羅斯百貨 (ROST) 2016 Q4 法說會逐字稿

Good afternoon, and welcome to the Ross Stores fourth quarter and FY16 earnings release conference call.

The call will begin with prepared comments 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, 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 FY15 Form 10-K and FY16 Form 10-Q, and 8-Ks on file with the SEC.

Now I would like to turn the call over to Barbara Rentler, Chief Executive Officer.

Good afternoon.

Joining me on our call today are Michael Balmuth, Executive Chairman; 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, Group Senior Vice President and Chief Financial Officer; and Connie Kao, Vice President, Investor Relations.

We'll begin our call today with a review of our fourth quarter and 2016 performance, followed by our outlook for 2017.

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

As noted in today's press release, we are very pleased with our better than expected sales and earnings results for both the fourth quarter and fiscal year, especially given our strong multi-year comparisons, and the highly competitive and promotional holiday season.

Our results continue to benefit from our ability to offer customers great values on a wide assortment of gifts and fashions for the family and the home.

Earnings per share for the fourth quarter grew 17% to $0.77, on net earnings that rose 14% to $301 million.

Sales for the quarter increased 8% to $3.5 billion, with comparable store sales up 4%, on top of last year's 4% gain.

For the FY16, earnings per share grew 13% to $2.83, while net earnings rose 10% to $1.1 billion.

Sales grew 8% to $12.9 billion, with comparable sales up 4%, on top of a 4% gain in 2015.

dd's Discounts customers also responded positively to its merchandise assortments, which led to solid growth in sales and operating profit at dd's for both the quarter and FY16.

For the fourth quarter, shoes and men's were the best performing merchandise categories at Ross, while the Midwest and Southeast were the strongest regions.

Our fourth quarter operating margin of 13.6%, was up 90 basis points from last year.

This improvement was mainly driven by our above plan sales, along with a favorable comparison of packaway-related costs versus last year's fourth quarter.

For the full year, operating margin increased 40 basis points to a new record of 14%.

As we ended 2016, total consolidated inventories were up 7% over the prior year, with packaway levels at 49% of total inventory, compared to 47% last year.

Average in-store inventories were up slightly at year end.

As noted in today's press release, our Board authorized a new program to repurchase $1.75 billion of our common stock over the next two fiscal years.

This represents a 25% increase over the prior two year $1.4 billion authorization that was completed at the end of the fourth quarter.

The Board also approved an increase in the quarterly cash dividend to $0.16 per share, up 19% on top of a 15% increase in the prior year.

The continued growth of our shareholder payouts reflect our ongoing confidence in the Company's ability to generate significant amounts of cash, after funding our growth and the other capital needs of our business.

We have repurchased stock as planned every year since 1993, and raised our cash dividend annually since its inception in 1994.

This consistent record also reflects our unwavering commitment to enhancing stockholder value and returns.

Now Michael Hartshorn will provide further color on our 2016 results, and details on our FY17 full year and first quarter guidance.

Thank you, Barbara.

Let's start with our fourth quarter results.

Our 4% comparable store sales gain was driven by a combination of higher traffic, and an increase in the size of the average basket.

As Barbara mentioned, fourth quarter operating margin increased 90 basis points to 13.6%.

Cost of goods sold improved by 110 basis points in the quarter, driven primarily by 65 basis points of lower distribution expenses, mainly from the timing of packaway-related costs that negatively impacted last year's fourth quarter.

Merchandise margin improved by 15 basis points, while buying and occupancy costs were lower by 40 and 5 basis points, respectively.

These improvements were partially offset by a 15 basis point increase in freight costs.

Selling, general, and administrative expenses during the period increased approximately 20 basis points due mainly to higher wages.

Turning to our stock buyback program, during the fourth quarter, we repurchased 2.6 million shares for a total purchase price of $170 million, which completed our previous two year $1.4 billion stock repurchase program.

For the year, we repurchased a total of 11.6 million shares for an aggregate price of $700 million.

Let's turn now to our guidance for 2017.

Earnings per share for FY17 are forecast to be $3.02 to $3.15, up 7% to 11% from $2.83 in FY16 Incorporated in this guidance range is an estimated benefit to earnings per share of approximately $0.08 from the 53rd week in 2017, and $0.03 in a lower tax rate related to our adoption of the new share-based payment accounting standard.

