Good morning, and welcome to the Ross Stores first quarter 2007 earnings release conference call. The call will begin with prepared comments by Michael Balmuth, Vice Chairman, President and Chief Executive Officer, Followed by a question and answer session. (Operator Instructions) At this time, I would like to turn the call over to Michael Balmuth, Vice Chairman, President and Chief Executive Officer. Michael Balmuth: Good morning and thank you for joining us today. Unfortunately, I have laryngitis, so John Call, our Senior Vice President and Chief Financial Officer, will be delivering our prepared remarks so that I can save my voice for responses to questions.

Thank you, Michael. Also joining us today on our call are Norman Ferber, Chairman of the Board; Gary Cribb, Executive Vice President and Chief Operations Officer; Michael O'Sullivan, Executive Vice President and Chief Administrative Officer; and Katie Loughnot, Vice President of Investor Relations. We'll begin our call today with a brief review of our first quarter performance, followed by our outlook and guidance for the second quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have. Before we begin, I want to note that our comments on this call will contain forward-looking statements regarding expectations about future growth and financial results and other matters that are based on management's current forecast of aspects of the company's future business. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from historical results or current expectations. These risk factors are detailed in today's press release and our fiscal 2006 Form 10-K, on file with the SEC. Today, we reported earnings per share for the 13-weeks ended May 5, 2007 of $0.48, compared to $0.41 for the 13-weeks ended April 29, 2006. Net earnings for the quarter were $67 million, compared to $59.2 million for the prior year period. Sales for the 13-weeks ended May 5, 2007 were $1.4 billion, up 9% versus the first quarter in fiscal 2006. Comparable store sales for the 13-weeks ended May 5, 2007 were flat compared to the 13-weeks ended May 6, 2006. For the 13-weeks ended April 29, 2006, comparable store sales rose 6%. Our first quarter results were driven by a combination of top line growth and expansion in operating margin. Same-store sales for the quarter were slightly below our projection of 1% to 2% increase due to our sales shortfall…

(Operator Instructions) Your first question is from Michelle Clark - Morgan Stanley. Michelle Clark - Morgan Stanley: Can you first provide with us more detail on the gross margin line, specifically quantifying each component's contribution to the 60 basis point increase during the quarter? Second, if you could comment on what you're seeing in terms of the overall strength of the consumer? Then specifically what you're seeing in Florida? It's been called out by other retailers as a spot of weakness, giving what is going on in the housing market there, if you're seeing weakness in the consumer there? Third, on the second quarter comp guidance, it was a little bit lighter than I had been expecting. Are there any calendar shifts that are impacting second quarter comp growth? Thank you.

Regarding gross margin and what the components of that margin are, as mentioned, we leveraged 60 basis points in the quarter. 65 basis points of leverage was due to higher merchandise margin, principally as a result of lower markdowns in the quarter and a lower shrink accrual. Additionally, we had reductions in DC processing costs of about 10 basis points and that's on 100 basis point gain in the prior year. We also had about 20 basis points of leverage on buying costs. That was offset by increases in freight costs of about 20 basis points and also the deleveraging impact on flat comps on occupancy about 15 basis points.

Florida did underperform the chain. We're not economists, though. We tend to focus on what we control and we will do whatever we can internally to look at operations and look at merchandising to drive sales appropriately there. Michelle Clark - Morgan Stanley: Just the overall strength of the consumer in addition to what you're seeing in Florida? Michael O’Sullivan: You mean on a national basis rather than just Florida? Michelle Clark - Morgan Stanley: Yes, that's correct. Michael O’Sullivan: Yes. It's a good question. It's something we've looked at in terms of gas prices and subprime mortgages, et cetera. There were just too many things that affect our business for us to be able to pick apart individual consumer items. Our only response when we hear stories of subprime mortgage programs or gas prices going up is to focus really on two things: one is making sure that we're putting bargains in front of the customer and the second is making sure that we have liquidity so we can turn any slowdown into an opportunity. So we're always cautious. But I can't really say that we've noticed a particular slowdown with the customer that's affected our business at this point. Michelle Clark - Morgan Stanley: My last question was on second quarter comp guidance. It came in a little bit below where I'm currently forecasting. I'm just trying to get a sense of, are there any calendar shifts that are impacting second quarter comp growth, or do you feel like you're being cautious here, given the macro-environment, or is it something else going?

