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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended February 3, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______
Commission file number 0-14678
ROSS STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1390387
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8333 Central Avenue,
Newark, California 94560-3433
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, (510) 505-4400
including area code
Securities registered pursuant None
to Section 12(b) of the Act:
Securities registered pursuant
to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
---------------------------- -------------------------
Common stock, par value $.01 NASDAQ/NMS
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent files
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. ______
The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of April 4, 1996 was
$639,990,963. Shares of voting stock held by each director and
executive officer and each person who on that date owned 10% or
more of the outstanding voting stock have been excluded in that
such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination
for other purposes.
The number of shares of Common Stock, with $.01 par value,
outstanding on April 4, 1996 was 25,069,878.
Documents incorporated by reference:
Portions of the Proxy Statement for Registrant's Annual
Meeting of Stockholders, to be held Thursday, May 30, 1996,
are incorporated herein by reference into Part III.
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2
PART I
ITEM 1. BUSINESS
Ross Stores, Inc. ("Ross" or "company") operates a chain of
off-price retail apparel stores which target value conscious men
and women between the ages of 25 and 54 in white collar, middle-
to-upper middle income households which the company believes to
be the largest customer segment in the retailing industry. The
decisions of the company, from merchandising, purchasing and
pricing, to the location of its stores, are aimed at this
customer base. The company offers its merchandise at low
everyday prices, generally 20% to 60% below regular prices of
most department and specialty stores. The company believes it
derives a competitive advantage by offering a wide assortment of
quality brand-name merchandise within each of its merchandise
categories in an attractive easy-to-shop environment.
Ross Stores' mission is to offer competitive values to its
target customers by focusing on the following key strategic
objectives:
- - Achieve an appropriate level of brands and labels at strong
discounts throughout the store;
- - Meet customer needs on a more regional basis;
- - Deliver an in-store shopping experience that reflects the
expectations of the off-price customer; and
- - Manage real estate growth to maintain dominance or achieve
parity with the competition in key markets.
The original Ross Stores, Inc. was incorporated in
California in 1957. In August 1982, the company was purchased by
some of its current stockholders and restaffed with a new
management team. The six stores acquired at the time were
completely refurbished in the company's current off-price format
and stocked with new merchandise.
At the stockholders' meeting in May 1989, the company's
stockholders approved the reincorporation of Ross Stores, Inc.,
in the state of Delaware. The reincorporation was completed in
June 1989.
Merchandising, Purchasing and Pricing
Ross seeks to provide its target customers with a wide
assortment of first quality, in-season, name brand apparel,
accessories and footwear for the entire family at everyday
savings of 20% to 60% from regular department and specialty store
prices, as well as similar savings on fragrances and gift items
for the home. In 1995 Ross continued its introduction of the Bed
and Bath Department -- featuring tabletop, bed and bath linens
and bath accessories. This department is now in 186 stores. The
company reviews its merchandise mix each week, enabling it to
respond to merchandise trends and purchasing opportunities in the
market. The company's merchandising strategy is reflected in its
television and newspaper advertising, which emphasizes a strong
value message: Ross' customers get great prices every day of the
year. Although not a fashion leader, the company sells
recognizable branded merchandise that is current and fashionable
in each category.
Merchandising. The Ross merchandising strategy incorporates
mainly in-season apparel, shoes and accessories for the entire
family, as well as fragrances and giftware and linens for the
home. The company's emphasis on brand names reflects
management's conviction that brand-name merchandise sold at
compelling prices will continue to be an important determinant of
its success. Ross leaves the brand-name label on the merchandise
it sells.
The company has established a merchandise assortment which
it believes is attractive to its target customer group. Although
Ross offers fewer classifications of merchandise than most
department stores, the company generally offers a large selection
of brand names within each classification with a wide assortment
of vendors, prices, colors, styles and fabrics within each size.
During the year ended February 3, 1996, the overall merchandise
sales mix was approximately 95% first quality merchandise and 5%
irregulars. During the past year, the respective departments
accounted for total sales approximately as follows: Ladies 40%,
3
Men's 23%, Accessories, Hosiery and Lingerie 10%, Shoes 10%,
Children's 8%, and Fragrances, Home Accents and Bed and Bath 9%.
Purchasing. During the past three years, no single vendor
has accounted for more than 2.5% of the company's purchases. The
company continues to add new vendors and believes it has adequate
sources of first quality merchandise to meet its requirements.
The company purchases the vast majority of its merchandise
directly from manufacturers and has not experienced any
difficulty in obtaining sufficient inventory.
The company believes that its ability to effectively execute
certain off-price buying strategies is a key factor in its
business. Ross buyers use a number of methods that enable the
company to offer customers name brand merchandise at strong
everyday discounts relative to department and specialty stores.
By purchasing later in the merchandise buying cycle than
department and specialty stores, Ross is able to take advantage
of imbalances of manufacturer-projected supply of merchandise.
The company has increased its emphasis in recent years on
opportunistic purchases created by manufacturer overruns and
canceled orders during and at the end of a season. These buys
are referred to as "closeout" or "packaway" purchases. Closeouts
can be shipped to stores in season or stored in the company's
warehouses until the beginning of the next selling season (i.e.,
packaway). Closeouts allow the company to get in season goods in
its stores at lower prices. Packaway purchases are an effective
method of increasing the percentage of prestige and national
brands at competitive savings within the merchandise assortments.
Packaway merchandise are goods that are not usually affected by
seasonal shifts in fashion trends and allow the company to
maintain a comfortable per store stock level.
Ross, unlike most department and specialty stores, does not
require that manufacturers provide it with promotional and
markdown allowances, return privileges and delayed deliveries.
In addition, deliveries are made to one of the company's two
distribution centers. These flexible requirements further enable
the company's buyers to obtain significant discounts on in-season
purchases.
Ross' buying offices are located in New York City and Los
Angeles, the nation's two largest apparel markets. These
strategic locations allow buyers to be in the market on a daily
basis, sourcing opportunities and negotiating purchases with
vendors and manufacturers. These locations also enable the
company's buyers to strengthen vendor relationships -- a key
determinant in the success of its off-price buying strategies.
The company's buyers have an average of 15 years of
experience, including experience with other retailers such as
Bloomingdale's, Burlington Coat Factory, Dayton Hudson, Lord &
Taylor, Macy's, Marshalls, TJ Maxx and Value City. In keeping
with its strategy, over the past four years, the company
increased the size of its merchandising staff, which is comprised
of general and divisional merchandise managers, counselors,
buyers and assistant buyers. Management believes that these
increased resources will enable its merchants to spend even more
time in the market, which should strengthen the company's ability
to procure the most desirable brands at competitive discounts.
The combination of the above off-price buying strategies
enables the company to purchase merchandise at net prices which
are lower than prices paid by department and specialty stores.
As a summary, important factors in the company's ability to
execute its purchasing strategy are the following:
- - An enlarged merchandising staff strategically located in the
New York and Los Angeles garment districts;
- - Experienced buyers who select and price the merchandise for
the company's stores and make markdown decisions with pre-
arranged budgets as a guide;
- - Off-price buying techniques that enable the company to offer
strong discounts everyday on name brand merchandise;
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- - A fully-integrated, on-line management information system
which provides buyers with accurate and timely information
on a weekly basis; and
- - The company's ability to pay its vendors quickly.
Pricing. The company's policy is to sell merchandise which
can generally be priced at 20% to 60% less than most department
and specialty store regular prices. The Ross pricing policy is
to affix to brand name merchandise a ticket displaying the
company's selling price as well as the estimated comparable
selling price of that item at department and specialty stores.
The Ross pricing strategy differs from that of a department
or specialty store. Ross purchases its merchandise at lower
prices and marks it up less than a department or specialty store.
This strategy enables Ross to offer customers consistently low
prices. Ticketed prices are not increased and are reviewed
weekly for possible markdowns based on the rate of sales and the
end of fashion seasons to promote faster turnover of inventory
and accelerate the flow of fresh merchandise.
The Ross Store
As of February 3, 1996, the company operated 292 stores.
They are conveniently located predominantly in community and
neighborhood strip shopping centers in heavily populated urban
and suburban areas. Where the size of the market permits, the
company clusters stores to maximize economies of scale in
advertising, distribution and management. During 1995, the
average Ross store employed approximately 36 full-and part-time
people.
