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Ross Stores Inc  (NASDAQ:ROST)
Q4 2018 Earnings Conference Call
March 05, 2019, 4:15 p.m. ET

Contents:

Prepared Remarks:

Operator

Good afternoon and welcome to the Ross Stores' Fourth Quarter and Fiscal Year 2018 Earnings Release Conference Call. The call will begin with prepared comments by Management, followed by a question-and-answer session. (Operator Instructions)

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, new store openings and other matters that are based on the Company's current forecast of aspects of its future business. These forward-looking statements are subject to risks and uncertainties that could 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 2017 Form 10-K and fiscal 2018 Form 10-Qs and 8-Ks 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 Cribb, Group Executive Vice President, Stores and Loss Prevention; John Call, Executive Vice President, Finance and Legal; Michael Hartshorn, Executive Vice President and Chief Financial Officer; and Connie Kao, Vice President, Investor Relations.

We'll begin our call today with a review of our fourth quarter and 2018 performance, followed by our outlook for 2019. Afterwards, we'll be happy to respond to any questions you may have.

Let me preface our discussion of today's financial results by noting that our 2018 fourth quarter and fiscal year for 13 and 52 week periods, respectively, while our 2017 fourth quarter and fiscal year for 14 and 53 week periods. The 53rd week added approximately $219 million in sales and $0.10 in earnings per share to 2017's fourth quarter and fiscal year. Further, the extra week added about 70 and 20 basis points, respectively, to operating margin in last year's fourth quarter and full year.

Now, let's turn to today's results. As noted in today's press release, sales and earnings for both the fourth quarter and fiscal year outperformed our expectations. As we also mentioned, we achieved these results despite around challenging multiyear comparisons and weakness in our ladies apparel business during the holiday season. Earnings per share for the 13 weeks ended February 2, 2019 were $1.20 versus $1.19 in the 14 weeks ended February 3, 2018. Net earnings for the 2018 fourth quarter were $442 million versus $451 million in the prior year. For the 52 weeks ended February 2, 2019, earnings per share grew to $4.26 compared to $3.55 in the 53 weeks ended February 3, 2018. Fiscal 2018 net earnings were $1.6 billion, up from $1.0 billion in fiscal 2017.

Now, let's turn to our recent sales results. For the 13 weeks ended February 2, 2019, total sales were $4.1 billion. Comparable store sales for the period rose 4% over strong 5% gain in last year's fourth quarter. For the 52 weeks ended February 2, 2019, sales increased 6% to $15 billion with comparable store sales up 4% on top of 4% gains in each of the three prior years. For the fourth quarter, men's was the best performing area. And as I said, ladies under-performed. Geographically, the Southeast and the Midwest were the strongest regions.

dd's DISCOUNTS customers continued to respond positively to its merchandise assortments, leading to another quarter and year of solid gains in both sales and operating profit. As we ended 2018, total consolidated inventories were up 7% over the prior year, with packaway levels at 46% of the total compared to 49% last year. Average in-store inventories were down slightly versus last year.

As noted in today's release, our Board authorized a new program to repurchase $2.55 billion of common stock over the next two fiscal years. At recent stock prices, this new repurchase program represents about 8% of the Company's total market share and a 31% increase over the prior two-year $1.95 billion authorization that was completed in January 2019. The Board also approved an increase in the quarterly cash dividend to $0.255 per share, up 30% over the prior year.

The increases to our shareholder payouts for 2019 reflect the current strength of our balance sheet and our ongoing ability to generate significant amounts of cash after funding and other capital -- funding growth and other capital needs of the business. We have repurchased stock as planned every year since 1993 and raised our cash dividend annually since its inception in 1994. This consistent record also reflects our continuing commitment to enhance shareholder value and returns.

Now, Michael Hartshorn will provide further color on our 2018 results and details on our 2019 full year and first quarter guidance.

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Thank you, Barbara. As Barbara mentioned earlier, earnings per share for the fourth quarter and fiscal 2018 year were $1.20 and $4.26, respectively. These results compare to fourth quarter 2017 earnings per share of $1.19 and $3.55 for the year. Our earnings per share results for both the 2018 fourth quarter and fiscal year reflect the one-time non-cash gain of $0.07 related to the favorable resolution of a tax matter as well as a $0.19 benefit from tax reform legislation in the fourth quarter and $0.70 for the year. In addition to the $0.10 earnings per share benefit from last year's 53rd week, our 2017 fourth quarter and fiscal year EPS results also included a $0.21 benefit from the adoption of tax reform legislation, consisting of a one-time $0.14 gain due to a revaluation of deferred taxes and $0.07 from a lower tax rate.

