Ross Stores, Inc. (ROST) Q1 2014 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Ross Stores First Quarter 2014 Earnings Release Conference Call. [Operator Instructions] Before we get started, on behalf of Ross Stores, I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts and other matters that are based on the company's current forecast of aspects of its future business. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today's press release and the company's fiscal 2013 Form 10-K and fiscal 2014 Form 8-Ks on file with the SEC. Now I'd like to turn the call over to Michael Balmuth, Vice Chairman and Chief Executive Officer.

Good afternoon. Joining me on our call today are Norman Ferber, Chairman of Board; Michael O'Sullivan, President and Chief Operating Officer; Gary Cribb, Executive Vice President, Stores and Loss Prevention; John Call, Executive Vice President, Finance and Legal; Michael Hartshorn, Senior Vice President and Chief Financial Officer and Connie Wong, Director, Investor Relations. Also joining us today is Barbara Rentler, President and Chief Merchandising Officer of Ross Dress for Less. As announced earlier this month, Barbara will become our new Chief Executive Officer and a member of the Board of Directors effective June 1. She will continue to work closely with Michael O'Sullivan, who will continue as President and Chief Operating Officer, and also join the Board of Directors. Barbara and Michael are talented executives with complementary skills and each has made extraordinary contributions to our company over the course of their long careers here. The board and I are confident their successful partnership will enhance our prospects for continued increases in profitability and stockholder returns in the years to come. As previously announced, I will become Executive Chairman on June 1. In my new role, I plan to stay very involved and continue to work closely with the entire senior management team. Now let's turn to today's financial results. We'll begin with a brief review of our first quarter performance followed by our outlook for the second quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have. Earnings per share for the 13 weeks ended May 3, 2014 were $1.15, up from $1.07 in the prior year. These results represent 7% growth on top of 15% and 26% gains in the first quarters of 2013 and 2012, respectively. Net earnings for the 2014 first quarter grew to $243.9 million, up from $234.6 million in the prior year period. First quarter sales rose 6% to $2,681,000,000. Comparable store sales grew 1% on top of 3% and 9% increases in the first quarters of 2013 and 2012, respectively. First quarter earnings per share performed at the high end of our guidance as strict inventory and expense controls offset the impact from unfavorable weather and a more challenging retail environment. Sales trends improved in April with more seasonal spring weather that coincided with the late Easter shopping period. Merchandise and geographic trends were relatively broad-based during the quarter, with the Midwest, the top-performing region. Operating margin for the quarter was better than forecasted, declining 25 basis points to 14.6% of sales. A 35-basis-point increase in cost of goods sold was partially offset by a 10-basis-point improvement in selling, general and administrative costs. As we ended the first quarter, total consolidated inventories increased about 2% compared to the prior year, with average in-store inventories down about 4%. Packaways as a percentage of total inventories was 45%, even with last year. Comparable store sales at dd's DISCOUNTS increased in the first quarter, driving solid gains and profits. These results reflect that customers continue to respond favorably to dd's merchandise assortments. Our overall expansion program remains on track with 26 net new Ross and 7 dd's DISCOUNTS opening in the first quarter. We expect to add a total of 95 new locations in 2014 comprised of approximately 75 Ross and 20 dd's DISCOUNTS. As usual, these opening numbers are before the planned closure or relocation of about 10 existing stores. Michael Hartshorn will now provide further color on our first quarter results and details on our second quarter guidance.

