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Delivering
Bargains
30 Years Strong
Ross Stores, Inc. 2012 Annual Report
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Table of contents

  • Page 1
    Ross Stores, Inc. 2012 Annual Report Delivering Bargains 30 Years Strong

  • Page 2
    ...-based Ross Stores, Inc. operates two brands of off-price stores - Ross Dress for Less® ("Ross") and dd's DISCOUNTS®. At the end of fiscal 2012, Ross was the largest off-price apparel and home fashion chain in the United States, with 1,091 locations in 33 states, the District of Columbia and Guam...

  • Page 3
    ... 30 Years Strong Financial Highlights Total Sales ($ billions) 1 Earnings Per Share Return on Average Stockholders' Equity Cash Returned to Stockholders...2012 results are based on a 53-week fiscal year; all other years are on a 52-week basis. Includes cash dividends and stock repurchases. 1

  • Page 4
    ...per share rose 20% on top of a 24% gain in 2011. Store Growth and New Market Expansion Remain on Track As planned, the Company opened 74 net new and 20 dd's DISCOUNTS. We ended the year with a combined 1,199 stores in 33 states, the District of Columbia and Guam. Our expansion program in 2012 bene...

  • Page 5
    ...customers. Healthy Cash Flows Fund Growth and New $1.1 Billion Stock Repurchase Program Operating cash ï¬,ows in 2012 continued to provide the necessary resources to fund new store growth and infrastructure improvements. We invested mainly for distribution infrastructure and information technology...

  • Page 6
    ... are expected our plans for store growth as well as our investment over the next two years in two new distribution centers, the purchase of one of our existing leased distribution facilities, relocation of our corporate headquarters and completion of our new data center. Operating cash ï¬,ows are...

  • Page 7
    ... and Chief Executive Officer Norman A. Ferber Chairman of the Board 2010-2012฀ ฀ ฀ greater Chicago area. ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ opening its 100th location during the year. Guam, and 108 dd's DISCOUNTS stores in...

  • Page 8
    ... to open approximately 60 Ross Alabama Arizona* Arkansas California* Colorado Delaware District of Columbia Florida* Georgia* Guam Hawaii Idaho Illinois Indiana Kansas Kentucky ฀ Maryland* Mississippi Missouri Montana Nevada* New Jersey New Mexico North Carolina Oklahoma Oregon Pennsylvania South...

  • Page 9
    Form 10-K

  • Page 10
    ... 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 68 Index to Other Information Directors and Officers Corporate Data 72 Inside Back...

  • Page 11
    ... SECURITIES 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...

  • Page 12
    ... or the "Company") operate two brands of off-price retail apparel and home fashion stores - Ross Dress for Less® ("Ross") and dd's DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,091 locations in 33 states, the District of Columbia and Guam, as...

  • Page 13
    ... of close-out opportunities in the marketplace. We believe the strong discounts we are able to offer on packaway merchandise are one of the key drivers of our business results. Our primary buying offices are located in New York City and Los Angeles, the nation's two largest apparel markets. These...

  • Page 14
    ... to procure the most desirable brands and fashions at competitive discounts. The off-price buying strategies utilized by our experienced team of merchants enable us to purchase Ross merchandise at net prices that are lower than prices paid by department and specialty stores, and to purchase dd...

  • Page 15
    ... department stores. This strategy reï¬,ects our belief that television is the most efficient and cost effective medium for communicating our brand position. We continue to utilize additional channels to build awareness. Advertising for dd's DISCOUNTS is primarily focused on new store grand openings...

  • Page 16
    ... Securities and Exchange Commission. ITEM 1A. RISK FACTORS Our Annual Report on Form 10-K for fiscal 2012, and information we provide in our Annual Report to Stockholders, press releases, telephonic reports, and other investor communications, including those on our corporate website, may contain...

  • Page 17
    ... of Columbia and Guam, and 108 were dd's DISCOUNTS stores in eight states. All stores are leased, with the exception of three locations which we own. During fiscal 2012, we opened 62 new Ross stores and closed eight existing stores. The average approximate Ross store size is 29,300 square feet. 15

  • Page 18
    ... of Columbia Florida Georgia Guam Hawaii Idaho Illinois Indiana Kansas Kentucky Louisiana Maryland Mississippi Missouri Montana Nevada New Jersey New Mexico North Carolina Oklahoma Oregon Pennsylvania South Carolina Tennessee Texas Utah Virginia Washington Wyoming Total February 2, 2013 20 64...

