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Ross Stores 10-K 2008
Documents found in this filing:

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0001206774-08-000659.txt : 20080401
0001206774-08-000659.hdr.sgml : 20080401
20080401120518
ACCESSION NUMBER:		0001206774-08-000659
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		9
CONFORMED PERIOD OF REPORT:	20080202
FILED AS OF DATE:		20080401
DATE AS OF CHANGE:		20080401

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ROSS STORES INC
		CENTRAL INDEX KEY:			0000745732
		STANDARD INDUSTRIAL CLASSIFICATION:	RETAIL-FAMILY CLOTHING STORES [5651]
		IRS NUMBER:				941390387
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0131

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-14678
		FILM NUMBER:		08728103

	BUSINESS ADDRESS:	
		STREET 1:		4440 ROSEWOOD DRIVE
		CITY:			PLEASANTON
		STATE:			CA
		ZIP:			94588-3050
		BUSINESS PHONE:		9259654400

	MAIL ADDRESS:	
		STREET 1:		4440 ROSEWOOD DRIVE
		CITY:			PLEASANTON
		STATE:			CA
		ZIP:			94588-3050


10-K
1
rossstores_10k.htm
ANNUAL REPORT




   




















      UNITED STATES
      SECURITIES AND EXCHANGE COMMISSION  
      Washington,
      D.C. 20549 
        
        
      FORM
      10-K 

























                (Mark
      one)        
        X                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
      THE SECURITIES 
EXCHANGE ACT
      OF 1934 
                For the fiscal year ended February 2, 2008  
      or  
                    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
      OF THE SECURITIES 
EXCHANGE
      ACT OF 1934 
                For the transition period from  _________ to
      _________ 


Commission file number 0-14678

Ross Stores, Inc.

(Exact name of registrant as
specified in its charter) 































      Delaware
(State or other jurisdiction of incorporation or
      organization)        94-1390387
(I.R.S. Employer Identification No.)    
          
      4440 Rosewood
      Drive, Pleasanton, California  
(Address of principal executive offices)     94588-3050  
(Zip
      Code)
          
      Registrant's
      telephone number, including area code      (925) 965-4400  
        
      Securities registered pursuant to Section 12(b) of the
      Act:  
      Title of each
      class     Name of
      each exchange on which registered 
      ----------------------------      ---------------------------------- 
      Common stock, par value
    $.01  
       Nasdaq Global Select 
Market
      
      Securities registered
      pursuant to Section 12(g) of the Act: 
Title of each
      class
----------------------------
None 

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes   X  
No      

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes      
No   X  

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
Yes   X  
No       

Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K.   X   

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. Large accelerated filer   X   Accelerated filer      
Non-accelerated filer       Smaller
reporting company      

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes      
No   X   

The aggregate market value of the
voting common stock held by non-affiliates of the Registrant as of August 4,
2007 was $3,703,796,913, based on the closing price on that date as reported by
the NASDAQ Global Select Market^®. Shares of voting stock
held by each director and executive officer have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

The number of shares of Common
Stock, with $.01 par value, outstanding on March 14, 2008 was
133,182,333.

Documents incorporated by
reference:

Portions of the Proxy Statement for Registrant's 2008 Annual Meeting of
Stockholders, which will be filed on or before June 2, 2008, are incorporated
herein by reference into Part III. 






PART I 

Item 1.    
Business.

Ross Stores, Inc. and its
subsidiaries (“we” or the “Company”) operate two chains of off-price retail
apparel and home accessories
stores. At February 2, 2008, we operated
a total of 890 stores, of which 838 are Ross Dress for Less^® (“Ross”)
locations in 27 states and Guam and 52 are dd’s DISCOUNTS^® stores
in four states. Both chains target value-conscious women and men between
the ages of 18 and 54. Ross target customers are primarily from middle income
households, while the dd’s DISCOUNTS target customer is typically from more
moderate income households. The decisions we make, from merchandising,
purchasing and pricing, to the locations of our stores, are aimed at these
customer bases.

Ross offers first-quality,
in-season, name-brand and designer apparel, accessories, footwear and home
merchandise for the entire family at everyday savings of 20% to 60% off
department and specialty store regular prices. dd’s DISCOUNTS features more
moderately-priced assortments of first-quality, in-season, name-brand and
fashion apparel, accessories, footwear and home merchandise for the entire
family at everyday savings of 20% to 70% off moderate department and discount
store regular prices. We believe that both Ross and dd’s DISCOUNTS derive a
competitive advantage by offering a wide assortment of product within each of
our merchandise categories in organized and easy-to-shop store environments.

Our mission is to offer
competitive values to our target customers by focusing on the following key
strategic objectives: 


  Achieve an appropriate level of recognizable
  brands, labels and fashions at strong discounts throughout the store.
  
Meet customer needs on a more local
  basis.
  
Deliver an in-store shopping experience that
  reflects the expectations of the off-price customer.
  
Manage real estate growth to compete
  effectively across all our markets.

The original Ross Stores, Inc. was
incorporated in California in 1957. In August 1982, the Company was purchased by
some of our then and current directors and stockholders. In June 1989, we
reincorporated in the state of Delaware. In 2004, we opened our first dd’s
DISCOUNTS locations. 

We refer to our fiscal years ended
February 2, 2008, February 3, 2007, and January 28, 2006 as fiscal 2007, fiscal
2006, and fiscal 2005, respectively. 

Merchandising, Purchasing and
Pricing 

We seek to provide our customers
with a wide assortment of first-quality, in-season, brand-name and fashion
apparel, accessories, footwear and home merchandise for the entire family at
everyday savings of 20% to 60% below department and specialty store regular
prices at Ross, and 20% to 70% below moderate department and discount store
regular prices at dd’s DISCOUNTS. We sell recognizable brand-name merchandise
that is current and fashionable in each category. New merchandise typically is
received from three to six times per week at both Ross and dd’s DISCOUNTS
stores. Our buyers review their merchandise assortments on a weekly basis,
enabling them to respond to selling trends and purchasing opportunities in the
market. Our Ross merchandising strategy is reflected in our television
advertising for our Ross stores, which emphasizes a strong value message -- our
customers will find great savings every day on a broad assortment of brand-name
merchandise.

Merchandising. Our merchandising strategy incorporates a combination of
off-price buying techniques to purchase advance-of-season, in-season, and
past-season merchandise for both Ross and dd’s DISCOUNTS. We believe nationally
recognized name brands sold at compelling discounts will continue to be an
important determinant of our success. We generally leave the brand-name label on
the merchandise we sell.

1




We have established merchandise
assortments that we believe are attractive to our target customers. Although we
offer fewer classifications of merchandise than most department stores, we
generally offer a large selection of brand names within each classification with
a wide assortment of vendors, labels, prices, colors, styles and fabrics within
each size or item. The mix of comparable store sales by department in fiscal
2007 for Ross was approximately as follows: Ladies 32%, Home Accents and Bed and
Bath 23%, Men's 15%, Fine Jewelry, Accessories, Lingerie and Fragrances 11%,
Shoes 10%, and Children’s 9%. Our merchandise offerings also include product
categories such as small furniture and furniture accents, educational toys and
games, luggage, gourmet food and cookware, watches, sporting goods and, in
select Ross stores, fine jewelry.

Purchasing. We have a combined network of approximately 6,400
merchandise vendors and manufacturers for both Ross and dd’s DISCOUNTS and
believe we have adequate sources of first-quality merchandise to meet our
requirements. We purchase the vast majority of our merchandise directly from
manufacturers, and we have not experienced any difficulty in obtaining
sufficient merchandise inventory. 

We believe that our ability to
effectively execute certain off-price buying strategies is a key factor in our
success. Our buyers use a number of methods that enable us to offer our
customers brand-name and fashion merchandise at strong everyday discounts
relative to department and specialty stores for Ross and moderate department and
discount stores for dd’s DISCOUNTS. By purchasing later in the merchandise
buying cycle than department and specialty stores, we are able to take advantage
of imbalances between retailers’ demand for products and manufacturers’ supply
of those products. 

Unlike most department and
specialty stores, we typically do not require that manufacturers provide
promotional allowances, co-op advertising allowances, return privileges, split
shipments, drop shipments to stores or delayed deliveries of merchandise. For
most orders, only one delivery is made to one of our four distribution centers.
These flexible requirements further enable our buyers to obtain significant
discounts on in-season purchases. 

The vast majority of the
merchandise that we offer in all of our stores is acquired through opportunistic
purchases created by manufacturer overruns and canceled orders both during and
at the end of a season. These buys are referred to as "close-out" and "packaway"
purchases. Close-outs can be shipped to stores in-season, allowing us to get
in-season goods into our stores at lower prices. Packaway merchandise is
purchased with the intent that it will be stored in our warehouses until a later
date, which may even be the beginning of the same selling season in the
following year. Packaway purchases are an effective method of increasing the
percentage of prestige and national brands at competitive savings within our
merchandise assortments. Packaway merchandise is mainly fashion basics and,
therefore, not usually affected by shifts in fashion trends.

In fiscal 2007, we continued our
emphasis on this important sourcing strategy in response to compelling
opportunities available in the marketplace. Packaway accounted for approximately
38% of total inventories as of February 2, 2008 and February 3, 2007. We believe
the strong discounts we are able to offer on packaway merchandise are one of the
key drivers of our business results. 

We are currently working to
develop and roll-out additional information system enhancements and process
changes to improve our merchandising capabilities. These new tools are designed
to strengthen our ability to plan, buy and allocate at a more local versus
regional level. The long-term objective of these investments is to be able to
fine tune our merchandise offerings to address more localized customer
preferences and thereby gradually increase sales productivity and gross profit
margins in both newer and existing regions and markets.

Our buying offices are located in
New York City and Los Angeles, the nation's two largest apparel markets. These
strategic locations allow our buyers to be in the market on a daily basis,
sourcing opportunities and negotiating purchases with vendors and manufacturers.
These locations also enable our buyers to strengthen vendor relationships -- a
key element in the success of our off-price buying strategies.

2



We have a total of approximately
330 merchants for Ross and dd’s DISCOUNTS combined, although the two buying
organizations are separate and distinct. These buying resources include
merchandise management, buyers and assistant buyers. Ross and dd’s DISCOUNTS
buyers have an average of about 14 years of experience, including merchandising
positions with other retailers such as Ann Taylor, Bloomingdale's, Burlington
Coat Factory, Foot Locker, Kohl’s, Loehmann’s, Lord & Taylor, Macy's,
Marshalls, Nordstrom, Saks, T.J. Maxx and Value City. We believe that the
investment we have made over the years in our merchandise organization enables
our merchants to spend more time in the market developing and nurturing
relationships with a wide array of manufacturers and vendors, enhancing our
ability to continue to procure the most desirable brands and fashions at
competitive discounts. 

Our off-price buying strategies
and our experienced merchants enable us to purchase Ross merchandise at net
prices that are lower than prices paid by department and specialty stores and
dd’s DISCOUNTS merchandise at net prices that are lower than prices paid by
moderate department and discount stores. 

Pricing. Our policy is to sell brand-name merchandise at Ross
that is priced 20% to 60% below most department and specialty store regular
prices. At dd’s DISCOUNTS, we sell more moderate brand-name product and fashions
that are priced 20% to 70% below most moderate department and discount store
regular prices. Our pricing policy is reflected on the price tag displaying our
selling price as well as the comparable selling price for that item in
department and/or specialty stores for Ross merchandise, or in more moderate
department and discount stores for dd’s DISCOUNTS merchandise. 

Our pricing strategy at Ross
differs from that of a department or specialty store. We purchase our
merchandise at lower prices and mark it up less than a department or specialty
store. This strategy enables us to offer customers consistently low prices. We
review specified departments in the stores weekly for possible markdowns based
on the rate of sale as well as at the end of fashion seasons to promote faster
turnover of merchandise inventory and to accelerate the flow of fresh product. A
similar pricing strategy is in place at dd’s DISCOUNTS where prices are compared
to those in moderate department and discount stores. 

Stores 

At February 2, 2008, we operated a
total of 890 stores comprised of 838 Ross stores and 52 dd’s DISCOUNTS stores. Our
stores are conveniently located in predominantly community and neighborhood
shopping centers in heavily populated urban and suburban areas. Where the size
of the market permits, we cluster stores to benefit from economies of scale in
advertising, distribution and field management.

We believe a key element of our
success is our organized, attractive, easy-to-shop, in-store environments at
both Ross and dd’s DISCOUNTS, which allow customers to shop at their own pace.
Our stores are designed for customer convenience in their merchandise
presentation, dressing rooms, checkout and merchandise return areas. Each
store's sales area is based on a prototype single floor design with a racetrack
aisle layout. A customer can locate desired departments by signs displayed just
below the ceiling of each department. We encourage our customers to select among
sizes and prices through prominent category and sizing markers, promoting a
self-service atmosphere. At most stores, shopping carts are available at the
entrance for customer convenience. All cash registers are centrally located at
store entrances for customer ease and efficient staffing. 

We use point-of-sale (“POS”)
hardware and software systems in all stores, which minimizes transaction time
for the customer at the checkout counter by electronically scanning each ticket
at the point of sale and authorizing credit for personal checks and credit cards
in a matter of seconds. In addition, the POS systems allow us to accept
PIN-based debit cards and electronic gift cards from customers. For Ross and
dd’s DISCOUNTS combined, approximately 56% of payments in fiscal 2007 and 55% of
payments in 2006 were made with credit cards and debit cards. We provide cash or
credit card refunds on all merchandise returned with a receipt within 30 days.
Merchandise returns having a receipt older than 30 days are exchanged or
credited with a credit voucher at the price on the receipt. 

3




Operating Costs 

Consistent with the other aspects
of our business strategy, we strive to keep operating costs as low as possible.
Among the factors which have enabled us to keep operating costs low are:


  Labor costs that generally are lower than
  full-price department and specialty stores due to (i) a store design that
  creates a self-service retail format and (ii) the utilization of labor saving
  technologies.
  
Economies of scale with respect to general
  and administrative costs as a result of centralized merchandising, marketing
  and purchasing decisions.
  
Flexible store layout criteria which
  facilitates conversion of existing buildings to our format.

Distribution 
We have a total of four
distribution processing facilities. We lease a 1.3 million square foot
distribution center in Perris, California. We own our 1.3 million square foot
distribution center in Fort Mill, South Carolina, our 685,000 square foot
distribution center in Moreno Valley, California, and our 450,000 square foot
distribution center located in Carlisle, Pennsylvania. We currently have under
construction a 610,000 square foot expansion of our Moreno Valley, California,
distribution center scheduled for completion in 2009. See additional discussion
in Management’s Discussion and Analysis. 

In addition, we lease four
separate warehouse facilities for packaway storage, two of which are located in
Carlisle, Pennsylvania, totaling approximately 239,000 and 246,000 square feet,
and two of which are located in Fort Mill, South Carolina, totaling 253,000 and
423,000 square feet, respectively. We utilize other third-party facilities as
needed for storage of packaway inventory. We also lease a 10-acre parcel which
we currently have under construction for future trailer parking adjacent to our
Perris distribution center. 

We utilize third-party cross docks
to distribute merchandise to stores on a regional basis. Shipments are made by
contract carriers to the stores from three to six times per week depending on
location.

We believe that our existing
distribution centers with their current expansion capabilities will provide
adequate processing capacity to support store growth over the next several
years.

4



Information
Systems 

In fiscal 2007, we continued to
invest in new systems and technology to provide a platform for growth over the
next several years. Recent initiatives include the following: 


  We introduced a chain level update to our
  store network to increase communication bandwidth while decreasing monthly
  recurring costs. This improvement allowed us to deploy additional capabilities
  in the stores and to improve operational efficiencies.
  
We completed the majority of the development
  efforts related to testing and piloting new demand forecasting software and
  related process changes that are designed to strengthen our merchandising
  capabilities. The projected benefit from these new tools is more effective
  merchandise planning and trending processes for both sales and inventory. We
  believe this initiative will lead to gradual increases in store sales
  productivity and profitability across the chain by improving our ability to
  plan, buy and allocate product at a more local or even store level. We plan to
  gradually roll out these capabilities over the next few years. 
  
We began developing new capabilities to
  better support the continued growth of our import businesses. These
  improvements are designed to give our merchants greater visibility into item
  cost components and inbound movement of import products. We plan to roll out
  these new capabilities in fiscal 2008. 
  
We implemented additional enhancements to our
  supply chain systems in order to decrease monthly recurring costs, and to
  support expansion of processing and storage facilities. These improvements
  provided increased supply chain visibility and improved freight routing
  capabilities.
  
We implemented enhancements to our POS
  systems in order to reduce customer transaction and wait times. 
  
We upgraded our Loss Prevention software to
  allow for additional analysis and reporting while also connecting a number of
  our store video surveillance systems to provide corporate remote
  access.

Advertising 

We rely primarily on television
advertising to communicate the Ross value proposition -- brand-name merchandise
at low everyday prices. This strategy reflects our belief that television is the
most efficient and cost-effective medium for communicating everyday savings on a
wide selection of brand-name bargains for both the family and home. Advertising
for dd’s DISCOUNTS is primarily focused on new store grand openings and local
community initiatives. 

Trademarks 

The trademarks for Ross Dress For
Less^® and dd’s DISCOUNTS^® have been registered with the
United States Patent and Trademark Office.

Employees 

As of February 2, 2008, we had
approximately 39,100 total employees, including an estimated 25,300 part-time
employees. Additionally, we hire temporary employees -- especially during the
peak seasons. Our employees are non-union. Management considers the relationship
between the Company and our employees to be good. 

5



Competition 

We believe the principal
competitive factors in the off-price retail apparel and home accessories
industry are offering significant discounts on brand-name merchandise, offering
a well-balanced assortment appealing to our target customer, and consistently
providing store environments that are convenient and easy to shop. To execute
this concept, we have invested in our buying organization and developed a
merchandise allocation system to distribute product based on regional factors,
as well as other systems and procedures to maximize cost efficiencies and
leverage expenses in an effort to mitigate competitive pressures on gross
margin. As discussed under Information Systems, we are also in the process of
rolling out over the next few years additional enhancements to our merchandise
planning system to strengthen our ability to plan, buy, and allocate product
based on more local versus regional trends. We believe that we are well
positioned to compete on the basis of each of these factors. 

Nevertheless, the retail apparel
market is highly fragmented and competitive. We face intense competition for
business from department stores, specialty stores, discount stores, warehouse
stores, other off-price retailers and manufacturer-owned outlet stores, many of
which are units of large national or regional chains that have substantially
greater resources than we do. We also compete to some degree with retailers that
sell apparel and home accessories through catalogs or over the internet. The
retail apparel business may become even more competitive in the future.

dd’s DISCOUNTS 
As of February 2, 2008, we
operated 52 dd’s DISCOUNTSstores in four states. This newer
off-price concept targets the needs of households with more moderate incomes. We
believe this is one of the fastest growing demographic markets in the country.
dd’s DISCOUNTS features a moderately-priced assortment of first-quality,
in-season, name-brand and fashion apparel, accessories, footwear and home
merchandise at everyday savings of 20% to 70% off moderate department and
discount store regular prices. We opened ten initial locations in California
during the second half of 2004, another ten stores in 2005, six stores during
fiscal 2006, and 26 stores during fiscal 2007. This business generally has
similar merchandise departments and categories to those of Ross, but features a
different mix of brands, consisting mostly of moderate department store and
discount store labels at lower average price points. The typical dd’s DISCOUNTS
store is located in an established shopping center in a densely populated urban
or suburban neighborhood. The merchant, store and distribution organizations for
dd’s DISCOUNTS and Ross are separate and distinct; however, dd’s DISCOUNTS
shares certain other corporate and support services with Ross. 

