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1
Ross Stores, Inc. 2010 Annual Report
Focusing
On Bargains,
Delivering Results

Table of contents

  • Page 1
    Focusing On Bargains, Delivering Results Ross Stores, Inc. 2010 Annual Report 1

  • Page 2
    ...40,000 Total Sales Comparable Store Sales Increase Net Earnings Diluted Earnings per Share Return on Average Stockholders' Equity Cash Dividends Declared per Common Share Number of Stores1 Number of Employees1 1 At fiscal year end. Total Sales ($ billions) Earnings Per Share Return on Average...

  • Page 3
    ... Results California-based Ross Stores, Inc. is the second largest off-price retailer in the United States, with 988 Ross Dress for Less® ("Ross") stores in 27 states and Guam, and 67 dd's DISCOUNTS® locations in six states at the end of fiscal year 2010. Ross, which was founded in 1982, offers...

  • Page 4
    ... margin and increased leverage on operating expenses from the healthy gain in same store sales. 29% 25% 13% 12% 12% 9% Ladies Home Accents, Bed and Bath Men's Accessories, Lingerie, Fine Jewelry, Fragrances Shoes Children's Strong Inventory Management Continues to Drive Higher Margins As we ended...

  • Page 5
    ... Markets As planned, we added 50 net new stores in 2010, consisting of 35 Ross Dress for Less and as mentioned, 15 dd's DISCOUNTS locations, and ended the year with 1,055 locations in 27 states and Guam. We remain on track to increase unit growth to an annual rate of 7% in 2011, with plans to open...

  • Page 6
    ...on the operating side of our business. These include our shortage control program which has resulted in record low levels of shrink, along with the numerous productivity enhancements and efficiencies we have put in place throughout the Company to drive down costs in our distribution centers, stores...

  • Page 7
    ...Dress for Less and 20 dd's DISCOUNTS locations. 1,055 Stores Across 27 States Alabama Arizona* California* Colorado Delaware Florida* Georgia* 17 56 275 29 1 127 46 Guam Hawaii Idaho Louisiana Maryland Mississippi Montana 1 12 9 11 18 5 6 Nevada* New Jersey New Mexico North Carolina Oklahoma Oregon...

  • Page 8
    ... Data Management's Discussion and Analysis Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Signatures Index to Exhibits Certifications 8 20 22 32 36 52 58 59 67 Index to Other Information Directors...

  • Page 9
    ... or organization) 4440 Rosewood Drive, Pleasanton, California (Address of principal executive offices) Registrant's telephone number, including area code 94-1390387 (I.R.S. Employer Identification No.) 94588-3050 (Zip Code) (925) 965-4400 Securities registered pursuant to Section 12(b) of the Act...

  • Page 10
    ... income households. The decisions we make, from merchandising, purchasing, and pricing, to the locations of our stores, are based on these customer profiles. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at...

  • Page 11
    ...-price buying strategies is a key factor in our success. Our buyers use a number of methods that enable us to offer our customers brand-name and designer merchandise at strong everyday discounts relative to department and specialty stores for Ross and moderate department and discount stores for dd...

  • Page 12
    ...reï¬,ected on the price tag displaying our selling price as well as the comparable selling price for that item in department and specialty stores for Ross merchandise, or in more moderate department and discount stores for dd's DISCOUNTS merchandise. Our pricing strategy at Ross differs from that of...

  • Page 13
    ...-price department and specialty stores due to a store design that creates a self-service retail format and due to the utilization of labor saving technologies. • Economies of scale with respect to general and administrative costs as a result of centralized merchandising, marketing, and purchasing...

  • Page 14
    ... capacity to support store growth in 2011. Information on the size and locations of our distribution centers and warehouse facilities is found under "Properties" in Item 2. Advertising We rely primarily on television advertising to communicate the Ross value proposition - brand-name merchandise at...

  • Page 15
    ... customers a wide assortment of merchandise at competitive prices. • Potential disruptions in the supply chain that could impact our ability to deliver product to our stores in a timely and costeffective manner. • A change in the availability, quality, or cost of new store real estate locations...