  • Page 19
    ... of preparing this property for our new corporate headquarters with an estimated occupancy of late 2013 and early 2014. In 2008, we purchased land in Rock Hill, South Carolina. We are currently in the process of preparing this property for a data center and distribution center site with an estimated...

  • Page 20
    ...February 2005, he served as Senior Vice President, Property Development, Construction and Store Design. He joined the Company in June 1988 as Vice President of Real Estate. Prior to joining Ross, Mr. Fassio held various retail and real estate positions with Safeway Stores, Inc. Mr. O'Sullivan became...

  • Page 21
    ... program. In January 2013, our Board of Directors approved a two-year $1.1 billion stock repurchase program for fiscal 2013 and 2014. 2 See Note H of Notes to Consolidated Financial Statements for equity compensation plan information. The information under Item 12 of this Annual Report on Form...

  • Page 22
    ... $150 $100 $50 1/08 1/09 INDEX VALUE 1/10 PERIOD ENDING 1/11 1/12 1/13 Ross Stores, Inc. S&P 500 Index S&P Retailing Group Indexed Returns for Years Ended Company / Index Base Period 2008 2009 2010 2011 2012 2013 Ross Stores, Inc. S&P 500 Index S&P Retailing Group 100 100 100 100 61 65...

  • Page 23
    ...the section "Forward-Looking Statements" in this Annual Report on Form 10-K and our consolidated financial statements and notes thereto. 2012¹ ($000, except per share data) 2011 2010 2009 2008 Operations Sales Cost of goods sold Percent of sales Selling, general and administrative Percent of...

  • Page 24
    ... per share data) 2012¹ 2011 2010 2009 2008 Financial Position Cash and cash equivalents Merchandise inventory Property and equipment, net Total assets Return on average assets Working capital Current ratio Long-term debt Long-term debt as a percent of total capitalization Stockholders' equity...

  • Page 25
    ... Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores - Ross Dress for Less® ("Ross") and dd's DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States with 1,091 locations in 33 states, the District of Columbia and Guam...

  • Page 26
    ... to the prior year due to the opening of 70 net new stores during 2011 and a 5% increase in sales from comparable stores. Our sales mix is shown below for fiscal 2012, 2011, and 2010: 2012 Ladies Home Accents and Bed and Bath Accessories, Lingerie, Fine Jewelry, and Fragrances Shoes Men's Children...

  • Page 27
    ... rate for fiscal 2012, 2011 and 2010 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
    ... inventory purchases, payroll, rent, taxes, and capital expenditures in connection with new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to repurchase stock under our stock repurchase program and to pay...

  • Page 29
    ...to funding costs for fixtures and leasehold improvements to open both new Ross and dd's DISCOUNTS stores, the upgrade or relocation of existing stores, investments in information technology systems, and for various other expenditures related to our stores, distribution centers, buying and corporate...

  • Page 30
    ... our buying offices, corporate headquarters, one distribution center, one trailer parking lot, three warehouse facilities, and all but three of our store locations. Except for certain leasehold improvements and equipment, these leased locations do not represent long-term capital investments. We...

  • Page 31
    ... to construction projects, store fixtures and supplies, and information technology service and maintenance contracts. Merchandise inventory purchase orders of $1,460 million represent purchase obligations of less than one year as of February 2, 2013. Commercial Credit Facilities The table below...

  • Page 32
    .... The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to the Company's store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchase...

  • Page 33
    ... date fair value of all stock-based awards. We use historical data to estimate pre-vesting forfeitures and to recognize stock-based compensation expense. All stockbased compensation awards are expensed over the service or performance periods of the awards. Income taxes. We account for our uncertain...

  • Page 34
    ... 2012, and information we 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...

  • Page 35
    ...of Earnings Year Ended February 2, 2013 Year Ended January 28, 2012 Year Ended January 29, 2011 ($000, except per share data) Sales Costs and Expenses Costs of goods sold Selling, general and administrative Interest expense, net Total costs and expenses Earnings before taxes Provision for taxes on...

  • Page 36
    ... ($000, except share data) February 2, 2013 January 28, 2012 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 Fixtures and...

