Ross Stores, Inc. (ROST) Q4 2019 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Ross Stores' Fourth Quarter and Fiscal Year 2019 Earnings Release Conference Call. The call will begin with prepared comments by management followed by a question-and-answer session. [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, new store openings 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 2018 Form 10-K and fiscal 2019 Form 10-Qs and 8-Ks on file with the SEC. Now I'd like to turn the call over to Barbara Rentler, Chief Executive Officer.

Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer; Travis Marquette, Group Senior Vice President and Chief Financial Officer; and Connie Kao, Vice President of Investor Relations. We'll begin our call today with a review of our fourth quarter and 2019 performance, followed by our outlook for 2020. Afterwards, we'll be happy to respond to any questions you may have. As noted in today's press release, we delivered strong sales and earnings gains for both the fourth quarter and fiscal year. Our ongoing ability to offer compelling bargains to our customers enabled us to achieve these results despite our own challenging multiyear comparisons and a fiercely competitive holiday season. Earnings per share for the 13 weeks ended February 1, 2020, grew 7% to $1.28 on net income of $456 million. For the 2019 fiscal year, earnings per share grew 8% to $4.60 compared to $4.26 in 2018. Net income was $1.7 billion, up from $1.6 billion last year. Now let's turn to our recent sales results. For the 13 weeks ended February 1, 2020, total sales were $4.4 billion. Comparable store sales for the period rose 4% on top of a 4% gain in last year's fourth quarter. For the fiscal year, sales increased 7% to $16 billion, with same-store sales up 3% on top of a 4% gain last year. For the fourth quarter, the best-performing major merchandise area was Children's, while the Midwest was the strongest region. dd's DISCOUNTS customers continued to respond positively to its merchandise assortment, leading to another quarter and year of robust gains in both sales and operating profit. As we ended 2019, total consolidated inventories were up 5% over the prior year with packaway levels at 46% of the total, similar to last year. Average in-store inventories at year-end were flat versus 2018. As noted in today's release, our Board recently approved an increase in the quarterly cash dividend to $0.285 per share, up 12% over the prior year. The increases to our shareholder payouts for 2020 reflect our ongoing confidence in the company's ability to generate significant amounts of cash after funding our growth and the other capital needs of our business. We have repurchased stock as planned every year since 1993 and raised our cash dividend annually since its inception in 1994. This consistent record also reflects our continued commitment to enhancing stockholder value and returns. Now Travis Marquette will provide further color on our 2019 results and details on our 2020 full year and first quarter guidance.

Thank you, Barbara. As Barbara mentioned earlier, earnings per share for the fourth quarter and fiscal 2019 year were $1.28 and $4.60, respectively. These results compare to the fourth quarter 2018 earnings per share of $1.20 and $4.26 for the year. As a reminder, our results for both the 2019 and 2018 fourth quarters and fiscal years reflect onetime noncash gains of $0.02 and $0.07 per share, respectively, primarily related to the favorable resolution of tax matters. Now I'll discuss further details on our fourth quarter results. Our fourth quarter comparable store sales gain in the quarter was driven by a combination of higher traffic and an increase in the size of the average basket. Fourth quarter operating margin was 13.3% compared to 13.2% last year. Cost of goods sold increased 30 basis points in the quarter, mainly from higher distribution costs of 45 basis points due to unfavorable timing of packaway-related expenses and higher wages. Merchandise margin declined 5 basis points, reflecting some pressure from tariffs. These higher expenses were partially offset by 10 basis points of lower buying costs, while freight and occupancy levered by 5 basis points each. SG&A for the quarter levered by 40 basis points, primarily due to lower incentive bonus and lower other miscellaneous costs. During the quarter, we repurchased 2.7 million shares of common stock for a total purchase price of $309 million. For the full year, we repurchased 12.3 million shares for an aggregate price of $1.275 billion. Now let's discuss our outlook for 2020. As noted in our press release, our guidance does not reflect the potential unknown impact from the evolving coronavirus outbreak. While we're closely monitoring the situation, there remains a high level of uncertainty over supply chain disruptions in China. In addition, it is unclear how a further possible spread of the coronavirus could negatively impact U.S. consumer demand. For the 52 weeks ending January 30, 2021, we are forecasting earnings per share to be $4.67 to $4.88, which includes ongoing pressure from tariffs. The operating statement assumptions for fiscal 2020 include the following: Total sales are projected to grow 4% to 5%. Comparable store sales are expected to increase 1% to 2% on top of multiple years of strong gains. We plan to add about 100 stores this year, consisting of approximately 75 Ross and 25 dd's DISCOUNTS locations. As usual, these numbers do not reflect our plans to close or relocate about 10 older stores. We project that operating margin for 2020 will be in the range of 13.0% to 13.2% compared to 13.4% in 2019. The forecasted decline reflects our plans for merchandise gross margin pressure from ongoing tariffs and some deleveraging of expenses if same-store sales only increase 1% to 2%. Net interest income is estimated to be about $8 million. Our tax rate is projected to be approximately 24%. We expect average diluted shares outstanding to be about $351 million. Capital expenditures for 2020 are projected to be approximately $730 million, which includes investments for our next distribution center. And depreciation and amortization expense, inclusive of stock-based amortization, is forecasted to be about $490 million. Let's now move to our first quarter guidance. We are forecasting comparable store sales to be up 1% to 2%. Earnings per share are projected to be $1.16 to $1.21 versus $1.15 for the first quarter ended May 4, 2019. Other assumptions that support our first quarter guidance include the following: total sales are planned to increase 4% to 5%. We expect to open 21 Ross and 7 dd's DISCOUNTS locations during the period. First quarter operating margin is projected to be 13.6% to 13.8% versus last year's 14.1%. This forecast reflects our expectation for some pressure on merchandise gross margin from the previously mentioned tariffs, along with deleveraging on occupancy and other expenses on a comparable sales increase of 1% to 2%. Net interest income is estimated to be about $2 million. Our tax rate is expected to be approximately 23%. And finally, weighted average diluted shares outstanding are projected to be around 355 million. Now I'll turn the call back to Barbara for closing comments.

