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Ross Stores Inc. (ROST -0.75%)
Q3 2017 Earnings Conference Call
Nov. 16, 2017, 4:15 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon and welcome to the Ross Stores Third Quarter 2017 Earnings Release Conference Call. The call will begin with prepared comments by management, followed by a question and answer session. If you would like to ask a question during this time press *1 on your telephone keypad if you would like to withdraw your question press the # key.
Before we get started, on behalf of Ross Stores, I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts, and other matters that are based on the company's forecast of aspects of its future business. These forward-looking statements are subject to risks and uncertainties that can cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today's press release and the company's fiscal 2016 Form-10K, and Fiscal 2017 Form-10Qs and 8Ks on file with the SEC.
Now I'd like to turn the call over to Barbara Rentler, Chief Executive Officer.
Barbara Rentler -- Chief Executive Officer
Good afternoon. Joining me on our call today are Michael O'Sullivan, President, and Chief Operating Officer; Gary Crib, Executive Vice President Stores, and Loss Prevention; John Paul, Executive Vice President Finance, and Legal; Michael Hartshorn, Group Senior Vice President and Chief Financial Officer; and Connie Kao, Vice President Investor Relations.
We'll begin our call today with a review of our third quarter, and year-to-date performance followed by our outlook for the remainder of the year. Afterward, we will be happy to respond to any questions you may have.
As noted in today's press release, our third-quarter sales and earnings outperformed our expectations despite being up against our toughest prior year comparison, and two major hurricanes during the quarter. We are pleased with these results which reflect our continued market share gain in a challenging retail environment. Earnings per share for the period were $0.72, up 16% from last year. These results include an approximate $0.01 benefit from favorable expense timing that's expected to reverse in the fourth-quarter. Net earnings grew to $274 million, compared to $204 million in the prior year. Sales for the third quarter rose 8% to $3.3 billion with comparable store sales up 4% on top of a robust 7% gain last year.
Operating margin of 13.3% was better than expected mainly due to a combination of higher merchandise margins, and leverage on above-planned sales.
For the first nine months of Fiscal 2017, earnings per share were $2.36, up 15% on top of an 11% increase in the prior year. Net earnings were $912 million, up from 817 million last year. Sales year-to-date rose 8% to $10.1 billion with comparable store sales up 4% versus a 4% gain in the same period last year. By region, trends were fairly broad-based with the mid-west performing the strongest during the period. We estimate that the hurricanes in Texas and Florida had a minimal impact for the quarter as sales rebounded significantly following the storms. By merchandise categories, children's was the best performing area benefiting from solid execution of our merchandising strategies.
Similar to Ross, DDs Discounts continued to post better than expected gains in both sales and operating profits for the third-quarter. As we enter the third-quarter, total consolidated inventories were up 4% with average in-store inventory flat compared to the prior year. Pack away as a percent of total inventory was 46% compared to 45% last year.
Turning to our expansion program, we opened 30 new Ross, and 10 DDs Discount locations in third-quarter, completing our 2017 store opening program. We expect to end the year with 1,408 Ross, and 213 DDs Discount stores. A net increase of 88 locations for Fiscal 2017.
Now Michael Hartshorn will provide further color on our third-quarter results and details on our guidance for the remainder of the year.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Thank you, Barbara, let's start with our third-quarter results.
Our 4% comparable store sales gain was driven by increases in both traffic and the size of the average basket. As Barbara mentioned, third-quarter operating margin outperformed our projections and increased 65 basis points to 13.3%. Cost of goods sold for the quarter improved 30 basis points, driven by a 25-basis point increase in merchandise margin, and occupancy and buying costs that were lower by 20 basis points each. These gains were partially offset by 30 basis point increase in freight costs, along with five basis points in higher distribution expenses due mainly to the timing of pack away related costs.