  • Page 37
    ... declared Balance at January 28, 2012 Net earnings Unrealized investment loss, net 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 February 2, 2013 245...

  • Page 38
    ... taxes Tax benefit from equity issuance Excess tax benefit from stock-based compensation Change in assets and liabilities: Merchandise inventory Other current assets Accounts payable Other current liabilities Other long-term, net Net cash provided by operating activities Cash Flows From Investing...

  • Page 39
    ...home fashions for the entire family. At the end of fiscal 2012, the Company operated 1,091 Ross Dress for Less® ("Ross") locations in 33 states, the District of Columbia and Guam, and 108 dd's DISCOUNTS® stores in eight states. The Ross and dd's DISCOUNTS stores are supported by four distribution...

  • Page 40
    ...-for-sale and are stated at fair value. Investments are classified as either short- or long-term based on their original maturities and the Company's intent. Investments with an original maturity of less than one year are classified as short-term. See Note B for additional information. Merchandise...

  • Page 41
    ... reviews the operating performance of individual stores. For stores that are closed, the Company records a liability for future minimum lease payments net of estimated sublease recoveries and related ancillary costs at the time the liability is incurred. In 2012, the Company closed eight Ross stores...

  • Page 42
    ... sales returns consists of the following: ($000) Beginning balance Additions Returns Ending balance Year ended: February 2, 2013 January 28, 2012 January 29, 2011 $6,426 $5,869 $5,344 $ $ $ 680,058 606,293 558,361 $ (679,319) $ $ (605,736) (557,836) $ $ $ 7,165 6,426 5,869 Store pre-opening...

  • Page 43
    ... to be taken on a tax return, in order for those tax positions to be recognized in the consolidated financial statements. See Note F. Treasury stock. The Company records treasury stock at cost. Treasury stock includes shares purchased from employees for tax withholding purposes related to vesting...

  • Page 44
    ... mix. The Company's sales mix is shown below for fiscal 2012, 2011, and 2010: 2012 Ladies Home Accents and Bed and Bath Accessories, Lingerie, Fine Jewelry, and Fragrances Shoes Men's Children's Total 29% 24% 13% 13% 13% 8% 100% 2011 2010 29% 25% 13% 12% 13% 8% 100% 29% 25% 12% 12% 13% 9% 100...

  • Page 45
    ... the Company's available-for-sale securities as of January 28, 2012 were: Amortized cost Unrealized gains Unrealized losses Fair value Shortterm Longterm ($000) Investments Corporate securities Mortgage-backed securities Total investments Restricted Investments Corporate securities U.S. government...

  • Page 46
    ...at fair value at February 2, 2013 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) February 2, 2013 Investments Corporate...

  • Page 47
    ...cant in any year. $ $ $ No stock options were granted during fiscal 2012, 2011, and 2010. The Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date. At February 2, 2013 , 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, 10-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
    ... 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. The Company leases approximately 192,000 square feet of office space for its corporate headquarters in Pleasanton...

  • Page 50
    ... to employee equity programs that were credited to additional paid-in capital. The provision for taxes for financial reporting purposes is different from the tax provision computed by applying the statutory federal income tax rate. Differences are as follows: 2012 Federal income taxes at the...

  • Page 51
    ...($000) 2012 2011 Deferred Tax Assets Accrued liabilities Deferred compensation Stock-based compensation Deferred rent California franchise taxes Employee benefits Other $ 72,266 28,040 28,781 16,984 13,376 18,315 3,686 181,448 Deferred Tax Liabilities Depreciation Merchandise inventory Supplies...

  • Page 52
    ... 2013 and January 28, 2012, respectively, of long-term plan investments, at market value, set aside or designated for the Non-qualified Deferred Compensation Plan (See Note B). Plan investments are designated by the participants, and investment returns are not guaranteed by the Company. The Company...

  • Page 53
    ... million shares of common stock for aggregate purchase prices of approximately $450 million, $450 million, and $375 million in fiscal 2012, 2011, and 2010, respectively. In January 2013, the Company's Board of Directors approved a two-year $1.1 billion stock repurchase program for fiscal 2013 and...

  • Page 54
    ...ned as the closing market value on the last business day of fiscal year 2012 (or $59.43), was $271.0 million. A total of 7,202,000, 7,811,000, and 8,770,000 shares were available for new restricted stock awards at the end of fiscal 2012, 2011, and 2010, respectively. During fiscal 2012, 2011, and...

