Ross Stores (ROST) Q4 FY26 earnings call: guidance and Q&A

Can you elaborate on the 8% traffic-led comp inflection in H2 FY25 and the 7-8% Q1 FY26 comp guide, especially given the company's historical conservatism? Did you embed any tax refund lift?

The H2 inflection was broad-based across categories (Ladies, Men's, center core, home) and regions, driven by strong assortments, marketing, and in-store improvements. The Q1 guide reflects momentum and initiatives, but also weak prior-year compares. No specific lift from tax refunds is embedded, as it's early in the refund season.

“we haven't changed the conservative nature of our guide. So it's not like we're putting out some high-flying number to get headlines, we still feel pretty good about it.”

asked by Matthew Boss · answered by James Conroy

What drove the 4Q merchandise margin improvement, and what are the headwinds impacting Q1 flow-through, specifically sizing the impact of higher incentive comp and packaway timing?

Q4 merchandise margin improvement was mainly due to better buying. For Q1, deleverage is driven by not yet lapping the new DC opening from last year, pressure on packaway expense, and higher incentive comp due to underperformance in Q1 last year. These factors are pretty evenly split.

“For the merchandise margin, that 10 basis points improvement, I think we feel good about it. It was driven mostly by better buying and our merchants just making good decisions as they always do around how to deliver value at the same time flowing some benefit through to us.”

asked by Tracy Kogan · answered by William Sheehan

What are the key factors driving the acceleration in the Ladies business, and is the increased inventory during holiday a change in strategy?

The Ladies business acceleration is due to a reset vendor base and assortment, finding a balance of branded bargains, with strong performance in Juniors. The increased inventory (up 8% in Q4) was an opportunistic move to support growth and chase sales, while maintaining solid margins and turns, not a fundamental strategy change.

“The acceleration in the ladies business is rooted back with the brand strategy. The company had put that in place maybe 2 years ago now, and that team has really done a great job of resetting that vendor base and the assortment there, finding a really nice balance of bringing in branded bargains across good, better and best.”

asked by Lorraine Maikis · answered by James Conroy

How will the marketing strategy evolve in FY26, and will marketing expenses as a percentage of sales increase? Can you elaborate on store experience improvements?

The new marketing campaigns were successful in H2 FY25 and will continue to evolve. Marketing spend as a rate of sales has not changed, but the company might experiment with slight increases. Store experience improvements include targeted payroll investments for recovery and throughput, and expanding self-checkout based on positive pilot results.

“In terms of marketing spend, we've had questions as to whether we're going to spend or invest more in marketing. We're pretty pleased with the results in Q3 and Q4. And as a rate of sales, we haven't changed our marketing spend.”

asked by Chuck Grom · answered by James Conroy

Are you seeing shifts in customer demographics (age, income) with the increased traffic? What is the multiyear earnings algorithm for Ross, and are there structural barriers to returning to 14% operating margin?

Customer count growth is broad-based across income and age demographics, including 18-34 year olds, making it hard to pinpoint specific shifts. The long-term algorithm includes 5% new store growth, 70-75% new store productivity, 3-4% comp growth, and 8-10% long-term EPS growth. No structural barriers to 14% operating margin were explicitly stated, but the current algorithm suggests leverage of 10-15 bps for every point of comp over guidance.

“The algorithm is -- hasn't changed dramatically. We're -- new store growth, we have at 5%. And obviously, that would suggest -- this year, we're at 5% that we'd continue to grow both banners, and we think we can do that over time to maintain the new store growth there.”

asked by Brooke Roach · answered by Michael Hartshorn

Given the strong Q1 comp guidance, why are margins compressing? Is the full-year margin guidance conservative, and has the long-term language of 15 bps expansion per 2-3 points of comp changed?

Q1 margin compression is due to specific factors: not yet lapping the new DC, packaway pressure, and higher incentive comp against a weak prior-year Q1. The long-term earnings algorithm for EBIT margin leverage (10-15 bps per point of comp over guidance) remains unchanged. Management emphasizes achieving growth without artificial investments.

“In terms of the back half of the year, nothing has really changed in our earnings algorithm for every point of comp over the guidance, it's worth about 10 to 15 basis points of EBIT margin.”

asked by Michael Binetti · answered by Michael Hartshorn

How has Average Unit Retail (AUR) been trending within categories? Can you quantify the new store versus maintenance CapEx within the FY26 guide?

AUR increase was modest in Q4, with UPT flattish. The company sees potential to push for higher-priced goods or increase retails in certain areas. FY26 CapEx of $1.1 billion is roughly split: 1/3 for DCs, 1/3 for new stores, 25% for store maintenance, and the balance for technology enhancements.

“On the AUR piece, our AUR increase was pretty modest in the quarter. I think we've called out basket -- a modest increase in the basket, but most of the comp coming from transactions. The UPT was flattish versus last year.”

asked by Simeon Siegel · answered by James Conroy

What strategies give confidence in dd's expansion from 10 to 25 new stores? Are there changes to store costs/size, or how the 'good, better, best' strategy applies? What is the new store opening cadence for the year?

Confidence in dd's expansion comes from underlying merchandising strategies and strong performance. No change in store size or costs. The 'good, better, best' strategy is applied. The new store opening cadence will be weighted towards summer and fall, with 17 new stores in the first opening window.

“Dana, on dd's, what really gives us confidence is the underlying merchandising strategies that we've been working on in the last couple of years and certainly the overall performance of dd's, which has, like Ross has had very, very strong trends.”

asked by Dana Telsey · answered by James Conroy