Good morning, and welcome to the Ross Store's Third 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 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 are included in today's press release and the company's fiscal 2017 Form 10-K and fiscal 2018 Form 10-Qs and 8-Ks on file with the SEC. Now I'd like to turn the call over to Barbara Rentler, Chief Executive Officer.

Good morning. Joining me on our call today are Mike 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, VP, Investor Relations. We'll begin our call today with a review of our third quarter and year-to-date performance, followed by our outlook for the remainder of the year. Afterwards, we'll be happy to respond to any questions you may have. As noted in today's press release, both sales and earnings for the quarter were ahead of our forecast despite being up against very strong multiyear comparisons. Earnings per share for the 13 weeks ended November 3, 2018, were $0.91, up from $0.72 for the quarter ended October 28, 2017. Net earnings grew to $338 million, up from $274 million in the prior year. Our third quarter 2018 earnings results include a benefit from tax reform legislation of approximately $0.16 per share. Sales for the third quarter rose 7% to $3.5 billion, with comparable store sales up 3% over the 13 weeks ended November 4, 2017. This compares to a 4% gain in same-store sales for the prior year period ended October 28, 2017. The Midwest and Florida were the strongest regions for the quarter, while men's was the top-performing merchandise category. Though above plan, operating margin of 12.4% for the third quarter was down from last year as higher merchandise margins was more than offset by planned increases in freight and this year's wage investments. For the first 9 months, earnings per share were $3.06, up from $2.36 last year. Net earnings were $1.1 billion compared to $912 million in the prior year. The year-to-date earnings results include an approximate benefit of $0.51 per share from tax reform legislation. Sales year-to-date rose 8% to $10.9 billion, with comparable store sales up 3% over the 39 weeks ended November 4, 2017. This compares to a 4% gain for the 9 months ended October 28, 2017. As we entered the third quarter, total consolidated inventories were up 8%, with average in-store inventories up 9% compared to last year. As planned, store inventories increased due to the earlier Thanksgiving this year. Packaway, as a percent of total inventories, was 41% compared to 46% last year. Similar to Ross, dd's DISCOUNT continued to post better-than-expected gains in both sales and operating profits for the period. Turning to our expansion program. We opened 30 new Ross and 10 dd's DISCOUNT locations in the third quarter completing our 2018 store opening program. We expect to end the year with 1,477 Ross and 235 dd's DISCOUNT stores for a net increase of 95 locations for fiscal 2018. Now Michael Hartshorn will provide further color on our third quarter results and details on our guidance for the remainder of the year.

Thank you, Barbara. Let's start with our third quarter results. Our 3% comparable store sales gain was driven by increases in both traffic and the size of the average basket. As Barbara mentioned, third quarter operating margin of 12.4% was down from last year, though better than forecast. Cost of goods sold for the quarter rose 60 basis points, as a 20 basis point increase in merchandise margins was more than offset by 50 basis points of higher freight costs and increases of 15 basis points each from buying and distribution expenses. Occupancy costs were flat for the quarter. Selling, general and administrative expenses during the period increased by 30 basis points due to the previously mentioned wage investments. During the quarter, we repurchased 2.9 million shares of common stock for a total purchase price of $278 million. Year-to-date, we have bought back a total of 9.4 million shares for an aggregate price of $807 million. We remain on track to buy back a total of 1.075 billion in common stock during fiscal 2018. Let's turn now to our fourth quarter outlook. As reported in our press release, while we hope to do better, we continue to project fourth quarter comparable store sales to increase 1% to 2% versus our strongest prior year comparable store sales gain of 5%. We are now forecasting our earnings per share to be in the range of $1.09 to $1.14, which includes a onetime noncash benefit of approximately $0.07 per share related to the favorable resolution of a tax matter. This updated guidance compares to earnings per share for the 14 weeks ended February 3, 2018 of $1.19, which included a per share benefit of $0.14 from a onetime revaluation of deferred taxes and $0.10 from the 53rd week. The operating statement assumptions for the holiday period guidance include the following. Total sales are projected to decrease 1% to 2%, and operating margin is forecast to be in the range of 12.6% to 12.8% versus 14.6% last year. This guidance reflects a negative impact from the additional week last year, which benefited sales by $219 million and operating margin by 70 basis points. Net interest income is estimated to be about $3.6 million. Our tax rate is planned at approximately 19% to 20%, which includes the aforementioned onetime tax benefit. And we expect average diluted shares outstanding to be about $370 million. Based on our year-to-date results and projected fourth quarter guidance, we are now planning earnings per share for the full year on a 52-week basis to be in the range of $4.15 to $4.20. Now I'll turn the call back to Barbara for closing comments.

