Ross Stores Inc (ROST) — Q2 2020 Earnings Call Transcript

Good afternoon. Joining me on our call today are Michael Hartshorn, Group President, Chief Operating Officer; Travis Marquette, Group Senior Vice President and Chief Financial Officer; and Connie Kao, Vice President, Investor Relations. We will begin our call today with an update on the status of the company's operations, including some color on our store reopenings, followed by a review of our second quarter performance. Afterwards, we'll be happy to respond to any questions you may have. As a reminder, all store and distribution center locations were closed from March 20 through May 14, when we began a phased process of resuming operations. On average, our stores were open for about 75% of the quarter, though operating on shorter hours compared to the prior year. All our distribution centers were reopened by the end of May. The ongoing COVID-19 health crisis remains very fluid, and we continue to closely monitor local developments to assess any potential changes to our operations as mandated by local, state or other government directives. We remain committed to prioritizing the health and well-being of our associates and customers as we navigate through this pandemic. Turning now to our financials. Total sales for the second quarter were $2.7 billion compared to $4 billion in the prior year, reflecting the negative impact from store closures during the period. Comparable store sales were down 12% for reopened stores from the date of the reopening to the end of the fiscal quarter. Sales during the quarter were significantly impacted by several factors including COVID-19's negative effect on consumer demand, particularly in California, Florida, and Arizona, which represents about 50% of our store base. Further, during the initial reopenings, overall sales were ahead of our conservative plans as we benefited from pent-up demand and aggressive markdowns to clear aged inventory. In the weeks thereafter, trends were negatively impacted from depleted store inventory levels, while we were ramping up our buying and distribution capabilities. For the 13 weeks ended August 1, 2020, earnings per share were $0.06 on net income of $22 million. This compares to net income of $413 million or earnings per share of $1.14 for the same period last year. Year-to-date, the loss per share was $0.81 versus earnings per share of $2.29 last year. Our net loss of $284 million is compared to net income of $834 million in the first half of 2019. Sales for the first six months of 2020 declined 42% to $4.5 billion. At quarter end, total consolidated inventories were down 39% from the prior year, with average store inventories down 10% versus the same period last year. Packaway levels at quarter end were 25% of the total compared to last year's 43% as we use packaway to replenish store inventory throughout the quarter. As planned, we did not open any new stores in the second quarter. We continue to expect to add about 39 locations this fall for a total of 66 new stores for the full year. Now Travis Marquette will provide further color on our second quarter results.

Thank you, Barbara. As Barbara noted, stores operated on average for 75% of the period with comparable store sales down 12% versus last year from the date of their reopenings to the end of the fiscal quarter. The decline was driven by a lower number of transactions that was partially offset by a larger average basket size. Average unit retail was down during the period, reflecting the strong sell-through of deeply discounted aged inventory. Operating margin for the quarter was 3.2% compared to 13.7% last year. Both cost of goods sold and selling, general and administrative expenses reflect the deleveraging effect from lower sales versus last year and expenditures for COVID-19-related measures. In addition, cost of goods sold was impacted by the unfavorable timing of packaway-related expenses. These higher costs were somewhat offset by the partial reversal of the inventory valuation reserve we took in the first quarter resulting from the faster-than-expected sell-through of aged inventory. This reversal benefited the second quarter by $174 million or $0.19 per share. Total net COVID-related expenses for the quarter in cost of goods sold and SG&A combined were approximately $65 million, primarily for costs associated with restarting the business, supplies, cleaning and payroll related to additional safety protocols. We ended the quarter in a healthy financial position with over $4.3 billion in liquidity, which includes an ending unrestricted cash balance of about $3.8 billion and an undrawn $500 million revolver. As we move into the third quarter, trends have not materially changed from the second quarter, with comparable store sales for the first 2.5 weeks trending down mid-teens versus last year. Given the lack of visibility on the potential impact from this ongoing health crisis, we are not providing sales or earnings guidance.

Thank you, Travis. Aside from the pandemic impact on consumer demand, as initial reopening sales significantly exceeded our conservative forecast, we were unable to ramp up our buying and distribution capabilities quickly enough to adequately replenish stores. As Travis mentioned earlier, the ongoing COVID-19 health crisis remains extremely uncertain, and we have limited insight into how this pandemic could further impact consumer demand and the retail and economic landscape. There is additional risk if COVID-19 cases remain elevated or increase, potentially prompting larger scale shutdowns of our operations. Given these uncertainties, we believe the most prudent approach is to plan and manage the business very cautiously, while continuing to prioritize the health and safety of our customers and associates. As we move forward during this challenging period, we remain confident that our strong financial foundation and outstanding team of experienced off-price executives will help see us through these uncertain times. Over the longer term, we remain well positioned as an off-price retailer to continue to gain market share given the large number of retail store closures and consumers' continued focus on value and convenience. We've proven in the past that we have successfully competed in this type of retail environment and believe we will do so again. At this point, we'd like to open up the call and respond to any questions you might have.

