Ross Stores Q4 2025 Earnings Report

Ross Stores EPS Results

• Actual EPS: $1.79
• Consensus EPS: $1.65
• Beat/Miss: Beat by +$0.14
• One Year Ago EPS: N/A

Ross Stores Revenue Results

• Actual Revenue: $5.91 billion
• Expected Revenue: $5.95 billion
• Beat/Miss: Missed by -$40.27 million
• YoY Revenue Growth: N/A

Ross Stores Announcement Details

• Quarter: Q4 2025
• Date: 3/4/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, March 4, 2025
• Conference Call Time: 4:15PM ET

Ross Stores (NASDAQ:ROST), together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. Its stores primarily offer apparel, accessories, footwear, and home fashions. The company's Ross Dress for Less stores sell its products at department and specialty stores to middle income households; and dd's DISCOUNTS stores sell its products at department and discount stores for households with moderate income. Ross Stores, Inc. was incorporated in 1957 and is headquartered in Dublin, California.

Ross Stores Q4 2025 Earnings Call Transcript

Presentation

[Operator]

Good afternoon, and welcome to The Raw Stores Fourth Quarter and Fiscal twenty twenty four Earnings Release Conference Call.

[Operator]

The call will be given with prepared comments by management followed by a question and answer session. Before we get started, on behalf of Ross Stores, I would like to note that the comments made on this call will contain forward looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts, new store openings and other matters that are based on the company's current forecast of aspects of its future business. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today's press release and the company's fiscal twenty twenty three Form 10 K and fiscal twenty twenty four Form 10 Qs and eight Ks on file with the SEC. And now, I'd like to turn the call over to Connie Kao, Group Vice President of Investor Relations.

[Connie Kao, Group VP - Investor Relations at Ross Stores]

Thank you, John, and thank you everyone for joining our fourth quarter earnings call today. I have the great pleasure of introducing Jim Conroy, our newly appointed Chief Executive Officer, who joined us in December. Jim?

[James Conroy, CEO & Director at Ross Stores]

Thank you, Connie, and good afternoon. Also joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer and Adam Orbos, Executive Vice President and Chief Financial Officer. I would like to begin my remarks by expressing my appreciation to my predecessor, Barbara Rentler. Our two months overlap was an invaluable transition period for me as I was able to immerse myself in the company, while Barbara led the day to day operations of the business. I'm grateful she will continue to serve as a strategic advisor and I look forward to building on the foundation that she has created in the company's long history of success.

[James Conroy, CEO & Director at Ross Stores]

Now let's turn to the fourth quarter results. As noted in today's press release, fourth quarter sales and earnings results were at the high end of our expectations. Sales were driven by our customers' positive responses to the improved assortments of quality branded bargains, coupled with strong execution by the store and supply chain teams during the critical holiday selling season. Earnings per share for the thirteen weeks ended 02/01/2025 were $1.79 compared with $1.82 per share for the fourteen weeks ended 02/03/2024. Net income for the period was $587,000,000 versus $610,000,000 last year.

[James Conroy, CEO & Director at Ross Stores]

Sales for the fourth quarter of twenty twenty four were $5,900,000,000 with a comparable store sales gain of 3% on top of a robust 7% gain in the same period last year. For the 2024 fiscal year, earnings per share were $6.32 up from $5.56 for the fifty three weeks ended 02/03/2024. Net income for fiscal twenty twenty four rose to $2,100,000,000 compared to $1,900,000,000 last year. Total sales for the year increased to $21,100,000,000 up from $20,400,000,000 in the prior year period. Comparable store sales for the fifty two weeks ended 02/01/2025 grew 3% versus a 5% gain in fiscal twenty twenty three.

[James Conroy, CEO & Director at Ross Stores]

Both the fourth quarter and full year results included a one time benefit to earnings equivalent to approximately $0.14 per share related to the sale of a packaway facility. Additionally, as a reminder, prior year sales and earnings results for the twenty twenty three fourth quarter and fiscal year included approximately $3.00 $8,000,000 in sales and a $0.2 earnings per share benefit from the fifty third week. Fourth quarter operating margin of 12.4% was flat to last year as the gain from the sale of the Packaway facility was offset by planned declines in merchandise margin and unfavorable timing of Packaway related costs. The sale of the facility contributed about 105 basis points to this year's fourth quarter operating margin, while the fifty third week benefited the prior year's period by about 80 basis points. Let's turn now to additional details on our fourth quarter results.

