Good morning. Welcome to the Ross Stores Third Quarter 2009 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. At this time I would like to inform everyone that today's call is being recorded. (Operator Instructions) At this time I would like to turn the call over to Mr. Balmuth.

Good morning. Thank you for joining us today. Also on our call 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 Bobbi Chaville, Senior Director of Investor Relations. We will begin with a review of our third quarter performance followed by our outlook for the fourth quarter. 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 2008 Form 10-K and 2009 Form 10-Qs and 8-Ks on file with the SEC. We are very pleased with our outstanding third quarter results. Earnings per share for the 13 weeks ended October 31, 2009 rose 91% to $0.84 from $0.44 per share last year. This gain was on top of the 22% increase in the prior year. Net earnings for the third quarter increased 83% to a record $105.1 million. Third quarter sales grew 12% to $1.744 billion, with comparable store sales up a strong 8%. For the nine months ended October 31, 2009, earnings per share grew 52% to $2.39, up from $1.57 in the same period last year. Net earnings for the first nine months rose 44% to a record $299.9 million, up from $208.1 million last year. Sales for the first nine months…

Thank you, Michael. As Michael mentioned, third quarter operating margin improved by about 385 basis points due to a 340 basis points decline in cost of goods sold and a 45 basis points decrease in selling, general and administrative costs. The largest component of our better than expected improvement in gross margin with much higher merchandise margin, which grew about 145 basis points before the benefit from shrink and freight. Again, the key driver was faster inventory turn that resulted in much lower markdown. As we noted with our September sales release, we completed our annual fiscal inventory of stores during the third quarter which resulted in significantly lower than expected shortage. In the third quarter, we realized about a 100 basis points of margin benefits from shrink on top of a 35 basis point improvement in last year's third quarter. Compared to our year-to-date accrual, this lower shortage added about $0.11 in earnings per share to our third quarter 2009 results. We believe that attrition execution of our shortage control initiative was the key driver of this improvement. We also think that our results benefited from the large reductions we've realized in selling store inventory. As expected, freight costs in the quarter declined about 40 basis points due to a combination of lower oil prices and improved transportation rates compared to last year. With a robust 8% increase in same-store sales in the third quarter, we also had about 40 basis points of leverage on occupancy expenses. Finally, improved supply chain efficiencies are shifting some distribution costs from the third quarter into the fourth quarter of this year. This timing issue benefit in the third quarter by about 25 basis points is expected to reverse in the fourth quarter and be neutral on the year. Partially offsetting these favorable…

Thank you, John. We believe the main reason for our exceptional performance year-to-date has been our ability to execute our strategies with unwavering focus and discipline throughout all areas of the company. This has enabled us to capitalize on our favorable position as a value retailer in today’s challenging economic environment. By consistently stocking our stores with great bargains, operating our business on lower inventories to drive faster turns and lower markdowns and strictly controlling expenses throughout the business, we have been able to deliver outstanding sales and earnings results. We know that our ability to deliver the best value is possible on a wide array of bargains for the family in the home is and always will be the key to our success as a off-price retailer. To ensure that we have plenty of access to enough quality name brand products to grow profitably in the future, we are making further significant investments in our merchandized organization. Increasing the number of Ross and dd's merchants enables us to expand our market coverage in the vendor community, while enhancing relationships with a broad array of both existing and new manufacturers. We currently have hundreds of merchants sourcing products, everyday, from thousands of vendors. As previously mentioned another key driver of our much stronger results to-date in 2009, has been the significant gains in merchandized gross margins. This is due to our ability to buy great products while maintaining excellent control on our inventories in all areas of our business. Moving forward our objective is to buy even closer to need to churn our merchandize even faster to maximize the amount of fresh and exciting bargains in front of the customer. We believe we can achieve this through continued strict inventory management and the gradual benefits we expect to realize from…

(Operator Instructions) Your first question comes from the line of Jeff Klinefelter from Piper Jaffray.

Yes, thank you and congratulations on a great year-to-date everybody. My question is for Michael and John, both of you or how you want to split it up. Could you put a little bit more contacts to around the off-margins comments that you made. I think it’s important to appreciate how you not only sustain but expand those margins from the very high level of this year, may be something around comp trends activity or may be contrasting the business model today in terms of the efficiencies versus several years ago when you last had a prior peak op margins?

