Good afternoon, and welcome to the Ross Stores Third Quarter 2015 Earnings Release Conference Call. [Operator Instructions] Before we get started, on behalf of Ross Stores, I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts and other matters that are based on the company's current forecast of aspects of its future business. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations. Risk factors included in today's press release and the company's fiscal 2014 Form 10-K and fiscal 2015 Form 10-Q and 8-K is on file with the SEC. Now I'd like to turn the call over to Barbara Rentler, Chief Executive Officer.

Good afternoon. Joining me on our call today are Michael Balmuth, Executive Chairman; Michael O'Sullivan, President and Chief Operating Officer; Gary Cribb, Executive Vice President, Stores and Loss Prevention; John Call, Executive Vice President, Finance and Legal; Michael Hartshorn, Group Senior VP and Chief Financial Officer; and Connie Kao, Senior Director of Investor Relations. We will begin our call today with a review of our third quarter performance, followed by our outlook for the fourth quarter. Afterwards, we'll be happy to respond to any questions you may have. As noted in today's press release, we are pleased with the better-than-expected sales and earnings growth we achieved in the third quarter. These results demonstrate that customers continue to respond positively to the wide assortments of fresh and exciting bargains we offer throughout our stores. Earnings per share for the third quarter grew 15% to $0.53. Our net earnings that rose 12% to $216 million. Sales increased 7% to $2,783,000,000, with comparable store sales up 3% on top of last year's 4% gain. For the first 9 months of fiscal 2015, earnings per share grew 15% to $1.85, while net earnings rose 12% to $757 million. Year-to-date sales increased 8% to $8,689,000,000 with comparable store sales up 4%. dd's also posted better-than-expected gains in sales and profits for the quarter and year-to-date periods. Men's was the strongest category at Ross during the quarter, while the Midwest was the top-performing region. Third quarter operating margin increased 30 basis points to 12.1%. These results were above plan and primarily driven by higher merchandise margins. As we ended the quarter, total consolidated inventories were up 14% over the prior year with packaway levels at 48% of total inventories compared to 42% last year. Average in-store inventories at quarter-end were down approximately 1% versus last year. As planned, we completed our 2015 store opening program during the third quarter with the addition of 19 Ross and 7 dd's DISCOUNTS locations for a grand total of 84 new stores this year net of closures. We expect to end fiscal 2015 with 1,274 Ross and 172 dd's DISCOUNTS stores. Now Michael Hartshorn will provide further color on our third quarter results and details on our guidance for the fourth quarter and the year.

Thank you, Barbara. Let's start with our third quarter results. Our 3% comparable store sales gain was driven by a combination of higher traffic and an increase in the size of the average basket. As Barbara mentioned, third quarter operating margin was better than planned, rising 30 basis points from last year to 12.1%. Cost of goods sold declined 45 basis points, driven by a 45 basis point increase in merchandise margins and a 5 basis point improvement each in freight and buying costs. This was partially offset by a 10 basis point increase in distribution expenses related to recent infrastructure investments that were partially offset by the favorable timing of packaway-related costs. Selling, general and administrative expenses during the period increased by about 15 basis points due in part to higher wages. During the quarter, we repurchased 3.6 million shares of common stock for a total purchase price of $179 million. Year-to-date, we have bought back a total of 10.4 million shares for an aggregate price of $530 million. We remain on track to repurchase a total of $700 million in common stock for the year under the 2-year, $1.4 billion stock repurchase program approved by our Board of Directors in February of this year. Let's turn now to our fourth quarter guidance, which remains unchanged from what we communicated in August. For the 13 weeks ending January 30, 2016, we continue to expect same-store sales to be flat to up 1% on top of a strong 6% gain last year, with earnings per share projected to be $0.60 to $0.63 compared to $0.60 last year. The operating statement assumptions for our fourth quarter guidance include the following: Total sales are forecasted to grow 4% to 5% on the previously mentioned comparable store sales forecast of flat to up 1%. If sales perform in line with this guidance, operating margin is projected to be 12.6% to 12.8% versus 13.1% in the prior year. The forecasted decline versus last year is mainly due to our expectation for higher distribution expenses from recent infrastructure investments and the timing of packaway-related costs. Net interest expense is estimated to be about $5 million. Our tax rate is planned at approximately 37% to 38%, and we expect average diluted shares outstanding to be about 403 million. Based on this guidance, we now project earnings per share for the full year to be in the range of $2.45 to $2.48, up 11% to 12% over $2.21 in fiscal 2014. Now I'll turn the call back to Barbara for closing comments.