  • Page 16
    ... approximate dd's DISCOUNTS store size is 22,700 square feet. During fiscal 2010, no one store accounted for more than 1% of our sales. We carry earthquake insurance to help mitigate the risk of financial loss due to an earthquake. Our real estate strategy in 2011 is to open stores in states where...

  • Page 17
    ... 2010. State/Territory Alabama Arizona California Colorado Delaware Florida Georgia Guam Hawaii Idaho Louisiana Maryland Mississippi Montana Nevada New Jersey New Mexico North Carolina Oklahoma Oregon Pennsylvania South Carolina Tennessee Texas Utah Virginia Washington Wyoming Total January 29, 2011...

  • Page 18
    .... Location Approximate Square Footage Own / Lease Distribution centers Carlisle, Pennsylvania Fort Mill, South Carolina Moreno Valley, California Perris, California Warehouses Carlisle, Pennsylvania Carlisle, Pennsylvania Fort Mill, South Carolina Fort Mill, South Carolina Office space Los Angeles...

  • Page 19
    ..., dd's DISCOUNTS President and Chief Development Officer President and Chief Operating Officer President and Chief Merchandising Officer, Ross Dress for Less Group Executive Vice President, Merchandising Senior Vice President and Chief Financial Officer Mr. Balmuth joined the Board of Directors...

  • Page 20
    ... stock repurchase program approved in January 2010 for fiscal 2010 and 2011. See Note H of Notes to Consolidated Financial Statements for equity compensation plan information. The information under Item 12 of this Annual Report on Form 10-K under the caption "Equity compensation plan information...

  • Page 21
    ... invested on 1/28/06 in stock or 1/31/06 in index, including reinvestment of dividends. Fiscal year ended January 29. Indexes calculated on month-end basis. Indexed Returns for Years Ended Company / Index Base Period 2006 2007 2008 2009 2010 2011 Ross Stores, Inc. S&P 500 Index S&P Retailing Group...

  • Page 22
    ...," the section "Forward-Looking Statements" in this Annual Report on Form 10-K and our consolidated financial statements and notes thereto. 20061 ($000, except per share data) 2010 2009 2008 2007 Operations Sales Cost of goods sold Percent of sales Selling, general and administrative Percent...

  • Page 23
    ... Return on average stockholders' equity Book value per common share outstanding at year-end Operating Statistics Number of stores opened Number of stores closed Number of stores at year-end Comparable store sales increase2 (52-week basis) Sales per average square foot of selling space3 (52-week...

  • Page 24
    .... At the end of fiscal 2010, we operated 988 Ross Dress for Less® ("Ross") locations in 27 states and Guam, and 67 dd's DISCOUNTS® stores in six states. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear and home fashions at everyday savings of 20 to 60...

  • Page 25
    ... continuing to strengthen our organization, to diversify our merchandise mix, and to more fully develop our organization and systems to improve regional and local merchandise offerings. Although our strategies and store expansion program contributed to sales gains in fiscal 2010, 2009, and 2008, we...

  • Page 26
    .... For fiscal 2010, selling, general and administrative expenses ("SG&A") increased $99.0 million compared to the prior year, mainly due to increased store operating costs reï¬,ecting the opening of 50 net new stores during the year. SG&A as a percentage of sales for fiscal 2010 decreased by...

  • Page 27
    ... cash ï¬,ows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, rent, taxes, capital expenditures in connection with opening new stores, and investments in distribution centers and information systems. We also use cash...

  • Page 28
    ... by available cash, and cash ï¬,ows from operations. Our buying offices, our corporate headquarters, one distribution center, one trailer parking lot, three warehouse facilities, and all but two of our store locations are leased and, except for certain leasehold improvements and equipment, do not...

  • Page 29
    ... Operating leases. We lease our two buying offices, our corporate headquarters, one distribution center, one trailer parking lot, three warehouse facilities, and all but two of our store locations. Except for certain leasehold improvements and equipment, these leased locations do not represent long...

