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Published: 2022-12-06 17:52:45 ET
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark one)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 2022
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number:0-14678
Ross Stores, Inc.
(Exact name of registrant as specified in its charter)
Delaware94-1390387
(State or other jurisdiction of incorporation or(I.R.S. Employer Identification No.)
organization)
 
 5130 Hacienda Drive, Dublin,
California
94568-7579
(Address of principal executive offices)(Zip Code)
 
Registrant’s telephone number, including area code(925)965-4400

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common stock,par value $.01ROSTNASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý     Accelerated filer o Non-accelerated filer o Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

The number of shares of Common Stock, with $.01 par value, outstanding on November 11, 2022 was 344,371,009.
1

Ross Stores, Inc.
Form 10-Q
Table of Contents
Page
Item 1.
Condensed Consolidated Statements of Earnings–Three and nine months ended October 29, 2022 and October 30, 2021
Condensed Consolidated Statements of Comprehensive Income–Three and nine months ended October 29, 2022 and October 30, 2021
Condensed Consolidated Balance Sheets–October 29, 2022, January 29, 2022, and October 30, 2021
Condensed Consolidated Statements of Cash Flows–Nine months ended October 29, 2022 and October 30, 2021
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Statements of Earnings
Three Months EndedNine Months Ended
($000, except stores and per share data, unaudited)October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Sales$4,565,489 $4,574,541 $13,481,598 $13,895,595 
Costs and Expenses
Cost of goods sold3,424,046 3,326,004 10,020,027 9,935,271 
Selling, general and administrative693,367 725,761 2,029,926 2,118,602 
Interest (income) expense, net(2,802)18,744 25,561 56,500 
Total costs and expenses4,114,611 4,070,509 12,075,514 12,110,373 
Earnings before taxes450,878 504,032 1,406,084 1,785,222 
Provision for taxes on earnings108,842 119,002 341,086 429,455 
Net earnings$342,036 $385,030 $1,064,998 $1,355,767 
Earnings per share
Basic$1.00 $1.10 $3.09 $3.85 
Diluted$1.00 $1.09 $3.08 $3.82 
Weighted-average shares outstanding (000)
Basic342,120 351,071 344,686 352,308 
Diluted343,720 353,081 346,212 354,477 
Store count at end of period2,019 1,924 2,019 1,924 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

Condensed Consolidated Statements of Comprehensive Income
Three Months EndedNine Months Ended
($000, unaudited)October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Net earnings$342,036 $385,030 $1,064,998 $1,355,767 
Other comprehensive income— — — — 
Comprehensive income
$342,036 $385,030 $1,064,998 $1,355,767 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Condensed Consolidated Balance Sheets
($000, except share data, unaudited)October 29, 2022January 29, 2022October 30, 2021
Assets
Current Assets
Cash and cash equivalents$3,906,490 $4,922,365 $5,259,595 
Accounts receivable168,483 119,247 158,765 
Merchandise inventory2,494,002 2,262,273 2,231,242 
Prepaid expenses and other192,214 169,291 195,309 
Total current assets6,761,189 7,473,176 7,844,911 
Property and Equipment
Land and buildings1,491,927 1,240,246 1,194,125 
Fixtures and equipment3,882,127 3,425,762 3,357,986 
Leasehold improvements1,402,653 1,332,687 1,317,979 
Construction-in-progress171,185 574,333 506,903 
  6,947,892 6,573,028 6,376,993 
Less accumulated depreciation and amortization3,939,154 3,674,501 3,592,707 
Property and equipment, net3,008,738 2,898,527 2,784,286 
Operating lease assets3,101,882 3,027,272 3,032,175 
Other long-term assets228,286 241,281 254,362 
Total assets$13,100,095 $13,640,256 $13,915,734 
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable$1,927,757 $2,372,302 $2,652,881 
Accrued expenses and other616,753 613,089 625,426 
Current operating lease liabilities656,837 630,517 620,675 
Accrued payroll and benefits251,479 588,772 512,336 
Income taxes payable11,404 10,249 — 
Current portion of long-term debt— — 64,991 
Total current liabilities3,464,230 4,214,929 4,476,309 
Long-term debt2,455,460 2,452,325 2,451,283 
Non-current operating lease liabilities2,596,221 2,539,297 2,551,162 
Other long-term liabilities223,162 236,013 296,819 
Deferred income taxes214,022 137,642 156,944 
Commitments and contingencies
Stockholders’ Equity
Common stock, par value $.01 per share
   Authorized 1,000,000,000 shares
   Issued and outstanding 344,808,000, 351,720,000
   and 353,694,000 shares, respectively
3,448 3,517 3,537 
Additional paid-in capital1,793,265 1,717,530 1,681,802 
Treasury stock(581,267)(535,895)(535,642)
Retained earnings2,931,554 2,874,898 2,833,520 
Total stockholders’ equity4,147,000 4,060,050 3,983,217 
Total liabilities and stockholders’ equity$13,100,095 $13,640,256 $13,915,734 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Condensed Consolidated Statements of Stockholders’ Equity
Nine Months Ended October 29, 2022
Common stockAdditional
paid-in
capital		Treasury
stock		Retained
earnings
(000)Shares  AmountTotal
Balance at January 29, 2022351,720 $3,517 $1,717,530 $(535,895)$2,874,898 $4,060,050 
Net earnings— — — — 338,445 338,445 
Common stock issued under stock
plans, net of shares
used for tax withholding1,131 11 5,906 (38,113)— (32,196)
Stock-based compensation— — 36,071 — — 36,071 
Common stock repurchased(2,524)(25)(10,266)— (229,274)(239,565)
Dividends declared ($0.310 per share)
— — — — (108,908)(108,908)
Balance at April 30, 2022350,327 $3,503 $1,749,241 $(574,008)$2,875,161 $4,053,897 
Net earnings— — — — 384,517 384,517 
Common stock issued under stock
plans, net of shares
used for tax withholding153 1 5,974 (521)— 5,454 
Stock-based compensation— — 26,803 — — 26,803 
Common stock repurchased(2,928)(29)(12,594)— (222,812)(235,435)
Dividends declared ($0.310 per share)
— — — — (108,285)(108,285)
Balance at July 30, 2022347,552 $3,475 $1,769,424 $(574,529)$2,928,581 $4,126,951 
Net earnings— — — — 342,036 342,036 
Common stock issued under stock
plans, net of shares
used for tax withholding47 1 6,405 (6,738)— (332)
Stock-based compensation— — 29,493 — — 29,493 
Common stock repurchased(2,791)(28)(12,057)— (231,608)(243,693)
Dividends declared ($0.310 per share)
— — — — (107,455)(107,455)
Balance at October 29, 2022344,808 $3,448 $1,793,265 $(581,267)$2,931,554 $4,147,000 
The accompanying notes are an integral part of these condensed consolidated financial statements.