Thank you, Michael. As we enter the fourth quarter, we are pleased with our fresh and exciting assortments of name, brand, bargains and gifts for this holiday season. Despite outperforming our sales and earnings target throughout 2015, there are a number of factors that still cause us to be cautious on forecasting the fourth quarter. First, we're up against our toughest sales comparison of the year. As Michael mentioned, comparable store sales in last year's fourth quarter were up a robust 6%; second, there is ongoing uncertainty in the macroeconomic environment; and third, based on the current retail landscape, we expect the upcoming holiday season to be highly promotional. As a result, while we always hope to do better, we believe it is prudent to maintain a conservative posture. Over the longer term, we remain confident about our prospects for respectable sales and earnings growth. This is based on 2 key factors: Our belief that off-price will remain a strong performing segment especially given consumers' ongoing focus on value; and our own proven ability to offer our customers compelling bargains on an everyday basis. This is and always will be the key to success in our business. At this point, we'd like to open up the call and respond to any questions you may have.

[Operator Instructions] The first question is from Ike Boruchow with Wells Fargo.

I guess, my question I wanted to focus on the packaway number, 48% of inventory. It seems like that's the highest it's been in about 2 years, give or take. Just kind of curious, your view of the environment, the buying environment out there. It sounds like a lot of vendors are canceling orders and the department stores aren't doing so well. Just your view of the environment and your packaway strategy and how you look at that right now.

Well, the buying environment, we continue to see a really strong supply of excess goods in the marketplace. As it pertains to packaway, packaway is typically the best bargains we carry on merchandise. We go in the market, we see what's available, we see what the great deals are and then we go in and pack it away. So we don't focus so much on the number itself, Ike. What we focus on is the value and the brands that we can offer to the customer.

Your next question is from Paul Lejuez with Citi Research.

Can you maybe talk a little bit more -- give us more detail on regional performance specifically Texas and the oil impacted markets? And also curious just higher-level Ross versus dd's and then also the performance of those 2 within those Texas and other oil region markets.

This is Michael Hartshorn. The sales performance was fairly broad-based across regions as we mentioned the Midwest was our strongest region, which has been true over the past 7 quarters. California, our largest region performed in line with the chain. And then as far as Texas, Texas was in line with the chain average for the quarter.

And then what about with dd's? Michael O'Sullivan: Your question about dd's. As Barbara mentioned in her remarks, dd's posted better-than-expected sales and profits. We don't typically break dd's out at the regional level, but, overall, we are very happy with dd's performance.

Got you. Michael, you've had pretty positive things to say about dd's for several quarters now. Are you at a point where you might feel more comfortable accelerating the growth of that concept beyond doing let's say 20 -- in the low-20s per year? Can that be accelerated as we think about next year? Michael O'Sullivan: I think it's unlikely. We -- as you say for several years now, we've been very happy with how the dd's business has developed. And we feel very good about the business over the longer term. But we opened, as you say, just over 20 stores a year of dd's. The chain is now around about 170 stores. So 20 stores a year on the base of 170 is still relatively large incremental addition every year. So we think it's likely that we'll remain in that ballpark, 20 to 25 stores a year.

Got you. And just to piggyback one last one, off of Ike's question. On the packaway merchandise, can you talk about the performance of that product that you've seen. Let's say, in this most recent quarter, is it meeting your sales and merch margin expectations? That's it for me.

Well, packaway typically represents the best bargains we have. So we feel that in the third quarter this merchandise likely benefited sales, and we expect it to help our sales in the fourth quarter as well.

Your next question is from Kimberly Greenberger from Morgan Stanley.

I wanted to just follow up quickly on Paul's question on packaway. I think that packaway is probably a more broadly used term in Ross than maybe some of the other off-price stores. Can you just confirm the composition of packaway? Is it strictly goods that are shipped off and put into your packaway warehouse? Or do you also consider packaway goods that are sitting ready for current season distribution to stores that were maybe partially already distributed in the current season? In other words, goods in a variety of distribution centers and not necessarily shipped off and stored for 6 months. So it's a bigger representation of the product that you've got, held in your distribution center. Does that make sense?

