Michelle Clark - Morgan Stanley Randy Konik - Bear Stearns Paul Lejuez - Credit Suisse Brian Tunick – JP Morgan Kimberly Greenberger - Citi Rob Wilson - Tiburon Research Mark Montagna - C.L. King Marni Shapiro - Retail Tracker Patrick McKeever - Avondale Partners Richard Jaffe - Stifel Nicolaus David Mann - Johnson Rice Dana Telsey - Telsey Advisory Group Jeff Black - Lehman Brothers

Welcome to the Ross Stores third quarter 2007 earningsrelease conference call. The call will begin with prepared comments by MichaelBalmuth -- Vice Chairman, President and Chief Executive Officer -- followed bya question-and-answer session. (Operator Instructions) At this time, I would like to turn the callover to Michael Balmuth, Vice Chairman, President and Chief Executive Officer.

Good morning. Joining me on our call today are NormanFerber, Chairman of the Board; Gary Cribb, Executive Vice President and ChiefOperations Officer; Michael O'Sullivan, Executive Vice President and ChiefAdministrative Officer; John Call, Senior Vice President and Chief FinancialOfficer; and Katie Loughnot, Vice President of Investor Relations. We'll begin our call today with a brief review of our third quarterperformance, followed by our outlook and guidance for the fourth quarter.Afterwards, we will be happy to respond to any questions you may have. Before we begin, I want to note that our comments on thiscall will contain forward-looking statements regarding expectations aboutfuture growth and financial results, and other matters that are based onmanagement's current forecast of aspects of the company's future business. These forward-looking statements are subject to risks anduncertainties that could cause our actual results to differ materially fromhistorical results or current expectations. These risk factors are detailed intoday's press release and our fiscal 2006 Form 10-K and Form 10-Q, on file withthe SEC. Today we reported earnings per share for the 13 weeks ended November 3 2007 of $0.36, up 16%compared to $0.31 for the 13 weeks ended October 28 2006. Net earnings for the quarter were $48.7million compared to $43.9 million for the prior year period. Sales for the 13 weeks ended November 3 2007 were $1.468 billion, up 8% over the thirdquarter of fiscal 2006. Comparable store sales for the third quarter of 2007grew 1% on top of a 4% gain in the prior-year period. Earnings per share for the nine months ended November 3 2007 also rose 16% to$1.21 from $1.04 for the nine months ended October 28 2006. Year-to-date net earnings were $166.6million compared to $148.5 million for the prior-year period. Sales for the nine months ended November 3 2007 were $4.324 billion, up 9% over…

Your first question comes from Michelle Clark - MorganStanley.

Can you break out the components of gross margin expansionby basis point contribution during the third quarter? Secondly, I know with dd's you said you were doing anin-depth study, but the underperformance there has been going on for severalquarters. If you can just comment on specifically why you think you are seeinga slower than expected ramp there, that would be helpful.

I'll take the first part related to the components of grossmargin. As Michael mentioned in the prepared comments, EBIT margin levered by15 basis points and gross margin levered by 45 basis points, the components ofwhich were merchandise margin was flat, slightly below planned sales; freightlevered by about 10 basis points; the DCs actually had about 25 basis points ofimprovement due to productivity gains; and, we had lower buying costs whichinclude incentive plan costs and equity compensation expense of about 40 basispoints. Those pluses were offset by a deleverage in store occupancy of about 30basis points. So as I mentioned, margin levered by 45 basis points. On the G&A line, store costs delevered by about 65 basispoints, offset by leverage on corporate and back office expenses of about 35basis points, so G&A delevered by 30. As I said, EBIT levered by about 15basis points. Michael O’Sullivan: Michelle, your second question was about dd's. Actually I willbreak dd's out. The dd's comp store performance this year -- basically storesthat we'd opened prior to 2007 -- have actually performed pretty well, in linewith our expectations. The dd's new stores which I want to be a bit cautious,they've been opened for less than five months, on average. But given that,their performance has been mixed, lower than our expectations. We are tearingapart the different aspects of that. We are looking at real estate locations interms of demographics and maybe non-demographic issues; we're looking at merchandiseassortments in those stores; and we are looking at any competitive issues thatthere might be in those stores to try and get to the bottom of thatunderperformance in those new stores.

