EOG Resources Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 17, 2022

There are 16 speakers on the call.

Operator

Afternoon, and welcome to the Ross Stores Third Quarter 2022 Earnings Release Conference Call. The call will begin with prepared comments by management, followed by a question and answer session. Before we get started, on behalf of Ross Stores, I would like to note that Comments made on this call will contain forward looking statements regarding expectations about future growth and financial results, including sales and earnings forecast, 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 2021 Form 10 ks and fiscal 2022 Form 10 Qs and 8 case on file with the SEC.

Operator

And now, I'd like to turn the call over to Barbara Rentler, Chief Executive Officer. Thank you, ma'am. Please go ahead.

Speaker 1

Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer Adam Orbos, Executive Vice President and Chief Financial Officer and Connie Kao, Group Vice President, Investor Relations. We'll begin our call today with a review of our Q3 performance, followed by an update on our outlook for the Q4 fiscal year. Afterwards, we'll be happy to respond to any questions you may have. As noted in today's press release, 3rd quarter results were above our expectations as we delivered stronger values throughout our stores.

Speaker 1

Operating margin for the period was 9.8% versus 11.4% last year, reflecting the deleveraging effect from the comparable sales decline as well as pressure from higher markdowns and unfavorable timing of Packaway related costs. Earnings per share for the 13 weeks ended October 29, 2022 were $1 on net income of $342,000,000 This compares to $1.09 per share or net earnings of $385,000,000 for the 13 weeks ended October 30, 2021. Total sales for the quarter were $4,600,000,000 in line with the prior year, with comparable sales down 3% on top of 14% gain in the Q3 of 2021. The 1st 9 months earnings per share were $3.08 On net earnings of $1,100,000,000 compared to $3.82 per share on net income of $1,400,000,000 for the same period 2021. Sales for the year to date period totaled $13,500,000,000 With comparable store sales down 5% versus a strong 14% increase last year.

Speaker 1

For the Q3 at Ross, Hughes was the best performing business, while Florida and Texas were the top performing regions as they were bolstered by the outperformance of border and Forex locations. At dd's discount, Sales trends improved versus the first half, but continue to trail Ross's results due to ongoing inflationary pressures that are having a larger On dd's lower income customers, inventory levels moderated significantly from the first half of the year With total consolidated inventories at the end of the quarter, up 12% compared to last year. Average store inventories during the quarter were up 4% versus 2021 and down when compared to pre pandemic levels. Packaway merchandise represented 41% of the total compared to 31% last year when we used Packaway merchandise to fuel robust sales gains. Turning to store growth.

Speaker 1

We completed our expansion program for 2022 with the addition 28 new Roth and 12 CDs discounts in the 3rd quarter. For the year, we added a total of 99 locations comprised of 71 Ross and 28 dd's Discounts. We now expect to end the year with 1693 Ross Stores and 322 DD's discount locations for net increase of 92 stores. Now Adam will provide further details on our Q3 results and Q4 guidance.

Speaker 2

Thank you, Barbara. As previously stated, Comparable store sales were down 3% in the quarter. Although traffic improved from the Q2, it still declined versus the prior year. Partially offsetting these declines was a higher average basket size. Operating margin of 9.8% for The Q3 was down 160 basis points from last year.

Speaker 2

Cost of goods sold grew by 2 30 basis points in the quarter. Merchandise margin declined 165 basis points, primarily due to higher markdowns. Distribution costs were up 140 Mainly due to unfavorable timing of Packaway related costs and deleverage from our new distribution center, while occupancy delevered by 20 basis points. These higher expenses were partially offset by a 75 basis point decrease in buying costs, mainly from lower incentives. Lastly, pressure from domestic freight expenses eased in the 3rd quarter and improved 20 basis points as we anniversaried the freight headwinds that began in the second half of last year.

