Ross Stores ((ROST)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Ross Stores’ latest earnings call struck a cautiously constructive tone, with management highlighting resilient sales, stable margins and solid execution against a tougher macro and trade backdrop. While operational levers like category strength and branded assortments are working, management was frank about tariff-driven margin pressure, inflation-weary consumers and enough uncertainty to pull full-year guidance.
Top-Line Growth and EPS Stability
Total sales rose 3% to $5.0 billion, while comparable-store sales were flat, signaling the chain is at least holding share in a pressured retail environment. Diluted EPS landed at $1.47 versus $1.46 a year ago, essentially unchanged but at the high end of management’s expectations for the quarter, underscoring disciplined cost control.
Operating Margin Held Steady
First-quarter operating margin came in at 12.2%, unchanged from last year, showing Ross preserved profitability despite external headwinds. This stability is notable given higher freight and occupancy costs, and it suggests the off-price model still has room to absorb cost shocks without sacrificing earnings power.
Sequential Improvement Across the Quarter
After a sluggish start in February, Ross reported clear sequential sales improvement through March and into April, with the month-end described as “pretty strong.” The pattern points to a consumer that remains selective but still responsive to value, reducing fears that early-quarter softness signaled a deeper demand slowdown.
Category and Geographic Strengths
Cosmetics stood out as the strongest merchandise category, reinforcing the appeal of discretionary beauty spend even in a cautious environment. Geographically, trends were broad-based and the Southeast led performance, while the core Ladies business tracked at or slightly better than the chain average, supporting the broader branded strategy.
dd’s DISCOUNTS Continues to Build Momentum
The dd’s DISCOUNTS banner delivered another quarter of solid sales and operating profit, and management said it was comp-enhancing for the quarter. That momentum suggests dd’s remains an important growth vehicle, particularly with value-conscious shoppers who are trading down but still want branded merchandise.
Inventory Positioning and Packaway Strategy
Consolidated inventories were up 8% year over year, with average store inventory up 4%, roughly in line with internal plans, indicating controlled stock levels. Packaway merchandise held steady at 41% of total inventory, positioning Ross to chase closeout opportunities and flex assortments quickly if demand trends improve.
Capital Return and Store Expansion Plans
Ross repurchased 2.0 million shares for $263 million during the quarter and remains on pace to buy back $1.05 billion of stock this year under its $2.1 billion authorization. On the growth front, the company opened 16 Ross and 3 dd’s locations in Q1 and still expects to add about 90 new stores in 2025, underscoring confidence in long-term unit growth.
Progress on the Branded Merchandise Strategy
Management reported that the shift toward more branded assortments is tracking to internal goals and that earlier margin pressure from this strategy has largely rolled off. Branded product has improved merchandise perception, especially in Ladies apparel, supporting traffic and ticket while no longer acting as a significant drag on profitability.
Tariff-Driven Margin Pressure Emerges
Merchandise margin declined about 45 basis points in Q1, mainly due to higher ocean freight and the first wave of increased tariffs, including on goods already in transit. For the second quarter, Ross expects tariffs to cut EPS by $0.11 to $0.16 and shave 90 to 120 basis points off operating margin, most of it hitting merchandise margin.
Guidance Uncertainty and Withdrawal of Full-Year Outlook
Given limited visibility into the second half of the year, management withdrew its full-year guidance, citing unpredictable trade policy, persistent inflation and fading consumer sentiment. The move underscores how quickly the operating landscape could shift, even for a value retailer that typically benefits when shoppers look to stretch budgets.
Net Income Pressure and Early-Quarter Traffic Softness
Net income slipped to $479 million from $488 million a year ago, a roughly 2% decline that reflects the combined impact of tariffs and rising operating costs. Traffic was slightly down early in the quarter, though a higher basket and more units per transaction offset much of that pressure, keeping comps flat overall.
Rising Cost Structure Beyond Merchandise
Occupancy expenses increased around 20 basis points and distribution costs rose roughly 5 basis points as Ross brought a new distribution center online. These pressures were partially offset by about 50 basis points of improvement in buying costs, but they highlight the fixed-cost investments needed to support a growing store base.
China Sourcing Concentration Adds Risk
More than half of Ross’s merchandise originates from China, and management flagged this concentration as a key risk amid trade volatility. While direct imports are limited, indirect exposure and production pauses have led to some goods being effectively frozen, creating receipt risk and limiting the company’s ability to quickly pivot sourcing.
Localized Weakness Near Borders
Stores near the Texas border underperformed as long cross-border delays weighed on traffic and spending, creating a noticeable drag relative to the chain average. Northern border stores also lagged, though management described that impact as small, indicating the softness is localized rather than systemic.
Guarded Q2 Outlook Amid Tariff and Macro Headwinds
For the second quarter ending Aug. 2, Ross guided to flat to 3% comparable sales growth and 2% to 6% total sales growth, with EPS expected between $1.40 and $1.55, including the tariff hit. Operating margin is projected in a lower 10.7% to 11.4% range, while the company plans to open 31 more stores and continue aggressive share repurchases, signaling long-term confidence despite near-term turbulence.
Ross’s call painted a picture of a retailer executing well on what it can control while navigating a more hostile macro backdrop it cannot. With steady margins, healthy cash returns and a growing store base balanced against tariff pressure and guidance uncertainty, investors are left weighing a solid core business against the risk that external shocks could erode near-term earnings power.