Now, I'll discuss further details on our fourth quarter results. Our 4% comparable store sales gain in the quarter was driven by a combination of higher traffic and an increase in the size of the average basket. Though better than expected, operating margin of 13.2% for the period was down from last year. The 135 basis point decline was primarily due to the approximate 70 basis point benefit in the 2017 fourth quarter from the 53rd week and as expected higher freight and wage costs. For the full year, operating margin declined 85 basis points to 13.6% due in part to last year's 20 basis point benefit from the 53rd week.

Cost of goods sold for the year increased 55 basis points, consisting of 40 basis points of higher freight costs, a 15 basis point increase in distribution expenses and a 10 and 5 basis point rise in buying and occupancy costs, respectively. These expense pressures were partially offset by a 15 basis point increase in merchandise gross margin. SG&A for the year rose 30 basis points driven by higher wages.

During the quarter, we repurchased 3.1 million shares of common stock for a total purchase price of $268 million. For the full year, we repurchased 12.5 million shares for an aggregate price $1.075 billion.

Now, let's discuss our outlook for 2019. For the 52 weeks ending February 1, 2020, we are forecasting earnings per share to be $4.30 to $4.50, up from $4.26 for fiscal 2018. Our guidance reflects the adoption of the new lease accounting standard, which is not expected to have a significant impact to our earnings results.

The operating statement assumptions for fiscal 2019 include the following. Total sales are projected to grow 5% to 6% for the 52 weeks ending February 1, 2020 compared to the 52 weeks ended February 2, 2019. Comparable store sales are expected to increase 1% to 2% on top of multiple years of strong gains. We plan to add about 100 new stores this year, consisting of approximately 75 Ross and 25 dd's DISCOUNTS locations. As usual, these numbers do not reflect our plans to close or relocate about 10 older stores. We project that operating margin for 2019 will be in the range of 13.2% to 13.4% compared to 13.6% in 2018. The forecasted decline reflects our plans for relatively flat gross margin and some deleveraging of expenses if same-store sales increase 1% to 2%. Net interest income is estimated to be $17.6 million, our tax rate is projected to be approximately 24%, we expect average diluted shares outstanding to be about 362 million, capital expenditures in 2019 are projected to be approximately $600 million, which includes the initial investment for our next distribution center. And depreciation and amortization expense inclusive of stock-based amortization is forecasted to be about $450 million.

Let's move now to our first quarter guidance. Given the recent underperformance in ladies apparel, a business that becomes more important in the first quarter, we are forecasting comparable store sales to be flat to up 2%. Earnings per share are projected to be $1.05 to $1.11 versus $1.11 for the first quarter ended May 5, 2018.

Other assumptions that support our first quarter guidance include the following. Total sales are planned to increase 3% to 6%, we expect to open 22 new Ross and 6 dd's DISCOUNTS locations during the quarter. First quarter operating margin is projected to be 13.4% to 13.8% versus last year's 15.1%. This forecasted decline includes expectations for a negative impact from the timing of packaway related expenses that benefited last year's first quarter and ongoing headwinds from higher freight and wage costs in the first half of 2019. Net interest income for the quarter is estimated to be about $4.9 million, our tax rate is expected to be approximately 23% and finally weighted average diluted shares outstanding are projected to be around 367 million.

Now, I'll turn the call back to Barbara for closing comments.

Barbara Rentler -- Chief Executive Officer

Thank you, Michael. Again, we delivered better than expected sales and earnings gains for both the fourth quarter and fiscal year. Looking ahead, while we hope to do better, we continue to take a prudent approach to forecasting our business for 2019. Although, we remain favorably positioned as an off-price retailer, we are facing our own difficult multiyear comparisons, a very competitive retail landscape and an uncertain macroeconomic and political environment.

