Ross Stores, Inc. (ROST) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong financial performance with record high revenue, successful new store productivity, and positive customer count growth. The company is expanding geographically, particularly in the Northeast, and is modernizing its marketing strategy, which is driving traffic and comps. Management's commitment to the buyback program and successful execution in cosmetics further contribute to a positive outlook. Despite some concerns about fuel surcharges, the overall sentiment is positive, with optimistic guidance and strategic growth initiatives likely to boost the stock price.
Key Financial Performance
Total Sales Total sales for the quarter grew 21% to $6.0 billion. The growth was driven by a robust 17% increase in comparable store sales, primarily due to an increase in the number of transactions. A portion of this growth was attributed to the increase in tax refunds versus last year, but the underlying fundamentals of growth were healthy.
Comparable Store Sales Comparable store sales grew 17% year-over-year, driven by an increase in the number of transactions. Growth was broad-based across merchandise areas and geographies, with the Midwest performing the best. Ladies and cosmetics were the strongest businesses.
Operating Margin Operating margin expanded 120 basis points to 13.4% compared to last year's 12.2%. This improvement was due to a 145 basis point reduction in the cost of goods sold, including an 85 basis point improvement in merchandise margin and a 60 basis point leverage in occupancy costs. Distribution and domestic freight costs also declined by 15 and 10 basis points, respectively. However, buying costs rose 25 basis points due to higher incentives.
Net Income Net income for the first quarter was $650 million, up from $479 million last year. This represents a year-over-year increase of 35.7%, driven by strong sales and margin improvements.
Earnings Per Share (EPS) Earnings per share rose 37% to $2.02 from $1.47 in the prior period, reflecting the strong growth in net income.
Inventory Consolidated inventories at the end of the quarter were up 12%, with packaway inventory representing 36% of total inventory compared to 41% last year. The company expressed satisfaction with the overall level and composition of inventory entering the second quarter.
Share Repurchases The company repurchased 1.5 million shares during the quarter for a total cost of $319 million under a new 2-year $2.55 billion authorization. This reflects ongoing shareholder return activity.
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Operating Highlights
Store Expansion: Opened 13 new Ross and 4 dd's DISCOUNTS locations in Q1 2026. Planning for 110 new stores in 2026, including 85 Ross and 25 dd's DISCOUNTS, with closures or relocations of 10-15 older stores.
Sales Growth: Total sales increased by 21% to $6.0 billion in Q1 2026, with a 17% rise in comparable store sales driven by increased transactions.
Earnings Growth: Earnings per share rose 37% to $2.02 from $1.47 in the prior year.
Operating Margin: Expanded by 120 basis points to 13.4% in Q1 2026, driven by improved merchandise margin and lower distribution costs.
Inventory Management: Consolidated inventories increased by 12%, with packaway inventory representing 36% of total inventory compared to 41% last year.
Marketing and Customer Engagement: Enhanced customer acquisition and engagement through creative messaging and changes to media mix, contributing to strong performance.
Shareholder Returns: Repurchased 1.5 million shares for $319 million in Q1 2026 under a $2.55 billion authorization, with plans to buy back $1.275 billion in stock during 2026.
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Risk or Challenges
Tariff Refund Uncertainty: The company has submitted refund claims for tariffs but faces ongoing uncertainties related to the timing and ultimate amount of reimbursement. This creates potential financial unpredictability.
Store Expansion Risks: The company plans to open 110 new stores in 2026, which includes entering new markets. This expansion carries risks related to execution, market acceptance, and operational challenges in new locations.
Inventory Management: While inventory levels are currently balanced, any mismanagement or inability to maintain this balance could lead to overstocking or stockouts, impacting sales and operational efficiency.
Economic Sensitivity: The company attributes part of its growth to increased tax refunds, which may not be a consistent driver in the future. This reliance on external economic factors could pose risks to sustained growth.
Regulatory and Compliance Risks: Forward-looking statements and financial forecasts are subject to regulatory scrutiny and compliance requirements, which could impact the company's operations if not managed properly.
