UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to __________

Commission file number: 0-14678

Ross Stores, Inc.

(Exact name of registrant as specified in its charter)

Delaware			94-1390387
(State or other jurisdiction of incorporation or			(I.R.S. Employer Identification No.)
organization)
5130 Hacienda Drive,	Dublin,	California	94568-7579
(Address of principal executive offices)			(Zip Code)
Registrant’s telephone number, including area code			(925)	965-4400
Former name, former address and former			N/A
fiscal year, if changed since last report.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol	Name of each exchange on which registered
Common stock,	par value $.01	ROST	NASDAQ Global Select Market

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 ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý     Accelerated filer o Non-accelerated filer o Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares of Common Stock, with $.01 par value, outstanding on November 12, 2021 was 353,329,735.

1

Ross Stores, Inc.

Form 10-Q

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Statements of Operations–Three and nine months ended October 30, 2021 and October 31, 2020	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)–Three and nine months ended October 30, 2021 and October 31, 2020	4
	Condensed Consolidated Balance Sheets–October 30, 2021, January 30, 2021, and October 31, 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity–Nine months ended October 30, 2021	6
	Condensed Consolidated Statements of Stockholders’ Equity–Nine months ended October 31, 2020	7
	Condensed Consolidated Statements of Cash Flows–Nine months ended October 30, 2021 and October 31, 2020	8
	Notes to Condensed Consolidated Financial Statements	9
	Report of Independent Registered Public Accounting Firm	17
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	30
	Signatures	31

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Statements of Operations

	Three Months Ended				Nine Months Ended
($000, except stores and per share data, unaudited)	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Sales	$	4,574,541	$	3,754,509	$	13,895,595	$	8,281,894
Costs and Expenses
Cost of goods sold	3,326,004		2,711,419		9,935,271		6,681,530
Selling, general and administrative	725,761		877,857		2,118,602		1,812,657
Interest expense, net	18,744		28,740		56,500		64,261
Total costs and expenses	4,070,509		3,618,016		12,110,373		8,558,448
Earnings (loss) before taxes	504,032		136,493		1,785,222		(276,554)
Provision (benefit) for taxes on earnings (loss)	119,002		5,296		429,455		(123,956)
Net earnings (loss)	$	385,030	$	131,197	$	1,355,767	$	(152,598)
Earnings (loss) per share
Basic	$	1.10	$	0.37	$	3.85	$	(0.43)
Diluted	$	1.09	$	0.37	$	3.82	$	(0.43)
Weighted-average shares outstanding (000)
Basic	351,071		352,481		352,308		352,320
Diluted	353,081		354,457		354,477		352,320
Store count at end of period	1,924		1,869		1,924		1,869

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Condensed Consolidated Statements of Comprehensive Income (Loss)

	Three Months Ended				Nine Months Ended
($000, unaudited)	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Net earnings (loss)	$	385,030	$	131,197	$	1,355,767	$	(152,598)
Other comprehensive income (loss)	—		—		—		—
Comprehensive income (loss)	$	385,030	$	131,197	$	1,355,767	$	(152,598)

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Condensed Consolidated Balance Sheets

($000, except share data, unaudited)	October 30, 2021		January 30, 2021		October 31, 2020
Assets
Current Assets
Cash and cash equivalents	$	5,259,595	$	4,819,293	$	4,416,124
Accounts receivable	158,765		115,067		122,654
Merchandise inventory	2,231,242		1,508,982		1,630,390
Prepaid expenses and other	195,309		249,149		347,399
Total current assets	7,844,911		6,692,491		6,516,567
Property and Equipment
Land and buildings	1,194,125		1,187,045		1,185,442
Fixtures and equipment	3,357,986		3,243,206		3,201,940
Leasehold improvements	1,317,979		1,278,134		1,243,755
Construction-in-progress	506,903		376,076		372,950
	6,376,993		6,084,461		6,004,087
Less accumulated depreciation and amortization	3,592,707		3,373,965		3,297,203
Property and equipment, net	2,784,286		2,710,496		2,706,884
Operating lease assets	3,032,175		3,084,819		3,132,056
Other long-term assets	254,362		230,061		215,159
Total assets	$	13,915,734	$	12,717,867	$	12,570,666
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	2,652,881	$	2,256,928	$	2,426,390
Accrued expenses and other	625,426		592,122		655,408
Current operating lease liabilities	620,675		598,120		590,122
Accrued payroll and benefits	512,336		400,273		269,709
Income taxes payable	—		54,680		—
Current portion of long-term debt	64,991		64,910		—
Total current liabilities	4,476,309		3,967,033		3,941,629
Long-term debt	2,451,283		2,448,175		2,512,037
Non-current operating lease liabilities	2,551,162		2,621,594		2,672,139
Other long-term liabilities	296,819		268,558		290,795
Deferred income taxes	156,944		121,867		135,029
Commitments and contingencies
Stockholders’ Equity
Common stock, par value $.01 per share    Authorized 1,000,000,000 shares    Issued and outstanding 353,694,000, 356,503,000    and 356,449,000 shares, respectively	3,537		3,565		3,564
Additional paid-in capital	1,681,802		1,579,824		1,546,078
Treasury stock	(535,642)		(478,550)		(478,419)
Retained earnings	2,833,520		2,185,801		1,947,814
Total stockholders’ equity	3,983,217		3,290,640		3,019,037
Total liabilities and stockholders’ equity	$	13,915,734	$	12,717,867	$	12,570,666