Thank you, Michael. Looking ahead to this year's holiday season, while we hope to do better, we believe it's prudent to maintain a somewhat conservative posture entering the fourth quarter. As previously mentioned, our projected same-store sales growth of 1% to 2% is on top of robust multiyear gains. In addition, we expect another intensely competitive holiday season, both in brick-and-mortar and online. Nonetheless, we remain confident in the strength of off-price and, most importantly, our ability to perform well within this sector. As long as we remain focused on the careful execution of our strategies, we believe we can continue to achieve solid gains in both sales and earnings as we have for some time now. 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 Simeon Siegel from Nomura Instinet.

First off, do you have a view you could share on the health of just a broader retail channel into holiday? And then, Mike, could you speak to the moving pieces you'd expect within gross margin for 4Q? And then maybe anything to keep in mind for going forward?

Sure. A view of the health of the broader retail channel?

Yes, just how you're thinking about pricing and inventory levels, the full price channel.

Pricing. And the full price channel? Okay. I think this fourth quarter will be as fiercely competitive as it's been in the past. So in terms of pricing, my expectation would be is that there'll still tremendous promotions and that, that's what people used to drive the business. In terms of just a general health overall of the channel, I mean, obviously, there's more money in the economy. And so one would expect that consumers would be spending, but I think it remains to be seen. And again, I really believe it's going to be highly promotional again; and the AUR, it depends. But I think it will be promotional.

On the fourth quarter guidance and some of the trends. So as we mentioned in the remarks, gross margin was down 60 basis points for the quarter and that was driven by higher merchandise margin that was offset by ongoing freight cost inflation. I would expect more of the same going into the fourth quarter. Freight costs will continue to be a headwind at similar levels. We'll also continue to see wage deleverage. As a reminder, we increased our minimum wage to $11 midyear, so the impact is greater in the back half than in the front half.

Great. And just any moving pieces within packaway that you'd expect?

No, for the quarter, packaway was relatively neutral, and our guidance assumes it would be neutral in Q4.

Your next question comes from Matthew Boss from JPMorgan.

On the expense front, what was the magnitude of the wage investment in 3Q? And should we expect a similar headwind in 4Q? And then just larger picture as we move beyond this year. Is there any reason to think about a 3% comp not continuing to be the leverage point for SG&A? Just any -- maybe any headwinds or tailwinds to think about that would make it any different?

Sure, Matthew. On SG&A, as we mentioned, it delevered by about 30 basis points and that was wage investments. I'd expect a similar to maybe slightly higher in Q4. Q3, we actually -- versus guidance SG&A was a bit lower as we had some good cost control there. We wouldn't comment on 2019 at this point going forward. That said, we would expect to continue to have wage and freight inflation, but we'll also be looking for efficiencies in our business to offset this cost, and we'll have more to say on that in our year-end conference call in early 2019.

Your next question comes from Kimberly Greenberger from Morgan Stanley.

Great. Michael, could you look back at the freight inflation, which I know has been going on here for a couple of years. I think it really picked up this year, and I can't remember if it inflected in the second quarter or really more here in Q3. I'm just wondering how to think about the magnitude of potential pressure in out years. I know you're not providing 2019 guidance, but any sort of help on the cadence of freight would be great. And then, I wanted to ask about the overall retail environment. I think there was a department store largely in the Midwest that shut operations. Are you seeing any sort of benefit to the stores in your -- where you've got sort of colocation or whether or not you do have colocation with that retailer? And do you think that may give you additional opportunities for inventory -- to develop new brands or acquire inventory here over the upcoming year?

