Welcome to the Ross Stores third 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-answer session. (Operator Instructions) At this time, I would like to turn the call over to Mr. Balmuth.

Good morning. Thank you for joining us today. Also 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; John Call, Senior Vice President and Chief Financial Officer; and from Investor Relations, Katie Loughnot and Bobbi Chaville. I’ll will begin with a brief review of our third quarter and year-to-date performance, followed by our outlook for the balance of the year. Then John will provide more details on our third quarter results and guidance for fourth quarter. 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 forecasts 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 2007 Form 10K and fiscal 2008 Form 10Q and 8K’s on file with the SEC. Earnings per share for the thirteen weeks ended November 1, 2008 grew 22% to $0.44 up from $0.36 per share in the prior year. Net earnings for the 2008 third quarter grew to a record $57.3 million up from $48.7 million in the same period last year. Sales in the third quarter grew 6% to $1.555 billion with comparable store sales even with the prior year period. For the nine months ended November 1, 2008 earnings per share grew 30% to $1.57 up from $1.21 in the first nine months of 2007. Net earnings for the first nine months of…

Thank you Michael. As Michael discussed, third quarter operating margin improved by about 70 basis points driven by a 130 basis point increase in gross margin that was partially offset by a 60 basis point increase in selling, general and administrative costs. The improvement in gross margin during the third quarter was driven mainly by higher merchandise margins which increased about 90 basis points not including the benefit from lower shrink. As Michael noted our increase opened a buy position this year has enabled us to take advantage of the attractive close out opportunities in today’s markets. Combined with leaner and tighter inventories we are realizing less return and lower mark down. We completed our annual physical inventory in the stores during the third quarter. Results reflect that efficient execution of our shortage control initiatives over the past year contributed to a better than expected improvement in shrink, providing a favorable comparison of about 35 basis points versus the third quarter 2007. We estimate that the benefit from this lower shortage versus our accrual added about $0.02 earnings per share to our third quarter 2008 results. Gross margin in the quarter also benefited from lower distribution expenses which offset the slight increase in buying and [inaudible] costs versus the prior year. The increase in selling, general and administrative costs was driven in part by timing issues related to an initiative to better align store operating costs with functional activities. Specifically, we shifted some store payroll dollars associated with the receipt of holiday merchandise from this year’s fourth quarter into the third quarter. Also, as expected, expense comparisons were affected by a construction related settlement at one of our distribution facilities in the third quarter 2007 that benefited that prior year period by about 25 basis points. Finally, as Michael noted,…

Thank you John. To summarize, Ross Stores has been able to achieve solid growth and financial results year-to-date in a very tough macro economic and retail world. For the first nine months of 2008 we have been able to deliver total sales gains of 10%, same store sales increases of 3% and earnings per share growth of 30%. This performance, especially compared to most other retailers, reflects not only the resilience of our off-price business model but more importantly the successful execution of our strategies due to the focus and discipline of our entire organization. Our merchants remain focused in their search for the very best bargains among the huge supply of terrific brand merchandise available to us today. We also continue to operate the business on even lower inventory which has been key to our improved open to buy liquidity, helping to drive faster turns, better gross margin and higher returns on invested capital. Across the company, associates in our stores, buying offices, distribution centers and corporate offices are finding ways to get their job done smarter, faster and at lower cost. Finally, as a management team we have always been and continue to be conservative in our use of capital and leverage and in our focus of maintaining the strength and flexibility of our balance sheet and cash flows. In closing, we remain confident that our core strategy of delivering compelling bargains will continue to resonate with an increasingly value driven consumer. We also believe that our ongoing focus of successful execution of our off-price strategies in all areas of our business will continue to enhance our ability to manage through this increasingly difficult economic cycle better than most other retailers. This focus is the key to maximizing our prospects for sales and earnings growth while optimizing stockholder returns over both the short and long-term. At this point we would like to open up the call and respond to any questions you may have.

(Operator Instructions) The first question comes from Paul Lejuez - Credit Suisse.

Can you maybe just clarify what you were saying on payroll shifts? What was it that hurt expenses in the third quarter? Michael, given what is happening in the environment how much have you changed the amount of up front buying you are doing versus buying in season? If there is any type of clarification you can provide there that would be helpful. Also, just wondering in terms of product availability would you say the next 12 months can be as good as the last 12 or would you say it is tough to get much better?

I’ll take the first piece which is the shift in some store expenses. We shifted some payroll dollars this year from the fourth quarter to the end of the third quarter as part of our strategy to align store payroll more with some of the functional activities such as the hit of receipt period, rather than how we had done it in the past which was just based on sales volume. So that shift was about 30 basis points from the fourth quarter to the third quarter. I also mentioned there was about 25 basis point favorability in the 2007 compare that related to a one-time item where we had a settlement related to some construction defects in one of our distribution centers. The other 5 basis points is just basic de-leverage based on the negative comp.

