Ross Stores Inc (ROST) — Q3 2020 Earnings Call Transcript

Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer; Travis Marquette, Group Senior Vice President and Chief Financial Officer; and Connie Kao, Group Vice President, Investor Relations. We'll begin our call today with a review of our third quarter and year-to-date performance. Afterwards, we'll be happy to respond to any questions you may have. The vast majority of our stores were operating throughout the third quarter. That said, given the worsening pandemic, we will remain vigilant in monitoring local developments to assess any potential changes that might be necessary to our operations based on local state or other government directives. We will continue to make the health and well-being of our associates and customers a top priority. Turning now to our financial results. Total sales for the third quarter declined 2% to $3.8 billion with comparable store sales down 3%. Sales improved substantially compared to the second quarter following a slower start in August. This acceleration was driven by several factors, including an improvement in our merchandise assortments, a later back-to-school season, stronger performance in our larger markets and our return to more normal store hours. In October, the company refinanced $775 million in senior notes to significantly reduce the annual interest expense and total cash outlays over the life of the debt. This action resulted in a one-time charge of $240 million or $0.65 per share impact to net earnings in the third quarter of fiscal 2020. Including this impact, for the 13 weeks ended October 31, 2020, net income was $131 million or $0.37 per share compared to $371 million or $1.03 per share for the same period last year. Year-to-date, the loss per share was $0.43 on a net loss of $153 million, also including the aforementioned one-time charge. This compares to net income of $1.2 billion or $3.32 per share for the same period in 2019. Sales for the first 9 months of 2020 were $8.3 billion versus $11.6 billion last year. Third quarter operating margin of 4.4% was down from 12.4% last year and was negatively impacted by the one-time debt refinancing charge, which was equivalent to 640 basis points. In addition, the year-over-year margin decline reflects higher COVID-related operating costs in 2020 and the deleveraging effect on expenses throughout the business from the decline in same-store sales. At quarter end, total consolidated inventories were down 25% from the prior year with average store inventories down 8%. During the period, we continued to make progress on our distribution capabilities to support peak sales during the holiday selling season. Packaway levels at quarter end were 26% of the total compared to last year's 39%. For the third quarter, the strongest merchandise areas at Ross was home, while the Midwest and the Southeast were the best-performing geographic regions. Similar to Ross, dd's DISCOUNTS performance accelerated during the quarter as their value offering also resonated well with customers. Overall, our improved core business results demonstrates consumers' continued focus on value and our ongoing ability to deliver the bargains our customers come to expect from us. Turning to store growth. As expected, we opened 30 Ross and 9 dd's DISCOUNTS locations in the third quarter, completing our expansion program for 2020. After the planned closing of about 10 existing stores in the fourth quarter, we anticipate ending the year with 1,585 Ross and 274 dd's DISCOUNTS locations for a net increase of 54 for fiscal 2020.

Thank you, Barbara. As Barbara noted, comparable store sales decreased 3% versus last year. This decline was driven by a lower number of transactions that was partially offset by a larger average basket size. Again, as mentioned earlier, operating margin for the quarter was 4.4%, down from 12.4% last year. Cost of goods sold increased 35 basis points in the period. Merchandise margin grew by 190 basis points, driven by a favorable buying environment and lower inventory shortage. These items were more than offset by freight costs that rose 90 basis points and higher distribution expenses of 70 basis points. In addition, buying and occupancy delevered by 40 and 25 basis points, respectively. Selling and general and administrative expenses increased 765 basis points, which includes the previously mentioned 640 basis point impact from the one-time debt refinancing charge in addition to the deleveraging effect from the decline in same-store sales and higher COVID-related operating costs in 2020. Total net COVID-related expenses for the quarter were approximately $25 million with a slightly higher impact to cost of goods sold than SG&A. We expect net COVID-related costs to be significantly higher in Q4 relative to Q3. These increases primarily relate to managing impact from industry-wide capacity constraints and congestion as well as wage and incentive actions in our supply chain and stores. Turning to our balance sheet. In addition to the refinancing of a portion of our senior notes during the third quarter, we also took several actions to reduce our ongoing debt costs, including the repayment of the $800 million revolving credit facility and terminating the undrawn $500 million revolver. Overall, we remain in a strong financial position, ending the quarter with over $5.2 billion in liquidity, which includes an unrestricted cash balance of about $4.4 billion and the $800 million revolver that remains available. As mentioned in our press release, entering the fourth quarter, our month-to-date comparable store sales in November are down mid-single digits. In addition, there remains a high level of uncertainty related to the worsening health crisis, and we are concerned with how the upsurge of this pandemic might impact consumer demand during what we expect to be a highly competitive holiday shopping season. Given the lack of visibility we have concerning these external risks and how they may evolve and impact our business, we will continue to manage our operations conservatively and will not be providing specific details or earnings per share guidance for the fourth quarter.