Available Information

The internet address for our
website is www.rossstores.com. Our Annual Reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports are made available free of charge on or through our website, promptly
after being electronically filed with the Securities and Exchange Commission.

Item
1A.     Risk Factors. 
Our Annual Report on Form 10-K for
fiscal 2007, and information we provide in our Annual Report to Stockholders,
press releases, telephonic reports and other investor communications, including
those on our website, may contain a number of forward-looking statements with
respect to anticipated future events and our projected financial performance,
operations and competitive position that are subject to risk factors that could
cause our actual results to differ materially from those forward-looking
statements and our prior expectations and projections. Refer to Management’s
Discussion and Analysis for a more complete identification and discussion of
“Forward-Looking Statements.” 

6



Our financial condition, results
of operations, cash flows and the performance of our common stock may be
adversely affected by a number of risk factors. Risks and uncertainties that
apply to both Ross and dd’s DISCOUNTS include, without limitation, the
following: 

We are subject to the economic
and industry risks that affect large retailers operating in the United States.

Our business is exposed to the
risks of a large, multi-store retailer, which must continually and efficiently
obtain and distribute a supply of fresh merchandise throughout a large and
growing network of stores. These risks factors include: 


  An increase in the level of competitive
  pressures in the retail apparel or home-related merchandise industry. 
  
Potential changes in the level of consumer
  spending on or preferences for apparel or home-related merchandise, including
  the potential impact from uncertainty in mortgage credit markets and higher
  gas prices. 
  
Potential changes in geopolitical and/or
  general economic conditions that could affect the availability of product
  and/or the level of consumer spending. 
  
Unseasonable weather trends that could affect
  consumer demand for seasonal apparel and apparel-related products. 
  
A change in the availability, quantity or
  quality of attractive brand-name merchandise at desirable discounts that could
  impact our ability to purchase product and continue to offer customers a wide
  assortment of merchandise at competitive prices. 
  
Potential disruptions in the supply chain
  that could impact our ability to deliver product to our stores in a timely and
  cost-effective manner. 
  
A change in the availability, quality or cost
  of new store real estate locations. 
  
A downturn in the economy or a natural
  disaster in California or in another region where we have a concentration of
  stores or a distribution center. Our corporate headquarters, two distribution
  centers and 26% of our stores are located
  in California.
  
Higher than planned freight costs from
  higher-than-expected fuel surcharges. 

We are subject to operating
risks as we attempt to execute on our merchandising and growth strategies.

The continued success of our
business depends, in part, upon our ability to increase sales at our existing
store locations, and to open new stores and to operate stores on a profitable
basis. Our existing strategies and store expansion programs may not result in a
continuation of our anticipated revenue or profit growth. In executing our
off-price retail strategies and working to improve efficiencies, expand our
store network, and reduce our costs, we face a number of operational risks,
including: 


  Our ability to attract and retain personnel
  with the retail talent necessary to execute our strategies.
  
Our ability to effectively operate our
  various supply chain, core merchandising and other information systems.

  
Our ability to improve our merchandising
  capabilities through the development and implementation of new processes and
  systems enhancements. 
  
Our ability to improve new store sales and
  profitability, especially in newer regions and markets. 
  
Our ability to achieve and maintain targeted
  levels of productivity and efficiency in our distribution centers. 
  
Our ability to lease or acquire acceptable
  new store sites with favorable demographics and long term financial returns.
  
  
Our ability to identify and to successfully
  enter new geographic markets. 
  
Our ability to achieve planned gross margins,
  by effectively managing inventories, markdowns, and shrink. 
  
Our ability to effectively manage all
  operating costs of the business, the largest of which are payroll and benefit
  costs for stores and distribution centers. 

Item
1B.     Unresolved Staff Comments. 

Not applicable. 

7



Item 2.    
Properties. 
Stores 

From August 1982 to February 2,
2008, we expanded from six Ross locations in California to 838 Ross stores in 27
states and Guam. In addition, we operate 52 dd’s DISCOUNTS locations in four
states. All stores are leased, with the exception of two locations which we own.

During fiscal 2007, we opened 71
new Ross stores, relocated one store and closed four existing locations. The
average new Ross store in fiscal 2007 was approximately 30,000 gross square
feet, yielding about 24,000 square feet of selling space. As of February 2,
2008, our 838 Ross stores generally ranged in size from about 25,000 to 35,000
gross square feet and had an average of 29,900 gross square feet and 23,700
selling square feet.

During fiscal 2007, we opened 26
new dd’s DISCOUNTS stores. The average new dd’s DISCOUNTS store in fiscal 2007
was approximately 23,000 gross square feet, yielding about 19,100 square feet of
selling space. As of February 2, 2008, our 52 dd’s DISCOUNTS stores had an
average of 25,000 gross square feet and 20,000 selling square feet. Our dd’s
DISCOUNTS stores are currently located in California, Florida, Texas, and
Arizona. 

During fiscal 2007, no one store
accounted for more than 1% of our sales.

We carry earthquake insurance for
business interruption, inventory and personal property to mitigate our risk on
our corporate headquarters, distribution centers, buying offices, and all of our
stores. 

Our real estate strategy in 2008
and 2009 is to open additional stores in existing states to increase our market
penetration and to reduce overhead and advertising expenses as a percentage of
sales in each market. Important considerations in evaluating a new store
location are the availability and quality of potential sites, demographic
characteristics, competition, and population density of the local trade area. In
addition, we continue to consider opportunistic real estate acquisitions.

8



The following table summarizes the
locations of our stores by state as of February 2, 2008 and February 3, 2007. At
February 2, 2008, we had 36 dd’s DISCOUNTS stores in California, 9 in Florida, 5
in Texas, and 2 in Arizona. At February 3, 2007, all 26 dd’s DISCOUNTS stores
were in California. 





























































































































































































                   February 2,          February
      3,  
      State/Territory               2008               2007  
      Alabama          15          11  
      Arizona          48          38  
      California          235          223  
      Colorado          29          25  
      Delaware          1          1  
      Florida          105          87  
      Georgia          43          40  
      Guam          1          1  
      Hawaii          11          11  
      Idaho          8          8  
      Louisiana          10          9  
      Maryland          17          16  
      Mississippi          4          3  
      Montana          6          5  
      Nevada          18          14  
      New
      Jersey          9          8  
      New Mexico          5          5  
      North
      Carolina          29          26  
      Oklahoma          15          13  
      Oregon          22          21  
      Pennsylvania            29          22  
      South
      Carolina          19          18  
      Tennessee          18            14  
      Texas          126          117  
      Utah          11          9  
      Virginia          26          23  
      Washington          28          27  
      Wyoming            2            2  
           Total            890            797 
  


Where possible, we have obtained
sites in buildings requiring minimal alterations. This has allowed us to
establish stores in new locations in a relatively short period of time at
reasonable costs in a given market. To date, we have been able to secure leases
in suitable locations for our stores. At February 2, 2008, the majority of our
Ross stores had unexpired original lease terms ranging from three to ten years
with three to four renewal options of five years each. The average unexpired
original lease term of our leased stores is five years, or 22 years if renewal
options are included. At February 2, 2008, the majority of our dd’s DISCOUNTS
stores had unexpired original lease terms ranging from eight to ten years with
three to four renewal options of five years each. The average unexpired original
lease term of our dd’s DISCOUNTS stores is nine years, or 28 years if renewal
options are included. See Note E of Notes to Consolidated Financial Statements.

See additional discussion under
“Stores” in Item 1. 

9



Distribution Centers

We operate two 1.3 million square
foot distribution centers -- one in Fort Mill, South Carolina, and the other in
Perris, California. The South Carolina facility opened in July 2002 and was
originally financed under a synthetic lease. We exercised the option to purchase
this property in May 2006. The Perris, California facility opened in September
2003 and is financed with a ten-year synthetic lease facility that expires in
July 2013. We also own a 450,000 square foot distribution center located in
Carlisle, Pennsylvania. In addition, we own our 685,000 square foot Moreno
Valley, California distribution center, which we purchased in 2005 to increase
our distribution and packaway storage capacity. We are in the process of
expanding our Moreno Valley, California distribution center to 1.3 million
square feet. See additional discussion in Management’s Discussion and
Analysis.

In November 2001 we entered into a
nine-year lease for a 239,000 square foot warehouse and a ten-year lease for a
246,000 square foot warehouse in Carlisle, Pennsylvania. In June 2006, we
entered into a two-year lease extension with one one-year option for a 253,000
square foot warehouse in Fort Mill, South Carolina, extending the term to
February 2009. In March 2008, we amended the term of this lease to February 2010
and obtained three three-year options. In August 2007, we entered into a
five-year lease for a 423,000 square foot warehouse also in Fort Mill, South
Carolina. All four of these properties are used to store our packaway inventory.
We also lease a 10-acre parcel which we currently have under construction for
future trailer parking adjacent to our Perris distribution center. 

See additional discussion under
“Distribution” in Item 1. 

Other Leased Facilities

We lease approximately 181,000
square feet of office space for our corporate headquarters in Pleasanton,
California, under several leases. The terms for these leases expire between 2010
and 2014 and contain renewal provisions.

We lease approximately 138,000 and
15,000 square feet of office space for our New York and Los Angeles buying
offices, respectively. The terms for these leases expire in 2015 and 2011,
respectively. The lease term for the New York office contains a renewal
provision. 

Item 3.    
Legal Proceedings. 

We are party to various litigation
matters related to customers, vendors, and employees, including class action
lawsuits alleging misclassification of assistant store managers and missed meal
and rest break periods, and other litigation incident to our business. We
believe that none of these legal proceedings will have a material adverse effect
on our financial condition or results of operations. See Note J to Notes to
Consolidated Financial Statements. 

Item 4.    
Submission of Matters to a Vote of Security Holders. 

Not applicable. 

10



Executive Officers of the
Registrant
The following sets forth the names
and ages of our executive officers, indicating each person's principal
occupation or employment during at least the past five years. The term of office
is at the discretion of our Board of Directors.


























































































           Name                    Age                            Position       
      Michael Balmuth          57          Vice Chairman, President and Chief Executive Officer 
    
                       
      Gary L. Cribb          43          Executive Vice President and Chief Operations Officer 
    
                       
      James S. Fassio          53          Executive Vice President, Property Development,
      Construction and Store
      Design 
                             
      Michael O’Sullivan          44          Executive Vice President and Chief Administrative
      Officer  
                       
      Lisa Panattoni          45          Executive Vice President, Merchandising  
                       
      Barbara Rentler          50            Executive Vice President, Merchandising  
                       
      John G. Call            49          Senior Vice President, Chief Financial Officer and
      Corporate Secretary
  


Mr. Balmuth joined the Board of
Directors as Vice Chairman and became Chief Executive Officer in September 1996.
In February 2005, he also assumed responsibilities as President. Prior to 1996,
he served as the Company’s Executive Vice President, Merchandising since July
1993, and Senior Vice President and General Merchandise Manager since November
1989. Before joining the Company, he was Senior Vice President and General
Merchandising Manager at Bon Marché in Seattle from September 1988 through
November 1989. From April 1986 to September 1988, he served as Executive Vice
President and General Merchandising Manager for Karen Austin Petites.

Mr. Cribb has served as Executive
Vice President and Chief Operations Officer since February 2005. He joined the
Company in August 2002 as Senior Vice President of Store Operations. From
December 1998 to August 2002, Mr. Cribb was Senior Vice President of Sales and
Operations for Staples. Prior to joining Staples, he held various management
positions with Office Depot from 1991 to 1998, most recently as Regional Vice
President. His prior experience also includes various positions with Marshalls
and The May Department Stores Company.

Mr. Fassio has served as Executive
Vice President, Property Development, Construction and Store Design since
February 2005. From March 1991 to February 2005, Mr. Fassio served as Senior
Vice President, Property Development, Construction and Store Design. He joined
the Company in June 1988 as Vice President of Real Estate. Prior to joining the
Company, Mr. Fassio was Vice President, Real Estate and Construction at
Craftmart, and Property Director of Safeway Stores.

Mr. O’Sullivan has served as
Executive Vice President and Chief Administrative Officer since February 2005.
He joined the Company in September 2003 as Senior Vice President, Strategic
Planning and Marketing. From 1991 to 2003, Mr. O’Sullivan was with Bain &
Company, most recently as a partner, providing consulting advice to retail,
consumer goods, financial services and private equity clients.

Ms. Panattoni has served as
Executive Vice President, Merchandising since October 2005. She joined the
Company as Senior Vice President and General Merchandise Manager, Home in
January 2005. In December 2006, she was given additional responsibility for the
Home business at both Ross and dd’s DISCOUNTS. Prior to joining the Company, Ms.
Panattoni was with The TJX Companies, most recently serving as Senior Vice
President of Merchandising and Marketing for HomeGoods from 1998 to 2004, and as
Divisional Merchandise Manager at Marmaxx Home Store from 1994 to
1998.

11



Ms. Rentler has served as
Executive Vice President, Merchandising since December 2006. She joined the
Company in February 1986 and served as Executive Vice President and Chief
Merchandising Officer of dd’s DISCOUNTS from February 2005 to December 2006.
Previously, she was Senior Vice President and Chief Merchandising Officer of
dd’s DISCOUNTS from January 2004 to February 2005 and Senior Vice President
and General Merchandise Manager of Ross from
February 2001 to January 2004. She also served as Vice President and Group
Divisional Merchandise Manager from March 1999 to February 2001. Prior to that,
she held various merchandising positions with the Company. 

Mr. Call has served as Senior Vice
President, Chief Financial Officer and Corporate Secretary since June 1997. From
June 1993 until joining the Company in 1997, Mr. Call was Senior Vice President,
Chief Financial Officer, Secretary and Treasurer of Friedman’s Inc. For five
years prior to joining Friedman’s in June 1993, Mr. Call held various positions
with Ernst & Young LLP. 

PART II





      Item 5.              
      Market for Registrant’s
      Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities.

General information.
See the information set forth under the
caption "Quarterly Financial Data (Unaudited)" under Note K of Notes to
Consolidated Financial Statements in Item 8 of this Annual Report, which is
incorporated herein by reference. Our stock is traded on The NASDAQ Global
Select Market^® under the symbol ROST. There were 736 stockholders of
record as of March 14, 2008 and the closing stock price on that date was $28.15
per share. 

Cash dividends.
In January 2008, our Board of Directors
declared a quarterly cash dividend payment of $.095 per common share, payable on
or about March 31, 2008. Our Board of Directors declared quarterly cash
dividends of $.075 per common share in January, May, August, and November 2007,
and cash dividends of $.06 per common share in January, May, August, and
November 2006.

12



Issuer purchases of equity
securities. Information regarding shares
of common stock we repurchased during the fourth quarter of fiscal 2007 is as
follows:































































































































                                    Total number
      of            Maximum number  
            Total                    shares
      (or units)          (or approximate
      dollar  
            number
      of          Average            purchased as part          value) of shares
      (or  
               shares            price
      paid          of
      publicly            units) that may yet
      be  
            (or
      units)          per
      share          announced plans or          purchased under
      the  
        
      Period      purchased¹            (or unit)            programs            plans or programs ($000)  
        
      November                                                             
        
      (11/04/2007-12/01/2007)      396,200          $26.26          396,200          $ 37,000      
        
      December                                      
        
      (12/02/2007-01/05/2008)      819,452          $25.42          818,546          $
      16,191      
        
      January                                      
        
      (01/06/2008-02/02/2008)      617,041          $26.61          607,818          $         --     ²
        
        
      Total      1,832,693          $26.00          1,822,564          $         --      
       
  

¹ We acquired 10,129 of treasury stock
shares during the quarter ended February 2, 2008 related to income tax
withholdings for restricted stock. All remaining shares were repurchased under
the two-year $400 million stock repurchase program announced in November
2005.

²In January
2008 our Board of Directors approved a new two-year $600 million stock
repurchase program for fiscal 2008 and 2009.

See Note H to Notes to
Consolidated Financial Statements for equity compensation plan information. The
information under Item 12 of this Annual Report on Form 10-K under the caption
“Equity compensation plan information” is incorporated herein by reference.

Stockholder Return Performance
Graph 
The following information in this
Item 5 shall not be deemed filed for purposes of Section 18 of the Securities
Act of 1934, nor shall it be deemed incorporated by reference in any filing
under the Securities Act of 1933.

Set forth below is a line graph
comparing the cumulative total stockholder returns for our common stock with the
Standard & Poors (“S&P”) 500 Index and the S&P Retailing Group over
the last five years. The five year period comparison graph assumes that the
value of the investment in our common stock at each fiscal year end and the
comparative indices was $100 on January 31, 2003 and measures the performance of
this investment as of the last trading day in the month of January for each of
the following five years. These measurement dates are based on the historical
month-end data available and may vary slightly from our actual fiscal year-end
date for each period. Data with respect to returns for the S&P indices is
not readily available for periods shorter than one month. The total return
assumes the reinvestment of dividends at the frequency with which dividends are
paid. The graph is a historical representation of past performance only and is
not necessarily indicative of future returns to stockholders.

13



COMPARISON OF FIVE YEAR
CUMULATIVE TOTAL RETURN*
Among Ross Stores, Inc., the S&P 500 Index 
and the S&P
Retailing Group















          * $100 invested on 1/31/03
      in stock or index including reinvestment of dividends. Fiscal year ending
      January 31. 
Indexes calculated on
      month-end basis.     
                
                

































































































              Indexed Returns for Years Ending
     
            Base                                                                                
            Period                                                  
            January         January           January           January           January           January 
      Company / Index     2003            2004           2005           2006           2007           2008 
      ROSS STORES, INC.     100         144         145         153         172         159 
      S&P
      500 INDEX     100
            135
            143
            158
            181
            177 
      S&P RETAILING GROUP     100         148         169         185         211         177 

14



Item 6.    
Selected Financial Data. 

