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OFFON

ROSS STORES, INC.

(ROST)
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ROSS STORES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

09/08/2021 | 06:03am EDT
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
second quarter of fiscal 2019, and in conjunction with the consolidated
financial statements and notes thereto in our Annual Report on Form 10-K for
2020. All information is based on our fiscal calendar.

Overview


Ross Stores, Inc. operates two brands of off-price retail apparel and home
fashion stores -- Ross Dress for Less® ("Ross") and dd's DISCOUNTS®. Ross is the
largest off-price apparel and home fashion chain in the United States, with
1,611 locations in 40 states, the District of Columbia and Guam as of July 31,
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 285 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


We believe sales for the second quarter of fiscal 2021 benefited substantially
from a combination of ongoing government stimulus, increasing vaccination rates,
diminishing COVID-19 restrictions, and strong execution of our merchandising
strategies. During the quarter, we also experienced expense pressures from
higher freight costs and distribution expenses primarily due to higher wages, of
approximately 85 and 40 basis points, respectively (which impacted cost of goods
sold) as well as ongoing COVID-related operating costs of approximately 45 basis
points (the vast majority of which impacted our selling, general and
administrative expenses ("SG&A")). We expect higher freight costs to increase
further, and higher distribution expenses and the ongoing COVID-related
operating costs to continue throughout fiscal 2021.

It is difficult to predict the lasting impact from the factors that benefited
our results for the second quarter and first half of fiscal 2021, in particular
the government stimulus payments. In addition, there continues to be significant
uncertainty surrounding the COVID-19 pandemic, including its unknown duration,
the potential for future resurgences and new virus variants, and its potential
impact on consumer demand. We also face potential risks from the worsening
industry-wide supply chain congestion.

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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. The following table summarizes the financial results for the three
and six month periods ended July 31, 2021, August 1, 2020, and August 3, 2019:

                                                               Three Months Ended                                                Six Months Ended
                                          July 31, 2021        August 1, 2020       August 3, 2019          July 31, 2021       August 1, 2020       August 3, 2019
Sales
Sales (millions)                         $        4,805$        2,685$        3,980       $          9,321       $        4,527$        7,777

Comparable store sales growth (decline) 15.0 % 1 (12 %) 2 3 % 3 14.0 % 1

            n/a     4   

2 % 3


Costs and expenses (as a percent of
sales)
Cost of goods sold                             71.0  %               77.4  %              71.4  %                 70.9  %             87.7  %              71.3  %
Selling, general and administrative            14.9  %               19.4  %              14.9  %                 14.9  %             20.6  %              14.8  %
Interest expense (income), net                  0.4  %                1.1  %              (0.1  %)                 0.4  %              0.8  %          

(0.1 %)


Earnings (loss) before taxes (as a
percent of sales)                              13.7  %                2.1  %              13.8  %                 13.8  %             (9.1  %)         

14.0 %


Net earnings (loss) (as a percent of
sales)                                         10.3  %                0.8  %              10.4  %                 10.4  %             (6.3  %)             10.7  %
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 For three months ended August 1, 2020, comparable store sales represents sales from reopened stores from the date of the store reopening through the end of the
quarter.
3 Amount shown is for the three and six 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 ended May 2, 2020, the comparable store sales metric for the six months ended August 1,
2020, is not meaningful.



Stores. We expect to open approximately 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                                                          Six Months Ended
Store Count                                    July 31, 2021             August 1, 2020          August 3, 2019           July 31, 2021              August 1, 2020          August 3, 2019
Beginning of the period                         1,866                      1,832                   1,745                   1,859                          1,805                1,717
Opened in the period                               30                          -                      28                      37                             27                   56
Closed in the period                                -                          -                      (1)                      -                              -                   (1)
End of the period                               1,896                      1,832                   1,772                   1,896                          1,832                1,772



Sales. Sales for the three month period ended July 31, 2021 increased $2.1
billion, or 79.0%, compared to the three month period ended August 1, 2020. This
was primarily due to all store locations being open throughout the second
quarter of fiscal 2021, compared to all store locations being open for
approximately 75 percent of the second quarter of fiscal 2020. Sales for the
three month period ended July 31, 2021 also benefited from the ongoing
government stimulus payments, increasing vaccination rates, diminishing COVID-19
restrictions, and strong execution of our merchandising strategies. Sales also
increased due to the opening of 64 net new stores between August 1, 2020 and
July 31, 2021.

