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 1,594 locations in 40 states, theDistrict of Columbia andGuam as ofOctober 31, 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 275 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.
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 a portion of our fiscal second quarter. We also instituted "work from home" measures for many of our associates. The vast majority of our store locations and all our distribution centers were open and operating by the end ofJune 2020 and throughout the third quarter, though our stores were operating on shorter hours for a period of time compared to the prior year. All our distribution centers were reopened by the end ofMay 2020 . 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 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 25 percent of the second quarter). Core business results improved during the third quarter; however, we expect material adverse effects from the pandemic to continue through the current fiscal year and potentially beyond. 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 all our stores significantly impacted our ability to sell seasonal inventory in a timely manner. As we reopened our stores and resumed operations in the middle of the second quarter, a significant portion of the merchandise in our stores was aged and out of season. We took deep markdowns to sell through this inventory. During the initial reopenings, sales were ahead of our conservative plans as we benefited from pent-up consumer demand and aggressive markdowns. In the weeks after reopening, sales trends were negatively affected by depleted store inventory levels while we were ramping up our buying and distribution capabilities. During the third quarter, sales improved substantially compared to the second quarter. This was driven by several factors, including an improvement in our merchandise assortments, a later back-to-school season, stronger performance in our larger markets, and our return to more normal store hours. The ongoing effect of the pandemic on consumer behavior and spending patterns remains highly uncertain. Despite the initial surge in customer demand as our stores reopened, we expect customer demand to be generally suppressed for an extended period. In addition, there are currently resurgences in the spread of COVID-19 throughoutthe United States , which may also recur in the future, in one or more regions, and which have and could require our stores and distribution centers to temporarily close again nationally, regionally, or in specific locations. These closures would further negatively impact our revenue and operations. 18 -------------------------------------------------------------------------------- In response to COVID-19, we incurred various costs to reopen our stores and distribution centers, and we incur ongoing operating costs for additional processes and procedures to facilitate social distancing, to enhance cleaning and sanitation activities, and to provide personal protective equipment to our associates. These actions, combined with various other actions taken to reduce costs, resulted in approximately$25 million and$90 million of additional net costs in the three and nine month periods endedOctober 31, 2020 , respectively. We expect to incur higher operating costs related to our response to COVID-19 on an ongoing basis. 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 senior notes offering inApril 2020 , and entered into a new$500 million 364-day senior revolving credit facility inMay 2020 . In the third quarter of fiscal 2020, we refinanced$775 million in aggregate principal amount of our higher interest senior notes with the issuance of$1.0 billion in aggregate principal amount of lower interest rate senior notes. This action significantly reduced the annual interest expense and total cash outlays over the life of the debt. In addition to the senior notes refinancing, during the third quarter, we also took several other actions to reduce our ongoing debt costs, including the repayment of the$800 million revolving credit facility and termination of the undrawn$500 million 364-day senior revolving credit facility. 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 for 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 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 untilMay 24, 2020 , when more than half of our stores reopened. 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, which remained in effect untilAugust 2020 . InMay 2020 , in connection with the phased reopening of our store and distribution center locations, we began recalling many of these furloughed associates as they were able to resume productive work. As ofOctober 2020 , with all of our stores and all distribution centers reopened, the majority of these associates have returned to work. Beginning inMay 2020 , we suspended rent payments associated with the leases for our temporarily closed stores. During the second and third quarters of fiscal 2020, we negotiated rent deferrals and/or rent abatements (primarily for second quarter lease payments) for a significant number of our stores. The repayment of the deferrals will be at later dates, primarily in fiscal 2021. We have recorded accruals for rent payment deferrals and have recorded rent abatements associated with the second and third quarters as a reduction of variable lease costs. 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 potential for resurgence, and the unknown overall impact on consumer demand and store productivity, 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 and potentially beyond. 19 --------------------------------------------------------------------------------
Results of Operations
The following table summarizes the financial results for the three and nine
month periods ended
Three Months Ended Nine Months Ended
October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019
Sales
Sales (millions) $ 3,755 $ 3,849 $ 8,282 $ 11,626
Sales (decline) growth (2.5 %) 8.4 % (28.8 %) 6.9 %
Comparable store sales (decline) growth (3 %) 1 5 % 1 n/a 2 3 % 1
Costs and expenses (as a percent of
sales)
Cost of goods sold 72.2 % 71.9 % 80.7 % 71.5 %
Selling, general and administrative 23.4 % 15.7 % 21.9 % 15.1 %
Interest expense (income), net 0.8 % (0.1 %) 0.8 % (0.1 %)