The company believes a key element of its success is the
attractive, easy-to-shop environment in its stores which allows
each customer to shop at his or her own pace. The Ross store's
sales area is based on a prototype single floor design with a
racetrack aisle layout. A customer can locate desired
departments by signs displayed just below the ceiling of each
department. Ross encourages its customers to select among sizes
and prices through prominent category and sizing markers,
promoting a self-service atmosphere. At most stores, shopping
carts are available at the entrance for customer convenience.
Checkout stations are located at store entrances for customer
ease and efficient employee assignment.
The Ross store is designed for customer convenience in its
merchandise presentation, dressing rooms, and checkout and
merchandise return areas. It is the company's policy to minimize
transaction time for the customer at the checkout counter by
opening a new register whenever a line has three or more
customers and by using electronic systems for scanning each
ticket at the point of sale and authorizing credit for personal
checks and credit cards in a matter of seconds. Approximately
36% of payments are made with credit cards. Ross provides cash
or credit card refunds on all merchandise returned with a receipt
within 30 days.
Operating Costs
Consistent with the other aspects of its business strategy,
Ross strives to keep operating costs as low as possible. Among
the factors which have enabled the company to operate at low
costs to date are:
- - Reduced in-store labor costs resulting from (i) a store
design that creates a self-selection retail format and (ii)
the utilization of labor saving technologies;
- - Economies of scale with respect to both general and
administrative costs as a result of centralized
merchandising, marketing and purchasing decisions and market
dominance.
- - Model store layout criteria which facilitate conversion of
existing buildings to the Ross format; and
- - A fully-integrated, on-line management information system
which enables the company to respond quickly when making
purchasing, merchandising and pricing decisions.
5
Distribution
Each Ross store is serviced by the company's two
distribution centers located in Newark California (approximately
494,000 square feet) and Carlisle, Pennsylvania (approximately
424,000 square feet). Having a distribution center on each coast
enhances cost efficiencies per unit and decreases turn-around
time in getting the merchandise from the vendors to the stores.
Shipments are made by contract carriers to the stores three to
five times a week depending on location.
Ross is developing new systems to improve its distribution
process. The company's objective is to automate as many
functions as possible thereby reducing paper flow and its
associated costs. The company's new Distribution Center
Information System should contribute to improved merchandise
flow, faster and more accurate processing of receipts, reduced
labor costs and shrinkage, and better reporting to facilitate
decision-making by managers. The Distribution Center Information
System is expected to be fully implemented in fiscal 1996 which
is when the company expects that it will begin to realize cost
benefits.
Control Systems
The company's management information system fully integrates
data from significant phases of its operations and is a key
element in the company's planning, purchasing, distribution and
pricing decisions. The system enables Ross to respond to changes
in the retail market and to increase speed and accuracy in its
merchandise distribution.
Data from the current and last fiscal year can be monitored
on levels ranging from merchandise classification units to
overall totals for the company. Merchandise is tracked by the
system from the creation of its purchase order, through its
receipt at the distribution center, through the distribution
planning process, and ultimately to the point of sale.
In addition to its new Distribution Center Information
System, the company developed new store-based systems which are
designed to speed up, simplify and automate most transactions at
the point of sale and the stores' back offices. Ross conducted a
pilot test in the summer of 1995 followed by a limited store roll-
out for the remainder of 1995. A chain-wide roll-out is planned
for 1996. The company expects that it will begin to realize
benefits from these improvements in 1996 as the technology is
phased into more stores.
Advertising
The company utilizes extensive advertising which emphasizes
quality, brand-name merchandise at low everyday prices. The
company predominantly uses television advertising. This reflects
the company's belief that overall television is the best medium
for presenting Ross' everyday low price message.
Trademarks
The trademark for Ross Dress For Less has been registered
with the United States Patent and Trademark Office.
Employees
On February 3, 1996, the company had 11,935 employees which
includes an estimated 7,293 part-time employees. Additionally,
the company hires temporary employees -- especially during the
peak seasons. The company's employees are non-union. Management
of the company considers the relationship between the company and
its employees to be excellent.
Competition
The company believes that the principal competitive factors
in the off-price retail apparel industry are offering large
discounts on name brand merchandise appealing to its target
customer and consistently providing a store environment that is
convenient and easy to shop. To execute this concept, the
company has strengthened its buying organization and is making
buying decisions based on regional and/or local factors as well
as improving cost efficiencies to leverage expenses and mitigate
competitive pressures on
6
gross margin. The company believes that it is well positioned to
compete on the basis of each of these factors.
Nevertheless, the national apparel retail market is highly
fragmented. Ross faces intense competition for business from
department stores, specialty stores, discount stores, other off-
price retailers and manufacturer-owned outlet stores, many of
which are units of large national or regional chains that have
substantially greater resources than the company. The retail
apparel business may become even more competitive in the future.
In addition, during 1995, the off-price industry experienced its
first major step toward consolidation when TJX Companies, Inc.
acquired the Marshalls division of Melville Corporation in the
fourth quarter of 1995. The company is monitoring this situation
to determine what, if any, effect this transaction may have on
Ross Stores business and operations, as it is possible that the
increased resources of this newly combined entity could pose
additional competitive challenges to the company. However, the
company also believes that this merger could have potential
benefits by partially relieving some of the pressure caused by
promotions and over-capacity in the off-price sector.
Forward-Looking Statements and Factors Affecting Future
Performance
This report includes a number of forward-looking statements
which reflect the company's current views with respect to future
events and financial performance, including statements in the
Business and the MD&A sections concerning the company's
operations and competitive strengths. In this report the words,
"expect," "anticipate," "believe" and similar expressions
identify forward-looking statements.
The company's continued success depends, in part, upon its
ability to increase sales at existing locations, to open new
stores and to operate stores on a profitable basis. There can be
no assurance that the company's existing strategies and store
expansion program will result in a continuation of revenue and
profit growth. Future economic and industry trends that could
potentially impact revenue and profitability remain difficult to
predict.
As a result, the forward-looking statements that are
contained herein are subject to certain risks and uncertainties
that could cause the company's actual results or operations to
differ materially from historical results or current
expectations. These factors include, without limitation, ongoing
competitive pressures in the apparel industry, a continuation or
exacerbation of the current over-capacity problem affecting the
industry, or changes in the level of consumer spending on or
preferences in apparel. In addition, the company's headquarters,
one distribution center and 46% of its stores are located in
California. Therefore, a downturn in the California economy or a
major natural disaster could significantly impact the company's
operating results and financial condition.
In addition to the above factors, the apparel industry is
highly seasonal. The combined sales of the company for the third
and fourth (holiday) fiscal quarters are higher than the combined
sales for the first two fiscal quarters. The company has
realized a significant portion of its profits in each fiscal year
during the fourth quarter. Intensified price competition, lower-
than-anticipated consumer demand or other seasonal factors, if
they were to occur during the last six months, and in particular
during the fourth quarter, could adversely affect the company's
fiscal year results.
ITEM 2. PROPERTIES
Stores
From August 1982 to February 3, 1996, the company expanded
from six stores in California to 292 stores in 18 states:
Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho,
Maryland, Nevada, New Jersey, New Mexico, Oklahoma, Oregon,
Pennsylvania, Texas, Utah, Virginia and Washington. All stores
are leased, with the exception of one.
During fiscal 1995, the company opened 21 new Ross `Dress
For Less' stores and closed four existing locations. The typical
new Ross store is approximately 28,160 square feet, yielding
approximately 22,600 square feet of selling space. As of
February 3, 1996, the company's 292 stores generally ranged in
7
size from about 24,000 to 30,000 gross square feet, and had an
average of 22,000 square feet of selling space.
During the fiscal year ended February 3, 1996, no one store
accounted for more than approximately 1% of the company's sales.
The company carries earthquake insurance on its corporate
headquarters and both distribution centers but not on its stores.
The company's real estate strategy is to open additional
stores mainly in existing market areas, to increase its market
penetration and reduce overhead and advertising expenses as a
percentage of sales in each market. Important considerations in
evaluating a new market are the availability of potential sites,
demographic characteristics, competition and population density
of the market. In fiscal 1996 and 1997, the company plans to
focus its new store growth primarily in existing markets.
