Earnings call transcript: Ross Stores Q1 2025 earnings beat but stock tumbles
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed signals: while sales and EPS showed slight growth, net income declined. The stable operating margin and successful share repurchase are positive, but concerns over tariffs, supply chain issues, and cautious sales guidance balance these out. The Q&A indicates management's attempts to mitigate tariffs, yet uncertainties remain. Overall, the sentiment is neutral, with no strong catalysts for significant stock price movement in either direction.
Key Financial Performance
Total Sales $5,000,000,000 (up 3% year-over-year) - Sales growth attributed to improved monthly performance after a slow start in February.
Comparable Store Sales Flat year-over-year - No significant change in performance compared to last year.
Earnings Per Share (EPS) $1.47 (up from $1.46 last year) - Slight increase in EPS despite overall net income decline.
Net Income $479,000,000 (down from $488,000,000 last year) - Decrease attributed to slower sales at the start of the quarter.
Operating Margin 12.2% (flat year-over-year) - Operating margin remained stable despite external pressures.
Merchandise Margin Declined by 45 basis points - Decline mainly due to higher ocean freight costs and initial impacts of tariffs.
Occupancy Costs Increased by 20 basis points - Reflects rising costs associated with store operations.
Distribution Costs Increased by 5 basis points - Higher costs due to expanded distribution operations.
Buying Costs Decreased by 50 basis points - Reduction attributed to lower incentives and improved domestic freight leverage.
Share Repurchase 2,000,000 shares for $263,000,000 - Part of a $2.1 billion buyback program authorized in March 2024.
Total Inventory Up 8% year-over-year - Increase due to opportunistic buys, with average store inventories up 4%.
Packaway Merchandise 41% of total inventory - Similar to last year, indicating stable inventory management.
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Operating Highlights
Cosmetics Performance: Cosmetics was the strongest merchandise area during the quarter, driven by strong execution and a great assortment.
Store Openings: Opened 16 new Ross and 3 dd’s discount locations in Q1, planning for approximately 90 new stores this year.
Sales Growth: Total sales grew 3% to $5 billion, with comparable store sales flat versus last year.
Market Positioning: Focus on maintaining a substantial pricing umbrella below traditional retailers to deliver value to customers.
Inventory Management: Total consolidated inventories were up 8% due to opportunistic buys, with average store inventories up 4%.
Share Repurchase: Repurchased 2 million shares for $263 million under a $2.1 billion authorization.
Tariff Mitigation Strategies: Working with vendors for better costing, careful price increases, and utilizing closeouts to mitigate tariff impacts.
Long-term Vision: Continuing to enhance brand experience and store environment while managing expenses in the current macro environment.
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Risk or Challenges
Tariffs Impact: The company imports a significant portion of its merchandise from China, and elevated tariffs are expected to compress merchandise margins. The CEO mentioned potential short-term pressure on profitability due to tariffs, despite efforts to mitigate the impact.
Supply Chain Challenges: There are concerns regarding the unpredictability of trade policy and its impact on supply chain dynamics. The company noted that disruptions in the supply chain could limit visibility into future inventory availability.
Economic Factors: Prolonged inflation and deteriorating consumer sentiment are affecting customer demand, leading to cautious guidance for the second half of the fiscal year.
Competitive Pressures: The company is focused on maintaining a pricing umbrella below traditional retailers to deliver value to customers, amidst broad-based inflationary pressures across the retail industry.
Inventory Management: The company has increased inventories by 8% due to opportunistic buys, but there are concerns about the availability of closeouts and the impact of tariffs on future inventory flows.
Consumer Behavior: There is a slight shift towards more functional items versus discretionary items, but overall consumer behavior remains relatively stable.
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Guidance & Outlook
Store Growth: Opened 16 new Ross and 3 dd’s discount locations in Q1, planning for approximately 90 new stores in 2025 (80 Ross and 10 DDs).
Inventory Management: Total consolidated inventories up 8% due to opportunistic buys; average store inventories up 4%, with 41% of total inventory as packaway merchandise.
Tariff Mitigation Strategies: Working with vendors for better costing, careful with price increases to maintain value proposition, utilizing closeouts and packaway merchandise to mitigate tariff impacts.
Branded Strategy: Successfully repositioned assortment to bring true branded value to consumers, with no expected margin headwinds going forward.
Q2 Comparable Store Sales: Projected to be flat to up 3%.
Q2 Earnings Per Share: Projected in the range of $1.40 to $1.55, including a cost impact of $0.11 to $0.16 from tariffs.
Q2 Total Sales Forecast: Expected to increase 2% to 6% versus prior year.