6

Condensed Consolidated Statements of Stockholders’ Equity
Nine Months Ended October 30, 2021
Common stockAdditional
paid-in
capital		Treasury
stock		Retained
earnings
(000)Shares  AmountTotal
Balance at January 30, 2021356,503 $3,565 $1,579,824 $(478,550)$2,185,801 $3,290,640 
Net earnings— — — — 476,479 476,479 
Common stock issued under stock
plans, net of shares
used for tax withholding614 6 6,057 (47,378)— (41,315)
Stock-based compensation— — 28,674 — — 28,674 
Dividends declared ($0.285 per share)
— — — — (101,657)(101,657)
Balance at May 01, 2021357,117 $3,571 $1,614,555 $(525,928)$2,560,623 $3,652,821 
Net earnings— — — — 494,258 494,258 
Common stock issued under stock
plans, net of shares
used for tax withholding30 — 6,471 (1,637)— 4,834 
Stock-based compensation— — 29,584 — — 29,584 
Common stock repurchased(1,449)(14)(5,492)— (170,278)(175,784)
Dividends declared ($0.285 per share)
— — — — (101,727)(101,727)
Balance at July 31, 2021355,698 $3,557 $1,645,118 $(527,565)$2,782,876 $3,903,986 
Net earnings— — — — 385,030 385,030 
Common stock issued under stock
plans, net of shares
used for tax withholding97 1 6,091 (8,077)— (1,985)
Stock-based compensation— — 38,517 — — 38,517 
Common stock repurchased(2,101)(21)(7,924)— (233,250)(241,195)
Dividends declared ($0.285 per share)
— — — — (101,136)(101,136)
Balance at October 30, 2021353,694 $3,537 $1,681,802 $(535,642)$2,833,520 $3,983,217 
The accompanying notes are an integral part of these condensed consolidated financial statements.




7

Condensed Consolidated Statements of Cash Flows
Nine Months Ended
($000, unaudited)October 29, 2022October 30, 2021
Cash Flows From Operating Activities
Net earnings$1,064,998 $1,355,767 
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization290,565 262,139 
Stock-based compensation92,367 96,775 
Deferred income taxes76,380 35,077 
Change in assets and liabilities:
Merchandise inventory(231,729)(722,260)
Other current assets(72,079)(50,139)
Accounts payable(452,968)422,277 
Other current liabilities(308,202)160,984 
Income taxes3,397 (60,442)
Operating lease assets and liabilities, net8,634 4,767 
Other long-term, net1,304 (1,292)
Net cash provided by operating activities472,667 1,503,653 
Cash Flows From Investing Activities
Additions to property and equipment(417,901)(377,916)
Net cash used in investing activities(417,901)(377,916)
Cash Flows From Financing Activities
Issuance of common stock related to stock plans18,298 18,626 
Treasury stock purchased(45,372)(57,092)
Repurchase of common stock(718,693)(416,979)
Dividends paid(324,648)(304,520)
Net cash used in financing activities(1,070,415)(759,965)
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents(1,015,649)365,772 
Cash, cash equivalents, and restricted cash and cash equivalents:
Beginning of period4,982,382 4,953,769 
End of period$3,966,733 $5,319,541 
Supplemental Cash Flow Disclosures
Interest paid$80,316 $82,209 
Income taxes paid $261,309 $454,821 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

Notes to Condensed Consolidated Financial Statements

Three and Nine Months Ended October 29, 2022 and October 30, 2021
(Unaudited)

Note A: Summary of Significant Accounting Policies

Basis of presentation. The accompanying unaudited interim condensed consolidated financial statements have been prepared from the records of Ross Stores, Inc. and subsidiaries (the “Company”) without audit and, in the opinion of management, include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the Company’s financial position as of October 29, 2022 and October 30, 2021, the results of operations, comprehensive income, and stockholders’ equity for the three and nine month periods ended October 29, 2022 and October 30, 2021, and cash flows for the nine month periods ended October 29, 2022 and October 30, 2021. The Condensed Consolidated Balance Sheet as of January 29, 2022, presented herein, has been derived from the Company’s audited consolidated financial statements for the fiscal year then ended.

Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted for purposes of these interim condensed consolidated financial statements. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, contained in the Company’s Annual Report on Form 10-K for the year ended January 29, 2022.

The results of operations, comprehensive income, and stockholders’ equity for the three and nine month periods ended October 29, 2022 and October 30, 2021, and cash flows for the nine month periods ended October 29, 2022 and October 30, 2021 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

Use of accounting estimates. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company’s significant accounting estimates include valuation reserves for inventory, packaway and other inventory carrying costs, useful lives of fixed assets, insurance reserves, reserves for uncertain tax positions, and legal claims. The uncertainties and potential impacts from inflation, the Russia-Ukraine conflict, and the ongoing COVID-19 pandemic increase the challenge of making these estimates; actual results could differ materially from the Company’s estimates.

Revenue recognition. The following sales mix table disaggregates revenue by merchandise category for the three and nine month periods ended October 29, 2022 and October 30, 2021:

Three Months EndedNine Months Ended
October 29, 2022

October 30, 2021October 29, 2022October 30, 2021
Ladies25 %26 %25 %26 %
Home Accents and Bed and Bath25 %25 %25 %25 %
Men’s15 %15 %15 %14 %
Accessories, Lingerie, Fine Jewelry, and Cosmetics13 %13 %13 %14 %
Shoes13 %11 %13 %12 %
Children’s9 %10 %9 %9 %
Total100 %100 %100 %100 %

Cash and cash equivalents. Cash equivalents consist of highly liquid, fixed income instruments purchased with an original maturity of three months or less.

9

Restricted cash, cash equivalents, and investments. Restricted cash, cash equivalents, and investments serve as collateral for certain insurance obligations. These restricted funds are invested in bank deposits, money market mutual funds, U.S. Government and agency securities, and corporate securities and cannot be withdrawn from the Company’s account without the prior written consent of the secured parties. The classification between current and long-term is based on the timing of expected payments of the obligations.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents in the Condensed Consolidated Balance Sheets that reconcile to the amounts shown on the Condensed Consolidated Statements of Cash Flows:
($000)October 29, 2022January 29, 2022October 30, 2021
Cash and cash equivalents$3,906,490 $4,922,365 $5,259,595 
Restricted cash and cash equivalents included in:
  Prepaid expenses and other11,446 11,403 10,790 
  Other long-term assets48,797 48,614 49,156 
Total restricted cash and cash equivalents60,243 60,017 59,946 
Total cash, cash equivalents, and restricted cash and cash equivalents$3,966,733 $4,982,382 $5,319,541 
Property and equipment. As of October 29, 2022 and October 30, 2021, the Company had $30.2 million and $14.4 million, respectively, of property and equipment purchased but not yet paid. These purchases are included in Property and equipment, Accounts payable, and Accrued expenses and other in the accompanying Condensed Consolidated Balance Sheets.

