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    ROST
    Earnings call· Oct 2025(Q3 FY26)

    ROSS STORES, INC. ROST

    Nov 20, 2025 Source

    Executive summary

    Ross Stores Q3 FY26 — Strong Sales Momentum and Branded Strategy Success

    Ross Stores delivered a strong Q3 FY26, marked by accelerated comparable store sales growth and better-than-expected operating margins, largely attributed to successful merchandising and marketing strategies. The company's focus on branded values resonated with consumers, driving broad-based strength across categories and geographies. Management is optimistic about the holiday season, with tariff impacts now expected to be negligible in Q4, and continues to invest in store experience and marketing to sustain momentum.

    Highlights

    5

    • Total sales grew 10% to $5.6 billion, accelerating from the prior quarter.

    • Comparable store sales increased a strong 7%, driven by higher transactions and larger average basket size.

    • Operating margin was 11.6%, much stronger than expected, due to strong top line and expense control.

    • Merchants delivered compelling brand name values, leading to broad-based growth across all major merchandise categories.

    • Tariff-related costs in Q4 are now expected to be negligible, with full-year impact at approximately $0.16 per share.

    Concerns

    4

    • Operating margin decreased by 35 basis points to 11.6% mainly due to the impact of tariffs.

    • Cost of goods sold increased by 35 basis points, with distribution costs higher by 60 basis points due to a new DC and tariff processing costs.

    • Merchandise margin deleveraged by 10 basis points.

    • Total consolidated inventories were up 9% versus last year, and average store inventories were up 15% as inventory build was advanced for holiday.

    Guidance & targets

    10
    CategoryTargetConfidence
    Comparable store sales
    up 3% to 4%
    high materiality
    High
    Earnings per share
    $1.77 to $1.85
    high materiality
    High
    Earnings per share
    $6.38 to $6.46
    high materiality
    High
    Total sales growth
    increase 6% to 8%
    medium materiality
    High
    Operating margin
    11.5% to 11.8%
    high materiality
    High
    Net interest income
    about $30 million
    low materiality
    High
    Tax rate
    approximately 24%
    low materiality
    High
    Weighted average diluted shares outstanding
    about 322 million
    low materiality
    High
    Tariff-related costs impact on EPS
    negligible
    medium materiality
    High
    Full year tariff-related costs
    approximately $0.16 per share
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Ross
    The ladies business was actually comp enhancing in Q3 FY26, after being a drag or flattish in prior quarters, due to the branded strategy.
    Strongest merchandise areas: Cosmetics, Shoes, LadiesBest performing geographies: Southeast, Midwest
    		————
    dd's DISCOUNTS
    Strong value and fashion offerings resonated with shoppers, delivering comp gains relatively similar to Ross for the period.
    		—similar to Ross——

    Operational metrics

    36
    Total sales
    $5.6 billionup 10%
    Q3 FY26

    Accelerated from the prior quarter.

    Comparable store sales
    7%
    Q3 FY26

    Driven by higher transactions and a larger average basket size.

    Operating margin
    11.6%decreased by 35 bps
    Q3 FY26

    Mainly due to the impact of tariffs, but stronger than expected due to strong top line and expense control.

    Earnings per share
    $1.58
    Q3 FY26

    On net income of $512 million.

    Net income
    $512 million
    Q3 FY26

    Reported for the 13 weeks ended November 1, 2025.

    Tariff-related costs impact on EPS
    $0.05negative impact
    Q3 FY26

    Included in Q3 FY26 earnings.

    Earnings per share
    $1.48
    Q3 FY25

    Prior year period.

    Net income
    $489 million
    Q3 FY25

    Prior year period.

    Earnings per share
    $4.61
    YTD FY26

    For the first 9 months of FY26.

    Net income
    $1.5 billion
    YTD FY26

    For the first 9 months of FY26.

    Earnings per share
    $4.53
    YTD FY25

    For the first 9 months of FY25.

    Net income
    $1.5 billion
    YTD FY25

    For the first 9 months of FY25.