Earnings (loss) before taxes (as a
percent of sales) 3.6 % 12.5 % (3.4 %) 13.5 %
Net earnings (loss) (as a percent of
sales) 3.5 % 9.6 % (1.8 %) 10.4 %
1 Comparable store sales represents sales from stores that have been open for more than 14 complete months.
2 Given that stores were open for less than seven weeks of the 13-week period ended
Stores. In response to the impacts from the COVID-19 pandemic, we have reduced
our planned new store openings for fiscal 2020. We did not open any new stores
in the second quarter of fiscal 2020, and opened 39 stores in the 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 Nine Months Ended
Store Count October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019
Beginning of the period 1,832 1,772 1,805 1,717
Opened in the period 39 1 42 66 1 98
Closed in the period (2) (4) 2 (2) (5) 2
End of the period 1,869 1,810 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 31, 2020 , decreased$94.6 million , or 2.5%, compared to the three month period endedNovember 2, 2019 . This was primarily due to COVID-19's negative impact on customer demand which resulted in a 3% decline in comparable store sales. We opened 59 net new stores betweenNovember 2, 2019 andOctober 31, 2020 , which partially offset the comparable store sales decline. Sales for the nine month period endedOctober 31, 2020 , decreased$3.3 billion , or 28.8%, compared to the nine month period endedNovember 2, 2019 . This was primarily due to the negative impact from store closures during theMarch 2020 toJune 2020 period and COVID-19's negative impact on customer demand. We opened 59 net new stores between 20 --------------------------------------------------------------------------------
Comparable store sales. For the three month period endedOctober 31, 2020 , comparable store sales represents sales from stores that have been open for more than 14 complete months. For the three month period endedOctober 31, 2020 , comparable store sales were down 3%. Comparable stores sales were impacted by COVID-19's negative impact on customer demand and by other factors. 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 month period endedOctober 31, 2020 , is not meaningful.
Our sales mix for the three and nine month periods ended
Three Months Ended Nine Months Ended
October 31, 2020 November 2, 2019 October 31, 2020 1 November 2, 2019
Home Accents and Bed and Bath 26 % 24 % 26 % 24 %
Ladies 23 % 26 % 24 % 27 %
Men's 15 % 14 % 14 % 14 %
Accessories, Lingerie, Fine Jewelry,
and Fragrances 15 % 13 % 14 % 13 %
Shoes 12 % 14 % 13 % 14 %
Children's 9 % 9 % 9 % 8 %
Total 100 % 100 % 100 % 100 %
1 Sales mix for the nine month period 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 nine months 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 potential responses to it (which may require stores and distribution centers to close again nationally, regionally, or in specific locations), we cannot be sure that our strategies and 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 ended
Cost of goods sold as a percentage of sales for the three month period endedOctober 31, 2020 , increased approximately 35 basis points from the same period in the prior year, primarily due to a 90 basis point increase in freight costs, a 70 basis point increase in distribution expenses, a 40 basis point increase in buying costs, and a 25 basis point deleveraging of occupancy costs. These increases were partially offset by a 190 basis point improvement in merchandise margin. Cost of goods sold for the nine month period endedOctober 31, 2020 , decreased$1.6 billion compared to the same period in the prior year, mainly due to the lower sales from the closing of all store locations starting onMarch 20, 2020 through a portion of the second quarter of fiscal 2020, COVID-19's negative impact on customer demand post store reopenings, and the temporary furlough of most hourly associates in our distribution centers and some associates in our buying offices. These decreases were partially offset by higher markdowns used to clear aged and seasonal inventory, expenditures for COVID-19 related measures, and higher packaway-related expenses. Selling, general and administrative expenses. For the three month period endedOctober 31, 2020 , selling, general and administrative