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Condensed Consolidated Statements of Stockholders’ Equity

	Nine Months Ended October 30, 2021
				Additional paid-in capital
	Common stock					Treasury stock		Retained earnings
(000)	Shares	Amount								Total
Balance at January 30, 2021	356,503	$	3,565	$	1,579,824	$	(478,550)	$	2,185,801	$	3,290,640
Net earnings	—	—		—		—		476,479		476,479
Common stock issued under stock
plans, net of shares
used for tax withholding	614	6		6,057		(47,378)		—		(41,315)
Stock-based compensation	—	—		28,674		—		—		28,674
Dividends declared ($0.285 per share)	—	—		—		—		(101,657)		(101,657)
Balance at May 1, 2021	357,117	$	3,571	$	1,614,555	$	(525,928)	$	2,560,623	$	3,652,821
Net earnings	—	—		—		—		494,258		494,258
Common stock issued under stock
plans, net of shares
used for tax withholding	30	—		6,471		(1,637)		—		4,834
Stock-based compensation	—	—		29,584		—		—		29,584
Common stock repurchased	(1,449)	(14)		(5,492)		—		(170,278)		(175,784)
Dividends declared ($0.285 per share)	—	—		—		—		(101,727)		(101,727)
Balance at July 31, 2021	355,698	$	3,557	$	1,645,118	$	(527,565)	$	2,782,876	$	3,903,986
Net earnings	—	—		—		—		385,030		385,030
Common stock issued under stock
plans, net of shares
used for tax withholding	97	1		6,091		(8,077)		—		(1,985)
Stock-based compensation	—	—		38,517		—		—		38,517
Common stock repurchased	(2,101)	(21)		(7,924)		—		(233,250)		(241,195)
Dividends declared ($0.285 per share)	—	—		—		—		(101,136)		(101,136)
Balance at October 30, 2021	353,694	$	3,537	$	1,681,802	$	(535,642)	$	2,833,520	$	3,983,217
The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Condensed Consolidated Statements of Stockholders’ Equity

	Nine Months Ended October 31, 2020
				Additional paid-in capital
	Common stock					Treasury stock		Retained earnings
(000)	Shares	Amount								Total
Balance at February 1, 2020	356,775	$	3,568	$	1,458,307	$	(433,328)	$	2,330,702	$	3,359,249
Net loss	—	—		—		—		(305,842)		(305,842)
Common stock issued under stock
plans, net of shares
used for tax withholding	318	3		5,441		(32,317)		—		(26,873)
Stock-based compensation	—	—		24,739		—		—		24,739
Common stock repurchased	(1,171)	(12)		(3,576)		—		(128,879)		(132,467)
Dividends declared ($0.285 per share)	—	—		—		—		(101,414)		(101,414)
Balance at May 2, 2020	355,922	$	3,559	$	1,484,911	$	(465,645)	$	1,794,567	$	2,817,392
Net earnings	—	—		—		—		22,047		22,047
Common stock issued under stock
plans, net of shares
used for tax withholding	84	1		5,630		(29)		—		5,602
Stock-based compensation	—	—		22,158		—		—		22,158
Balance at August 1, 2020	356,006	$	3,560	$	1,512,699	$	(465,674)	$	1,816,614	$	2,867,199
Net earnings	—	—		—		—		131,197		131,197
Common stock issued under stock
plans, net of shares
used for tax withholding	443	4		6,009		(12,745)		3		(6,729)
Stock-based compensation	—	—		27,370		—		—		27,370
Balance at October 31, 2020	356,449	$	3,564	$	1,546,078	$	(478,419)	$	1,947,814	$	3,019,037
The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Condensed Consolidated Statements of Cash Flows

