Michael Balmuth - Vice Chairman and Chief Executive Officer Michael Hartshorn - Chief Financial Officer and Senior Vice President Michael B. O'Sullivan - President and Chief Operating Officer

Stephen W. Grambling - Goldman Sachs Group Inc., Research Division Brian J.

Tunick - JP Morgan Chase & Co, Research Division Neely J.N. Tamminga - Piper Jaffray Companies, Research Division Bridget Weishaar - Morningstar Inc., Research Division David M.

Mann - Johnson Rice & Company, L.L.C., Research Division John D. Kernan - Cowen and Company, LLC, Research Division Marni Shapiro - The Retail Tracker Kimberly C.

Greenberger - Morgan Stanley, Research Division Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division Maryana Pleskanka Michael Baker - Deutsche Bank AG, Research Division Daniel Hofkin - William Blair & Company L.L.C., Research Division Heather N. Balsky - Morgan Stanley, Research Division Laura A.

Champine - Canaccord Genuity, Research Division Mark K. Montagna - Avondale Partners, LLC, Research Division Roxanne Meyer - UBS Investment Bank, Research Division Robert Scott Drbul - Nomura Securities Co.

Ltd., Research Division Jeffrey S. Stein - Northcoast Research Richard Ellis Jaffe - Stifel, Nicolaus & Company, Incorporated, Research Division Patrick McKeever - MKM Partners LLC, Research Division Dana Lauren Telsey - Telsey Advisory Group LLC

Good afternoon. Joining me on our call today are Norman Ferber, Chairman of Board; Michael O'Sullivan, President and Chief Operating Officer; Gary Cribb, Executive Vice President, Stores and Loss Prevention; John Call, Group Senior Vice President, Finance and Legal; Michael Hartshorn, Senior Vice President and Chief Financial Officer; and Connie Wong, Director of Investor Relations.

We will begin our call today with a review of our fourth quarter and 2013 performance, followed by our outlook for 2014. Afterwards, we'll be happy to respond to any questions you may have.

Let me preface our discussion of today financial results by noting that our 2012 fourth quarter and fiscal year were 14- and 53-week periods, respectively, while our 2013 fourth quarter and fiscal year were 13- and 52-week periods. As a reminder, the 53rd week in fiscal 2012 added approximately $149 million in sales and $0.10 in earnings per share to both last year's fourth quarter and fiscal year.

Now let's turn to today's results. As noted in our press release, fourth quarter 2013 earnings per share were $1.02 on net earnings of $218 million.

Sales for the quarter were $2,741,000,000, with comparable store sales up 2% on top of a 5% increase in last year's fourth quarter. Sales for the quarter performed in line with our guidance and earnings were slightly better than expected, mainly due to above-planned merchandise gross margin.

Despite a very promotional and competitive holiday season, customers responded favorably to the compelling bargains we offered on a wide assortment of fresh and exciting name-brand fashions and gifts. For the fiscal year 2013, earnings per share were $3.88, up a solid 13% on a 52- versus 52-week basis over last year.

This growth is especially noteworthy, considering it was on top of robust multiyear earnings per share increases of 20%, 24% and 31% in 2012, 2011 and 2010, respectively. In addition, fiscal 2013 operating margin remained at a record 13.1% despite the estimated 20-basis-point benefit from the 53rd week in 2012.

Net earnings in fiscal 2013 grew to $837.3 million on sales of $10,230,000,000. Same-store sales in 2013 rose 3% on top of a 6% gain last year.

For the quarter and the full year, Juniors was the best-performing merchandise category, while geographically, Texas was the strongest region. Michael Hartshorn will provide some additional color on our financial results in a few minutes.

As we ended 2013, total consolidated inventories were up 4% compared to the prior year, while packaway levels were about 49% of total inventories compared to 47% last year. Average in-store inventories were down approximately 4% at the end of 2013.

