Ross Stores Inc
NASDAQ:ROST
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Ross Stores Inc
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Good afternoon, and welcome to the Ross Stores Second Quarter 2022 Earnings Release Conference Call. The call will begin with prepared comments by management, followed by a question-and-answer session. [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, new store openings 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 2021 Form 10-K and fiscal 2022 form 10-Q and 8-K on file with the SEC.
Now, I would like to turn the call over to Barbara Rentler, Chief Executive Officer.
Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer; Adam Orvos, Executive Vice President and Chief Financial Officer; and Connie Kao, Group Vice President, Investor Relations.
We'll begin our call today with a review of our second quarter 2022 performance followed by our updated outlook for the second half and fiscal year. Afterwards, we will be happy to respond to any questions you may have. As noted in today's press release, we are disappointed with our sales results, which were impacted by the mounting inflationary pressures are customer base, as well as an increasingly promotional retail environment. Earnings came in above our guidance range, primarily due to lower incentive costs resulting from the below plan top-line performance.
Total sales for the period were 4.6 billion versus 4.8 billion in the prior year period. Comparable store sales were down 7% compared to a robust 15% increase in last year's second quarter, which was our strongest period of 2021. Earnings per share for the 13 weeks end ended July 30, 2022, $1.11 on net income of $385 million. These results compared to $1.39 per share on net earnings of $494 million for last year's second quarter.
For the first six months, earnings per share were $2.08 on net income of $723 million. These results compared to earnings per share of $2.73 on net earnings of $971 million in first half of 2021. Sales for the 2022 year to day period were $8.9 billion with comparable sales down 7% versus a strong 14% gain in the first half of 2021. Shoes in men's were the strongest merchandise areas during the quarter, both Florida and Texas were the top performing regions, mainly due to the outperformance of our border and tourist locations.
We are making merchandising adjustments to meet changing customer demands. That said, the actions we have taken thus far were unable to offset the mounting financial pressures on our low to moderate income consumers and the impact on our business from an increasingly promotional retail environment. Similar to the first quarter, dd's DISCOUNTS performance in the second quarter continue to be well below Ross mainly due to today's escalating inflationary pressures that are having a larger impact on dd's lower income customers.
At quarter end, total consolidated inventory were up 55% versus the same period in 2021. While average store inventory during the quarter were up 15% versus last year, we operated with very similar levels when compared to pre-pandemic. Packaway merchandise represented 41% of total inventories versus 30% in the same period of the prior year when we used the substantial amount of packaways to meet robust consumer demand. Additionally, supplies chain congestions continue to ease during the second quarter resulting in above plan early receipts of merchandise that we stored in packaways and will flow the store throughout the fall season.
Looking ahead, we expect these early receipts to wage and to have the appropriate inventory levels in the fourth quarter. Turning to store growth, our 2022 expansion program is on schedule with the addition of 21 new Ross and eight dd's DISCOUNT locations in the second quarter. We remain on track to open a total of approximately 100 locations this year comprised of about 75 Ross and 25 dd's. As usual, these numbers do not reflect our plans close or relocate about 10 stores.
Now, Adam will provide further details on our second quarter results and additional color on our updated outlook for the remainder of fiscal 2022.
Thank you, Barbara. As previously mentioned, our comparable store sales were down 7% for the quarter as a decline in the number of transactions versus the prior year was partially offset by an increase in the size of the average basket.
Second quarter operating margin was 11.3% compared to 14.1% in 2021. This decline was due to a combination of deleveraging effect on expenses from the decrease in same store sales, higher markdowns, and ongoing headwinds from higher freight costs that did not begin to escalate until the second half of 2021.
These expense pressures were partially offset by lower incentive costs that were much higher last year when we significantly outperformed our plans. We also saw a decline in COVID expenses versus last year's second quarter. Cost of goods sold during the period increased by 320 basis points.
Merchandise margin declined 205 basis points due to both higher ocean freight costs and markdowns. Distribution costs increased 85 basis points due to a combination of unfavorable timing of packaway related expenses and deleverage from our new distribution center, while occupancy and domestic freight rose by 55 and 35 basis points respectively.
