Ross Stores Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 16, 2023

There are 18 speakers on the call.

Operator

Afternoon, and welcome to the Ross Stores Third Quarter 2023 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 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 2022 Form 10 ks and fiscal 2023 Form 10 Qs and 8ks on file with the SEC.

Operator

And now, I'd like to turn the call over to Barbara Rentler, Chief Executive Officer.

Speaker 1

Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer Adam Orvos, Executive Vice President and Chief Financial Officer and Connie Cao, 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, we are pleased that both sales and earnings outperformed our expectation for the quarter as customers responded favorably to the terrific values we offer throughout our stores.

Speaker 1

Operating margin for the period was 11.2%, up from 9.8% last year. Leverage from the same store sales gains and lower freight costs were partially offset by higher incentives and store wages. Earnings per share for the 13 weeks ended October 28, 2023 were $1.33 Compared to earnings per share of $1 last year. Net income for the period rose to $447,000,000 versus $342,000,000 in the prior year period. Total sales for the quarter We're $4,900,000,000 up from $4,600,000,000 last year with a comparable store sales gain of 5%.

Speaker 1

For the 1st 9 months earnings per share were $3.74 on net earnings of $1,300,000,000 Compared to $3.08 per share on net income of $1,100,000,000 for the same period last year. Sales for the year to date period grew to $14,400,000,000 with comparable store sales up 4% over last year. For the Q3 at Ross, cosmetics, accessories and shoes were again the strongest performing businesses, while geographic results were broad based. Like Ross, dd's Discount Shoppers also responded favorably to its strong value offering, Driving improved sales trends during the quarter. At quarter end, total consolidated inventories were up 5% versus last year, while average store inventories were up 2%.

Speaker 1

Taco and merchandise represents 39% of total inventory versus 41% in the same period of the prior year. During the Q3, we also completed our expansion program For 2023 with the addition of 43 new ROTH and 8 DDs discounts. For the year, we added a total of 97 locations We now expect to end the year with 1764 Ross Stores And 345 these discount locations for net increase of 94 stores. Now Adam will provide further

Speaker 2

Thank you, Barbara. As previously stated, Comparable store sales rose 5% in the quarter, primarily driven by higher traffic. Operating margin increased This points to 11.2%. Cost of goods sold improved by 260 basis points in the quarter. Merchandise margin was the main driver with a 2 35 basis point increase primarily from lower ocean freight costs.

Speaker 2

Distribution expenses improved by 45 basis points, mainly due to favorable timing of Packaway related costs. Domestic freight and occupancy levered by 4025 basis points respectively. Partially offsetting these benefits were higher buying costs that increased 85 basis points mainly from higher incentives. SG and A costs for the period increased by 125 basis points, primarily driven by higher incentive costs and store wages. During the Q3, we repurchased 2,100,000 shares of common stock for an aggregate cost of $239,000,000 We remain on track to buy back a total of $950,000,000 in stock for the year.

Speaker 2

Now let's discuss our 4th quarter guidance. We continue to face macroeconomic volatility, Persistent inflation and more recently geopolitical uncertainty. In addition, we are up against our most difficult Quarterly sales comparisons versus 2022 in the Q4. As a result and while we hope to do better, we believe it is prudent to maintain a cautious approach in forecasting our business and are reiterating our prior sales guidance for the Q4. For the 13 weeks ending January 27, 2024, we continue to plan same store sales to be up 1% to 2%.

Speaker 2

Earnings per share for the 14 weeks ending February 3, 2024 are projected to be in the range of 1.56 to $1.62 compared to $1.31 in the Q4 of 2022. This guidance range includes an approximate $0.02 per share unfavorable impact from the timing of expenses that benefited the 3rd quarter. Based on our year to date results and our Q4 forecast, earnings per share for the 53 weeks ending February 3, 2024 are now expected to be in the range of $5.30 to $5.36 versus $4.38 last year. Incorporated in this guidance for both the Q4 and full year It's an estimated earnings per share benefit of $0.16 from the 53rd week in fiscal 2023. The operating statement assumptions that support our Q4 guidance include the following.

Speaker 2

Total sales are projected to grow 8% to 10%, including an estimated $260,000,000 benefit from the 53rd week. We expect operating margin to be in the range of 11.3 to 11.5% versus 10.7% last year. This range includes a 65 Basis point benefit from the extra week. We are planning for higher merchandise margins given lower ocean freight cost though moderating from the improvement earlier this year. In addition, lower domestic freight and distribution costs, partially due to favorable packaway timing are expected to benefit margin.

