Good morning. Welcome to the Ross Stores’ First Quarter 2006 Earnings Release Conference Call. The call will begin with prepared comments by Michael Balmuth, Vice Chairman, President, and Chief Executive Officer, followed by a question and answer session. After the speaker’s remarks there will be a question and answer period. If you would like to ask a question during this time, please press “*” then the number “1” on your telephone keypad. If you would like to withdraw your question, please press the “#” key. At this time, I would like to turn the call over to Michael Balmuth, Vice Chairman, President, and Chief Executive Officer.

Good morning. Joining me on our call today are Norman Ferber, Chairman of the Board; Gary Cribb, Executive Vice President and Chief Operations Officer; Michael O’Sullivan, Executive Vice President and Chief Administrative Officer; John Call, Senior Vice President and Chief Financial Officer; and Katie Loughnot, Vice President of Investor Relations. We’ll begin our call today with a brief review of our first quarter performance followed by our outlook and guidance for second quarter of 2006. We will also discuss our longer range plans and objectives. Afterwards, we’ll be happy to respond to any questions you may have. Before we begin, I want to note that our comments on this call will contain forward-looking statements regarding expectations about future growth and financial results and other matters that are based on management’s current forecast of aspects of the company’s future business. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from historical results or current expectations. These risk factors are detailed in today’s press release and our fiscal 2005 Form 10-K on file with the SEC. Today, we reported 2006 first quarter earnings per share of $0.41, up 21% over $0.34 earned in the first quarter of 2005. Net earnings for the first Quarter of 2006 were $59.2 million compared to $50.1 million in the prior year. Our first quarter 2006 results are after $3.5 million or an equivalent of about $1.5 per share in stock option related expenses in connection with the adoption of FAS 123R share-based payments. Sales for the first quarter increased 15% to $1.292 billion with comparable store sales up 6% over the prior year. Strength across many geographic markets and merchandise categories drove out healthy sales gain during the first quarter. The strongest regions are during the period…

Thank you. At this time, I would like to remind everyone, if you would like to ask a question please press “*” then the number “1” on your telephone keypad. We’ll pause for just a moment to compile the Q&A roster. Our first question is coming from Brian Tunick of JP Morgan.

Hi, thanks. Michael, a few question for you. First one, since the comp store sales trends have been pretty strong, we are wondering how the new store productivity differs versus mature stores, how much of the de-leveraging of occupancy are we seeing? Where are the new stores preferred versus the mature stores? And the second question is does your second half guidance already assume the higher shrink reserves? Thanks very much.

So, Brian, the first question was new stores and productivity versus comp?

Yeah, just trying to understand, since your same-store sales had been strong, but you have occupancy de-leveraging, we’re assuming it’s the new store productivity that has been dragging it down. Can you just talk about some of the gaps between maybe the new stores?

So, relative to occupancy there are a couple of things going on. First is that the average store volumes aren’t keeping pace with the comps due to the newer stores and newer regions coming in over the last couple of years.

How significant is that gap?

We’ve said before that those new stores are kind of 70’ish and in that range, that’s what we reported before and that’s pretty consistent. But we also had a change in accounting that put some pressure on occupancy. While we now expand the pre-opening lease top based on new accounting guidance. We also this year are coming up against some lease renewals for some of the older stores that are putting some pressure on occupancy.

Okay. And the second question, does the second half guidance you’re issuing include the higher shrink reserves?

Yes it does.

Okay, thanks very much.

Thank you. Our next question is coming from Ken Guyer of Piper Jaffray.

Hi, just a couple of questions for you. First of all, I believe last year in the second quarter Florida was a very strong region in terms of sales. I was wondering how this region will be impacted this year given the profitability issues you’ve previously addressed in those newer markets? And then regarding those issues, is it primarily a mix issue related to the region?

Actually, as you talk about the Southeast, Florida is not included in that. Florida historically has done very well and we believe it will continue to do well. So, it’s not improving the Southeast markets that we talked about.

And relative to question regarding mix, we believe it’s an assortment issue that has many components to it and mix is certainly part of it.

Okay. Then also, with recent consolidation at Federated-May, have you been impacted at all by the clearance activity related to the store closures, and then do you expect going forward there will be any increased availability of product for you?

It’s hard to imagine that. We know exactly where the stores were that went out of business obviously, but we had a reasonable comp performance with the quarter. So, we think we were impacted in the first part of the sales, and it became less and less as they went on. Your second part of the question was?

