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Bargains
Ross Stores, Inc.
2014 Annual Report

Table of contents

  • Page 1
    Ross Stores, Inc. 2014 Annual Report Bargains

  • Page 2
    ... Dress for Less® ("Ross") and dd's DISCOUNTS®. Ross Dress for Less is the largest off-price apparel and home fashion chain in the U.S. with over 1,200 stores in 33 states, the District of Columbia and Guam, while dd's DISCOUNTS operates over 150 stores in 15 states. Ross offers name brand designer...

  • Page 3
    ... 12 13 14 10 11 12 13 14 Return on Average Stockholders' Equity 2012 results are based on a 53-week fiscal year; all other years are on a 52-week basis. 2 Includes cash dividends and stock repurchases. 1 Cash Returned to Stockholders2 ($ millions) Ross Stores, Inc. 2014 Annual Report | 1

  • Page 4
    ... 2011. By the end of 2014, we operated a total of 81 Ross locations in Illinois, Missouri, Kansas, Kentucky and Indiana. dd's DISCOUNTS also entered five new states in 2014 including Louisiana, New Jersey, North Carolina, Oklahoma and Oregon. For 2015, we plan to open about 70 new Ross Dress...

  • Page 5
    Another year of solid sales and earnings growth in fiscal 2014. Ross Stores, Inc. 2014 Annual Report | 3

  • Page 6
    Our top priority will always be delivering the best values possible to our customers. 4 | 2014 Annual Report Ross Stores, Inc.

  • Page 7
    ...improved sales and gross margins. For 2015, we are planning selling store inventories to be down slightly on top of these multi-year declines. 8% Children's 13% Shoes 29% Ladies 13% Men's 13% Accessories, Lingerie, Fine Jewelry, Fragrances 24% Home Accents, Bed and Bath Ross Stores, Inc. 2014...

  • Page 8
    ...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 1,210 locations at the end of 2014. dd's DISCOUNTS, which we launched in 2004, had 152 stores at year end...

  • Page 9
    Our greatest assets are the people that work in our stores, distribution centers and offices. Ross Stores, Inc. 2014 Annual Report | 7

  • Page 10
    ...nine dd's DISCOUNTS stores in California, Texas, Florida and Arizona, respectively, seven stores in Georgia, three in Nevada, two each in Maryland, New Mexico and Tennessee, and one store each in Louisiana, New Jersey, North Carolina, Oklahoma, Oregon and South Carolina. 8 | 2014 Annual Report Ross...

  • Page 11
    Form 10-K Ross Stores, Inc.

  • Page 12
    ... 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 12 24 26 36 40 60 66 67 73 Index to Other Information Directors...

  • Page 13
    ... organization) (I.R.S. Employer Identification No.) 5130 Hacienda 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...

  • Page 14
    ...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 1,210 locations in 33 states, the District of Columbia and Guam, as of January 31, 2015. Ross offers...

  • Page 15
    ...-price buying strategies is a key factor in our success. Our buyers use a number of methods that enable us to offer our customers brand name and designer merchandise at strong discounts every day relative to department and specialty stores for Ross and moderate department and discount stores for dd...

  • Page 16
    ... 31, 2015, we operated a total of 1,362 stores comprised of 1,210 Ross stores and 152 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 17
    ...to communicate our brand position. Advertising for dd's DISCOUNTS is primarily focused on new store grand openings and local media initiatives. Trademarks The trademarks for Ross Dress For Less® and dd's DISCOUNTS® have been registered with the United States Patent and Trademark Office. Employees...

  • Page 18
    ...cost of new store real estate locations. • A downturn in the economy or a natural disaster in California or in another region where we have a concentration of stores or a distribution center. Our corporate headquarters, Los Angeles buying office, two operating distribution centers, two warehouses...

  • Page 19
    ...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 to improve...

  • Page 20
    ... 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 Tennessee Texas Utah Virginia Washington Wyoming Total January 31...

  • Page 21
    ... area of the facility. Square footage information for office space represents total space owned and leased. See additional discussion in Management's Discussion and Analysis. Location Distribution centers Carlisle, Pennsylvania Fort Mill, South Carolina Moreno Valley, California Perris, California...

  • Page 22
    ... Officer and a member of the Board of Directors since June 2014. From 2009 to May 2014, she was President and Chief Merchandising Officer, Ross Dress for Less and Executive Vice President, Merchandising, from 2006 to 2009. She also served at dd's DISCOUNTS as Executive Vice President and Chief...