Speaker 2

Partially offsetting these lower costs is our forecast for higher incentive of compensation. Net interest income is estimated to be about $45,000,000 as we continue to benefit from higher interest rates on our cash balance. Our tax rate is expected to be approximately 23% to 24% And weighted average diluted shares outstanding are projected to be about 335,000,000. Now I'll turn the call back to Barbara for closing comments.

Speaker 1

Thank you, Adam. Looking ahead, despite all the challenges in the external environment, We are encouraged by our healthy above plan results to date this year. We also remain confident in the resilience of the off price sector And our ability to operate successfully within it, especially given consumers' heightened focus on value and convenience. As a result, we remain optimistic about the company's future prospects and our ability to expand market share and profitability over time. At this point, we'd like to open up the call and respond to any questions you might have.

Operator

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

Speaker 3

Great. Thanks and congrats on another nice quarter. So Barbara, could you elaborate on changes across categories that you've made to increase your value focus. It seems like that was a clear takeaway from your comments. Maybe also if you could speak to the cadence of traffic that you saw as the Q3 progressed and just how you see your assortments positioned in the holiday to take share?

Speaker 4

Matthew, I'll start with the traffic. As we said in the commentary, traffic was The primary driver of comp for the quarter on a stack basis, the comps were fairly consistent across the quarter With a couple of fits and starts late in the quarter regionally with weather, as it always is this time of year. That said for the entire quarter weather was neutral.

Speaker 1

And that by change across categories, you mean Performance?

Speaker 3

More the value focus. I think you talked about a greater value focus starting in the second quarter. It sounds like it resonated further in the third Quarter. So just maybe changes that you've made as it relates to that?

Speaker 1

Well, the value changes that we've made across the entire box. So the merchants are out there really looking for great branded products where they can offer compelling value. So that's really it's not in any one area, it's across the box. Now obviously some businesses are further along than others as you would expect. But that's a company wide focus now to offer the most compelling value to the customer at this time.

Speaker 1

And changes to the assortment of the Q4 or just share is really after gifting. We've expanded some of our products in gifting categories, which I wouldn't talk about on the call, but it's really a focus on gifting.

Speaker 3

Great. And then maybe as a follow-up, Adam, Help us to think about merchandise margin recapture opportunity in the Q4, just given the environment a year ago. And any change in terms of flow through in the model on 3% to 4% same store sales as we think more multi year?

Speaker 2

Yes. On the latter part, no change in the flow through the model, right? We still expect to lever on the 3 to 4 comp. In your question on merchandise margin was 4th quarter specific? Yes.

Speaker 2

Yes. So, ocean freight, which we've benefited from all year, will still be a benefit in the Q4. But as we said in the call, comments will moderate Considerably, we started to see pretty significant rate reductions about this time last year. So will there be further benefit in Q4, but not like we have seen in the 1st 3 quarters of the year? Would expect That really to be the main driver on merchandise margin.

Speaker 2

All of our components should be pretty consistent with last year.

Speaker 3

Great. Best of luck.

Operator

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

Speaker 5

Great. Thanks for taking the question. I guess first, your plan for the 4th quarter top Hasn't really changed despite comps exceeding the high end of your plan by a couple of 100 basis points in the Q3. Curious, does that give you more confidence in the upside case? Or are there things you've seen in recent trends that would suggest a more material quarter over quarter deceleration is the right expectation?

Speaker 4

It's Michael again. I would say for the most part it's there's a lot going on in the external environment whether it's a macro economy. We expect it to be a very promotional retail environment and now you have geopolitics into the mix And it is our toughest compare for the year. So given everything going on externally, we think it's prudent to remain Very conservative in running the business in the Q4.

Speaker 5

Thank you. And maybe a follow-up for Barbara. The North American wholesale channel continues to be challenging for many vendors given the dynamic macro. I'm curious what you're hearing with respect to product availability heading into calendar 24. Thank you.

Speaker 1

Well, currently there's a lot of availability in the market as I know you know that. Here's how I look at availability at this point. Vendors in this environment, vendors are really looking for ways to increase their market share. And so they've shifted some of their business towards the growing retail channel. So if in fact they get less bookings, We talked about them having less bookings for fall and there's still availability.

