ROSS STORES, INC. 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 in Part II, Item 1A (Risk Factors) of this Form 10-Q, and also those in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for 2019. 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 and the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for 2019. 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 inthe United States , with 1,566 locations in 39 states, theDistrict of Columbia andGuam as ofMay 2, 2020 . 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 266 dd's DISCOUNTS stores in 20 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.
Effects of the COVID-19 Pandemic on Our Business
The United States and other countries are experiencing an ongoing, major global health pandemic related to the outbreak of a novel strain of coronavirus, COVID-19. Governmental authorities in affected regions have taken and continue to take dramatic actions in an effort to slow down the spread of the disease. Like other retailers across the country, we temporarily closed all store locations, our distribution centers, and buying and corporate offices. Our closures took effectMarch 20, 2020 , and we remained closed through the end of our fiscal first quarter. We also instituted "work from home" measures for many of our associates. The impacts from the COVID-19 pandemic and the related economic disruption have had a material adverse impact on our results of operations, financial position, and cash flows in the first quarter of fiscal 2020. The condensed consolidated results reflect the significant revenue decline and other impacts from our temporary store closures (for approximately half of the first quarter), and an inventory valuation charge of$313 million for the portion of inventory held as ofMay 2, 2020 that we expect to sell below original cost. We expect material adverse effects from the pandemic to continue for an extended period of time, and through the current fiscal year. This will cause our results for interim periods throughout fiscal 2020 to not be comparable to our results in the corresponding prior year periods. The temporary closure of our stores significantly impacted our ability to sell seasonal inventory in a timely manner. As we reopen our stores and resume operations, a significant portion of the merchandise inventory in our stores is now aged and out of season. We anticipate that we will need to aggressively reduce our selling prices in order to clear that inventory. It may be more (or less) difficult than we anticipate to sell through our existing inventory as the reopening of our stores progresses, and it will be several months before the results are known. We will have decreased merchandise gross margins on sales of this inventory, which will adversely affect our results of operations in the next few months. We anticipate that we will sell through most of the aged and seasonal inventory by the end of the second fiscal quarter of 2020. The inventory valuation charge of$313 million recorded in the first fiscal quarter of 2020 is based on our estimate of the portion of inventory held as ofMay 2, 2020 that we now expect to sell below our original cost. However, that valuation charge relates to the portion of our overall inventory that we now expect to sell below our original cost, and does not fully reflect the impact to gross margins of additional markdowns that we anticipate will be needed to sell through our existing aged and seasonal inventory. The ultimate impact of these markdowns will depend on the pace of sell-through of this inventory. We started a phased process of reopening our store locations (beginning onMay 14, 2020 ), based on guidance from health officials and advisors, as well as directives and recommendations from federal, state, and local governments and with the safety of our customers and associates as a top priority. As of the date of this filing, 1,465 Ross and 258 dd's DISCOUNTS store locations as well as all distribution centers have reopened. Starting in lateMay 2020 , there have been demonstrations 16 -------------------------------------------------------------------------------- in cities throughoutthe United States . While they have generally been peaceful, in some locations demonstrations have become violent and resulted in governmental restrictions. We plan to reopen additional store locations, and buying and corporate offices, as conditions permit. We expect the cadence of reopenings to vary by state and locality, as affected by the local health conditions and also by local instances of demonstrations. Whether and how quickly customers may resume shopping, and the effect of the pandemic and of recent demonstrations on consumer behavior and spending patterns remains highly uncertain. We expect customer demand to be suppressed for an extended period. In addition, it is possible that there will be resurgences in the spread of COVID-19 again in the future, in one or more regions, and instances of governmental restrictions in response to demonstrations, any of which could require stores to close again nationally, regionally, or in specific locations, and further negatively impact our revenue. As we reopen our store, distribution center, buying office, and corporate locations, we are implementing additional processes and procedures to facilitate social distancing, enhance cleaning and sanitation activities, and to provide personal protective equipment to all associates. These actions will significantly increase our costs to operate these locations on an ongoing basis. To preserve our financial liquidity and improve our financial flexibility, we borrowed$800 million under our revolving credit facility inMarch 2020 , completed a$2.0 billion public bond offering inApril 2020 , and entered into a new$500 million 364-day senior revolving credit facility onMay 1, 2020 (on which no amounts are currently drawn). In addition, we suspended our stock repurchase program inMarch 2020 and suspended quarterly dividends inMay 2020 . We have also taken measures to reduce our expenses, inventory receipts, and planned capital expenditures. BeginningApril 5, 2020 , we implemented temporary furloughs of a large portion of our hourly store and distribution center and other associates in our buying and corporate offices who could not work productively while our stores and distribution centers were closed. Employee health benefits for eligible associates have continued during the temporary furlough at no cost to the impacted associates. We also reduced payroll expenses through temporary salary reductions for senior executives and other personnel, which remained in effect until more than half of our stores reopened, onMay 24, 2020 . In conjunction with these payroll expense reduction measures, effectiveApril 1, 2020 , the non-employee members of our Board of Directors suspended the cash elements of their director compensation until further notice.