How many of the dd's stores are in new markets for you?

of the 26 dd's stores we opened, about 16 are in newermarkets; those being Arizona, Texasand Florida.

Your next question comes from Randy Konik - Bear Stearns.

Can you just give us the ticket and traffic that contributedto your 3Q comp? Thinking about your 4Q comp guidance, can you just give usyour assumption for ticket and traffic?

On ticket and traffic actually one comp in the quarter wasall traffic driven. Our average basket was about flat. Those numbers remainpretty constant in our business. We'd expect the same in the fourth quarter.

On the question about your packaway levels, they were tickeddown year over year, I think you said 30%. With the department stores gettingmore promotional and having more inventory, heading into '08 given that itsounds like the retail environment is getting more challenging, how should wethink about your level of packaways going forward?

I think the buyingopportunities have been very good. I think we will have to wait a little longerbut I would think it wouldn't be much greater than our norm, but probably alittle higher.

Following up on the first question regarding dd's, itsounded like you're unhappy with the stores opened in 2007, 16 of the 26 in new markets. If we go back acouple of years with the Ross Stores having some trouble in the new markets,can you give us a sense of any differences you see with the new market problemswith dd's versus the new market problems you had had in the past with Ross? How do you think about your long-term real estate growthstrategy into new markets for the two concepts, recognizing you haven't goneinto new markets with Ross lately? When do you go back into new markets withRoss? Is anything changing there? Michael O’Sullivan: On the dd's piece of that, frankly it's a little bit early.We're trying to diagnose the performance in those new stores now. Are similaritieswith Ross' experience in new markets? There may well be, but we don't know atthis point. We need to get through that diagnosis first. There was a second part to your question. Could you justrepeat that?

Just in thinking about the two concepts having some troublein the new markets, does this change the way you think about your real estategrowth strategy for the two concepts into new markets? Michael O’Sullivan: It's a fair question.I think to be honest, once we've gotten through the diagnosis of the new dd's stores,if there are lessons from that for Ross, then we will certainly follow those, butit's a little early right now.

Your next question comes from Paul Lejuez - Credit Suisse.

A question on gross margin. Could you remind us what grossmargins look like in home versus apparel? Even within the categories, I'm justwondering what is happening to the gross margin in home products this yearversus last year and the same, apparel versus apparel last year? Michael O’Sullivan: I'd say home marginsare slightly higher than apparel and home margins are holding fine. Apparel, it'sbeen a little more difficult margin year.

Out of the 26 stores dd's opened this year, how many ofthose were Albertson’s locations?

Of those 26 stores,22 were Albertson’s locations.

Your next question comes from Brian Tunick - JP Morgan. Brian Tunick - JP Morgan: Michael, a lot of fear out there, obviously, given your realestate concentration in Californiaand Florida. Are you doinganything there either offensively or defensively from a marketing perspectiveor store payroll? Maybe if you could just talk about Californiaand Florida, which really seemsto be the market that is suffering? Is there any reason to assume that there wouldn't be anothershare repurchase program? Obviously you've reloaded several times as wefinished this one. On the merchandise margin comment you just made on apparel,obviously your major competitor sounds like they are getting huge margin gainson apparel so we're just trying to figure out why you’re not there?

In terms ofmarketing, we have a marketing program we are very comfortable with across thechain and we look at it continually for spend by market. Frankly, Californiaand Florida, we're not doinganything that unique for marketing. We're expending our efforts really more onmerchandising within the four walls and operations within the four walls. On the share repurchase, we look at it every year at the endof the year with our board of directors and we will do the same this year. Apparel margin for us versus our direct competitors,obviously I don't know the components of their margins and exactly how they aredoing. I think our difficulties in margin or our slight erosion in margin inapparel is really more related to what's going on in the industry this year,which I think apparel is having a difficult time. We've made some changes toour strategies and our organization in apparel this year. So it is a combination of things that led us to have a moredifficult year in apparel.

Your next question comes from Kimberly Greenberger - Citi.

John, I was hoping you could give us the basis pointsassociated with the better than plan shrink results? I would assume that wouldbe in your merchandise margin for the quarter. Is that correct?