Speaker 1

So bookings are one thing, then how much they decide to Bring in to drive market share or to shift challenges and other things. So I don't necessarily think they're the you can judge just By bookings, what they say about their bookings and quite frankly, there are some vendors that are really looking to gain market share in So it's kind of a mixed bag, but They're really looking to expand who they do business with and to shift channels. I think that's the reason why goods continue to become available.

Speaker 5

Thank you.

Operator

Thank you. The next question comes from the line of Paul Lejuez with Citigroup. Please proceed with your question.

Speaker 6

Hey, thanks. I'm sorry if I missed it, but could you talk about performance in the Home category and then also, I was curious about store performance based on income, demographic The location, so any change

Operator

in terms

Speaker 6

of how any specific income cohort behaved during the quarter? Thanks.

Speaker 4

Paul, on the income, as we said in the commentary, the comp performance was fairly broad based across geographies, but also What I'd say is trade area demographics including income. So your bigger question is, are you seeing a trade down? We Very broad based performance across income levels.

Speaker 1

And in terms of the home performance, Home performed slightly below the chain average.

Speaker 6

Got it. Thanks. And then just a follow-up on the merch margin, I think you mentioned Freight was a big driver, but can you talk about pure merch margin outside of freight? Just IMUs markdowns, What the out the door, merch margin was on a pure product basis?

Speaker 2

Yes, Paul. I won't go through component by About the merch margin, in addition to the ocean freight benefit, but if you back ocean freight out of it, We were better than last year as we anniversary the markdowns that we took last year. So Q3 last year was kind of Our peak quarter for incremental markdowns last year.

Speaker 7

Got it. Thanks. Good luck.

Speaker 2

Thanks.

Operator

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

Speaker 1

Thank you. Good afternoon. What were the drivers of Didi's improved sales trends during the quarter? And is that now running in line with Ross?

Speaker 4

Sure, Lorraine. As Didi's as we said also improved and were relatively in line with performance at Ross. We believe the improved performance here like it is at Ross is the customers responding to the broad assortment of values throughout the stores and I'd also add easing inflation certainly doesn't hurt this customer.

Speaker 1

Thank you. And then any update on shrink from your recent physical inventory?

Speaker 2

Yes. Lorraine, in Q3, so we took our 2nd physical inventory of the year and Q3 and trued up those results the results were in line with our expectations and in line with last year. Thank you.

Operator

Thank you. The next question comes from the line of John Kernan with TD Cowen. Please proceed with your question.

Speaker 8

Excellent. Nice job in 3Q. Barbara, your buyers are obviously doing a great job passing on value to the consumer. I'm wondering how initial markup trends are as we as you focus on value?

Speaker 1

Well, obviously, we're not going to talk about IMU. But I think as the merchants are in the market And they're really looking for compelling deals. They obviously have metrics that they should hit and I would say that they do that. But if there's a really unbelievable deal, we're going to price it the way we think we need to price it. Our strategy now is really to continue to deliver value.

Speaker 1

And so again, there's metrics everyone sitting in metrics, but that's the focus. What is the right price? What is the right value to drive the customer in the store to gain market So that's the headset that everyone does.

Speaker 8

Understood. And Adam, when you look at the model, what do you Think it's the line item in either COGS or SG and A that has the most potential for improvement if you maintain the 3% to 4% same store sales going forward?

Speaker 2

We're just getting into the we're working our way through the planning process. We'll come back and talk to you at the end of the year and kind of frame up How we see that go forward at that point in time? I think just to give you some generalities, feel like We've recaptured most of the ocean freight at this point. When we look at container rates now are Very similar to where they were in 2019. So we think by the end of the year we'll capture all that benefit.

Speaker 2

On the domestic Side of freight, we've recaptured some but certainly not at 2019 levels given the elevated Fuel cost and elevated driver wages since 2019. You know, pushing very hard on the other components, we'll come back and tell you more about the puts and takes at the end of the year.

Speaker 8

All right. Best of luck in the holiday. Thank you. Thanks.

Operator

And the next question comes from the line of Chuck Guram with Gordon Haskett, please proceed with your question.

Speaker 9

Thanks a lot. Nice congratulations. Can you provide color on the trend Good size and the composition between AUR and UPT this quarter and if you see that changing going forward over the next few quarters? Thanks.

Speaker 4

Sure. And as we said traffic was the primary driver of the 5% comp. Average basket was up just slightly As an increase in the units per transaction was partially offset by slightly lower average unit retails. And if we think about it going forward, we'd like it to be driven by traffic, but we don't plan our business around The components. We plan the business on offering the best value And if we get traffic in a basket size increase, that's great for the business.

