Ross Stores Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ROST)") else Response.Write("(NASDAQ: ROST)") end if %>

8333 Central Avenue

Newark, CA 94560-3433

(510) 505-4400

UNION CITY, Ca., August 21, 1996/FOOLWIRE/ --- Ross Stores reported Q2 earnings this morning. They were pleased to announce that net earnings for Q2 increased over 80% to a record $18.6 million or $0.72 per share compared to earnings of $10.3 million or $0.42 per share in Q2 1995. Total sales for the quarter increased 16% to $406 million. And same store sales were up 9% from last year.

For the first six months of 1996, net earnings more than doubled to a record $32.6 million or $1.26 per share, compared to the $14.2 million or $0.57 per share earned in the same period last year. Total sales year-to-date are up 20% to $777 million and same store sales are up a strong 11% from last year.

The strength in their business during the quarter was broad-based as it has been all year -- both geographically and throughout their merchandising departments. The strongest markets were California and Portland and the strongest merchandise departments were in their home businesses where they have been adding new product offerings. They are also encouraged that their Back-to-School departments such as children's, junior's, and young men's did well during the quarter making the company optimistic about their contributions in the current third quarter.

Operating results show that gross margin for the second quarter was up strongly, 200 basis points, and their SG&A declined 35 basis points versus 1995 resulting in an operating margin for Q2 that grew to a record 7.7% compared to 5% in 1995.

During the quarter they stayed on track with their repurchase program and through the end of July they have bought back approximately 900,000 shares of the 2 million authorized for repurchase early this year. They expect to complete this program by the end of 1996.

Total consolidated inventories at mid-year are up about 18% compared to the prior year and this increase was planned and executed primarily through more opportunistic purchases of seasonal pack-away merchandise. This investment provides them with additional resources for the new Hawaii locations and the higher levels of business planned for the Spring of 1997. One of the analysts on the call mentioned that the sell-off in the company's stock this morning was due to concerns about inventory levels. The company responded that they are not concerned about inventory levels. They emphasized that they are around 3% ahead and have 3% more inventory on a same store basis and all that happened was that they bought some opportunistic goods that were out there and would have bought more if they had the opportunity. Again, it is to fund some stores that they hadn't planned in the fourth quarter and is also their 1997 base of business. Based on where they start 1997, they needed some more merchandise at that time. In store, they are only 3-4% ahead and by the end of the quarter they are planning to be more on a flat basis or less going into Q4 versus last year.

In late July they entered into an agreement with TJX Companies to acquire the leasehold rights to 5 Marshall's and 1 TJ Maxx store in the Hawaiian islands. This strategic real estate transaction will make Ross the only major family off-pricer in Hawaii. They take posession of the stores on September 1st and will be converting all 5 Marshall's locations to the Ross format and the TJ Maxx store on Oahu will close. The new Hawaii stores will reopen by early November. With the two existing Ross Dress for Less stores, they will now operate 7 stores in Hawaii. This will solidify their franchise in the islands and provide them with significant economies of scale in distribution, supervision, and advertising expenses. After accounting for pre-opening expenses they expect the acquisition to add about $0.02 per share to their Q4 earnings in 1996. And, after closing a few older stores this year, they will end the year with 309 stores.

OUTLOOK FOR THE REST OF 1996

They are very pleased with the record results they achieved in the first half of 1996 which represent a third consecutive year of sales and earnings gains. They believe their financial performance shows that they are executing their strategies well and that their customers are responding to the more compelling values they are offering. They are doing this by staying focused on the strategies that contributed to their recent success, looking for ways to enhance them and execute them more effectively over the balance of the year and into 1997.

As they've stated in previous presentations, over the next year or two they will continue to strengthen their staffing resources throughout the company with still a special focus on the merchandising organization. They will continue to buy more opportunistically and diversify their merchandise mix to stay in tune with what their customers want to buy. They will further simplify their business practices and realize cost efficiencies throughout the organization and will target store growth to strengthen their franchise in existing markets and also look for real estate acquisitions that may be a good strategic fit.

Their performance year-to-date in 1996 has dramatically exceeded their expectations for sales and earnings leaving them now to be more optimistic on their outlook for sales gains as they enter Q3 where they are very comfortable forecasting comparable store increases in the mid-single-digit range. However, they still remain more conservatively postured on Q4, where they are planning 2-3% same store sales increases. They believe it is both smart and prudent to be more conservative because even though their recent trend has been strong there are still many uncertainties specific to this year's fourth quarter. July sales results show that department store business has softened. If this trend continues into the holiday selling season, it increases the likelihood of a more promotional and competitive climate. With Thanksgiving a week later in November this year, all retailers are facing a more compressed holiday selling season with 5 fewer days between Thanksgiving and Christmas. Ross is eliminating an expensive chain-wide print insert that has always run on Thanksgiving weekend but has not been very effective in the past few years. This is the most promotional weekend of the year and it has become increasingly difficult for off-pricers to compete with the malls during this traditional kick-off to the holiday season. By cutting this piece, they also cut out a good deal of cost but it will still affect them revenue-wise.

Obviously it is possible that they can do better in Q4, but they prefer to plan conservatively which gives them more leverage potential and also makes it more likely that any potential surprises are on the up side.

Their updated operating statement assumptions for the back half take into consideration the tougher prior year comparisons when same store sales were up 4% and gross margin increased 100 basis points in Q3 and 160 in Q4. As a result they are planning flat gross margins in the back half of the year and respectable leverage on expenses which if realized would contribute to another record year of sales and earnings growth. Operating margin which was 4.3% in 1994 grew to 5.2% in 1995 and is now expected to be 7% or better in 1996. If achieved this would create earnings per share growth in 1996 that would be 50% or higher on a 52-week basis. And that is following a 35% increase in 1995.

They are encouraged by the renewed health of their industry. Many of their off-price peers including TJ Maxx and Marshalls are showing strongly improved performance this year. Certainly they are all benefitting from a less promotional climate in the first half when department stores were more rational and healthy competitors. In a healthy and profitable department store operation as they saw in the first 6 months it is less likely to promote and reduce the value differential they as off-pricers can offer customers. More importantly, looking back over the last 3 years, their performance shows that a focused and effective execution of their strategies has enabled Ross to do well even when the environment for off-price was much more difficult. They believe these results show that their strategies are working, enabling them to deliver solid gains in sales and earnings for almost 3 consecutive years. This performance is a direct result of the more compelling values they offer their customers today which makes them optimistic about their prospects for continued growth in sales and earnings in the back half of this year and into 1997.

The company is still conducting a CFO search. They have an internal candidate and are looking at the external candidates.

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* 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.

(c) Copyright 1996, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

Transmitted: 8/22/96

Copyright 1996, The Motley Fool
All Rights Reserved. This material is for personal use only.
Republication and redissemination, including posting to news groups,
is expressly prohibited without the prior written consent of The Motley Fool.