	Nine Months Ended
($000, unaudited)	October 30, 2021		October 31, 2020
Cash Flows From Operating Activities
Net earnings (loss)	$	1,355,767	$	(152,598)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization	262,139		268,193
Loss on early extinguishment of debt	—		239,769
Stock-based compensation	96,775		74,267
Deferred income taxes	35,077		(14,650)
Change in assets and liabilities:
Merchandise inventory	(722,260)		201,949
Other current assets	(50,139)		(31,732)
Accounts payable	422,277		1,126,574
Other current liabilities	160,984		118,679
Income taxes	(60,442)		(119,513)
Operating lease assets and liabilities, net	4,767		8,979
Other long-term, net	(1,292)		63,206
Net cash provided by operating activities	1,503,653		1,783,123
Cash Flows From Investing Activities
Additions to property and equipment	(377,916)		(339,545)
Net cash used in investing activities	(377,916)		(339,545)
Cash Flows From Financing Activities
Issuance of common stock related to stock plans	18,626		17,088
Treasury stock purchased	(57,092)		(45,091)
Repurchase of common stock	(416,979)		(132,467)
Dividends paid	(304,520)		(101,411)
Net proceeds from issuance of short-term debt	—		805,601
Payments of short-term debt	—		(804,972)
Net proceeds from issuance of long-term debt	—		2,965,115
Payments of long-term debt	—		(775,009)
Payments of debt extinguishment and debt issuance costs	—		(232,000)
Net cash (used in) provided by financing activities	(759,965)		1,696,854
Net increase in cash, cash equivalents, and restricted cash and cash equivalents	365,772		3,140,432
Cash, cash equivalents, and restricted cash and cash equivalents:
Beginning of period	4,953,769		1,411,410
End of period	$	5,319,541	$	4,551,842
Supplemental Cash Flow Disclosures
Interest paid	$	82,209	$	70,347
Income taxes paid	$	454,821	$	10,207

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

Notes to Condensed Consolidated Financial Statements

Three and Nine Months Ended October 30, 2021 and October 31, 2020

(Unaudited)

Note A: Summary of Significant Accounting Policies

Basis of presentation. The accompanying unaudited interim condensed consolidated financial statements have been prepared from the records of Ross Stores, Inc. and subsidiaries (the “Company”) without audit and, in the opinion of management, include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the Company’s financial position as of October 30, 2021 and October 31, 2020, the results of operations, comprehensive income (loss), and stockholders’ equity for the three and nine month periods ended October 30, 2021 and October 31, 2020, and cash flows for the nine month periods ended October 30, 2021 and October 31, 2020. The Condensed Consolidated Balance Sheet as of January 30, 2021, presented herein, has been derived from the Company’s audited consolidated financial statements for the fiscal year then ended.

Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted for purposes of these interim condensed consolidated financial statements. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, contained in the Company’s Annual Report on Form 10-K for the year ended January 30, 2021.

The results of operations, comprehensive income (loss), and stockholders’ equity for the three and nine month periods ended October 30, 2021 and October 31, 2020, and cash flows for the nine month periods ended October 30, 2021 and October 31, 2020 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

Use of accounting estimates. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company’s significant accounting estimates include valuation reserves for inventory, packaway and other inventory carrying costs, useful lives of fixed assets, insurance reserves, reserves for uncertain tax positions, employee retention credits under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and legal claims. The ongoing uncertainties and continued impacts from the COVID-19 pandemic increase the challenge of making estimates; actual results could differ materially from the Company’s estimates.

Revenue recognition. The following sales mix table disaggregates revenue by merchandise category for the three and nine month periods ended October 30, 2021 and October 31, 2020:

	Three Months Ended				Nine Months Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020		1
Ladies	26	%	23	%	26	%	24	%
Home Accents and Bed and Bath	25	%	26	%	25	%	26	%
Men’s	15	%	15	%	14	%	14	%
Accessories, Lingerie, Fine Jewelry, and Cosmetics	13	%	15	%	14	%	14	%
Shoes	11	%	12	%	12	%	13	%
Children’s	10	%	9	%	9	%	9	%
Total	100	%	100	%	100	%	100	%
1 Sales mix for the nine month period ended October 31, 2020 represents sales for the period the stores were open.