Partially offsetting these higher costs were buying expenses that improved by 60 basis points again, due to lower incentives. SG&A for the period levered by 40 basis points as deleverage from the lower comparable sales was more than offset by lower incentive and COVID costs.
During the second quarter, we repurchased 2.9 million shares of common stock for an aggregate cost of $235 million. As previously announced, we expect to buy back $950 million of common stock during fiscal 2022 under our two-year $1.9 billion repurchase program that extends through fiscal 2023.
Now let's discuss our outlook for the remainder of 2022. As Barbara noted in today's press release given our recent results as well as the increasingly unpredictable macroeconomic landscape in today's more promotional retail environment, we believe it is prudent to adopt a more conservative outlook for the balance of the year.
We are now forecasting comparable sales for the 13 weeks ending October 29, 2022 to decline 7% to 9% on top of a strong 14% gain last year. For the fourth quarter, same store sales are planned to be down 4% to 7% versus a 9% increase in the last quarter of 2021.
As noted in our press release, if the second half performs in line with these updated sales assumptions, earnings per share for the third quarter is projected to be $0.72 to $0.83 versus a $1.09 last year and a $1.04 to a $1.21 for the fourth quarter compared to a $1.04 in 2021. Based on our first half results and second half guidance, earnings per share for fiscal 2022 are now planned to be in the range of $3.84 to $4.12 versus $4.87 last year.
Now let's turn to our guidance assumptions for the third quarter of 2022. Total sales are forecasted declined 4% to 7% versus the prior year. We expect to open 41 locations during the quarter including 29 Ross and 12 dd's DISCOUNTS locations. Operating margin for the third quarter is planned to be in the 7.8% to 8.7% range versus 11.4% in 2021 primarily reflecting the deleverage on the same store sales decline.
In addition, merchandise margin is forecast to be pressured by ongoing increases in ocean freight costs. We are also projecting higher markdowns to right size our inventory levels, given the lower revenue forecast and adjust pricing as we expect an increasingly promotional retail environment.
Lastly, third quarter operating margin also reflects unfavorable timing of packaway related costs. Interest expenses estimated to be approximately $400,000. The tax rate is projected to be about 24% to 25% and diluted shares outstanding are expected to be approximately 345 million.
Finally, I want to emphasize that Ross continues to be in a strong financial position with significant resources to manage through today's challenging economic and retail landscape. Our healthy balance sheet includes $5.2 billion in total liquidity with 3.9 billion in cash, and 1.3 billion in untapped borrowing capacity.
We also continue to return large amounts of cash to stockholders with a cumulative total of $1.4 billion expected to be paid out under our stock repurchase and dividend programs in 2022.
Now, I will turn the call over to Barbara for closing comments.
Thank you, Adam. We are facing a very difficult and uncertain macroeconomic environment that we expect will continue to strain our customer's discretionary spending. Though 2022 will likely remain a challenging year for our company, we believe our value focused business model and our strong financial position will enable us to manage through these economic pressures and rebound over time.
At this point, we'd like to open up the call and respond to any questions you may have.
Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.
So, you've included a better fourth quarter comp versus 3Q in your guidance. Can you talk about the areas of opportunity that you see in the fourth quarter and also what gives you confidence that things will improve?
Hi, it's Michael Hartshorn. First on the fourth quarter guidance alone, if you look at the multi-year compare, we did a nine last year. So it's one of the easiest compares, which is really the driver of the 4% to 7% comps this year in guidance.
So Lorraine, in terms of opportunities in terms of the fourth quarter, I think that would be around gifting that we didn't maximize some of our gifting areas last year.
Thank you. Our next question comes from the line of Paul Lejuez with Citigroup. Please proceed with your question.
Sorry if I missed it, but curious about the performance of home versus apparel? And if there were any notable trends in those categories, how they trend throughout the quarter, get worse, got better? And I'm also curious if you think the comp shortfall was all macro driven or if you attribute any sort of execution issues that might have also factored in?
Home sales are relatively in line with the chain average and the performance of home and apparel was pretty similar for the quarter. Both businesses had areas of business that were strong in areas of business that were weaker, so they were relatively in line.
Paul, on the macro, I mean, of course, there are things that we know we could have done better in the business. In terms of trends during the quarter, we outperformed earlier in the quarter, both on a single year on a multiyear basis.