We're a little unclear. I think... Michael O'Sullivan: Let me have a crack at that, Kimberly. Packaway, we think of packaway as goods that aren't for sale. They're packed away in our warehouses to be released for sale in subsequent months or even next season. So I don't know if that helps. Yes, does that answer your question?

It does. Are there examples where you actually have a current season order, you partially distribute, let's say, 70% of the goods to existing stores, held -- hold back 30% of your distribution centers as an example and then use that to fill in based on sales trends? Would you consider that 30% that you hold back part of your packaway? Or would that be just inventory in the distribution center that you would not put in your packaway calculation? Michael O'Sullivan: As long as it hasn't been released for sale, we treat it as packaway. Once it's released for sale, then it counts as part of our selling store inventory.

Sorry, Michael, go ahead. Michael O'Sullivan: I actually was just going to make a point that, I guess, in Barbara's remarks, she broke out total inventory. So the way to think about is our total inventories are up 14%. Our selling store inventory, the inventory that's actually in the store for sale, was down slightly. Obviously, that's a key metric for us because with a 3% comp and within store inventory down slightly, that means that we're achieving cost returns and better merchandise margin.

Okay, great. So if I should look at your total inventory bucket, there's a piece of it that's in-store and the other piece of it that's packaway. Is there a third bucket of inventory that would be neither considered in-store or packaway that you would classify?

Yes, yes, Kimberly. So there's a couple of buckets. You mentioned there is packaway inventory, there's store inventory and there's also in-transit inventory on the way to the distribution center. As we mentioned, total inventory was up 14% and packaway was up at 48% of total inventories. In-transit inventory for us was actually down versus last year because we're up against the start of our mitigation efforts because of the slowdown in the port. So those are the primary 3 buckets.

Okay. So anything that's in your distribution center that is not available for sale would be included in the packaway bucket. Michael O'Sullivan: That's right. Anything else in our distribution center is on its way to the -- it's being processed. It's on it's way out the door, and therefore would not count as packaway.

Okay, great. So as I think about the wage increase, this is the first quarter really where we've had any -- this was the first full quarter, I think, of the wage increase. I think you said in your prepared remarks of the 15 basis points increase in SG&A, it was largely driven by wages. Michael, I'm wondering if you can just give us was it the majority, was it the full piece and were there any other moving parts in the SG&A?

The primary difference and the reason we called out wages is typically we'd say 3% is our leverage point. And as you know, there's always timing differences from quarter-to-quarter. A part of that deleverage was due to wages and there are some other timing differences that were not as meaningful. Longer term, we still believe that we think we can lever at the 3% comp point.

Would that be your expectation in 2016 as well just given the wage increases that we have going through that, I guess, probably 3% comps you'll be able to leverage?

Yes, I mean, it's a good question. We're obviously in the midst of our budget cycle today and would expect to be able to provide some more color on the fourth quarter call. As we previously mentioned, we took our minimum wage up to $9 across the chain this year, and those adjustments, along with any offsets are included in our guidance this year for 11% to 12% EPS growth. We do view the labor markets as dynamic. We think, as the economy improves over the next couple of years, there will be additional wage pressure out there. But like this year, we will do our work and where we can, we'll find efficiencies throughout our business to attempt to mitigate the impact of any cost pressures we have in our business.

And do you think there's a possibility that part of your traffic increase is actually that some of the consumers who shop at Ross Stores are seeing the benefit of some of those wage increases? Or is it very difficult for you to sort of draw that loop and to come to that conclusion? Michael O'Sullivan: It's the latter, Kimberly. Conceptually, we think if the customer has more money in their pockets, that's a good thing for us. But very hard for us to sort of dissect that and split it out in terms of to what degree that's a driving our comp.

The next question is from Michael Binetti from UBS.

I think as you look ahead to 2016, you said you think you can hold the 3% leverage point. There's obviously the well-documented labor inflation that you guys are already starting to get into, you'll have a full year that, next year maybe some more. Do you have merchandise margin room on your side to offset that upside margin compression next year? How should we think about margin compression -- or I'm sorry, merchandise margin as one of the levers that you have to toggle next year?

I think, at this point, Michael, we'll be in a better position to answer questions on 2016 in our fourth quarter call.