The following selected financial
data is derived from our consolidated financial statements. The data set forth
below should be read in conjunction with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” the section “Forward-Looking
Statements” in this Annual Report on Form 10-K and our consolidated financial
statements and notes thereto. 







































































































































































































































































































       
             ($000,
      except per share data)        2007            2006¹             2005            2004              2003      
                
                
            Operations                                                        
                
          Sales     $ 5,975,212         
        $ 5,570,210         
        $ 4,944,179         
        $ 4,239,990           $ 3,920,583           
          Cost of
      goods sold³ 
    4,618,220           4,317,527           3,852,591         3,286,604         2,939,624     
                   
      Percent of sales     77.3%         77.5%         77.9%         77.5%         75.0%     
          Selling,
      general and administrative³      935,901         863,033         766,144         657,668         607,536     
                   
      Percent of sales     15.7%         15.5%         15.5%         15.5%         15.5%     
          Impairment
      of long-lived assets²      -          -
        -
        15,818         -
    
          Interest (income) expense, net     (4,029)         (8,627)         (2,898)         915         (262)     
          Earnings
      before taxes     425,120         398,277         328,342         278,985         373,685     
                   
      Percent of sales     7.1%         7.2%         6.6%         6.6%         9.5%     
          Provision
      for taxes on earnings     164,069         156,643         128,710         109,083         146,111     
          Net earnings     261,051         241,634         199,632         169,902         227,574     
                   
      Percent of sales     4.4%         4.3%
            4.0%
            4.0%
            5.8%
        
          Basic earnings per share     $  1.93         $  1.73         $  1.38         $  1.15         $  1.50     
          Diluted
      earnings per share     $ 
      1.90         $ 
      1.70         $ 
      1.36         $ 
      1.13         $ 
      1.47     
                
          Cash dividends declared per common share     $  .320         $  .255         $  .220         $  .178         $  .129     
                
                
          ¹Fiscal 2006 was a 53-week year; all other fiscal
      years presented were 52 weeks.     
                                            
          ²For the year
      ended January 29, 2005, the Company recognized a net impairment charge of
      $15.8 million on its previously owned corporate headquarters in Newark,
      California.     
                                                            
          ³For the year
      ended January 31, 2004, the Company reclassified $14.2 million of bonus
      expense that relates to personnel in the merchandising and distribution
      organizations from selling, general and administrative expense to cost of
      goods sold.     
                                            

15



Selected Financial Data












































































































































































































































































































































































































































































       
                ($000,
      except per share data)     2007         2006¹         2005
            2004
            2003
        
                
                
          Financial Position                                                                                 
                
            Merchandise inventory     $ 1,025,295         $  1,051,729         $  938,091           $  853,112           $  841,491     
          Property
      and equipment, net     868,315         748,233         639,852         556,178         516,618     
          Total assets     2,371,322           2,358,591         1,938,738         1,741,215         1,691,465     
          Return on
      average assets     11%         11%
            11%
            10%
            15%
        
          Working capital     387,396         431,699         349,864         416,376         409,507     
          Current
      ratio     1.4:1         1.4:1         1.4:1         1.6:1         1.6:1     
          Long-term debt     150,000         150,000           -         50,000         50,000     
          Long-term
      debt as a percent                                                   
                    of total capitalization      13%         14%
            -
        6%
            6%
        
          Stockholders' equity     970,649         909,830         836,172         765,569         752,560     
          Return on
      average                                                   
                    stockholders' equity     28%         28%
            25%
            22%
            33%
        
          Book value per common share                                                   
               
          outstanding at
      year-end      $         7.24
            $        
      6.53         $       5.80
            $       5.22
            $       4.98
        
                
          Operating Statistics                                                   
                
          Number of stores opened     97          66         86         84         66     
          Number of
      stores closed     4          3
        1
        3
        5
    
          Number of stores at year-end     890         797         734         649         568     
          Comparable
      store sales increase                                                   
                    (decrease) (52-week basis)      1%          4%
            6%
            (1)%
            1%
        
          Sales per square foot of selling                                                   
               
          space²(52-week basis)     $         301
        $        
      305         $       304
            $       297
            $       312
        
          Square feet
      of selling space                                                   
                    at year-end (000)     21,100         18,600         17,300         15,300         13,300     
          Number of employees at                                                   
               
          year-end     39,100         35,800         33,200         30,100         26,600      
          Number of
      common stockholders                                                   
                    of record at year-end     760         749
            756
            753
            726
        
                
                
          ¹Fiscal 2006 was a 53-week year;
      all other fiscal years presented were 52 weeks.                                   
                
          ²Based on average annual selling
      square footage.                                             
                                                


16









      Item 7.               Management’s Discussion and Analysis of Financial Condition and
      Results of Operations.


Overview 
We are the second largest
off-price apparel and home goods retailer in the United States. At the end of
fiscal 2007, there were 838 Ross Dress for Less (“Ross”) locations in 27 states
and Guam, and 52 dd’s DISCOUNTS stores in four states. Ross offers
first-quality, in-season, name-brand and designer apparel, accessories, footwear
and home fashions at everyday savings of 20% to 60% off department and specialty
store regular prices. dd’s DISCOUNTS features a more moderately-priced
assortment of first-quality, in-season, name-brand apparel, accessories,
footwear and home fashions at everyday savings of 20% to 70% off moderate
department and discount store regular prices.

Our primary objective is to pursue
and refine our existing off-price strategies to drive gains in profitability and
improved financial returns over the long term. In establishing appropriate
growth targets for our business, we closely monitor market share trends for the
off-price industry. Total aggregate sales for the five largest off-price
retailers in the United States grew 6% during 2007 on top of an 8% increase in
2006. We believe this solid growth reflects the ongoing importance of value to
consumers. Our strategies are designed to take advantage of the expanding market
share of our off-price industry as well as continued customer demand for
name-brand fashions for the family and home at compelling everyday
discounts.

We refer to our fiscal years ended
February 2, 2008, February 3, 2007, and January 28, 2006 as fiscal 2007, fiscal
2006, and fiscal 2005, respectively. Fiscal 2006 was 53 weeks. Fiscal 2007 and
2005 were 52 weeks. 

Results of Operations

The following table summarizes the
financial results for fiscal years ended February 2, 2008, February 3, 2007, and
January 28, 2006.























































































































                             2007                      2006                     2005
         
        Sales
                                    
           Sales
      (millions)         $
      5,975         $
      5,570         $
      4,944     
           Sales
      growth         7.3%         12.7%         16.6%      
           Comparable
      store sales growth (52-week basis)          1%         4%
            6%
        
            
        Costs and
      expenses (as a percent of sales)                                    
           Cost of goods sold         77.3%         77.5%         77.9%     
           Selling, general and administrative         15.7%         15.5%         15.5%     
           Interest income, net         (0.1)%         (0.2)%         (0.1)%     
            
        Earnings before
      taxes (as a percent of sales)         7.1%         7.2%         6.6%     
            
        Net earnings
      (as a percent of sales)         4.4%         4.3%         4.0%     
                                    

17



Stores. Total stores open at the end of 2007, 2006 and 2005 were
890, 797 and 734, respectively. The number of stores at the end of fiscal 2007,
2006 and 2005 increased by 12%, 9% and 13% from the respective prior years. Our
expansion strategy is to open additional stores based on market penetration,
local demographic characteristics, competition, and the ability to leverage
overhead expenses. We continually evaluate opportunistic real estate
acquisitions and opportunities for potential new store locations. We also
evaluate our current store locations and determine store closures based on
similar criteria. 





































































                      
    2007               
    2006               
    2005          
        Stores at the
      beginning of the period         797           734           649     
        Stores opened in the
      period         97         66
            86
        
        Stores closed in the
      period         (4)         (3)         (1)     
        Stores at the end of the
      period         890         797         734      
            
        Selling square footage
      at the end of the period (000)         21,100         18,600         17,300     
                                    


Sales. Sales for fiscal 2007 increased $405.0 million, or 7.3%,
compared to the prior year due to the opening of 93 net new stores during 2007,
and a 1% increase in sales from “comparable” stores (defined as stores that have
been open for more than 14 complete months). Sales for fiscal 2006 increased
$626.0 million, or 12.7%, compared to the same period in the prior year due to
the opening of 63 net new stores during 2006, and a 4% increase in sales from
comparable stores.

Our sales mix for Ross is shown
below for fiscal 2007, 2006 and 2005: 




















































































                      
    2007               
    2006               
    2005          
        Ladies         32%         33%         34%      
        Home accents and bed and
      bath         23%           22%
              21%
        
        Men’s         15%         15%         16%     
        Fine jewelry, accessories,
      lingerie and fragrances         11%         11%
            11%
        
        Shoes         10%         10%         9%     
        Children’s         9%         9%         9%     
         
      Total         100%         100%         100%     
                                    


We expect to address the
competitive climate for off-price apparel and home goods by pursuing and
refining our existing strategies and by continuing to strengthen our
organization, to diversify the merchandise mix, and to more fully develop the
organization and systems to improve regional and local merchandise offerings.
Although our strategies and store expansion program contributed to sales gains
in fiscal 2007, 2006 and 2005, we cannot be sure that they will result in a
continuation of sales growth or an increase in net earnings. 

Stock-based compensation.
Effective in fiscal 2006, we adopted
SFAS No. 123(R) and elected to adopt the standard using the modified prospective
transition method. This new accounting standard requires recognition of
compensation expense based on the grant date fair value of all stock-based
awards, typically amortized over the vesting period. The impact on results for
fiscal 2006 was to decrease earnings before taxes by approximately $13.2
million, and net income by approximately $8.0 million.

See Notes A and C in the Notes to
Consolidated Financial Statements for more information on our stock-based
compensation plans and implementation of SFAS No. 123(R). 

18



Cost of goods sold.
Cost of goods sold in fiscal 2007
increased $300.7 million compared to the prior year mainly due to increased
sales from the opening of 93 net new stores during the year, and a 1% increase
in sales from comparable stores.

Cost of goods sold as a percentage
of sales for fiscal 2007 decreased approximately 20 basis points from the prior
year. This improvement was mainly the result of a 20 basis point improvement in
merchandise margin primarily due to lower markdowns and shortage as a percent of
sales. 

Cost of goods sold in fiscal 2006
increased $464.9 million compared to the same period in the prior year mainly
due to increased sales from the opening of 63 net new stores during the year, a
4% increase in sales from comparable stores, and additional stock compensation
expenses recognized pursuant to SFAS No. 123(R).

Cost of goods sold as a percentage
of sales for fiscal 2006 decreased approximately 40 basis points compared with
the same period in the prior year. This improvement was driven mainly by a 40
basis point improvement in merchandise gross margin, primarily due to lower
markdowns and shortage as a percent of sales, and a 35 basis point improvement
in distribution costs. These gains were partially offset by an approximate 25
basis point increase in freight costs and a 10 basis point increase in expenses
related to SFAS No. 123(R).

We cannot be sure that the gross
profit margins realized in fiscal 2007, 2006 and 2005 will continue in future
years. 

Selling, general and
administrative expenses. For fiscal
2007, selling, general and administrative expenses (“SG&A”) increased $72.9
million compared to the prior year, mainly due to increased store operating
costs reflecting the opening of 93 net new stores during the year. 

SG&A as a percentage of sales
for fiscal 2007 grew by approximately 15 basis points over the prior year. This
increase was mainly driven by a 40 basis point rise in store operating expenses
compared to fiscal 2006, which benefited from leverage related to the
53^rd week. Store operating costs in 2007 were also impacted by
minimum wage increases and the de-leveraging effect of the 1% gain in comparable
store sales. These cost pressures were partially offset by a 25 basis point
decline in other general and administrative costs.

For fiscal 2006, SG&A
increased $96.9 million compared to the same period in the prior year, mainly
due to increased store operating costs reflecting the opening of 63 net new
stores during the year.

For fiscal 2006, SG&A as a
percentage of sales was unchanged compared to the same period in the prior year.
An approximately 15 basis point increase in expense related to SFAS No. 123(R)
and a 5 basis point increase in store related expenses were offset by a 20 basis
point decrease in other general and administrative costs related to lower
workers’ compensation costs and leverage on the 53^rd week of
operations in fiscal 2006.

The largest component of SG&A
is payroll. The total number of employees, including both full and part-time, as
of fiscal year end 2007, 2006, and 2005 was approximately 39,100, 35,800, and
33,200, respectively. 

19



Interest. In fiscal 2007, interest expense increased $6.9 million
due to higher average borrowings as compared to the prior year, and interest
income increased $2.3 million due to higher cash and investment balances as
compared to the prior year. As a percentage of sales, the reduction in net
interest income in fiscal 2007 decreased pre-tax earnings by approximately 10
basis points compared to the same period in the prior year. The table below
shows interest expense and income for fiscal 2007, 2006 and 2005: 
















































        ($
      millions)                2007                    2006                    2005           
        Interest
      expense         $    9.8           $   2.9           $     4.1     
        Interest income         (13.8)         (11.5)         (7.0)     
           Total
      interest income, net         $  (4.0)         $ (8.6)         $   (2.9)
    
                                    


Taxes on earnings.
Our effective tax rate for fiscal 2007,
2006 and 2005 was approximately
39%, which represents the applicable
combined federal and state statutory rates reduced by the federal benefit of
state taxes deductible on federal returns. The effective rate is affected by
changes in law, location of new stores, level of earnings and the result of tax
audits. We anticipate that our effective tax rate for fiscal 2008 will be in the
range of 38% to 40%. 

Net earnings. Net earnings as a percentage of sales for fiscal 2007
were higher compared to fiscal 2006 primarily due to lower cost of goods sold as
a percentage of sales, partially offset by higher SG&A expenses as a
percentage of sales. Net earnings as a percentage of sales for fiscal 2006 were
higher compared to fiscal 2005 primarily due to lower cost of goods sold and
higher interest income as a percentage of sales while SG&A expenses as a
percentage of sales remained unchanged.

Earnings per share.
Diluted earnings per share in fiscal
2007 were $1.90, compared to $1.70 in fiscal 2006 on a 53-week basis. This 12%
increase in diluted earnings per share is attributable to an approximate 8%
increase in net earnings and a 3% reduction in weighted average diluted shares
outstanding, largely due to the repurchase of common stock under our stock
repurchase program. Diluted earnings per share in fiscal 2006 were $1.70,
compared to $1.36 in fiscal 2005. This 25% increase in diluted earnings per
share is attributable to an approximate 21% increase in net earnings and a 3%
reduction in weighted average diluted shares outstanding largely due to the
repurchase of common stock under our stock repurchase program.

20



Financial Condition

Liquidity and Capital Resources

Our primary sources of funds for
our business activities are cash flows from operations and short-term trade
credit. Our primary ongoing cash requirements are for seasonal and new store
merchandise inventory purchases, capital expenditures in connection with opening
new stores, and investments in distribution centers, information systems and
infrastructure. We also use cash to repurchase stock under our stock repurchase
program and to pay dividends. 
























































       
      ($000)         2007                
        2006                
        2005           
        Cash flows from
      operating activities         $   353,559         $  506,867
            $  375,191
         
        Cash flows used in
      investing activities            (244,743)           (235,941)           (132,396)     
        Cash flows used in
      financing activities         (218,624)           (95,305)           (166,359)     
        Net (decrease) increase in
      cash and cash equivalents         $ (109,808)         $  175,621         $    76,436     
                                    


Operating Activities

Net cash provided by operating
activities was $353.6 million, $506.9 million and $375.2 million in fiscal 2007,
2006 and 2005, respectively. The primary source of cash provided by operating
activities in fiscal 2007, 2006 and 2005 was net earnings plus non-cash expenses
for depreciation and amortization, partially offset by cash used to finance
merchandise inventory. The increase in cash flow from operating activities
resulted from an increase in accounts payable in 2006 over 2005 of $221.6
million primarily driven by timing associated with the additional
53^rd week in fiscal 2006. 

Working capital (defined as
current assets less current liabilities) was $387.4 million at the end of fiscal
2007, compared to $431.7 million at the end of fiscal 2006, and $349.9 million
at the end of fiscal 2005. The decrease in working capital in fiscal 2007
compared to fiscal 2006 is primarily due to lower cash and investments and
timing associated with the additional 53^rd week in fiscal 2006. The
increase in working capital in fiscal 2006 compared to fiscal 2005 is primarily
due to higher cash and investments.

Our primary source of liquidity is
the sale of our merchandise inventory. We regularly review the age and condition
of our merchandise and are able to maintain current merchandise inventory in our
stores through replenishment processes and liquidation of slower-moving
merchandise through clearance markdowns. 

21



Investing Activities

In fiscal 2007, 2006 and 2005, our
capital expenditures (excluding leased equipment) were approximately $236.1
million, $223.9 million and $175.9 million, respectively, for fixtures and
leasehold improvements to open new stores, implement information technology
systems, build distribution centers and implement material handling equipment
and related distribution center systems, and various other expenditures related
to our stores, buying and corporate offices. Fiscal 2006 included the purchase
of distribution center assets under a lease of $87.3 million. We opened 97, 66
and 86 new stores and relocated one, two, and two stores in fiscal 2007, 2006
and 2005, respectively.

In fiscal 2007 we had purchases of
investments of $146.1 million and sales of investments of $137.1 million. In
fiscal 2006 we had purchases of investments of $71.9 million and sales of
investments of $59.3 million. In fiscal 2005 we had purchases of $313.6 million
and sales of investments of $357.0 million. 

We are forecasting approximately
$250 million in capital requirements in 2008 to fund expenditures for fixtures
and leasehold improvements to open both new Ross and dd’s DISCOUNTS stores, the
relocation, or upgrade of existing stores, and investments in store and
merchandising systems, distribution center land, buildings, equipment and
systems, and various buying and corporate office expenditures. We expect to fund
these expenditures with cash flows from operations and existing credit
facilities. 

Our capital expenditures over the
last three years are set forth in the table below: 





































































        ($
      millions)              2007                    2006                    2005     
        New stores           $  110.1         $   
      49.5           $   
      63.3      
        Store renovations and
      improvements           32.3           42.4
              31.9
        
        Information
      systems         21.4           13.4           19.8     
        Distribution centers,
      corporate office and other         72.3           118.6           60.9     
       
        
           Total
      capital expenditures         $  236.1
            $  223.9         $  175.9     
                                    


Financing Activities

During fiscal 2007, 2006 and 2005,
our liquidity and capital requirements were provided by cash flows from
operations, trade credit, and issuance of senior notes. All but two of our store
locations, our buying offices, our corporate headquarters, and one distribution
center are leased and, except for certain leasehold improvements and equipment,
do not represent long-term capital investments. We own three distribution
centers in Carlisle, Pennsylvania, Moreno Valley, California, and Fort Mill,
South Carolina. 

In November 2005, we announced
that our Board of Directors authorized a two-year stock repurchase program of up
to $400 million for 2006 and 2007. We repurchased 6.9 million and 7.1 million
shares of common stock for aggregate purchase prices of approximately $200
million in both 2007 and 2006. These repurchases were funded by cash flows from
operations. 

In March 2006, we repaid our $50
million term debt in full. In October 2006, we entered into a Note Purchase
Agreement with various institutional investors for $150 million of unsecured,
senior notes. See “Senior Notes” below for more information.

22



In January 2008, our Board of
Directors declared a quarterly cash dividend payment of $.095 per common share,
payable on or about March 31, 2008. Our Board of Directors declared quarterly
cash dividends of $.075 per common share in January, May, August and November
2007, and cash dividends of $.06 per common share in January, May, August, and
November 2006. Also in January 2008 our Board of Directors approved a new
two-year $600 million stock repurchase program for fiscal 2008 and 2009.

Short-term trade credit represents
a significant source of financing for investments in merchandise inventory.
Trade credit arises from customary payment terms and trade practices with our
vendors. We regularly review the adequacy of credit available to us from all
sources and expect to be able to maintain adequate trade, bank and other credit
lines to meet our capital and liquidity requirements, including lease payment
obligations in 2008. 

We estimate that cash flows from
operations, bank credit lines and trade credit are adequate to meet operating
cash needs, fund our planned capital investments, repurchase common stock and
make quarterly dividend payments for at least the next twelve months.

Contractual Obligations

The table below presents our
significant contractual obligations as of February 2, 2008: 
































































































































































        ($000)           Less                                                 
                    than
      1           1 –
      3           3 –
      5           After
      5                 
        Contractual Obligations               year               years               years               years               Total¹     
        Senior
      Notes           $               
      -           $             
      -         $             
      -           $   150,000           $      150,000     
        Interest payment
      obligations           9,668           19,335           19,335           69,530           117,868      
        Operating
      leases:                                                             
           Rent
      obligations           307,991           550,483           421,637           457,863           1,737,974     
           Synthetic
      leases           10,494           8,688           8,182           2,045           29,409     
           Other
      synthetic lease obligations           4,733           1,317           --
              56,000           62,050     
        Purchase
      obligations           760,833           10,020           210           --           771,063     
           Total
      contractual obligations         $   1,093,719         $   589,843         $   449,364         $   735,438         $   2,868,364     
                                                    
      ¹ Pursuant to the guidelines of FIN 48, a $23.2
      million reserve for unrecognized tax benefits is included in other
      long-term liabilities on the Company’s consolidated balance sheet. These
      obligations are excluded from the schedule above as the timing of payments
      cannot be reasonably estimated.