  • Page 30
    ...of merchandise inventory purchase orders, commitments related to store fixtures and supplies, and information technology service and maintenance contracts. Merchandise inventory purchase orders of $1,250 million represent purchase obligations of less than one year as of January 29, 2011. Commercial...

  • Page 31
    ...-line method over the estimated useful life of the asset, typically ranging from five to 12 years for equipment and 20 to 40 years for real property. The cost of leasehold improvements is amortized over the lesser of the useful life of the asset or the applicable lease term. Lease accounting. When...

  • Page 32
    ...fiscal 2010, and information we provide in our Annual Report to Stockholders, press releases, telephonic reports, and other investor communications including on our corporate website, may contain a number of forward-looking statements regarding, without limitation, planned store growth, new markets...

  • Page 33
    ...point increase or decrease in prevailing market interest rates would not have materially impacted our consolidated financial position, results of operations, cash ï¬,ows, or the fair values of our short- and long-term investments as of and for the year ended January 29, 2011. We do not consider the...

  • Page 34
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Consolidated Statements of Earnings Year ended January 29, 2011 Year ended January 30, 2010 Year ended January 31, 2009 ($000, except per share data) Sales Costs and Expenses Costs of goods sold Selling, general and administrative Interest ...

  • Page 35
    Consolidated Balance Sheets ($000, except share data) January 29, 2011 January 30, 2010 Assets Current Assets Cash and cash equivalents Short-term investments Accounts receivable Merchandise inventory Prepaid expenses and other Deferred income taxes Total current assets Property and Equipment Land ...

  • Page 36
    ... investment gain Total comprehensive income Common stock issued under stock plans, net of shares used for tax withholding Tax benefit from equity issuance Stock-based compensation Common stock repurchased Dividends declared Balance at January 30, 2010 Comprehensive income: Net earnings Unrealized...

  • Page 37
    ... and liabilities: Merchandise inventory Other current assets Accounts payable Other current liabilities Other long-term, net Net cash provided by operating activities Cash Flows From Investing Activities Additions to property and equipment Proceeds from sales of property and equipment Purchases of...

  • Page 38
    ... home fashions for the entire family. At the end of fiscal 2010, the Company operated 988 Ross Dress for Less® ("Ross") locations in 27 states and Guam and 67 dd's DISCOUNTS® stores in six states, all of which are supported by four distribution centers. The Company's headquarters, one buying of...

  • Page 39
    .... In 2010, the Company closed six Ross stores. In 2009, the Company closed three Ross and four dd's DISCOUNTS locations. The lease loss liability related to certain of these closed stores was $4.9 million and $6.2 million, as of January 29, 2011 and January 30, 2010, respectively. Operating costs...

  • Page 40
    ...over the lease term. Changes in tenant improvement allowances are included as a component of operating activities in the consolidated statements of cash ï¬,ows. Estimated fair value of financial instruments. The carrying value of cash and cash equivalents, short- and long-term investments, accounts...

  • Page 41
    ... to be taken on a tax return, in order for those tax positions to be recognized in the consolidated financial statements. See Note F. Treasury stock. The Company records treasury stock at cost. Treasury stock includes shares purchased from employees for tax withholding purposes related to vesting...

  • Page 42
    ...014 3.54 $ 117,821 4.71 $ 2,081 (0.08) $ 119,902 4.63 Sales mix. The Company's sales mix is shown below for fiscal 2010, 2009, and 2008: 2010 Ladies Home accents and bed and bath Men's Accessories, lingerie, fine jewelry, and fragrances Shoes Children's Total 29% 25% 13% 12% 12% 9% 100% 2009 2008...

  • Page 43
    ... in which little or no market data exists, therefore requiring an entity to develop its own assumptions. This fair value hierarchy also requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Corporate, U.S. government and...

  • Page 44
    ... in the Company's non-qualified deferred compensation program totaling $63.6 million as of January 29, 2011 (included in other long-term assets and in other long-term liabilities) primarily consist of participant directed money market, stable value, stock, and bond funds. The fair value measurement...