Thank you, Michael. Our 1% comparable store sales gain in the first quarter was mainly driven by a low single-digit percentage increase in the size of the average basket, with the number of transactions down slightly to last year. Operating margin for the quarter declined by about 25 basis points to 14.6%, which was at the high-end of our guidance. The 35 basis point increase in cost of goods sold was mainly driven by deleveraging on occupancy and buying costs, which increased 20 and 10 basis points, respectively. Merchandise gross margin declined 10 basis points versus last year, while distribution costs improved by 5 basis points. Selling, general and administrative expenses improved by 10 basis points mainly due to strong cost controls. During the period, we repurchased 2 million shares for a total purchase price of $139 million. We expect to buy back a total of $550 million in stock for the year, which will complete the 2-year, $1.1 billion program authorized by our Board in early 2013. Let's turn now to our second quarter guidance. For the 13 weeks ending August 2, 2014, we are targeting same-store sales to increase 1% to 2% on top of 4% and 7% growth in the second quarters of 2013 and 2012, respectively. Earnings per share for the second quarter of 2014 are projected to be in the range of $1.05 to $1.09, up from $0.98 last year. Our EPS target for this year's second quarter are based on the following assumptions. Total sales are expected to grow 5% to 6%, driven by a combination of new store growth and, as previously mentioned, same-store sales that are forecasted to be up 1% to 2%. We plan to open 29 net new stores during the period, including 22 Ross Dress for Less and 7 dd's DISCOUNTS. We are targeting operating margin to be flat to up 20 basis points on top of a strong 80 basis point increase in the prior year for a projected range of 13.6% to 13.8%. We are planning net interest expense to be negligible and our tax rate is expected to be about 39%. We also estimated weighted average diluted shares outstanding of about 210 million. Moving to our outlook for the year. As noted in today's press release and based on our first quarter results and second quarter guidance, we now project earnings per share for the 52 weeks ending January 31, 2015 to be in the range of $4.09 to $4.21 compared to earnings per share of $3.88 in fiscal 2013. Now I'll turn the call back to Michael Balmuth for closing comments.

Thank you, Michael. As mentioned earlier, we were able to maximize earnings during the first quarter despite a modest 1% increase in same-store sales, which were impacted by unfavorable weather and a more challenging retail environment. Looking ahead, we remain confident in the resilience of our off-price business model and our ability over time to successfully execute the proven strategies that have enabled us to deliver solid financial results in both favorable and more difficult climates. By far, our most important priority is our unwavering focus on offering customers the best bargains possible. Consistently delivering on this mission will always be the key to optimizing our opportunities for future sales and earnings growth. At this point, we'd like to open up the call and respond to any questions you might have.

[Operator Instructions] Your first question is from Brian Tunick with JPMorgan.

Michael, best of luck as well to you. I guess, are -- 2 questions. Number one, you called out the Midwest as your best performing region. So I know the weather had been an impact the last couple of quarters. Can you just maybe talk about what changed there? Are you happier now with how your new stores are performing? And anything else you could add about the micro merchandising that might be applying? And then the second question, just sort of on this potentially new trend of the business, this more low-single-digit comp run rate. Can you maybe talk about what kind of either marketing initiatives or things are going to be doing from a category perspective that could potentially reaccelerate the business back to a more mid-single-digit comp trend, or do you think we've seen, maybe the easy market share gains behind us?

Okay, Brian. This is Michael O'Sullivan. I'll take the first part of your question about Midwest. Yes, we were pleased with how the Midwest performed in the first quarter. As Michael said in his remarks, it had the highest comp performance of our regions, which is great, especially given the weather. But -- and we made some assortment changes to the Midwest, which I would say we're pleased about. But I caution you, it's really just a single quarter and we still think we have plenty of opportunity left to improve that region. Let me take a step back though. When we entered the Midwest 2 years ago, we said we expected to build a very successful business there, but it would take time. So we're certainly very pleased with the progress we've made so far, but I would say the recent performance just reinforces our confidence in the longer term.

On the second part of the question, in terms of changes to our marketing program, there'll be no radical changes, okay? We have a marketing program we've been running with for a long time. We think it's effective. We're experimenting with a little more social marketing, but that's the extent of it. Relative to a new run rate, I think -- first of all, I think we've adjusted well. We adjusted well in the quarter to the business trends. We're able to preserve our margins and run our business quite effectively at this level. When our business gets tougher than we'd like it to be, we use this as a very good time for really tearing apart all our businesses, whether they're performing at a reasonable level, but especially the ones that are underperforming. So if we do our work carefully during this timeframe, when the customer is ready to shop, we'll be in a better position than we are today.

Your next question is from Mike Baker with Deutsche Bank.

I wonder if in general you just -- throughout the country, you could quantify for us a very good sense as to how much you think weather impacted, and maybe one way you can do that is just talk about the trends. You say April was better, but any color on what February or March or even into early May, may have looked like as the weather's gotten better?

Sure. So like other retailers, the unfavorable weather impacted our business early in the quarter. As we mentioned in our release, sales improved in April as the weather improved and also with the Easter shift. It's difficult to quantify the precise impact of weather, but we're not immune to it based on our regional breakouts. Regionally, the Midwest and Florida were the strongest markets while the Mid-Atlantic and Pacific Northwest trailed the chain. California, last week, was in line with the chain.