[James Conroy, CEO & Director at Ross Stores]

For the holiday selling season, cosmetics and children's were the best performing merchandise areas, while geographically the Pacific Northwest and Texas were the strongest regions. Similar to the prior quarter, DD's discounts posted healthy sales gains as the chain's value and fashion offerings resonated with shoppers. We are especially encouraged by the ongoing improved performance of DD's in our newer markets and expect to begin rebuilding our pipeline there for expanded growth in the near future. At the end of the year, consolidated inventories were up 12% mainly due to higher planned packaway levels. On an average store basis, inventories were up 2%.

[James Conroy, CEO & Director at Ross Stores]

Pack away represented 41% of total inventories compared to 40% last year. Regarding our store expansion program, we added 75 new Ross Dress for Less stores and 14 Didi's discounts during the year. Inclusive of 12 closures, we ended the year with 2,186 stores, including eighteen thirty one Ross Dress for Less and three fifty five BDU discounts locations. As noted in today's release, during the recently completed fourth quarter, '1 point '7 million shares were repurchased for a total price of $262,000,000 For fiscal twenty twenty four, a total of 7,300,000.0 shares of common stock were repurchased for an aggregate purchase price of $1,050,000,000 These purchases were made pursuant to the two year two point one billion dollars program announced in March 2024. We expect to complete the $1,050,000,000 remaining under this authorization in fiscal twenty twenty five.

[James Conroy, CEO & Director at Ross Stores]

Our Board also recently approved a 10% increase in our quarterly cash dividend to $0.405 per share to be payable on 03/31/2025 to stockholders of record as of 03/18/2025. We ended the year with $4,700,000,000 cash after funding the growth and capital needs of our business. As a result, our ongoing share buyback and increased dividend programs reflect our long standing commitment to return excess cash to our shareholders. Now Adam will provide further details on our fourth quarter results and additional color on our outlook for fiscal twenty twenty five.

[Adam Orvos, Executive VP & CFO at Ross Stores]

Thank you, Jim. As previously mentioned, comparable store sales rose 3% for the quarter generated by both higher traffic and average size of the basket. Fourth quarter operating margin of 12.4% was flat to last year and included a 105 basis point benefit from the facility sale. Cost of goods sold deleveraged by 80 basis points in the quarter. Merchandise margin declined by 85 basis points as planned due to the increased mix of quality branded assortments.

[Adam Orvos, Executive VP & CFO at Ross Stores]

Occupancy deleveraged by 45 basis points as we anniversaried the extra week last year. Distribution costs were flat as unfavorable timing of Packaway related costs offset improved productivity. Domestic freight leveraged by 30 basis points, while buying improved by 20 basis points mainly due to lower incentives. SG and A for the period leveraged by 80 basis points primarily due to the facility sale. Now let's discuss our outlook for fiscal twenty twenty five starting with the first quarter.

[Adam Orvos, Executive VP & CFO at Ross Stores]

While we were pleased with our 2024 results, including the holiday selling period, sales trends began softening later in January and into February. We believe that a combination of unseasonable weather and heightened volatility in the macroeconomic and geopolitical environment has negatively impacted customer traffic. Given the lack of visibility we have on these external factors, we believe it is prudent to take a cautious approach in forecasting our business, especially as we start the year. As a result, we expect comparable store sales for the thirteen weeks ending 05/03/2025 to be down 3% to flat and earnings per share of $1.33 dollars to $1.47 versus $1.46 last year. The operating statement assumptions that support our first quarter guidance include the following: Total sales are planned to be down 1% to up 3% versus last year's first quarter.

[Adam Orvos, Executive VP & CFO at Ross Stores]

If same store sales perform in line with our plan, operating margin for the first quarter is expected to be in the range of 11.4% to 12.1% compared to 12.2% last year. The expected decrease mainly reflects our forecast for sales deleverage and unfavorable timing of Packaway related costs. Merchandise margin is also expected to be down slightly in the first quarter. We plan to add 19 new stores consisting of 16 Ross and three Didi's discounts during the period. Net interest income is estimated to be $35,000,000 Our tax rate is expected to be approximately 24% to 25% and weighted average diluted shares outstanding are forecast to be about $328,000,000 Turning to our full year guidance assumptions for 2025.