The operating statement assumptions for FY17 include the following.

Total sales for the 53 weeks ending February 3, 2018 are forecast to grow 6% to 7%.

Comparable store sales on a 52 week basis ending January 27, 2018 are expected to increase 1% to 2%, on top of a 4% gain in 2016.

We plan to add about 70 Ross and 20 dd's Discounts locations.

As usual, these numbers do not reflect our plans to close or relocate about 10 older stores.

If same-store sales are in line with our guidance of up 1% to 2%, then we would project operating margin for 2017 to be in the range of 13.9% to 14.1%.

This EBIT margin range assumes merchandise margin for 2017 will be relatively flat, on top of strong growth over the past several years.

Also incorporated in this operating margin guidance is an estimated benefit of about 15 basis points from the 53rd week.

Net interest expense is estimated to be $13 million.

Our tax rate is projected to be approximately 37% to 38%.

We expect average diluted shares outstanding to be about 386 million.

Capital expenditures in 2017 are projected to be approximately $400 million, and depreciation and amortization expense inclusive of stock-based amortization is forecast to be about $400 million, up from $377 million in 2016.

Let's move now to our first quarter guidance.

For the 13 weeks ending April 29, 2017, we are projecting same-store sales to be up 1% to 2%.

Earnings per share for the period are forecast to be $0.76 to $0.79.

Included in this guidance is an estimated $0.02 benefit from a lower tax rate, related to the aforementioned adoption of the new share-based payment accounting standard.

Other assumptions that support our first quarter guidance include the following.

Total sales are projected to increase 4% to 5%.

We expect to open 23 new Ross and 5 dd's Discounts locations during the quarter.

First quarter operating margin is projected to be 14.7% to 14.9%, compared to last year's 15.4%.

The forecasted decline in EBIT is mainly due to higher wage and freight costs.

In addition, net interest expense for the quarter is estimated to be about $3.5 million.

Our tax rate is expected to be approximately 36% to 37%, resulting from the previously mentioned accounting change.

And finally, weighted average diluted shares outstanding are projected to be around 390 million.

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

Thank you, Michael.

Again, we are very pleased with our better than expected financial performance, for both the fourth quarter and fiscal year.

As previously mentioned, this is notable, considering our own robust sales and earnings growth over the past several years, and the ongoing competitive retail climate.

As we look ahead to 2017, there continues to be a great deal of uncertainty in the political, macroeconomic and retail climate.

In addition, we face tough prior year sales and earnings comparisons.

As a result, while we hope to do better, we believe it is prudent to remain somewhat cautious in planning our business for the coming year.

Nevertheless, we are confident that the off-price sector will remain a strong performing segment of retail, especially given consumer's continued focus on value.

This combined with our proven ability to deliver exceptional values our customers have come to expect, makes us optimistic about our prospects for future growth.

As a result, over the longer term, we continue to believe we can achieve average annual earnings per share gains in the low double-digit percentage range.

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

(Operator Instructions)

Kimberly Greenberger, Morgan Stanley.

Okay, great.

Thank you so much.

Congratulations on a really terrific finish to a great year.

I'm wondering, Michael, I think you mentioned that inventory at the end of the fourth quarter in-store is up slightly.

That seems to be -- I think over the last several quarters, in the last several years, it was down slightly.

It seems like maybe you're getting to the point, where inventory is turning about as fast as it can turn in-store.

And so, now you're maybe looking a little bit more at stable inventory to up slightly.

Is it a change in strategy, or is there something going on with the timing?

And then, if you might comment, you obviously can choose not to, but if you saw any sort of softness in -- I think there was a delay in tax return payments.

It seems to be affecting some retailers, and let's say, the second and third week of February, did you see any kind of mid month softness?

And if so, have you seen a reacceleration since then?

Thanks so much.

Sure, Kimberly.

On inventory, I think at the end of the year, it's timing.

As you know, we reduced inventory by over 40%, over the last number of years.

I think our perspective is at this point, that we would expect stable inventories going forward.

There is not additional room for improvement in that strategy or process.