    Total sales
    $16.1 billion
    YTD FY26

    For the year-to-date period.

    Comparable store sales
    3%over last year
    YTD FY26

    For the year-to-date period.

    Tariff-related costs impact on EPS
    $0.16negative impact
    YTD FY26

    Included in year-to-date FY26 earnings.

    Packaway merchandise as % of total inventories
    36%compared to 38% last year
    Q3 FY26

    At quarter end.

    Total consolidated inventories growth
    up 9%versus last year
    Q3 FY26

    At quarter end.

    Average store inventories growth
    up 15%
    Q3 FY26

    As inventory build for the holiday season was advanced into the tail end of October.

    New store openings
    36 Ross and 4 dd's DISCOUNTS
    Q3 FY26

    Completed expansion program for 2025.

    Total new store openings
    90 locations
    FY25

    For the full year.

    Store closures/relocations
    10 locations
    Q4 FY26

    Expected in the fourth quarter.

    Ross stores count
    1,903
    FY25 end

    Expected to end the year with this count.

    dd's stores count
    360
    FY25 end

    Expected to end the year with this count.

    Cost of goods sold increase
    35 bps
    Q3 FY26

    Increased in the quarter.

    Distribution costs increase
    60 bps
    Q3 FY26

    Primarily due to the opening of a new distribution center earlier this year and tariff-related processing costs.

    Merchandise margin deleverage
    10 bps
    Q3 FY26

    Compared to the prior year.

    Buying expenses
    flatcompared to the prior year
    Q3 FY26

    Compared to the prior year.

    Domestic freight costs decrease
    25 bps
    Q3 FY26

    Partially offsetting higher costs in the quarter.

    Occupancy costs decrease
    10 bps
    Q3 FY26

    Partially offsetting higher costs in the quarter.

    SG&A costs
    flatyear-over-year
    Q3 FY26

    Despite the headwinds from CEO transition costs.

    Shares repurchased
    1.7 million shares
    Q3 FY26

    For an aggregate cost of $262 million.

    Cost of shares repurchased
    $262 million
    Q3 FY26

    Aggregate cost for 1.7 million shares repurchased.

    Total share buyback target
    $1.05 billion
    FY25

    On track to buy back this total amount in shares this year.

    Self-checkout stores
    80 stores
    Q3 FY26

    Current count of stores with self-checkout.

    New store openings in existing markets
    70%
    current

    Of current store openings.

    New store openings in newer markets
    30%
    current

    Includes Northeast and Puerto Rico.

    Industry KPIs

    7
    MetricValueDetails
    Sg a OPEX ratioflat
    Comparable sales7%%
    Store count growth1,903 Ross stores and 360 dd's locationsstores
    Gross margin driversdeleveraged by 10 bpsbps
    Share buyback capital return$262 millionUSD
    Inventory position markdown riskup 9%%
    Distribution supply chain cost economicshigher by 60 bpsbps

    Risks & headwinds

    5
    Tariff uncertaintiesQ3 FY26, YTD FY26

    approximate $0.05 per share negative impact from tariff-related costs in Q3 FY26; approximate $0.16 per share negative impact from tariff-related costs YTD FY26

    Mitigation: Merchant teams balancing cost concessions with modest market-driven price increases, taking advantage of closeouts, and normalizing ticketing activities. Q4 FY26 impact expected to be negligible.

    Macro uncertainties / consumer uneasinessOngoing

    Unquantified, but noted as potentially making consumers "a little bit uneasy in their shopping."

    Mitigation: Team execution, strong assortments, marketing, and store experience.

    Distribution costs increase due to new DCQ3 FY26, expected to continue into Q4 FY26

    higher by 60 basis points in Q3 FY26

    Mitigation: Leveraging new capacity as it grows, until next DC opens in 2-3 years.

    Timing of packaway-related expensesQ4 FY26

    approximately $0.03 earnings per share of unfavorable timing of packaway-related expenses that benefited the third quarter for Q4 FY26 guidance

    Mitigation: Factored into guidance.