Speaker 1

Great. Thanks.

Operator

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

Speaker 10

Good afternoon and thank you for taking our question. I was hoping you could discuss the puts and takes behind your SG and A growth now that we've moved Through the periods of elevated incentive comp investment this summer, how should we be thinking about the growth of that line item going forward? And in particular, can you elaborate on what you're seeing in terms of store wage rate inflation? Thank you.

Speaker 2

Hi, Bert. This is Adam. Yes, so Store wage continue as we said in the comments, they'll continue to put pressure on us. That's largely driven by minimum Wage changes that we need to take in the marketplace. But I would say overall on SG and A, the biggest moving part this year has been incentive comp, Right.

Speaker 2

So as you'll remember, very little incentive comp last year and not only did we have to reset The bar this year, but we're obviously outperforming our financial plan. So that's the biggest kind of volatility in the SG and A line.

Speaker 4

I'll just add on the wage front. I mean generally speaking wages have stabilized throughout the stores And the DCs and any increases we're seeing are really driven by minimum wages. On SG and A going forward, I think we'd expect that we'd be able to lever Between the 34 comp as we have in the past.

Speaker 1

Thank you very much.

Operator

And the next question comes from the line of Michael Binetti with Evercore. Please proceed with your question.

Speaker 11

Hey, guys. Congrats on a great quarter. It's nice to talk to you. I just want to ask, do you think, Michael Adam, jump ball, what do you think about what do you look at today to inform you as whether there's some opportunity in the pure merch margin For next year, puts and takes that you're thinking about. Barbara, you mentioned seeing some you mentioned some great comments on some of the brand availability.

Speaker 11

Is there There's an opportunity for AUR as you guys get better access to quality brands. And then I noticed you opened a bunch of handful of stores in Michigan and A few months ago in one single store in Minnesota, these are new markets even though we heard you guys talk so favorably about how the Midwest has gone since you Launched it maybe 12 years ago. It seems like you're starting to move into some new markets, some fairly big ones, maybe just some thoughts on the new market strategy.

Speaker 4

Sure. On merchant margin for next year, we're in the middle of our planning process now. So I'd wait until Our year end call and we can give you some more feedback on that. As you mentioned, we entered Michigan and Minnesota during the Q3. It's very early on those.

Speaker 4

So hard to comment at this stage other than we're very optimistic about our new market growth.

Speaker 1

And then in terms of brands and the AUR increase, really I know it sounds like, if I'm going back We really are looking at every deal based on the value we put out on the floor. And so obviously, if they're higher end brands, Those goods would even at great values would have higher ARR, but it's really a mix of all brands whether they're moderate, they're better, They're good, better, best, whether they're best. That's how we're really approaching it. So in terms of just saying I'm going to raise the AUR because the increased tax to the total, that's not how we're thinking about it. We're thinking about it more holistically and That's the piece of customers responding to.

Speaker 6

Thanks a lot guys. Congrats.

Operator

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

Speaker 12

Great. Thank you very much. And I'll add my congratulations. Barbara, I often am on this topic of your packaway and your short stay. Historically, when we have sort of Disruptive weather and kind of like the unseasonable weather in the early in the quarter, you're able to use your short stay flexibility to kind of Nathan, to that, I'm just wondering how advantageous has that been this season or is the macro kind of More challenging macros that are overwhelming that.

Speaker 12

Thank you very much.

Speaker 1

I just want to make sure I understand what you're saying. You're saying that did we get seasonal product Early and call the first close in the Q4?

Speaker 12

Yes. I think it's more that Weather has not transitioned to cold for any long permanent period of time. So we're hearing frontline retailers talk about that lower their 4th quarters And there is a disconnect between how much they've ordered, and things that they need to get rid of. So I'm wondering if that's been a benefit to you?

Speaker 1

At this point in time, the goods are obviously building because the weather has been warmer than people anticipated. But there's a moment in time when vendors decide to really move the goods and that really becomes really more longer term pathway. So if you're thinking outerwear, whether it's Classifications like that. Yes. That really would be longer term versus shorter term deals.

Speaker 1

Could still get deals in front of us, but really that's really more of a Longer term play that vendors at the end of the year decide what they want to do when they're figuring out what they're going to buy for the next year. So short term, I think people are just Having reality check of where they are with some of those classifications of products. So the real answer, I guess, is more news to follow. But at this moment in time, It hasn't been they haven't had a big movement if that's what you're looking for, a big movement

Speaker 12

Okay. Very helpful. Thanks so much. Happy Thanksgiving.