Speaker 2

SG and A for the period improved by 70 basis points as deleverage from the negative comparable sales was more than offset by lower incentives. During the Q3, we repurchased 2,800,000 shares of common stock for an aggregate cost of $244,000,000 We remain on track to buyback a total of $950,000,000 in stock for the year. Now let's discuss our 4th quarter guidance. We continue to expect a very promotional holiday selling season and ongoing inflationary headwinds to pressure our low to moderate income customers. That said, we face our easiest sales in the Q4 and are raising our guidance given our Q3 sales momentum and improved holiday assortments.

Speaker 2

For the 13 weeks ending January 28, 2023, we now expect comparable store sales to be flat to down 2% on top of a 9% gain in the prior year. As a result, earnings per share are forecasted to be in the range of 1.13 To $1.26 the operating statement assumptions that support our Q4 guidance include the following. Total sales are projected to be flat to up 3%. We expect operating margin to be in the range of 9.7% to 10 point 5 percent versus 9.8 percent last year. This mainly reflects the anniversarying of significant cost pressures from ocean freight and lower incentives, partially offset by the deleveraging effect from lower same store sales, unfavorable timing of packaway related costs and higher markdowns.

Speaker 2

Net interest income is estimated to be about $14,000,000 Our tax rate is expected to be approximately 23% and weighted average diluted shares outstanding are projected to be about 342,000,000. Based on our year to date results and 4th quarter guidance, earnings per share for fiscal 2020 2 are now projected to be in the range of $4.21 to $4.34 compared to $4.87 last year. Now I'll turn the call back to Barbara for closing comments.

Speaker 1

Thank you, Adam. Despite the many challenges over the last few years, Coupled with today's uncertain macroeconomic and geopolitical environment, we remain optimistic about our future growth prospects. Our top priority is and always will be delivering fresh and exciting name brand merchandise at compelling discounts every day Now growing store base of over 2,000 locations. With consumer Titan's focus on value and convenience, this bodes well for our ability to Advance our market share and profitability in the future. At this point, we'd like to open up the call and respond to any questions you may have.

Operator

Thank you. We will now be conducting a question and answer session. And our first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Speaker 3

Thanks and congrats on that nice quarter. It's great to see the return to beat and raise. So Barbara, maybe relative to your internal expectations, what did you see from Traffic or maybe could you speak to the cadence of comp trends as the Q3 progressed? And then could you just elaborate on the improved holiday assortments that you cited in the release.

Speaker 4

On the traffic trends, as we mentioned, this is Michael Hartzorn Matt. As we mentioned in the prepared comments, with the comp down 3%, as we mentioned traffic did improve for Quarter, but it still declined versus the prior year. So offsetting the traffic declines Was a higher average basket. The back basket was driven by higher AURs while UPTs were flattish. The increase in the average basket was more than offset by the decline in the number of transactions.

Speaker 4

As we move through the quarter, what we saw on a stacked basis, so compared to 2019, Our trends improved as we progress through the quarter.

Speaker 3

Great. And then just follow-up, maybe relative to the Q3, Could you just elaborate on maybe the macro or the competitive landscape assumptions that you embedded in your 4th quarter comp guide? It does embed a moderation. Is that prudence? Is it something that you've seen?

Speaker 3

Where are you embedding more competitive backdrop and maybe a deterioration in the macro in the 4th quarter?

Speaker 4

I would say that from our point of view, the macroeconomic environment obviously remains uncertain, but we do think that the holiday period is Going

Operator

to be

Speaker 4

very promotional. So that's what we've embedded into the guidance. And then just as a reminder, last year, Sales at the end of the quarter did trail off. It's our easiest quarterly compare, trailed off for 2 main reasons. 1 was the And then, at this point last year, the supply chain continued to be a real Challenge for us and other retailers.

Speaker 5

Great color. Congrats

Speaker 3

again. Sorry, go ahead Barbara.

Speaker 1

Okay. The holiday assortment. So look, we believe our holiday service this year really have an improved offering of both branded bargains based off of availability in the marketplace And also particularly our gift giving because of the imbalances we had from the supply chain congestion as Michael just alluded to. So We feel between the 2 of those we'll be able to offer great brands, strong values and a broader assortment.

Speaker 4

Best of luck.

Speaker 1

Thank you.