[Adam Orvos, Executive VP & CFO at Ross Stores]

For the fifty two weeks ending 01/31/2026, and while we hope to do better, we are planning same store sales to be down 1% to up 2%. Based on these assumptions, fiscal twenty twenty five earnings per share are projected to be $5.95 to $6.55 compared to $6.32 for fiscal twenty twenty four. As previously mentioned, last year's results included a per share benefit of $0.14 from the facility sale. Total sales are planned to be up 1% to up 5% for the year. If same store sales perform in line with our plan, operating margin for the full year is expected to be in the range of 11.5% to 12.2% compared to 12.2% in 2024, which benefited by 30 basis points from the facility sale.

[Adam Orvos, Executive VP & CFO at Ross Stores]

Excluding this one time gain, our operating margin forecast reflects sales deleverage and higher distribution costs as well as lower incentive compensation expenses as we anniversary higher incentive costs in 2024. In addition, we expect merchandise margin to be relatively neutral for fiscal twenty twenty five. For 2025, we expect to open approximately 90 new locations, comprised of about 80 ROST and 10 DDs. These openings do not include our plans to close or relocate about 10 to 15 older stores. Net interest income is estimated to be $127,000,000 Depreciation and amortization expense, includes of stock based amortization, are forecasted to be about $690,000,000 for the year.

[Adam Orvos, Executive VP & CFO at Ross Stores]

The tax rate is projected to be about 24% to 25% and weighted average diluted shares outstanding are expected to be around $325,000,000 In addition, capital expenditures for 2025 are planned to be approximately $855,000,000 as we make further investments in our stores, supply chain and merchant processes to support our long term growth and to increase efficiencies throughout the business. Now, I'll turn the call back to Jim for closing comments.

[James Conroy, CEO & Director at Ross Stores]

Thank you, Adam. As Adam mentioned, we have seen softer business as we transitioned out of the fourth quarter and into the first quarter. While there are always opportunities for us to improve our execution, we believe the softness we are currently seeing is primarily due to macro pressures impacting consumer confidence resulting in a pullback in discretionary spending. That said, we believe that some of the recent challenges we are seeing could be transitory in nature. Additionally, we anticipate that the volatile external environment will result in more opportunities for closeout merchandise and could set us up well to deliver even greater values on branded goods in future quarters.

[James Conroy, CEO & Director at Ross Stores]

Turning to the broader business, as I reflect on my observations over the past few months, I believe that the brand and merchandising strategies that we have in place for both Ross and DBs are the right ones, and I do not foresee making significant changes to those strategies in the near future. In addition, we have a flexible business model that positions us well to navigate through the current uncertainty and we will continue to focus on the strong execution of our key initiatives. In closing, I would like to thank the more than 100,000 associates throughout the company for their hard work and dedication and for delivering such solid fourth quarter and annual results in 2024. At this point, we would like to open the call and respond to any questions that you may have.

[Operator]

Thank you. We will now be conducting a question and answer session. And the first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

[Matthew Boss, Analyst at JPMorgan Chase]

Great. Thanks and welcome back, Jim.

[James Conroy, CEO & Director at Ross Stores]

Thank you.

[Matthew Boss, Analyst at JPMorgan Chase]

So, Jim, maybe could you elaborate on your top strategic priorities? Any areas that you believe may require any level of structural change relative to opportunities you see to amplify market share in the near to intermediate term? And just on that near term, Jim, and I know how much you like to get into the details. Could you speak to trends maybe that you've seen in parts of the country with less weather impact or initiatives in place to drive comp improvement as the year progresses?

[James Conroy, CEO & Director at Ross Stores]

Sure. On the first piece, I've inherited a brand strategy for Ross and a sort of analogous customer strategy for DDs. And while I've only had about three months to sort of evaluate it, they've all seemed extremely sound and very much worth continuing to pursue. So my focus early on really is to learn the off price model, get immersed in the business. And as I think about ongoing changes, they'll be more sort of evolutionary in nature and nothing sort of abrupt or hard left turn or hard right turn.

[James Conroy, CEO & Director at Ross Stores]

That said, when I evaluate the company, I think from a merchandising standpoint, it's second to none world class merchandising team. The stores organization is extremely efficient and operationally very sound. We probably have some opportunity to enhance our store environment and shopping experience. And then from a marketing standpoint, I'd say it's probably the least developed muscle and least invested in part of the business. So probably some opportunity to put the brand on a pedestal a bit more and to amplify our messaging in the marketplace to some degree.

