Ross Stores Inc (ROST) — Q4 2022 Earnings Call Transcript

Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer; Adam Orvos, Executive 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 fourth quarter and 2022 performance, followed by our outlook for 2023. Afterwards, we'll be happy to respond to any questions you may have. As noted in today's press release, during a very competitive holiday season, our fourth quarter sales and earnings results exceeded our guidance due to customers' positive response to our improved assortment and stronger value offerings. Earnings per share for the fourth quarter were $1.31 on net income of $447 million. These results compare to earnings per share of $1.04 on net earnings of $367 million for the 13 weeks ended January 29, 2022. Sales for the fourth quarter of 2022 were $5.2 billion with comparable store sales up 1% on top of a 9% increase for the same period in 2021. For the 2022 fiscal year, earnings per share were $4.38 on net income of $1.5 billion compared to $4.87 per share on net earnings of $1.7 billion in 2021. Sales for 2022 were $18.7 billion, with comparable store sales down 4% versus a robust 13% increase in the prior year. Fourth quarter operating margin was 10.7% compared to 9.8% in 2021. This improvement was mainly driven by lower freight and incentive costs that were partially offset by unfavorable timing of packaway-related expenses. Now let's turn to additional details on our fourth quarter results. For the holiday selling season, shoes was the best-performing merchandise area, while Florida was the strongest region. Similar to Ross, dd's DISCOUNTS sales trends improved compared to the prior quarter but continue to trail Ross' results primarily due to ongoing inflationary pressures that are continuing to have a larger impact on dd's lower-income customers. Inventory levels moderated significantly from the first half of 2022 with consolidated inventories down 11% versus last year. Average store inventories during the quarter were down slightly compared to the 2021 holiday period, while packaway merchandise represented 40% of total inventories similar to last year. We also believe we are well positioned to take advantage of the numerous buying opportunities in the marketplace. As noted in today's release, the company repurchased a total of 2.1 million and 10.3 million shares of common stock, respectively, for an aggregate purchase price of $231 million in the quarter and $950 million for the fiscal year. These purchases were made pursuant to the 2-year $1.9 billion program announced in March of 2022. We expect to complete the $950 million remaining under this authorization in fiscal 2023. Our Board also recently increased our quarterly cash dividend by 8% and to $0.335 per share to be payable on March 31, 2023, to stockholders of record as of March 14, 2023. Our stock repurchase and increased dividend program reflects our continued commitment to enhancing stockholder value and returns as well as our confidence in the strength of our balance sheet and projected future cash flows. Now Adam will provide further details on our fourth quarter results and additional color on our outlook for fiscal 2023.