Operating leases. Supplemental cash flow disclosures related to operating lease assets obtained in exchange for operating lease liabilities (includes new leases and remeasurements or modifications of existing leases) were as follows:

Three Months EndedNine Months Ended
($000)October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Operating lease assets obtained in exchange for operating lease liabilities
$235,186 $208,767 $549,267 $395,428 

Cash dividends. The Company’s Board of Directors declared a cash dividend of $0.310 per common share in March, May, and August 2022, and $0.285 per common share in March, May, August, and November 2021.

On November 16, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.310 per common share, payable on December 30, 2022.

Stock repurchase program. In March 2022, the Company's Board of Directors approved a new two-year program to repurchase up to $1.9 billion of the Company's common stock through fiscal 2023. This new program replaced the previous $1.5 billion stock repurchase program, effective at the end of fiscal 2021 (at which time the Company had repurchased $650 million of stock under the $1.5 billion program). The Company repurchased 8.2 million shares of common stock for $718.7 million during the nine month period ended October 29, 2022. The Company repurchased 3.5 million shares of common stock for $417.0 million during the nine month period ended October 30, 2021.

Litigation, claims, and assessments. Like many retailers, the Company has been named in class/representative action lawsuits, primarily in California, alleging violation of wage and hour/employment laws and consumer protection laws. Class/representative action litigation remains pending as of October 29, 2022.

The Company is also party to various other legal and regulatory proceedings arising in the normal course of business. Actions filed against the Company may include commercial, product and product safety, consumer, intellectual property, environmental, and labor and employment-related claims, including lawsuits in which private plaintiffs or governmental agencies allege that the Company violated federal, state, and/or local laws. Actions against the Company are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties.

10

In the opinion of management, the resolution of pending class/representative action litigation and other currently pending legal and regulatory proceedings will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Recently issued accounting standards. In September 2022, the FASB issued Accounting Standards Update (ASU) 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, to enhance transparency about an entity's use of supplier finance programs. The ASU requires enhanced and additional disclosures about the key terms of supplier finance programs including a description of where in the financial statements any related amounts are presented. The initial guidance in the ASU will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its disclosures in the consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, to increase the transparency of the effects of government assistance, including disclosure of the types of assistance an entity receives, an entity’s method of accounting for government assistance, and the effect of government assistance on an entity’s financial statements. The guidance in this ASU will be effective for the Company for its fiscal 2022 Form 10-K. The Company is currently evaluating the impact of this guidance on its disclosures in the consolidated financial statements.

Note B: Fair Value Measurements

Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The inputs used to measure fair value include: Level 1, observable inputs such as quoted prices in active markets; Level 2, inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, unobservable inputs in which little or no market data exists. This fair value hierarchy requires the Company to develop its own assumptions, maximize the use of observable inputs, and minimize the use of unobservable inputs when measuring fair value. Corporate, U.S. government and agency, and mortgage-backed securities are classified within Level 1 or Level 2 because these securities are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

The fair value of the Company’s financial instruments are as follows:

($000)October 29, 2022January 29, 2022October 30, 2021
Cash and cash equivalents (Level 1)
$3,906,490 $4,922,365 $5,259,595 
Restricted cash and cash equivalents (Level 1)
$60,243 $60,017 $59,946 

The underlying assets in the Company’s non-qualified deferred compensation program as of October 29, 2022, January 29, 2022, and October 30, 2021 (included in Other long-term assets and in Other long-term liabilities) primarily consist of participant-directed money market, stock, and bond funds. The fair value measurement for funds with quoted market prices in active markets (Level 1) are as follows:

($000)October 29, 2022January 29, 2022October 30, 2021
Level 1$148,849 $163,891 $178,966 

Note C: Management Incentive Plan and Stock-Based Compensation

The Company has incentive compensation programs which provide cash incentive bonuses and performance share awards to key management and employees based on Company and individual performance.

For fiscal 2022, the Compensation Committee of the Board of Directors established the performance measures for determining cash incentive bonuses and performance share awards based on profitability-based performance goals.

For fiscal 2021, the Compensation Committee of the Board of Directors established the performance measures for determining cash incentive bonuses and performance share awards based on profitability-based performance goals and the attainment of specific management priorities related to business challenges from the COVID-19 pandemic, as measured and approved by the Compensation Committee.
11


Stock-based compensation. For the three and nine month periods ended October 29, 2022 and October 30, 2021, the Company recognized stock-based compensation expense as follows:

Three Months EndedNine Months Ended
($000)October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Restricted stock$22,177 $18,841 $63,337 $53,487 
Performance awards6,186 18,601 25,800 40,000 
Employee stock purchase plan1,130 1,075 3,230 3,288 
Total$29,493 $38,517 $92,367 $96,775 

Total stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Earnings for the three and nine month periods ended October 29, 2022 and October 30, 2021, is as follows:

Three Months EndedNine Months Ended
Statements of Earnings Classification ($000)October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Cost of goods sold$16,547 $18,594 $50,768 $48,354 
Selling, general and administrative12,946 19,923 41,599 48,421 
Total$29,493 $38,517 $92,367 $96,775 

The tax benefits related to stock-based compensation expense for the three and nine month periods ended October 29, 2022 were $6.1 million and $18.9 million, respectively. The tax benefits related to stock-based compensation expense for the three and nine month periods ended October 30, 2021 were $8.4 million and $19.4 million, respectively.

Restricted stock awards. The Company grants shares of restricted stock or restricted stock units to directors, officers, and key employees. The market value of shares of restricted stock and restricted stock units at the date of grant is amortized to expense over the vesting period of generally three to five years.

During the three and nine month periods ended October 29, 2022 and October 30, 2021, shares purchased by the Company for tax withholding totaled 74,844 and 490,060, and 70,488 and 471,081, respectively, and are considered treasury shares which are available for reissuance.

Performance share awards. The Company has a performance share award program for senior executives. A performance share award represents a right to receive shares of restricted stock on a specified settlement date based on the Company’s attainment of performance goals during the performance period, which is the Company’s fiscal year. If attained, the restricted stock then vests over a service period, generally two to three years from the date the performance award was granted.