Sure, Jeff. Relative to the operating margin, clearly the strongest driver is then our ability to resist inventory levels, while still maintaining and excelling sales line. So, most of that operating margin year-to-date and also in the third quarter has been from that factor. We’ve also maintained strict eye on expenses throughout the model, so as Mike had mentioned, we feel very good about where we are. We believe those levels are sustainable going forward. We do believe there’s still a bit more than to take inventories down, which should drive further improvement in operating margin.

John, can you also just comment maybe most specifically on Q4 when you are looking for a pretty material comp improvement, obviously, year-over-year? Where is the conservativism within your guidance and where would the potential upside come from? Is it purely just going to be comp over your guidance or are you also being cautious about reserving promotional dollars at this point?

As it relates to the fourth quarter, the five to six comp we have not change that guidance, obviously that there’s a lot for it to go. If we were to do better on the top line, clearly, the bottom line will comp. We believe we’ll be appropriately conservatively positioned to go ahead for the season. As I mentioned in the prepared remarks, we are up again some headwinds that we haven’t had in other quarters. I mean that freight normalizes and our incentive plan will take away about 60-70 basis points on operating margin improvement and also we mentioned the shift in distribution center cost from the third quarter, which we believe is a positive as we are processing those unit's costs to needs. So the combination of those factors, are somewhat dampens our operating margin gains that we had in the past but we still believe that for the year we will deliver very, very meaningful earnings per share goal.

Your next question comes from the line of Jeff Black from Barclays.

Good morning guys. On the dd's, Michael could you remind us, just what’s the demographic target of that versus your core Ross in the areas you are moving into or plan to, on the rent costs are you seeing relief there? Finally on the profitability of dd’s versus the Ross, are you seeing four wall profits that would match your Ross? Or are you still saying there is 30 basis points difference in dd’s versus a Ross long-term? Thanks. Michael O’Sullivan: Okay, Jeff. This is Michael Sullivan. I’ll try and answer those questions. On the demographics, we’ve as we said in the past dd’s has a more ethnic and lower income customer and as you knows, as in the past couple of years, which kind of refines that target profile and sort of narrowed slightly. So it is still very much an ethnic end customer. The profitability of dd’s, on a four wall basis is comparable with Ross to answer your second piece of the question.

Then on the rents in some of these markets you are moving into, is the case now that you are seeing lower rents than we can or is that the reason you're building our faster?

The rent is a relatively small piece of why we are rolling it faster. The reason why we are rolling out faster is we are very excited about the concept overall in terms of the failed customers and sales and obviously rent, so either rolled in the possibility, but it’s a relative small driver of why we are rolling out more rapidly.

Your next question comes from the line of Laura Champine from Cowen and Company.

This is a follow-up on the SG&A comments and I've heard of your discussions of some of the puts and takes there in Q4, but have you given specific outlook for SG&A expense as percentage of revenues in Q4? Then as we look into 2010, what kind of a comp would you need to keep SG&A cost flat as a percentage of revenue?

We haven't given specific guidance of SG&A. What we said in the combination of all those factors should yield operating leverage improvement by about 40 to 80 basis points. Looking into 2010, SG&A leveraged about around a three times is where we are.

Your next question comes from the line of Marni Shapiro from The Retail Tracker

I was curious you have some great traffic in the stores. You're clearly getting your customers into the stores. I was wondering if you are able to even anecdotally discern, if she’s coming in for kids, for teens, for non-apparel or is it apparel and dresses are obviously doing well. Curious if you have any indications what this new customer is coming in for and is there a way to use that information to either get more new customers in the store or keep them coming back more frequently

Really, what we can tell of this customers coming in for bargain and looking for value and they provided, they see across the entire store, our business has being outside of a few exceptional businesses, the rest of the businesses has kind of moved pretty much along with it, so I think that’s about all we can tell.

Are you guys are capturing any data on the customers service emails and things like that, that you can talk to directly?

Yes, we have some email data basis that we use and actually we are looking at other things, other initiatives involving more social networking and more email marketing

Your next question comes from the line of Stacy Pak of SP Research Service.

Just on your comp guidance, would you comment, whether November is in line you’re your month to-date is in line with your guidance or you need a detail or an acceleration to achieve it. Then second of all, on ‘09 in your operating margin, do you believe on an annual basis, that the recession that we experienced or the excess inventory that occurred or the bankruptcies were added to your business, this year, I believed that they helped your operating margin and how are you thinking about your business differently given some new competitive entrance in California this year. Thanks.