Like Ross, dd's continues to benefit from our ability to offer a wide assortment of terrific bargains, while also operating the business on reduced inventory levels. As a result, dd's DISCOUNTS was able to deliver another year of solid gains in sales and operating profits in 2013.

Now let's turn to our financial condition. Operating cash flows provided the resources to make capital investments to support our growth and fund our ongoing stock repurchase and dividend program.

During the fourth quarter, we repurchased 1.8 million shares of common stock for a total price of $129 million. For the full year, we bought back 8.2 million shares for an aggregate price of $550 million.

We expect to complete the $550 million remaining under our current 2-year $1.1 billion program by the end of 2014. The board also recently approved an increase in our quarterly cash dividend to $0.20 per share, up 18% on top of a 21% increase last year.

The growth of our stock repurchase and dividend programs has been driven by the significant amount of cash our business generates after self-funding store growth and other capital needs. We have repurchased stock as planned every year since 1993 and this is the 20th consecutive annual increase in our quarterly cash dividend.

This consistent record reflects our unwavering commitment to enhancing stockholder value and returns. Now Michael Hartshorn will provide further color on our 2013 results and details on our first quarter and fiscal year 2014 guidance.

Thank you, Michael. Let's start with our fourth quarter results.

Our 2% comparable store sales gain was driven by an increase in the size of the average transaction. Operating margin declined by about 95 basis points to 12.7%, mainly due to the estimated 65-basis-point benefit to last year's fourth quarter from the 53rd week.

In addition, we also experienced some deleveraging on occupancy, distribution, freight and selling, general and administrative costs, which was partially offset by higher merchandise gross margin. Again, we were able to maintain fiscal 2013 operating margin at a record 13.1% despite the estimated 20-basis-point benefit from the 53rd week in 2012.

For 2013, a 15-basis-point improvement in cost of goods sold was offset by a similar increase in selling, general and administrative costs. For the year, cost of goods sold benefited from a 45-basis-point gain in merchandise gross margin, partially offset by occupancy costs that rose about 20 basis points and distribution and buying expenses had increased about 5 basis points each.

Selling, general and administrative cost delevered by 15 basis points, mainly due to higher costs related to the relocation of our data center. Let's now turn to the underlying assumptions that support the 2014 earnings targets we communicated in today's press release.

Our fiscal 2014 earnings per share forecast of $4.05 to $4.21 represents growth of 4% to 9% over 2013 on a comparable store sales gain of 1% to 2%. This guidance incorporates some pressure on earnings from the infrastructure investments we have been making to support our longer-term growth plans.

We are also projecting a higher effective tax rate due to the expiration of federal and state hiring credits. The operating statement assumptions for the full year in 2014 are as follows.

Again, comparable store sales are forecast to increase 1% to 2%; total sales are projected to grow 5% to 6%; we are planning to add approximately 75 new Ross and 20 new dd's DISCOUNTS locations. As usual, these numbers do not reflect our plans to close or relocate about 10 older stores.

If same-store sales are up 1% to 2%, we would expect some deleveraging of expenses with merchandise gross margin projected to be up slightly from 2013. As a result, EBIT is estimated to be 12.9% to 13.1% in 2014.

Net interest expense is expected to be about $7 million as we expect to finance the purchase of our New York buying office. Our tax rate is planned at approximately 38% and we expect average diluted shares outstanding to be about 210 million.

Capital expenditures in 2014 are forecast to increase to approximately $800 million, up from $550 million in 2013. This higher spending is primarily driven by the purchase of our New York buying office.

Depreciation and amortization expense, inclusive of stock-based amortization, is forecast to be approximately $290 million to $300 million, up from $250 million in 2013. For the 2014 first quarter, earnings per share are projected to be in the range of $1.11 to $1.15, up from $1.07 in the first quarter of 2013 based on the following assumptions.

Total sales are forecast to increase about 5% to 6% over the prior year. Comparable store sales are projected to be up 1% to 2%.