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Guidance & Outlook
Second Quarter 2026 Outlook: Comparable store sales projected to increase 6% to 7%. Earnings per share expected to range between $1.85 and $1.93. Total sales anticipated to grow 9% to 11% compared to last year. Operating margin forecasted to be between 12.8% and 13.0%, reflecting improved merchandise margin and lower distribution costs. 47 new stores planned, including 35 Ross and 12 dd's DISCOUNTS.
Full Year 2026 Guidance: Comparable store sales growth forecasted at 6% to 7%, building on a 5% gain last year. Earnings per share projected to range from $7.50 to $7.74, representing a 13% to 17% increase compared to $6.61 last year. Assumptions for the second half of the year remain unchanged.
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Shareholder Return Plan
Share Repurchase Program: Ross Stores repurchased 1.5 million shares during the first quarter of 2026 for a total cost of $319 million. This activity is part of a new 2-year $2.55 billion authorization approved by the Board of Directors in March 2026. The company plans to repurchase a total of $1.275 billion in stock during the fiscal year 2026.
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Key Q&A
Q:Could you help us to bottoms-up build this, whether it's the 17% comp in the first quarter or 9% comps if I look at trends over the past year? How durable do you believe the drivers of these comps are today?
A:The company has shifted focus towards customer acquisition, with comp sales growth driven by transactions for the third consecutive quarter. There is a double-digit increase in customer count on a comp store basis across all demographics. The durability of these drivers is supported by marketing initiatives, in-store environment improvements, and merchandise selection. Unique factors in Q1 included pent-up demand and higher tax rebates, but even without these, the quarter was strong.
Q:Have you seen any change in customer behavior so far in the second quarter or just any change in trends by category?
A:No specific comments on Q2 trends, but Q1 started strong in February with a smooth transition from holiday to spring selling. Mid-teen comps continued throughout the quarter, aided by tax refunds and the Easter calendar shift.
Q:How comfortable are you with your inventory reserve levels and quality, and ability to chase into this 6% to 7% comp?
A:The company is very comfortable with inventory reserve levels and quality. The availability of closeouts in the marketplace remains strong, and the team has been aggressive in securing seasonally appropriate products. The market recognizes the company's growth rate, leading to more first calls for deals.
Q:What was the driver of domestic freight leverage this quarter, and what are you building in for the year?
A:Freight costs leveraged 10 bps year-over-year, but higher fuel prices limited some leverage. Guidance assumes elevated fuel prices will pressure freight costs for both ocean and domestic freight in Q2 and the full year.
Q:Can you talk about metrics like average basket, AUR, units, and conversion?
A:Traffic was the primary driver of growth. The average basket grew but at a lower proportion than sales growth, and units per transaction were flat.
Q:Can you talk about inflections by category and what’s driving the mix shift?
A:The strength was broad-based, with sequential improvement across categories. Ladies' business and cosmetics showed notable improvement, with every category positive in the teens or higher.
Q:How should we think about the flow-through on comp versus plan?
A:Earnings flow-through on robust sales was above expectations but in line with the model. Typically, every point of comp is worth about 10 to 15 basis points, with Q1 at the high end of this range. Merchandise margin was slightly better, but store payroll costs increased to support product flow.
Q:Does SG&A leverage on the 6% or 7% comp in the second quarter or the 2% to 3% comp in the back half?
A:In Q1, SG&A delevered by 25 basis points due to higher incentives. Without incentives, marketing and store-related costs leveraged. Future SG&A leverage depends on merchandise margin and distribution center cost benefits.
Q:Can you provide insights into new store productivity and financial bridge into the new store opening profile?
A:New store productivity was above historical levels, with guidance for 70% to 75% of a mature store. Early results suggest potential to exceed this range. The company is on track for 110 openings this year, with a strong pipeline for 5% unit growth.
Q:How are you thinking about unit growth and geographic expansion?
A:The company targets 5% unit growth long-term, with potential to increase if opportunities arise. The Northeast is a focus area, with plans to exit 2025 with 12 stores in New York, which are performing well.
Q:How do you think about drivers to help comp the comp in the second half?
A:The company is in the early stages of transformation, with growth driven by more customers and merchandising initiatives. There is confidence in continuing solid comps due to customer count growth, new brands, and store initiatives.