So I think, as we look forward to 2017, we would expect our in-store inventory levels to be relatively flat year-over-year.

In terms of tax refunds, it's been our practice not to comment on inter-quarter trends.

Okay.

Thanks so much, Michael.

Omar Saad, Evercore ISI.

Thanks, good afternoon, great quarter, a great year.

I wanted to see if I can get you to give a little bit more color on the comment, you made around merchandise margins?

It sounded like you think they're going to flatten out a little bit this year, after some nice expansion over the recent years.

Is there something going on in the mix dynamic there?

It sounds like basket is still rising, but I'm not sure about unit prices.

But would love any detail, as to how you're thinking about the evolution of the merch margin, as a component for gross margin?

Sure, Omar.

As we said in our comments, the planning assumption going into the year, that they'd be relatively flat.

And that's very simply based on anniversarying many years of strong merchandise margin gains, as well as what we believe to be an ongoing challenging and promotional retail environment.

Okay, great.

And then, can I ask about the home category -- you're seeing a lot of retailers really going after this category, it's a big and important category for you guys too, of course.

But are you seeing any changes in the dynamics around that part of the business, or do you still feel that it's a key component of the growth strategy going forward?

Thanks.

Sure.

I think home is definitely a very important category for us, and has been an important category in all of this year.

But what I would also add to that, and we feel good about home, but what I would also add to that, is we believe that we have growth opportunities beyond home throughout the rest of our business.

Thank you very much.

Good luck in 2017.

Thank you.

Laura Champine, Roe Equity Research.

Good afternoon.

There's obviously a lot of speculation about a potential tax or tariff on imports.

What is your thinking on that, and what would your strategy be, if something like that were to be rolled out?

Sure, Laura, for us direct imports, comprise a very small portion of our overall business.

I'd say, it's still too early to speculate on what specific tax policies will actually get enacted.

But we'll continue to watch it closely.

For us, volatility has historically been a good thing for off-price.

Got it.

Thank you.

Lorraine Hutchinson, Bank of America.

Thank you.

Good afternoon.

You called out a couple of pressures for first quarter margins, freight and wages.

Can you expand on that, and just talk a little bit about how you see that playing out through the year?

What the drivers are, and how big of an impact they'll have on earnings?

Thank you.

Sure.

So we said, in the commentary that EBIT is planned down 50 to 70 basis points.

For us, if sales perform in line with 1% to 2% comp, we would lose some leverage on fixed costs.

In addition, we expect wages to be a greater headwind in the first half of the year, than the back half, as we raised wages in the middle of 2016.

And then further, we expect freight costs to be a headwind in 2017, as we have seen higher carrier rates.

In terms of the full year guidance, stripping out the 53rd week, and the impact of the accounting change, we're guiding up 3% to 7% on a 1% to 2% comp, but that's very consistent to how we guided previous years.

That, with the 53rd week included, shows EBIT margin relatively flat, and then without the 53rd week, it's down slightly.

Thank you.

Michael Binetti, UBS.

Hey, guys, let me add my congrats on a great quarter, and to a great year.

Can we talk a little bit about how you're thinking about the year, and maybe even -- maybe just in the front half, as far as near-term planning?

We've got the department stores who seem to be focused on lowering markdown levels in their stores, and are certainly buying inventories lighter.

We did hear from a big competitor, Target, today talking about getting much more aggressive on pricing, I think, including categories where you guys would overlap.

So how do you think about your competitive positioning here, and how you think about relative pricing spreads strategy in the near-term, given some diverging strategies in the marketplace?

Sure.

I think the way we think about pricing is the way, we always think about pricing.

We go out, and we look at the competitive market, and we see what's out there.

And we're in the value business, so our job is to make sure that the merchants are out there, understanding the pricing and buying, so that we keep that value differential.

So that is part of their ongoing job, the way they do it in the fourth quarter.

We've been in this promotional, highly promotional environment for an extended period of time.

So Target is kind of an addition into the picture.

But that is what we do every day for a living.

And so, going in with a conservative sales plan, gives us the ability to chase back.

And when we are chasing back, we're chasing back at values that we know are competitive to the outside world.

Great.