Longer-term though, we remain confident in our ability to achieve ongoing profitable market share gains by consistently offering customers outstanding values throughout our store. As long as we remain focused on the careful execution of our proven off-price strategies, we believe we can continue to deliver solid growth in both sales and earnings.

Before we begin the question-and-answer session, I'd like to thank John Call for his leadership and the numerous contributions he's made over more than two decades at Ross, including previously serving as CFO for 16 years. John begins his planned transition to an advisory role at the end of this month.

At this point, we'd like to open up the call and respond to any questions you may have.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from Matthew Boss from JPMorgan.

Matthew Boss -- JPMorgan -- Analyst

Thanks and congrats on a nice quarter. So -- I guess, maybe my question is just on ladies apparel, maybe on the weakness. Could you just elaborate on the drivers, maybe how best to think about the timeframe to work through any excess inventory? And larger picture, what drove it and the time frame to correct it?

Barbara Rentler -- Chief Executive Officer

Okay. First of all, the ladies apparel business got off course because we didn't have the right balance of our assortments in certain categories within the total apparel business. So as a result, we left some money on the table in seasonal areas of the business. In terms of excess inventories or residual inventory left in stores, we don't have any excess issues that we need to deal with or go through. In terms of correcting the merchandise misuse, what I would say is obviously we'll course correct as quickly as possible, but we expect gradual improvement as we rebalance the assortment throughout the year.

Matthew Boss -- JPMorgan -- Analyst

Great. And then just a follow-up on the expense front. I guess, what's the best way to think about the threshold needed from a comp perspective to leverage SG&A this year and is there any difference in the front versus the back half of the year?

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Sure, Matthew. On expenses, SG&A this year, the leverage point is about 3%, which is in line with our historical averages pre 2018. We would expect more deleverage in the front half. As a reminder, we increased our national minimum wage in the second quarter of last year, so we have to round that in the first and a little bit of the second quarter. In addition, in overall operating margin, freight cost escalated as we moved through the year last year, so those will be more of a drag in the first half versus the second half.

Matthew Boss -- JPMorgan -- Analyst

That's great color. Best of luck.

Operator

Your next question comes from Lorraine Hutchinson from Bank of America.

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

Thank you, good afternoon. Could you quantify the freight headwinds that you're seeing? And then also maybe comment on some of the contracts that are coming this year, are you seeing some relief in the rates versus this time last year?

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Sure, Lorraine. In terms of the impact of freight, so as we expected, first on the fourth quarter. So the fourth quarter, there was 135 basis point drag, 70 basis points of the decline was due to the 53rd week. The remaining 65 basis points was a combination of higher freight and wage costs. For the fiscal year, freight, we had a 40 basis point drag for the full year. As we move into 2018, the drag was obviously higher in the third and fourth quarter, so we'd expect continued drag in the first and second quarter and then be somewhat neutral later in the year. Our contracts, if you compare against the spot rates actually in many cases are lower than the spot rates. So as we go through contract renewal this year, we would expect rates to somewhat normalize.

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Your next question comes from Simeon Siegel from Nomura Instinet.

Stephen Ferris -- Nomura Instinet -- Analyst

Hey, guys. Stephen Ferris(ph)on for Simeon, thanks for taking our questions. I had a question on the flat gross margin implications, you guys touched on freight. But maybe, how should we think about distribution costs, occupancy and maybe how merchant margins will shake out for the year?

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Sure. In my commentary, the gross margin was intended to be merchant margin, so we expect merchant margin to be relatively flat for the year and we didn't provide additional guidance on DC costs. Like the rest of the business, we would expect some wage headwinds in the DCs in the first half of the year more than the second half.

Stephen Ferris -- Nomura Instinet -- Analyst

Thanks guys, appreciate it.

Operator

Your next question comes from Paul Trussell from Deutsche Bank.

Paul Trussell -- Deutsche Bank -- Analyst

Good afternoon. Just a follow up on ladies apparel. Is the thought process (inaudible) comp in fourth quarter by -- negatively by about a 1 point and is that the thought process as well for the first quarter?

Barbara Rentler -- Chief Executive Officer

Well, you cut out -- the phone cut out. Could you just repeat the question?