Thank you, Travis. Again, we delivered solid sales and earnings gains for both the fourth quarter and fiscal year. Looking ahead, while we hope to do better, we continue to take a prudent approach to forecasting our business for 2020. Although we remain favorably positioned as an off-price retailer, we are facing our own strong long-term sales and earnings results, a very competitive retail landscape, unknown impacts from the corona outbreak and an uncertain macroeconomic and political environment. Longer term though, we remain confident in our ability to achieve ongoing profitable market share gains by consistently offering customers outstanding value throughout our stores. As long as we remain focused on the careful execution of our strategy, we believe we can continue to deliver solid sales and earnings growth over time. At this point, we'd like to open up the call and respond to any questions you might have.

[Operator Instructions] Your first question comes from Matthew Boss from JPMorgan.

Great. Congrats on a nice quarter.

Thanks, Matt.

I guess, maybe larger picture, so other than same-store sales at 1% to 2% and the associated revenue flow-through, are there any material differences in your 2020 bottom line guide versus historically 3% to 4% comps equating to double-digit earnings growth?

Matt, it's Michael Hartshorn. As we have over a number of years and as we said in the remarks, there's a number of reasons to run the business with a cautious eye, including our own sales and earnings comparisons at the competitive retail landscape and certainly the uncertain macro and political environment. The bottom line though is if we can put ourselves in a position to chase the business, we heighten our ability to optimize both sales and earnings results. Over the long term, our long-term algorithm has not changed, which is the combination of comp store growth, new store growth, EBIT margin expansion at the high end of 3% to 4% and our share buyback program gets you to double-digit comp growth -- double-digit EPS growth.

And the only other thing I'd call out is just as a reminder, we did have a $0.02 per share benefit in the fourth quarter of 2019 that we're lapping. That was a onetime item.

Great. And then maybe Barbara, just to follow up, how would you describe the larger picture product availability in the marketplace today maybe versus a year ago? And have you seen any changes as it relates to current supply chain disruption so far to date related to all of the larger picture changes that are happening?

Sure. Versus a year ago, there's still currently a lot of supply in the market as there was last year. As it relates to the whole China supply chain, there still remains a high level of uncertainty with the disruption from China. So it's really kind of hard to predict where that is going to go. But at this particular moment in time, there have been good. So whether later on there's an influx of goods or not, I just think it's too hard to predict at this point in time.

Your next question comes from Lorraine Hutchinson from Bank of America.

Just wanted to ask a question about the tariff pressure you're seeing. Is that pressure coming all from direct imports? Or are you taking on some pricing pressure from some of your vendors? And are there any plans to try to raise price to offset these pressures?