Operator

And our next question comes from the line of Alex Stratton with Morgan Stanley. Please proceed with your question.

Speaker 6

Great. Thanks so much for taking my question. Just as it relates to the updated guidance, perhaps could you kind of talk about what the key swing factors

Speaker 2

This is Adam. Hey, so given our guidance of flat to minus 2% comps, we'll have some deleverage impact from sales. Markdowns will be higher than last year in Q4, but not as impactful as in Q3. Domestic freight, we see as slightly neutral, seeing some benefit in rate, but offset It's still elevated fuel prices. Ocean freight will probably be the most tangible Tailwind for us.

Speaker 2

As you remember last year, we're getting into the period where rates were Delating significantly demand was high. So that'll be a tailwind for us. And then given our outperformance last year and our underperformance this year, incentive costs will be lower in Q4 versus last year. And then finally, depending how the end of the year plays out, we'll likely see some pressure from packaway timing in Q4 also.

Speaker 6

Great. That's super helpful. Maybe could I just follow-up on your inventory levels? I think you said they were up Low double digits year over year exiting the quarter, which seems like a pretty lean level. So maybe could

Speaker 1

you tell us, do you feel

Speaker 6

like you have enough heading into the Q4 or how are you feeling about the levels and then just the broader assortment?

Speaker 4

Overall, we feel really good about where we are at the end of Q3. As we said in the prepared remarks, we ended up about 12 Which was a big improvement when we from the 2nd quarter when we were up 55%. And the increase over last year is really packaway inventory. So we were at 41% versus 31% last year And last year was relatively low versus our historical levels because we used a substantial amount of our Packaway To chase sales that were well above our plan.

Speaker 1

Thank you so much.

Operator

And our next question comes from the line of Mark Altschwager with Robert W. Baird. Please proceed with your question.

Speaker 5

Good afternoon. Thanks for taking my question. What do you view as the key drivers to the improving comp trends you saw this quarter? Are you seeing evidence that the trade down is now occurring? Do you think this is a reflection of the AUR strategy you outlined last Quarter, just if you could expand on your overall assessments there, that would be great.

Speaker 5

Thank you.

Speaker 1

Sure. From the Q2 to the Q3 from An assortment perspective, we went in and reset our values and got them to where we believe they need to be in this very promotional environment. So we right sized our values through some markdowns in some places and in some places we right sized some of our inventory as we were watching shifts go on in the business. And the other big shift is, apparel and home for us in the quarter performed relatively the same, But our shoe business, which was our best performing business was really, really fueled by strong values on branded products and availability in the market.

Speaker 4

And in terms of the trade down customer with so many moving parts in the economy, it's difficult to parse out the individual drivers Of the improvement, we have not seen a material shift in spending trends across different Income different demographics, but delivering better bargains to our consumer likely played the most significant role as it typically does.

Speaker 5

Great. Thank you. Best of luck over holiday.

Operator

And our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Speaker 7

Thank you. Good afternoon. I was just hoping you could square a couple of comments for Russ, you talked about resetting values and really focusing on the sharp price points and your AUR was up. So can you talk about The drivers of AUR in the quarter and then your views on the pricing strategy on a go forward basis.

Speaker 1

Sure. So Lorraine, value and price are 2 different things. So the merchants are out constantly assessing what's going on Pricing and competitive shopping and seeing what that is. So in some places where we felt that our AUR is just too high, We went in and took markdowns, but in other places based off of assortments and opportunities that we've gotten in the marketplace, The AUR might be higher, but the value is different. And then the last component would be some of the shifts in the mix of some of the businesses themselves.

Speaker 1

So for example, our shoe business has been strong and shoes obviously runs a much higher 80 1. So there's a variety of things. But what I would say in total is that, with back to being such a highly promotional environment that we're in, The merchants will be in the market really assessing where the values are moving and what that looks like and trying to stay ahead of that. So With the again back to the URA, you are questions that could depend on mix and that can depend on brand. So there's a variety of issues involved there.

Speaker 1

Thank you.