Paul Trussell -- Deutsche Bank -- Analyst

Yes. I just wanted to follow up on ladies apparel. Just to maybe get a better assessment around what you thought the impact to the comp was in the fourth quarter and then I know that that is a little bit bigger business in 1Q. Just how you're thinking about that? And any other puts and takes that you can provide around your first quarter guidance?

Barbara Rentler -- Chief Executive Officer

In terms of being more specific on ladies apparel for the first quarter guidance, for competitive reasons, I wouldn't be more specific other than to say that it's built into our guidance, the ladies performance.

Paul Trussell -- Deutsche Bank -- Analyst

Understood. And what is the impact of the packaway in the first quarter? And should we think that that -- is that going to continue at all into the second quarter?

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Sure, Paul. In Q1, we're lapping the packaway related timing as packaway levels rose during the quarter last year, it was worth about 45 basis points last year. Packaway levels are tough to predict, so our guidance at this point assumes that the benefit doesn't reoccur and we wouldn't talk about the impact beyond the first quarter, we will give you an update in our May conference call and first quarter results.

Paul Trussell -- Deutsche Bank -- Analyst

Thank you. Best of luck.

Operator

Your next question comes from Ike Boruchow from Wells Fargo.

Ike Boruchow -- Wells Fargo -- Analyst

Good afternoon, everyone. So I'm sorry to jump on the ladies apparel train, but I guess Barbara or Michael, I think the last time you had an issue in the category, I think it was early 2016. I know you guys can't -- don't want to be too specific, but I'm just kind of curious the similarities that are happening today versus back then. And then, again, when I look back then, it didn't take you long to kind of course correct, I think you were back in a 4% comp range. Three months later, is there anything different this time around, I guess, just trying to compare today and what happened several years ago?

Barbara Rentler -- Chief Executive Officer

Sure. What I would tell you is that the issues really aren't related. What went on in 2016 was really wrong product coloration seasonality. What we're talking about here is that our assortments were not balanced in certain categories. And so I think these -- from a merchant perspective, they're two completely unrelated issues. In terms of correcting the issue, obviously we'll try to correct it as quickly as possible, but we're going to expect gradual improvement as the months go on.

Ike Boruchow -- Wells Fargo -- Analyst

Thanks.

Operator

Your next question comes from Kimberly Greenberger from Morgan Stanley. Kimberly Greenberger, your line is open up.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Sorry. Sorry, I was on mute. Let me make sure I congratulate John Call on a very long and distinguished career and I wish him well in retirement. Barbara I wanted to just ask quickly on the merchandising issue in women's. It sounds like a balance issue. Is it the case also that there was -- that the merchants bought the wrong goods? I'm just trying to figure out, if there's liable inventory here heading into Q1 or is it -- it's simply the case that you thought you could have done more business in ladies in the fourth quarter and maybe potentially the first quarter, if you had, for example, either more winter seasonal goods or just a better balance to the assortment? And then separately, you mentioned the Midwest and Southeast as the best performing regions. I was wondering, if you're seeing any sort of benefit in your stores from competitor store closings and if you've noticed, for example, Bon-Ton, Bon-Ton's presence in the Midwest? Is there any sort of benefit that you're seeing in those stores that are co-located? Thank you.

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Kimberly, I'll start with the regional performance. As we mentioned, the Southeast and the Midwest were the strongest. The Midwest has been the strongest for some time now since we entered the market in 2011. So no change, I would say no significant change in trend over the year. Yeah. Your second question was on ladies.

Barbara Rentler -- Chief Executive Officer

And on ladies to -- trying to put this in a nutshell quite clearly, the imbalance to the assortments is by -- is in certain categories. And then your question, Kimberly, is the game within the game of the assortment within the assortment, that varies by different business. What we did feel is that we did lease seasonal -- a seasonal opportunity on the table because of our imbalance, which would have driven more Q4 business have we been in better shape in those businesses. As we move into Q1, you start obviously transitioning into different products. However, that does take time to change up that assortments, that's not going to be a one-month, two-month switch. So it will gradually take time. The other thing is in terms -- to get the balance, to balance this the way we want to be. The other thing in terms of having any liable inventory issues of bad packaway or anything along those lines, we don't have the -- we absolutely cleaned that up and so we need to take the time to shift the assortment to get it back to where we need it to be.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Great, thank you so much.

Operator

Your next question comes from John Morris from D.A. Davidson.

