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Ross Stores, Inc.
2013 Annual Report
Ross Stores, Inc.
5130 Hacienda Drive
Dublin, CA 94568-7579
(925) 965-4400
www.rossstores.com
Always a
Great Bargain
Ross Stores, Inc. 2013 Annual Report
To minimize our environmental impact, the Ross Stores 2013 Annual Report was
printed on papers containin bers from environmentally appropriate, socially
bene cial and economically viable forest resources.
Sustainable Choice. Reduce, Reuse & Recycle.

Table of contents

  • Page 1
    Ross Stores, Inc. 2013 Annual Report Always a Great Bargain

  • Page 2
    ... the largest off-price apparel and home fashion chain in the United States, with 1,146 locations in 33 states, the District of Columbia and Guam, while dd's DISCOUNTS operated 130 stores in ten states. Ross, which was founded in 1982, offers a wide selection of first quality, in-season, name brand...

  • Page 3
    Financial Highlights Total Sales ($ billions) 1 Earnings Per Share Return on Average Stockholders' Equity Cash Returned to Stockholders2 ($ millions) $3.88 ...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
    ... the year included ongoing expansion in the new markets Ross Dress for Less entered beginning in October 2011. By the end of 2013, we operated a total of 64 Ross locations in Illinois, Missouri, Arkansas, Kansas, Kentucky and Indiana. In addition, dd's DISCOUNTS entered New Mexico and South Carolina...

  • Page 5
    ...$180 million to open new locations and update existing stores and about $370 million mainly for distribution infrastructure and information technology projects, including the relocation of our data center and our move into new corporate headquarters. We ended 2013 with $435 million in cash and short...

  • Page 6
    ... to fund new store openings over the next year, as well as infrastructure investments we are making to support our long-term expansion plans. We are in the process of constructing two new distribution centers and also expect to complete the purchase of our New York Buying Office building in 2014...

  • Page 7
    ...Responsibility at Ross The six Ross Dress for Less stores we opened in Northern California in 1982 have grown into the largest off-price apparel and home fashion chain in the United States, with 1,146 locations at the end of 2013; dd's DISCOUNTS, which we launched in 2004, had 130 stores at year end...

  • Page 8
    ... 33 states Alabama Arizona* Arkansas California* Colorado Delaware District 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...

  • Page 9
    Form 10-K

  • Page 10
    ... Data Management's Discussion and Analysis Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Signatures Index to Exhibits Certifications 10 22 24 34 38 56 62 63 68 Index to Other Information Directors...

  • Page 11
    ... Drive, Dublin, California (Address of principal executive offices) Registrant's telephone number, including area code Title of each class _____ Common stock, par value $.01 94568-7579 (Zip Code) (925) 965-4400 Name of each exchange on which registered _____ Nasdaq Global Select Market Securities...

  • Page 12
    ... incomes than Ross customers. The merchant, store, and distribution organizations for Ross and dd's DISCOUNTS are separate and distinct. The two chains share certain other corporate and support services. Both our Ross and dd's DISCOUNTS brands target value-conscious women and men between the ages of...

  • Page 13
    ... enable us to offer our customers brand name and designer merchandise at strong everyday discounts relative to department and specialty stores for Ross and moderate department and discount stores for dd's DISCOUNTS. By purchasing later in the merchandise buying cycle than department, specialty, and...

  • Page 14
    ... 1, 2014, we operated a total of 1,276 stores comprised of 1,146 Ross stores and 130 dd's DISCOUNTS stores. Our stores are located predominantly in community and neighborhood shopping centers in heavily populated urban and suburban areas. Where the size of the market and real estate opportunities...

  • Page 15
    ... invest in new information systems and technology to provide a platform for growth over the next several years. Recent initiatives include enhancements to our merchandise planning, core merchandising, allocation management, and store labor management systems. These initiatives support our expansion...

  • Page 16
    ... with retailers that sell apparel and home fashions through catalogs or online. The retail apparel and home-related businesses may become even more competitive in the future. Available Information The internet address for our corporate website is www.rossstores.com. Our Annual Reports on Form 10...