Where possible, the company has obtained sites in existing
buildings requiring minimal alterations. This has allowed Ross
to establish stores in new locations in a relatively short period
of time at reasonable costs in a given market. To date, the
company has been able to secure leases in suitable locations for
its stores. At February 3, 1996, the majority of the company's
stores had unexpired original lease terms ranging from one to ten
years with two to three renewal options of five years each. The
average unexpired original lease term of its leased stores is six
years, or 19 years if renewal options are included. (See Note D
to the Consolidated Financial Statements.) Most of the company's
store leases contain a provision for percentage rental payments
after a specified sales level has been achieved.
Distribution Centers
The company currently leases its Newark, California
distribution center which is also the company's corporate
headquarters. The company owns its distribution center in
Carlisle, Pennsylvania which had an outstanding mortgage value of
$9.8 million at the end of the 1995 fiscal year.
The company's two distribution centers provide the company
with the potential distribution capacity to support its growth
through at least 1998 through ongoing efforts to streamline the
distribution processes and to potentially increase processing
capacity through expanded work shifts. The company's warehouse
capabilities are approaching capacity. Management currently is
studying its options on the best way to meet its future
warehousing needs.
ITEM 3. LEGAL PROCEEDINGS
The company is a party to routine litigation incident to its
business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial
condition or results of operations of the company. Some of the
lawsuits to which the company is a party are covered by insurance
and are being defended by the company's insurance carriers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
EXECUTIVE OFFICERS OF THE REGISTRANT
The following list sets forth the names and ages of all
executive officers of the company, indicating each person's
principal occupation or employment during the past five years.
The term of office is at the pleasure of the Board of Directors.
Name Age Position
Norman A. Ferber 47 Director, Chairman of the Board and
Chief Executive Officer
Melvin A. Wilmore 50 Director, President and
Chief Operating Officer
Michael A. Balmuth 45 Executive Vice President,
Merchandising
James S. Fassio 41 Senior Vice President,
Property Development
Daniel P. Ferguson 49 Senior Vice President,
Distribution
Barry S. Gluck 43 Senior Vice President and
General Merchandising Manager
Peter C.M. Hart 45 Senior Vice President,
Management Information Systems
James S. Jacobs 51 Senior Vice President,
Store Operations
Irene Jamieson 45 Senior Vice President and
General Merchandising Manager
Stephen F. Joyce 54 Senior Vice President,
Human Resources
Barbara Levy 41 Senior Vice President and
General Merchandising Manager
John M. Vuko 45 Senior Vice President, Controller
and Principal Accounting Officer
_____________________________
Mr. Ferber has served as Chairman of the Board of Directors
and Chief Executive Officer since March 1993. Prior to March
1993, he served as President and Chief Executive Officer since
January 1988. From February 1987 to January 1988, he served as
President and Chief Operating Officer. Prior to February 1987,
Mr. Ferber was Executive Vice President, Merchandising, Marketing
and Distribution of the company. Mr. Ferber joined the company
in October 1982.
Mr. Wilmore has served as President, Chief Operating Officer
and a member of the Board of Directors since March 1993. Prior
to this, he served as Executive Vice President and Chief
Operating Officer since December 1991. From October 1989 to
December 1991, he was Chief Executive Officer of Live Specialty
Retail, a division of LIVE Entertainment, Inc. From March 1988
to June 1989, he was President/General Partner of Albert's
Acquisition Corporation. From March 1987 to March 1988, Mr.
Wilmore was engaged in the acquisition of Albert's Hosiery and
Bodywear by Albert's Acquisition Corporation. From April 1984 to
March 1987, he was the President and Chief Operating Officer of
Zale Jewelry Stores, a division of Zale Corporation.
Mr. Balmuth became Executive Vice President, Merchandising
in July 1993. Prior to this he served as Senior Vice President
and General Merchandise Manager since November 1989. Before
joining Ross, he was Senior Vice President and General
Merchandise Manager at Bon Marche in Seattle from September 1988
through November 1989. From April 1986 to September 1988, he
served as Executive Vice President and General Merchandise
Manager for Karen Austin Petites.
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Mr. Fassio has served as Senior Vice President, Property
Development since March 1991. He joined the company in June 1988
as Vice President of Real Estate. Prior to joining Ross, Mr.
Fassio was Vice President, Real Estate and Construction at
Craftmart and Property Director of Safeway Stores, Inc.
Mr. Ferguson has served as Senior Vice President,
Distribution since July 1995 when he joined the company. Prior
to joining Ross, Mr. Ferguson served as Vice President of
Distribution and Transportation of Marshall's from April 1994 to
July 1995 and as the Director/General Manager of Marshall's
distribution from October 1989 to March 1994.
Mr. Gluck has served as Senior Vice President and General
Merchandise Manager since August 1993. He joined the company in
February 1989 as Vice President and Divisional Merchandise
Manager. Prior to joining Ross, Mr. Gluck served as General
Merchandise Manager, Vice President for Today's Man from May 1987
to February 1989.
Mr. Hart became Senior Vice President, Management
Information Systems (MIS) in July 1995 when Mr. Hart decided to
focus solely on the responsibility for the MIS department. Prior
to that, Mr. Hart served as Senior Vice President, MIS and
Distribution since November 1988. From January 1987 to November
1988, he served as Senior Vice President of MIS. Mr. Hart joined
the company in February 1983.
Mr. Jacobs has served as Senior Vice President, Store
Operations since November 1988. From November 1986 to October
1988, he served as Regional Vice President, Director of Stores
for the J.W. Robinson's division of May Department Stores.
Ms. Jamieson became Senior Vice President and General
Merchandise Manager in January 1995. From December 1992 to
January 1995, she served as Vice President and Divisional
Merchandise Manager. Prior to joining Ross, Ms. Jamieson served
as Vice President and Divisional Merchandise Manager of the Home
Store for Lord & Taylor from September 1983 to December 1992.
Mr. Joyce has served as Senior Vice President, Human
Resources since July 1988. Before joining Ross, he was Vice
President, Human Resources at Denny's, Inc. since February 1983.
Ms. Levy has served as Senior Vice President and General
Merchandise Manager since May 1993. Prior to joining Ross, Ms.
Levy was with R. H. Macy & Co., Inc. most recently as Senior Vice
President and General Merchandise Manager from January 1992 to
April 1993 and before that as their Regional Director - Stores
from May 1989 to January 1992 and from August 1985 to May 1989 as
their Divisional Merchandise Manager - Better Sportswear.
Mr. Vuko has served as Senior Vice President, Controller and
Principal Accounting Officer since June 1992. He joined the
company in October 1989 as Vice President, Treasurer and
Controller.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
See the information set forth under the caption "Quarterly
Financial Data (Unaudited)" under Note J to the Consolidated
Financial Statements in Item 8 of this document which is
incorporated herein by reference. The company's stock is traded
on the Nasdaq National Market tier of The Nasdaq Stock Market
under the symbol ROST. The number of stockholders of record as
of April 10, 1995 was 931. During fiscal 1994 and 1995, the
company paid a quarterly cash dividend of $0.05 and $0.06,
respectively, per common share. On January 25, 1996, the Board
of Directors increased the quarterly dividend to $0.07 per common
share.
ITEM 6. SELECTED FINANCIAL DATA
($000, except per share data) 1995 1994 1993 1992 1991 1990
Operations
Sales $1,426,397 $1,262,544 $1,122,033 $1,043,062 $926,377 $798,350
Cost of goods sold and
occupancy 1,031,455 920,265 814,745 742,749 656,504 568,896
Percent of sales 72.3% 72.9% 72.6% 71.2% 70.9% 71.3%
General, selling and
administrative 293,051 263,777 235,558 221,795 203,120 184,140
Percent of sales 20.5% 20.9% 21.0% 21.3% 21.9% 23.1%
Depreciation and
amortization 27,033 24,017 20,539 18,740 15,922 13,140
Interest 2,737 3,528 2,318 3,071 5,395 6,955
Insurance Proceeds (10,412)
Earnings before taxes 72,121 61,369 48,873 56,707 45,436 25,219
Percent of sales 5.1% 4.9% 4.4% 5.4% 4.9% 3.2%
Provision for taxes
on earnings 28,849 24,548 19,549 22,683 17,720 8,574
Net earnings 43,272 36,821 29,324 34,024 27,716 16,645
Percent of sales 3.0% 2.9% 2.6% 3.3% 3.0% 2.1%
Earnings per fully-diluted
common share $1.73 $1.49 $1.14 $1.30 $1.09 $ .72
Cash dividends declared per
common share $.25 $.21 $.05
Fiscal 1995 is a 53-week year; all other fiscal years are 52 weeks.
