Good afternoon, and welcome to the Ross Stores Second Quarter 2018 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 forecast 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 are included in today's press release and the company's fiscal 2017 Form 10-K and fiscal 2018 Form 10-Q and 8-Ks 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 O'Sullivan, President and Chief Operating Officer; Gary Cribb, Group Executive Vice President, Stores and Loss Prevention; John Call, Executive Vice President, Finance and Legal; Michael Hartshorn, Executive Vice President and Chief Financial Officer; and Connie Kao, Vice President, Investor Relations. We'll begin our call today with the review of our second quarter performance, followed by our outlook for the second half and fiscal year. 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 above-plan sales and earnings growth for the second quarter. Earnings per share for the 13 weeks ended August 4, 2018, were $1.04, up from $0.82 for the 13 weeks ended July 29, 2017. Net earnings were $389 million, up from $317 million in the prior year. The second quarter earnings results, including $0.18 first year benefit from tax reform legislation. Total sales for the second quarter increased 9% to $3.7 billion. Comparable store sales for the 13 weeks ended August 4, 2018, rose 5% over the 13-week period ended August 5, 2017. This growth was on top of a same-store sales gain of 4% for the 13 weeks ended July 29, 2017. For the second quarter, we saw broad-based strength across merchandise categories and geographic markets. So better-than-expected operating margin of 13.8% was down from last year as higher merchandise gross margins and leverage on occupancy and buying costs were more than offset by a combination of unfavorable timing of packaway-related expenses, higher freight costs and this year's wage investments. For the first 6 months of fiscal 2018, earnings per share were $2.15, up from $1.64 last year. Net earnings were $808 million, up from $638 million in first half of 2017. The year-to-date earnings results included $0.35 first year benefit from tax reform legislation. Sales year-to-date rose 9% to $7.3 billion, with comparable store sales up 4% versus a 4% gain for the 26 weeks ended July 29, 2017. As we ended the second quarter, total consolidated inventories were up 6% over the prior year. Average in-store inventories were up 4% due in part to the 53rd-week calendar shift, while packaway, as a percentage of total inventories, was 44% compared to 46% last year. Dd's DISCOUNTS also posted another quarter of strong sales growth, leading to solid growth in operating profits year-to-date. Turning to our store expansion program remain on schedule with the opening of 22 new Ross and 8 dd's DISCOUNTS locations in the second quarter. We also continue to project adding a total of approximately 100 locations in 2018, comprised of 75 Ross and 25 dd's DISCOUNTS. As usual, these numbers do not reflect our plans to close or relocate about 10 older stores. In addition, as noted in today's press release, we are raising our long-term projected store potential to 3,000 locations, up from the previous target of 2,500. This is based on our research that indicates we can further increase penetration in both existing and new markets. And as a result of a number of factors that include increases in population densities and new enlarged trade areas from suburban growth. As a result, we now believe that Ross Dress for Less can grow to about 2,400 locations across the country, up from our prior target of 2,000, and that dd's DISCOUNTS can ultimately become a chain of about 600 stores versus our previous projection of 500 units. This higher store potential provides us with considerable long-term growth opportunities. Now Michael Hartshorn will provide further color on our second quarter results and details on our second-half guidance.