Okay. And if I could follow up with one more. What are you seeing out of some of the department stores. In particular, I guess, I'll just simply ask about J.C. Penney, they've gone from comping down 30% to comping up -- now comping up 6%. It's got to have some impact in your business. How do you think about that? Is there any way to quantify or measure that?

Look, it's certainly not a plus, it's not -- we try to quantify it when they weren't doing as well and we had difficulty quantifying it, but we knew it was helping. So really, the answer to your question is, we really don't have a precise answer.

Okay. But probably to the previous question, maybe makes it hard to pick up market share, is that fair to say?

It's hard to tell until we get to a more stable weather quarter, okay? It was such a radically unusual weather quarter, I would rather answer at on our next call.

The next question is from David Mann with Johnson Rice.

Let me add my congratulations to Michael and well-deserved promotions to Barbara and Michael, as well. A question about gross margin. Can you talk about the components of gross margin? How we should think about them going forward, especially given that you -- it looks like your inventory to sales ratio is the best it's been in, like, 5 quarters.

Sure, David. So as we got into this quarter, we ended last quarter, remember, January was the slowest month of that quarter, so we underperformed a bit it. We are carrying a bit more clearance into this quarter so we took a few more markdowns to clear that inventory this quarter. Having said that, in the first quarter, April was our strongest month so we're in a different position going into the second quarter. I would comment that with inventories down, we should be able to pick up a slight amount in markdown lines similar to what we've done with the past several years.

And specifically, any comments you'd give us about the direction of March margin over the course of the year and the other components of gross margin?

Yes. I said for the year, I think the guidance was slightly up from a merchandise standpoint given the 1% to 2% comp guidance, we'd expect a little bit of deleverage on the expense line. Having said that, during the first quarter, we're able to manage expenses pretty aggressively and we'll look to do the same throughout the back half of the year in the second quarter as well.

And on that issue, the 1% comp growth. You were able to do that on 1% comp, you haven't really been able to do that in the past. Should that -- is that sort of a guide now going forward, that you might be able to delever or to lever on a 1% type of comp?

No. On the expense side, David, long term, we think that number is still around 3%. So although we were aggressive during the quarter and as we look out, at least in the near term, we're optimistic about where expenses will be. But I think for your long-term modeling, I think it's just better to use a 3% leverage point.

Your next question is from Daniel Hofkin with William Blair.

So if I could just kind of following up on an earlier question, specifically about J.C. Penney, maybe just more broadly. Can you talk about -- I know, going into the quarter, you were talking about seeing higher promotional levels, broadly, than the same time last year. How did things play out compared to what you thought? And what are you seeing kind of going into this part of the year? That's my first question.

Well, Penney's promoted through the entire quarter and, obviously, a very [ph] increased promotional activities for us. Not a positive for us from a competitive point of view.

I would just add also, when Penney's is taking this kind of action on their promotional positioning, okay, it's affecting other moderate retailers who are also becoming more aggressive. So that's really the domino that we look at within what off-price space is. And so, for us to get a handle on how people will be promoting in the future, we're usually pretty good at that. And then we'll be able to adjust our prices into its own that keeps the value differential between the 2, between mainstream and us. So I think Penney's is really more rattling other mainstream retailers and then we'll figure it out.

The other point to make on that, Daniel, is we've lived through promotional and competitive areas before. We have -- we feel very confident, we have a value model and we have an expense structure that allows us to succeed in those environments and, frankly, to compete fairly sustainably. When other moderate retailers promote, it's not necessarily sustainable but for them to keep doing that.

And if that's the main factor kind of affecting the near-term merch margin for you, kind of the pricing umbrella.

Well, I think availability of merchandise has a lot to do with the merch margin. We think it's very good right now. We think that with our inventory controls in place, we'll be able to turn at the same level for faster stocking. We feel pretty good about merch margin as long as we can deliver top line comp.

Yes. I think, Daniel, the impact of promotion it's more on the top line rather than on our margins, which is what you see in Q1, that the margins were actually pretty healthy, it was the top line.

Okay. That actually was my follow-up question on the availability side. So it sounds like that remains quite positive. Good to hear.

The next question is from Stephen Grambling with Goldman Sachs.

This is really just kind of a quick follow-up to that line of questions which is, on the merchandise versus competition, was it just harder to keep the pricing gap? And as you think about weather playing an impact on gross margin, can you just elaborate on any impact that you saw, whether it's related to transportation or even just promotions by geographies?