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($000, except per share data) 1995 1994 1993 1992 1991 1990
Financial Position
Merchandise inventory $295,965 $275,183 $228,929 $221,048 $185,041 $157,899
Property and equipment, net 181,376 171,251 144,152 128,070 126,848 114,913
Total assets 541,152 506,241 437,371 419,870 357,690 309,543
Working capital 121,550 131,776 125,047 121,012 77,448 67,002
Current ratio 1.5:1 1.7:1 1.8:1 1.8:1 1.6:1 1.6:1
Total debt 9,806 46,069 33,308 33,525 40,723 57,600
Stockholders' equity 291,516 254,551 228,222 209,595 162,583 123,064
Book value per common share
outstanding at year-end $11.85 $10.42 $9.24 $8.23 $6.64 $5.33
Total debt as a percent of
total capitalization 3% 15% 13% 14% 20% 32%
Return on average
stockholders' equity 16% 15% 13% 18% 19% 15%
Operating Statistics
Number of stores opened 21 35 22 23 20 29
Number of stores closed 4 3 2 3 2
Number of stores at year-end 292 275 243 223 203 185
Comparable store sales increase
(decline) (52-week basis) 2% 2% (1%) 3% 2% (3%)
Sales per square foot of selling
space (52-week basis) $230 $227 $222 $222 $214 $208
Square feet of selling space
at year-end (000) 6,276 5,901 5,210 4,879 4,518 4,155
Number of employees at
year-end 11,935 10,516 8,949 8,156 7,397 7,164
Number of fully-diluted shares
at year-end (000) 25,056 24,723 25,791 26,249 25,496 23,251
Number of common stockholders
of record at year-end 1,022 1,168 1,275 1,381 1,340 1,715
Fiscal 1995 is a 53-week year; all other fiscal years are 52 weeks.
Based on average annual selling square footage.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the fiscal years ended February 3, 1996, January 28, 1995 and
January 29, 1994 (referred to as 1995, 1994 and 1993).
Results of Operations
Stores. Total stores open at the end of 1995, 1994 and 1993
were 292, 275 and 243. During 1995, the company opened 21 new
stores and closed 4 stores. During 1994, the company opened 35
new stores and closed 3 stores. In 1993, the company opened 22
new stores and closed 2 stores.
Sales. Sales were $1.426 billion, $1.263 billion and $1.122
billion in 1995, 1994 and 1993, with each year consisting of 53,
52 and 52 weeks, respectively. Comparable store sales increased
2% for 1995 on a 52 week basis, increased 2% for 1994 and
decreased 1% for 1993. The increases in sales for 1995 and 1994
were due to a greater number of stores in operation and an
increase in comparable store sales (and the 53rd week in 1995).
The company anticipates that the competitive climate for apparel
and off-price retailers will continue in 1996. Management
expects to address that challenge by fine-tuning its assortment
of competitive discounts on name brand merchandise in an effort
to maintain or widen the value differential the company offers
compared to department and specialty store prices. Although the
company's existing strategies and store expansion program
contributed to sales and earnings gains in 1994 and 1995, there
can be no assurance that these strategies will result in a
continuation of revenue and profit growth.
Cost of Goods Sold and Occupancy. Cost of goods sold and
occupancy as a percentage of sales was 72%, 73% and 73% for 1995,
1994 and 1993. The reduction in the cost of goods sold and
occupancy ratio in 1995 resulted primarily from increased levels
of opportunistic and in-season purchases which created better
values for our customer. There can be no assurance that this
improvement will continue in future years.
General, Selling and Administrative Expenses. General,
selling and administrative expenses were 21% of sales for 1995,
1994 and 1993. During 1995, 1994 and 1993, management increased
its focus on strong expense controls that enabled the company to
make investments in an expanded merchandise organization over
this period and a new market in Houston in 1994 while maintaining
a flat expense ratio.
The largest component of general, selling and administrative
expenses is payroll. The total number of employees, including
both full and part-time, at year-end 1995, 1994 and 1993 was
approximately 11,900, 10,500 and 8,900.
Depreciation and Amortization. Depreciation and
amortization as a percentage of sales has remained relatively
constant over the last three years, due primarily to the
consistent level of assets in each store.
Interest. The decrease in interest expense in 1995 from 1994
was due to lower borrowings, due in part to improved inventory
turnover and improved vendor terms which more than offset
expenditures for the repurchase of common stock. The increase in
interest expense in 1994 from 1993 resulted from higher interest
rates and higher average borrowings, due in part to the company's
stock repurchase program and the opening of more stores.
Insurance Proceeds. In March 1994, a section of the roof at
the company's distribution center in Carlisle, Pennsylvania
collapsed due to unusually heavy snow accumulation. The
distribution center in Newark, California was utilized to support
the flow of goods to the stores until July 1994, when the east
coast distribution center began operating at normal capacity
again. In October 1994, the company entered into a settlement
agreement with its insurance carrier for claims related to the
impact on business that resulted from the roof collapse. This
settlement included proceeds of $10.4 million for business
interruption.
Taxes on Earnings. The company's effective rate for 1995,
1994 and 1993 was 40%, which represents the applicable statutory
rates reduced by the federal benefit received for state taxes.
13
Financial Condition
Liquidity and Capital Resources. During 1995, 1994 and
1993, liquidity and capital requirements were provided by cash
flows from operations, bank borrowings and trade credit. The
company's store sites, central office, and California
distribution center, as well as the buying offices, are leased
and except for certain leasehold improvements and equipment, do
not represent long-term capital investments. Commitments related
to operating leases are described in Note D to the Consolidated
Financial Statements. The company's east coast distribution
center is owned by the company and is financed by a ten-year
mortgage (see Note C to the Consolidated Financial Statements).
Short-term trade credit represents a significant source of
financing for investments in merchandise inventory. Trade credit
arises from customary trade practices with the company's vendors.
Management regularly reviews the adequacy of credit available to
the company from all sources and has been able to maintain
adequate lines to meet the capital and liquidity requirements of
the company.
During 1995, the primary uses of cash, other than for
operating expenditures, were for merchandise inventory and
property and equipment to open 21 new stores, the remodeling of 8
stores, repurchases in the open market of 0.8 million shares of
the company's common stock, and quarterly dividend payments.
During 1994, the primary uses of cash, other than for operating
expenditures, were for merchandise inventory and property and
equipment to open 35 new stores, the remodeling of 32 stores, a
planned increase in packaway merchandise, repurchases in the open
market of 0.8 million shares of the company's common stock, the
acquisition of lease rights for eight new stores, and quarterly
dividend payments. In 1993, the primary uses of cash, other than
for operating expenditures, were for merchandise inventory and
property and equipment to open 22 new stores, the remodeling of
12 stores, timing of accounts payable payments, and repurchases
in the open market of 1.2 million shares of the company's common
stock. In 1995, 1994 and 1993, the company spent approximately
$42 million, $52 million and $33 million for capital
expenditures, net of leased equipment, that included fixtures and
leasehold improvements to open 21, 35 and 22 stores, remodeling
costs for 8, 32 and 12 stores and modifications to our New York
buying office, purchase of previously leased equipment and
various expenditures for existing stores and the central office.
The company currently anticipates opening 12 to 18 stores
annually through 1997. The company anticipates that this growth
will be financed primarily from cash flows from operating
activities and available credit facilities.
The company's Board of Directors declared quarterly
dividends of $.05 per common share in June, August and November
1994; and $.06 per common share in January, May, August and
November 1995. In January 1996, a 17% increase in the quarterly
dividend payment to $.07 per common share was declared by the
Board of Directors, payable on or about April 1, 1996. The
company uses cash flows from operating activities and available
cash resources to provide for dividends.