We plan to add 26 net new Ross and 7 net new dd's DISCOUNTS during the quarter. Operating margin is projected to be in the range of 14.4% to 14.6% or down about 30 to 50 basis points from the record 14.9% we reported in 2013.

The forecasted decline is due in part to some deleveraging as same-store sales performed in line with our guidance for 1% to 2% increase. We are planning relatively no net interest expense in the quarter.

The tax rate is projected to be 38% to 39% and diluted shares are forecast to decline to about 212 million. Now I'll turn the call back to Michael for closing comments.

Thank you, Michael. As we enter 2014, in addition to our own challenging multiyear sales and earnings comparisons, we continue to face an uncertain macroeconomic and retail climate.

While we are well-positioned as an off-price retailer, these likely headwinds have prompted us to stay somewhat cautious in our outlook. That said, the strength of our business model lies in the flexibility of our off-price strategies.

To maximize sales, we are staying liquid in our Open-to-Buy, which enables our merchants to capitalize on the best opportunities in a marketplace that is currently flushed with terrific bargains. Further, operating our business with lean inventories has enabled us to increase the amount of fresh and exciting merchandise customers see when they shop our stores.

This has helped in maximizing sales, while also driving faster inventory turns and the resulting higher merchandise margins we saw throughout 2013 and over the last several years. Looking ahead, we still see significant growth opportunities for our company.

As we've mentioned before, we believe that Ross can ultimately operate 2,000 locations across the United States and that dd's DISCOUNTS can eventually become a chain of 500 stores. As previously noted, we are in the process of making the necessary infrastructure investments to support this long term expansion that will ultimately double our store base.

Our plans include the addition of 2 new distribution centers, one that will open in 2014 and another in 2015. In addition, as mentioned earlier, we entered into an agreement last year to acquire a New York buying office building.

This is a unique onetime opportunity that will enable us to continue to house all of our New York merchants together, which maximizes their cohesiveness and effectiveness of this critical organization. We continue to believe that keeping our primary buying office in the heart of the Manhattan garment district is a competitive advantage as this location makes it easier for our buying group to strengthen relationships with our large network of suppliers.

That said, over the near term, higher costs related to these investments are expected to put some pressure on earnings. For the longer term, we are targeting average annual earnings per share growth of 10% to 13%.

The formula is based on a combination of unit growth, comparable store sales gains, flat to slight improvement in operating margin and our ongoing stock repurchase program. In order to achieve our financial goals, we must, most importantly, continue to invest in our merchandise organization.

This is the only way to ensure that we can maximize our ability to deliver the best bargains possible to the consumer. In addition, we must also stay focused on strictly controlling both inventories and expenses, fine-tuning and upgrading our planning and allocation systems and developing and implementing further productivity enhancements and efficiencies throughout the business.

These are the strategies that have enabled us to reach our current record levels of sales productivity and profitability and also remain the key drivers of our future results. In closing, I want to reiterate that we are favorably positioned in the current retail landscape.

We believe off-price will continue to be a strong performing sector and are optimistic about the long term growth prospects for our business. At this point, we would like to open up the call and respond to any questions you might have.

I guess, the first. As we think about in-store inventory going forward, you've had several years of really pulling inventory out.

Can you just provide some details on how we should think about this going forward? If there's any category or any place else where you plan on maybe even building back?

So as it relates to inventories into 2014 going forward, we think there's a bit room to take them down, maybe in the 1% to 2%, right?

But as far as building back inventories, I don't think we'll ever get there. I don't think -- we'll certainly -- we're always listening to our customer and how they're reacting to our assortments.

By my instinct says, we're comfortable at roughly the levels we've set out with some minor tweaks going forward.

And I guess, as a follow-up to that. Home has been an area of focus.

Is there anything that you can provide in terms of details on that category in particular?

Well, we continue to make progress in Home. In the fourth quarter, our progress is a little slower than we like, although they comped slightly ahead of the company.

I think we have to execute better on what we know our strategies need to be there. And I think we'll get there.

It's just been a little slower than we'd like.