  • Page 45
    ... rights equal to the value of the 15% discount given on the purchase date. At January 29, 2011, the Company had one stock-based compensation plan, which is further described in Note H. Total stock-based compensation recognized in the Company's consolidated statements of earnings for fiscal 2010...

  • Page 46
    ... in Fort Mill, South Carolina. All four of these warehouses are used to store the Company's packaway inventory. The Company also leases a 10-acre parcel that has been developed for trailer parking adjacent to its Perris distribution center. The Company leases approximately 181,000 square feet of of...

  • Page 47
    ... In fiscal 2010, 2009, and 2008, the Company realized tax benefits of $15.4 million, $8.6 million, and $8.5 million, respectively, related to employee equity programs that were credited to additional paid-in capital. The provision for taxes for financial reporting purposes is different from the...

  • Page 48
    ... Deferred rent Employee benefits Accrued liabilities California franchise taxes Stock-based compensation Other $ 32,131 11,003 2,754 27,309 8,493 13,772 9,406 104,868 Deferred Tax Liabilities Depreciation Merchandise inventory Employee benefits Supplies Prepaid expenses (150,042) (21,046...

  • Page 49
    ...common stock for aggregate purchase prices of approximately $375 million, $300 million, and $300 million in fiscal 2010, 2009, and 2008, respectively. In January 2011, the Company's Board of Directors approved a new two-year $900 million stock repurchase program for fiscal 2011 and 2012, replacing...

  • Page 50
    ...options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units, and deferred compensation awards. As of January 29, 2011, there were 4.4 million shares that remained available for grant under the 2008 Plan...

  • Page 51
    .... The Company recognized $5.1 million, $4.0 million, and $1.5 million of expense related to performance share awards for fiscal 2010, 2009, and 2008, respectively. Employee Stock Purchase Plan. Under the Employee Stock Purchase Plan ("ESPP"), eligible full-time employees participating in the annual...

  • Page 52
    ...) Summarized quarterly financial information for fiscal 2010 and 2009 is presented in the tables below. Year ended January 29, 2011: Quarter Ended ($000, except per share data) May 1, 2010 July 31, 2010 October 30, 2010 January 29, 2011 Sales Cost of goods sold Selling, general and administrative...

  • Page 53
    Year ended January 30, 2010: Quarter Ended ($000, except per share data) May 2, 2009 August 1, 2009 October 31, 2009 January 30, 2010 Sales Cost of goods sold Selling, general and administrative Interest expense, net Total costs and expenses Earnings before taxes Provision for taxes on earnings Net...

  • Page 54
    ..., California We have audited the accompanying consolidated balance sheets of Ross Stores, Inc. and subsidiaries (the "Company") as of January 29, 2011 and January 30, 2010, and the related consolidated statements of earnings, stockholders' equity, and cash ï¬,ows for each of the three years in...

  • Page 55
    ..., the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ross Stores, Inc. and subsidiaries as of January 29, 2011 and January 30, 2010, and the results of their operations and their cash ï¬,ows for each of the three years in the...

  • Page 56
    ... by Deloitte & Touche LLP, an independent registered public accounting firm, and their opinion as to the effectiveness of our internal control over financial reporting is stated in their report, dated March 29, 2011, which is included in Item 8 in this Annual Report on Form 10-K. Because of its...

  • Page 57
    ... Part I of this report; and to the sections of the Ross Stores, Inc. Proxy Statement for the Annual Meeting of Stockholders to be held on Wednesday, May 18, 2011 (the "Proxy Statement") entitled "Information Regarding Nominees and Incumbent Directors." Information required by Item 405 of Regulation...

  • Page 58
    ... Plan, which was approved by the Company's Board of Directors in March 2000. 2 3 4 The information required by Item 403 of Regulation S-K is incorporated herein by reference to the section of the Proxy Statement entitled "Stock Ownership of Certain Beneficial Owners and Management." ITEM...