  • Page 23
    ... for all of the Home businesses, Men's, Junior Sportswear, Lingerie, and Cosmetics. Previously, she was Group Executive Vice President, Merchandising at Ross from 2009 to May 2014. She joined the Company in 2005 as Senior Vice President and General Merchandise Manager of Home and was promoted to...

  • Page 24
    ...31, 2015. Treasury stock includes shares purchased from employees for tax withholding purposes related to vesting of restricted stock grants. All remaining shares were repurchased under our publicly announced stock repurchase program. In February 2015, our Board of Directors approved a new two-year...

  • Page 25
    ...indicative of future performance. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN Among Ross Stores, Inc., the S&P 500 Index, and S&P Retailing Group Indexed Returns for Years Ended Company / Index Base Period 2010 2011 2012 2013 2014 2015 Ross Stores, Inc. S&P 500 Index S&P Retailing Group 100 100...

  • Page 26
    ... Statements" in this Annual Report on Form 10-K and our consolidated financial statements and notes thereto. 2014 2013 20121 2011 2010 ($000, except per share data) Operations Sales Cost of goods sold Percent of sales Selling, general and administrative Percent of sales Interest expense (income...

  • Page 27
    ... per share data) 2014 2013 20121 2011 2010 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 28
    ... 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 1,210 locations in 33 states, the District of Columbia and Guam as of January 31, 2015. Ross offers...

  • Page 29
    ... 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 2014, 2013, and 2012, we cannot be sure that...

  • Page 30
    ...basis points compared to the prior year primarily due to higher costs related to the relocation of our data center. The largest component of SG&A is payroll. The total number of employees, including both full and part-time, as of fiscal year end 2014, 2013, and 2012 was approximately 71,400, 66,300...

  • Page 31
    ...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 offices. We also use cash to repurchase stock under our stock repurchase program and...

  • Page 32
    ... other expenditures related to our information technology systems, buying, and corporate offices. We opened 95, 88, and 82 new stores in fiscal 2014, 2013, and 2012, respectively. In September 2014 we completed the purchase of the office building where our New York buying office is located for...

  • Page 33
    ...and cash dividends of $0.14 per common share in January, May, August, and November 2012. During fiscal 2014, 2013, and 2012, we paid dividends of $168.5 million, $147.9 million, and $125.7 million, respectively. In March 2015, our Board of Directors approved a two-for-one stock split in the form of...

  • Page 34
    ... our New York buying office. Except for certain leasehold improvements and equipment, these leased locations do not represent long-term capital investments. Two of the warehouses are in Carlisle, Pennsylvania with leases expiring in 2016 and 2017. The third warehouse is in Fort Mill, South Carolina...

  • Page 35
    ... Packaway inventory accounted for approximately 45%, 49%, and 47% of total inventories as of January 31, 2015, February 1, 2014, and February 2, 2013, respectively. Merchandise inventory includes acquisition, processing, and storage costs related to packaway inventory. Included in the carrying value...

  • Page 36
    ... component of operating activities in the Consolidated Statements of Cash Flows. 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. Our...

  • Page 37
    ... Form 10-K for fiscal 2014, and information we provide in our Annual Report to Stockholders, press releases, and other investor communications including those on our corporate website, may contain a number of forwardlooking statements regarding, without limitation, planned store growth, new markets...

  • Page 38
    ... of Earnings Year Ended January 31, 2015 Year Ended February 1, 2014 Year Ended February 2, 2013 ($000, except per share data) Sales Costs and Expenses Cost of goods sold Selling, general and administrative Interest expense (income), net Total costs and expenses Earnings before taxes Provision for...

  • Page 39
    ... 31, 2015 February 1, 2014 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 equipment Leasehold improvements...

  • Page 40
    ...at February 1, 2014 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 ($0.80 per share) Balance at January 31, 2015 226,864...

  • Page 41
    ... 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 Activities Additions to property and equipment...

  • Page 42
    ... fiscal 2014, the Company operated 1,210 Ross Dress for Less® ("Ross") locations in 33 states, the District of Columbia and Guam, and 152 dd's DISCOUNTS® stores in 15 states. The Ross and dd's DISCOUNTS stores are supported by five distribution centers. The Company's headquarters, one buying of...

  • Page 43
    ..., and depreciation and amortization related to the Company's retail stores, buying, and distribution facilities. Buying expenses include costs to procure merchandise inventories. Distribution expenses include the cost of operating the Company's distribution centers and warehouse facilities. Prepaid...