And then I think one thing that's been a little bit more noticeable, I guess, from the public companies that are brands, that sell into the department stores, there seems to be a fairly urgent focus on getting inventories down, and getting in front of a couple of years of quite a bit of excess.

If we see that those brands do what they're planning, and start reducing the inventories that they bring into the country, how do you think about -- obviously, in the near-term, you always say there's good supply in the channel, but is there anything you should be thinking about longer term, if the inventory availability were to tighten up on a strategic basis, more medium or longer term for -- from those retailers?

First, let me start -- so first, on the short-term, in terms of as people tighten up on their supply, whether it's the vendors, or in department stores, supply comes from a struggle with full line retailers forecasting their sales.

So in the shorter-term, that's where a lot of goods come from, store closures, Penney's closed stores, Sears closed stores.

So in the short-term, that's where the supply comes from.

In the longer term, as we think about supply, when we speculate about everything that could happen, with a lot of changes that are going on out there.

We're always studying the retail landscape, and how that might change, and we are looking at that constantly.

We don't see near-term supply issues, in the next two to three years.

So that's kind of how we're looking at supply at this moment in time, and over time, we may need to be more creative in terms of supply, but that's how we look at it today.

And over the longer term, over the longer term, one of the things you've heard us talk about in the past, is investing in our merchant organization.

That's something we plan to continue to do.

We regard that, as frankly the best defense, the best strategic asset for long-term success in the off-price sector.

Okay.

Thanks a lot.

Matthew Boss, JPMorgan.

Thanks.

On the SG&A front, is expense leverage possible this year at 3% same-store sales, or do we need to think about that higher fixed costs hurdle this year, just given the wages.

Just any other investments to consider, or headwinds in the SG&A line?

Sure.

Matthew, so for SG&A, in 2016, the costs were up about 15 basis points, obviously that was slightly above our 3% leverage point.

That said, we were obviously pleased with our overall operating margin expansion.

Our guidance for 2017 projects SG&A to leverage at about the 3% leverage point, which is consistent with our historical levels.

Great.

Best of luck.

Simeon Siegel, Nomura Instinet.

Thanks, good afternoon.

Do you know, and could you share roughly what percent of your traffic increases come from new customers versus repeat visits?

And maybe what's your average -- your shopper's average trips per year, how does that look now, versus the past several years?

Yes, it's hard to break that out, Simeon.

We do regular customer research, where we try and identify existing customers, versus new customers, but it gets pretty murky, in terms of if someone had shopped off-price a couple of years ago, do they still count as an existing customer, or are they a new customer?

The one thing we take from the research is that -- what the new customers and the existing customers are both looking for, is the same set of things.

It's the same set of what -- basically, great values.

But in terms of splitting them out like that, that's a little more difficult to answer that question.

Okay, great.

And then, just you ended the year with such meaningfully higher cash, recognizing the authorization, the quarterly dividend, any other uses of cash we should consider, or just -- do we assume the growing cash continues to flow to the dividends and repurchases?

And do you guys have a target payout ratio you could share?

Yes, I mean, I would answer generally, to say we have a long history of delivering excess cash to shareholders, and we've done that in a planned and deliberate fashion.

So anytime we look at the deployment of cash, we're looking at it over a longer period.

But that process is, at the same time of maintaining a very strong balance sheet.

So I would not expect that to change going forward, and the significant increases in our dividend, and share buyback programs announced today reflect that commitment.

Great.

Thanks a lot.

Best of luck for the year.

Thank you.

Brian Tunick, RBC.

Thanks, good afternoon, and I'll add my congrats as well.

I guess, two questions.

Curious, I guess, Barbara on the merchandise categories, I know certainly here in Q1, from last year, there was some noise around some of the Missy and sportswear products.

Can you maybe talk about -- do you think there's a great opportunity here, in the first quarter to course-correct some of the issues last year, even though we have a later Easter?

And then second question on store plans for 2017, can you maybe discuss, are you guys planning to enter new markets, both for Ross and dd's and how we should be thinking about the rollout from a geographic perspective?

Thanks very much.

Sure.

I'll take the first part, on ladies sportswear.

We feel like in 2016, we made progress in improving our assortment, and we believe that we've made the right adjustments for our ladies merchandising strategy, and that will take us to even further improvement in 2017.