On freight costs, Kimberly, it's hard to say. Like all markets at some point, will reach some equilibrium. It's hard to predict when that will be. As you know, the -- there are a number of things driving freight cost this year. Very tight capacity, higher rates driven by trucker and driver shortages. The improved economy is obviously impacting capacity. Regulations around electronically monitoring drivers and then diesel costs aren't helping that. They're at 20% -- up 20% year-over-year in the third quarter, which is at 3-year high. So we'll wait to see what happens next year. But at this point, we'd expect Q4 to look a lot like Q3. Michael O'Sullivan: And then, Kimberly, on your question about store closures at other retailers. In general, I would say when another retailer closes, it tends to help. It tends to help the whole -- the existed -- the remaining retailers. That business has to go somewhere. So you'd expect the remaining retailers to benefit to some degree. So as other retailers close doors, or as other retailers liquidate, we'd expect to win some of that business. It's hard to quantify the precise impact. And in any given year, it's not likely to be material. But over the long term, we think that's beneficial.

And in terms of supply, usually store closures generate some form of supply.

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

I guess 2 questions. One, curious, Michael, about in-store inventories, I guess, up 9%. Curious what they would have been ex the Thanksgiving timing and sort of how you're thinking about in-store inventory levels maybe from here heading into next year from a philosophy perspective? And then maybe Barbara, do you want to talk about as you lap last year's very healthy 5% comp in the fourth quarter. Maybe what are 2 or 3 things that the organization is doing differently this year, whether it's marketing, product flow, mix, et cetera, to lap last year's strong performance?

Brian, on the inventory, as we mentioned in our remarks, Thanksgiving is a week earlier this year. So we did flow inventory without. So in-store inventory was up about 8%. Without that, inventories would have been relatively flat. And as far as expectations for running the business going forward beyond this 53rd week comparison year, we'd expect inventory levels to be relatively flat.

And in terms of things we're doing to be up against the strong comparison. We're really building out on what worked well for us in the past. We've had many years of robust gains in the fourth quarter. So this isn't the first time we're up against the strong number. And really what we're building on is further opportunities in gift giving, because that really what drives the sales in the fourth quarter, and we view that as something that goes on in the entire box. Obviously, home is a place where there's always strong gift-giving opportunities, but we feel last year, we were successful in other areas in gift giving and so we're building upon that.

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

I wanted to just follow up on the packaway numbers, which were down for the second quarter in a row as a percentage of inventory. Is there anything going on with what you're seeing in the market? Or what you're deciding to hold in packaway versus flow immediately?

No. Actually, there's still strong availability in the market. So we haven't seen availability drop off. But the packaway can fluctuate from quarter-to-quarter, month-to-month based on what's out there. No, I wouldn't say that -- yes, I think what we're putting in packaway is appropriate. There's a lot of criteria about what we put in packaway. You have to feel as good about it as it comes out as when it comes in. So I wouldn't say there is any shift in our thinking as it pertains to packaway. And then, obviously, this quarter, as Michael said, we flowed packaway earlier this year, Thanksgiving is a week earlier, so that's really part of the shift that you're seeing right now.

Your next question comes from Paul Trussell from Deutsche Bank.

On the 3% comp in 3Q, very solid against tough compares. I know you said, men's kind of lead. Just curious of any other kind of takeaways or details on the top line in 3Q, especially as it relates to beauty and home, efforts and kids and outerwear. Just kind of curious what you're seeing on those fronts. And also, just on the merchandise margins being up. If you could just talk about the drivers and sustainability potential for additional gains ahead?

Sure. On the performance -- comp performance during the quarter, as we mentioned in our remarks, men's was a top performer for us. Shoes and accessories also performed above the chain average. Home was relatively in line. And then in terms of apparel versus nonapparel, they were relatively similar for the quarter. As we mentioned on merchandise margins, it was up about 20 basis points. That was driven by being able to chase the business and above-plan sales and also better buying. Our strategy has always been to go in with a more conservative comp. And if we can chase the business, we can also drive merchandise margin. So that's the way we would think about it going forward.

Your next question comes from Jay Sole from UBS.