Cash, restricted cash, and restricted investments. Restricted cash, cash equivalents, and investments serve as collateral for certain insurance and trade payable obligations of the Company. These restricted funds are invested in bank deposits, money market mutual funds, U.S. Government and agency securities, and corporate securities and cannot be withdrawn from the Company’s account without the prior written consent of the secured parties. The classification between current and long-term is based on the timing of expected payments of the obligations.

9

The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents in the Condensed Consolidated Balance Sheets that reconcile to the amounts shown on the Condensed Consolidated Statements of Cash Flows:

($000)	October 30, 2021		January 30, 2021		October 31, 2020
Cash and cash equivalents	$	5,259,595	$	4,819,293	$	4,416,124
Restricted cash and cash equivalents included in:
Prepaid expenses and other	10,790		85,711		85,322
Other long-term assets	49,156		48,765		50,396
Total restricted cash and cash equivalents	59,946		134,476		135,718
Total cash and cash equivalents, and restricted cash and cash equivalents	$	5,319,541	$	4,953,769	$	4,551,842

Property and equipment. As of October 30, 2021 and October 31, 2020, the Company had $14.4 million and $22.4 million, respectively, of property and equipment purchased but not yet paid. These purchases are included in Property and equipment, Accounts payable, and Accrued expenses and other in the accompanying Condensed Consolidated Balance Sheets.

Operating leases. In response to the COVID-19 pandemic, the Financial Accounting Standards Board (“FASB”) provided relief under Accounting Standards Update (“ASU”) 2016-02, Leases (Accounting Standards Codification “ASC” 842). Under this relief, companies can make a policy election on how to treat lease concessions resulting directly from the COVID-19 pandemic, provided that the modified contracts result in total cash flows that are substantially the same or less than the cash flows in the original contract.

The Company made the policy election to account for lease concessions that result from the COVID-19 pandemic as if they were made under enforceable rights in the original contract. Additionally, the Company made the policy election to account for these concessions outside of the lease modification framework described under ASC 842. The Company recorded accruals for deferred rental payments and recognized rent abatements or concessions as variable lease costs in the periods incurred. Accruals for rent payment deferrals are included in Accrued expenses and other in the accompanying Condensed Consolidated Balance Sheets.

Supplemental cash flow disclosures related to leases. Operating lease assets obtained in exchange for new operating lease liabilities (includes new leases and remeasurements or modifications of existing leases) were as follows:

	Three Months Ended				Nine Months Ended
($000)	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Operating lease assets obtained in exchange for new operating lease liabilities	$	208,767	$	225,345	$	395,428	$	509,696

Cash dividends. The Company’s Board of Directors declared a quarterly cash dividend of $0.285 per common share in March 2020. In May 2020, the Company suspended its quarterly dividends due to the economic uncertainty stemming from the COVID-19 pandemic. On March 2, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.285 per common share, payable on March 31, 2021, resuming quarterly dividends. The Company’s Board of Directors also declared cash dividends of $0.285 per common share in May 2021 and August 2021.

In November 2021, the Company’s Board of Directors declared a cash dividend of $0.285 per common share, payable on December 31, 2021.

Litigation, claims, and assessments. Like many retailers, the Company has been named in class/representative action lawsuits, primarily in California, alleging violation of wage and hour/employment laws and consumer protection laws. Class/representative action litigation remains pending as of October 30, 2021.

The Company is also party to various other legal and regulatory proceedings arising in the normal course of business. Actions filed against the Company may include commercial, product and product safety, consumer, intellectual property,

10

environmental, and labor and employment-related claims, including lawsuits in which private plaintiffs or governmental agencies allege that the Company violated federal, state, and/or local laws. Actions against the Company are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties.

In the opinion of management, the resolution of pending class/representative action litigation and other currently pending legal and regulatory proceedings will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Recently adopted accounting standards. In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (ASC 740). ASU 2019-12 eliminates certain exceptions in ASC 740 related to the methodology for calculating income taxes in an interim period. It also clarifies and simplifies other aspects of the accounting for income taxes. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period. The Company adopted ASU 2019-12 on a prospective basis in the first quarter of fiscal 2020. The most significant impact to the Company is the removal of a limit on the tax benefit recognized on pre-tax losses in interim periods. The adoption of this standard did not have a material impact on the Company’s fiscal 2020 results.

Recently issued accounting standards. The Company considers the applicability and impact of all ASUs issued by the FASB. For the three and nine month periods ended October 30, 2021, the ASUs issued by the FASB were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s condensed consolidated financial results.