And I think if you looked across retail, I think people weakened in the back half of the quarter. Obviously, fuel prices peaked in June so a portion of the performance is certainly driven by the macroeconomic environment.
I think some have also seen a little bit of an improvement at the end of July into August. Anything you can share on that front?
Yes, we wouldn't comment on trends within this next quarter.
Thank you. Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. Please proceed with your question.
Okay. Great. Barbara, on the last call, you talked about the very significant shift you were seeing in the kinds of categories and the types of products that Ross shoppers were buying and how much that had changed by April and May compared to when we started the year.
I know you were working here through the second quarter to reposition inventory and sort of pivot toward those categories. I'm wondering, if you can just talk about where you are on that journey the progress you made in the second quarter and what -- where you sit today, what's your evaluation of the progress? And is there still more to go in the second half of the year? Thanks.
Sure. The pivot was to take us out of casual product into more things that the customer wanted. So more rare to work in men's and ladies, more social, more going out type products, whether that would have been in shoes or ready-to-wear.
That's really where the main shift was on the apparel side. We've made some progress there, but we certainly longer way to go. But I feel much better about where we from where we were in Q1 to where we are now because we've really been able to expand some of those assortments and I felt like we were a little bit behind.
So -- and then in terms of go forward, we're going to meet whatever the customer demand is. So with everything that is so difficult out there, a highly promotional environment, we're going to see where the customer tells us where and when what he wants -- and then we'll make the shift from there. But we feel like we're in a better state of balance between, let's say, casual and more ready-to-work products in men's and ladies.
Fantastic. That's really helpful, Barbara. And just one follow-up on the product. Are you starting to see new vendors come to Ross maybe vendors that you didn't work with last year or in 2020? I'm just wondering, if the more robust buying environment is yielding an opportunity to maybe work with additional vendors that you haven't seen for the last year or two?
The answer to that is yes. Both new vendors or vendors that perhaps we hadn't seen availability from for an extended period of time, the availability out there is pretty broad-based right now in all products and a good gutters. It's just a lot of merchandise in the country.
And so, I think vendors themselves are looking to expand, expand their business. And if they have been doing business with us, it was an opportunity. So yes, I think that -- and I think that probably will continue based on the amount of inventory that's in the country.
Terrific. Thanks so much.
Thank you. Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Barbara, how do you balance taking advantage of the great deals in the marketplace today versus waiting for better deals down the road? Because I imagine the deals today look a lot better than they did a few months ago than those you're getting today. And I guess as a follow-up, should we expect those to start showing up in the P&L for you guys? Is that a third and fourth quarter phenomenon? Or do we start to see that in '23?
Okay. Just first, in terms of the deals, it was a good deal today just to get better as we go. The merchants are really out there in the market shopping to see what's out there. It's shopping to see what the availability is.
And to assess where the product is the best product want to happen, there's a lot of products out there. What you really want to do is get the best product at the best price. So the merchants are out there assessing what that looks like, and then you really want to get the most desirable product, right?
So if it's the best product and you think that's a really sharp price is something you haven't been able to really get or there's voice you're going to pull the trigger on it. There's a lot of the products where there's lots, lots of availability, you might buy some metered in, you might pack sum away for the following year.
I mean, it's not just one kind of cookie-cutter answer here. I think that the key thing now for the merchants is really to be out there, understanding the promotional environment, right? So when you're buying goods now what you really have to be attuned to is, what is the right value?
So the buyers have to be very strategic in terms of buying the right merchandise at the appropriate value for customers given the current inflationary environment. So I think it's is supply, and it's really studying what's going on in the outside world with so much inventory sitting in retail stores with the inflated inventory and a more promotional environment, which I think we all believe is probably going to get more heightened in the fourth quarter.
So, there are a variety of things that need to happen there. So, I don't think it's quite the cookie-cutter. So to get to, I think we'll see some for this year. I think there'll be some packaway for spring, and there may even potentially be some packaway for fall, but we have to wait and see -- wait and see what that looks like.
Thank you. Our next question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.
Great. Barbara. So larger picture, on the mounting inflationary pressure that you cited on your customer, how does this affect the value and convenience elements of your model? Or is there anything that you're seeing today that's different than past times of consumer than past times of consumer disruption where your model actually outperforms over time?