[James Conroy, CEO & Director at Ross Stores]

But I would expect sort of continuing on of the overarching strategies for the two brands. In terms of the more color commentary across the country and different parts of the business, For the quarter, we had just really nice broad based strength, both geographically and across merchandise categories. Some categories were standout winners, we called out children's and cosmetics, but virtually all businesses and nearly all geographies were also pretty strong. I think that probably covers both of your questions, Matt. Did I miss anything?

[Matthew Boss, Analyst at JPMorgan Chase]

Just maybe on the quarter to date, anything in areas of the country where the weather has been more conducive and just to give maybe some confidence on what you're seeing that's more transitory relative to potentially anything that's changed?

[James Conroy, CEO & Director at Ross Stores]

Yes. Certainly the weather impacted areas saw more of a decline in business. That said, we did see an inflection point down as we got into February that seemed to get sequentially better throughout the month. Part of that we believe is consumer confidence. Part of that we believe is weather induced, both of which we think will be sort of a transitory shock to the system that created a bit of a pause for the consumer and we have seen them already start to reengage.

[James Conroy, CEO & Director at Ross Stores]

So as you can imagine, embedded in our guidance is the business that's behind us and what we expect to see for the balance of the quarter.

[Matthew Boss, Analyst at JPMorgan Chase]

Great color. Best of luck. Welcome back.

[James Conroy, CEO & Director at Ross Stores]

Thank you.

[Operator]

And the next question comes from the line of Paul Lejuez with Citigroup. Please proceed with your question.

[Paul Lejuez, Managing Director at Citi]

Hey, thanks, Jim. Welcome. Can you talk a little bit about the go deeper into state performance or regional performance in 4Q? And in which regions or states drove the slowdown that you saw thus far in February? And also curious if there's any evidence that new immigration policy might be hurting sales in some way?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Paul, it's Michael. In the quarter, as we said in the commentary, the Pacific Northwest and Texas were the top performing regions. For other larger markets, California and Florida were relatively in line with the chain. Your second question, I assume was on immigration policy. What I'd say is we serve a very broad segment of the population.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

From an ethnic perspective, as you know, we over index to the Hispanic customer versus the general population. We'll have to wait and see how the macroeconomic environment and as you say the immigration policy impacts this important customer for us longer term. As Jim said, we believe the initial shock value of the recent policy actions could dissipate over time while we continue to provide great values and support the communities we serve.

[Paul Lejuez, Managing Director at Citi]

Thanks. And then just one follow-up. As you think about the comp guidance for '25, how are you thinking about traffic versus transactions? And maybe just again back to the slowdown, is that a transaction or average ticket sort of slowdown?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Down? We don't plan the business on traffic or transactions. What's happened over the past couple of years is the comp has been driven by both. What we've seen recently is more traffic related, which points to some of the external volatility that everyone is seeing.

[Paul Lejuez, Managing Director at Citi]

Thank you. Good luck.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Thanks, Paul.

[James Conroy, CEO & Director at Ross Stores]

Thanks, Paul.

[Operator]

And the next question comes from the line of Mark Altschwager with Baird. Please proceed with your question.

[Mark Altschwager, Senior Research Analyst at Robert W. Baird & Co]

Good afternoon. Thanks for taking my question. Just first with respect to the guide, I believe you said merchandise margins are expected to be relatively neutral for the year. What's the takeaway there just with respect to the merchandising strategy and striking the right balance of value in the assortment? Is that still an area of investment and headwinds offset by other factors?

[Mark Altschwager, Senior Research Analyst at Robert W. Baird & Co]

And then separately, just any comments on changes you're seeing in the buying environment post holiday, wondering if this consumer choppiness to start the year is yielding some better buying opportunities? Thank you.

[Adam Orvos, Executive VP & CFO at Ross Stores]

Mark, on the first piece, this is Adam. On merchandise margin, I think we voiced throughout 2024 that was kind of our investment year, right, where we kind of wanted to change the penetration of our branded goods and we feel like we accomplished that by year end. I think 2025 is going to be about learning, listening to what the customer is telling us and we'll certainly react accordingly. But that's why we feel like merchandise margin this year, we're kind of giving that neutral guide and that's what's embedded

[Adam Orvos, Executive VP & CFO at Ross Stores]

for the year.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

In just first quarter, we did build some impact of the tariff that we know thus far, which were the goods in transit when the initial tariffs were announced. Beyond that, we haven't included any impact, but merchant margin is relatively neutral for the year in our guidance.