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Sales for the six month period ended July 31, 2021 increased $4.8 billion, or
105.9%, compared to the six month period ended August 1, 2020. This was
primarily due to all store locations being open throughout the first half of
fiscal 2021, compared to all store locations being open for approximately 50
percent of the first quarter of fiscal 2020 and approximately 75 percent of the
second quarter of fiscal 2020. 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 merchandising
strategies. Sales also increased due to the opening of 64 net new stores between
August 1, 2020 and July 31, 2021.

Sales for the three month period ended July 31, 2021 increased $825.1 million,
or 20.7%, compared to the three month period ended August 3, 2019. This was
primarily due to a 15% increase in comparable store sales (comparing the second
quarter of fiscal 2021 to the same period in fiscal 2019) which was mainly
driven by a combination of ongoing government stimulus payments, increasing
vaccination rates, diminishing COVID-19 restrictions, and strong execution of
our merchandising strategies. Sales also increased due to the opening of 124 net
new stores between August 3, 2019 and July 31, 2021.

Sales for the six month period ended July 31, 2021 increased $1.5 billion, or
19.9%, compared to the six month period ended August 3, 2019. This was primarily
due to a 14% increase in comparable store sales (comparing the first half of
fiscal 2021 to the same period in fiscal 2019) which was mainly driven by a
combination of government stimulus payments, increasing vaccination rates,
diminishing COVID-19 restrictions, pent-up consumer demand, and strong execution
of our merchandising strategies. Sales also increased due to the opening of 124
net new stores between August 3, 2019 and July 31, 2021.

Our sales mix for the three and six month periods ended July 31, 2021, August 1, 2020, and August 3, 2019 is shown below:

                                                    Three Months Ended                                          Six Months Ended
                                       July 31,           August 1, 1         August 3,           July 31,           August 1, 1         August 3,
                                           2021                2020                2019               2021                2020                2019
Ladies                                    27  %               25  %               27  %              25  %               25  %               27  %
Home Accents and Bed and Bath             24  %               25  %               23  %              25  %               26  %               24  %
Men's                                     15  %               14  %               15  %              14  %               13  %               14  %
Accessories, Lingerie, Fine
Jewelry, and Cosmetics                    14  %               13  %               13  %              14  %               13  %               13  %
Shoes                                     12  %               14  %               14  %              13  %               14  %               14  %
Children's                                 8  %                9  %                8  %               9  %                9  %                8  %
Total                                    100  %              100  %              100  %             100  %              100  %              100  %

1 Sales mix for the three and six month periods ended August 1, 2020 represents sales for the period the stores were open.

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 and the ongoing improvements in the macro-economic
environment, bolstered by 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 half of
fiscal 2021, in particular the benefit from the government stimulus payments. In
addition, there continues to be significant uncertainty surrounding the COVID-19
pandemic, including its unknown duration, the potential for future resurgences
and new virus variants, and its potential impact on consumer demand. 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 six month periods ended
July 31, 2021 increased $1.3 billion and $2.6 billion, respectively, compared to
the three and six month periods ended August 1, 2020, primarily due to higher
sales, given that all our stores were open throughout the first half of fiscal
2021, whereas all our store locations were open for approximately 50 percent of
the first quarter of fiscal 2020 and approximately 75 percent of the second
quarter of fiscal 2020. Cost of goods also increased due to the opening of 64
net new stores between August 1, 2020 and July 31, 2021.