On how we're doing in November, our policy is not to comment this month, so relative to whether the recession was helpful, bankruptcies, resell and going out of business, less retailers around is obviously a helpful thing to us and their bankruptcies didn't hurt. How do we think about competitors coming into any of our markets? We think if we do our job effectively, then we'll be fine. As they open their stores, do we feel a little bump and that eases very rapidly. Usually sometimes we do. Often, we feel a little bump, but it easies and things normalize in our stores very soon afterwards. So actually in some ways it makes us sharper retailer.

Can you quantify how much you think the bankruptcies or the excess inventory or the recession might have added to the business? Is there anything you're doing differently in the stores, let’s say in Southern California to come back that are you just operating as usual?

Stacy, it's very hard for us to quantify the impact of the various kinds because there's been so many. It’s very hard for us to pick out the impact, other than the very important point Michael made, which is, we're pretty sure, it's helping our business in long term, we're pretty sure that fewer competitors expect that. In terms of picking up those customers, we are fairly confident that we have new customers in our stores and some of them have come from those executive retailers. Especially we got to track those is just to put good assortments, good value in front of them and we still are doing that yesterday.

In Southern California, to your question, we are not doing anything differently. We are trying to operate the best that we can operate in those markets.

Your next question comes from the line of Paul Lejuez from Credit Suisse.

Just wondering if you can may be ballpark for us how much inventories could be down per foot or per store. Next year that you mentioned that you could still manage inventories lower and then also wondering about early results on CapEx for next year?

Next year inventories. We are still finalizing that. It will be down mid to high single probably.

CapEx, Paul, again we will come on January what the specific numbers are, but CapEx will be around a couple of hundred million or something like that, similar to levels to this year we gave out.

Versus this year?

Yes, with similar level, we started last year 193, we will finish here probably 165 just some hangover capital, it might push into the 2010, but we will finalize that. So it’s going to be in that ballpark around a couple of hundred million.

Your next question comes from the line of Kimberly Greenberger from Citigroup.

Michael, merchandise merchant improvement seems to be like you are improving inventory turnover and your ability to wait longer to commit for some of the purchases that you expect to making. Based on the amount of excess inventory that you all are seeing in the marketplace are still able to push up this buying decision a little bit later then you did last year, or are you starting to have to commit a bit earlier for some of that inventory.

Well for the most part it's still the same. Yes, there are a couple of pockets here and there but for the most part we are able to buy later and get it to the customer that’s closer I need.

Is that on a market dynamics and a combination combined with your ability to processing quicker through your distribution center or more one or the other?

Oh it’s a market dynamic coupled with the buying technique, coupled with added on to our ability to process later Kim.

Great, thanks and just one follow up for John. On the SG&A leverage point I think you said you need about a 3% comp to get some leverage, does that mean that at about a 2% comps you are pretty much neutral.

I would say that 3% are much neutral Kimberly. I would say that’s kind of breakeven point. So the 2% we might even deliver a tad and varies by quarter, but I think that’s just a general figure.

Your next question comes from the line of Michelle Clark from Morgan Stanley.

The first question is on ticket in traffic. Can you break our for us what that was specifically in the quarter, and then a follow up on the traffic, if you look at traffic on a two year basis did it did accelerate sequentially?

Michelle on the traffic and ticket, traffic transacting capital are at low double digit and ticket was down low-single which delivered the [8%] in the quarter and on traffic sequentially, yes that’s sequentially its up.

On a two-year basis it accelerates sequentially.

Yes.

Okay. Then just one follow-up question, if you could update us on micro-merchandizing initiatives. I know in the previous goal has been roll it out to the entire fleet by year end. Is that still the goal? What benefits have you seen in margins what can we expect in fiscal year '10. Thank you.

Michelle, this is Michael Sullivan. Actually we’re little bit ahead of that schedule. We’ve completed a roll out of micro-merchandizing around about August of this year and that means that all business in the chain are now being planned to trended using micro-merchandizing. We are quite happy with what we are seeing. It’s early days; I think we had always said that we though would be 2010 before we get to see full or meaningful financial benefit. With that said, I think given what we are seeing right now, we think it's probably helping; it's probably making contribution to the great results we've had. It's a little difficult, given the numbers of factors that have happened this year. The trade-down customer, the retailers going out of business, the assortments we have. It’s a little bit difficult to isolate the impact from micro-merchandising but I think we are seeing enough good things and we think it is helping.

Your next question comes from the line of Randall Konik from Jefferies.

