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Ross Stores, Inc. 2011 Annual Report
more stores. more brands.
more bargains.

Table of contents

  • Page 1
    Ross Stores, Inc. 2011 Annual Report more stores more brands . . more bargains .

  • Page 2
    ...states at year end. Ross offers a wide selection of first quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20% to 60% off department and specialty store regular prices. dd's DISCOUNTS features moderately priced...

  • Page 3
    financial highlights Total Sales ($ billions) Earnings Per Share1 Return on Average Stockholders' Equity Cash Returned to Stockholders2 ($ millions) $7.9 $7.2 $6.5 $6.0 $8.6 $2.86 45% 41% ... the 2-for-1 stock split effective December 15, 2011. Includes cash dividends and stock repurchases. 1

  • Page 4
    ... to execute our off-price strategies across all areas of the business, with a commitment to offering exceptional values every day to our customers. Expansion into New Markets Accelerated Store Growth As planned, net unit growth increased to 7% in 2011, up from 5% in the prior year. This expansion...

  • Page 5
    ...the year, including approximately $235 million to open new locations and renovate existing stores, and about $181 million mainly for distribution infrastructure and information technology projects. We ended vscal 2011 with $650 million in cash and short-term investments and $150 million in long-term...

  • Page 6
    ... enhanced sales by increasing the percentage of fresh product in front of our customers. Our improved planning and allocation systems and processes have been in place for two full years and are helping us do a better job of getting the right merchandise to the right store at the right time. Planning...

  • Page 7
    ... Responsibility at Ross Stores Overptheppastp30pyears,pwephavepgrownpfrompp apsmallpretailpchainptopmorepthanp1,100pstoresp today.pAlongpthepway,pwephavepmaintainedpanp ... associatespwithptrainingpandpdevelopmentp programs,pandpbypsupportingpthepcommunitiesp...

  • Page 8
    locations Wepremainedponptrackpwithpourpexpansionpplanspinp2011,pincreasingpourpstorepbasepbypp 7%pandpendingpthepfiscalpyearpwithp1,.... 1,125 stores across 29 states Alabamap Arizona*p Arkansasp California*p Coloradop Delawarep DistrictpofpColumbiap Florida*p Georgia*p Guamp Hawaiip...

  • Page 9
    form 10-K

  • Page 10
    ... Analysis Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Signatures Index to Exhibits Certifications 10 21 23 33 37 56 62 63 69 Index to Other Information Directors and Officers Corporate Data 72 Inside...

  • Page 11
    ... file number 0-14678 Ross Stores, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 4440 Rosewood Drive, Pleasanton, California (Address of principal executive offices) Registrant's telephone number, including area...

  • Page 12
    ...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 everyday savings of 20% to 60% off department and specialty store regular prices. dd's DISCOUNTS...

  • Page 13
    ...-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 14
    ... specialty store. This strategy enables us to offer customers consistently low prices. On a weekly basis our buyers review specified departments in our stores for possible markdowns based on the rate of sale as well as at the end of fashion seasons to promote faster turnover of merchandise inventory...

  • Page 15
    ... in 2012. 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 everyday low prices. This strategy...

  • Page 16
    ..., store, and distribution organizations for dd's DISCOUNTS and Ross are separate and distinct; however, dd's DISCOUNTS shares certain other corporate and support services with Ross. Avoiloble Informotion The internet address for our corporate website is www.rossstores.com. Our Annual Reports on...

  • Page 17
    ... for store and distribution center employees. ITEM 1B. UNRESOLVED STAFF COMMENTS. Not applicable. ITEM 2. PROPERTIES. At January 28, 2012, we operated a total of 1,125 stores, of which 1,037 were Ross locations in 29 states, the District of Columbia, and Guam, and 88 were dd's DISCOUNTS stores in...

  • Page 18
    ..., 2012 and January 29, 2011. State/Territory Alabama Arizona Arkansas California Colorado Delaware District of Columbia Florida Georgia Guam Hawaii Idaho Illinois Louisiana Maryland Mississippi Montana Nevada New Jersey New Mexico North Carolina Oklahoma Oregon Pennsylvania South Carolina Tennessee...