  • Page 17
    ... store locations, to open new stores, and to operate stores on a profitable basis. Our existing strategies and store and distribution center expansion programs may not result in a continuation of our anticipated revenue or profit growth. In executing our off-price retail strategies and working...

  • Page 18
    ... 2013. State/Territory Alabama Arizona Arkansas California Colorado Delaware District 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...

  • Page 19
    ... build-out of this distribution center site with an estimated occupancy of 2014. ² We are currently in the process of completing construction of these warehouses with an estimated occupancy of 2014. ³ We plan to purchase our New York buying office in 2014. 4 Our former corporate headquarters...

  • Page 20
    ...cer, dd's DISCOUNTS President and Chief Development Officer President and Chief Operating Officer President and Chief Merchandising Officer, Ross Dress for Less Group Executive Vice President, Merchandising Executive Vice President, Finance and Legal, and Corporate Secretary Senior Vice President...

  • Page 21
    ..., after joining Ross in September 2003 as Senior Vice President, Strategic Planning and Marketing. From 1991 to 2003, Mr. O'Sullivan was with Bain & Company, most recently as a partner, providing consulting advice to retail, consumer goods, financial services and private equity clients. Ms. Rentler...

  • Page 22
    ... program. ² In January 2013, our Board of Directors approved a two-year $1.1 billion stock repurchase program for fiscal 2013 and 2014. 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 23
    ...$500 $400 Index Value $300 $200 $100 $0 1/09 1/10 1/11 1/12 1/13 1/14 Period Ending Ross Stores, Inc. S&P 500 Index S&P Retailing Group Indexed Returns for Years Ended Company / Index Base Period 2009 2010 2011 2012 2013 2014 Ross Stores, Inc. S&P 500 Index S&P Retailing Group 100 100 100...

  • Page 24
    ...," the section "Forward-Looking Statements" in this Annual Report on Form 10-K and our consolidated financial statements and notes thereto. 2013 2012¹ 2011 2010 2009 ($000, except per share data) Operations Sales Cost of goods sold Percent of sales Selling, general and administrative Percent of...

  • Page 25
    ... per share data) 2013 2012¹ 2011 2010 2009 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 26
    ... 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 1,146 locations in 33 states, the District of Columbia and Guam as of February 1, 2014. Ross offers first-quality, in-season, name brand and designer...

  • Page 27
    ... and by continuing to strengthen our organization, diversify our merchandise mix, and more fully develop our systems to improve regional and local merchandise offerings. Although our strategies and store expansion program contributed to sales gains in fiscal 2013, 2012, and 2011, we cannot be sure...

  • Page 28
    ... 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, level of earnings, and the resolution of tax positions with...

  • Page 29
    ... operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise 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...

  • Page 30
    ... costs to build or expand distribution centers, develop our new data center, open new stores and improve existing stores, and for various other expenditures related to our information technology systems, buying, and corporate offices. We opened 88, 82, and 80 new stores in fiscal 2013, 2012, and...

  • Page 31
    ... 442,000 shares of treasury stock from our employee stock equity compensation programs, for aggregate purchase prices of approximately $29.9 million, $29.4 million, and $15.9 million during fiscal 2013, 2012, and 2011, respectively. In February 2014, our Board of Directors declared a quarterly cash...

  • Page 32
    ... plan to purchase our New York buying office in 2014. Purchase obligations. As of February 1, 2014 we had purchase obligations of approximately $1,812 million. These purchase obligations primarily consist of merchandise inventory purchase orders, commitments related to construction projects, store...

  • Page 33
    .... 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 34
    ...as a component of operating activities in the consolidated statements of cash ï¬,ows. Insurance obligations. We use a combination of insurance and self-insurance for a number of risk management activities, including workers' compensation, general liability, and employee-related health care benefits...

  • Page 35
    ...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, expected sales, projected...

  • Page 36
    ... Statements of Earnings Year Ended February 1, 2014 Year Ended February 2, 2013 Year Ended January 28, 2012 ($000, except per share data) Sales Costs and Expenses Costs of goods sold Selling, general and administrative Interest (income) expense, net Total costs and expenses Earnings before taxes...