Thank you, Barbara. As previously mentioned, comparable store sales rose 1% for the quarter on top of a 9% gain in the prior year. This slight increase was due to growth in the size of the average basket as traffic was relatively flat compared to last year. As Barbara discussed earlier, fourth quarter operating margin of 10.7% was up 90 basis points from 9.8% in 2021. Cost of goods sold grew 15 basis points versus last year due to a combination of factors. Distribution expenses rose 90 basis points primarily due to timing of packaway-related costs and deleverage from the opening of our Houston distribution center earlier in the year, while domestic freight and occupancy delevered by 20 and 5 basis points, respectively. Partially offsetting these costs with higher merchandise margin, which grew by 15 basis points as the benefit from lower ocean freight costs more than offset somewhat higher markdowns. Buying expenses also improved by 85 basis points due to lower incentive compensation. SG&A for the period levered by 105 basis points, again, primarily due to lower incentive expense. Now let's discuss our outlook for fiscal 2023. As Barbara noted in our press release, the macroeconomic and geopolitical environments remain highly uncertain. As a result, we believe it is prudent to remain conservative when planning our business. While we hope to do better for the 52 weeks ending January 27, 2024, we are planning comparable store sales to be relatively flat. If sales perform in line with this plan, we expect earnings per share for 2023 to be in the range of $4.65 to $4.95 compared to $4.38 in fiscal 2022. It is important to note that fiscal 2023 is a 53-week year. Incorporated in this guidance range is an estimated benefit to earnings per share of approximately $0.15 from the extra week. Our guidance assumptions for the 2023 year include the following: Total sales are planned to grow by 2% to 5% for the 53 weeks ending February 3, 2024. Comparable store sales for the 52 weeks ending January 27, 2024, are planned to be relatively flat. Based on these sales plans, Operating margin for the full year is expected to be in the range of 10.3% to 10.7%. This reflects the resetting of the baseline for incentive compensation, higher wages, the deleveraging effect on flattish same-store sales and lower freight costs. Also incorporated in this operating margin guidance is an estimated benefit of about 20 basis points from the 53rd week. For 2023, we expect to open approximately 100 new locations comprised of about 75 Ross and 25 dd's DISCOUNTS. As usual, these openings do not include our plans to close or relocate about 10 older stores. Net interest income is estimated to be $115 million. Depreciation and amortization expense inclusive of stock-based amortization is forecast to be about $570 million for the year. The tax rate is projected to be about 24% to 25% and diluted shares outstanding are expected to be approximately $339 million. In addition, capital expenditures for 2023 are planned to be approximately $810 million as we make further investments in our stores, supply chain and merchant processes to support our long-term growth and to increase efficiencies throughout the business. Let's turn now to our guidance for the first quarter. Elevated inflation continues to impact our low to moderate income customer. As such, we are also planning comparable store sales to be relatively flat for the 13 weeks ending April 29, 2023. This compares to a 7% decrease and a 13% gain in the first quarter of 2022 and 2021, respectively. If sales perform in line with this plan, we expect earnings per share for the first quarter of 2023 to be $0.99 to $1.05 versus $0.97 last year. The operating statement assumptions that support our first quarter guidance include the following: Total sales are planned to be up 1% to 4% versus last year's first quarter. We would then expect first quarter operating margin to be 9.6% to 9.9% compared to 10.8% last year. The expected decline reflects the deleveraging effect of same-store sales performing in line with our plan, unfavorable timing of packaway-related costs and higher wages. Further, merchandise margin is forecast to benefit from lower freight costs. We plan to add 19 new stores consisting of 11 Ross and 8 dd's DISCOUNTS during the period. Net interest income is estimated to be $28 million. Our tax rate is expected to be approximately 24% to 25% and diluted shares are forecast to be about $341 million.

Thank you, Adam. To sum up, over the past 3 years, we have faced a wide range of unprecedented challenges from the COVID pandemic, supply chain disruptions as well as ongoing inflationary headwinds. These factors have not only negatively impacted our own business, but also our customers' household budgets, their discretionary income and their shopping behaviors. As a result, our shoppers today are seeking even stronger values when visiting our stores. In response, our merchants are fine-tuning our assortments with an increased focus on delivering the most competitive bargains available while continuing to adjust our product mix based on our customers' evolving preferences. Looking ahead, we have significantly increased our focus on strictly controlling inventory and operating expenses throughout the company. We strongly believe that these measures will enable us to maximize our potential for both sales and profit growth in 2023 and beyond. At this point, we'd like to open up the call and respond to any questions you may have.

I wanted to ask about freight, both of the components within gross margin. How much recovery do you have baked into your guidance for this year versus pre-COVID levels? And then how much opportunity remains for the next year and the year after?

Yes. So Lorraine, this is Adam. Thanks for the question. Related to merchandise margin, Q1 and fiscal 2023 will clearly benefit from lower ocean freight costs as we anniversary the significantly higher cost from last year. While these costs will drop, they'll likely still be higher than pre-pandemic levels in the short term. But on the ocean side, they've clearly dropped dramatically and we'll harvest a significant portion of the increase we've faced over the last 3 years. On the domestic side, because of elevated wages and still higher fuel costs than pre-pandemic, we'll harvest back some of the domestic freight, but not as tangible in 2023 as it will be on the ocean side.

So you'd say some opportunity will remain for fiscal '24?