Thank you, Barbara. Let's start with our second quarter results. Our 5% comparable store sales gain was driven by higher traffic and an increase in the average basket. While second quarter operating margin of 13.8% was down 110 basis points from last year, it was better than forecast. Cost of goods sold increased 80 basis points in the period. Merchandise margin increased 15 basis points, while occupancy and buying costs levered by 15 and 5 basis points, respectively. These gains were more than offset by an 85 basis point increase in distribution expenses from the unfavorable timing of packaway-related costs and a 30 basis point increase in freight costs. Selling, general and administrative expenses for the quarter also rose 30 basis points due to higher wage cost and the anniversarying of a 20 basis point benefit in the second quarter of 2017 from a legal matter. During the second quarter and first 6 months of fiscal 2018, we repurchased 3.2 million and 6.5 million shares, respectively, of common stock for a total purchase price of $273 million and $529 million, respectively. We remain on track to buy back a total of $1.075 billion in stock for the year. Let's turn now to our second half guidance. Given our robust multiyear sales comparisons in the third and fourth quarters, we continue to forecast same-store sales for both periods to grow by 1% to 2%. If sales perform in line with this guidance, earnings per share for the 13 weeks ending November 3, 2018, are forecasted to be in the range of $0.84 to $0.88, up from $0.72 a year ago. For the 13 weeks ending February 2, 2019, earnings per share are projected to be $1.02 to $1.07 compared to $1.19 in last year's fourth quarter, which included a per share benefit of $0.14 from a onetime revaluation of deferred taxes and $0.10 from the 53rd week in 2017. Now I'll provide operating statement assumptions for our third quarter EPS guidance. Total sales are projected to grow 5% to 6%. We expect to open 40 new stores during the period, including 30 Ross and 10 dd's DISCOUNTS locations. Operating margin is projected to be in the range of 11.9% to 12.1% compared to last year's 13.3%. This forecasted decline reflects our expectation for ongoing pressure this year from higher freight and wage investments as well as some deleveraging on occupancy and other expenses if comparable store sales only perform in line with guidance. We expect net interest income of about $2 million. Our tax rate is expected to be approximately 23% to 24% and weighted average diluted shares outstanding are projected to be about 372 million. At the end of the quarter, we expect in-store inventory levels to be up versus the prior year, as Thanksgiving is a week earlier this year due to the 53rd-week calendar shift. Based on our first half results and second half guidance of 1% to 2% same-store sales increase, we now project per share -- earnings per share for the 52 weeks ending February 2, 2019, to be in the range of $4.01 to $4.10 compared to $3.55 for the 53 weeks ended February 3, 2018. Now I'll turn the call back to Barbara for closing comments.

Thank you, Michael. To sum up, as I mentioned earlier, our results for both the second quarter and first half of 2018 continued to exceed expectations. Looking ahead to the balance of the year, we hope to once again outperform our projections as we have for some time now. However, we face stronger prior year comparisons over the next 6 months in the retail landscape, both brick-and-mortar and online, that will likely remain very competitive. That said, our confidence in the strength of the off-price sector and our proven ability to perform well in this space continues to fuel our optimism about the future. Finally, we are very excited about our updated longer-term growth prospects. Our new target of 3,000 store locations offers us potential 80% increase over our current base. At this point, we'd like to open up the call and respond to any questions you might have.

[Operator Instructions] Your first question comes from Matthew Boss from JPMorgan.

On the gross margin, so help us to think about the freight headwind that you've embedded in the back half of the year versus the 30 basis points this quarter. And then on the wage front, is it best to think that the wage pressure [ raises over 3% ] fixed cost hurdle total until we fully lap this in the second quarter of next year?

Matt, it's, Michael Hartshorn. On freight costs, obviously there are a number of factors that are contributing to the increase, including higher diesel prices. We were at a 3-year high, up 20% in the second quarter, trucker and driver shortage, and increased industry regulation enforcement tracking drivers. Built into the back half guidance, our freight pressure is similar or slightly above what we saw in the first half of the year. And then, on wage pressures, we wouldn't comment on 2019. We'll comment on that at the end of the year.

Great. And then just a follow-up. As we think about multiyear and just given the change in the long-term store potential, which sets a really nice positive today. Is there any [ governor ] on annual growth in terms of 5% to 6% historically with the square footage growth base. Just anything to think about as we think about maybe [ governors ] to your annual growth given the increase in the store potential long term? Michael O'Sullivan: Matthew, it's Michael O'Sullivan. I'd be careful to distinguish between the long-term store potential number, which we released today versus the annual store opening number. The long-term store potential gives us, I guess, sort of a longer growth runway, if you like, over the longer term. But it doesn't change the way we think about the number of new stores per year. The constraints on number of new stores per year include real estate availability and also operational constraints, and they really haven't changed. So from a planning perspective, I think you should assume that we'll continue at a rate of about 100 new store openings per year.

Your next question comes from Brian Tunick from Royal Bank of Canada.

Curious, Barbara, if you could maybe drill down a little more into the category performance for the quarter? And sort of what do you think the biggest opportunities coming here in the back half versus last year, if you hindsight that a little? And then maybe, Michael, can you help us think through the drivers of merchandise margin expansion that you're seeing, even though, I guess, in-store inventories are now growing?

Sure, Brian. From a category performance, as I said in the notes, our performance was really -- was broad-based in the second quarter. Obviously, from the first quarter to second quarter, apparel clearly improved. But that's really at this point how I see the back half, I don't see it as one specific big opportunity. I see it as more broad-based. And obviously when you get to the fourth quarter, there will be more emphasis on gift giving. But even within gift giving, we see that within every business in the box. So we don't have it focused in one specific category.