  • Page 37
    ...Balance Sheets ($000, except share data) February 1, 2014 February 2, 2013 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...

  • Page 38
    ... Balance at February 2, 2013 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 ($0.51 per share) Balance at February 1, 2014...

  • Page 39
    ... 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 40
    .... The Company's headquarters, one buying office, two operating distribution centers, one warehouse, and 25% of its stores are located in California. Segment reporting. The Company has one reportable segment. The Company's operations include only activities related to off-price retailing in stores...

  • Page 41
    ...-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 42
    ... square foot Perris, California distribution center for $70 million. In October 2013, the Company entered into a Sale-Purchase Agreement under which it has the right to purchase the office building where its New York buying office is located for $222 million. The building is subject to a 99 year...

  • Page 43
    ... for estimated future returns. Sales of stored value cards are deferred until they are redeemed for the purchase of Company merchandise. The Company's stored value cards do not have expiration dates. Based upon historical redemption rates, a small percentage of stored value cards will never be...

  • Page 44
    ...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 of...

  • Page 45
    ...06) $ 222,784 3.53 $ 212,881 3.93 $ 2,924 (0.05) $ 215,805 3.88 Sales mix. The Company's sales mix is shown below for fiscal 2013, 2012, and 2011: 2013 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...

  • Page 46
    Note B: Investments and Restricted Investments The amortized cost and fair value of the Company's available-for-sale securities as of February 1, 2014 were: Amortized cost Unrealized gains Unrealized losses Fair value Shortterm Longterm ($000) Investments Corporate securities U.S. government and ...

  • Page 47
    ... 2014 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 1, 2014 Investments Corporate securities U.S. government...

  • Page 48
    ...ficant in any year. No stock options were granted during fiscal 2013, 2012, and 2011. The Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date. At February 1, 2014, the Company had one stock-based compensation plan, which is further...

  • Page 49
    ... the New York buying office Sale-Purchase Agreement. Trade letters of credit. The Company had $31.6 million and $38.0 million in trade letters of credit outstanding at February 1, 2014 and February 2, 2013, respectively. Note E: Leases The Company leases all but three of its store locations with...

  • Page 50
    ...space for its New York City and Los Angeles buying offices, respectively. The lease terms for these facilities expire in 2022 and 2017, respectively, and contain renewal provisions. The Company plans to purchase its New York buying office in 2014. The aggregate future minimum annual lease payments...

  • Page 51
    ...: 2013 2012 ($000) Deferred Tax Assets Accrued liabilities Deferred compensation Stock-based compensation Deferred rent California franchise taxes Employee benefits Other $ 87,835 31,034 33,048 17,888 16,479 16,177 4,992 207,453 Deferred Tax Liabilities Depreciation Merchandise inventory Supplies...

  • Page 52
    ... for fiscal years 2009 through 2013. Certain state tax returns are currently under audit by state tax authorities. The Company does not expect the results of these audits to have a material impact on the consolidated financial statements. Note G: Employee Benefit Plans The Company has a de...

  • Page 53
    ... 2014 and February 2, 2013, 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 54
    ....14 The market value of shares of restricted stock and of the stock underlying restricted stock units at the date of grant is amortized to expense ratably over the vesting period of generally three to five years. The unamortized compensation expense at February 1, 2014 and February 2, 2013 was $74...

  • Page 55
    ... rights equal to the value of the 15% discount given on the purchase date. During fiscal 2013, 2012, and 2011, employees purchased approximately 208,000, 211,000, and 243,000 shares, respectively, of the Company's common stock under the plan at weighted average per share prices of $57.57, $50...

  • Page 56
    ... of goods sold Selling, general and administrative Interest expense (income), net Total costs and expenses Earnings before taxes Provision for taxes on earnings Net earnings Earnings per share - basic1 Earnings per share - diluted1 Cash dividends declared per share on common stock Stock price High...