Probably not prudent to go that far ahead, but it clearly will be a tailwind on both sides for us in 2023. And depending on how much they move in 2023. That I'll kind of see what's left for 2024.

Congrats on a nice quarter. So Barbara, on fourth quarter same-store sales inflecting back to positive territory, maybe can you just speak to the cadence of traffic that you saw during the quarter? And then on the outlook for flat comps in both 1Q and for the year relative to historically a 1% to 2% starting plan. Have you seen a material change in customer behavior post-holiday? Or is this more just taking a prudent stance given the volatility that you cited?

Matthew, it's Michael Hartshorn. On the guidance for the first quarter, as we said in our commentary, with the lasting inflation and highly uncertain macro economy ahead of us, we firmly believe it's prudent to be conservative in planning the business. Internally, this puts us in a chase mode to start the year, both from an inventory open-to-buy perspective and in managing the underlying cost in the business. It's a playbook that we're familiar with. We know well and believe it will allow us to, as we said in the commentary, maximize both the top line and the bottom line in an uncertain environment, and we'll have to see how it plays out for the year. In terms of traffic data, as we said in the commentary, traffic was relatively flat in the quarter, and that was relatively consistent across the fourth quarter.

Great. And then maybe just a follow-up on gross margin. So if we exclude the freight recovery, how are you thinking about underlying merchandise margins within this year's guide? Meaning, is there any impact we need to think about with some of the changes in mix that you cited? Maybe how best to think about price. I mean, what I'm really trying to get at is beyond this year, do you think there's any structural underlying change to double-digit earnings growth in this model if we can get back to that 3% to 4% comp algorithm?

Let me talk a little bit about the long-term operating model. We certainly, with ocean freight costs coming down, we'd expect to see a big benefit this year. Longer term, the margin improvements will be highly dependent on sustained strong sales growth, but also, as we mentioned, to a large extent, the persistence and the inflationary costs in the business. We, again, expect to see ocean freight costs preceding this year, but they still remain above pre-pandemic levels and a number of transportation lanes. So that could be a benefit beyond 2023. We also expect to see lower domestic freight rates this year, and that's embedded in our guidance. But we see these pressures easing over a longer horizon and is somewhat dependent on fuel costs. Wage costs have risen, but are growing at a slower pace than they did during the pandemic. We expect from a wage perspective that it will be an ongoing pressure, but we are finding ways to be more efficient in the business that's offsetting some of those costs. So all of those taken together, we believe we can grow our EBIT margins and profitability over time, but it will be very important to drive top line sales growth in that equation.

In terms of the competitive backdrop, some of the bigger general merchandise retailers look leaner on inventory, especially apparel and discretionary categories heading into the spring. Just curious how that's incorporating into your thinking on comps and potential for some recapture of market share cycling last year?

Sure. I think then pulling back on general merchandise potentially gives us an opportunity to grow those businesses since it's such a big part of our business. But I really think regaining, capturing market share, however we want to say that, it really depends on driving sales, and we think that the best way to drive sales is for us to continue to focus on value for our customer. I mean that's really what helped us perform in the fourth quarter is really making sure that we're delivering the best brand of organ possible throughout the entire store. And that really is our focus. That compounded with the fact that there's a lot of merchandise in the marketplace, which will enable us to do that. I think that's really what will help us gain back that market share, whether it's coming from a big box or it's coming from other parts of retail departmental stores whatever it is. I think that's really the key for our success going forward to drive top line sales.

Are you seeing any signs of a trade-down customers showing up in your stores? I know you said transactions traffic was flat, but curious if the customer base is changing at all or maybe you're seeing some higher income folks show up, maybe some of the lower income folks shop less. I'm also curious how you're thinking about the drivers of comp in F '23 from a traffic versus ticket perspective.

Paul, on the trade-down customer, there isn't what we see in our data, a material shift in spending trends across the different income demographics. So at this point for us, we don't see any evidence that the trade down customers impacting our business. On how we're thinking about the business going forward. We don't typically plan the business based on the components of the transaction. As Barbara said, our focus is on value and off-price value will lead to a better traffic, it will lead to a higher basket if you offer great deals to the customer, and that's how we're thinking about the business going forward.

