Ross 2006 Annual Report Download - page 14

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As a result, in addition to healthy sales gains, earnings benefited from a 40 basis point increase in operating margin and
better-than-expected interest income. Our improved profitability was mainly driven by higher gross margin, as decreases
in markdowns, distribution costs and shrink accrual as a percent of sales more than offset increases in freight and stock
option-related costs. Selling, general and administrative expenses as a percent of sales remained flat compared to 2005,
mainly due to leverage from the 53rd week that was offset by stock option-related costs.
Ongoing Progress at dd’s DISCOUNTS
We continued to roll out our dd’s DISCOUNTS concept in 2006, opening six stores in California during the year. dd’s is a
new concept that we launched in the third quarter of 2004. The bargain emphasis is on more moderately-priced assort-
ments of first-quality, in-season, name-brand and fashion apparel, accessories, footwear and home merchandise for the
entire family at everyday savings of 20% to 70% off moderate department and discount store regular prices.
Sales and profit trends at dd’s DISCOUNTS in 2006 were better than expected and also showed improvement over the
prior year. We believe that our solid financial performance to date at dd’s DISCOUNTS confirms that we have identified
a customer segment that we were not reaching with our core Ross concept.
Although costs associated with our strategic investment in separate buying and distribution functions for this business
continued to create a modest drag on earnings, the impact in 2006 was less than expected. Looking ahead, we estimate
that dd’s can achieve break-even profitability when the business reaches 80 to 100 locations.
Strong Cash Flows Fund Growth and Enhance Stockholder Returns
Operating cash flows in 2006 continued to provide the resources to fund new store growth and infrastructure improve-
ments. We invested about $224 million in capital to add 57 net new Ross and six dd’s DISCOUNTS stores and made
ongoing investments in systems and distribution, including $87 million to acquire our Fort Mill, South Carolina distribution
center from the lessor. We also repaid a $50 million term loan that was used to finance equipment and systems at our
Perris, California distribution center. We ended the year with $373 million in cash and short-term investments and $150
million in unsecured senior note debt.
We continued to return cash to shareholders through our share repurchase and dividend programs. We repurchased 7.1
million shares during the year for an aggregate purchase price of $200 million as part of our two-year $400 million pro-
gram authorized by our Board of Directors in November 2005. We expect to complete the remaining $200 million stock
repurchase authorization in fiscal 2007.
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