Ross 2005 Annual Report Download

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2005 Annual Report

Table of contents

  • Page 1
    2005 Annual Report

  • Page 2

  • Page 3
    BEDDING BELTS PANTS SKIRTS CHAIRS SHOES FRAMES JEANS

  • Page 4
    AT ROSS, CUSTOMERS ALWAYS FIND BARGAINS SEVEN DAYS A WEEK.

  • Page 5
    ... buying-or acquiring name-brand close-outs and surplus goods. Close-out buys-whether in season or at the end of a season, which we refer to as "packaway" -typically offer the largest discounts compared to full-priced department and specialty stores. Our buyers are regularly in the market, developing...

  • Page 6
    ... buys and savings. Customers respond to the "treasure-hunt" nature of our stores. Ross customers like searching for bargains and are attracted to the "treasure-hunt" nature of our shopping experience. Our success is directly linked to our ability to consistently offer a wide array of product...

  • Page 7
    ...lower labor costs by focusing customer service where the customer values it-in the dressing rooms and at the check-out counter. Keeping our operating costs low enables us to be more competitive in the discounts we offer on name-brand fashions for the family and the home. Our wide assortment of fresh...

  • Page 8
    ... ability to plan, buy and allocate merchandise more effectively. The goal is to improve sales and profit margins of belowaverage stores in both newer and existing markets. A net addition of approximately 55 Ross and six dd's DISCOUNTS stores, all in existing regions, are targeted to open during 2006...

  • Page 9
    Ross Stores Locations Alabama Arizona California* Colorado Florida Georgia Guam 9 35 212 22 85 32 1 Hawaii Idaho Louisiana Maryland Mississippi Montana Nevada 11 6 9 15 3 5 13 New Jersey New Mexico North Carolina Oklahoma Oregon Pennsylvania South Carolina 8 5 24 9 20 20 17 Tennessee Texas Utah ...

  • Page 10
    ... related to the write-down of our former headquarters and distribution center in Newark, California. Geographic and merchandise trends during 2005 were relatively broad-based. Our strongest markets were the Southwest, Texas and Florida, all posting percentage gains in same store sales in the high...

  • Page 11
    ... as we begin 2006. Operating cash flows in 2005 continued to provide the resources to fund capital investments in new store growth and infrastructure. We invested $176 million in capital expenditures to add 75 net new Ross locations and ten dd's DISCOUNTS stores, purchase a new warehouse facility in...

  • Page 12
    ... and returns over the next several years. In closing, we want to extend our appreciation to our stockholders, vendors, business partners and customers for their ongoing support. We also want to acknowledge and thank the more than 33,000 Ross associates throughout the country whose hard work and...

  • Page 13
    Ross Stores, Inc. Consolidated Financial Statements

  • Page 14
    ... Financial Data Management's Discussion & Analysis Consolidated Financial Statements Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Signatures Index to Exhibits Certifications Index of Other Information Directors and Officers Corporate Data 14...

  • Page 15
    ...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) Delaware (State or other jurisdiction of incorporation or organization) 4440 Rosewood Drive, Pleasanton, California (Address of...

  • Page 16
    ... households. The decisions we make, from merchandising, purchasing and pricing, to the locations of our stores, are aimed at this customer base. We offer brand-name and designer merchandise at low everyday prices, generally 20% to 60% below the regular prices of most department and specialty stores...

  • Page 17
    ...to procure the most desirable brands at competitive discounts. These off-price buying strategies enable us to purchase merchandise at net prices that are lower than prices paid by department and specialty stores. Pricing. The Company's policy is to sell brand-name merchandise priced 20% to 60% below...

  • Page 18
    ...strategically located close to the source of inbound merchandise receipts. We lease two 1.3 million square foot distribution centers-one in Fort Mill, South Carolina and the other in Perris, California. We own a third 426,000 square foot distribution center located in Carlisle, Pennsylvania. We sold...

  • Page 19
    ... on brand-name merchandise, offering a well-balanced assortment appealing to our target customer, and consistently providing a store environment that is convenient and easy-to-shop. To execute this concept, we have strengthened our buying organization and developed a merchandise allocation system to...

  • Page 20
    department and discount store regular prices. We opened ten initial stores at locations in California during the second half of 2004 and ten stores during the first nine months of 2005. This new business generally has similar merchandise departments and categories to those of Ross, but features a ...