As of October 29, 2022, shares related to unvested restricted stock, restricted stock units, and performance share awards totaled 4.5 million shares. A summary of restricted stock, restricted stock units, and performance share award activity for the nine month period ended October 29, 2022, is presented below:

(000, except per share data)Number of
shares		Weighted-average
grant date
fair value
Unvested at January 29, 20224,378 $99.58 
Awarded1,504 88.98 
Released(1,266)90.38 
Forfeited(101)101.39 
Unvested at October 29, 20224,515 $98.44 

12

The unamortized compensation expense at October 29, 2022 was $213.6 million, which is expected to be recognized over a weighted-average remaining period of 2.0 years. The unamortized compensation expense at October 30, 2021, was $193.8 million, which was expected to be recognized over a weighted-average remaining period of 2.1 years.

Employee stock purchase plan. Under the Employee Stock Purchase Plan (“ESPP”), eligible employees participating in the quarterly offering period can choose to have up to the lesser of 10% of their annual base earnings or the IRS annual share purchase limit of $25,000 in aggregate market value to purchase the Company’s common stock. The purchase price of the stock is 85% of the closing market price on the date of purchase. Purchases occur on a quarterly basis (on the last trading day of each calendar quarter). The Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date.

Note D: Earnings Per Share

The Company computes and reports both basic earnings per share (“EPS”) and diluted EPS. Basic EPS is computed by dividing net earnings by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period, except in cases where the effect of the common stock equivalents would be anti-dilutive. Diluted EPS reflects the total potential dilution that could occur from outstanding equity plan awards and unvested shares of both performance and non-performance based awards of restricted stock and restricted stock units.

For the three and nine month periods ended October 29, 2022, approximately 85,000 and 492,000 weighted-average shares were excluded from the calculation of diluted EPS, respectively, because their effect would have been anti-dilutive for the periods presented. For the three and nine month periods ended October 30, 2021, approximately 13,200 and 3,000 weighted-average shares were excluded from the calculation of diluted EPS, respectively, because their effect would have been anti-dilutive for the periods presented.

The following is a reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations:

Three Months EndedNine Months Ended
Shares in (000s)Basic EPSEffect of
dilutive
common stock
equivalents		Diluted
EPS		Basic EPSEffect of
dilutive
common
stock
equivalents		Diluted
EPS
October 29, 2022
Shares342,120 1,600 343,720 344,686 1,526 346,212 
Amount$1.00 $— $1.00 $3.09 $(0.01)$3.08 
October 30, 2021 
     Shares
351,071 2,010 353,081 352,308 2,169 354,477 
     Amount
$1.10 $(0.01)$1.09 $3.85 $(0.03)$3.82 

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Note E: Debt

Long-term debt. Unsecured senior debt, net of unamortized discounts and debt issuance costs, consisted of the following:

($000)October 29, 2022January 29, 2022October 30, 2021
6.530% Series B Senior Notes due 2021
$— $— $64,991 
3.375% Senior Notes due 2024
249,144 248,808 248,697 
4.600% Senior Notes due 2025
696,841 695,888 695,571 
0.875% Senior Notes due 2026
495,732 494,814 494,508 
4.700% Senior Notes due 2027
239,791 239,470 239,364 
4.800% Senior Notes due 2030
132,559 132,431 132,388 
1.875% Senior Notes due 2031
495,113 494,691 494,551 
5.450% Senior Notes due 2050
146,280 146,223 146,204 
Total long-term debt$2,455,460 $2,452,325 $2,516,274 
Less: current portion— — 64,991 
Total due beyond one year$2,455,460 $2,452,325 $2,451,283 

As of October 29, 2022, January 29, 2022, and October 30, 2021, total unamortized discount and debt issuance costs were $19.5 million, $22.7 million, and $23.7 million, respectively, and were classified as a reduction of Long-term debt.

As of October 29, 2022 and January 29, 2022 the aggregate fair value of the seven outstanding series of Senior Notes was approximately $2.2 billion and $2.6 billion, respectively. As of October 30, 2021 the aggregate fair value of the then eight outstanding series of Senior Notes was approximately $2.6 billion. The fair value is estimated by obtaining comparable market quotes which are considered to be Level 1 inputs under the fair value measurements and disclosures guidance.

See Note D: Debt, in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022, for additional information regarding the terms of the Company’s unsecured senior notes.

Revolving credit facilities. In February 2022, the Company entered into a new, $1.3 billion senior unsecured revolving Credit Agreement (the “2022 Credit Facility”), which replaced its previous $800 million unsecured revolving credit facility. The 2022 Credit Facility expires in February 2027, and may be extended, at the Company's request and with the consent of the lenders, for up to two additional one year periods, subject to customary conditions. The new facility contains a $300 million sublimit for issuance of standby letters of credit. It also contains an option allowing the Company to increase the size of its credit facility by up to an additional $700 million, with the agreement of the committing lenders. The interest rate on borrowings under the 2022 Credit Facility is a term rate based on the Secured Overnight Financing Rate (“Term SOFR”) (or an alternate benchmark rate, if Term SOFR is no longer available) plus an applicable margin, and is payable quarterly and upon maturity. The 2022 Credit Facility is subject to a quarterly Consolidated Adjusted Debt to Consolidated EBITDAR financial leverage ratio covenant. As of October 29, 2022, the Company was in compliance with this financial covenant.

As of October 29, 2022, the Company had no borrowings or standby letters of credit outstanding under the 2022 Credit Facility, and the $1.3 billion credit facility remains in place and available.

14

The table below shows the components of interest expense and income for the three and nine month periods ended October 29, 2022 and October 30, 2021:

Three Months EndedNine Months Ended
($000)October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Interest expense on long-term debt$21,150 $22,227 63,429 $66,626 
Other interest expense448 391 1,242 1,012 
Capitalized interest(663)(3,682)(4,489)(10,511)
Interest income(23,737)(192)(34,621)(627)
Interest (income) expense, net$(2,802)$18,744 $25,561 $56,500 

Note F: Taxes on Earnings

The Company’s effective tax rate for the three and nine month periods ended October 29, 2022 and October 30, 2021, was approximately 24%. The Company's effective tax rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and uncertain tax positions.

As of October 29, 2022, January 29, 2022, and October 30, 2021, the reserves for unrecognized tax benefits were $70.7 million, $68.1 million, and $76.9 million, inclusive of $9.1 million, $7.6 million, and $9.8 million of related interest and penalties, respectively. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $56.7 million would impact the Company’s effective tax rate. It is reasonably possible that certain state tax matters may be concluded or statutes of limitations may lapse during the next 12 months. Accordingly, the total amount of unrecognized tax benefits may decrease by up to $10.0 million. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred income tax assets and liabilities. These amounts are net of federal and state income taxes.