Selling, general, and administrative expenses during the period were lower by 35 basis points. As a result of leverage on our 4% comparable store sales gain, and as we anniversaried non-recurring costs in last year's third quarter. During the quarter we repurchased 3.6 million shares of common stock, for a total purchase price of $219 million. Year-to-date, we have bought back a total of 10.5 million shares for an aggregate price of $649 million. We remain on track to buy back a total of $875 million in stock for the year, under the two-year, 1.75 billion stock repurchase program approved by our board of directors in February of this year.
Let's turn now to our fourth-quarter outlook. As mentioned in our press release, we are raising our sales expectations for the fourth-quarter. We now forecast comparable store sales to increase 2 to 3% on top of strong multi-year gains over the last several years. We are projecting earnings per share to remain unchanged at $0.88 to $0.92 as the benefit from higher comparable store sales is expected to be offset by the aforementioned expense timing shift from the third to the fourth-quarter. As a reminder, our EPS guidance for both the fourth-quarter and fiscal year includes an estimated benefit of $0.08 from the extra week.
The operating statement assumptions for our fourth-quarter guidance include the following: total sales are projected to grow 11, to 12% which includes a benefit from this year's 53rd week. Operating margin is projected to be in the range of 14.0, to 14.2%, versus 13.6% in the prior year. Net interest expense is estimated to be about $1.5 million; our tax rate is planned at approximately 37, to 38%; and we expect average diluted shares outstanding to be about 380 million.
Based on our year-to-date results, and projected fourth-quarter guidance, we are now planning earnings per share for the full year on a 53-week basis to be in the range of $3.24 to $3.28. On a 52-week basis, this updated forecast for fiscal 2017 represents solid projected earnings-per-share growth of 12, to 13% on top of a 13% gain in 2016.
Now, I'll turn the call back to Barbara for Closing comments
Barbara Rentler -- Chief Executive Officer
Thank you, Michael. Again, we are pleased with the better than expected results we achieved in the third-quarter despite facing our toughest prior year comparison and two major hurricanes. As we enter the fourth-quarter, we are encouraged by our above-planned sales, and earnings trends year-to-date. In addition, our merchants have done an excellent job of acquiring exciting assortments of sharply priced name-brand fashions and gifts to appeal to today's holiday shoppers.
While we're optimistic about our prospects for the fourth-quarter, our guidance reflects an uncertain external environment and the likelihood of yet another very promotional holiday season. As Michael just mentioned, we also face our own challenging multi-year comparison. Nonetheless, we believe that off-price will remain a strong performing segment in retail driven by consumers ongoing focus on value.
Most importantly, we have a consistent track record of being able to deliver the compelling bargains that our customers desire. All of this makes us confident in our ability to keep solid growth in sales and earnings over the long-term.
At this point, we'd like to open up the call and respond to any questions you might have.
Questions and Answers:
Operator
At this time, I'd like to remind everyone in order to ask a question, press *1 on your telephone keypad. In order to allow everyone time for questions, we ask that you please limit yourself to one question each. And we'll pause for a moment to compile the Q&A roster.
Your first question is from Simeon Segal, with Nomura Instinet.
Simeon Segal -- Nomura Instinet -- Analyst
Thanks. Good afternoon, and congrats on the really strong results. With most companies calling out the hurricane and warm weather impacts, can you just share any thoughts as to why you really didn't see those pressures? And then, just anyway to think about operating expenses into next year, whether it's wage, freight, or just anything else to keep in mind? Thanks.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Sure. It's Michael Hartshorn, on the hurricane impact, we estimate that the negative impact of the hurricanes in Texas and Florida was less than 50 basis points to comp sales for the quarter. To be clear, that estimate includes both the initial store closures and a significant bounce back following the storms. About 15% of our stores were closed at some point during the storms, but all stores have reopened, and all stores remained in our comp base throughout the quarter. In terms of other weather trends outside the hurricane impacts, the weather was relatively neutral for us during the quarter.
Simeon Segal -- Nomura Instinet -- Analyst
Okay, great. Then any thoughts on operating expenses?
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Yeah, on operating expenses for next year we wouldn't comment at this point, but in our year-end call, we'll update our guidance for the year.