  • Page 59
    ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Information concerning principal accountant fees and services will appear in the Proxy Statement in the Ross Stores, Inc. Board of Directors Audit Committee Report under the caption "Summary of Audit, Audit-Related, Tax and All Other Fees." Such ...

  • Page 60
    ... the undersigned, thereunto duly authorized. ROSS STORES, INC. (Registrant) Date: March 29, 2011 By: /s/Michael Balmuth Michael Balmuth Vice Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 61
    ... Stores, Inc. for its quarter ended July 30, 1994. Note Purchase Agreement dated October 17, 2006 incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended October 28, 2006. Lease dated July 23, 2003 of Certain Property located in Perris, California...

  • Page 62
    ... ended July 30, 2005. Ross Stores, Inc. 2008 Equity Incentive Plan, incorporated by reference to the appendix to the Definitive Proxy Statement on Schedule 14A filed by Ross Stores, Inc. on April 14, 2008. Form of Nonemployee Director Equity Notice of Grant of Restricted Stock and Restricted Stock...

  • Page 63
    ... of Performance Shares and Performance Share Agreement under the Ross Stores, Inc. 2008 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed by Ross Stores, Inc. on May 1, 2010. Form of Indemnity Agreement between Ross Stores, Inc. for Directors and Executive Of...

  • Page 64
    10.40 Form of Executive Employment Agreement between Ross Stores, Inc. and Executives., incorporated by reference to Exhibit 10.36 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended May 1, 2010. Independent Contractor Consultancy Agreement effective February 1, 2000 between Norman ...

  • Page 65
    ... filed by Ross Stores, Inc. for its quarter ended May 1, 2010. Executive Employment Agreement effective December 4, 2009 between Lisa Panattoni and Ross Stores, Inc., incorporated by reference to Exhibit 10.60 to the Form 10-K filed by Ross Stores, Inc. for its year ended January 30, 2010, and to...

  • Page 66
    ... 10-K filed by Ross Stores, Inc. for its year ended January 30, 2010, and to Exhibit A-1 included in Exhibit 10.36 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended May 1, 2010. Employment Agreement executed October 2007 between John G. Call and Ross Stores, Inc., incorporated by...

  • Page 67
    ....2 32.1 32.2 101.INS¹ Subsidiaries. Consent of Independent Registered Public Accounting Firm. Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a). Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley Act Section 302(a). Certification of Chief...

  • Page 68
    ... statements of Ross Stores, Inc. and subsidiaries (the "Company"), and the effectiveness of the Company's internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended January 29, 2011. /s/DELOITTE & TOUCHE LLP San Francisco, California...

  • Page 69
    ...Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a) I, Michael Balmuth, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Ross Stores, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material...

  • Page 70
    ...cer Pursuant to Sarbanes-Oxley Act Section 302(a) I, John G. Call, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Ross Stores, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make...

  • Page 71
    ... Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 29, 2011 /s/J. Call John G. Call Senior Vice President, Chief Financial Officer and Principal Accounting Officer A signed original of this written statement required...

  • Page 72
    ... Merchandising Ken Caruana Executive Vice President, Strategy, Marketing and Human Resources Dan Cline Executive Vice President Merchandising Gary L. Cribb Executive Vice President Stores and Loss Prevention Michael K. Kobayashi Executive Vice President Supply Chain, Allocation and Chief Information...

  • Page 73
    ...Rosewood Drive Pleasanton, CA 94588-3050 (925) 965-4400 Transfer Agent and Registrar BNY Mellon Shareowner Services 480 Washington Blvd. Jersey City, NJ 07310-1900 or P. O. Box 358015 Pittsburgh, PA 15252-8015 Inquiries by: Corporate Website: www.rossstores.com New York Buying Office Ross Stores...

  • Page 74
    Ross Stores, Inc. 4440 Rosewood Drive Pleasanton, CA 94588-3050 (925) 965-4400 www.rossstores.com E Printed on recycled paper. Please be kind to the environment and recycle. 8