So my question is about, you talked about how it's going to be a pretty promotional 4Q environment. Do you see that more in relation to sort of the full-price competitors or more from the off-price competitors? Secondly, how much would you be willing to sort of trade the merchandise margin, which has been very strong, in exchange for better sales?

Well, the promotional environment, I think, in full price, it's historically been promotional. I think it will be promotional. I think we're watching it get more promotional in the last few weeks. In terms of the off-prices, I mean, they're putting out their values the way we're putting out our values, I don't know if I consider that the same thing. Nobody promotes, nobody -- there's no POS-ing. So I think we feel that we have very strong values going out on the floor and we feel good about that. Comparisons, obviously, I'm not going to compare to my other 2 off-price large competitors. And what was the second part of your question?

If you felt like you wanted to drive sales, how much could you try to trade merchandise margin for sales?

I actually -- actually, I don't think we need to trade merchandise margin for sales. I think the merchants -- we have a large merchant team and a big vendor base. And they are out getting really strong values every day of the week. And so I think there's always that fine line, not the art, not the science of deciding how much money versus what the retailers where you're offering the customer the most compelling bargain that you can. And so I think that's what we do every day of the week. And I think the merchants are very, very attune to that. So I don't think that there's a direct line of, if I just choose to say we'll tighten up the IMU or just something there's a direct line to that, because I think the merchants really are out there getting the best possible values and they are out competitive shopping, looking at what full-price stores are doing, looking at what the other off-pricers are doing. So we're in the value game to each other. And that's really our strategy. And I don't think that would be a strategy we would use going forward.

Your next question comes from Paul Lejuez from Citi Research.

Curious if you could talk about the sales cadence during the quarter. And I'm not sure if you mentioned, whether or not the weather helped or hurt you, if you can make any comment on weather during 3Q. And I'm also curious just near term, any impact from the fires out West? How many stores are impacted? And do you expect that to be any sort of a material impact to 4Q sales?

Paul, just on the fires, we wouldn't comment on fourth quarter impact at this point. In terms of weather in the third quarter, it did not have a meaningful impact. And obviously, a lot of moving parts, with 2 major hurricanes last year and then a bounce back afterwards and then the Southeast hurricane this year. In terms of trends -- so overall weather, neutral for the quarter. And then trends during the quarter, comps were stronger earlier in the quarter. Late in Q3, we were up against the bounce back from the 2 major hurricanes last year.

Your next question comes from Michael Binetti from Crédit Suisse.

I know you talked about some of the cost drivers. I want to look out a little bit further than just fourth quarter, though. As we look into next year, do you guys -- will you guys have an impact from the changes in lease accounting that we think about next year? I think a competitor mentioned that also, kind of put it on the radar. And then related to tariffs. I'm just wondering if you can help us think about what the behavior in the industry is? If there's an analogy period you could point to for your own business that helps us think about how tariffs impact that business, like any past global macro events like that, that could help us think about how the players in the industry build inventories and how you guys think about what the inventory situation could look like if we have some issues at the border here?

On lease accounting next year, yes, there is some impact. It's noncash related. It's purely accounting. And again, we would look to find areas in the business to offset those additional costs. Michael O'Sullivan: And on tariffs, Mike, I don't think there's anything -- there's any historic event that we could point to that would be a good analogy on tariffs. Other than saying in general that the tariff situation in terms of: Will there be tariffs? When there will be tariffs? Which things will have tariffs on them? How long will tariffs last for? It all creates uncertainty. And in an uncertain environment, off-price tends to do comparatively well in that environment, but really no historical event that we could point to as a comparison.

Your next question comes from Alexandra Walvis from Goldman Sachs.

We had a question on home. Thanks for the color on some of the category drivers of the comp. We noticed that home was in line with some of the other categories this quarter having outperformed the rest of the business for some time. Is there anything specific that you can talk to there? Or any change to the strategy of increasing home penetration across the business?

Home was up against its very solid results last few years. And so the performance relatively in line with the chain, of above-plan chain sales for the quarter, felt okay. In terms of looking at future, looking at assortments, we're always looking to grow new businesses and look within our 4 walls to improve the assortments. So in terms of specifics, I won't go into specifics. But we do think home is a growth area. You know it's very broad-based, a large amount of different products are conglomerate into there. So we do feel good about it. And again, always looking to improve it.

