Good morning.Welcome to the Ross Stores first quarter 2008 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 answersession. (OperatorInstructions). As a reminder, ladies and gentlemen, this call is being recordedtoday, Wednesday, May 21st. At this time I would like to turn thecall over to Michael Balmuth.

Good morning.Thank you for joining us today. Also on our call are Norman Ferber, Chairman of theBoard; Gary Cribb, Executive Vice President and Chief Operations Officer;Michael O’Sullivan, Executive Vice President and Chief Administrative Officer;John Call, Senior Vice President and Chief Financial Officer; and KatieLoughnot, Vice President of Investor Relations. We’ll beginwith a brief review of our first quarter performance followed by our outlookfor the balance of the year. Afterwards we’ll be happy to respond to anyquestions you may have. Before webegin I want to note that our comments on this call will containforward-looking statements regarding expectations about our future growth andfinancial results and other matters that are based on management’s currentforecast of aspects of the company’s future business. These forward-lookingstatements are subject to risks and uncertainties that could cause our actualresults to differ materially from historical results or current expectations.These risk factors are detailed in today’s press release and our fiscal 2007Form 10K and 2008 Form 8Ks on file with the SEC. Today wereported that earnings per share for the 13 weeks ended May 3rd,2008, grew 25% to $0.60 from $0.48 per share for the 13 weeks ended May 5th,2007. As noted in today’s press release, our first quarter 2008 results includea real estate settlement that added income equivalent to about $0.02 per shareduring the period. Net earningsfor the quarter were $79.5 million compared to $67 million for the prior yearperiod. Sales for the13 weeks ended May 3rd, 2008, increased 10% to $1.556 billion with comparablestores sales up a solid 3% over the prior year and ahead of our originalforecast. Our ongoingfocus on expanding and strengthening the brand content of our assortmentsthroughout the store while improving the fashion content in our core apparelbusinesses contributed to the healthy sales gains in the quarter. Dresses andshoes remained the top performing merchandise categories…

Thank you,Michael. As discussed, the operating margin improved by about 45 basis points drivenby a 40 basis point decline in selling, general and administrative costs and afive basis point improvement in gross margin. Merchandiseto margin increased to about 15 basis points in the quarter. Our comparisonversus the prior year was impacted by timing issues related to markdowns takenin the first quarter of 2007 that sold during last year’s second quarter.Because we are on the cost method of accounting, markdowns do not reduce grossmargin until they sell. So we are forecasting even stronger merchandise margingains in this year’s second quarter compared to the higher-than-plannedmarkdown activity in the prior year period. In the firstquarter higher freight costs related to fuel surcharges were offset by lowerdistribution costs which improved about 10 basis points. Both occupancy andbuying costs experienced a slight increase of about five basis points over theprior year. Selling,general and administrative costs in total declined about 40 basis pointscompared to last year’s first quarter. The real estate settlement benefittedthe period by about 30 basis points. Slight deleveraging in store cost was morethan offset by lower corporate expenses as a percent of sales in the quarter. Store costsin the first half of 2008 are being pressured by the large number of new storeswe opened in 2007, including 26 new dd’s DISCOUNTS. Interestincome of $1.6 million in the quarter also was better than planned, benefittingmainly from higher cash balances resulting from the progress we’ve made in inventorymanagement that is driving fast returns, fresh receipts, and higher accountspayable leverage. As planned,earnings also benefited from a slightly lower tax rate in the quarter. With theadoption of FIN 48, there is now more variability in our quarterly tax rates.We continue to forecast our tax rate for the year to be relatively flat to 2007at about 39%. Finally,…

Thank you,John. Based on our second quarter guidance and our above plan results in thefirst quarter we are now projecting earnings per share for fiscal 2008 to be inthe range of $2.19 to $2.29 for a forecasted growth of 15% to 21% over $1.90 infiscal 2007. Again, to sumup our comments today, we are pleased with our solid ahead of plan sales andearnings results in the first quarter that were achieved despite the difficultretail environment. We believe this reflects the resilience of our off-pricebusiness model. Our historyshows that we have been able to manage successfully in many types of businessclimates with less volatility in our financial results than a comparablefull-price retailer. During thesetimes we benefit from an increased supply of great brands at strong discounts.This makes our stores attractive destinations for customers seeking compellingbargains for their family and their home as shown by our solid performance inthe last two quarters. In addition,because we can buy even closer to need today we can be more defensive andoperate our stores with leaner inventory levels. This in turn increases ouropen to buy capacity, giving us even more flexibility to take advantage of thegreat close outs available on the market. As a result, we can realize fastreturns and lower mark downs with a more rapid flow of fresh and excitingbargains to our stores which we have done and continue to do. Lookingahead, we remain confident that solid execution of our merchandise strategies,all with the key ingredient for success in this business, along with continuedstrict inventory and expense controls, will enable us to maximize our prospectsfor sales and earnings growth over the balance of 2008 and beyond. At this pointwe would like to open up the call and respond to any questions you may have.