Simeon Segal -- Nomura Instinet -- Analyst
Great. Thanks a lot. Best of luck for the holiday.
Operator
Your next question is from Matt Boss from JP Morgan.
Matthew Boss -- JP Morgan -- Analyst
Great, thanks. Congrats on a nice quarter.
Can you talk about your increased top line confidence entering the fourth-quarter, and just anything you're seeing by category or execution opportunity versus last year? And if you drill down by region, could you just talk about new store performance in your mid-west builds? Anything in Texas post the hurricanes, any kind of color would be great.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Sure, in terms of the updated guidance in the fourth-quarter as we mentioned in our comments, we're encouraged our above-planned sales trends not only in the third-quarter but certainly in the last six months. In our view, we're well positioned in terms of assortment and value offering for the holidays. In terms of regional performance, as we mentioned in our comments on the mid-west it was the strongest performing region, and that's been the case since we entered the market in 2011. Among our other geographies, Texas actually performed above the chain average with a significant sales rebound following Harvey. Obviously, that only impacted the Houston market, or mainly impacted the Houston market. Florida was below the chain average with most of the state impacted by Irma. And California performed relatively in line with the chain average. New store..., Go ahead, sorry Matt.
Matthew Boss -- JP Morgan -- Analyst
No, no, no. Go ahead. I was just gonna ask about the new store productivity exactly.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
New store productivity, we've mentioned this in our past calls, it's come down over the last couple of years. Certainly, with the entry into the mid-west and also our DDs expansion, but that said mid-west continues to be one of the strongest comping markets for us. Overall, Ross new stores are in the neighborhood of 60, to 65% of the chain average with not material change this year.
Matthew Boss -- JP Morgan -- Analyst
Great. Best of luck.
Operator
Your next question is from Brian Tunick with RBC.
Brian Tunick -- RBC -- Analyst
Thanks, and I'll add my congrats as well.
I guess, I was curious Barbara, when you think about the biggest opportunities versus holiday last year when you think about marketing, or gifting, or flow of goods what do you think a couple of opportunities are. Then maybe Michael can talk a little about the comp composition. Should we expect at some point, do you think AUR can start to flatten out, or is the model really driven by increases in traffic and the basket size. Thank you very much.
Barbara Rentler -- Chief Executive Officer
Sure Brian, in terms of a product this year, versus last year, what I would say is that our business is performing..., Our performance is pretty broad-based right now. We feel good as we enter into the fourth-quarter that both our apparel and non-apparel businesses are working well. In terms of difference on the floor? What I would say is you'll see an expansion of gifts, and I think in terms of values on the floor, there's been a lot of availability in the market and we've had solid execution by the merchants all year, that translates to good values and fashions on the floor for the fourth-quarter.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
On the composition of the comp sales increase, Brian, as we mentioned in prepared remarks the 4% comp was driven by traffic and the size of the average basket. The basket was driven by an increase in the units per transaction with AUR down slightly. Your question specific to AUR, it's been relatively flat for a number of years, it is down slightly, but that's driven by the mix of the business.
Brian Tunic -- RBC -- Analyst
Okay. If I could just throw out one more, on the market share gains you've been talking about so far, this year, any changes in how you're marketing in those store clusters or anything you're doing differently to capture those customers?
Michael O'Sullivan -- President and Chief Operating Officer
Brian, this is Michael O'Sullivan, the answer is no, not really. We continue to experiment with our marketing with new forms of marketing, but nothing I would point to that really has driven our comp. What's been driving our comps are the great values in the store. The marketing is supporting that, but it isn't what's driving it.
Brian Tunic -- RBC -- Analyst
Alright. Thanks. Good luck with the holiday.
Operator
Your next question is from Kimberley Greenberger with Morgan Stanley.