Operator

And our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Speaker 5

Hey, thanks. Good afternoon. Congrats on a great quarter. You called out Florida and Texas as being strong regions, but you didn't call out California, which is a little bit surprising given The checks that were sent out in the month of October. So just wondering if you could just give us a little bit more color on geographic performance in the quarter?

Speaker 2

Yes. This is Adam, Chuck. Florida and Texas clearly outperformed for us. We're seeing the benefit in border locations. We're seeing the benefit in tourism locations and those were clearly the outperformers.

Speaker 2

On the flip side, California underperformed in the quarter.

Speaker 4

And on California, the checks didn't come out to the end of the quarter, so it didn't have a material impact on Q3. In California, fuel prices have remained significantly more elevated than the rest of the country that is We believe squeezing the lower to moderate income customer.

Speaker 5

Okay. Thank you very much.

Operator

And our next question comes from the line of Paul Lejuez with Citigroup. Please proceed with your question.

Speaker 5

Hey, guys. I'm curious on what's going on from a shrink perspective. I've had a couple of companies call out, I think a drag from strength. I think you guys usually do a physical count in 3Q. So curious what you're seeing on that And then also just on inventory.

Speaker 5

Typically, 3rd quarter inventory is a few $100,000,000 above 2Q. Now that's a few 100,000,000 below. So I'm just kind of curious about what you're thinking is in terms of quantity and quality And how are you thinking about inventory levels relative to sales going forward? Thanks.

Speaker 4

On physical inventory, we did take a physical inventory during the Q3 and it was slightly higher than last year. And then on inventory levels in Q2, we were we believe we had too much inventory, which is why it's down Versus the Q2.

Speaker 5

And then go forward, Michael.

Speaker 4

I wouldn't comment on the on year end, but it's going to be dependent on packaway opportunities in the marketplace.

Speaker 8

All right. Thanks. Good luck.

Operator

And our next question comes from the line of Brooke Roche with Goldman Sachs. Please proceed with your question.

Speaker 9

Good afternoon and thank you so much for taking our question. Barbara, I was wondering if you could contemplate and reflect on based on the availability of branded goods in the market today, can you talk to The outlook that you see for merch margins for the next few quarters, how are you thinking about taking that mark on and passing that along through the P and L versus passing that value on to the consumer and competing for additional comp opportunity over the next few quarters? Thank you.

Speaker 1

Sure. As you know, there's a lot of availability in the market and it's really broad based and All categories, all brands, it's really broad. In terms of margin, I think the way we think about it now is The customer, our customer, especially the moderate to low income customer is really focused on value. So we'll look at every brand based off of how that brand sits in the world and the competitive nature of the Pricing of that brand and then we'll value it appropriately because that's really what the customer told us when we went in and we right sized some of our values that We weren't as competitive as we would have been historically. So I would look at it more from the opportunity of getting great brands on the floor, Putting better values out there to make to please the customer and then ultimately to drive sales.

Speaker 9

Great. And then just one quick follow-up. I think in the prepared remarks, you mentioned a sequential improvement at Didi's. Can you talk to the drivers of that and any change that you're seeing in the behavior of Your low income customer versus maybe more of a middle to high income customer within your portfolio?

Speaker 4

Sure. On the dd's, the improvement from Q2 to Q3 was similar than Ross, Although it continued to trail as a reminder, the dd's customers average household income is $40,000 to $45,000 versus $60,000 to 65 1,000 for Ross. So very similar improvement between Q2 and Q3.

Speaker 1

Thank you.

Operator

Our next question comes from the line of Michael Binetti with Credit Suisse. Please proceed with your question.

Speaker 5

Hey guys, thanks for your question. Congrats on a great quarter. You You guys are typically really conservative when it comes to the forward guidance. And others today and yesterday have spoken to softer start to Q4. Michael, I know you won't Speak specifically about intra quarter, but you mentioned maybe that fuel is going to neutralize some of the stimulus benefit in your biggest market, a few of your macro thoughts there.