Relative to up front buying, we predominately buy close outs. There are a couple of pockets in the store where we do a little more up front than others but for the most part we are a close out store. With that said we do still do some up front and yes we have pulled it back and the numbers are not gigantic that we were doing nor is the pull back massive. I don’t have the exact number at my fingertips but we are certainly buying less up front product than we were before. Relative to product availability, it obviously based on market conditions has been a very good time to be an off-price buyer. As we look forward to next year we anticipate that product availability will still be very strong as a result of the fact that we do not anticipate that inventories will fall off the line in mainstream retail. It may have been harder for the retailers to get their handles on to date and we think that will continue.

The next question comes from Brian Tunick - J.P. Morgan.

First, is the math right that it is costing you $9 million to close those four DD’s and I am just curious were those stores losing that much money? Maybe just talk about your thought process in spending that much to close four stores. The second question for 2009 from a capEx perspective one of your largest competitors is talking about acquisition opportunities, is that something you would consider as well if there are boxes the size you are looking for? Third, on your SG&A leverage opportunity already you have very lean SG&A. Should we still expect a 2-3% comp needed to get leverage as we look into 2009?

The DD’s closures are not costing us $9 million. We mentioned 15 basis points. That 15 basis points are off of fourth quarter not the year.

And your capEx guidance for the year and your philosophy with the real estate acquisitions, is that similar to something your largest competitor is starting to talk about.

Relative to capEx for 2009, we will give more specific guidance with our January sales release in February. As it relates to this year we plan to spend about $225 million. There are some capital dollars that will kind of flow between years based on when the costs fall related to expanding our Merino Valley distribution center. Relative to what we see in real estate we are seeing rents starting to soften across the real estate market and as we move forward we will take advantage of those real estate opportunities that fit our strategy. We are starting to see it soften.

I will just add on real estate with the number of retailers that are having financial problems or have closed certainly things are changing the real estate market and if any of these come available we will be looking at them and we will see.

Your last piece, related to what kind of comp we need to leveraging and that is probably around 3%.

The next question comes from Kimberly Greenberger – Citigroup.

John, I’m wondering if you can address the cost side for January. It seems like that has been [inaudible] for the quarter and it seems you are still expecting a decline there. I’m not sure I understand exactly why. Secondarily do you have any debt that will be coming on the balance sheet by either the end of this year or any time through 2009?

Relative to comps, as we looked at the fourth quarter and looked at some shifts related to a later Thanksgiving, a couple more extra days in December, and we think we have accounted for the shift. As it relates to January we believe the customer will shop when there is a reason to shop. In January we don’t really see any catalyst for them to shop and that is the reason for our guidance for January. Relative to your debt question, we don’t see any long-term debt coming on the balance sheet in 2009.

Could you just let us know how much shrink benefit should we expect in gross margin in the fourth quarter and then in each of the first two quarter’s of 2009?

We mentioned there were 35 basis points of benefit which is the total annual benefit that got screwed up in the third quarter. So for the fourth quarter and the first two quarter’s of next year the benefit will be between 5-10 basis points as we true up to historical rates. Having said that we think it is prudent to take a fairly conservative view on that accrual given the tough economic times that are out there that may influence that number.

Are you thinking it is possible you could see your shrinkage increase as we go through tougher economic times?

I would say I think that is an influence. We think we have good programs in place to prevent that. We think we have seen some good traction around those programs. I don’t believe, nor should we plan it to go up beyond where it has been historically but I think we need to be vigilant on our programs to make sure we are doing the appropriate thing.

The next question comes from Michelle Clark – Morgan Stanley. Michelle Clark – Morgan Stanley: I just wanted to touch on your fourth quarter comp guidance as down 1-3%. If I take the mid point of that which is maybe 2% and I look at your 2-year comp trend you are only assuming about 50 basis point of deceleration sequentially. My first question is why not take a more negative outlook given what is going on in the current macro environment? My second question, obviously you guys had a very strong year in terms of gross margin improvement. I just want to get your thoughts on where you see further gross margin opportunity as we look ahead into fiscal year 2009?

Why not take a further negative view? We think we have taken a prudent view based on trends we see, factoring in calendar shifts, factoring in closures and we believe we have taken a conservative enough position for the fourth quarter. Further opportunity on gross margin really the biggest opportunity from looking, are referring to merchant gross margin or overall? Michelle Clark – Morgan Stanley: Total gross margin.