And then, Adam, while sales are below your target model today, are there any structural underlying changes to the models margin as we think about multiyear in your view?
So Matthew, in terms of mounting inflation, I think over the last few months, we had initially made strategic price increases. And I think with the slowing consumer demand and the escalating inflationary pressures, it all comes down to value. And so for us to be successful, we really need to make sure that we understand the value of what's going on around us and get ourselves really highly focused on that because that really, in the end, is what will make us successful.
Our customers looking for branded bargains, great values every day. That's what she's come to expect before the years, and that's what you expect from us now. So I think that really comes down to the merchants being in the market, understanding the availability, understanding what's going on and then knowing when to pull the trigger and to drive it because that's what helps us from 2006 to 2009.
And I think that, that will help what will come us here also in getting ourselves in the right value when the customer is under so much pressure with all the macroeconomic issues that are out there.
And Matthew, this is Adam. So, we don't see anything structurally different in our model, still feel bullish about the environment, the retail environment in our model going forward. When we talk about multiyear and think about 2023, specifically, I think the key is we're going to have to see how the inflationary aspects play out in the second half.
That's obviously a critical variable how we plan sales next year, profitability will be highly dependent on that kind of top line assumption.
Matthew, just to add to that, obviously, since the pre-pandemic the changes have been really around the cost in the business, and those are acutely in two different places with wages and transportation, whether domestically or on imports I think what we expect to see is both the domestic and import costs to come down over time.
We're already starting to see some break in those costs here in the back half, especially on the import costs. So, I think those will come down, which will be a benefit to us. On the wage front, I think the increases we saw during COVID are structural at the current levels and are at least at this level.
What I'd say about the wage market right now is it's still tight, but it is stable, which is much different from where we were last year when we were getting people back to work and there was a frenzy demand in the U.S.
So, I think there is going to be some opportunity in cost as the transportation comes down with the lower demand in the U.S.
Thank you. Our next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question.
Great. Barbara was is just sort of more of an opinion question for you. I'm wondering if you believe that the aggressive discretionary promotions at Walmart and Target are maybe temporarily taking some market share away. And I guess in the past, when they aren't as promotional, might that alleviate kind of some of the kind of market share shifts that are going on. So that's my first question.
And then for Michael, can you talk about any price pass-through attempts, if any? And I know that you guys have been very, very careful about that. And what does your average unit cost look like at this point kind of heading into holiday? Thank you very much.
In as it pertains to Walmart, look, I think we look at everyone as a competitor, whether it's Walmart, whether it's the other off-pricers, whether it's Macy's I think there's a lot of opportunities for the consumer to buy organs now and whether it's Walmart or Target whoever it is. And so it's hard for us to measure that.
I think the most important that we can do now is really we need to understand value, and we need to understand where we need to be on the value equation with the customer. And that is a shift from where we were. So I think it's very -- it's hard for us to measure that. But again, it's more competition. And they have both been very aggressive in their pricing, as we all know, to move through some goods. So that's our job to understand it.
On pricing, what we saw during the quarter, on AUR. So AURs were up during the quarter. As we said in the commentary, the minus 7% comp was a function of lower traffic and higher basket the basket was really driven by a higher AUR.
What we'd expect for the fall season with us really trying to drive value and with our additional markdowns, we'd expect AURs to moderate versus the first half over the balance of the year.
Thank you. Our next question comes from the line of Mark Altschwager with Baird. Please proceed with your question.
Thank you for taking my question. I guess for Michael or Adam, the sales outlook is slightly better in Q4 versus Q3, though the magnitude of the implied margin inflection. I think it's fairly significant if I'm reading it all correctly. Is that primarily markdowns in Q3 that are expected to be kind of cleared through by Q4? Or are there kind of other things that are going on there?
Just on Q4, as I mentioned in Lorraine's question, that was our lowest comp last year, and that was a function of one, with supply chain congestion, we didn't get all the goods we wanted to in the stores before the holiday and there was also an Omicron spike leading up to Christmas that dampened traffic a bit.