    Operating margin impact from prior year's packaway facility saleQ4 FY26

    last year's benefit from the sale of a packaway facility that was worth about 105 basis points impacting Q4 FY26 operating margin comparison

    What to watch in Q4 FY26

    5

    Self-checkout rollout

    next year
    Current80 stores
    TargetExpansion to "further stores"

    Why it matters

    Potential for continued shrink reduction, higher customer adoption, and sales impacts.

    It's in 80 stores today and it's taken us a while to get to this point. We tried a couple different models and it's taken us a while to get the shrink aspect of self-checkout correct. We now have a prototype that's worked well for us over the last year, and we're not only seeing lower shrink, but we're seeing higher -- high customer adoption. We're seeing sales impacts in the stores that we put it in, and we'll be rolling it out to further stores next year.

    Q&A highlights

    6

    Break down the 500 basis point sequential acceleration in same-store sales, attributing it to company initiatives vs. macro, and elaborate on November momentum.

    The acceleration was broad-based across all major merchandise categories and geographies. While acknowledging potential macro tailwinds like weather, management primarily credited strong team execution in product, marketing, stores, and supply chain for assortments, AUR maneuvering, and marketing effectiveness.

    “I give a lot of credit to the team. The product team leads the charge. The assortments look fantastic. They've navigated through tariffs and very strategically have maneuvered AURs.”

    asked by Matthew Boss · answered by James Conroy

    2 min read6 chapters

    Detailed Narrative

    01

    Branded Strategy Success

    The branded strategy, fully embedded for over a year, has significantly contributed to the sequential improvement in business, particularly in the ladies' segment which accelerated and comped above the chain average. This approach has strengthened vendor partnerships and increased closeout opportunities, helping to offset tariff impact🌐s and improve merchandise margins. Management believes there is still significant opportunity for outsized growth in the ladies' business over the next three quarters.

    02

    Marketing Campaign Effectiveness

    New marketing campaigns, contemporized with a refreshed message and tweaked merchandise mix, have driven excitement, higher customer engagement, and increased store traffic without increasing marketing spend as a percentage of sales. These efforts are showing early signs of success in attracting new and re-engaging lapsed customers, with improved hard metrics and qualitative factors. The company is encouraged by the early innings of this evolution and sees further opportunity for learning and refinement.

    03

    Store Experience Enhancements

    Ross is actively refreshing all stores to provide a more modern look and feel, including new perimeter and wayfinding signage, and addressing cosmetic repairs. Half of the chain has been refreshed, with positive early customer feedback. Efforts are also focused on improving front-end throughput and daily recovery, with efficiencies reinvested in these areas. While early, these initiatives are expected to build momentum over time⏳ and contribute to an improved shopping environment.

    04

    Inventory Health and Holiday Readiness

    Total consolidated inventories were up 9% year-over-year, and average store inventories were up 15% at quarter-end, reflecting an advanced build for the holiday season. Packaway merchandise represented 36% of total inventories, down from 38% last year. Management expressed confidence in the health and levels of inventory, positioning the company well to deliver a broad assortment of values for the holiday selling season.

    05

    Geographic and Category Performance

    Q3 FY26 saw broad-based strength across all major merchandise categories, with cosmetics, shoes, and ladies being the strongest areas for Ross. Geographically, the Southeast and Midwest performed best, while California, Florida, and Texas were in line with the chain average. dd's DISCOUNTS delivered comp gains similar to Ross, with consistent business across the quarter and no distinction observed between lower and higher income customers.

    06

    Self-Checkout Rollout

    Ross has successfully rolled out self-checkout to 80 stores, after refining the prototype to address shrink concerns. The current model shows lower shrink, high customer adoption, and sales impacts, leading to plans for further rollout to high-volume stores in the coming year. This initiative is expected to contribute to operational efficiencies and improved customer experience.

    AI-generated summary of the company’s earnings call. Not investment advice.