Ross Stores Tops Q2 Earnings Estimate, Expects Modest Pressures in Q3

Ross Stores, Inc. ROST reported second-quarter fiscal 2025 results with earnings beating the Zacks Consensus Estimate, though sales fell slightly short. Net sales rose compared with the prior year, but earnings per share declined.

Ross Stores, the leading off-price apparel retailer, delivered earnings of $1.56 per share, beating the Zacks Consensus Estimate of $1.52. The bottom line declined 1.9% from $1.59 in the second quarter of fiscal 2024. The fiscal second-quarter EPS included an 11-cent per share negative impact from tariff-related costs. 

Total sales of $5,529 million rose 5% year over year, but marginally missed the Zacks Consensus Estimate of $5,533 million. The comparable store sales (comps) improved 2%. The company noted that sales trends improved sequentially from the fiscal first quarter, reflecting broad-based strength. Nearly all major merchandise categories posted positive momentum, while most regions across the business also delivered stronger results, signaling a healthier demand environment as the quarter progressed. We expected comps growth of 1.2% in the second quarter of fiscal 2025.

Ross Stores, Inc. Price, Consensus and EPS Surprise

Ross Stores, Inc. price-consensus-eps-surprise-chart | Ross Stores, Inc. Quote

In the fiscal second-quarter, cosmetics emerged as the top-performing merchandise category, while the Southeast and Midwest led by region. Comps at dd’s DISCOUNTS were solid and outpaced Ross, though monthly trends between the two banners tracked closely. Notably, both chains benefited from gains in traffic and basket size, exiting the quarter with encouraging momentum.

This Zacks Rank #3 (Hold) company’s shares have gained 6% in the past three months, outpacing the industry's 3.2% growth.

Insight Into ROST’s Q2 Performance

The cost of goods sold (“COGS”) was $4 billion, up 5.5% year over year. As a percentage of sales, COGS was 72.4%, marking a year-over-year increase of 70 basis points (bps). Our model predicted COGS to increase 5.7% year over year and expand 80 bps to 72.5%, as a percentage of sales, in the fiscal second quarter.

Distribution costs rose 55 bps, largely reflecting the opening of a new distribution center in the fiscal second quarter and higher tariff-related processing expenses. Merchandise margin contracted 30 bps, due to tariff impacts, while occupancy increased 10 bps. These pressures were partially offset by efficiencies, including a 15-bps decrease in domestic freight and 10-bps lower buying costs. SG&A expenses deleveraged 25 bps, with CEO transition costs contributing to the increase.

The company’s operating income of $638.3 million declined 3.2% year over year. The operating margin of 11.5% was down 95 bps year over year, due to tariff-related costs. Our model predicted a 4.4% year-over-year decline in operating income, with a 110-bps operating margin contraction to 11.4% in the fiscal second quarter.

Sneak Peek Into ROST’s Other Financials

Ross Stores ended the fiscal second quarter with cash and cash equivalents of $3.8 billion, after funding business growth and capital requirements. The company has a long-term debt of $1.02 billion and a total shareholders’ equity of $5.7 billion.

In the fiscal second quarter, Ross Stores repurchased 1.9 million shares for $262 million under its two-year $2.1 billion authorization announced in March 2024. The company is on track to buy back a total of $1.05 billion worth of shares in fiscal 2025.

ROST’s Store Update

In second-quarter fiscal 2025, the company opened 28 new Ross and 3 dd’s DISCOUNTS stores. These openings highlight ROST’s growth across both new and existing markets, including several locations in the New York Metro area and its first three stores in Puerto Rico. As of Aug. 2, 2025, ROST had 2,233 stores, including 1,873 stores in 44 states, the District of Columbia, Guam and Puerto Rico, and 360 dd’s DISCOUNTS stores in 22 states.

For the third quarter of fiscal 2025, the company expects to open 40 stores, including 36 Ross and 4 dd's locations. For fiscal 2025, the company remains on track to open approximately 90 new stores, including about 80 Ross and 10 dd’s DISCOUNTS locations. These do not reflect the company’s plans to close or relocate 10-15 older stores.

What ROST Expects for Q3 & FY25

Looking ahead, Ross Stores expects to offset most of the tariff impact, although modest pressure is anticipated in the third quarter of fiscal 2025, with greater mitigation projected in the fourth quarter. With retail prices moving higher across the industry, the company remains focused on preserving its value proposition relative to traditional retailers while balancing opportunities to protect merchandise margins. Its top priority continues to be offering high-quality branded products at exceptional value and management believes the off-price sector is well-positioned to benefit from ongoing supply-chain and retail disruptions.

For the third and fourth quarters of fiscal 2025, the company anticipates comps growth of 2-3% each. The company expects earnings of $1.31-$1.37 for the fiscal third quarter, down from $1.48 in the prior-year period, with the guidance factoring in an estimated 7-8 cents per share negative impact from tariffs. For the fiscal fourth quarter, the company anticipates EPS of $1.74-$1.81 compared with $1.79 reported in the year-ago quarter. The fiscal fourth-quarter guidance includes an impact of 4-6 cents per share from tariffs.

For the fiscal third quarter, the company expects total sales to improve 5-7% year over year. It expects operating margin to be 10.1-10.5% for the fiscal third quarter, including a negative impact of 50-60 bps from tariff-related costs. The operating margin guidance also includes an unfavorable timing of packaway-related costs and continued deleverage from the opening of a new distribution center in the quarter.

The company anticipates net interest income of $27 million for the fiscal third quarter, with a tax rate of 25%. ROST expects shares outstanding to be 323 million at the end of third-quarter fiscal 2025.

Given that the company performs in line with its third and fourth quarter projections, management expects fiscal 2025 EPS to be $6.08-$6.21 compared with $6.32 reported in fiscal 2024. The company expects fiscal 2025 EPS to include about 22-25 cents of negative impact from the ongoing tariff headwinds.

Key Picks

Some better-ranked stocks in the same space are Levi Strauss & Co. LEVI, Williams-Sonoma Inc. WSM and Torrid Holdings CURV.

Levi Strauss designs and markets jeans, casual wear and related accessories for men, women and children. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Levi Strauss’ current fiscal year’s earnings implies growth of 4% from the year-ago actuals. LEVI delivered a trailing four-quarter earnings surprise of 25.9%, on average.

Williams-Sonoma is a multi-channel specialty retailer of premium quality home products. It carries a Zacks Rank of 2 (Buy) at present.

The Zacks Consensus Estimate for Williams-Sonoma’s current financial year’s earnings implies a decline of 3% from the year-ago actual, while sales indicate a 0.1% increase. The company delivered a trailing four-quarter earnings surprise of 8.8%, on average.

Torrid Holdings is a direct-to-consumer brand of apparel, intimates and accessories principally in North America. It currently has a Zacks Rank of 2.

The Zacks Consensus Estimate for Torrid Holdings’ current fiscal year’s sales and earnings implies declines of 5.6% and 6.7%, respectively, from the year-ago actuals. CURV delivered a trailing four-quarter negative earnings surprise of 10.5%, on average.

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This article originally published on Zacks Investment Research (zacks.com).

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