So that should be a benefit versus last year. And then in the fourth quarter, was the peak of our cost increases, including incentives, and cost in the business, whether it was ocean freight or wage increases, the staff, staff the store and the DCs for holiday. So we're up against that, and that will be a benefit versus last year.
And Mark, this is Adam. Just to build on that, I think when you look at timing in third quarter versus fourth quarter, ocean freight probably is still headwinds as we move into third quarter just based on the comparison to and then probably some favorability, specifically in ocean freight in fourth quarter and then probably a little bit more timing impact from our packaway cost in third quarter versus fourth quarter.
Thank you. Our next question comes from the line of Brook Roach with Goldman Sachs. Please proceed with your question.
Barbara, I'd like to ask you if you're seeing any evidence of trade down in your business, are you seeing any new customer acquisition above and beyond traditional levels from customers that typically don't shop Ross stores?
And then maybe as a follow-up, you commented on plans to adjust pricing and markdowns in the third quarter. Can you comment on the magnitude and the time line to achieve a more normalized markdown level and when you might be a little bit more clean?
On the consumer, we're not seeing any change, certainly since if I take the first to the second quarter with our comps have been relatively consistent. The composition of comps have been relatively consistent. If I compare it to when we started to lap the stimulus from last year, and our customer surveys and our own performance would suggest that where we're really seeing pressure is the lower end consumer. But on the trade-down customer, there's no indication that in our data that would suggest that that's happening.
But we do serve a wide range of customers. Today, we serve a wide range of customers. So we're going to watch trends closely and then we'll make merchandising adjustments accordingly. So it would probably take us some time to see because our range of customers are so broad.
Thank you. Our next question comes from the line of Michael Binetti with Credit Suisse. Please proceed with your question.
I just make sure I have I understand. I'm thinking alongside you guys on the model. I think that as we look at like the three-year growth rate, in third quarter and the fourth quarter take like a two- to three-point step down in the way that you're guiding fourth quarter is -- but you're expecting markdowns to ramp, which I would assume to give you a good shot of bringing in a new customer.
Is that deceleration? I'm curious what the deceleration is based on? Is that based on your insights for the industry slowing or Barbara, just mentioned you're hopeful that trade down can start to happen after some period of time? Do you not bake that in, in fourth quarter? Maybe some help on how you're thinking about that deceleration.
Michael, it's really a function. It's our biggest quarter. It both -- serves us well to be very cautious, especially after missing two quarters in a row on top line, so we are being cautious in the fourth quarter, and we do think it's going to be a very promotional environment. So that's what it's based on, right.
And also, based on the supply lines in the world, if, in fact, the trends line turns out to be better than we think it is, we're going to be able to chase some of that.
Thank you. Our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.
I just want to talk about the packaway inventory up in year-over-year as a percent of inventory and in dollars up pretty meaningfully. I know you're not going to go into specifics, but just curiously, maybe at a high level, can you talk about the buying margins, the closeout margins you guys are basically seeing today versus, I don't know, 12 months ago, 18 months ago, are they starting to ramp up? Where -- how does that look maybe versus, again, like I said, 12 months ago or maybe versus history? Just any kind of color at a high level would be interesting.
First, on the -- on what we have in packaway. We are up as a percentage of total inventory, but that is up against last year when we were using a lot of our packaway in the frenzy demand in the second quarter, which was our top comp for 2021.
And then also, packaway right now includes early receipts of merchandise, and that's mainly home product. And what happened there is that last year, we're experiencing longer lead times. We were having difficulty getting products on time and on plan. So what we did this year is extended our lead times coming into the first quarter in our ordering cycle.
What we saw in the first quarter is those surprisingly, lead times improved, but we kept the longer lead times in the second quarter because we were concerned about port labor negotiations in L.A. and also COVID -- continuing COVID shutdowns in China.
Neither of those risks played out and with lower demand in the U.S., lead times actually improved. So we have stored and packaway early receipts of home that will flow in the back half of the year.
In terms of margins on closeouts and upfront, it's hard to compare one year to another as the it's hard to compare what I bought this year versus what I had historically. So it's not necessarily quite as simple as just as going to pitch on it.
So I think remains to be seen on the closeout rates we've seen what kind of values we need to put on the floor and what availability when people want to move it.
Thank you. Our next question comes from the line of Jay Sole with UBS. Please proceed with your question.