Sure. Lorraine, on the tariffs, the largest impact is for goods that we directly import for us. That's areas like Home. The Home area has the 25% tariff. How they played out last year was very similar to how we guided. And the way we guided into 2020 is mainly the front half of the year as we lap the 25% tariff for Tranche 3 and 7.5% tariff on Tranche 4A. For us, on pricing, our focus is to maintain a value proposition through a pricing umbrella relative to full price department stores and specialty stores. And to be honest, we have not seen a material change in pricing.

Your next question comes from Mark Altschwager with Baird.

I was hoping you could dig in a little bit more on the merchandise margin performance in the fourth quarter, how that compared to your internal plans and expectations. And then in terms of your margin outlook for 2020, specifically on the merch margin front, I know you just gave us some added color on how the tariffs are going to play out. But are there other factors embedded in that outlook? I know you'd mentioned the competitive environment. Just curious how you're looking at that relative to what you've been experiencing in recent quarters?

I'll answer. In terms of our outlook for 2020, with the tariffs, our guidance includes a slight decline in merchandise margins for the year. But again, that's all driven by the tariff impact mainly in the front half of the year.

And in terms of Q4 for merchandise margin is -- it was down a little bit year-over-year. And again, that did reflect some pressure from tariffs, but it was a little bit better than we expected.

Your next question comes from Paul Trussell from Deutsche Bank.

I know you mentioned that, I believe, Children's was the best-performing category. Just curious if you can give a little bit more color on the rest of the areas, in particular, your Ladies business and how you feel about the trajectory of that business today going into the new year?

Sure. Our overall performance was pretty broad-based. I know we called out Children's, but the overall performance is broad-based across all the areas. Ladies performed above plan. We feel pretty good about our current offering, and we believe that we have the right initiatives underway to drive sales growth in Ladies in Q1 and for the year. So we feel like we're moving forward in there.

Your next question comes from Kate Fitzsimons from RBC Capital Markets.

I guess, looking to 2020, when we're thinking about some of these non-merchandise items and COGS between distribution and freight, is it -- can you give us any guidance in terms of how we should think about that? Distribution, seems like it was a drag here again in 4Q after being an item -- a drag in the third quarter. So how should we look at that looking out to 2020 between the first half and the back half? And again, freight had been a pressure point more recently, but it seems it turned to a leverage item in the fourth quarter. So just how should we think about that into 2020?

Yes. Sure. In terms of DC costs, again, as I mentioned, the higher DC costs in the quarter were driven primarily by unfavorable packaway-related timing but to a lesser extent, as I mentioned, by ongoing wage pressures. In terms of the outlook for that, again, we have built into our forecast -- or into our guidance, some continuing pressure in the DCs, primarily from ongoing statutory wage increases. And again, as I said, that's built into the guidance. In terms of freight, overall, during the year, freight played out kind of as we expected it would during the year. I think, at the beginning we talked about that we'd expect higher costs at the start of the year. Those costs would abate towards the back half of the year, which is how it played out to a slight tailwind. In terms of freight, as a reminder, sort of the majority of our shipments are completed under contract. So we're not regularly exposed to the spot market. Those contracts typically renew towards the middle of the year. So we feel pretty good about the outlook and believe it should be a relatively stable perspective at least for the first part of the year.

Your next question comes from Kimberly Greenberger from Morgan Stanley.

Great. A nice way to finish the year. My question, Barbara, is for you. Reflecting back on the first quarter last year, with the 2% comp for the quarter, I know that I think you were hoping to do better. At least, that's what you had articulated at the time and there were some execution issues that you were addressing. I'm wondering, looking out to the first quarter 2020 guidance for 1% to 2% comp, it doesn't look like contemplated in that estimate is any expectation of recovery relative to a softer comparison in Q1? But I'm wondering if you can just reflect on what happened last year. It seemed like the issues were certainly corrected throughout the year. And do you think there's an opportunity perhaps in Q1 to do better?

Sure. So you're correct. Last year in Q1, with the 2% comp, our Ladies business was very difficult. And actually, quite frankly, Q1 for us, over the last 2 or 3 years has been a difficult quarter for us as Ladies is a big piece of the business, you have more weather issues, you have tax refund. There's a lot of noise in the first quarter. So we feel it's prudent to plan the first quarter with a 1% to 2% and just chase our way back into the business. The difference a year ago versus today is that, to your point, as the year progressed, that Ladies slightly improved each quarter as we went along. And again, in the fourth quarter, the business performed slightly above our expectations. And so as we go forward, Ladies perhaps will not be the drag that it was on the first quarter. But in the first quarter last year, that was really our main driver. Does that answer your question, Kimberly?