(OperatorInstructions). Your first question is from Jeff Black with Lehman Brothers. Jeff Black – Lehman Brothers: Congratulations,guys. Just a couple of questions, I guess, for Michael. Where specifically arewe seeing some improvement or better traction in the ladies business? Can youupdate us on Juniors? I don’t think you called that out, but I think that’sbeen tough in the past. Have we seen a light at the end of the tunnel there? For John, onthe inventory, that came in a lot lower than we would have thought. Can weexpect to see you build a little bit more inventory in the second quarter andin the back half of the year? Just an overall update on what to think about interms of inventory per square foot. Thanks.

This isMichael. We’re starting to see traction in the Misses. We certainly haveperformed very well in dresses. There’s a national trend in dresses and we’re,I think, capturing more than the average in that. We’re very pleased with that.We’re seeing movement in our assortments and costs probably in our business,both in Misses and Special Sizes. It’s moving. It’s a slow move, but gettingbetter. Juniors, weplanned conservatively and the results have been pretty much in line with ourconservative plans and on a comparable basis are considerably down. But thatwas our strategy going in.

Jeff, oninventory levels we ended the quarter slightly below where we had planned thequarter. As we look forward, inventory levels are planned to be down highsingles to low double digits and moderate more to kind of the high, highsingles levels in the back half. Jeff Black – Lehman Brothers: Great. Thanksfor the clarity. Good luck.

Your nextquestion is from Brian Tunick with J. P. Morgan. Brian Tunick – J. P. Morgan: Hi. Thanks,guys. I guess my question, Michael, for you is with the May comp guidance andmaybe with your outlook to June, any thoughts of the stimulus cheques thateveryone’s going to be getting? Historically do you expect your business andhave seen the pickup from that historically? And then the second question is,maybe update us on the micro merchandising roll out or the systems initiativethat we’re expecting to see in the second half. Michael B. O’Sullivan: Actually,I’ll take that, Brian. It’s Michael O’Sullivan. First of all, on the rebatecheques, the truth is we just don’t know. There are so many things that affectour business – supply, weather, gas prices, rebate cheques – it’s hard for usto pull that out. Having said that, we are students of our business so we havegone back and looked at previous occasions where there have been similar rebatecheques. So in 2001,for example, there were 90 million rebate cheques issued between July andSeptember. The back half of 2001 your ad comps did pretty well, but I warn youthat was off a pretty soft prior period in 2000 and, frankly, 9-11 was right inthe middle of that. So it’s very hard to sort of parse that out and figure outwhat exactly the impact was. So we think it’s going to be good, but it’s hardfor us to quantify. That’s the rebate cheque side. Your secondquestion I think was about micro-merchandising. Right now we’re about to launchthe pilot business in the micro-merchandising. There are two businesses thatwe’re piloting the tools and processes with which represent about 15% of ourbusiness. We’ll then move to some other major businesses in 2009 which wouldrepresent about 50% of our business, and then the balance of the businesseswould be in 2010.

The nextquestion is from Kimberly Greenberger with Citigroup.

Congratulations on a nice quarter. I washoping you could give us transaction metrics for Q1? On the lower clearanceinventory year-over-year, Michael, is there any way to quantify that? Eithergive us clearance inventories or percentage of total this year or last year?Any way to quantify that decline? Secondarily, I just wanted to confirm thatyour updated annual EPS guidance of $2.19 to $2.29 includes the $0.60 from Q1,that’s the basis that you are using here for Q1? Lastly, the CapEx numbers have beensomewhat elevated here ‘06/‘07, and that’s what we’re modeling here for ‘08.When do you think, longer term, we might be able to see that CapEx numberdecline back below the $200 million mark? Thanks.