Thank you, Travis. As we look ahead to the holiday season, we expect a highly competitive retail environment in a difficult economic and political atmosphere, both of which are complicated by our lack of visibility surrounding the worsening pandemic. Despite these near-term challenges, I want to emphasize that we have a talented and seasoned management team that we believe will enable us to effectively navigate through any short-term headwinds. Over the longer term, we remain well positioned in the off-price sector to gain market share, as we believe consumers will continue to favor retailers' focus on delivering value and convenience, both of which we have and will continue to provide to our customers. At this point, we'd like to open up the call and respond to any questions you might have.

Great. And congrats on the improvement. So Barbara, could you help bridge improvement from negative mid-teens to start August and more or less flat comps for the remainder of the quarter? I think, would be the math. Are you happy with your inventory assortments today and the availability that you see out there with close-out product? And then larger picture, to touch on your comments, just given the stability that your model is showing in the midst of a pandemic, how do you see opportunity for the off-price model post-pandemic as it relates to market share?

Sure. First, in terms of our inventory assortments, I think as the quarter went on, the merchants did a fine job of actually chasing the goods in the market and shifting the assortments into the classifications that the customer is desiring, which is more home and things that are casual activewear. In terms of availability in the market, we're seeing availability pretty broad-based in most classifications, and there's plenty of supply, so we're not as worried about the supply. And in terms of stability of the model for off-price, as we go forward, look, I think when we get to the other side post-pandemic, there's a customer who really likes shopping in stores, who enjoys the off-price model because there's a treasure hunt and the excitement, and I'll call it the fun, and also for retail stores that really focus on value and convenience, and that's really all those metrics to what the Ross model does.

Matt, it's Michael Hartshorn. I'll also add with the extraordinary large number of current and future retail closures, it does mean that she has fewer places to shop, and we think that off-price in general and Ross and dd's specifically are well positioned to gain market share post-pandemic.

Perfect. And then just to follow up on gross margin. Could you just walk through any puts and takes for us to consider in the fourth quarter gross margin? Anything preventing underlying merchandise margin expansion?

Sure. This is Travis. We aren't giving specific guidance for the fourth quarter, but I have a few comments on merchandise margins. We mentioned that merchandise margin increased by 190 basis points, thanks to the favorable buying environment. We believe this trend could continue for a while. However, it's uncertain how long this will persist in the long term. We also talked about the shrink benefit, which accounted for about one-third of the gain we experienced during the quarter. This is specific to the third quarter and won't be repeated in the fourth quarter. To clarify, the benefit arose from significant markdowns we implemented earlier this year, which lowered the value of items recognized in shrink during the quarter. Excluding the markdowns, the impact on unit shrink was relatively stable.

Just first, on inventory, just a follow-up there. Pack and hold remains fairly low relative to where it's been historically. I was wondering if you could speak to that and how you see that evolving here as you move forward. And then just given the current buying environment, which sounds like it's pretty favorable, just wondering if you could speak to your level of confidence in being able to generate merchandise margins as we move into the spring of next year.

On the packaway levels, similar to the last quarter, we used packaway to pursue sales that were ahead of our plans, as the acceleration during the quarter exceeded our internal expectations. Overall, availability is abundant, and we anticipate packaway to continue increasing to historical levels.

And then in terms of the current buying environment and margins, I think what we'll see is that, over time, that the margin part of it will not be quite as favorable as it is today because the buying environment in Q3 was really favorable. So we expect over time that it would more normalize.

I guess last quarter, you guys had called out underperformance in California, Texas, Florida and Arizona. Can you just give us an update on how some of those lagging markets were faring in the third quarter? And then just in terms of the negative mid-single digits quarter-to-date, is there any region that is leading the decline? That would be helpful just to frame up the regional complexion.

At the time of our Q2 call in early August, we had begun to see some stabilization in those markets in our larger markets in California, Florida, Texas and Arizona. But tourist and border locations continue to significantly underperform the rest of the chain. For the quarter, California performed above the chain average, while Florida and Texas continue to be impacted by their higher concentration of border and tourist locations. And then on the month-to-date trend, we wouldn't get into the details of inter-quarter trends other than to say, the current trend is down mid-single digits.

