Ross Stores has delivered another standout quarter, with comparable store sales climbing 10% for the second consecutive period of double-digit growth. Management attributes this momentum to a powerful trifecta of customer acquisition, the return of lapsed shoppers, and a notable increase in both visit frequency and average basket size among its existing customer base. Total sales for the quarter rose 13% to $6.3 billion, with net earnings reaching $851 million, or $2.66 per diluted share, a significant leap from the $1.56 per share reported in the same period last year.
Chief Executive Officer Jim Conroy emphasized that the quality of this growth is just as impressive as the headline number, with traffic serving as the primary engine. He highlighted that the composition of new customers is a "near-perfect scorecard," closely mirroring the existing customer base across income, age, and ethnicity. This broad appeal, he noted, signals that the brand's attraction is widening rather than being confined to a specific demographic.
Chief Financial Officer Bill Sheehan detailed that gross margin improved by 625 basis points, with 405 basis points stemming from tariff refunds. Excluding that one-time benefit, operating margin still expanded by a solid 205 basis points, demonstrating robust core profitability. Merchandise margin increased by 110 basis points, and distribution costs were lower by 100 basis points. Despite a year-over-year inventory increase of 18%, management underscored that inventory turns remain rapid, preserving the buying flexibility essential for capturing clearance opportunities in the second half.
Mr. Conroy described the current phase as the "early innings" of the company's growth initiatives, asserting that the full potential is far from realized. He dismissed concerns about lapping strong prior-year comparisons, stating that the focus should be on the accumulating momentum. President Michael Hartshorn added that many initiatives are still in pilot mode, some limited to 200 test stores or specific categories, implying significant headroom remains as these are rolled out more broadly.
On strategy, management reiterated its commitment to a differentiated pricing approach by not passing on tariff costs, ensuring a strong value advantage over mainstream retailers. Regarding technology, Mr. Conroy said AI will be a "frosting on the cake" for operational efficiency, but the core drivers remain the fundamentals of better merchandising, enhanced store experience, and sharper marketing.
Looking ahead, the company raised its guidance for the second half. Third-quarter comparable sales are projected to grow 6% to 7%, with earnings per share between $1.75 and $1.83. Fourth-quarter comps are expected to rise 4% to 5%, with EPS in the range of $2.17 to $2.26. The full-year new store plan has also been increased to 115 openings, up from the prior 110, reinforcing management's confidence in a "steady and sustainable" growth trajectory.
During the earnings call, executives fielded questions on a range of topics. When asked about the drivers of the momentum, Mr. Conroy elaborated that growth was broad-based across all merchandise categories and geographies, with Home and Beauty being the strongest categories. He noted that July was the strongest month of the quarter, despite a tough comparison from a robust back-to-school season the prior year, with the exit rate "very, very good."
In response to a query about the potential for initiatives to support above-trend growth, Mr. Hartshorn stated that while the company is not yet updating its long-term growth algorithm, it firmly believes it can continue to exceed that model in the near term as more initiatives are tested and scaled. He stressed the strength of the company's test-and-learn culture, where capital is deployed first to pilot stores and only expanded when proven effective.
Addressing the competitive landscape and pricing, Mr. Conroy said the company is "absolutely" seeing very modest average unit retail increases, in the low single digits, as it works to maintain a pricing umbrella below mainstream retail. He expressed comfort with the current positioning, stating that the company remains safe and highly competitive on price despite a more promotional environment from national chains.
On the supply side, executives noted that the availability of branded merchandise is robust, with no significant shift between retail partners and wholesale vendors. The company's faster growth rate is providing a slight advantage in securing new suppliers, and management is continuously working to expand its brand portfolio. When questioned about customer trends, Mr. Conroy noted that weekly comparable sales data has been remarkably stable, without the peaks and troughs around holidays that some retailers experience.
Regarding the potential impact of AI on the off-price sector, Mr. Conroy described it as an "enhancer" to operations rather than a standalone division. He stressed that while AI presents significant opportunities, the immediate focus remains on flawless execution of the core business, improving customer experience, and driving sales growth. He also confirmed that marketing investments will increase in absolute dollars in the second half, in line with the larger planned sales volume.