Got it. And can you just share what your home versus apparel comps were in 4Q? Also curious about California, Florida, Texas performance.

Sure. The home sales were slightly above the chain average. And then overall, apparel, non-apparel performance was relatively similar. And the thing that part of what's really drove home is that Home has the highest penetration of gifting and that part of our business performed well.

And Paul, on the geography side, Florida, as we mentioned, was the strongest market. Regarding our other large markets, California performed slightly above the chain average and Texas tracked in line with the chain average. With all that said, we did not see a lot of deviation in the numbers by geographic area.

Could you explain your thoughts on the merchandise margin, excluding freight, for the year, particularly regarding product margin? I'm trying to understand how your inventory purchases and pricing strategies will impact product margin this year. Additionally, Michael or Adam, could you discuss the factors affecting margins, including adjustments to incentive compensation, increased wages, unchanged same-store sales, and reduced freight costs? How would the benefits be realized with a one-point increase in comp this year? I recall you usually provide a framework of about 15 basis points; what improvements or challenges are present in the model this year regarding a one-point increase in comp?

Michael, you got it exactly right. 1 point of comp is approximately 10 to 15 basis points of EBIT margin expansion. So that hasn't changed.

And Michael, I'll jump in. So like on operating margin, the moving parts in 2023. So first of all, we're planning the flat comp, which will cause some amount of deleverage. As you mentioned, we have to reset our incentive cost at target levels. So 2022 was clearly an underperforming year for us, and that was on top of a 2021 where we significantly overperformed our plan. So for 2023, we will reset that baseline at target levels. Michael mentioned earlier, we've seen wage increases, both in our stores and our distribution centers. And while that's easing we've not been able to fully mitigate those increases within the stores by driving other efficiencies. And then my earlier comments on freight, we expect good news on both sides but more dramatic improvement on the ocean side.

In terms of purchasing, Michael, we recognize that there is a lot of merchandise available in the marketplace. Currently, our main focus is on providing value and ensuring our customers receive the best possible value. This strategy depends heavily on how we mix our purchases and the initiatives we pursue across the company. I want to stress the importance of delivering the best value we can, especially since our customers are facing inflationary pressures that affect their spending, particularly their discretionary spending. We are committed to ensuring our values are accurate and implementing a good, better, best strategy, so our customers feel confident in their purchases and find our offerings appealing. Rather than adopting a direct pricing strategy, we are focused on a good, better, best approach that reflects the brands we offer, allowing our customers to obtain the value they have come to expect from us.

Barb, could I ask you about your views on the biggest opportunities to capture market share this year? Is there a possibility to improve our comparable sales beyond flat growth by enhancing our competitive edge? What stands out to you early in the year?

I believe there are a few important points to address. Internally, we faced challenges with our assortments last year, and correcting those issues is a priority for us from a balance and mix perspective. Given the carrier challenges we encountered, addressing those is crucial. We also need to refine our value propositions for customers and clarify our pricing strategy to effectively reach all three customer segments. Additionally, if we execute better, history shows that we can drive sales and capture market share, especially in a market saturated with merchandise. This market share can be taken from various competitors, including large retailers. Our goal is to resolve last year's issues, refine our value, and ensure customers perceive they are getting great deals, particularly through closeouts. We have a sizeable and capable merchant team of 900 members, along with strong market relationships, which positions us well. Now is the time to leverage this to meet our customers' expectations and align ourselves for growth and market share expansion. If we accomplish these tasks, I believe we will be on the right path for continued growth.

It seems that recovering sales is crucial for returning to pre-COVID margins and the earnings model. Are you considering ways to mitigate that while top-line growth is lagging behind the typical model? To put it differently, what specific strategies do you have in costs of goods sold or selling, general and administrative expenses to counteract some of the freight and wage challenges you're facing this year? I know you mentioned some efficiencies, but any specific examples of strategies would be useful to hear.