John Morris -- D.A. Davidson -- Analyst

Thanks, my congratulations on a great year as well. Weather impact, I realize we did talk about the regional strength. I'm just wondering, if you step back and looked at it with that filter of weather, whether or not weather had a particular impact on you either in Q4 or in as much as you talked about seasonal areas with women's? And then I got one quick follow-up.

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Sure. Weather was relatively neutral for us year-over-year. I know we mentioned the Southeast and Midwest, but the strength was fairly broad-based, some of our major markets, Texas, California were in line with the chain, Florida also a large market for us was slightly below the chain average, it was up against 2017 when it was our strongest performing region.

Barbara Rentler -- Chief Executive Officer

And I don't think the weather...

John Morris -- D.A. Davidson -- Analyst

Yeah. Yeah. But -- well, that's right.

Barbara Rentler -- Chief Executive Officer

John, I don't think the weather impacts is what hurt our business.

John Morris -- D.A. Davidson -- Analyst

Got you. And then my follow-up really is about the DC, the timing and maybe highlight some of the potential benefits you'll be getting from that in terms of the impact, I mean, is that typical in terms of your speed and your ability to distribute, talk a little bit more about the new DC?

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Sure. The new DC is strictly a capacity play for us as we grow the business. That said, it's -- their large distribution centers, it could be as large as a 1.7 million square feet. It will take us a couple of years to get it in place. That said, we do plan to put automation investments that we think can help our productivity.

John Morris -- D.A. Davidson -- Analyst

Great, thanks. Good luck for spring.

Operator

Your next question comes from Daniel Hofkin from William Blair.

Daniel Hofkin -- William Blair -- Analyst

Hi, good afternoon. Just wondering, if you could fill out a little bit more of some of the category detail? I think you just gave some additional regional detail aside from men's and ladies apparel, maybe some things like home or other categories, if there's any additional color there that you can share?

Barbara Rentler -- Chief Executive Officer

Basically home performed in line with the chain average and that's on top of solid growth over the last several years. And after that, most of the other businesses performed in line with the chain.

Daniel Hofkin -- William Blair -- Analyst

Okay. And then if I could just apologize one...

Barbara Rentler -- Chief Executive Officer

It's OK.

Daniel Hofkin -- William Blair -- Analyst

Hopefully, this is one of the last questions about the ladies apparel. What do you expect this fix in terms of time, the amount of time required to be shorter than early 2016 per the earlier question or similar later?

Barbara Rentler -- Chief Executive Officer

Versus 2016, I think these are two different types of issues. My expectation is that there'll be gradual improvement. I'm not putting a specific time frame to it.

Daniel Hofkin -- William Blair -- Analyst

Okay, thanks very much, best of luck.

Operator

Your next question comes from Marni Shapiro from Retail Tracker.

Marni Shapiro -- Retail Tracker -- Analyst

Hey, everybody, congratulations. And John, congratulations, enjoy your retirement, you are the only Mike or Michael who've lasted this long there it seems. For a while, it was all Mike, Mike, Michael, Michael and then John.

John Call -- Executive Vice President, Finance and Legal

Hey, Marni, (inaudible).

Marni Shapiro -- Retail Tracker -- Analyst

Exactly, we always remember. So I'm going to actually move away from women's for just a moment and ask just a quick breakdown. You said average basket was up, I was curious, if that was driven by AUR or UPT? And then, I guess, Barbara, can you talk a little bit about any opportunity you see out there with Pay Less going away, which has a nice shoe business and it's a family business, which your stores are family driven? And also Kids R Us, I don't know how often your stores crossed with them, but did you see any benefit where those stores are run, again, I view them as a family business and I view your stores as family stores as well?

Barbara Rentler -- Chief Executive Officer

Sure. As it pertains to Pay Less going away, obviously that would -- you would think it would present a market share opportunity because it is a family business and have a large amount of stores, so remains to be seen how much, of course, shopping between the customers, but we would think that would be just a market share play. In terms of Kids R Us when that went out, Michael do we have -- do we think we saw any impact on any of that from the Kids R Us (inaudible)?

Michael O'Sullivan -- President and Chief Operating Officer

Well, I think your question, Marni -- this is Michael O'Sullivan, Marni, so another Mike.