Just going forward, do you expect, is there is going to be anymore availability of product due to these closures?

It’s hard to say but product availability has been pretty good and the dynamics in the industry are changing based on the consolidation. I do think the consolidation ultimately is a plus for off price for availability.

All right. And then lastly, if you could give us any update on the initiatives you’ve used to correct the shrink issue.

Sure, there are number of in-store initiatives that we focused on. We focused on increased electronic surveillance. We’re tagging more than we’ve historically tagged in the past, and our worst stores were utilizing express security personnel in those stores to address both internal and external theft, and we’re hopeful that we’re going to see much improved results when we take our physical inventory in September.

Great, thank you.

Thank you. Our next question is coming from Jeff Black of Lehman Brothers.

Hi, thanks and good morning. I have a couple of questions. First, can we get some color on how much of weight on the gross margins in the first quarter. And as we move into the second quarter, we were trying to determine why there would not be a little more upside in the gross margin; I mean we gave up a 130 basis points on the markdown side last year, how much of that do you think we get back? And if the answer is that you took some extra markdown in the back half of the quarter in the first quarter, we’re just trying to get a sense of comps accelerated over the quarter. It looks like inventories were taken down pretty far and that you managed inventory well. So, I just want to get a sense why there wouldn’t be a little more upside in the gross margins? Thanks.

Jeff, on trade for the first quarter, it was about 20 basis points, and we don’t see that trend changing throughout the year with the gas prices. The second quarter was regarding inventory levels at the end of first quarter?

Yeah, regarding inventory levels and why we wouldn’t see…you know you gave up a 130 basis points on the markdown side in the second quarter last year, how much of that do you think you really get back given that inventory levels are in a lot better shape as we see it heading into the second quarter this year?

So let me turn around a bit. We ended the first quarter, although they appeared low at down 8, we were actually against up 9 last year relative to our data center move. We actually believe our inventory levels at the end of the quarter were a little higher than where we would like them to be, which is going to put some pressure on markdown in the second quarter. So, with somewhat higher inventory levels, as we go forward, we’re going to take those at around 4% to 6%, you should be seeing that, which will allow us to look at trying to pressure merchandising the stores, which will go out to take the business. So, although inventories may appear lower, our view is that they are still a little bit too high.

Could give us any color on what categories or where we’ve seen these imbalances and why you’re getting them? I mean, you made some comments in the April sales release about the economy being or consumer…

Our inventory levels were higher than we wanted in the first quarter. Essentially, we made errors in planning our inventory. It was too high and as we went back and looked at this, we really planned our business up against two years of distorted inventories because of the implementation of core merchandising where we had to upload our inventory at a portion of the first quarter in 2004 and our data center move in our 2005 we had to upload inventories yet again. So, we’re really in many ways planning inventories versus 2003, which is not a good thing for a retailer to be doing in 2006. So, we think that also contributed to what we would say our inventory planning mistake. But, we do believe we’ve now go it under control for the rest of the year and with our DC efficiencies, we think the fact that we can run lower inventories is a very good thing for an off-site company to be doing, and we’re very pleased that we are building efficiencies that puts us in a position to do that.

Okay fair enough, thanks a lot.

Thank you. Our next question is coming from Kimberly Greenberger of Citigroup.

Thank you, good morning. I’m wondering if you could talk about the 195 basis points that we lost last year in the third quarter on shrinkage and the accounts table adjustments, and approximately what percentage of that cost are you assuming you get back in the third quarter based on your guidance, and does you guidance assume a favorable shrink result? And then secondarily, if you could just give us a bit more clarity on the different components and how much they were moving in basis points in the gross margins in line of the SG&A, that would be helpful. Thanks.

For your first part of your question, Kimberly, so the third quarter does not assume any improvement in shrink. The guidance assumes the same accrual rates that we’re using in the first half. Having said that, in the third quarter, we do get the bigger piece of that back. I think it’s important to remember also that last year…and without the inventory accounts table issues earnings would have been up 33% against a pretty tough quarter from that perspective. And the second part of your question?

The second part was just if you could give us some granularity on the basis point movement of DC cost in terms of computation, just some additional detail on the gross margin in the SG&A line within the first quarter.

So, DC costs were actually favorable up by about 100 basis points offset by shrink and freight; shrink was about 40 and freight was about 20. So, pretty good DC performance, and again, we have headwind on shrink and freight. In terms of G&A option expense, it was about 15 basis points and incentive plans accruing to about 15 basis points as well.

