• Ross Dress for Less stores in new markets are performing at or above expectations, indicating successful expansion and potential for further growth.
• The company is investing significantly in expanding capacity, including plans to open new distribution centers in Arizona and elsewhere, which shows commitment to future growth and increased efficiencies.
• The strong fourth-quarter performance was broad-based across regions, income levels, and age groups, suggesting strong customer engagement and potential for continued market share gains.

• Underperformance of dd's DISCOUNTS in new markets: Ross Stores is disappointed with dd's performance in newer markets, noting that "we've been disappointed in the dd's new market performance" and that they "clearly didn't satisfy them with the assortments we've been offering there." This has led the company to moderate dd's store growth in these regions. , ,
• Increased competition for retail locations: The company acknowledges that "there's a lot of competition for our locations," which could impact their ability to secure favorable real estate for new stores, potentially affecting expansion plans and increasing costs.
• Limited benefit from freight cost reductions in 2024: Ross Stores expects minimal benefits from lower freight costs this year, with ocean freight savings being "kind of negligible over the course of the year." This suggests that margin improvements from freight cost reductions may not be as significant in 2024 compared to the prior year.

1. Same-Store Sales Guidance
   Q: Why raise comp sales guidance to 2-3% from historical 1-2%?
   A: Due to strong performance and customer response to our value offerings, we've raised our initial comp sales guidance for 2024 to 2% to 3%, up from the historical 1% to 2%. This reflects confidence in our strategy to drive sales and gain market share.

2. Margin Outlook and Acceleration
   Q: How will strategies impact margins and comps in 2024?
   A: Our plan to offer more sharply priced brands is expected to drive sales and market share. While this may pressure merchandise margins as we pass savings to customers, we anticipate acceleration in comp growth throughout 2024, improving our EBIT margin flow-through by about 10 to 15 basis points for each additional point of above-plan sales.

3. EBIT Margin Recovery
   Q: What's hampering return to pre-COVID EBIT levels?
   A: Higher wages and freight costs have impacted EBIT margin recovery. Over time, we expect gradual improvement through sustained sales growth and efficiency investments, aiming for EBIT leverage in the 3% to 4% comp range in the long term.

4. Shrink and Inventory Loss
   Q: Expectations for shrink in 2024?
   A: Shrink levels in 2023 were in line with 2022. For 2024, our guidance assumes shrink will be up slightly, but we're investing in initiatives to mitigate theft and organized retail crime to keep it in line.

5. Freight and Wage Impacts
   Q: How will freight and wages affect margins this year?
   A: We expect slight improvement in domestic freight costs due to lower fuel prices, but less than in 2023. Ocean freight benefits will be negligible, and any changes depend on external factors like the situation in the Suez Canal. Wage pressures have stabilized, and we're offsetting minimum wage increases through efficiencies.

6. Store Growth Plans
   Q: What's the plan for new store openings in 2024 and beyond?
   A: Our long-term targets remain 2,900 Ross Stores and 700 dd's DISCOUNTS locations. For 2024, we plan to open about 75 Ross stores annually and will assess dd's expansion after refining our strategy, aiming for approximately 100 new stores per year overall.

7. dd's DISCOUNTS Performance
   Q: Why is dd's underperforming in new markets?
   A: dd's DISCOUNTS stores in new markets haven't met expectations due to assortments not fully satisfying local customers' diverse preferences. We're conducting customer research to adjust offerings and improve performance.

8. Capital Expenditures and AI
   Q: Where are you investing CapEx, and how are you leveraging AI?
   A: Approximately 40% of CapEx is allocated to expanding capacity, including new distribution centers opening in early 2025 and starting construction on another this year. We currently use AI in automated parts of our business and are exploring generative AI to enhance efficiencies.

9. Customer Traffic and Trade-Down
   Q: Are you seeing benefits from customers trading down?
   A: It's difficult to discern trade-down effects, but our 7% comp sales increase was entirely driven by higher traffic, with gains broad-based across income levels and regions.

10. Sharply Priced Brands Impact on AUR
    Q: Will sharply priced brands affect average unit retail prices?
    A: Average Unit Retail (AUR) may fluctuate based on product mix and value, but there's no specific AUR pricing strategy. Our focus is on offering great value, and AUR could vary as assortments change.

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