FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (TMF Debit)

Ross Stores, Inc.
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8333 Central Avenue
Newark, CA 94560-3433
(510) 505-4400

UNION CITY, CA (May 26, 1997)/FOOLWIRE/ --- Ross Stores released their first quarter 1997 results on May 20th. Net earnings increased 70% to a record $23.8 million or $0.47 per share, beating analyst estimates by a penny, compared to net earnings of $13.9 million or $0.27 per share in the prior year. Total sales for the quarter increased 19% to $443 million and same store sales were up 11% from last year. They are very pleased with these results, especially considering the comparisons they faced from last year when same store sales increased 14% and earnings per share more than tripled in the first quarter.

BROAD-BASED STRENGTH. The strength in their business during the first quarter was broad-based geographically and by merchandise categories. Trends continued with the top performances during the quarter in their non-apparel businesses of home and bed & bath, areas where they have been adding new product offerings. Further expansion of product categories will primarily be in the "home" area. There are other smaller areas like books and wedding-goods type merchandise that offer opportunities, but it will expand primarily in non-apparel, much of which they have not identified yet. Home and bed and bath currently represents around 12% of their business and they feel has the potential to move 2-3% higher. Special sizes, especially in women's apparel is an important business as is outerwear. In men's, the emphasis across the country is in better collections.

MARGIN. Operating margin grew by about 260 basis points during the period. Gross margin for the quarter was up approximately 130 basis points over last year, benefitting from lower than planned markdowns as a percent of sales and leverage on occupancy costs. Occupancy costs represented around half of that improvement.

EXPENSES. Expenses as a percent of sales declined around 100 basis points. Their strategy of offering more compelling values on name-brand merchandise by buying more opportunistically and increasing their investment in pack-away is working well. They also continued to maintain strict controls on both inventories and expenses, giving them the ability to chase the business and maximize the profits on the stronger-than-planned sales. A key indicator of their improved productivity is in-store inventory turns which have increased significantly over the last couple of years. The in-store merchandise now turns over 5.1 times per year, up from just 4.4 times two years ago.

EXPANSION PROGRAM. Their store expansion program remained on track in the quarter as they added 6 new locations, all in existing markets, ending the period with 315 stores in 17 states, up from 296 locations in the prior year.

INVENTORY. They feel good about both the quality and level of inventory as they ended the quarter. On a comparable basis, average in-store inventories were up just slightly from the prior year. Total consolidated inventories increased 23% as a result of new store expansion and their strategic investment in additional pack-away merchandise. Pack-aways were about 37% of total inventories at the end of the first quarter, up from 32% in 1996. They believe the stronger discounts on pack-away purchases were a key driver of their record results in the quarter strengthening their ability to provide more compelling values to customers. In addition, these resources give them the flexibility to keep in-store inventory very lean and chase the business when sales exceed plan, maximizing potential earnings leverage to the bottom line.

OUTLOOK FOR THE REST OF 1997. They are very encouraged by their recent performance, having just posted record results in 1996 and now another strong gain in sales and record earnings during the first quarter. At the beginning of May, they told investors they were looking for second quarter same store sales to be up around 6-7% versus the 9% increase they showed in the same period last year. Their guidance for the back half of 1997 calls for same store sales in the third quarter to be up about 3-4% and for the fourth quarter about 2-3%. If they perform in these ranges, that would put comparable store sales for 1997 up around 6%, a very solid gain against the 13% increase they posted in 1996. Gross margin for the year is now forecasted to be up about 40 basis points or so and expenses down about 80 basis points, putting operating margin at record levels of over 9%. As a result, analyst estimates are now in the range of $2.00-2.10 per share, a very solid increase of 30% or so on top of the 83% gain they posted in 1996.

OUTLOOK FOR 1998 AND BEYOND. Over the longer term for 1998 or beyond, their top priority is finding new ways to stimulate sales growth. With operating profitability at record levels, future earnings per share gains will be more dependant on their ability to show larger increases in market share. Their analyses show that they have the luxury of focusing growth solely in their current network of 17 states through the end of 1999. This expansion strategy involves a combination of new stores in both existing and smaller new markets for a net addition of 20-25 units annually in 1998 and 1999. Unit growth could even be stronger if they are able to identify and take advantage of future opportunistic real estate acquisitions like they did in Hawaii with TJX last year or in Houston in 1994. Their earnings growth assumptions for 1998 and 1999 include square footage expansion of 6-7% combined with comparable store sales gains of 3-5% or topline growth approaching the double digit range. This level of same store sales growth could be expected to contribute to a lower expense ratio year over year with the goal of increasing operating margins about 30 basis points or more annually. With shares expected to remain relatively flat year over year, this formula equates to earnings per share growth in the mid teen range for 1998 and beyond.

SUMMARY. They are encouraged that the competitive climate, especially the department store sector has remained fairly healthy and rational with less promotional activity. This situation has benefitted off-pricers like TJX and Ross. Nevertheless, they continue to posture themselves conservatively by buying more opportunistically, increasing pack-away levels, controlling in-store inventories and expenses. Focused execution of these strategies has enabled them to do well even when the environment in off-price was much more difficult. Their consistent performance makes them optimistic about their ability to meet current earnings expectations and show a fourth consecutive year of solid growth in sales and earnings in 1997 while positioning themselves for continued growth in 1998 and beyond.

STOCK REPURCHASE. The company was asked about their current share repurchase program. They responded that they will complete the share repurchase program for this year. They don't have firm plans beyond 1997, but are sure that they will continue to buy back shares.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.