  • Page 57
    ... Cost of goods sold Selling, general and administrative Interest expense, net Total costs and expenses Earnings before taxes Provision for taxes on earnings Net earnings Earnings per share - basic1 Earnings per share - diluted1 Cash dividends declared per share on common stock Stock price High Low...

  • Page 58
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Ross Stores, Inc. Dublin, California We have audited the accompanying consolidated balance sheets of Ross Stores, Inc., and subsidiaries (the "Company") as of February 1, 2014 and February 2, 2013, and the ...

  • Page 59
    ... operations and their cash ï¬,ows for each of the three years in the period ended February 1, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over...

  • Page 60
    ... & Touche LLP, an independent registered public accounting firm, and their opinion as to the effectiveness of our internal control over financial reporting is stated in their report, dated April 1, 2014, which is included in Item 8 in this Annual Report on Form 10-K. Because of its inherent...

  • Page 61
    ... the caption "Audit Committee." Our Board of Directors has adopted a Code of Ethics for Senior Financial Officers that applies to the Company's Chief Executive Officer, Chief Merchandising Officer, Chief Development Officer, Chief Operating Officer, Executive Vice President, Finance and Legal...

  • Page 62
    ...." 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 Audit Committee Report under the caption "Summary of Audit, Audit-Related, Tax and All Other Fees...

  • Page 63
    ... the years ended February 1, 2014, February 2, 2013, and January 28, 2012. Consolidated Statements of Cash Flows for the years ended February 1, 2014, February 2, 2013, and January 28, 2012. Notes to Consolidated Financial Statements. Report of Independent Registered Public Accounting Firm. 2. List...

  • Page 64
    ... Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. ROSS STORES, INC. (Registrant) Date: April 1, 2014 By: /s/Michael Balmuth Michael Balmuth Vice Chairman and Chief Executive Officer Pursuant to the requirements of the...

  • Page 65
    ... quarter ended August 4, 2001. Ross Stores, Inc. 2000 Equity Incentive Plan, incorporated by reference to Exhibit 10.7 to the Form 10-K filed by Ross Stores, Inc. for its fiscal year ended January 29, 2000. Amended and Restated Ross Stores, Inc. Employee Stock Purchase Plan dated November 20, 2007...

  • Page 66
    ... Stock Agreement for Nonemployee Director, incorporated by reference to Exhibit 10.3 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended May 2, 2009. Form of Notice of Grant of Performance Shares and Performance Share Agreement under the Ross Stores, Inc. 2008 Equity Incentive Plan...

  • Page 67
    ... Benefits Package Agreement effective January 30, 2012 between Norman A. Ferber and Ross Stores, Inc., incorporated by reference to Exhibit 10.53 to the Form 10-K filed by Ross Stores, Inc. for its fiscal year ended January 28, 2012. Employment Agreement effective May 31, 2001 between Michael...

  • 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 our report dated April 1, 2014, relating to the consolidated financial statements of Ross Stores, Inc. and subsidiaries (the "Company"), and 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...

  • Page 70
    ... 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 make the statements made, in light of the circumstances under...

  • Page 71
    ...Hartshorn, 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 make the statements made, in light of the circumstances under...

  • Page 72
    ...In connection with the Annual Report of Ross Stores, Inc. (the "Company") on Form 10-K for the year ended February 1, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Balmuth, as Chief Executive Officer of the Company, hereby certify, pursuant...

  • Page 73
    [This page intentionally left blank] 71

  • Page 74
    ... Secretary Ken Caruana Executive Vice President Strategy, 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 Michael J. Hartshorn Senior Vice President...

  • Page 75
    ...-6610 (foreign TDD#) Annual Report (Form 10-K) A copy of the Company's 2013 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. 5130...

  • Page 76
    Ross Stores, Inc. 5130 Hacienda Drive Dublin, CA 94568-7579 (925) 965-4400 www.rossstores.com Sustainable Choice. Reduce, Reuse & Recycle. To minimize our environmental impact, the Ross Stores 2013 Annual Report was printed on papers containing fibers from environmentally appropriate, socially ...