California is in line with the chain.

Were the Mid-Atlantic and the Northwest areas the only areas where you feel like you had some weather impact, or there are other things going on in the Rocky Mountain region or other places that you felt also hurt your business?

I would say we had weather impact throughout many of our regions, and the Pacific Northwest was up against very strong comps.

It was our strongest performing region last year.

I'm just trying to figure out how it was that the Midwest, which had really terrible weather, was one of your best performing regions.

And is it just sort of more experience in the market, better execution on your part, that was able to overcome the weather headwind?

Or is there something else that would explain why the Midwest was quite good where the rest of the chain was hit by weather?

Kimberly, I think the Midwest is a good case example of why retailers should never blame the weather.

We mention the weather because, obviously, it was relevant in Q1.

But when we look at the Midwest, there are lots of other things that can drive your top line, certainly over the period of a quarter that can trump weather.

And I think some of the changes that we were able to make in terms of assortment certainly had that impact in the first quarter.

So I know you're trying to quantify the impact of weather, but I think it's very hard over the period of a quarter.

So an event like a single weather event, like a hurricane where a dozen stores close down, you can quantify the number, but over the whole of a quarter, the changes you can make in assortments and values you can offer in the store, can trump the weather impact.

That's what we think happened in the Midwest.

Okay.

Understood.

Thank you.

And then just looking out to your second quarter guidance, you are talking about a 1% to 2% comp.

That's in line with the guidance you gave for the first quarter.

Does that feel conservative to you, does that feel appropriate?

I'm just looking out to the second quarter, and it doesn't feel like there should be much in the way of weather impact, and I just wanted to get your feel for how you assess that view?

Kimberly, I think it feels appropriate right now in this environment.

As Michael said, the moderate consumer's having a tough time as you look out and around and hear other people report.

I think it's a pretty tough business out there.

So we feel that it's appropriately set.

Additionally, it's to be determined how the promotional environment will be, both in this quarter coming up and the rest of the year.

Okay.

Thank you.

Laura Champine, Canaccord.

Good afternoon.

Could you comment on your sell-through of seasonal women's apparel this spring versus last spring this time of year?

Laura, I don't think we'd be comfortable going down to that level of a category level with women's apparel.

I think we what we would be comfortable to say is non-apparel has performed better given the weather conditions.

And so our sell-throughs would be better in non-apparel areas than apparel areas season to date.

I guess the point of the question is, you mentioned that merchandise margin, you should get a little bit of a lift as we move through the year.

Should we expect most of that in the back half, or do we start to see it this quarter?

I think you would expect to see it even throughout from this period going forward.

Again, the point of the first quarter is we are carrying more clearance over that period so our mark-downs were higher than we had targeted.

Got it.

Thank you.

Neely Tamminga, Piper Jaffray.

Great.

Thank you.

Just a quick clarification on Q2 guidance.

Michael, are you saying that you're looking for the underlying metrics to be comparable for Q2 in terms of the number of transactions and average transaction size value, or is there a shift that we should be looking for?

We typically, Neely, we don't plan the business based on the transaction size, really the overall comp.

So based on the 1% to 2%, we'd say it's going to be somewhat consistent with what's going on with Q1, absent the weather.

Okay.

And then just a follow-up question to Laura's question, I guess.

Not necessarily wanting you guys to give all the competitive secrets away, but are you feeling good about the balance that you have in your apparel right now around active versus denim-anchored fashion looks?

Thank you.

You know something?

I think we feel relatively okay.

There are some mix issues underneath the lines, but our balance of how we're mixed across categories, we feel okay there.

Okay.

Thank you very much.

Good luck.

Thanks.

John Kernan, Cowen.

Good afternoon, guys.

Just a lot of good questions so far.

I just wanted to ask you on your real estate availability as you get pushed out of the core markets in California, Texas, and Florida, what you're seeing in terms of availability and quality of site?

We're pretty happy.

We are one of the few retailers that's opening 80, 90 stores a year.

So we are out there.

We are looking for locations.

We have a very, very strong real estate team that have got a lot of experience, and they've been able to find us some great locations over the last several years.

And we think availability continues to be good.

Obviously, part of that is being driven by other retailers who have either gone bankrupt or out of business, or retailers that have closed down a lot of locations.

So that's continuing to help us.

Are you noticing any pressure -- you're obviously co-located with a lot of retailers that have been complaining about more meaningful declines in traffic then you're seeing.

So are you worried that some of the co-location with some other stores and the lack of traffic there might be pressuring you as well?

It's who knows?

The key implication for us is in those locations to make sure that we're offering the sharpest values that we can, and then for whatever traffic is coming to that center that we get more than our fair share of it.

So is there something macroeconomic that's going on that's affecting a center or more global that we can't control?

There's not much we can do about that, but we can focus on what we can control, which is the value in the store.

Okay.

Thank you.

Roxanne Meyer, UBS.

Great.

Thanks.

Good afternoon, and congrats on a great performance in a really tough quarter.

My question is, wondering if you could comment on new store performance and how that has trended?

And then comment on the ramp to maturity of new stores, how long it takes and have you seen any changes to that ramp?

And also just comment on new store performance by classes over the last few years.

Thanks.

So, Roxanne, yes, we're pretty happy with how our new stores have been performing.

Not just in the last quarter but over the last couple of years.

In terms of new store ramp, we don't disclose the ramp, but it's been fairly consistent over time.

Obviously, when a store first opens up, there's sort of a period where it build awareness; and for us building awareness is mostly through word-of-mouth, and that just takes a little bit of time.

So after three or four years typically the stores ramps up.

Yes, that's how I would describe it.

Okay.

Great.

Thanks.

Richard Jaffe, Stifel.

Thanks very much, guys.

And given your comment earlier about the tighter inventory resulting in fewer mark-downs.

That's been a real success story for you guys.

I'm wondering if, as you mentioned, there is less opportunity there.

Should we assume inventory levels will proceed at essentially a flat level year over year on a per-square-foot basis, that there is no further pursuit to make your inventories leaner or turn more quickly?

Richard, this is John.

We have obviously taken big chunks of inventory out over the past three or four years.

We are still working at it.

We think there's some marginal benefit.

We think inventories will be down probably one or two points this year.

So we think there's still some opportunity.

Great.

Thanks very much.

There are no further questions at this time.

I will turn the call back over to the presenters.

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

Have a great day.

This concludes today's conference call.

You may now disconnect.