expenses ("SG&A") increased$273.3 million compared to the same period in the prior year, primarily due to approximately$240 million in long-term debt refinancing costs, and COVID-related expenses for supplies, cleaning, and payroll related to additional safety protocols. Selling, general and administrative expenses as a percentage of sales for the three month period endedOctober 31, 2020 , increased 765 basis points, which includes a 640 basis point impact from the long-term debt refinancing costs, a 65 basis point impact from higher COVID-related operating costs, and a 60 basis point impact from the deleveraging effect from the decline in same store sales. 21 -------------------------------------------------------------------------------- For the nine month period endedOctober 31, 2020 , selling, general and administrative expenses increased$57.8 million compared to the same period in the prior year, primarily due to approximately$240 million in long-term debt refinancing costs, COVID-related expenses for supplies, cleaning, and payroll-related to additional safety protocols, and payments to associates while our stores were closed (net of employee retention credits under the CARES Act), partially offset by payroll-related cost reduction measures in response to the COVID-19 pandemic (including the temporary furlough of most hourly associates in our stores prior to reopening, and some associates in our corporate offices), and reductions in non-business critical operating expenses. Interest expense (income), net. Interest expense (income), net for the three and nine month periods endedOctober 31, 2020 , increased$33.1 million and$79.1 million , respectively, compared to the same periods in the prior year. These increases were primarily due to higher interest expense on long-term debt due to the issuance of Senior Notes inApril 2020 andOctober 2020 (net of repurchase of Senior Notes), 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 (which was subsequently repaid inOctober 2020 ), partially offset by higher capitalized interest primarily related to the construction of ourBrookshire, Texas distribution center. Interest expense (income), net for the three and nine month periods endedOctober 31, 2020 andNovember 2, 2019 , consists of the following: Three Months Ended Nine Months Ended November 2, ($000 ) October 31, 2020 November 2, 2019 October 31, 2020 2019
Interest expense on long-term debt $ 27,826 $ 3,284
$ 66,338 $ 9,850
Interest expense on short-term debt 2,565 - 7,861 -
Other interest expense 2,535 216 3,844 756
Capitalized interest (3,856) (1,186) (9,359) (3,069)
Interest income (330) (6,716) (4,423) (22,356)Interest expense (income), net $ 28,740 $ (4,402)
$ 64,261 $ (14,819)
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.
Our effective tax rates for the three month periods ended October 31, 2020 and
November 2, 2019 , were approximately 4% and 23%, respectively. The decrease in
the effective tax rate of 19% for the three month period ended October 31, 2020
compared to the three month period ended November 2, 2019 was primarily due to
fluctuations in forecasted pre-tax earnings. Our effective tax rates for the
nine month periods ended October 31, 2020 and November 2, 2019 , were
approximately 45% and 23%, respectively. The increase in the effective tax rate
of 22% for the nine month period ended October 31, 2020 compared to the nine
month period ended November 2, 2019 was primarily due to a pre-tax loss for the
nine month period ended October 31, 2020 . 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 uncertain
tax positions.
Net earnings (loss). Net earnings as a percentage of sales for the three month
period ended October 31, 2020 , was lower compared to the same period in the
prior year primarily due to higher SG&A, higher interest expense, and higher
cost of goods sold, partially offset by lower taxes on earnings.
Net loss as a percentage of sales for the nine month period ended October 31,
2020 was 1.8% compared to the net earnings as a percentage of sales of 10.4% for
the same period in the prior year. The change was primarily due to higher cost
of goods sold, higher SG&A, and higher interest expense, partially offset by
income tax benefit on net loss for the nine month period ended October 31, 2020 .