While I'm -- (multiple speakers)

Go ahead.

On the store plans, Brian, our store plans, for new stores this year, are very much in line with the last few years, 80 to 90 new stores a year.

In terms of new markets, as we categorize it, the Midwest for some years now, has been our major new market, major new region.

And that continues to be how, we think about new markets.

There's no additional new markets, outside the Midwest that we're planning to move into.

And same for dd's?

That's right.

Paul Lejuez, Citi.

Hey, thanks, guys.

We saw a bunch of Macy's stores close, about a year ago, the 40 stores.

Just curious if you track how your stores in those markets have performed?

And separately, if you could just talk about what were your weaker regions and categories in the fourth quarter?

Thanks.

I'll start with the regional performance, Paul.

As we mentioned, the Midwest and Southeast were strongest, the Midwest obviously has been a very strong region for us, as the best performing category over the last three years or so.

Southeast likely benefited from favorable weather.

I'd call out other major markets, California was in line.

Texas performed below the chain average in Q4.

For us, beyond the possible impact of the oil industry, we believe there were other factors that impacted the region, including the stronger dollar, as well as negative weather during the quarter.

And Paul, on your question about store closures, I think it's difficult to respond to specifically.

Macy's, the example that you gave, specifically how that affected our stores, there's just too much noise to pick out the impact of those individual store closures.

What I would say though is, in general with store closures, competitive store closures, there is a short-term effect which is, as that competitive store is doing a going out of business sale, that can impact our business negatively, for the weeks that that's happening.

And then obviously, once that store is closed, there is one less competitor in the market.

So in general, it tends to be a good thing for us, in the medium to long-term.

Thanks, guys.

Good luck.

Oliver Chen, Cowen and Company.

Thanks.

Congrats on great results.

Regarding this new stores, are there any thoughts on how the store of the future looks, versus your existing store base?

And also, as you just continue to have a great store base, what are your thought for remodels, or how you continue to edit your existing stores?

And any in-store initiatives, whether that be the cash wrap, the dressing room, or managing shrink to your liking, in terms of what we should think about for next year?

Sure.

So Oliver, in terms of how we think about our stores.

We think about our stores very much, in terms of the sort of evolution, rather than a revolution.

We look at different parts of the store, and we look at opportunities, particularly in areas that are growing, or categories that are growing very rapidly, to maybe give them more room within the store.

Maybe give them new fixtures and that kind of thing.

We also look at opportunities to update other aspects of the store, whether it's the front end/or signage.

But we do those on an evolutionary basis, so it's not something that really happens overnight.

There are individual initiatives obviously, that roll out from year-to-year, but nothing dramatic that I would call your attention to at this point.

Okay.

And on the accessories front here, have you been pleased with the execution, and are there opportunities?

Or where do you think that category is heading, with respect to what your buyers are seeing versus consumer demand?

Our accessory business continues to be difficult, it trailed the chain in the fourth quarter.

In terms of what we see, in the outside world, accessories is really driven by handbags, and handbags tend to be a weaker business in the outside world.

Thank you very much.

Best regards.

Adrienne Yih, Wolfe Research.

Good afternoon.

Let me add my congratulations.

My question is on packaway.

I was wondering, if you had any notable advantage from buying opportunistically last year, either in margin or in helping comp.

And then, what is your open to buy, in season open to buy for the spring season?

Thank you very much.

In general, in packaway, we see it as a sales driver, and not a margin driver.

So that's the way I'd think about it.

And in terms of spring, we're well-positioned to take advantage of packaway opportunities.

Okay.

Thank you very much.

Ike Boruchow, Wells Fargo.

Hi, everyone, let me add my congrats.

Just to piggyback on Tunick's question that he asked, can you maybe update us on how the merchants are buying within the ladies apparel category right now?

I think I remember, you had talked about merchants, taking a more conservative buying approach, after the spring execution issues last year.

So just trying to figure out, are we back to normal at this point, within that category, or still not quite yet?

In terms of our buying approach, I guess, I would say back to normal, whatever you are defining back to normal as.

The merchants are out there, shopping the market, and buying it the way they see it.

So I guess, if that's how you're defining back to normal, that would be true.

Thanks.