Brian, specifically on inventory and margins. First of all, the inventory increases you're seeing this year are a function of the 53rd-week calendar shift. So in this quarter what happens is it drives back to school earlier which means we drive earlier receipts to match the sales, which is the same that happens at the end of Q3 with the Thanksgiving holiday, which is closer to quarter end. In terms of the margin improvement, it was driven by a combination of better buying and above-plan sales that resulted in lower markdowns for the quarter. That will continue to be our biggest opportunity when it comes to merchant margin.

Your next question comes from Lorraine Hutchinson from Bank of America Merrill Lynch.

I wanted to follow up on the 85 basis points of distribution pressure. I know you called out a positive 15 basis points in the first quarter from timing of packaway. Can you talk about the timing of this particular expense increase and when you expect that to come back into the gross margin?

Sure, Lorraine. So we -- our packaway accounting is we capitalize cost to procure store and process packaway merchandise, and that includes fixed cost. What happened in the first quarter is packaway levels were up, so we got a credit to the P&L. In the second quarter, that completely reversed and the DC 85 basis point deleverage was all driven by the packaway timing. You'll notice from our guidance that we flowed through the $0.05 above the high end of the guidance through to the year so -- versus our guidance there is no impact in the back half.

Your next question comes from Kimberly Greenberger from Morgan Stanley.

Michael Sullivan, I was wondering if you have any additional details you might be able to share with us on the analysis you did for the long-term store potential? Is that with the assistance of a sort of third-party outside, or do you have a team internally who looks at that analysis? Secondarily, Barbara, you talked about a nice improvement in the profit profile or profit of the dd's division, and I'm wondering if you can just talk about the profitability of dd's relative to the Ross division, and how that's tracking compared to your expectations? And then lastly, Michael, on inventory. I don't know if it's possible to look at the average in-store inventory, if the balance sheet, for example, at the end of Q2 had closed a week earlier, would that have changed your average in-store inventory at the end of the quarter? I'm just wondering if there is a way for us to sort of understand it on an apples-to-apples basis versus last year. Michael O'Sullivan: So Kimberly, on the first part of your question, the modeling, our real estate team -- our internal real estate team has a model and fairly well-tested and proven model that they use to analyze and assess individual store locations -- individual new store locations. They update that model based upon changes in our actual store productivity and experience, and also based upon external demographic trends. Periodically, we use that model to roll up and estimate our longer-term store potential, and it's been a little while since we did that, so that's what really driven these updated estimates. The other point I would make is, these estimates that were provided in today's release represent a rollout, looking at opportunities in existing and new markets. I would say, the demographic trends that are driving higher estimates are fairly strong and well documented. I think given our customer base, you won't be surprised that the demographic trends are favorable to our business.

And Kimberly, in terms of dd's profitability, all I would say about that is that it's similar to Ross' total profitability.

Kimberly, on inventories, inventories would have been up just slightly. The 4% increase was actually planned in the year to focus on that calendar shift and to impact the earlier back to school with that calendar shift. So without the calendar shift, we would have been up slightly.

Your next question comes from Paul Trussell from Deutsche Bank.

I wonder if you could discuss the comp composition. I believe you mentioned that traffic lead. Was there a major spread across regions due to weather? And how was apparel versus nonapparel in the quarter from a category standpoint? And then lastly, I think you also mentioned an increase in the basket. Could you discuss UPT versus AUR in the quarter?

Sure. So on the components, as we mentioned in our remarks, the 5% comp was driven by higher traffic and larger basket. The higher basket was entirely driven by units per transaction. AUR for us was flat compared to last year. In terms of merchandise performance, as Barbara mentioned in her remarks, sales growth was broad-based across merchandise categories, apparel and nonapparel were relatively similar for the quarter. In terms of regional performance and weather, weather, no impact for the quarter versus last year. The -- geographically, sales were strong throughout the country. Of our major markets, Texas and Florida, were above the chain average. California was relatively in line. And then our Midwest, our newer market, continued to do well with comp sales in line with the chain average against very strong growth over the last several years.

Your next question comes from Paul Lejuez from Citigroup.