Q2 Operating Margin: Projected to be in the range of 10.7% to 11.4%, including a negative impact of 90 to 120 basis points from tariffs.
Store Openings in Q2: Expecting to open 31 stores (28 Ross and 3 DDs).
Net Interest Income: Projected to be approximately $29 million.
Tax Rate: Projected to be 24% to 25%.
Diluted Shares Outstanding: Expected to be approximately 325 million.
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Shareholder Return Plan
Share Repurchase: During the first quarter, Ross Stores repurchased 2,000,000 shares of common stock for an aggregate cost of $263,000,000 under the company’s two-year $2.1 billion authorization approved by the Board of Directors in March 2024. The company remains on track to buy back a total of $1,050,000,000 in stock during 2025 and complete the program as planned.
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Key Q&A
Q:Could you elaborate on the cadence of comps or drivers of the sharp improvement that you cited as the first quarter progressed?
A:The sequential improvement was really broad based across the merchandise hierarchy and as we looked at the April business, most departments were performing pretty nicely.
Q:Is there a way to walk us through strategies that you have in place to mitigate tariffs in the back half of the year?
A:There’s three very obvious ways to mitigate the cost: work with vendors for better costing, be careful with price increases, and take advantage of closeouts already in the country.
Q:Should we expect the impact of tariffs to come down as we move through the year?
A:The second quarter impact includes costs for orders that were already in place when the tariffs were announced, and we have to wait and see how the macro economy and retail environment evolves.
Q:Do I have that right regarding the visibility in the back half relating to less certainty on product flows?
A:We certainly think there’s availability of closeouts, but there’s a potential gap in production due to halted production in China.
Q:Can you talk about your expectations for elasticity if you have to raise prices as we progress throughout the year?
A:The elasticity will depend on the category of business and whether it’s discretionary or functional in nature.
Q:What’s driving the strength in cosmetics?
A:Strong execution and a great assortment, with better brands and a trend in that space.
Q:Are you seeing any shifts in consumer behavior around basket size or frequency?
A:There are very small changes, nothing to call out just yet.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer regarding the exact percentage of goods sourced from China by the end of the year, stating that flexibility is limited and they cannot provide an exact number.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
China
Group President
Hartshorn Group
Hi
Officer Stores
SG
Stores Sure
assortment
basis
behavior
border
brand
category
chain
change
closeout
comp
consumer
country
customer
elasticity
environment
good
income level
inflation
item
line
lot
margin
market
merchandise
month
packaway
piece
point
portion
price
pricing
product
receipt
retail
tariff
term
traffic
value
vendor
way
ROST Transcript
Ross Stores, Inc. (ROST) Q3 2025 Earnings Call Transcript
Unknown11-20
The earnings call summary presents a mixed outlook. While there are positive developments like store openings and strong comparable sales growth, the EPS guidance is lower than last year, and tariff costs impact profitability. The Q&A reveals cautious optimism with successful marketing and store refreshes but no plans to increase marketing spend. Overall, the company's strategic initiatives are promising, but financial guidance and tariff concerns temper expectations, leading to a neutral sentiment.
Ross Stores, Inc. (ROST) Q3 2026 Earnings Call Transcript
Positive11-20
The earnings call summary and Q&A indicate positive developments: 5-7% sales growth, strategic store openings, and effective marketing campaigns. Despite EPS guidance below last year's figures, optimistic guidance and strong consumer engagement suggest a positive outlook. Tariff impacts are being mitigated, and the company is expanding in high-potential regions. The stock is likely to react positively, with a prediction of a 2% to 8% increase over the next two weeks.
Ross Stores, Inc. (ROST) Q2 2025 Earnings Call Transcript
Positive8-21
The earnings call summary indicates a positive outlook with flat to 3% growth in comparable store sales, a robust share repurchase program, and initiatives like store refreshes and self-checkout pilots. Despite tariff impacts, management is optimistic about mitigating these through strategic pricing and inventory management. The Q&A further supports this with positive insights on branded strategy, distribution center investments, and unit growth opportunities. While there are some uncertainties, the overall sentiment leans positive, likely leading to a stock price increase of 2% to 8% over the next two weeks.
Ross Stores, Inc. (NASDAQ:ROST) Q1 2025 Earnings Call Transcript
Unknown5-23
The earnings call presents a mixed outlook. While there are positive aspects such as a share repurchase program and dividend increase, financial performance is moderate with flat EPS and operating margins. Challenges like tariffs, inflation, and supply chain issues create uncertainties. The Q&A section reveals management's cautious approach and limited visibility into future performance, especially concerning tariffs. Without strong guidance or new partnerships, and considering market uncertainties, the stock price is likely to remain stable in the short term, leading to a neutral sentiment.
ROST Report
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