  • Page 55
    ... Company, the Company will pay Mr. Ferber $75,000 per year for a period of 10 years. Note J: Litigation, Claims, and Assessments Like many California retailers, the Company has been named in class action lawsuits alleging violation of wage and hour and other employment laws. Class action litigation...

  • Page 56
    ... (Unaudited) Summarized quarterly financial information for fiscal 2012 and 2011 is presented in the tables below. Year ended February 2, 2013: Quarter Ended ($000, except per share data) April 28, 2012 July 28, 2012 October 27, 2012 February 2, 20133 Sales Cost of goods sold Selling, general and...

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

  • Page 58
    ... 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 February 2, 2013 and January 28, 2012, and the...

  • Page 59
    ...nancial position of the Company as of February 2, 2013 and January 28, 2012, and the results of their operations and their cash ï¬,ows for each of the three years in the period ended February 2, 2013, in conformity with generally accepted accounting principles in the United States of America. Also...

  • Page 60
    .... Management's Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to...

  • Page 61
    ... Officer, Controller, Assistant Controller, Vice President Finance, Assistant Treasurer, Investor and Media Relations personnel, and other positions that may be designated by the Company. This Code of Ethics is posted on our corporate website (www.rossstores.com) under Corporate Governance in the...

  • Page 62
    ... and Corporate Governance Committee," and the section of the Proxy Statement entitled "Certain Transactions." ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information concerning principal accountant fees and services will appear in the Proxy Statement in the Ross Stores, Inc. Board of Directors...

  • Page 63
    ... January 29, 2011. Consolidated Statements of Cash Flows for the years ended February 2, 2013, January 28, 2012, and January 29, 2011. Notes to Consolidated Financial Statements. Report of Independent Registered Public Accounting Firm. 2. List of Consolidated Financial Statement Schedules. Schedules...

  • Page 64
    ...by the undersigned, thereunto duly authorized. ROSS STORES, INC. (Registrant) Date: April 2, 2013 By: /s/Michael Balmuth Michael Balmuth Vice Chairman 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 65
    ...of Ross Stores, Inc. as amended, January 23, 2013. 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
    ... May 5, 2007. Form of Stock Option Agreement for Non-Employee Directors for options granted pursuant to Ross Stores, Inc. 2004 Equity Incentive Plan, incorporated by reference to Exhibit 10.3 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended July 30, 2005. Ross Stores, Inc. 2008...

  • Page 67
    ...Shares and Performance Share 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...

  • Page 68
    ... Stock Units and Restricted Stock Units Agreement pursuant to the Ross Stores, Inc. 2008 Equity Incentive Plan to Michael Balmuth on August 15, 2012, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended October 27, 2012. Executive Employment...

  • Page 69
    ... 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 February 2, 2013. /s/DELOITTE & TOUCHE LLP San Francisco, California April 2, 2013...

  • Page 70
    ...ficer 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 fact necessary to...

  • Page 71
    ...that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. (b) Date: April 2, 2013 /s/J. Call John G. Call Group Senior Vice President, Chief Financial Officer, Principal Accounting Officer and Corporate Secretary 69

  • Page 72
    ...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 February 2, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Balmuth, as Chief Executive Officer of the...

  • Page 73
    [This page intentionally left blank] 71

  • Page 74
    ... Marketing and Human Resources Gary L. Cribb Executive Vice President Stores and Loss Prevention Michael K. Kobayashi Executive Vice President Supply Chain, Allocation and Chief Information Officer John G. Call Group Senior Vice President Chief Financial Officer and Corporate Secretary Ross Dress...

  • Page 75
    ... TDD#) Annual Report (Form 10-K) A copy of the Company's 2012 Annual Report on Form 10-K as filed with the Securities and Exchange Commission is available from our corporate website, or without charge, by contacting the following: Investor Relations Department Ross Stores, Inc. 4440 Rosewood Drive...

  • Page 76
    Ross Stores, Inc. 4440 Rosewood Drive Pleasanton, CA 94588-3050 (925) 965-4400 www.rossstores.com Sustainable Choice. Reduce, Reuse & Recycle. To minimize our environmental impact, the Ross Stores 2012 Annual Report was printed on papers containing fibers from environmentally appropriate, socially...