Ross 2006 Annual Report Download - page 34

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
We are the second largest off-price apparel and home goods retailer in the United States. At the end of fiscal 2006, there were
771 Ross locations in 27 states and Guam, and 26 dd’s DISCOUNTS stores in California. 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 prices. dd’s DISCOUNTS features a more moderately-priced assortment of first-quality, in-season,
name-brand apparel, accessories, footwear and home fashions at everyday savings of 20% to 70% off moderate department
and discount store regular prices.
Our primary strategy is to pursue and refine our existing off-price business and to steadily expand our store base. In establish-
ing growth objectives for our business, we closely monitor market share trends for the off-price industry. Total apparel sales
for the off-price sector grew by 8% during 2006, which is faster than total national apparel sales, which grew by 5% vs. 4%
last year, according to data from the NPD Group. The NPD Group provides global sales and marketing information on the retail
industry. This reflects the ongoing importance of value to consumers. Our strategies are designed to take advantage of these
growth trends and continued customer demand for name-brand fashions for the family and the home at competitive everyday
discounts.
We refer to our fiscal years ended February 3, 2007, January 28, 2006, and January 29, 2005 as fiscal 2006, fiscal 2005 and fiscal
2004, respectively. Fiscal 2006 was 53 weeks. Fiscal 2005 and 2004 were 52 weeks.
Results of Operations
Reclassifications. In periods prior to fiscal 2006, stock-based compensation expense related to restricted stock grants and
incentive compensation expense were included in selling, general and administrative (“SG&A”) expenses. In accordance with
SEC Staff Accounting Bulletin (“SAB”) No. 107, which provides guidance on implementation of Statement of Financial Accounting
Standards (“SFAS”) No. 123(R), “Share-Based Payment,” all compensation-related expenses are recorded in a manner similar
to other employee payroll costs. Therefore, for periods prior to fiscal 2006, we have reclassified the portion of stock-based
compensation and incentive compensation that relates to personnel in the merchandising and distribution organizations from
selling, general and administrative expense to cost of goods sold. Beginning in fiscal year 2006, the portion of stock option
and employee stock purchase plan (“ESPP”) expenses included in stock-based compensation expense for personnel in the
merchandising and distribution organizations is included in cost of goods sold, and the balance is included in SG&A expenses.
2006 2005 2004
Sales
Sales (millions) $ 5,570 $ 4,944 $ 4,240
Sales growth 12.7% 16.6% 8.1%
Comparable store sales growth (decline) (52-week basis) 4% 6% (1)%
Costs and expenses (as a percent of sales)
Cost of goods sold 77.5% 77.9% 77.5%
Selling, general and administrative 15.5% 15.5% 15.5%
Impairment of long-lived assets 0.0% 0.0% 0.4%
Interest (income) expense, net
(0.2)% (0.1)% 0.0%
Earnings before taxes (as a percent of sales) 7.2% 6.6% 6.6%
Net earnings (as a percent of sales) 4.3% 4.0% 4.0%