In February 1996 the company announced that its Board of
Directors authorized a two million share expansion in the
company's stock repurchase program. The company anticipates
funding this program through cash flows from operating activities
and available credit facilities.
The company has available under its principal bank credit
agreement a $110 million revolving credit facility, which expires
in July 1998. In June 1994, the company obtained an additional
short-term credit facility of $10 million adding to its existing
short-term credit facilities of $40 million. These facilities
are available until canceled by either party. At year-end 1995
and 1994, there were no outstanding balances under any revolving
credit facility. In June 1994, the company signed a revolving
term loan credit agreement with a bank due June 2000 for $60
million. The company had no outstanding balance on this term loan
at year-end 1995. For additional information relating to these
obligations, refer to Note C to the Consolidated Financial
Statements.
Working capital was $122 million at the end of 1995 compared
to $132 million at the end of 1994 and $125 million at the end of
1993. At year-end 1995, 1994 and 1993, the company's current
ratios were 1.5:1, 1.7:1 and 1.8:1. The percentage of long-term
debt to total capitalization at year-end 1995, 1994 and 1993 was
3%, 15% and 13%.
The company's primary source of liquidity is the sale of its
merchandise inventory. Management regularly reviews the age and
condition of the merchandise and is able to maintain current
inventory in its
14
stores through the replenishment processes and liquidation of non-
current merchandise through markdowns and clearances.
The company realized stronger cash flows in 1995 due to
increased earnings, tighter inventory controls with improved
inventory turnover and lower capital expenditures which enabled
the company to paydown all bank borrowings at year-end.
The company estimates that cash flows from operations, bank
credit lines and trade credit are adequate to meet operating cash
needs as well as to provide for the two million share stock
repurchase announced in February 1996, dividend payments and
planned capital additions during the upcoming year.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CONSOLIDATED BALANCE SHEETS
February 3, January 28,
($000, except per share data) 1996 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $23,426 $23,581
Accounts receivable 9,901 5,360
Merchandise inventory 295,965 275,183
Prepaid expenses and other 13,474 12,157
_______ _______
Total Current Assets 342,766 316,281
PROPERTY AND EQUIPMENT
Land and buildings 24,102 23,723
Fixtures and equipment 156,811 145,427
Leasehold improvements 123,829 111,615
Construction-in-progress 16,808 12,490
_______ _______
321,550 293,255
Less accumulated depreciation and amortization 140,174 122,004
_______ _______
181,376 171,251
Other assets 17,010 18,709
_______ _______
$541,152 $506,241
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $137,653 $109,589
Accrued expenses and other 42,944 48,472
Accrued payroll and benefits 30,064 21,705
Income taxes payable 10,555 4,739
_______ _______
Total Current Liabilities 221,216 184,505
Long-term debt 9,806 46,069
Deferred income taxes and other liabilities 18,614 21,116
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share
Authorized 100,000,000 shares
Issued and outstanding 24,601,000 and
24,433,000 shares 246 244
Additional paid-in capital 133,409 125,451
Retained earnings 157,861 128,856
_______ _______
291,516 254,551
_______ _______
$541,152 $506,241
See notes to consolidated financial statements.
16
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended Year Ended Year Ended
February 3, January 28, January 29,
($000, except share data) 1996 1995 1994
SALES $1,426,397 $1,262,544 $1,122,033
COSTS AND EXPENSES
Cost of goods sold and occupancy 1,031,455 920,265 814,745
General, selling and administrative 293,051 263,777 235,558
Depreciation and amortization 27,033 24,017 20,539
Interest 2,737 3,528 2,318
Insurance proceeds (10,412)
_________ _________ __________
1,354,276 1,201,175 1,073,160
Earnings before taxes 72,121 61,369 48,873
Provision for taxes on earnings 28,849 24,548 19,549
_________ ________ __________
Net earnings $43,272 $36,821 $29,324
EARNINGS PER SHARE
Primary $1.75 $1.49 $1.14
Fully-diluted $1.73 $1.49 $1.14
WEIGHTED AVERAGE SHARES OUTSTANDING (000)
Primary 24,752 24,707 25,715
Fully-diluted 25,056 24,723 25,791
Fiscal 1995 is a 53-week year; all other years are 52 weeks.
See notes to consolidated financial statements.
17
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Additional
Paid-In Retained
(000) Shares Amount Capital Earnings Total
BALANCE AT JANUARY 30, 1993 25,461 $255 $119,743 $89,597 $209,595
Common stock issued under stock
plans, including tax benefit 414 4 8,101 8,105
Stock repurchased (1,180) (12) (5,771) (11,791) (17,574)
Net earnings 29,324 29,324
Dividends declared (1,228) (1,228)
______ ____ _______ _______ _______
BALANCE AT JANUARY 29, 1994 24,695 247 122,073 105,902 228,222
Common stock issued under stock
plans, including tax benefit 558 5 7,500 7,505
Stock repurchased (820) (8) (4,122) (8,725) (12,855)
Net earnings 36,821 36,821
Dividends declared (5,142) (5,142)
______ ____ _______ _______ _______
BALANCE AT JANUARY 28, 1995 24,433 244 125,451 128,856 254,551
Common stock issued under stock
plans, including tax benefit 924 9 11,963 11,972
Stock repurchased (756) (7) (4,005) (8,128) (12,140)
Net earnings 43,272 43,272
Dividends declared (6,139) (6,139)
______ ____ ________ ________ ________
BALANCE AT FEBRUARY 3, 1996 24,601 $246 $133,409 $157,861 $291,516
See notes to consolidated financial statements.
18
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended
February 3, January 28, January 29,
($000) 1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $43,272 $36,821 $29,324
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of property and
equipment 27,033 24,017 20,539
Other amortization 4,982 4,995 8,741
Deferred income taxes (2,898) 923 669
Change in current assets and current liabilities:
Merchandise inventory (20,782) (46,254) (7,881)
Other current assets - net (5,859) 1,720 (6,528)
Accounts payable 27,813 19,787 (7,398)
Other current liabilities - net 9,529 8,154 (361)
Other 4,894 (4,947) 1,080
______ _______ _______
Net cash provided by operating activities 87,984 45,216 38,185
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (41,706) (52,055) (33,391)
________ ________ ________
Net cash used in investing activities (41,706) (52,055) (33,391)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (repayment) of long-term debt (36,349) 12,666 (303)
Issuance of common stock related to stock plans 7,946 3,202 4,933
Repurchase of common stock (12,140) (12,855) (17,574)
Dividends paid (5,890) (4,900)
________ ________ ________
Net cash (used in) financing activities (46,433) (1,887) (12,944)
________ ________ ________
Net (decrease) in cash and cash equivalents (155) (8,726) (8,150)
Cash and cash equivalents:
Beginning of year 23,581 32,307 40,457
_______ ________ _______
End of year $23,426 $23,581 $32,307
Fiscal 1995 is a 53-week year; all other years are 52 weeks.
See notes to consolidated financial statements.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended February 3, 1996, January 28,
1995 and January 29, 1994 (referred to as 1995, 1994 and 1993).
Note A: Summary of Significant Accounting Policies
Business. The company is an off-price retailer of first
quality, in-season, branded apparel, shoes, gift items for the
home, bed and bath items, fragrances and accessories for the
entire family. At February 3, 1996, the company operated 292
stores. The company's headquarters, one distribution center
and 46% of its stores are located in California.
Principles of Consolidation. The consolidated financial
statements include the accounts of all subsidiaries.
Intercompany transactions and accounts have been eliminated.
Certain reclassifications have been made in the 1994 and 1993
financial statements to conform to the 1995 presentations. The
1995 year consisted of 53 weeks while 1994 and 1993 each had 52
weeks.
Accounting Estimates. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash Equivalents. Cash equivalents are highly liquid,
fixed income instruments purchased with a maturity of three
months or less.
Merchandise Inventory. Merchandise inventory is stated at
the lower of cost or market determined under the unit cost
method.
Deferred Store Opening Expenses. Pre-opening expenses are
deferred until the store's grand opening date, at which time
the deferred costs are expensed.
Advertising. Advertising costs are expensed when
incurred. In 1995, 1994 and 1993, advertising expenses were
$37 million, $37 million and $34 million.