Senior Notes. In October 2006, we entered into a Note Purchase
Agreement with various institutional investors for $150 million of unsecured,
senior notes. The notes were issued in two series and funding occurred in
December 2006. Series A notes were issued for an aggregate of $85 million, are
due in December 2018, and bear interest at a rate of 6.38%. Series B notes were
issued for an aggregate of $65 million, are due in December 2021, and bear
interest at a rate of 6.53%. Interest on these notes is included in Interest
payment obligations in the table above.

Borrowings under these notes are
subject to certain operating and financial covenants including maintaining
certain interest coverage and leverage ratios. As of February 2, 2008, we were
in compliance with these covenants. 

Off-Balance Sheet
Arrangements 

Operating leases.
All but two of our store sites, one of
our distribution centers, and our buying offices and corporate headquarters are
leased and, except for certain leasehold improvements and equipment, do not
represent long-term capital investments. 

23



We have lease arrangements for
certain equipment in our stores for our point-of-sale (“POS”) hardware and
software systems. These leases are accounted for as operating leases for
financial reporting purposes. The initial terms of these leases are two years,
and we typically have options to renew the leases for two to three one-year
periods. Alternatively, we may purchase or return the equipment at the end of
the initial or each renewal term. We have guaranteed the value of the equipment
of $6.1 million, at the end of the respective initial lease terms, which is
included in Other synthetic lease obligations in the table above. 

We lease approximately 181,000
square feet of office space for our corporate headquarters in Pleasanton,
California, under several facility leases. The terms for these leases expire
between 2010 and 2014 and contain renewal provisions.

The Company leases approximately
138,000 and 15,000 square feet of office space for our New York and Los Angeles
buying offices, respectively. The lease terms for these facilities expire in
2015 and 2011, respectively. The lease term for the New York office contains a
renewal provision. 

We lease a 1.3 million square foot
distribution center in Perris, California. The land and building for this
distribution center are financed under a $70 million ten-year synthetic lease
that expires in July 2013. Rent expense on this center is payable monthly at a
fixed annual rate of 5.8% on the lease balance of $70 million. At the end of the
lease term, we have the option to either refinance the $70 million synthetic
lease facility, purchase the distribution center at the amount of the
then-outstanding lease obligation, or arrange a sale of the distribution center
to a third party. If the distribution center is sold to a third party for less
than $70 million, we have agreed under a residual value guarantee to pay the
lessor any shortfall amount up to $56 million. Our contractual obligation of $56
million is included in Other synthetic lease obligations in the above table.

In accordance with Financial
Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 45, “Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others,” we have recognized a liability and
corresponding asset for the fair value of the residual value guarantee in the
amount of $8.3 million for the Perris, California distribution center and $0.6
million for the POS leases. These residual value guarantees are being amortized
on a straight-line basis over the original terms of the leases. The current
portion of the related asset and liability is recorded in prepaid expenses and
accrued expenses, respectively, and the long-term portion of the related assets
and liabilities is recorded in other long-term assets and other long-term
liabilities, respectively, in the accompanying consolidated balance sheets.

In November 2001 we entered into a
nine-year lease for a 239,000 square foot warehouse and a ten-year lease for a
246,000 square foot warehouse in Carlisle, Pennsylvania. In June 2006, we
entered into a two-year lease extension with one one-year option for a 253,000
square foot warehouse in Fort Mill, South Carolina, extending the term to
February 2009. In March 2008, we amended the term of this lease to February 2010
and obtained three three-year options. In August 2007, we entered into a
five-year lease for a 423,000 square foot warehouse also in Fort Mill, South
Carolina. All four of these properties are used to store our packaway inventory.
We also lease a 10-acre parcel which we currently have under construction for
future trailer parking adjacent to our Perris distribution center. 

The synthetic lease facilities
described above, as well as our revolving credit facility and senior notes, have
covenant restrictions requiring us to maintain certain interest coverage and
leverage ratios. In addition, the interest rates under these agreements may vary
depending on actual interest coverage ratios achieved. As of February 2, 2008,
we were in compliance with these covenants.

Purchase obligations.
As of February 2, 2008 we had purchase
obligations of $771.1 million. These purchase obligations primarily consist of
merchandise inventory purchase orders, commitments related to store fixtures and
supplies, and information technology service and maintenance contracts.
Merchandise inventory purchase orders of $692.9 million represent purchase
obligations of less than one year as of February 2, 2008. 

24



Commercial Credit Facilities

The table below presents our
significant available commercial credit facilities at February 2, 2008:



























































       
      ($000)         Amount of commitment
      expiration per period            Total  
                      Less
      than                1 -
      3               3 -
      5               After
      5               Amount 
       
      Commercial Credit Commitments         1 year           years           years           years     Committed 
        Revolving credit
      facility          $       
            -           $           
      -           $   
      600,000           $           
      -           $    600,000 
                   Total commercial commitments         $       
            -         $           
      -         $    600,000
            $           
      -         $    600,000 
           For additional information relating to this credit facility, refer
      to Note D of Notes to the Consolidated Financial Statements.             


Revolving credit
facility. We have available a $600
million revolving credit facility with our banks, which contains a $300 million
sublimit for issuance of standby letters of credit, of which $238.9 million was
available at February 2, 2008. In July 2006, we amended this facility to extend
the expiration date to July 2011 and change the letter of credit sublimit and
interest pricing. Interest is LIBOR-based plus an applicable margin (currently
45 basis points) and is payable upon borrowing maturity but no less than
quarterly. Our borrowing ability under this credit facility is subject to our
maintaining certain interest coverage and leverage ratios. As of February 2,
2008 we had no borrowings outstanding under this facility and were in compliance
with the covenants. 

Standby letters of credit.
We use standby letters of credit to
collateralize certain obligations related to our self-insured workers’
compensation and general liability claims. We had $61.1 million and $66.4
million in standby letters of credit outstanding at February 2, 2008 and
February 3, 2007, respectively. 

Trade letters of credit.
We had $20.8 million and $26.0 million
in trade letters of credit outstanding at February 2, 2008 and February 3, 2007,
respectively.

Other Activities

Distribution center purchase.
In May 2006, we exercised our option to
purchase our Fort Mill, South Carolina distribution center and paid cash in the
amount of $87.3 million to acquire the facility from the lessor. We estimated
the fair value of the components of the facility and the related equipment using
various valuation techniques, including appraisals, market prices, and cost
data. The amounts we recorded for each component were based on these fair value
estimates. 

Critical Accounting Policies

The preparation of our
consolidated financial statements requires our management to make estimates and
assumptions that affect the reported amounts. These estimates and assumptions
are evaluated on an ongoing basis and are based on historical experience and on
various other factors that management believes to be reasonable. We believe the
following critical accounting policies describe the more significant judgments
and estimates used in the preparation of our consolidated financial statements.

Merchandise
inventory. Our merchandise inventory is
stated at the lower of cost or market, with cost determined on a weighted
average cost basis. We purchase manufacturer overruns and canceled orders both
during and at the end of a season which are referred to as "packaway" inventory.
Packaway inventory is purchased with the intent that it will be stored in our
warehouses until a later date, which may even be the beginning of the same
selling season in the following year.

25



Included in the carrying value of
our merchandise inventory is a provision for shortage. The shortage reserve is
based on historical shortage rates as evaluated through our periodic physical
merchandise inventory counts and cycle counts. If actual market conditions,
markdowns, or shortage are less favorable than those projected by us, or if
sales of the merchandise inventory are more difficult than anticipated,
additional merchandise inventory write-downs may be required. 

Long-lived assets.
We record a long-lived asset impairment
charge when events or changes in circumstances indicate that the carrying amount
of a long-lived asset may not be recoverable based on estimated future cash
flows. An impairment loss would be recognized if analysis of the undiscounted
cash flow of an asset group was less than the carrying value of the asset group.
If our actual results differ materially from projected results, an impairment
charge may be required in the future. In the course of performing our annual
analysis, we determined that no long-lived asset impairment charge was required
for fiscal 2007, 2006, or 2005.

Depreciation and amortization
expense. Property and equipment are
stated at cost, less accumulated depreciation and amortization. Depreciation is
calculated using the straight-line method over the estimated useful life of the
asset, typically ranging from five to twelve years for equipment and 20 to 40
years for real property. The cost of leasehold improvements is amortized over
the lesser of the useful life of the asset or the applicable lease
term.

Lease accounting.
When a lease contains “rent holidays” or
requires fixed escalations of the minimum lease payments, we record rental
expense on a straight-line basis over the term of the lease and the difference
between the average rental amount charged to expense and the amount payable
under the lease is recorded as deferred rent. We amortize deferred rent on a
straight-line basis over the lease term commencing on the possession date.
Tenant improvement allowances are included in other long-term liabilities and
are amortized over the lease term. Tenant improvement allowances are included as
a component of operating cash flows in the consolidated Statements of Cash
Flows. 

Self-insurance. We self insure certain of our workers’ compensation and
general liability risks as well as certain coverages under our health plans. Our
self-insurance liability is determined actuarially, based on claims filed and an
estimate of claims incurred but not reported. Should a greater amount of claims
occur compared to what is estimated or the costs of medical care increase beyond
what was anticipated, our recorded reserves may not be sufficient and additional
charges could be required. 

Stock-based compensation.
We account for stock-based compensation
under the provisions of SFAS No. 123(R).

The determination of the fair
value of stock options and Employee Stock Purchase Plan (“ESPP”) shares, using
the Black-Scholes model, is affected by our stock price as well as assumptions
as to our expected stock price volatility over the term of the awards, actual
and projected employee stock option exercise behavior, the risk-free interest
rate and expected dividends. 

SFAS No. 123(R) requires companies
to estimate future expected forfeitures at the date of grant and revise those
estimates in subsequent periods if actual forfeitures differ from those
estimates. In previous fiscal years, we had recognized the impact of forfeitures
as they occurred. Starting in fiscal 2006, we use historical data to estimate
pre-vesting forfeitures and to recognize stock-based compensation expense. All
stock-based compensation awards are amortized on a straight-line basis over the
requisite service periods of the awards. 

Income Taxes. We adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (FIN 48), which supplements SFAS No. 109
“Accounting for Income Taxes” (SFAS No. 109) effective February 4, 2007. FIN 48
clarifies the criteria that an individual tax position must satisfy for some or
all of the benefits of that position to be recognized in a company’s
consolidated financial statements. FIN 48 prescribes a recognition threshold of
more-likely-than-not, and a measurement standard for all tax positions taken or
expected to be taken on a tax return, in order for those tax positions to be
recognized in the consolidated financial statements. 

26



The critical accounting policies
noted above are not intended to be a comprehensive list of all of our accounting
policies. In many cases, the accounting treatment of a particular transaction is
specifically dictated by Generally Accepted Accounting Principles (“GAAP”), with
no need for management’s judgment in their application. There are also areas in
which management’s judgment in selecting one alternative accounting principle
over another would not produce a materially different result. See our audited
consolidated financial statements and notes thereto under Item 8 in this Annual
Report on Form 10-K, which contain accounting policies and other disclosures
required by GAAP. 

Effects of inflation or
deflation. We do not consider the
effects of inflation or deflation to be material to our financial position and
results of operations. 

New Accounting
Pronouncements 

SFAS No. 157, “Fair Value
Measurements” (“SFAS No. 157”), is effective for fiscal years beginning after
November 15, 2007. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands required disclosures about fair value
measurements. We do not believe the adoption of SFAS No. 157 will have a
material impact on our operating results or financial position. 

SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”) is
effective for fiscal years beginning after November 15, 2007. SFAS No. 159
establishes a fair value option under which entities can elect to report certain
financial assets and liabilities at fair value, with changes in fair value
recognized in earnings. We do not believe the adoption of SFAS No. 159 will have
a material impact on our operating results or financial position. 

Forward-Looking Statements

Our Annual Report on Form 10-K for
fiscal 2007, and information we provide in our Annual Report to Stockholders,
press releases, telephonic reports and other investor communications including
on our website, may contain a number of forward-looking statements regarding,
without limitation, planned store growth, new markets, expected sales, projected
earnings levels, capital expenditures and other matters. These forward-looking
statements reflect our then current beliefs, projections and estimates with
respect to future events and our projected financial performance, operations and
competitive position. The words “plan,” “expect,” “anticipate,” “estimate,”
“believe,” “forecast,” “projected,” “guidance,” “looking ahead” and similar
expressions identify forward-looking statements. 

Future economic and industry
trends that could potentially impact revenue, profitability, and growth remain
difficult to predict. As a result, our forward-looking statements are subject to
risks and uncertainties which could cause our actual results to differ
materially from those forward-looking statements and our previous expectations
and projections. Refer to Item 1A in this Annual Report on Form 10-K for a more
complete discussion of risk factors for Ross and dd’s DISCOUNTS. The factors
underlying our forecasts are dynamic and subject to change. As a result, any
forecasts or forward-looking statements speak only as of the date they are given
and do not necessarily reflect our outlook at any other point in time. We do not
undertake to update or revise these forward-looking statements. 

27



ITEM
7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK. 
We are exposed to market risks,
which primarily include changes in interest rates. We do not engage in financial
transactions for trading or speculative purposes.

We occasionally use forward
contracts to hedge against fluctuations in foreign currency prices. We had no
outstanding forward contracts as of February 2, 2008. 

Interest that is payable on our
revolving credit facilities is based on variable interest rates and is,
therefore, affected by changes in market interest rates. In addition, lease
payments under certain of our synthetic lease agreements are determined based on
variable interest rates and are, therefore, affected by changes in market
interest rates. As of February 2, 2008, we had no borrowings outstanding under
our revolving credit facilities. In addition, we issued notes to institutional
investors in two series: Series A for $85.0 million accrues interest at 6.38%
and Series B for $65.0 million accrues interest at 6.53%. The amount outstanding
under these notes as of February 2, 2008 is $150.0 million. 

A hypothetical 100 basis point
increase in prevailing market interest rates would not have materially impacted
our consolidated financial position, results of operations, or cash flows as of
and for the year ended February 2, 2008. We do not consider the potential losses
in future earnings and cash flows from reasonably possible, near term changes in
interest rates to be material. 

28



ITEM 8.    
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 

CONSOLIDATED
STATEMENTS OF EARNINGS












































































































































































































                                               
            Year ended         Year
      ended         Year
      ended      
            February 2,         February
      3,           January
      28,       
      ($000, except per share data)      2008            2007            2006       
      SALES          $ 5,975,212           $  5,570,210           $  4,944,179       
        
      COSTS AND
      EXPENSES                                      
               Cost of goods sold      4,618,220         4,317,527           3,852,591       
               Selling, general and administrative            935,901           863,033           766,144       
       
             Interest income,
      net            (4,029)             (8,627)           (2,898)       
                    Total costs and expenses       5,550,092           5,171,933           4,615,837       
        
      Earnings before
      taxes            425,120         398,277           328,342       
      Provision for taxes on earnings            164,069           156,643           128,710       
      Net earnings             $  261,051
              $  241,634           $  199,632       
        
      EARNINGS PER
      SHARE                                    
              Basic          $     1.93         $     1.73           $     1.38       
              Diluted          $     1.90         $     1.70           $     1.36       
        
        
      WEIGHTED AVERAGE
      SHARES OUTSTANDING (000)              
              Basic            135,093           139,488           144,325       
              Diluted            137,142         141,883           146,532       
        
        
      DIVIDENDS 
                                      
              Cash dividends declared per share            $.320         $.255           $.220      
        
      The accompanying notes
      are an integral part of these consolidated financial
      statements.  
                                

29




 
CONSOLIDATED BALANCE SHEETS





















































































































































































































































































































































































































































































































               
                  February 2,                 February 3,          
              ($000, except share
      data)      2008           2007         
              ASSETS                                     
             
              CURRENT
      ASSETS                                     
                   Cash and cash
      equivalents          $     257,580               $     367,388      
                   Short-term
      investments              6,098                   5,247      
                   Accounts
      receivable              37,468                   30,105      
                   Merchandise
      inventory              1,025,295                   1,051,729      
                   Prepaid expenses
      and other              51,921                   44,245      
                   Deferred income
      taxes                  19,639                       16,242      
                       
      Total current assets              1,398,001                   1,514,956      
             
              PROPERTY AND
      EQUIPMENT                                     
                   Land and
      buildings              140,725                   134,804      
                   Fixtures and
      equipment              941,795                   859,750      
                   Leasehold
      improvements              482,904                   402,921      
                   Construction-in-progress                  88,900                       22,681      
                            1,654,324                   1,420,156      
                   Less accumulated
      depreciation and amortization                  786,009                       671,923      
                       
      Property and equipment, net              868,315                   748,233      
             
              Long-term
      investments              40,766                   31,136      
              Other long-term
      assets                  64,240                       64,266      
              Total
    assets            $     2,371,322                 $     2,358,591      
             
              LIABILITIES AND STOCKHOLDERS'
      EQUITY                                     
             
              CURRENT
      LIABILITIES                                     
                   Accounts
      payable          $     637,158               $     698,063      
                   Accrued expenses
      and other                217,923                     206,516      
                   Accrued payroll
      and benefits              133,706                   145,101      
                   Income taxes
      payable                  21,818                       33,577      
                       
      Total current liabilities              1,010,605                   1,083,257      
             
              Long-term
    debt              150,000                   150,000      
              Other long-term
      liabilities              161,169                     129,303      
              Deferred income
      taxes              78,899                   86,201      
             
              Commitments and
      contingencies                                     
             
              STOCKHOLDERS'
      EQUITY                                     
                   Common stock,
      par value $.01 per share                                     
                       
      Authorized 600,000,000 shares                                     
                       
      Issued and outstanding 134,096,000 and 139,356,000 shares,
      respectively              1,341                   1,402      
                   Additional
      paid-in capital              577,787                   545,702      
                   Treasury
      stock              (25,910)                   (22,031)      
                   Accumulated
      other comprehensive income (loss)              1,340                   (163)      
                   Retained
      earnings                  416,091                       384,920      
              Total stockholders’
      equity                  970,649                       909,830      
              Total liabilities and
      stockholders’ equity            $     2,371,322                 $     2,358,591       
             
              The accompanying notes are an integral part of these consolidated
      financial
  statements.    