Speaker 1

Yes. Thank you. And the

Operator

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

Speaker 13

Great. Thanks a lot for taking the question. Nice quarter, guys. Maybe for Barbara, some peers have highlighted opportunities in new or adjacent In categories, so I'm just wondering, has Ross entered any newer categories recently? Or what kind of thoughts do you have On opportunities in general and then any changes in category mix shift that you guys have done?

Speaker 13

Thanks a lot.

Speaker 1

Sure. Yes, we have entered into some new categories. Obviously, I'm not going to talk about it on the call. But yes, for the Q4, we entered some different categories for gifting, which are going on the floor now and into December. And then just opportunities in general As we move into next year, I think we have some opportunities in expanding certain businesses and then also coming back into some businesses that we exited, I would say sometime during COVID.

Speaker 1

So I think there is an opportunity for us to have more newness on the floor, which is really what the customer that plus Value is really what the customers respond to. So every year we go in and look and say, what else can we expand, what else can we do? But this year we have Yes, we have our categories in mind, not in mind, where we are going for spring.

Speaker 13

Thanks a lot.

Speaker 1

Good luck.

Operator

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

Speaker 14

Hey, guys. Congratulations. And if I forget, best of luck for the holiday season. But I'm curious just on Didi's, if we can dig in a little bit there. Are you with people looking to trade down with their wallets a little tighter, are you finding that you are attracting more new Into that brand and the traffic trends that drove the comp in the quarter, was that also true for Didi's?

Speaker 14

And then I recall, Didi's tends to have a little bit more family focus. You tended to have a little bit more kids and Toy Focus even. I'm curious how you feel about the lead up to holiday with the assortments and values there. And is that still the case in DDs actually?

Speaker 4

Marni on traffic. So traffic like Ross, the comp for Didi's was entirely driven by traffic.

Speaker 1

Excellent. And then in terms of assortment, yes, it is a family focused box and The Didi's customer does have more children. So businesses like toys in the Q4 become very important to the total.

Speaker 14

Also holiday dresses, do you do that business as well in Didi's?

Speaker 1

We do all those businesses. All the traditional businesses you would expect, You expect holiday dresses, you expect toys, you expect anything I'll call it family photo shoot and then Boys or other little things that they give kids.

Speaker 14

And can I just ask a follow-up on that? Are you seeing at Didi's that the customer is now coming to Didi's for these big holiday events like for Halloween, for Christmas? Does that customer come to dd's more regularly? Is it part of their regular trip of stores to go to?

Speaker 1

I think it's part of their regular stores to go to. And do they like seasonal products, Halloween, Harvest, Christmas? Obviously, Christmas is very big. Yes.

Speaker 14

Fantastic.

Speaker 1

I don't think they get up in the morning and say, I need to go buy some Halloween. I think You know what I'm saying? They're going to the store. They're seeing things that they like and I think it's impulse purchases probably for everyone.

Speaker 14

Fantastic. Love that. Thank you so much. Best of luck for the holidays for Black Friday weekend time.

Speaker 3

Thank you.

Operator

Thank you. And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.

Speaker 15

Hi, congratulations on the nice results. Can you give some color on the regional performance and what you saw California, maybe Texas And any of the other areas? And then also on categories, I think last time on last quarter's call, you mentioned that apparel trailed But improved sequentially, what did you see this quarter? Thank you.

Speaker 4

Regionally, Dana, our largest markets, California was above the chain average, Texas and Florida were in line. And as we mentioned on the call, it was very broad based across the country.

Speaker 1

And then in terms of apparel, it's slightly trailed the chain Average and the comps were relatively similar between Q2 and Q3, but they did exceed plan.

Speaker 15

Thank you.

Operator

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

Speaker 10

Thank you. So Barbara, as retailers and brands have been talking about clearing excess stock, Are you seeing any change in your inventory mix and your percent of closeout like through the year? Are you seeing more importing and more upfront buying? And I have a quick follow-up for Adam. You mentioned labor costs and wages stabilizing.

Speaker 1

Can you

Speaker 10

talk about some of the new labor cost saving models you've been piloting like Self checkout and any updates you can share on the rollout of those? Thank you.

Speaker 4

On the Self checkout, we're in a very small number of stores. And as you can imagine, we're going very slowly to make sure we get it right. We're in about 100 stores right now and we're going to continue to pilot the operating model that we have there and We're very cognizant of the shrink environment, so we're going to go slow.