Curious if there's anything within your supply chain that's not functioning as you would hope at this point, whether it be your ability to buy the items you want to buy or getting the product to the DCs and out to the stores. Is there anything that you're not happy with where you think there's room to improve in the fourth quarter and beyond? And then just bigger picture. Curious if the current situation makes you think any different about growth at dd's over the next few years, either faster or slower?

Regarding the supply chain, at the end of the second quarter, we experienced some staffing issues. However, we implemented several wage and incentive adjustments in the third quarter and are now confident about our staffing levels as we enter the fourth quarter. Throughput has improved, and we are pleased with the flow of receipts to our stores. One challenge in the supply chain has been ongoing port congestion, which is affecting product availability in some areas. Nevertheless, our flexible business model has allowed us to maintain overall inventory levels in line with our plans for the quarter. The congestion at ports and across different transportation methods has resulted in cost pressures due to increased freight rates throughout the U.S. As for dd's growth, it's still too early to discuss this matter in detail. We will have a clearer perspective during our year-end conference call in March.

And just 1 follow-up. Any quantification of the number of new vendors that you've added this year? And where do you stand now in terms of total vendor count?

During the year, we've added hundreds of vendors across various areas. As for our current total vendor count, I can't provide that exact number right now. In our annual report, it was around 7,500.

Yes, we are a little over 8,000 now, Paul. So it's about a 5% increase that we've seen since COVID.

Great. The inventory level still looks, obviously, very, very lean. But it sounds like you're quite happy with the inventory that you've got. I'm wondering if you can help us understand what you have packed away for spring and summer that you could bring out in early 2021 to help kick off that season? Is it similar to what you would have last year? Or is it leaner? Just thinking about the first half of the year next year. And you talked about some port delays and some challenges that vendors have relayed to you, I think, just with moving goods. Does that, in any way, create opportunities for Ross? Or on the other hand, are you experiencing some delivery delays to your stores that could be slightly holding back sales trends?

I'll address your second question first and then let Barbara discuss packaway. Historically, disruptions like these have always created supply opportunities for off-price retailers, and I don’t expect this situation to be any different. With the port delays, there will be missed holiday dates, leading to potential inventory opportunities for us. While there may be some risks in the fourth quarter, we have significant flexibility to manage our inventory. We need to ensure that we have the right assortments for our customers, but as we enter the quarter, we feel confident about our inventory levels.

And in terms of spring, Kimberly, I think it's similar to every year. It moves based on what you find in the market. And I don't think it's consistent year-to-year. I would say, overall, that it's slightly less than what we had the year before because we flowed a lot of goods into the third quarter. That's pretty much where we are today. And then in terms of the port and disruptions at the port, you would think disruption for us equals supply. So what goes on in the first quarter, depending upon how long the ports are jammed up, we might wind up even getting some spring supply earlier. We'll have to wait and see what happens.

Great. And then just given the really materially improved financial position of the business, I'm wondering how you're thinking about the dividend and when you would expect to reevaluate potentially reinstating that dividend.

Kimberly, our near-term focus continues to be on preserving liquidity, particularly considering the recent surge in the virus and the possible effects of additional government restrictions on consumer demand during the holidays. We'll have to see how the holiday season turns out. However, at this point, it's too early to comment on future payouts. We expect to provide more information during our year-end earnings conference call.

Travis, could you quantify the COVID costs that you are currently incurring? Also, can you provide more detail on what you mean by the costs accelerating into Q4? Lastly, should we view these costs as one-time expenses, assuming a vaccine leads to a return to normalcy by the time we start comparing results next year?

Yes, sure. I think as we mentioned, cost for the third quarter, the sort of net COVID costs is how we've been talking about it, were about $25 million. So that's some pluses and then some savings and minuses that get to that number. In terms of the fourth quarter, again, we expect the cost to be significantly higher in Q4, really related to a couple of things within stores. We expect higher costs related to ongoing investments for personal protective equipment and other payroll and incentive actions. And then in the supply chain, again, we're forecasting higher costs due to COVID-related labor actions as well as cost to respond to industry-wide supply chain capacity constraints. On your question around COVID and are they onetime? Generally speaking, yes, we would expect that as the pandemic ends that these costs would start to fade out of the business.