I guess, 2 questions. One on the positive comments on merchandise margins for last year and, I guess, your outlook for this year.

Can you maybe just talk about, is the coming from the buy side of the picture, or is that coming from, again, better sell-throughs and lean inventories? And then maybe update us on sort of new market performance in 2013.

And maybe just want to throw in dd's as well. Sort of where are we in that business sort of ramping up to get closer to a contribution margin similar to the Ross stores?

Okay, Brian. On your 3 questions, merchandise margin improved actually through a combination of higher markup and lower markdowns.

So it's both. Secondly, in terms of new markets, I think as we've said before, we've been happy with what we've been able to achieve in new markets over the past couple of years, particularly with the open volumes.

But in the fourth quarter, we were disappointed with the comp performance in the new markets in the Midwest. Part of that was the weather, but also, I think, we believe there are some assortment improvements we can make in that region as well.

And then on -- I think, the third question was about dd's. And dd's had another solid performance last year and in the fourth quarter.

And what was particularly notable was dd's continue to improve its profitability.

Just wondering if you guys had an evolution in your thought process around mobile engagement as you head into 2014? We've noticed -- actually seen sponsored links in Facebook just like in dd's and what have you.

But just wondering -- obviously, on the commerce side won't be there. But how are you evolving this level in terms of engagement on the other side of holiday?

So Neely, we -- I think as we mentioned before, we are experimenting with social marketing, with mobile marketing. We actually think that those are -- those avenues are actually very interesting for us.

We -- historically, word-of-mouth has always been an important form of marketing, unpaid marketing for us. And we think that sort of social networking, social marketing and the link to mobile actually has some promise for us going forward.

So we're experimenting in those areas and I think you should expect that we'll continue to grow those aspects on our marketing mix.

I'm wondering -- I know comp sales you are guiding to decelerate a little bit to the 1% to 2% range and that makes sense in this promotional environment. But I'm wondering what you thought is, overall, on the trade-off between keeping the merchandise margins high and being a bit more promotional to be competitive and gaining higher volume?

Really, if we do our job well as an off-pricer, we should be able to balance it, okay? As we assess market conditions, sometimes we pull back our spend, then we're able to give an edge of opportunities in the marketplace that should be able to provide us both well priced product, as well as margin, good solid margins.

So it's a balance that off-price executed effectively, giving us an edge on versus other areas of retailing, I think.

The guidance percentage increase that you're giving for this year is a little more conservative than in past years. Can you just parse through the difference of that 4% to 9% from the 10% to 13%?

I think Michael talked about some extra costs with the infrastructure rollout, but can you just compare to your paradigm for future growth against what you gave for this year?

Sure, David. I think the premise is we are projecting the 1% to 2% comp.

Obviously, we did the 3% last year, but we're up against 5% comp over the last 5 years on a compound basis. So that presents a challenge.

Also, Michael referred to the infrastructure costs that we're incurring. We will have a bit more interest, $7 million on interest this year that we wouldn't have last year.

Also, our tax rate is going up in the absence of hiring tax credits that we have received in the past. So if you neutralize for those 2 items, you get back to a 6% to 11% growth rate, similar to where we were last year at this time.

Okay. That's helpful.

And then for a quick follow-up. The packaway level going into '14 is a little higher than it's been for the last couple of years.

I'm just curious, what would that infer about the quality of the market in terms of goods for availability and for pricing? Can you just comment on that?

Well, when our packaway creeps up, it's because we were able to take advantage of some very good opportunities. And if business still remains volatile as it's been through the last bit of time, I would expect that we'd be taking even further advantage.

So it's essentially a good thing for us.

I wanted to get your thoughts on how do you see competitive environment evolving within off-price? I know you guys have been opening a lot of doors, more mass continues to open a lot of doors.

In Burlington, certainly sees a lot of opportunity for additional doors. So how do you see the competitive environment evolving within off-price as a lot of the department stores get more promotional as well?