Great. Barbara, on the cadence of customer traffic that you've seen since reopening, how much of the recent moderation do you attribute to health concerns versus the lighter inventory that you cited? And larger picture, do you believe anything in the competitive landscape has changed as we think about market share beyond the pandemic?

Matt, it's Michael Hartshorn. On the recent trends, I think there's a number of factors that are impacting what we're seeing currently. I certainly think there are things internally that we can focus on in terms of execution. We're still not where we want to be on ramping up the DCs and continue to have lower receipts than planned. I do think there are external factors that include things like the expiration of unemployment that happened at the end of July, obviously, with no back-to-school as the country has moved to distance learning. I think those are the primary factors. And looking on long-term growth, obviously, the pre-COVID trend had customers migrating to value and convenience. And this disruption just accelerated those trends with a number of store closures, our value proposition and 1,800 and growing conveniently located store locations, I think we have a significant opportunity to gain market share over the longer term.

Great. And then just a follow-up on gross margin. How best to think about the puts and takes on merchandise margins in the back half of the year? Any help would be really greatly appreciated.

Yes. Sure, Matthew. This is Travis. In terms of the margin components for this quarter, similar to last quarter, given the significant deleveraging effect of having our stores closed for a portion of the quarter, we're not providing specific margin components. The puts and takes this quarter, I covered in my remarks. And then in terms of the go-forward look, again, given the ongoing uncertainty, we're not providing any forward guidance or commentary on future margins right now.

I was hoping you could touch on some of the current inventory dynamics. What does availability look like in the marketplace, just both in general and in some of the stronger trending categories? And how do you feel about your ability to really chase back into some of these key categories should the demand backdrop recover faster than you're seeing right now?

Overall, we continue to observe a significant amount of supply, although it's inconsistent across different merchandise areas. We believe this leads to opportunities in some products while creating gaps in others. Regarding stronger trending categories, it’s a broad question. However, I can say that in most businesses, there has been supply. Without specifying what the trendy category is, it’s challenging to comment further. That said, our merchants are actively pursuing opportunities every day with conservative plans in mind. I believe that over time, the categories currently facing gaps in inventory will eventually catch up.

Just following up on that question, when do you think you'll be appropriately stocked? And then as you look at your packaway volumes, do you feel comfortable with the mix and content of that inventory that it's appropriate for the current environment?

Lorraine, I will explain the sequence of the quarter regarding our inventory levels. When we first started to gradually reopen our stores, that was our initial focus, followed by the opening of our distribution centers, which we did in this order due to government restrictions in California and Pennsylvania at that time. Because sales were higher than we initially anticipated upon reopening, coupled with the gradual ramp-up of our distribution centers, this resulted in reduced inventory in our stores. The initial scaling of our distribution centers took longer than we expected, and we faced additional challenges in reaching full capacity due to staffing issues. We have implemented proactive measures to enhance our production levels, such as increasing wages and offering incentives. We believe these steps will expedite our ramp-up to peak capacity over the coming months. Therefore, we anticipate seeing improvements as the quarter progresses.

And in terms of the content of packaway, I mean, we're pleased with the content the pathway we have now. We don't feel like we have any residual issues or anything from spring. As to Michael's point, we used packaway to drive our business in Q2 and got through everything. So of the levels that we own, we feel fine about the content. And in terms of just packaway in general, the merchants, as you know, packaway fluctuates normally. And the merchants are out there chasing packaway now looking for spring product, current product, whatever the great deals are, because the most important thing about packaway is that what you own is really great content.

Great. Barbara, I was very interested in what you said about the states that are seeing particular impacts from COVID, California, Arizona, Texas, and Florida. You mentioned that in the second quarter, your store openings were down 12%. Did you see a worse result in those four markets compared to the company average of minus 12%? Also, I'm curious about what's happening currently in August. Can you determine if the current mid-teens decline in sales trends is a reflection of underlying consumer demand right now? Or are you experiencing challenges due to insufficient inventory levels affecting your sales this August, especially since you are still ramping up? Another possibility could be that, given the unusual back-to-school situation you pointed out, categories like kids, juniors, and young men's are underperforming while others are doing better, which might be a result of slow demand. I'm trying to dissect the different factors to gain a clearer understanding of the underlying drivers of the business, and I would appreciate any insight you can provide.

