The Ross Stores Third Quarter 2023 Earnings Release Conference Call began with prepared comments by management, followed by a question-and-answer session. The operator noted that the comments may contain forward-looking statements and reminded listeners to refer to risk factors included in the company's filings with the SEC. CEO Barbara Rentler then reviewed the company's third quarter performance and provided an update on their outlook for the fourth quarter and fiscal year. She noted that both sales and earnings exceeded expectations, with operating margin increasing due to higher same-store sales and lower freight costs, partially offset by higher incentives and store wages.

In the third quarter, Ross Stores saw an increase in earnings per share and net income compared to the same period last year. Total sales and comparable store sales also increased. The strongest performing businesses were cosmetics, accessories, and shoes, and geographic results were positive. Inventory levels were up, but packaway merchandise decreased. The company completed its expansion program for the year, adding a total of 97 new locations. Operating margin and cost of goods sold also improved.

In the third quarter, distribution expenses improved due to lower packaway costs, while buying costs and SG&A costs increased. The company also repurchased 2.1 million shares of stock and plans to buy back a total of $950 million for the year. For the fourth quarter, the company maintains a cautious approach due to economic volatility and difficult sales comparisons. They expect same-store sales to be up 1% to 2% and earnings per share to be in the range of $1.56 to $1.62. For the full year, earnings per share are expected to be between $5.30 and $5.36, including an estimated benefit of $0.16 from the 53rd week in fiscal 2023.

The fourth quarter guidance for the operating statement includes a projected sales growth of 8-10%, with a $260 million benefit from the 53rd week. The operating margin is expected to be in the range of 11.3% to 11.5%, with a 65-basis point benefit from the extra week. The company expects higher merchandise margins due to lower ocean freight costs, lower domestic freight and distribution costs, and higher incentive compensation. Net interest income is estimated to be $45 million, and the tax rate is expected to be 23-24%. The company remains optimistic about its future prospects and its ability to expand market share and profitability. During the call, Barbara elaborated on changes made across categories to increase the company's focus on value.

The speakers discuss the traffic and comp performance in the third quarter, with weather being a neutral factor. They also mention changes made to offer greater value to customers across all categories. In terms of the fourth quarter, there is a focus on gifting and the company expects to leverage on a 3% to 4% comp.

The speakers on the call were asked about the merchandise margin for the fourth quarter and they mentioned that ocean freight will still be a benefit but it will moderate compared to the first three quarters of the year. They also expect the main driver of merchandise margin to be the same as last year. In response to a question about the company's plan for the fourth quarter top line, they stated that they are remaining conservative due to external factors such as the macro economy, promotional retail environment, and geopolitics. They also mentioned that there is currently a lot of product availability in the North American wholesale channel.

The vendors in the current environment are focused on increasing their market share and have shifted their business towards growing retail channels. Their bookings for fall may not accurately reflect their actual sales, as some vendors are taking risks to bring in more goods and gain market share. The availability of goods may also be due to vendors looking to expand who they do business with and shift channels. In terms of performance, the home category performed slightly below the chain average, while overall comp performance was broad-based across geographies and income levels. Merch margin was impacted by freight costs, but outside of that, pure merch margin was not specified.

During the third quarter, the company's merch margin and sales improved compared to last year, especially after accounting for the impact of ocean freight. This was due to a decrease in markdowns and a broad assortment of value products. The improved performance is also attributed to easing inflation. The company's recent physical inventory showed results in line with expectations and last year. The merchants are focused on passing on value to customers and are looking for compelling deals while still meeting their metrics. The company's strategy is to continue delivering value to customers.

The company has a strong focus on metrics and driving customer traffic to gain market share. They are currently working on improving their cost of goods sold and selling, general, and administrative expenses. The 5% increase in same-store sales was primarily driven by an increase in traffic, with a slight increase in average basket size. The company plans to continue offering the best value to customers and hopes to see increases in both traffic and basket size in the future.

Brooke Roach from Goldman Sachs asks about the growth of SG&A and store wage rate inflation. Adam Orvos and Michael Hartshorn discuss the impact of minimum wage changes and incentive comp on SG&A. They expect to be able to lever between 3 and 4 comp in the future. Michael Binetti from Evercore asks about potential opportunities in pure merch margin for next year, including potential for higher AUR with better access to quality brands. He also notes the opening of stores in Michigan and Minnesota.

The company is expanding into new markets, but it is too early to comment on their success. They are optimistic about their growth in these markets. They are also focused on offering a mix of brands and value to customers, rather than just raising the average unit retail (AUR). The analyst congratulates the company and asks about their short-stay strategy in response to disruptive weather. The company has historically used this strategy to manage unseasonable weather, but it is unclear how effective it has been this season due to challenging macro conditions.

Barbara Rentler and Adrienne Yih discuss the impact of warmer weather on seasonal products in the fourth quarter. Rentler explains that while there is a buildup of goods due to the weather, vendors will make decisions about longer-term deals at the end of the year. She also mentions that Ross has entered into some new categories recently.

The company has entered new gifting categories for the fourth quarter and plans to expand and reintroduce certain businesses that were exited during COVID. They are focused on providing newness and value to attract customers. DD's saw a comp driven by traffic and has a family-focused assortment, with a focus on toys and holiday dresses during the holiday season.

Barbara Rentler, CEO of dd's Discounts, discusses the variety of products offered at the store, including holiday dresses, toys, and family photo shoots. She also mentions that customers come to dd's for seasonal products like Halloween and Christmas, and that the store's largest markets are California, Texas, and Florida. Apparel sales slightly trailed the chain average but exceeded plan.

The speaker is asked about changes in their inventory mix and closeout percentages throughout the year. They mention a slow rollout of self-checkout and a focus on reducing labor costs. The speaker also discusses the performance of their footwear business, which was one of their best-performing categories.

The speaker discusses the company's higher buying costs and the impact of California wage rates on expenses. They also mention that inventory is up 5% despite a 5% increase in comparable sales, and there have been no changes to how they run packaways.

The speaker discusses the importance of carefully selecting products for packaway and the success of their business this year. They mention the need for good values and the pressure on customers to find bargains. The speaker also mentions their focus on providing good values and the resulting increase in market share.

Barbara Rentler thanks the listeners for joining the call and expresses her appreciation for their interest in Ross Stores. She wishes them happy holidays and the operator ends the call.

This summary was generated with AI and may contain some inaccuracies.