First on the inventory I guess you said that you want to buy more closer to need, have you? Is there a new level of packaway you guys would be looking towards our goal for the future this year and then just give us, if you can ballpark the margin differential between the packaway and a non-packaway goods and then lastly I guess there is no specific guidance on SG&A dollars, but should be expect that to accelerate in terms of on dollar basis in fourth quarter versus the third quarter? Thanks. Michael O’Sullivan: Michael, I will take the packaway portion of this. Packaway, we really don’t have a set goal. Okay, we have a budget, but essentially that budget doesn’t filter around the quality of what we see, of packaway products. So that number, in the budget flexes based on the quality level of inventory as I said.

This is John, on the margin and the SG&A specifically, Randy. Trying to get at that, sequentially this is fairly the same, but obviously over the prior year, we have achieved better leverage. I have to remind that, we did make the comment relative to the incentive comp in the fourth quarter, which will be up and that expresses itself both in the margin, cost of goods sold line and also SG&A line.

Your next question comes from the line of Dana Telsey from the Telsey Advisory Group.

Good morning everyone. Can you talk a little bit as you look at the stores, before and analyze the profitability by reaching new regions, obviously, California? How are you thinking about regional profitability and what’s changed, especially given the systems initiatives and micro-merchandizing initiatives? Has any thing changed in terms of dd’s, in terms of, how you operationally structure that business? Thank you.

Dana, I will take the first part of that question on profitability. As always we have given the results we had, all region are doing very well. You can probably also infer from the fact that the Midatlantic and the Southeast have been performing so well. From the comp point of view, that’s also been driving net profitability differentially. So we are very happy with regional profitability. Can you repeat the second part of our question on dd's?

On dd's, what are you doing operationally different as you open new stores and what you've been doing in the past to enhance debt possibility?

We are going to take a little bit of step back. We've looked through the aspects of the dd's business last year and we did a lot of research, we've gone to the stores and the target customers for dd's. Based upon that, we narrowed the profile which clearly had an impact on our real estate strategy side of the dd's. We are much more focused now in terms of where we’re opening stores. I think that's probably the biggest single change we've made in terms of news store advent of dd's. We've made ongoing improvements to the assortments, which have helped restore dd's performance, but I think that applies to the comp stores rather than new stores. I would say the biggest single difference with the new stores has been the more targeted or to narrow our customer profile that we're now setting our targets on.

Your next question comes from the line of Adrianne Shapira from Goldman Sachs.

Just following up on the inventory topic, obviously you've done a tremendous job on improving turn. I'm just wondering, if you look on a two-year basis, the comps recently have seen some deceleration. I'm just wondering is inventory starting to be a constraint at all.

Don't believe so.

Okay and then again on a go-forward basis, no change in terms of inventory planning in the ability to drive sale?

No, we think we can turn faster and by virtue of how we buy it, we ever have a feeling which I don't believe will be for a while. Yes, we’ve cut too far, we buy very close in. We can correct that very quickly if we ever have that feeling. So, in general, we are very happy with our results for the year, a slight deceleration for a month or two. I don’t interpret it as an inventory from the list.

On the capital side of things, obviously throwing up a lot of cash and we’ve been active on the buyback, what about prioritization going forward especially now with plans to accelerate dd's, where does buyback rank going forward?

So, Adrianne, the buyback has always been a residual of the excess cash resale after we take care of investments in the business and on the store growth. That will be the philosophy going forward and it’s been our practice, first part of next year will come out with what we believe those plans will be going forward.

Your next question comes from the line of Kimberly Greenberger from Citigroup.

John, I just had a follow-up for you on the third quarter benefit shrink? In terms of just helping us think about how that works its way through your quarters in 2010? Would that mean that you will accrue 30 or 35 basis points lower shrink in Q1 and Q2, but you won’t necessarily have that big 100 basis point benefit again in Q3 of next year?

That’s about right. The number is going to be from 20 and 30 basis points in Q1-Q2 and we’ll obviously take it from where we were last year, but still want to kind of get to where we think we are adequately covered, but I agree with your logic, Kimberly. It’s probably more like 20 basis points to 30 basis points

(Operator Instructions). Your next question comes from the line Patrick McKeever from MKM Partners.

You had an 8% increase in same store sales in California which was right in line with the corporate average. Wondering if you saw, any impact from all of the closed stores that opened in late September and those former locations?

Yes, because we still got to look at that and we didn’t gain any real impact.

So, no material impact at stores, but how many stores do you have that are close to those 30 or so cold stores, I mean, really closed?

I am not sure I have the number off the top of my head, but you can assume given at California that we have a few dozen.

.:

Thank you all for attending, have a very good day.

This concludes today’s conference call. You may now disconnect.