ROSS STORES, INC. (ROST)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores—Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,831 locations in 43 states, the District of Columbia, and Guam, as of February 1, 2025. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 355 dd’s DISCOUNTS stores in 22 states as of February 1, 2025 that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Our primary objective is to pursue and refine our existing off-price strategies to maintain and improve both profitability and financial returns over the long term. Macroeconomic pressures and uncertainties continue to impact both consumer confidence and discretionary spending. We are closely monitoring these external factors, along with market share trends for the off-price industry. We believe that our flexible business model better positions us to navigate through uncertainty, and we plan to continue to focus on strong execution of our key initiatives. We believe that our market share gains can continue to grow through our continued focus on bringing value and convenience to our customers.

Our merchandising strategies emphasize consistently offering a wide assortment of quality branded bargains for our customers. We believe that our merchandising and operational strategies enable us to deliver the most competitive bargains available to meet our customers’ ongoing demand for quality branded goods for the family and home at compelling discounts every day. Additionally, we anticipate the current retail environment will result in more opportunities for us to obtain close-out merchandise and to deliver even greater values on branded goods. We believe that staying diligently focused on executing our merchandising strategies is an important driver of our ability to gain market share in fiscal 2025 and the long term.

The fiscal years ended February 1, 2025, February 3, 2024, and January 28, 2023 are referred to as fiscal 2024, fiscal 2023, and fiscal 2022, respectively. Fiscal 2023 was a 53-week year. Fiscal 2024 and 2022 were each 52-week years.

The discussion that follows relates to fiscal 2024 and fiscal 2023. Discussion of fiscal 2022 items and year-to-year comparisons between fiscal 2023 and fiscal 2022 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal 2023.

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Results of Operations

The following table summarizes our financial results for fiscal 2024, 2023, and 2022:

Stores. Total stores open at the end of fiscal 2024, 2023, and 2022 were 2,186, 2,109, and 2,015, respectively. The number of stores at the end of fiscal 2024, 2023, and 2022 increased by 4%, 5%, and 5% from the respective prior years. In fiscal 2024, we opened 89 new stores. Looking forward to 2025, we expect to open approximately 90 new stores. Our long-term strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria. We continue to believe that consumers’ focus on value and convenience provide opportunities for us to gain market share.

The following table summarizes the stores opened and closed during fiscal 2024, 2023, and 2022:

The total selling square footage as of February 1, 2025, February 3, 2024, and January 28, 2023 was 43.9 million, 42.8 million, and 41.4 million, respectively.

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Sales. Sales for fiscal 2024 increased $752.3 million, or 3.7%, compared to the prior year. This was primarily due to the 3% increase in comparable store sales and the opening of 77 net new stores during fiscal 2024. Sales for fiscal 2023 included approximately $308 million from the additional week of sales due to the 53rd week.

Our sales mix is shown below for fiscal 2024, 2023, and 2022:

Cost of goods sold. Cost of goods sold in fiscal 2024 increased $458.9 million compared to the prior year primarily due to the 3% comparable store sales increase and higher sales from the opening of 77 net new stores during fiscal 2024.

Cost of goods sold as a percentage of sales for fiscal 2024 decreased approximately 40 basis points from fiscal 2023 primarily due to a 45 basis point decrease in buying costs mainly due to lower incentive compensation expense, a 45 basis point decrease in distribution costs, and a 30 basis point decrease in domestic freight costs. Partially offsetting these items was a 60 basis point decrease in merchandise margin primarily due to our continued efforts to offer more sharply priced branded bargains and a 20 basis point increase in occupancy costs.

Selling, general and administrative expenses. For fiscal 2024, selling, general and administrative expenses (“SG&A”) increased $15.5 million compared to the prior year. In December 2024, we completed the sale of a packaway warehouse facility and recognized a pre-tax gain on sale of $61.6 million. This sale, along with lower incentive compensation expense, partially offset the increase in SG&A which was primarily driven by the opening of 77 net new stores during fiscal 2024.

SG&A as a percentage of sales for fiscal 2024 decreased 50 basis points compared to fiscal 2023, primarily due to the gain recognized from the previously mentioned packaway facility sale and lower incentive compensation expense.

Operating income. Operating income as a percentage of sales for fiscal 2024 increased 90 basis points compared to fiscal 2023, primarily due to lower cost of goods sold and lower SG&A expenses.

In fiscal 2025, we expect operating income as a percentage of sales to be impacted by sales deleverage, higher distribution costs, and lower incentive compensation expense.

Interest (income) expense, net. In fiscal 2024, interest (income) expense, net improved by $7.5 million compared to fiscal 2023. Interest (income), expense, net as a percentage of sales, was flat compared to the prior year.

The table below shows the components of interest (income) expense, net for fiscal 2024, 2023, and 2022:

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Taxes on earnings. Our effective tax rate for fiscal 2024, 2023, and 2022 was approximately 24%. Our effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns. Our effective tax rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and the resolution of tax positions with various tax authorities.

Earnings per share. Diluted earnings per share in fiscal 2024 was $6.32 compared to $5.56 in the prior year. Fiscal 2024 earnings include a per share benefit of approximately $0.14 from the sale of the packaway warehouse facility. Fiscal 2023 earnings include a per share benefit of approximately $0.20 from the 53rd week. The $0.76 increase in diluted earnings per share in fiscal 2024 was primarily attributable to a 12% increase in net earnings and a 2% reduction in weighted-average diluted shares outstanding largely due to stock repurchases under our stock repurchase program.

Financial Condition

Liquidity and Capital Resources

The primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, operating and variable lease costs, taxes, capital expenditures related to our new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to repurchase stock under our stock repurchase programs, pay dividends, and repay debt as it becomes due. In September 2024, we repaid at maturity the $250 million principal amount of the 3.375% Senior Notes. As of February 1, 2025, we had $700 million principal amount of 4.600% Senior Notes that will reach maturity in 2025.

Operating Activities

Net cash provided by operating activities was $2.4 billion in fiscal 2024. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, stock-based compensation, and the gain on sale of property (i.e., packaway warehouse facility), partially offset by the payment of fiscal 2023 incentive bonuses in fiscal 2024. Net cash provided by operating activities was $2.5 billion in fiscal 2023. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation. Net cash provided by operating activities was $1.7 billion in fiscal 2022. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation, and an increase in deferred income taxes, partially offset by merchandise inventory payments and payment of fiscal 2021 incentive bonuses.

The decrease in cash provided by operating activities in fiscal 2024 compared to fiscal 2023 was primarily driven by

higher incentive compensation payments, partially offset by higher net earnings.

Accounts payable leverage (defined as accounts payable divided by merchandise inventory) was 87% and 89% as of February 1, 2025 and February 3, 2024, respectively. The decrease in accounts payable leverage in fiscal 2024 compared to fiscal 2023 was primarily due to the timing of inventory receipts and related payments versus last year.

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As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling merchandise purchase opportunities in the marketplace and our decisions on the timing for release of that inventory to our stores. Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to our store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchase, but typically packaway remains in storage for less than six months. We expect to continue to take advantage of packaway inventory opportunities to maximize our ability to deliver bargains to our customers.

Changes in packaway inventory levels affect our operating cash flow. Packaway inventory was 41% of total inventory at the end of fiscal 2024, compared to 40% at the end of fiscal 2023.

Investing Activities

Net cash used in investing activities was $637 million, $763 million, and $654 million in fiscal 2024, 2023, and 2022, respectively, and was primarily related to our capital expenditures. In fiscal 2024, capital expenditures were partially offset by cash proceeds from the sale of the packaway warehouse facility. Our capital expenditures include costs to build, expand, and improve distribution centers, open new stores and improve existing stores, and for various other expenditures related to our information technology systems and buying and corporate offices.

The decrease in cash used in investing activities in fiscal 2024 compared to fiscal 2023 was primarily due to lower capital expenditures in fiscal 2024 related to our new Buckeye, Arizona distribution center and cash proceeds from the sale of the packaway facility, partially offset by the purchase of land and the start of construction for our next distribution center.

Our capital expenditures over the last three years are set forth in the table below:

Capital expenditures for fiscal 2025 are projected to be approximately $855 million. Our planned capital expenditures for fiscal 2025 are for costs to open new stores and improve existing stores, investments in our supply chain to support long-term growth, including construction of our next distribution centers, investments in our information technology systems, and for various other expenditures related to our stores, distribution centers, and buying and corporate offices. We expect to fund capital expenditures with available cash. The increase in our planned capital expenditures for fiscal 2025 compared to fiscal 2024 is primarily driven by investments in our next distribution centers, new and existing store improvements, and various investments in our information technology systems.

Financing Activities

Net cash used in financing activities was $1.9 billion, $1.4 billion, and $1.4 billion in fiscal 2024, 2023, and 2022, respectively, primarily resulting from stock repurchases under our stock repurchase program and dividend payments. In fiscal 2024, we repaid the $250 million principal amount of the 3.375% Senior Notes in September 2024.

Revolving credit facilities. We have a $1.3 billion senior unsecured revolving credit facility (“Credit Facility”). As of February 1, 2025, we had no borrowings or standby letters of credit outstanding under the Credit Facility, the $1.3 billion Credit Facility remained in place and available, and we were in compliance with the financial covenant. Refer to Note D: Debt in the Notes to Consolidated Financial Statements for additional information.

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Senior notes. As of February 1, 2025, we had approximately $2.2 billion of outstanding unsecured Senior Notes, of which $699.7 million was classified within Current Liabilities on our Consolidated Balance Sheet. Refer to Note D: Debt in the Notes to Consolidated Financial Statements for additional information.

Other financing activities. In March 2024, our Board of Directors approved a two-year program to repurchase up to $2.1 billion of the Company’s common stock through January 31, 2026. This program followed the previous two-year $1.9 billion stock repurchase program, effective at the end of fiscal 2023.

The following table summarizes our stock repurchase activity in fiscal 2024, 2023, and 2022:

During fiscal 2024, 2023, and 2022, we also acquired 0.6 million, 0.5 million, and 0.5 million shares of treasury stock, respectively, from our employee equity incentive plans for aggregate purchase prices of approximately $86.1 million, $48.6 million, and $48.9 million, respectively.

On March 4, 2025, our Board of Directors declared a quarterly cash dividend of $0.4050 per common share, payable on March 31, 2025.