Kimberley Greenberger -- Morgan Stanley -- Analyst
Thank you so much, and I'll add my congratulations as well to a really spectacular quarter. Michael, I wanted to ask about SG&A. Obviously, you delivered very nice SG&A leverage in the third-quarter. It sounded like there was a $0.01 benefit to the third quarter from a shift, and you anniversaried, I think you said non-recurring costs from last year. On a normal go forward basis on a 4% comp, let's say, I know you don't guide to 4, but in the third-quarter, you delivered a 4, what sort of normal leverage would we expect to see out SG&A? Then I'm wondering if you can talk to us about how you're thinking about any future impacts on SG&A from wage headwinds, and how we should think about Ross navigating those wage headwinds? Thank you so much.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Sure. As you mentioned, the impact for the quarter, a reminder, last year in the third-quarter we did a seven comp but only levered by five basis points. That included a non-recurring matter that helped our comparison this year. Going forward, the expectation would be for us to have some leverage at the 3% comp level, that's the break even. Looking into the fourth-quarter, if we perform above the high end of the guidance, I think you should expect some leverage.
In terms of wages, we're going through our budget right now and will provide an update at year-end. As we've always done, we'll look to mitigate any impact from wages by being more efficient in the business. Obviously, wages could also be positive for top-line sales as well. We'll update the group on our year-end call.
Kimberley Greenberger -- Morgan Stanley -- Analyst
Great. Thanks so much.
Operator
Your next question is from Omar Saad with Evercore ISI.
Omar Saad -- Evercore ISI -- Analyst
Thanks for taking my question. Very, very fine quarter.
I wanted to ask you a question about fashion and the fashion quotient. How you're thinking about the fashion quotient as you guys build inventory for the holiday and into next year? Are there trends in the marketplace that you see are applicable across categories that create consumer interest and where you see opportunities? Just anything along those lines, how you're thinking about fashion in your product that'd be great.
Barbara Rentler -- Chief Executive Officer
Sure. I would say that there aren't any really strong, strong fashion trends out there. There are some smaller trends, but something that would change the course of what you were doing going from a skinny jean to a wide-legged pant. There's no major fashion trend. I think that's part of the issue as you go through, particularly in ladies' apparel, is that there aren't any real drivers out there. The trends that are out there, however, we have in our assortment, and because we've been able to execute at such a high level and have liquidity, we've been able to chase availability and get in-season goods. We feel pretty good about our assortments as we enter into the fourth-quarter, but I actually think a big part of the fashion quotient in the ladies' business is the lack of fashion, to be honest.
Omar Saad -- Evercore ISI -- Analyst
Got you. Well, you're definitely doing something very well with a plus four and a seven in environments going on. Good luck with the holiday.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Thank you.
Barbara Rentler -- Chief Executive Officer
Thank you.
Operator
Your next question is from Marni Shapiro with Retail Tracker.
Marni Shapiro -- The Retail Tracker -- Analyst
Hey, guys. Congratulations on the quarter and if I forget, best of luck for the holiday season.
Fantastic that traffic was up and the basket. I was curious about the basket. Was it because of a mix shift? Is she buying something different? Or, is she buying more units? I'm curious about what the complexion of it was.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Sure, Marni. The basket was driven by more units. AUR was down slightly, and that's been our trend for some time now certainly over the last year, year-and-a-half the comp has been driven by a combination of traffic and basket.
Marni Shapiro -- The Retail Tracker -- Analyst
Are you planning AUR down? Or it just better buys, or mixed shift that's causing the AUR down?
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
It's mixed shift, Marni.
Marni Shapiro -- The Retail Tracker -- Analyst
Fantastic. Best of luck.
Operator
Your next question comes from Paul Lejuez with Citi.
Paul Lejuez -- Citi -- Analyst
Hey guys. Just curious about the performance of women's apparel, also the home category. I'm curious as we think about the 4th quarter, how are you planning merchandise margin? And also curious what's big, from a pack away perspective and the impact that that might have on your gross margin? Thanks.
Barbara Rentler -- Chief Executive Officer
Sure. In terms of performance, the ladies' business performed slightly behind the chain average. And home performed slightly ahead of the chain average. In ladies, as you would expect, that's a difficult business in the outside world, we were pleased with that performance and continue to work on that business.