Sure. This year, our capital expenditure includes about $810 million, with a significant portion allocated to technology investments. For instance, we are automating our distribution centers and enhancing store-level operations to improve efficiency across all our locations. This includes how associates mark down products and manage backroom processes, allowing them to focus more on customer-facing tasks. These are just a few examples. Additionally, we have a plan in place, as we have in previous years, to pursue efficiencies that we will continue to implement as an organization, impacting our profit and loss statement.

This is Jesse Sobelson on for Ike. I believe at the beginning of last year's first quarter, the buying environment was just beginning to turn into a tailwind for you guys. So how does the environment look today versus this time last year and then versus maybe 6 months ago?

The current buying environment is very favorable. There is a wide range of merchandise available across various product categories. This positive buying atmosphere has been consistent for several months, starting at the beginning of last year, although it may have varied depending on the type of product and its arrival. This situation was influenced by the challenges with freight logistics, which delayed vendors in receiving their goods. Many stores are actively promoting to align their in-store inventories, while the vendor community still has a substantial amount of merchandise to move forward into the new year. I believe the buying environment is strong now, has been good for some time, and will likely remain positive as vendors navigate through their inventory strategies in response to past carrier issues.

Great. First, just a housekeeping. Is it fair to use $200 million to $250 million in sales for that 53rd week? And then Barbara, I think, maybe this for you. What is the issue with sort of the packaway timing? And I know packaway ended up at 40% but that's still below kind of run rate norm. And I'm just thinking if the environment is super conducive, would you not want to kind of have that short stay because I know you guys do it more on a 4-month or less or whatever shorter duration.

Okay. No problem. So the packaway is 40%, overall deals that we feel very, very good about. And you have to remember that in the beginning of last year, and you'll see this as we go along, we had all those late goods that were home goods that we took into our DCs, which would have increased part of our packaway. The 40% that we have in there right now, we feel very good about. And buying packaway is an art, you can buy a lot of packaway time you want, right? But the packaway you put in there, you have to feel it's great product at great values. And right now, with the buying environment being very favorable with really, quite frankly, broad access to some really key brands, you're going to be very judicious about what you put in packaway and how you time that and what that looks like. So I'd say we feel good about the position we're in today. We have a tremendous amount of liquidity and we really feel like we're in a good place.

Adrienne, on shrink. So our shrink, we don't disclose what it is externally, but it is a place where we constantly invest, whether it's security tags or equipment in the stores. If you've been in our stores, you see we have people in front of the store and our shrink was slightly higher this year as we closed out the year.

And Adrienne...

Yes, go ahead.

Well, I was just going to jump in on the 53rd week. So a little bit higher than what you said. You can think about it as an additional week, somewhat pro rata, but then downward calibrated a little bit that it's, call it, in January, February week and lighter than an average week.

Curious if stores in higher demographic markets performed better and store in lower income demographic markets. And a second follow-up, there's a lot of talk about SNAP cuts next month and lower tax refunds this year versus last. Curious how much of a potential headwind that could be for you guys over the next couple of months.

Yes, we'll have to see. On the tax refunds, they just started to come out last week, and that does have an impact, especially for our dd's business, but we'll have to see how that plays out. We certainly where we're coming into it, the tax refunds could be lower. So we'll have to see how it plays out. But certainly, that is a customer that can be impacted by both the tax refunds and the SNAP benefits. On your other question, I think you asked a question around demographics. And I think I answered this earlier with Paul, we have not seen a material shift in spending across different income demographics.

Barbara, it sounds like you continue to see opportunities to rightsize the value that you offer the consumer to go after that market share that's available to you and that you're still looking to optimize that value. Can you talk a little bit more about the actions that your buying team can take to ensure that you're offering that value? And can you contextualize that with the higher rate of markdowns that you also saw in the quarter?