So Stephen, back to gross margins, specifically in the first quarter. We came into the quarter carrying more clearance balances than we typically would base on a below plan January, so that put pressure on the merchandise margins during the first quarter. Markups were in line, but we have to take a little bit more markdown during the first quarter. So I would not attribute that to a trend or for the rest of year.

That's helpful. And then just longer-term as you think about the operating margin, I think that last year, actually, in this quarter, there was kind of a 3-prong commentary about the drivers over the past couple of years. And as you look forward, maybe you can talk about how you think of op margins and where they can go.

Yes. Yes, let me comment on that, Steven. When you look at what's driven our operating margin over the last few years, it really has been the 3 things that you've referenced. It's been lower markdowns driven by tighter inventories. And we don't think that's going away. We're not going to loosen up inventories anytime soon until we think we're going to hold those gains. It's been, secondly, lower shrink based upon our shortest initiatives. And again, we're not planning on taking our eye off the ball there. And then, thirdly, it's been margin and expense leverage based upon ahead-of-plan sales. Now if I look at which of those we still have more opportunity on, it's really the third. It all depends on sales. If we're able to get ahead-of-plan sales, we'll get margin leverage. I think there's probably limited opportunity left in markdowns and in shrink. Some, but limited. So going forward, it's really about the top line.

The next question is coming from Paul Lejuez with Wells Fargo.

Sorry, if I missed it, but did you talk about the Home category versus apparel? And within Home, I'm just wondering what's working and what's not? And then also second, where is your AUR and your average ticket these days in both Ross and dd's? Do you see an opportunity there and what will be the driver?

So Paul, this is Michael, I'll take the transaction piece. As we mentioned in the comments, comp was driven by an increase in the basket, with transactions down slightly. The increase in the basket was mainly driven by increase in units per transaction. But to your question on AUR, that was up slightly during the quarter. Going forward, currently, Ross is about 20% to 25% higher in terms of average AUR. And I think our focus is really on the price differentiation between department stores versus absolute prices.

On the Home aspect, okay. For the first quarter, our Home performance was well ahead of the chain, we're making progress there and we're making faster progress, I would say, on the parts of Home that are really the more gift and functional end versus domestics. Domestics is -- looks like it will be the section of the business that will come on last in terms of where we were trying to improve it. So that's how I would divide it out to how it's going.

What's included in domestics?

Sheets, towels, pillows.

The next question is from Bridget Weishaar with Morningstar.

Just a question on SG&A, it seems a little bit better than expected. Could you identify where the savings came from? Did you pull back from any marketing given the weather overhang and shifting it into a different quarter, or was there something else in that line item?

Bridget, on the -- specific on marketing, no we didn't put anything back. We were more productive in stores in terms of some productivity issues that we had in place. Michael, was there anything else?

No, I would say it was broad-based. I would say in this competitive environment, you should expect us to see very vigilant about controlling expenses throughout the year.

And do you see more room in there that you could cut back from or are you pretty close to running as lean as you can?

I would say, John mentioned that our long-term model is really to lever SG&A at about 3%. I think there's a good opportunity for us to lever below that this year.

The next question is from Lorraine Hutchinson with Bank of America.

Given the strength of some your new store openings throughout the Midwest, does this give you more confidence to look at other geographies that are perhaps underpenetrated?

Yes. Lorraine, our geographic expansion strategy going back way back when, has always been to -- when we move into a new market, to try and build on our presence in that market before we move to another market so to speak. We've thought this worked well for us because there are numerous benefits and synergies that come with that in terms of building awareness, building out our operating team, et cetera. So I think you should expect that most of our activities for the next 2 years with regards to new markets will be in that Midwest region. Even though we're happy with the results, I don't see us jumping out of that region into other regions prematurely.

The next question is from Oliver Chen with Citi.

We just had a question regarding the planning and allocation side of the business, you've been great pioneers in micro merchandising. What are your thoughts about what inning you're there and if that's a potential driver? Also, just from a strategy perspective, we understand that the shipping costs are prohibitive from an online basis, but would there be a scenario in which a bigger online presence would make sense for you down the road?

Sure. So Oliver, can you just repeat your specific question on micro merchandising? I think I didn't get...

If there's a lot of opportunity in that vein going forward in terms of further tailoring the assortments on a local basis.

