Ross Stores, Inc. (ROST) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Total Sales Total sales for the second quarter grew 5% to $5.5 billion, up from $5.3 billion last year. The increase was attributed to a positive change in sales trends across major merchandise categories and regions, as well as strong performance in the back-to-school selling season.
Comparable Store Sales Comparable store sales increased by 2% year-over-year, driven by growth in both traffic and basket size.
Earnings Per Share (EPS) Earnings per share for the second quarter were $1.56, compared to $1.59 in the prior year. The decrease was primarily due to a $0.11 per share negative impact from tariff-related costs.
Net Income Net income for the second quarter was $508 million, down from $527 million in the prior year, reflecting the impact of tariff-related costs.
Operating Margin Operating margin decreased by 95 basis points to 11.5%, primarily due to tariff-related costs and increased distribution costs from the opening of a new distribution center.
Year-to-Date Sales Year-to-date sales for 2025 grew to $10.5 billion, up from $10.1 billion in the prior year, with comparable sales up 1%.
Inventory Levels Total consolidated inventories and average store inventories were up 5% year-over-year, with packaway merchandise accounting for 38% of total inventories compared to 39% last year.
Stock Repurchase The company repurchased 1.9 million shares of common stock for $262 million during the second quarter, and remains on track to buy back $1.05 billion in stock for the year.
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Operating Highlights
Cosmetics: Cosmetics was the best-performing merchandise area in Q2 2025.
New store openings: Opened 28 new Ross stores and 3 dd's DISCOUNTS locations in Q2 2025, including new market entries in the New York Metro area and 3 inaugural stores in Puerto Rico. On track to open approximately 90 new locations in 2025.
Sales and earnings: Total sales grew 5% to $5.5 billion in Q2 2025, with comparable store sales up 2%. Earnings per share were $1.56, slightly exceeding guidance due to lower-than-expected tariff-related costs.
Inventory management: Consolidated inventories and average store inventories were up 5% year-over-year. Packaway merchandise accounted for 38% of total inventories, slightly down from 39% last year.
Tariff mitigation: Implemented vendor negotiations, diversified sourcing, adjusted prices, and expanded closeout-driven business to mitigate tariff impacts.
Competitive positioning: Focused on maintaining value proposition by offering high-quality branded merchandise at competitive prices, aiming to capture market share amidst rising retail prices.
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Risk or Challenges
Tariff-related costs: The company continues to face elevated tariff-related costs, which negatively impacted operating margins by 95 basis points in Q2 2025. These costs are expected to exert modest pressure in Q3 and Q4, despite mitigation efforts.
Macroeconomic uncertainty: The company is maintaining a cautious approach to planning due to ongoing macroeconomic uncertainties, which could impact consumer spending and overall business performance.
Distribution costs: Distribution costs increased by 55 basis points in Q2 2025, partly due to the opening of a new distribution center and tariff-related processing costs, adding pressure to operating margins.
Merchandise margin pressure: Merchandise margins decreased by 30 basis points in Q2 2025, driven by tariffs and occupancy costs, which could continue to challenge profitability.
SG&A deleverage: SG&A expenses deleveraged by 25 basis points in Q2 2025, partly due to CEO transition costs, adding to operational cost pressures.
Pricing challenges: The company anticipates higher prices across the retail industry, which could challenge its ability to maintain its value proposition while preserving merchandise margins.
Packaway-related costs: Unfavorable timing of packaway-related costs is expected to impact operating margins in Q3 2025.
Competitive pressures: The company faces competitive pressures in maintaining its value proposition in a retail landscape with rising prices, which could impact market share.
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Guidance & Outlook
Comparable Store Sales Growth: For both the third and fourth quarters of 2025, Ross Stores is planning comparable store sales growth of 2% to 3%.
Earnings Per Share (EPS) Projections: Third quarter EPS is expected to range from $1.31 to $1.37, compared to $1.48 last year. Fourth quarter EPS is projected to range from $1.74 to $1.81, compared to $1.79 in 2024. Full-year EPS for fiscal 2025 is forecasted to be between $6.08 and $6.21, versus $6.32 last year.
Tariff Costs Impact: The company anticipates a negative impact of $0.07 to $0.08 per share in the third quarter and $0.04 to $0.06 per share in the fourth quarter due to tariffs. For fiscal 2025, the total impact from trade policies is expected to be $0.22 to $0.25 per share.
Total Sales Growth: Total sales for the third quarter are forecasted to increase by 5% to 7% compared to the prior year.
Store Openings: Ross Stores plans to open 40 new locations in the third quarter of 2025, including 36 Ross and 4 dd's DISCOUNTS stores. For the full year, the company remains on track to open approximately 90 new locations.
Operating Margin: Operating margin for the third quarter is expected to be in the range of 10.1% to 10.5%, including a 50 to 60 basis point negative impact from tariff-related costs.
Tax Rate and Shares Outstanding: The tax rate for the third quarter is projected to be approximately 25%, with diluted shares outstanding estimated at 323 million.
Market Positioning and Consumer Trends: Ross Stores expects higher retail prices across the industry to drive consumers toward value-focused options. The company is positioning its assortments to deliver high-quality branded merchandise at competitive price points to capture market share in the second half of 2025.