Okay. Maybe then, if we just kind of ask something about the competitive backdrop here. I think you mentioned that, let's see, it looks like it's starting out to be a very promotional holiday, very competitive. As you look at the environment, you're clearly gaining share of traffic. And certainly, with the industry backed up, you would seem that a strong value message would continue to drive those share gains in the fourth quarter and then into the medium term. What do you think is the right thing to do with IMUs or with starting prices? Do you think it's a good idea to say strategically maybe even dig a little deeper on the value at this point? Or do you think the merch margin is maybe where you prefer to see some of the flow through come from? Michael O'Sullivan: Yes. Michael, I don't think we get into that level of detail in terms of how we go after the business. But it's suffice to say that we agree with you. We think what's really driving the retail environment right now is that the customer's looking for value and our focus is to provide the best value we can, put the best bargains in front of the customer, and that's what will drive the business.

The next question is from Laura Champine with Cantor Fitzgerald.

I was just wondering if you could comment on strength in categories. Was home stronger than apparel? Any particular strength in women's versus men's? Or anything you can say there on category strength?

In terms of merchandise performance, home and apparel were fairly -- they're both in line with the chain overall. And frankly, the only other call out we'd say is what we said in the comments was men's was our strongest performance, merchandise category.

The next question is from Oliver Chen with Cowen and Company.

The merch margins are really impressive. Could you just elaborate on the main drivers? I think it probably had something to do with your low level of in-store inventories and markdown levels. The in-store inventory level is also very impressive. Are you expecting that to kind of continue to be negative? I'm just curious about how that will trend just because the momentum's been so strong at your comp line.

Sure, Oliver. So we outperformed the high end of our comp sales target during the quarter. So that meant that we had faster inventory turns resulting in lower markdowns, that was also helped by the fact that we ran at -- with inventories down about 1% during the quarter. We also benefited from our ability to take advantage of buying opportunities in the marketplace. And in addition, we did see some benefit from ongoing improvements in our inventory shortage we typically take, our physical inventory in the third quarter. So all of those contributed to do better-than-planned merchandise margin during the quarter. In-store inventories for the fourth quarter, we are, again, planning them to be down during the quarter so that should answer the question.

And you guys have been ahead of the curve with looking about the marketplace and the environment that's happening. Were August, September, October kind of steady in cadences? Or was there a fair degree of volatility that you were seeing in the way that consumers are behaving?

For us, relatively steady throughout the quarter.

Okay. And our last question was the comp looked nicely driven by this healthy composition between traffic and basket. What's happening with basket that's enabling you to have that momentum? Is that kind of the balancing that you think will continue as you look forward on a medium and longer-term basis between traffic and both the basket?

So Oliver, as you mentioned, so the 3% comp was driven by both higher traffic and an increase in the size of the average basket. The higher basket was a combination of higher units per transaction and also a higher AUR. I mean, for us, the way we do that is that we've been successful delivering great bargains to the customer, and that's the way we think about it. We don't look at the composition when we're planning our comps.

Your next question is from David Mann with Johnson Rice.

I'm not sure if you pointed this out, but merch margin expectation within your fourth quarter guidance, how should we think about that?

I think, at this point, David, if we perform ahead of plan like we did in third quarter, I think our expectations would be that it's up a bit over last year.

Okay. And then in terms of the packaway impact on distribution cost, I think you suggested there was a benefit in the third quarter. How much -- how many basis points would that have been?

We didn't call it out separately. We did call out obviously, the DCs. We said DCs were going to be a drag on the back half with the Central Valley DC of about 30 basis points. But we didn't call out the packaway piece separately.

In terms of what you're thinking about in the fourth quarter in your guidance about that packaway impact on distribution cost, how should we think about that? Are you assuming packaway normalizes to some extent as [indiscernible]?

Yes, So, our guidance -- yes, it's a good question. Our guidance assumes that it does normalize by year-end. We said overall operating margins were going to be down 30 to 50 basis points, primarily driven, really, by 3 things: One, the comp at flat to 1%, plus DC costs that would delever because of the infrastructure investments and the timing of packaway.

And could you quantify how much that timing of packaway was? Would you be willing to do that?

No, we didn't call that out.

Okay. And then last question on the home side of the business, I know you've been making great strides there with some outperformance in some of the recent quarters. I guess, this quarter was more in line or at least 2 of the last -- or 3 of the last 4 quarters, I think that was the case. Are you at a point now where you think that some of the benefits there have more stabilized? Or do you still think there's some opportunities to drive some outperformance?