Great quarter. Regarding the real estate outlook for 2021, should we expect that to resemble a normal year with about 90 stores opening as before COVID, or will there be some catch-up next year? Alternatively, is it going to be a slower year as you restart operations? I'm trying to determine if it will be an above or below normal year.

Sure. At this point, it's too early to say what our plans are for next year, but we'll be in a position to discuss in March at our year-end conference call.

Okay. And then, I guess, is there any consideration about the Northeast has been out there as a market that you guys haven't been in for a while. I know some of your thinking has been on the value we offer, the AURs, like, can they support the rents that are a little bit higher in that market. Is this a more attractive time for you to look at that market?

Yes, I believe we will find opportunities throughout the U.S., particularly in the markets where we currently operate and also in our newer markets. Over the next few years, this will definitely remain our focus. At some point, we will explore the Northeast market.

Michael, as you consider the current situation, we have observed several brands expressing a desire to reduce their presence in off-price retail as much as possible. It's unclear if they have maintained that approach consistently. There seems to be a renewed emphasis on this issue. Given the circumstances and the distinction between packaway and items in closeout, do you have a different perspective on what you want the mix to resemble moving forward compared to the past? Additionally, is there anything structural that you are evaluating that may be different in the future that we should be aware of?

Well, actually, let's talk about brands first. Brand strategies fluctuate from year-to-year. So different brands are doing different things as the world keeps evolving. In terms of packaway versus closeouts versus slowing upfront, all the mixes of it, really, we don't see a major material change. Our main thing is that what we want to deliver are really being able to deliver the best branded bargains possible to the customer. And so that comes through different buying strategies, and we don't really see that mix as of today, changing that much.

I wanted to ask a little bit about the complexion of the comp. It seems like the improvement in 3Q versus 2Q was mostly traffic driven, but I'm curious if you're seeing anything change in terms of either basket or conversion?

Yes, you're right. The most significant change from Q2 to Q3 was in the traffic and transaction numbers for us. That was indeed the main factor.

So not a significant change in that.

Okay. And then just a follow-up. I apologize if I missed it, but I think on the last call, you talked about overall inventory availability being very strong, but there being some gaps in the assortment in some of the hotter categories. Are you still seeing that? Or do you feel like on a category basis, the availability is where you'd like it to be?

I think there are some minor inconsistencies now that weren't present before. It's more widespread now, but still exists in certain categories. However, each season usually has its own areas of uncertainty.

Good quarter. Just be looking for maybe just overall comments on the balance sheet and where we stand today, comments maybe on debt position, potential timetables and thought process around dividends and return of the buyback. And then separately, I'm just curious if you have any gauge or guess just on what percent of your core customers have returned to shop in the stores over the past few months?

Yes. I'll start with the balance sheet. Again, we feel very good with our financial position. As I mentioned in the comments, $4.4 billion of unrestricted cash, about $5.2 billion in liquidity. So we feel very good about that. We talked about the debt actions that we took during the quarter. We refinanced a portion of our senior notes to significantly reduce the overall long-term cost of that. We feel good about that. I think as we talked about a little bit earlier on the call in terms of go-forward and dividends and buybacks and whatnot, again, our current focus remains on preservation of cash and liquidity. There's just a tremendous amount of uncertainty regarding the virus and how that will progress.

Paul, on the consumer, we, obviously, speak to our customers often through survey work. I would say at this point we don't have a comprehensive information to share at this time, but we know that she continues to prioritize value when deciding where to shop. And given, as I mentioned earlier, the large number of retail closures, that means she has fewer places to shop now, and that's benefited us.

It looks like once we're in a post-vaccine environment, many of these COVID costs will fall off. But is there any reason why some of the gains you've seen in merchandise margins would necessarily fall off? I guess what I'm asking is, could margins over the long term exceed your prior peaks coming out of this?

A significant factor influencing the margin in the off-price sector right now is the availability of goods as we move into Q3. Over time, as supply levels stabilize and vendors become more proactive in managing inventory across different sectors, I believe supply will normalize. While I’m not suggesting that margins couldn't potentially exceed historical levels, I currently don't see them maintaining their present status.

Congratulations on the upcoming holiday, and I hope I haven't forgotten to mention that. Travis, could you please clarify something you mentioned regarding shrink? I believe you said that the value was down, but this was because the missing items were already marked down. Can you elaborate on that? Also, Barbara, at a high level, are sales still very strong? You mentioned home, but are there also strong sales in categories like kids, beauty, and active, which are often associated with COVID?