Your next question comes from Ike Boruchow from Wells Fargo.

Most questions have been answered, but I guess I'll just throw it out there to the team. Just curious if you guys have looked into the tax dynamics for your consumer, mainly in early '19? Seems like the low-end consumer could have a very favorable cycle ahead for them. So just kind of curious, I want to ask if you guys have dug into that at all or had any thoughts?

I guess we have looked at it and obviously, that would have an impact on the first quarter. But we'll have more to say about that going into next year. The tax rebate cycle has changed pretty dramatically over the next couple of years. So we'll have to see what we build into our expectations when we give our year-end results at the beginning of next year.

Your next question comes from Janine Stichter from Jefferies.

I just wanted to ask about the composition of the basket. I think in the past you've called it out as being UPT driven. Just wanted to know if there's anything to call out in terms of AUR ticket?

Sure. As we mentioned, the 3% comp was driven by higher traffic. And in increase of the average basket, the basket was all driven by units per transaction. AUR was relatively flat for the quarter.

Your next question comes from Laura Champine from Loop Capital.

I'm wondering, Barbara, to the extent that you can tell, do you think that Ross gained share or just held share in the apparel market overall? In the context for asking the question, I'm sure you can surmise, is that Ross' comp, although it was good, was well below its -- what we perceive as its nearest competitor this quarter?

Sure. In terms of our performance, I mean, obviously I'm not going to comment on our competitor, but on a 1-, 2- and 3-year basis, we were up against -- you had a 3%, a 4% in 2017 and a 7% in 2016. So in terms of our comp performance, overall, it was 14%. So in terms of gaining share in apparel versus our competitor, I think it's very hard for us to measure the share of apparel that we're gaining quarter-to-quarter or year-to-year. But I would say is that apparel has grown significantly over the years as our comps have grown over the years. So I think it's hard for us to compare back to one of our competitors, nor would I really compare back to that? But apparel, obviously, continues to grow.

Your next question comes from Bob Drbul from Guggenheim Securities.

Just a couple category questions. Can you talk about what you're seeing in the toy category and just your expectations there, especially into the holiday? And I was wondering if you could maybe talk about your footwear business, men's shoes, women's shoes and boots and just sort of the opportunities that you see in that category as well?

Sure. In terms of toys, we obviously see some opportunity in toys, with all the recent bankruptcies and closures. But toys is overall a small percentage of our business. So historically, toys does get bigger for us during -- a bigger part of our mix in holiday and will be, again, this year. But in terms of a brand total, total Ross, it's still a small business, but, yes, again some opportunity. In terms of our footwear business. Our footwear business has outperformed the chain average in the third quarter. It's very broad based between the 3 businesses. And in terms of the mix itself, again, it's pretty broad. I mean, boots -- boot business with the weather, I'm sure boot business has been good, but the boot business has been good for a few years now. So I think overall it's strong execution in our business and maximizing some key opportunities.

Great. And just a question on the wages. With the investments that you've made, do you feel like you're ahead of the curve just sort of keeping up in terms of the competitiveness? And are you seeing any challenges to sort of filling your new store openings with employees?

So we feel good about where we are with the workforce today. Obviously, we've raised wages. And that's the good news for the people that we're looking to hire. And store-by-store, we really haven't seen miscues in filling our new stores.

Your next question comes Chethan Mallela from Barclays.

So I just wanted to follow up on the tariffs situation. And I know it's hard to give a precise estimate particularly with close-outs. But can you just kind of frame how much your product inventory or maybe how many of your 8,000 vendors are based in China? And then how you think about the impact of the tariff that has been announced to date versus what that impact looks like if there's a more sizable extension?

Okay. In terms of our 8,000 vendors, we -- you have to remember, the bulk of our business is the close-out business. So we're buying close-outs. We're not tracking country of origin, right? The manufacturers manufacturing goods wherever they manufacture them and we're buying them. So in terms of answering your question about what percentage of the 8,000 vendors would impact, I really don't have that information. In terms of just tariff impact in total. I think there is -- you have certain classifications of business. Obviously, home is most impacted and some parts of accessories, but really, really home. And I would say that the trade tensions have left a lot of uncertainty in the marketplace and it could lead to supply as we go down the road, but impacts, like, to date as of this minute, I think everyone is in the process of assessing what actions to take as what is -- as it pertains to the tariff. I don't really think -- we're not the lead, we're the follow, when it comes to something like this. And there is no clear vendor strategy. I don't think the vendors -- each vendor has their own strategy. So I think we are doing what we can do to assess our actions of what's appropriate for us. And then in terms of direct exposure for us to tariff, it really is for us in the home area and we don't disclose that percentage, but it's a relatively small piece of our total mix of sale. So I think there's just a lot of moving parts as it pertains to tariffs at this point in time. Again, the vendor community, I think, doesn't necessarily have -- it's a vendor-by-vendor strategy, there is no comprehensive strategy because I think there's just so much unknown. If the tariff would have move on to apparel, then obviously that's a much larger scale issue for everyone. Inflation in apparel, we haven't seen in many, many, many years. So I think there is certainly challenges attached to that, and we'll cross that bridge when we get there.

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

As you think about real estate, where, I think, occupancy was flat this quarter as compared to the leverage of 15 basis points last quarter, what are you seeing on renewals of leases and negotiations? And with these Sears boxes now available, does that provide you with locations that you may want either for dd's for even part of it or for Ross? Michael O'Sullivan: So Dana, I would say that, in general, we're happy with the availability of real estate locations we're seeing. We have a great real estate team and they've done a great job over the last several years finding locations for our store expansion. Certainly, store closures in terms of closures by other retailers have helped and contributed to that availability. But it depends on a specific retailer. I mean, some retailers are mall-based and that really isn't -- that isn't the kind of location we'd be interested in. And as you know, we're a strip mall retailer. So I would say, overall we're pretty happy, but when you're looking at specific retailers and the impact that they have, it really depends on what kind of real estate they operate in.

And the fact that occupancy was flat this quarter, is there opportunity to get leverage again? Or, how do you think about it?

So Dana, on the leverage point for the year for occupancy is 3%. Historically, that's been 4%. So we are in a better position this year. Remember that the comp sales and fiscal sales are 2 different metrics this year, because of the week shift. You got more leverage in the first half of the year because the fiscal sales were higher than comp sales, and that reverses in the back half. But for the year, we think occupancy costs or leverage points around 3%.

Your next question comes from Daniel Hofkin from William Blair.

Just a quick clarification, again, on the topic of the retail environment, I know the question has been asked. But you guys are typically conservative, you've talked about kind of every year being a little bit more promotional, more intense. Do you see that trajectory steepening or is it just kind of a continuation of that? That's my first question. And then my second question is as it relates port bottlenecks related to tariffs, are there any categories where even if you're not directly importing, where you're seeing maybe some full-price retailers have more disruption?

Well, on the retail environment, I think -- obviously, we think it's promotional. It's promotional every year. Do I think it's different from Q2 to Q3 to Q4? I think we might see some movement between Q3 to Q4. But again, every year it's promotional. So that will vary by retailer, based on their performance and their business model. So I think -- and their performance. So I think we will see more of that. In terms of the port bottlenecks and supply, I don't think we've seen any one particular place that's had a port bottleneck as it's led completely to supply. So one, you're saying, is it one product? So I think the port bottleneck, because everyone brought in goods, many manufacturers bringing goods from China because of the tariffs and they're trying to get them into the country earlier, it has, I think, affected everyone. But we haven't seen it one pure classification of business that we could say, "Gee, that's where it's going to be." I think if there's supply, that's the result of the bottleneck, it will be broad-based.

Your next question comes from John Morris from D.A. Davidson.

You all have done a really good job managing expenses, with headwinds of freight and labor, and using offsets to help mitigate that. Wondering if you can give us a little bit more color on this offsets, what areas they're coming in from, so we can get a magnitude field for that and the categories? And then also second question would be, your holiday initiatives with respect to marketing, spending this year versus last year, is it about the same in terms of that spend or maybe any color there?