We still feel good about home. We feel like we're well positioned for the holiday and for the fourth quarter. And we feel that in future '16, '17, there's still room to grow there.

Your next question is from Lorraine Hutchinson with Bank of America.

I wanted to follow up on the higher AUR during the quarter. Is there a mix shift happening there? Or what's driving the tickets higher?

Lorraine, it's Michael. Really two things. One because we operated with less inventory, it means that we had less clearance so that drives a portion of the AUR increase and then there's always mixes by business that contribute.

And then can you quantify the shortage benefit from the third quarter?

So of the 45 basis point improvement, last year, it's about a third of it -- a little less than a third.

Your next question is from Brian Tunick with Royal Bank of Canada.

I guess, first question was on the category side. Did you guys say men's was your strongest category? I don't think I've heard that in quite some time. Is there any context you can put around that? And is that because the either juniors or women's is slowing? Just curious what you're reading into that? Was that great buys or something like that? And then maybe some more context on the Midwest stores. I know they continue to lead the chain here. Is that how the new store maturity curve is playing out? Is that the micro-merchandising? What are you learning from that as you think about your next markets? And when could we hear about a new market in the next year or 2?

Brian, as it pertains to men's, for years, we had difficult business in men's. But over the last couple of years, we continue really just to improve our execution. So we're just literally doing a better job than we had done before. So our men’s business, we feel pretty good about. Michael O'Sullivan: And then Brian on your question about Midwest, so yes, we're very happy with performance in the Midwest. I think Michael Hartshorn had mentioned earlier that actually for the past 7 quarters now, the Midwest has been one of the top performing regions. Yes, when we entered the Midwest just over 3 years ago, we said that we expected it to be a very successful business over time. And we're certainly pleased with the progress that we've made and that reinforces our confidence in the region.. In terms of additional new markets, I mean, the Midwest is, I think you will appreciate, it's a pretty big area and there are a lots of individual markets within the Midwest. So our focus right now and probably for the next few years is going to be to build out our presence in those markets.

The next question is from Bob Drbul with Nomura.

Just a couple of quick questions. The first one is, during the quarter, the environment in terms of the promotional level of activity from the competition, did you see any changes then as the quarter progressed? And I guess, you didn't really change at all the fourth quarter prospects in terms of your guidance or your plans. So my question is, has the environment at all given you the thoughts around changing it in terms of the pricing umbrella from department stores probably being a little bit more promotional as you think about your prospects for the fourth quarter? Michael O'Sullivan: I'll handle the second piece of your question there, Bob, on the fourth quarter. And I think as Barbara had outlined in her remarks, we think it makes sense to be relatively conservative in the fourth quarter with the ongoing economic uncertainty. Secondly, the environment looks like it will be fairly promotional. Some of that is based upon just what we're seeing in terms of the recent reports in department stores. Those reports we have to think this could be a very promotional fourth quarter. And then the final point, but perhaps most important is that we're up against the 6% comp. Last fourth quarter, we reported really the terrific 6% comps. So we're up against that number. The other point I'd make is in our business, we typically plan our business relatively conservatively. That's kind of -- probably the first bullet point in our playlist. We plan the business conservatively, and then we know we can chase the business if the sales are there. So I think, we think it's best to plan conservatively, but then hope to do better.

As it pertains to the...

Go ahead, sorry.

As it pertains to the promotional level during the quarter, it actually was pretty promotional during the entire quarter. It felt like there were a couple events that department stores added in October. But actually quite frankly, it's been promotional since Q2 and just kind of came across through back-to-school and then increased, I'd say, slightly in October.

And then, in terms of categories, can you just talk about how your cold weather categories are performing and how you're positioned there? And if you could just give us an update in terms of what you're seeing from the business in terms of the handbags and accessories categories?

Cold weather has been, I would say, difficult. I mean, it was difficult in October. We have relatively conservative plans in cold weather. We chased part of that business at the back-end of the season. So we can adjust as we come along the way. But it did start out slower than we would have liked. In terms of handbags and accessories, the business is still behind the chains performance, and we're still working our way through that.

The next question is from Marni Shapiro with The Retail Tracker.

Just a question on dd's. So has Michael been running dd's all this time? And will he stay onboard to transition Brian in the role? And for how long will he stay on board? And are there any other leadership positions open at dd's that you need to fill at this point?