  • Page 44
    ... the change in book cash overdrafts in operating cash ï¬,ows. Insurance obligations. The Company uses 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. The self...

  • Page 45
    .... The Company recognizes income from stored value card breakage as a reduction of operating expenses when redemption by a customer is considered to be remote. Income recognized from breakage was not significant in fiscal 2014, 2013, and 2012. Sales tax collected is not recognized as revenue and is...

  • Page 46
    ... below for fiscal 2014, 2013, and 2012: 2014 Ladies Home Accents and Bed and Bath Accessories, Lingerie, Fine Jewelry, and Fragrances Men's Shoes Children's Total 29% 24% 13% 13% 13% 8% 100% 2013 29% 24% 13% 13% 13% 8% 100% 2012 29% 24% 13% 13% 13% 8% 100% Allowance for sales returns. An allowance...

  • Page 47
    ... shares purchased from employees for tax withholding purposes related to vesting of restricted stock grants. Earnings per share ("EPS"). The Company computes and reports both basic EPS and diluted EPS. Basic EPS is computed by dividing net earnings by the weighted average number of common shares...

  • Page 48
    ... 3,710 The change in fair value of investment securities for fiscal years 2014, 2013, and 2012 was a decrease of $0.1 million, $0.3 million, and $0.1 million, respectively. Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the...

  • Page 49
    ...value at January 31, 2015 are summarized below: Fair Value Measurements at Reporting Date Quoted prices in active markets...investments measured at fair value at February 1, 2014 are summarized below: Fair Value Measurements at Reporting Date Quoted prices in active markets for identical assets (...

  • Page 50
    ...ficant in any year. No stock options were granted during fiscal 2014, 2013, and 2012. The Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date. At January 31, 2015, the Company had one active stockbased compensation plan, which is...

  • Page 51
    ... ($000) Cost of goods sold Selling, general and administrative Total $ $ 2014 27,088 25,913 53,001 $ $ 2013 24,432 22,415 46,847 $ 2012 22,915 26,037 $ 48,952 Note D: Debt Senior notes. Unsecured senior debt, net of unamortized discounts as of January 31, 2015 and February 1, 2014 consisted of the...

  • Page 52
    ... trade letters of credit outstanding at January 31, 2015 and February 1, 2014, respectively. Note E: Leases The Company currently leases all but three of its store locations with original, non-cancelable terms that in general range from three to ten years. Store leases typically contain provisions...

  • Page 53
    ...(1,850) (39,028) $ 478,081 $ 486,203 35,053 521,256 $ 485,882 31,227 517,109 In fiscal 2014, 2013, and 2012, the Company realized tax benefits of $29.8 million, $27.7 million and $30.0 million, respectively, related to employee equity programs that were recorded in additional paid-in capital. 51

  • Page 54
    ...% 2013 35% 3% 38% 2012 35% 3% 38% The components of deferred income taxes at January 31, 2015 and February 1, 2014 are as follows: 2014 2013 ($000) Deferred Tax Assets Accrued liabilities Deferred compensation Stock-based compensation Deferred rent California franchise taxes and credits Employee...

  • Page 55
    ...Company is generally open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2011 through 2014. The Company's state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2010 through 2014. Certain state tax...

  • Page 56
    ...2015, the Company's Board of Directors approved a two-year $1.4 billion stock repurchase program for fiscal 2015 and 2016. The following table summarizes the Company's stock repurchase activity in fiscal 2014, 2013, and 2012: Fiscal Year Shares repurchased (in millions) Average repurchase price...

  • Page 57
    ... information about the weighted average remaining contractual life (in years) and the weighted average exercise prices for stock options both outstanding and exercisable as of January 31, 2015 (number of shares in thousands): Options outstanding and exercisable Exercise price range Number of shares...

  • Page 58
    ... of shares related to restricted stock units earned is deferred generally for one year from the date earned. The Company issued approximately 303,000, 240,000, and 280,000 shares in settlement of the fiscal 2014, 2013, and 2012 awards. Employee Stock Purchase Plan. Under the Employee Stock Purchase...

  • Page 59
    ... proceedings arising in the normal course of business. Actions filed against the Company include commercial, product and product safety, customer, intellectual property, and labor and employment-related claims, including lawsuits in which private plaintiffs or governmental agencies allege that the...

  • Page 60
    ... of goods sold Selling, general and administrative Interest (income) 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...

  • Page 61
    ... 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 62
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Ross Stores, Inc.: We have audited the accompanying consolidated balance sheets of Ross Stores, Inc. and subsidiaries (the "Company") as of January 31, 2015 and February 1, 2014, and the related ...