The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2018 through 2021. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2017 through 2021. Certain federal and state tax returns are currently under audit by various tax authorities. The Company does not expect the results of these audits to have a material impact on the condensed consolidated financial statements.
15

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Ross Stores, Inc.:

Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheets of Ross Stores, Inc. and subsidiaries (the “Company”) as of October 29, 2022 and October 30, 2021, the related condensed consolidated statements of earnings, comprehensive income, and stockholders’ equity, for the three and nine month periods ended October 29, 2022 and October 30, 2021, and cash flows for the nine month periods ended October 29, 2022 and October 30, 2021, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of January 29, 2022, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 29, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 29, 2022 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results
This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.


/s/ Deloitte & Touche LLP

San Francisco, California
December 6, 2022
16

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed below under the caption “Forward-Looking Statements” and also those in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for 2021. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for 2021. All information is based on our fiscal calendar.

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores -- Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,696 locations in 40 states, the District of Columbia, and Guam as of October 29, 2022. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 323 dd’s DISCOUNTS stores in 21 states that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Results of Operations

Comparable store sales declined 3% in the third quarter of fiscal 2022, compared to a 14% gain in the third quarter of 2021 (versus 2019), reflecting the continued impact of inflationary pressures our customers are facing as well as an increasingly promotional retail environment. During the quarter, we experienced the deleveraging effects from the comparable store sales decline as well as higher merchandise markdowns, which were partially offset by lower incentive compensation costs. These factors resulted in diluted earnings per share of $1.00 in the third quarter of fiscal 2022, compared to $1.09 per share in the third quarter of fiscal 2021. We expect our customers and operations will continue to be impacted by ongoing inflationary headwinds.

There remains significant uncertainty in the current macro-economic environment, driven by inflation, increasing interest rates, the continuing impacts from the Russia-Ukraine conflict, and concerns of a possible recession. These factors impact both consumer demand and many of the costs in our business. In addition, there continues to be uncertainty surrounding the COVID-19 pandemic, including its unknown duration, the potential for future resurgences and new virus variants, its potential impact on consumer behavior and shopping patterns, and the potential adverse impact on our business.
17

The following table summarizes the financial results for the three and nine month periods ended October 29, 2022 and October 30, 2021:

Three Months EndedNine Months Ended
October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Sales
Sales (millions)$4,566$4,575$13,482$13,896
Comparable store sales (decline) growth(3 %)
1
14 %
2
(5 %)
1
14 %
2
Costs and expenses (as a percent of sales)
Cost of goods sold75.0 %72.7 %74.3 %71.5 %
Selling, general and administrative15.2 %15.9 %15.1 %15.2 %
Interest (income) expense, net(0.1 %)0.4 %0.2 %0.4 %
Earnings before taxes (as a percent of sales)9.9 %11.0 %10.4 %12.9 %
Net earnings (as a percent of sales)7.5 %8.4 %7.9 %9.8 %
1 Amounts shown are for the three and nine month periods of fiscal 2022 compared to the same periods of fiscal 2021 for stores that have been open for more than 14 complete months.
2 Amounts shown are for the three and nine month periods of fiscal 2021 compared to the same periods of fiscal 2019. Comparable store sales for this purpose represents sales from stores that were open at the end of fiscal 2018, plus new stores opened in fiscal 2019, less stores closed in fiscal 2019 and fiscal 2020.

Stores. Our long-term strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria.

The following table summarizes the stores opened and closed during the three and nine month periods ended October 29, 2022 and October 30, 2021:

Three Months EndedNine Months Ended
Store CountOctober 29, 2022October 30, 2021October 29, 2022October 30, 2021
Beginning of the period 1,980 1,896 1,923 1,859 
Opened in the period40 28 99 65 
Closed in the period
(1)— (3)
1
— 
End of the period2,019 1,924 2,019 1,924 
1 Includes a temporary closure of a store impacted by a weather event.

Sales. Sales for the three and nine month periods ended October 29, 2022 decreased $9.1 million and $414.0 million, or 0.2% and 3.0%, respectively, compared to the three and nine month periods ended October 30, 2021. The respective 3% and 5% comparable store sales declines for the three and nine month periods ended October 29, 2022 were primarily due to escalating inflationary pressures impacting our customers in the current quarter and fiscal year to date combined with the prior year benefiting from government stimulus as well as pent-up customer demand as COVID-19 restrictions eased. These comparable store sales declines were partially offset by the opening of 95 net new stores between October 30, 2021 and October 29, 2022.
18

Our sales mix for the three and nine month periods ended October 29, 2022 and October 30, 2021 is shown below:

Three Months EndedNine Months Ended
October 29, 2022

October 30, 2021October 29, 2022October 30, 2021
Ladies25 %26 %25 %26 %
Home Accents and Bed and Bath25 %25 %25 %25 %
Men’s15 %15 %15 %14 %
Accessories, Lingerie, Fine Jewelry, and Cosmetics13 %13 %13 %14 %
Shoes13 %11 %13 %12 %
Children’s9 %10 %9 %9 %
Total100 %100 %100 %100 %

We intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies, and by continuing to strengthen our merchant organization, adjust our merchandise mix, and more fully develop our systems to improve our merchandise offerings. We cannot be sure that our strategies and our store expansion program will result in a continuation of our historical sales growth or an increase in net earnings.

Cost of goods sold. Cost of goods sold for the three and nine month periods ended October 29, 2022 increased $98.0 million and $84.8 million, respectively, compared to the three and nine month periods ended October 30, 2021, primarily due to increased distribution costs, higher ocean freight costs, and the opening of 95 net new stores between October 30, 2021 and October 29, 2022.

Cost of goods sold as a percentage of sales for the three month period ended October 29, 2022 increased approximately 230 basis points compared to the three month period ended October 30, 2021, due to a 165 basis point decline in merchandise margin primarily due to increased markdowns, a 140 basis point increase in distribution expenses primarily due to a combination of timing of packaway inventory carrying costs and additional costs from our new distribution center, and deleverage of 20 basis points in occupancy costs. These increases were partially offset by a 75 basis point decrease in buying costs primarily due to lower incentive compensation expenses and a 20 basis point decrease in domestic freight costs.