30





CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY 



















































































































































































































































































































































































































































































































































































































































































































































































































      
                                                    Accumulated                 
                          Additional                 Deferred         other com-                 
          Common stock         paid-in         Treasury         compen-         prehensive         Retained         
       (000)     Shares               Amount               capital               stock               sation               income (loss)               earnings               Total
       Balance at
      January 29, 2005     146,717           $1,472           $449,524           $(11,618)           $     (25,266)           $     -           $351,457           $765,569
                                                                        
       Comprehensive
      income:                                                                 
          Net earnings     -         -         -         -         -             -         199,632         199,632
          Unrealized
      investment gain     -         -         -         -         -             20         -         20
       Total comprehensive income                                                                 199,652
       Common stock issued
      under stock                                                                 
          plans,
      net of shares used for tax withholding     3,816         40         66,717         (6,626)         (20,777)             -         -         39,354
       Tax benefit from equity issuance     -         -         21,947         -         -             -         -         21,947
       Amortization of
      deferred compensation     -         -         -         -         16,668             -         -         16,668
       Common stock repurchased     (6,421)         (64)         (15,622)         -         -             -         (159,314)         (175,000)
       Dividends
      declared     -         -         -         -         -             -         (32,018)         (32,018)
       
       Balance at
      January 28, 2006     144,112         $1,448         $522,566         $(18,244)         $     (29,375)            
       $     20         $359,757         $836,172
                                                                        
       Reclassification of
      deferred compensation     -         -         (29,375)         -         29,375             -         -         -
       Comprehensive income:                                                                 
          Net
      earnings     -         -         -         -         -             -         241,634         241,634
          Unrealized investment
    loss     -         -         -         -         -             (183)         -         (183)
       Total comprehensive
      income                                                                 241,451
       Common stock issued under stock                                                                 
          plans, net of shares used for
      tax withholding     2,343         25         32,492         (3,787)         -             -         -         28,730
       Tax benefit from equity
      issuance     -         -         12,090         -         -             -         -         12,090
       Stock based compensation     -         -         26,680         -         -             -         -         26,680
       Common stock
      repurchased     (7,099)         (71)         (18,751)         -         -             -         (181,178)         (200,000)
       Dividends declared     -         -         -         -         -             -         (35,293)         (35,293)
       
       Balance at
      February 3, 2007     139,356         $1,402         $545,702         $(22,031)         $     -         $     (163)         $384,920         $909,830
       
       Comprehensive
      income:                                                                 
          Net earnings     -         -         -         -         -             -         261,051         261,051
          Unrealized
      investment gain     -         -         -         -         -             1,503         -         1,503
       Total comprehensive income                                                                 262,554
       Cumulative effect of
      FIN 48 adoption     -         -         -         -         -             -         (7,417)         (7,417)
       Common stock issued under stock                                                                 
          plans, net of shares used for
      tax withholding     1,612         8         20,745         (3,879)         -             -         -         16,874
       Tax benefit from equity
      issuance     -         -         6,535         -         -             -         -         6,535
       Stock based compensation     -         -         25,165         -         -             -         -         25,165
       Common stock
      repurchased     (6,872)         (69)         (20,360)         -         -             -         (179,571)         (200,000)
       Dividends declared     -         -         -         -         -             -         (42,892)         (42,892)
                                                                        
       Balance at
      February 2, 2008     134,096         $1,341         $577,787         $(25,910)         $     -         $     1,340         $416,091         $970,649
       
       The accompanying notes are an integral part of
      these consolidated financial
  statements.
 


31




     CONSOLIDATED STATEMENTS OF CASH FLOWS 





















































































































































































































































































































































































































































































































































































































































































































                  Year ended     
             Year ended     
              Year ended       
                  February 2,           February 3,           January 28,       
             
      ($000)      2008           2007           2006       
              CASH FLOWS FROM OPERATING ACTIVITIES                                                          
              Net earnings             $     261,051                 $
    241,634                  $     199,632       
              Adjustments to reconcile net earnings to
      net                                                          
                cash provided by operating
      activities:                                                          
                   Depreciation and amortization              120,699                   108,135                     94,180       
                   Stock-based compensation              25,165                   26,680                     16,668       
                   Deferred income taxes              (10,699)                   (10,684)                     (2,590)       
                   Tax benefit from equity issuance              6,535                   12,090                     21,947       
                   Excess tax benefits from stock-based
      compensation              (5,140)                   (9,599)                     -
      
              Change in assets and
      liabilities:                                                          
                   Merchandise inventory              26,434                   (113,638)                     (84,979)       
                   Other current assets, net              (15,039)                   (8,138)                     11,698       
                   Accounts payable              (63,199)                   221,644                     21,448       
                   Other current liabilities              (18,716)                   34,417                     94,670       
                   Other long-term, net                  26,468                       4,326                        2,517       
                   Net cash provided by operating
      activities                  353,559                       506,867                        375,191        
              
              CASH FLOWS USED IN INVESTING ACTIVITIES                                                          
              Purchase of assets under lease 
                -                   (87,329)                     -
      
              Other additions to property and
      equipment                (236,121)                   (136,626)                     (175,851     )  
              Proceeds from sales of property and
      equipment              356                   615
                        -
      
              Purchases of investments              (146,082)                   (71,938)                     (313,569)       
              Proceeds from investments                  137,104                        59,337                         357,024       
                   Net cash used in investing activities 
                    (244,743)                        (235,941)                          (132,396)       
              
              CASH FLOWS USED IN FINANCING ACTIVITIES                                                          
              Payment of term debt              -                   (50,000)                     -
      
              Proceeds from issuance of long-term
      debt              -                   150,000                     -       
              Excess tax benefit from stock-based
      compensation              5,140                   9,599                     -
      
              Issuance of common stock related to stock
      plans              20,753                   32,517                     45,982       
              Treasury stock purchased              (3,879)                   (3,787)                     (6,626)      
              Repurchase of common stock              (200,000)                   (200,000)                     (175,000)       
              Dividends paid                   (40,638)                        (33,634)                         (30,715)       
                   Net cash used in financing activities 
                    (218,624)                          (95,305)                         (166,359)       
              Net (decrease) increase in cash and cash
      equivalents              (109,808)                   175,621                       76,436       
               
              Cash and cash equivalents:                                                          
                   Beginning of year                  367,388                        191,767                          115,331       
                   End of year             $     257,580                  $     367,388                   $     191,767        
              
              SUPPLEMENTAL CASH FLOW DISCLOSURES                                                            
              Interest paid           $     9,668               $
    759
                   $     2,543       
              Income taxes paid             $     164,223                 $     147,122                $     74,120       
             
      NON-CASH INVESTING ACTIVITIES                                                              
              Straight-line rent capitalized in build-out
      period             $     -               $     -                $     3,290       
              Change in fair value of investment
      securities –                                                          
                   unrealized gain (loss)             $      1,503                 $     (183)                   $     20       
              
            The
      accompanying notes are an integral part of these consolidated financial
      statements.       

32



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note A: Summary of Significant
Accounting Policies 
Business. Ross Stores, Inc.
and its subsidiaries (the “Company”) is an off-price retailer of first-quality,
name brand apparel, shoes and accessories for the entire family, as well as gift
items, linens and other home-related merchandise. At the end of fiscal 2007,
there were 838 Ross Dress for Less^® (“Ross”) locations in 27 states
and Guam and 52 dd’s DISCOUNTS^® stores in four states, which are
supported by four distribution centers. The Company’s headquarters, two
distribution centers and 26% of its stores are located in California.

Basis of presentation and
fiscal year. The consolidated financial
statements include the accounts of the Company and its subsidiaries, all of
which are wholly-owned. Intercompany transactions and accounts have been
eliminated. The Company follows the National Retail Federation fiscal calendar
and utilizes a 52-53 week fiscal year whereby the fiscal year ends on the
Saturday nearest to January 31. The fiscal years ended February 2, 2008,
February 3, 2007 and January 28, 2006 are referred to as fiscal 2007, fiscal
2006 and fiscal 2005, respectively. Fiscal 2006 was 53 weeks. Fiscal 2007 and
2005 were 52 weeks.

Use of accounting estimates.
The preparation of consolidated
financial statements in conformity with Generally Accepted Accounting Principles
in the United States of America (“GAAP”) requires the Company to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. The
Company’s significant accounting estimates include valuation of merchandise
inventory and long-lived assets, and accruals for self-insurance.

Purchase obligations.
As of February 2, 2008, the Company had
purchase obligations of $771.1 million. These purchase obligations primarily
consist of merchandise inventory purchase orders, commitments related to store
fixtures and supplies, and information technology service and maintenance
contracts. Merchandise inventory purchase orders of $692.9 million represent
purchase obligations of less than one year as of February 2, 2008.

Cash and cash equivalents.
Cash and cash equivalents are highly
liquid, fixed income instruments purchased with an original maturity of three
months or less.

Investments. The Company’s investments are comprised of various debt
and equity investment securities. At February 2, 2008 and February 3, 2007,
these investments were classified as available-for-sale and are stated at fair
value. Investments are classified as either short-term or long-term based on
their original maturities. Investments with an original maturity of less than
one year are classified as short-term. See Note B for additional
information.

Merchandise inventory.
Merchandise inventory is stated at the
lower of cost (determined using a weighted average basis) or net realizable
value. The Company purchases manufacturer overruns and canceled orders both
during and at the end of a season which are referred to as "packaway" inventory.
Packaway inventory is purchased with the intent that it will be stored in the
Company's warehouses until a later date, which may even be the beginning of the
same selling season in the following year. Packaway inventory accounted for
approximately 38% of total inventories as of February 2, 2008 and February 3,
2007. The cost of the Company’s merchandise inventory is reduced by valuation
reserves for shortage based on historical shortage experience from the Company’s
physical merchandise inventory counts and cycle counts.

Cost of goods sold.
In addition to product costs,
the Company includes in cost of goods sold its buying, distribution and freight
expenses as well as occupancy costs, and depreciation and amortization related
to the Company’s retail stores, buying and distribution facilities. Buying
expenses include costs to procure merchandise inventories. Distribution expenses
include the cost of operating the Company’s distribution centers. Beginning in
fiscal 2006, the portion of stock option and employee stock purchase plan
(“ESPP”) expenses included in stock-based compensation expense for personnel in
the merchandising and distribution organizations is included in cost of goods
sold. 

33



Property and equipment.
Property and equipment are stated at
cost, less accumulated depreciation and amortization. Depreciation is calculated
using the straight-line method over the estimated useful life of the asset,
typically ranging from five to twelve years for equipment and 20 to 40 years for
real property. Depreciation and amortization expense on property and equipment
was $120.7 million, $107.8 million and $93.7 million for fiscal 2007, 2006 and
2005, respectively. The cost of leasehold improvements is amortized over the
useful life of the asset or the applicable lease term, whichever is less.
Computer hardware and software costs, net of amortization, of $136.4 million and
$147.9 million at February 2, 2008 and February 3, 2007, respectively, are
included in fixtures and equipment and are amortized over their estimated useful
life generally ranging from five to seven years. The Company capitalizes
interest during the construction period. Interest capitalized was $0.9 million
and $0.0 million in fiscal 2007 and fiscal 2006, respectively. 

In May 2006, the Company exercised
its option to purchase its Fort Mill, South Carolina distribution center and
paid cash in the amount of $87.3 million to acquire the facility from the
lessor. The Company estimated the fair value of the components of the facility
and the related equipment using various valuation techniques, including
appraisals, market prices, and cost data. Amounts recorded for each component
were based on these fair value estimates. 

Other long-term
assets. Other long-term assets as of
February 2, 2008 and February 3, 2007 consist of the following: 


































































                                                                  
           
      ($000)            2007                      2006  
            Deferred
      compensation           $      48,174         $      47,000  
            Goodwill            2,889               2,889  
              Deposits 
            3,270                 3,350  
            Intangibles and
      other            9,907                 11,027  
                Total        $     64,240           $     64,266  
                                            


Intangible assets are principally
comprised of lease rights, which are payments made to acquire store leases. An
impairment loss would be recognized if the undiscounted cash flow of an asset
group was less than the carrying value of the asset group. Lease rights are
amortized over the remaining life of the lease. Amortization expense related to
these intangible assets was $0.0 million, $0.3 million and $0.5 million for
fiscal 2007, 2006 and 2005, respectively.

Other long-term assets and certain
identifiable intangibles that are subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Intangible assets that are
not subject to amortization, including goodwill, are tested for impairment
annually or more frequently if events or changes in circumstances indicate that
the asset may be impaired. Based on the Company’s evaluation as of February 2,
2008 and February 3, 2007, no adjustments were required to reduce the carrying
value of intangible assets to fair value. 

Store closures. The Company continually reviews the operating
performance of individual stores. For stores that are to be closed, the Company
records a liability for future minimum lease payments and related ancillary
costs at the time the liability is incurred. Operating costs, including
depreciation, of stores to be closed are expensed during the period they remain
in use. 

Accounts payable.
Accounts payable represents amounts owed
to third parties at the end of the period. Accounts payable includes book cash
overdrafts (checks issued under zero balance accounts not yet presented for
payment) in excess of cash balances in such accounts of approximately $102.0
million and $165.0 million at February 2, 2008 and February 3, 2007,
respectively. The Company includes the change in book cash overdrafts in
operating cash flows.

34



Self-insurance. The Company is self-insured for workers’ compensation,
general liability insurance costs and costs of certain medical plans. The
self-insurance liability is determined actuarially, based on claims filed and an
estimate of claims incurred but not yet reported. Self-insurance reserves as of
February 2, 2008 and February 3, 2007 consist of the following: 


























































                       
                                              
            ($
      millions)            2007                 2006  
            Workers’
      Compensation           $     59.2         $      60.9  
            General
      Liability          16.3               16.5 
    
            Medical
      Plans            2.7                 2.8  
                 
      Total          
      $     78.2           $      80.2  
                                         


Workers’ compensation and
self-insured medical plan liabilities are included in accrued payroll and
benefits and accruals for general liability are included in accrued expenses and
other in the accompanying consolidated balance sheets. 

Lease
accounting. When a lease contains “rent
holidays” or requires fixed escalations of the minimum lease payments, the
Company records rental expense on a straight-line basis over the term of the
lease and the difference between the average rental amount charged to expense
and the amount payable under the lease is recorded as deferred rent. The Company
amortizes deferred rent on a straight-line basis over the lease term commencing
on the possession date. As of February 2, 2008 and February 3, 2007, the balance
of deferred rent was $55.7 million and $47.2 million, respectively, and is
included in other long-term liabilities. Tenant improvement allowances are
included in other long-term liabilities and are amortized over the lease term.
Changes in tenant improvement allowances are included as a component of
operating activities in the consolidated statement of cash flows. 

Other long-term liabilities.
Other long-term liabilities as of
February 2, 2008 and February 3, 2007 consist of the following: 





































































                       
                                               
           
      ($000)            2007                 2006  
              Deferred
      rent           $     55,655          
      $     47,236 
  
            Deferred
      compensation            48,174               47,000  
            Income taxes (See Note
      F)            23,221               -  
            Tenant improvement
      allowances            29,942               30,228  
            Other            4,177                 4,839  
                 
      Total      $     161,169             $     129,303  
           


Estimated fair value of
financial instruments. The carrying
value of cash and cash equivalents, short-term and long-term investments,
accounts receivable, accounts payable and long-term debt approximates their
estimated fair value.

Revenue
recognition. The Company recognizes
revenue at the point of sale, net of actual returns, and maintains an allowance
for estimated future returns. Sales of gift cards are deferred until they are
redeemed for the purchase of Company merchandise. Sales tax collected is not
recognized as revenue and is included in accrued expenses and other.

35



Allowance for sales returns.
An allowance for the gross margin loss
on estimated sales returns is included in accrued expenses and other in the
consolidated balance sheets. The allowance for sales returns consists of the
following: 




































































































              
      Beginning                         
      Ending       
        ($000)              
      balance              
      Additions              
      Reductions              
      balance     
        Year ended:                                                     
        February 2, 2008         $      4,320         $ 
    408,434         $ 
          408,195         
      $     4,559     
        February 3, 2007         $      6,101         $      376,173         $      377,954         $     4,320     
        January 28, 2006         $
     4,832         $      350,081         $      348,812         $     6,101     
                                                          


Store pre-opening.
Store pre-opening costs are expensed in
the period incurred.

Advertising. Advertising costs are expensed in the period incurred.
Advertising costs for fiscal 2007, 2006 and 2005 were $50.2 million, $45.5
million and $44.2 million, respectively.

Stock-based compensation.
Effective in fiscal 2006, the Company
adopted SFAS No. 123(R) and elected to adopt the standard using the modified
prospective transition method. SFAS No. 123(R) replaces SFAS No. 123,
“Accounting for Stock-Based Compensation,” and supersedes Accounting Principles
Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” This
accounting standard requires recognition of compensation expense based upon the
grant date fair value of all stock-based awards, typically over the vesting
period. See Note C for more information on the Company’s stock-based
compensation plans.

Taxes on earnings.
SFAS No. 109, “Accounting for Income
Taxes,” requires income taxes to be accounted for under an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's consolidated financial statements or tax returns. In estimating
future tax consequences, the Company generally considers all expected future
events other than changes in the tax law or tax rates. 

The Company adopted FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48),
which supplements SFAS No. 109 “Accounting for Income Taxes” (SFAS No. 109)
effective February 4, 2007. FIN 48 clarifies the criteria that an individual tax
position must satisfy for some or all of the benefits of that position to be
recognized in a company’s consolidated financial statements. FIN 48 prescribes a
recognition threshold of more-likely-than-not, and a measurement standard for
all tax positions taken or expected to be taken on a tax return, in order for
those tax positions to be recognized in the consolidated financial statements.

Treasury stock.
The Company records treasury stock at
cost. Treasury stock includes shares purchased from employees for tax
withholding purposes related to vesting of restricted stock
grants. 

Earnings per
share (“EPS”). SFAS No. 128, “Earnings
Per Share,” requires earnings per share to be computed and reported as both
basic EPS and diluted EPS. Basic EPS is computed by dividing net earnings by the
weighted average number of common shares outstanding for the period. Diluted EPS
is computed by dividing net earnings by the sum of the weighted average number
of common shares and dilutive common stock equivalents outstanding during the
period. Diluted EPS reflects the total potential dilution that could occur from
outstanding equity plan awards, including unexercised stock options and unvested
shares of both performance and non-performance based awards of restricted
stock.

In fiscal 2007, 2006 and 2005
there were 1,277,000, 3,114,000, and 2,778,000 weighted average shares,
respectively, that could potentially dilute basic EPS in the future that were
excluded from the calculation of diluted EPS because their effect would have
been anti-dilutive (option exercise price exceeds average stock price) in the
periods presented.

36



The following is a reconciliation
of the number of shares (denominator) used in the basic and diluted EPS
computations: 










































































































































                        
      Effect of dilutive
              
          
            
      Basic     
            
      common stock     
            
      Diluted 
        Shares in
      (000s)      
      EPS           
      equivalents           
      EPS 
        2007                                                           
           Shares            135,093              2,049                   137,142  
    
           Amount      $     1.93          $     (.03)               $     1.90  
  
        
        2006                                            
           Shares          139,488              2,395                   141,883   
           Amount      $     1.73          $     (.03)               $     1.70  
        
        2005                                            
           Shares          144,325              2,207                   146,532   
           Amount      $     1.38          $     (.02)               $     1.36  
                                                              


Segment reporting.
The Company has one reportable operating
segment. The Company’s operations include only activities related to off-price
retailing in stores throughout the United States and, therefore, comprise only
one segment. 

Comprehensive
income. Comprehensive income consists of
net earnings and other comprehensive income, principally unrealized investment
gains and losses. Components of comprehensive income are presented in the
consolidated statements of stockholders’ equity. 

Derivative instruments and
hedging activities. SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” as amended,
requires the Company to record all derivatives as either assets or liabilities
on the balance sheet and to measure those instruments at fair value. The Company
had no derivative instruments as of February 2, 2008 or February 3, 2007.

New accounting pronouncements.

SFAS No. 157, “Fair Value
Measurements” (“SFAS No. 157”), is effective for fiscal years beginning after
November 15, 2007. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands required disclosures about fair value
measurements. The Company does not believe the adoption of SFAS No. 157 will
have a material impact on the Company’s operating results or financial position.

SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”) is
effective for fiscal years beginning after November 15, 2007. SFAS No. 159
establishes a fair value option under which entities can elect to report certain
financial assets and liabilities at fair value, with changes in fair value
recognized in earnings. The Company does not believe the adoption of SFAS No.
159 will have a material impact on the Company’s operating results or financial
position. 

37



Note B: Investments

The amortized cost and fair value
of the Company’s available-for-sale securities as of February 2, 2008 were:




















































































































































































          
      Amortized           
      Unrealized     
            
      Unrealized           
      Fair         
      Short-           
      Long-
      ($000)     
      cost            
      gains     
             
      losses            
      value     
             
      term            
      term
      Auction-rate
    securities     $     5,900           $     -           $     -           $     5,900         $     4,000           $     1,900
      Asset-backed securities         1,446             17             35             1,428             862             566
      Corporate
securities         13,644             227             184             13,687             428             13,259
      U.S. Government and agency                                                                     
           securities         16,482             1,133             -             17,615             350             17,265
      Mortgage-backed
      securities         8,052             217             35             8,234             458             7,776
           Total     $     45,524         $     1,594         $     254               46,864         $     6,098         $     40,766
                                                                            


The amortized cost and fair value
of the Company’s available-for-sale securities as of February 3, 2007
were:





















































































































































































          
      Amortized           
      Unrealized     
            
      Unrealized           
      Fair         
      Short-           
      Long-
      ($000)     
      cost            
      gains     
             
      losses            
      value     
             
      term            
      term
      Auction-rate
    securities     $     3,200           $     -           $     -           $      3,200         $     3,200           $     -
      Asset-backed securities         2,788             -             13             2,775             299             2,476
      Corporate
securities         13,652             8             80             13,580             1,748             11,832
      U.S. Government and
    agency                                                                     
           securities         11,297             1             81             11,217             -             11,217
      Mortgage-backed
      securities         5,609             12             10             5,611             -             5,611
           Total     $     36,546         $     21         $     184         $     36,383         $     5,247         $     31,136
                                                                            

The maturities of investment
securities at February 2, 2008 were: 































































                        Estimated
      ($000)         Cost basis            fair
      value
      Maturing in one year or
      less         $     6,069         $     6,098
      Maturing after one year through
      five years             21,789             22,367
      Maturing after five years
      through ten years             16,249             16,959
      Maturing after ten
years             1,417             1,440
          Total         $     45,524         $     46,864
                                

38



The maturities of investment
securities at February 3, 2007 were as follows: 































































                               Estimated  
        ($000)                 Cost basis                  fair value  
        Maturing in one year or less               $      5,249          $      5,247   
        Maturing after one year through five
      years                 18,906                18,861   
        Maturing after five years through ten
      years                 12,391                12,275   
        Maturing after ten years                  -                  -   
           Total              $      36,546            $      36,383   
                                           

At February 2, 2008, one $150,000
security with a gross unrealized loss of $5,000 had been in a continuous
unrealized loss position for more than 12 months. Investments of $6.4 million
with gross unrealized losses of $200,000 had been in a continuous unrealized
loss position for less than 12 months. The unrealized losses on our investments
were caused primarily by the decline in the residential mortgage investment
sector of the market and were not due to the credit quality of the issuers. We
do not consider these investments to be other than temporarily impaired at
February 2, 2008. 

Note C: Stock-based
compensation 
The Company adopted the provisions
of SFAS No. 123(R) on January 29, 2006, the beginning of fiscal 2006, using the
modified prospective method. Under SFAS No. 123(R), compensation expense is
recognized based on the grant date fair value of stock-based compensation awards
granted in fiscal 2006 and later, and based on the unvested portion of awards
from prior year grants that were outstanding as of January 28, 2006. Stock-based
awards are valued using the Black-Scholes option pricing model, consistent with
the Company’s prior pro forma disclosures under SFAS No. 123. Compensation
expense for unvested awards outstanding at the date of adoption is recognized
over the remaining vesting period using the compensation cost calculated for
purposes of the prior pro forma disclosures. For awards granted after the
adoption date, the Company recognizes expense based on the fair value of the
award on a straight-line basis over the applicable vesting period. 

For fiscal 2007, 2006 and 2005 the
Company recognized stock-based compensation expense as follows: 


















































        ($000)        2007                  2006                  2005  
        Stock options and ESPP             $      9,083          $      13,221          $      -   
        Restricted stock and performance awards 
              16,082                  13,459                  16,668   
             Total      $      25,165 
          $      26,680            $      16,668   
                                                          


Capitalized stock-based
compensation cost was not significant in any year.

The determination of the fair
value of stock options and ESPP purchase rights, using the Black-Scholes model,
is affected by the Company’s stock price as well as assumptions as to the
Company’s expected stock price volatility over the term of the awards, actual
and projected employee stock option exercise behavior, the risk-free interest
rate, and expected dividends. 

The Company estimates the expected
term of options granted taking into account historical and expected future
exercise, cancellation and forfeiture behavior. The Company estimates the
volatility of the common stock by using historical volatility over a period
equal to the award’s expected term. The risk-free interest rates that are used
in the valuation models are based upon yields of U.S. Treasury issues with
remaining terms similar to the expected term on the options. Dividend yield has
been estimated based on the Company’s expectation as to future dividend
payouts.

39



SFAS No. 123(R) requires companies
to estimate future expected forfeitures at the date of grant and revise those
estimates in subsequent periods if actual forfeitures differ from those
estimates. In previous fiscal years, the Company had recognized the impact of
forfeitures as they occurred. Now, the Company uses historical data to estimate
pre-vesting forfeiture rates in determining the amount of stock-based
compensation expense to recognize. All stock-based compensation awards are
amortized on a straight-line basis over the requisite service periods of the
awards. 

At February 2, 2008, the Company
had two stock-based compensation plans, which are further described in Note H.
The fair value of stock options and ESPP rights granted during the respective
periods under these plans were estimated using the Black-Scholes option pricing
model and the following weighted average assumptions:































































































        Stock
      Options      2007            2006            2005        
        Expected life from grant date (years) 
    3.9            4.2            3.5        
        Expected volatility      28.4      %      32.5      %      33.7      %   
        Risk-free interest rate      4.7      %      4.6      %      3.9      %   
        Dividend yield      0.9      %      0.8      %      0.7      %   
         
         
        Employee Stock Purchase
      Plan      2007            2006            2005        
        Expected life from grant date (years) 
    1.0            1.0            1.0        
        Expected volatility      26.4      %      26.7      %      32.9      %   
        Risk-free interest rate      5.0      %      4.5      %      4.5      %   
        Dividend yield      0.9      %      0.8      %      0.8      %   
                                           

Total stock-based compensation
recognized in the Company’s consolidated Statements of Earnings for fiscal 2007,
2006 and 2005 is as follows: 















































       
       
      Statements of Earnings Classification ($000)                   2007                          2006                        2005   
        Cost of goods
      sold      $      10,736          $      11,475            $      7,984  
  
        Selling, general
      and administrative            14,429                    15,205                    8,684   
           Total      $      25,165 
          $      26,680            $      16,668   
       


40



Prior to fiscal 2006, the Company
had accounted for share-based compensation costs in accordance with APB No. 25,
as permitted by SFAS No. 123. Had compensation costs for the Company's stock
option plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the methods of SFAS No. 123, the
Company’s net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below: 





















































































       
       
      ($000, except per share data)                  2005       
        Net
      earnings      As reported         $      199,632       
       
        Add:
      Stock-based employee compensation expense                  
       
      included in reported net earnings, net of tax            10,134       
       
       
      Deduct: Stock-based employee compensation                  
       
      expense determined under the fair value based                  
        method for all
      awards, net of tax                  (19,793     )   
       
        Net
      earnings      Pro forma         $      189,973       
       
        Basic earnings per
      share      As reported          $      1.38       
            Pro
      forma          $      1.32
          
       
        Diluted earnings
      per share      As reported          $      1.36       
            Pro
      forma          $      1.30
          
       

The weighted average fair values
per share of stock options granted during fiscal 2007, 2006 and 2005 were $9.12,
$8.52 and $7.85, respectively. The weighted average fair values per share of
employee stock purchase awards for fiscal 2007, 2006 and 2005 were $8.02, $7.72
and $7.97, respectively. 

Note D: Debt 

Bank credit
facilities. In July 2006, the Company
amended its existing $600 million revolving credit facility with its banks,
extending the expiration date to July 2011, extending the standby letter of
credit sublimit to 50% of the revolving credit, and changing the interest rate
to LIBOR plus 45 basis points. This facility contains a $300 million sublimit
for issuance of standby letters of credit, of which $238.9 million was available
at February 2, 2008. Interest is payable upon borrowing maturity but no less
than quarterly. Borrowing under this credit facility is subject to the Company
maintaining certain interest coverage and leverage ratios. The Company had no
borrowings outstanding under this facility as of February 2, 2008 and was in
compliance with the covenants.

Term debt. In March 2006, the Company repaid its $50 million term
debt in full. The borrowing was made in 2002 to finance equipment and
information systems for the Company’s Perris, California distribution center.

Senior Notes. In October 2006, the Company entered into a Note
Purchase Agreement with various institutional investors for $150 million of
unsecured senior notes. The notes were issued in two series and funding occurred
in December 2006. Series A notes were issued, for an aggregate of $85 million,
are due in December 2018 and bear interest at a rate of 6.38%. Series B notes
were issued, for an aggregate of $65 million, are due in December 2021 and bear
interest at a rate of 6.53%. The fair value of these notes as of February 2,
2008 of approximately $147 million is estimated by obtaining market quotes.
Borrowings under these notes are subject to certain operating and financial
covenants including maintaining certain interest coverage and leverage ratios.
As of February 2, 2008, the Company was in compliance with these covenants.

41



Letters of credit.
The Company uses standby letters of
credit to collateralize certain obligations related to its self-insured workers’
compensation and general liability programs. The Company had $61.1 million and
$66.4 million in standby letters of credit and $20.8 million and $26.0 million
in trade letters of credit outstanding at February 2, 2008 and February 3, 2007,
respectively.

Note E: Leases 
The Company leases all but two of
its store sites with original, non-cancelable terms that in general range from
three to ten years. In addition, the Company leases selected computer and other
related equipment under operating leases, expiring through 2020. Store leases
typically contain provisions for three to four renewal options of five years
each. Most store leases also provide for minimum annual rentals and for payment
of certain expenses. In addition, some store leases also have provisions for
additional rent based on a percentage of sales.

The Company has lease arrangements
for certain equipment in its stores for its point-of-sale (“POS”) hardware and
software systems. These leases are accounted for as operating leases for
financial reporting purposes. The initial terms of these leases are three years
and the Company typically has options to renew the leases for two to three
one-year periods. Alternatively, the Company may purchase or return the
equipment at the end of the initial or each renewal term. The Company’s
obligation under the residual value guarantee at the end of the respective lease
terms is $6.1 million. 

The Company also leases a 1.3
million square foot distribution center in Perris, California. This distribution
center is being financed under a $70 million ten-year synthetic lease facility
that expires in July 2013. Rent expense on this distribution center is payable
monthly at a fixed annual rate of 5.8% on the lease balance of $70 million. At
the end of the lease term, the Company must either refinance the $70 million
synthetic lease facility, purchase the distribution center at the amount of the
then-outstanding lease balance, or arrange a sale of the distribution center to
a third party. If the distribution center is sold to a third party for less than
$70 million, the Company has agreed under a residual value guarantee to pay the
lessor any shortfall amount up to $56 million.

In accordance with FIN No. 45,
“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others,” the Company has recognized a
liability and corresponding asset for the fair value of the residual value
guarantee in the amount of $8.3 million for the Perris, California distribution
center and $0.6 million for the POS leases. These residual value guarantees are
being amortized on a straight-line basis over the original terms of the leases.
The current portion of the related asset and liability is recorded in “Prepaid
expenses and other” and “Accrued expenses and other,” respectively, and the
long-term portion of the related assets and liabilities is recorded in “Other
long-term assets” and “Other long-term liabilities,” respectively, in the
accompanying consolidated balance sheets.

In November 2001, the Company
entered into a nine-year lease for a 239,000 square foot warehouse and a
ten-year lease for a 246,000 square foot warehouse in Carlisle, Pennsylvania. In
June 2006, the Company entered into a two-year lease extension with one one-year
option for a 253,000 square foot warehouse in Fort Mill, South Carolina,
extending the term to February 2009. In March 2008, the Company amended the term
of this lease to February 2010 and obtained three three-year options. In August
2007, the Company entered into a five-year lease for a 423,000 square foot
warehouse also in Fort Mill, South Carolina. All four of these properties are
used to store the Company’s packaway inventory. The Company also leases a
10-acre parcel which it currently has under construction for future trailer
parking adjacent to its Perris distribution center.

The synthetic lease facilities
described above, as well as the Company’s revolving credit facility and senior
notes, have covenant restrictions requiring the Company to maintain certain
interest coverage and leverage ratios. In addition, the interest rates under
these agreements may vary depending on the Company’s actual interest coverage
ratios. As of February 2, 2008, the Company was in compliance with these
covenants.

42



The Company leases approximately
181,000 square feet of office space for its corporate headquarters in
Pleasanton, California, under several facility leases. The lease terms for these
facilities expire between 2010 and 2014 and contain renewal
provisions.

The Company leases approximately
138,000 and 15,000 square feet of office space for its New York and Los Angeles
buying offices, respectively. The terms for these leases expire in 2015 and
2011, respectively. The lease term for the New York office contains a renewal
provision. 

The aggregate future minimum
annual lease payments under leases in effect at February 2, 2008 are as follows:




























































































































                                                      Residual              
                      Operating           Synthetic           value              
           ($000)              leases              leases              guarantee              Total
      leases 
             2008           $   
      307,991         $ 10,494         $  4,733         $   
      323,218 
             2009         288,219         4,597         1,317         294,133 
             2010         262,264         4,091         -           266,355 
             2011         228,133         4,091           -
        232,224 
             2012         193,504         4,091         -         197,595 
             Thereafter            457,863            2,045           56,000           515,908 
                  Total           $ 1,737,974
              $ 29,409
          $ 62,050
          $ 1,829,433 
                                                                 


Total rent expense for all leases
was as follows: 






























                ($000)                  2007                2006              2005
  
           Rent expense         $ 301,582         $ 274,211         $ 246,214 
                                               


Note F: Taxes on Earnings

The provision for taxes consists
of the following: 








































































































          
         ($000)           2007              2006
             2005
  
           CURRENT
                                  
               
      Federal         $
      160,155         $
      153,263         $ 112,040  
                  State              14,613           14,064           19,260 
                    174,768         167,327         131,300 
            
           DEFERRED
                                  
               
      Federal         (9,263)         (10,268)         (1,433) 
                State           (1,436)            (416)            (1,157) 
                      (10,699)           (10,684)           (2,590) 
           Total           $ 164,069           $ 156,643           $128,710 
                                               


In fiscal 2007, 2006 and 2005, the
Company realized tax benefits of $6.5 million, $12.1 million and $21.9 million,
respectively, related to employee equity programs that were credited to
additional paid-in capital. 

43



The provision for taxes for
financial reporting purposes is different from the tax provision computed by
applying the statutory federal income tax rate. Differences are as follows:
























































                              2007               2006               2005
        
           Federal income taxes at
      the statutory rate          35%         35%         35%  
                                                 
           State income taxes (net
      of federal benefit) and other, net            4%           4%            4%  
                      39%            39%           39%  
                                               


The components of deferred income
taxes at February 2, 2008 and February 3, 2007 are as follows: 

























































































































































       ($000)               2007              2006  
       Deferred Tax Assets           
           
               
            
       Deferred
      compensation          $     29,163              $     28,813 
      
       Deferred
      rent           
          9,755          
          8,742  
       Employee
      benefits                7,474               7,307 
      
       Accrued
      liabilities           
          20,999          
          16,633  
       California
      franchise taxes                3,976               3,905 
      
       Stock-based compensation           
          7,991          
          3,998  
       Other                  3,950
                     3,579  
                 
          83,308          
          72,977  
       Deferred
      Tax Liabilities                                  
       Depreciation           
          (105,174)          
          (110,445)  
       Merchandise
      inventory                  (27,544)               (25,189)  
       Supplies           
          (6,281)          
          (5,134)  
       Prepaid
      expenses                  (5,538)                 (4,587) 
      
       Other                  1,969               2,419  
                        (142,568)               (142,936)  
       Net
      Deferred Tax Liabilities            $
          (59,260)              $     (69,959)  
                                           


In June 2006, the FASB issued FIN
48. This statement clarifies the criteria that an individual tax position must
satisfy for some or all of the benefits of that position to be recognized in a
company’s consolidated financial statements. FIN 48 prescribes a recognition
threshold of more-likely–than-not, and a measurement standard for all tax
positions taken or expected to be taken on a tax return, in order for those tax
positions to be recognized in the consolidated financial statements. 

44



Effective February 4, 2007, the Company adopted the
provisions of FIN 48. As a result, the Company established a $26.3 million
reserve for unrecognized tax benefits, inclusive of $6.0 million of related
interest. The reserve is classified as a long-term liability and included in
other long-term liabilities on the Company’s condensed consolidated balance
sheet. Upon adoption of FIN 48, the Company also recognized a reduction in
retained earnings of $7.4 million and certain other deferred income tax assets
and liabilities were reclassified. The change in amount of unrecognized tax
benefit since adoption of FIN 48 is as follows:





















































       ($000)            2007¹ 
    
       Unrecognized tax
      benefit upon          $ 56,672  
       adoption of FIN
      48            
       Increases            
            Tax positions in current period          12,173  
            Tax positions in prior period          1,485  
       Decreases 
              
            Tax positions in prior periods          (16,199)  
            Lapse of statute limitations          
        (4,035)  
            Settlements            (43)  
       Unrecognized tax benefit as of February 2, 2008 
              $ 50,053  
                   
      ¹Pursuant to FIN 48, paragraph 21, the
      amounts in the table above represent the gross amount of unrecognized tax
      benefit on the dates shown.

As of February 2, 2008, the
reserve for unrecognized tax benefits is $23.2 million inclusive of $5.6 million
of related interest. The Company adopted a new tax method of accounting which
reduced its reserve during the year. The Company accounts for interest related
to unrecognized tax benefits as a part of its provision for taxes on earnings.
If recognized, $16.4 million would impact the Company’s effective tax rate. The
difference between the total amount of unrecognized tax benefits and the amounts
that would impact the effective tax rate relates to amounts attributable to
deferred income tax assets and liabilities. These amounts are net of federal and
state income taxes. 

During the next twelve months, it
is reasonably possible that the statute of limitations may lapse pertaining to
positions taken by the Company in prior year tax returns. As a result, the total
amount of unrecognized tax benefits may decrease, which would reduce the
provision for taxes on earnings by up to $3.0 million, net of federal tax
benefits. 

The Company is currently open to
audit by the Internal Revenue Service under the statute of limitations for
fiscal years 2005 through 2007. The Company’s state income tax returns are open
to audit under the statute of limitations for fiscal years 2003 through 2007.
Certain state tax returns are currently under audit by state tax authorities.
The Company does not expect the result of these audits to have a material impact
on the consolidated financial statements. 