Sure. When there is a lot of merchandise available, buyers tend to search for great deals. It starts with being present in the market, building strong relationships, and securing deals at prices that appeal to customers, which allows us to deliver value effectively. This is essential in today's environment and has always been crucial for us in providing branded bargains; it's even more important now than before. Regarding rightsizing value, it involves placing products in the market and observing customer responses, then adjusting based on their preferences, whether that relates to the product assortment or pricing. What was your second question, Brooke?

The second question was just how to think about the timeline of getting that from a markdown perspective. It sounds like making those adjustments does require some markdown. And so does the markdown have to increase year-on-year as you move through 2023?

We took slightly higher markdowns in the fourth quarter and ensured that we exited the period with everything in order. If the value wasn’t right, we didn’t hesitate to take markdowns, which were somewhat higher but not significantly so. Moving forward, if you adjust your values appropriately, you shouldn't expect to take additional markdowns. The focus is on driving receipts to boost sales. If we maintain the right values and respond quickly, we will drive receipts, increase sales, and position ourselves well.

As you think about the real estate portfolio in the stores, we obviously have heard about some of the space availabilities from the Bed Bath or a Party City. Is this an opportunity for you? And does it all change the cadence of store openings or the locations or regions for either 2023 or 2024 in your outlook?

Dana, certainly, Bed Bath, Beyond and Party City, like they have been historically, any time there's retail bankruptcies that's provided us opportunities for new store locations. I would say at this point, it hasn't changed our outlook. We will review potential new site on a store-by-store basis. And if it's appropriate for Ross and dd's location, we can certainly add it to our portfolio. But as we think about 2023, as we said in the commentary, we think it's about 100 new locations, about 75 Ross and 25 dd's.

Got it. And then, Barbara, just on the category mix, what was the weakest? And what do you see as opportunities on the category side as we go through 2023?

The business has mostly maintained its performance. There have been improvements in certain areas, particularly in home and gifting and shoes. Looking at shoes over the past two years, last year was impacted by carrier issues, which helped drive some sales this year. The focus needs to be on balancing the category mix to meet customer preferences. Last year's carrier challenges and assortment issues hindered that balance. Now it's crucial to identify what customers want and make necessary adjustments to ensure we offer products aligned with their evolving needs. With more goods available in the marketplace, we have the opportunity to make bolder moves. The priority is aligning our inventories and classifications, and fine-tuning our approach based on current market demands. We have experienced shifts in customer preferences, such as a stronger interest in career pants over casual options, which reflects broader issues from past delivery and carrier problems. The aim is to get back on track, and we've begun making changes in the fourth quarter to reposition ourselves. Our goal is to enter the new year with a clean inventory position and the flexibility to source products according to customer preferences.

Could you discuss what like-for-like AUR look like versus mix shift driven AUR maybe? And then a dumb question. I think interest income came in nicely higher this quarter. And if I heard correctly, I think you're expecting a pretty nice jump or a nice number this year as well. Is that just a function of higher rates? And does it impact your capital return strategy? And maybe just given how large the cash balance is, any broader thoughts on your use of cash with all the moving pieces?

Sure. The interest income is entirely driven by our cash balances. That's invested in government-backed securities. So as interest rates have risen, we're getting a benefit there. In terms of how we're thinking about use of cash, and I guess just general capital allocation, we will, as we always do, first invest in the business to support profitable growth. We also plan to pay down COVID-related debt that begins to mature over the next few years in '24 and '25 as when those first tranches mature. And then we'd expect to grow our shareholder payouts as the business grows, as I said, deliberately over time, and we do that in a very deliberate and reliable manner over time.

And then in terms of our AUR, our AUR has been relatively flat despite all the different shifts and moving parts in the business. So some of that comes from valuing some areas differently or products differently in other businesses coming up because obviously, shoes have a higher AUR than some of our other businesses. So that's really where we stand today, how we're thinking about it.

Great. I'm wondering if you can elaborate a little bit on some of the higher wages that you mentioned as a driver of the EBIT margin in the first quarter this year. Can you just talk about the impact on what you're seeing at the store level versus say, a warehousing level versus at a corporate level, that would be helpful.