On the 400 incremental Ross Stores in your new long-term plan, I'm curious if you can talk a little bit more about the mix between existing markets and new markets, as you think about that long-term Ross potential? Are there any new markets that you can maybe share with us that you're thinking about today that we haven't heard about just yet? Also curious just during the quarter, performance of your urban versus suburban locations? Michael O'Sullivan: So Paul, on the mix of existing versus new markets, if we would expect that we will continue -- the existing markets will continue to be the dominant share of new store openings for several years, beyond that, we wouldn't really comment about the timing of specific new market openings at this point.

And then Paul, on urban versus suburban. I mean, we wouldn't break out that detail. I will say, what we track is how it trends from quarter-to-quarter, and we do not see a change in trend coming out of the first quarter.

And if I could just sneak one more in. I'm curious about your new store openings. What you're seeing this year and this year's class versus previous years and relative to your expectations?

Sure, Paul. Our new store productivity continues to track at or above our real estate performance this year, and it's very similar to the last couple of years, where the average new store is about 60% to 65% of an average Ross store in the chain.

Your next question comes from Michael Binetti from Crédit Suisse.

Michael, can we get a little help thinking about how, I think, the guidance implies about 130 basis points of operating margin compression in the third quarter. Can you help us think about how that breaks down between gross margin and SG&A? And then if I could follow up a little bit on Lorraine's question from before. I guess, it's a little harder for us to forecast changes in accounting around packaway, but since that line item swung 100 basis points in the second quarter compared to first quarter, could you also help think about what your plans for the back half assumes related to packaway accounting?

Sure. So on the components, we don't break out the gross margin versus SG&A. But the margin reflects ongoing pressure from freight. As I mentioned, we expect to be at or above the pressure we're seeing year-to-date. It also reflects wage investments. And wage investments, for us, will be heavier in the back half, the impact will be, because we went to $11 an hour in the second quarter and also paid onetime bonuses. The onetime bonuses, obviously, only hit the second quarter. And then we would expect some deleveraging on occupancy and other expenses if comparable store sales perform in line with our guidance. And in terms of DC, packaway is the hardest thing to predict for us because it's highly dependent on how we run in sales and what's available in the marketplace for modeling purposes, I assume that it's relatively flat [ and like that ].

So just to clarify. The -- you went to $11 an hour and paid onetime bonuses in 2Q, but the total wages will be more of a pressure in the back half than the front half even if those onetime bonuses aren't present in the back half?

No. The onetime bonuses only hit second quarter. The wages will have a bigger impact as we went to $11 in the second quarter. We also increased our lease benefits that will impact the back half more than the first half.

Okay. If I can sneak one in on AUR. You mentioned it was flat. Would you mind just helping us speak to that as a little bit more of how you're thinking about that? I know you generally take your cues from the customer on where to go with the merchandise mix, and that influences it. But I know you guys have different strategy from your competitors, but we are hearing some AUR increases around the sector. So would you mind just telling us how you think about AUR and if there is an opportunity there for that to improve through the back half of the year?

Sure. On AUR, it's completely a function of mix of business. Over the last several years and even the recent trend, it doesn't move a whole lot for us. It's been down slightly to up slightly. So flat for the quarter is our expectation. And going forward, it will be based on the mix of business.

Your next question comes from Bob Drbul from Guggenheim.

I guess -- I was wondering if you could comment a little bit around competitive store closures and just a couple of parts to it. But do you think that it's benefiting your business today? And I guess, how do you think about it in the back half of the year? And have the competitive store closures at all impacted that new store opening plan that you've discussed earlier? Michael O'Sullivan: So Bob, I would say that, like most of our peer retailers -- store closures of other retailers are nice tailwind. But in any given year, they don't really have a material impact on our comp performance. And in terms of how we think about new store openings. No, I don't think the store closures have really changed how we think about or where we think about putting new store openings.

Got it. And has there been a variation on the dd's comp versus the Ross comp or are they both similar to the overall? Michael O'Sullivan: In the first half and the second quarter, dd's continued to perform very well in terms of sales, above plan. And then actually -- you didn't ask this, but on margins, dd's sort of similar trend to Ross in terms of the packaway credit and the impact on margins in second quarter. But overall for the year, I'm pretty happy with dd's from a sales and a profitability point of view.

The next question comes from Simeon Siegel from Nomura Instinet.

As you performed the new store analysis, were there any thoughts towards International? And as you look to the larger dd's footprint, just how does the average revenue per dd's store compared to Ross, if you can? Michael O'Sullivan: Sure, Simeon. In terms of International, no. This was a piece of analysis focused just on the United States. We have 1,600 stores at this point, and we're saying the long-term potential is 3,000. So obviously, a lot of growth there. So very focused on the United States.