  • Page 63
    ... position of Ross Stores, Inc. and subsidiaries as of January 31, 2015 and February 1, 2014, and the results of their operations and their cash ï¬,ows for each of the three years in the period ended January 31, 2015, in conformity with accounting principles generally accepted in the United States of...

  • Page 64
    ... report, dated March 31, 2015, which is included in Item 8 in this Annual Report on Form 10-K. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of controls, however well designed and operated...

  • Page 65
    ...; Group Vice President, Finance and Treasurer; Vice President, Accounting and Assistant Controller; Vice President Finance; Vice President Tax; Assistant Treasurer; Investor and Media Relations personnel; and other positions that may be designated by the Company. This Code of Ethics is posted on...

  • Page 66
    ... CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Equity compensation plan information. The following table summarizes the equity compensation plans under which the Company's common stock may be issued as of January 31, 2015: Shares in (000s) (a) Number of securities to be...

  • Page 67
    ...' Equity for the years ended January 31, 2015, February 1, 2014, and February 2, 2013. Consolidated Statements of Cash Flows for the years ended January 31, 2015, February 1, 2014, and February 2, 2013. Notes to Consolidated Financial Statements. Report of Independent Registered Public Accounting...

  • Page 68
    ... by the undersigned, thereunto duly authorized. ROSS STORES, INC. (Registrant) Date: March 31, 2015 By: /s/Barbara Rentler Barbara Rentler Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on...

  • Page 69
    ... J.P. Morgan Securities LLC, as representatives of the underwriters named therein, incorporated by reference to Exhibit 1.1 to the Form 8-K filed by Ross Stores, Inc. on September 18, 2014. 3.2 3.3 4.1 4.2 4.3 4.4 10.1 10.2 10.3 10.4 MANAGEMENT CONTRACTS AND COMPENSATORY PLANS (EXHIBITS...

  • Page 70
    ...and Restated Ross Stores, Inc. Employee Stock Purchase Plan dated November 20, 2007, incorporated by reference to Exhibit 10.6 to the Form 10-K filed by Ross Stores, Inc. for its fiscal year ended February 2, 2008. Amended and Restated Ross Stores, Inc. 1991 Outside Directors Stock Option Plan, as...

  • Page 71
    ...quarter ended July 30, 2011. Form of Performance Shares Grant Agreement, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended May 3, 2014. Form of Indemnity Agreement between Ross Stores, Inc. for Directors and Executive Officers, incorporated...

  • Page 72
    ... 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 Agreement effective June 1, 2014 between Barbara Rentler and Ross Stores...

  • Page 73
    ...to Exhibit 10.2 to the Form 10-Q filed by Ross Stores, Inc. for its quarter ended May 4, 2013. Executive Employment Agreement effective February 2, 2014 between Michael J. Hartshorn and Ross Stores, Inc., incorporated by reference to Exhibit 10.5 to the Form 10-Q filed by Ross Stores, Inc. for its...

  • Page 74
    ...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 January 31, 2015. /s/DELOITTE & TOUCHE LLP San Francisco, California March 31, 2015...

  • Page 75
    EXHIBIT 31.1 Ross Stores, Inc. Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a) I, Barbara Rentler, certify that: 1. I have reviewed this annual report on Form 10-K of Ross Stores, Inc.; 2. Based on my knowledge, this report does not contain any untrue ...

  • Page 76
    ..., that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. (b) Date: March 31, 2015 /s/Michael J. Hartshorn Michael J. Hartshorn Group Senior Vice President, Chief Financial Officer, and Principal Accounting Officer...

  • Page 77
    ...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 January 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Barbara Rentler, as Chief Executive Officer of the...

  • Page 78
    ... and Chief Development Officer Michael O'Sullivan President and Chief Operating Officer Lisa Panattoni President, Merchandising, Ross Dress for Less 1, 3 Management Consultant; Committee Committee & Corporate Governance Committee 2 Compensation 3 Nominating 4 Lead Independent Director 76

  • Page 79
    ...or Los Angeles Buying Office Ross Stores, Inc. 110 East 9th Street, Suite A-979 Los Angeles, California 90079-1979 Online https://www-us.computershare.com/investor/Contact Annual Report (Form 10-K) A copy of the Company's 2014 Annual Report on Form 10-K as filed with the Securities and Exchange...

  • Page 80
    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 2014 Annual Report was printed on papers containing fibers from environmentally appropriate, socially ...