Kimberly, on the transaction metrics, ourprice per item was relatively flat for the quarter; our transaction size wasrelatively flat. It really was volume that took the comps up. Relative to the question about whether ornot the annual guidance includes the $0.02 from the real estate transaction,the answer is yes, it does. MichaelB. O’Sullivan: Kimberly, I think your third question wasaround capital expenditure. One of the big drivers of our CapEx in the lastcouple of years has been DC capacity, so distribution capacity, and buildingout new distribution centers. This year’s CapEx includes a chunk of spending toexpand one of our distribution centers in Southern California, the Moreno Valleydistribution center. We expect that expansion to be completed by early ‘09. As we look forward as to how much DCcapacity we are going to need in the next couple of years, we are notanticipating another major processing center in the next couple of years. Wemight need to add a storage facility, but that will be less expensive. Weexpect at least from a DC CapEx perspective, for spending to ramp down a littlebit over the next couple of years.

I think your final question was onclearance levels. Kimberly, clearance levels are slightly down for us in the chain as weaccelerate inventory levels and bring the total inventory level down, which ishelping us manage the markdown line as well.

Any way to quantify that change, John?

I’d say slightly down.

The next question is from Paul Lejuez -Credit Suisse.

I just want to dig into California alittle bit. Are you seeing anything different in that market in terms oftransactions versus ticket? Also just wondering what you’re seeing there interms of shopping by existing customers versus attracting a new tradedowncustomer? MichaelB. O’Sullivan: I will take the second piece on thetradedown customer. It would be speculative, we don’t really know. We do prettyregular research on our customers and that allows us to look out over a longertime horizon where our customers are coming from. We know that historically ourcustomers have come from everywhere. Our customers typically shop at everystore, pretty much. They’re only really loyal to one thing and that’s abargain, which is kind of what we try and focus on, that we can get a biggershare of their wallet if we put bargains in front of them. That research tells us that much and tellsus over a longer period of time where customers are coming fromdisproportionately, but it’s not really sensitive enough to figure out on ashort time horizon whether it’s a tradedown customer or a trade-up customer.It’s probably both; we don’t know.

Are you able to track sales from existingcustomers? MichaelB. O’Sullivan: Not really, no. We know we have a prettyloyal core customer base, but we don’t really have that level of detail tofigure that out.

How about in the transaction versus ticket,the average ticket in California?

We estimate that those levels would besimilar to the rest of the chain.

Last, product availability at dd’s versusRoss, are you seeing anything differentin the dd’s market?

Not really. It’s a good time to be anoff-price buyer.

The next question is from David Mann -Johnson Rice.

In terms of the corporate expense leverage,was that all due to the comp or were there some areas where you had someunusual cost savings or control?

There are some timing issues in the quarterrelated to self-funded health-care plans, etcetera, that gave us some leveragein the quarter. Actually, when we looked at the second quarter, SG&A willbe up slightly given that we’re up against 25 basis points of income we hadlast year. If we look at that across the first half, G&A is relativelyflat.

Michael, I think in the last couple of callsyou have talked about perhaps doing a little bit better in the Southeastmarkets. Can you give an update on how some of those underperforming storesmight be doing? MichaelB. O’Sullivan: Actually the Southeast, at least in thefirst quarter, was actually a little bit behind the chain. Notmaterially from a comp basis, but a little bit behind the chain. Themid-Atlantic, which is another region we have called out in the past wasactually well ahead of the chain so it’shard for us to draw any sort of long-term sustainable conclusions from that.

Also, Kimberly, let me give some moreclarity around where clearance levels are. I said slightly. They are probablydown on a per-store basis; probably down low double-digits as a percentageterm.

Your next question is from Jeff Klinefelter- Piper Jaffray.