Deferred Rent. Many of the company's leases signed since
1988 contain fixed escalations of the minimum annual lease
payments during the original term of the lease. For these
leases, the company recognizes rental expense on a straight-
line basis and records the difference between the average
rental amount charged to expense and the amount payable under
the lease as deferred rent. At the end of 1995 1994 and 1993
the balance of deferred rent was $8.9 million, $7.5 million and
$6.4 million and is included in other long-term liabilities.
Intangible Assets. Included in other assets are lease
rights and interests, consisting of payments made to acquire
store leases, which are amortized over the remaining applicable
life of the lease. Also included in other assets is the excess
of cost over the acquired net assets, which is amortized on a
straight-line basis over a period of 40 years.
Property and Equipment. Property and equipment are stated
at cost. Depreciation is calculated using the straight-line
method over the estimated useful life of the asset, typically
ranging from five to twelve years for equipment and 20 to 40
years for real property. The cost of leasehold improvements is
amortized over the useful life of the asset or the applicable
lease term, whichever is less. Computer hardware and software
costs are included in fixtures and equipment and are amortized
over their useful life of five years.
Estimated Fair Value of Financial Instruments. The
carrying value of cash and cash equivalents, accounts
receivable, accounts payable and long-term debt approximates
their estimated fair value.
Impact of New Accounting Standards. Effective February 3,
1996, the company adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of, (SFAS 121)
which requires that long-lived assets, including
20
identifiable intangible assets, used by an entity be reviewed
for impairment whenever events or changes indicate that the
carrying amount of that asset may not be recoverable. Based
upon the company's review as of February 3, 1996, no
adjustments were made to the carrying value of such assets.
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, (SFAS 123) which
establishes a fair value method of accounting for stock options
and other equity instruments. This standard becomes effective
for fiscal years beginning after December 15, 1995. The
company has elected not to adopt SFAS 123 in its 1995 fiscal
year.
Taxes on Earnings. Income taxes are accounted for under
an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the
company's financial statements or tax returns. In estimating
future tax consequences, the company generally considers all
expected future events other than changes in the tax law or
rates.
Earnings Per Share. Earnings per share are based on
primary and fully-diluted weighted average common shares and
common stock equivalents outstanding during the year, as
calculated under the treasury stock method. The company's
common stock equivalents consist of outstanding stock options.
Note B: Statements of Cash Flows Supplemental Disclosures
Total cash paid for interest and taxes is as follows:
($000) 1995 1994 1993
Interest $3,421 $ 3,828 $ 2,850
Income taxes $24,239 $24,614 $21,014
Note C: Long-Term Debt
Long-term debt at year-end consists of the following:
($000) 1995 1994
Mortgage $9,806 $10,069
Term loan 0 36,000
______ _______
$9,806 $46,069
The weighted average interest rates on borrowings during 1995,
1994 and 1993 were 7.1%, 7.1% and 6.0%.
Mortgage. On August 8, 1991, the company obtained a $10.8
million mortgage at 9.5% interest, collateralized by the land
and building of its east coast distribution center. Interest
and principal are based on a 20-year amortization period. The
mortgage is due in 2001 with principal payments of $288,000,
$318,000, $349,000, $384,000 and $422,000 due in 1996, 1997,
1998, 1999 and 2000, respectively. In 1996, the interest rate
will be reset at the lender's best prevailing interest rate or
the mortgage will be repaid, at the company's option.
Term Loan. On June 22, 1994, the company signed a term
loan credit agreement with a bank due June 2000 for $60
million. Capital repayment is not required until the end of
the loan period, June 30, 2000, and no portion was outstanding
as of year-end 1995. The interest rate is based on the London
Interbank Offered Rate (LIBOR).
Bank Credit Facilities. The company has available under
its principal credit agreement a $110 million revolving credit
facility which expires in July 1998. The credit facility is
also available for the
21
issuance of letters of credit. Interest is payable monthly
under several pricing options, including the bank's prime rate.
At year-end 1995, 1994 and 1993, the company had $13.3 million,
$13.6 million and $11.7 million in outstanding letters of
credit. Borrowing under the credit facility is subject to the
company maintaining certain levels of tangible net worth, fixed
charge coverage and leverage ratios.
In addition, the company has $50 million in short-term
bank lines of credit which are available until canceled by
either party. When utilized, interest is payable monthly under
several pricing options.
Included in accounts payable are checks outstanding in
excess of cash balances of approximately $20.3 million, $22.6
million and $13.9 million at year-end 1995, 1994 and 1993. The
company can utilize its revolving line of credit to cover
payment of these checks as they clear the bank.
Note D: Leases
The company leases its distribution center and corporate
office located in Newark, California under a 15-year,
noncancelable lease agreement expiring 2002. The lease
contains six renewal options of five years each. In addition,
the company leases its store sites, selected computer and
related equipment, and distribution center equipment under
operating leases with original, noncancelable terms that in
general range from three to fifteen years, expiring through
2009. Store leases typically contain provisions for two to
three renewal options of five years each. Most store leases
also provide for minimum annual rentals, with provisions for
additional rent based on percentage of sales and for payment of
certain expenses.
The aggregate future minimum annual lease payments under leases
in effect at year-end 1995 are as follows:
($000) Amounts
1996 $81,709
1997 78,085
1998 74,724
1999 68,372
2000 54,036
_______
Later years 148,730
_______
Total $505,656
Total rent expense for all operating leases is as follows:
($000) 1995 1994 1993
Minimum rentals $84,340 $76,593 $70,856
22
Note E: Taxes on Earnings
The provision for taxes consists of the following:
($000) 1995 1994 1993
CURRENTLY PAYABLE
Federal $25,746 $18,987 $14,885
State 6,001 4,638 3,995
_______ _______ _______
31,747 23,625 18,880
DEFERRED
Federal (2,715) 565 506
State (183) 358 163
_______ ___ ___
(2,898) 923 669
_______ _______ _______
$28,849 $24,548 $19,549
In 1995, 1994 and 1993, the company realized tax benefits
of $1.7 million, $0.7 million and $2.7 million related to stock
options exercised and the vesting of restricted stock which
were credited to additional paid-in capital.
The provisions for taxes for financial reporting purposes
are different from the tax provision computed by applying the
statutory federal income tax rate. The differences are
reconciled as follows:
1995 1994 1993
Federal income taxes at the
statutory rate 35% 35% 35%
Increased income taxes resulting
from state income taxes, net
of federal benefit 5% 5% 5%
___ ___ ___
40% 40% 40%
23
The components of the net deferred tax liability at year-end
are as follows:
($000) 1995 1994
DEFERRED TAX ASSETS
California franchise taxes $1,055 $ 883
Straight-line rent 3,782 3,206
Deferred compensation 4,273 3,873
Reserve for uninsured losses 1,370 1,455
Employee benefits 4,902 3,601
All other 1,602 1,955
______ ______
16,984 14,973
DEFERRED TAX LIABILITIES
Depreciation (14,046) (15,393)
Prepaid expenses (5,250) (4,859)
Supplies (1,465) (1,380)
Other (26) (42)
________ ________
(20,787) (21,674)
NET DEFERRED TAX LIABILITIES ($3,803) ($ 6,701)
Note F: Insurance Proceeds
In March 1994, a section of the roof at the company's
distribution center in Carlisle, Pennsylvania collapsed due to
unusually heavy snow accumulation. In October 1994, the
company entered into a settlement agreement with its insurance
carrier for claims related to the impact on business that
resulted from the roof collapse. This settlement included
proceeds of $10.4 million for business interruption.
Note G: Employee Benefit Plans
The company has available to certain employees a profit
sharing retirement plan. Under the plan, employee and company
contributions and accumulated plan earnings qualify for
favorable tax treatment under Section 401(k) of the Internal
Revenue Code. In 1987, the company adopted an Incentive
Compensation Program, which provides cash awards to key
management employees based on the company's and the
individual's performance. In 1991, the company began offering
an Executive Supplemental Retirement Plan, which allows
eligible employees to purchase individual life insurance
policies and/or annuity contracts. In 1993, the company made
available to management a Nonqualified Deferred Compensation
Plan which allows management to contribute on a pre-tax basis
in addition to the 401(k) Plan. This plan does not qualify
under Section 401(k) of the Internal Revenue Code.