We were actually up 5%, as we mentioned in the comments, in May and June last year. So we're rolling over a 5% comp. Relative to the calendar, we're comparing day for day. Michelle Clark - Morgan Stanley: So it has more to do with comparisons than with any weakness in the consumer?

That's right.

Thank you. Your next question is from Jeff Black - Lehman Brothers. Jeff Black - Lehman Brothers: John, could you talk about the decrease in working capital from payables and what caused that? Is that similar trend we could see going forward? Michael, did we talk about how May started off thus far, as we sometimes do during these calls? Thanks.

Jeff, relative to working capital, we ended the fourth quarter and our payables leverage was 66%, which is a lot higher than typically would see due to the difference in our fiscal calendar versus our suppliers' calendar. So, we're a bit off calendar. That came down in the first quarter to more normal levels of about 55%, which was similar to the prior year. So it was just a timing shift in terms of when we paid cash on the inventory. Jeff Black - Lehman Brothers: So, we don't expect similar drops in 2Q or 3Q?

No, I would expect it to be consistent from a payables leverage standpoint to inventory, that we've experienced historically. Jeff Black - Lehman Brothers: On the May sales, Michael, any comment on how we're doing thus far? Michael O’Sullivan: We're pretty comfortable with that guidance of flat to up 1% for May.

Your next question is from Ryan Tunick with JPMorgan. Ryan Tunick - JP Morgan: As usual, I'll ask the productivity of the new stores and the new markets question to see if there's been any progress there? As you think about next year's footage growth, are we going to be backfilling? The second question is on the dd's drag. I think you said last year it was about a 6% drag to earnings. Any updated expectation for 2007 as far as drag or contributions? Michael O’Sullivan: I'll take the first question on productivity of new stores. We opened 33 stores in March, 25 Ross, eight dd's. Frankly, after ten weeks, it's just too early to tell how those stores are doing. We did make some adjustments to how we plan those stores and we'll make further adjustments to other of our groups this year. But frankly, it will be end of year before we know how those adjustments worked and whether they helped drive improvement in performance. Ryan Tunick - JP Morgan: Even the last 12 months, are you seeing any change in those new markets? Michael O’Sullivan: No. As we said on the call at the end of '06, we were happy with the progress we made in the southeast and the Mid-Atlantic, but not a dramatic improvement in new store performance in those markets.

Brian, on the dd's drag, last year the drag was about 25 basis points. Given that we'll double the size of that chain this year, we're anticipating that the drag this year will be about 35 basis points.

Your next question is from Tracy Kogan - Credit Suisse. Tracy Kogan - Credit Suisse: If you could talk about the current buying environment and the availability of good product? Secondly, when was the last time you can remember a poor buying environment and what was the cause? Thanks. Michael Balmuth: The current buying environment is actually very strong. The last time I can remember a poor buying environment, I can't get precise on that. There are better times than others. If you manage a business with a lot of liquidity, most buying times are reasonable, but we're in one that's beyond reasonable right now.

Your next question is from Jeff Klinefelter - Piper Jaffray. Jeff Klinefelter - Piper Jaffray: As you look in the second half of the year in terms of your current pack away situation, where are you most encouraged in terms of your opportunities to see sales acceleration as it relates to your opportunistic buys last year? Secondly, in terms of the market pricing, as the retail industry is consolidating and a lot of doors are closing in some formats and opening in others; Are you able to do any, or are you doing any regional analysis in looking at your competitive positioning and pricing, market by market? And if so, are you making any adjustments or what are you learning from that? Michael Balmuth: Pack away position, we're real pleased with what we own but it's fairly broad based and it really wouldn't be a unique situation by business. The unique and specific opportunities that a brand has that we took advantage of; we look at it more that way. We feel pretty good about how we're positioned in our pack away inventories going forward. Our regional pricing, it's not something we really manage our business to. We run a global pricing situation. Jeff Klinefelter - Piper Jaffray: Lastly, in terms of brand opportunities, a lot of moderate-priced department stores now are getting into exclusive brand situations. Is this something that you could look at more going forward as an opportunity for your differentiation in the market? Michael Balmuth: For us to open exclusive brands for ourselves? Jeff Klinefelter - Piper Jaffray: Yes. Michael Balmuth: It's not our business model. Our business model is to have brands that are out in department stores and specialty stores. The more brands they open or the more brands they ask vendors to open for them creates more labels that are available to our vendors.