Yes. So would you say you're sort of planning Q1 cautiously just because there have been so many moving pieces in Q1 for the last few years that it just hasn't all necessarily panned out to be a more robust quarter. But stepping back, do you think there might be an opportunity -- or I guess, you sort of said it earlier. Your goal is to beat the performance that you've laid out and you think it's best to sort of plan conservatively and chase, is that the best way to think about it?

Exactly. That you really want -- it's been difficult for 2 to 3 years. We want to put ourself in a position to chase our way back, keep the goods turning and take us into Q2 in a healthy position.

Kimberly, I'd also add that across retail, if you look at sequential performance in Q1 versus the rest of the year, performance has been down from a comp perspective. And it's unclear whether that's weather driven or, as Barbara mentioned, tax refund timing, but there are a number of factors that retail has been soft in Q1, including us, obviously. So it makes the most sense for us to be cautious and chase our way back into the business if sales outperform.

Your next question comes from Alex Walvis from Goldman Sachs.

This is Brooke Roach on for Alex. We just had a quick question regarding some of the category comments that you've shared earlier. Gifting was a key part of the holiday strategy this year. Can you share how that performed during the quarter? And then can you share a little bit of commentary regarding the performance of apparel versus home?

Sure. In terms of gifting, we were pleased with our gifting performance throughout the store. It was one of our initiatives for the fourth quarter, and the customer definitely responded to the assortments. So we felt very good about gifting. And as we go forward in 2020, we would continue to expand on our gifting assortment.

In terms of your question on apparel versus nonapparel, they performed relatively similarly in the quarter.

Your next question comes from Adrienne Yih from Barclays.

Let me add my congratulations for a solid holiday. I guess, my first question is, Barbara, if you think back to the SARS, and I know it's completely different time period, sourcing, et cetera, do you recall any impact on inventory that might be something to think about as we go through the coronavirus? And then, Michael, can you talk about your average hourly rate assumptions on wage for fiscal '20?

Well, in terms of SARS, which was a lot of years ago -- I'm not even sure what job I had; it was years ago. Look, I think the way to think about inventory and managing inventory whether it's 18 years ago or today, it's the same thing. When there is a lot of volatility in the outside world, you want to manage your plan and you want to manage your inventory as tightly as possible and you want to keep yourself flexible, nimble and have liquidity. And I think, although I might not have lived through the SARS experience myself at that point in time, it's the same metrics that you would -- in an off-price model that you would use to manage and control your business as you're kind of going through the issue at hand.

In terms of wages, as you probably know, we raised the minimum wage in 2018 to $11 an hour. There are many states, some of which were heavily concentrated, whether it's the DCs or stores like California. California is at a $13 average minimum wage and will be marching to $15 over the next couple of years. But there's other municipalities that are built into our guidance. In terms of market rates, we continue to make adjustments to compete for talent in many of our markets. So what we have built into our guidance is market-based adjustments, where we know we'll need to increase, plus the statutory increases. Yes, that's what's built into the existing guidance.

Your next question comes from Michael Binetti from Crédit Suisse.

Let me start with just a quick modeling question. I think in the revenue build, at this time last year, you started guiding the year to same 1% to 2% comps, translating to 5% to 6% on revenue growth, if I'm not mistaken. This year translates to 4% to 5%, did you say? Is there anything to call out on the non-comp component there that we should know about that causes that difference?

No. I don't think there's anything different. Obviously, we're opening about 100 stores, which is similar to last year. So you're on a larger base. I think that's the only difference year-over-year, Mike.

Okay. And then on -- I guess on -- Michael, you offered comments that if you can get to a 3% to 4% comp, you still have line of sight to double-digit type EPS growth, an algorithm that you've spoken for many years. But now we're past things like the self-inflicted $11 wage inflation, and it seemed like we were back to the kind of longer-range "We see it coming" type minimum wage increases that you had before, but you're still speaking to wage inflation this year. Are there other good guys that we add back to the way we think about your margins on a multiyear basis that should offset -- if you're going to have things like wage inflation higher on a go-forward basis than you had when you started giving that kind of an algorithm in the past?