Speaker 5

But What gives you the confidence to raise in the 4th quarter knowing what we know about the industry here a little different than how you approached a couple of most recent quarters? And then I guess, Michael, you've also spoken to us in the past about what your view is of a normal algorithm for this business, what flow through looks like on your normal sales target. Any initial thoughts on how flow through could look next year if we're lucky enough to be back to a conducive market for a normal comp?

Speaker 4

Sure. On the what gives us confidence on the guidance. So the multiyear stack in the Q4 is lower than what we actually achieved In the Q3, we're confident about the assortment that we have for the holidays And any conservatism would be based on the macroeconomic environment and what we think is going to be a very, very promotional holiday. In terms of the flow through for next year, as you would expect, operating margin improvements will Be highly dependent on sustained strong sales growth over time and then how quickly some of the inflationary Cost pressures subside, but I'd say over the longer term, we think we can achieve gradual improvement in profitability. As for 2023 specifically, we're in the midst of our budgeting process for next year currently and we'll be able to provide Update on our year end call when we'll have a better sense of the macro economy entering the year And to the opportunities we have in places like ocean and domestic freight.

Speaker 4

I would say also keep in mind with Lower incentive costs that had benefited our profitability this year will reset the baseline next year and thus incentives will be A headwind in SG and A.

Speaker 5

Okay. Makes sense. Thanks, Michael.

Operator

And our next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question.

Speaker 10

Good afternoon. Thank you very much. Excuse me. Barbara, can you talk about the buying environment and how much better it has gotten perhaps in the past 60 to 90 days since last quarter? And then how long does it take from say a contract negotiation to being able to get that product ready and available for sale in your stores?

Speaker 10

Thank you very much.

Speaker 1

Yes, the buying environment has gotten even better, broader, More brands, old classifications. So it has absolutely in the last 60 to 90 days, more vendors want to move more merchandise And also some new resources that perhaps we weren't doing business with before also want us to purchase some merchandise. So Yes, there's a lot of supply out there. Adrienne, just say the second part of your question again.

Speaker 10

Yes. I was wondering from the time that you actually, negotiated. Yes, yes,

Speaker 5

yes. Thank you.

Speaker 1

Tommy, sorry. Well, it depends how quickly a vendor can ship, right? So assuming I buy the goods on Monday and the vendor could ship on a In a week, probably takes about 3 to 4 weeks depending upon what there's a lot of variables here, Adrienne, where they're shipping somewhat easy to go with that. But basically, as a general rule, I would say somewhere between 3 to 4 weeks.

Speaker 10

Okay, fantastic. Best of luck for holiday. Congrats.

Speaker 11

Thank you.

Operator

And our next question comes from the line of Laura Champine with Loop Capital. Please proceed with your question.

Speaker 12

Thanks for taking my question. I'm interested in the contrast between what Looks like more promotional department stores this year versus last and the off price kind of effort to raise the ring a bit. How is your pricing umbrella holding up versus those mall based stores this year?

Speaker 1

Laura, we went in and actually went in and right sized some of our values and we'll continue to do that In the Q4, which is why we're saying built into our guidance, we have some additional markdowns in there. The promotional Calendar, I mean, you know what's going on out there. You can see it as everyone's trying to move through inventory in some places. The commercial calendar looks As sharp as 2019, as deep as 2019, a couple of businesses you say to yourself, it's a little deeper than 2019. But So the merchants are out there assessing that and then we're either buying to the value that we think we need to be based off of all the Why that's out there or we are going into revaluing some of the things that we have that we think we need to get to the right price value.

Speaker 1

But it is just as promotional as it's been historically. And so that's kind of the headset the merchants have as they're out there now making purchases in the outside world. And then of course the logic of every value is dependent upon the brand and how that fits in the outside world.

Speaker 12

Got it. Thank you.

Operator

And the next question comes from the line of Marni Shapiro with Retail Tracker. Please proceed with your question.

Speaker 13

Hey, guys. Congratulations on a great quarter and best of luck for holiday. If you could just I know you're not giving guidance yet for 23, but Is it fair to assume that store openings will be about the same for next year? Or is there any change to your thinking on dd's given the environment? And then I think, Barbara, I just want to chase a little bit more into the improved mix you said for the holiday season.