Your next question is from Patrick McKeever - Avondale Partners.

I'm just wondering if you could elaborate a little on some of the merchandising initiatives that you're planning in missy and in misses for the back half of the year? Michael Balmuth: Basically, what we saw when we looked at our assortments last year is we were too basic in our offerings and we see opportunities to get more fashion into our mix and based on the buying environment, we've certainly been able to penetrate key brands to a much higher degree than we have before. Both of those things are a good thing. Additionally, throughout the store, we don't think we were as prepared on a gift basis last year in fourth quarter and so we've put a strong initiative in to focus on that and we see opportunities because we haven't done that, to the degree that we are planning to this year, in the past.

So just generally speaking, more aggressive buying on gifts? Michael Balmuth: Well, it's funding certain classifications that are gift-related at the appropriate time. We also saw opportunities in many of these classes coming out of last fall. So we were able to take advantage of things, interesting opportunities within some of these classes today.

Within women's apparel, what is strong right now and what is weak? Do dresses continue to be weak? Michael Balmuth: No, dresses is actually a terrific business right now. Nationally, certainly it's terrific for us but right now, that's the strongest business, I think, for anyone in apparel.

But that turned relatively recently, right? Michael Balmuth: Relatively recently, we've started to see coming out of fall into spring. So, if that's relatively recently, yes.

Your next question comes from Marni Shapiro - The Retail Tracker. Marni Shapiro - The Retail Tracker: Glad to hear you're taking advantage of this environment. My question is actually on that. When you talk about the younger, fresher merchandise, are we to read into that that's the contemporary market as opposed to the junior market? Are the opportunities more specific to segments, like denim or dresses, or is it expanding the brands within the store and buying into some of the brands in that market that are now available? Michael Balmuth: Okay. It's not juniors in our thinking. It really is updating our missy assortment. Some of it's contemporary. Some of it is every label you can buy, you can buy it with an updated slant or a more traditional, predictable basic slant. We were buying things a little bit to the latter slant. So we are skewing things that way, in addition to taking advantage of the contemporary market that we might not have before. That was phase one of the question. Marni Shapiro - The Retail Tracker: Is it segment, so building areas like denim and dresses, or is it more the brand and the way you're buying it? Michael Balmuth: It's actually the brand and the way we're buying it and there are some funding shifts additionally. The brands and the way we're buying it is the more dominant piece. Marni Shapiro - The Retail Tracker: And will you also take this philosophy of buying into accessories, say handbags, for example, and even bedding to a degree? Michael Balmuth: We expect to see it across all of apparel.

Your next question is from Rob Wilson -Tiburon Research Group. Rob Wilson - Tiburon Research Group: Could you provide some detail maybe on the comp sales metrics, maybe average transaction size or transactions? And are there any changes planned in marketing? Have you implemented anything new recently?

On the average transaction for the first quarter, actually our basket was slightly up, offset by the transaction count, which was slightly down. Retail per SKU was flat. Michael O’Sullivan: On your question about marketing, we're always looking at and evaluating where we're spending our marketing money, shifting it between markets to get the best bang for the buck. That's the main thing we're doing. We've always been pretty consistent in our message, the focus on branded bargains and that hasn't changed. I don't expect that will change. So, I wouldn't expect any major change in our marketing program.