Note B: Fair Value Measurements

The carrying value of cash and cash equivalents, short- and long-term investments, restricted cash and cash equivalents, restricted investments, accounts receivable, other long-term assets, accounts payable, and other long-term liabilities approximates their estimated fair value.

Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The inputs used to measure fair value include: Level 1, observable inputs such as quoted prices in active markets; Level 2, inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, unobservable inputs in which little or no market data exists. This fair value hierarchy requires the Company to develop its own assumptions, maximize the use of observable inputs, and minimize the use of unobservable inputs when measuring fair value. Corporate, U.S. government and agency, and mortgage-backed securities are classified within Level 1 or Level 2 because these securities are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

The fair value of the Company’s financial instruments are as follows:

($000)	October 30, 2021		January 30, 2021		October 31, 2020
Cash and cash equivalents (Level 1)	$	5,259,595	$	4,819,293	$	4,416,124
Restricted cash and cash equivalents (Level 1)	$	59,946	$	134,476	$	135,718

The underlying assets in the Company’s non-qualified deferred compensation program as of October 30, 2021, January 30, 2021, and October 31, 2020 (included in Other long-term assets and in Other long-term liabilities) primarily consist of participant-directed money market, stable value, stock, and bond funds. The fair value measurement for funds with quoted market prices in active markets (Level 1) and for funds without quoted market prices in active markets (Level 2) are as follows:

($000)	October 30, 2021		January 30, 2021		October 31, 2020
Level 1	$	178,966	$	159,116	$	134,991
Level 2	—		—		10,391
Total	$	178,966	$	159,116	$	145,382

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Note C: Management Incentive Plan and Stock-Based Compensation

The Company has incentive compensation programs which provide cash incentive bonuses and performance share awards to key management and employees based on Company and individual performance.

For fiscal 2021, the Compensation Committee of the Board of Directors established the performance measures for determining incentive compensation amounts as based on a combination of profitability-based performance goals and the attainment of specific management priorities related to business challenges from the COVID-19 pandemic, as measured and approved by the Compensation Committee. As of October 30, 2021, the Company has established an accrual for this incentive compensation based on its forecasted attainment of the profitability-based performance goals and the Compensation Committee’s assessment of progress towards achievement of the specific business priorities.

For the fiscal 2020 management incentive bonus plan and performance share awards, the Compensation Committee approved modifications in August 2020 to the performance measurement goals, to be based on the attainment of specific management priorities related to business challenges from the COVID-19 pandemic, as measured and approved by the Compensation Committee, as an alternative to the previously established profitability-based performance goals for 2020.

Stock-based compensation. For the three and nine month periods ended October 30, 2021 and October 31, 2020, the Company recognized stock-based compensation expense as follows:

	Three Months Ended				Nine Months Ended
($000)	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Restricted stock	$	18,841	$	17,330	$	53,487	$	51,450
Performance awards	18,601		8,979		40,000		19,801
Employee stock purchase plan	1,075		1,061		3,288		3,016
Total	$	38,517	$	27,370	$	96,775	$	74,267

Total stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Operations for the three and nine month periods ended October 30, 2021 and October 31, 2020, is as follows:

	Three Months Ended				Nine Months Ended
Statements of Operations Classification ($000)	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Cost of goods sold	$	18,594	$	13,767	$	48,354	$	38,282
Selling, general and administrative	19,923		13,603		48,421		35,985
Total	$	38,517	$	27,370	$	96,775	$	74,267

The tax benefits related to stock-based compensation expense for the three and nine month periods ended October 30, 2021 were $8.4 million and $19.4 million, respectively. The tax benefits related to stock-based compensation expense for the three and nine month periods ended October 31, 2020 were $5.1 million and $15.3 million, respectively.

Restricted stock awards. The Company grants shares of restricted stock or restricted stock units to directors, officers, and key employees. The market value of shares of restricted stock and restricted stock units at the date of grant is amortized to expense over the vesting period of generally three to five years.

During the three and nine month periods ended October 30, 2021 and October 31, 2020, shares purchased by the Company for tax withholding totaled 70,488 and 471,081, and 142,350 and 492,171, respectively, and are considered treasury shares which are available for reissuance.

Performance share awards. The Company has a performance share award program for senior executives. A performance share award represents a right to receive shares of restricted stock on a specified settlement date based on the Company’s attainment of performance goals during the performance period, which is the Company’s fiscal year. If attained, the restricted stock then vests over a service period, generally two to three years from the date the performance award was granted.