In terms of Q4 merchandise margins...,
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Margins are planned up in our guidance. They're planned up a bit Paul for the fourth-quarter.
Paul Lejuez -- Citi -- Analyst
What's driving that Michael?
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
It's trend, and it's a combination of above-planned performance so far, at least year-to-date it's been driven by availability, and it's been driven by our ability to stay liquid, and performing above plan. It forces us to chase the business with close-outs, and there is some leverage you get on mark-downs if you turn faster.
Paul Lejuez -- Citi -- Analyst
Got you. Just that one other piece on gross margins, in terms of the pack away impact.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Yeah. We wouldn't talk about the margin impact of pack-away. It's usually the best in terms of margin impact, pack away, we see it as a sales driver versus a margin driver.
Paul Lejuez -- Citi -- Analyst
How have you been as far as have things flow in and out of the DC timing?
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
No change from last year.
Paul Lejuez -- Citi -- Analyst
Great. Thanks. Good luck.
Operator
Your next question is from Oliver Chen with Cowen.
Oliver Chen -- Cowen -- Analyst
Hi. Thank you. Congrats and happy holidays.
We had a question related to merchandise margins and the dynamics between mark-on versus mark-down, and what you've been seeing in relation to mark-on it sounds like it's been encouraging. The other question is about the non-apparel product mix. What's your framework for thinking about how to best utilize your square footage? You've done a really good job managing inventory, but it feels like there's a nice opportunity ahead as you evaluate what customers would wanna buy from you in categories other than apparel? Thank you.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
In terms of the complexion of merchandise margin, it's been a mix of both IMU, or mark-on, and turning faster. That's been true all year, and it was certainly true in the third-quarter.
Barbara Rentler -- Chief Executive Officer
In terms of non-apparel and the product mix as it relates to the store, first we decide what businesses we wanna drive, and what trends you're gonna drive. In terms of utilizing square footage, since we've cut our inventory 40% over the last six years or so, that's faced as an issue in terms of maximizing that space, we drive that space-based off what products we wanna drive and put in front of the customer. We don't necessarily just say I build a space; they say what is it you really want? And can we deliver compelling bargains? That's how we decide how we're gonna expand the business
Oliver Chen -- Cowen -- Analyst
Do you have any thoughts just on mark-on trends going forward? Do you expect IMU to be a multi-year benefit? Just would love your thoughts on that. If you have any specificity about categories, do you have incremental interest in which you could drive intensity in, that would be interesting? Thank you.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Oliver, on forward-looking margin components that's not something we talk about on the call.
Barbara Rentler -- Chief Executive Officer
In terms of business, you're asking me what businesses we'd like to expand, go forward? I mean we really wouldn't talk about on the call also. We're always trying to diversify the mix in the store, but giving specifics on the call, we wouldn't talk to.
Oliver Chen -- Cowen -- Analyst
No problem. Thank you. Best regards, great job.
Operator
Your next question comes from Laura Champine with Roe Equity Research.
Laura Champine -- Roe Equity Research -- Analyst
Good afternoon, and thanks for taking our questions and congratulations on that comp.
I wanted to talk a little bit about the drivers. The UPT that's headed higher, are you doing a better job on cash wrap, or do you have consumers buying across category more than they did in the past, or what's driving that? Then on the flip side, you said that AUR is lower because of mix shift. Is that in any specific category, or are you seeing that trend across the store?
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Laura, on UPT, we think it's just a function of putting great values in front of the customer, and it's a product of the merchandise. So, customers in, they're buying more per visit. The second half of your question was on AUR. AUR is just down slightly, and it's mix within mixes of business, so it's not a fundamental change for us.
Laura Champine -- Roe Equity Research -- Analyst
And it's not focused on any one category more than others?
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
It's not. Yeah, it's not.
Laura Champine -- Roe Equity Research -- Analyst
Thank you.
Operator
Your next question comes from Bob Drbul with Guggenheim Securities.