Roxanne Meyer, MKM Partners.

Great, thanks.

And let me add my congratulations as well.

My question is on CapEx this year.

I'm just wondering, aside from new stores and relocations, if there are any major projects that are being earmarked?

And then, in terms of the comp, the average transaction size being up, if you could break it down between AUR and units?

Thanks.

Sure, Roxanne.

On CapEx, so we're guiding it about $400 million.

That's higher than 2016, which was the lowest level since 2011, so that was lower than normal.

In terms of the breakout of the $400 million, about 30% is new stores, 30% is for store refreshes and maintenance capital, 15% for supply chain investments, and 25% for call it, technology and other G&A capital.

In terms of the components of sales, as we mentioned in our prepared remarks, the 4% comp was driven by higher traffic, and an increase in the size of the average basket.

The higher basket was driven by higher units per transaction, with AUR down slightly compared to last year.

Okay, great.

Thanks a lot.

Bob Drbul, Guggenheim Securities.

Hi, good afternoon.

I was just wondering if you can expand on the success you've seen, in the most recent quarter in the footwear business?

And with some of the store closures of competitors out there, are you seeing more willingness for brands that haven't sold you significantly, in the past to be a little bit more open with availability for you?

Sure.

As it pertains to the footwear business, similar to our last two prior quarters, our shoe performance was very broad-based.

In terms of the marketplace, and competitors being open to selling us, I think we've shown over the years that we have really good vendor relationships.

And I would say, that most brands are open to doing business with us.

Yes, they're open to doing business with us.

Great.

Thank you.

Mike Baker, Deutsche Bank.

Mike Baker, your line is open.

Hello.

Hello, hi, it's Mike.

Can you hear me?

Hello?

Yes, we can hear you.

Sorry.

I completely messed that up, my fault.

Anyway, I was going to ask you about the buying environment.

And a number of relatively high profile vendors have sort of said, they're not as open to selling to off-price as much as they were in the past.

And I don't need to go down the list, but I'm sure you guys have heard the public comments from some big public vendors.

So how does that impact you?

I mean, have you frankly, seen some of these vendors pull back already to selling to you guys?

And does that change the way you think about going to market in the future?

It's actually been a very positive buying environment.

With the difficult fourth quarter, obviously there is supply in the marketplace.

So I would say that overall high profile or broad-based, all the way through moderate vendors, there's still been a willingness for people to sell us merchandise.

But is there a concern that, as you go through the year, that slows down, when you have all these vendors saying publicly, that they just don't want to sell as much to off-price?

I think -- I'm sorry, go ahead, Michael.

That's always a concern.

We are always concerned about supply.

But I think, one point Barbara had made, a little bit, a little while ago is, that what really drives supply is other retailers and their inability to forecast their own sales.

If they are not able to forecast their own sales, that tends to means there is greater supply availability.

Yes.

Okay, understood.

If I can ask one more follow up?

Easter is three weeks later this year, historically that tended to help you guys, as people have a longer season in which to buy Easter-related products?

Mike, I think historically weather has had a more meaningful impact on performance during the first quarter, than the timing of Easter, which is what we've seen in the past.

Okay.

Thanks a lot.

Marni Shapiro, Retail Tracker.

Hello, everybody.

Congratulations on a great holiday, and a great year.

I'm curious -- I know online is not a conversation for you as far as sales, but you do have sign ups online, and customers that are coming into your store.

So I'm curious, are seeing a growing file of people signing up online, or even in stores?

And what are you doing with these lists, and are you considering any kind of consumer outreach or anything like that, beyond just emails?

So Marni, we do have a database of customer emails.

We do use that for some of our marketing activities.

But more broadly beyond that, we also, over the last few years have been experimenting with other forms of online marketing, whether it's direct online advertising, or social media marketing.

So that's how we think about it.

There has been -- we have been investing more, in those media channels over the last few years, and that's driven a lot of the growth, and a lot of the customers sign up.

But it's really a marketing activity, rather than a sort of in any -- it's not teeing up e-commerce in any way, it's really about marketing.

That makes sense.

And are you guys finding any change in the hiring landscape out there, as some of the department stores try to be off-pricers?

I'm saying try, with all seriousness.