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Shareholder Return Plan
Share Repurchase: During the second quarter, Ross Stores repurchased 1.9 million shares of common stock for an aggregate cost of $262 million. The company remains on track to buy back a total of $1.05 billion in stock for the year.
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Key Q&A
Q:Could you speak to notable areas of sequential top-line improvement and elaborate on the sharp rebound in July and early back-to-school trends relative to your 2% to 3% comp guide?
A:The company saw broad-based sequential improvement from Q1 to Q2, with nearly every merchandise category improving and most turning positive in July. Cosmetics and the ladies' business performed particularly well. The 2% to 3% comp guide reflects cautious optimism, considering macroeconomic factors and a softer Q3 comparison from last year.
Q:What are the gross margin drivers in the third and fourth quarters relative to the 70 basis point decline in Q2?
A:Tariff costs impacted Q2 operating margin by 90 basis points, primarily due to product costs and DC processing costs. Tariff pressure is expected to be slightly lower in the second half. Other factors include packaway inventory pressure in Q3, which is expected to reverse in Q4, and costs related to ramping up a new distribution center.
Q:How is the customer responding to price increases, and do you expect prices to offset tariff pressures by next year?
A:The company has made very modest price increases (low single digits) and remains cautious about further changes. They aim to maintain their value proposition and expect a new pricing equilibrium by next year as tariff-related impacts diminish.
Q:What are the key components of the updated guidance, and what initiatives are driving performance?
A:The updated guidance reflects tariff impacts of $0.22 to $0.25 for the year and a slightly more conservative sales assumption. Initiatives include store refreshes (half of stores to be completed this year), successful self-checkout pilots in 80 stores, and new marketing campaigns for Ross and dd's.
Q:What drove the acceleration in July, and how are transactions versus ticket contributing to performance?
A:The 2% comp in Q2 was driven by slight increases in traffic and average basket size, with both AUR and units per transaction contributing. July saw strong performance across categories, driven by a mix of traffic and higher basket size.
Q:Is the higher branded mix a permanent margin headwind, or can it drive profitability higher over time?
A:The higher branded mix is expected to be a margin headwind initially but should drive profitability higher over time as the company sharpens its expertise, builds vendor relationships, and gains access to branded closeouts.
Q:Are there any signs of consumer trade-down activity or changes in the demographic mix of customers?
A:No significant changes in income cohorts were observed. However, stores with a high concentration of Hispanic populations underperformed in June, particularly in Southern California, but rebounded in July.
Q:What actions are being taken to mitigate tariff impacts, and what could drive greater-than-expected mitigation?
A:The merchandising team is mitigating tariff impacts through shifting buys, negotiating with vendors, and increasing closeout merchandise. Vendor pre-ticketing is expected to return to historical levels, reducing costs further in the second half.
Q:What is driving the outperformance in the ladies' business, and how is the home category performing?
A:The ladies' business is benefiting from the branded strategy, with strong performance in juniors and denim. The home category turned slightly positive in July after earlier challenges, supported by organizational changes and improved product flow.
Q:What are the near- and long-term returns on distribution center investments?
A:Distribution center investments are primarily for capacity expansion. Over time, as sales grow, the company expects to leverage volume and achieve cost efficiencies. The next DC opening is planned in 2-3 years.
Q:What is the long-term earnings growth algorithm for the business?
A:The long-term algorithm includes 5% new store growth, 3% comp growth, 1-3% EBIT upside, and 2-3% stock buybacks, targeting double-digit EPS growth on a 3% comp.
Q:What are the key attributes and opportunities for accelerating unit growth?
A:The company has strong organizational capabilities and resources to accelerate unit growth. Recent openings in new markets, such as Puerto Rico and the Northeast, have shown strong customer response, indicating significant white space opportunities.
Q:What is the impact of the store renovation plan?
A:The store renovation plan includes new signage and cosmetic repairs, with half of the stores to be completed this year and the rest by 2026. Customer response has been positive, but it is too early to measure the comp impact.
Q:How is the company managing AUR increases and packaway strategy in the back half of the year?
A:The company is cautious about AUR increases and will follow broader retail trends. The packaway strategy includes leveraging holiday items from last year to mitigate cost pressures.
Q:Are there any changes in workforce stability or turnover?
A:The workforce has been stable, with no significant changes in turnover or challenges in filling jobs.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the comp lift from store renovations, stating it was too early to measure the impact. Additionally, they did not provide clear guidance on the long-term margin profile of the business or specific gross margin plans for Q3, citing various moving parts such as packaway inventory and distribution center costs.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Adrienne Eugenia
Alexandra Ann
Aneesha Sherman
Ann Straton
Baird Co
Bank PLC
Barclays Bank
Bernard Boruchow
Bernstein Co
Binetti Evercore
BofA Securities
Boruchow Wells
Boss JPMorgan
CEO Director
CEO transition
CFO CEO
Inc Research
LLC Research
Research Division
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dd DISCOUNTS
distribution center
opening distribution
outlook remainder
period basis
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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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