Note G: Employee Benefit Plans

The Company has a defined
contribution plan that is available to certain employees. Under the plan,
employee and Company contributions and accumulated plan earnings qualify for
favorable tax treatment under Section 401(k) of the Internal Revenue Code. This
plan permits employees to make contributions up to the maximum limits allowable
under the Internal Revenue Code. The Company matches up to 4% of the employee’s
salary up to the plan limits. Company matching contributions to the 401(k) plan
were $6.8 million, $6.1 million and $5.1 million in fiscal 2007, 2006 and 2005,
respectively.

45



The Company also has an Incentive
Compensation Plan, which provides cash awards to key management employees based
on the Company's and the individual's performance. The Company also makes
available to management a Non-qualified Deferred Compensation Plan which allows
management to make payroll contributions on a pre-tax basis in addition to the
401(k) plan. Other long-term assets include $48.2 million and $47.0 million at
February 2, 2008 and February 3, 2007, respectively, of long-term investments,
at market value, set aside or designated for the Non-qualified Deferred
Compensation Plan. Plan investments are designated by the participants, and
investment returns are not guaranteed by the Company. The Company has a
corresponding liability to participants of $48.2 million and $47.0 million at
February 2, 2008 and February 3, 2007, respectively. 

In addition, the Company has
certain individuals who receive or will receive post-employment benefits. The
estimated liability for these benefits of $3.2 million and $2.4 million is
included in accrued liabilities and other in the accompanying consolidated
balance sheets as of February 2, 2008 and February 3, 2007, respectively.

Note H: Stockholders' Equity

Preferred stock.
The Company has four million shares of
preferred stock authorized, with a par value of $.01 per share. No preferred
stock is issued or outstanding. 

Common stock. In November 2005, the Company’s Board of Directors
authorized a two-year stock repurchase program of up to $400 million for fiscal
2006 and 2007. In January 2004, the Company’s Board of Directors authorized a
stock repurchase program of up to $350 million for 2004 and 2005. The following
table summarizes the Company’s stock repurchase activity in fiscal 2007, 2006
and 2005: 






























































                               Shares repurchased           Average repurchase           Repurchased          
             Fiscal
      Year              (in millions)              price              (in millions)      
              2007         6.9           $ 29.10         $ 200.0      
             2006         7.1
            $
      28.17         $
      200.0      
             2005         6.4         $ 27.26         $ 175.0      
                                                     


In January 2008, the Company’s
Board of Directors approved a new two-year $600 million stock repurchase program
for fiscal 2008 and 2009. 

Dividends. In January 2008, the Company’s Board of Directors
declared a quarterly cash dividend of $.095 per common share, payable on or
about March 31, 2008. The Company’s Board of Directors declared quarterly cash
dividends of $.075 per common share in January, May, August and November 2007, a
cash dividend of $.06 per common share in January, May, August and November
2006, a cash dividend of $.06 per common share in November 2005, and cash
dividends of $.05 per common share in January, May, and August 2005. 

2004 Equity Incentive Plan.
The Company has one equity incentive
compensation plan, the 2004 Equity Incentive Plan (the “2004 Plan”). The 2004
Plan provides for various types of incentive awards, which may potentially
include the grant of non-qualified and incentive stock options, stock
appreciation rights, restricted stock purchase rights, restricted stock shares,
restricted stock units, performance shares, performance units and deferred stock
units. The 2004 Plan also provides for the automatic grant of stock options to
each non-employee director at pre-established times and at a predetermined
value. To date, the Company has granted stock options, restricted stock shares,
and performance awards under the 2004 Plan. Stock options are granted at
exercise prices not less than the fair market value on the date the option is
granted, expire not more than ten years from the date of grant, and normally
vest over a period not exceeding five years from the date of grant. Restricted
shares are granted to officers and key employees. The fair value of these at the
date of grant is expensed on a straight-line basis over the vesting period of
generally three to four years. Beginning in fiscal 2007 performance awards were
also issued to executive officers. 

46



As of February 2, 2008, there were 10.6 million
shares that remained available for grant under the 2004 Plan. A summary of the
stock option activity for fiscal 2007, 2006 and 2005 is presented
below.


























































































































































































































                                                   Weighted                
                Number         Weighted         average           
                of
            average         remaining         Aggregate  
       (000, except per share
      data)          shares         exercise
      price         contractual         intrinsic value 
                                             term              
       Outstanding at January
      29, 2005          9,911         $ 16.54                     
           
      Granted          2,324         $
      28.17                     
            Exercised          (3,165)         $ 13.06                     
           
      Forfeited 
              (405)           $ 25.60                           
        
       Outstanding at January
      28, 2006          8,665         $ 20.51                     
           
      Granted          796
            $
      27.70                     
            Exercised          (1,887)         $ 14.80                     
           
      Forfeited 
              (347)           $ 27.16                           
        
       Outstanding at February
      3, 2007          7,227         $ 22.47                     
           
      Granted          593
            $
      34.04                     
            Exercised          (985)         $ 16.35                     
           
      Forfeited 
              (216)           $ 27.61                           
        
       Outstanding at
      February 2, 2008            6,619         $ 24.25           5.92         $ 39,983  
       Vested or Expected to
      Vest at February 2, 2008            6,491           $ 24.12         5.88           $
      39,836  
       Exercisable at
      February 2, 2008            4,891         $ 22.22           5.16           $ 37,637  
                                                       

47



The following table summarizes
information about the weighted average remaining contractual life (in years) and
the weighted average exercise prices for stock options both outstanding and
exercisable as of February 2, 2008 (number of shares in thousands): 





















































































































                      Options outstanding           Options exercisable  
                  Number
      of         Remaining         Exercise          Number
      of         Exercise  
      Exercise
      price range             shares              life              price               shares              price  
       $   6.68
        to   $ 18.89             1,383         2.24         $ 12.51         1,383         $ 12.51  
       $ 18.90  
      to   $ 26.47             1,386         5.64         $
      22.01         1,254         $ 21.75  
       $ 26.50  
      to   $ 28.26              1,329           7.22         $ 27.64            934         $ 27.62  
       $ 28.28  
      to   $ 28.69             1,369         7.05         $
      28.60              834           $ 28.60  
       $ 28.71  
      to   $ 34.37             1,152           7.83            $ 31.94              486           $ 29.75  
       $  
      6.68   to   $ 34.37 
                  6,619           5.92           $ 24.25           4,891           $
      22.22  
                                                                   


During fiscal 2007, 2006 and 2005,
restricted stock awards totaling 568,000, 569,000 and 892,000 shares,
respectively, were issued under the 2004 Plan, and 43,000, 149,000 and 200,000
shares were forfeited during each respective year. The market value of these
shares at the date of grant is amortized to expense ratably over the vesting
period of generally three to four years. The unamortized compensation expense at
February 2, 2008 and February 3, 2007 was $29.6 million and $27.4 million,
respectively. During fiscal 2007, 2006 and 2005, shares purchased by the Company
for tax withholding totaled 125,000, 133,400 and 233,300 shares, respectively,
and are considered treasury shares which are available for reissuance. At
February 2, 2008, the Company held 965,000 shares of treasury stock. As of
February 2, 2008 and February 3, 2007, shares of unvested restricted stock
subject to repurchase totaled 2.0 million and 2.0 million shares respectively. A
total of 2,709,000, 3,278,000 and 3,846,000 shares were available for new
restricted stock awards at the end of fiscal 2007, 2006 and 2005,
respectively.

48



Performance share
awards. Beginning in fiscal 2007, the
Company initiated a performance share award program for senior executives. A
performance share award represents a right to receive shares of common stock on
a specified settlement date based on the Company’s attainment of a
profitability-based performance goal during a performance period. If attained,
the common stock then granted vests over a specified remaining service period,
generally two years. The Company recognized $0.6 million of expense related to
performance share awards in fiscal 2007. 

Employee Stock Purchase Plan.
Under the Employee Stock Purchase Plan,
eligible full-time employees participating in the annual offering period can
choose to have up to the lesser of 10% or $21,250 of their annual base earnings
withheld to purchase the Company’s common stock. The purchase price of the stock
is the lower of 85% of the market price at the beginning of the offering period,
or end of the offering period. During fiscal 2007, 2006 and 2005, employees
purchased approximately 214,000, 183,000 and 190,000 shares, respectively, of
the Company’s common stock under the plan at weighted average per share prices
of $21.73, $24.86 and $23.59, respectively. Through February 2, 2008,
approximately 8,739,000 shares had been issued under this plan and 1,261,000
shares remained available for future issuance. 

Note I: Related Party
Transactions 
The Company has an agreement with
its Chairman of the Board of Directors under which the Company pays an annual
consulting fee of $1.1 million in monthly installments through January 2009 and
provides for administrative support and health and other benefits for the
individual and his dependents which totaled approximately $0.2 million in fiscal
2007. Subsequent to year-end, the term of this agreement was extended through
January 2012. 

The Company also has an agreement
with its Chairman Emeritus under which it pays an annual consulting fee of $0.1
million through March 2008 and provides for administrative support and health
benefits for the individual and his spouse which totaled approximately $0.1
million in fiscal 2007. Subsequent to year-end, the Company agreed to release
its interest in a split dollar life insurance policy to its Chairman
Emeritus, including the policy’s residual value of approximately $0.3 million.

Note J: Provision for
Litigation Expense and Other Legal Proceedings
Like many California retailers,
the Company has been named in class action lawsuits regarding wage and hour
claims. In February 2007 the Orange County Superior Court approved a settlement
of the cases involving whether the Company’s assistant store managers in
California were correctly classified as exempt under California Wage Orders. The
approved settlement obligation was paid during the quarter ended May 5,
2007.

Other class action litigation
involving allegations that hourly associates have missed meal and/or rest break
periods, as well as allegations of unpaid overtime wages to assistant store
managers at all Company stores under federal law, remains pending as of February
2, 2008.

The Company is also party in
various other legal proceedings arising in the normal course of business.
Actions filed against the Company include commercial, customer, and labor and
employment-related claims, including lawsuits in which plaintiffs allege that
the Company violated state and/or federal wage and hour and related laws.
Actions against the Company are in various procedural stages. Many of these
proceedings raise factual and legal issues and are subject to
uncertainties.

In the opinion of management,
resolution of the class action litigation and other legal proceedings is not
expected to have a material adverse effect on the Company’s financial condition
or results of operations. 

49



Note K: Quarterly Financial
Data (Unaudited)

Summarized quarterly financial
information for fiscal 2007 and 2006 is presented in the tables below.

Year ended
February 2, 2008:

















































































































































































































                   Quarter           Quarter            Quarter           Quarter
    
                  ended         ended           ended         ended 
                  May
      5,         August
      4,         November
      3,         February 2, 
       ($000,
      except per share data)               2007              2007              2007              2008
  
       Sales          $ 1,410,541         $ 1,444,632         $ 1,468,337         $ 1,651,702 
  
        
       Cost of goods
      sold            1,071,278         1,131,286         1,150,754         1,264,902  
       Selling, general and
      administrative            230,203         229,326         238,847         237,525  
       Interest (income)
      expense, net            (1,391)           65           (12)           (2,691)  
           
      Total costs and expenses            1,300,090           1,360,677           1,389,589           1,499,736  
       Earnings before
      taxes            110,451         83,955         78,748         151,966  
       Provision for taxes on
      earnings            43,407           33,092           30,066           57,504  
       Net
      earnings            $      67,044           $      50,863           $  
         48,682           $      94,462  
        
       Earnings per share –
      basic            $     .49         $     .37         $     .36         $     
      .71  
       Earnings per share –
      diluted            $     .48         $ 
         .37         $     .36         $    
       .70  
        
       Dividends declared
      per                                            
            share on common stock            $         -         $   .075         $   .075         $ 
       .170¹ 
  
       Stock price²                                            
            High            $ 34.86         $ 34.52           $ 30.02           $  29.89 
  
            Low            $
      31.46           $
      27.58         $
      25.61         $  21.48  
                                                       







      ¹Includes $.075 per share dividend declared in November 2007 and
      $.095 dividend declared in January 2008.
      ²Ross Stores, Inc. common stock
      trades on The NASDAQ Global Select Market^® under the symbol
      ROST.

50




Year ended
February 3, 2007:

















































































































































































































                   Quarter           Quarter            Quarter           Quarter
    
                  ended         ended           ended         ended 
                  April
      29,         July
      29,         October
      28,         February 3, 
       ($000,
      except per share data)               2006              2006              2006              2007¹ 
       Sales          $ 1,291,676         $ 1,308,052         $ 1,362,045         $ 1,608,437 
  
        
       Cost of goods
      sold            988,836         1,024,130         1,073,820         1,230,741  
       Selling, general and
      administrative            207,167         210,635         217,586         227,645  
       Interest income,
      net            (1,884)           (1,554)           (1,775)           (3,414)  
           
      Total costs and expenses            1,194,119           1,233,211           1,289,631           1,454,972  
       Earnings before
      taxes            97,557         74,841         72,414         153,465  
       Provision for taxes on
      earnings            38,340           29,464           28,481           60,358  
       Net
      earnings            $      59,217           $      45,377           $      43,933           $      93,107  
        
       Earnings per share –
      basic            $     .42         $     .32         $     .32         $     
      .68  
       Earnings per share –
      diluted            $     .41         $ 
         .32         $     .31         $    
       .66  
        
       Dividends declared
      per                                            
            share on common stock            $         -         $   .060         $   .060         $  .135²  
       Stock price³                                            
            High            $ 30.78         $ 31.03           $ 31.00           $  33.63 
  
            Low            $
      26.56           $
      24.35         $
      22.12         $  28.56  
                                                       









      ¹Fiscal 2006 was a 53-week year.
      ²Includes $.06 per share dividend declared in November 2006 and $.075
      dividend declared in January 2007.
      ³Ross Stores, Inc. common stock trades on The NASDAQ Global Select
      Market^® under the symbol ROST.

51



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and
Stockholders 
Ross Stores, Inc. 
Pleasanton, California 

We have audited the accompanying
consolidated balance sheets of Ross Stores, Inc. and subsidiaries (the
"Company") as of February 2, 2008 and February 3, 2007, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended February 2, 2008. We also have
audited the Company's internal control over financial reporting as of February
2, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company's management is responsible for these consolidated
financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Annual Report on
Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on these consolidated financial statements and an opinion on the
Company's internal control over financial reporting based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions. 

A company's internal control over
financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons
performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements. 

Because of the inherent
limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that
the controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate. 

52



In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of Ross Stores, Inc. and subsidiaries as of February 2,
2008 and February 3, 2007, and the results of their operations and their cash
flows for each of the three years in the period ended February 2, 2008, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of February 2, 2008,
based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. 

As discussed in Note F to the
consolidated financial statements, the Company adopted Financial Accounting
Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB
Statement No.109, effective February 4,
2007. As discussed in Notes A and C to the consolidated financial statements,
the Company adopted Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment effective January 29, 2006. 

/s/DELOITTE & TOUCHE
LLP 

San Francisco, California

March 27, 2008 

53



ITEM 9.    
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE. 

None 

ITEM
9A.     CONTROLS AND PROCEDURES. 

Disclosure Controls and
Procedures 
Our management, with the
participation of our Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of our “disclosure controls and
procedures” (as defined in Exchange Act Rule 13a-15(e)) as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this
report.

It should be noted that any system
of controls, however well designed and operated, can provide only reasonable,
and not absolute, assurance that the objectives of the system will be met. In
addition, the design of any control system is based in part upon certain
assumptions about the likelihood of future events. 

Management’s Annual Report on
Internal Control Over Financial Reporting
Our management is responsible for
establishing and maintaining adequate internal control over financial reporting,
as defined in Exchange Act Rule 13a-15(f). Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of consolidated financial statements
for external purposes in accordance with generally accepted accounting
principles.

Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework established by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as
set forth in Internal Control —
Integrated Framework. Based on our
evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial
reporting was effective as of February 2, 2008.

Our internal control over
financial reporting as of February 2, 2008 has also been audited by Deloitte
& Touche LLP, an independent registered public accounting firm, and their
opinion as to the effectiveness of our internal control over financial reporting
is stated in their report, dated March 27, 2008, which is included in Item 8 in
this Annual Report on Form 10-K. 

Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. It should be noted that any system of controls, however well
designed and operated, can provide only reasonable, and not absolute, assurance
that the objectives of the system will be met. In addition, the design of any
control system is based in part upon certain assumptions about the likelihood of
future events. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Quarterly Evaluation of Changes
in Internal Control Over Financial Reporting
Our management, with the
participation of our Chief Executive Officer and Chief Financial Officer, also
conducted an evaluation of our internal control over financial reporting to
determine whether any change occurred during the fourth fiscal quarter of 2007
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. Based on that evaluation, our
management concluded that there was no such change during the fourth fiscal
quarter. 

54



ITEM
9B.     OTHER INFORMATION. 

None 

PART III 

ITEM
10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE. 

Information required by item 401
of Regulation S-K is incorporated herein by reference to the sections entitled
"Executive Officers of the Registrant" at the end of Part I of this report; and
to the sections of the Ross Stores, Inc. Proxy Statement for the Annual Meeting
of Stockholders to be held on Thursday, May 22, 2008 (the "Proxy Statement")
entitled "Information Regarding Nominees and Incumbent Directors." Information
required by Item 405 of Regulation S-K is incorporated by reference to the Proxy
Statement under the section titled “Section 16(a) Beneficial Ownership Reporting
Compliance.” We have not made any material changes to the procedures by which
our stockholders may recommend nominees to the Board of Directors. Information
required by Item 407(d)(4) and (d)(5) of Regulation S-K is incorporated by
reference to the Proxy Statement under the section entitled "Information
Regarding Nominees and Incumbent Directors" under the caption “Audit Committee.”

Our Board of Directors has adopted
a Code of Ethics for Senior Financial Officers that applies to the Company's
Chief Executive Officer, Chief Administrative Officer, Chief Operations Officer,
Chief Financial Officer, Vice President Controller, Vice President Finance and
Treasurer, Vice President Investor and Media Relations, and other positions that
may be designated by the Company. This Code of Ethics is posted on our website
(www.rossstores.com). We intend to satisfy the disclosure requirements of Item
10 of Form 8-K regarding any future amendments to, or waivers from, our Code of
Ethics for Senior Financial Officers by posting any changed version on the same
website. 

ITEM
11.     EXECUTIVE COMPENSATION. 

The information required by Item
402 of Regulation S-K is incorporated herein by reference to the sections of the
Proxy Statement entitled “Compensation of Directors” and “Executive
Compensation” under the captions “Compensation Discussion and Analysis,”
“Summary Compensation Table,” “All Other Compensation,” “Perquisites,”
“Discussion of Summary Compensation,” “Grants of Plan Based Awards During Fiscal
Year,” “Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises and
Stock Vested,” “Non-Qualified Deferred Compensation,” and “Potential Payments
Upon Termination or Change In Control.”

The information required by Items
407(e)(4) and (e)(5) of Regulation S-K are incorporated herein by reference to
the sections of the Proxy Statement entitled “Compensation Committee Interlocks
and Insider Participation” and “Compensation Committee Report.”