In terms of gross margin obviously the biggest component of that is the merchant gross margin and we will continue to manage our inventories down. We believe that will give us faster turns and provide us some benefit in mark down rates and we do believe there is an opportunity to continue to take those down. Last fourth quarter, 2007 inventories were down 9 as we rolled in and out of that quarter and this year we are anticipating the first couple of months will be down high singles and ending the quarter low teens. So we do believe there is opportunity there. Michelle Clark – Morgan Stanley: Just one follow-up question. How much are you expecting to get in comp benefit from store closures of competitors that you mentioned?

In the fourth quarter we wouldn’t think of it as positive for the future, after the fourth quarter. For the fourth quarter they will be running liquidation sales. Michelle Clark – Morgan Stanley: So you are assuming negative impacts there?

Yes.

The next question comes from David Mann - Johnson Rice & Company. David Mann - Johnson Rice & Company: Just to go back to your inventory comment, I think on the last call you talked about continuing to take inventory per store down next year. Can you just update us on if that is still talking about mid single digit decline and if that is what you would expect or would you be more aggressive in light of the environment?

We are still formulating our 2009 plans but I would say that would be the minimum we would be taking inventory down. David Mann - Johnson Rice & Company: John, in terms of the DD’s performance can you just give us what your latest estimate is on the drag to operating margin from DD’s this year and would you expect that to improve next year?

The drag this year is probably around 30 basis points. That is where we feel it will probably end up. As it relates to 2009 we still have again to formulate those plans but DD’s gets stronger and we continue to perform hopefully perform better in that business. David Mann - Johnson Rice & Company: That 30 basis points, does that include the stores you are closing?

No it does not. But it doesn’t include the charge. If you take out the drag those specific stores had on the leverage component it is really not that material. David Mann - Johnson Rice & Company: In terms of fuel and trade costs can you just clarify how that impacted you in the third quarter and with fuel prices down how you expect that to impact you in the fourth quarter?

As we were coming into the quarter, the first half of the year, freight had hit us for about 10-15 basis points. In the third quarter we were flat year-over-year from a freight standpoint. In the fourth quarter we look to see some benefit as we have lower fuel prices than we did last year.

The next question comes from Sean Noughton – Piper Jaffray. Sean Noughton – Piper Jaffray : On micro merchandising initiatives I think you were doing about 15% of the categories for holiday this season. Can you give us an idea of how that is progressing? Michael O’Sullivan: That’s right. We turned on micro merchandising for about 15% of the business just earlier in the season. The way micro merchandising works is it looks back over the past couple of months and then projects forward what the sales should be by store and by comp. So we are really only now at a point in the season where it is starting to do that given that we are now a few months into the season. I would say we are pretty happy with how it is working. From a mechanical point of view we are very happy with how it is working. We are making some adjustments there. Overall it seems to be working pretty smoothly. I would caution you we would really need to get into a full season to see what kind of an impact it will have on the business and even then we want to have expanded it to more than 15% to really identify any meaningful response. Sean Noughton – Piper Jaffray : Still thinking about that potentially for next year, there could be some benefit as we start to lap into Q4 of next year if there is something in the micro merchandising initiative that we are looking for on the gross margin line? Michael O’Sullivan: Yes that is possible. Although if you could see I am kind of smiling because with everything going on in the environment right now there are plenty of other headwinds pushing us in the other direction. But yes micro merchandising should help us. Sean Noughton – Piper Jaffray : On the Mervyn’s and Bed, Bath and Beyond, is there anything that you are doing specifically in order to capitalize on some of those customers maybe coming to the store, increasing frequency on any tendencies you have with those particular companies?

Mervyn’s and Linens-n-Things, specific action certainly in the fourth quarter there is nothing we will be doing while they are running their liquidation sales. We will be examining that for next year. Sean Noughton – Piper Jaffray : Anything on trade down within the store? Are you noticing any differences in some of your higher price point items versus some of your lower price point items? Are you noticing anything in the back end versus the first half?

During the quarter what we did notice is that actually traffic was up, but that was offset by the customer basket actually decreasing as they put fewer goods in that basket. So those two elements offset each other to turn out a flat comp.

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

Can you talk a little bit about assortments adjustments? Is the focus that you had for a little bit, going to a little bit more trend right assortments, how is that changing in this environment? Also, on DD’s, anything on DD’s we should be watching the performance there whether it is assortment or regional in terms of what you are noticing? Lastly, on shrinkage, as you have had some better shrinkage performance in the past two years can it get better from where it is now?