Simeon, on the average stores, so we don't disclose the specific on dd's, suffice it to say, it's less -- it's newer concept, a newer chain. For Ross, the average store is about 9 million. So it's south of that based on maturity of the chain.

Okay. And then just, obviously, it's a moving number by quarter. And I think you mentioned may be timing. But any other color on the decline in packaway percentage this quarter? Any color on -- any shift in the quality of available inventory in the market?

No. There is a lot of supply in the market. It's still plentiful. And I think it is broad. The packaway number really fluctuated base off of what we see, plus we fueled a lot of Q2, but there is a lot of availability, and it's really the merchant's decision to decide what to packaway, how much to packaway and went to packaway. So I would say, we're in our regular process. But again, there's a lot of -- there's no change in availability in the marketplace.

Your next question comes from Marni Shapiro from Retail Tracker.

I just wanted to get one clarification on the wages. Did you take wages up in-store as well as at the DC level and across the company?

Yes, Marni, we took it up across the company.

Okay, great. And then just one follow-up as well on the new store expansion. When you're looking across the board, are there any new or shift in the mix of type of stores? Have you considered outlets or even shopping malls that are looking to expand into the off-price space that maybe hadn't in the past and things like that? And I'm curious if you're finding with dd's a similar scenario in the types of locations that do well or just dd's tend to do better more local family centers versus Ross Stores? Michael O'Sullivan: So Marni, no -- nothing to call out there in terms of different types of locations. The analysis was really based upon looking at the types of locations we already have, but how the demographic trends are increasing the number of those opportunities.

Your next question comes from Daniel Hofkin from William Blair.

Just a quick question first on the environment. We haven't been hearing so much in the last few years on a competitive promotional environment and, obviously, on the back of this very strong quarter for you and others. What are you seeing, what are you expecting for the second half in terms of competitive promotion? Is your 1 to 2 guidance just your typical conservatism, is there something else that you're seeing that causes you to be more cautious in the second half?

So the environment is still competitive, and we are thinking that it's going to remain competitive in the back half between online and in-store brick-and-mortar. And we are up against in terms of how we're feeling about the back half, but we are up against very strong multiyear comparison. So when we put those -- the multiyear comparisons and competitive environment together, that's how we came up with the guidance.

And Dan, it's -- this has always been our playbook. We think it's a prudent plan to plan the business this way. Barbara mentioned that we are up against a very robust multiyear comparisons. We are up against a 7% comp in 2016 and a 4% comp in 2017 in Q3, and then for Q4 we're up against a 4% in 2016 and a 5% in 2017. That said, we hope to do better like we've done in Q1 and Q2 of this year.

Yes. Maybe it's safe to say that's a bigger factor than any sort of intensification in the competitive environment?

Yes. That's true.

Okay. And if I could just follow up on the gross margin topic one more time. What is -- is it unit cap accounting? Is that what causes what you have an increase in packaway that helps the gross margin in that period and then reverses later? Is that what's at play here?

Yes. That's exactly how it works.

Your next question comes from Laura Champine from Loop Capital.

It's about the expectation that you can grow your store base beyond what you previously said. Does that contemplate Ross being nationwide in all regions and what would be a reasonable time frame for us to think about for you to enter new regions like the Northeast, for example? Michael O'Sullivan: So Laura, yes, it contemplates expansion nationally across the United States. As a reminder, right now, we're in 38 states. And this would assume that we are -- that we expand nationally. In terms of timing of when we would enter new markets, we wouldn't comment on that for competitive reasons.

Your next question comes from Jamie Merriman from Bernstein.

I have a slightly maybe longer-term question. But in the past, you talked about sort of demographics and seeing an increasing number of your new customers come from younger demographics. And I'm just curious, are you seeing those customers purchasing the same brands that your maybe traditional core customer has purchased? Or are they looking for something new from you in terms of either brand mix or category?

Sure. Yes, we think we do well with the younger demographic, and we feel we'll do well with millennials. In terms of brand mix, I would say that, that customer is a little bit -- not quite as married to certain brands and is more open to trying different types of brands. With that being said, the very strong brands are still -- very strong department store brand is still important to them. It's just that I think that they are a little bit more open to trying other brands and, in some cases, label, that perhaps are young on the curve that eventually would become bigger brands, would be my guess. But they are not quite as traditional. But the big brands are still the big brands.

