Q2 2025 Ross Stores Inc Earnings Call

Speaker #1: Good afternoon, and welcome to the Ross Stores second quarter 2025 earnings release conference call. The call will begin with prepared comments by management, followed by a question-and-answer session.

James Conroy: Good afternoon and welcome to the ROSS STORES second quarter 2025 earnings release conference call. The call will begin with prepared comments by management, followed by a question and answer session. If anyone should require operator assistance during the conference, please press star zero. 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 results to differ materially from historical performance or current expectations.

Speaker #1: If anyone should require operator assistance during the conference, please press *0. 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.

Speaker #1: These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today's press release and in the company's fiscal 2024 Form 10-K, as well as the fiscal 2025 Form 10-Q and 8-Ks on file with the SEC.

James Conroy: Risk factors are included in today's press release and in the company's fiscal 2024 Form 10-K and fiscal 2025 Form 10-Q and 8-Ks on file with the SEC. Now, I'd like to turn the call over to James Conroy, Chief Executive Officer.

Speaker #1: And now, I'd like to turn the call over to Jim Conroy, Chief Executive Officer.

Speaker #2: Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer; Adam Orvos, Executive Vice President and Chief Financial Officer; Bill Sheehan, Group Senior Vice President and Deputy Chief Financial Officer; and Connie Kao, Group Vice President, Industrial Relations.

Michael Hartshorn: Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer; Adam Orvos, Executive Vice President and Chief Financial Officer; Bill Sheehan, Group Senior Vice President and Deputy Chief Financial Officer; and Connie Kao, Group Vice President, Investor Relations. I would like to begin the call by recognizing the efforts of the entire Ross Stores organization this past quarter. Despite ongoing uncertainty in the external environment, the team's dedication and hard work have been truly commendable. Their commitment has helped us to adapt quickly, execute on our ongoing initiatives, and deliver a solid quarter. Now let's turn to our Q2 results. As noted in today's press release, we are encouraged by the sequential improvement in sales trends relative to the first quarter.

Speaker #2: I'd like to begin the call by recognizing the efforts of the entire ROSS organization this past quarter. Despite ongoing uncertainty and the external environment, the team's dedication and hard work have been truly commendable.

Speaker #2: Their commitment has helped us adapt quickly, execute on our ongoing initiatives, and deliver a solid quarter. Now, let's turn to our second quarter results.

Speaker #2: As noted in today's press release, we are encouraged by the sequential improvement in sales trends relative to the first quarter. This improvement was broad-based, with a positive change in trend in nearly all major merchandise categories and most of the regions across the company.

Michael Hartshorn: This improvement was broad-based with a positive change in trends in nearly all major merchandise categories and most of the regions across the company. During the second quarter, sales in May were strong and softened in June before rebounding sharply in July. We were pleased to see the improved trend at the end of the quarter, particularly with the early sales performance related to the back-to-school selling season, which bodes well for the third quarter. We ended the period with Q2 sales in line with our expectations, while earnings modestly exceeded the high end of our guidance range due to lower than expected tariff-related costs. Operating margin decreased 95 basis points to 11.5% compared to the prior year period, primarily reflecting tariff-related costs. Total sales for the period grew 5% to $5.5 billion, up from $5.3 billion last year, with comparable store sales up 2%.

Speaker #2: During the second quarter, sales in May were strong and softened in June before rebounding sharply in July. We were pleased to see the improved trend at the end of the quarter, particularly with the early sales performance related to the back-to-school selling season, which bodes well for Q3.

Speaker #2: We ended the period with second quarter sales in line with our expectations, while earnings modestly exceeded the high end of our guidance range due to lower-than-expected tariff-related costs.

Speaker #2: Operating margin decreased by 95 basis points to 11.5%, compared to the prior year period, primarily reflecting tariff-related costs. Total sales for the period grew by 5% to $5.5 billion, up from $5.3 billion last year, with comparable store sales up 2%.

Speaker #2: Earnings per share for the 13 weeks ended August 2, 2025, were $1.56, on net income of $58 million. Included in this year's second quarter earnings is an approximate $0.11 per share negative impact from tariff-related costs.

Michael Hartshorn: Earnings per share for the 13 weeks ended August 2, 2025, were $1.56 on net income of $508 million. Included in this year's Q2 earnings is an approximate $0.11 per share negative impact from tariff-related costs. These results compared to $1.59 per share on net earnings of $527 million in last year's Q2. For the first six months, earnings per share were $3.03 on net income of $987 million. These results compared to earnings per share of $3.05 on net earnings of $1 billion for the first half of 2024. Sales for the 2025 year-to-date period grew to $10.5 billion, up from $10.1 billion in the prior year. Comparable sales for the first half of 2025 were up 1%. In the second quarter, cosmetics was the best merchandise area. By geographic region, the strongest markets were the Southeast and the Midwest.

Speaker #2: These results compare to $1.59 per share on net earnings of $527 million in last year's second quarter. For the first six months, earnings per share were $3.03 on net income of $987 million.

Speaker #2: These results compared to earnings per share of $3.05, on net earnings of $1 billion for the first half of 2024. Sales for the 2025 year-to-date period grew to $10.5 billion, up from $10.1 billion in the prior year.

Speaker #2: Comparable sales for the first half of 2025 were up 1%. In the second quarter, cosmetics was the best merchandise area. By geographic region, the strongest markets were the Southeast and the Midwest.

Speaker #2: Overall, cons store sales had varied; discounts were solid and ahead of Ross, while monthly trends were closely aligned between the two chains throughout the quarter.

Michael Hartshorn: Overall, comparable store sales at dd's DISCOUNTS were solid and ahead of Ross, while monthly trends were closely aligned between the two chains throughout the quarter. It was encouraging that both chains saw growth in both traffic and basket size, with strong momentum exiting the quarter. At quarter end, both total consolidated inventories and average store inventories were up 5% versus last year. Packaway merchandise was 38% of total inventories at quarter end, compared to 39% last year. We feel good about our inventory levels and believe we are well positioned for the back half of the year. Turning to store growth, in Q2, we opened 28 new Ross and three dd's DISCOUNTS locations. These openings reflect our expansion into new and existing markets. New market entries included several stores in the New York metro area, as well as our three inaugural stores in Puerto Rico.

Speaker #2: It was encouraging that bulk chains saw growth in bulk traffic and basket size, with strong momentum exiting the quarter. At quarter end, bulk total consolidated inventories and average store inventories were up 5% versus last year.

Speaker #2: Packaway merchandise was 38% of total inventories at quarter end, compared to 39% last year. We feel good about our inventory levels and believe we are well-positioned for the back half of the year.

Speaker #2: Turning to store growth, in Q2 we opened 28 new Ross locations and 3 d.e.e.d. discounts locations. These openings reflect our expansion into new and existing markets.

Speaker #2: New market entries included several stores in the New York metro area, as well as our three inaugural stores in Puerto Rico. We remain on track to open a total of approximately 90 new locations this year, comprised of about 80 Ross and 10 Dedeid.

Michael Hartshorn: We remain on track to open a total of approximately 90 new locations 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 provide an update on tariffs. While tariffs remain at elevated levels, we feel good about the progress the merchants have made to mitigate the impact on operating margin. The team has worked tirelessly to execute a multi-pronged approach, including vendor negotiations, diversifying our sourcing mix, and adjusting prices strategically. Additionally, we were able to expand the portion of our business driven by closeouts, which further mitigated the impact.

Speaker #2: 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 provide an update on tariffs.

Speaker #2: While tariffs remain at elevated levels, we feel good about the progress the merchants have made to mitigate the impact on margins. The team has worked tirelessly to execute a multi-pronged approach, including vendor negotiations, diversifying our sourcing mix, and adjusting prices strategically.

Speaker #2: Additionally, we were able to expand the portion of our business driven by closeouts, which further mitigated the impact. Looking ahead, we are confident that we can continue to offset most of the impact of tariffs, but we do anticipate modest pressure in Q3, which we expect will be further mitigated in Q4.

Michael Hartshorn: Looking ahead, we are confident that we can continue to offset most of the impact of tariffs, but we do anticipate modest pressure in the third quarter, which we expect will be further mitigated in the fourth quarter. From a pricing perspective, we are beginning to see higher prices across the retail industry. With this backdrop, we are focused on maintaining our value proposition relative to traditional retailers while balancing the opportunity to preserve our merchandise margin. Our top priority will always be providing high-quality branded merchandise at outstanding value. The off-price sector has historically benefited from disruptions within the supply chain and the retail industry. We believe this time will be no different. I will now turn the call over to Adam to provide further details on our second quarter results and additional color on our outlook for the remainder of fiscal 2025. Thank you, Jim.

Speaker #2: From a pricing perspective, we are beginning to see higher prices across the retail industry. With this backdrop, we are focused on maintaining our value proposition relative to traditional retailers, while balancing the opportunity to preserve our merchandise margin.

Speaker #2: Our top priority will always be providing high-quality branded merchandise at outstanding value. The off-price sector has historically benefited from disruptions within the supply chain and retail industry; we believe this time will be no different.

Speaker #2: I will now turn the call over to Adam to provide further details on our second quarter results and additional color on our outlook for the remainder of fiscal 2025.

Speaker #3: Thank you, Jim. Second-quarter operating margin decreased 95 basis points to 11.5% and included an approximate 90 basis point negative impact from tariff-related costs.

Michael Hartshorn: Second quarter operating margin decreased 95 basis points to 11.5% and included an approximate 90 basis point negative impact from tariff-related costs. Cost of goods sold during the period increased by 70 basis points. Distribution costs deleveraged by 55 basis points, primarily from the opening of a new distribution center in the second quarter and tariff-related processing costs. Merchandise margin decreased 30 basis points, which included the impact of tariffs, and occupancy deleveraged 10 basis points. Partially offsetting these higher costs were lower domestic freight and buying costs of 15 and 10 basis points, respectively. SG&A for the period deleveraged by 25 basis points, partly due to CEO transition costs. During the second quarter, we repurchased 1.9 million shares of common stock for an aggregate cost of $262 million. As a result, we remain on track to buy back a total of $1.05 billion in stock for the year.

Speaker #3: Cost of goods sold during the period increased by 70 basis points. Distribution costs de-leveraged by 55 basis points, primarily from the opening of a new distribution center in the second quarter and tariff-related processing costs.

Speaker #3: Merchandise margin decreased 30 basis points, which included the impact of tariffs, and occupancy de-leveraged 10 basis points, partially offsetting these higher costs with lower domestic freight and buying costs of 15 and 10 basis points, respectively.

Speaker #3: SG&A for the period de-leveraged by 25 basis points, partly due to CEO transition costs. During the second quarter, we repurchased 1.9 million shares of common stock for an aggregate cost of $262 million.

Speaker #3: As a result, we remain on track to buy back a total of $1.05 billion in stock for the year. Now, let's discuss our outlook for the remainder of 2025.

Michael Hartshorn: Now let's discuss our outlook for the remainder of 2025. As Jim noted in today's press release, given the uncertainty associated with the macroeconomic environment, we will maintain a somewhat cautious approach to planning our business for the balance of the year. For both the third and fourth quarters, we are planning comparable store sales growth of up 2% to 3%. If sales perform in line with this guidance, third quarter earnings per share are expected to be in the range of $1.31 to $1.37 versus $1.48 last year and $1.74 to $1.81 for the fourth quarter compared to $1.79 in 2024. These ranges include a negative tariff cost of approximately $0.07 to $0.08 and $0.04 to $0.06 per share in the third and fourth quarters, respectively. These estimates are based on the current level of announced tariffs.

Speaker #3: As Jim noted in today's press release, given the uncertainty associated with the macroeconomic environment, we will maintain a somewhat cautious approach to planning our business for the balance of the year.

Speaker #3: For both the third and fourth quarters, we are planning comparable store sales growth of up 2% to 3%. If sales perform in line with this guidance, third quarter earnings per share are expected to be in the range of $1.31 to $1.37 versus $1.48 last year, and $1.74 to $1.81 for the fourth quarter compared to $1.79 in 2024.

Speaker #3: These ranges include a negative tariff cost of approximately $0.07 to $0.08 and $0.04 to $0.06 per share in the third and fourth quarters, respectively.

Speaker #3: These estimates are based on the current level of announced tariffs. If the second half of 2025 performs in line with these projections, earnings per share for the full year are now forecast to be in the range of $6.08 to $6.21, versus $6.32 last year.

Michael Hartshorn: If the second half of 2025 performs in line with these projections, earnings per share for the full year are now forecast to be in the range of $6.08 to $6.21 versus $6.32 last year. For fiscal 2025, we anticipate an approximate $0.22 to $0.25 per share impact from announced trade policies. As a reminder, last year's fourth quarter and fiscal year results included a one-time benefit to earnings equivalent to approximately $0.14 per share related to the sale of a pack-away facility. Now let's turn to our guidance assumptions for the third quarter of 2025. Total sales are forecast to increase 5% to 7% versus the prior year. We expect to open 40 stores during the quarter, including 36 Ross and four dd's DISCOUNTS locations.

Speaker #3: For fiscal 2025, we anticipate an approximate impact of 22 to 25 cents per share from announced trade policies. As a reminder, last year's fourth quarter and fiscal year results included a one-time benefit to earnings equivalent to approximately 14 cents per share, related to the sale of a pack away facility.

Speaker #3: Now, let's turn to our guidance assumptions for the third quarter of 2025. Total sales are forecast to increase 5% to 7% versus the prior year.

Speaker #3: We expect to open 40 stores during the quarter, including 36 Ross and 4 divied locations. Operating margin for the third quarter is planned to be in the 10.1% to 10.5% range, which includes a 50 to 60 basis point negative impact from tariff-related costs.

Michael Hartshorn: Operating margin for the third quarter is planned to be in the 10.1% to 10.5% range, which includes a 50 to 60 basis point negative impact from tariff-related costs. Our forecast also reflects unfavorable timing of pack-away related costs and continued deleverage from the opening of a new distribution center in the quarter. Net interest income is estimated to be approximately $27 million. The tax rate is projected to be about 25%, and diluted shares outstanding are expected to be approximately $323 million. Now I will turn the call over to James Conroy for closing comments.

Speaker #3: Our forecast also reflects unfavorable timing of pack-away-related costs and continued de-leverage from the opening of a new distribution center in the quarter. Net interest income is estimated to be approximately $27 million, the tax rate is projected to be about 25%, and diluted shares outstanding are expected to be approximately 323 million.

Speaker #3: Now, I will turn the call over to Jim for closing comments.

Speaker #2: Thank you, Adam. We are encouraged by the sequential improvement in the sales trend relative to Q1, particularly the strength of our early back-to-school business in July.

James Conroy: Thank you, Adam. We are encouraged by the sequential improvement in sales trend relative to the first quarter, particularly the strength of our early back-to-school business in July. We believe pricing will move higher across the entire retail landscape, leading consumers to seek more value this fall season. As such, we are positioning our assortments to deliver high-quality branded merchandise at compelling price points to reinforce our value proposition. We strongly believe this strengthens our competitive position to capture market share over the balance of the year. Before we turn to your questions, I would like to take a moment to recognize and thank Adam Orvos for his contributions to Ross Stores. As many of you know, Adam is retiring from Ross Stores at the end of September. His leadership and financial expertise have been instrumental to our success, and we wish him well in this exciting new chapter.

Speaker #2: We believe pricing will move higher across the entire retail landscape, leading consumers to seek more value this fall season. As such, we are positioning our assortments to deliver high-quality, branded merchandise at compelling price points to reinforce our value proposition.

Speaker #2: We strongly believe this strengthens our competitive position to capture market share over the balance of the year. Before we turn to your questions, I would like to take a moment to recognize and thank Adam Orvos for his contributions to Ross.

Speaker #2: As many of you know, Adam is retiring from ROSS at the end of September. His leadership and financial expertise have been instrumental to our success, and we wish him well in this exciting new chapter.

Speaker #2: We also appreciate Adam working closely with Bill to ensure a smooth transition. At this point, we would like to open the call and respond to any questions that you may have.

James Conroy: We also appreciate Adam working closely with Bill to ensure a smooth transition. At this point, we would like to open the call and respond to any questions that you may have. John?

Speaker #2: John?

Speaker #1: Thank you, sir. We will now be conducting the question and answer session. If you would like to ask a question, please press STAR 1 on your telephone keypad.

Operator: Thank you, sir. We will now be conducting the question and answer session. If you would 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, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. The first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Speaker #1: A confirmation tone will indicate that your line is in the queue. You may press *2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * keys.

Speaker #1: One moment, please, while we poll for questions. And the first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Speaker #3: Thank you, and nice to see the improvement.

Adam Orvos: Thanks, and nice to see the improvement.

Speaker #4: Thanks, Matt. Thanks, Matt.

James Conroy: Thanks, Matt. Thanks, Matt.

Speaker #3: So, Jim, could you speak to notable areas of sequential top-line improvement that you saw and elaborate on the sharp rebound in July and early back-to-school trends that you're seeing? Maybe relative to your 2% to 3% comp guide, which I think you said embeds a somewhat cautious planning approach?

Adam Orvos: Jim, could you speak to notable areas of sequential top-line improvement that you saw and elaborate on the sharp rebound in July and early back-to-school trends that you are seeing, maybe relative to your 2% to 3% comp guide, which I think you said embeds a somewhat cautious planning approach. Then just for Adam, gross margin drivers in the third and fourth quarter, if you could just help break down relative to the 70 basis point decline in the second quarter, I think would be really helpful.

Speaker #3: And then just for Adam, gross margin drivers in the third and fourth quarters, if you could just help break down relative to the 70 basis point decline in the second quarter, I think would be really helpful.

Speaker #2: Is that your one question, Matt?

James Conroy: Is that your one question, Matt?

Speaker #3: Trying my best for you, Jim.

Adam Orvos: Trying my best for you, Jim.

Speaker #2: On the first part of your question, I'll give you some color on the specifics, but the most encouraging thing was we've seen broad-based sequential improvement from the first quarter into the second quarter. Nearly every merchandise category improved, and most were positive in the second quarter. Towards the tail end of the second quarter, particularly in July, nearly everything was turning positive or was positive.

James Conroy: On the first part of your question, I will give you some color onto specifics, but the most encouraging thing was we have seen broad-based sequential improvement from the first quarter into the second quarter. Nearly every merchandise category improved, and most were positive in the second quarter. Towards the tail end of the second quarter, particularly in July, nearly everything was turning positive or was positive. We felt very good about that. If you went back even to the end of the first quarter, we had called out that we had sequential improvement from February into March, March into April. Part of that was the Easter shift. We had a solid May. June was a little bit depressed, going up against the strongest month last year, but then July was very strong. We felt very good or feel very good about the momentum coming out of the quarter.

Speaker #2: So we felt very good about that. And if you went back even to the end of Q1, we had called out that we had sequential improvement from February to March, and from March into April. Part of that was the Easter shift.

Speaker #2: We had a solid May-June, with a little bit of depression going up against the strongest month last year. But then July was very strong. So we feel very good about the momentum coming out of the quarter from a category perspective. Cosmetics was very strong, and it was nice to see the ladies' business comping nicely positive and better than the chain average.

James Conroy: From a category perspective, cosmetics was very strong. It was nice to see the ladies' business comping nicely positive and better than the chain average. That has gotten a lot of attention over the last few years. Kudos to that merchandising team that has gotten that business up to the comps that they are achieving now. With that, I will turn it over to Adam for the balance of this question.

Speaker #2: That's gotten a lot of attention over the last few years. So, kind of kudos to that merchandising team that has gotten that business up to the comps that they're achieving now.

Speaker #2: And with that, I'll turn it over to Adam for the balance of his question.

Speaker #3: Yeah, Matt. And on the second half, so let me take tariff costs first. So I talked about the 90 basis point impact on operating margin in Q2.

Adam Orvos: Yeah, Matt. On the second half, let me take tariff costs first. I talked about the 90 basis point impact on operating margin in Q2. That was primarily in two components of cost of goods sold. The impact on product costs was the primary driver, and the other is DC processing costs as we had less merchandise pre-ticketed by our vendors, which impacted our profitability. We do expect tariff pressure on merchandise margin in the balance of the year, but expect it to be slightly lower than what we experienced in Q2. The remaining improvement quarter by quarter in tariff costs is primarily in distribution as we expect to revert back closer to those historical pre-ticketing levels.

Speaker #3: That was primarily in two components of cost of goods sold. The impact on product costs was the primary driver, and the other is DC processing costs, as we had less merchandise pre-ticketed by our vendors, which impacted our profitability.

Speaker #3: So, I do expect tariff pressure on merchandise margin for the balance of the year, but I expect it to be slightly lower than what we experienced in Q2.

Speaker #3: The remaining improvement quarter by quarter in tariff costs is primarily in distribution, as we expect to revert back closer to those historical pre-ticketing levels.

Speaker #3: Other moving parts in the back half I mentioned in the call commentary: pack away, just based on how we see the flow of goods in the back half. That'll put pressure on our Q3 earnings and then expect to recoup that in the fourth quarter based on how we see year-end inventory.

Adam Orvos: Other moving parts in the back half, I mentioned in the call commentary, pack away, just based on how we see the flow of goods in the back half. That will put pressure on our Q3 earnings, and then expect to recoup that in fourth quarter based on how we see year-end inventory. The other big moving part is I mentioned the new distribution center in Q2. As we ramp up the production in that facility, it will put pressure on that portion of DC costs for the balance of the year.

Speaker #3: The other big moving part is I mentioned the new distribution center in Q2. As we ramp up production in that facility, it'll put pressure on that portion of DC costs.

Speaker #3: For the balance of the year.

Speaker #2: That's great. I wanted to circle back, sir. There was a piece of your question I didn't address, which was the two to three comp guide.

James Conroy: Matt, I want to circle back here. There was a piece of your question I didn't address, which was the 2% to 3% comp guide. As we put in the press release, we are looking at the balance of the year with some cautious optimism. We've embedded a little bit of that into the 2% to 3% guide. If you wanted to play at a bullish case, we are going up against a softer quarter last year in Q3 than Q2. There's a lot going on in the macro environment, so we want to embed some conservatism.

Speaker #2: As we put in the press release, we are looking at the balance of the year with some cautious optimism. So it was embedded a little bit of that into the two-to-three guide.

Speaker #2: You know, if you wanted to play a bullish case, we are going up against a softer quarter last year in Q3 than in Q2.

Speaker #2: But you know, there's a lot going on in the macro environment, so we want to embed some conservatism.

Speaker #3: That's a great color. Best of luck.

Adam Orvos: Great color. Best of luck.

Speaker #2: Thanks, Matt.

James Conroy: Thanks, Matt.

Speaker #3: Thanks.

Adam Orvos: Thanks.

Speaker #1: And the next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Operator: The next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Speaker #4: Thank you. Good afternoon. It sounds like your appetite for raising prices has increased as you see tickets going up throughout the industry. How is the customer responding, and do you expect prices to fully offset the tariff pressures by next year?

Various Analysts: Thank you. Good afternoon. It sounds like your appetite for raising prices has increased as you see it gets going up throughout the industry. How is the customer responding, and do you expect prices to fully offset the tariff pressures by next year?

Speaker #2: So I wouldn't read too much into our we've had a very very modest change in prices. What low, low single-digit change in AUR we're going to be very cautious about our changes in AUR going forward.

James Conroy: I would not read too much into our, we have had a very, very modest change in prices. Low, low single-digit change in AUR. We are going to be very cautious about our changes in AUR going forward. The Ross brand depends on being the best bargains in the market, and we are going to be looking at our direct competitors and sort of the broader retail landscape to see movement before we make any significant changes in AUR. On the last part of your question, I do think that going into next year, there will be just a new equilibrium of prices. As you will note in this particular year, the tariff-related impact will get smaller between Q2 and Q3 and Q3 and Q4.

Speaker #2: The ROSS brand depends on being the best bargained in the market, and we're going to be looking at our direct competitors and sort of the broader retail landscape to see movement before we make any significant changes in AUR.

Speaker #2: On the last part of your question, I do think that going into next year, there'll be just a new equilibrium of prices. As you'll note in this particular year, the tariff-related impact will get smaller between Q2 and Q3, and Q3 and Q4. We'd like to come out next year, and we're certainly not going to guide on this call, and not be spiking out tariffs separately.

James Conroy: We would like to come out next year, and we are certainly not going to guide on this call and not be spiking out tariffs separately. I think by then, there will be just another set of retail price equilibrium, and we will find our place with an umbrella underneath where everybody else is priced.

Speaker #2: But I think by then, there'll be just another set of retail price equilibrium, and we'll find our place with an umbrella underneath where everybody else's price.

Speaker #4: Thank you.

Various Analysts: Thank you.

Speaker #1: And the next question comes from the line of Michael Benetti with Evercore ISI. Please proceed with your question.

Operator: The next question comes from the line of Michael Binetti with Evercore ISI. Please proceed with your question.

Speaker #5: Hey guys, thanks for taking our questions. Congrats on the improvement in the quarter. Maybe just help me think through a couple of the guidance components.

Various Analysts: Hey guys, thanks for taking our questions. Congrats on the improvement in the quarter. Maybe just help me think through a couple of the guidance components. The original guidance you gave us for the year, the high end was $6.55. We did good performance against what you were planning in the first half here, but then we had $0.22 to $0.25 of tariff. I would have thought maybe $6.30, $6.33 versus the new guidance at $6.21 at the high end. Is there anything you can point me to beyond tariffs that you guys embedded in this year? Can you, I guess, James Conroy, can we hear a little bit about some of the initiatives that you spoke to early on here? You outlined signage, marketing, store operations, queue line. Any positive proof points you can point to so far in the stores that have received the majority of those initiatives?

Speaker #5: The original guidance you gave us for the year, the high end was 6.55. You know, good performance against what you were planning in the first half here.

Speaker #5: But then we had 22 to 25 cents of tariff. I really thought maybe $6.30, $6.33 versus the new guidance at $6.21 at the high end.

Speaker #5: Is there anything you can point me to beyond tariffs that, you know, you guys embedded in this year? And then, could you, I guess, Jim, can you just can we hear a little bit about some of the initiatives that you spoke to early on here?

Speaker #5: You outlined signage, marketing, store operations, and queue lines. Any positive proof points you can point to so far in the stores that have received the majority of those initiatives?

Speaker #2: Michael, I'll start with some of the initiatives. It's Michael Hartshorn. On some of the things we spoke about, first was the store refreshes.

James Conroy: Michael, I will start with some of the initiatives. It is Michael Hartshorn. On some of the things we spoke about, first was the store refreshes. We expect to get through about half of our stores this year. As a reminder, what we are doing in the existing stores is changing up the signage, which includes new perimeter and wayfinding signage, along with addressing cosmetic type repairs in the stores. We expect to get through half of the stores this year for the stores we completed. We think the stores look great. We expect to complete the chain in 2026. I think you also know we have been piloting self-checkout.

Speaker #2: We expect to get through about half of our stores this year. As a reminder, what we're doing in the existing stores is changing up the signage, which includes new perimeter and wayfinding signage, along with addressing cosmetic-type repairs.

Speaker #2: In the stores, we expect to get through half of the stores this year for the stores we completed. We think the stores look great.

Speaker #2: And then we expect to complete the chain in 2026. I think you also know we've been piloting self-checkout. We have that in about 80 stores today, and that's been very successful for us.

James Conroy: We have that in about 80 stores today, and that has been very successful for us. We have been able to, the customer has really enjoyed the experience. It has allowed us to reduce line length, and we have been able to control a shortage. We are planning to expand to a number of stores next year, mainly in our high-volume stores that will help us improve customer throughput.

Speaker #2: We've been able to, the customer has really enjoyed the experience. It's allowed us to reduce line lengths, and we've been able to control a shortage.

Speaker #2: So we're planning to expand to a number of stores next year, mainly in our high-volume stores that will help us improve customer throughput.

Speaker #3: And Michael, this is Adam. If your question was back to how we guided at the beginning of the year, obviously, the biggest driver is the tariff impact, right? Which we're now kind of pegging at $0.22 to $0.25 for the year. And then, secondarily, we have a little bit more conservative sales assumption.

Adam Orvos: Michael, this is Adam. If your question was back to how we guided at the beginning of the year, obviously the biggest driver is the tariff impact, which we are now kind of pegging at $0.22 to $0.25 for the year. Secondarily, I have a little bit more conservative sales assumption for the full year than we did back in March based on Q1.

Speaker #3: For the full year, we did back in March, based on the first quarter.

Speaker #1: Could I follow that by just asking, you know, the SG&A dollar budget for the year, where it's at today versus what you initially set it at coming into the year in March?

Various Analysts: Could I follow that by just asking, the SG&A dollar budget for the year, where is that today versus what you initially set it at coming into the year in March? Any change there to be noted?

Speaker #1: Any change there to be noted?

Speaker #2: I think we're pretty consistent. Michael, there haven't been significant changes in SG&A.

James Conroy: I think we're pretty consistent, Michael. There hasn't been significant changes in SG&A.

Speaker #1: Okay, thanks a lot, guys. Appreciate it.

Various Analysts: Okay. Thanks a lot, guys. Appreciate it.

Speaker #2: And Michael, we never got to your question around initiatives or environment. Marketing, Michael Hartshorn, addressed the store signage fees, which is a very nice upgrade to contemporizing the store look and feel.

James Conroy: Michael, we never got to your question around initiatives, store environment, marketing. Michael Hartshorn addressed the store signage feeds, which is a very nice upgrade to contemporizing the store look and feel. We are looking at a lot of things in terms of the store labor model. Given the fact that we have more than 2,000 stores and it is a very complicated equation, we have deployed a number of tests that are out there right now, tweaking different things to see if we can get more throughput and try to drive sales by putting more labor into some stores. It is much too early to comment on the results of that. From a marketing standpoint, we have launched a new campaign in both brands. At Ross Dress for Less, it is a campaign called Work Your Magic. There are four just terrific spots that the team has put together.

Speaker #2: We are looking at a lot of things in terms of the store labor model, given the fact that we have more than 2,000 stores, and it's a very complicated equation.

Speaker #2: We have deployed a number of tests that are out there right now, tweaking different things to see if we can get more throughput and try to drive sales by putting more labor into some stores.

Speaker #2: So, it's much too early to comment on the results of that. From a marketing standpoint, we have launched a new campaign in bulk brands.

Speaker #2: So at ROSS, it's a campaign called "Work Your Magic." There are four just terrific spots that the team has put together. They hearken back to brands that are great value, but maybe with a bit more of an emotional connection for a customer.

James Conroy: They hearken back to brands at a great value, but maybe with a bit more of an emotional connection for a customer. dd's DISCOUNTS has its own campaign called Don't Sleep on dd's. That is entirely a digital campaign. You have to be on one of the meta platforms or on TikTok to see it. It is a very cool and energetic campaign for dd's DISCOUNTS as well. It is very early days, but I am really pleased to see the organization respond so quickly and come up with what I believe to be some really nice changes early on.

Speaker #2: And then Devied has its own campaign called "Don't Sleep on Devied." That's entirely a digital campaign, so you have to be on one of the Meta platforms or on TikTok to see it.

Speaker #2: But it's a very cool and energetic campaign for Devied as well. So it's very early days, but I'm really pleased to see the organization respond so quickly and come up with what I believe to be some really nice changes early on.

Speaker #3: That's great to hear. Thanks, guys.

Various Analysts: That's great to hear. Thanks, guys.

Speaker #2: Of Of course.

Speaker #1: And the next question comes from the line of Paul Ledgeway with Citigroup. Please proceed with your question.

Operator: The next question comes from the line of Paul Lajoie with Citigroup. Please proceed with your question.

Speaker #4: Hey, thanks, guys. I'm curious to talk a little bit more about your transactions versus ticket and how that changed during the quarter when you referenced accelerator essential high.

James Conroy: Hey, thanks, guys. I was curious if you could talk a little bit more about your transactions versus ticket, how that changed during the quarter when you were at the acceleration in July. Curious what the metrics were for the bigger driver. Any color you can give there? Also, how are you thinking about transactions versus ticket in the back half? Second, James, I am sure you guys had an availability of merchandise in terms of what merchandise would look like, availability of merchandise would look like before the quarter, coming into the quarter. I am curious what you are seeing relative to your expectations. Any surprises within certain categories? Do you anticipate having any holes in the assortment for holiday? Thanks.

Speaker #4: Curious what those metrics are for the bigger driver. Any color you can give there? And just also how you're thinking about transactions versus ticket in the back half?

Speaker #4: And then, second, Jim, I'm sure you guys had an availability of merchandise, you know, in terms of what merchandise would look like—availability of merchandise.

Speaker #4: What does it look like before the quarter, coming into the quarter? I'd be curious what you're seeing relative to your expectations. Any surprises within certain categories? Do you anticipate having any holes?

Speaker #4: Any assortment for holiday? Thanks.

Speaker #3: Paul, it's Michael Hartshorn. You were breaking up a bit, but I think your question was about the composition of the comp in terms of track transactions and what we saw during the quarter.

Michael Hartshorn: Paul, it's Michael Hartshorn. You were breaking up a bit, but I think your question was the composition of the comp in terms of transactions and what we saw during the quarter. As we said in the commentary, the Q2 comp was driven by a slight increase in traffic and also an average increase in the average basket. The basket itself was driven by both slight increases in AUR and units per transaction. If you looked at that, where we were very strong in May, dipped in June, and then strong again in July, across the quarter, it was driven by a mix of traffic and also a higher basket.

Speaker #3: As we mentioned in the commentary, the two comparable sales were driven by a slight increase in traffic and also an average increase in the average basket.

Speaker #3: The basket itself was driven by both slight increases in AUR and units per transaction. If you look at that, we were very strong in May, dipped in June, and then strong again in July. Across the quarter, it was driven by a mix of traffic and also a higher basket.

Speaker #2: In terms of availability, we feel very good about the availability of closeouts. In the second quarter, one of the things we called out in the script was that this was one of the factors that helped us get to the low end of the range of the tariff impact.

James Conroy: In terms of availability, we feel very good about the availability of closeouts. In the second quarter, one of the things we called out in the script was that was one of the things that helped us get to the low end of the range of the tariff impact by leaning in more into closeouts. I would say availability is super strong.

Speaker #2: By leaning in more into closeouts, I'd say availability is super strong.

Speaker #3: Thanks, guys. Good luck.

Michael Hartshorn: Thanks, guys.

Speaker #1: And the next question comes from the line of Alex Straiten with Morgan Stanley. Please proceed with your question.

Operator: The next question comes from the line of Alexandra Straton with Morgan Stanley. Please proceed with your question.

Speaker #4: Perfect. Thanks so much. Congrats on a nice quarter. Maybe just looking at profitability, I know that the second quarter makes for the second one where you're lapping that branded strategy from last year.

Various Analysts: Perfect. Thanks so much. Congrats on a nice quarter. Maybe just looking at profitability, I know that the second quarter makes for the second one where you are lapping that branded strategy from last year. Is higher branded mix a permanent margin heaven to the business, or do you see scope for it to eventually drive total profitability higher, which I think was the initial intent? Maybe bigger picture, can this business return to kind of low teens margin over time, or does that branded mix being higher keep you from getting there? Thanks a lot.

Speaker #4: So, is higher branded mix a permanent margin have into the business, or do you see scope for it to eventually drive total profitability higher, which I think was the initial intent?

Speaker #4: And maybe bigger picture, can this business return to kind of low teens margin over time? Or does that branded mix being higher keep you from getting there?

Speaker #4: Thanks a lot.

Speaker #2: Alex, our initial idea with the branded strategy is that early on it would be a margin hit, but we'd be able to build on that over time as we sharpened our expertise, built better vendor relationships, had access to branded closeouts, and our thoughts on that have not changed.

Michael Hartshorn: Alex, our initial idea with the branded strategy is that early on, it would be a margin hit, but we would be able to build on that over time as we sharpened our expertise, built better vendor relationships, had access to branded closeouts, and our thoughts on that have not changed. We believe we can build on it over time.

Speaker #2: So we believe we can build on it over time.

Speaker #4: Thank you.

Various Analysts: Thank you.

Speaker #2: Thank you.

Operator: Thank you. The next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Speaker #1: And the next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Speaker #4: Good afternoon, and thank you for taking our question. Are you seeing any increased signs of consumer trade-down activity or changes in the demographic mix of consumers in your store, either by income or race?

Various Analysts: Good afternoon, and thank you for taking our question. Are you seeing any increased signs of consumer trade-down activity or changes in the demographic mix of consumers in your store, either by income or race, as prices have increased across the ecosystem this holiday season? Thank you.

Speaker #4: As prices have increased across the ecosystem this holiday season, thank you.

Speaker #2: Brooke, on trade down, we didn't see a change in income cohorts. It was pretty broad-based in the quarter. From an ethnic standpoint, as we've said in the past, we do serve a broad customer base, but Hispanic customers are very important to us.

Michael Hartshorn: Brooke, on trade-down, we did not see a change in income cohorts. It was pretty broad-based in the quarter. From an ethnic standpoint, as we have said in the past, we do serve a broad customer base, but our Hispanic customers are very important to us. They skew higher than the U.S. census. During the quarter, stores that had a high concentration of the Hispanic population underperformed the chain. That was especially true in June and especially in Southern California. The good news is we did see a bounce back in July.

Speaker #2: They see higher than the U.S. Census. During the quarter, stores that had a high concentration of Hispanic population underperformed the chain. That was especially true in June and especially in Southern California.

Speaker #2: The good news is we did see a bounce back in July.

Speaker #4: Great. Thanks so much. I'll pass it on.

Various Analysts: Great. Thanks so much. I will pass it on.

Speaker #2: Thanks, Brooke.

Speaker #1: And the next question comes from the line of Mark Altschwager with Baird. Please proceed with your question.

Operator: The next question comes from the line of Mark Altschwager with Baird. Please proceed with your question.

Speaker #5: Good afternoon. Thank you for taking my question. Just on the tariff mitigation front, I wanted to get a little bit more detail there. Just any update on the actions you're taking that are working here as we think about, you know, better buying category flexibility, price, you know, what's moving the needle to offset the pressure on merchandise margin?

Various Analysts: Good afternoon. Thank you for taking my question. On the tariff mitigation front, I wanted to get a little bit more detail there. Any update on the actions you are taking that are working here? Think about better buying, category flexibility, price. What is moving the needle to offset the pressure on merchandise margin? What are the factors that could potentially drive greater than expected mitigation in the back half of the year? Thank you.

Speaker #5: And, you know, what are the factors that could potentially drive greater-than-expected mitigation in the back half of the year? Thank you.

Speaker #2: Sure. Well, the merchandising team has just been working tirelessly to mitigate the impact. If you were to take the tariff rates that are out there and just do simple back-of-the-envelope math.

James Conroy: Sure. The merchandising team has just been working tirelessly to mitigate the impact. If you were to take the tariff rates that are out there and just do simple back-of-the-envelope math and just flow it through unmitigated, of course, the impact would be much greater than what we've seen. So that's thanks to just a tremendous amount of hard work in shifting buys, negotiating with vendors, very little increase in AUR. That really hasn't been a factor. But also increasing the amount of closeout merchandise versus upfront than we initially had planned. As I said earlier, I do think we'll wind up with pricing equilibrium. We have no intentions of being the first ones to go out with higher prices. So we'll be watching sort of the rest of the retail industry.

Speaker #2: And just flow it through unmitigated, of course, the impact would be much greater than what we've seen. So that's thanks to just a tremendous amount of hard work and shifting by negotiating with vendors, with very little increase in AUR.

Speaker #2: So that really hasn't been a factor. But also, increasing the amount of closeout merchandise versus upfront, then we initially had planned. So as we roll forward, as I said earlier, I do think we'll wind up with price equilibrium.

Speaker #2: We have no intentions of being the first ones to go out with higher prices. So, we'll be watching sort of the rest of the retail industry, and as soon as that equilibrium starts to take effect, we'll have some room to kind of grow into any inflated costs that we need to accept.

James Conroy: As soon as that equilibrium starts to take effect, we'll have some room to kind of grow into any inflated costs that you need to accept.

Speaker #3: The other change that Adam had mentioned is, at the very beginning, when China was at 145%, we stopped vendor pre-ticketing to give us flexibility.

Michael Hartshorn: The other change that Adam had mentioned is at the very beginning, when China was at 145%, we stopped vendor pre-ticketing to give us flexibility if we chose to change prices once the goods came into the country. We did have an impact in Q2. We have a lesser impact in Q3, and we expect that to completely wane in the back half of the year as we return to our historic levels of vendor pre-ticketing.

Speaker #3: If we chose to change prices once the goods came into the country, we expect we did have an impact in Q2. We have a lesser impact in Q3, and we expect that to completely wane in the back half of the year as we return to our historic levels of vendor pre-ticketing.

Speaker #5: Thank you.

Various Analysts: Thank you.

Speaker #2: Thank you.

Speaker #1: And the next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Operator: The next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Speaker #5: Hey, guys. This is Ryan Vulger on for Chuck here. I wanted to ask a related question. On the restored guide, obviously, you have a lot more confidence now in what business is going to look like for the second half of the year.

Various Analysts: Hey guys, this is Ryan Boldger on for Chuck here. I wanted to ask a related question on the Ross Stores guide. Obviously, you have a lot more confidence now in what business is going to look like for the second half of the year as compared to Q1. I was just wondering if you could unpack how much of that is more stability in the environment versus things you've learned as you've undertaken these efforts over the past few months. Thanks very much.

Speaker #5: As compared to one queue, I was just wondering if you could unpack how much of that is more stability in the environment versus things you've learned as you've undertaken these efforts over the past few months.

Speaker #5: Thanks very much.

Speaker #3: Sure, Ryan. It's actually pretty simple. At the time, we had just come off the 145, and we hadn't purchased a significant majority of our merchandise for the back half of the year.

Michael Hartshorn: Sure, Ryan. It is actually pretty simple. At the time, we had just come off the 145, and we had not purchased a significant majority of our merchandise for the back half of the year. Now that we are Q3 substantially bought, we had the majority bought, more than the majority bought in Q4. We have a good read on our fall purchasing. At the same time, although it still changes quite often and it is dynamic on the tariff front, it is more stable than it was at the beginning of May.

Speaker #3: So now that we’re Q3 substantially bought, we have the majority bought—more than the majority bought in Q4. We have a good read on our fall purchasing.

Speaker #3: At the same time, although it still changes quite often and is dynamic on the tariff front, it's more stable than it was at the beginning of May.

Speaker #5: Great. Thanks. And then one other thing I wanted to ask: Have you seen anything different on customer cohort trends by age? Are you mixing any younger customers, seeing any more Millennials or Gen Z customers?

Various Analysts: Great, thanks. One other thing I wanted to ask. Have you seen anything different on customer cohort trends by age? Are you mixing any younger, seeing any more millennials or Gen Z customers? Thanks.

Speaker #5: Thanks.

Speaker #2: Nothing to call out.

James Conroy: Nothing to call out.

Speaker #1: And the next question comes from the line of Ike Bora Chow with Wells Fargo. Please proceed with your question.

Operator: The next question comes from the line of Ike Borachow with Wells Fargo. Please proceed with your question.

Speaker #6: Hey, everyone. Thanks for taking the question. Adam, just a little bit more on the third quarter. I'm trying to make sure I understand. So, the margin degradation relative to Q2 is decently greater.

Various Analysts: Hey everyone. Thanks for taking the question. Adam, just a little bit more on the third quarter, trying to make sure I understand. The margin degradation relative to Q2 is decently greater, but the revenue is pretty similar, 2% to 3% comp. The tariff headwind is a little bit less. I guess I am just trying to make sure I understand what is the driving factor. If you can maybe just give us what the gross margin plan is for third quarter, just trying to understand the moving pieces. Thanks.

Speaker #6: But the revenue is pretty similar, $2 to $3 comp. The tariff headwind is a little bit less. I guess I'm just trying to make sure I understand what's the driving factor.

Speaker #6: If you could perhaps provide us with the gross margin plan for Q3, it would help us understand the moving pieces. Thanks.

Speaker #2: Yeah, the biggest piece is

Adam Orvos: Yeah, the biggest piece is the pack-away impact. We are on a second quarter on a year-over-year basis, which was pretty flat in Q3. Based on how we see that inventory flowing, it will be a significant headwind in Q3. Again, I would expect that to revert in Q4.

Speaker #3: The pack away impact, we're on a, you know, second quarter on a year-over-year basis was pretty flat in Q3 based on how we see that inventory flowing.

Speaker #3: It'll be a significant headwind in Q2 or in Q3. And again, we would expect that to revert in Q4.

Speaker #6: Got it. Thanks, Adam.

Various Analysts: Got it. Thanks, Adam.

Speaker #3: Thanks, Mike.

Various Analysts: Thanks Mike.

Speaker #1: And the next question comes from the line of Adrian Yee with Barclays. Please proceed with your question.

Operator: The next question comes from the line of Adrian Yee with Barclays. Please proceed with your question.

Speaker #4: Great. Thank you very much. Good afternoon, and nice to see the progress. My first question is the comment on pricing; you're starting to see it come through.

Various Analysts: Great, thank you very much. Good afternoon and nice to see the progress. My first question is the comment on pricing. You are starting to see it come through. In what type of, I know for you, you are at the low, low single-digit range, but across kind of frontline retail, how are you seeing those prices come up? Are there categories, say apparel or footwear, where you are seeing it more so? Then just clarification on the tariff impact. Is this just the portion that is direct to you, or does it also encompass things that you are seeing from your upfront buys getting passed along to you? Thank you.

Speaker #4: In what type of, I know for you, you're at the low, low single-digit range, but across kind of frontline retail, how are you seeing kind of those prices come up?

Speaker #4: And are there categories, say apparel or footwear, where you're seeing it more so? And then just for clarification on the tariff impact: Is this just the portion that is direct to you, or does it also encompass things that you're seeing from your upfront buys getting passed along to you?

Speaker #4: Thanks. Thank you.

Speaker #3: On your last question, it's across the merchandise categories. We have a small percentage. We have a direct impact because we're paying the tariff, but we, the vendors, are seeing cost increases outside our direct import.

Michael Hartshorn: On your last question, it is across the merchandise categories. We have a small percentage, we have a direct impact because we are paying the tariff, but we, you know, the vendors, we are seeing cost increases outside our direct imports. So it is across the universe of merchandise categories.

Speaker #3: So it's across the universe of merchandise categories.

Speaker #4: Okay.

Speaker #2: And then, in terms of where we're seeing some inflation, if you go to some of the more mainstream retailers, you can see some of their prices are going up.

James Conroy: In terms of where we are seeing some inflation, if you go to some of the more mainstream retailers, you can see some of their prices are going up in terms of apparel or home. Probably the center of the bullseye are products made with metals. That is one of the most obvious places where we have seen prices go up. A lot of that falls, of course, into the home category. We have a very experienced team of merchants that are constantly comp shopping. We are going to ensure that we have the best bargains in the store. At some point over time, this pressure that we are facing today will abate.

Speaker #2: In terms of apparel or home, probably the center of the bull's-eye is products made with metals. That's been one of the most obvious places where we're seeing prices go up.

Speaker #2: And a lot of that falls, of course, into the home category. So we have a very experienced team of merchants that are just constantly comp shopping.

Speaker #2: And we're going to ensure that we have the best bargains in the store. At some point over time, this pressure that we're facing today will abate.

Speaker #4: Okay. And then just a final clarification. We're hearing from, you know, there's this grace period that if you shipped out before, I think it was August 7th or 9th, and then it arrives here before October 5th.

Various Analysts: Okay. Then just a final clarification. We are hearing from, you know, there is this grace period that if you shipped out before, I think it was August 9th or 7th, and then you arrived here before October 5th, it is still on the prior tariffs. So it would seem that a lot of the retail inventory for holiday will be under that prior tariff, and that we have been told by some brands that they will be raising prices again in spring of next year under the second wave of tariffs. Do you believe that the tariff is kind of isolated, or you will have had enough mitigation strategies put in place that you will be able to offset this kind of next kind of kick it down the road, or do you even think that that is actually happening into spring? Thank you.

Speaker #4: It's still on the prior tariffs. So it would seem that a lot of the retail inventory for holiday will be under that prior tariff, and we've been told by some brands that they will be raising prices again in spring of next year under the second wave of tariffs.

Speaker #4: Do you believe that the tariff is kind of isolated, or do you have enough mitigation strategies put in place that you'll be able to offset this kind of impact and kick it down the road?

Speaker #4: Or do you even think that that's actually happening in the spring? Thank you.

Speaker #3: No, I think it will happen. To your point, some of the India tariffs, especially at 25%, go to 50%. No, I think that you'll see this go into next year, and I think we would expect to see price increases.

Michael Hartshorn: No, I think it will happen. To your point, some of the India tariffs, especially if the 25 goes to 50. No, I think that you will see this go into next year, and I think we would expect to see price increases. But over time, as James Conroy mentioned, we think it will reach equilibrium, and it will be business as usual.

Speaker #3: And, as Jim mentioned, we think it will reach equilibrium over time, and it'll be business as usual.

Speaker #4: Great. Thank you very much, and best of luck for the holiday.

Various Analysts: Great. Thank you very much, and best of luck for holiday.

Speaker #2: Thank you. Thanks.

James Conroy: Thank you. Thanks.

Speaker #1: And the next question comes from the line of Dana Tulsey with the Tulsey Advisory Group. Please proceed with your question.

Operator: The next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.

Speaker #4: Hi. Good afternoon, everyone, and nice to see the progress. Jim, we heard about cosmetics continuing to be the best-performing category. Can you expand on apparel and what you've been seeing there with the initiatives that you've put in place, and also on home?

Various Analysts: Hi, good afternoon, everyone, and nice to see the progress. Jim, we heard about cosmetics continuing to be the best-performing category. Can you expand on apparel and what you've been seeing there with the initiatives that you've put in place and also on home? Secondly, with the new store openings, what are you seeing in cost to open, leasing costs, and productivity of new stores as they're opening? Thank you.

Speaker #4: And then secondly, with the new store openings, what are you seeing in costs to open, leasing costs, and productivity of new stores as they're opening?

Speaker #4: Thank you.

Speaker #2: Sure. I'll take the merchandising piece of it. Mike, you can take the new stores piece. I think we're pretty encouraged that the business has just improved between Q1 and Q2 across the board.

James Conroy: Sure. I will take the merchandising piece of it. Michael can take the new stores piece. I think we are pretty encouraged that the business has just improved between Q1 and Q2 across the board. The exit velocity, so to speak, in July was very strong across nearly every major merchandise department. Within apparel, the ladies' business, which is the kind of the driver of the branded strategy, not the only piece of the branded strategy, but the driver was really to get the ladies' business righted. It has just been great to see that part of the business comping more positively than the chain. Beneath ladies, if you went sort of category by category, we have seen, once again, broad-based strength and broad-based improvement within each of the sort of sub-classifications there, or at least most of them. So that has been great.

Speaker #2: The exit velocity, so to speak, in July was very strong across nearly every major merchandise department. Within apparel, the ladies' business, which is kind of the driver of the branded strategy—not the only piece of the branded strategy, but the driver—was really to get the ladies' business righted, and it's just been great to see that part of the business comping more positively than the chain.

Speaker #2: And then, beneath ladies, if you went sort of category by category, we've seen, once again, broad-based strength and broad-based improvement within each of the sort of sub-classifications there.

Speaker #2: Or at least most of them. So that's been great. From a home perspective, home’s been a little bit more complicated. It was comp eroding in the quarter.

James Conroy: From a home perspective, home has been a little bit more complicated. It was comp eroding in the quarter. It has eked out a positive comp at the end of the quarter. I think part of that was what we had a probably a little bit of a foot fault in getting our products inbound when tariffs first came out. So we had a little bit of a receipt hole, if you will, towards as we got through the June period. We have shuffled that organization a little bit. We feel really good about the team that is in place there now. I am optimistic about the future of the home business for us. Still very early days, but it is nice to see that business turn slightly positive in July.

Speaker #2: It eked out a positive comp at the end of the quarter. I think part of that was what we had probably a little bit of a footfall in getting our product inbound.

Speaker #2: When tariffs first came out, we experienced a bit of a receipt hole, if you will, as we got through the June period.

Speaker #2: We've shuffled that organization a little bit. We feel really good about the team that's in place there now, and I'm optimistic about the future of the home business for us.

Speaker #2: Still very early days, but it's nice to see that business turned slightly positive in July.

Speaker #3: On real estate, we feel good about the real estate landscape. Dana and I have a healthy pipeline. As you know, there's not a high volume of any new development, and we've been able to take advantage of the store closures resulting from bankruptcy filings or other retailers downsizing their fleets during the quarter.

Michael Hartshorn: On real estate, we feel good about the real estate landscape, Dana, and have a healthy pipeline. As you know, there is not a high volume of any new development, and we have been able to take advantage of store closures from bankruptcy filings or other retailers downsizing their fleets. During the quarter, we did acquire a number of stores in the Rite Aid bankruptcy deal, mostly in our core West Coast market. That strengthens our existing pipeline, especially for 2026, and also helps in re-accelerating dd's DISCOUNTS growth for us. In terms of new store openings, we noted a couple of these in our comments, but we entered Puerto Rico during the quarter with three stores in July, and the initial response has, I would say, far exceeded our expectations. It is still early, but based on this, we are optimistic this will be a strong market for us.

Speaker #3: We did acquire a number of stores in the Rite Aid bankruptcy deal, mostly in our core West Coast markets. That strengthens our existing pipeline, especially for 2026, and also helps in re-accelerating our growth.

Speaker #3: In terms of new store openings, we noted a couple of these in our comments, but we entered Puerto Rico during the quarter with three stores in July.

Speaker #3: And the initial response has, I would say, far exceeded our expectations. It's still early, but based on this, we're optimistic this will be a strong market for us.

Speaker #3: We also had a number of New York Metro stores that we opened, which received very good customer response. Based on this, thus far, we're optimistic about expanding in the Northeast.

Michael Hartshorn: We also had a number of New York metro area stores that reopened. Again, very good customer response. Based on this thus far, we are optimistic about expanding in the Northeast.

Speaker #4: Thank you.

Various Analysts: Thank you.

Speaker #3: Of Of course.

Various Analysts: Of course.

Speaker #1: And the next question comes from the line of Anisha Sherman with Bernstein Research. Please proceed with your question.

Operator: The next question comes from the line of Aneesha Sherman with Bernstein. Please proceed with your question.

Speaker #4: Thank you so much. I'm curious about your comments around pricing. Jim, last quarter you said you were planning to maintain the price umbrella versus full-price retail.

Various Analysts: Thank you so much. I am curious about your comments around pricing, Jim. Last quarter, you said you were planning to maintain the price umbrella versus full-price retail. It sounds like you are now saying you are being a little bit more cautious, very low single-digit increases, and perhaps broadening the gap versus full-price retail. I think you said you will grow into those price points over time. Can you talk about what may have changed? Are you seeing a consumer response that is maybe making you a little bit more cautious than perhaps a few months ago? A quick follow-up on the ladies' business. You talked about ladies comping better than chain average. That is a real clear acceleration there. Can you talk about what is driving that?

Speaker #4: It sounds like you're now saying you're being a little bit more cautious, with very low single-digit increases, and perhaps broadening the gap versus full-price retail.

Speaker #4: And I think you said you will grow into those price points over time. Can you talk about what may have changed? Are you seeing a consumer response that's maybe making you a little bit more cautious than perhaps a few months ago?

Speaker #4: And then a quick follow-up on the ladies' business. You talked about ladies comping better than chain average. That's a real clear acceleration there. Can you talk about what's driving that?

Speaker #4: Do you attribute that to the better brand strategy paying off, or is it around availability of closeout, or anything in particular that's driving that outperformance versus what we've seen in the last few quarters?

Various Analysts: Do you attribute that to the better brand strategy paying off, or is it around availability of closeout, or anything in particular that is driving that outperformance versus what we have seen in the last few quarters? Thank you.

Speaker #4: Thank you.

Speaker #2: Sure. I don't think we're being particularly more cautious. I think we'll continue to maintain the price umbrella against mainstream retail. And we're just hyper-conscious of what's going on in the broader retail landscape now.

James Conroy: Sure. I don't think we're being particularly more cautious. I think we'll continue to maintain the price umbrella against mainstream retail. We're just hyper-conscious of what's going on in the broader retail landscape now. We're taking somewhat of a longer-term view that we want to impress a customer that comes in looking to buy something and have them feel like we're still delivering the bargains that they've become accustomed to. As we see prices start to move, we'll start to move as well. Of course, there's always a lag for competitors and for us based on products that come in pre-ticketed. We're not going to go throughout the chain in the store and reticket things. So it'll be on the next set of receipts anyway. On the ladies' acceleration, again, I'd come back to giving credit to the team.

Speaker #2: We're taking somewhat of a longer-term view that we want to impress our customers who come in looking to buy something and have them feel like we're still delivering the bargains that they've become accustomed to.

Speaker #2: And as we see prices start to move, we'll start to move as well. Of course, there's always a lag for competitors and for us based on product that's come in and pre-ticketed.

Speaker #2: We're not going to go throughout the chain in the store and re-ticket things, so it would be on the next set of receipts anyway.

Speaker #2: On the ladies' acceleration, again, I'd come back to giving credit to the team. The buying office has really been steadfast in executing against the brand strategy; they've leaned into young contemporary a bit more.

James Conroy: The buying offices have really been steadfast in executing against the brand strategy. They've leaned into young contemporary a bit more. We've seen a nice impact in our juniors' business. The ladies' business kind of across the board has been strong. The denim business has been strong. So we've seen a lot of strength in ladies.

Speaker #2: We've seen a nice impact in our juniors' business. The ladies' business has been strong across the board. The denim business has been strong.

Speaker #2: So we've seen a lot of strength in ladies.

Speaker #1: And the next question comes from the line of John Kernan with TD Cowen. Please proceed with your question.

Operator: The next question comes from the line of John Kernan with TD Cowen. Please proceed with your question.

Speaker #5: Good afternoon, guys. Congrats on the momentum into or through back to school and into fall.

Various Analysts: Good afternoon, guys. Congrats on the momentum through back-to-school and into fall.

Speaker #2: Thank you.

James Conroy: Thank you.

Various Analysts: So, just on the expenses in COGS related to the distribution centers, also the CapEx dollars, a lot of which I think are being dedicated to DCs. What are the near and long-term returns on this? How can this lift the overall margin profile of the business long-term?

Speaker #5: Just on the expenses in COGS related to the distribution centers also, the CapEx dollars, which are being a lot of which I think are being dedicated to DCs.

Speaker #5: What are the near- and long-term returns on this? How can this lift the overall margin profile of the business long term?

Speaker #3: Well, what typically happens with the DCs is it's a capacity play. So, as sales grow, you need the excess capacity, and then what happens when you open it up?

Michael Hartshorn: What typically happens with the DCs is it's a capacity play. As sales grow, you need the excess capacity. When you open it up, you are able to leverage the volume in that DC, and you should get leverage over time. Right now, the DC that we opened is in Arizona. DC capital that we're devoting this year, it's about a little over 28% of our total capital. We are building our next DC, but it's three years, two and a half years away, two to three years away would be the next opening. Over the next two years, we expect to get leverage on DC.

Speaker #3: You are able to leverage the volume in that DC, and you should gain leverage over time. Right now, the DC that we opened is in Arizona.

Speaker #3: DC Capital that we're devoting this year, it's about a little over 28% of our total capital. We are building our next DC, but it's three years two and a half years away, two to three years away.

Speaker #3: That would be the next opening. Over the next two years, we expect to get leverage on DC.

Speaker #5: Understood. And, Jim, maybe a quick follow-up for you. X tariffs, the business at a 2% to 3% comp, we've seen about mid-single-digit earnings growth based on the new full-year guidance.

Various Analysts: Understood. Jim, maybe a quick follow-up for you. Ex-tariffs, the business at a 2% to 3% comp, we have seen about mid-single-digit earnings growth based on the new full-year guidance. With Bill stepping into the Chief Financial Officer seat pretty soon, what do you see as a long-term earnings algorithm? Where is the opportunity on the margin profile of the business?

Speaker #5: And with Bill stepping into the CFO seat pretty soon, what do you see as a long-term earnings algorithm? Where's the opportunity on the margin profile of the business?

Speaker #3: Well, I'll answer that for you. The long-term algorithm is about 5% new store growth. Our new stores are in the 60% range, so that drives 2% of the EPS growth.

Michael Hartshorn: I will answer that for you. The long-term algorithm is about 5% new store growth. You know, our new stores are in the 60% range, so that drives 2% of the EPS growth. If you comp at 3%, that gets you 3% in EPS growth, that gets you to 5. There is even upside in that of 1% to 3%, and then you have your stock buyback at 2% to 3%, and that gets you to right around double-digit EPS growth on a three-time.

Speaker #3: If you comp at 3%, that gets you 3% in EPS growth. That gets you to 5. There's EBIT upside in that of 1% to 3%, and then you have your stock buyback.

Speaker #3: At 2% to 3%, that gets you to right around double-digit EPS growth on a three comp.

Speaker #5: Understood. Thank you.

Various Analysts: Understood. Thank you.

Speaker #1: And the next question comes from the line of Corey Tarlow with Jefferies. Please proceed with your question.

Operator: The next question comes from the line of Corey Tarlowe with Jefferies. Please proceed with your question.

Speaker #5: Great. Thanks. I had a bigger picture question for Jim, and then just a follow-up. On the big picture question on growth, as you come into the business and you've assessed sort of where ROSS is at and where the competition is, in terms of growth, and you think about the scalability of ROSS from a unit perspective, what are some key attributes that stand out to you? And where do you think kind of longer-term, and what the advantage could be of potentially accelerating unit growth? Could that be a possibility?

Various Analysts: Great, thanks. I had a bigger picture question for James Conroy and then just a follow-up. On the big picture question on growth, as you come into the business and you have assessed where Ross Stores is at and where the competition is in terms of growth, and you think about the scalability of Ross Stores from a unit perspective, what are some key attributes that stand out to you? Where do you think longer term and what the advantage could be of potentially accelerating unit growth? Could that be a possibility? How do you think about the ability of the business to potentially do something like that if it even was feasible?

Speaker #5: And how do you think about the ability of the business to potentially do something like that, if it even was feasible?

Speaker #2: Sure. Great question. Corey, I guess a couple of things. I was fortunate enough to be recruited into a company that was already extremely well-run and already growing.

James Conroy: Sure. Great question, Corey. I guess a couple of things. I was fortunate enough to be recruited into a company that was already extremely well run and already growing. I have had the good fortune of spending the first six months and intend to spend the balance of this year really learning about the business. That said, and answering your question maybe a little bit more specifically, there is a tremendous amount of organizational muscle here. We have been adding 90-ish stores. I think that is the plan for this year. We are certainly not going to guide future years, but you know me well. I do think there is an opportunity for us to accelerate. I certainly do not think we have any capability shortfall. I think we have the resources to do that.

Speaker #2: So I thought the good fortune of spending, you know, the first six months and intend to spend the balance of this year really learning about the business.

Speaker #2: That said, and answering your question maybe a little bit more specifically, there's a tremendous amount of organizational muscle here. And we've been adding approximately 90 stores; I think that's the plan for this year.

Speaker #2: We're certainly not going to guide future years, but you know me well. I do think there's an opportunity for us to accelerate, and I certainly don't think we have any capability shortfall.

Speaker #2: I think we have the resources to do that. We would have to grow the supply chain capability at the same time we grow the store footprint.

James Conroy: We would have to grow the supply chain capability at the same time we grow the store footprint. We have the capability to do that as well. We also have, we have been experiencing some really nice openings in our existing markets. What Michael covered is very encouraging, right? We have been opening up stores in brand new markets that are well established to our competitors and seeing some really nice returns. If I am just thinking about what our white space opportunities just for unit growth and unit acceleration, I think it is pretty optimistic.

Speaker #2: But we have the capability to do that as well. And we also have been experiencing some really nice openings in our existing markets. But what Michael covered is very encouraging, right?

Speaker #2: We've been opening up stores in brand new markets that are well-established to our competitors and seeing some really nice returns. So, if I'm just thinking about what our white space opportunities are, just for unit growth and unit acceleration, I think it's pretty optimistic.

Speaker #5: That's great. Thanks for the color. And then just as a follow-up on the renovation plan, can you just remind us what the comp list is and what some of the benefits are that you're seeing from the initiative?

Various Analysts: That's great. Thanks for the color. Then, just as a follow-up on the renovation plan, can you remind us what the comp lift is and what some of the benefits are that you're seeing from the initiative?

Speaker #3: We haven't disclosed. It's still early innings. We're doing the first half of the stores this year, so we'll finish up the first half and then complete the chain next year.

Michael Hartshorn: We haven't disclosed. It's still early innings. We're doing the first half of the stores this year, so we'll finish up the first half and then complete the chain next year. Customer response has been good. It's too early to measure the sales impact.

Speaker #3: Customer response has been good. It's too early to measure the sales impact.

Speaker #5: Okay, thank you very much. And best of luck.

Various Analysts: Okay. Thank you very much, and best of luck.

Speaker #3: Thank you.

James Conroy: Thank you.

Speaker #1: And our final question comes from the line of Marni Shapira with RetailTracker. Please proceed with your question.

Operator: Our final question comes from the line of Marni Shapiro with The Retail Tracker. Please proceed with your question.

Speaker #4: Thanks, guys. I'm under the wire. Congratulations on all the improvements. I had two quick questions. One, I just want to clarify the AUR conversation from earlier.

Various Analysts: Hi, thanks, guys, and under the wire. Congrats on all the improvements. I have two quick questions. One, I just want to clarify on the AUR conversation from earlier. To date, AUR is up very minimally, low single digits, I believe you said. However, you're seeing pricing.

Speaker #4: To date, AUR is up very minimally, low single digits, I believe you said. However, you're seeing price.

Speaker #2: And next related, Marni versus price.

James Conroy: Mixed-related, Marni, versus pricing.

Speaker #4: And next, related. So, as we get into the back half of the year, and we've all heard this from retailers, I've heard it from so many friends, from our suppliers, prices are going up.

Various Analysts: As we get into the back half of the year, we have all heard this from retailers. I have heard it from so many friends and suppliers, prices are going up. Will you move up in line with the industry? Could we or should we expect to see in the back half of the year AUR increases? The kind of adjacent question is, how does your pack-away strategy impact that? Could you have had some really great holiday items packed away from last year that could kind of mitigate some of this as well?

Speaker #4: Will you move up in line with the industry? So, could we or should we expect to see, in the back half of the year, AUR increases?

Speaker #4: And I guess the kind of adjacent question is how does your pack-away strategy impact that? Because could you have had some really great holiday items packed away from last year that could kind of mitigate some of this as well?

Speaker #3: Marni, on how we move into it, I think we used the word "cautious." But we won't be the first to raise retails. If retails go up, it will certainly give us the flexibility to follow.

Michael Hartshorn: Marnie, on how we move into it, I think we use the word cautious, but we will not be the first to raise retails. If retails go up, it will certainly give us flexibility to follow. In some places, we will move along and raise prices, test it, see how the customer impacts. In other places, we may give more value. So it really is an area-by-area decision by the merchant. But if prices go up, it gives us the flexibility to follow for sure.

Speaker #3: In some places, we'll move along and raise prices, test it, see how the customer impacts. In other places, we may give more value. So it really is an area-by-area decision by the merchant. But if prices go up, it gives us the flexibility to follow for sure.

Speaker #4: Okay. And then just one following question. Are you seeing a reversal or less pressure on wages at the stores in the DCs? I know retail has a lot of turnover, but I'm also wondering if you're finding less turnover as, more broadly, people are staying in their jobs and kind of it's shifted from the worker to the employer, in general, out there.

Various Analysts: Okay. Then just one following question. Are you seeing a reversal or less pressure on wages at the stores in the DCs? I know retail has a lot of turnover, but I am also wondering if you are finding less turnover as more broadly people are staying in their jobs, and it has shifted from the worker to the employer in general out there. Curious what you guys are seeing.

Speaker #4: Curious what you guys are seeing.

Speaker #3: Yeah. The workforce has been nothing new, but it has been stable for the last couple of years. So I don't think anything's changed.

Michael Hartshorn: The workforce has been, it is nothing new, but the workforce has been stable for the last couple of years. I do not think anything has changed. We have had, with all the ticketing efforts, for instance, related to the tariffs, we have had no problem filling jobs to be able to do that. I think the overall environment is fairly stable.

Speaker #3: We've had, you know, with all the ticketing efforts, for instance, related to the tariffs, we've had no problems filling jobs to be able to do that.

Speaker #3: So I think the overall environment is fairly stable.

Speaker #4: And fairly favorable, I'm assuming for you guys.

Various Analysts: Fairly favorable, I am assuming, for you guys.

Speaker #3: I would say it’s stable. It hasn't changed a lot for us.

Michael Hartshorn: I would say stable. It hasn't changed a lot for us.

Speaker #4: Okay. Fantastic.

Various Analysts: Okay. Fantastic.

Speaker #2: And turnover has been stable

Michael Hartshorn: Turnover has been stable for a while.

Speaker #3: for a while, as well.

Speaker #4: Fantastic. Thank you so much, guys. Good luck with the next season.

Various Analysts: Fantastic. Thank you so much, guys. Good luck with the next season.

Speaker #2: Thanks.

Speaker #3: Thanks, Marni.

James Conroy: Thanks, Marnie.

Speaker #1: Thank you. If there are no further questions at this time, let's turn the floor back over to Jim Conroy for any closing remarks.

Michael Hartshorn: Thanks, Marnie.

Operator: Thank you. If there are no further questions at this time, now let's turn the floor back over to James Conroy for any closing remarks.

Speaker #2: Thanks, everyone, for joining us on the call today. We look forward to speaking with you on our next earnings call. Take care.

James Conroy: Thank you, everyone, for joining us on the call today, and we look forward to speaking with you on our next earnings call. Take care.

Operator: Thank you, everyone. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.