That is correct,Kimberly. So as Michael mentioned in the prepared comments, shrink was betterby about a penny from expectations. We have actually lowered our reservesomewhat throughout the year, so on an apples-to-apples basis in the thirdquarter, it was relatively flat. We took some of that benefit in Q1 and Q2.

So the penny better flowed through Q1 and Q2, not Q3?

The penny better was relative to expectations, not relativeto the comparable in Q3 last year. So the level of improvement year over yearwas flat versus '06 to '07. So we improved in '06, we also improved in '07. Lastyear was actually on a year-to-date basis, it benefited by about $0.02.

Could you just remind us what comp you need in order to holdSG&A flat as a percentage of sales?

When we look at leverage points, we are really looking atour EBIT margins and what we've said is at about a 3% comp we should get about30 basis points of leverage on that comp. Because store payroll is in theG&A line and those average store volumes have been flat over the pastcouple of years. We think of our leverage points not necessarily G&A, butin total.

Also, can you just remind us when do we anniversary thehigher pre-opening rent expenses? Is that done here in the third quarter? Secondarily, when do we anniversary the increases in minimumwage in your wage base?

In the wage base, we have a bit more of minimum wage thisyear coming out of California. I think last year it was $0.75 an hour, thisyear it is another $0.50 an hour. So there will be a bit of that this year. The first part of your question, Kimberly, was?

The higher pre-openingrent that you referenced and the 30 basis point increase in occupancy, is thatdone this quarter here in 3Q or does that continue into 4Q as well?

No we won't open manystores in the fourth quarter so we are done with that this year based on thehigher level of preopening expense.

And that should actually go down in '08 because of feweropenings relative to '07? Is that correct?

Yes.

Your next question comes from Rob Wilson - Tiburon Research.

Could you help us with some guidance on merchandise marginexpectation for Q4?

Relative to the quarter, Rob, our practice is to really talkabout what our EBIT margins are going to look like. As Michael mentioned onguidance, depending on where we come out in comp on the low end we wouldprobably be flat to down operating margin by about 25 basis points. If we do a3%, we should be up around 25, 30 basis points. That is where I'd leave it.

Last quarter you didsuggest that there is a promotional environment and you thought thatmerchandise margins would be challenged in Q3. I'm just wondering if you couldgive us some update there?

Our expectation is that the holidays will be challenging. Inresponse to that, in response to where markdowns were the first part of theyear, we took some quick action on inventory levels and inventory on an averagestore basis was down 9% in October. So as we roll through the fourth quarter,we'd expect our inventory balances to be defensively positioned and down in themid to high single-digit levels which should help us preserve margin.

John, I believe last quarter you guided to $1 million ofinterest expense. I wondered what happened in Q3? Why was that lower?

We had some delays inCapEx spending so relative to our plan, I think there was about $30 million ofCapEx that didn't occur as planned in the third quarter and it looks like thatwill probably flip over into next year as opposed to the fourth quarter aswell.

What is your capital expenditure expectation for this year?

We're looking right now at about between $250 million and$260 million. As we came into the year, we thought it would be more like $290million.

Your next question comes from Mark Montagna - C.L. King.

A question regarding dd's. It sounds like this year's classof stores is underperforming. If you look at the same time period of theinitial nine months or so of your original stores that you opened in Californiaback in '04 and say '05, how does this performance compare to that? Were thosealso underperforming in your expectations? Michael O’Sullivan: That is one of thethings that we're looking at as part of the diagnosis just to compare the rampof those original dd's stores with these new dd's stores. Our hypothesis isthat with the first group of dd's stores, it actually took a little while tofigure out the customer and to make adjustments to the merchandise. We don'tthink that is the key driver this time around but anyways, we will look at thatas part of the diagnosis that we're doing.

So it sounds likethese stores are experiencing a similar ramp as what you had experiencedpreviously? Is that fair? Michael O’Sullivan: To the original dd'sstores, is that what you mean?

Yes. Michael O’Sullivan: No. These stores areweaker.

Could you tell us what your year-to-date comp is for California,Texas and Floridaand what percentage of the stores are in each of those states and then whatpercentage of the sales come from each of those states, excluding dd's?