Cost of goods sold as a percentage of sales for the nine month period ended October 29, 2022 increased approximately 280 basis points compared to the nine month period ended October 30, 2021, due to a 180 basis point decline in merchandise margin primarily due to higher ocean freight costs and increased markdowns, an 85 basis point increase in distribution expenses primarily due to timing of packaway inventory carrying costs, additional costs from our new distribution center, and higher wages, deleverage of 40 basis points in occupancy costs, and a 30 basis point increase in domestic freight costs mainly driven by higher fuel prices and costs associated with industry-wide supply chain congestion. These increases were partially offset by a 55 basis point decrease in buying costs primarily due to lower incentive compensation expenses.

We expect the unfavorable timing of packaway-related costs and higher merchandise markdowns to impact margins through the fourth quarter of fiscal 2022.

Selling, general and administrative expenses. For the three and nine month periods ended October 29, 2022, selling, general and administrative expenses ("SG&A") decreased $32.4 million and $88.7 million, respectively, compared to the three and nine month periods ended October 30, 2021. These decreases were primarily due to lower incentive compensation, partially offset by the opening of 95 net new stores between October 30, 2021 and October 29, 2022.

SG&A as a percentage of sales for the three month period ended October 29, 2022 decreased 70 basis points, compared to the three month period ended October 30, 2021, primarily due to lower incentive compensation costs which were partially offset by the deleveraging effect of lower comparable store sales.

SG&A as a percentage of sales for the nine month period ended October 29, 2022 decreased 20 basis points, compared to the nine month period ended October 30, 2021, primarily due to both lower incentive compensation and COVID-19 costs, partially offset by higher wages and the deleveraging effect of lower comparable store sales.

We expect our operating costs in fiscal 2022 to continue to reflect the impact from higher wages and inflation.
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Interest (income) expense, net. Interest (income) expense, net for the three and nine month periods ended October 29, 2022 decreased $21.5 million and $30.9 million, respectively, compared to the same periods in the prior year. These decreases were primarily due to higher interest income and lower interest expense on long-term debt due to the repayment of the principal on the $65.0 million notes in the fourth quarter of fiscal 2021, partially offset by lower capitalized interest.

Interest (income) expense, net for the three and nine month periods ended October 29, 2022 and October 30, 2021 consists of the following:

Three Months EndedNine Months Ended
($000)October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Interest expense on long-term debt$21,150 $22,227 $63,429 $66,626 
Other interest expense448 391 1,242 1,012 
Capitalized interest(663)(3,682)(4,489)(10,511)
Interest income(23,737)(192)(34,621)(627)
Interest (income) expense, net$(2,802)$18,744 $25,561 $56,500 

Taxes on earnings. Our effective tax rate for the three and nine month periods ended October 29, 2022 and October 30, 2021 was approximately 24%. Our effective tax rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and uncertain tax positions.

Net earnings. Net earnings as a percentage of sales for the three month period ended October 29, 2022 and October 30, 2021 were 7.5% and 8.4%, respectively. Net earnings as a percentage of sales for the three month period ended October 29, 2022 was lower primarily due to higher cost of goods sold, partially offset by lower SG&A expenses and higher interest income.

Net earnings as a percentage of sales for the nine month periods ended October 29, 2022 and October 30, 2021 were 7.9% and 9.8%, respectively. Net earnings as a percentage of sales for the nine month period ended October 29, 2022 was lower primarily due to higher cost of goods sold, partially offset by lower SG&A expenses and lower interest expense.

Earnings per share. Diluted earnings per share for the three month period ended October 29, 2022 was $1.00 compared to $1.09 for the three month period ended October 30, 2021. Diluted earnings per share for the nine month period ended October 29, 2022 was $3.08 compared to $3.82 for the nine month period ended October 30, 2021. The $0.09 and $0.74 decreases in the diluted earnings per share for the three and nine month periods ended October 29, 2022 were primarily attributable to an 11% and 21% decrease in net earnings, respectively, partially offset by the 3% and 2%, respectively, reductions in weighted-average diluted shares outstanding, largely due to stock repurchases under our stock repurchase program.

Financial Condition

Liquidity and Capital Resources

The primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, operating and variable lease costs, taxes, capital expenditures in connection with new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to pay dividends, to repay debt as it becomes due, and to repurchase stock under active stock repurchase programs.

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Nine Months Ended
($000)October 29, 2022October 30, 2021
Cash provided by operating activities$472,667 $1,503,653 
Cash used in investing activities(417,901)(377,916)
Cash used in financing activities(1,070,415)(759,965)
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents$(1,015,649)$365,772 

Operating Activities

Net cash provided by operating activities was $0.5 billion for the nine month period ended October 29, 2022. This was primarily driven by net earnings (excluding non-cash expenses for depreciation, amortization, and stock-based compensation), partially offset by merchandise inventory payments and payment of fiscal 2021 incentive bonuses. Net cash provided by operating activities was $1.5 billion for the nine month period ended October 30, 2021. This was primarily driven by net earnings (excluding non-cash expenses for depreciation and amortization).

The decrease in cash flow from operating activities for the nine month period ended October 29, 2022, compared to the same period in the prior year, was primarily driven by lower accounts payable leverage, payment of fiscal 2021 incentive bonuses, and lower net earnings. Accounts payable leverage was 77% and 119% as of October 29, 2022 and October 30, 2021, respectively. The decrease in accounts payable leverage from the prior year was primarily driven by higher packaway receipts and associated merchandise payments combined with shorter payment terms.

As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling opportunities in the marketplace and our decisions on the timing for release of that inventory. Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to our store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchases, but typically packaway remains in storage less than six months. We expect to continue to take advantage of packaway inventory opportunities to maximize our ability to deliver bargains to our customers.

Changes in packaway inventory levels impact our operating cash flow. As of October 29, 2022, packaway inventory was 41% of total inventory compared to 40% at the end of fiscal 2021. As of October 30, 2021, packaway inventory was 31% of total inventory compared to 38% at the end of fiscal 2020. The year-over-year increase reflects higher receipts used to build our packaway inventory to more normal operating levels and the earlier than expected arrival of merchandise that will flow to stores later in fiscal 2022. The prior year reflects our use of a substantial amount of packaway merchandise to support the increased level of sales.

Investing Activities

Net cash used in investing activities was $417.9 million and $377.9 million for the nine month periods ended October 29, 2022 and October 30, 2021, respectively, and was related to our capital expenditures. Our capital expenditures include costs to build, expand, and improve distribution centers, open new stores and improve existing stores, and for various other expenditures related to our information technology systems, and buying and corporate offices. The increase in cash used in investing activities for the nine month period ended October 29, 2022, compared to the same period in the prior year, was primarily driven by higher capital expenditures related to construction of new stores and existing store projects, partially offset by lower expenditures related to the construction of our Brookshire, Texas distribution center, which opened in the first quarter of fiscal 2022.