Sure. So John, I guess, I would say that our -- we kind of regard our competitive environment as actually much larger than just the off-price space, that we operate in a very competitive, very fragmented apparel and home merchandise market.

And as a result, we are able to grow share and actually, I think other off-price competitors are able to grow share, as long as we continue to offer great value. So we think that's at least the outlook just to us.

And that's going to continue for some time.

Okay. And then just in terms of CapEx, there's been a multiyear ramp in CapEx due to some onetime items.

What do you think CapEx looks like going forward after this year? Because I think, obviously, the share buyback has got to come down a little bit because of a ramp in CapEx.

What does it look like next year and beyond?

So John, the share buyback is not going to come down because of CapEx spend. We plan to spend $550 million this year, similar to what we did last year.

This should be the peak in CapEx spending. Once we get the distribution centers open in '15 going forward, it will come back down as we take that step-up in CapEx.

I think we'd also -- a piece of that. As we've previously announced, the plan is to finance the purchase of our New York buying office building [indiscernible] to bring it up to grow the buyback and the dividend.

So I guess, Michael or Michaels, if you can talk just a little bit more about dd's. Can you bring us up to speed like as far as your buying staff?

At what level is it? Do you have any -- are you looking for anybody to hire within dd's?

And are you guys running this fast out of New York and California the way you do Ross Stores? Just a little bit of color behind how dd's is working these days.

Dd's has its own separate buying organization. We are essentially full, okay?

We have no key openings. Our key positions are filled.

We have -- as Ross does, we have a much bigger organization in New York than we do in Los Angeles. And dd's has the same complement of a New York and Los Angeles buying office.

And what is the another piece, Marni, that you wanted?

No. Just curious.

Things are pretty much fully staffed and running, just more a matter of opening stores and getting things at and getting the sales up to start leveraging all the expenses that are there?

I think that's accurate and well-put.

And just on the operating side, Marni. We have dd's and we have distribution capacity for dd's.

We have a dedicated field staff for dd's. So really, it's just a question of over time expanding the business.

I'm wondering if you can just refer back to the infrastructure investments you talked about as presenting a little bit of a headwind for earnings growth this year. We've got the 2 distribution centers that you're adding, one this year and one next year.

The acquisition of your New York City office. Are there any other infrastructure investments that you're making beyond those?

And then if you could just talk about the state of your IT systems, do you feel like there's any investment over the next couple of years that you'd like to make there as well?

Okay, Kimberly. The 2 major investments that are worth calling out are the new distribution centers, 2 of them, and one this year and one in 2015.

And then the purchase of the New York buying office. The nature of those types of investments is that, number one, they're lumpy.

So you don't make those kinds of investments very often. And so there are some start-up costs associated with those investments, particularly ramping up the DCs.

And that's really what's causing -- why we thought we would call out and there's a little bit of a headwind in earnings from those investments. I should say that as we grow into that capacity over the next 2 to 3 years, that capacity leverage will become immaterial over time.

In terms of the second part of your question about IT, we are always making investments in our IT systems in different parts of the company. But nothing significant in terms of major projects that are worth calling out.

Great. And just one follow-up question for Michael.

I'm curious if you saw any impact in your business after the November 1 discontinuation of the SNAP benefit. I know clearly, obviously, Ross does not sell food, but theoretically some of those customers also shopped at Ross for their apparel wardrobe with less support on the food side, maybe they might want to cut back.

I'm just wondering if you saw any sort of impact on your business at all?

Kimberly, we really didn't. My understanding is that the food stamp program was worth about $5 billion a year.

And you just put that in order of magnitude. I think the payroll tax increase was like $100 billion last year.

So although as the food stamp has always been very important to the people who receive them, as a whole, they really don't make a significant difference. And we didn't notice any trend current change after that point.

I guess, Michael, just a quick question. I think you commented on the gross margin line in Q4 that your merchandise margins were positive.

Because you're -- maybe I missed -- I didn't hear it, what was the basis point change year-over-year in Q4? And then could you just walk us through -- obviously, it's a volatile Q4 for most everyone in retail.