So relative toyear-to-date comps in Californiaare up 1%.What was the following question? I'm sorry.

Can you break it outwith California, Texasand Florida?

Texas was up 1%as well; Florida was down 2% on ayear-to-date basis, Californiawas up 1%.

What percent of the stores are in each of those states?

About 23% of the stores are in California;11% are in Florida; and I don'thave Texas off the top of myhead. A little bit more than that.

What percent of sales would be in each of those states?

In California,the sales are a little bit north of the total store count, 30% or so. Floridais probably similar to the store count, 11%, something like that. Texasis probably 12% to 13%.

Your next question comes from Marni Shapiro - RetailTracker.

We know there is a lot of inventory out there in apparel andin certain segments, obviously, and in home. I was curious if you are seeing good qualityand good consistency in inventory as well in accessories, kids and dresses andsome of the smaller segments that have done a little bit better? If you could also just remind me, you guys typically don'topen stores in the fourth quarter. If you could just remind me what your fourthquarter real estate plan is and any insights as to what the plans are for '08at this point?

On the supply issueeven though accessories and dresses and to a lesser degree, kids, have beenbetter businesses nationally than ladies apparel. There is plenty of supply outthere at all different price lines.

On the fourth quarterstore build, our practice is typically not to open stores during the fourthquarter. It's not going to change this year. Having said that, at the end ofthe year, we always look and prune our portfolio and so we will close a handfulof stores.

Any insight into '08 at this point?

We're actively working on that now. We will come out withthe January sales release on guidance for '08.

Great, guys. Goodluck for the fourth quarter.

Your next question comes from Patrick McKeever - AvondalePartners.

John, could you remind us of the prior plan for the marginhit from dd's that was expected this year? Was it 35 basis points?

Yes, that is where wewere tracking. As Michael mentioned in his speech, it tracks more around 40basis points now.

So there was maybe aslight deterioration in the third quarter versus where things were in thesecond quarter?

That is correct.

That is what you are trying to pinpoint, that you are sayingyou are just not there yet in terms of pinpointing what is going on?

It is a little earlyand we understand obviously they didn't come out of the box like we expectedand we are diving into it.

Why do you think it's not the macro environment, just giventhe lower income customer base and gas prices and all these other things thatare out there that are hurting the spending power of lower income consumers? Michael O’Sullivan: We think that may bea part of it, but it certainly doesn't explain the bulk of it. The dd's compstores, remember we do have 26 stores that we came into the year with; theyhave actually done just fine. Those are all in Californiaso if that factor that you described was a big driver, I think we would haveseen it in those stores as well.

Sure, that makessense. I know you gave November guidancefor 2% to 4% same-store sales growth, but we've got some important days hereahead of us. Could you comment on the month-to-date trend? It sounds likeyou've seen a pick up versus where things were in October?

Patrick, again, our practice is to report sales at the endof the month. I would just reiterate the fact that we have November planned at2% to 4%; December planned at flat to 2%; and January 1% to 3%. I will leave it at that.

Your next question comes from Richard Jaffe - StifelNicolaus.

A question on packaway, your outlook for packaway, with thevalues and the opportunities in the marketplace, do you see packaway becoming aless important part of your strategy as you seek to maintain more liquidity? If you could also comment on the days merchandise remains inpackaway?

Packaway will become slightly more important to our strategydepending on buying opportunities. If the buying opportunities continue to beas strong as they look right now, they will be a little more important to us andwe will be better positioned for '08. That will always have a flexibilityfactor, based on the availability. We will be more liquid, we will be doingprobably less goods upfront and we will be buying closer in so we will beholding back dollars all along. Days in packaway, I haven't seen it grow at all. In fact, itis probably a little less the way we are running our inventory, it is probablya little tighter today. But I don't have an exact number with me.

I've seen the speedier turn, I was wondering if it hadaccelerated? Could you ballpark where you think it might be?

I wouldn't want to ballpark it but I would expect it to bespeedier. I think we could get back to you with that.

A follow-on with the shrink. If it was $0.01 a share, I'massuming though that it could really impact your gross margin? I wasn't clear on that.

That is correct, itdid impact gross margin.

What was the basis point impact of that?