  • Page 19
    ... Management's Discussion and Analysis. 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...

  • Page 20
    ...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 Group Senior Vice President and Chief Financial Officer Mr. Balmuth joined the Board of Directors...

  • Page 21
    ... publicly announced stock repurchase program. In January 2011, our Board of Directors approved a two-year $900 million stock repurchase program for fiscal 2011 and 2012. 3 See Note H of Notes to Consolidated Financial Statements for equity compensation plan information. The information under Item...

  • Page 22
    ...1/12 Ross Stores, Inc. S&P 500 Index S&P Retailing Group *$100 invested on 2/3/07 in stock or 1/31/07 in index, including reinvestment of dividends. Indexes calculated on month-end basis. Indexed Returns for Years Ended Company / Index Base Period 2007 2008 2009 2010 2011 2012 Ross Stores, Inc...

  • Page 23
    ...," the section "Forward-Looking Statements" in this Annual Report on Form 10âˆ'K and our consolidated financial statements and notes thereto. ($000, except per share data) 2011 2010 2009 2008 2007 Operations Sales Cost of goods sold Percent of sales Selling, general and administrative Percent...

  • Page 24
    ...' equity Return on average stockholders' equity Book value per common share outstanding at year-end 1 Operating Statistics Number of stores opened Number of stores closed Number of stores at year-end Comparable store sales increase 2 (52-week basis) Sales per average square foot of selling space...

  • Page 25
    ..., and Guam. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear and home fashions for the entire family at everyday savings of 20% to 60% off department and specialty store regular prices. We also operate 88 dd's DISCOUNTS locations in seven states that...

  • Page 26
    ... 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 2011, 2010, and 2009, we...

  • Page 27
    ... rate for fiscal 2011, 2010, and 2009 was approximately 38% in each year, which represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns. The effective rate is impacted by changes in laws, location of new stores...

  • Page 28
    ...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 to repurchase stock under our stock repurchase program and to pay dividends. ($ millions) 2011...

  • Page 29
    ... information technology systems, build or expand distribution centers, and various other expenditures related to our stores, buying, and corporate offices. We opened 80, 56, and 56 new stores in fiscal 2011, 2010, and 2009, respectively. In April 2011, we purchased a 449,000 square foot warehouse...

  • Page 30
    ... improvements and equipment, these leased locations do not represent long-term capital investments. We have lease arrangements for certain equipment in our stores for our point-of-sale ("POS") hardware and software systems. These leases are accounted for as operating leases for financial reporting...

  • Page 31
    ... in Fort Mill, South Carolina and a 449,000 square foot warehouse in Riverside, California. All five of these warehouses are used to store our packaway inventory. We also lease a 10-acre parcel that has been developed for trailer parking adjacent to our Perris, California distribution center. We...

  • Page 32
    ... other factors that management believes to be reasonable. We believe the following critical accounting policies describe the more significant judgments and estimates used in the preparation of our consolidated financial statements. Merchondise inventory. Our merchandise inventory is stated at the...

  • Page 33
    ... Changes in tenant improvement allowances are included as a component of operating activities in the consolidated statements of cash flows. Insuronce obligotions. We use a combination of insurance and self-insurance for a number of risk management activities, including workers' compensation, general...

  • Page 34
    ...provide in our Annual Report to Stockholders, press releases, telephonic reports, and other investor communications including those on our corporate website, may contain a number of forward-looking statements regarding, without limitation, planned store growth, new markets, expected sales, projected...

  • Page 35
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Consolidoted Stotements of Eornings Yeor ended Jonuory 28, 2012 Year ended January 29, 2011 Year ended January 30, 2010 ($000, except per share data) Sales Costs and Expenses Costs of goods sold Selling, general and administrative Interest ...

  • Page 36
    ...Bolonce Sheets ($000, except share data) Jonuory 28, 2012 January 29, 2011 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 and buildings...

  • Page 37
    ... gain, net 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 29, 2011 Comprehensive income: Net earnings Unrealized...