Sure. Well, I'd start with 2019. We ended the year with a 3% comp. And if you take out the onetime tax adjustments, we were very close to the double-digit growth and would have been double digits with a 4% comp, so in line with our algorithm. As we think about it going forward, certainly, we've guided the year -- this year at 1% to 2%. If we exceed, we'll see what flow-through happens on that. But it's up to us to figure out how to be more efficient in the business as we see those wages come through. A lot of the wage increases have been statutory increases that we have some foresight on, and we'll work to find costs throughout the business to be more efficient as we go forward.

Okay. Can I just ask one last one at a higher level. It seems to me that any kind of meaningful product coming out of China delays, given how fast your inventories turn, it just seems like off-price could be in a position where availability of inventory in the short term could be impacted. It didn't sound like you said anything today that you're seeing that today. How much visibility do you think you have to that, if there is an issue? And then, I guess, just theoretically, why would off-price be well positioned if -- given what we know about how fast the inventory turns are and that there were factories closed for a good amount of time here recently?

Sure. First, let me say that we're seeing a very active marketplace. There's a lot of competition in the market. There are absolutely goods in the market, and there's a lot of competition for those goods. And you're right, it's early and it's unclear what the impact could be on the supply chain because I'm sure it's hard to get clarity around what that looks like. But sometimes, people are bringing in goods. And we also have packaway that we will use in this time frame to support our sales trends. And at some point, you're at a point we don't know -- at some point, it will catch up. And so our strategy is to keep ourselves flexible and nimble and in a position to take advantage of goods when they come in. And so that's kind of how we have ourselves set up, but there has been a lot of activity in the marketplace buying goods immediately.

[Operator Instructions] Your next question comes from Ike Boruchow from Wells Fargo.

Let me add my congrats on a nice quarter, good end of the year. Just -- to dig into the gross margin a little bit. I know this is a bit nitpicky, but you called out tariff pressure to impact your Q3 as well as your Q4. I believe your merch margin was up 20 basis points in Q3 and down a little in Q4. Is that just a function of more tariff inventory flowing through? Or is there something else on the merchandise margin line in the fourth quarter relative to the third quarter that's worth calling out?

Yes. I think as the year went on, the impact from tariffs got larger, right? So -- in particular, the tariffs that were put into place in September had a larger impact and the tariffs that were in place even earlier in the year, as the year went on, those started to actually arrive and flow through. So that's why the impact grew as we went through the year.

And so Travis, does that mean we should assume that until we lap this fourth quarter that we should assume potential slightly negative merch margins for the year? Is that what's embedded in your guidance?

Yes. Our guidance is merch margins down a bit for next year, and it's more heavily weighted towards the front half of the year than the back half of the year.

Ike, if you think about the timing of when the increases went in, so Tranche 3 went in, in the June time frame from 15% to 25%. And Tranche 4 went in place in September. So even though they went in place, they start hitting a little bit later. So those are the 2 kind of key points that we'll anniversary as we move into 2020.

Your next question comes from Marni Shapiro from Retail Tracker.

Congratulations on a great end of the year. Could we just talk a little bit about real estate. You guys have been pretty consistent in opening up the same -- close to the same number of stores every year. Can you just talk about how many stores you renovate in a given year? Will you close about the same 10-ish stores this year as you usually do? And have there been any changes to the size of the stores or the kind of leases that you're getting, given how many retailers have exited the space, particularly in these stand-alone places?

Marni, on the real estate front, nothing has changed dramatically for us. We expect to open about 100 stores. The closures are in the 1 to 2 handfuls of stores that we'll consider closing every year. But our view on the real estate market hasn't changed. There's good availability, and we'll look at every site that fits our specific requirements. Obviously, with store closures, that gives us sites -- plenty of sites to choose from. In terms of the overall real estate market, we're not seeing -- the cost front has been fairly stable. But our plan, 100 stores a year, we're very comfortable with from both the store operations, opening stores and also getting the right sites for us.

And on your question of existing stores, we do touch or refresh a number of stores every year. For our capital spending for 2020, we'll probably spend about 20% of that total on existing stores between refreshes, remodels and things like that. So we do work to keep the stores current for our customers.

Your next question comes from Laura Champine from Loop Capital.

As you discussed the risks and try to plan for the risks around coronavirus, are you more worried about a slowdown in consumer traffic? Or are you concerned about supply chain issues that you might not be able to offset with packaway? And to that end, have you seen any shift in traffic trends over the last week or 2 as the headlines have gotten worse?

Yes. Look, I think there's a couple of different aspects. Obviously, we're concerned about our associates' safety. We're concerned about supply. We're concerned about what would happen with consumer demand if it's spread further throughout the U.S. I think it's too early to weigh one or the other, other than we're obviously watching it very closely and making decisions daily based on how it's evolving.