Sure. So on that piece, on micro merchandising, we've had the micro merchandising processes and tools in place for about 2.5, 3 years at this point, and we're very happy with how they've been working for us, how they've been helping us. I think we believe they've been a key enabler, for us to turn faster in particular and therefore, many of the inventory reductions that we've achieved and we've spoken about, I think you can tie it back to micro merchandising. Now one of the things that we described earlier on was that the micro merchandising system we have sort of learned from experience. So the more years you have, the more years of accumulated data, the better it gets at projecting what sales and inventory levels we should plan to. So yes, I think there is some incremental opportunity as we move forward. Secondly, e-commerce. So we continue to look at e-commerce. We run a business that has a $10 average unit retail. And when we put together the economics, currently, we think it's very hard for people to make money, not just shipping cost, or return cost or processing cost, marketing cost, et cetera. Now maybe things will change, maybe someone will elevate in some way that leads us to change our mind. But at least as we look at the data right now, we don't -- it doesn't seem very compelling to us. So our focus is really to put our resources against our bricks-and-mortar business, where we know we can be very successful, we know we can make money and we have plenty of opportunity ahead of us.

Okay. And would you mind just updating us on your thoughts on the health of the consumer in terms of pressures you're seeing? Do you feel like there's still a lot of volatility or do you think housing has been a help for other [ph] wealth effect? Just your thoughts on where do you think sentiment is with your customer base.

So we're not economists, but what we know is the customer who is the moderate base customer appears to have some difficulties right now. And so, if you're -- the word is health, they seem to have a little bit of a health problem right now.

The next question is from Ike Boruchow from Sterne Agee.

This is actually Tom Nikic, on for Ike. I was just wondering about the packaway inventory. I guess we would have thought that with the disruption that sort of happened in the retail space that maybe the packaways' percent of inventory would tick up, but it's been sort of flat for a couple of years in a row now. I was wondering if you could just discuss the packaway situation.

So we've been pretty happy with our packaway availability, Tom. It does fluctuate, it can move around. And typically, we see more packaway opportunities in the second half of the season rather than the first half of the season, but I would say that availability has been reasonably strong and we're pretty happy with what we're seeing and we're packing away.

And what we're seeing, we're happy. We're happy in what we're seeing both in quantity and just the actual quality of what's out there these days, okay, as you would expect as mainstream retail is suffering a bit.

The next question is from Kimberly Greenberger with Morgan Stanley.

Michael, I'm trying to just understand a little bit more your weather comments. Maybe you could help us by dimensionalizing perhaps the differential between Mid-Atlantic comps and some of your warmer weather markets, not necessarily Florida, because that's been a standout for a while, but just so we can understand the magnitude of the difference. And then did you say California [indiscernible] ? I was just wasn't sure if I heard that correctly.

Kimberly, we wouldn't talk about specifics on regionals other than to say they are higher and lower than the chain. It's like -- on your California question, it was in line with the chain.

Okay, California is in line with the chain. Was the Mid-Atlantic and the Northwest areas the only areas where you feel like you had some weather impact or there are other things going on in the Rocky Mountain region or other places that you felt also hurt your business?

I would say we had weather impact throughout many of our regions. And the Pacific Northwest was up against very strong comps, it was the strongest performing region last year.

I'm just trying to figure out how it was that the Midwest, which had really terrible weather, was one of your best-performing regions. And is it just sort of more experience in the markets, better execution on your part that was able to overcome the weather headwind or is there something else that would explain why the Midwest was quite good, where the rest of the chain was hit by weather?

Kimberly, I think the Midwest is a good case example of why retailers should never blame the weather. We mentioned the weather because, obviously, it was relevant in Q1. But when we look at the Midwest, there are a lot of other things that can drive your top line over -- certainly, over the third quarter that could trump weather. And I think as some the of the changes that we were able to make in terms of assortment, certainly, had that impact in the first quarter. So I know you're trying to quantify the impact of weather, but I think it's very hard over the period of a quarter. So in an event like a single-weather event like a hurricane where a dozen stores close down, you can quantify the number. But over the whole of a quarter, the changes you can make in assortments and values you can offer in the store can trump the weather impact. That's what we think happened in the Midwest.

Okay, understood. And then just looking out to your second quarter guidance, you're talking about a 1% to 2% comp, that's in line with the guidance you gave for the first quarter. Does that feel conservative to you? Does that feel appropriate? I'm just looking out to the second quarter, and it doesn't feel like there should be much in a way of weather impact, and I just wanted to get your feel for how you assess that view.