Speaker 13

Clearly, there's a lot of product out there, But were you referring to improved mix versus 2021 versus the first half versus the third quarter or just In general, there's so much inventory and we're having a good time.

Speaker 4

Marni, on the real estate front, We remain very confident in both chains and currently have no changes to our expansion plans. Certainly, we'll provide more details for 2023 when we report year end earnings.

Speaker 1

Okay. And then in terms of the mix, Marty, I would say, Going back to these two answers. Going back to Q4, we missed a lot of gifting opportunity last year because of the whole Supply chain carrier issues. So specifically the Q4, that's one piece of it. In terms of versus The entire year, there's just a lot more brands out there.

Speaker 1

So I think it's a combination of both being able to get Yes, really great closeouts, better pricing and better brands. And the other piece of where there just were holes, literally holes in our assortment, so it's both.

Speaker 13

That's great. Best of luck for holiday guys.

Speaker 4

Thank you, Martin.

Operator

And our next question comes from the line of John Kernan with Cowen. Please proceed with

Speaker 14

Great. Thanks for taking my question. Congrats on the momentum into Holiday. So Michael, if we look at your sales productivity just simply through sales per square foot, sales per store, it's above pre COVID levels. The operating margin obviously is below, but it seems like there's momentum into the Q4 and next year And you might have line of sight in terms of how to get back to pre COVID levels of operating margin.

Speaker 14

What do you think is what do you have the clearest Line of sight in terms of is it freight? Is it merchandise margin? Is it SG and A leverage, what do you think creates the clearest path back to pre COVID levels of profitability?

Speaker 4

Well, sales number 1. There are structural changes in wages across the U. S. But I don't think you're going to get that back to the labor that you had pre COVID. Certainly ocean freight is going to be A tailwind for us going into 2023, I would say domestic freight should be a tailwind as well, but that will be partly dependent on diesel fuel prices that are above $5 now and so it'll be partly dependent On what happens with fuel.

Speaker 4

But most importantly, it will depend on top line sales.

Speaker 14

Got it. Thank you.

Operator

And our next question comes from the line of Jay Sole with UBS. Please proceed with your question.

Speaker 5

Great. Thank you so much. My question is just with all the inventory out there, not just in terms of apparel and footwear, but many categories, are you seeing any opportunities to Expand the business into some new areas, new categories that maybe, you haven't before just because the buys are so good?

Speaker 1

Look, I would say that the merchants are out there looking for all kinds of buys. And yes, that does happen. You wind up opening up some new resources, which we have, as there's availability and the vendors are looking To support me with people. So, it's both. I mean, we're absolutely doing that and that's a piece of it.

Speaker 5

And Barbara, do you think that can continue?

Speaker 1

Well, I think once you open A resource or even start shopping a resource even if the resource doesn't have merchandise that minute, usually things over time if you keep going back, you'll open the resource up. I think after this supply bubble really, really dies down and we do expect it to go into next year There is so much merchandise and I think there's a lot of we don't really have full line of sight to what will be full product that's in front of Since November, yes, I think there's just I don't know what to say. I think there's opportunities and there's some businesses we could go into and some different categories, not whole businesses, but category

Operator

And our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

Speaker 5

Hi, everyone. This is Jesse Sobelson on for Ike. Thanks for taking our question. We were just wondering, as we look To pre COVID margins, I think it was mentioned a bit earlier in the Q and A, you were hovering around 13% pre COVID, but you mentioned some higher structural costs such as wages. Is This pre COVID margin still attainable sometime over the next few years or should we be thinking about a recovery, but maybe landing somewhere below those pre COVID levels?

Speaker 14

How are you guys thinking about that?

Speaker 4

Sure, Jesse. I wouldn't predict where it's going to land other than any The ability over time is the way I'd answer that question.

Speaker 14

All right. Well, thank you.

Operator

And our next question comes from the line of Anisha Sherman with Bernstein. Please proceed with your question.

