Ross 2006 Annual Report Download - page 35

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Stores. Total stores open at the end of 2006, 2005 and 2004 were 797, 734 and 649, respectively. The number of stores at the
end of fiscal 2006, 2005 and 2004 increased by 9%, 13% and 14% from the respective prior years. Our operating strategy is to
open additional stores based on local market penetration, local demographic characteristics including population, competition,
and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities
for potential new store locations. We also evaluate our current store locations and determine store closures based on similar
criteria.
2006 2005 2004
Stores at the beginning of the period 734 649 568
Stores opened in the period 66 86 84
Stores closed in the period (3) (1) (3)
Stores at the end of the period 797 734 649
Selling square footage at the
end of the period (000) 18,642 17,319 15,253
Sales. Sales for 2006 increased $626.0 million, or 12.7%, compared to the prior year due to the opening of 63 net new stores
during 2006, and a 4% increase in sales from “comparable” stores (defined as stores that have been open for more than 14
complete months). Sales for fiscal 2005 increased $704.2 million, or 16.6%, compared to the same period in the prior year due
to the opening of 85 net new stores during 2005, and a 6% increase in sales from comparable stores.
Our sales mix for Ross is shown below for fiscal 2006, 2005 and 2004:
2006 2005 2004
Ladies 33% 34% 34%
Home accents and bed and bath 22% 21% 21%
Men’s 15% 16% 16%
Fine jewelry, accessories, lingerie and fragrances 11% 11% 12%
Shoes 10% 9% 8%
Children’s 9% 9% 9%
Total 100% 100% 100%
We expect to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strate-
gies and by continuing to strengthen our organization, to diversify the merchandise mix, and to more fully develop the organiza-
tion and systems to strengthen regional and local merchandise offerings. Although our strategies and store expansion program
contributed to sales gains in fiscal 2006, 2005 and 2004, we cannot be sure that they will result in a continuation of sales growth
or an increase in net earnings.
Stock-based compensation. Effective in fiscal 2006, we adopted SFAS No. 123(R) and elected to adopt the standard using the
modified prospective transition method. This new accounting standard requires recognition of compensation expense based on
the grant date fair value of all stock-based awards, typically amortized over the vesting period. The impact on results for fiscal
2006 was to decrease earnings before taxes by approximately $13.2 million, and net income by approximately $8.0 million.
See Notes A and C in the Notes to Consolidated Financial Statements for more information on our stock-based compensation
plans and implementation of SFAS No. 123(R).
Cost of goods sold. Cost of goods sold in fiscal 2006 increased $464.9 million compared to the prior year mainly due to
increased sales from the opening of 63 net new stores during the year, a 4% increase in sales from comparable stores, and
additional stock compensation expenses recognized pursuant to SFAS No. 123(R).
Cost of goods sold as a percentage of sales for fiscal 2006 decreased approximately 40 basis points from the prior year. This
improvement was driven mainly by a 40 basis point improvement in merchandise margin primarily due to lower markdowns and