Yes, sure. On shrink, you have it about right. So because of the significant markdowns that we took earlier in the year, that reduced the retail value of the items that we recorded the shrink during the quarter, which gave us a benefit. As I mentioned, if you look at it on a sort of unit basis compared to last year, it was relatively similar.

And in terms of the classifications, Marni, those other classifications are strong also. Beauty continues to be strong, kids is strong as well as home.

Great. My question is about in-store inventory levels. How did you feel about the in-store inventory levels in the quarter? Did you feel like there was enough inventory in the store to capture all the demand? Or could have been opportunities to do even more sales had there been even more inventory in the store?

On inventory, as you know, historically, we've managed our in-store inventory levels very conservatively, and that's not going to change going forward. I'd say we got inventory levels to where we wanted them during the quarter. We're, obviously, trying to manage the business very conservatively. I'm sure there's pockets of inventory or areas of the store where if we had more, we could have turned faster. But overall, we were pleased with the inventory levels.

I think we should consider that by pursuing sales above our expectations, we introduced many new items into the store. This allowed customers to visit weekly and encounter fresh and varied offerings. While not every aspect of the business may have been aligned exactly as we would have liked, I believe off-price customers are accustomed to seeing fluctuations in inventory and product selection when they visit. What truly contributed to our strong sales this quarter was the introduction of these new items, which created a sense of discovery for customers each week.

Sorry if I missed it, how was AUR this quarter? And then, Barbara, do you have a view on the industry-wide promotional cadence for holiday? And how you see your AUR opportunity for holiday and into next year?

Yes. Sure. AUR was down. It was down during the quarter.

Any thoughts on that?

Go ahead. Go ahead.

No, no. I was just going to ask about the holiday, just how you're viewing the broad promotion.

Yes. Well, we think it's going to be a very promotional holiday season. I mean, it's been promotional for a number of years, and I don't expect this year to be any different. I think the most important thing for us to do is to be able to deliver really compelling bargains to the customer. And if we do that, we'll do fine. In terms of the AUR, the AUR moved a lot with the deals that you get based on the values you put on the floor, and we are highly focused on value because that's what the customer is focused on. And also, the AUR also can move around within the total box based on the businesses that you're driving. So in terms of as we go forward, we are going to buy and to drive into the businesses that the customer is responding to, and the AUR will move with that.

When you were contemplating your inventory plan for this holiday period, how are you thinking about the potential for store closures, capacity limitations? And how quickly can you adjust, assuming there are adjustments needed given the congestion? Do you think that you run the risk of missing out on sales because inventories are just too light?

Yes. I mean, the way we approach the holiday season is very cautiously. Especially with the recent upsurge and restrictions, we're going to balance sales with managing the business, managing our liquidity and managing inventory. So there is a chance that we could miss some sales, but we're going to take a very cautious approach and make sure we're positioned well to react to what's in front of us.

I have a couple of quick questions. Regarding the home category, I believe you mentioned it was strong. Can you provide more details about what you're observing in the home segment and the availability of inventory? Additionally, I would like to know more about wage rates. You mentioned higher wages and staffing levels throughout the supply chain. Any insights on the overall staff situation in the stores would be very helpful.

The home business is performing well across all categories. With customers working from home, each segment is doing well, although travel is likely the weakest area due to a decrease in travel activity. The situation is quite broad-based. Regarding availability, some aspects of the home business involve direct imports, which has resulted in longer lead times for future orders. In the short term, merchants did an excellent job securing closeouts in the third quarter, which was a positive outcome. However, this segment tends to be more focused on upfront sales and is planned further in advance.

On wages, where we're seeing the most market pressure, as I mentioned, is in our distribution centers and supply chain. And as I mentioned, we did make base wage increases. We also have COVID incentive for the DC associates. And in stores, both stores and DCs, we're very happy with our staffing levels and have been able to staff up for holiday in both areas.

I had a question also on categories. You mentioned outperformance of home and active and underperformance elsewhere. As you move through the quarter and you saw the improvement in the comp, did that improvement come from incremental strength in the strong categories or a little bit of recovery in some of those weaker categories? And then second question is any thoughts on freight costs as you head into next year?

As the quarter progressed, we noticed that our top-performing businesses strengthened as we pursued them more aggressively in response to customer trends. Among these, home was our strongest performer, contributing significantly to the overall comp growth.