  • Page 38
    ... 28, 2012 Year ended January 29, 2011 Year ended January 30, 2010 ($000) Cash Flows From Operating Activities Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Stock-based compensation Deferred income taxes Tax benefit...

  • Page 39
    ... family. At the end of fiscal 2011, the Company operated 1,037 Ross Dress for Less® ("Ross") locations in 29 states, the District of Columbia, and Guam, and 88 dd's DISCOUNTS® stores in seven states, all of which are supported by four distribution centers. The Company's headquarters, one buying...

  • Page 40
    ...inventory counts and cycle counts. Cost of goods sold. In addition to product costs, the Company includes in cost of goods sold its buying, distribution and freight expenses as well as occupancy costs, and depreciation and amortization related to the Company's retail stores, buying, and distribution...

  • Page 41
    ... 28, 2012 and January 29, 2011, respectively. The Company includes the change in book cash overdrafts in operating cash flows. Insuronce obligotions. The Company uses a combination of insurance and self-insurance for a number of risk management activities, including workers' compensation, general...

  • Page 42
    ... assets, accounts payable, and other long-term liabilities approximates their estimated fair value. See Note B and Note D for additional fair value information. Revenue recognition. The Company recognizes revenue at the point of sale and maintains an allowance for estimated future returns. Sales of...

  • Page 43
    ... the vesting period. See Note C for more information on the Company's stock-based compensation plans. Toxes on eornings. The Company accounts for income taxes in accordance with Accounting Standards Codification ("ASC") 740, "Accounting for Income Taxes," which requires the recognition of deferred...

  • Page 44
    ... for fair value measurements. ASU 2011-04 is to be applied prospectively and is effective for the Company in fiscal 2012. The Company believes the adoption of this guidance will not have a material impact on its consolidated financial statements. In June 2011, the FASB issued Accounting Standards...

  • Page 45
    ... 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 agency...

  • Page 46
    ...January 28, 2012 are summarized below: Fair Value Measurements at Reporting Date Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) ($000) January 28, 2012 Investments Corporate securities Mortgage...

  • Page 47
    ... not significant in any year. No stock options were granted during fiscal 2011, 2010, or 2009. The Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date. At January 28, 2012, the Company had one stock-based compensation plan, which is...

  • Page 48
    ... square foot distribution center in Perris, California. The land and building for this distribution center are financed by the lessor under a $70 million ten-year synthetic lease facility that expires in July 2013. Rent expense on this distribution center is payable monthly at a fixed annual rate...

  • Page 49
    ..., South Carolina and a 449,000 square foot warehouse in Riverside, California. All five 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, California distribution center...

  • Page 50
    ...,659 In fiscal 2011, 2010, and 2009, the Company realized tax benefits of $19.0 million, $15.4 million and $8.6 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 51
    ...: ($000) 2011 2010 Deferred Tax Assets Accrued liabilities Deferred compensation Stock-based compensation Deferred rent California franchise taxes Employee benefits Other $ 43,215 34,736 16,969 13,115 11,286 10,074 3,260 132,655 Deferred Tax Liabilities Depreciation Merchandise inventory Supplies...

  • Page 52
    ...on a pre-tax basis in addition to the 401(k) plan. Other long-term assets include $67.5 million and $63.6 million at January 28, 2012 and January 29, 2011, respectively, of long-term plan investments, at market value, set aside or designated for the Non-qualified Deferred Compensation Plan (See Note...

  • Page 53
    ... shares of common stock for aggregate purchase prices of approximately $450 million, $375 million, and $300 million in fiscal 2011, 2010, and 2009, respectively. In January 2011, the Company's Board of Directors approved a two-year $900 million stock repurchase program for fiscal 2011 and 2012. The...

  • Page 54
    ... business day of fiscal year 2011 (or $51.09), was $273.5 million. A total of 7,811,000, 8,770,000, and 9,886,000 shares were available for new restricted stock awards at the end of fiscal 2011, 2010, and 2009, respectively. During fiscal 2011, 2010, and 2009, shares purchased by the Company for tax...