Kimberly, I think it feels appropriate right now in this environment. As Michael said, the modern consumers have a tough time as you look out and around and hear other people report, I think it's a pretty tough business out there. So we feel that it's appropriately set.

Additionally, it's to be determined how the promotional environment will be both in this quarter coming up and the rest of the year.

Your next question is from Laura Champine with Canaccord.

Could you just comment on your sell-through of seasonal women's apparel this spring versus last spring this time of year?

Well, I don't think we'd be comfortable going down to that level, kind of a category level with women's apparel. I think what we would be comfortable to say is non-apparel has performed better given the weather conditions. And so, our sell-throughs would be better in non-apparel areas than apparel areas season-to-date.

I guess the point of the question is you mentioned that merchandise margin, you should get a little bit of a lift as we move through the year. Should we expect most of that in the back half or do we start to see it this quarter?

I'd think you'd expect to see it even throughout from this period going forward. Again, we're not -- the point of the first quarter is we're carrying more clearance for that period, so our markdowns were higher than we had targeted.

The next question is from Neely Tamminga with Piper Jaffray.

Just a quick clarification on Q2 guidance. Michael, are you saying that you're looking for the underlying metrics to be comparable for Q2 in terms of the number of transactions and average transaction size value, or is there a shift that we should be looking for?

We don't -- typically, Neely, we don't plan the business based on the transaction size, really the overall comp. So based on the 1% to 2%, we'd say, it's going to be somewhat consistent with what's going on with Q1, absent the weather.

Okay. And then just a follow-up question to Laura's question, I guess, not necessarily, I want you to give us give us -- give all the competitors' script away, but are you feeling good about the balance that you have in your apparel right now around active versus denim-anchored fashion looks?

You know something? I think we feel relatively okay. There are some mix issues underneath the lines, but our balance of how we're mixed across categories, we feel okay about.

The next question is from John Kernan with Cowen.

Just -- a lot of good questions so far. I just wanted to -- actually, on your real estate availabilities, you pushed out of the core markets in California, Texas and Florida, what are you seeing in terms of availability and quality of site?

We're pretty happy. We're one of the few retailers that's opening 80, 90 stores a year. So we're out there, we're looking for locations. We have a very, very strong real estate team that have got a lot of experience, and they've been able to find us some great locations over the last several years. And we think availability continues to be good. And obviously, part of that is being driven by other retailers who've either gone bankrupt in that line of business or retailers that have closed down a lot of locations, so that's continuing to help us.

Are you noticing any pressure -- you're obviously co-located with a lot of retailers that have been complaining about more meaningful declines in traffic than you're seeing. So are you worried that some of the co-locations with some other stores and the lack of traffic there might be pressuring you as well?

It's -- who knows? The key implication for us is in those locations to make sure that we're offering the shop and value that we can and, therefore, whatever traffic is coming to that center, that we get more than our fair share of it. So if [ph] there's something macroeconomic that's going on that's affecting our center or more global that we can't control, there's not much we can do about that. But we can focus on what we can control, which is the value in the store.

Your next question is from Roxanne Meyer with UBS.

My question is, I'm wondering if you could comment on new store performance and how that has trended. And then comment on the ramp to maturity of new stores, how long it takes and have you seen any changes to that ramp? And also, just comment on new store performance by classes over the last few years.

So Roxanne, yes, we're pretty happy with how the stores have been performing, not just in the last quarter, but over the last couple of years. In terms of new store ramp, we don't disclose the ramp, but it's been plenty consistent over time. Obviously, when a store press opens up, it's sort of a period where it builds awareness. And for us, building awareness is mostly through word-of-mouth and that just takes a little bit of time. So after 3 or 4 years, typically, the store would ramp up, but -- yes, that's how I would describe it.

Your next question is from Richard Jaffe with Stifel.

Given your comments earlier about the tighter inventory resulting in fewer markdowns, that's been a real success story for you guys. I'm wondering if, as you mentioned, there's less opportunity there. Should we assume inventory levels will proceed at essentially a flat level year-over-year on a per square foot basis, that there's no further pursuit to make your inventories leaner or churn more quickly?

I think -- Richard, this is John. We have, obviously, taken big chunks of inventory out over past 3 or 4 years. We are still working at it. We think there is some marginal benefit. We think inventories will be down, probably 1 to 2 points this year. So I think there's still some opportunities.

There are no further questions at this time. I will turn the call back over to the presenters.

Thank you for joining us today and for your interest in Ross Stores. Have a great day.

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