I don't think they're excelling at it.

So I'll let Barbara answer on the merchant side, on the operating side, no, no impact at all.

Are you trying to ask me if they're trying to steal our people, Marni?

Kind of.

(laughter) (multiple speakers) Or are you having to pay more -- or are you finding it more difficult to find people?

Listen, I think we have a very strong merchant team.

I think we have -- Ross has a great culture.

We have a lot of long-tenured employees.

And I think that, in terms of the retail landscape and hiring people, they're obviously a lot of people out there, that are now looking for jobs.

And so, we're kind of sorting our way through that.

I think -- listen, it's a very competitive market for talent, and I think people do look to try to steal our talent, but we do run pretty low turnover rates.

And I think Ross -- I can't be objective here -- I think Ross is a great place to work.

Yes, so hopefully that answers your question.

That does.

Thank you very much.

Lindsay Drucker Mann, Goldman Sachs.

Thanks.

Good afternoon, everyone.

I wanted to ask on wages, on the wage inflation you called out for calendar 2017.

Is the majority of that from mandated minimum wage increases, or are there any other factors at play?

So Lindsay, last year, we took our wages across the board in the Company up to $10 an hour, based on tenure.

Obviously, it includes mandated minimum wages, and our upcoming guidance takes into consideration the mandates that we're aware of today.

Is there anything incremental that you guys expect outside of mandated increases, in terms of your own efforts to raise wages?

Not at this point.

Okay.

And then, Barbara, in your comments you refer a couple of times, to the really intense competitive environment.

And I was just curious, I think that you've oftentimes, and the environment often has been competitive.

Is your characterization of the competitive environment today, any different than what you might have described it in the past?

In other words, is it any more competitive, or any worse than what you're used to seeing?

I think the competitive environment, for the last two years has been pretty intense.

I might -- I don't foresee that going away.

I think that's kind of what business is about now.

And I think that's built into how you have to think about your business, and how we think about our business, and how we think about our values, and how we chase our business.

But I think it's been competitive for a long time, and I think that's now the new norm of business as usual.

Great.

Thanks, guys.

Dana Telsey, Telsey Advisory Group.

Good afternoon, everyone, and congratulations.

As you think about the store footprint, the Ross Stores and dd's, are you seeing -- changing anything in terms of size of stores?

And what's happening on the occupancy cost front, percentage rents, versus fixed rents?

And then, just as you think about new store openings, and the annualized new store opening rate, has anything changed there?

Thank you.

I'll take the first part.

Over the last 10 years, we've decreased the size of our stores by about 15%.

And the decrease is really just based on a reduction of inventory that we've seen over the years.

Today as we go out, and look for new stores, we right-size them, based on the market, and demographics, et cetera.

On the other part of your question, Dana, I would say that occupancy costs are fairly stable at this point.

There's good availability, in terms of locations, the rents are pretty stable.

And our new store opening rate is about -- we add about 6% more stores every year.

On the base of stores, we have, we opened 80 to 90 stores which is about [6%] increase each year.

And I would expect that we'll stay more or less at that level for the next year.

Thank you.

David Glick, Buckingham.

Thank you.

Most of my questions been answered.

I have just a quick follow up there.

dd's is approaching 200 stores.

And when you look at the mix of stores that you opened, are you at the point where that's a part of your business that you may want to accelerate the store opening rate?

Thank you.

We're, as Barbara said in her remarks, we were very happy with dd's performance in Q4.

And for the full year 2016, it turned in a very solid sales and profit performance.

And actually over a longer period of time, we've been pleased with that business.

But we've always been fairly deliberate about how we roll out and grow our businesses.

This was true with Ross, and it's also true with dd's, that on base of about 200 stores, we feel pretty comfortable being able to open 20-ish, 21, 22 stores.

I think it's unlikely, that we would accelerate that.

I think there are constraints, in terms of being able to do that in a high quality way, whether it's real estate locations or building the operational team.

We prefer to open and roll out dd's in a much more deliberate way.

Yes.

Thank you very much.

Good luck.

Christian Buss, Credit Suisse.

Christian Buss, your line is open.

And there are no further questions at this time.

I will turn the call back over to Barbara Rentler for closing remarks.

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.