Note H: Stockholders' Equity
The company's Board of Directors declared dividends of
$.05 per common share in June, August and November 1994; $.06
per common share in January, May, August and November 1995; and
$.07 per common share in January 1996.
Preferred Stock. The company has four million shares of
preferred stock authorized, with a par value of $.01 per share.
No preferred stock has been issued or outstanding during the
past three years.
Common Stock. In February 1993, November 1993 and May
1995, the company announced that its Board of Directors
approved repurchase programs for up to one million shares of
common stock each, for a total of three million shares. In
February 1996, the company's Board of Directors announced an
expansion
24
of these repurchase programs by authorizing the buyback of an
additional two million shares, or a total of five million
shares authorized for repurchase since February 1993. Of this
amount, a total of 1.2 million shares were repurchased at an
average price of $14.89 in 1993, 820,000 shares were
repurchased at an average price of $15.68 in 1994, and 756,000
shares were repurchased at an average price of $16.05 in 1995.
Stock Options. The company's Stock Option Plan allows for
the granting of incentive and nonqualified stock options.
Stock options are to be granted at prices not less than the
fair market value of the common shares on the date the option
is granted, and normally vest over a period not exceeding four
years from the date of grant. Options under the plan are
exercisable upon grant, subject to the company's conditional
right to repurchase unvested shares. The following is a
summary of stock option activity under the plan for 1995, 1994
and 1993.
Number of Average
(000) Shares Price
Outstanding and exercisable at
January 30, 1993 2,016 $12.67
Granted 584 $18.49
Exercised (185) $ 7.59
Canceled (117) $16.04
Outstanding and exercisable at
January 29, 1994 2,298 $14.38
Granted 738 $15.59
Exercised (170) $ 8.49
Canceled (91) $17.80
Outstanding and exercisable at
January 28, 1995 2,775 $14.95
Granted 751 $12.28
Exercised (475) $9.69
Canceled (132) $15.75
Outstanding and exercisable at
February 3, 1996 2,919 $15.08
At year-end 1995, 1994 and 1993, 1.6 million, 1.1 million and
1.7 million shares remained available for grant under the plan.
Restricted Stock. During 1995, 1994 and 1993 the company
awarded 333,000, 278,000 and 194,000 shares to certain
employees of which 23,000, 8,000 and 49,000 were subsequently
canceled and returned to the share reserve. At year-end 1995,
715,000 shares remained available for grant under the plan.
The compensation associated with these awards is amortized over
vesting periods of generally two to five years. At year-end
1995, 1994 and 1993, the unamortized compensation expense was
$4.1 million, $4.7 million and $4.8 million.
Employee Stock Purchase Plan. During 1995, employees
purchased approximately 130,000 shares of the company's common
stock through payroll deductions under the plan. Through
February 3, 1996, approximately 641,000 shares had been issued
under this plan and 359,000 shares remained available for
future issuance.
Outside Directors Stock Option Plan. The company's
Outside Directors Stock Option Plan provides for the automatic
grant of stock options at pre-established times and for fixed
numbers of shares to each non-employee director. Stock options
are to be granted at exercise prices not less than the fair
market value of the common shares on the date the option is
granted, and normally vest over a period not exceeding three
years from the date of the grant. Through February 3, 1996,
the company had granted options for approximately 103,000
shares at exercise prices ranging from $8.63 to $20.88 per
share. During 1995, options for 9,000 shares were exercised at
an average price of $8.63 per share and options for 4,000
shares were canceled and returned to the share reserve. At
year-end 1995, 29,000 shares remained available for grant under
the plan, and options for 76,000 shares remained outstanding
and exercisable.
25
Note I: Legal Proceedings
The company is party to various legal proceedings arising
from normal business activities. In the opinion of management,
resolution of these matters will not have a material adverse
effect on the company's consolidated financial condition.
Note J: Quarterly Financial Data (Unaudited)
13 Weeks 13 Weeks 13 Weeks 14 Weeks 53 Weeks
Ended Ended Ended Ended Ended
($000, except per share April 29, July 29, October 28, February 3, February 3,
data) 1995 1995 1995 1996 1996
Sales $297,434 $351,202 $330,682 $447,079 $1,426,397
Gross margin, after
occupancy 78,815 96,972 93,127 126,027 394,941
Net earnings 3,868 10,336 7,909 21,159 43,272
Net earnings per fully-
diluted share .16 .42 .32 .85 1.73
Dividends declared per
share on common stock .06 .06 .13 .25
Closing stock price
High 12 1/4 12 5/8 16 15/16 20 3/4 20 3/4
Low 9 5/8 9 13/16 11 63/64 18 1/4 9 5/8
Includes $.06 per share dividend declared November 1995 and $.07 per
share dividend declared January 1996.
Includes after tax net insurance proceeds of $6.247 million or $.25 per
share.
Includes $.05 per share dividend declared November 1994 and $.06 per
share dividend declared in January 1995.
Ross Stores, Inc. common stock trades on the Nasdaq National Market tier
of The Nasdaq Stock MarketSM under the symbol ROST.
13 Weeks 13 Weeks 13 Weeks 13 Weeks 52 Weeks
Ended Ended Ended Ended Ended
($000, except per share April 30, July 30, October 29, January 28, January 28,
data) 1994 1994 1994 1995 1995
Sales $264,207 $312,296 $294,960 $391,080 $1,262,544
Gross margin, after
occupancy 72,621 86,345 80,050 103,263 342,279
Net earnings 4,408 8,847 11,085 12,481 36,821
Net earnings per fully-
diluted share .18 .36 .45 .51 1.49
Dividends declared per
share on common stock .05 .05 .11 .21
Closing stock price
High 17 1/2 17 17 14 3/8 17 1/2
Low 13 1/4 13 1/4 13 7/8 10 3/8 10 3/8
Includes $.06 per share dividend declared November 1995 and $.07 per
share dividend declared January 1996.
Includes after tax net insurance proceeds of $6.247 million or $.25 per
share.
Includes $.05 per share dividend declared November 1994 and $.06 per
share dividend declared in January 1995.
Ross Stores, Inc. common stock trades on the Nasdaq National Market tier
of The Nasdaq Stock MarketSM under the symbol ROST.
26
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Ross Stores, Inc.
Newark, California
We have audited the accompanying consolidated balance
sheets of Ross Stores, Inc. and subsidiaries (the "Company") as
of February 3, 1996 and January 28, 1995, and the related
consolidated statements of earnings, stockholders' equity, and
cash flows for each of the three years in the period ended
February 3, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of the Company as of February 3, 1996 and January 28,
1995, and the results of its operations and its cash flows for
each of the three years in the period ended February 3, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Francisco, California
March 15, 1996
27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated herein
by reference to the sections entitled (i) "Executive Officers
of the Registrant" at the end of Part I of this report; (ii)
"Information Regarding Nominees and Incumbent Directors" of the
Ross Stores, Inc. Proxy Statement for the Annual Meeting of
Stockholders to be held on Thursday, May 30, 1996 (the "Proxy
Statement"); and (iii) "Compliance With Section 16(a) of the
Exchange Act" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated
herein by reference to the sections of the Proxy Statement
entitled (i) "Compensation Committee Interlocks and Insider
Participation"; (ii) "Compensation of Directors"; (iii)
"Employment Contracts, Termination of Employment and Change-in-
Control Arrangements"; and (iv) the following tables, and their
footnotes, Summary Compensation, Option Grants in Last Fiscal
Year and Aggregated Option Exercises and Year-End Value.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated
herein by reference to the section of the Proxy Statement
entitled "Stock Ownership of Certain Beneficial Owners and
Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated
herein by reference to the sections of the Proxy Statement
entitled (i) "Compensation of Directors" and (ii) "Certain
Transactions".
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K
(a) The following financial statements, schedules and
exhibits are filed as part of this report or are
incorporated herein as indicated:
1. List of Financial Statements.
The following consolidated financial
statements included herein as Item 8:
Consolidated Balance Sheets at February 3,
1996 and January 28, 1995.
Consolidated Statements of Earnings for the
years ended February 3, 1996, January 28,
1995 and January 29, 1994.