Our Board of Directors declared a cash dividend of $0.3675 per common share in March, May, August, and November 2024. Our Board of Directors declared a cash dividend of $0.3350 per common share in February, May, August, and November 2023, and a cash dividend of $0.3100 per common share in March, May, August, and November 2022.

During fiscal 2024, 2023, and 2022, we paid dividends of $488.7 million, $454.8 million, and $431.3 million, respectively.

Short-term trade credit represents a significant source of financing for our merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit, bank credit facility, and other credit sources to meet our capital and liquidity requirements.

During fiscal 2024, fiscal 2023, and fiscal 2022, our liquidity and capital requirements were provided by available cash and cash flows from operations.

We ended fiscal 2024 with $4.7 billion of unrestricted cash balances, which were held primarily in overnight money market funds invested in U.S. treasury and government instruments across a highly diversified set of banks and other financial institutions. We also have $1.3 billion available under our Credit Facility. We estimate that existing cash and cash equivalent balances, cash flows from operations, our bank credit facility, and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments, debt repayments, interest payments, common stock repurchases, and quarterly dividend payments for at least the next 12 months.

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Contractual Obligations

The table below presents our significant contractual obligations as of February 1, 2025:

Supply chain finance program. We facilitate a voluntary supply chain finance program (the “program”) to provide certain suppliers with the opportunity to sell their receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third-party financial institution administers the program. Our responsibility is limited to making payments on the terms originally negotiated with each supplier, regardless of whether a supplier sells its receivable to a financial institution. We are not a party to the agreements between the participating financial institutions and the suppliers in connection with the program, and we do not receive financial incentives from the suppliers or the financial institutions. We do not provide guarantees under the program, and our rights and obligations to our suppliers are not affected by the program. The range of payment terms negotiated with suppliers is consistent, irrespective of whether a supplier participates in the program.

All outstanding payments owed under the program are recorded within Accounts payable in the Consolidated Balance Sheets. We account for all payments made under the program as a reduction to operating cash flows in Accounts payable within the Consolidated Statements of Cash Flows. The amounts owed to participating financial institutions under the program and included in Accounts payable were $159.2 million and $146.9 million at February 1, 2025 and February 3, 2024, respectively.

Standby letters of credit and collateral trust. We use standby letters of credit outside of our revolving credit facility and a funded trust to collateralize some of our insurance obligations. As of February 1, 2025 and February 3, 2024, we had $1.8 million and $2.2 million, respectively, in standby letters of credit outstanding. As of February 1, 2025 and February 3, 2024, we had $63.9 million and $60.8 million, respectively, held in a collateral trust. The standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash and cash equivalents.

Other than the unrecorded contractual obligations noted above, we did not have any material off-balance sheet arrangements as of February 1, 2025.

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Other

Critical Accounting Estimates

The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable. We believe the following critical accounting estimates describe the more significant judgments and estimates used in the preparation of our consolidated financial statements and are not intended to be a comprehensive list of all of our accounting estimates.

Merchandise inventory. Our merchandise inventory is stated at the lower of cost (determined using a weighted-average basis) or net realizable value. Inventory we purchase can either be shipped to stores or processed as packaway merchandise with the intent that it will be warehoused and released to stores at a later date. Merchandise inventory includes acquisition, transportation, processing, and storage costs. Included in the carrying value of our merchandise inventory is a provision for shortage. The shortage reserve is based on historical shortage rates as determined through our annual physical inventory counts and cycle counts. Historically, our actual physical inventory count results have shown our provision for shortage to be reliable. A five percent change in shortage rates as of February 1, 2025 would not have materially impacted our cost of goods sold in fiscal 2024.

Insurance obligations. We use a combination of insurance and self-insurance for a number of risk management activities, including workers’ compensation, general liability, and employee-related health care benefits. Our self-insurance and deductible liability is determined actuarially, based on claims filed and an estimate of claims incurred but not reported. Should a greater amount of claims occur compared to what is estimated or the costs of medical care increase beyond what was anticipated, our recorded reserves may not be sufficient and additional charges could be required. A five percent increase or decrease in our insurance reserves would not have materially impacted our net earnings in fiscal 2024.

Recent Accounting Pronouncements

Refer to Note A: Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements and their impact to our Consolidated Financial Statements.

Forward-Looking Statements

Our Annual Report on Form 10-K for fiscal 2024, and information we provide in our Annual Report to Stockholders, press releases, and other investor communications including those on our corporate website, may contain a number of forward-looking statements regarding, without limitation, projected sales, costs, earnings, planned new store growth, capital expenditures, sustainability and carbon reduction targets, and other matters. These forward-looking statements reflect our then-current beliefs, plans, and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” “outlook,” “looking ahead,” and similar expressions identify forward-looking statements.

Future impact from inflation, high interest rates and interest rate changes, tariffs, ongoing military conflicts and economic sanctions, extreme weather, public health events, natural disasters, climate change, and other economic, regulatory, consumer spending, and industry trends that could potentially adversely affect our revenue, profitability, operating conditions, and growth are difficult to predict. Our forward-looking statements are subject to risks and uncertainties which could cause our actual results to differ materially from those forward-looking statements and our previous expectations, plans, and projections. Refer to ITEM 1A. RISK FACTORS in this Annual Report on Form 10-K for a more complete discussion of risk factors for Ross and dd’s DISCOUNTS. The factors underlying our forecasts and plans are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given, and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores—Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,764 locations in 43 states, the District of Columbia, and Guam, as of February 3, 2024. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 345 dd’s DISCOUNTS stores in 22 states as of February 3, 2024 that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Our primary objective is to pursue and refine our existing off-price strategies to maintain and improve both profitability and financial returns over the long term. Although inflation has moderated during the past year, the cost of essentials remains elevated and continues to pressure our low-to-moderate income customers’ discretionary spending. We are closely monitoring market share trends for the off-price industry and we believe our share gains will continue to grow through continued focus on bringing value and convenience to our customers, despite the ongoing uncertainty in the current macroeconomic and geopolitical environments.

We believe our merchandising and operational strategies enable us to deliver the most competitive bargains available to meet our customers’ ongoing demand for quality branded goods for the family and home at compelling discounts every day. Our merchandising strategies include offering a wide assortment of quality branded bargains for our customers. We believe staying diligently focused on executing our merchandising strategies is an important driver of our ability to gain market share in fiscal 2024 and the long term.

The fiscal year ended February 3, 2024 is referred to as fiscal 2023 and was a 53-week year. The fiscal years ended January 28, 2023 and January 29, 2022 are referred to as fiscal 2022 and fiscal 2021, respectively, and were 52-week years.

The discussion that follows relates to fiscal 2023 and fiscal 2022. Discussion of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal 2022.

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Results of Operations

The following table summarizes our financial results for fiscal 2023, 2022, and 2021:

Stores. Our long-term strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria.

Total stores open at the end of fiscal 2023, 2022, and 2021 were 2,109, 2,015, and 1,923, respectively. The number of stores at the end of fiscal 2023, 2022, and 2021 increased by 5%, 5%, and 3% from the respective prior years. In fiscal 2023, we opened 97 new stores. Looking forward to 2024, we expect to open approximately 90 new stores. We continue to believe that consumers’ increased focus on value and convenience and the significant number of brick-and-mortar retail closures and bankruptcies over the last several years provide opportunities for us to gain market share.

The following table summarizes the stores opened and closed during fiscal 2023, 2022, and 2021:

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The total selling square footage as of February 3, 2024, January 28, 2023, and January 29, 2022 was 42.8 million, 41.4 million, and 39.9 million, respectively.

Sales. Sales for fiscal 2023 increased $1.7 billion, or 9.0%, compared to the prior year. This was primarily due to the 5% increase in comparable store sales, the opening of 94 net new stores during fiscal 2023, and the impact of the 53rd week.

Our sales mix is shown below for fiscal 2023, 2022, and 2021:

Cost of goods sold. Cost of goods sold in fiscal 2023 increased $0.9 billion compared to the prior year mainly due to the 5% comparable store sales increase, higher sales from the opening of 94 net new stores during fiscal 2023, higher incentive compensation expense, and the impact of the 53rd week, partially offset by lower ocean and domestic freight costs.

Cost of goods sold as a percentage of sales for fiscal 2023 decreased approximately 195 basis points from fiscal 2022 primarily due to a 160 basis point increase in merchandise margin mainly due to lower ocean freight costs, a 60 basis point decrease in domestic freight costs, 25 basis points of leverage in occupancy costs, and a 20 basis point decrease in distribution costs primarily due to the timing of packaway inventory carrying costs. Partially offsetting these items was a 70 basis point increase in buying costs primarily due to higher incentive compensation expense.

We expect lower merchandise margin as a percentage of sales in fiscal 2024 as we plan to offer more brands that are sharply priced throughout our stores. We expect this impact will be partially offset by lower incentive compensation expense, which is expected to return to target levels.

Selling, general and administrative expenses. For fiscal 2023, selling, general and administrative expenses (“SG&A”) increased $508.4 million compared to the prior year. The increase was primarily due to higher incentive compensation expense, higher store wages, the opening of 94 net new stores during fiscal 2023, and the impact of the 53rd week.

SG&A as a percentage of sales for fiscal 2023 increased by approximately 125 basis points compared to fiscal 2022 primarily due to higher incentive compensation expense and higher store wages.

We expect lower incentive compensation expense in fiscal 2024, which is expected to return to target levels.

Interest (income) expense, net. In fiscal 2023, interest (income) expense, net improved by $167.0 million compared to fiscal 2022 primarily due to increased interest income from higher interest rates.

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The table below shows the components of interest (income) expense, net for fiscal 2023, 2022, and 2021:

Taxes on earnings. Our effective tax rate for fiscal 2023, 2022, and 2021 was approximately 24%. Our effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns. Our effective tax rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and the resolution of tax positions with various tax authorities.

In fiscal 2022, the Inflation Reduction Act (“IRA”) was signed into law. The IRA made several changes to business tax provisions including a one percent excise tax on stock repurchases made after December 31, 2022. The one percent excise tax does not impact our effective tax rate.

Net earnings. Net earnings as a percentage of sales for fiscal 2023 was higher than in fiscal 2022 primarily due to lower cost of goods sold and higher interest income, partially offset by higher SG&A expenses.

Earnings per share. Diluted earnings per share in fiscal 2023 was $5.56 compared to $4.38 in the prior year. Fiscal 2023 includes a per share benefit of approximately $0.20 from the 53rd week. The $1.18 increase in diluted earnings per share in fiscal 2023 was primarily attributable to a 24% increase in net earnings (which included a 4% impact from the 53rd week) and a 3% reduction in weighted-average diluted shares outstanding, primarily due to stock repurchases under our stock repurchase program.

Financial Condition

Liquidity and Capital Resources

The primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, operating and variable lease costs, taxes, capital expenditures related to our new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to repurchase stock under our stock repurchase programs, pay dividends, and repay debt as it becomes due.

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Operating Activities

Net cash provided by operating activities was $2.5 billion in fiscal 2023. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation. Net cash provided by operating activities was $1.7 billion in fiscal 2022. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation, and an increase in deferred income taxes, partially offset by merchandise inventory payments and payment of fiscal 2021 incentive bonuses. Net cash provided by operating activities was $1.7 billion in fiscal 2021. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation, partially offset by higher merchandise inventory receipts net of accounts payable.

The increase in cash flow from operating activities in fiscal 2023 compared to fiscal 2022 was primarily driven by higher current year incentive compensation accruals combined with lower incentive compensation payments and higher net earnings, partially offset by lower accounts payable leverage (defined as accounts payable divided by merchandise inventory).

Accounts payable leverage was 89% and 99% as of February 3, 2024 and January 28, 2023, respectively. The decrease in accounts payable leverage in fiscal 2023 compared to fiscal 2022 was primarily driven by timing of inventory receipts and related payments versus last year.

As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling merchandise purchase opportunities in the marketplace and our decisions on the timing for release of that inventory. Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to our store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchase, but typically packaway remains in storage less than six months. We expect to continue to take advantage of packaway inventory opportunities to maximize our ability to deliver bargains to our customers.

Changes in packaway inventory levels impact our operating cash flow. Packaway inventory was 40% of total inventory at the end of fiscal 2023 and 2022.

Investing Activities

Net cash used in investing activities was $762.8 million, $654.1 million, and $557.8 million in fiscal 2023, 2022, and 2021, respectively, and was related to our capital expenditures. Our capital expenditures include costs to build, expand, and improve distribution centers, open new stores and improve existing stores, and for various other expenditures related to our information technology systems and buying and corporate offices.

The increase in cash used for investing activities in fiscal 2023 compared to fiscal 2022 was primarily due to higher capital expenditures related to the construction and build-out of new stores, the construction of distribution centers, including capital expenditures related to our new Buckeye, Arizona distribution center, and various information technology projects.

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Our capital expenditures over the last three years are set forth in the table below:

Capital expenditures for fiscal 2024 are projected to be approximately $840 million. Our planned capital expenditures for fiscal 2024 are for investments in our supply chain to support long-term growth, including construction of our next distribution centers, investments in our information technology systems, costs for fixtures and leasehold improvements to open new Ross and dd’s DISCOUNTS stores, and for various other expenditures related to our stores, distribution centers, and buying and corporate offices. We expect to fund capital expenditures with available cash. The increase in our planned capital expenditures for fiscal 2024 compared to fiscal 2023 is primarily driven by investments in our next distribution centers, information technology systems, existing store improvements, and various expenditures related to distribution centers, and buying and corporate offices.

Financing Activities

Net cash used in financing activities was $1.4 billion, $1.4 billion, and $1.2 billion in fiscal 2023, 2022, and 2021, respectively, primarily resulting from stock repurchases under our stock repurchase programs and dividend payments.

Revolving credit facilities. We have a $1.3 billion senior unsecured revolving credit facility (“Credit Facility”). As of February 3, 2024, we had no borrowings or standby letters of credit outstanding under the Credit Facility, the $1.3 billion Credit Facility remained in place and available, and we were in compliance with the financial covenant. Refer to Note D: Debt in the Notes to Consolidated Financial Statements for additional information.

Senior notes. As of February 3, 2024, we had approximately $2.5 billion of outstanding unsecured Senior Notes. Refer to Note D: Debt in the Notes to Consolidated Financial Statements for additional information.

Other financing activities. In May 2021, our Board of Directors authorized a program to repurchase up to $1.5 billion of the Company’s common stock through fiscal 2022.

In March 2022, our Board of Directors approved a two-year program to repurchase up to $1.9 billion of the Company’s common stock through fiscal 2023. This program replaced the previously approved $1.5 billion stock repurchase program, effective at the end of fiscal 2021 (at which time we had repurchased $650 million under the previous $1.5 billion program).

In March 2024, our Board of Directors approved a new two-year program to repurchase up to $2.1 billion of the Company’s common stock through fiscal 2025.

The following table summarizes our stock repurchase activity in fiscal 2023, 2022, and 2021:

During fiscal 2023, 2022, and 2021, we also acquired 0.5 million shares of treasury stock in each year from our employee equity incentive plans for aggregate purchase prices of approximately $48.6 million, $48.9 million, and $57.3 million, respectively.

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On March 5, 2024, our Board of Directors declared a quarterly cash dividend of $0.3675 per common share, payable on March 29, 2024.

Our Board of Directors declared a cash dividend of $0.3350 per common share in February, May, August, and November 2023. Our Board of Directors declared a cash dividend of $0.3100 per common share in March, May, August, and November 2022 and a cash dividend of $0.2850 per common share in March, May, August, and November 2021.

During fiscal 2023, 2022, and 2021, we paid dividends of $454.8 million, $431.3 million, and $405.1 million, respectively.

Short-term trade credit represents a significant source of financing for our merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit, bank credit facility, and other credit sources to meet our capital and liquidity requirements.

During fiscal 2023, fiscal 2022, and fiscal 2021, our liquidity and capital requirements were provided by available cash and cash flows from operations.

We ended fiscal 2023 with $4.9 billion of unrestricted cash balances, which were held primarily in overnight money market funds invested in U.S. treasury and government instruments across a highly diversified set of banks and other financial institutions. We also have $1.3 billion available under our senior unsecured revolving credit facility. We estimate that existing cash and cash equivalent balances, cash flows from operations, bank credit facility, and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments, debt repayments, common stock repurchases, and quarterly dividend payments for at least the next 12 months.

Contractual Obligations

The table below presents our significant contractual obligations as of February 3, 2024:

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Supply chain finance program. We facilitate a voluntary supply chain finance program (the “program”) to provide certain suppliers with the opportunity to sell their receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third party administers the program; our responsibility is limited to making payment on the terms originally negotiated with the supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into financial agreements with the participating financial institutions in connection with the program. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program.

All outstanding payments owed under the program are recorded within Accounts payable in the Consolidated Balance Sheets. The amounts owed to participating financial institutions under the program and included in Accounts payable were $146.9 million and $119.2 million at February 3, 2024 and January 28, 2023, respectively. We account for all payments made under the program as a reduction to operating cash flows in Accounts payable within the Consolidated Statements of Cash Flows.

Standby letters of credit and collateral trust. We use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize some of our insurance obligations. As of February 3, 2024 and January 28, 2023, we had $2.2 million and $2.6 million, respectively, in standby letters of credit outstanding and $60.8 million and $57.8 million, respectively, in a collateral trust. The standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash and cash equivalents.

Other than the unrecorded contractual obligations noted above, we did not have any material off-balance sheet arrangements as of February 3, 2024.

Other

Critical Accounting Estimates

The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable. We believe the following critical accounting estimates describe the more significant judgments and estimates used in the preparation of our consolidated financial statements and are not intended to be a comprehensive list of all of our accounting estimates.

Merchandise inventory. Our merchandise inventory is stated at the lower of cost (determined using a weighted-average basis) or net realizable value. Merchandise inventory includes acquisition, transportation, processing, and storage costs related to packaway inventory. Included in the carrying value of our merchandise inventory is a provision for shortage. The shortage reserve is based on historical shortage rates as determined through our annual physical merchandise inventory counts and cycle counts. Historically, our actual physical inventory count results have shown our provision for shortage to be reliable. A five percent change in shortage rates as of February 3, 2024 would not have materially impacted our cost of goods sold in fiscal 2023.

Insurance obligations. We use a combination of insurance and self-insurance for a number of risk management activities, including workers’ compensation, general liability, and employee-related health care benefits. Our self-insurance and deductible liability is determined actuarially, based on claims filed and an estimate of claims incurred but not reported. Should a greater amount of claims occur compared to what is estimated or the costs of medical care increase beyond what was anticipated, our recorded reserves may not be sufficient and additional charges could be required. A five percent increase or decrease in our insurance reserves would not have materially impacted our net earnings in fiscal 2023.

Recent Accounting Pronouncements

Refer to Note A: Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements and their impact to our Consolidated Financial Statements.

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Forward-Looking Statements

Our Annual Report on Form 10-K for fiscal 2023, and information we provide in our Annual Report to Stockholders, press releases, and other investor communications including those on our corporate website, may contain a number of forward-looking statements regarding, without limitation, projected sales, costs, earnings, planned new store growth, capital expenditures, sustainability and carbon reduction targets, and other matters. These forward-looking statements reflect our then-current beliefs, plans, and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” “outlook,” “looking ahead,” and similar expressions identify forward-looking statements.

Future impact from inflation, high interest rates and interest rate increases, ongoing military conflicts and economic sanctions, public health crises, climate change, and other economic, regulatory, and industry trends that could potentially impact our revenue, profitability, operating conditions, and growth are difficult to predict. Our forward-looking statements are subject to risks and uncertainties which could cause our actual results to differ materially from those forward-looking statements and our previous expectations, plans, and projections. Refer to ITEM 1A. RISK FACTORS in this Annual Report on Form 10-K for a more complete discussion of risk factors for Ross and dd’s DISCOUNTS. The factors underlying our forecasts and plans are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given, and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores—Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,693 locations in 40 states, the District of Columbia, and Guam, as of January 28, 2023. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 322 dd’s DISCOUNTS stores in 21 states as of January 28, 2023 that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Our primary objective is to pursue and refine our existing off-price strategies to maintain and improve both profitability and financial returns over the long term. Over the past three years, we have faced a series of unprecedented challenges from the COVID-19 pandemic, subsequent supply chain disruptions and their related cost pressures, and ongoing inflationary headwinds. These conditions have had significant impacts not only on our own business operations and costs but also on our customers’ household budgets and in turn their shopping behaviors. As a result, our customers are seeking even stronger values when visiting our stores. We are closely monitoring market share trends for the off-price industry and we believe our share gains will continue to grow through continued focus on bringing value and convenience to our consumers.

We believe our merchandising and operational strategies enable us to deliver the most competitive bargains available to meet our customers’ ongoing demand for name brand fashions for the family and home at compelling discounts every day. We believe our continued focus on these strategies will enable us to maximize our potential for both sales and profit growth in fiscal 2023 and beyond.

The fiscal years ended January 28, 2023, January 29, 2022, and January 30, 2021 are referred to as fiscal 2022, fiscal 2021, and fiscal 2020, respectively, and were 52-week years.

In our fiscal 2021 Annual Report on Form 10-K, we compared our results of operations and financial condition to fiscal 2020 and also to the fiscal year ended February 1, 2020 (“fiscal 2019”). We believe the extended closure of our operations in the spring of 2020, and the significant disruptions caused by the COVID-19 pandemic throughout fiscal 2020, made fiscal 2019 a more useful and relevant basis for comparison to our fiscal 2021 performance. For comparisons of fiscal 2021 to both fiscal 2019 and fiscal 2020, refer to our Annual Report on Form 10-K for fiscal 2021.

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Results of Operations

The following table summarizes the financial results for fiscal 2022, 2021, and 2020:

Stores. Total stores open at the end of fiscal 2022, 2021, and 2020 were 2,015, 1,923, and 1,859, respectively. The number of stores at the end of fiscal 2022, 2021, and 2020 increased by 5%, 3%, and 3% from the respective prior years. In fiscal 2022, we opened 99 new stores. Looking forward to 2023, we expect to open approximately 100 new stores. We remain confident in our ability to expand in both new and existing regional markets over time. We continue to believe that consumers’ increased focus on value and convenience and the significant number of brick-and-mortar retail closures and bankruptcies over the last several years, provides opportunities for us to gain market share. Our longer term strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria.

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The total selling square footage as of January 28, 2023, January 29, 2022, and January 30, 2021 was 41.4 million, 39.9 million, and 38.8 million, respectively.

Sales. Sales for fiscal 2022 decreased $0.2 billion, or 1.2%, compared to the prior year. This was primarily due to a 4% decline in comparable store sales driven by escalating inflationary pressures that reduced customer demand during the fiscal year combined with the benefit in the prior year from government stimulus, as well as pent-up customer demand as COVID-19 restrictions eased. The sales decline was partially offset by the opening of 92 net new stores during fiscal 2022.

Sales for fiscal 2021 increased $6.4 billion, or 50.9%, compared to fiscal 2020. This was primarily due to all store locations remaining open throughout fiscal 2021, compared to the negative impact from the COVID-19 related closures of all of our stores during a significant portion of the March 2020 to June 2020 period. Sales for fiscal 2021 also benefited from a combination of government stimulus payments, increasing vaccination rates, diminishing COVID-19 restrictions on operations, pent-up consumer demand, and strong execution of our merchandising strategies. Sales also increased due to the opening of 64 net new stores during fiscal 2021.

Our sales mix is shown below for fiscal 2022, 2021, and 2020:

There remains significant uncertainty in the current macroeconomic environment, driven by inflation, increasing interest rates, the continuing impacts from the Russia-Ukraine conflict, concerns of a possible recession, and the COVID-19 pandemic. We expect these factors to continue impacting both our customers and our business in fiscal 2023. We intend to address the uncertain and competitive conditions within the retail climate for apparel and home goods by pursuing and refining our existing strategies, continuing to strengthen our merchant organization, diversifying our merchandise mix, and further developing our systems to improve our merchandise offerings. We cannot be sure our strategies and store expansion program will result in sales growth or an increase in net earnings.

Cost of goods sold. Cost of goods sold in fiscal 2022 increased $0.2 billion compared to the prior year mainly due to higher ocean and domestic freight costs, increased distribution costs, and higher merchandise markdowns, partially offset by lower comparable store sales and lower buying costs. Cost of goods also increased due to the opening of 92 net new stores during fiscal 2022.

Cost of goods sold in fiscal 2021 increased $3.9 billion compared to fiscal 2020 mainly due to higher sales, given that all our stores were open throughout fiscal 2021, compared to the negative impact from the COVID-19 related closures of all of our stores during a significant portion of the March 2020 to June 2020 period. Cost of goods also increased due to the opening of 64 net new stores during fiscal 2021.

Cost of goods sold as a percentage of sales for fiscal 2022 increased approximately 210 basis points from fiscal 2021 primarily due to a 130 basis point decline in merchandise margin primarily due to higher ocean freight costs and increased markdowns, an 85 basis point increase in distribution expenses primarily due to the timing of packaway inventory carrying costs and the deleveraging effect from the opening of our Brookshire, Texas distribution center, a 30 basis point deleverage in occupancy costs, and a 25 basis point increase in domestic freight costs primarily due to higher fuel costs. These increases were partially offset by a 60 basis point decrease in buying costs primarily due to lower incentive compensation expenses.

We expect incentive compensation expenses to return to target levels in fiscal 2023 and for domestic and ocean freight costs to decrease.

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Selling, general and administrative expenses. For fiscal 2022, selling, general and administrative expenses (“SG&A”) decreased $115.2 million compared to the prior year. The decrease was primarily due to lower incentive compensation expenses and lower COVID-19 costs, partially offset by the opening of 92 net new stores during fiscal 2022.

For fiscal 2021, SG&A increased $371.2 million compared to fiscal 2020. The increase was primarily due to all our stores remaining open throughout fiscal 2021 compared to the impact from the COVID-19 related closures of all of our stores during a significant portion of the March 2020 to June 2020 period, and to the opening of 64 net new stores during fiscal 2021, partially offset by approximately $240 million in long-term debt refinancing costs incurred in fiscal 2020.

SG&A as a percentage of sales for fiscal 2022 decreased by approximately 45 basis points compared to fiscal 2021 primarily due to lower incentive compensation expenses and lower COVID-19 costs, partially offset by higher wages and the deleveraging effect of the 4% comparable store sales decline.

We expect SG&A in fiscal 2023 to increase as a result of incentive compensation expenses returning to target levels.

Interest expense, net. In fiscal 2022, net interest expense decreased by $71.5 million compared to fiscal 2021 primarily due to increased interest income from higher interest rates and lower interest expense on long-term debt due to the repayment of the principal on the $65.0 million notes in fiscal 2021, partially offset by lower capitalized interest.

In fiscal 2021, net interest expense decreased by $9.1 million compared to fiscal 2020 primarily due to the elimination of interest expense on short-term debt due to the repayment of our $800 million revolving credit facility in October 2020 and higher capitalized interest primarily related to the construction of our Brookshire, Texas distribution center, partially offset by lower interest income primarily due to lower interest rates.

The table below shows the components of interest expense, net for fiscal 2022, 2021, and 2020:

Taxes on earnings. Our effective tax rate for fiscal 2022 and 2021 was approximately 24%. Our effective tax rate for fiscal 2020 was 20%. The increase in effective tax rate of 4% for fiscal 2021 compared to fiscal 2020 was primarily due to the impact of hiring tax credits on lower pre-tax earnings in fiscal 2020.

Our effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns. Our effective tax rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and the resolution of tax positions with various tax authorities.

In fiscal 2022, the Inflation Reduction Act (“IRA”) was signed into law. The IRA made several changes to business tax provisions including a one percent excise tax on stock repurchases made after December 31, 2022. The one percent excise tax does not impact our effective tax rate.

In fiscal 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act made several significant changes to business tax provisions including modifications for net operating losses, employee retention credits, and deferral of employer payroll tax payments. The Consolidated Appropriations

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Act of 2021 (“CAA”) was signed into law during fiscal 2020. The CAA made several changes to business tax provisions including extending certain employment-related tax credits through December 31, 2025.

Net earnings. Net earnings as a percentage of sales for fiscal 2022 were lower than in fiscal 2021 primarily due to higher cost of goods sold, partially offset by lower SG&A expenses and lower interest expense. Net earnings as a percentage of sales for fiscal 2021 were higher compared to fiscal 2020 primarily due to lower cost of goods sold, lower SG&A expenses, and lower interest expense, partially offset by higher taxes on earnings.

Earnings per share. Diluted earnings per share in fiscal 2022 was $4.38 compared to $4.87 in the prior year. The lower diluted earnings per share in fiscal 2022 was primarily attributable to a 12% decrease in net earnings, partially offset by the 2% reduction in weighted-average diluted shares outstanding, largely due to stock repurchases under our stock repurchase program.

Diluted earnings per share in fiscal 2021 was $4.87 compared to $0.24 in fiscal 2020. The higher diluted earnings per share in fiscal 2021 was primarily attributable to all our store locations remaining open throughout fiscal 2021, compared to the negative impact from the COVID-19 related closures of all of our stores during a significant portion of the March 2020 to June 2020 period.

Financial Condition

Liquidity and Capital Resources

The primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, operating and variable lease costs, taxes, capital expenditures in connection with new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to repurchase stock under active stock repurchase programs, pay dividends, and repay debt as it becomes due.

Operating Activities

Net cash provided by operating activities was $1.7 billion in fiscal 2022. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation, and an increase in deferred income taxes, partially offset by merchandise inventory payments and payment of fiscal 2021 incentive bonuses. Net cash provided by operating activities was $1.7 billion in fiscal 2021. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation, partially offset by higher merchandise inventory receipts net of accounts payable. Net cash provided by operating activities was $2.2 billion in fiscal 2020. This was primarily driven by higher accounts payable due to longer payment terms, lower merchandise receipts as we closely managed inventory levels and used packaway inventory to replenish our stores, and net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation.

The decrease in cash flow from operating activities in fiscal 2022 compared to fiscal 2021 was primarily driven by payment of fiscal 2021 incentive bonuses and lower net earnings, partially offset by lower merchandise inventory receipts net of accounts payable, higher income taxes payable, and higher deferred income taxes.

The decrease in cash flow from operating activities in fiscal 2021 compared to fiscal 2020 was primarily driven by lower accounts payable leverage (defined as accounts payable divided by merchandise inventory), partially offset by higher net earnings in the year.

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Accounts payable leverage was 99%, 105%, and 150% as of January 28, 2023, January 29, 2022, and January 30, 2021, respectively. The decrease in accounts payable leverage in fiscal 2022 compared to fiscal 2021 was primarily driven by shorter payment terms. The decrease in accounts payable leverage in fiscal 2021 compared to fiscal 2020 was primarily driven by higher merchandise receipts to support higher sales and to replenish our packaway inventory.

As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling merchandise purchase opportunities in the marketplace and our decisions on the timing for release of that inventory. Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to our store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchase, but typically packaway remains in storage less than six months. We expect to continue to take advantage of packaway inventory opportunities to maximize our ability to deliver bargains to our customers.

Changes in packaway inventory levels impact our operating cash flow. At the end of fiscal 2022, packaway inventory was 40% of total inventory compared to 40% and 38% at the end of fiscal 2021 and 2020, respectively.

Investing Activities

Net cash used in investing activities was $654.1 million, $557.8 million, and $405.4 million in fiscal 2022, 2021, and 2020, respectively, and was related to capital expenditures. Our capital expenditures include costs to build, expand, and improve distribution centers, open new stores and improve existing stores, and for various other expenditures related to our information technology systems and buying and corporate offices.

The increase in cash used for investing activities in fiscal 2022 compared to fiscal 2021 was primarily due to higher capital expenditures related to the construction of 99 new stores compared to 65 in the prior year, the refresh and enhancement of our existing stores, the construction of our Buckeye, Arizona distribution center, and the investments in various information technology systems, partially offset by the lower expenditures related to our Brookshire, Texas distribution center which opened in the first quarter of fiscal 2022. The increase in cash used for investing activities in fiscal 2021 compared to fiscal 2020 was primarily due to an increase in our capital expenditures as a result of the resumption of capital projects deferred during fiscal 2020.

Our capital expenditures over the last three years are set forth in the table below:

Capital expenditures for fiscal 2023 are projected to be approximately $810 million. Our planned capital expenditures for fiscal 2023 are for investments in our supply chain to support long-term growth, including construction of our next distribution centers, costs for fixtures and leasehold improvements to open new Ross and dd’s DISCOUNTS stores, investments in information technology systems, and for various other expenditures related to our stores, distribution centers, and buying and corporate offices. We expect to fund capital expenditures with available cash. The increase in our planned capital expenditures for fiscal 2023 compared to fiscal 2022 is primarily driven by investments in our next distribution centers, existing store improvements, information technology systems, and various expenditures related to distribution centers, and buying and corporate offices.

Financing Activities

Net cash used in financing activities was $1.4 billion and $1.2 billion in fiscal 2022 and 2021, respectively. Net cash provided by financing activities was $1.7 billion in fiscal 2020. The increase in cash used in financing activities for fiscal 2022 compared to fiscal 2021 was primarily due to stock repurchases under our current $1.9 billion stock repurchase program. The decrease in cash flows from financing activities for fiscal 2021 compared to fiscal 2020

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was primarily due to the completion of our public debt offerings, net of refinancing costs in fiscal 2020, the resumption of our stock repurchases in the second quarter of fiscal 2021, the resumption of cash dividend payments in the first quarter of fiscal 2021, and the repayment of our Series B unsecured Senior Notes.

Revolving credit facilities. In February 2022, we entered into a new, $1.3 billion senior unsecured revolving credit agreement (the “2022 Credit Facility”), which replaced our previous $800 million unsecured revolving credit facility. As of January 28, 2023, we had no borrowings or standby letters of credit outstanding under the 2022 Credit Facility, the $1.3 billion credit facility remained in place and available, and we were in compliance with the financial covenant. Refer to Note D: Debt in the Notes to Consolidated Financial Statements for additional information.

Senior notes. As of January 28, 2023, we had approximately $2.5 billion of outstanding unsecured Senior Notes. Refer to Note D: Debt in the Notes to Consolidated Financial Statements for additional information.

Other financing activities. In March 2019, our Board of Directors approved a two-year $2.55 billion stock repurchase program through fiscal 2020. Due to the economic uncertainty stemming from the severe impact of the COVID-19 pandemic, we suspended that stock repurchase program as of March 2020, at which time we had repurchased $1.407 billion under the $2.55 billion stock repurchase program.

In May 2021, our Board of Directors authorized a program to repurchase up to $1.5 billion of our common stock through fiscal 2022.

In March 2022, our Board of Directors approved a new two-year program to repurchase up to $1.9 billion of our common stock through fiscal 2023. This new program replaced the previous $1.5 billion stock repurchase program, effective at the end of fiscal 2021 (at which time we had repurchased $650 million under the previous $1.5 billion program).

We repurchased 10.3 million, 5.7 million, and 1.2 million shares of common stock for aggregate purchase prices of approximately $950 million, $650 million, and $132 million in fiscal 2022, 2021, and 2020, respectively. During fiscal 2022, 2021, and 2020, we also acquired 0.5 million shares in each year of treasury stock from our employee equity incentive plans, for aggregate purchase prices of approximately $48.9 million, $57.3 million, and $45.2 million, respectively.

On February 28, 2023, our Board of Directors declared a quarterly cash dividend of $0.335 per common share, payable on March 31, 2023. Our Board of Directors declared a cash dividend of $0.310 per common share in March, May, August, and November 2022 and a cash dividend of $0.285 per common share in March, May, August, and November 2021. Prior to fiscal 2021, our most recent quarterly dividend was a quarterly cash dividend of $0.285 per common share declared by our Board of Directors in March 2020. In May 2020, we temporarily suspended our quarterly dividends due to the economic uncertainty stemming from the COVID-19 pandemic.

During fiscal 2022, 2021, and 2020, we paid dividends of $431.3 million, $405.1 million, and $101.4 million, respectively.

Short-term trade credit represents a significant source of financing for our merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit, bank credit facility, and other credit sources to meet our capital and liquidity requirements, including for lease and interest payment obligations.

During fiscal 2022 and fiscal 2021, our liquidity and capital requirements were provided by available cash and cash flows from operations. During fiscal 2020, our liquidity and capital requirements were provided by available cash and cash flows from operations and by our long-term debt financing.

We ended fiscal 2022 with $4.6 billion of unrestricted cash balances, which were held primarily in overnight money market funds invested in U.S. treasury and government instruments across a highly diversified set of banks and other financial institutions. We also have $1.3 billion available under our senior unsecured revolving credit facility. We estimate that existing cash and cash equivalent balances, cash flows from operations, bank credit facility, and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments, common stock repurchases, and quarterly dividend payments for at least the next 12 months.

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Contractual Obligations

The table below presents our significant contractual obligations as of January 28, 2023:

Supply chain finance program. We facilitate a voluntary supply chain finance program (the “program”) to provide certain suppliers with the opportunity to sell receivables due from us to a participating financial institution at the sole discretion of both the suppliers and the financial institution. A third party administers the program; our responsibility is limited to making payment on the terms originally negotiated with the supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into financial agreements with the participating financial institution in connection with the program. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program.

All outstanding payments owed under the program are recorded within Accounts payable in the Consolidated Balance Sheets. The amounts owed to a participating financial institution under the program and included in Accounts payable were $119.2 million and $272.7 million at January 28, 2023 and January 29, 2022, respectively. We account for all payments made under the program as a reduction to operating cash flows in Accounts payable within the Consolidated Statements of Cash Flows. The amounts settled through the program and paid to the participating financial institution were $777.5 million and $430.1 million during fiscal 2022 and 2021, respectively.

Standby letters of credit and collateral trust. We use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize some of our insurance obligations. We also use standby letters of credit outside of our revolving credit facility to collateralize some of our trade payable obligations. As of January 28, 2023 and January 29, 2022, we had $2.6 million and $3.3 million, respectively, in standby letters of credit outstanding and $57.8 million and $56.7 million, respectively, in a collateral trust. The standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash, cash equivalents, and investments.

Trade letters of credit. We had $7.6 million and $19.3 million in trade letters of credit outstanding at January 28, 2023 and January 29, 2022, respectively.

Other than the unrecorded contractual obligations noted above, we do not have any material off-balance sheet arrangements as of January 28, 2023.

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Other

Critical Accounting Estimates

The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable. We believe the following critical accounting estimates describe the more significant judgments and estimates used in the preparation of our consolidated financial statements and are not intended to be a comprehensive list of all of our accounting estimates.

Merchandise inventory. Our merchandise inventory is stated at the lower of cost (determined using a weighted-average basis) or net realizable value. Merchandise inventory includes acquisition, transportation, processing, and storage costs related to packaway inventory. Included in the carrying value of our merchandise inventory is a provision for shortage. The shortage reserve is based on historical shortage rates as determined through our annual physical merchandise inventory counts and cycle counts. Historically, our actual physical inventory count results have shown our provision for shortage to be reliable. As a measure of sensitivity, a five percent change in shortage rates as of January 28, 2023 would not have materially impacted our cost of goods sold in fiscal 2022.

Insurance obligations. We use a combination of insurance and self-insurance for a number of risk management activities, including workers’ compensation, general liability, and employee-related health care benefits. Our self-insurance and deductible liability is determined actuarially, based on claims filed and an estimate of claims incurred but not reported. Should a greater amount of claims occur compared to what is estimated or the costs of medical care increase beyond what was anticipated, our recorded reserves may not be sufficient and additional charges could be required. A five percent increase or decrease in our insurance reserves would not have materially impacted our net earnings in fiscal 2022.

Recent Accounting Pronouncements

Refer to Note A: Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements and their impact to our Consolidated Financial Statements.

Forward-Looking Statements

Our Annual Report on Form 10-K for fiscal 2022, and information we provide in our Annual Report to Stockholders, press releases, and other investor communications including those on our corporate website, may contain a number of forward-looking statements regarding, without limitation, projected sales, costs and earnings, planned new store growth, capital expenditures, the continuing challenges from the COVID-19 pandemic and related economic disruptions and our plans and responses to them, sustainability and carbon reduction targets, and other matters. These forward-looking statements reflect our then-current beliefs, plans, and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” “looking ahead,” and similar expressions identify forward-looking statements.

Future impact from inflation, interest rate increases, ongoing military conflicts and economic sanctions, the COVID-19 pandemic, climate change, and other economic, regulatory, and industry trends that could potentially impact revenue, profitability, operating conditions, and growth are difficult to predict. Our forward-looking statements are subject to risks and uncertainties which could cause our actual results to differ materially from those forward-looking statements and our previous expectations, plans, and projections. Refer to ITEM 1A. RISK FACTORS in this Annual Report on Form 10-K for a more complete discussion of risk factors for Ross and dd’s DISCOUNTS. The factors underlying our forecasts and plans are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores—Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States with 1,628 locations in 40 states, the District of Columbia, and Guam, as of January 29, 2022. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 295 dd’s DISCOUNTS stores in 21 states as of January 29, 2022 that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Our primary objective is to pursue and refine our existing off-price strategies to maintain and improve both profitability and financial returns over the long term. In establishing appropriate growth targets for our business, and considering the pace and magnitude of the economic recovery as the COVID-19 pandemic subsides, we are closely monitoring market share trends for the off-price industry. We believe our share gains will continue to be driven mainly by continued focus on bringing value and convenience to our consumers. Our merchandise and operational strategies are designed to take advantage of the trends toward expanding market share of the off-price industry as well as the ongoing customer demand for name brand fashions for the family and home at compelling discounts every day.

We refer to our fiscal years ended January 29, 2022, January 30, 2021, and February 1, 2020 as fiscal 2021, fiscal 2020, and fiscal 2019, respectively.

Results of Operations

While the United States and other countries continued to experience the ongoing global COVID-19 coronavirus pandemic throughout fiscal 2021, the effects on our operations were less disruptive than in fiscal 2020. All of our store locations and distribution centers remained open and operating throughout fiscal 2021, in contrast to 2020, when our results reflected the significant revenue decline and other impacts from our chain-wide store closures for approximately half of the first quarter and 25 percent of the second quarter, as well as mandated occupancy restrictions and reduced operating hours that occurred throughout that year. For fiscal 2021, we compare our results of operations to fiscal 2020 and also to fiscal 2019. We believe the extended closure of our operations in the spring of 2020, and the significant disruptions caused by COVID-19 throughout fiscal 2020, make fiscal 2019 a more useful and relevant basis for comparison to our fiscal 2021 performance in assessing our ongoing results of operations.

We achieved strong sales results in fiscal 2021, which benefited from a combination of government stimulus, increasing vaccination rates, diminishing COVID-19 restrictions, pent-up consumer demand, and strong execution of our merchandising strategies. We achieved these results despite the negative impacts from COVID-19 and related variants during fiscal 2021, especially the surge in Omicron cases which depressed in-person shopping behavior during the peak holiday selling period, and from continued supply chain congestion. Throughout the year, we continued to experience expense pressures from higher domestic freight costs of approximately 95 basis points, primarily due to the ongoing and worsening industry-wide supply chain congestion compared to fiscal 2019. We also incurred ongoing COVID-related increased operating costs of approximately 35 basis points (the vast majority of which impacted our selling, general and administrative expenses). We expect higher freight costs, higher distribution expenses, higher wages, and ongoing COVID-related operating costs to continue during fiscal 2022.

There remains significant uncertainty related to the ongoing industry-wide supply chain congestion. We also face external risks from the effects of inflation, both on consumer demand and on costs in our business. In addition, there continues to be significant uncertainty surrounding the COVID-19 pandemic, including its unknown duration, the potential for further new virus variants and future resurgences, as well as possible operational restrictions, the ongoing effect of the pandemic on consumer behavior and shopping patterns, and the potential adverse impact on our business.

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The following table summarizes the financial results for fiscal 2021, 2020, and 2019:

Stores. Total stores open at the end of fiscal 2021, 2020, and 2019 were 1,923, 1,859, and 1,805, respectively. The number of stores at the end of fiscal 2021, 2020, and 2019 increased by 3%, 3%, and 5% from the respective prior years. In response to the impacts and uncertainties from the COVID-19 pandemic, we reduced our pace of new store openings for fiscal 2020 and fiscal 2021. Looking forward to 2022, we expect to return to our historical annual opening program of approximately 100 new stores. Beyond fiscal 2022, we are planning for our pace of new store openings to be greater than our historical annual opening program of approximately 100 stores, based on trends we perceive toward consumers’ increased focus on value and convenience, favorable store performance in both our new and in-fill markets, and the market share opportunities resulting from the significant number of brick-and-mortar retail closures and bankruptcies over the last several years. Our longer term strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria.

Sales. Sales for fiscal 2021 increased $6.4 billion, or 50.9%, compared to the prior year. This was primarily due to all store locations remaining open throughout fiscal 2021, compared to the negative impact from the COVID-19 related closures of all of our stores during a significant portion of the March 2020 to June 2020 period. Sales for fiscal 2021 also benefited from a combination of government stimulus payments, increasing vaccination rates, diminishing COVID-19 restrictions on operations, pent-up consumer demand, and strong execution of our

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merchandising strategies. Sales also increased due to the opening of 64 net new stores between fiscal 2020 and fiscal 2021.

Sales for fiscal 2020 decreased $3.5 billion, or 21.9%, compared to fiscal 2019. This was primarily due to the negative impact from the COVID-19 related closures of all of our stores during a significant portion of the March 2020 to June 2020 period, the negative impacts on customer demand from the COVID-19 pandemic, mandated occupancy restrictions, and reduced store operating hours during the remainder of fiscal 2020. We opened 54 net new stores during 2020. The sales from these new stores partially offset the overall sales decline.

Sales for fiscal 2021 increased $2.9 billion, or 17.9%, compared to fiscal 2019, due to a 13% increase in sales from comparable stores and the opening of 118 net new stores between fiscal 2019 and fiscal 2021.

Our sales mix is shown below for fiscal 2021, 2020, and 2019:

We intend to address the competitive retail climate for off-price apparel and home goods by pursuing and refining our existing strategies, and by continuing to strengthen our merchant organization, diversify our merchandise mix, and more fully develop our systems to improve our merchandise offerings.

It is difficult to predict any future impact from some of the factors that benefited our sales results for fiscal 2021, in particular the benefit from the government stimulus payments and pent-up consumer demand. There remains significant uncertainty related to ongoing industry-wide supply chain congestion. We also face external risks from the effects of inflation, both on consumer demand and on costs in our business. In addition, there continues to be significant uncertainty surrounding the COVID-19 pandemic, including its unknown duration, the potential for new virus variants and future resurgences, as well as possible operational restrictions, the ongoing effect of the pandemic on consumer behavior and shopping patterns, and the potential adverse impact on our business. We cannot be sure that our strategies and our store expansion program will result in a continuation of our historical sales growth, or an increase in net earnings.

Cost of goods sold. Cost of goods sold in fiscal 2021 increased $3.9 billion compared to the prior year, mainly due to higher sales, given that all our stores were open throughout fiscal 2021, compared to the negative impact from the COVID-19 related closures of all of our stores during a significant portion of the March 2020 to June 2020 period. Cost of goods also increased due to the opening of 64 net new stores between fiscal 2020 and fiscal 2021.

Cost of goods sold in fiscal 2020 decreased $1.7 billion compared to fiscal 2019, mainly due to the lower sales from the temporary COVID-19 related closures of all of our stores during a significant portion of the March 2020 to June 2020 period, and ensuing negative impacts on shopping behavior and customer demand due to the COVID-19 pandemic after our store reopenings, as well as lower costs from the temporary furlough of most hourly associates in our distribution centers and some associates in our buying offices. These decreases were partially offset by higher markdowns used to clear aged and seasonal inventory, higher distribution costs primarily due to increased wages, and higher freight costs due to industry-wide supply chain congestion, added expenditures for COVID-19 related measures, and higher occupancy costs from the opening of 54 net new stores during 2020.

Cost of goods sold in fiscal 2021 increased $2.2 billion compared to fiscal 2019, primarily due to a 13% increase in comparable store sales, higher freight and distribution costs primarily due to industry-wide supply chain congestion, and higher wages, and higher sales due to the opening of 118 net new stores between fiscal 2019 and fiscal 2021.

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Cost of goods sold as a percentage of sales for fiscal 2021 increased approximately 55 basis points from fiscal 2019, primarily due to a 95 basis point increase in domestic freight costs, mainly driven by worsening industry-wide supply chain congestion, a 30 basis point increase in distribution expenses, mainly driven by higher wages, and a 10 basis point increase in buying costs. These increases were partially offset by leverage of 60 basis points in occupancy costs and a 20 basis point improvement in merchandise gross margin.

We expect higher supply chain costs from the industry-wide congestion and higher wages to continue throughout fiscal 2022.

Selling, general and administrative expenses. For fiscal 2021, selling, general and administrative expenses (“SG&A”) increased $371.2 million compared to the prior year. The increase was primarily due to all our stores remaining open throughout fiscal 2021, compared to the impact from the COVID-19 related closures of all of our stores during a significant portion of the March 2020 to June 2020 period, and to the opening of 64 net new stores between fiscal 2020 and fiscal 2021, partially offset by approximately $240 million in long-term debt refinancing costs incurred in fiscal 2020.

For fiscal 2020, SG&A increased $146.6 million compared to fiscal 2019, primarily due to approximately $240 million in long-term debt refinancing costs, COVID-related expenses (primarily for supplies, cleaning, and payroll related to additional safety protocols), and payments to associates while our stores were closed (net of employee retention credits under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)), partially offset by payroll-related cost reduction measures in response to the COVID-19 pandemic (including the temporary furlough of most hourly associates in our stores during closure periods, and some associates in our corporate offices), reductions in non-business critical operating expenses, and lower store operating expenses on lower sales.

For fiscal 2021, SG&A increased $517.8 million compared to fiscal 2019, mainly due to a 13% increase in comparable store sales, the opening of 118 net new stores between fiscal 2019 and fiscal 2021, higher incentive compensation costs due to better-than-expected results, net COVID-related operating expenses primarily for supplies, cleaning, and payroll related to additional safety protocols, higher wages, and holiday related pay incentives.

SG&A as a percentage of sales for fiscal 2021 increased by approximately 50 basis points compared to fiscal 2019, primarily due to higher incentive compensation costs due to better-than-expected results, net COVID-related operating expenses for supplies, cleaning, and payroll related to additional safety protocols, higher wages, and holiday related pay incentives.

We expect our operating costs in fiscal 2022 to continue to reflect ongoing COVID-related expenses and also higher wages.

Interest expense (income), net. In fiscal 2021, net interest expense decreased by $9.1 million compared to 2020 primarily due to the elimination of interest expense on short-term debt due to the repayment of our $800 million revolving credit facility in October 2020 and higher capitalized interest primarily related to the construction of our Brookshire, Texas distribution center, partially offset by lower interest income due to lower interest rates.

In fiscal 2020, net interest expense increased by $101.5 million compared to 2019 primarily due to higher interest expense on long-term debt due to the issuance of Senior Notes in April 2020 and October 2020 (net of repurchase of Senior Notes), lower interest income due to lower interest rates, and higher interest expense on short-term debt due to the draw down on our $800 million revolving credit facility in March 2020 (which was subsequently repaid in October 2020), partially offset by higher capitalized interest primarily related to the construction of our Brookshire, Texas distribution center.

In fiscal 2021, net interest expense increased by $92.4 million compared to 2019 primarily due to higher interest expense on long-term debt due to the issuance of Senior Notes in April 2020 and October 2020 (net of repurchase of Senior Notes), and lower interest income due to lower interest rates, partially offset by higher capitalized interest primarily related to the construction of our Brookshire, Texas distribution center.

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The table below shows the components of interest expense and income for fiscal 2021, 2020, and 2019:

Taxes on earnings. Our effective tax rates for fiscal 2021, 2020, and 2019 were approximately 24%, 20%, and 23%, respectively. The increase in the effective tax rate of 4% for fiscal 2021 compared to fiscal 2020 and the decrease of 3% for fiscal 2020 compared to fiscal 2019 was primarily due to the impact of hiring tax credits on lower pre-tax earnings in fiscal 2020. The increase in effective tax rate of 1% for fiscal 2021 compared to fiscal 2019 was primarily due to resolution of uncertain tax positions with a state tax authority during fiscal 2019.

Our effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns. Our effective rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, tax effects associated with share-based compensation, and the resolution of tax positions with various tax authorities.

In fiscal 2020, the CARES Act was signed into law. The CARES Act made several significant changes to business tax provisions including modifications for net operating losses, employee retention credits, and deferral of employer payroll tax payments. The Consolidated Appropriations Act of 2021 (“CAA”) was signed into law during fiscal 2020. The CAA made several changes to business tax provisions including extending certain employment-related tax credits through December 31, 2025.

Net earnings. Net earnings as a percentage of sales for fiscal 2021 were higher than in fiscal 2020, primarily due to lower cost of goods sold, lower SG&A expenses, and lower interest expense, partially offset by higher taxes on earnings. Net earnings as a percentage of sales for fiscal 2020 were lower compared to fiscal 2019, primarily due to higher cost of goods sold, higher SG&A expenses, and higher interest expense. Net earnings as a percentage of sales for fiscal 2021 were lower than in fiscal 2019, primarily due to higher cost of goods sold, higher SG&A expenses, and higher interest expense, partially offset by lower taxes on earnings.

Earnings per share. Diluted earnings per share in fiscal 2021 was $4.87, compared to $0.24 in the prior year. The higher diluted earnings per share in fiscal 2021 were primarily attributable to all our store locations remaining open throughout fiscal 2021, compared to the negative impact from the COVID-19 related closures of all of our stores during a significant portion of the March 2020 to June 2020 period.

Diluted earnings per share in fiscal 2020 was $0.24, compared to $4.60 in fiscal 2019. The lower diluted earnings per share in fiscal 2020 was primarily attributable to lower sales due to the closing of all our store locations during a significant portion of the March 2020 to June 2020 period and the negative impacts on shopping behavior and customer demand due to the COVID-19 pandemic, higher markdowns to clear aged and seasonal inventory, long-term debt refinancing costs, payments to associates while our stores were closed (net of employee retention credits under the CARES Act), and higher expenditures for COVID-19 related measures.

Diluted earnings per share in fiscal 2021 was $4.87, compared to $4.60 in fiscal 2019. The 6% increase in diluted earnings per share for fiscal 2021 compared to fiscal 2019, was attributable to a 4% increase in net earnings, and to the reduction in weighted-average diluted shares outstanding of 2% for fiscal 2021, largely due to stock repurchases under our stock repurchase programs.

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Financial Condition

Liquidity and Capital Resources

The primary sources of funds for our business activities have been cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, operating and variable lease costs, taxes, and for capital expenditures in connection with new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to pay dividends, to repay debt as it becomes due, and to repurchase stock under active stock repurchase programs.

In this report, we compare our cash flows from operating activities to both fiscal 2020 and fiscal 2019. We believe fiscal 2019 is a more useful and relevant basis of comparison given that our stores were open for full 52-week periods in fiscal 2021 and fiscal 2019. Our cash flows from investing and financing activities are compared to fiscal 2020, given the construction of our Brookshire, Texas distribution center during fiscal 2020 and 2021, and the significant financing actions we took in fiscal 2020 to preserve our financial liquidity and enhance our financial flexibility in response to the COVID-19 pandemic.

Operating Activities

Net cash provided by operating activities was $1.7 billion in fiscal 2021. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation, partially offset by higher merchandise inventory receipts net of accounts payable. Net cash provided by operating activities was $2.2 billion in fiscal 2020. This was primarily driven by higher accounts payable due to longer payment terms, lower merchandise receipts as we closely managed inventory levels and used packaway inventory to replenish our stores, and net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation. Net cash provided by operating activities was $2.2 billion in fiscal 2019, and was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation, and for deferred taxes.

The decrease in cash flow from operating activities in fiscal 2021 compared to fiscal 2020 was primarily driven by lower Accounts payable leverage (defined as accounts payable divided by merchandise inventory), partially offset by higher net earnings in the current year. Accounts payable leverage was 105% and 150% as of January 29, 2022 and January 30, 2021, respectively. The decrease in Accounts payable leverage in fiscal 2021 compared to fiscal 2020 was primarily driven by higher merchandise receipts to support higher sales and to replenish our packaway inventory.

The increase in cash flow from operating activities in fiscal 2020 compared to fiscal 2019 was primarily driven by higher Accounts payable leverage. Accounts payable leverage was 150% and 71% as of January 30, 2021, and February 1, 2020, respectively. The increase in Accounts payable leverage in fiscal 2020 compared to fiscal 2019 was primarily driven by lower packaway and in-store inventory and longer payment terms.

The decrease in cash flow from operating activities in fiscal 2021 compared to fiscal 2019 was primarily driven by higher merchandise receipts to support higher sales and to replenish packaway inventory, partially offset by higher incentive bonus accruals and higher net earnings.

As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling merchandise purchase opportunities in the marketplace and our decisions on the timing for release of that inventory. Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to our store merchandise assortment plans. As such, the aging of packaway varies

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by merchandise category and seasonality of purchase, but typically packaway remains in storage less than six months. We expect to continue to take advantage of packaway inventory opportunities to maximize our ability to deliver bargains to our customers.

Changes in packaway inventory levels impact our operating cash flow. At the end of fiscal 2021, packaway inventory was 40% of total inventory compared to 38% and 46% at the end of fiscal 2020 and 2019, respectively.

Investing Activities

Net cash used in investing activities was $557.8 million, $405.4 million, and $555.0 million in fiscal 2021, 2020, and 2019, respectively, and was related to capital expenditures. Our capital expenditures include costs to build, expand, and improve distribution centers (primarily related to the construction of our Brookshire, Texas distribution center); open new stores and improve existing stores; and for various other expenditures related to our information technology systems, buying and corporate offices.

The increase in cash used for investing activities in fiscal 2021 compared to fiscal 2020 was primarily due to an increase in our capital expenditures related to the resumption of capital projects deferred during fiscal 2020. The decrease in cash used for investing activities in fiscal 2020 compared to fiscal 2019 was primarily due to our actions to preserve our financial liquidity in response to the COVID-19 pandemic and related economic disruptions. We opened 65, 66, and 98 new stores in fiscal 2021, 2020, and 2019, respectively.

Our capital expenditures over the last three years are set forth in the table below:

Capital expenditures for fiscal 2022 are projected to be approximately $800 million. Our planned capital expenditures for fiscal 2022 are expected to be used for investments in our supply chain to support long-term growth, including construction of our next distribution center, costs for fixtures and leasehold improvements to open planned new Ross and dd’s DISCOUNTS stores, investments in certain information technology systems, and for various other needed expenditures related to our stores, distribution centers, buying, and corporate offices. We expect to fund capital expenditures with available cash. The increase in our planned capital expenditures for fiscal 2022 compared to fiscal 2021 is primarily driven by the upgrade or remodeling of existing stores, costs for fixtures and leasehold improvements to open planned new Ross and dd’s DISCOUNTS stores, construction of our next distribution center, investments in information technology systems, and for various other needed expenditures related to our stores, distribution centers, buying, and corporate offices.

Financing Activities

Net cash used in financing activities was $1.2 billion in fiscal 2021. Net cash provided by financing activities was $1.7 billion in fiscal 2020. Net cash used in financing activities was $1.7 billion in fiscal 2019. The decrease in cash provided by financing activities for fiscal 2021, compared to fiscal 2020, was primarily due to the completion of our public debt offerings, net of refinancing costs in fiscal 2020, the resumption of our share repurchases in the second quarter of fiscal 2021, the resumption of cash dividend payments in the first quarter of fiscal 2021, and the repayment of our Series B unsecured Senior Notes. The increase in cash provided by financing activities for fiscal 2020, compared to fiscal 2019, was primarily due to the completion of our public debt offerings, net of repurchase and refinancing costs in fiscal 2020, and the suspension of our share repurchases and dividends in the second quarter of 2020.

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Revolving credit facilities. In February 2022 (the “Effective Date”), we entered into a new, $1.3 billion senior unsecured revolving Credit Agreement (the “2022 Credit Facility”), which replaced our previous $800 million unsecured revolving credit facility (the “Prior Credit Facility”). The 2022 Credit Facility expires in February 2027, and may be extended, at our option, for up to two additional one year periods, subject to customary conditions. The new facility contains a $300 million sublimit for issuance of standby letters of credit. It also contains an option allowing us to increase the size of our credit facility by up to an additional $700 million, with the agreement of the committing lenders. The interest rate on borrowings under the 2022 Credit Facility is a term rate based on the Secured Overnight Financing Rate (“Term SOFR”) (or an alternate benchmark rate, if Term SOFR is no longer available) plus an applicable margin, and is payable quarterly and upon maturity. The 2022 Credit Facility is subject to a quarterly Consolidated Adjusted Debt to Consolidated EBITDAR financial leverage ratio covenant, effective the first quarter of fiscal 2022.