Earnings (loss) per share. Diluted earnings per share for the three month
periods ended
22
--------------------------------------------------------------------------------Diluted loss per share was$(0.43) for the nine month period endedOctober 31, 2020 , compared to diluted earnings per share of$3.32 for the nine month period endedNovember 2, 2019 . The diluted loss per share for the nine month period endedOctober 31, 2020 , was primarily attributable to lower sales due to the closing of all our store locations starting onMarch 20, 2020 through a portion the second quarter of fiscal 2020, COVID-19's negative impact on customer demand, higher markdowns to clear aged and seasonal inventory, long-term debt refinancing costs, payments to associates while our stores were closed (net of employee retention credits under the CARES Act), and higher expenditures for COVID-19 related measures, 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 throughMay 14, 2020 , when we began a phased process of resuming operations. The vast majority of our store locations and all our distribution centers were open and operating by the end ofJune 2020 and throughout the third quarter, though our stores were operating on shorter hours for a period of time compared to the prior year. All our distribution centers were reopened by the end ofMay 2020 . 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 fiscal 2020. Our results reflect the impact of the significant revenue decline from our temporary store closures and COVID-19's negative impact on customer demand, higher markdowns to clear aged and seasonal inventory, higher financing costs related to long-term debt, and increased expenditures for COVID-19 related measures. 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 senior notes offering inApril 2020 , and entered into a new$500 million 364-day senior revolving credit facility inMay 2020 . In the third quarter of fiscal 2020, we refinanced$775 million in aggregate principal amount of our higher interest senior notes with the issuance of$1.0 billion in aggregate principal amount of lower interest rate senior notes. This action significantly reduced the annual interest expense and total cash outlays over the life of the debt. In addition to the senior notes refinancing, during the third quarter, we also took several other actions to reduce our ongoing debt costs, including the repayment of the$800 million revolving credit facility and termination of the undrawn$500 million 364-day senior revolving credit facility. 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 for 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 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 untilMay 24, 2020 , when more than half of our stores reopened. 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, which remained in effect untilAugust 2020 . InMay 2020 , in connection with the phased reopening of our store and distribution center locations, we began recalling many of these furloughed associates as they were able to resume productive work. As ofOctober 2020 , with all of our stores and all distribution centers reopened, the majority of these associates have returned to work. Beginning inMay 2020 , we suspended rent payments associated with the leases for our temporarily closed stores. During the second and third quarters of fiscal 2020, we negotiated rent deferrals and/or rent abatements (primarily for second quarter lease payments) for a significant number of our stores. The repayment of the deferrals will be at later dates, primarily in fiscal 2021. We recorded accruals for rent payment deferrals and recorded rent abatements associated with the second and third quarters as a reduction of variable lease costs. 23 -------------------------------------------------------------------------------- We ended the third quarter of fiscal 2020 with over$5.2 billion in liquidity, which consists of$4.4 billion unrestricted cash balances and the$800 million available under our senior revolving credit facility. Historically, our primary sources of funds for our business activities have been 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 for the repayment of debt as it becomes due. Due to the COVID-19 pandemic and related economic disruptions, and with the possibility that some of our stores, distribution centers, and other facilities may need to temporarily close again in response to government actions to slow the spread of the disease, we anticipate potential interruptions to our cash flows from operations. We anticipate that we will be required to rely more on our cash reserves and we expect to carefully monitor and manage our cash position in light of ongoing conditions and levels of operations. Nine Months Ended ($000 ) October 31, 2020 November 2, 2019 Cash provided by operating activities$ 1,783,123 $ 1,410,930 Cash used in investing activities (339,545) (400,734) Cash provided by (used in) financing activities 1,696,854 (1,284,748)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents
$ 3,140,432 $ (274,552) Operating Activities 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 extended payment terms. This was partially offset by the net loss due to lower sales from the closing of all store locations starting onMarch 20, 2020 through a portion of the second quarter, and COVID-19's negative impact on customer 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. The increase in cash flow from operating activities for the nine month period endedOctober 31, 2020 , compared to the same period in the prior year was primarily driven by higher accounts payable leverage. Accounts payable leverage (defined as accounts payable divided by merchandise inventory) was 149%, 71%, and 68% as ofOctober 31, 2020 ,February 1, 2020 , andNovember 2, 2019 , respectively. The increase in accounts payable leverage from the prior year was primarily driven by lower packaway and in-store inventory and extended payment terms. 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, given the uncertainty around the duration of the COVID-19 pandemic, and its impact on our operations and customer demand, 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 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. 24 --------------------------------------------------------------------------------
Investing Activities
Net cash used in investing activities was
Our capital expenditures were$339.5 million and$401.3 million for the nine month periods endedOctober 31, 2020 andNovember 2, 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 reduced our capital expenditure plans for fiscal 2020. Capital expenditures for fiscal 2020 are 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.
Financing Activities
Net cash provided by financing activities was$1.7 billion for the nine month period endedOctober 31, 2020 . Net cash used in financing activities was$1.3 billion for the nine month period endedNovember 2, 2019 . The increase in cash provided by financing activities for the nine month period endedOctober 31, 2020 , compared to the nine month period endedNovember 2, 2019 , was primarily due to the completion of our public debt offerings net of repurchase and refinancing costs, and the suspension of our share repurchases and dividends in the second quarter of 2020. 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
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. 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 ofOctober 31, 2020 , we were in compliance with these amended covenants.
In
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. 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 . 25 -------------------------------------------------------------------------------- InOctober 2020 , we accepted for purchase approximately$775 million in aggregate principal amount of senior notes 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 aggregate consideration (including transaction costs, and accrued and unpaid interest) and recorded an approximately$240 million loss on the early extinguishment for the accepted 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 notes from our tender offers.
In
We repurchased 1.2 million and 9.6 million shares of common stock for aggregate purchase prices of approximately$132.5 million and$965.9 million during the nine month periods endedOctober 31, 2020 andNovember 2, 2019 , respectively. We also acquired 0.5 million and 0.6 million shares of treasury stock under our employee stock equity compensation programs, for aggregate purchase prices of approximately$45.1 million and$56.9 million during the nine month periods endedOctober 31, 2020 andNovember 2, 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 third quarter of fiscal 2020, we had$1.143 billion remaining 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 nine month periods endedOctober 31, 2020 andNovember 2, 2019 , we paid cash dividends of$101.4 million and$278.4 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 through a portion of the second quarter, have and continue to create significant uncertainty and challenges. We believe that existing cash balances, bank credit facility, and trade credit are adequate to meet our operating, investing, and financing needs for at least the next 12 months. 26 --------------------------------------------------------------------------------
Contractual Obligations and Off-Balance Sheet Arrangements
The table below presents our significant contractual obligations as ofOctober 31, 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 $ 1,524,991 $ 2,539,991 Operating leases 637,268 1,214,521 826,035 675,535 3,353,359New York buying office ground lease2 6,417 13,730 14,178 942,211 976,536
Unrecorded contractual obligations:
Real estate obligations3 5,897 26,476 29,608 93,678 155,659 Interest payment obligations 84,371 162,753 136,094 299,041 682,259 Purchase obligations4 3,716,478 14,656 2,309 - 3,733,443
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$800 million revolving credit facility in addition to a funded trust to collateralize our insurance and trade payable obligations. As ofOctober 31, 2020 ,February 1, 2020 , andNovember 2, 2019 , we had$16.2 million ,$4.2 million , and$4.6 million , respectively, in standby letters of credit outstanding and$56.5 million ,$56.0 million and$56.2 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$24.7 million ,$11.2 million , and$23.5 million in trade letters of credit outstanding atOctober 31, 2020 ,February 1, 2020 , andNovember 2, 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 third 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.
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--------------------------------------------------------------------------------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 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 further significant business disruptions arising from the recent and ongoing COVID-19 pandemic, including distribution center closures, 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. •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. 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. 28
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