Your next question comes from Bob Drbul from Guggenheim.

Just a couple of quick questions. On the quarterly cadence, was there any variation in the monthly -- November, December, January that you would call out? And just wondering, on a geographic basis, you called out the Midwest, but if you could maybe comment on California or any other big markets and how they performed, that would be great.

Yes. Sure. Generally, we don't provide specific trends within the quarter, but I would say that our strongest performance was during that December holiday selling period. In terms of geographic performance, as you mentioned that the Midwest was our strongest region. Other strong regions were the Mid-Atlantic and the Southeast. Texas also performed, one of our larger regions performed a bit above the chain. California was roughly in line with the chain.

Your next question comes from Jamie Merriman from Bernstein.

Just to pick up on your comments earlier, Barbara, about your ability to use packaway if supply chains do become more tight. Can you just talk philosophically about how you would think about that now? And sort of what level of packaway you'd be comfortable with? And then just given the sort of range of categories and brands, I guess, would you expect that you could shift across different categories to the extent that one area becomes more constrained from a supply chain perspective?

Sure. So let's start with -- let me start from the bottom and go back to the top. In terms of shifting money through categories, if we have the appropriate inventory and we could deliver the appropriate assortment and we needed to shift from one business to the other, we absolutely could because that's what our model is about. In terms of packaway level, our packaway level, I think, at the peak, Michael, was 50%?

Right.

It was about 50%. And we certainly have the ability to increase that and to increase our capacity in our DCs if we needed to. So packaway, based on, would really be driven on the merchants coming back and saying, what the deals are, what the product is and is it really worthy of packing it away and is it good value? Because the danger in all of this is that all merchants across America just go out and buy goods for the sake of buying goods. So you really have to have size around that and what that looks like. In terms of categories and brands and things that go in packaway, that very much depends on what we see and the value we can offer to the customers. So packaway is not consistent through every single business in the company. It's based off of opportunities that the merchants found in the market they think have great value that the customer will appreciate and satisfy her needs.

Your next question comes from John Kernan from Cowen.

Just on the packaway point, there was a fairly sizable impact on the gross margin, I think, on timing of packaway expenses. Is there any way for us to think about that in 2020 and anything in the first quarter in terms of how that would flow through now that packaway has ticked back up year-over-year and sequentially as a percentage of the inventory?

For 2020 -- first of all, packaway is one of the hardest things for us to predict in the business. It's really based on market dynamics. But typically, for the full year, there's really a nominal impact. Where we see the timing differences are usually quarter-to-quarter timing differences and not for the full year.

Your next question comes from Mike Baker from Nomura.

I just wanted to clarify, did you say at one point when we were talking about some of the issues that are impacting overall retail, and I thought you said there are a number of factors that have been soft in retail, including you guys. So are you saying that your 1 quarter -- your first quarter has been softer than you would otherwise expect because of things like tax refunds and the weather?

Mike, no. What I was really referring to is if you look at comp growth throughout retail in the first quarter versus the rest of the year, the first quarter has been softer than the rest of the year across retail and that's been true year-over-year for a number of years. So that's what we're referring to.

Your next question comes from Simeon Siegel from BMO Capital.

Sorry if I missed it, but did you say what you're expecting for expense dollar growth next year? And then can you just remind us the difference in sales per store at Ross versus dd's?

Sure. On sales per store, we wouldn't break out dd's separately. We're in the $9 million range per store across the chain.

And can you clarify your first question?

If I missed it. Hello?

Yes. I didn't -- I was asking for clarification on the first question.

Sorry, just the SG&A -- the expected SG&A dollar growth for next year, if you had given that.

Yes. We haven't provided the specifics in terms of that below operating margin.

Your next question comes from Dana Telsey from Telsey Advisory Group.

As you think about the buckets of gross margin and the enhancements that you're looking to make in different categories like women's apparel, where do you see the opportunity for merchandise margin going forward. And with that, what -- any updates on shrink?

On the shrink front, Dana, no real updates. We take our physical inventory in the third quarter. And what we saw last year was continued improvement over many years of improvement. So at this point, we wouldn't provide any other update versus what we saw in September last year.

And in terms of merch margin, as we've said for a while now, we continue to believe that the biggest opportunity for further improvements in merchandise margin is above-plan sales.

And that was our last question. At this time, I will turn the call back over to Barbara Rentler for closing remarks.

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

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.