  • Page 55
    ... for ESPP purchase rights equal to the value of the 15% discount given on the purchase date. During fiscal 2011, 2010, and 2009, employees purchased approximately 243,000, 292,000, and 332,000 shares, respectively, of the Company's common stock under the plan at weighted average per share prices of...

  • Page 56
    ... Summarized quarterly financial information for fiscal 2011 and 2010 is presented in the tables below. Year ended January 28, 2012: Quarter Ended ($000, except per share data) April 30, 2011 July 30, 2011 October 29, 2011 January 28, 2012 Sales Cost of goods sold Selling, general and administrative...

  • Page 57
    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 Interest expense, net Total costs and expenses Earnings before taxes Provision for taxes on earnings Net ...

  • Page 58
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Ross Stores, Inc. Pleasanton, California We have audited the accompanying consolidated balance sheets of Ross Stores, Inc. and subsidiaries (the "Company") as of January 28, 2012 and January 29, 2011, and ...

  • Page 59
    ... position of Ross Stores, Inc. and subsidiaries as of January 28, 2012 and January 29, 2011, and the results of their operations and their cash flows for each of the three years in the period ended January 28, 2012, in conformity with accounting principles generally accepted in the United States of...

  • Page 60
    ...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 27, 2012, which is included in Item 8 in this Annual Report on Form 10-K. Because of its inherent...

  • Page 61
    ... 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Information required by item 401 of Regulation S-K is incorporated herein by reference to the sections entitled "Executive Officers of the Registrant" at the end of Part I of this report; and to the sections of the Ross Stores, Inc. Proxy...

  • Page 62
    ... 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 63
    ... 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 information is incorporated herein by reference. PART IV ITEM 15...

  • Page 64
    ... Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature /s/Michael Balmuth Michael Balmuth /s/J. Call John G. Call Title Vice Chairman and Chief Executive Officer, Director Group Senior...

  • Page 65
    ... Stores, Inc. for its quarter ended July 30, 2011. 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 66
    ...Amended and Restated Ross Stores, Inc. 1991 Outside Directors Stock Option Plan, as amended through January 30, 2003, incorporated by reference to Exhibit 10.9 to the Form 10-K filed by Ross Stores, Inc. for its fiscal year ended February 1, 2003. Ross Stores Executive Medical Plan, incorporated by...

  • Page 67
    ... Agreement under the Ross Stores, Inc. 2008 Equity Incentive Plan, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended July 30, 2011. Form of Indemnity Agreement between Ross Stores, Inc. for Directors and Executive Officers, incorporated by...

  • Page 68
    ... by reference to Exhibit 10.47 to the Form 10-K filed by Ross Stores, Inc. for its fiscal year ended January 29, 2011. Amended and Restated Retirement Benefit Package Agreement effective January 6, 2010 between Norman A. Ferber and Ross Stores, Inc., incorporated by reference to Exhibit 10.48 to the...

  • Page 69
    ... Ross Stores, Inc. for its quarter ended May 1, 2010. Sixth Amendment to the Employment Agreement effective June 1, 2011 between Michael Balmuth and Ross Stores, Inc., incorporated by reference to Exhibit 10.1 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended July 30, 2011. Executive...

  • Page 70
    ... 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 28, 2012. /s/DELOITTE & TOUCHE LLP San Francisco, California...

  • Page 71
    ... 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 72
    ... of Chief Financial Officer 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...

  • Page 73
    ...The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 27, 2012 /s/J. Call John G. Call Group Senior Vice President, Chief Financial Officer and Principal Accounting Officer A signed original...

  • Page 74
    ... Chairman and Chief Executive Officer Douglas Baker President and Chief Merchandising Officer dd's DISCOUNTS James S. Fassio President and Chief Development Officer Michael O'Sullivan President and Chief Operating Officer Barbara Rentler President and Chief Merchandising Officer Ross Dress for Less...

  • Page 75
    Ross Stores, Inc. 4440 Rosewood Drive Pleasanton, CA 94588-3050 (925) 965-4400 www.rossstores.com sustainable choice. reduce, reuse and recycle. To minimize our environmental impact, the Ross Stores, Inc. 2011 Annual Report was printed on papers containing fibers from environmentally appropriate, ...