And the occupancy piece within the gross margin line?

So, the occupancy piece, because of the 6% cost we broke even, where in other costs we’re planning lower comp and we’re now trying to get that leveraged. If we do better in sales, obviously we will.

And lastly on the 6% comp increase in the quarter, if you could just tell us how that breaks down from an average seller’s sale versus the number of transactions? That would be great, thanks.

Sure. So the 6% comp is driven half by number of the transactions and the other half by the size of the basket. Actually, the average resale is about flat and we are getting slightly more units in the basket than last year.

Thank you.

Thank you. Our next question is coming from Paul Lejuez of Credit Suisse.

Hey guys, Paul Lejuez. Just last month you made a couple of cautionary comments, I’m just wondering what is it that you’re seeing perhaps out in the field, what are your buyers telling you that makes you a bit more cautious. Gasoline, is that weighing on any particular region of the country? I’m just trying to dig in a little bit more on those cautionary comments.

These cautionary comments were really not based on anything our buyers were seeing. Buyers would usually tend to be optimistic, so it has nothing to do with the merchandise that’s available, which is very plentiful. It has to do with that in prior years when there have been gas hikes of a significant nature, we’ve seen a slow down of consumer spending, and that was simply really what our caution was, and still is.

Any particular regions that you’re already seeing that, because it didn’t seem that you really ran into that last year when gas was hiked?

Yeah, when we looked at it we’ve looked it over longer horizons and one period. And it’s hard to tell even last year if we might have been impacted, we might have done even better. But in other the years we’ve certainly had definitive correlations. Right now, we don’t see it in a particular region, but as you move into the year and get into the winter months, it becomes harder and harder.

Okay, thanks, good luck.

Thank you. Our next question is coming from Dana Telsey of TAC.

Hi good morning everyone. Can you talk a little bit about some of those go-forward systems initiatives that you had in terms of more micro-merchandising and some of the next evolutions? When do you think some of this starts to get hold, what’s the cost and what do you see the benefit being? Thank you. Michael B. O’Sullivan, Executive Vice President, CAO: This is Michael O’Sullivan, I’ll answer that. Right now, we’re looking at a number of different things that we can do in terms of process changes and systems enhancements. We’re still pretty much at the evaluation stage. There are a number of different things that we could do. We’re trying to figure out which would be the most effective for the business, and frankly we haven’t yet made that determination. In terms of timeframe, I would guess that it will be 2008 before we see any meaningful impact from any of the changes we’re going to make.

And will that help your new store productivity in some of those other regions? Michael B. O’Sullivan, Executive Vice President, CAO: Yes, that’s one of the primary goals, is to improve our assortment in new markets and…

And John, how much will that cost and how much is in CapEx this year and next year?

For the CapEx, again we’re still in the form of state of trying to plan exactly what the system requirements will be and exactly what we’re going to do, so we haven’t actually put a bow around on what the costs will be at this point.

Thank you.

Thank you. Our next question is coming from Margaret Mager of Goldman Sachs. Margaret Mager, Goldman Sachs & Co.: Hi. You know, one of the things just observing your company over the past couple of years is that there’s just been a very long series of ongoing disappointments, and I’m sure that you’re disappointed too that things are just not coming together the way the market would hope or investors would hope. When do you think all the noise is behind you and you can really say that you’re on the right footing and heading in a very firm direction forward? Is this the second half of 2006, is it 2007 timeframe, when does all the noise stop in the Ross story?

This is Michael Balmuth. We’re actually pleased with how we’re doing. We have said this is going to be a transition. We have said that we are going to make progress on certain issues and we’ve been marching along, making progress in topline. We’re now making progress in distribution. We’re seeing progress in our new markets. This is not a big bang from where we were to an instant success. We see that we are moving in the right direction and that’s what we’ve been articulating that we were going to do, and we are very pleased with where we sit. Given where our performance has been, the fact that this year we’re going to show a 16% to 22% EPS growth and one of key initiatives we are making progress on each and every one of them, we are actually feeling fairly good about the direction the Company is going in at this time. Margaret Mager, Goldman Sachs & Co.: Okay, I thought I heard you say that you were working your inventory decisions based on 2003 data and this wasn’t a great thing for a retailer to be doing. So, I can’t imagine that you would consider that and not a disappointment or a frustration. Now, that’s the essence of the question, when will you really get to a place where you’re kind in the clear as far as decision making with appropriate historical numbers that you can feel really good that you’re making the right decisions.

