ROSS STORES Q1 FY26 earnings call ROST

Ross Stores reported Q1 FY26 total sales growth of 3% to $5 billion and EPS of $1.47, both at the high end of expectations. Despite a slow start in February, monthly sales performance improved sharply through March and April. The April business showed solid comparable sales growth driven by increases in transactions, average unit retail, and units per transaction, indicating a healthy exit from the quarter.

The company is facing significant headwinds from tariffs, with over half of its merchandise originating in China. Q1 merchandise margin declined 45 basis points due to higher ocean freight and initial tariff impact^🌐s, including costs for goods already in transit. For Q2, tariffs are expected to negatively impact operating margin by 90 to 120 basis points. Mitigation strategies include negotiating better costing with vendors, selectively passing on price increases while maintaining a value gap, leveraging closeouts already in the country, utilizing packaway merchandise, and exploring shifts in country of origin for future sourcing.

Citing limited visibility into the second half of the fiscal year, management prudently withdrew its previously provided annual guidance. Key factors include prolonged inflation, deteriorating consumer sentiment, and the uncertain and potentially fluctuating levels of tariffs. The company noted that the off-price sector historically benefits from supply chain disruption^🌐s, which may provide opportunistic buys.

CEO Jim Conroy reiterated the long-term vision to contemporize the Ross brand experience through merchandising, marketing, and store environment enhancements. These initiatives are planned as evolutionary changes, not revolutionary, and will be pursued in an expense-neutral manner without significant new investments this year. The branded strategy, particularly in the Ladies business, has been successfully executed, repositioning the assortment to offer true branded value to consumers.

While overall comparable store sales were flat, the company observed broad-based performance across income bands, with no significant shift in customer behavior towards functional versus discretionary items. Cosmetics was highlighted as the strongest merchandise area, driven by strong execution and specific brand trends. The Ladies business showed improvement, performing in line with the chain average. dd's DISCOUNT continued its strong momentum, contributing positively to comparable sales.

The Southeast region was the strongest performer in Q1. Major markets like California, Florida, and Texas performed in line with the chain average, though Texas border stores were notably below average due to long delays for cross-border traffic. Northern border stores also saw a negative impact, but with minimal overall chain effect due to fewer locations.