Ross Stores, Inc. (ROST) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A indicate positive developments: 5-7% sales growth, strategic store openings, and effective marketing campaigns. Despite EPS guidance below last year's figures, optimistic guidance and strong consumer engagement suggest a positive outlook. Tariff impacts are being mitigated, and the company is expanding in high-potential regions. The stock is likely to react positively, with a prediction of a 2% to 8% increase over the next two weeks.
Key Financial Performance
Total Sales Grew 10% to $5.6 billion, with comparable store sales increasing 7%. Reasons for growth include a compelling assortment of brand name values, new marketing campaigns, and strong back-to-school selling season.
Operating Margin 11.6%, decreased by 35 basis points year-over-year. The decrease was mainly due to the impact of tariffs, higher distribution costs, and tariff-related processing costs. Partially offset by lower domestic freight and occupancy costs.
Earnings Per Share (EPS) $1.58 for the third quarter, compared to $1.48 in the prior year period. The increase was despite a $0.05 per share negative impact from tariff-related costs.
Net Income $512 million for the third quarter, compared to $489 million in the prior year period. The increase was driven by higher sales and expense control.
Year-to-Date Sales $16.1 billion, with comparable store sales up 3% over last year. Growth attributed to strong merchandise performance and customer engagement.
Year-to-Date Earnings Per Share (EPS) $4.61, compared to $4.53 in the prior year. Includes a $0.16 per share negative impact from tariff-related costs.
Consolidated Inventories Up 9% versus last year, with average store inventories up 15%. Inventory build was advanced for the holiday season.
Share Repurchases 1.7 million shares repurchased for $262 million during the quarter. On track to buy back $1.05 billion in shares for the year.
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Operating Highlights
Branded Strategy: Fully embedded in merchandising approach for over a year, focusing on high-quality branded bargains. This strategy has driven higher sales, strengthened vendor partnerships, and increased closeout opportunities.
New Store Openings: Opened 36 new Ross stores and 4 dd's DISCOUNTS stores in Q3, completing the 2025 expansion program with a total of 90 new locations (80 Ross and 10 dd's).
Geographic Performance: Strong performance in the Southeast and Midwest regions. New market openings, including the New York Metro area, showed promising results.
Customer Engagement: New marketing campaigns and updated assortments have driven higher customer engagement and store traffic.
Inventory Management: Consolidated inventories up 9% year-over-year, with average store inventories up 15% to prepare for the holiday season. Packaway merchandise at 36% of total inventories.
Expense Control: Continued focus on expense control contributed to an operating margin of 11.6%.
Tariff Mitigation: Efforts to offset tariff impacts through opportunistic buys and strengthened vendor partnerships. Tariff-related costs for Q4 expected to be negligible.
Value Proposition: Maintained strong value proposition despite pricing increases across the retail environment, ensuring competitive positioning.
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Risk or Challenges
Tariff-related costs: The company faced a negative impact on earnings per share due to tariff-related costs, amounting to $0.05 per share in the third quarter and $0.16 per share year-to-date. While the fourth quarter impact is expected to be negligible, tariff uncertainties persist, posing a risk to merchandise margins and overall financial performance.
Distribution costs: Higher distribution costs, primarily due to the opening of a new distribution center and tariff-related processing costs, increased by 60 basis points in the quarter, impacting operating margins.
Merchandise margin: Merchandise margin deleveraged by 10 basis points in the quarter, partly due to tariff-related costs and other operational expenses, which could affect profitability.
Economic uncertainties: The company acknowledged ongoing challenges and uncertainties in the macroeconomic environment, which could impact consumer behavior and overall business performance.
CEO transition costs: The company faced headwinds from CEO transition costs, which, while not quantified, added to operational expenses during the quarter.
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Guidance & Outlook
Fourth Quarter Comparable Store Sales Forecast: Comparable store sales are forecasted to increase by 3% to 4% for the 13 weeks ending January 31, 2026.
Fourth Quarter Earnings Per Share (EPS) Guidance: Earnings per share are projected to range between $1.77 and $1.85.
Fiscal 2025 Earnings Per Share (EPS) Guidance: Earnings per share for fiscal 2025 are expected to be in the range of $6.38 to $6.46.
Fourth Quarter Tariff Impact: The impact of tariffs in the fourth quarter is expected to be negligible.
Fourth Quarter Total Sales Growth: Total sales are projected to increase by 6% to 8%.
Fourth Quarter Operating Margin: Operating margin is expected to range between 11.5% and 11.8%, compared to 12.4% last year.
Net Interest Income for Fourth Quarter: Net interest income is estimated to be approximately $30 million.
Tax Rate for Fourth Quarter: The tax rate is expected to be approximately 24%.
Weighted Average Diluted Shares Outstanding: Projected to be about 322 million shares for the fourth quarter.
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Shareholder Return Plan
Share Repurchase: During the quarter, we repurchased 1.7 million shares of common stock for an aggregate cost of $262 million. We remain on track to buy back a total of $1.05 billion in shares this year.
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Key Q&A
Q:What contributed to the 500 basis point sequential acceleration in same-store sales?
A:The improvement was broad-based across all merchandise categories and geographic regions. Internal factors like strong execution by the product, marketing, and stores teams played a significant role, though external factors like favorable weather may have also contributed.
Q:What are the major drivers of the recent improvement in business momentum?
A:The merchandising team’s sophistication, amplified efforts in marketing and store experience, and a unified strategy across merchandising, marketing, stores, and supply chain have driven the improvement.
Q:What has helped accelerate the amplification of improvements in marketing?
A:A refreshed marketing message with a contemporary creative approach, targeting younger customers, has resonated well. Metrics and qualitative factors have improved, though it’s still early to determine long-term stickiness.