Great. I just want to dig into the AUR strategy for the back half of the year. Are you saying that you're going to use AUR as a lever to try to take share and alleviate some of the traffic issue that you've had recently?
Yes. Listen, we're in the value business. And in the last couple of quarters, we've really -- we've made some strategic price increases. And the customer, based on slowing demand and inflationary pressures has voted that she doesn't necessarily think the value is where it needs to be.
So yes, if we could get -- we want to get our AUR more in line, and we want to offer the customer more value. And the AUR can move around based off of mix, right, because it doesn't necessarily mean depending upon what types of products you have on the floor, the AUR can move.
I think the word we're looking here is for value. And clearly, the more value we offer the customer history would tell us that we would perform better. So that is our strategy. I mean based on where she is and the pressure that the customer is under, that's really what we need to do. We need to understand what the outsides we're all is doing and we need to offer better value.
Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Good afternoon, everyone. As you see the differences between the Ross and the dd's chain, what are the differences between the two and whether it's traffic or whether it's product sell-through, what you're saying? And is your AUR strategy at all different with dd's and Ross in terms of magnitude for the back half of the year?
Dana on dd's, so similar to Q1, DT's performance in Q2 continued to be well below gross, although up against very robust last year. The inflationary pressure here has even a larger impact on the dd's low-income customer. dd's average household income is $40,000 to $45,000 and therefore, this customer is obviously more sensitive to the pressures in fuel and food costs and other inflationary purchases. I would say like Ross, our focus is on delivering the best bargains, but we need to even provide greater value to the DT's customer. And like Ross, we built in higher markdowns in the back half of the year.
Thank you. Thank you. Our next question comes from the line of Laura Champine with Loop Capital. Please proceed with your question.
I've got a couple. So when do you think that logistics costs will start to ease? And then secondly, you mentioned more clearance activity in Q3. When do you think that inventories come more in line with sales trends, assuming that's a goal given the packaway opportunities you see?
Laura, it's Mike on logistics cost. We're already seeing them -- they've already seemed to have peaked and have started to come down. I think it's different between domestic and ocean freight. I think ocean freight. There are a lot of long-term contracts that it may take some time to come down. But certainly, the current noncontract market is below the contract rate.
So, we're starting to see some movement even on contract rates. Domestic at least for us, we expect domestic costs to be relatively neutral in the back half because we started seeing them rising in the back half of last year. But I suspect over time, both of them will come down and maybe not to the levels that we saw pre-pandemic though.
And then in terms of the inventory level coming down, we see that moving as it goes throughout the fall. But with that, we have liquidity, and we're comfortable with our liquidity. And so we have open to buy to take advantage of opportunities. So it's kind of two things going on things going on at the same time.
Thank you. Our next question comes from the line of Aneesha Sherman with Bernstein. Please proceed with your question.
So if I heard it right, the in-store inventory levels at the moment are about in line with what you saw pre-pandemic. So just trying to understand the rationale for the higher markdowns you're doing now as well as into the second half. Is it about your product mix and you're seeing slowing trends in certain categories in the rebalancing? Or is it more about benchmarking to the external environment that's becoming more promotional? What's the bigger driver of the markdowns you expect?
I think it's a combination of both. But I think the promotional environment has gotten so aggressive in such a short period of time that we need to make the move on the goods. Otherwise, we're not offering the customer the value that she wants and needs and so that's played a big part of it.
And then there's always -- there always is. There's always businesses that aren't good or they need to take markdowns more aggressively. But that's really -- it's the promotional cadence and just really watching where the AUR is in the outside world and be very, very conscious of that and understanding that.
So getting the faster we get to the value equation that she really wants the better our performance will be.
Thank you. Our next question comes from the line of Corey Tarlowe with Jefferies. Please proceed with your question./
Barbara, you mentioned realigning the value equation to where you think it needs to be? And with that, are there any cost savings initiatives that you have in place to help to kind of underpin the profitability and the profit goals that you have for the remainder of this year?
I would say from an expense structure standpoint, we absolutely have put in places whether using technology in the stores or automation in our distribution centers, which is our big pockets of expense. We've continued to add new capabilities in stores and in the distribution centers to increase efficiency and reduce costs.
