Ross Stores’ Earnings Call: Growth Amid Challenges

Ross Stores ((ROST)) has held its Q1 earnings call. Read on for the main highlights of the call.

Ross Stores’ recent earnings call revealed a mixed sentiment, showcasing resilience through growth in total sales and strategic store expansions, while grappling with challenges such as flat comparable store sales, a decline in net income, and significant impacts from tariffs. The cautious sentiment was further underscored by the withdrawal of annual guidance due to prevailing uncertainties.

Total Sales Growth

Ross Stores reported a 3% increase in total sales, reaching $5 billion, which hit the high end of expectations despite a sluggish start to the quarter. This growth reflects the company’s ability to navigate a challenging retail environment and highlights its strategic efforts to bolster sales.

Cosmetics Segment Performance

The cosmetics segment emerged as the strongest performer during the quarter, with broad-based geographic trends contributing to its success. This indicates a robust demand for cosmetics across different regions, supporting the company’s overall sales growth.

Store Expansion

In a bid to expand its footprint, Ross Stores opened 16 new Ross locations and 3 dd’s discount locations. The company has ambitious plans to open approximately 90 new stores by the end of 2025, signaling a strategic focus on growth and market penetration.

Stock Repurchase Program

Ross Stores continued to return value to shareholders through its stock repurchase program, buying back 2 million shares for $263 million. The company plans to repurchase a total of $1.05 billion in shares by 2025, reflecting confidence in its long-term growth prospects.

Flat Comparable Store Sales

Comparable store sales remained flat for the quarter, indicating no growth compared to the previous year. This stagnation suggests challenges in driving foot traffic and sales in existing locations, an area that the company may need to address.

Net Income Decline

The company reported a net income of $479 million, a decline from $488 million in the same period of 2024. This decrease highlights the financial pressures Ross Stores faces amidst a competitive retail landscape and rising operational costs.

Impact of Tariffs

Tariffs have significantly impacted Ross Stores, leading to a merchandise margin decline of 45 basis points. The company anticipates further tariff-related challenges in the next quarter, which could affect profitability and pricing strategies.

Limited Visibility and Guidance Withdrawal

Due to numerous unknown variables, including trade policy and consumer sentiment, Ross Stores withdrew its annual guidance. This decision reflects the company’s cautious approach in navigating an uncertain economic environment.

Forward-Looking Guidance

Looking ahead, Ross Stores aims to maintain a competitive pricing strategy despite the challenges posed by tariffs. The company expects second-quarter comparable store sales to range from flat to a 3% increase, with an operating margin projected between 10.7% and 11.4%, considering a 90 to 120 basis point tariff impact. This guidance underscores the company’s focus on sustaining growth while managing external pressures.

In summary, Ross Stores’ earnings call painted a picture of resilience and strategic growth amid challenges. While the company achieved notable sales growth and continued its expansion efforts, it faces hurdles such as flat comparable store sales and tariff impacts. The cautious sentiment, reflected in the withdrawal of annual guidance, highlights the uncertainties that lie ahead. Nevertheless, Ross Stores remains committed to navigating these challenges with a focus on competitive pricing and strategic growth initiatives.