Robert Drbul -- Guggenheim Securities -- Analyst
Hi. Good afternoon.
Was just wondering if you, in terms of the comp performance, do you feel like you had significant benefit from competitive store closures throughout retail? And on the children's business can you just elaborate on what you saw in children's and what led that to be such a successful category this quarter.
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
On the store closures, no there's not a significant benefit. The number of stores is not only not material, it impacts about 10% of the chain, but the pick-up post-liquidation is not meaningful to the overall outcome.
Barbara Rentler -- Chief Executive Officer
In terms of the kid's business, the performance is broad-based, so it was every segment, infants, boy's, girl's, and we've had really solid execution in there. So, we were able to chase a lot of that business and offer compelling bargains to the customer.
Robert Drbul -- Guggenheim Securities -- Analyst
Great.
On DDs are you seeing success in similar categories that you're seeing at Ross, or is there a big difference from the merchandising mix there?
Michael O'Sullivan -- President and Chief Operating Officer
As Barbara said in her remarks, DDs posted pretty good sales and operating profit in the quarter. I would say that, as you know DDs has a somewhat different customer segment, but in many ways the same factors that drove Ross to success, they're also a player at DDs. There's the focus on value, the ability to offer great bargains through opportunistic buying. A very strong execution of merchandising and operating strategies, those same factors apply at DDs. The specifics in terms of what are the merchandising strategies are different, obviously, between DDs and Ross. The overall drivers, I would say are very similar.
Robert Drbul -- Guggenheim Securities -- Analyst
Great. Thank you very much.
Operator
Your next question is from Roxanne Meyer with MTM Partners.
Roxanne Meyer -- MTM Partners -- Analyst
Great. Thanks. Good afternoon, and congratulations on a solid quarter.
My question is on your pack-away business. It's been a fairly consistent percentage. I'm just wondering, in light of the continued market availability, and the trends that you've been seeing, the fact that you've been chasing business, I'm wondering if you're thinking longer term about scaling that business down or changing the way that you buy over time. Thanks.
Barbara Rentler -- Chief Executive Officer
The way we think about pack-away, there's no definitive number we go out there thinking about it with. We really do it based on what the merchandise that's offered out there is for us. If it's a great deal, we buy it. That oftentimes builds to the number that you get to. You're trying to guess if we're chasing business by pack it away because sometimes there are compelling bargains that are seasonal goods. If it's sweaters, or outerwear, or things like that, you wanna pack that away because you can use those to open the season and to drive sales until you get more availability in the marketplace. We feel good about pack-away, and we feel very good about the contents of the pack-away that we have right now.
Roxanne Meyer -- MTM Partners -- Analyst
Great. Thanks so much and best of luck for the holidays.
Operator
Your next question is from Jamie Merriman with Bernstein.
Jamie Merriman -- Bernstein -- Analyst
Thanks very much. My question is just a follow-up on sales productivity, as you build awareness and market share in the mid-west would your expectation be that that new store productivity should start to come up over time? Can you just talk about four of your more mature stores in the mid-west? Are you seeing sales productivity at chain average levels?
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Sure. Certainly, we would see stores after they open given the comps that they're average store volumes are increasing. Right now, we're planning the business as if the productivity would be lower in year one, and then comp faster in the first couple of years. It's unlikely that it would reach the chain average. We've been in regions for 30 years in California, which are our most productive stores, but we would expect them to continue to grow over time, for sure.
Jamie Merriman -- Bernstein -- Analyst
Great. Thank you.
Operator
Your next question is from Mike Baker with Deutsche Bank.
Mike Baker -- Deutsche Bank -- Analyst
Thanks. Maybe a two-part question. One on DDs, or is it yet, or what point does it become big enough to impact the comp? In other words, does the Ross only stores comp reflect the total company comp? At some point, is DDs dragging out the entire comp as it becomes bigger?
Michael O'Sullivan -- President and Chief Operating Officer
Mike, at this point, DDs represents less than 10% of the business. Just mathematically the key driver of the corporation's comp is Ross' comp.