Great. And then as it relates to the store opportunity and real estate and the rent structures and your lease renewals, are you seeing anything incrementally helpful on the expense side there as well?
I wouldn't say there's anything material in that renewal process, but we will continue to open stores, as we said in the comment, we'll open 100 stores this year. And at this point, don't see any changes in our expansion plans. But I would say, overall on the renewals and the new rents, there's nothing that I'd call out specifically.
Thank you. Our next question comes from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your question.
Did you or could you, I guess, qualify like-for-like AUR versus maybe the mix shifts driven AUR? Just trying to align the AUR with the markdown color. And then sorry, what's probably a dumb question, but just can you help parse out the comment that earnings because of the lower incentive cost on the lower sales. I guess -- just trying to understand what it means that you made more money on the bottom line because sales miss plan and how to think about maybe what levers you have at your disposal if top line pressures get worse?
On the comment on incentive costs, there was a function of lower earnings. If we would have been at this comp level, we would have been fairly close to the low end of the earnings range. In terms of cost structure, certainly, there are other things we can do in the cost structure, if we saw a greater decline in sales. They probably wouldn't be great decisions for the long term are going into 2023, but we could certainly get more stark with our expense structure.
And could you just repeat the first question about the AUR markdowns. Could you just say that again?
Yes, sure. So just within AUR, I guess, any way to think through like-for-like is tough given your product offering. But just if AUR, how much may have been driven by mix shift versus like-for-like?
Part of it was driven by mix shift because they were businesses that we didn't maximize last year because of supply lines for, for example, things like shoes, which runs a higher AUR. So for a part of it comes from mix, where we couldn't get the supply we needed last year, fast enough to drive the sales higher.
But the other part of it just comes from strategically, we strategically increased some prices where we have other -- potentially assortment shifts within the mix. And so, it's kind of hard to really quantify that saying because we're comparing casual product to where to work product now, where the work product has higher AURs than activewear. So, I would -- all I could tell you really is it's a mix. It's really a mix of both.
Certainly, apparel raises the AUR compared to casual and definitely shoes helps to raise the AUR because it it's just a different product base, and we couldn't get the supply we needed last year. So, those would be my two main calls up on that.
Thank you. Our final question comes from the line of Marni Shapiro with Retail Tracker. Please proceed with your question.
Can you just give a quick update? Are there any changes on the store openings for this year? And then, Barbara, I have a bigger picture question, just about the use of packway and back-to-school. As kids are going back-to-school, do you think you were well set up in uniform and what they need for back-to-school?
And are you seeing a difference in the way she's shopping, meaning is she buying what she needs and holding off on what she wants, maybe the new fashion top, but her kids are getting her back-to-school clothing.
Marni, on real estate, no change, we expect to open 100 locations and that's 40 stores over the balance of the year.
And in terms of back-to-school, I would say, she's buying definitely the necessities she is buying uniforms and backpacks and all of those products. I also think that part of what you thought for back-to-school was she might have bought her child short when people start taking markdowns on what they did them short earlier.
So I think it's kind of a mixed bag. But I think if we were historically talking about back-to-school over time, the customer has bought merchandise much closer to the time they go to school or immediately after they get in school. It's hard to tell now with the pandemic, right? And so, I think it's a combination of both, but it's very much to read without having two or three years of any real history on it, so.
Right. I guess that makes sense. It feels like it's going to be a later back-to-school this year anyway with pressure on her. And so it feels like she's buying what she needs and everything else could kind of take a pause. And so maybe there's a break in weather or whatever it is.
And then just one last. On holiday traffic, last year, you had -- your inventories were clean, but also we had Omicron hit at some point in December. And so, it feels like there's a real opportunity even in just driving traffic to the stores for gifting. And during that period of time, assuming there's not some, I don't know, new variants, the gamma five variance or whatever it is.
You're right, Marni. Last year, we were impacted, especially approaching Christmas with Omicron. And then within our own performance, we had difficulty getting good holiday goods through the supply chain.
Okay. So I want you to confirm, great. Best of luck guys with the rest of after-school and Paul.
Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call back over to Barbara Rentler for closing remarks.
Thank you for joining us today and for your interest in Ross Stores.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.