Marni Shapiro -- Retail Tracker -- Analyst

Another Mike.

Michael O'Sullivan -- President and Chief Operating Officer

I think your question was broader intensive as other retailers go out or close down stores, as Barbara mentioned, it can only help that sales volume has to go somewhere and you'd expect that the remaining retailers in those areas would pick up some of that volume. And in any given year, we think we've benefited from that over the last two years as retailers have doors or gone out of business altogether. But I wouldn't say, it's been material to our results over that period. And as we look forward, same thing, we should continue to benefit if we do our jobs right, but I don't think it will be material to the overall business.

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Marni, and on the components of sales, so the 4% comp was driven by, as we said in the comments, higher traffic and increase in the size of the average basket. The basket was driven entirely by UPT as AUR was flat for the quarter for us.

Marni Shapiro -- Retail Tracker -- Analyst

That's excellent. Best of luck with spring guys.

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

Your next question comes from Paul Lejuez from Citi.

Paul Lejuez -- Citi -- Analyst

Hey, thanks. John, congrats and best of luck, sir. Question, maybe a little bit more color on dd's operating margin versus Ross coming out of 2018, any more data you can give to us in terms of the size of that business and the margin? Also curious, if the issues that you saw in the ladies business, you also saw that on the dd's side as well. And Barbara, just high level on ladies, is it that your buyers weren't buying the right stuff or was the right stuff not available? Thanks.

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Yeah. So Paul on dd's, as Barbara said in her opening remarks, dd's customer responded very well to our merchandise assortments in Q4 and the business posted solid gains in both sales and operating profit. As you know, we don't disclose a lot of detail on dd's and a couple of reasons for that. One is it's really only around about 10% of our business, so 90% of our business is Ross Dress for Less. And then the other point I would make is, in general, many of the same trends that we talk about on these calls apply to Ross and to dd's, so we tend not to give a lot of detail on -- a lot of additional detail on dd's.

Barbara Rentler -- Chief Executive Officer

And as it pertains to ladies, it wasn't an availability issue. I would say that we've brought in some more product and I would say that the weighting of the categories of the businesses that we had weren't balanced the way we'd like them to be balanced. So (Multiple Speakers) merchandise miscue.

Paul Lejuez -- Citi -- Analyst

Yeah. Good luck.

Operator

Your next question comes from Michael Binetti from Credit Suisse.

Michael Binetti -- Credit Suisse -- Analyst

Hey guys, thanks for taking our questions here. Michael, regarding the comment the merch margins were up about 15 basis points last year, I think you said. Would you mind helping us click down into that a little bit to know what the tailwinds were there, was it IMU lower markdown levels, anything with a mix? And then what rolls off in the guidance for merch margins to be about flat this year?

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Sure. So for the quarter, merchandise margin was up slightly on a 52-week basis. For the full year, merchandise margin was up 15 basis points and again that was up against the 25 basis point improvement in 2017 and then to move forward into 2019 we're planning merchandise margin to be flattish. What drove it this year was a combination of better buying and lower markdowns. Any time we can exceed our sales plan, we can chase the business with close-outs and also leverage margins.

Michael Binetti -- Credit Suisse -- Analyst

And as you look -- Michael, you look across the margin outlook for the Company and really for the off-price space, you had couple of years of pretty persistent cost pressure from freight wages, you guys navigated as well as anybody. But when you sit here on these calls with us, we get a pretty stable outlook from you for the year ahead every year without much volatility you've always expressed a lot of confidence in being able to navigate those things. But as you look out, do you think there has to be something more dramatic for the group to get done to try and restore to what you think are the right profitability levels, given that we've seen just a few years now of wages and freight?

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Yeah. I would say for us, 2018 was the exception. Obviously, at the beginning of the year, we knew we were getting a benefit from tax reform and we made an important investment in raising our national minimum wage to $11 an hour. So that was the exception. If we look ahead to 2019, we're guiding a $1 to $2. And with that, we're guiding $4.30 to $4.50 compared to $4.26 last year and it's up $1 to $6. As a reminder, last year, that also included a one-time $0.07 benefit from a favorable resolution of the tax matter in the fourth quarter. Excluding that one-time item, we're at EPS growth of $1 to $2 and EPS above $3 to $7, which is in line with how we've historically guided the year.