On the Effective Date of the 2022 Credit Facility, the Prior Credit Facility was terminated and was replaced by the new 2022 Credit Facility. As of January 29, 2022, we had no borrowings or standby letters of credit outstanding under the Prior Credit Facility, the $800 million credit facility remained in place and available, and we were in compliance with the financial covenant.

In March 2020, we borrowed $800 million under the Prior Credit Facility. Interest on the loan was based on LIBOR plus 0.875% (or 1.76%). In May 2020, we amended the Prior Credit Facility to temporarily suspend for the second and third quarters of fiscal 2020 the Consolidated Adjusted Debt to EBITDAR ratio financial covenant, and to apply a transitional modification to that ratio, effective in the fourth quarter of fiscal 2020. In October 2020, we repaid in full the $800 million we borrowed under the Prior Credit Facility.

In May 2020, we also entered into an additional $500 million 364-day senior revolving credit facility which was scheduled to expire in April 2021. In October 2020, we terminated this senior revolving credit facility. We had no borrowings under that credit facility at any time.

Senior notes. In April 2020, we issued an aggregate of $2.0 billion in unsecured senior notes in four tenors as follows: $700 million of 4.600% Senior Notes due April 2025, $400 million of 4.700% Senior Notes due April 2027, $400 million of 4.800% Senior Notes due April 2030, and $500 million of 5.450% Senior Notes due April 2050.

In October 2020, we accepted for purchase approximately $775 million in aggregate principal amount of senior notes pursuant to cash tender offers as follows: $351 million of the 2050 Notes, $266 million of the 2030 Notes, and $158 million of the 2027 Notes. We paid approximately $1.003 billion in aggregate consideration (including transaction costs, and accrued and unpaid interest) and recorded an approximately $240 million loss on the early extinguishment for the accepted notes.

In October 2020, we also issued an aggregate of $1.0 billion in unsecured senior notes in two tenors as follows: 0.875% Senior Notes due April 2026 (the “2026 Notes”) with an aggregate principal amount of $500 million and 1.875% Senior Notes due April 2031 (the “2031 Notes”) with an aggregate principal amount of $500 million. Cash proceeds, net of discounts and other issuance costs, were approximately $987.2 million. We used the net proceeds from the offering of the 2026 and 2031 Notes to fund the purchase of the accepted notes from our tender offers.

In December 2021, we repaid at maturity the $65 million principal amount of the Series B 6.530% unsecured Senior Notes.

Other financing activities. In March 2019, our Board of Directors had approved a two-year $2.55 billion stock repurchase program through fiscal 2020. Due to the economic uncertainty stemming from the severe impact of the COVID-19 pandemic, we suspended that stock repurchase program in March 2020, at which time we had repurchased $1.407 billion under the $2.55 billion stock repurchase program. In May 2021, our Board of Directors authorized a program to repurchase up to $1.5 billion of our common stock through fiscal 2022, with plans to buy back $650 million in fiscal 2021 and $850 million in fiscal 2022. In March 2022, our Board of Directors approved a new two-year program to repurchase up to $1.9 billion of our common stock through fiscal 2023. This new program replaces the previous $1.5 billion stock repurchase program, effective at the end of fiscal 2021 (at which time we had repurchased $650 million under the previous $1.5 billion program).

We repurchased 5.7 million, 1.2 million, and 12.3 million shares of common stock for aggregate purchase prices of approximately $650 million, $132 million, and $1,275 million in fiscal 2021, 2020, and 2019, respectively. We also

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acquired 0.5 million, 0.5 million, and 0.6 million shares in fiscal 2021, 2020, and 2019, respectively, of treasury stock from our employee stock equity compensation programs, for aggregate purchase prices of approximately $57.3 million, $45.2 million, and $60.7 million during fiscal 2021, 2020, and 2019, respectively.

On March 1, 2022, our Board of Directors declared a quarterly cash dividend of $0.310 per common share, payable on March 31, 2022. Our Board of Directors declared quarterly cash dividends of $0.285 per common share in March, May, August, and November 2021, respectively. Prior to fiscal 2021, our most recent quarterly dividend was a quarterly cash dividend of $0.285 per common share declared by our Board of Directors in March 2020. In May 2020, we temporarily suspended our quarterly dividends, due to the economic uncertainty stemming from the COVID-19 pandemic. Our Board of Directors declared quarterly cash dividends of $0.255 per common share in March, May, August, and November 2019, respectively.

During fiscal 2021, 2020, and 2019, we paid dividends of $405.1 million, $101.4 million, and $369.8 million, respectively.

Short-term trade credit represents a significant source of financing for our merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit, bank credit facility, and other credit sources to meet our capital and liquidity requirements, including lease and interest payment obligations.

During fiscal 2021 and 2019, our liquidity and capital requirements were provided by available cash and cash flows from operations. During fiscal 2020, our liquidity and capital requirements were provided by available cash and cash flows from operations and our long-term debt financing.

We ended fiscal 2021 with $4.9 billion of unrestricted cash balances, and as of the Effective Date we have $1.3 billion available under our senior unsecured revolving credit facility. We estimate that existing cash and cash equivalent balances, cash flows from operations, bank credit facility, and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments, common stock repurchases, and quarterly dividend payments for at least the next 12 months.

Contractual Obligations

The table below presents our significant contractual obligations as of January 29, 2022:

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Supply chain finance program. We facilitate a voluntary supply chain finance program (the “program”) to provide certain suppliers with the opportunity to sell receivables due from us to a participating financial institution at the sole discretion of both the suppliers and the financial institution. A third party administers the program; our responsibility is limited to making payment on the terms originally negotiated with the supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into agreements with the participating financial institution in connection with the program. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program.

All outstanding payments owed under the program are recorded within Accounts payable in the Consolidated Balance Sheets. The amounts owed to a participating financial institution under the program and included in Accounts payable were $272.7 million and $15.6 million at January 29, 2022 and January 30, 2021, respectively. We account for all payments made under the program as a reduction to operating cash flows in Accounts payable within the Consolidated Statements of Cash Flows. The amounts settled through the program and paid to the participating financial institution were $430.1 million and $2.6 million during fiscal 2021 and 2020, respectively.

Standby letters of credit and collateral trust. We use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize some of our insurance obligations. We also use standby letters of credit outside of our revolving credit facility to collateralize some of our trade payable obligations. As of January 29, 2022 and January 30, 2021, we had $3.3 million and $15.3 million, respectively, in standby letters of credit outstanding, and $56.7 million and $56.1 million, respectively, in a collateral trust. The standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash, cash equivalents, and investments.

Trade letters of credit. We had $19.3 million and $16.3 million in trade letters of credit outstanding at January 29, 2022 and January 30, 2021, respectively.

Other than the unrecorded contractual obligations noted above, we do not have any material off-balance sheet arrangements as of January 29, 2022.

Other

Critical Accounting Estimates

The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable. We believe the following critical accounting estimates describe the more significant judgments and estimates used in the preparation of our consolidated financial statements and are not intended to be a comprehensive list of all of our accounting estimates.

Merchandise inventory. Our merchandise inventory is stated at the lower of cost (determined using a weighted-average basis) or net realizable value. Merchandise inventory includes acquisition, transportation, processing, and storage costs related to packaway inventory. Included in the carrying value of our merchandise inventory is a provision for shortage. The shortage reserve is based on historical shortage rates as determined through our annual physical merchandise inventory counts and cycle counts. Historically, our actual physical inventory count results have shown our provision for shortage to be reliable. If actual market conditions are less favorable than those projected by us, or if sales of the merchandise inventory are more difficult than anticipated, additional merchandise inventory write-downs may be required beyond our normal markdowns taken to clear seasonal and aged inventory. As a measure of sensitivity, a five percent change in shortage rates as of January 29, 2022, would not have materially impacted our cost of goods sold in fiscal 2021.

Lease accounting. In determining the present value of lease payments, for use in the calculation of the operating lease liabilities and right-of-use assets, we use the estimated collateralized incremental borrowing rate based on information available at the lease commencement date. Since our leases generally do not provide an implicit discount rate, this rate is determined using a portfolio approach based on the risk-adjusted rate of interest, and requires estimates and assumptions including credit rating, credit spread, and adjustments for the impact of collateral. Changes in these inputs can increase or decrease the recorded operating lease assets and related lease liabilities for new leases, and for remeasurements or modifications of existing leases. We believe that this

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approximates the rate we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar lease term.

Insurance obligations. We use a combination of insurance and self-insurance for a number of risk management activities, including workers’ compensation, general liability, and employee-related health care benefits. Our self-insurance and deductible liability is determined actuarially, based on claims filed and an estimate of claims incurred but not reported. Should a greater amount of claims occur compared to what is estimated or the costs of medical care increase beyond what was anticipated, our recorded reserves may not be sufficient and additional charges could be required. A five percent increase or decrease in our insurance reserves would not have materially impacted our net earnings in fiscal 2021.

Recent Accounting Pronouncements

See Note A to the Consolidated Financial Statements - Summary of Significant Accounting Policies (Recently issued accounting standards and Recently adopted accounting standards) for a discussion of recent accounting pronouncements and their impact to our Consolidated Financial Statements.

Forward-Looking Statements

Our Annual Report on Form 10-K for fiscal 2021, and information we provide in our Annual Report to Stockholders, press releases, and other investor communications including those on our corporate website, may contain a number of forward-looking statements regarding, without limitation, the rapidly developing challenges and our plans and responses to the COVID-19 pandemic and related economic and supply chain disruptions, including adjustments to our operations, and planned new store growth, new markets, expected sales, projected earnings levels, capital expenditures, and other matters. These forward-looking statements reflect our then current beliefs, plans, and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” “looking ahead,” and similar expressions identify forward-looking statements.

Future impact from the ongoing COVID-19 pandemic, and other economic and industry trends that could potentially impact revenue, profitability, operating conditions, and growth are difficult to predict. Our forward-looking statements are subject to risks and uncertainties which could cause our actual results to differ materially from those forward-looking statements and our previous expectations, plans, and projections. Refer to Item 1A in this Annual Report on Form 10-K for a more complete discussion of risk factors for Ross and dd’s DISCOUNTS. The factors underlying our forecasts are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.