On the dd’s comment that ‘07 stores wereslightly better than expected, can you just remind us where those stores openedand any other insights in helping to describe their better performance and whatare you gleaning from that going forward with store openings? Michael, in terms of product, at this pointgoing into the fall season you and your buying organization, what are yousensing, what are you seeing out there in terms of product availabilities? Isit as good or better than last year going into the second half? Lastly on second half guidance, John maybeI missed this, but the gross margin versus SG&A leverage potential, secondhalf versus first half? MichaelB. O’Sullivan: I’ll take the first part of that regardingdd’s new stores. Last year we doubled the size of the dd’s chain so weadded 26 stores. The vast majority of those were actually outside of California whichis the first time we had opened dd’s outside of California. Aswe’ve said on previous calls, we were disappointed with their performance. Theydidn’t perform anything like as well as the initial 26 stores had performed. As we came into ’07 -- the first quarter atleast -- they performed better and we’re happy with that, but it’s one quarterso we don’t know if it’s sustainable. We’ve certainly made some adjustments tothe assortments. We think that has helped but as I said, we don’t really knowhow that will play out in the remaining quarters of the year. In terms of plans to dd’s going forward,again because we doubled the size of the chain in ‘07,as we said earlier this year we’re really using ‘08 to sort of take a littlebit of a breather to make sure that we bed those stores in, really make sure weunderstand what’s driving their performance and then we’ll make a decision fromthere in terms of how many dd’s stores to open up over the next few years.

The product availability versus a year ago,what we’ve seen so far through the first four-and-a-half months of the year isit’s considerably better than a year ago. How long it will stay like that, noone knows but my instinct would say that we’ve got a good ways to go based onhow mainstream retailers are performing. My instinct would say we’ll have agood buying opportunity for a bit more time ahead of us.

On guidance, we haven’t given guidance onthe second half specifically, what was given was the annual earnings per shareguidance. Coming closer into the second quarter we expect about, as I said, 20to 60 basis points of improvement in EBIT margin. That’s up against 25 basispoints of income we had last year. Most of that leverage will come from thegross margin line. SG&A will actually be pressured a bit, we think, in thesecond quarter.

Your next question is from Mark Montagna -CL King.

A question about your pricing power.Typically you try to maintain a certain spread between your prices and thedepartment stores. Considering the consumer is so price-driven right now, doyou need to maintain that same spread or are you getting increasing pricingpower that you can allow that spread to narrow?

Allow the spread to narrow? No. At most insomething like this we’d widen the spread, meaning the spread from departmentstore pricing to our pricing. If we are able to take advantage of betterpricing from the market, we usually will pass it on.

Our next question is from Patrick McKeever- MKM Partners.

Could you talk a little bit more about yourshoe business, which has been comping very well? How big is that now as apercent of sales? What’s driving the business? That is a little counter to thebroader trend in retail, which is weakness in shoes. What’s driving your shoebusiness? Are you adding SKUs? Are you adding new brands? Lastly, same basicquestion, how are the price points holding up in shoes?

Our shoe business is approximately in the10% range of our store. Why are we doing better in shoes? In off-price or inour business, we are executing better then we had before, and it boils down tothat. Our SKU levels really are not a lot different. Our pricing has been verysharp. There have been a lot of opportunities based on the shoe conditions inthe market. What’s going to happen going forward inshoes in pricing, who knows. I know there is a price increase coming out in theFar Eastin shoes. What I think will happen then is there will be more opportunitiesbecause retail will rise and mainstream stores will create a backup, whichhopefully we’ll be able to take advantage of. I think a multiple of things have beengoing on; market condition and improved execution are really the drivers forus.

On the fuel surcharges that you mentionedin the quarter, is that the first time you have called that out as a materialissue? What are you seeing there? Is it going to get worse here? What are youhearing? MichaelB. O’Sullivan: Actually on that second to last piece ofthe question, maybe you can tell us whether it’s going to get worse or willnot. We certainly knew that fuel prices were going to be high coming into theyear so we planned for that to some degree but we didn’t plan that it would be$130 a barrel. That’s why there has been some impact on Q1. Having said that, Patrick, I would say 18months, 24 months ago when we first saw fuel prices rise -- and at that pointthey were blowing through the $50 a barrel mark -- when we first saw them risewe actually took a step back and took a look at our transportation costs. Weput a number of initiatives in place that are coming to fruition now thatrelate to how we flow goods into our distribution centers, how we pack goodsonto trucks, that kind of thing. So to some degree we were able to use thoseinitiatives to offset some of the fuel increases in Q1 and that will help us inthe remainder of the year as well. But it won’t be enough to offset itcompletely, as long as prices remain at the levels they’re at or if theyincrease further.

The next question is coming from MarniShapiro - The Retail Tracker.

Could you just give me a little bit moreinsight into the inventory levels? They are planned down very conservatively. Iwas curious if that was a combination of units plan down as well as betterprices from buying? And if it was planned down equally across the board or werethere pockets of home or apparel, men’s versus women’s, accessories that areplanned up where others are planned down more significantly?