Capital expenditures for fiscal 2022 are currently projected to be approximately $700 million. Our planned capital expenditures for fiscal 2022 are expected to be used for investments in our supply chain to support long-term growth, including construction of our next distribution center, costs for fixtures and leasehold improvements to open planned new Ross and dd’s DISCOUNTS stores, investments in certain information technology systems, and for various other needed expenditures related to our stores, distribution centers, and buying and corporate offices. We expect to fund capital expenditures with available cash.

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Financing Activities

Net cash used in financing activities was $1.1 billion and $760.0 million for the nine month periods ended October 29, 2022 and October 30, 2021, respectively. The increase in cash used in financing activities for the nine month period ended October 29, 2022, compared to the nine month period ended October 30, 2021, was primarily due to stock repurchases under our current $1.9 billion stock repurchase program.

Revolving credit facilities. In February 2022, we entered into a new, $1.3 billion senior unsecured revolving Credit Agreement (the “2022 Credit Facility”), which replaced our previous $800 million unsecured revolving credit facility. The 2022 Credit Facility expires in February 2027, and may be extended, at our request and with the consent of the lenders, for up to two additional one year periods, subject to customary conditions. The new facility contains a $300 million sublimit for issuance of standby letters of credit. It also contains an option allowing us to increase the size of our credit facility by up to an additional $700 million, with the agreement of the committing lenders. The interest rate on borrowings under the 2022 Credit Facility is a term rate based on the Secured Overnight Financing Rate (“Term SOFR”) (or an alternate benchmark rate, if Term SOFR is no longer available) plus an applicable margin, and is payable quarterly and upon maturity. The 2022 Credit Facility is subject to a quarterly Consolidated Adjusted Debt to Consolidated EBITDAR financial leverage ratio covenant. As of October 29, 2022, we were in compliance with this financial covenant.

As of October 29, 2022, we had no borrowings or standby letters of credit outstanding under the 2022 Credit Facility and the $1.3 billion credit facility remains in place and available.

Senior notes. As of October 29, 2022, we had $2.5 billion of outstanding unsecured Senior Notes. Refer to Note E: Debt, for further information on the unsecured senior debt.

Other financing activities. In March 2022, our Board of Directors approved a new two-year program to repurchase up to $1.9 billion of our common stock through fiscal 2023, with the expectation to buy back $950 million of common stock in fiscal 2022. This new program replaced the previous $1.5 billion two-year stock repurchase program, effective at the end of fiscal 2021 (at which time we had repurchased $650 million of stock under the previous $1.5 billion program).

We repurchased 8.2 million and 3.5 million shares of common stock for $718.7 million and $417.0 million during the nine month periods ended October 29, 2022 and October 30, 2021, respectively. We also acquired 0.5 million and 0.5 million shares of treasury stock under our employee equity compensation programs, for aggregate purchase prices of approximately $45.4 million and $57.1 million during the nine month periods ended October 29, 2022 and October 30, 2021, respectively.

Our Board of Directors declared a cash dividend of $0.310 per common share in March, May, and August 2022, and $0.285 per common share in March, May, August, and November 2021.

In November 2022, our Board of Directors declared a cash dividend of $0.310 per common share, payable on December 30, 2022.

For the nine month periods ended October 29, 2022 and October 30, 2021, we paid cash dividends of $324.6 million and $304.5 million, respectively.

Short-term trade credit represents a significant source of financing for merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit, bank credit facility, and other credit sources to meet our capital and liquidity requirements, including lease and interest payment obligations.

We ended the third quarter of fiscal 2022 with $3.9 billion of unrestricted cash balances, and we have $1.3 billion available under our senior unsecured revolving credit facility. We estimate that existing cash and cash equivalent balances, cash flows from operations, bank credit facility, and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments, common stock repurchases, and quarterly dividend payments for at least the next 12 months.

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Contractual Obligations and Off-Balance Sheet Arrangements

The table below presents our significant contractual obligations as of October 29, 2022:

($000)Less than
one year		Greater than
one year		Total¹
Recorded contractual obligations:
   Senior notes$— $2,474,991 $2,474,991 
   Operating leases 684,692 2,611,399 3,296,091 
   New York buying office ground lease2
7,552 1,111,490 1,119,042 
Unrecorded contractual obligations:
   Real estate obligations3
7,343 197,130 204,473 
   Interest payment obligations80,316 435,134 515,450 
   Purchase obligations4
3,617,969 136,049 3,754,018 
Total contractual obligations$4,397,872 $6,966,193 $11,364,065 
1 We have a $67.6 million liability for unrecognized tax benefits that is included in Other long-term liabilities on our interim Condensed Consolidated Balance Sheet. This liability is excluded from the schedule above as the timing of payments cannot be reasonably estimated.
2 Our New York buying office building is subject to a 99-year ground lease.
3 Minimum lease payments for leases signed that have not yet commenced.
4 Purchase obligations primarily consist of merchandise inventory purchase orders, commitments related to construction projects, store fixtures and supplies, and information technology services, transportation, and maintenance contracts.

Other than the unrecorded contractual obligations noted above, we do not have any material off-balance sheet arrangements as of October 29, 2022.

Standby letters of credit and collateral trust. We use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize some of our insurance obligations. As of October 29, 2022, January 29, 2022, and October 30, 2021, we had $3.0 million, $3.3 million, and $3.3 million, respectively, in standby letters of credit outstanding and $57.2 million, $56.7 million, and $56.6 million, respectively, in a collateral trust. The standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash, cash equivalents, and investments.

Trade letters of credit. We had $7.8 million, $19.3 million, and $30.6 million in trade letters of credit outstanding at October 29, 2022, January 29, 2022, and October 30, 2021, respectively.

Dividends. In November 2022, our Board of Directors declared a cash dividend of $0.310 per common share, payable on December 30, 2022.

Critical Accounting Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable. The uncertainties and potential impacts from inflation, interest rate increases, the Russia-Ukraine conflict, and the ongoing COVID-19 pandemic increase the challenge of making these estimates; actual results could differ materially from our estimates. During the third quarter of fiscal 2022, there have been no significant changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the year ended January 29, 2022.

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Forward-Looking Statements

This report contains a number of forward-looking statements regarding, without limitation, the continuing challenges from the COVID-19 pandemic and related economic disruptions, and our plans and responses to them, planned new store growth, capital expenditures, and other matters. These forward-looking statements reflect our then-current beliefs, plans, and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” “looking ahead,” and similar expressions identify forward-looking statements.