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As of October 30, 2021, shares related to unvested restricted stock, restricted stock units, and performance share awards totaled 4.0 million shares. A summary of restricted stock, restricted stock units, and performance share award activity for the nine month period ended October 30, 2021, is presented below:

(000, except per share data)	Number of shares	Weighted-average grant date fair value
Unvested at January 30, 2021	4,230	$	85.15
Awarded	1,110	121.06
Released	(1,222)	75.57
Forfeited	(121)	94.90
Unvested at October 30, 2021	3,997	$	97.79

The unamortized compensation expense at October 30, 2021, was $193.8 million, which is expected to be recognized over a weighted-average remaining period of 2.1 years. The unamortized compensation expense at October 31, 2020, was $178.2 million, which was expected to be recognized over a weighted-average remaining period of 2.1 years.

Employee stock purchase plan. Under the Employee Stock Purchase Plan (“ESPP”), eligible employees participating in the quarterly offering period can choose to have up to the lesser of 10% of their annual base earnings or the IRS annual share purchase limit of $25,000 in aggregate market value to purchase the Company’s common stock. The purchase price of the stock is 85% of the closing market price on the date of purchase. Purchases occur on a quarterly basis (on the last trading day of each calendar quarter). The Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date.

Note D: Earnings (Loss) Per Share

The Company computes and reports both basic earnings (loss) per share (“EPS”) and diluted EPS. Basic EPS is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings (loss) by the sum of the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period, except in cases where the effect of the common stock equivalents would be anti-dilutive. Diluted EPS reflects the total potential dilution that could occur from outstanding equity plan awards and unvested shares of both performance and non-performance based awards of restricted stock and restricted stock units. For periods of net loss, basic and diluted EPS are the same as the effect of the assumed vesting of restricted stock, restricted stock units, and performance share awards are anti-dilutive.

For the three and nine month periods ended October 30, 2021, approximately 13,200 and 3,000 weighted-average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive for the periods presented. For the three month period ended October 31, 2020, approximately 80,600 weighted-average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive for the period presented. For the nine month period ended October 31, 2020, basic and diluted EPS were the same due to the Company’s net loss.

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The following is a reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations:

	Three Months Ended						Nine Months Ended
Shares in (000s)	Basic EPS		Effect of dilutive common stock equivalents		Diluted EPS		Basic EPS		Effect of dilutive common stock equivalents		Diluted EPS
October 30, 2021
Shares	351,071		2,010		353,081		352,308		2,169		354,477
Amount	$	1.10	$	(0.01)	$	1.09	$	3.85	$	(0.03)	$	3.82
October 31, 2020
Shares	352,481		1,976		354,457		352,320		—		352,320
Amount	$	0.37	$	—	$	0.37	$	(0.43)	$	—	$	(0.43)

Note E: Debt

Long-term debt. Unsecured senior debt, net of unamortized discounts and debt issuance costs, consisted of the following:

($000)	October 30, 2021		January 30, 2021		October 31, 2020
6.530% Series B Senior Notes due 2021	$	64,991	$	64,910	$	64,883
3.375% Senior Notes due 2024	248,697		248,365		248,256
4.600% Senior Notes due 2025	695,571		694,624		694,310
0.875% Senior Notes due 2026	494,508		493,595		493,297
4.700% Senior Notes due 2027	239,364		239,049		238,944
4.800% Senior Notes due 2030	132,388		132,262		132,220
1.875% Senior Notes due 2031	494,551		494,132		493,998
5.450% Senior Notes due 2050	146,204		146,148		146,129
Total long-term debt	$	2,516,274	$	2,513,085	$	2,512,037
Less: current portion	64,991		64,910		—
Total due beyond one year	$	2,451,283	$	2,448,175	$	2,512,037

Revolving credit facilities. The Company's $800 million unsecured revolving credit facility expires in July 2024, and contains a $300 million sublimit for issuance of standby letters of credit. The facility also contains an option allowing the Company to increase the size of its credit facility by up to an additional $300 million, with the agreement of the lenders. Interest on borrowings under this facility is based on LIBOR (or an alternate benchmark rate, if LIBOR is no longer available) plus an applicable margin and is payable quarterly and upon maturity. The revolving credit facility may be extended, at the Company’s option, for up to two additional one year periods, subject to customary conditions.

In March 2020, the Company borrowed $800 million available under its revolving credit facility. Interest on the loan was based on LIBOR plus 0.875% (or 1.76%).