So Michael,-- dd's, yes, dd's has reported to Michael for this period of time. Michael will -- Brian will report directly to me. Michael will be involved in -- heavily involved in this transition of Brian into the company. And there are no other senior management jobs opened at dd's at this point.

That's fantastic. And then just on the traffic side, have you guys seen traffic still increase or flat at Ross and dd's?

They're up in both during the quarter.

The next question is from Mike Baker with Deutsche Bank.

So I'm just curious, the department stores, it seem like they got really got hit with a lot of heavy inventory because it got warm. So it seems like they're worse off now than they thought they were 3 months ago. Yet, you haven't changed your guidance. So I guess did you predict -- correctly predict how bad it'd be for the department stores? Or is there some other reason why you wouldn't change your guidance or you're just doing much better? And I guess related to that, inventories were high, just as high as they are now at the end of the previous quarter. Yet, your margin is getting better, not worse. So I'm just curious how you're sort of bucking that trend and why that wouldn't be the same in the fourth quarter? Michael O'Sullivan: Let me answer the first part of your question, Mike, about department stores. Yes, when we think about our guidance for the quarter, a lot of factors go into it. Obviously, our performance in the third quarter, the outlook for the fourth quarter, the macroeconomy, how promotional we think it's going to be. And I would say as look at this fourth quarter, the fact that we're up against the 6% comp. So all of those things kind of go into the mixer for us to come up with the guidance for the fourth quarter. So I think I probably answer your first question. I don't think I really understand your second question about inventories. Could you just repeat that?

Yes, also one of the concerns is that inventories are high right now and so that leads to a promotional environment and that might hurt your margins in the fourth quarter. And that makes sense, except I just point out that inventories were high at the end of the second quarter and they were also pretty high at the end of the first quarter I think due to the average department store inventories at the end of the first, second and third quarter, was up about 5% or 6% pretty consistently. Yet, even with the high inventories throughout the year, your merchandise margins are getting better, not worse, so is there reason to expect that, that wouldn't continue into the fourth quarter? Michael O'Sullivan: Yes, I think it's not all about inventories. I think it's a combination of inventories and sales trend and at least what we've seen, and you've seen the same numbers, the data we've seen suggest that actually the sales trend hasn't lived up to people's expectations. So, although the inventory levels may not move that much from quarter to quarter, the sales trend has deteriorated, and that's what could really drive it be more promotional in the fourth quarter.

Okay, that's helpful. If I can ask one more sort of longer-term question. You guys always guide that we start the year at 1% to 2% comp. I can't remember the last time you actually comped at something in that range. As people -- as I do my model out, is it probably more correct to think about your annual growth as something higher than that typical guidance, probably in the 3% to 4% range? How do you guys really think about it longer term? Michael O'Sullivan: I think we've described our longer-term model as we believe that our long-term average comp should be in the region of 3%. We feel pretty comfortable about our ability to achieve that kind of comp number. And certainly, if you look out at the last 10, even further back 15 years, the data would suggest that, that's a reasonable expectation. Now in any given year, it could be plus or minus 1 or 2 points in any of the direction depending upon the circumstances, the economic environment, the competitive environment, the comps were up against, et cetera. But I think if you're modeling in 3% on an average basis, I think that's appropriate.

Okay, make sense. One more, I promise. How does this work? When inventories are high in the environment right now, are you more likely to get the excess product from vendors because they're getting inventory pushed back to them? Or they're not able to send it to the department stores? Or more likely to get it directly from the department stores? In other words, department stores have already taken possession of it, but now they're going to send it to you.

We'd actually buy the merchandise from vendors direct.

Your next question is from Anne-Charlotte Windal from Bernstein. Anne-Charlotte Windal: So this may be a moot point given the availability of goods on the market. But with competition increasing in the off-price space, are you seeing any change in the competitive dynamics? Are you seeing any of your competitors becoming more aggressive in terms of what they're willing to pay for some brands? Michael O'Sullivan: Charlotte, no really, no. I mean the new competition I think you're referring to frankly is just too small to really have any kind of impact, so no. Anne-Charlotte Windal: Okay, I just have to ask.

The next question is from Neely Tamminga with Piper Jaffray.

Barbara, I just wanted to follow back up on the appointment of Brian Morrow for the company. Coming from Stein Mart, obviously, there's more of a national brand presence that exists in that format relative to what dd's currently has. So should we be reading into something around that into his chief merchandising experience? Or I would imagine anybody at this point, you've got your pick of the litter, like who wouldn't want to come work for Ross, right? So what specifically have you seen in Brian that's going to be very specific and relevant for dd's?