Your next question comes from Ike Boruchow from Wells Fargo.

Michael, 2 quick ones for you. First is just on the model. On the 1 to 2 comp you're laying out for Q4, just because of the calendar shifts are creating some noise, what revenue growth would that imply for the fourth quarter? And then is it fair to say that your view on freight has worsened versus 3 months ago? Just kind of curious the puts and takes there. And then again, just to clarify, are you -- have you been saying that the back half, the freight headwind should worsen from where Q2 was or from where your first half impact was?

Sure, Ike. We haven't given specific revenue targets for fourth quarter. We will do that at the end of the third quarter. The one thing I will say, though, is the total revenue is impacted by the restated versus fiscal comparison in the first half that from a total sales standpoint that fiscal comparison helps us by 1 point in the back half. It's off by 1 point. And it's even more pronounced in the fourth quarter. In terms of freight, it's very similar to how we plan the year. It is a slight increase, and we found other offsets in the business to cover that. But we'd expect it to be at or somewhat elevated to what we saw in the second quarter.

And Michael, is there any visibility on that line item into '19, just at a high level for us to understand?

At this point, no. We wouldn't comment until we give next year's guidance.

Your next question comes from Dana Telsey from Telsey Advisory Group.

As you think about the new store -- long-term store targets, how are you thinking about distribution capacity and when the next distribution center needs to come up? How many do you need in order to handle that type of growth? And does this new store growth capacity does it entail an acceleration in terms of the number of new store openings? Michael O'Sullivan: So Dana, in terms of distribution capacity, we don't expect to need another major DC for another few years and then beyond that. Obviously, longer term, we would need additional capacity as we open up additional stores. Last part of your question was about the pace of new store openings. No, I would not anticipate that the pace of new store openings will change. Over the last few years, we've opened approximately 100 new stores per year. I would expect that it will stay around about that number.

Just one more question. Barbara, as you think of made for off-price merchandise. Are you seeing any changes in that landscape? And is that becoming a more important part of your mix?

Closeouts are basically the bulk of our assortments. The makeup portion of our business sits primarily in a couple of businesses where it's unbranded such as home. But again, the bulk of our assortment really comes from closeouts, and we don't see any availability issues in the near term. So we don't really see a mix changing.

Your next question comes from Janine Stichter from Jefferies.

I just wanted to ask about some of the newer categories you're pushing into. I think you've called out beauty before. Any color you can give on the performance there? And then maybe some color on categories where you feel like you're maybe under-penetrated and still see some opportunity?

I missed the first part of the question. Could you just repeat the first part?

Sure. Just on the some of the newer categories that you've pushed into. I think, you've called out beauty in the past. Any color you can give on the performance there?

Okay. I missed about beauty. Obviously, we feel that beauty is an opportunity as a lot of the business has shifted out of department store. So we think there is a lot of potential there. And from real major growth, I think that's probably the biggest one. After that, I feel like that most of our growth, I know it sounds like it's always broad-based, but it is broad-based. Beauty happens to be, I think, a trend shift in the market. So we do feel good about that.

Your next question comes from John Kernan from Cowen.

This is Krista Zuber on behalf of John. Just 2 quick questions, most have been answered. I believe, you previously guided to flat merchandise margin for fiscal '18. So I was just wondering if that still holds? And then secondly, on the same-store sales, which is obviously been consistently beating guidance for the 1% to 2%. As you look into the second half, what are you expecting from the traffic and basket components?

Sure. On merchandise margin, we guided the year to be flat. We exceeded that in Q1 and Q2 and, frankly, that's based on ahead-of-plan sales. The guidance for the back half assumes that it would be relatively flat. And if we exceed our sales plan, there could be some opportunity. Your second question -- composition of comp. I'd expect it to be very similar. It hasn't changed a whole lot. Traffic has -- traffic and units per transaction have been the key drivers, and that's been true over the last couple of years.

If I could just fit in one more, if I may. Just on the capital plans as it relates to your cash flow generation and if we look at the model of CapEx are generally been running up about 3% of sales. Should we kind of expect that type of run rate going forward? Michael O'Sullivan: So on CapEx, this year, we're forecasting around $475 million. Over the next couple of years, we'll be starting construction on new distribution center capacity. And with that construction, the capital will edge up a bit.

There are no further questions at this time. I will turn the call back over to you, Barbara Rentler, for closing comments.

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

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