Future impact from the ongoing COVID-19 pandemic, military conflicts and economic sanctions, inflation, interest rate increases, and other economic and industry trends that could potentially impact revenue, profitability, operating conditions, and growth are difficult to predict. Our forward-looking statements are subject to risks and uncertainties which could cause our actual results to differ materially from those forward-looking statements and our previous expectations, plans, and projections. Such risks are not limited to but may include:

•The uncertainties and potential for the recurrence of significant business disruptions arising from the COVID-19 pandemic, including its unknown duration, the potential for new virus variants and future resurgences, and the potential adverse impact on consumer demand and our business.
•Unexpected changes in the level of consumer spending on, or preferences for, apparel and home-related merchandise, which could adversely affect us.
•Impacts from the macro-economic environment, including inflation, interest rates, housing costs, energy and fuel costs, financial and credit market conditions, recession concerns, geopolitical conditions (including the current Russia-Ukraine conflict), pandemics, or public health and public safety issues, that affect consumer confidence and consumer disposable income.
•Our need to effectively manage our inventories, markdowns, and inventory shortage in order to achieve our planned gross margins.
•Competitive pressures in the apparel and home-related merchandise retailing industry.
•Risks associated with importing and selling merchandise produced in other countries, including risks from supply chain disruptions due to port of exit/entry congestion, shipping delays, and ocean freight cost increases, and risks from other supply chain related disruptions in other countries, including those due to COVID-19 closures.
•Unseasonable weather that may affect shopping patterns and consumer demand for seasonal apparel and other merchandise.
•Our dependence on the market availability, quantity, and quality of attractive brand name merchandise at desirable discounts, and on the ability of our buyers to anticipate consumer preferences and to purchase merchandise to enable us to offer customers a wide assortment of merchandise at competitive prices.
•Information or data security breaches, including cyber-attacks on our transaction processing and computer information systems, which could result in theft or unauthorized disclosure of customer, credit card, employee, or other private and valuable information that we handle in the ordinary course of our business.
•Disruptions in our supply chain or in our information systems, including from ransomware or other cyber-attacks, that could impact our ability to process sales and to deliver product to our stores in a timely and cost-effective manner.
•Our need to obtain acceptable new store sites with favorable consumer demographics to achieve our planned new store openings.
•Our need to expand in existing markets and enter new geographic markets in order to achieve planned market penetration.
•Consumer problems or legal issues involving the quality, safety, or authenticity of products we sell, which could harm our reputation, result in lost sales, and/or increase our costs.
•An adverse outcome in various legal, regulatory, or tax matters, or the adoption of new federal or state tax legislation that increases tax rates or adds new taxes, that could increase our costs.
•Damage to our corporate reputation or brands that could adversely affect our sales and operating results.
•Our need to continually attract, train, and retain associates with the retail talent necessary to execute our off-price retail strategies.
•Our need to effectively advertise and market our business.
•Changes in U.S. tax, tariff, or trade policy regarding apparel and home-related merchandise produced in other countries, which could adversely affect our business.
•Possible volatility in our revenues and earnings.
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•An additional public health or public safety crisis, demonstrations, natural or man-made disaster in California or in another region where we have a concentration of stores, offices, or a distribution center that could harm our business.
•Our need to maintain sufficient liquidity to support our continuing operations and our new store openings.

The factors underlying our forecasts are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks, which primarily include changes in interest rates. We do not engage in financial transactions for trading or speculative purposes.

We may occasionally use forward contracts to hedge against fluctuations in foreign currency prices. We had no outstanding forward contracts as of October 29, 2022.

Interest that is payable on our revolving credit facility is based on variable interest rates, and is therefore affected by changes in market interest rates. As of October 29, 2022, we had no borrowings outstanding under our revolving credit facility.

As of October 29, 2022, we have outstanding seven series of unsecured Senior Notes. Interest that is payable on all series of our Senior Notes is based on fixed interest rates, and is therefore unaffected by changes in market interest rates.

Interest is receivable on our short- and long-term investments. Changes in interest rates may impact interest income recognized in the future, or the fair value of our investment portfolio.

A hypothetical 100 basis point increase or decrease in prevailing market interest rates would not have had a material negative impact on our condensed consolidated financial position, results of operations, cash flows, or the fair values of our short- and long-term investments as of and for the three and nine month periods ended October 29, 2022. We do not consider the potential losses in future earnings and cash flows from reasonably possible, near-term changes in interest rates to be material.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at that reasonable assurance level as of the end of the period covered by this report.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

Quarterly Evaluation of Changes in Internal Control Over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during the third fiscal quarter of 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our management concluded that there was no such change during the third fiscal quarter of 2022.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The matters under the caption “Litigation, claims, and assessments” in Note A of Notes to Condensed Consolidated Financial Statements are incorporated herein by reference.

ITEM 1A. RISK FACTORS

See Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 for a description of the risks and uncertainties associated with our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Information regarding shares of common stock we repurchased during the third quarter of fiscal 2022 is as follows:

Total number of shares
(or units) purchased1
Average price
paid per share
(or unit)		Total number of
shares
(or units)
purchased as
part of publicly
announced
plans or
programs
Maximum number
(or approximate
dollar value) of
shares (or units)
that may yet be
purchased under
the plans or
programs ($000)2
Period
August
(7/31/2022 - 8/27/2022)719,413 $86.12719,413 $1,363,044 
September
(8/28/2022 - 10/01/2022)1,195,691 $88.271,124,640 $1,263,915 
October
(10/02/2022- 10/29/2022)951,184 $87.19947,391 $1,181,307 
Total2,866,288 $87.372,791,444 $1,181,307 

1 We acquired 74,844 shares of treasury stock during the quarter ended October 29, 2022. Treasury stock includes shares acquired from employees for tax withholding purposes related to vesting of restricted stock grants. All remaining shares were repurchased under our publicly announced stock repurchase program.

2 In March 2022, our Board of Directors approved a new two-year program to repurchase up to $1.9 billion of our common stock through fiscal 2023, replacing the $850 million that remained available at the end of fiscal 2021 under the previous $1.5 billion program.


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ITEM 6. EXHIBITS
Exhibit
NumberExhibit
3.1
 
3.2
15
 
31.1
 
31.2
 
32.1
 
32.2
 
101.INSXBRL Instance Document. (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.)
101.SCHInline XBRL Taxonomy Extension Schema
 
101.CALInline XBRL Taxonomy Extension Calculation Linkbase
 
101.DEFInline XBRL Taxonomy Extension Definition Linkbase
 
101.LABInline XBRL Taxonomy Extension Label Linkbase
 
101.PREInline XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File. (The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.)
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

ROSS STORES, INC.
(Registrant)
 
Date:December 6, 2022
By: 		/s/Adam Orvos
 Adam Orvos
Executive Vice President, Chief Financial Officer

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