On offset, there is no silver bullet on the offsets. I mean, there is -- we look throughout the company whether it's payroll related in the DCs and the stores on how we become more efficient. It is -- we have a strategic sourcing group that looks on how we procure either products or services and when I say products, I mean nonmerchant-related -- merchandising-related product. So we're always looking for efficiencies in our business and it's a death by a thousand paper cuts. So it's a lot of different things and we have groups that try to stay ahead of the inflation curve and will continue to do that going into next year and beyond.

And then on the marketing spend? Yes. Sorry, go ahead. Michael O'Sullivan: Yes, sorry. Second part of your question on marketing. No material changes in the amount of marketing spend in the fourth quarter.

Your next question comes from John Kernan from Cowen.

So just given the dynamic with freight, do you foresee any additional investments you might need to make around the store DC network to maybe increase efficiencies?

Sure. On the DC network, our investments there certainly, with higher wages, it presents us an opportunity to invest in automation, and we'll do that over time, for efficiencies. The next reason to invest in the network is capacity-related, right now we think we have the capacity and would start the next distribution center over the next couple of years.

And just one quick follow-up. Have you seen any noticeable benefit from stores that are co-located with some of the recent bankruptcies? Certainly, this don't seem like -- feel like it's going to be the end of some of the bankruptcies. So I'm just wondering if you are noticing any increase in traffic or any benefit from some of those closures? Michael O'Sullivan: No. Perfectly, and I would say this is sort of a general observation. As a store is closing, as it's going through its out-of-business -- sorry, going out of business period, we might actually see a bit of a negative in the local stores. But then once it's gone out of business, we typically see an uplift. And I think as I said earlier, in general, store closures of competitors tend to be good for our business, but they typically don't have a material impact in any given year. It's just over the long run as store closures accumulate, we tend to see -- that tends to be a tailwind for us.

Your next question comes from Omar Saad from Evercore ISI.

Barbara, I wanted to ask you to dig in a little deeper on your earlier comments around your expectations that the holiday season will be -- it will continue to be very promotional, it'll be another very promotional holiday season. We're hearing from a lot of retailers that inventories are clean, you're seeing merch margins rise. And broadly speaking, in the softline space, yourself included, maybe give me a little color -- give us a little bit more color around what gives you that sense that it's going to be pretty promotional again? And then any update or color on new marketing strategy? I know you talked about the marketing spend being flat, but are you trying any new marketing strategies, digital, social, that you care to share with us?

In terms of the holiday season, traditionally, the holiday season is promotional. And although inventories might be leaner, we have the 53rd week, things are moving faster and I think if we really look at it between online and brick-and-mortar, as online gets more aggressive and gets aggressive early in the fourth quarter, brick-and-mortar stores will have to get more aggressive also. Plus, I don't think all performances have been created equal in Q3 based on department stores. So some department stores may promote more, some department stores may promote less. But overall, I would be very surprised if we come out of the quarter without it being promotional, especially the last week to 10 days, as while the customer's shopping, Thanksgiving is already -- it's here, it feels early. So but again, we've been watching, there has been some more promotional increases in the last few weeks as people raise the POS-ing. So I put those pieces together and I recognize that there's potentially less inventory. But you're trying -- if you're trying to drive sales, ultimately, at the end, that's what drive sales and that's what history tells us. So that's how I came to that conclusion. Michael O'Sullivan: And, Omar, on your question about marketing, I would split it into 2 pieces. I think first of all, in terms of the marketing strategy and the marketing message, I think that's been very consistent over time. The message being that we offer the best values in apparel and home fashions. That message isn't going to change. But what has changed is that the channels that we're using to reach the customer to get that message out have evolved. So we've always recognized that the best marketing for us is sort of word-of-mouth marketing. And over the last few years, we've been experimenting and investing in various new forms of marketing, social media, et cetera. And we find that those tools kind of represent a modern-day version of word-of-mouth marketing. So I would still describe some of the things we're doing there as early stage, but definitely it's -- that's the direction our marketing is moving in.

That was our last question. I will turn the call back over to Barbara Rentler for closing remarks.

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

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