Q:What’s working well in marketing today, and what might change in the back half of the year?
A:The company is modernizing its creative message, mixing media, and hosting more events. Marketing spend is driving traffic and comps without significant increases. Future initiatives will continue to focus on brand contemporization.
Q:Can you quantify the headwind from fuel surcharges in the back half and the oil price embedded in guidance?
A:The company expects some pressure from fuel surcharges in the second half, based on DOE estimates. The impact depends on fuel price fluctuations.
Q:Are you seeing any shifts in consumer behavior due to inflationary pressures?
A:No variation in customer count or comp growth across income levels. California performed in line with the chain. Historically, fuel prices have not shown a direct correlation with sales performance.
Q:Can you provide an update on the branded apparel rollout and balance between good, better, best?
A:The brand strategy is in place across all categories, with a focus on delivering bargains across price points. The company is exploring opportunities to introduce new brands and broaden assortments.
Q:Can you provide an update on store refreshes and their impact?
A:About half of the stores were refreshed last year, leading to improved sales and customer surveys. The company paused to evaluate further changes and new store prototypes.
Q:Will the company continue its buyback program?
A:Yes, the company remains on track to buy back $1.275 billion in stock during 2026.
Q:Is the company structurally expanding its market or recapturing share within its existing market?
A:The strategy includes expanding into new customer segments while maintaining focus on the core customer. Early results indicate success in introducing the brand to different consumer pockets.
Q:What is driving the strength in cosmetics, and how durable is it?
A:The strength in cosmetics is due to new brands, consumer trends like Korean beauty, and strong execution by the team. Sales productivity per square foot has increased without significant space allocation changes.
Q:How is gaining priority access to deals showing up in buying costs, IMU, and speed-to-floor?
A:The company is receiving early calls on opportunistic goods due to strong relationships and market recognition of its growth. Merchants are opening new vendors and securing deals efficiently.
Q:Has there been a cultural shift in decision-making driving new initiatives?
A:The company has shifted towards a more entrepreneurial and growth-oriented culture, empowering quick decisions while maintaining prudence.
Q:Can you provide color on customer count growth in the last two quarters?
A:Customer count growth has been sequentially improving, with double-digit growth in Q1 driven primarily by new customers.
Q:What is the update on the Northeast expansion and New York stores?
A:The Northeast expansion is progressing well, with New York stores exceeding underwriting expectations. The company plans to expand further in the region.
Q:Review of Unclear Management Responses
A:Management avoided providing specific comments on Q2 trends, instead focusing on Q1 performance. Additionally, they did not quantify the headwind from fuel surcharges in the back half, citing dependence on DOE estimates and fuel price fluctuations.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
President Chief
Vice President
activity
assumption
basis point
comp
customer
dd DISCOUNTS
demand
distribution
effort
group
holiday
income
inventory level
line
margin basis
marketing store
merchandise category
number
outlook
period
point incentive
product
refund
sale increase
sale result
sale store
share sale
spring
stock
store dd
store sale
strength
tariff
ROST Transcript
Ross Stores, Inc. (ROST) Q1 2026 Earnings Call Transcript
Positive6-1
The earnings call indicates strong financial performance with record high revenue, successful new store productivity, and positive customer count growth. The company is expanding geographically, particularly in the Northeast, and is modernizing its marketing strategy, which is driving traffic and comps. Management's commitment to the buyback program and successful execution in cosmetics further contribute to a positive outlook. Despite some concerns about fuel surcharges, the overall sentiment is positive, with optimistic guidance and strategic growth initiatives likely to boost the stock price.
Ross Stores, Inc. (ROST) Q1 2027 Earnings Call Transcript
Neutral5-21
Ross Stores, Inc. (ROST) Q4 2026 Earnings Call Transcript
Positive3-3
The earnings call presents several positive indicators: a 9% YoY revenue increase, improved operating margins, and a 15% rise in net income. The company announced an 8% dividend increase and a significant share buyback program, reflecting confidence in future growth. While there are noted risks and uncertainties, the strong financial performance and shareholder return initiatives suggest a positive stock price movement in the near term.
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.
ROST Report
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