In May 2020, the Company amended its $800 million unsecured revolving credit facility (the “Amended Credit Facility”) to temporarily suspend, for the second and third quarters of fiscal 2020, the Consolidated Adjusted Debt to EBITDAR ratio financial covenant, and to apply a transitional modification to that ratio effective in the fourth quarter of fiscal 2020. In October 2020, the Company repaid in full the $800 million it borrowed under the unsecured revolving credit facility. As of October 30, 2021, the Company had no borrowings or standby letters of credit outstanding under this facility, the $800 million credit facility remains in place and available, and the Company was in compliance with the amended covenant.

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In May 2020, the Company also entered into an additional $500 million 364-day senior revolving credit facility which was scheduled to expire in April 2021. In October 2020, the Company terminated this senior revolving credit facility. The Company had no borrowings under that credit facility at any time.

Senior notes. As of October 30, 2021, the Company had outstanding Series B unsecured Senior Notes in the aggregate principal amount of $65 million held by various institutional investors. The Series B notes are due in December 2021, and bear interest at a rate of 6.530%. Borrowings under these Senior Notes are subject to certain financial covenants that were amended in June 2020. As of October 30, 2021, the Company was in compliance with these covenants.

As of October 30, 2021, the Company also had outstanding unsecured 3.375% Senior Notes due September 2024 (the “2024 Notes”) with an aggregate principal amount of $250 million. Interest on the 2024 Notes is payable semi-annually.

In April 2020, the Company issued an aggregate of $2.0 billion in unsecured senior notes in four tenors as follows: 4.600% Senior Notes due April 2025 (the “2025 Notes”) with an aggregate principal amount of $700 million, 4.700% Senior Notes due April 2027 (the “2027 Notes”) with an aggregate principal amount of $400 million, 4.800% Senior Notes due April 2030 (the “2030 Notes”) with an aggregate principal amount of $400 million, and 5.450% Senior Notes due April 2050 (the “2050 Notes”) with an aggregate principal amount of $500 million. Cash proceeds, net of discounts and other issuance costs, were approximately $1.973 billion. Interest on the 2025, 2027, 2030, and 2050 Notes is payable semi-annually beginning October 2020.

In October 2020, the Company accepted for repurchase approximately $775 million in aggregate principal amount of the senior notes issued in April 2020, pursuant to cash tender offers as follows: $351 million of the 2050 Notes, $266 million of the 2030 Notes, and $158 million of the 2027 Notes. The Company paid approximately $1.003 billion in aggregate consideration (including transaction costs, and accrued and unpaid interest) and recorded an approximately $240 million loss on the early extinguishment for the accepted senior notes.

In October 2020, the Company issued an aggregate of $1.0 billion in unsecured senior notes in two tenors as follows: 0.875% Senior Notes due April 2026 (the “2026 Notes”) with an aggregate principal amount of $500 million and 1.875% Senior Notes due April 2031 (the “2031 Notes”) with an aggregate principal amount of $500 million. Cash proceeds, net of discounts and other issuance costs, were approximately $987.2 million. Interest on the 2026 and 2031 Notes is payable semi-annually beginning April 2021. The Company used the net proceeds from the offering of the 2026 and 2031 Notes to fund the purchase of the accepted senior notes from its tender offers.

As of October 30, 2021, January 30, 2021, and October 31, 2020, total unamortized discount and debt issuance costs were $23.7 million, $26.9 million, and $28.0 million, respectively, and were classified as a reduction of Long-term debt.

All of the Senior Notes are subject to prepayment penalties for early payment of principal.

As of October 30, 2021, January 30, 2021, and October 31, 2020 the aggregate fair value of the eight outstanding series of Senior Notes was approximately $2.6 billion, $2.8 billion, and $2.8 billion, respectively. The fair value is estimated by obtaining comparable market quotes which are considered to be Level 1 inputs under the fair value measurements and disclosures guidance.

The table below shows the components of interest expense and income for the three and nine month periods ended October 30, 2021 and October 31, 2020:

	Three Months Ended				Nine Months Ended
($000)	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Interest expense on long-term debt	$	22,227	$	27,826	66,626		$	66,338
Interest expense on short-term debt	—		2,565		—		7,861
Other interest expense	391		2,535		1,012		3,844
Capitalized interest	(3,682)		(3,856)		(10,511)		(9,359)
Interest income	(192)		(330)		(627)		(4,423)
Interest expense, net	$	18,744	$	28,740	$	56,500	$	64,261

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Note F: Taxes on Earnings (Loss)

On March 27, 2020, the CARES Act was signed into law. The CARES Act made several significant changes to business tax provisions, including modifications for net operating losses, employee retention credits, and deferral of employer payroll tax payments. The modifications for net operating losses eliminate the taxable income limitation for certain net operating losses and allow the carry back of net operating losses arising in 2018, 2019, and 2020 to the five prior tax years, respectively. Subsequently, the Consolidated Appropriations Act of 2021 (“CAA”) and the American Rescue Plan Act (“ARPA”) were signed into law on December 27, 2020 and March 11, 2021, respectively. The CAA and ARPA made several changes to business tax provisions, including increasing and extending the employee retention credits through December 31, 2021, extending certain employment-related tax credits through December 31, 2025, and limiting certain executive compensation deductions, effective fiscal 2027.