It's been a competitive market in all three areas for quite some time. During COVID, the most significant pressure we faced was in the distribution center, but we have seen that pressure decrease significantly. For our stores, we are taking a market-by-market approach to staffing and raising wages where necessary. Additionally, many of our locations are impacted by increasing statutory minimum wages at both the state and local levels. Currently, the key driver is these minimum wage increases. Overall, we feel positive about our workforce and are confident in our plans for the year.

Crossing my fingers, you'll answer this one, but are you currently trending in line with your first quarter guide?

We wouldn't. Our practice is, Laura, to not comment on inter-quarter trends.

Understood. Is the guidance for the full year comp to be flat would that assume that traffic is roughly flat this year?

We do not plan the business around traffic or transactions. Our perspective has always been that if we offer great branded bargains to customers, it will lead to two outcomes: attracting more customers to the store and increasing the size of the average purchase when they are there. Over the last few years, we have seen the average purchase grow, and even last year, despite the stimulus influence, customers were buying more during their visits.

Let me see if I can get this one. Is the commentary on the gross margin consistent with increasing markdowns this year compared to last year?

Laura, we don't guide really at that component level of merchandise margin, but obviously, our markdown levels will be highly dependent on if we deliver our sales plan and by the right goods. The biggest moving part as we said, in merchandise margin will be the ocean freight cost reductions that we're seeing in the marketplace.

The full year comp guidance suggests a four-year stack of 10 with a compound annual growth rate of just over 2%, which is considerably lower than the historical performance before COVID. Do you still believe that the medium-term algorithm might be a bit higher, around a 3% comparable algorithm? Or do you think there are structural factors affecting the comps that could lead to further deceleration beyond this year? Michael, you mentioned the sensitivity of margins to comps, but with the higher wages now integrated into your cost structure, has that sensitivity changed, or does it remain similar to what you've discussed in the past?

Aneesha, on the guidance, it's hard to comment on structural in this environment. As we guide the year, it's really a function of us wanting to be very conservative in a blasting inflationary environment and a macro economy that we'll see how that plays out later in the year. So I don't think there's anything to read into that at this point. Obviously, we hope to beat the guidance. We think it's a good way to run our business in an uncertain environment. In terms of the long-term algorithm, it certainly doesn't change as I said earlier, that a beat to comp is 10 to 15 basis points upside. And then longer term, we think if we can grow the 3% to 4% comp as we did historically prior to COVID that we'll be able to leverage the P&L.

You mentioned that shoes had done pretty well a few times. Is there any way to parse out maybe whether it was in formal or casual, what did better? And then I know availability is quite robust, but across your good, better, best strategy, is there any particular segment within those 3 that's maybe you're seeing a little bit better availability. And then just lastly, on CapEx. Historically, you're usually around, I think, like $500 million or so in CapEx. And now I think in this year, you're expecting to do $800 million and in this coming year as well, another $800 million. So could you just parse out maybe what the incremental spend is really going to be? I know you talked a little bit about automation, but just curious what else there is in there.

Let me begin with shoes. The shoe business is quite diverse. I would say that athletic shoes have performed slightly better than brand shoes, but the overall shoe industry has faced challenges, particularly with delivery issues that we experienced in 2021 due to carrier problems. It's really broad-based and we are trying to meet customer demands for not only athletic shoes but also other brands. Regarding product availability, it's fairly consistent across all three categories of good, better, and best, which is somewhat unusual for the current situation.

And Corey, on CapEx. So our $810 million will roughly be 40% new in existing stores, 40% distribution centers and about 20% technology and other investments. And I would say with our new store opening plan of 100 new stores, those levels are consistent with pre-pandemic levels from a mix standpoint, the distribution line probably a little bit inflated as we ramp up capacity to support our long-term growth and then the technology side is a ramp-up as we're making investments not only from a customer convenience standpoint in the stores but also building capabilities and additional tools in the merchandising organization.

Thanks for joining us today and for your interest in Ross Stores.