Consolidated Statements of Stockholders'
Equity for the years ended February 3, 1996,
January 28, 1995, and January 29, 1994.
Consolidated Statements of Cash Flows for
the years ended February 3, 1996, January 28,
1995 and January 29, 1994.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. List of Financial Statement Schedules.
Schedules are omitted because they are not
required, not applicable, or shown in the financial
statements or notes thereto which are contained in
this Report.
3. List of Exhibits (in accordance with Item
601 of Regulation S-K)
Incorporated herein by reference to the list of
Exhibits contained in the Exhibit Index which begins
on page 30 of this Report.
(b) Reports on Form 8-K.
None.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of
the Securities Exchange 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 26 1996 By /s/Norman A. Ferber
(Norman A. Ferber, Chairman of the Board
and 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 behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/Norman A. Ferber Chairman, Chief Executive April 26, 1996
Norman A. Ferber Officer and Director
/s/Melvin A. Wilmore President, Chief Operating April 26, 1996
Melvin A. Wilmore Officer and Director
/s/John Vuko Senior Vice President, April 26, 1996
John M. Vuko Controller
Principal Accounting Officer,
Interim Chief Financial Officer
/s/Stuart G. Moldaw Chairman Emeritus, Director April 26, 1996
Stuart G. Moldaw
/s/Maynard Jenkins Director April 26, 1996
Maynard Jenkins
/s/G. Orban Director April 26, 1996
George P. Orban
/s/Philip Schlein Director April 26, 1996
Philip Schlein
/s/ Donald H. Seiler Director April 26, 1996
Donald H. Seiler
/s/D.L. Weaver Director April 26, 1996
Donna L. Weaver
30
INDEX TO EXHIBITS
Exhibit
Number
Exhibit
3.1 Certificate of Incorporation, as amended, incorporated
by reference to Exhibit 3.1 to the Registration
Statement on Form 8-B (the "Form 8-B") filed September
1, 1989 by Ross Stores, Inc., a Delaware corporation
("Ross Stores").
3.2 Amended By-laws, dated August 25, 1994, incorporated by
reference to Exhibit 3.2 to the Form 10-Q filed by Ross
Stores for its quarter ended July 30, 1994.
10.1 Agreement of Lease, dated November 24, 1986, for Ross
Stores' corporate headquarters and distribution center
in Newark, CA, incorporated by reference to Exhibit 10.5
to the Form 8-B.
10.2 Revolving Credit Agreement, dated July 31, 1993, among
Ross Stores, Wells Fargo Bank, National Association,
Bank of America, National Trust and Savings Association,
and Security Pacific National Bank ("Banks"); and Wells
Fargo Bank, National Association, as agent for Banks
("Revolving Credit Agreement"), incorporated by
reference to Exhibit 10.17 on the Form 10-Q filed by
Ross Stores for its quarter ended July 31, 1993.
10.3 First Amendment to Revolving Credit Agreement, effective
on July 31, 1994, by and among Ross Stores, Banks and
Wells Fargo Bank, National Association, as agent for
Banks, incorporated by reference to Exhibit 10.5 to the
Form 10-Q filed by Ross Stores for its quarter ended
July 30, 1994.
10.4 Second Amendment to Revolving Credit Agreement,
effective on June 15, 1995 by and among Ross Stores,
Banks and Wells Fargo Bank, National Association, as
agent for Banks, incorporated by reference to Exhibit
10.4 to the Form 10-Q filed by Ross Stores for its
quarter ended July 29, 1995.
10.5 Credit Agreement, dated as of June 22, 1994, among Ross
Stores, Bank of America National Trust and Savings
Association as Agent, the Industrial Bank of Japan as Co-
Agent and the other financial institutions party thereto
("Credit Agreement"), incorporated by reference to
Exhibit 10.6 to the Form 10-Q filed by Ross Stores for
its quarter ended July 30, 1994.
10.6 First Amendment to Credit Agreement, dated as of June
20, 1995, among Ross Stores, Bank of America National
Trust and Savings Association as Agent, the Industrial
Bank of Japan as Co-Agent to the Credit Agreement,
incorporated by reference to Exhibit 10.6 to the Form 10-
Q filed by Ross Stores for its quarter ended July 29,
1995.
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS (EXHIBITS 10.7 - 10.23)
10.7 Amended and Restated 1992 Stock Option Plan,
incorporated by reference to the appendix to the Proxy
Statement filed by Ross Stores on April 24, 1995 for its
Annual Stockholders Meeting held May 25, 1995.
31
Exhibit
Number Exhibit
10.8 Third Amended and Restated Ross Stores Employee Stock
Purchase Plan, incorporated by reference to the appendix
to the Proxy Statement filed by Ross Stores on April
24, 1995 for its Annual Stockholders Meeting held May
25, 1995.
10.9 Third Amended and Restated Ross Stores 1988 Restricted
Stock Plan, incorporated by reference to the appendix to
the Proxy Statement filed by Ross Stores on April 24,
1995 for its Annual Stockholders Meeting held May 25,
1995.
10.10 1991 Outside Directors Stock Option Plan, incorporated
by reference to Exhibit 10.13 to the 1991 Form 10-K
filed by Ross Stores for its year ended February 1,
1992.
10.11 Ross Stores Executive Medical Plan, incorporated by
reference to Exhibit 10.13 to the 1993 Form 10-K filed
by Ross Stores for its year ended January 29, 1994
("1993 Form 10-K").
10.12 Third Amended and Restated Ross Stores Executive
Supplemental Retirement Plan, incorporated by reference
to Exhibit 10.14 to the 1993 Form 10-K.
10.13 Ross Stores Non-Qualified Deferred Compensation Plan,
incorporated by reference to Exhibit 10.15 to the 1993
Form 10-K.
10.14 Ross Stores Incentive Compensation Plan, incorporated by
reference to Exhibit 10.16 to the 1993 Form 10-K.
10.15 Amended and Restated Employment Agreement by and between
Ross Stores and Norman A. Ferber, effective as of June
1, 1995, incorporated by reference to Exhibit 10.17 to
the Form 10-Q filed by Ross Stores for its quarter ended
October 28, 1995.
10.16 Agreement between Ross Stores and Norman A. Ferber,
dated August 22, 1995, incorporated by reference to
Exhibit 10.18 to the Form 10-Q filed by Ross Stores for
its quarter ended October 28, 1995.
10.17 Employment Agreement by and between Ross Stores and
Melvin A. Wilmore, effective as of March 15, 1994,
incorporated by reference to Exhibit 10.20 to the Form
10-Q filed by Ross Stores for its quarter ended April
30, 1994.
10.18 Amendment to Employment and Stock Grant Agreements by
and between Ross Stores and Melvin A. Wilmore, effective
as of March 16, 1995, incorporated by reference to
Exhibit 10.20 to the Form 10-Q filed by Ross Stores for
its quarter ended October 28, 1995.
10.19 Second Amendment to Employment Agreement by and between
Ross Stores and Melvin A. Wilmore, effective as of June
1, 1995, incorporated by reference to Exhibit 10.21 to
the Form 10-Q filed by Ross Stores for its quarter ended
October 28, 1995.
10.20 Agreement between Ross Stores and Melvin A. Wilmore,
dated August 22, 1995, incorporated by reference to
Exhibit 10.22 to the Form 10-Q filed by Ross Stores for
its quarter ended October 28, 1995.
10.21 Employment Agreement by and between Ross Stores and
Michael Balmuth, effective as of February 1, 1995,
incorporated by reference to Exhibit 10.15 to the Form
10-Q filed by Ross Stores for its quarter ended April
29, 1995.
32
Exhibit
Number Exhibit
10.22 Amendment to Employment Agreement by and between Ross
Stores and Michael Balmuth, effective as of June 1,
1995, incorporated by reference to Exhibit 10.24 to the
Form 10-Q filed by Ross Stores for its quarter ended
October 28, 1995.
10.23 Consulting Agreement between Ross Stores and Stuart G.
Moldaw, effective as of March 16, 1995, incorporated by
reference to Exhibit 10.16 to the Form 10-Q filed by
Ross Stores for its quarter ended April 29, 1995.
11 Statement re: Computation of Per Share Earnings.
23 Independent Auditors' Consent.
27 Financial Data Schedules (submitted for SEC use only).