How you kind of played with the pricing architecture within the store during Q4?

Ike, this is Michael. As mentioned in the comments, overall, operating margins were down about 95 basis points.

65 basis points of that deleverage was due to the 53rd week comparison and that's mainly operating expenses. For gross margin, merchant margin was up about 30 basis points.

Occupancy freight, buying and distribution costs combined, delevered by 75 basis points, leaving gross margin to down 45 basis points. And then SG&A was down 50 basis points, which gets you to the total of 95 for the quarter.

Okay. And then can you comment on how your pricing might have evolved as Q4 kind of played out just in terms of how holiday in January?

Just kind of curious if you could give us any more color.

Well, the color I give you is, we went into the fourth quarter with lot of Open-to-Buy availability and it gave us the ability to take advantage of a lot of opportunities in the market that helped balance pricing in our store at a very good margin product.

This is Maryana filling in for Oliver Chen. Could you please provide us with some color regarding traffic and ticket size for the quarter?

As well as what categories you see the most opportunity in?

In terms of the composition of the comp, as we mentioned, the 2% comp for the quarter was driven by a larger basket. This was mainly driven by more units per transaction, but also a slightly AUR.

And then transactions were down a bit for the quarter.

And your point 3 was what?

What categories are you seeing the most opportunity in?

I think we would really more, in this forum, speak to where we had the most opportunity in fourth quarter. Forward, we wouldn't talk about in this forum.

So 2 questions. First, in terms of the sales, if you look at the last 4-, 5-year comps this year, decelerated a little bit.

Do you think that is more a function of just the economy and the marketplace, or do you think that's a function of the share loss with maybe some of the department stores being aggressive, some of the things that you talked about in the Midwest? And it sounds like one of your off-price competitors got some aggressive pricing this fourth quarter as well.

So is that more just the market or the share loss?

I think, Mike, it's important to put it in context that we achieved a 3% comp last year that was on top of a 6% the year before. And before that, 5%; and before that, 5%; and before that 6%.

So over 5 years, we've averaged to 5% comp. I don't think it's realistic to expect that we can sustain that kind of comp level.

So we were pretty happy with our 3% on -- given those last year comparisons. Now the other points that you mentioned such as the economy, unemployment, cuts in government benefits, some of the struggles and other competitors.

Those all play a part, of course, in how we do as a business. But I think put in context, we feel pretty happy with that 3%.

Okay. Fair enough.

Second question. Just so I'm clear on it so -- and I guess, this plays into that guidance of 4% to 9% instead of the usual guidance you've given of 6% to 11% growth.

So to be clear, the difference is the higher tax rate, which is a slight difference. And then if the infrastructure investment and that's primarily start-up costs and also the D&A, which will be higher by somewhere around $25 million, maybe $50 million, that's the biggest impact in that guidance differential?

Yes, Mike. So operating margin, we mentioned, would be flat to slightly down 20 basis points based on the 1% to 2% comp.

And so the differences are below the EBIT line, which is interest, which is about $7 million or 7 basis points and tax rate, which would be slightly higher.

So that -- but within that margin guidance, that includes a pretty significantly high depreciation number. Is that right?

That's correct, Mike.

Just going back maybe a little bit to the outlook in 1% to 2% comp for the first quarter and the full year. What's your general expectation for traffic and ticket?

And I guess, within ticket, what, if anything, are you expecting from benefits, if there is apparel costs, inflation, for example, as some expect? In the past, I think that's been a benefit for in terms enabling you guys to offer even more attractive relative values.

What's your thought on that going forward?

I would say the factor guiding 1% to 2% for the first quarter and for the year is a combination of we're up against pretty tough performance, we're in a tough environment. We've been able to sell goods at full margin prices, so we're happy with the finance results.

And to dissect it more that you'd into what the composition is as to traffic versus ticket, et cetera, we really run our business to provide the best bargain as possible with customers and it's kind of self-revealed. In other words, they come and buy the bargain.