                                       19
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Cost of goods sold for the three and six month periods ended July 31, 2021
increased $567.0 million and $1.1 billion, respectively, compared to the three
and six month periods ended August 3, 2019, primarily due to a 15% and 14%
increase in comparable store sales, respectively, and higher sales due to the
opening of 124 net new stores between August 3, 2019 and July 31, 2021.

Cost of goods sold as a percentage of sales for the three month period ended
July 31, 2021 decreased approximately 45 basis points compared to the three
month period ended August 3, 2019, primarily due to an 80 basis point
improvement in merchandise margin, leverage of 80 basis points in occupancy
costs, and a 10 basis points decline in buying costs. These costs were partially
offset by an 85 basis point increase in freight costs, mainly driven by
worsening industry-wide supply chain congestion, and a 40 basis point increase
in distribution expenses primarily due to higher wages.

Cost of goods sold as a percentage of sales for the six month period ended
July 31, 2021 decreased approximately 40 basis points compared to the six month
period ended August 3, 2019, primarily due to an 85 basis point improvement in
merchandise margin and leverage of 70 basis points in occupancy costs. These
costs were partially offset by an 80 basis point increase in freight costs,
mainly driven by ongoing industry-wide supply chain congestion, and a 35 basis
point increase in distribution expenses primarily due to higher wages. We expect
higher freight costs to increase further, and higher distribution expenses to
continue throughout fiscal 2021.

Selling, general and administrative expenses. For the three and six month
periods ended July 31, 2021, SG&A increased $198.3 million and $458.0 million,
respectively, compared to the three and six month periods ended August 1, 2020.
These increases were primarily due to all our stores being open throughout the
first half of fiscal 2021, whereas all our store locations were open for
approximately 50 percent of the first quarter of fiscal 2020 and approximately
75 percent of the second quarter of fiscal 2020, and to the opening of 64 net
new stores between August 1, 2020 and July 31, 2021.

For the three and six month periods ended July 31, 2021, SG&A increased
$125.8 million and $242.6 million, respectively, compared to the three and six
month periods ended August 3, 2019, primarily due to a 15% and 14% increase in
comparable store sales, respectively, to the opening of 124 net new stores
between August 3, 2019 and July 31, 2021, net COVID-related operating expenses
for supplies, cleaning, and payroll related to additional safety protocols, and
higher incentive compensation costs due to better-than-expected results.

Selling, general and administrative expenses as a percentage of sales for the
three and six month periods ended July 31, 2021 increased five and 15 basis
points, respectively, compared to the three and six month periods ended
August 3, 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
ended July 31, 2021 decreased $10.1 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 the October 2020 refinancing at lower interest rates of a
portion of the Senior Notes issued in April 2020, and elimination of interest
expense on short-term debt due to the repayment of our $800 million revolving
credit facility in October 2020.

Interest expense, net for the six month period ended July 31, 2021 increased
$2.2 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 six months of
interest expense in the six month period ended July 31, 2021 compared to four
months in the corresponding period in 2020, and lower interest income due to
lower interest rates, partially offset by the elimination of interest expense on
short-term debt due to the repayment of our $800 million revolving credit
facility in October 2020 and higher capitalized interest primarily related to
the construction of our Brookshire, Texas distribution center.

