ROST · Q2 2025 Earnings

Cautious

Ross Stores

Reported August 21, 2025

30-second summary

Ross delivered Q2 EPS of $1.56, a penny above the high end of its own guide, with comps of +2% and operating margin of 11.5% — all despite a $0.11/share tariff hit. But management reinstated FY25 EPS guidance at $6.08–$6.21, a midpoint of $6.145 versus $6.32 last year, an explicit ~3% YoY earnings decline. Q3 is guided to $1.31–$1.37 (down 7–12% YoY) with operating margin compressing ~100bps sequentially to 10.1–10.5%; the operational beat this quarter does not change the back-half setup.

Headline numbers

EPS

Q2 FY2025

$1.56

Revenue

Q2 FY2025

$5.53B

+4.6% YoY

Gross margin

Q2 FY2025

27.6%

Operating margin

Q2 FY2025

11.5%

Key financials

Q2 FY2025

Metric	Q2 FY2025	YoY	Q1 FY2025	QoQ
Revenue	$5.53B	+4.6%	$5.00B	+10.6%
EPS	$1.56	—	$1.47	+6.1%
Gross margin	27.6%	—	28.2%	-60bps
Operating margin	11.5%	—	12.2%	-70bps

Guidance

Beat Q2 on EPS and margin, but withdrew full-year outlook and now guide FY2025 EPS down ~3% YoY with $0.22–$0.25/share tariff headwind; Q3 guidance and Q4 framework newly disclosed, signaling operational resilience offset by macro and trade uncertainty.

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
EPS	Q2 FY2025	$1.40 to $1.55	$1.56	+$0.01 above high end of guide	Beat
Operating Margin	Q2 FY2025	10.7% to 11.4%	11.5%	+10 bps above high end of guide	Beat
Comparable Store Sales Growth	Q2 FY2025	flat to up 3%	2%	in-line with mid-range of guide	Met
Total Sales Growth	Q2 FY2025	2% to 6%	4.6%	in-line with mid-range of guide	Beat

New guidance

Metric	Period	Guide	YoY
Tariff Cost Impact	FY2025	$0.22 to $0.25 per share	—
EPS	Q3 FY2025	$1.31 to $1.37	-11.5% to -7.4% YoY (versus $1.48 prior year Q3)
Comparable Store Sales Growth	Q3 FY2025	up 2% to 3%	—
Total Sales Growth	Q3 FY2025	5% to 7%	—
Operating Margin	Q3 FY2025	10.1% to 10.5%	—
Tariff Cost Impact	Q3 FY2025	$0.07 to $0.08 per share	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
EPS	FY2025	—	$6.08 to $6.21	-$0.11 midpoint reduction (prior implied $6.19 at Q1 guidance baseline)	Lowered

Platform metrics

Q2 FY2025

Segment	Q2 FY2025
Comparable Store Sales Growth	2%
Total Store Count	2,233
Ross Stores (locations)	1,873
dd's DISCOUNTS (locations)	360

Profitability

Q2 FY2025

Segment	Q2 FY2025
Tariff Impact	$0.11 per share

Other KPIs

Q2 FY2025

Segment	Q2 FY2025
Share Repurchases (Q2)	$262 million
Shares Repurchased (Q2)	1.9 million

Management tone

Q4 2024 (pre-Tariff) confident outlook → Q1 2025 full-year guide withdrawn, "deteriorating consumer sentiment" surfaced → Q2 2025 guide reinstated but printing a YoY EPS decline, tariffs explicitly quantified through year-end.

From withdrawn-and-opaque to reinstated-and-down. One quarter ago Ross pulled FY guidance citing "too many unknown variables." This quarter management put the guide back at $6.08–$6.21 — a midpoint $0.18 below last year's $6.32. The act of reinstating is a regained-visibility signal; the level is an admission. Tariffs cost $0.22–$0.25/share for the year, and management is now willing to sign their name to a number that prints down YoY rather than continue hiding behind macro uncertainty. The shift from "we cannot forecast" to "we can forecast, and it is lower" is the most important development in the quarter.

From "deteriorating consumer sentiment" to a +2–3% comp guide for both back-half quarters. Last quarter the dominant demand-side worry was named explicitly. This quarter that phrase is gone from the script; in its place, "we are encouraged by the sequential improvement in sales trends" and a clean +2–3% comp range that effectively rolls Q2's actual print forward. The consumer-sentiment alarm has been quietly retired without management ever saying conditions improved — they simply stopped naming the risk. Q2 traffic was up; that appears to have been enough.

From tariff impact as a wide range to tariff impact as a calendar. Q1 framed tariffs as $0.11–$0.16 in Q2 and undisclosed thereafter. Q2 now quantifies the entire year: $0.11 actual in Q2, $0.07–$0.08 in Q3, $0.04–$0.06 in Q4, totalling $0.22–$0.25. The descending quarterly trajectory is the mitigation story rendered in numbers — vendor negotiations and sourcing diversification working through the P&L. But management also warned of a 2026 reload: "additional 25% to 50% India tariffs" potentially landing next spring. The headwind is being managed down through 2025 and then potentially reloaded.

From defensive resilience framing to operational specifics. Q1's prepared remarks leaned on "seasoned executive team, flexible off-price business model, strong financial foundation" — the language companies use when they cannot point to forward momentum. Q2's script returns to operational specifics: self-checkout in 80 stores with measurable shrink control, store refreshes 50% complete tracking to 100% by 2026, new marketing campaigns launched, store labor model tests for throughput. The vocabulary of execution has replaced the vocabulary of resilience. That is a tone improvement even though the financial outlook is not.

From margin expansion narrative to margin compression through year-end. Management was explicit that operating margin compresses ~100bps from Q2 to Q3 and full-year EPS lands below prior year. There is no claim that 2026 returns to expansion; the long-term algorithm (5% unit growth + 3% comp + 1–3% EBIT + 2–3% buyback = double-digit EPS growth) was articulated to TD Cowen but framed as the target, not a near-term reality. Management is asking investors to look through 2025.

Recurring themes management leaned on this quarter:

Tariff mitigation through vendor negotiations and sourcing diversificationSequential sales improvement and back-to-school momentumMargin pressure from elevated tariff costs offset partially by operational actionsValue proposition positioning as retail pricing increasesCautious planning approach due to macroeconomic uncertaintyInventory positioning and pack-away merchandise strategy

Risks management surfaced:

Macroeconomic uncertainty affecting consumer demandElevated tariff levels creating cost pressure and margin headwindsRetail industry supply chain disruptionsCompetitive pricing dynamics and margin preservationDistribution center opening costs and timing

Q&A highlights

Matthew Boss · JPMorgan

Requested detail on sequential top-line improvement, July back-to-school trends relative to 2-3% comp guidance, and gross margin drivers for Q3-Q4.

Management highlighted broad-based sequential improvement across nearly every merchandise category from Q1 to Q2, with particularly strong July performance. Cosmetics and ladies' business comped positively and better than chain average. On margins, tariff costs expected to be slightly lower than Q2's 90 bps impact; pack-away will pressure Q3 but recoup in Q4; new DC ramp will pressure Q3 costs.

90 basis point tariff impact on operating margin in Q2Nearly every merchandise category positive or turning positive by late Q2July was very strong across categoriesLadies' business significantly improved vs. prior years

Michael Benetti · Evercore ISI

Questioned why revised guidance is lower than expected (621 vs. estimated 630-633) despite strong performance, and requested updates on store initiatives like signage, marketing, and self-checkout.

Management attributed guidance reduction to 22-25 cents of tariff impact and slightly more conservative sales assumptions vs. March. On initiatives: store refreshes 50% complete in 2024 (100% in 2026), self-checkout piloted in 80 stores with positive results (reduced line length, controlled shrink), planning expansion in high-volume stores. New marketing campaigns launched: 'Work Your Magic' for Ross and 'Don't Sleep on DeeDees' digital campaign.

22-25 cents of tariff impact on full-year guidance50% of store refreshes completed in 2024; 100% by 2026Self-checkout in 80 stores with reduced line length and controlled shrinkPlanning to expand self-checkout in high-volume stores next year

Paul Lejouet · Citigroup

Asked about transaction vs. ticket composition during the quarter, especially July acceleration, and provided insights on merchandise availability expectations vs. reality.

Q2 2% comp driven by slight increase in traffic plus higher basket (driven by both AUR and units per transaction). Performance varied monthly (strong May, dipped June, strong July). Merchandise availability very strong, with closeouts helping them hit low end of tariff impact range in Q2.

Q2 comp of 2% driven by slight traffic increase plus higher basketBasket driven by slight AUR increases and higher units per transactionStrong May, dipped June, strong July performance patternVery strong availability of closeouts

Adrian Yee · Barclays

Inquired about pricing momentum across retail landscape, which categories seeing inflation, tariff impact scope (direct vs. vendor pass-through), and outlook on spring tariff wave.

Tariff impact is both direct (company pays) and indirect (vendor cost increases across merchandise universe). Seeing inflation mainly in metals-heavy categories (home) and some apparel/mainstream retail. Management expects pricing to reach equilibrium over time but will not be first to raise prices; expects tariff pressure to continue into next year when additional 25% to 50% India tariffs may take effect.

Tariff impact includes both direct tariffs and vendor cost pass-throughsProducts with metals seeing most obvious price increasesHome category bearing brunt of pricing pressureCompany will not be first to raise prices; will match competitors

John Kernan · TD Cowan

Asked about DC-related expense and CapEx returns, long-term margin uplift from DC investments, and long-term earnings algorithm for the business.

DC investment is capacity play; leverage expected over next 2 years as volume grows. Current DC (Arizona) represents ~28% of total capital; next DC 2-3 years away. Long-term algorithm: 5% new store growth (2% EPS), 3% comp (3% EPS) = 5% base, plus 1-3% EBIT upside and 2-3% buyback benefit = double-digit EPS growth target.

DC CapEx ~28% of total capital spendNext DC opening 2-3 years outExpect leverage on current DC over next 2 yearsLong-term algorithm: 5% new store growth = 2% EPS contribution

Answers to last quarter's watch list

Whether Q2 lands in the upper or lower half of the $1.40–$1.55 EPS range. $1.56 — $0.01 above the high end. Tariff mitigation outperformed plan (came in at the low end of the $0.11–$0.16 range), and operating margin printed 11.5% versus a 10.7–11.4% guide.

Resolved positively

Comp trajectory through Q2. +2% comp, mid-range of the flat-to-+3% guide. Stack decelerated from the +4% prior-year comp but the monthly shape (strong May, June dip, strong July) suggests momentum into Q3, where management guided the same +2–3%. Not a deterioration story, not a re-acceleration story.

Continue monitoring

Whether full-year guidance is reinstated on the Q2 call. Reinstated at $6.08–$6.21, but the midpoint of $6.145 prints below the $6.32 prior-year actual — a ~3% YoY decline. Management regained the willingness to forecast; the forecast is for a down year.

Resolved negatively

Gross margin progression Q2 → Q3. Q2 gross margin held at 27.6% and operating margin beat at 11.5%, but Q3 operating margin is guided to 10.1–10.5% — ~100bps of sequential compression with 50–60bps from tariffs. The back-half setup deteriorated as feared, partially offset by Q4 pack-away recovery.

Resolved negatively

Whether "deteriorating consumer sentiment" hardens into observed comp weakness. Traffic ticked up in Q2 and management dropped the "deteriorating sentiment" language from the script entirely. No observed cohort weakness called out; Hispanic customer cohort referenced as performing in line. The risk did not materialize in Q2 data.

Resolved positively

What to watch into next quarter

Whether Q3 EPS lands in the upper half of the $1.31–$1.37 range — a print at the low end would imply Q4 EPS of ~$1.79–$1.81 needs to do the heavy lifting to hit $6.21 high-end FY guide, leaving no cushion for a holiday miss.

Whether Q3 comp prints at +3% or +2% — guide is +2–3% in both Q3 and Q4. A +3% Q3 would suggest the July strength carried; +2% would suggest comp has flatlined at the mid-range and Q4 needs to do more.

Tariff impact tracking versus the $0.07–$0.08 Q3 guide — Q2 came in at the low end of its range. Repeat low-end performance would imply FY tariff impact closer to $0.22 than $0.25, supporting upper-end FY EPS.

Whether management quantifies 2026 tariff exposure on the Q3 call — Adrian Yee flagged India tariffs (25% potentially 50%) as a spring 2026 risk. The first read on 2026 tariff sizing would meaningfully change the multi-year EPS picture.

Self-checkout expansion footprint and read-through to shrink — 80-store pilot called out as working. A specific store-count expansion target on the Q3 call would signal management is confident enough to push capital behind it.

Pack-away inventory recovery in Q4 — management is asking the model to give back Q3 pressure in Q4. Watch whether the Q4 gross margin commentary holds the line that this is a timing item, not a structural drag.

Sources

Ross Stores Q2 FY2025 press release (Form 8-K Exhibit 99.1), filed 2025-08-21 — https://www.sec.gov/Archives/edgar/data/745732/000074573225000047/q225exhibit991.htm
Ross Stores Q2 FY2025 earnings call commentary (as reflected in extracted Q&A and prepared remarks)

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