  • Page 21
    ...Alabama, Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Louisiana, Maryland, Mississippi, Montana, Nevada, New Jersey, New Mexico, North Carolina, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington and Wyoming. We also operate one Ross store...

  • Page 22
    ... DISCOUNTS locations at January 28, 2006 and January 29, 2005, respectively. State January 28, 2006 January 29, 2005 Alabama Arizona California Colorado Florida Georgia Guam Hawaii Idaho Louisiana Maryland Mississippi Montana Nevada New Jersey New Mexico North Carolina Oklahoma Oregon Pennsylvania...

  • Page 23
    ... in Fort Mill, South Carolina. All three of these properties are used to store our packaway inventory. In 2005, we purchased a 685,000 square foot warehouse with expansion rights in Moreno Valley, California. See additional discussion under "Distribution" in Item 1. Corporate Headquarters In January...

  • Page 24
    ... Vice President, Real Estate and Construction at Craftmart and Property Director of Safeway Stores. Mr. Gluck has served as Executive Vice President of Merchandising, Marketing and Planning and Allocation since February 2005. From August 1993 to February 2005, he served as Senior Vice President and...

  • Page 25
    ...has served as Executive Vice President, Merchandising since October 2005. She joined the Company as Senior Vice President and General Merchandising Manager, Home in January 2005. Prior to joining the Company, Ms. Panattoni was with The TJX Companies, most recently serving as Senior Vice President of...

  • Page 26
    ... Financial Statements in Item 8 of this Annual Report, which is incorporated herein by reference. Our stock is traded on The NASDAQ Stock Market ® under the symbol ROST. There were 751 stockholders of record as of March 24, 2006 and the closing stock price on that date was $28.93 per share. Cash...

  • Page 27
    ..." in the Company's Annual Report on Form 10-K and our consolidated financial statements and notes thereto. ($000, except per share data) 2005 2004 2003 2002 2001 Operations Sales Cost of goods sold Percent of sales Selling, general and administrative Percent of sales Impairment of long-lived assets...

  • Page 28
    ... 714 Ross stores in 26 states and Guam, and 20 dd's DISCOUNTS store locations in California at January 28, 2006. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear and home fashions at everyday savings of 20% to 60% off department and specialty store regular...

  • Page 29
    ...respective prior fiscal years. Our operating strategy is to open additional stores based on local market penetration, the ability to leverage overhead expenses, local demographic characteristics including population, and competition. We continually evaluate opportunistic real estate acquisitions and...

  • Page 30
    ...the organization and systems to strengthen regional and local merchandise offerings. Although our strategies and store expansion program contributed to sales gains in 2005, 2004 and 2003, we can not be sure that they will result in a continuation of revenue or profit growth. Cost of goods sold. Cost...

  • Page 31
    ...decrease in incentive plan costs partially offset by a 20 basis point increase in store payroll and benefit costs as a percentage of sales. The largest component of SG&A is payroll. The total number of employees, including both full and part-time, at January 28, 2006, January 29, 2005 and January 31...

  • Page 32
    ... management information technology systems, install and implement materials handling equipment and related distribution center systems, and various other expenditures related to existing stores, buying offices, corporate offices and the purchase of a warehouse in Moreno Valley, California. We opened...

  • Page 33
    ...by cash flows from operations, bank credit facilities and trade credit. Substantially all of our store locations, buying offices, our headquarters, and certain distribution centers are leased and, except for certain leasehold improvements and equipment, do not represent long-term capital investments...

  • Page 34
    Off-Balance Sheet Arrangements Operating leases. Substantially all of our store sites, certain distribution centers, and our buying offices and corporate headquarters are leased and, except for certain leasehold improvements and equipment, do not represent long-term capital investments. We own our ...

  • Page 35
    ..., bank credit lines and trade credit are adequate to meet operating cash needs, fund our planned capital investments, repay our term loan, address the amount due in connection with our Fort Mill, South Carolina distribution center, repurchase common stock and make quarterly dividend payments for...

  • Page 36
    ... accounting policies describe the more significant judgments and estimates used in the preparation of our consolidated financial statements. Merchandise inventory. Our merchandise inventory is stated at the lower of cost or market, with cost determined on a weighted average cost method. We purchase...

  • Page 37
    ... 2005, and information we provide in our Annual Report to Stockholders, press releases, telephonic reports and other investor communications including on our website, may contain a number of forward-looking statements regarding, without limitation, planned store growth, new markets, expected sales...

  • Page 38
    ..., the lease on our distribution center in Fort Mill, South Carolina accrues interest at LIBOR plus 90 basis points. A hypothetical 100 basis point increase in prevailing market interest rates would not have materially impacted our consolidated financial position, results of operations, or cash flows...

  • Page 39
    Item 8. Financial Statements and Supplementary Data Consolidated Statements of Earnings Year ended January 28, 2006 Year ended January 29, 2005 Year ended January 31, 2004 ($000, except per share data) Sales Costs and expenses Cost of goods sold Selling, general and administrative Impairment of ...

  • Page 40
    Consolidated Balance Sheets January 28, 2006 January 29, 2005 ($000, except share data) 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 41
    ... income Common stock issued under stock plans, net of shares used for tax withholding Tax benefit from equity issuance Amortization of deferred compensation Common stock repurchased Dividends declared Balance at January 29, 2005 Comprehensive income: Net earnings Long-term investment gain (loss...

  • Page 42
    ... benefit from equity issuance Change in assets and liabilities: Merchandise inventory Other current assets, net Accounts payable Other current liabilities Other long-term, net Net cash provided by operating activities Cash Flows Used in Investing Activities Additions to property and equipment Sales...

  • Page 43
    ...gift items, linens and other home-related merchandise. At January 28, 2006, the Company operated 714 Ross Dress for Less ® ("Ross") locations and 20 dd's DISCOUNTS ® stores in 26 states and Guam, which are supported by four distribution centers. The Company's headquarters, two distribution centers...

  • Page 44
    ..., 2006 and January 29, 2005, respectively. The Company includes the changes in book cash overdrafts in operating cash flows. Self-insurance. The Company is self-insured for workers' compensation, general liability costs and certain health plans. The self-insurance liability is determined actuarially...

  • Page 45
    ...operations. Revenue recognition. The Company recognizes revenue at the point of sale, net of actual returns, and maintains a provision for estimated future returns. Sales of gift certificates and gift cards are deferred until they are redeemed for the purchase of the Company's merchandise. Sales tax...

  • Page 46
    ... under those plans consistent with the methods of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below: ($000, except per share data) 2005 2004 2003 Net earnings As reported Add: Stock-based employee compensation expense...

  • Page 47
    ... accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. SFAS No. 123(R) requires recognition of stock-based compensation expense in the consolidated financial statements over the period during which an employee is required to provide service...

  • Page 48
    ... over the remaining service period using the compensation cost calculated for the previously reported pro forma disclosure purposes. For awards granted after the adoption date, the Company will recognize expense on a straight-line basis over the applicable vesting term. The Company does not believe...

  • Page 49
    ... Company leases a 1.3 million square foot distribution center in Fort Mill, South Carolina. This distribution center, including equipment and systems, is being financed under an $87.3 million five-year synthetic lease facility that expires in May 2006. Rent expense on this center is payable monthly...

  • Page 50
    ...lease on its corporate headquarters in Pleasanton, California. The lease has an initial term of 10.5 years with three five-year renewal options. In October 2004, the Company entered into a lease arrangement to use a portion of the Newark Facility to support distribution activities for dd's DISCOUNTS...

  • Page 51
    ... 31,607 146,111 In 2005, 2004 and 2003, the Company realized tax benefits of $21.9 million, $14.8 million and $15.1 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...

  • Page 52
    ..., 2005, respectively, of long-term investments, at market value, set aside or designated for the Non-qualified Deferred Compensation Plan. Plan investments are designated by the participants, and investment returns are not guaranteed by the Company. Note G: Stockholders' Equity Preferred stock. The...

  • Page 53
    ... purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units and deferred stock units. The 2004 Plan also provides for the automatic grant of stock options at pre-established times at predetermined value to each non-employee director. Under the 2004 Plan...

  • Page 54
    ... 2005, 2004 and 2003, respectively. Employee Stock Purchase Plan. Under the Employee Stock Purchase Plan, eligible full-time employees participating in the annual offering period can choose to have up to the lesser of 10% or $21,250 of their annual base earnings withheld to purchase the Company...

  • Page 55
    ... and wage claims. The Orange County Superior Court has certified a class in a case involving whether the Company's assistant store managers in California are correctly classified as exempt managers under California Wage Orders. This is a procedural ruling and does not address the merits of the case...

  • Page 56
    ... financial information for 2005 and 2004 is presented in the tables below. Year ended January 28, 2006: Quarter ended April 30, 2005 Quarter ended July 30, 2005 Quarter ended October 29, 2005 Quarter ended January 28, 2006 ($000, except per share data) Sales Cost of goods sold Selling, general and...

  • Page 57
    Year ended January 29, 2005: Quarter ended May 1, 2004 Quarter ended July 31, 2004 Quarter ended October 30, 2004 Quarter ended January 29, 2005 ($000, except per share data) Sales Cost of goods sold Selling, general and administrative Impairment of long-lived assets Interest expense (income), net...

  • Page 58
    ... 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, 2006 and January 29, 2005, and the related consolidated statements of earnings, stockholders' equity and cash flows...

  • Page 59
    ...evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective 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...

  • Page 60
    .... Directors and Executive Officers of the Registrant Information required by this item 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 Statement for the Annual...

  • Page 61
    ... of the Proxy Statement entitled (i) "Compensation of Directors" and (ii) "Certain Transactions." Item 14. Principal Accountant Fees and Services Information concerning principal accountant fees and services will appear in the Proxy Statement in the Board of Directors Audit Committee Report under...

  • Page 62
    ..., thereunto duly authorized. ROSS STORES, INC. (Registrant) Date: April 12, 2006 By: /s/Michael Balmuth Michael Balmuth Vice Chairman, President 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 63
    ...its year ended January 29, 2000. First Amendment to the Ross Stores, Inc. 2004 Equity Incentive Plan, effective May 17, 2005, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by Ross Stores for its quarter ended July 30, 2005. Form of Stock Option Agreement for Non-Employee Directors...

  • Page 64
    ... to Exhibit 10.38 to the Form 10-K filed by Ross Stores for its fiscal year ended January 29, 2005. Ross Stores, Inc. 2004 Equity Incentive Plan, incorporated by reference to Exhibit 99 to the Definitive Proxy Statement on Schedule 14A filed by Ross Stores, Inc. on April 15, 2004. 10.16 10.17 10...

  • Page 65
    ...pursuant to the Ross Stores, Inc. 2004 Equity Incentive Plan, incorporated by reference to Exhibit 10.33 to the Form 10-Q filed by Ross Stores for its quarter ended July 31, 2004. Form of Executive Employment Agreement between Ross Stores, Inc. and Executive Vice Presidents or Senior Vice Presidents...

  • Page 66
    ... 31.1 Ross Stores, Inc. Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a) I, Michael Balmuth, certify that: 1. I have reviewed this annual report on Form 10-K of Ross Stores, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of...

  • Page 67
    ... Inc. Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley Act Section 302(a) I, John G. Call, certify that: 1. I have reviewed this annual report on Form 10-K of Ross Stores, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit...

  • Page 68
    Exhibit 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Ross Stores, Inc. (the "Company") on Form 10-K for the year ended January 28, 2006 as filed with the ...

  • Page 69
    Exhibit 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Ross Stores, Inc. (the "Company") on Form 10-K for the year ended January 28, 2006 as filed with the ...

  • Page 70
    ...Resources Executive Vice President Merchandising, Marketing and Planning and Allocation Michael Kobayashi Senior Vice President Chief Information Officer Executive Vice President Property Development, Construction and Store Design Ken Caruana Senior Vice President Strategy Corporate Officers Michael...

  • Page 71
    Corporate Data Corporate Headquarters Ross Stores, Inc. 4440 Rosewood Drive Pleasanton, California 94588-3050 (925) 965-4400 Corporate Website: www.rossstores.com New York Buying Office Ross Stores, Inc. 1372 Broadway, 10th Floor New York, New York 10018 (212) 819-3100 Los Angeles Buying Office Ross...

  • Page 72
    Ross Stores, Inc. 4440 Rosewood Drive Pleasanton, California 94588 (925) 965-4400 www.rossstores.com