On transportation and freight charges, the significant congestion both for imports and domestically is causing an increase in freight costs. We are incurring surcharges to ensure that we can get freight through the supply chain and into the stores. We anticipate that this situation will likely persist through the first quarter due to ongoing congestion. We will provide more details on the overall annual impact during our year-end conference call.

Can you just update us on where home is now as a percentage of the mix? And whether you see any limit on that as a category? Could it get to 40% of sales at some point? Or would you view that as too big? And then in terms of store planning, I appreciate it's too early to say what your plan is for 2021. But can you remind us how you've thought historically about what your sort of capacity constraint is around opening new stores faster?

Sure. In terms of home, the home business escalates in the fourth quarter and gets much closer to 30% mark, 31% mark. It's traditionally around 25%, 26% for us. It comes up. As we go forward, our expectation is that business will continue to grow at a faster rate than the rest of the company because that's what the customer is after. And also, there is a lot of businesses in home that you can drive.

Could you repeat your question on the store growth?

Sure. So historically, when you've talked about how you think about the pace of store openings, I think you've talked about wanting to have management attention around the number of stores that you're opening. Can you just remind us what the sort of capacity constraints are as a business in terms of ability to accelerate store openings to the extent that there are more opportunities in 2021 or 2022?

Yes. Our historical rate of store openings is approximately 100 per year, generally consisting of 80% for Ross and 20% for dd's. This is a level we are comfortable with and confident in, as it allows us to effectively secure the right locations and successfully open stores from an operational perspective. Overall, I would say this is a level we feel good about.

Wanted to get some color on how you're thinking about occupancy costs and the ability given lease renegotiations to leverage those costs. Is that an SG&A tailwind for you going into 2021? And are you at all thinking about any adjustments in store size or the structure of the store in 2021 and beyond for Ross or dd's? And how you're seeing the real estate landscape?

Sure, Dana. I think it's too early to predict what will happen regarding occupancy costs. For us, occupancy is included in the cost of goods sold rather than in the SG&A line. Given the store closures, we believe there will be ample opportunities. However, it remains too early to make any definitive statements at this stage.

Got it. And just when you're thinking about the buying for next year and planning for Easter or the other holidays going forward, how do you see the overall change in inventory levels compared to what you have now? Are you seeing differences in vendor assortments? Are you seeing differences in terms of what you'll be able to get your hands on for goods in the first half of 2021?

Sure. Buying for Easter is typically challenging in Q1, and with the uncertainty surrounding the virus and the pandemic, I anticipate a conservative approach to our Q1 plans, especially concerning inventory, as we are unsure how the situation will unfold. If people are unable to go out and celebrate Easter as they usually would, I expect that holiday sales may not be as strong as they have historically been. The entire first quarter may necessitate a cautious strategy, and we'll need to assess how robust our plans should be. Regarding vendor assortments, our merchant team is substantial, and we’ve maintained strong relationships in the market. We've aimed to be good partners during this time. For 2021, I foresee a well-balanced assortment with a range of options and brands we desire. While there will always be items that may not be available at certain times, I do not anticipate any significant changes in the brands and values we can provide to customers.

Great recovery on the business. A quick one for me. Just you spoke that longer hours of operation as one of the drivers of the sales recovery as the quarter progressed. Curious if you're back to normal hours at this point in time? Or if that's still a potential tailwind to come?

Sure. Yes, during the third quarter, we returned to normal operating hours. Going into the holiday season, we historically have extended them further, and we plan to do the same this holiday season. We're allowed to do so.

Congratulations on your improvement. Building on that, I would like to know how confident you are in your ability to handle the traffic you receive, assuming the pandemic does not interfere. I assume you are implementing additional safety measures in your stores and logistics to facilitate customer flow. How should we view your overall capacity to manage the customers who want to enter your stores?

Yes. It's a good question, Roxanne. I'd say store capacity limits are changing on a daily basis. It's very dynamic based on local restrictions. A 25% occupancy is pretty common, but we feel good about the changes we made. We're certainly going to invest in front-end cash hearing to make sure we move people through the lines, but there is peak days and peak hours during the days where we expect to have lines, and we'll do our best to move people through. That's mainly in high-volume stores and again, on peak days. But we feel good about the strategies we put in place during the holidays.

Thank you for joining us today and for your interest in Ross Stores. We wish all of you and your families a happy, healthy and safe holiday season.