Well, Brian has a very deep, broad-based experience. I mean, he has over 30 years of experience in a variety of sectors, including moderate department stores and most recently off-price retail. So this experience, along with his strong leadership skills, we think he's really going to be a valuable resource for dd's. Worrying about whether he can make the transition to a low to moderate customer, we don't foresee that as any problem. We think he's a very good merchant and a good merchant can merchandise, all areas.

The next question is from Matthew Boss with JPMorgan.

So as we think about your square footage expansion profile from here, first, how are your more recent stores performing? And then second, what's the best way to think about how many years left in the existing markets in the Midwest versus how we best should think about time line for a Northeast entrance? Michael O'Sullivan: So Matthew, in terms of the new stores, I would say that we've been very happy with the performance of our new stores actually over the last several years and this year has been no exception. We've been happy with how they performed. Certainly, this year, I think for the last few years, they have exceeded our initial sales plan. In terms of a time frame for new markets, I wouldn't give you a time frame at this point. I think we have -- we have plenty of opportunity left in, frankly, in our existing markets as well as in the Midwest. So I think that's going to keep us busy certainly for the next few years.

Okay, great and just a follow-up. I mean, you guys have spot on with your call on the retail environments. In terms of the product availability that you're seeing, I mean, are there any particular categories of particular opportunity as it relates to some of the buys that you see coming in the pipeline?

Actually, the supply is very broad-based. It's a great time to be a buyer. We'll leave you with that.

The next question is from Roxanne Meyer with MKM Partners.

My first question is a follow-up on inventory. I guess, I want to appreciate, what are your guardrails around inventory in terms of how high you're willing to grow inventory on an absolute basis relative to your sales plans? Does that have a limit? How do you think about your inventory strategy in total? Michael O'Sullivan: Sure. So Roxanne, I think, we think, well, I know we think about our inventory on a segmented basis. We think about in-store inventory, which is really the inventory that's available in front of the customer, but we manage that very tightly and as we talked about earlier on this call. Over the third quarter, that showed a slight decline versus last year, and that's what we look for. We look for some ability to drive returns and therefore drive markdown improvement and margin improvements. So that's how we think about the in-store piece of inventory. Separately, we think about packaway based upon what's available in the marketplace. And if we see terrific opportunities in the marketplace, our merchants are encouraged to take advantage of those and that means packing away those goods. And if packaway rises over a period of time, that's because we've seen great bargains in the marketplace that we like. So that's kind of how we think about inventory, the different buckets of inventory.

Okay. So the buyers just have the ability to take advantage of deals in the market, and it doesn't seem like there's too many constraints around -- at some point, you just have to get cut off. But you're willing to extend yourself knowing that it's for future periods.

The buyers have plans. It's not just free-for-all, they're out there buying. There's strategy, there's a plan, there is a plan by business segment of how much we think it's appropriate. All that being said, one of the benefits of our model is that we're flexible. So if we were to see a large amount of product in a classification or a business we weren't planning on particularly driving and that product could help us drive the business, we would put money into the plan, and we would flex. So that's just one of the benefits of being in the off-price business. Michael O'Sullivan: One other point on that, Roxanne, is we do -- as you'd expect, we have pretty significant controls over what's in packaway. So we control very carefully sort of the aging of packaway, how long it's allowed to stay in there, what kind of goods. We manage all aspects of that as you'd expect.

Okay, great. And then just curious on the traffic increases that you're seeing. Can you talk about what portion of the traffic is coming from new versus repeat buyers? Are they continuing to skew younger, are existing customer shopping more? I mean some of that, maybe the demographics behind it would be great. Michael O'Sullivan: Sure. The new customers that we've attracted, frankly over the last several years demographically, they look a lot like our existing customers. What they all have in common is they're all looking for great value. For great bargains. In terms of your point about the age, we've always disproportionately attracted slightly younger customers, and that continues to be true. When you look at the growth of our Juniors business over time, that's a good manifestation of that. But as I say, I would say that demographics of our new customers pretty similar to the demographics from our existing customers.

The next question is from Jeff Stein with Northcoast Research.

Barbara, this was the first quarter that I could remember that you did not call out Juniors as the best or one of the best-performing categories. And I'm just curious, anything notable around that? Is that customer spending less or suddenly men's just exploded during the quarter?