Interest expense (income), net for the three and six month periods ended
July 31, 2021 increased $23.5 million and $48.2 million, respectively, compared
to the three and six month periods ended August 3, 2019. These increases were
primarily due to higher interest expense on long-term debt due to the issuance
of Senior Notes in April 2020 and October 2020, and to lower interest income due
to lower interest rates, partially offset by higher capitalized interest
primarily related to the construction of our Brookshire, Texas distribution
center.
                                       20
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Interest expense (income), net for the three and six month periods ended
July 31, 2021, August 1, 2020, and August 3, 2019 consists of the following:

                                                  Three Months Ended                                                Six Months Ended
                                                           August 1,          August 3,                                  August 1,
($000)                              July 31, 2021               2020               2019           July 31, 2021               2020           August 3, 2019
Interest expense on long-term
debt                            $       22,205$  28,331$   3,283$       44,399$  38,512          $         6,566
Interest expense on short-term
debt                                         -              3,599                  -                       -              5,296                        -
Other interest expense                     291              1,031                227                     621              1,309                      540
Capitalized interest                    (3,590)            (3,349)            (1,118)                 (6,829)            (5,503)                  (1,883)
Interest income                           (199)              (757)            (7,174)                   (435)            (4,093)                 (15,640)

Interest expense (income), net $ 18,707$ 28,855$ (4,782)$ 37,756$ 35,521$ (10,417)




Taxes on earnings (loss). Our effective tax rates for the three month periods
ended July 31, 2021, August 1, 2020, and August 3, 2019 were approximately 25%,
61%, and 25%, respectively. The decrease in the effective tax rate of 36% for
the three month period ended July 31, 2021 compared to the three month period
ended August 1, 2020 was primarily due to fluctuations in pre-tax earnings
(loss), partially offset by a revaluation of deferred taxes related to the CARES
Act in the three month period ended August 1, 2020. Our effective tax rates for
the six month periods ended July 31, 2021, August 1, 2020, and August 3, 2019
were approximately 24%, 31%, and 24%, respectively. The decrease in the
effective tax rate of 7% for the six month period ended July 31, 2021 compared
to the six month period ended August 1, 2020 was primarily due to fluctuations
in pre-tax earnings (loss). 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.

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

Net earnings (loss). Net earnings as a percentage of sales for the three month
periods ended July 31, 2021 and August 1, 2020 was 10.3% and 0.8%, respectively.
Net earnings as a percentage of sales for the six month period ended July 31,
2021 was 10.4% compared to the net loss as a percentage of sales of 6.3% for the
six month period ended August 1, 2020. Net earnings as a percentage of sales for
the three and six month periods ended July 31, 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 July 31,
2021 and August 3, 2019 was 10.3% and 10.4%, respectively. Net earnings as a
percentage of sales for the six month periods ended July 31, 2021 and August 3,
2019 was 10.4% and 10.7%, respectively. Net earnings as a percentage of sales
for the three and six month periods ended July 31, 2021 was lower primarily due
to higher interest expense and higher SG&A expense, partially offset by lower
cost of goods sold.

Earnings (loss) per share. Diluted earnings per share for the three month
periods ended July 31, 2021 and August 1, 2020 were $1.39 and $0.06,
respectively. Diluted earnings per share for the six month period ended July 31,
2021 was $2.73, compared to diluted loss per share of $(0.81), for the six month
period ended August 1, 2020. The $1.33 and $3.54 increases in the diluted
earnings per share in the three and six month periods ended July 31, 2021 were
primarily due to all our store locations being open throughout the first half of
fiscal 2021, compared to all our store locations being open for approximately 50
percent of the first quarter of fiscal 2020 and approximately 75 percent of the
second quarter of fiscal 2020.

Diluted earnings per share for the three and six month periods ended July 31,
2021 were $1.39 and $2.73, respectively, compared to $1.14 and $2.29,
respectively, for the three and six month periods ended August 3, 2019. The 22%
and 19%
                                       21
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increases in diluted earnings per share for the three and six month periods
ended July 31, 2021, were attributable to 20% and 16% increases in net earnings,
and 2% and 3% from the reduction in weighted-average diluted shares outstanding,
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.