Speaker 1

And then in terms of upfront versus closeouts as the year progress, I mean, it's pretty similar. It can peak up and down a little bit in the Q4. You have our home business, some of that's more DI, So that gets bigger versus the rest of the year, but I would say it's similar. I think closeouts have come across All year, pretty much, in most businesses. And so I think, yes, I don't see a bigger shift.

Speaker 1

It could have gone Up or down 2 or 3 points, but nothing major.

Speaker 2

Hey, Anish, this is Bob. Just building on those comments. Within our CapEx, we're definitely investing in technology, more automation in our distribution centers. We're spending money in our storage just to automate a lot of our non customer facing tasks, More efficient ways to take markdowns and check inventory, and also just investing in more analytics in the business.

Speaker 10

Great. Thank you.

Operator

And the next question comes from the line of Cory Tarlow with Jefferies.

Speaker 7

Great. Thanks.

Speaker 1

I was

Speaker 7

wondering if you could talk a little bit about what you saw In footwear, I'm not sure if you did highlight it or if I missed it, but it would be great to get color there.

Speaker 1

Sure. Shoes again was one of our best performing businesses and that was broad based across all of

Speaker 7

Got it. Thank you. And then just as it relates to higher buying costs, I believe you highlighted, could you Discuss what drove that?

Speaker 2

The higher buying was all incentive cost related.

Speaker 7

Got it. Understood. Thank you very much.

Operator

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

Speaker 16

Thanks for taking my question. It's really about California wage rates, not just with the minimum Wage increase, but also the fast food wage increase slated for the New Year. How much of that how much of a material impact do You think that might have on your expense lines for next year?

Speaker 4

Laura, obviously we've been tracking up in California for some time with their minimum increases there. It's been a competitive market For us for a long time, I think in regards to the fast food workers we'll have to see how that spills over, but We believe we recruit from a different pool than the fast food industry.

Speaker 16

That's helpful. If I could get Vacation, a general sense of what percentage of your employees of your store level employees are in California? Will that line up with your store count?

Speaker 4

It will be a little higher than our store count because those Tend to be higher volume stores, but slightly above our store count, I'd say.

Speaker 16

Thank you.

Operator

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

Speaker 17

Hi, this is Ariane Rezaei on for Bob. It looks like inventories are up 5% on a 5% comp increase. Could you please expand On backaways, given a great brand availability, the reason backaways have been trending down a couple of percentage points, below last year and every quarter this year. Any changes in Approach, factor of higher deployment of product, is it like better inventory productivity at stores? Any additional color would be super helpful.

Speaker 17

Thank you.

Speaker 1

Really no change to how we're running Packaway. Sometimes when your business is very good and we've chased a lot of business this year,

Speaker 8

Good that

Speaker 1

we buy a pack with flow. So we've been in a constant chase and the thing about pack ways when you're buying goods that you're going to hold, you have to be We show that the values are correct. So the merchants are very discerning in what they buy when they put and pack away because when you're bringing it back out, you Want to make sure that the value is right. So I don't think there's any way to look at Packaway. There's a lot of goods out there.

Speaker 1

Could we Packaway Just put more goods into our factory, we could. I think it's the merchant's job to really put the best product in there, the best possible values and you know we're focused Very focused on value. And so I don't think there's anything to read into. We feel very actually we feel very good about Content of Packaway that we own this year because there's been a lot of very good deals and a lot of good products out there. So, we have plenty of money to buy Hackaways, we'd like to buy some, but that's really that is really comes from merchant team.

Speaker 1

It's their call and what they believe is the right value. And then that's why therefore it can fluctuate that by the chase that we had in sales in the quarter.

Speaker 7

Got it.

Speaker 17

Got it. So would you say that the product This year resonates better with the consumer like from the value perspective?

Speaker 1

You mean the Pathway product or just product in general?

Speaker 17

Just product in general.

Speaker 1

I think the customer is really responding to the better values. Clearly, she's pressed financially pressed and even though She's still under pressure. And so whenever you can give the customer a better branded bargain at an unbelievable value, She's going to respond, which is why we're highly focused on that and that would therefore take us through stronger market share.

Speaker 17

Got it. Thank you so much and happy Thanksgiving.

Operator

And ladies and gentlemen, there are no further questions at this time. I'd like to Pass the call back over to Barbara Rentler for any closing comments.

Speaker 1

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

Operator

And this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Ross Stores Q3 2024
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