In
Given the unprecedented impact the COVID-19 pandemic has had on our business,
and the continued uncertainty surrounding the pandemic, including its unknown
duration and severity, and the unknown overall impact on consumer demand and
store productivity, we are unable to forecast the full impact on our business.
We expect that impacts from the COVID-19 pandemic and the related economic
disruption will have a material adverse impact on our consolidated results of
operations, financial position, and cash flows throughout the remainder of
fiscal 2020, in each interim period, and potentially beyond.
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--------------------------------------------------------------------------------Results of Operations
The following table summarizes the financial results for the three month periods
ended
Three Months Ended
May 2, 2020 May 4, 2019
Sales
Sales (millions) $ 1,843 $ 3,797
Sales (decline) growth (51.5 %) 5.8 %
Costs and expenses (as a percent of sales)
Cost of goods sold 102.6 % 71.2 %
Selling, general and administrative 22.5 % 14.7 %
Interest expense (income), net 0.4 % (0.2 %)
(Loss) earnings before taxes (as a percent of sales) (25.5 %)
14.3 %
Net (loss) earnings (as a percent of sales) (16.6 %)
11.1 %
Stores. In response to the impacts from the COVID-19 pandemic, we have reduced
our planned new store openings for fiscal 2020. We do not expect to open any new
stores in the second quarter of fiscal 2020 and now plan to open about 39 stores
in the fiscal third quarter. Our longer term expansion strategy is to open
additional stores based on market penetration, local demographic
characteristics, competition, expected store profitability, and the ability to
leverage overhead expenses. We continually evaluate opportunistic real estate
acquisitions and opportunities for potential new store locations. We also
evaluate our current store locations and determine store closures based on
similar criteria.
Three Months Ended
Store Count May 2, 2020 May 4, 2019
Beginning of the period 1,805 1,717
Opened in the period 27 28
Closed in the period - -
End of the period 1,832 1,745
Sales. Sales for the three month period ended May 2, 2020 , decreased $2.0
billion , or 51.5%, compared to the three month period ended May 4, 2019 . This
was due to the closing of all store locations effective March 20, 2020 through
the end of the first quarter of fiscal 2020. We opened 87 net new stores between
May 4, 2019 and March 20, 2020 , which contributed to our sales for the first
quarter of fiscal 2020 until our temporary closure.