Juniors performed slightly above the chain and was up against a very tough compare. With that, we had a couple of execution issues, which we have corrected.

And what would execution mean? Is that -- would it be merchandising or...

Wrong timing on some products.

Okay. And real estate costs, what's going on there? It's one thing to compete against other companies for merchandise. I'm sure there's plenty of that. There's less availability when it comes to real estate. Are you seeing real estate costs go up and perhaps choice locations becoming more difficult to identify? Michael O'Sullivan: Yes, I think we're pretty happy with the availability of real estate locations and the rents we're seeing. There's a lot going on in the retail industry, not just in the apparel retail, but in others sectors, office supplies, electronic, et cetera, which means that there is availability of real estate. And we have a terrific real estate team who over the years, have been able to secure great locations, that afford us great deals. So we're pretty happy with the outlook there.

Okay. And one more real quickly for Barbara. During a period where you've got a lot of promotional activity going on and there's an overabundance of product, is there a chance or risk that packaway may not prove to be as great a value because perhaps you bought it 6 months ago at a higher price and today, you could rebuy it at a much lower price?

So we actually -- Michael talked about all the difference metrics we have to measure packaway. We actually constantly look at the values that we have in there. Now, the merchants, when they put merchandise in packaway, they're thinking of it from a promotional perspective. So the packaway that we own today would have been packaway we would have bought end of Q2, into Q3 when they were -- we were already seeing that promotional environment coming across. Say they know when they put it in there, that there has to be a variance to what's going on in the world. All that being said, if there was something in packaway that we didn't think was the right value during our processes, we would capture that. And there's a lot of size, a lot of size around packaway and what's in there, we would put it out, and we would mark it down and we would move on. But really the heads-up for merchants with something in packaway is, they have to feel comfortable that when they take it out. It really is going to be a great branded bargain. And so there's a lot of size and rules and questions around what that looks like before they put it into packaway.

The next question is from Richard Jaffe with Stifel.

Just 1 more question on packaway, please. How long do something stay in packaway? What's the average life of it's time in packaway, ballpark or some time frame?

Richard, it's about 3 to 4 months.

3 to 4 months, that's great. And I assume you're going to be able to -- you're be in a position to take advantage of what it looks like a tremendous amount of product in the marketplace as, again, I assume cancellations are out there. I'm sorry, go ahead.

We're in a good position going into what we would call a volatile climate. So we feel pretty comfortable with where we are.

Okay, I think volatile maybe a kind word. Going one way unfortunately.

[indiscernible] other.

The next question is from Stephen Grambling with Goldman Sachs.

I had 1 quick follow-up, which, I guess, is just on the cost efficiencies that you captured this year. Can you just talk to some of the biggest buckets there? And maybe what is still left?

Stephen, it's Michael. So, I mean, we're looking everywhere. We're looking at nonpayroll, payroll. We're looking for efficiencies throughout the business. So I think we'll continue to do that. We're doing that in our budget process, and we'll be able to give you an update at the end of the year.

I'll shoot 1 more in there, which is just there's has been some investor concern around one of your larger off-price competitors going after lower AURs. Clearly, the overall comp hasn't reflected any impact. Can you just remind us if you have seen any difference in comps by proximity to off-price peers? Michael O'Sullivan: Yes, Stephen, we always slice and dice our business. We look at how different stores are doing based characteristics like demographics, cotenants, et cetera. And frankly, there's nothing to call out there. It's been broad-based. There's been nothing there that's really impacted us.

The next question is from David Glick with Buckingham.

Most of my questions have been answered. I just wanted to follow up again on the Midwest. Obviously, that's a newer market for you and for most retailers, it was the most challenging region because of very warm weather. I just wonder if you could help me understand how you could outperform in that market? Obviously, when you turn your inventories faster, you're less relying on seasonals, which gives you guys an advantage versus department stores. But just a little more color on that, help me understand that, that would be great. Michael O'Sullivan: So David, I would say that what always drive our business as a chain and actually regionally is having great product in the stores. And I think, we feel very good about the assortments that we have in our Midwest stores and ultimately that's really what's driven our business there over the past couple of years.

There are no further questions. I will turn the call back over to Barbara Rentler for closing comments.

Thank you for joining us today, and for your interest in Ross Stores. Have a great day.

This concludes today's conference call. You may now disconnect.