55



ITEM
12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 
Equity compensation plan
information. The following table
summarizes the equity compensation plans under which the Company’s common stock
may be issued as of February 2, 2008: 






































































































































































                                                         
                      (a)
                                          (c)
         
                      Number of
      securities           (b)         Number of
      securities      
                      to be
      issued upon         Weighted
      average         remaining
      available for       
                      exercise
      of         exercise
      price per         future
      issuance      
                      outstanding options         share of
      outstanding         (excluding
      securities      
            Shares in (000s)           and rights           options and rights           reflected in column
      (a))¹      
            Equity compensation                                    
            plans approved by                                    
                security holders         5,213²         $ 25.40         11,865³          
                    
            Equity compensation                                      
            plans not approved by                                                
            security holders⁴            1,406           $ 19.95           -      
                                           
            Total           6,619           $ 24.25           11,865      
                                                        











      ¹Upon
      approval by stockholders of the 2004 Equity Incentive Plan in May 2004,
      any shares remaining available for grant in the share reserves of the 1992
      Stock Option Plan, the 2000 Equity Plan, the 1991 Outside Directors Stock
      Option Plan and the 1988 Restricted Stock Plan were automatically
      canceled.
      ²Represents shares reserved for options
      granted under the prior 1992 Stock Option Plan, the prior 1991 Outside
      Directors Stock Option Plan, and the 2004 Equity Incentive
  Plan.
      ³Includes
      1,261,000 shares reserved for issuance under the Employee Stock Purchase
      Plan and 10,604,000 shares reserved for issuance under the 2004 Equity
      Incentive Plan.
      ⁴Represents shares reserved for options
      granted under the prior 2000 Equity Incentive Plan, which was approved by
      the Company’s Board of Directors in March 2000.

The information required by Item
403 of Regulation S-K is incorporated herein by reference to the section of the
Proxy Statement entitled "Stock Ownership of Certain Beneficial Owners and
Management." 

ITEM
13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE. 

The information required by Items
404 and 407(a) of Regulation S-K are incorporated herein by reference to the
section of the Proxy Statement entitled ”Information Regarding Nominees and
Incumbent Directors” including the captions “Audit Committee,” “Compensation
Committee,” and “Nominating and Corporate Governance Committee” and the section
of the Proxy Statement entitled "Certain Transactions." 

ITEM
14.     PRINCIPAL ACCOUNTANT FEES AND
SERVICES. 

Information concerning principal
accountant fees and services will appear in the Proxy Statement in the Ross
Stores, Inc. Board of Directors Audit Committee Report under the caption
“Summary of Audit, Audit-Related, Tax and All Other Fees.” Such information is
incorporated herein by reference. 

56



PART IV 

ITEM
15.     EXHIBITS, FINANCIAL STATEMENT
SCHEDULES. 







































































































































                (a)               The following
      consolidated financial statements, schedules and exhibits are filed as
      part of this report or are incorporated herein as indicated:
            
                    1.               List of
      Consolidated Financial Statements.
           
                              The following
      consolidated financial statements are included herein under Item
    8:
           
                                        
      Consolidated Statements of
      Earnings for the years ended February 2, 2008, February 3, 2007, and
      January 28, 2006.
           
                                  Consolidated Balance Sheets
      at February 2, 2008 and February 3, 2007.
           
                                  
      Consolidated Statements of
      Stockholders' Equity for the years ended February 2, 2008, February 3,
      2007 and January 28, 2006.
           
                                  
      Consolidated Statements of
      Cash Flows for the years ended February 2, 2008, February 3, 2007 and
      January 28, 2006.
           
                                  Notes to Consolidated
      Financial Statements.
           
                                  Report of Independent
      Registered Public Accounting Firm.
           
                    2.         List of
      Consolidated Financial Statement Schedules.
           
                                  
      Schedules are omitted
      because they are not required, not applicable, or shown in the
      consolidated financial statements or notes thereto which are contained in
      this Report.
           
                    3.         List of Exhibits
      (in accordance with Item 601 of Regulation S-K).
           
                                  
      Incorporated herein by
      reference to the list of Exhibits contained in the Exhibit Index within
      this Report.

57



SIGNATURES 
Pursuant to the requirements of
Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized. 
























            ROSS STORES,
      INC.  
            (Registrant)  
         
         
      Date:
      April 1, 2008      By:
      /s/Michael Balmuth  
                  Michael Balmuth  
                  Vice Chairman, President
      and  
                  Chief Executive
      Officer  


Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated. 































































































































































                   Signature 
                      
                     Title 
                      
        Date                   
    
      /s/Michael
      Balmuth          Vice
      Chairman, President and          April 1,
      2008     
      Michael Balmuth 
            Chief
      Executive Officer, Director                
            
      /s/J. Call          Senior Vice
      President, Chief Financial Officer,          April 1,
      2008     
      John G. Call 
        Principal
      Accounting Officer and Corporate Secretary 
                    
            
      /s/Norman A.
      Ferber          Chairman of
      the Board, Director          April 1,
      2008     
      Norman A.
      Ferber                          
            
      /s/K. Gunnar
      Bjorklund          Director          April 1,
      2008     
      K. Gunnar
      Bjorklund                          
            
      /s/Michael J.
      Bush          Director          April 1,
      2008     
      Michael J. Bush 
                            
            
      /s/Sharon D.
      Garrett          Director          April 1,
      2008     
      Sharon D.
      Garrett                          
            
      /s/Stuart G.
      Moldaw          Chairman
      Emeritus          April 1,
      2008     
      Stuart G.
      Moldaw          and
      Director                
            
      /s/G. Orban          Director          April 1,
      2008      
      George P. Orban 
                            
            
      /s/Donald H.
      Seiler          Director          April 1,
      2008     
      Donald H.
      Seiler                          


58















































































































      INDEX TO EXHIBITS    
                    
          
            Exhibit        
            Number      Exhibit  
          3.1     
      Amendment of Certificate of
      Incorporation dated May 21, 2004 and Amendment of Certificate of
      Incorporation dated June 5, 2002 and Corrected First Restated Certificate
      of Incorporation incorporated by reference to Exhibit 3.1 to the Form 10-Q
      filed by Ross Stores, Inc. for its quarter ended July 31,
    2004.
       
          3.2     
      Amended By-laws, dated
      August 25, 1994, incorporated by reference to Exhibit 3.2 to the Form 10-Q
      filed by Ross Stores, Inc. for its quarter ended July 30,
    1994.
       
          4.1     
      Note Purchase Agreement
      dated October 17, 2006 incorporated by reference to Exhibit 10.2 to the
      Form 10-Q filed by Ross Stores, Inc. for its quarter ended October 28,
      2006.
        
          10.1     
      Lease dated July 23, 2003 of
      Certain Property located in Perris, California, incorporated by reference
      to Exhibit 10.1 to the Form 10-Q filed by Ross Stores, Inc. for its
      quarter ended August 2, 2003.
               
          MANAGEMENT CONTRACTS AND COMPENSATORY PLANS (EXHIBITS 10.2 -
      10.46) 
           
              10.2     
      Third Amended and Restated
      Ross Stores, Inc. 1992 Stock Option Plan, incorporated by reference to
      Exhibit 10.5 to the Form 10-K filed by Ross Stores, Inc. for its fiscal
      year ended January 29, 2000.
            
          10.3     
      Amendment to Third Amended
      and Restated Ross Stores, Inc. 1992 Stock Option Plan, incorporated by
      reference to Exhibit 10.4 to the Form 10-Q filed by Ross Stores, Inc. for
      its quarter ended August 4, 2001.
           
          10.4     
      Ross Stores, Inc. 2000
      Equity Incentive Plan, incorporated by reference to Exhibit 10.7 to the
      Form 10-K filed by Ross Stores, Inc. for its fiscal year ended January 29,
      2000.
           
          10.5     
      Fourth Amended and Restated
      Ross Stores, Inc. Employee Stock Purchase Plan, incorporated by reference
      to Exhibit 10.3 to the Form 10-Q filed by Ross Stores, Inc. for its
      quarter ended July 29, 2000.
           
          10.6     
      Amended and Restated Ross
      Stores, Inc. Employee Stock Purchase Plan dated November 20,
      2007.
           
          10.7     
      Fourth Amended and Restated
      Ross Stores, Inc. 1988 Restricted Stock Plan, incorporated by reference to
      Exhibit 10.9 to the Form 10-K filed by Ross Stores, Inc. for its fiscal
      year ended January 29, 2000.
           
          10.8     
      Amended and Restated Ross
      Stores, Inc. 1991 Outside Directors Stock Option Plan, as amended through
      January 30, 2003, incorporated by reference to Exhibit 10.9 to the Form
      10-K filed by Ross Stores, Inc. for its fiscal year ended February 1,
      2003.
           
          10.9     
      Ross Stores Executive
      Medical Plan, incorporated by reference to Exhibit 10.9 to the Form 10-K
      filed by Ross Stores, Inc. for its fiscal year ended January 30,
      1999.
                      
        
          10.10     
      Ross Stores Executive Dental
      Plan, incorporated by reference to Exhibit 10.10 to the Form 10-K filed by
      Ross Stores, Inc. for its fiscal year ended January 30,
  1999.

59





































































































          
                    10.11     Ross Stores Second Amended and Restated Ross Stores, Inc.
      Non-Qualified Deferred Compensation Plan, incorporated by reference to
      Exhibit 10.12 to the Form 10-K filed by Ross Stores, Inc. for its fiscal
      year ended January 30, 1999.
           
          10.12     Amended and Restated Ross Stores, Inc. Incentive Compensation Plan,
      incorporated by reference to Exhibit 10.18 to the Form 10-K filed by Ross
      Stores, Inc. for its year ended January 29, 2000.
           
          10.13     Ross Stores, Inc. Second Amended and Restated Incentive
      Compensation Plan, incorporated by reference to the appendix to the
      Definitive Proxy Statement on Schedule 14A filed by Ross Stores, Inc. on
      April 12, 2006.
           
          10.14     Ross Stores, Inc. 2004 Equity Incentive Plan, incorporated by
      reference to Exhibit 99 to the Definitive Proxy Statement on Schedule 14A
      filed by Ross Stores, Inc. on April 15, 2004.
           
          10.15     Second Amendment to the Ross Stores, Inc. 2004 Equity Incentive
      Plan effective March 22, 2007 incorporated by reference to Exhibit 10.7 to
      the Form 10-Q filed by Ross Stores, Inc. for its quarter ended May 5,
      2007.
           
          10.16     First Amendment to the Ross Stores, Inc. 2004 Equity Incentive
      Plan, effective May 17, 2005, incorporated by reference to Exhibit 10.2 to
      the Form 10-Q filed by Ross Stores, Inc. for its quarter ended July 30,
      2005.
           
          10.17     Form of Stock Option Agreement for options granted pursuant to Ross
      Stores, Inc. 2004 Equity Incentive Plan, incorporated by reference to
      Exhibit 10.32 to the Form 10-Q filed by Ross Stores, Inc. for its quarter
      ended July 31, 2004.
           
          10.18     Form of Restricted Stock Agreement for stock awards granted
      pursuant to the Ross Stores, Inc. 2004 Equity Incentive Plan, incorporated
      by reference to Exhibit 10.33 to the Form 10-Q filed by Ross Stores, Inc.
      for its quarter ended July 31, 2004.
           
          10.19     Form of Stock Option Agreement for Non-Employee Directors for
      options granted pursuant to Ross Stores, Inc. 2004 Equity Incentive Plan,
      incorporated by reference to Exhibit 10.3 to the Form 10-Q filed by Ross
      Stores, Inc. for its quarter ended July 30, 2005.
           
          10.20     Form of Indemnity Agreement between Ross Stores, Inc. and Executive
      Officers, incorporated by reference to Exhibit 10.27 to the Form 10-K
      filed by Ross Stores, Inc. for its fiscal year ended February 2,
      2002.
           
          10.21     Independent Contractor Consultancy Agreement effective February 1,
      2000 between Norman A. Ferber and Ross Stores, Inc., incorporated by
      reference to Exhibit 10.41 to the Form 10-Q filed by Ross Stores, Inc. for
      its quarter ended April 29, 2000.
           
          10.22     Retirement Benefit Package Agreement effective February 1, 2000
      between Norman A. Ferber and Ross Stores, Inc., incorporated by reference
      to Exhibit 10.42 to the Form 10-Q filed by Ross Stores, Inc. for its
      quarter ended April 29, 2000.
           
          10.23     Amendment to Independent Contractor Consultancy Agreement dated
      January 10, 2001 between Norman A. Ferber and Ross Stores, Inc.,
      incorporated by reference to Exhibit 10.16 to the Form 10-K filed by Ross
      Stores, Inc. for its fiscal year ended February 3, 2001.
                      
        
          10.24     Amendment #2 to the Independent Contractor Consultancy Agreement
      dated January 7, 2002 between Norman A. Ferber and Ross Stores, Inc.,
      incorporated by reference to Exhibit 10.16 to the Form 10-K filed by Ross
      Stores, Inc. for its fiscal year ended February 2,
  2002.

60






























































































                    
        10.25     Third Amendment to the Independent Contractor Consultancy Agreement
      effective February 1, 2003 between Norman A. Ferber and Ross Stores, Inc.,
      incorporated by reference to Exhibit 10.19 of the Form 10-K filed by Ross
      Stores, Inc. for its fiscal year ended February 1, 2003.
           
          10.26     Fourth Amendment to the Independent Contractor Consultancy
      Agreement effective February 1, 2004 between Norman A. Ferber and Ross
      Stores, Inc., incorporated by reference to Exhibit 10.19 to the Form 10-K
      filed by Ross Stores, Inc. for its fiscal year ended January 29,
      2005.
           
          10.27     Fifth Amendment to the Independent Contractor Consultancy Agreement
      effective February 1, 2005 between Norman A. Ferber and Ross Stores, Inc.,
      incorporated by reference to Exhibit 10.20 to the Form 10-K filed by Ross
      Stores, Inc. for its fiscal year ended January 29, 2005.
           
          10.28     Sixth Amendment to the Independent Contractor Consultancy Agreement
      between Norman A. Ferber and Ross Stores, Inc. effective February 1, 2006,
      incorporated by reference to Exhibit 10.1 to the Form 10-Q filed by Ross
      Stores, Inc. for its quarter ended April 29, 2006.
           
          10.29     Revised and Restated Sixth Amendment to the Independent Contractor
      Consultancy Agreement executed June 2007 between Norman A. Ferber and Ross
      Stores, Inc., incorporated by reference to Exhibit 10.1 to the Form 10-Q
      filed by Ross Stores for its quarter ended August 4, 2007.
           
          10.30     Employment Agreement effective May 31, 2001 between Michael Balmuth
      and Ross Stores, Inc., incorporated by reference to Exhibit 10.3 to the
      Form 10-Q filed by Ross Stores, Inc. for its quarter ended August 4,
      2001.
           
          10.31     First Amendment to the Employment Agreement effective January 30,
      2003 between Michael Balmuth and Ross Stores, Inc., incorporated by
      reference to Exhibit 10.1 to the Form 10-Q filed by Ross Stores, Inc. for
      its quarter ended May 3, 2003.
           
          10.32     Second Amendment to the Employment Agreement effective May 18, 2005
      between Michael Balmuth and Ross Stores, Inc., incorporated by reference
      to Exhibit 10.1 to the Form 10-Q filed by Ross Stores, Inc. for its
      quarter ended July 30, 2005.
           
          10.33     Third Amendment to the Employment Agreement executed April 2007
      between Michael Balmuth and Ross Stores, Inc. incorporated by reference to
      Exhibit 10.8 to the Form 10-Q filed by Ross Stores, Inc. for its quarter
      ended May 5, 2007.
           
          10.34     Consulting Agreement between Ross Stores, Inc. and Stuart G. Moldaw
      effective April 1, 2002, incorporated by reference to Exhibit 10.1 to the
      Form 10-Q filed by Ross Stores, Inc. for its quarter ended May 4,
      2002.
           
          10.35     Amendment to 2002 Independent Contractor Consultancy Agreement
      between Ross Stores, Inc. and Stuart G. Moldaw effective August 21, 2003,
      incorporated by reference to Exhibit 10.31 to the Form 10-Q filed by Ross
      Stores, Inc. for its quarter ended November 1, 2003.
           
          10.36     Second Amendment to Independent Contractor Consultancy Agreement
      between Ross Stores, Inc. and Stuart G. Moldaw effective April 1, 2005,
      incorporated by reference to Exhibit 10.38 to the Form 10-K filed by Ross
      Stores, Inc. for its fiscal year ended January 29, 2005.
                      
         
          10.37     Third Amendment to Independent Contractor Consultancy Agreement
      between Ross Stores, Inc. and Stuart G. Moldaw executed September 2007,
      incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by Ross
      Stores for its quarter ended November 3, 2007.

61












































































































                    
        10.38     Form of Executive Employment Agreement between Ross Stores, Inc.
      and Executive Vice Presidents or Senior Vice Presidents, incorporated by
      reference to Exhibit 10.35 to the Form 10-K filed by Ross Stores, Inc. for
      its fiscal year ended January 29, 2005.
           
          10.39     Employment Agreement effective January 3, 2005 between Lisa
      Panattoni and Ross Stores, Inc., incorporated by reference to Exhibit
      10.36 to the Form 10-K filed by Ross Stores, Inc. for its fiscal year
      ended January 29, 2005.
           
          10.40     First Amendment to the Employment Agreement effective October 1,
      2005 between Lisa Panattoni and Ross Stores, Inc., incorporated by
      reference to Exhibit 10.1 to the Form 10-Q filed by Ross Stores, Inc. for
      its quarter ended October 29, 2005.
           
          10.41     Employment Agreement executed April 2007 between Lisa Panattoni and
      Ross Stores, Inc. incorporated by reference to Exhibit 10.3 to the Form
      10-Q filed by Ross Stores, Inc. for its quarter ended May 5,
    2007.
           
          10.42     Employment Agreement executed May 2007 between James S. Fassio and
      Ross Stores, Inc. incorporated by reference to Exhibit 10.2 to the Form
      10-Q filed by Ross Stores, Inc. for its quarter ended May 5,
    2007.
           
          10.43     Employment Agreement executed April 2007 between Barbara Rentler
      and Ross Stores, Inc., incorporated by reference to Exhibit 10.4 to the
      Form 10-Q filed by Ross Stores, Inc. for its quarter ended May 5,
      2007.
           
          10.44     First Amendment to the Employment Agreement executed April 2007
      between Barbara Rentler and Ross Stores, Inc., incorporated by reference
      to Exhibit 10.5 to the Form 10-Q filed by Ross Stores, Inc. for its
      quarter ended May 5, 2007.
           
          10.45     Form of Performance Share Award Agreement incorporated by reference
      to Exhibit 10.6 to the Form 10-Q filed by Ross Stores, Inc. for its
      quarter ended May 5, 2007.
           
          10.46     Employment Agreement executed October 2007 between John G. Call and
      Ross Stores, Inc., incorporated by reference to Exhibit 10.3 to the Form
      10-Q filed by Ross Stores for its quarter ended November 3,
  2007.
           
          21     Subsidiaries.
           
          23     Consent of Independent Registered Public Accounting
  Firm.
           
          31.1     Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley
      Act Section 302(a).
           
          31.2     Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley
      Act Section 302(a).
           
          32.1     Certification of Chief Executive Officer Pursuant to 18 U.S.C.
      Section 1350.
                      
        
          32.2     Certification of Chief Financial Officer Pursuant to 18 U.S.C.
      Section 1350.

62










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M/$)U/1H]#TQ;#Q#_`,$P_P!L":32XM'&NWW]LZ"GAFZ34_LNCZGI6L6>H0:Y
MX5_:.B@#^33_`(*'_L^?\%/O@Q^PO\0/B1\1OV@OBK^TO\1?`OQ'_8U\=?"[
MX;?#CQ[8^
Ross Stores (ROST)

Annual Reports

Quarterly Reports

8-K

Other

Documents found in this filing:
