Q1 2025 Ross Stores Inc Earnings Call
Good afternoon, and welcome to the Ross stores first quarter 2025 earnings release Conference call. The call will begin with prepared comments by management, followed by a question and answer session.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Before we get started on behalf of Ross stores I would like to note that the comments made on this call will contain forward looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts, new store openings and other matters that are based on the company's current forecast of aspects of its future business. These forward looking statements are subject to risks and uncertainties that could cause actual.
Speaker Change: Results to differ materially from historical performance or current expectations risk factors are included in today's press release and the company's fiscal 'twenty 'twenty four Form 10-K, and fiscal 'twenty twenty-five form eight Ks on file with the SEC and now I'd like to turn the call over to Jim Conroy, Chief Executive Officer.
Jim Conroy: Good afternoon.
Jim Conroy: With me on our call today are Michael Hartshorn Group, President and Chief operating Officer, Adam or those executive Vice President and Chief Financial Officer, and Connie Kao Group, Vice President Investor Relations.
I would like to start the call by thanking all of our associates throughout the entire organization, who have worked tirelessly over the last few months to help us navigate through a volatile and uncertain external environment I sincerely appreciate the team's continued dedication and hard work.
Now, let's turn to our first quarter results.
As noted in today's press release total sales grew 3% to $5 billion with comparable store sales flat versus last year.
Earnings per share were $1 47, compared to $1 46 last year, while net income for the period was $479 million versus $488 million for the same period in 2024.
Despite the slower start to the spring selling season in February.
Monthly sales performance improved sharply month after month for the balance of the quarter.
For the period sales and earnings performed at the high end of our expectations, while operating margin of 12, 2% was flat year over year.
Jim Conroy: Cosmetics was the strongest merchandise area during the quarter, while geographic trends were broad based with the.
Southeast performing the best.
Our Dd's discount brand continued its strong momentum from 2024 with another quarter of solid sales and operating profits as the chain value and fashion offerings again resonated with shoppers.
At quarter end total consolidated inventories were up 8% versus last year, mainly due to opportunistic buys during the period.
Average store inventories were up 4% in line with our plan and pack away merchandise represented 41% of total inventory similar to last year.
We believe our inventory is well positioned as we enter the second quarter.
Turning to store growth, we opened 16, new Ross and three Dd's discounts locations in the first quarter.
We continue to plan for approximately 90, new stores. This year comprised of about 80, Ross and 10 Dd's.
As usual these numbers do not reflect our plans to close or relocate about 10% to 15 older stores.
Before I turn the call over to Adam to provide further details on our financial performance and guidance I wanted to briefly discuss tariffs and the potential impact it will have on our business.
While we directly import only a small portion of our merchandise.
More than half of the total merchandise that we sell originates in China.
It's Harris for me at elevated levels, we will be working to find the right combination of pricing versus merchandize margin compression.
Believe we have a number of levers available to minimize the overall impact but it is possible that we will see short term pressure on our profitability.
That said our focus has been and will continue to be to provide our customers high quality branded merchandise at a great value.
From a pricing standpoint, we expect modest but broad based inflation inflationary pressure across the retail industry.
Jim Conroy: And we will remain focused on maintaining a substantial pricing umbrella below traditional retailers in order to deliver the bargains our customers have come to expect from us.
Overall trade policy remains unpredictable and we will continue to make the necessary adjustments to best position the company to navigate through this uncertain environment.
Jim Conroy: We are pleased with the momentum of the business given the sequential improvement in comp sales in the quarter.
In addition, we believe our inventory is well positioned to maximize the availability of Closeouts and we have multiple strategies in place to gain market share while minimizing the margin impact from the tariffs.
With that said in our view there are simply too many unknown variables that are limiting our visibility into the second half of the fiscal year and.
And we believe it is prudent to withdraw our previously provided annual guidance at this time.
Ross stores and the off price sector in general has historically benefited from significant disrupted disruptions to the supply chain with more opportunistic buys available to us and we believe there will be no different this time.
I will now turn the call over to Adam to provide further details on our first quarter results and additional color on our second quarter outlook.
Adam: Thank you Jim.
Adam: Previously mentioned, our comparable store sales were flat for the quarter first quarter operating margin of 12, 2% was similar to last year.
Cost of goods sold was relatively unchanged from a year ago merchandise margin declined 45 basis points, mainly due to higher ocean freight costs and the initial impact of tariffs.
A portion of this tariff impact was caused by purchase orders for goods that were on the water when tariffs were increased.
Adam: Occupancy and distribution costs rose by 20 basis points and five basis points respectively.
Adam: Buying cost declined by 50 basis points from lower incentives and domestic freight leveraged by 20 basis points.
SG&A for the period was flat year over year as the benefit from lower incentive compensation was offset by sales deleverage.
Adam: During the first quarter, we repurchased 2 million shares of common stock for an aggregate cost of $263 million under the company's two year $2 $1 billion authorization approved by our board of directors in March of 2024.
Adam: We remain on track to buy back a total of $1.5 billion in stock during 2025 and complete that program as planned.
Adam: Now, let's discuss our outlook.
Adam: For the 13 weeks ending August the <unk> 2025 comparable store sales are projected to be flat to up 3%.
Adam: Earnings per share for the second quarter are not projected to be in the range of a $1 40 to $1 55 and includes a cost impact of 11 to 16.
Adam: The announced tariffs.
Adam: Our guidance assumptions for the second quarter of 2025 include the following.
Adam: Total sales are forecast to increase two 6% versus the prior year.
Adam: At the same store sales perform in line with our forecast operating margin for the second quarter is projected to be in the $10 seven to 11, 4% range, which includes a 90 to 120 basis point negative impact from announced tariffs mostly in merchandise margin.
Adam: This estimate is based on the current level of tariffs, but we recognize there could be a wide range of outcomes given the uncertainty with varying trade policy announcements.
Adam: Excluding the tariff impact we would expect merchandise margin to be similar to the prior year.
We are also forecasting higher distribution costs as we opened our eighth distribution center earlier this month.
Adam: Partially offsetting these higher costs are lower incentives.
We expect to open 31 stores in the second quarter, including 28, Ross and three Dd's locations.
Adam: We expect net interest income to be approximately $29 million.
Adam: <unk> rate is projected to be 24% to 25%.
Adam: And diluted shares outstanding are expected to be approximately $325 million.
Jim: Now I'll turn the call back to Jim for closing comments.
Jim Conroy: Thank you Adam to sum up after a slow start in February we saw broad based improvement throughout the quarter and we were able to meet the high end of our guidance in both sales and earnings.
As mentioned earlier, despite the underlying health of the business, we have limited visibility on how customer demands may evolve over the balance of the year, given prolonged inflation deteriorating consumer sentiment and still elevated and potentially fluctuating tariff levels.
That said, we have a seasoned executive team a flexible off price business model and a strong financial foundation that should enable us to navigate through these uncertain times.
I do want to specifically commend the entire buying and planning organization for managing through the tumultuous external environment driving topline sales growth and working tirelessly to minimize the impact of tariffs on the performance of the business.
Jim: At this point, we'd like to open up the call and respond to any questions you may have.
John.
Speaker Change: Thank you we will now be conducting the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two to remove yourself from the queue for participants using speaker equipment and may be necessary to pick up your handset before.
Speaker Change: The Star Keys.
In the interest of time, we ask that you. Please limit yourself to one question. Thank you one moment please poll for questions.
Adam: Okay.
Speaker Change: And the first question comes from the line of Matthew Boss with Jpmorgan. Please proceed with your question.
Matthew Boss: Great. Thanks.
Speaker Change: Thanks for all the color.
Speaker Change: So.
Matthew Boss: Maybe Jim could you elaborate on the cadence of comps or drivers of the sharp improvement that you cited as the first quarter progressed, maybe what you've seen in may relative to the flat to 3% comp outlook.
Speaker Change: And for Michael I guess is there a way to <unk> to walk us through strategy is that you have in place to mitigate tariffs in the back half of the year or just maybe any range of scenarios to consider if tariffs were to remain at today's level for the remainder of the year.
Matt: Sure I'll take the first part Matt.
Speaker Change: The sequential improvement was really broad based across the merchandize higher fee and as we as we look at.
Speaker Change: The April business.
Speaker Change: Yes.
Speaker Change: Most departments were performing pretty nicely.
Speaker Change: As you know, we don't give current quarter.
Speaker Change: Performance trends, but we did guide to a flat to a plus three so that should give you some sense of how we feel about the health of the business.
Speaker Change: Michael do you want take the tariff question sure.
Michael Hartshorn: Matt It's Michael Hartshorn.
Speaker Change: There is three very obvious ways to mitigate the cost the first of which is to work with our vendors and get better costing which we.
Speaker Change: <unk> done at this point, even in the second quarter.
Speaker Change: There is you can pass along the price, but we wanted to be very careful with price increases we don't want to be the first one to raise prices.
Speaker Change: We want to make sure that we keep our value of our pricing umbrella versus mainstream retail and that's a substantial.
Speaker Change: Value gap to make sure we're delivering the value that customers come to expect.
Speaker Change: We also have the same toolkits other off prices have.
Speaker Change: And that includes <unk>.
Speaker Change: Taking advantage of Closeouts already in the country, we did that in the second quarter. We also have our pack away.
Speaker Change: Again much of that arrived prior to the tariffs. So those are unburdened by tariffs.
Speaker Change: And we'll use those as well and in some cases, we'll be able to shift country of origin.
Speaker Change: Great Best of luck.
Matt: Thanks, Matt.
Speaker Change: And the next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.
Lorraine Hutchinson: Thank you good afternoon.
Lorraine Hutchinson: <unk> gross margin hit from tariffs that 90 to 120. It seems that that would include tariffs at peak rates should we expect the impact to come down as we move through the year to current rates and is that solely related to direct imports or are you already seeing brands pass through costs for the second quarter product.
Lorraine Hutchinson: The second quarter impact really includes.
Speaker Change: Two primarily cost one the first of which is it did include.
Speaker Change: Cost.
Speaker Change: Our orders that were already in place when the tariffs.
Speaker Change: Were announced so that includes both the original 30% and also the 145%.
Speaker Change: The other thing we've done in our supply chain as we pause ticketing until we understood what the tariff impact was so that also includes additional ticketing efforts in the DC until we understand what the ongoing tariff will be across the board.
Speaker Change: In terms of the back half.
Jim: As Jim described in the commentary, there's too many variables to reliably predict.
Speaker Change: Back half and that include both the consumer behavior on the revenue side and also retail sourcing market dynamics.
Jim: I mentioned in Q2.
Jim: That we did take the hit for goods Iot in transit, we use closeouts to take advantage of and we also used on pack away.
Jim: Those goods again, we're unburdened by tariffs. So that's a long winded way of saying, we'll have to wait and see how the macro economy and the retail environment evolves and.
Jim: The outlook looks for inflation.
Jim: Thank you.
Speaker Change: And the next question comes from the line of Mark <unk> with Baird. Please proceed with your question.
Mark: Good afternoon, and thank you for taking my question, maybe just first a quick follow up on the comment you just made there I think you said one of the factors impacting the visibility in the back half relates to maybe less certainty on the product flows.
Mark: Do I have that right, maybe unpack, how youre thinking about inventory availability anything youre seeing right now that is.
Mark: Leading to maybe some concern about what the back half might look like.
Speaker Change: And then separately Jim.
Mark: And you spoke to some opportunities.
Lorraine Hutchinson: Marketing with store environment enhancements I know those are longer term initiatives as it is but just curious how this disruption here with macro trade policy is affected.
Lorraine Hutchinson: Near term playbook there. Thank you.
Lorraine Hutchinson: Sure on the first part.
Lorraine Hutchinson: We certainly think there is availability of Closeouts out there if you think about what happened when the 145 passed.
Lorraine Hutchinson: A lot of goods were sort of frozen in time in China.
Lorraine Hutchinson: And when that 145, then came back down to 30 about a month later.
Mark: All of those goods or relief. So that does provide an influx of closeouts not all of them are going to be seasonally appropriate.
Mark: There is a bit of a pig in the Python, there where that product will be coming through.
Mark: That said the other thing that happened when.
Mark: The tariffs were pass at $1 45 is a lot of production in China came to a halt.
Mark: So there is a bit potentially of a gap right behind that.
Mark: We believe we're extremely well positioned to manage through that and as we look at our receipt plans and a receipt flows over the next few months, we think we can get through that.
Mark: With no problem. So overall in the short term I think there'll be availability of closeout, if there is a little bit of.
Mark: Receipt risk, we think we've managed through that and then once we get beyond this near term.
Mark: Given just this disruption in the economy and in mainstream retail.
Mark: We believe that Ross stores in the whole off private sector will be will be benefactors to it.
Mark: In terms of.
Mark: Some of the things we had laid out on the last call.
Mark: Or any change in direction based on current.
Mark: Current environment.
Mark: In the last call, we sort of laid out a early vision for some of the things that we think can improve that.
Mark: The overall brand experience across in the store experience.
Mark: To complement the great merchandise.
Mark: The merchants bring in.
Mark: And delivered to the stores.
Mark: <unk>.
Mark: I also explained at that point that this is part of a transformational and evolutionary change and not sort of.
Mark: Revolutionary or significant step function change and so based on that.
Mark: I see very little reason to to drastically change.
Mark: Our focus on that longer term vision of trying to bring merchandising marketing and stores in concert to Ria.
Mark: Contemporary as the brand and drive more store traffic.
Mark: We'll be doing that in a in a expense neutral way, we don't plan to overly invest.
Mark: Certainly this year.
Mark: Given the macro environment, but nor do we want to put all of those plans on pause.
Speaker Change: Thank you.
Speaker Change: Of course.
Speaker Change: Okay.
Speaker Change: And the next question comes from the line of Paul Lajoie with Citigroup. Please proceed with your question.
Speaker Change: Thanks, It's Tracy Kogan filling in for Paul I, just had one quick follow up and then another question. So we should think about the 11% to 16% into Q, including some mitigation because I think you said that you were able to negotiate some cost so it's not with <unk>.
Speaker Change: Lenders. So I just wanted to check on that and then secondly, I wondered if you're seeing if you think youre seeing a trade down customer.
Speaker Change: That may be contributed to the improvement.
Speaker Change: Thanks.
Speaker Change: In the second quarter. It does include some mitigation, but it also includes.
Speaker Change: Product that was on order in transit when Tara arrived so there was no chance for mitigation on the comp.
Speaker Change: If we look at comp by income band across the company. We saw the comps are fairly broad base. So.
Speaker Change: That's our only indicator and it doesn't suggest the change across income there.
Speaker Change: Great. Thank you.
Speaker Change: And the next question comes from the line of Michael Binetti with Evercore ISI. Please proceed with your question.
Michael Binetti: Hey, guys. Thanks for taking our questions here. So I guess I just wanted to ask maybe a jump ball, but maybe the different scenarios that you're looking at for <unk>.
Michael Binetti: That would land us between zero and a three comps because it certainly sounds like the exit rate.
Michael Binetti: It was.
Michael Binetti: Okay.
Michael Binetti: Good.
Speaker Change: <unk> or maybe even just the difference between the wider spread 2% to 6% on total revenues.
Michael Binetti: Alright.
Michael Binetti: Are you, leaving room for it to decelerate if we if we entered the quarter.
Michael Binetti: A better pace and then I guess just backing up looking at the inventory I think we get a little lost in.
Michael Binetti: The narrative around off price and the difference between direct sourcing being very small in China.
Michael Binetti: And your helpful comments today that it's up to half of the.
Michael Binetti: Total goods sold.
Speaker Change: How much of that is the indirect portion that's coming from China as semi permanent and recurring.
Michael Binetti: They're made up for you versus.
Michael Binetti: The ability to quickly move.
Michael Binetti: Some of that exposure that's been recurring in China for a long time to other geographies is that is that muscle that the sourcing team in Asia has today or is a muscle that you have to build maybe you could give us just a few thoughts on that.
Michael: Michael I'll start with the.
Michael: The guidance range. It was really just out of abundance of caution given the macroeconomic and geopolitical environment.
Michael: We're cognizant that inflation.
Michael: As has been going on a long time and it's impacting our.
Michael: Our core customer.
Michael: And.
Michael: The impact of tariffs, we expect to start.
Michael: Hitting the customer.
Michael: In July June late June July timeframe, so we want to see how we exit the quarter. So those are the really the two.
Michael: Two reasons.
Michael: We're more cautious with the guidance that we had to be a range.
Michael: In terms of the sourcing.
Michael: As we said in the commentary about a small portion.
Michael: Directly source and what that means for us that's the piece that were responsible for the tariffs.
Michael: Some portion of our goods remember we're in the closeout business. So we're agnostic to where it's sourced we're looking for value branded value to the customer.
Michael: So when you look at even though we take possession when it's already in the country. It was originally sourced from China.
Michael: The piece that we have direct control over country of origin is the small portion that we directly import mainly within home and shoes.
Michael: And on that portion that the market available piece.
Michael: All of the off price players essentially shop from the same market so well.
Michael: We don't think we're going to be uniquely less competitive at least in any significant way.
Michael: <unk>.
Michael: It's just the market is still pretty heavily reliant on China imports.
Michael: Understood. Okay. Thanks for all the clarifying comment I appreciate it guys.
Michael: No problem.
Speaker Change: And the next question comes from the line of Alex Straightened with Morgan Stanley. Please proceed with your question.
Alex Straightened: Perfect. Thanks, so much.
Alex Straightened: I wanted to touch on the branded strategy that you started enacting last year, just where that stands now if the mix is where you want it to be and if it does still remain a margin drag and how you think about that for the rest of the year and related to that I just wanted to dig into women's apparel I know that's been a focus for you all.
Alex Straightened: So just curious how that particular category is doing for you if the branded product is helping out there. Thanks so much.
Alex Straightened: Sure.
Alex Straightened: So we feel very good about the team's execution of the branded strategy and I think at this point, we can say we are sort of hitting the.
Alex Straightened: <unk>.
Alex Straightened: The guidelines or targets that we had hoped to theres, a little bit fluid theyre, not hard and fast rules, but.
Alex Straightened: We've gotten the entire assortment and repositioned in a way, where we are bringing true branded value to the consumer so we feel great about that there was <unk>.
Alex Straightened: Right.
Alex Straightened: <unk> have an impact in margin in the beginning of this quarter, but now we fully anniversaried it.
Alex Straightened: So I don't we don't expect.
Alex Straightened: Margin headwinds going forward any longer from the brand strategy.
Alex Straightened: And as you pointed out in your question was.
Alex Straightened: Various skus the branded strategy was really for the.
Alex Straightened: Entire business.
Alex Straightened: Tended to then take on a more heavy focus on the ladies business.
Alex Straightened: We generally keep our cards close to our vast in terms of how the business performs by category.
Alex Straightened: That said in this particular quarter, we were very encouraged that the ladies business was in line in fact slightly better than the chain average.
Alex Straightened: So I think we can.
Alex Straightened: It's early days.
Alex Straightened: Perhaps have some business owed to us and believe these category over the last few years, but it's now at least trending in line with the rest of the company.
Speaker Change: Thanks, so much good luck.
Speaker Change: Thank you.
Speaker Change: And the next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Speaker Change: Hi, Thanks, Good afternoon, just on the tariff topic can you talk about your expectations for elasticity. If you have to raise prices as we progressed throughout the year and maybe what you've learned in the past what categories. You are confidence the most high thank you.
Speaker Change: I don't have a great.
Speaker Change: <unk>.
Speaker Change: Sort of knowledge base for past years here I think the elasticity is.
Speaker Change: It's going to depend on the category of business and whether it's discretionary or functional in nature.
Speaker Change: So when when we're looking at pricing, we're being very strategic in terms of sort of what's the end use of that item.
Speaker Change: How much.
Speaker Change: Leeway do we have to change prices and we're also.
Speaker Change: Very cognizant of what's happening across mainstream retail both their full price goods and what their clearing as.
Speaker Change: As well as the other players within our sector. So.
Speaker Change: There's a lot of factors that go into it.
Speaker Change: And the elasticity I think it will depend.
Speaker Change: Not only across categories, but even within.
Speaker Change: Within categories down to the specific item.
Speaker Change:
Speaker Change: I would circle back to a comment I made earlier I think.
Speaker Change: We're all in the same boat here as it relates to elasticity right. So all retailers that are selling footwear and apparel and home goods.
Speaker Change: We're going to face into the same set of questions.
Speaker Change: And it'll be.
Speaker Change: Interesting to see how it all plays out.
Speaker Change: But we do expect.
Speaker Change: Broad based inflationary pressure across all retailers in.
Speaker Change: That will create some disruptions.
Speaker Change: We tend to.
Speaker Change: Coming out on top and victorious and being an off pricer when that happens.
Speaker Change: And the next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.
Brooke Roach: Good afternoon, and thank you for taking our question I was hoping you could talk about your category plans for mitigating tariffs are there any opportunities for you to shift assortment either within categories or within subcategories to try and minimize the sourcing impact from China towards other countries over time how much.
Speaker Change: <unk> cannot be shifted both for your direct sourcing and also for some of your vendor partners. Thank you.
Speaker Change: Sure. So there is there is.
Speaker Change: A tremendous amount of flexibility it does again kind of depend on the item specifically and the timing so as we roll into back to school.
Speaker Change: You need to have certain signature items like backpacks.
Speaker Change: You need to find a way to get backpacks into into the assortment one way or another.
Speaker Change: As you get further into the fall you might have the ability to.
Speaker Change: Amplify one part of the assortment and downplay another two mix out the margin or to mitigate the tariff abate.
Speaker Change: There are certain signature items in signature categories that we want to have the new assortment regardless of the impact.
Speaker Change: To markup, so we're sort of thinking about it very strategically.
Speaker Change: All of the vendors that the entire market place is trying to resource goods right. So.
Speaker Change: For third party product.
Speaker Change: All of our vendor partners are moving quite quickly through resource product, but it's still a several month process.
Speaker Change: And then similarly for the product that we direct import.
Speaker Change: On occasion, you can find another country.
Speaker Change: Manufacturers, a very similar item and hopefully at the same quality level.
Speaker Change: We would.
Speaker Change: Sort of voided out.
Speaker Change: But that also as we switch to new countries or try to resource goods. There is a timeline associated with that at all so that's a 2026.
Speaker Change: Sort of adjustment net of 2025 assessment.
Speaker Change: And the next question comes from the line of Ike <unk> with Wells Fargo. Please proceed with your question.
Speaker Change: Hi, This is Joe <unk> on for Alex Thank.
Speaker Change: Thank you for taking my question I just wanted to ask when we're thinking about the impact that we're seeing ball control line, Brian come level, what you are seeing boss.
Speaker Change: <unk> capital.
Speaker Change: Thank you.
Speaker Change: Sure.
Speaker Change: As I said earlier on the call for us.
Speaker Change: Look at stores.
Speaker Change: On the population.
Speaker Change: Around the store and the income levels to try to band performance by income level and for US It was fairly broad based.
Speaker Change: Across income levels.
Speaker Change: As far as comp components for the quarter comps were flat as we said slightly higher basket was offset by a slight decline in traffic.
Speaker Change: Particularly early earlier in the quarter.
Speaker Change: The higher average basket was driven primarily by number of units sold as average unit retail was flat.
Speaker Change: And the next question comes from the line of Simeon Siegel of BMO capital markets. Please proceed with your question.
Simeon Siegel: Thanks, Hey, guys good afternoon.
Speaker Change: Understanding that there are moving pieces like incentive comp you mentioned I just what's the best way for us to think about what comp you need to leverage overall SG&A at this point just reflecting on I think the flat SG&A on a flat comp this quarter and then.
Speaker Change: Just.
Speaker Change: General thoughts on various category opportunities and challenges going forward, specifically wondering about children's I think this is the first quarter in over a year that you haven't you didn't call that out as an area of strength. So anything there would be helpful. Thank you.
Speaker Change: Excluding on the first question, obviously, excluding the impact of tariffs. Obviously this can vary from quarter to quarter in the first quarter, we were able to hold EBIT margins at the flat comp, but generally over an annual period over a longer time.
Speaker Change: 3% to 4% to be able to lever.
Speaker Change: And in terms of the category details I wouldn't read anything into it we tend to try to provide a small amount of color on the categories that are over performing occasionally I would call out those that are massively underperforming.
Speaker Change: There is nothing really notable about the kids business to call out.
Speaker Change: And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.
Dana Telsey: Hi, Good afternoon, everyone. As you think about the performance. This quarter was there a difference between the stores along the border versus the base and also any color on how Dd's has done and then lastly, as you are thinking about the merchandise margin go go forward. How do you think about that margin puts and takes.
Dana Telsey: And how you're planning inventory.
Speaker Change: A quick follow up thank you.
Dana Telsey: Dana Okay, Let me first.
Speaker Change: First let me talk through the geographies in border store locations.
Speaker Change: We mentioned in the release that southeast was the strongest region.
Speaker Change: For us our largest market, California, Florida, and Texas were relatively in line with the chain.
Speaker Change: Specifically the border stores were well below the chain average and had a slightly negative impact to the overall chain.
Speaker Change: Even with the low number of stores.
Speaker Change: What we attribute the quarterly performance to was the.
Speaker Change: Long delays for our cross border traffic to get in and out of the country.
Speaker Change: We also saw.
Speaker Change: Negative impact in our northern border stores, but we have very few stores. There. So it's not a large impact to the chain.
Speaker Change: I'm going to take Tvs.
Speaker Change: Yes.
Speaker Change: <unk> brands, both Ross and Dd's saw nice sequential improvement throughout the year.
Speaker Change: Throughout the quarter from month to month.
Speaker Change: <unk>.
Speaker Change: The acceleration if I compare the February to April was actually much stronger in Ross.
Speaker Change: But admittedly it started at a lower point. So these business continues to perform well it was comp enhancing for us for the quarter and I think it's a testament to some of the strategies around the cold weather stores, the young customer et cetera that have.
Speaker Change: Proven out to be the right strategies and the team.
Speaker Change: Executing very well against them.
Speaker Change: And Dana your question on.
Speaker Change: Merch margin going forward and puts and takes outside of the tariff impact.
Speaker Change: We would expect merchant margin to be neutral.
Speaker Change: Versus last year in the second quarter and Jim.
Speaker Change: Mentioned earlier, our brand strategy, that's put pressure on merchandise margin.
Speaker Change: Over the last call it year.
Speaker Change: We're past that point of pressure.
Speaker Change: And the next question comes from the line of initial Sherman with Bernstein. Please proceed with your question.
Speaker Change: Thank you so much I'm curious to hear some context around how you're thinking about pricing over the last few years, you've chosen a couple of times not to pass on cost inflation price, but rather it's fit.
Speaker Change: 2023 with freight cost you get it again over the last year with the branded strategy and gesture absorb that.
Speaker Change: What is your approach different now I heard what you said around competitors raising prices, but that was also the case.
Speaker Change: In recent years.
Speaker Change: Whats driving a different approach and do you still think that Ross can maintain the perception of value with your lower income consumer while straightening.
Speaker Change: In Asia on the on the pricing I would disaggregate the brand strategy from choosing not to raise.
Speaker Change: Prices.
Speaker Change: We were indeed shifting brands, but we were also maintaining our value proposition versus not only our direct competitors in off price, but also traditional retailers, whether its department and specialty stores.
Speaker Change: In this case.
Speaker Change: We expect to see broad base.
Speaker Change: Inflation not category specific.
Speaker Change: With the tariffs.
Speaker Change: And so we would expect to be able to maintain that value proposition against.
Speaker Change: The whole retail set.
Speaker Change: And the next question comes from the line of morning Shapiro with retail tracker. Please proceed with your question.
Speaker Change: Hey, guys. One just clarification did you how many dd's stores did you say you opened in the quarter alright.
Speaker Change: Quickly I missed that and then if you could talk a little bit about your use of pathways and specifically.
Speaker Change: <unk> been very effective using them for times, when you really needed the goods.
Speaker Change: On time, So Paulo, so father's day dresses for mother's day or Easter.
Speaker Change: Are you able to pack away as much as possible for back to school back to your backpack analogy, a comment or a Christmas decorations and charge Keith.
Speaker Change: All of that stuff is from China, what does that look like what does the comp.
Speaker Change: <unk> of your pack away it looked like.
Speaker Change: Sure on the first part of your question.
Speaker Change: Apologies if I wasn't clear three DDS were opened in the quarter.
Speaker Change: In terms of pack away.
Speaker Change: I think the complexion of pack away.
Speaker Change: All of that difference in past years, but for we are really focused on places where if we thought there was any receipt risk we could fill it in with products from the from the hotel.
Speaker Change: So I think we're extremely well positioned to.
Speaker Change: And kind of maximize our business and.
Speaker Change: Continue to flow goods to the store and while at the same time.
Speaker Change: It worked through this tariff situation and minimize the impact as much as we can.
Speaker Change: Perhaps the last piece I would add to that circling back to the prior question.
Speaker Change: We fully intend to continue to be.
Speaker Change: Quality product branded values in the stores.
Speaker Change: So the the pricing peak I don't think we will lose our reputation at all for being.
Speaker Change: Extremely well.
Speaker Change: Branded.
Speaker Change: Great values.
Speaker Change: And the next question comes from the line of Laura Champine with loop capital markets. Please proceed with your question.
Laura Champine: Hi, Thanks for taking my question I know that we've talked about sort of AD nauseum, but I'm still not clear on what the strategy is so if you're at more than 50% of goods from China today, assuming tariffs don't change from here, where would you expect to be at the end of the year.
Speaker Change: Yes.
Speaker Change: There is.
Speaker Change: There is multiple things, we can do to try to source product from other countries, but at the end of the day. There is a lot of product predictability over the next six months that its going to be imported from China for us and for every other retailer and every other off price company. So there is the amount of flexibility that you have.
Speaker Change: As you sit in the middle of the year for the next three to six months is.
Speaker Change: It's somewhat limited.
Speaker Change: So.
Speaker Change: Not prepared to give you an exact number for what our.
Speaker Change: Sourcing by country will look like six months from now.
Speaker Change: I would tell you that with the merchants are looking at is how do I deliver product to the store that is part of a compelling resort compelling assortment at a great value.
Speaker Change: And in this environment, we expect a lot of that will come from the closeout part of our business.
Speaker Change: And some of it might come from Resourcing merchandise receipts.
Speaker Change: They don't they don't start with the country of origin in mind right.
Speaker Change: In most cases.
Speaker Change: Not that the company importing the product.
Speaker Change: I hope that helps.
Speaker Change: And the next question comes from the line of Cory Tarlow with Jefferies. Please proceed with your question.
Cory Tarlow: Great. Thanks.
Cory Tarlow: Yes.
Speaker Change: Jim I was wondering if you could just provide a little bit of color on.
Speaker Change: Traffic trends that you saw in the quarter I think you implied that things got better but it was down did you.
Cory Tarlow: And up.
Cory Tarlow: And then just on AUR would've.
Cory Tarlow: What have been the key drivers there.
Cory Tarlow: Beyond is it just bring in good.
Cory Tarlow: Better more better and best type products.
Cory Tarlow: Sure so.
Cory Tarlow: The.
Cory Tarlow: Quarter started off slow it seems like a lot of retailers started off slow in February.
Cory Tarlow: And then the business got better.
Cory Tarlow: Between February and March and they got better again between March and April and.
Cory Tarlow: Significantly spell it Ross a portion of that not all of it a portion of that was the shift in Easter.
Cory Tarlow: In terms of traffic or transactions, if we look at just the April business.
Cory Tarlow: Yes.
Cory Tarlow: Pretty solid comp there.
Cory Tarlow: And it was largely.
Cory Tarlow: Transaction based a little bit of help from AUR, but a very small increase in AUR.
Cory Tarlow: And then we had a bigger basket driven by more units per transaction. So if I were to look at the April business in a vacuum it would be pretty pleased where we had growth across all three elements transactions to AUR and UCT.
Cory Tarlow: Sort of a very healthy way to to drive a comp.
Cory Tarlow:
Cory Tarlow: And our exit.
Cory Tarlow: Performance coming out of the quarter was.
Cory Tarlow: It was pretty strong.
Speaker Change: Okay great.
Speaker Change: And the next question comes from the line of Cristina <unk> with Deutsche Bank. Please proceed with your question.
Speaker Change: Hi, This is Jessica Taylor on for Christina.
Speaker Change: For taking my question I, just wanted to follow up a little bit on D.
Speaker Change: Performance by income and the health of the customer and just to follow up with me on this question a little.
Speaker Change: Ask differently have you seen any changes in terms of the customer behavior.
Speaker Change: Their spend how theyre approaching thereby from.
Speaker Change: Last quarter or the last six months.
Speaker Change: Okay.
Speaker Change: I would say not not really micro commented a little bit about the income bands and Theres, some very slight movement there but.
Speaker Change: Anticipating this question, we were looking to try to find out in support of validated the logical hypothesis, but it just wasn't obvious within the data in terms of.
Speaker Change: Customer behavior.
Speaker Change: Perhaps you could say, there's a little bit of a shift towards more functional item versus discretionary items.
Speaker Change: Alright.
Speaker Change: I wouldn't say, there's anything glaringly different.
Speaker Change: And our final question comes from the line of Adrienne <unk> with Barclays. Please proceed with your question.
Speaker Change: Hi, This is angus calendar on for Adrian.
Speaker Change: That cosmetics was the strongest merchandise area in Q1 can you elaborate on what's driving that strength.
Speaker Change: Was it mix pricing or something else and do you expect this momentum to continue.
Speaker Change: And then also.
Speaker Change: Given the flat comp performance and cautious consumer backdrop are you seeing any shifts in consumer behavior around basket size or frequency specifically.
Speaker Change: Yes.
Speaker Change: So on the cosmetics piece.
Speaker Change: Give kudos to the team for some some really strong execution and for putting together a great assortment there.
Speaker Change: As.
Speaker Change: <unk> is a pretty broad category, but part of what's driving it is some of the better brands there.
Speaker Change: And a little bit of a trend in that space for a particular type of cosmetics.
Speaker Change: So we feel good about that.
Speaker Change: Yeah.
Speaker Change: In terms of frequency and basket size et cetera.
Speaker Change: There is.
Speaker Change: Very small changes.
Speaker Change: To call out just yet in terms of consumer behavior.
Speaker Change: In the quarter certainly in the second half of the quarter versus if you go back to our fourth quarter, where we had a nicely positive comp.
Speaker Change: They feel relatively similar to us.
Speaker Change: And there are no further questions at this time I would like to turn the floor back over to Jim Conroy for any closing remarks.
Jim Conroy: Very good well. Thank you everyone for joining us on our call today.
Jim Conroy: We look forward to speaking with you on our next earnings call take care.
Speaker Change: And ladies and gentlemen that does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time.
Jim Conroy: Yeah.
Jim Conroy: Uh-huh.
Jim Conroy: [music].
Jim Conroy: Hum.
Jim Conroy: Okay.
Jim Conroy: Sure.