                                                                           Six Months Ended
($000)                                                July 31, 2021           August 1, 2020           August 3, 2019
Cash provided by operating activities             $    1,345,395$       172,421$     1,083,463
Cash used in investing activities                       (254,437)                (250,047)                (249,797)

Cash (used in) provided by financing activities (415,649)

     2,520,131                 (868,344)
Net increase (decrease) in cash, cash
equivalents, and restricted cash and cash
equivalents                                       $      675,309$     2,442,505$       (34,678)



In this report, we compare our cash flows from operating activities to 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 26-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 $1.3 billion for the six month
period ended July 31, 2021. This was primarily driven by net earnings excluding
non-cash expenses for depreciation and amortization, and higher accounts payable
leverage (defined as accounts payable divided by merchandise inventory). Net
cash provided by operating activities was $172.4 million for the six month
period ended August 1, 2020. This was primarily driven by lower merchandise
receipts as we closely managed inventory levels and used packaway inventory to
replenish our stores. This was partially offset by merchandise payments for
receipts prior to the shutdown of our operations and the net loss due to the
lower sales from the closing of all store locations starting on March 20, 2020
through a portion of the second quarter of fiscal 2020. Net cash provided by
operating activities was $1.1 billion for the six month period ended August 3,
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 six month period
ended July 31, 2021, compared to the same period in the prior year was primarily
driven by net earnings in the current year versus a net loss due to the lack of
sales from the closing of all store locations starting on March 20, 2020 through
a portion of the second quarter of fiscal 2020, and higher accounts payable
leverage. Accounts payable leverage was 148% and 90% as of July 31, 2021 and
August 1, 2020, respectively. The increase in accounts payable leverage from the
prior year was primarily driven by faster inventory turnover and longer payment
terms.

The increase in cash flow from operating activities for the six month period
ended July 31, 2021, compared to the six month period ended August 3, 2019 was
primarily driven by higher net earnings and higher accounts payable leverage.
Accounts payable leverage was 148% and 74% as of July 31, 2021 and August 3,
2019, respectively. The increase in accounts payable leverage as of July 31,
2021 compared to as of August 3, 2019 was primarily driven by faster inventory
turnover and longer 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
                                       22
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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 of
July 31, 2021, packaway inventory was 30% 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. As of August 1,
2020, packaway inventory was 25% of total inventory compared to 46% at the end
of fiscal 2019. As of August 3, 2019, packaway inventory was 43% of total
inventory compared to 46% at the end of fiscal 2018.

Investing Activities


Net cash used in investing activities was $254.4 million and $250.0 million for
the six month periods ended July 31, 2021 and August 1, 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 our Brookshire, 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 $650
million. Our planned capital expenditures are expected to be used for continued
construction of our Brookshire, 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 $415.6 million for the six month
period ended July 31, 2021. Net cash provided by financing activities was
$2.5 billion for the six month period ended August 1, 2020. The decrease in cash
provided by financing activities for the six month period ended July 31, 2021,
compared to the six month period ended August 1, 2020, was primarily due to the
completion of our fiscal 2020 public debt offerings, net of refinancing costs
and draw down on our $800 million revolving credit facility, and the resumption
of cash dividend payments in the first quarter of fiscal 2021 and share
repurchases in the second quarter of fiscal 2021.

Revolving credit facilities. Our $800 million unsecured revolving credit
facility expires in July 2024, and contains a $300 million sublimit for issuance
of standby letters of credit. The facility also contains an option allowing 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.

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


In May 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. In October 2020, we repaid in full the $800 million we
borrowed under the unsecured revolving credit facility. As of July 31, 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.

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

Senior notes. In April 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 due
April 2025, $400 million of 4.700% Senior Notes due April 2027, $400 million of
4.800% Senior Notes due April 2030, and $500 million of 5.450% Senior Notes due
April 2050.
                                       23
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In October 2020, we accepted for repurchase approximately $775 million in
aggregate principal amount of the senior notes issued in April 2020, pursuant to
cash tender offers as follows: $351 million of the 2050 Notes, $266 million of
the 2030 Notes, and $158 million of the 2027 Notes. 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.