We are that spot now and also we’re not the first in retail to have a slight inventory problem in the quarter. It’s like any kind of systems issue. We just basically gave it to you the way we saw it. Margaret Mager, Goldman Sachs & Co.: Okay. It’s been kind of a series of challenges managing the inventory as far as I can see. With regard to your comments again on the macroenvironment, how do you reconcile that with the fact that you’re running above plan in May. Is your caution regarding the consumer and gas prices just something to be aware of or is it really something that’s happening right now.

Well, we’re not economists. We do have historical records that show it does impact retial performance. It has impacted our performance in the past. We are doing better than we’ve expected. We’re happy about that. We attribute that to probably better execution, a good availability of products in the markets. But there is something looming out over us and all resellers, and we’re just calling it out as a caution. Margaret Mager, Goldman Sachs & Co.: Okay, thank you.

Thank you. Once again the floor is open for questions. If you wold like to ask a question, please press “*” and then the number “1” on your telephone keypad. Our next question is coming from Patrick McKeever of Avondale Partners.

Thanks. I have a question on the efficiencies of the distribution side. I was just wondering if you could share a little bit on that one and talk about where the efficiencies are coming; is it primarily in labor, is it pretty evenly spread across your distribution centers, and can you see more improvement there over the next several quarters?

This is Gary, Patrick. I think as most people are aware, we finished our implantation of the standards in engineering project in the first quarter of this year. And as we anticipated and as we planned, we have seen and we’ll continue to see gradual improvement in productivity. To answer the question about where we’re seeing it, we are seeing it across our network and it’s in line, actually slightly exceeding expectations based on our plan, and we believe that we’ll continue to see similar improvements as we move forward.

I’ll also add that the first quarter number, the number I gave of 100 basis points was up against a softer number than last year. As we head through the back half of the year, we expect to see gradual improvements but not to the extent we did in the first quarter. We’ve also bringing on balance sheet and beginning to appreciate our Southeast DC which will also somewhat benefit; as Gary said, gradual improvement is what we expect.

So, now it’s reached the implementation phase and all of the engineered standards project itself was wrapped in the first quarter and now it’s just a matter of implementing all the standards?

Yes, that’s correct. So, the standards are implemented now ands it’s really a matter of them continuing to gain traction and as people perform and executive consistently, they improve with time, and we’ll see over time gradual improvements accordingly.

And you mentioned that the deliveries were making their way to the store more quickly than you had anticipated; maybe you share a little color on that one?

I think one of the added benefits of getting better is we get the goods through our DCs quicker and in turn get them into the stores in a faster period of time. I think that if anything we’re watching that, we’re anticipating that we are going to get that quicker and we exceeded our expectations slightly. Relative to quantifying that amount, I’ll give that to John.

Part of the issue, and in the first quarter we were just quicker to the store, which if you piece out that piece from where the products came from the DCs to the store quicker, meaning goods in the stores, gives us the opportunity to get inventories down the back half of the year.

All right, thank you very much.

Thank you. Our next question is coming from Kim Dao of Pioneer Investments.

Good morning. First of all thank you for releasing your press release a little earlier this morning. I think that helped out some of us a bit. I might have missed it earlier in the call, I’m just wondering if you could clarify again when you expect to get the inventories kind of to your targeted level?

We think we’re in reasonable position now and it will be gradually moving down through the next quarter. So I’d say in another 30 days we’ll be back at where we want and we should be able to maintain that through the remainder of the year.

Okay, great, that really shouldn’t be an issue going forward at all. Your sales are great for the quarter, I’m just wondering if you could comment a little bit on the impact of weather on the west coast, because presumably that actually had a negative impact.

Well we say it was a negative. California certainly trailed the company. It was cold and wet and it is certainly not a positive to our key market.

Okay, great, thank you very much.

Thank you. We have a followup question coming from Kimberly Greenberger of Citigroup.

Thanks. This question is for Michael O’Sullivan. What functionality have you started utilizing in your new system and what functionality you think you’ll have an opportunity to utilize in the future? Michael B. O’Sullivan, Executive Vice President, CAO: The functionality we have in our system right now is basically providing all the information that different parts of the business need, actually providing that in quite a flexible form, and what I mean by that is being able to slice and dice the data in numerous different ways. So, it’s that kind of what we found. In terms of where we’d like to go, the platform that we have, the systems platform actually captures a lot more information than our older systems used to. So we have the potential to do a lot more, to take that information and use it to generate more sophisticated plans or more sophisticated forecasts. We’re looking at how we can utilize that, what process changes will be required, what systems enhancements might be required, that kind of the direction that we’re heading.