Given that stores were open for less than seven weeks of the 13-week period
ended
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Our sales mix for the three month periods ended May 2, 2020 and May 4, 2019 is
shown below:
Three Months Ended
May 2, 2020 1 May 4, 2019
Home Accents and Bed and Bath 27 % 25 %
Ladies 25 % 27 %
Shoes 14 % 14 %
Accessories, Lingerie, Fine Jewelry, and Fragrances 13 % 13 %
Men's 12 % 13 %
Children's 9 % 8 %
Total 100 % 100 %
1 Sales mix for three months ended
Our historic strategies and store expansion program have contributed to our sales gains in the past. However, given the impacts from the COVID-19 pandemic on our results for the first quarter of fiscal 2020, and the significant ongoing impacts and uncertainties, including the unknown overall impact on consumer demand and shopping behavior, and the unknown duration of the pandemic and responses to it (which may require stores to close again nationally, regionally, or in specific locations), we cannot be sure that our strategies and our reopening plans and eventual resumption of our store expansion program will result in a continuation of our historical sales growth or in a recovery of, or an increase in net earnings. Cost of goods sold. Cost of goods sold for the three month period endedMay 2, 2020 , decreased$811.7 million compared to the same period in the prior year, mainly due to the lack of sales from the closing of all store locations starting onMarch 20, 2020 through the end of the first quarter of fiscal 2020 and the temporary furlough of most hourly associates in our distribution centers and some associates in our buying offices, partially offset by the$313 million inventory valuation charge for the portion of inventory held as ofMay 2, 2020 , that we expect to sell below original cost. Selling, general and administrative expenses. For the three month period endedMay 2, 2020 , selling, general and administrative expenses ("SG&A") decreased$142.9 million compared to the same period in the prior year, mainly due to payroll-related cost reduction measures in response to the COVID-19 pandemic (including the temporary furlough of most hourly associates in our stores and some associates in our corporate offices) and reduction in non-business critical operating expenses, partially offset by payments to associates while our stores were closed net of the expected employee retention credits under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Interest expense (income), net. Interest expense (income), net for the three month period endedMay 2, 2020 , increased$12.3 million compared to the same period in the prior year. This increase was primarily due to higher interest expense on long-term debt due to the issuance of$2.0 billion of Senior Notes inApril 2020 , lower interest income due to lower interest rates, and higher interest expense on short-term debt due to the draw down on our$800 million revolving credit facility inMarch 2020 , partially offset by higher capitalized interest primarily related to the construction of ourBrookshire, Texas distribution center. Interest expense (income), net for the three month periods endedMay 2, 2020 andMay 4, 2019 , consists of the following: Three Months Ended ($000 ) May 2, 2020 May 4, 2019
Interest expense on long-term debt
-
Other interest expense 278 313
Capitalized interest (2,154) (765)
Interest income (3,336) (8,466)
Interest expense (income), net
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Taxes on (loss) earnings. 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.
Our effective tax rate for the three month periods ended May 2, 2020 and May 4,
2019 , was approximately 35% and 22%, respectively. The increase in the effective
tax rate was primarily due to the CARES Act and the expected carry back of net
operating losses to a prior year in which the U.S. federal tax rate was 35%. The
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 the resolution of tax positions.
Net (loss) income. Net loss for the three month period ended May 2, 2020 was
$(305.8) million compared to net income of $421.1 million for the three month
period ended May 4, 2019 , primarily due to the lack of sales from the closing of
all store locations starting on March 20, 2020 through the end of the first
quarter of fiscal 2020, the $313 million inventory valuation charge for the
portion of inventory we expect to sell below original cost, and payments to
associates while our stores were closed net of the expected employee retention
credits under the CARES Act, partially offset by income tax benefits.
(Loss) earnings per share. Diluted loss per share for the three month period
ended May 2, 2020 was $(0.87) compared to diluted earnings per share of $1.15 ,
for the three month period ended May 4, 2019 . The diluted loss per share for the
three month period ended May 2, 2020 , was primarily attributable to the lack of
sales from the closing of all store locations starting on March 20, 2020 through
the end of the first quarter of fiscal 2020, the $313 million inventory
valuation charge for the portion of inventory we expect to sell below original
cost, and payments to associates while our stores were closed net of the
expected employee retention credits under the CARES Act, partially offset by
income tax benefits.
Financial Condition
Liquidity and Capital Resources
As previously noted,the United States and other countries are experiencing a major global health pandemic related to the outbreak of a novel strain of coronavirus, COVID-19. Governmental authorities in affected regions have taken, and continue to take, dramatic actions in an effort to slow down the spread of the disease. Similar to other retailers across the country, we temporarily closed all store locations, our distribution centers, and buying and corporate offices, effectiveMarch 20, 2020 . We also instituted "work from home" measures for many of our associates. The impacts from the COVID-19 pandemic and the related economic disruption have had a material adverse impact on our results of operations, financial position, and cash flows in the first quarter of fiscal 2020. Our results reflect the impact of the significant revenue decline from our temporary store closures and an inventory valuation charge for the portion of inventory held as ofMay 2, 2020 , that we expect to sell below original cost. To preserve our financial liquidity and enhance our financial flexibility, we borrowed$800 million from our revolving credit facility inMarch 2020 , completed a$2.0 billion public bond offering inApril 2020 , and entered into a new$500 million 364-day senior revolving credit facility onMay 1, 2020 . In addition, we suspended our stock repurchase program inMarch 2020 and suspended quarterly dividends inMay 2020 , and we have taken measures to reduce our expenses, inventory receipts, and planned capital expenditures. BeginningApril 5, 2020 , we implemented temporary furloughs of a large portion of our hourly store and distribution center and other associates in our buying and corporate offices who could not work productively while our stores and distribution centers were closed. Employee health benefits for eligible associates have continued during the temporary furlough at no cost to the impacted associates. We also reduced payroll expenses through temporary salary reductions for senior executives and other personnel. In conjunction with these payroll expense reduction measures, effectiveApril 1, 2020 the non-employee members of our Board of Directors suspended the cash elements of their director compensation until further notice.
We ended the first quarter of fiscal 2020 with over
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Historically, our primary sources of funds for our business activities were cash
flows from operations and short-term trade credit. Our primary ongoing cash
requirements are for merchandise inventory purchases, payroll, operating and
variable lease costs, taxes, and for capital expenditures in connection with new
and existing stores, and investments in distribution centers, information
systems, and buying and corporate offices. We also used cash to repurchase stock
under our stock repurchase program and to pay dividends, and we may use cash for
the repayment of debt as it becomes due.
Due to the COVID-19 pandemic and related economic disruptions, and with the
temporary closure of all store locations effective March 20, 2020 (and with the
possibility that stores and other facilities may need to close again), we
anticipate interruptions to our cash flows from operations, and that we will be
required to rely far more heavily on our cash reserves, and we expect to
carefully monitor and manage our cash position in light of ongoing conditions
and levels of operations. We are in the process of a planned reopening of our
stores in several phases during the second fiscal quarter.
Three Months Ended
($000 ) May 2, 2020 May 4, 2019
Cash (used in) provided by operating activities $ (1,058,442) $ 508,987
Cash used in investing activities (139,729) (95,112)
Cash provided by (used in) financing activities 2,517,127 (459,437)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents
$ 1,318,956 $ (45,562) Operating Activities Net cash used in operating activities was$1.1 billion for the three month period endedMay 2, 2020 . This was primarily driven by the net loss due to the lack of sales from the closing of all store locations starting onMarch 20, 2020 through the end of the first quarter and merchandise payments for receipts prior to the shutdown of our operations. Net cash provided by operating activities was$509.0 million for the three month period endedMay 4, 2019 and was primarily driven by net earnings excluding non-cash expenses for depreciation and amortization. The decrease in cash flow from operating activities for the three month period endedMay 2, 2020 , compared to the same period in the prior year was primarily driven by the net loss due to the lack of sales from the closing of all store locations starting onMarch 20, 2020 through the end of the first quarter (compared to net earnings last year) and lower accounts payable leverage. Accounts payable leverage (defined as accounts payable divided by merchandise inventory) was 40%, 71%, and 71% as ofMay 2, 2020 ,February 1, 2020 , andMay 4, 2019 , respectively. The decrease in accounts payable leverage from the prior year was primarily driven by the merchandise payments for receipts prior to the shutdown of our operations and stoppage of new merchandise receipts due to the temporary closure of our stores and distribution centers. As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling opportunities in the marketplace. Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to our store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchases, but typically packaway remains in storage less than six months. However, due to the temporary closure of all our store locations and distribution centers in response to the COVID-19 pandemic, a portion of our current packaway inventory may remain in storage longer than our historical cycles. We expect to continue to take advantage of packaway inventory opportunities to maximize our ability to deliver bargains to our customers. Changes in packaway inventory levels impact our operating cash flow. As ofMay 2, 2020 , packaway inventory was 42% of total inventory compared to 46% at the end of fiscal 2019. As ofMay 4, 2019 , packaway inventory was 44% of total inventory compared to 46% at the end of fiscal 2018.
Investing Activities
Net cash used in investing activities was$139.7 million and$95.1 million for the three month periods endedMay 2, 2020 andMay 4, 2019 , respectively. The increase in cash used for investing activities for the three month period endedMay 2, 2020 compared to the three month period endedMay 4, 2019 was due to an increase in our capital expenditures. 21 -------------------------------------------------------------------------------- Our capital expenditures were$139.7 million and$95.6 million for the three month periods endedMay 2, 2020 andMay 4, 2019 , respectively. Our capital expenditures include costs to build, expand, and improve distribution centers (primarily related to the ongoing construction of ourBrookshire, Texas distribution center); open new stores and improve existing stores; and for various other expenditures related to our information technology systems, buying and corporate offices. As previously noted, due to the COVID-19 pandemic and related economic disruptions, and to preserve our financial liquidity, we are reducing our capital expenditure plans for fiscal 2020. Capital expenditures for fiscal 2020 are now projected to be approximately$420 million , compared to our original plan of approximately$730 million . Our remaining, planned capital expenditures are expected to be used to fund commitments related to the construction of ourBrookshire, Texas distribution center, costs for fixtures and leasehold improvements to open planned new Ross and dd's DISCOUNTS stores, investments in certain information technology systems, and for various other needed expenditures related to our stores, distribution centers, buying, and corporate offices. We expect to fund capital expenditures with available cash, including cash we obtained from our recent public debt offering and the draw down on our credit facility. Financing Activities Net cash provided by financing activities was$2.5 billion for the three month period endedMay 2, 2020 . Net cash used in financing activities was$459.4 million for the three month period endedMay 4, 2019 . The increase in cash provided by financing activities for the three month period endedMay 2, 2020 , compared to the three month period endedMay 4, 2019 , was primarily due to the completion of our$2.0 billion public debt offering, and draw down on our$800 million revolving credit facility, partially offset by share repurchases and dividends. InJuly 2019 , we entered into an$800 million unsecured revolving credit facility, which replaced our previous$600 million unsecured revolving credit facility. The current credit facility expires inJuly 2024 , and contains a$300 million sublimit for issuance of standby letters of credit. The facility also contains an option allowing us to increase the size of our 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 (currently 75 basis points) and is payable quarterly and upon maturity. The revolving credit facility may be extended, at our option, for up to two additional one-year periods, subject to customary conditions.
In
InApril 2020 , we issued an aggregate of$2.0 billion in unsecured senior notes in four tenors as follows:$700 million of 4.600% Senior Notes dueApril 2025 ,$400 million of 4.700% Senior Notes dueApril 2027 ,$400 million of 4.800% Senior Notes dueApril 2030 , and$500 million of 5.450% Senior Notes dueApril 2050 . OnMay 1, 2020 , we amended the 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. The Amended Credit facility also established a new temporary minimum liquidity requirement effective for the first quarter of fiscal 2020 and through the end ofApril 2021 . As ofMay 2, 2020 , we were in compliance with these covenants. OnMay 1, 2020 , we entered into an additional$500 million 364-day senior revolving credit facility which expires inApril 2021 . Interest on borrowings under this facility will be based on LIBOR (or an alternate benchmark rate, if LIBOR is no longer available) plus an applicable margin (currently 175 basis points) and is payable quarterly and upon maturity. As ofMay 2, 2020 , we had no borrowings under this facility, and the$500 million credit facility remains in place and available. The new revolving credit facility is subject to the same minimum liquidity and Consolidated Adjusted Debt to EBITDAR ratio financial covenants as in the Amended Credit Facility. In addition, the new revolving credit facility contains restrictions on stock repurchases and restrictions on post draw down cash balances on the new revolving credit facility. As ofMay 2, 2020 , we were in compliance with these covenants. We repurchased 1.2 million and 3.4 million shares of common stock for aggregate purchase prices of approximately$132.5 million and$320.1 million during the three month periods endedMay 2, 2020 andMay 4, 2019 , respectively. We also acquired 0.3 million and 0.6 million shares of treasury stock under our employee stock equity compensation programs, for aggregate purchase prices of approximately$32.3 million and$50.9 million during the three month periods endedMay 2, 2020 andMay 4, 2019 , respectively. InMarch 2019 , our Board of Directors approved a two-year$2.55 billion stock repurchase program through fiscal 2020. As of the end of the first quarter of fiscal 2020, we had$1.143 billion remaining 22 -------------------------------------------------------------------------------- under the stock repurchase program. Due to the current economic uncertainty stemming from the severe impact of the COVID-19 pandemic, we suspended our stock repurchase program inMarch 2020 . We have no plans to repurchase any additional shares for the remainder of the fiscal year. For the three month periods endedMay 2, 2020 andMay 4, 2019 , we paid cash dividends of$101.4 million and$93.7 million , respectively. Due to the current economic uncertainty stemming from the severe impact of the COVID-19 pandemic, we suspended our quarterly dividends inMay 2020 . The COVID-19 pandemic and related economic disruptions, including the temporary closure of all of our store locations effectiveMarch 20, 2020 , have and continue to create significant uncertainty and challenges. We believe that existing cash balances, bank credit lines, and trade credit are adequate to meet our near-term operating cash needs and to fund our planned capital investments.
Contractual Obligations and Off-Balance Sheet Arrangements
The table below presents our significant contractual obligations as ofMay 2, 2020 : Less than 1 - 3 3 - 5 After 5 ($000 ) one year years years years Total¹
Recorded contractual obligations:
Senior notes $ -$ 65,000 $ 950,000 $ 1,300,000 $ 2,315,000 Short-term debt2 805,000 - - - 805,000 Operating leases 655,686 1,187,657 812,892 685,684 3,341,919New York buying office ground lease3 5,883 13,394 14,178 945,755 979,210
Unrecorded contractual obligations:
Real estate obligations4 10,041 38,798 39,552 119,216 207,607 Interest payment obligations 127,002 216,020 207,556 814,850 1,365,428 Purchase obligations5 1,105,190 34,074 5,286 - 1,144,550 Total contractual obligations$ 2,708,802 $ 1,554,943
1 We have a
Other than the unrecorded contractual obligations noted above, we do not have
any material off-balance sheet arrangements as of
Senior notes. As ofMay 2, 2020 , we also 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 inDecember 2021 and bear interest at 6.530%. Borrowings under these Senior Notes are subject to certain financial covenants, including interest coverage and other financial ratios. As ofMay 2, 2020 , we were in compliance with these covenants.
We also had outstanding unsecured 3.375% Senior Notes due
InApril 2020 , we issued an aggregate of$2.0 billion in unsecured senior notes in four tenors as follows:$700 million of 4.600% Senior Notes dueApril 2025 ,$400 million of 4.700% Senior Notes dueApril 2027 ,$400 million of 4.800% Senior Notes dueApril 2030 , and$500 million of 5.450% Senior Notes dueApril 2050 .
All our senior notes are subject to prepayment penalties for early payment of principal.
Interest on these notes is included in interest payment obligations in the table above.
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Standby letters of credit and collateral trust. We use standby letters of credit
outside of our $800 million revolving credit facility in addition to a funded
trust to collateralize our insurance obligations. As of May 2, 2020 , February 1,
2020 , and May 4, 2019 , we had $4.2 million , $4.2 million , and $5.5 million ,
respectively, in standby letters of credit outstanding and $56.6 million ,
$56.0 million and $58.6 million , respectively, in a collateral trust. The
standby letters of credit are collateralized by restricted cash and the
collateral trust consists of restricted cash, cash equivalents, and investments.
Trade letters of credit. We had $5.9 million , $11.2 million , and $12.1 million
in trade letters of credit outstanding at May 2, 2020 , February 1, 2020 , and
May 4, 2019 , respectively.
Dividends. In
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of our condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable. Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, these estimates are more challenging, and actual results could differ materially from our estimates. During the first quarter of fiscal 2020, there have been no significant changes to the critical accounting policies discussed in our Annual Report on Form 10-K for the year endedFebruary 1, 2020 .
See Note A to the Condensed Consolidated Financial Statements - Summary of Significant Accounting Policies (Recently Adopted Accounting Standards) for information regarding our adoption of ASU 2019-12.
Forward-Looking Statements
This report may contain a number of forward-looking statements regarding,
without limitation, the rapidly developing challenges, and our plans and
responses to, the COVID-19 pandemic and related economic disruptions, including
our plans to reopen our operations over the coming weeks, planned curtailment of
new store growth, capital expenditures, and other matters. These forward-looking
statements reflect our then-current beliefs, plans, and estimates with respect
to future events and our projected financial performance, operations, and
competitive position. The words "plan," "expect," "target," "anticipate,"
"estimate," "believe," "forecast," "projected," "guidance," "looking ahead," and
similar expressions identify forward-looking statements.
Future impact from the ongoing COVID-19 pandemic, and other economic and
industry trends that could potentially impact revenue, profitability, operating
conditions, and growth are difficult to predict. Our forward-looking statements
are subject to risks and uncertainties which could cause our actual results to
differ materially from those forward-looking statements and our previous
expectations, plans, and projections. Such risks are not limited to but may
include:
•The uncertainties and potential for further significant business disruptions
arising from the recent and ongoing COVID-19 pandemic, including store closures
and restrictions on customer access.
•Unexpected changes in the level of consumer spending on, or preferences for,
apparel and home-related merchandise, which could adversely affect us.
•Impacts from the macro-economic environment, financial and credit markets,
geopolitical conditions, pandemics, or public health and public safety issues,
that affect consumer confidence and consumer disposable income.
•Our need to effectively manage our inventories, markdowns, and inventory
shortage in order to achieve our planned gross margins.
•Competitive pressures in the apparel and home-related merchandise retailing
industry.
•Risks associated with selling and importing merchandise produced in other
countries and from supply chain disruptions in other countries, including those
due to COVID-19 closures.
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•Unseasonable weather that may affect shopping patterns and consumer demand for seasonal apparel and other merchandise. •Our dependence on the market availability, quantity, and quality of attractive brand name merchandise at desirable discounts, and on the ability of our buyers to purchase merchandise to enable us to offer customers a wide assortment of merchandise at competitive prices. •Information or data security breaches, including cyber-attacks on our transaction processing and computer information systems, which could result in theft or unauthorized disclosure of customer, credit card, employee, or other private and valuable information that we handle in the ordinary course of our business. •Disruptions in our supply chain or in our information systems that could impact our ability to process sales and to deliver product to our stores in a timely and cost-effective manner. •Our need to obtain acceptable new store sites with favorable consumer demographics to achieve our planned new store openings. •Our need to expand in existing markets and enter new geographic markets in order to achieve planned market penetration. •Consumer problems or legal issues involving the quality, safety, or authenticity of products we sell, which could harm our reputation, result in lost sales, and/or increase our costs. •An adverse outcome in various legal, regulatory, or tax matters that could increase our costs. •Damage to our corporate reputation or brands that could adversely affect our sales and operating results. •Our need to continually attract, train, and retain associates with the retail talent necessary to execute our off-price retail strategies. •Our need to effectively advertise and market our business. •Changes inU.S. tax, tariff, or trade policy regarding apparel and home-related merchandise produced in other countries, which could adversely affect our business. •Possible volatility in our revenues and earnings. •An additional public health or public safety crisis, demonstrations, natural or man-made disaster inCalifornia or in another region where we have a concentration of stores, offices, or a distribution center that could harm our business. •Our need to maintain sufficient liquidity to support our continuing operations and our new store openings, and store and distribution center reopening plans. The factors underlying our forecasts are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.
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