Q:What updates were provided on tariff mitigation efforts and AUR trends?
A:Tariff-related costs have been mitigated through cost concessions, market-driven price increases, and closeout availability. AUR, traffic, and UPT all increased, with transactions being the biggest driver of comps.
Q:What demographic or regional trends were observed in the comp acceleration?
A:The comp acceleration was broad-based across demographics and regions. Hispanic stores showed improvement, and the Southeast and Midwest were top-performing markets. California, Florida, and Texas were in line with the chain.
Q:What is the impact of the new marketing campaigns on customer engagement?
A:The campaigns have improved engagement, particularly on platforms like Meta and TikTok. They are attracting new and lapsed customers, though it’s still early in the evolution of the marketing strategy.
Q:Will marketing spend increase in the future?
A:Currently, there are no immediate plans to increase marketing spend as a percentage of sales, though the company may consider it if ROI continues to be positive.
Q:How has the branded strategy impacted the ladies' business?
A:The ladies' business has shown sequential improvement, becoming comp-enhancing in the most recent quarter. The branded strategy has been a key driver, and there is still significant opportunity for growth.
Q:What insights were shared about monthly cadence and category performance?
A:The quarter had consistent trends with a strong back-to-school season. Cosmetics, shoes, and ladies were the best-performing categories, while home was slightly below the chain average.
Q:What changes are being made to improve the store experience?
A:Store refreshes, including new signage and cosmetic repairs, are underway. Efforts are also focused on improving line lengths, throughput, and recovery throughout the day. Customer feedback has been positive.
Q:What is Ross’s approach to value gaps and pricing strategy?
A:Ross maintains a pricing umbrella under traditional retailers, focusing on delivering value. AUR increased modestly without impacting UPT or transactions, and the strategy remains consistent for the fourth quarter.
Q:What are the plans for store growth, particularly in the Northeast?
A:The company is optimistic about Northeast expansion and plans to continue opening stores in the region. The dense population in the Northeast is expected to drive higher sales, offsetting higher costs.
Q:What is the status of self-checkout implementation?
A:Self-checkout is in 80 stores, with high customer adoption and sales impact. The rollout will continue, focusing on high-volume stores.
Q:What is the outlook for tariffs and inventory heading into 2026?
A:Tariffs are expected to be neutral in Q4 and 2026. Inventory levels are aligned with sales, and the company is well-positioned for the holiday season.
Q:What is the company’s approach to marketing and customer engagement?
A:The company has a robust email database and is exploring new marketing strategies. A loyalty program and text-based engagement are not currently in place but may be considered in the future.
Q:What are the long-term drivers for merchandise margin improvement?
A:Opportunities include leveraging branded relationships for closeouts and market-based transportation cost improvements. Merchandise margins are expected to remain stable or improve over time.
Q:What is the impact of the store refreshes and brand enhancements?
A:Store refreshes and brand enhancements are in early stages but have shown positive customer feedback. The home category has improved, and the company is well-positioned for the holiday season.
Q:What is the rationale behind the 3%-4% comp guidance for Q4?
A:The guidance reflects the internal plan based on strong Q3 momentum. There is no change in methodology, and the guidance aligns with the company’s planning approach.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the potential for increasing marketing spend in the future, stating that current spending levels are yielding positive results but leaving open the possibility of future changes. Additionally, they did not provide specific details on the quantification of new customer acquisition or the exact impact of store refreshes on sales.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
DISCOUNTS store
DISCOUNTS value
Form Qs
Midwest dd
Officer Senior
Qs Ks
Relations today
SGA headwind
Sheehan Executive
addition reminder
approach period
area geography
area opening
assortment brand
assortment customer
assortment marketing
availability marketplace
average emphasis
balance store
bargain value
base portion
benefit sale
brand name
brand vendor
build holiday
buy position
buying freight
campaign excitement
chain organization
change benefit
customer engagement
date
dd DISCOUNTS
dd location
holiday season
packaway facility
result share
sale packaway
selling season
share tariff
value assortment
ROST Transcript
Ross Stores, Inc. (ROST) Q1 2026 Earnings Call Transcript
Positive6-1
The earnings call indicates strong financial performance with record high revenue, successful new store productivity, and positive customer count growth. The company is expanding geographically, particularly in the Northeast, and is modernizing its marketing strategy, which is driving traffic and comps. Management's commitment to the buyback program and successful execution in cosmetics further contribute to a positive outlook. Despite some concerns about fuel surcharges, the overall sentiment is positive, with optimistic guidance and strategic growth initiatives likely to boost the stock price.
Ross Stores, Inc. (ROST) Q1 2027 Earnings Call Transcript
Neutral5-21
Ross Stores, Inc. (ROST) Q4 2026 Earnings Call Transcript
Positive3-3
The earnings call presents several positive indicators: a 9% YoY revenue increase, improved operating margins, and a 15% rise in net income. The company announced an 8% dividend increase and a significant share buyback program, reflecting confidence in future growth. While there are noted risks and uncertainties, the strong financial performance and shareholder return initiatives suggest a positive stock price movement in the near term.
Ross Stores, Inc. (ROST) Q3 2025 Earnings Call Transcript
Unknown11-20
The earnings call summary presents a mixed outlook. While there are positive developments like store openings and strong comparable sales growth, the EPS guidance is lower than last year, and tariff costs impact profitability. The Q&A reveals cautious optimism with successful marketing and store refreshes but no plans to increase marketing spend. Overall, the company's strategic initiatives are promising, but financial guidance and tariff concerns temper expectations, leading to a neutral sentiment.
ROST Report
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