Are you using it to look at markdown optimization or brand size, color or level of equipment spending? Michael B. O’Sullivan, Executive Vice President, CAO: Both of those areas I think that we’re looking at in terms of potential for the future, so that’s part of the sort of consideration set of things that we would look at.

Yeah, we have not turned those on yet.

Okay, great, thanks.

Thank you. Our next question is coming from David Mann of Johnson Rice. David Mann, Johnson Rice & Company: Yes, thank you. I just want to clarify a couple of things. On the shrink issue, I think you said you’re hopeful and expect to yield much better results after September. Have you taken any cycle counts thus far to support that?

This Gary, David. We have recently, literally recently, just completed some individual…really those inventories were designed to ensure that the initiatives that we had in place are appropriate and are having the desired impact and from a results perspective, it’s really too early to tell. As far as the impact on the total company, it would be inconsequential to the total company. We’re really using them just to ensure we’re doing to the right things. We’ll know the results for sure when we complete our full physical in September. David Mann, Johnson Rice & Company: And then, John, on an earlier question about in-store productivity, I think you talked about 70% of I guess an average store volume. Can you reconcile with the time you made on the last call about the Southeastern stores being at 75% to 80%, are you talking about the same things?

That comment was related to new stores and new markets, and I didn’t say 70. I said in the 70. David Mann, Johnson Rice & Company: Okay. So, it’s not a change in the performance?

No. David Mann, Johnson Rice & Company: And then one last question on the gas price caution issue that you have out there that you have some concern about, is that an issue that is somewhat applicable for all markets equally or do you think that you have seen it historically more impacting California?

It’s probably a hard thing for me to say market by market. Our model is resilient in the sense that a certain amount of customers trade down when these things happen, but sometimes there’s a bump in the road and we don’t know exactly where that bump is, will we get resistance when we hit the bump. We’re able to re-price our product by buying opportunistically so we can get ourselves in line to what the customer is expecting reactive to other retailers who are promoting. Probably you have to say the market tends to rely more on driving, or in the winter months our colder markets would be hit harder. David Mann, Johnson Rice & Company: Okay, but not necessarily an obvious bigger material bump in California?

No. David Mann, Johnson Rice & Company: Okay, great, thank you.

Thank you. Our next question is coming from Mike Whitfield of Hahn Capital.

Thanks good morning. I wanted to ask about the gross margins and you’ve mentioned some of the items that you’ve been working on, and if we were to get through a number of these items shrink, getting the merchandised systems up and running where we want them, can the gross margins approach what it did earlier this decade, 2002-2003 fiscal years?

Relative to the issues that we had, there are a couple of things going on in gross margins, not in merchandised margin. I think from a merchandised margin perspective, obviously sales and accelerating the sales, help to mark an outline and that’s one aspect of the margin. The other part in the embedded margin of the DC comp, which you’re talking about, we anticipate gradual improvement. And the shrink issue is what we’re working on. So, to your question, can we get back to historical levels in operating margins, we think over a period of time and we don’t put a timeframe around that, we’re making gradual improvement. As Michael said, we’re very pleased with where we are. We’re hitting the initiatives we need to hit, we’re seeing incremental improvement in operating margins, based on the earnings guidance that we have out there, indicate improvement in operating margins, so we’re please with where we are.

Could you repeat what you said earlier about the impact of last year’s accruals for shrink and what was the impact there?

The impact in the third quarter was a catch up when we actually took our physicals. It was 195 basis points to that quarter. From that point in time, we had been at 35 to 40 basis points, more in shrink. As we get to the third quarter, we’ll look to see how much traction the initiatives got and what our shrink will be, and at that point in time we’ll put to report what that performance has been. As Gary indicated, we’re making progress in shrink and initiatives look like they’re taking both from execution sales point. We’ll know when we take fiscal.

Thank you.

Thank you. As a final reminder, if you do have a question, please press “*” followed by “1” on your telephone keypad at this time. There appear to be no questions at this time.

Okay, thank you all and have a very good day.

Thank you. This does conclude today’s Ross Stores Conference Call. You may disconnect you lines at this time and have a wonderful day.