So I don't think we're expecting inflation in terms of apparel. We haven't seen that lately.

So that won't be our expectation for the first quarter.

Okay. And then just back to, obviously, there's some regional differences in terms of percent of store base between you and some other players.

If you just look at -- obviously, you mentioned Texas. Can you talk about the -- your performance on the West Coast specifically?

Yes. So in terms of for the quarter, we mentioned Texas was the strongest.

Florida was also strong. California performed in line with the chain and our weakest markets are where the weather was, the worst including Mid-Atlantic and Midwest.

And with that, would you say that, that was kind of most pronounced by far in January, as we're seeing with a lot of other companies?

I think that's true.

This is Heather Balsky calling for Lorraine. I just had a question with regard to your vendor base.

You guys have been able to grow your vendor base every year, the past few years. I'm just wondering, looking ahead, where do you see opportunities to add new vendors?

And how do changes in your merchandising organization allow you to also grow your vendor base?

I heard the first part of it, how do we see -- could you repeat the second part of your question?

Yes, sorry. The changes in your merchandising organization, how does that also help you access additional brands and grow your vendor base?

Okay. The more merchants you have, the more market coverage you can get, the more vendors you can see, the more doors you can open.

And that leads to more vendors. We've grown our organization dramatically over the last 4 years and it's helped us grow our base of vendors.

We expect it to grow significantly. Probably, it would grow across the company, probably more significantly in home and center core-type businesses and as apparel has become more centralized in fewer and fewer players.

On the CapEx front, after we see this ramp to $800 million this year, when we move into next year, you've got an another DC opening. Should CapEx stay at that elevated rate?

And where do you think it settles out long-term as a percentage of sales?

This is -- Laura, this is Michael. It is -- this is our peak.

As we mentioned, part of the spend this year was dealing IBO. But after we open that distribution center next year, I think it settles more similar to the 2012 levels.

Michael, back last year in the second quarter, you were able to react to an expected rise in department store promotions for the fourth quarter. Wondering what your expectations for the department store promo levels are for this first half.

I would say, based on how business conditions have been, I would expect it to be fairly promotional.

So would you say higher promotions year-over-year versus last year or and...

I would expect it to be somewhat more promotional than a year ago. Yes.

Okay. And then can you give us a tally of maybe how many selling days might have been lost in the fourth quarter due to weather?

It would be very hard to quantify that, Mark, just given we had, obviously, different weather in different regions. So I'm not sure how to give you a number that will answer your question now.

Okay. And then just last question.

I think, Michael, you were expecting strength in the fourth quarter on gift items. And was that just -- I think it was for the home category or was it also across other categories?

And how do you feel that, that -- those gift items did during the fourth quarter?

It was really across all the categories as well, as out of home. And I think it did pretty well.

We were pleased with it, but we see room for improvement.

I was just wondering if you were able to provide us with some additional hindsighting as it relates to your third quarter performance. And looking back, what may have led to a slight miss hit to your expectations there?

And have there been any adjustments made as a result of that?

I don't think we have any additional intelligence, Roxanne, on the third quarter. Obviously, we're always looking at our business in terms of improvements we can make.

And certainly, to the extent that there were merchandise categories that we thought weren't performing well in the third quarter, we have made attempts to improve those merchandise categories. But nothing other than that.

That's kind of business as usual for us, but nothing under that now.

Okay. And then I just had one quick follow-up.

In terms of your new store growth for this year, what percentage of your new stores are going to be in newer markets? And are there any additional -- are there any new markets aside from those that you're currently in, in the Midwest?

So it's about 1/3 of our Ross stores will be in new markets. And they'll be the same markets we've been in over the last couple of years.

Here's the question that I have, is much more on the succession plan unfolding. Is there any update to the time line of when we might be able to expect more definitive plans around your departure or retirement, Michael?

Sounds like you want me out. But we announced in, I think it was May of '12, that I'd be stepping down, moving into Executive Chairman position as of June 1, '14.

