ROSS STORES, INC. Q2 FY2025 earnings call

• Sequential improvement in sales trends from first quarter, broad-based across merchandise categories and regions. May was strong, June softened, but July rebounded, with positive back-to-school performance. • Earnings modestly exceeded guidance range due to lower tariff-related costs. Operating margin decreased 95 basis points to 11.5% primarily due to tariffs. • Repurchased 1.9 million shares of common stock for $262 million, on track to buy back $1.05 billion for the year. • Opened 28 new Ross and 3 dd's DISCOUNTS locations in Q2, on track to open ~90 total for the year. • Mitigated tariffs through vendor negotiations, sourcing mix diversification, price adjustments, and increased closeout business. • Store initiatives include store refreshes (half of stores to be refreshed this year), self-checkout piloting in 80 stores, and new marketing campaigns for Ross ('Work Your Magic!') and dd's ('Don't sleep on dd's').

Total sales for the period grew 5% to $5.5 billion, up from $5.3 billion last year, with comparable store sales up 2%. Cosmetics was the best merchandise area. Geographically, the Southeast and Midwest were the strongest markets. dd's DISCOUNTS had solid comp store sales ahead of Ross. Both chains saw growth in traffic and basket size. Total consolidated inventories and average store inventories were up 5% versus last year, with packaway merchandise at 38% of total inventories at quarter end compared to 39% last year.

• For third and fourth quarters, planning comparable store sales growth of 2% to 3%. Third quarter earnings per share expected to be $1.31 to $1.37, fourth quarter $1.74 to $1.81. Full year earnings per share forecast $6.08 to $6.21. • Third quarter total sales forecast to increase 5% to 7% versus prior year. Plan to open 40 stores, including 36 Ross and 4 dd's locations. Operating margin planned in 10.1% to 10.5% range, including 50 to 60 basis point negative impact from tariff-related costs. • Anticipate ~$0.22 to $0.25 per share impact from announced trade policies for fiscal 2025.

• Tariffs remaining at elevated levels, which could continue to pressure margins. • Macroeconomic uncertainty impacting consumer spending and retail trends. • Potential impact of inventory flow issues on operations. • Competition within the off-price retail sector.

Q: Comment on branded mix impact on margin and return to low teens margin?

A: Alex Straton asked about branded mix. Michael J. Hartshorn said initial branded strategy was a margin hit but expected to build on it over time, believing the business can return to low teens margin over time.

Q: Consumer trade down activity and demographic mix?

A: Brooke Roach asked about consumer trade down and demographics. Michael J. Hartshorn said no significant change in income cohorts, but stores with high Hispanic population underperformed in June but rebounded in July.

Q: Tariff mitigation details and price inflation observation?

A: Mark Altschwager and Adrienne Yih asked about tariff mitigation and price inflation. James G. Conroy and Michael J. Hartshorn discussed merchandising team efforts to mitigate tariffs, shifting buys, negotiating with vendors, and limited price increases. They noted price inflation in certain categories like metals and across merchandise, with impact from both direct tariffs and vendor cost increases.

Q: Store openings, real estate, and renovation impact?

A: Dana Telsey and others asked about store openings and renovations. Michael J. Hartshorn discussed opening stores in new markets like Puerto Rico and New York Metro with positive response, and store refreshes with ongoing initiatives but early to measure impact. James G. Conroy talked about real estate pipeline and leveraging DCs for margin improvement.

Q: Long-term earnings algorithm and growth potential?

A: John Kernan and Corey Tarlowe asked about long-term earnings and growth. Michael J. Hartshorn discussed long-term algorithm including new store growth, comp sales, EBIT upside, and stock buyback. James G. Conroy spoke about growth potential, white space opportunities, and store expansion in new markets.