In October 2020, we issued an aggregate of $1.0 billion in unsecured senior
notes in two tenors as follows: 0.875% Senior Notes due April 2026 (the "2026
Notes") with an aggregate principal amount of $500 million and 1.875% Senior
Notes due April 2031 (the "2031 Notes") with an aggregate principal amount of
$500 million. Cash proceeds, net of discounts and other issuance costs, were
approximately $987.2 million. Interest on the 2026 and 2031 Notes is payable
semi-annually beginning April 2021. 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 June 2020, we amended the covenants associated with the $65 million outstanding Series B unsecured senior notes. As of July 31, 2021, we were in compliance with these covenants.


Other financing activities. In May 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. In March 2019, our Board of Directors 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 had
suspended our stock repurchase program in March 2020, at which time we had
repurchased $1.407 billion under the prior two-year $2.55 billion stock
repurchase program.

We repurchased 1.4 million and 1.2 million shares of common stock for aggregate
purchase prices of approximately $175.8 million and $132.5 million during the
six month periods ended July 31, 2021 and August 1, 2020, respectively. We also
acquired 0.4 million and 0.3 million shares of treasury stock under our employee
stock equity compensation programs, for aggregate purchase prices of
approximately $49.0 million and $32.3 million during the six month periods ended
July 31, 2021 and August 1, 2020, respectively.

In August 2021, our Board of Directors declared a cash dividend of $0.285 per
common share, payable on September 30, 2021. In May 2021, our Board of Directors
declared a cash dividend of $0.285 per common share, payable on June 30, 2021.
On March 2, 2021, our Board of Directors declared a quarterly cash dividend of
$0.285 per common share, payable on March 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 in March 2020. In May 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, and November
2019, respectively.

For the six month periods ended July 31, 2021 and August 1, 2020, we paid cash dividends of $203.4 million and $101.4 million, respectively.


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.

                                       24
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Contractual Obligations and Off-Balance Sheet Arrangements


The table below presents our significant contractual obligations as of July 31,
2021:

                                           Less than                1 - 3                3 - 5              After 5
($000)                                      one year                years                years                years                Total¹

Recorded contractual obligations:

  Senior notes                      $      65,000          $         -          $ 1,450,000$ 1,024,991$  2,539,991

  Operating leases                        632,272            1,181,171              762,254              561,088             3,136,785
  New York buying office ground
lease2                                      5,939               14,178               14,178              936,893               971,188

Unrecorded contractual obligations:

  Real estate obligations3                  8,449               41,514               42,808              122,404               215,175
  Interest payment obligations             82,438              160,631              115,775              279,202               638,046
  Purchase obligations4                 5,508,699               13,528                  897                    -             5,523,124

Total contractual obligations $ 6,302,797$ 1,411,022

$ 2,385,912$ 2,924,578$ 13,024,309

1 We have a $73.1 million liability for unrecognized tax benefits that is included in Other long-term liabilities on our interim Condensed Consolidated Balance Sheet. This liability is excluded from the schedule above as the timing of payments cannot be reasonably estimated.

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 July 31, 2021.


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 of July 31, 2021, January 30, 2021, and
August 1, 2020, we had $3.3 million, $15.3 million, and $4.2 million,
respectively, in standby letters of credit outstanding and $56.7 million,
$56.1 million, and $56.7 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 $32.7 million, $16.3 million, and $10.7 million
in trade letters of credit outstanding at July 31, 2021, January 30, 2021, and
August 1, 2020, respectively.

Dividends. In August 2021, our Board of Directors declared a cash dividend of $0.285 per common share, payable on September 30, 2021.

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
in the 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
potential impacts from the COVID-19 pandemic increase the challenge of making
these estimates; actual results could differ materially from our estimates.
During the second 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 ended January 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.

                                       25
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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 the recurrence of significant business
disruptions arising from the COVID-19 pandemic.
•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 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.
•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 in U.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 in California 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.
                                       26

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