We'll be making that announcement in spring here, okay, over the next few months.

Okay. I don't you want out.

I was just serious in terms if there's any update.

No update yet.

A question on your packaway business. I'm just kind of curious, what kind of mix you currently have?

And perhaps, what kind of AUR might be embedded in that packaway? Given that it's such a high percentage of your inventory, would it yield a higher AUR compared to last year, the same or lower?

It's fairly similar for last year, Jeff. And the mix is very similar for last year.

We're very happy with what we have in packaway. We were happy with last year, too.

So I don't think there's any major differences to call out on packaway.

Okay. Have you guys disclosed how you're planning to finance the New York buying office?

And how much of the purchase price will be financed?

No. We haven't announced how we're going to do that.

That's probably a third quarter event. We're working on that currently.

And we'd love to have financed the whole thing.

Okay. And when is the new distribution facility open in 2014?

Right about the middle of the year. We'll ramp it up over a couple of months and it will be fully operational by the end of the third quarter.

So the heaviest start-up expenses from that facility will show up when? Will it show up in Q3?

Or is it already beginning to show up?

I think the biggest piece of the expense will start showing up when it opens in Q3.

Michael, just a question. Given this broad array of merchandise, a high-quality of merchandise that's available in the marketplace, are there any, I guess, opportunities to take advantage of this and then broaden array of product in stores with new categories, with new brands?

And also, to experiment with price points, to try higher retails, higher-quality brands. Anything like that?

A lot of that I wouldn't talk about here. But it's the various price points, the opportunities, it's really all over the place.

So there are things that we will be experimenting with out of it, things that we might not have been in to quite as fast.

Just wondering if you might give us some updated thoughts on e-commerce. I mean, I guess, intuitively, one can see why that would not be as much of a threat to you as other retailers.

But the largest player in the off-price space is moving forward there and talking very positively about the opportunity to reach more customers. So is there a chance that you might be missing an opportunity?

And does the e-commerce factor at all into some of the distribution infrastructure investments that you're making?

So Patrick, it's certainly an area that we've looked at very closely. Our assessment is that it's very hard for an off-price business to make money in e-commerce at the price points that we operate at.

And most of the activity in the last few years seems to have been at relatively high price points in merchandise where we really don't compete. So to our focus, it's really on our bricks-and-mortar business.

We know that we can achieve strong returns in that business. We know we have a lot of potential.

Many, many more markets that we can expand into. But having said that, we'll continue to monitor e-commerce.

And if things develop and we think it looks like a possible opportunity, we'll take another look.

And then another -- a quick one on the new distribution centers. Will that change your basic distribution model, which, I think, is to distribute merchandise from all DCs to all stores?

Will you move more toward a regional distribution model?

It won't dramatically change our distribution model. We are -- our distribution network, at this point, is fairly mature and operates pretty effectively and supports our business very well.

And the new DCs are intended to be integrated into that same model. So no radical change, no.

As you think about the customer, both for dd's and for Ross, what opportunities do you see to expand the existing customer base to get more of the wallet share -- to expand the existing and get more wallet share from new and existing customers, how do you see the opportunity to grow that? And the pressures on them, whether it's food stamps, whether it's health care costs, how is it different now than it's been last year?

Do you see anything different? And how much of your customer is impacted by any of those external pressures?

Really, it goes back -- in getting more of their wallet, it goes back to the same thing that we've probably said numerous times is, if we execute and provide more bargains in front of customers, they'll come back more. And that -- I don't think that's changed in a while.

I don't it changes as we go forward and it applies to these as well for us.

And then on the second part of your question, Dana, about what impact economic trends, the factors, there's unemployment, the cuts in government benefits, what impact that might have on us. I think certainly, anything that takes money out of customers' pocket is not a good thing for retail and not a good thing for off-price.

But having said that, logically, you would think that the greater extent that people need bargains, the better off we might be. So you could play it either way.

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

Thank you.