Mike Baker -- Deutsche Bank -- Analyst
Understood. But at 10% of the business, if it were less mature and comping up 500 basis points better, that could sort of lift total comps by 50 basis points and be the difference between the way you guys report a whole number. In other words, just trying to see if the core stores are comping in line with what you're reporting for the total company. I guess it sounds like they are. Maybe a follow-up question, is there any big differential based on the maturity of stores? I guess you said California, which I presume, are the most mature stores, or in line with the chain average. But if you look at five-year-old stores versus 10-year-old stores, versus 50-year-old stores, etc., do the comps fall off as you go out further?
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
I'd say the differential in comp is really in the first five years. After five years, there's not a meaningful break. Again, I use California's example, we've been in there for 30 years and the vast majority of those stores we've been in ten, 15 years, and there's no lack of comp in those stores. The real differential is the first five years.
Mike Baker -- Deutsche Bank -- Analyst
Okay. Understood. Thank you. Appreciate it.
Operator
The next question is from Lindsay Drucker Mann with Goldman Sachs.
Lindsay Drucker Mann -- Goldman Sachs -- Analyst
Thanks. I had a follow-up question for Michael on your comment that inventory has been turning faster all year and that's helped your merchandise margin. I was curious what the key driver was of that accelerated inventory turn, whether it's related to maybe new systems, or processes, or product mix? What explains it? Is there more left to go there for next year where we can expect inventory turns to be faster again?
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Sure, Lindsay. First, inventories have been down over 40% over a number of years. This year, it's strictly a function of how we're executing the business and hoping to buy. We go into the year with a one to two comps; we plan inventories at that level. If we can exceed that comp, you're able to chase the business, and you turn faster. This year is really a function of how we manage the business. I think that's gonna be the opportunity going forward as well in terms of when we look into next year and beyond.
Lindsay Drucker Mann -- Goldman Sachs -- Analyst
Got it. One for Barbara.
You highlighted in your opening remarks that you're braced for a very promotional holiday. Holidays are often very promotional; I'm curious if you think there's anything different about how you think this holiday season might play out, or dynamics that you think might allow it to shape up differently than other promotional seasons in the past.
Barbara Rentler -- Chief Executive Officer
It's been promotional all year. What I really think is that it will be more promotional, it's already started to be promotional. We're starting earlier, and then that last minute push at the very end, our expectation is that it will be more promotional than it was last year as part of that is to believe, but I do believe that. We're trying to posture ourselves understanding that that's what that looks like.
Lindsay Drucker Mann -- Goldman Sachs -- Analyst
Got it. Thanks very much.
Operator
There are no further questions at this time. I will turn the call back over to Barbara Rentler for closing remarks.
Barbara Rentler -- Chief Executive Officer
Thank you for joining us today and for your interest in Ross Stores. Have a great day.
Operator
This concludes today's conference call; you may now disconnect.
Duration: 37 minutes
Call participants:
Connie Kao -- Vice President-Investor & Media Relations
Barbara Rentler -- Chief Executive Officer
Michael J. Hartshorn -- Chief Financial Officer and Chief Operating Officer
Michael O'Sullivan -- President and Chief Operating Officer
Gary Crib -- Executive Vice President Stores and Loss Prevention
John Paul -- Executive Vice President Finance and Legal
Simeon Segal -- Nomura Instinet -- Analyst
Matthew Boss -- JP Morgan -- Analyst
Brian Tunic -- RBC -- Analyst
Kimberley Greenberger -- Morgan Stanley -- Analyst
Marni Shapiro -- The Retail Tracker -- Analyst
Paul Lejuez -- Citi -- Analyst
Oliver Chen -- Cowen -- Analyst
Laura Champine -- Roe Equity Research -- Analyst
Robert Drbul -- Guggenheim Securities -- Analyst
Jamie Merriman -- Bernstein -- Analyst
Mike Baker -- Deutsche Bank -- Analyst
Lindsay Drucker Mann -- Goldman Sachs -- Analyst
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