On the trend merchandise that is a portion of our business, our strategies there we have been happy with. Again, it is sometimes a little hard on the region given what is going on in general business these days, but we have been happy with it through the course of the year. Certainly we felt very good about it in the early part of the back-to-school period. So we haven’t made any adjustment from our strategy. We think our strategy is fine. The only thing I would say is adjusting a little as we go forward is the consumer is very value conscious and the level of higher end product has to be monitored by closer by classification in this difficult economic environment. Michael O’Sullivan: On your second question about DD’s, there are obviously a number of internal metrics we are looking at and monitoring very carefully. As Michael said in his comments, the performance in Q3 for DD’s was kind of mixed. There were some good times. The comp stores missed plan but actually started to improve towards the back end of the quarter. Obviously we will be looking at that to see how that progresses. The non-comp stores which in our plan means the stores we opened in 2007 actually did better than planned. Many of those are still below where we would like them to be. So again we are continuing to monitor those stores and make improvements where we can. That is really what we are looking at on DD’s over the next couple of quarters.

I’ll take the shortage question. We have seen improvement over the last three years in shrinkage. I would say that we believe we can get better. We have a number of initiatives and investments both human and technology investments that we have made and will continue to make in our stores. We have added door agents, floor agents, we have category specific electronic article surveillance, and we continue to expand our data mining capabilities including remote monitoring and have tailored and will continue to tailor local LT programs by store and by market. With all that said we think it is appropriate to take a conservative posture relative to shortage in this certain time with the closures we are experiencing right now. But we believe over time we do have more opportunity with shortage.

The next question comes from Marni Shapiro - The Retail Tracker.

I was curious if you are seeing any kind of close outs from the factory level? Do you have people overseas in China where the factories are buying direct? Are you also getting close outs from specialty stores as they cut back inventory as well?

What I would say is we see close outs coming from every direction right now. What we have overseas I really wouldn’t feel comfortable commenting about on a call like this. The second part of your question about specialty store products yes there is availability from specialty stores. As you expect, their results are in line with retail.

Have you guys changed your marketing at all for the fourth quarter?

Our marketing is pretty consistent year-in and year-out, reinforcing our value message. We will still be doing that.

The next question comes from Randal Konik – Jefferies & Co. Randal Konik – Jefferies & Co. : First, on the DD’s closures you talked about timetable and demographics. Can you just give us a little bit of a sense between what difference in demographics of these unsuccessful stores that are closing versus the successful stores? Related to the store closures on DD’s, long-term do you have to rethink about the real estate strategy on the DD’s and the potential number of stores you can ultimately have? I believe it was 500. Finally, where are we on break even number of stores for break even on DD’s? Michael O’Sullivan: First of all, on the DD closures as we mentioned on earlier calls we have done quite a bit of research on the DD’s customer over the past 12 months and based upon that research and based upon our own experience in how stores are performing, we actually think the DD customer is a narrower demographic profile than we first thought when we first sent out on this. By narrower I mean specifically more ethnic. The DD’s customer initially was characterized as being low income. I think we now believe that low income isn’t enough. It needs to be low income and more ethnic. So if I compare the stores that we are closing with the stores that have done very well at DD’s that is where you see the key differences we are seeing. Obviously that insight if you like feed into what our real estate strategy will be for DD’s going forward. We are obviously going to look for locations that are going to have those demographic profiles. Having said that, we want to validate that customer. We would expect in the next couple of years to see us…

The next question comes from Patrick McKeever - MKM Partners.

Have you seen any change in the payment at stores? Has it shifted away from credit a little and more towards cash? I’m just wondering what the dynamic is there?

We have seen a slight shift away from credit into cash. Probably around a point. That is just a little bit of a shift.

For next year I know you haven’t given guidance for next year other than to say you are still planning on buying back about $3 million worth of stock and using internally generated cash to fund that. How about store growth next year? Are you still planning to continue your basic underlying store growth for next year?

Some time ago I think we had to slow store growth a bit, about 8% unit growth to more like the 4-5 and that is still our plan. We haven’t changed our perspective.

The next question comes from Adrianne Shapira - Goldman Sachs.

We notice that pack-away ticked up slightly to 33% versus 30%. I was wondering given the opportunistic buys you are seeing in the market is there room for that percentage to go higher? What do you think about the appropriate level of pack away?

We think about it and look at it by every category of business in the store but we look at it in terms of the quality of the pack-away that is being offered to us. If the pack-away bargains are great then it will run higher. Yes, we have ceilings we don’t want to go above in every segment of the business so we will see.

The next question comes from William Keller - FTN Midwest Research.

Coming back to the cost shift that impacted SG&A, was that a change in when the costs were actually recognized or when they were incurred?

They are incurred and recognized in the third quarter.

Previously they would have been incurred in the third quarter but recognized in the fourth?

No, they would have been incurred in the fourth and recognized in the fourth. What we did was align payroll more appropriately at a receipt level in the stores as opposed to a sales volume level. Those functional activities actually take place in the third quarter with an adjustment in inventory and a shift in payroll to account for that.

At this time there are no other questions in the queue.

If there are no further questions thanks for sharing the hour.

This concludes today’s conference call. You may now disconnect.