Michael Binetti -- Credit Suisse -- Analyst

Okay, thank you very much.

Operator

Your next question comes from Laura Champine from Loop Capital.

Laura Champine -- Loop Capital -- Analyst

Thanks for taking my question. Barbara on the issues in women's, do you think that some of the missteps are just driven by becoming tougher to execute an off-price model with the kind of scale that you have now or is it your belief that this was just purely an execution mishap that is unlikely to recur?

Barbara Rentler -- Chief Executive Officer

I don't -- it's a misstep. And I'd like to tell you that would never occur again, but I don't think I'd be saying that, I don't think anyone could ever say that about any business. I don't think it's an off-price tougher to execute model, I don't think that's the issue. I think the issues were internal, self-inflicted. It's the assortment that we've built out for the customer, I don't think it has anything to do with the off-price model, the future what could go on. Yeah. We really just need now to go in and correct that because obviously ladies is a very large business in off-price and everywhere else. And so, it's important for us to do, but I don't think it's a model issue. I think it -- we had merchandise miscues that we need to correct and we will often correct them during 2019.

Laura Champine -- Loop Capital -- Analyst

Got it, thank you.

Operator

Our next question comes from Alexandra Walvis from Goldman Sachs.

Alexandra Walvis -- Goldman Sachs -- Analyst

Hi there, thanks for taking the question. I had a question about the relocation strategy. So it looks like the plan is for relocations and somewhat consistent with the number that you've done in prior years. We've noticed some competitors in the retail space who have been ramping up the number of relocations they're doing as more opportunities come up as you see closures across the market. How are you looking at opportunities here and could there be more opportunities to ramp up relocations as those opportunities present themselves?

Michael O'Sullivan -- President and Chief Operating Officer

Sure. So Alexandra, we open about a 100 new stores a year. And in any given year, that includes a handful of relos. I don't expect that that number will change significantly over the next couple of years. We'll always respond if there are additional opportunities here or there, but I don't think it will -- it's not going to change materially.

Alexandra Walvis -- Goldman Sachs -- Analyst

Great, thank you.

Operator

Our last question comes from Bob Drbul from Guggenheim.

Bob Drbul -- Guggenheim -- Analyst

Hi. Just following up on Alex's question. On the new stores, can you talk about new store productivity and performance and how you continue to do, like, the 100 stores a year in terms of new real estate? Any changes to the real estate availability or cost that you're seeing versus in the past few years? Thank you.

Michael O'Sullivan -- President and Chief Operating Officer

In terms of new store productivity, it's actually been fairly stable over the last five years since we've entered the Midwest. So on average, a new store is about 60% to 65% of an average comp store in the chain. And then in the first few years, it ramps faster than the chain average.

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

And then on your question about availability, I would say, going back over the last several years, we've been running at a sort of 90 to a 100 new store rate and we plan those stores and we look for real estate several years out. And as we look at that pipeline, no major changes in availability. I think availability has been I think reasonably good over the last several years and we expect that to continue.

Bob Drbul -- Guggenheim -- Analyst

Great, thank you very much.

Operator

That was our last question. At this time, I will now turn the call back over to Barbara Rentler for closing comments.

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: 40 minutes

Call participants:

Barbara Rentler -- Chief Executive Officer

Michael J. Hartshorn -- Executive Vice President, Chief Financial Officer

Matthew Boss -- JPMorgan -- Analyst

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

Stephen Ferris -- Nomura Instinet -- Analyst

Paul Trussell -- Deutsche Bank -- Analyst

Ike Boruchow -- Wells Fargo -- Analyst

Kimberly Greenberger -- Morgan Stanley -- Analyst

John Morris -- D.A. Davidson -- Analyst

Daniel Hofkin -- William Blair -- Analyst

Marni Shapiro -- Retail Tracker -- Analyst

John Call -- Executive Vice President, Finance and Legal

Michael O'Sullivan -- President and Chief Operating Officer

Paul Lejuez -- Citi -- Analyst

Michael Binetti -- Credit Suisse -- Analyst

Laura Champine -- Loop Capital -- Analyst

Alexandra Walvis -- Goldman Sachs -- Analyst

Bob Drbul -- Guggenheim -- Analyst

More ROST analysis

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