The Company’s effective tax rates for the three month periods ended October 30, 2021 and October 31, 2020, were approximately 24% and 4%, respectively. The increase in the effective tax rate of 20% for the three month period ended October 30, 2021 compared to the three month period ended October 31, 2020 was primarily due to fluctuations in pre-tax earnings (loss).

The Company’s effective tax rates for the nine month periods ended October 30, 2021 and October 31, 2020, were approximately 24% and 45%, respectively. The decrease in the effective tax rate of 21% for the nine month period ended October 30, 2021 compared to the nine month period ended October 31, 2020 was primarily due to fluctuations in pre-tax earnings (loss). The Company's effective tax rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, tax effects associated with share-based compensation, and uncertain tax positions.

As of October 30, 2021, January 30, 2021, and October 31, 2020, the reserves for unrecognized tax benefits were $76.9 million, $67.9 million, and $76.1 million, inclusive of $9.8 million, $7.7 million, and $9.4 million of related interest and penalties, respectively. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $61.4 million would impact the Company’s effective tax rate. It is reasonably possible that certain state tax matters may be concluded or statutes of limitations may lapse during the next 12 months. Accordingly, the total amount of unrecognized tax benefits may decrease by up to $9.5 million. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred income tax assets and liabilities. These amounts are net of federal and state income taxes.

The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2018 through 2020. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2016 through 2020. Certain state tax returns are currently under audit by various tax authorities. The Company does not expect the results of these audits to have a material impact on the condensed consolidated financial statements.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Ross Stores, Inc.:

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated balance sheets of Ross Stores, Inc. and subsidiaries (the “Company”) as of October 30, 2021 and October 31, 2020, the related condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and nine month periods ended October 30, 2021 and October 31, 2020, and cash flows for the nine month periods ended October 30, 2021 and October 31, 2020, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of January 30, 2021, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 30, 2021, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding a change in accounting principle. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 30, 2021 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Deloitte & Touche LLP

San Francisco, California

December 8, 2021

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed below under the caption “Forward-Looking Statements” and also those in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for 2020. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q, in our Quarterly Report on Form 10-Q for the third quarter of fiscal 2019, and in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for 2020. All information is based on our fiscal calendar.

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores -- Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,629 locations in 40 states, the District of Columbia, and Guam as of October 30, 2021. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 295 dd’s DISCOUNTS stores in 21 states that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Results of Operations

In this quarterly report, and in our reports throughout fiscal 2021, we will compare our results of operations to fiscal 2020 and also to fiscal 2019. We believe the extended closure of our operations in the spring of 2020, and the disruptions caused by COVID-19 throughout fiscal 2020, make fiscal 2019 a more useful and relevant basis for comparison in assessing our ongoing results of operations.

We achieved strong sales results in the third quarter of fiscal 2021 as consumers continued to respond favorably to our broad assortment of bargains despite waning government stimulus and ongoing uncertainty related to the spread of COVID variants. During the quarter, we continued to experience expense pressures from higher freight costs of approximately 125 basis points while higher ocean freight costs negatively impacted merchandise margin which declined 40 basis points compared to the third quarter of fiscal 2019. We also incurred ongoing COVID-related operating costs of approximately 35 basis points (the vast majority of which impacted our selling, general and administrative expenses (“SG&A”)). We expect higher freight costs, higher distribution expenses, and the ongoing COVID-related operating costs to continue throughout fiscal 2021.

There remains significant uncertainty related to the ongoing and worsening industry-wide supply chain congestion as we enter the important holiday season. In addition, there continues to be significant uncertainty surrounding the COVID-19 pandemic, including its unknown duration, the potential for new virus variants and future resurgences, as well as possible vaccine mandates or restrictions, and the potential adverse impact on consumer demand and our business.

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The following table summarizes the financial results for the three and nine month periods ended October 30, 2021, October 31, 2020, and November 2, 2019: