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 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 inthe United States , with 1,629 locations in 40 states, theDistrict of Columbia , andGuam as ofOctober 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 :
Three Months Ended Nine Months Ended
October 30, October 31, November 2, October 30, October 31, November 2,
2021 2020 2019 2021 2020 2019
Sales
Sales (millions) $ 4,575 $ 3,755 $ 3,849 $ 13,896 $ 8,282 $ 11,626
Comparable store sales growth
(decline) 14.0 % 1 (3 %) 2 5 % 3 14.0 % 1 n/a 4 3 % 3
Costs and expenses (as a percent of
sales)
Cost of goods sold 72.7 % 72.2 % 71.9 % 71.5 % 80.7 % 71.5 %
Selling, general and administrative 15.9 % 23.4 % 15.7 % 15.2 % 21.9 % 15.1 %
Interest expense (income), net 0.4 % 0.8 % (0.1 %) 0.4 % 0.8 % (0.1 %)
Earnings (loss) before taxes (as a percent of sales) 11.0 % 3.6 % 12.5 % 12.9 % (3.4 %)
13.5 %
Net earnings (loss) (as a percent of sales) 8.4 % 3.5 % 9.6 % 9.8 % (1.8 %) 10.4 % 1 Amount shown is for fiscal 2021 compared to fiscal 2019. Comparable store sales for this purpose represents sales from stores that were open at the end of fiscal 2018, plus new stores opened in fiscal 2019, less stores closed in fiscal 2019 and fiscal 2020. 2 Amount shown is for the three month period of fiscal 2020 compared to the same period of fiscal 2019 for stores that have been open for more than 14 complete months. 3 Amount shown is for the three and nine month periods of fiscal 2019 compared to the same periods of fiscal 2018 for stores that have been open for more than 14 complete months. 4 Given that stores were open for less than seven weeks of the 13-week period endedMay 2, 2020 , the comparable store sales metric for the nine months endedOctober 31, 2020 , is not meaningful. Stores. We have opened 65 new stores in fiscal 2021. Looking forward to 2022, we expect to return to our historical annual opening program of approximately 100 new stores. 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 Nine Months Ended Store CountOctober 30, 2021 October 31, 2020 November 2, 2019 October 30, 2021 October 31, 2020 November 2, 2019 Beginning of the period 1,896 1,832 1,772 1,859 1,805 1,717 Opened in the period 28 39 1 42 65 66 1 98 Closed in the period - (2) (4) 2 - (2) (5) 2 End of the period 1,924 1,869 1,810 1,924 1,869 1,810
1 Includes the reopening of a store previously temporarily closed due to a weather event. 2 Includes a temporary closure of a store impacted by a weather event.
Sales. Sales for the three month period endedOctober 30, 2021 increased$820.0 million , or 21.8%, compared to the three month period endedOctober 31, 2020 , primarily due to the continued strong execution of our merchandising strategies, the benefit from government stimulus payments, increasing vaccination rates, and the further easing of COVID-19 restrictions. Sales also benefited from the opening of 55 net new stores betweenOctober 31, 2020 andOctober 30, 2021 . Sales for the nine month period endedOctober 30, 2021 increased$5.6 billion , or 67.8%, compared to the nine month period endedOctober 31, 2020 . This was primarily due to all store locations being open throughout the first nine months of fiscal 2021, compared to the negative impact from the COVID-19 related closures of all our stores during significant portions of theMarch 2020 toJune 2020 period. Sales also benefited from a combination of government stimulus payments, increasing vaccination rates, diminishing COVID-19 restrictions, pent-up consumer demand, and strong execution of our 19 --------------------------------------------------------------------------------
merchandising strategies. Sales also increased due to the opening of 55 net new
stores between
Sales for the three month period endedOctober 30, 2021 increased$725.4 million , or 18.8%, compared to the three month period endedNovember 2, 2019 . This was primarily due to a 14% increase in comparable store sales (comparing the third quarter of fiscal 2021 to the same period in fiscal 2019) which was mainly driven by the continued strong execution of our merchandising strategies despite waning government stimulus and the uncertainty related to the spread of COVID variants. Sales also increased due to the opening of 114 net new stores betweenNovember 2, 2019 andOctober 30, 2021 . Sales for the nine month period endedOctober 30, 2021 increased$2.3 billion , or 19.5%, compared to the nine month period endedNovember 2, 2019 . This was primarily due to a 14% increase in comparable store sales (comparing the first nine months of fiscal 2021 to the same period in fiscal 2019) which was mainly driven by the continued strong execution of our merchandising strategies, and a combination of government stimulus payments, increasing vaccination rates, diminishing COVID-19 restrictions, and pent-up consumer demand. Sales also increased due to the opening of 114 net new stores betweenNovember 2, 2019 andOctober 30, 2021 .
Our sales mix for the three and nine month periods ended
Three Months Ended Nine Months Ended
October 30, October 31, November 2, October 30, October 31, November 2,
2021 2020 2019 2021 2020 1 2019
Ladies 26 % 23 % 26 % 26 % 24 % 27 %
Home Accents and Bed and Bath 25 % 26 % 24 % 25 % 26 % 24 %
Men's 15 % 15 % 14 % 14 % 14 % 14 %
Accessories, Lingerie, Fine
Jewelry, and Cosmetics 13 % 15 % 13 % 14 % 14 % 13 %
Shoes 11 % 12 % 14 % 12 % 13 % 14 %
Children's 10 % 9 % 9 % 9 % 9 % 8 %
Total 100 % 100 % 100 % 100 % 100 %
100 %
1 Sales mix for the nine month period ended
We intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies and by continuing to strengthen our merchant organization, diversify our merchandise mix, and more fully develop our systems to improve regional and local merchandise offerings.
We remain optimistic about our prospects for the remainder of fiscal 2021, based on our recent results, increasing vaccination rates, and diminishing pandemic-related restrictions. However, it is difficult to predict the lasting impact from the factors that benefited our sales results for the first nine months of fiscal 2021, in particular the benefit from the government stimulus payments. There remains significant uncertainty related to the ongoing and worsening industry-wide supply chain congestion. 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. We cannot be sure that our strategies and our store expansion program will result in a continuation of our historical sales growth, or an increase in net earnings. Cost of goods sold. Cost of goods sold for the three and nine month periods endedOctober 30, 2021 increased$614.6 million and$3.3 billion , respectively, compared to the three and nine month periods endedOctober 31, 2020 , primarily due to higher sales, given that all our stores were open throughout the first nine months of fiscal 2021, compared to the negative impact from the COVID-19 related closures of all our stores during significant portions of theMarch 2020 toJune 2020 period. Cost of goods also increased due to the opening of 55 net new stores betweenOctober 31, 2020 andOctober 30, 2021 . Cost of goods sold for the three and nine month periods endedOctober 30, 2021 increased$559.6 million and$1.6 billion , respectively, compared to the three and nine month periods endedNovember 2, 2019 , primarily due to a 14% increase in comparable store sales for both the three and nine month periods, higher freight and distribution costs, and higher sales due to the opening of 114 net new stores betweenNovember 2, 2019 andOctober 30, 2021 . 20 -------------------------------------------------------------------------------- Cost of goods sold as a percentage of sales for the three month period endedOctober 30, 2021 increased approximately 85 basis points compared to the three month period endedNovember 2, 2019 , primarily due to a 125 basis point increase in freight costs, mainly driven by worsening industry-wide supply chain congestion, a 40 basis point decline in merchandise margin primarily due to higher ocean freight costs, and a 10 basis point increase in buying costs. These increases were partially offset by leverage of 65 basis points in occupancy costs and 25 basis points in distribution expenses. Cost of goods sold as a percentage of sales for the nine month period endedOctober 30, 2021 remained flat compared to the nine month period endedNovember 2, 2019 . The offsetting components of cost of goods sold as a percentage of sales included a 45 basis point improvement in merchandise margin and leverage of 70 basis points in occupancy costs. These improvements were offset by a 95 basis point increase in freight costs, mainly driven by ongoing industry-wide supply chain congestion, a 15 basis point increase in distribution expenses, primarily due to higher wages, and a five basis point increase in buying costs. We expect higher freight costs and higher distribution expenses to continue throughout fiscal 2021. Selling, general and administrative expenses. For the three month period endedOctober 30, 2021 , SG&A decreased$152.1 million , compared to the three month period endedOctober 31, 2020 . The decrease was primarily due to the approximately$240 million in long-term debt refinancing costs incurred in the third quarter of fiscal 2020, partially offset by higher store operating expenses on higher sales, and the opening of 55 net new stores betweenOctober 31, 2020 andOctober 30, 2021 . For the nine month period endedOctober 30, 2021 , SG&A increased$305.9 million , compared to the nine month period endedOctober 31, 2020 . The increase was primarily due to all our stores being open throughout the first nine months of fiscal 2021, compared to the impact from the COVID-19 related closures of all our stores during significant portions of theMarch 2020 toJune 2020 period, and to the opening of 55 net new stores betweenOctober 31, 2020 andOctober 30, 2021 , partially offset by approximately$240 million in long-term debt refinancing costs incurred in the third quarter of fiscal 2020. For the three and nine month periods endedOctober 30, 2021 , SG&A increased$121.2 million and$363.8 million , respectively, compared to the three and nine month periods endedNovember 2, 2019 , primarily due to a 14% increase in comparable store sales for both the three and nine month periods, to the opening of 114 net new stores betweenNovember 2, 2019 andOctober 30, 2021 , net COVID-related operating expenses for supplies, cleaning, and payroll related to additional safety protocols, and to higher incentive compensation costs due to better-than-expected results. Selling, general and administrative expenses as a percentage of sales for the three and nine month periods endedOctober 30, 2021 increased 15 basis points, compared to the three and nine month periods endedNovember 2, 2019 , primarily due to net COVID-related operating expenses for supplies, cleaning, and payroll related to additional safety protocols, and to higher incentive compensation costs due to better-than-expected results. We expect our operating costs to continue to reflect ongoing COVID-related expenses and also higher wages. Interest expense (income), net. Interest expense, net for the three month period endedOctober 30, 2021 decreased$10.0 million compared to the same period in the prior year. This decrease was primarily due to lower interest expense on long-term debt due to theOctober 2020 refinancing at lower interest rates of a portion of the Senior Notes issued inApril 2020 , and elimination of interest expense on short-term debt due to the repayment of our$800 million revolving credit facility inOctober 2020 . Interest expense, net for the nine month period endedOctober 30, 2021 decreased$7.8 million compared to the same period in the prior year. This decrease was primarily due to the elimination of interest expense on short-term debt due to the repayment of our$800 million revolving credit facility inOctober 2020 and higher capitalized interest primarily related to the construction of ourBrookshire, Texas distribution center, partially offset by lower interest income due to lower interest rates. Interest expense (income), net for the three and nine month periods endedOctober 30, 2021 increased$23.1 million and$71.3 million , respectively, compared to the three and nine month periods endedNovember 2, 2019 . These increases were primarily due to higher interest expense on long-term debt due to the issuance of Senior Notes inApril 2020 andOctober 2020 , and to lower interest income due to lower interest rates, partially offset by higher capitalized interest primarily related to the construction of ourBrookshire, Texas distribution center. 21 -------------------------------------------------------------------------------- Interest expense (income), net for the three and nine month periods endedOctober 30, 2021 ,October 31, 2020 , andNovember 2, 2019 consists of the following: Three Months Ended Nine Months Ended October 30, October 31, November 2, October 30, October 31, November 2, ($000 ) 2021 2020 2019 2021 2020 2019 Interest expense on long-term debt$ 22,227 $ 27,826 $ 3,284 $ 66,626 $ 66,338 $ 9,850 Interest expense on short-term debt - 2,565 - - 7,861 - Other interest expense 391 2,535 216 1,012 3,844 756 Capitalized interest (3,682) (3,856) (1,186) (10,511) (9,359) (3,069) Interest income (192) (330) (6,716) (627) (4,423) (22,356)
Interest expense (income), net
Taxes on earnings (loss). Our effective tax rates for the three month periods endedOctober 30, 2021 ,October 31, 2020 , andNovember 2, 2019 were approximately 24%, 4%, and 23%, respectively. The increase in the effective tax rate of 20% for the three month period endedOctober 30, 2021 compared to the three month period endedOctober 31, 2020 was primarily due to fluctuations in pre-tax earnings (loss). The increase in the effective tax rate of 1% for the three month period endedOctober 30, 2021 compared to the three month period endedNovember 2, 2019 was primarily due to the resolution of tax positions with various tax authorities during the three month period endedNovember 2, 2019 . Our effective tax rates for the nine month periods endedOctober 30, 2021 ,October 31, 2020 , andNovember 2, 2019 were approximately 24%, 45%, and 23%, respectively. The decrease in the effective tax rate of 21% for the nine month period endedOctober 30, 2021 compared to the nine month period endedOctober 31, 2020 was primarily due to fluctuations in pre-tax earnings (loss). The increase in the effective tax rate of 1% for the nine month period endedOctober 30, 2021 compared to the nine month period endedNovember 2, 2019 was primarily due to the resolution of tax positions with various tax authorities during the nine month period endedNovember 2, 2019 . Our 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. OnMarch 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 onDecember 27, 2020 andMarch 11, 2021 , respectively. The CAA and ARPA made several changes to business tax provisions, including increasing and extending the employee retention credits throughDecember 31, 2021 , extending certain employment-related tax credits throughDecember 31, 2025 , and limiting certain executive compensation deductions, effective fiscal 2027. Net earnings (loss). Net earnings as a percentage of sales for the three month periods endedOctober 30, 2021 andOctober 31, 2020 were 8.4% and 3.5%, respectively. Net earnings as a percentage of sales for the three month period endedOctober 30, 2021 was higher primarily due to lower SG&A expense and lower interest expense, partially offset by higher taxes on earnings and higher cost of goods sold. Net earnings as a percentage of sales for the nine month period endedOctober 30, 2021 was 9.8% compared to the net loss as a percentage of sales of 1.8% for the nine month period endedOctober 31, 2020 . Net earnings as a percentage of sales for the nine month period endedOctober 30, 2021 was higher primarily due to lower cost of goods sold, lower SG&A expense, and lower interest expense, partially offset by higher taxes on earnings.
Net earnings as a percentage of sales for the three month periods ended
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Net earnings as a percentage of sales for the nine month periods ended
October 30, 2021 and November 2, 2019 was 9.8% and 10.4%, respectively. Net
earnings as a percentage of sales for the nine month period ended October 30,
2021 was lower primarily due to higher interest expense and higher SG&A expense,
partially offset by lower taxes on earnings.
Earnings (loss) per share. Diluted earnings per share for the three month
periods ended October 30, 2021 and October 31, 2020 were $1.09 and $0.37 ,
respectively. Diluted earnings per share for the nine month period ended
October 30, 2021 was $3.82 , compared to diluted loss per share of $(0.43) , for
the nine month period ended October 31, 2020 . The $0.72 and $4.25 increases in
the diluted earnings per share for the three and nine month periods ended
October 30, 2021 were primarily due to all our store locations being open
throughout the first nine months of fiscal 2021, compared to the negative impact
from the COVID-19 related closures of all our stores during significant portions
of the March 2020 to June 2020 period.
Diluted earnings per share for the three and nine month periods ended
October 30, 2021 were $1.09 and $3.82 , respectively, compared to $1.03 and
$3.32 , respectively, for the three and nine month periods ended November 2,
2019 . The 6% and 15% increases in diluted earnings per share for the three and
nine month periods ended October 30, 2021 , were attributable to 4% and 13%
increases in net earnings, and to the reduction in weighted-average diluted
shares outstanding of 2% for both the three and nine month periods, largely due
to stock repurchases under our stock repurchase programs.
Financial Condition
Liquidity and Capital Resources
Our primary sources of funds for our business activities are 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 use cash to pay dividends, to repay debt, and to
repurchase stock under active stock repurchase programs.
Nine Months Ended
($000 ) October 30, 2021 October 31, 2020 November 2, 2019
Cash provided by operating activities $ 1,503,653 $ 1,783,123 $ 1,410,930
Cash used in investing activities (377,916) (339,545) (400,734)
Cash (used in) provided by financing activities (759,965) 1,696,854 (1,284,748)
Net increase (decrease) in cash, cash
equivalents, and restricted cash and cash
equivalents $ 365,772 $ 3,140,432 $ (274,552)
In this report, we compare our cash flows from operating activities to both
fiscal 2020 and fiscal 2019. We believe fiscal 2019 is a more useful and
relevant basis of comparison given that our stores were open for full 39-week
periods in fiscal 2021 and fiscal 2019. Our cash flows from investing and
financing activities are compared to fiscal 2020, given the continued
construction of our Brookshire, Texas distribution center and the significant
financing actions we took in fiscal 2020 to preserve our financial liquidity and
enhance our financial flexibility in response to the COVID-19 pandemic.
Operating Activities
Net cash provided by operating activities was$1.5 billion for the nine month period endedOctober 30, 2021 . This was primarily driven by net earnings excluding non-cash expenses for depreciation and amortization. Net cash provided by operating activities was$1.8 billion for the nine month period endedOctober 31, 2020 . This was primarily driven by lower merchandise receipts as we closely managed inventory levels and used packaway inventory to replenish our stores, and higher accounts payable due to longer payment terms. This was partially offset by the net loss due to the lower sales from the closing of all store locations starting onMarch 20, 2020 and continuing through a portion of the second quarter of fiscal 2020, and COVID-19's negative impact on consumer demand. Net cash provided by operating activities was$1.4 billion for the nine month period endedNovember 2, 2019 and was primarily driven by net earnings excluding non-cash expenses for depreciation and amortization. 23 -------------------------------------------------------------------------------- The decrease in cash flow from operating activities for the nine month period endedOctober 30, 2021 , compared to the same period in the prior year was primarily driven by lower Accounts payable leverage (defined as accounts payable divided by merchandise inventory), partially offset by net earnings in the current year versus a net loss in the prior year due to the lack of sales from the COVID-19 related closures of all our stores during significant portions of theMarch 2020 toJune 2020 period. Accounts payable leverage was 119% and 149% as ofOctober 30, 2021 andOctober 31, 2020 , respectively. The decrease in Accounts payable leverage from the prior year was primarily driven by higher inventory receipts to support higher sales and the timing of receipts and payments compared to 2020. The increase in cash flow from operating activities for the nine month period endedOctober 30, 2021 , compared to the nine month period endedNovember 2, 2019 was primarily driven by higher net earnings and higher Accounts payable leverage. Accounts payable leverage was 119% and 68% as ofOctober 30, 2021 andNovember 2, 2019 , respectively. The increase in Accounts payable leverage fromNovember 2, 2019 was primarily driven by longer payment terms and timing of receipts and payments compared to 2019. 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. 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 ofOctober 30, 2021 , packaway inventory was 31% of total inventory compared to 38% at the end of fiscal 2020, which reflects our use of a substantial amount of packaway merchandise to support our increased level of sales. In addition, there were receipt delays due to supply chain congestion. As ofOctober 31, 2020 , packaway inventory was 26% of total inventory compared to 46% at the end of fiscal 2019. As ofNovember 2, 2019 , packaway inventory was 39% of total inventory compared to 46% at the end of fiscal 2018.
Investing Activities
Net cash used in investing activities was$377.9 million and$339.5 million for the nine month periods endedOctober 30, 2021 andOctober 31, 2020 , respectively, and was related to our capital expenditures. 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. Capital expenditures for fiscal 2021 are projected to be approximately$550 million . Our planned capital expenditures are expected to be used for continued 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.
Financing Activities
Net cash used in financing activities was$760.0 million for the nine month period endedOctober 30, 2021 . Net cash provided by financing activities was$1.7 billion for the nine month period endedOctober 31, 2020 . The decrease in cash provided by financing activities for the nine month period endedOctober 30, 2021 , compared to the nine month period endedOctober 31, 2020 , was primarily due to the completion of our public debt offerings, net of refinancing costs in fiscal 2020, the resumption of cash dividend payments in the first quarter of fiscal 2021, and the resumption of our share repurchases in the second quarter of fiscal 2021. Revolving credit facilities. Our$800 million unsecured revolving 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 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. 24 --------------------------------------------------------------------------------
In
InMay 2020 , we amended the$800 million 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. InOctober 2020 , we repaid in full the$800 million we borrowed under the unsecured revolving credit facility. As ofOctober 30, 2021 , we had no borrowings or standby letters of credit outstanding under this facility, the$800 million credit facility remains in place and available, and we were in compliance with the amended covenant. InMay 2020 , we entered into an additional$500 million 364-day senior revolving credit facility which was scheduled to expire inApril 2021 . InOctober 2020 , we terminated this senior revolving credit facility. We had no borrowings under that credit facility at any time. Senior notes. 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 . InOctober 2020 , we accepted for repurchase approximately$775 million in aggregate principal amount of the senior notes issued inApril 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. We 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. InOctober 2020 , we issued an aggregate of$1.0 billion in unsecured senior notes in two tenors as follows: 0.875% Senior Notes dueApril 2026 (the "2026 Notes") with an aggregate principal amount of$500 million and 1.875% Senior Notes dueApril 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 beginningApril 2021 . We used the net proceeds from the offering of the 2026 and 2031 Notes to fund the purchase of the accepted senior notes from our tender offers.
In
Other financing activities. InMay 2021 , our Board of Directors authorized a new program to repurchase up to$1.5 billion of our common stock through fiscal 2022, with plans to buy back$650 million in fiscal 2021 and$850 million in fiscal 2022. InMarch 2019 , our Board of Directors had approved a two-year$2.55 billion stock repurchase program through fiscal 2020. Due to the economic uncertainty stemming from the severe impact of the COVID-19 pandemic, we suspended that stock repurchase program inMarch 2020 , at which time we had repurchased$1.407 billion under the prior two-year$2.55 billion stock repurchase program. We repurchased 3.5 million and 1.2 million shares of common stock for aggregate purchase prices of approximately$417.0 million and$132.5 million during the nine month periods endedOctober 30, 2021 andOctober 31, 2020 , respectively. We also acquired 0.5 million and 0.5 million shares of treasury stock under our employee equity compensation programs, for aggregate purchase prices of approximately$57.1 million and$45.1 million during the nine month periods endedOctober 30, 2021 andOctober 31, 2020 , respectively. InNovember 2021 , our Board of Directors declared a cash dividend of$0.285 per common share, payable onDecember 31, 2021 . InAugust 2021 , our Board of Directors declared a cash dividend of$0.285 per common share, payable onSeptember 30, 2021 . InMay 2021 , our Board of Directors declared a cash dividend of$0.285 per common share, payable onJune 30, 2021 . OnMarch 2, 2021 , our Board of Directors declared a quarterly cash dividend of$0.285 per common share, payable onMarch 31, 2021 . Prior to fiscal 2021, our most recent quarterly dividend was a quarterly cash dividend of$0.285 per common share declared by our Board of Directors inMarch 2020 . InMay 2020 , we temporarily suspended our quarterly dividends, due to the economic uncertainty stemming from the COVID-19 pandemic. Our Board of Directors declared quarterly cash dividends of$0.255 per common share in March, May, August, andNovember 2019 , respectively.
For the nine month periods ended
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Short-term trade credit represents a significant source of financing for
merchandise inventory. Trade credit arises from customary payment terms and
trade practices with our vendors. We regularly review the adequacy of credit
available to us from all sources and expect to be able to maintain adequate
trade credit, bank credit facility, and other credit sources to meet our capital
and liquidity requirements, including lease and interest payment obligations.
We estimate that existing cash and cash equivalent balances, cash flows from
operations, bank credit facility, and trade credit are adequate to meet our
operating cash needs and to fund our planned capital investments, repayment of
debt, common stock repurchases, and quarterly dividend payments for at least the
next 12 months.
Contractual Obligations and Off-Balance Sheet Arrangements
The table below presents our significant contractual obligations as ofOctober 30, 2021 : Less than 1 - 3 3 - 5 After 5 ($000 ) one year years years years Total¹
Recorded contractual obligations:
Senior notes$ 65,000 $ 250,000 $ 1,200,000 $ 1,024,991 $ 2,539,991 Operating leases 645,047 1,200,915 780,816 568,239 3,195,017New York buying office ground lease2 6,107 14,177 14,178 935,122 969,584
Unrecorded contractual obligations:
Real estate obligations3 7,917 43,510 45,908 132,745 230,080 Interest payment obligations 82,438 160,631 93,269 261,550 597,888 Purchase obligations4 5,295,843 11,796 635 - 5,308,274
Total contractual obligations
1 We have a
2 Our New York buying office building is subject to a 99-year ground lease. 3 Minimum lease payments for leases signed that have not yet commenced. 4 Purchase obligations primarily consist of merchandise inventory purchase orders, commitments related to construction projects, store fixtures and supplies, and information technology services, transportation, and maintenance contracts.
Other than the unrecorded contractual obligations noted above, we do not have
any material off-balance sheet arrangements as of
Standby letters of credit and collateral trust. We use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize some of our insurance obligations. We have also used standby letters of credit outside of our revolving credit facility to collateralize some of our trade payable obligations. As ofOctober 30, 2021 ,January 30, 2021 , andOctober 31, 2020 , we had$3.3 million ,$15.3 million , and$16.2 million , respectively, in standby letters of credit outstanding and$56.6 million ,$56.1 million , and$56.5 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$30.6 million ,$16.3 million , and$24.7 million in trade letters of credit outstanding atOctober 30, 2021 ,January 30, 2021 , andOctober 31, 2020 , respectively.
Dividends. In
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--------------------------------------------------------------------------------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. The ongoing uncertainties and continuing impacts from the COVID-19 pandemic increase the challenge of making these estimates; actual results could differ materially from our estimates. During the third quarter of fiscal 2021, there have been no significant changes to the critical accounting policies discussed in our Annual Report on Form 10-K for the year endedJanuary 30, 2021 .
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 arising from the COVID-19
pandemic and related economic disruptions, and our plans and responses to them,
including adjustments to our operations, planned 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 the recurrence of significant business
disruptions arising from 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.
•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, including inflation, housing
costs, energy and fuel costs, 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 importing and selling merchandise produced in other
countries, including risks from supply chain disruptions due to port of
exit/entry congestion, shipping delays, and ocean freight cost increases, and
risks from other supply chain related disruptions in other countries, including
those due to COVID-19 closures.
•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.
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•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, or the adoption of new federal or state tax legislation that increases tax rates or adds new taxes, 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. 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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