Your next question is from Dana Telsey - Telsey Advisory Group. Dana Telsey - Telsey Advisory Group: Can you please give us a little bit of an update on engineered standards and how that's working, how it's benefiting you currently? Also, I think in the fourth quarter call, you had mentioned getting closer to the customer on a more local level. What initiatives are going on there and how is that progressing?

I'll speak to the engineered standards. We're at a fairly mature stage in the process. I think as you remember, we had a 35 basis point improvement in DC's last year. We showed a 10 basis point improvement this quarter on top of 100 basis points from a year ago. We continue to see and believe that we'll experience gradual productivity over time. Michael O’Sullivan: Dana, on your question about getting closer to the customer on a more local level. That's an initiative we've had underway for several months. We're really trying to plan our business down at the store class level, so to a much more detailed level than we have historically and trained our business at that detailed level as well. 2007 is really the year where we're sort of building those capabilities and putting in place those new processes. I would say 2008, we would start piloting those capabilities in a couple of businesses. Then over the remaining couple of years we would roll them out across the business. So, we think this is an important initiative but it's one that's going take a few years to really have an impact.

Your next question is from Ted Grace - Goldman Sachs. Ted Grace - Goldman Sachs : Could you just update us on management's philosophy on returning excess cash or capital to shareholders? Obviously, the $400 million buyback has been quite substantial and you've commented there's another $150 million or more to go this year. But beyond that what we could look for? Obviously, the track record of increasing the dividend has been great but how we should think about potential increases going forward, if it's in line with the earnings growth or some other metric cash flow? That would be great. Thank you. Michael Balmuth: As far as a buyback is concerned, we'll plan our business and the excess cash we're not using in the business we'll typically return to shareholders in terms of a buyback. That's been our history over the past decade. We would adopt that going forward. Also, as far as the dividend is concerned, we did take it up this year and actually we've taken it up every year going forward. But I would say that our philosophy would be in terms of the total amount returned to shareholders, I think last year was $234 million. That percentage of dividend to buyback will remain pretty constant.

Your next question is from Mark Montagna - C.L. King. Mark Montagna - C.L. King & Associates: Hi. I was curious what comp you need this year to leverage expenses? Is it different for the second quarter versus the second half?

Mark, last year our EBIT margin increased around 50 basis points or so on a 52-week basis. This year we're calling for an increase of 30 to 50 basis points. Most of that leverage is coming out of the gross margin line. In fact, we'll delever expenses given the headwinds we have from a store cost standpoint, driven by minimum wage and other factors. Mark Montagna - C.L. King & Associates: So, for the full year you expect to delever this year?

That's correct. Mark Montagna - C.L. King & Associates: What would it take to actually leverage the expenses?

Probably north of a 4% comp.

Your next question is from Ryan Tunick -JP Morgan. Ryan Tunick - JP Morgan: Any surprises so far with the Albertsons store conversion? Would you be more open to making more real estate acquisitions like that? When is the next physical inventory that you guys will be taking to maybe update us on your shrink reserves? Michael Balmuth: So no surprises with Albertsons. We are on track to our plan and we are open to deals like that. Just as a reminder, we've had two in our 25-year history that look similar to that. Our next physical inventory is in September. We'll conclude that in the third quarter. Ryan Tunick - JP Morgan: Can I just add, how many dd's do you need to break even from a scale perspective? Michael Balmuth: From a scale perspective, we're thinking it's between 80 and 100 stores.

Your next question is from David Mann -Johnson Rice. David Mann - Johnson Rice: In terms of your in-store inventories, can you give us a sense on how you expect them to trend over the next several quarters?

In terms of in-store, we're down 5% at the end of this quarter. We're going to be anniversarying some of the supply chain efficiencies in the second quarter, so we would expect the in-store amount to be flattish. David Mann - Johnson Rice: Is that relatively consistent across different markets, in terms of the level declines?

Depending on the area, it tends to be lower. We would like to see it lower by area and we've planned certain areas lower than others. David Mann - Johnson Rice: In which markets might they be lower?

We're not prepared to give that level of detail, David.

There are no further questions. I would like to hand the floor over to Michael Balmuth for my closing comments. Michael Balmuth: I just want to thank everyone for attending and have a great day.