Kimberly, it's Michael. On the regional trends, Texas, Florida, California and Arizona underperformed the rest of the chain by significant margins. Now part of that is driven by the resurgence in those areas during the quarter. So they had a significant impact on the overall performance. Trends in certain areas have improved as the cases improved. And then on the current trend, we do believe that part of the current trend is driven by lower-than-planned receipts with the DCs continuing to ramp up. So we do think that, that is a factor in the current trend.

Okay. And then as it pertains to the assortment and back-to-school, we plan those businesses very conservatively. We made the adjustments in the assortments that we thought were appropriate based on what was going on in the outside world with children going back-to-school or not. And obviously, we're still in back-to-school. So it's kind of hard to rate the total experience. But we went in with pretty conservative plans for back-to-school.

Okay, Barbara. Michael, I wanted to ask whether you believe that low inventory levels are impacting current sales trends. Can you share when you expect to improve your in-store inventory position over the next month or two to align more closely with your desired levels?

Sure, Kimberly. I think I would echo my earlier comment with Lorraine. We've taken significant actions in the distribution centers. We probably implemented them later than we should have, but we anticipate those actions will enhance our throughput and elevate the levels to peak capacity over the next couple of months.

I wanted to ask a little bit about the complexion of the comp. I think you mentioned higher average basket and lower AUR. The average basket makes sense since we're hearing about shoppers consolidating their trips. Wondering if you're still seeing that towards the tail end of Q2 into Q3? Or if the inventory shortages are having a role in maybe offsetting some of that? And then also AUR sounds like it was driven lower by some of the clearance activity earlier in the quarter. Wonder if the AUR should still be expected to be down in Q3 or if we could start to see that stabilize now that you're so clean on inventory?

This is Travis. Regarding the average basket, we continue to observe that customers are visiting less frequently but purchasing more during their visits, leading to an increase in average basket size. This trend has been consistent towards the end of Q2. As for Q3, it is still quite early in the quarter, and we believe it's premature to identify trends. We are not providing additional details on the sales breakdown at this time.

Travis, I believe you called out $65 million in COVID-related expenses in the quarter. Just directionally, as we move into the back half, is there any way to piecemeal how we should think about some of these enhanced cleaning, PPE, et cetera, as well as the labor piece? It sounds like in order to get the distribution centers more fully up and running, you're having to make some investments there. So just directionally, how should we think about some of these puts and takes, I guess, on the SG&A line as we move through the back half?

Yes. Sure. A couple of comments. The $65 million was both, as a remainder, in SG&A as well as COGS. As you might have guessed, the majority of those were in SG&A as it related to personal protection equipment, sanitation supplies, payroll, et cetera. As I mentioned, a portion of those did relate to costs related to restarting the business. And so that portion, we wouldn't expect to repeat. Having said that, we do expect elevated levels of COVID expenses as we continue to move through the year. Your question, specifically on the DC investments, those were not part of the $65 million in Q2.

Curious about the packaway opportunities that you're seeing today compared to a normal period. Maybe talk in terms of good, better, best, maybe you talk home versus apparel. And I'm also curious about the initial margins that you expect on packaway based on the deals that you're seeing? And then second, just curious if you could talk about the number of new vendor opportunities you're seeing. Is there any way to quantify what you're seeing out there?

In terms of packaway opportunities, I find it challenging to classify them as good, better, or best. Generally, home items tend to be more packaway than apparel, but currently, the balance of opportunities seems different than in the past. The supply isn't as consistent across different merchandise areas as it typically is, leading to an imbalance in available opportunities. However, in the last couple of weeks, we have observed emerging opportunities, suggesting that packaway is moving positively, although it's not as broadly based due to supply gaps resulting from COVID-related issues and market conditions. Regarding margins, we don’t view packaway as a margin driver but rather as a sales driver. When it comes to pricing in relation to packaway, our merchants are always on the lookout for attractive deals. Typically, packaway items come with sharp pricing, which we use to enhance value in our stores. If a product is purchased at a great price, we usually pass those savings onto the customer, reinforcing our approach of utilizing packaway as a sales mechanism. As for new vendors, we have a sizable merchandising team of around 900 merchants actively seeking to expand our vendor base. Current market conditions may make some suppliers more willing to collaborate, and we are continuously exploring new vendor opportunities. This effort will remain a priority for our merchants on a daily basis.

Got it. And then just one follow-up. When we hear you talk about some gaps out there? Are the goods you want not available to you? Or were you just slower to bring demand than you should have been?

There are two main points to consider. First, closeout goods are never uniform across all businesses in any given season or year. This year has been particularly unpredictable due to various market factors and overseas factory operations. I've noticed some significant opportunities that we missed. In hindsight, when we reopened the stores, we likely could have started purchasing inventory a bit earlier as we began to ramp up operations. We underestimated consumer demand, which is something we could have managed more effectively. However, I'm not convinced that would have changed our product offerings significantly, as there are substantial discrepancies in availability across different classifications. Some vendors have hesitated to provide goods, which has led to supply challenges. Our team has been actively pursuing new inventory since we reopened, both to prepare for future needs and to restock stores.

Given the current uncertainty and looking ahead, do you have any insights on what the pricing or promotional landscape might look like as we approach the holiday season? It may seem distant, but it’s worth considering. Also, regarding the replenishment of stores with packaway products, could you share why there hasn’t been a greater emphasis on packaway? Is it mainly due to seasonality, or is there another reason behind this decision?

I couldn't hear the last part of your question on packaway you kind of faded out. I just need you to say the same thing over again, that would be great, the packaway piece.

Yes, I was just wondering if there’s a reason you didn’t utilize more of the packaway to replenish the stores. If the answer is seasonality, that's understandable, but is there another reason?

I believe the packaway releases were appropriate for what we needed to send to the stores at that time. Packaway refers to a diverse range of products that we introduce to our inventory. We decide on the timing and selection based on what is suitable for the store. The flow of these products depends on various factors, including the specific items involved. Not every business utilizes packaway in the same way; some of the inventory set aside for later could have been intended for the fall season. We released what we felt was necessary to ensure we started the fall season with a clean slate and without excess inventory we did not want to keep. This process influenced our release decisions. Regarding the promotional environment, I anticipate that promotions will carry on due to the highly competitive market. Retailers are looking to manage their excess inventory, and we can also expect prolonged liquidation efforts stemming from store closures and bankruptcy announcements. Therefore, we foresee a continued promotional atmosphere in the future.

Best of luck navigating the upcoming weeks of back-to-school. Can I ask a question regarding the decline in transactions? I'm assuming this is related to foot traffic rather than conversion rates, but could you confirm that? Additionally, could you share your thoughts on extending store hours and increasing capacity as we approach the peak season? I'm interested in whether this could be specific to weekends rather than weekdays. What is your perspective on this?

Sure, Marni. We don't actually measure conversions; instead, we look at transactions as our indicator of traffic. Regarding our operating hours, when we first opened, we significantly reduced our hours to 10 AM to 7 PM, which we believe affected performance. As the quarter progresses, we have since extended our hours to 9 PM across the chain. We are still deciding on our operating hours for the holiday season.

Barbara, you mentioned in the prepared remarks there was a lot of uncertainty. Of course, heading into back-to-school and then to holiday. Can you talk a little bit about how you're planning the business into the second half, perhaps you referenced to the mid-teen to down mid-teens trend that you're seeing at the moment? And then my second question is on logistics costs. How are you expecting those to trend going forward?

On logistics cost, given the wage increases, certainly in the back half of the year, we would expect to grow. But we also have cost savings throughout the business, including the distribution centers because as we staff up, we'll be able to improve our productivity as well.

Okay. Could you do me a favor? Just repeat the back-to-school question because I didn't capture the first part of it. Could you say that again, please?

Now I was just wondering how conservatively you're planning the business into the back half, given all of the uncertainty about consumer behavior as we head into that important holiday season?

Sure. We plan to continue to manage the business conservatively. I mean given all the ongoing COVID-19-related risks, including potential for additional rounds of store closures and distribution center closures. So our plan is to plan it conservatively and to chase our way back.

Two quick questions, if I could. The first one is, can you just give us an updated thought process around the resumption of a dividend or share repurchase? And the second question, I think, follows Alex's a bit. But when you think about the uncertainty that you have, can you just maybe talk about how you're planning sort of fall, winter, colder weather-type products in the back half with everything else that's going on?

Yes. Sure. This is Travis. Just with regard to the dividend and the share repurchase program, again, there's still, as we've mentioned several times, significant uncertainty in the market. We don't know what's going to happen with COVID, with consumer demand. And we really would need greater visibility on sales and the sustainability of those sales before we would start to consider or evaluate reinstituting either of those.

And in terms of how we're planning fall or winter products in the back half, we're planning the entire business conservatively. And so we would look at each one of those businesses, I'm assuming outerwear, sweaters, those type of businesses and plan them relative to the conservative plan. So we would have an assortment on the floor. And then if business took off at a greater rate than we expected, we would come back and chase some of those products.

Okay. Michael, are you seeing any difference in the trend line in the markets where the schools have announced virtual versus in-person? It sounds like that could have been a driver. Any evidence as the school systems are communicating in the local markets that back-to-school is showing up or it's a little late? And then I don't know if some of the schools are already passed back to school. Have you seen any improvement as you kind of move past the back-to-school season in some of the southern markets at all?

Yes. Michael, we wouldn't talk about current trends going into the quarter. We obviously gave the top line trend to give you an indication of what's going on overall. I'd say there's so many factors that we're seeing in the sales between the virus resurgence and unemployment trends and other things, I think it's really hard to see right now.

Can you comment on your ability to get back into product and inventory if the environment, as we go through the back half of the year does improve from a traffic perspective? Obviously, see the inventory position now being pretty lean. So I'm just curious, the speed at which you can ramp back up and get goods into stores throughout the back half of the year?

Yes, that's a great question. We approach the business very conservatively and believe this strategy is appropriate for managing our risks in these uncertain times. As we typically do, we will pursue opportunities for closeouts and supplement with packaway, which is standard procedure for us.

I mean obviously, we hope that this is a once in a lifetime event. But does the problem with getting inventory in stores quickly enough highlight a potential to build in more direct ship from vendors to stores so that you can be more flexible going forward if demand doesn't line up with your prior expectations? Or is this something that once DCs are running at full tilt shouldn't be a long-term problem?

I think it's the latter. Once we have the DCs running at full tilt, we do not think it's a longer-term issue.

Great. I wanted to ask about any color you can provide on trends by category. Several of your peers have talked about the strength of home. And then related to that as a follow-up, you mentioned that you planned back-to-school business accordingly. So I was just wondering how comfortable you feel about your mix of goods in the store and your need to perhaps pivot categories to get to an ideal mix? And when you think that could be, if you're not there?

Yes. Let me start with the trends by merchandise, et cetera. Again, given the phased reopening of the stores and, in particular, the significant impact of clearance sales on results for the quarter, it's really hard to get a clear sense of product trends. So one thing that's clear is that the consumer during the quarter was very much more focused on home as opposed to apparel.

What I think you're at, Roxanne, also is just where are we seeing the shifts in product, where is the consumer heading versus where she's been. So yes, I would say, to Travis' point, home is certainly a place that the consumer has flocked to and is a business that we believe in. And actually, home gets bigger, as you know, as you enter into the fourth quarter. I would think also in apparel, the shift that we're starting to see, which I think everyone is starting to see, is the consumer moving more towards casual products, activewear, athletic wear, as perhaps she's working remotely now. And so making that pivot in that shift is where we're going. We normally have a large casual business. Our career businesses have never been the biggest part of our apparel at Ross ever. And so for us, it's really about shifting even more dollars over there as the consumer has moved in that direction. And that's what we would see in the back-to-school businesses like the juniors or young men, you would see that same shift on the floor now and a continued shift because that is the bulk of where those businesses are for us normally.

As you consider the business at dd's, are you observing the same trends there as you do at Ross? Also, Barbara, could this be a chance to expand the vendor base? Additionally, are payment terms in the industry being permanently adjusted as a result of the short-term situation?

Dana, on dd's, I'd say that dd's experienced somewhat similar performance as Ross, the supply chain and buying ramp-up issues impacted the entire company and that included both Ross and dd's.

And from a vendor based perspective, obviously, we're always trying to expand the vendor base. And usually, when business is difficult is when there are often more potential opportunities to expand that base, so the merchants are focused on trying to do that every day and particularly now. In terms of terms and adjustments permanently in the industry, I think I really couldn't comment on what globally that looks like for the entire industry. I think there's been a lot going on in the last few months. And so I think everyone is reacting to what they need to do for the business, but I really can talk about a permanent shift in the industry.

Barbara, could you explain how you pivot to strong categories and the timing for allocating buying budgets? I'm curious about how quickly you can adjust assortments if needed. Additionally, in your prepared remarks, you mentioned considering the risks of future shutdowns. Can you remind us where your major distribution centers are located, particularly in California and Pennsylvania, and what risk mitigation strategies you have in place in case shutdowns affect the California facilities?

More than half of our distribution center capacity is on the West Coast. We have one distribution center in the Bakersfield Central Valley, several in Riverside, one in Pennsylvania, and two in South Carolina. Shutting down the California distribution centers would significantly impact our supply chain. It's crucial for us to implement mitigation strategies for our future growth. Our next distribution center will open in Houston, and we expect to have another distribution center located outside of California shortly after that.

In terms of shifting to strong categories, the speed of that transition varies depending on each category, size range, and gender. I can't provide a specific timeline, but I can say that we will actively pursue those categories based on current supply constraints. In the long run, we typically see that when a trend shifts, the market aligns with that change, leading to a natural increase in supply towards those trends. This way, we can gain more traction than we initially might expect as the market identifies what is successful and what is not.

Barbara, you mentioned several near-term factors affecting the trend in the third quarter, such as back-to-school, stimulus impacts, inventory issues, and rising COVID cases. How much do you think customer traffic is being affected by shoppers opting to find deals online instead of visiting stores due to comfort concerns? Michael, I’d like to follow up on the question regarding DC staffing. Can you provide more details about the challenges? Are people not returning after being furloughed, or did some find new jobs and choose not to come back, leading to the need for wage increases? A bit more explanation on that would be helpful.

Sure. We temporarily furloughed our associates in the distribution centers, and we are using both temporary and permanent labor for increased capacity. Our permanent workforce has shown good retention rates returning from furlough. However, with the rise in e-commerce and the return of commerce after closures, the competition for labor in warehousing has intensified significantly. These are the primary reasons for the staffing shortfall in our distribution centers. I should also mention that in the COVID environment, we prioritize the safety of our employees and discourage anyone who is sick from coming to work, so we are also addressing attendance issues.

And in terms of the impact of online in our business, I think that's hard for us to measure the exact relationship of that. Obviously, online business has been very good, especially in essential businesses and core basics and things like that. But I think it's hard for me to put a number to what that impact could be to our current business trend.

I'll follow up on Jay's question, but I'll ask it differently. Not necessarily e-commerce, but I know you guys, I'm sure you have good communication with your customers. When you talk to them about why they're not coming back as much as they did last year, is it between the COVID concerns, the economy and maybe the customer lost their job or income of the family has gone down? And then thirdly, your own inventory shortage, not having the right stuff in store. Do you know which is the main factor? Like is there a rank order of those? Is there any way you kind of talk to that?

Ike, I would say, it's hard to break out between those components. I think it's very clear that the #1 factor is the impact of the virus. As we said in our comments, that the markets that were impacted the most were also the markets that had the largest outbreak. So I think that's clear that, that's the #1 factor. But I don't want to minimize. We think we could have done things better during the quarter. So there are factors that we talked about with inventory that we think we can impact. So the bottom line is we're going to work on our own execution and do the things that we can do to impact the business.

I have a quick question. I'm curious about the FCAT states; are you still experiencing subdued sales in August, or have they recovered to the national average?

In those states, they continue to trail the chain. We have seen some small improvement.

Barbara, I was wondering if you can talk about if we are in a reduced traffic environment as we go into the holiday season, changes to the store operating procedures for Black Friday and then into the critical pre-holiday weeks, any changes to hours or traffic-driving events or something of that sort? And then for Michael or Travis, if you can talk about what portion is distribution center payroll versus total payroll, like employee payroll, not including corporate headquarters? I imagine you're not seeing as much of that wage pressure at the store payroll line, but if you can talk about anything, did people come back or didn't come back similar to the DCs? Or is that normalized?

I will address those points in reverse order. We're not experiencing the same challenges in the stores, likely due to the distribution centers being affected by the increase in e-commerce and the closures of several physical retail locations. The stores are not facing that issue. Regarding our holiday plans, we can't comment on those yet as we are still finalizing them.

And in terms of events, Black Friday, we don't really run events. Our thing is that we want to make sure that we have great branded values on the floor. And obviously, our inventories levels go up in that time period. And that's what the customer values, and that's what we look to do to drive traffic is just having great branded bargains on the floor.

Thank you for joining us today and for your interest in Ross Stores. We wish you and your families continued health and safety. Thank you.