Ross Stores Q1 Earnings Call Highlights

Key Points

• Ross Stores posted a very strong Q1, with comparable sales up 17%, total sales up 21% to $6.0 billion, and EPS rising 37% to $2.02. Operating margin also expanded to 13.4%, beating expectations.
• Traffic and customer growth drove the results, with management saying sales gains were primarily transaction-led and broad-based across income levels, age groups, regions, and merchandise categories. Ladies and cosmetics were standout categories, while dd’s DISCOUNTS also delivered solid growth.
• Ross raised guidance for fiscal 2026 after the strong quarter, now forecasting full-year comparable sales growth of 6% to 7% and EPS of $7.50 to $7.74. The company also reaffirmed its aggressive store-opening and share-buyback plans.

Ross Stores NASDAQ: ROST reported what executives described as an exceptional first quarter, with comparable sales rising 17% and earnings per share increasing 37%, as the off-price retailer benefited from higher traffic, broader customer acquisition and strong execution across merchandise categories.

Chief Executive Officer James Conroy said total sales increased 21% to $6.0 billion, driven by what he called a “very robust” comparable-store sales gain. While the company attributed part of the growth to higher tax refunds versus last year, Conroy said the underlying drivers were healthy, with comparable sales primarily fueled by transactions.

“We saw healthy increases in customer count on a comp store basis across income levels, ethnicities, and all age groups, including the young customers,” Conroy said.

Executive Vice President and Chief Financial Officer William Sheehan said first-quarter net income rose to $650 million from $479 million a year earlier. Earnings per share increased to $2.02 from $1.47 in the prior-year period. Operating margin expanded 120 basis points to 13.4%, compared with 12.2% last year, and exceeded the company’s expectations.

Traffic and Broad-Based Category Strength Drive Sales

Conroy said the quarter began strongly as Ross transitioned from holiday into spring selling with more balanced inventory levels. The company has historically struggled in February, but Conroy said improved planning helped drive strong demand early in the quarter. Sales trends then remained solid, with mid-teen comparable sales gains for the balance of the period.

Performance was broad-based across merchandise areas and regions. Ladies and cosmetics were the strongest categories, but Conroy said every major merchandise category posted comparable growth in the teens or higher. Geographically, strength was seen across the country, with the Midwest performing best. The company’s dd’s DISCOUNTS chain also delivered solid top-line sales growth across categories and regions.

In response to analyst questions, Conroy said the company’s sales growth was being driven by more customers, with double-digit increases in customer count on a comparable-store basis. He said Ross was seeing customer growth across income levels, ethnicities and age groups, with particular strength among younger shoppers.

“The health of our comp has been driven by transactions for the third consecutive quarter,” Conroy said. “Those transactions are driven by more customers.”

Sheehan added that average basket also increased, though at a much lower rate than sales, while units per transaction were flat.

Margins Improve on Merchandise Gains and Cost Leverage

Sheehan said cost of goods sold declined by 145 basis points in the quarter. Merchandise margin improved by 85 basis points, while occupancy leveraged by 60 basis points due to strong sales. Distribution and domestic freight costs declined by 15 and 10 basis points, respectively.

Those benefits were partially offset by higher buying costs and SG&A, both of which rose due to increased incentives tied to the earnings outperformance. Sheehan said marketing and store-related costs leveraged during the quarter.

On freight, Sheehan said domestic freight leveraged in the quarter, though higher fuel prices limited some of the benefit typically associated with outsized sales growth. He said the company’s guidance assumes elevated fuel prices will pressure both ocean and domestic freight costs in the second quarter and for the full year.

Ross ended the quarter with consolidated inventories up 12%. Packaway inventory represented 36% of total inventory, compared with 41% last year. Conroy said the company was pleased with its inventory levels and composition entering the second quarter. He also said closeout availability remained “outstanding,” and that the company’s buyers were able to secure product to meet stronger demand.

Store Growth Remains a Priority

Ross opened 13 new Ross locations and four dd’s DISCOUNTS stores in the first quarter. The company continues to plan for approximately 110 new stores this year, including about 85 Ross stores and 25 dd’s locations. That target excludes plans to close or relocate approximately 10 to 15 older stores.

Conroy said the company remains encouraged by new-store performance in both new and existing markets. In the question-and-answer session, executives said Ross continues to model approximately 5% unit growth over the longer term, though the company could move faster if attractive real estate opportunities become available.

Asked about expansion in the Northeast, Group President and Chief Operating Officer Michael Hartshorn said the region is part of Ross’ five-year plan. He noted that Ross ended 2025 with 12 stores in the New York area and added two locations in the first quarter. Hartshorn said those stores are performing very well and have exceeded the company’s underwriting expectations.

Guidance Raised After Strong First Quarter

For the second quarter, Ross projected comparable-store sales growth of 6% to 7% for the 13 weeks ending August 1, 2026. Earnings per share are expected to range from $1.85 to $1.93. Total sales are projected to increase 9% to 11% from last year.

Sheehan said second-quarter operating margin is expected to be between 12.8% and 13.0%, compared with 11.5% last year, assuming comparable sales perform in line with the company’s forecast. The expected improvement reflects higher merchandise margin and lower distribution costs as the company anniversaries the opening of a new distribution center and tariff-related ticketing costs in the second quarter of 2025.

Ross plans to add 47 new stores in the second quarter, consisting of 35 Ross stores and 12 dd’s DISCOUNTS locations. Sheehan also said net interest income is estimated at $24 million, the tax rate is expected to be about 25% and diluted weighted average shares outstanding are forecast at about 320 million.

For fiscal 2026, Ross raised its sales and earnings guidance to reflect the first-quarter results and second-quarter outlook, while leaving second-half assumptions unchanged. The company now expects full-year comparable-store sales growth of 6% to 7%, on top of a 5% gain last year. Full-year earnings per share are projected to range from $7.50 to $7.74, up 13% to 17% from $6.61 last year.

Buybacks and Strategic Initiatives

Ross repurchased 1.5 million shares during the quarter for a total cost of $319 million under a new two-year, $2.55 billion authorization approved by the board in March. Sheehan said the company remains on track to repurchase $1.275 billion of stock during 2026.

Executives also discussed ongoing initiatives in marketing, merchandising and stores. Conroy said Ross has shifted toward greater customer acquisition, supported by refreshed creative messaging, changes to the media mix and more events. He said the company is still in the early stages of its efforts to modernize the Ross and dd’s brands.

On merchandising, Conroy said Ross has reestablished stronger branded assortments and is exploring opportunities to introduce more brands at better and best price points. In cosmetics, he cited new brands and consumer trends, including Korean beauty products, as factors supporting category strength.

Conroy said the company remains confident in its strategy to better connect merchandising, marketing and store execution to improve the customer experience.

“We were able to grow sales in the quarter by more than $1 billion and posted the highest same store sales growth in the company’s 40-year history,” Conroy said.

About Ross Stores NASDAQ: ROST

Ross Stores, Inc NASDAQ: ROST is an American off‑price retailer headquartered in Dublin, California, that operates the Ross Dress for Less and dd's DISCOUNTS store formats. The company sells a broad assortment of apparel, footwear, home fashions, accessories and other soft goods, positioning itself as a value-oriented destination for brand‑name and fashion merchandise at reduced prices.

Ross's business model centers on opportunistic buying of excess inventory, closeouts, cancelled orders and overstocks from manufacturers, department stores and other suppliers.

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