Relative to inventory levels, it’s really afunction of just taking the total levels down, not really a price function. Sowe just took absolute levels down to increase the turn and increase thefreshness of the store.

And on the inventory cut, whether it wasacross the board or selected areas, every area in the company was hitsignificantly. Certain areas were considerably more aggressive than that,though.

Is there anything that you’re planning upas you go into the next quarter?

In inventory levels?

Besides the dresses, I assume. Any inventorythat you’re planning up as you go into the second quarter and beyond?

No.

The next question is from Dana Telsey -Telsey Advisory Group.

Can you talk a little bit about as you thinkabout the brands overall in the apparel side, where I think there was going tobe a little bit of an emphasis on a little more fashion or trend-rightmerchandise, where are you there and how much further do you have to go? Also,can you talk a little bit about what you’re seeing out there in terms ofproduct costs? Are you seeing anything from who you buy from of the productcost increases in terms of sourcing from China?Thank you.

On the brand movement, I think we’re partof the way there. We’re probably 50% of the way there or maybe slightly higherin ladies, a little higher than that in men’s. But I’m talking about today onthe floor. We know what we have in the pipeline and it’s moving nicely in thedirection we want it to go. In terms of price increases from China, weare seeing it; certainly it’s been in the press about footwear. Footwear, thereare significant price increases coming out of China andwe’re seeing it in other categories. If we execute effectively we’re a littlemore on the sidelines waiting. We’ll see how it plays out in traditionalretail. Certainly, there are pockets of the business in the home area wherethere are price increases and in our business, we can adjust our mix to helpmitigate some of that, but the price increases are what they are.

What’s the magnitude of the priceincreases?

It varies by category. I think the mostsevere place in the store is in the shoe area, and I am not recalling exactly,but I think it’s somewhere in mid single-digits, mid to slightly higher thanthat depending on a lot of variables.

To trend-right product, any more discussionthere?

Well as I said, we are comfortable thatwe’re moving in the right direction. I am not comfortable in every area todayon the floor. In ladies apparel it is still a little further behind men’s,young men’s has considerably moved the needle; ladies is moving the needle andI didn’t see the path as clearly on our last call. I see it starting totransition on the floor and I know it’s in the pipeline so I feel verycomfortable that over the next quarter or so we’ll be in a better positionthere.

Should it be around 5% of the mix?

No, depending on the area it should beconsiderably more than that. Certain pockets of the store it should be 15%,20%, and certain pockets actually would be slightly higher. There’s very fewplaces in ladies that I would say it is as low as 5% going forward.

Should it be a margin benefit as you seeit?

I don’t see it as a margin benefit; I seeit as a sales benefit.

The next question is from Richard Jaffe -Stifel Nicolaus.

Thanks very much. Just a follow-on questionwith dd’s DISCOUNTS and what seems to be a little bit of an inflection pointhere, are you seeing differences in the more mature stores in the California market?Have the new stores been a source of success? Any insight in terms ofmerchandising mix, how that’s playing out? Things that you’ve learned that cangive you some traction going forward? MichaelB. O’Sullivan: On the first part of your question Richard,I’m not sure what you’re driving at but just some commentary. The comp stores-- which are all California stores -- as a group have actually been a pretty strong group ofstores. They’ve been slightly below their comp plan in the first quarter, butit’s hard for us to project from that and I’m not sure what more we canconclude other than say that we’re a little bit below the comp plan. The new stores, the ‘07 stores, most ofwhich have been open for less than a year, opened up at a pretty disappointinglevel and they’ve done better and we think they have done better because we’vemade so much assortment changes but it’s one quarter and again, it’s hard for us to project offone quarter but they’ve been slightly better than we planned.

I would just add that even though thecomparable stores were off what we’d projected, they were still positive andalso we are doing a lot of research on this customer. There are differences byregion and there are ethnicity differences that we’re working through tounderstand better.

And the merchandise assortments are prettysimilar to the Ross mix?

No, no. The categories we carry are similarto Ross, but the mix is very different.

That’s what I meant, by category, obviouslydifferent brands and different price points of course?

Right.

At this time there are no furtherquestions. I would like to turn the conference back over to Mr. Balmuth for anyclosing remarks.

Thank you all for attending. Have a verygood day.