Relative to where it was -- and again, that was versus expectation orwhat we had dialed into the guidance. Relative to last year the improvement wassimilar, so there was no real pick up from a basis point standpoint in margin.

It was just against your internal plan?

That is correct.

Your next question comes from David Mann - Johnson Rice.

On the last conference call, you talked a little bit aboutsome changes you'd made in Florida.Can you just give a sense on if you are seeing any traction to some of thosechanges?

We talked a lot about what we were doing operationally in Floridaand I would say that we are seeing traction from a staffing perspective. Themarket has stabilized. I think storeconditions; inventory levels, the shortage that we experienced there arefalling back in line with our expectations. So overall, I would sayoperationally we are seeing the traction that we anticipated.

Even though you are probably seeing a lower comp, are youseeing improved profitability in Floridayet?

I would say althoughthe comp drove the chain, the contribution margin is improving. Not to where wewant it to be, but improving.

Dave, I think thetrue test in Florida will be withhow we do in the fourth quarter. It will be in both the contribution and salesperformance and the metrics we look at operationally. So far, we are seeing itmoving in the right direction.

Your next question comes from Dana Telsey - Telsey AdvisoryGroup.

Can you talk a little bit about the direction of the productin the core Ross Stores? Anything of the more trend-right product that you hadwanted to get into the assortment? What categories? How is it progressing, andtiming? Thank you.

We are seeing progress in most of the areas, so we seeprogress in accessories, men's and home certainly continues to be a very strongperformer. We see it in dresses. But in the rest of ladies apparel, it iscoming a little slower. Part of that is the weakness in the industry, part ofthat is internal and we are working through that. But by and large, exclusiveof all ladies except dresses, we are very happy with the progress we aremaking.

Your next question comes from Jeff Black - Lehman Brothers.

On the dresses, how important do dresses really become,John, in 2Q and in 3Q as a percent of your overall mix?

In which quarters?

In the last couple ofquarters. It has been a standout category. How important is it over last yearin terms of percent of mix?

I don't know if wehave that exact number handy, but I would tell you the comps have been in the20% range. Dresses as we move forward into spring becomes an enormous businessas a percent of total, so that is really the big upside here.

So you think the dress trends continue into spring, is thebottom line?

Absolutely.

On the CapEx, John, what is the difference? What did youdefer this year, what is the $30 million that we're talking about next year?

Related to some distribution center network improvements, aland purchase and some build outs we delayed a bit.

Speaking of the DC, I know you had the Moreno Valley DC andyou had some freight improvements. Was that related to the DC coming online?

No, the freightimprovements really related to expectations of where fuel was going to beversus last year. I think last year was $2.82 a gallon for diesel; this yearwe're at $2.89. I think that, although it didn't spike like we had anticipated,there were some improvements in cubing out trailers, et cetera, that we focusedon.

Based on your dressquestion, it's probably around mid single-digits as a percent of contributionof the total.

One final one. On dd's, with the DC locked down presumablythat's to have more growth. Have you locked in new leases for '08? Are we goingto see dd's grow to the degree that we saw it grow this year? Is it safe to saywe're going to take a wait and see approach on that one?

We are looking at that currently. In January or actually thefirst week in February when we come out with the guidance, we will be able togive you a lot clearer picture on what dd's is going to do.

Care to share anything with us in terms of what you'velocked down in dd's leases though now since you presumably have those?

Not at this point. Iwill say we don't have an Albertson’s waiting in the wings.

Your next question comes from Kimberly Greenberger - Citi.

I know that you are not giving official new store openingguidance for 2008, but as you are going through your planning process rightnow, are you re-thinking the way that you are approaching dd's growth untilyou're able to accurately diagnose what is going on there?

Restate the question,Kimberly?

I know you are notgiving official new store opening guidance for '08 yet. I think you said you werein the middle of the planning process around that. As you are trying todiagnose the issues at dd's on the new store openings here in '07, would you bemore inclined to slow the growth at dd's until you come up with a real actionplan for how to address those issues?

Actually what I wouldsay is that we are going through an in-depth analysis, as we've said. We areconservative people by nature. That is as far as I think I would go. We arecertainly aware of how we are performing.

There appear to be no further questions at this time.

Have a very good day and a good holiday season.