Speaker 15

Yes, thank you. Barbara, on your point about resetting the value proposition, have you seen turns pick up sequentially through the quarter? And is that what drove the in store Tory is to be so lean as you continue to lean in on markdowns. And then Adam, you mentioned earlier on an expectation of an easing of Markdowns in Q4, should we interpret that you're now reaching the level of turns that continue to be strong through the quarter and now you're Happy with where your value proposition is. Have you seen the trend stay strong kind of exiting the quarter and into Q4?

Speaker 15

Thank you.

Speaker 4

Anish, on absolute inventory levels, these are the inventory levels we've been running throughout the year. We always prefer to be in Chase, and this is the way we typically run the model and we'll continue to do so going forward. But the inventory levels, Again, in store, in front of the customer were up over last year, but down versus pre pandemic level.

Speaker 2

Yes. And Nisha, building on that a little bit, your question about the markdowns, we've layered some additional markdowns versus last year into our Q4 guidance and That's really largely driven. We know this is going to be a highly promotional environment, and we'll see how highly promotional it is, but Just want to be prepared for that.

Speaker 15

But can I clarify, Adam, so it's up versus last year, but is it right to say that Easing sequentially versus where you were this quarter?

Speaker 2

Yes, absolutely.

Speaker 1

Okay. Thank you.

Operator

And our next question comes from the line of Cory Taylor with Jefferies. Please proceed with your question.

Speaker 8

Hi, good afternoon. Congrats on the quarter and thanks for taking my question. So on new stores, I was wondering if you I know you talked about completing your 2022 store growth plans. I was wondering if you could discuss a little bit about new store productivity, How that's looking versus what your benchmarks are and any additional color that you can add specifically on just new store performance?

Speaker 4

Sure. So for us, a new store, overall in the fleet of stores will typically come

Speaker 14

Out of

Speaker 4

the box at 60% to 65% of the chain average, and that continues to be the case, Even on the new store openings over the last couple of years.

Speaker 8

Great. Thank you very much. Best of luck.

Operator

And our next question comes from the line of Bob Drbul with Guggenheim Securities. Please proceed with your question.

Speaker 2

Hi, good afternoon. Just two quick questions. On, I guess, Didi's versus Ross, Are the state performances, Texas, Florida versus California, what you said, is it holding True for both formats in terms of the sales performance. And then just on the other side of it is In terms of your mix or your opportunity in categories, what do you think in terms of where you outperformed Your expectation in the Q3, like which categories surprised you the most I would say? Could you share that with us?

Speaker 2

Thanks.

Speaker 4

Sure. On the dd's question, we typically the state performance is really on a consolidated basis, which is what we discussed. We don't get into the dd's. Again, I would just reiterate that overall, dd's improvement, I would say across the board was very Similar to Ross, but continues to trail.

Speaker 1

And in terms of merchandise mix or performance Outperformed, I mean, shoes really outperformed. Other businesses that outperformed would be some of the center core businesses. From a term perspective, and a Visa plan.

Speaker 2

Great. Thank you.

Operator

And our final question comes from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your question. Hi.

Speaker 11

This is Dan Stroller on for Simmons. Thanks for taking our question. On the topic of margin recapture, I think in the past you've talked Leveraging added technology in store or at the DCs for efficiency and cost reductions. Just wondering where you stand in that regard or if there's more to come, Basically what inning you're in that chapter? Thank you.

Speaker 4

I would answer that by saying we're constantly in the 3rd Four things. So we always have new investments we're making. Those include automation in the DCs, In stores, they're ranging from automated robotics in the DCs. We're piloting self checkout in the stores and also in the stores More efficient ways to check inventory and take markdowns for our store associates. And we constantly have Investments where we're trying to be more productive and efficient in the business.

Speaker 11

Great. Thank you. Best of luck.

Operator

There are no further questions at this time. And I would like to turn the floor back over to Barbara Rentler for any closing comments.

Speaker 1

Thank you for joining us today and for your interest in Ross Stores.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a

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Ross Stores Q3 2023
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