[James Conroy, CEO & Director at Ross Stores]

This is Jim. On the second part of your question, relative to are we starting to see more closeout opportunities? Absolutely, as we've seen some softness across mainstream retailers, some more store closures and just sort of a disrupted supply chain. We're being very opportunistic in picking up these opportunities for closeout product and we think that bodes well for adding some more excitement to the stores going forward and for buying margin accretive goods going forward. So in this sort of off price industry that we're in, we tend to benefit from sort of a dislocation of the overarching retail market.

[Mark Altschwager, Senior Research Analyst at Robert W. Baird & Co]

That's great. Thank you.

[Operator]

And the next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

[Lorraine Hutchinson, Managing Director at Bank of America]

Hi, thanks. Good afternoon. Jim, when I

[Lorraine Hutchinson, Managing Director at Bank of America]

hear words like enhancing the store environment and developing the marketing muscle, I see dollar signs. Do you foresee a step up in investments in the store fleet and marketing expense? Or do you think that you can accomplish this under the confines of the existing margin structure?

[James Conroy, CEO & Director at Ross Stores]

At first, I thought your dollar signs were enhanced comp sales dollars. I suppose you're talking more about the expense side. I was. Yes, of course. We need to be sort of prudent and responsible with that.

[James Conroy, CEO & Director at Ross Stores]

And I think we could either do it from a cost neutral standpoint or we would need to be able to prove sort of an ROI on any additional spending. So it's very early days to kind of get ahead of myself as to what we'll be doing differently. But I would expect that we'll find some dollars to invest in both those areas over time. Incidentally, the company has been investing in upgrading the fleet over the last few years as well. I think we'll be continuing that going forward and perhaps trying to scrape some dollars together to enhance our marketing program a bit.

[Lorraine Hutchinson, Managing Director at Bank of America]

Thank you.

[Operator]

And the next question comes from the line of Michael Binetti with Evercore ISI. Please proceed.

[Michael Binetti, Senior Managing Director at Evercore ISI]

Hey guys, Jim, nice to meet you. Welcome to Ross and congrats on moving on to your next adventure. Could you I guess as we look at kind of take out your first quarter guidance, it looks like second quarter through fourth quarter same store sales allows for comps to be flat or even maybe just a touch negative in the back nine of the year. Could you just help us think about what you're baking in at the low end versus the high end, which is I think closer to 2.5% or 3% as you think through the scenarios for the back half of the year? And then, Adam, are there any as we think about the merchandise margin being neutral for the year, is that include an opportunity for you to be leveraging the better brand strategy by the second half of the year?

[Michael Binetti, Senior Managing Director at Evercore ISI]

Or is that do you think the second half

[Michael Binetti, Senior Managing Director at Evercore ISI]

of the year

[Michael Binetti, Senior Managing Director at Evercore ISI]

is still in listen and learn mode?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Michael, on the comp trends for the year, obviously, we guided we would typically come out with two to three comp. Obviously, we lowered the guidance based on what we saw very early in the year and widened the guidance. So the variance between the first quarter and the rest of the year, we have comps fairly neutral through Q2, Q3 and Q4 to get to the down one to plus two comp.

[Adam Orvos, Executive VP & CFO at Ross Stores]

Yes. Michael, this is Adam. On the second piece on the merch margin, right, there's a lot of moving parts.

[Adam Orvos, Executive VP & CFO at Ross Stores]

We thought entering the branded strategy that over time we'd

[Adam Orvos, Executive VP & CFO at Ross Stores]

be buying better. We

[Adam Orvos, Executive VP & CFO at Ross Stores]

Obviously, doing a lot of work on tariffs. We've talked about that and then shrinks another variable. We're kind of guiding that flattish this year. External environment still feel like is very tough, but felt like the actions that we continue to take, but also stepped up at the end of last year, we think we'll make that a prudent guide for the year. So those are kind of the puts and takes of how we think about merchandise margin in the balance of the year.

[Michael Binetti, Senior Managing Director at Evercore ISI]

Did I miss did you give shrink for fourth quarter and for 2024?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

On shrink, we actually take our physical inventory in the third quarter and we trued it up then.

[Michael Binetti, Senior Managing Director at Evercore ISI]

So Okay. No change in 4Q?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Yes, it didn't change our forecast. We ended relatively flat to 2023.

[Michael Binetti, Senior Managing Director at Evercore ISI]

Okay. Thanks guys.

[Operator]

And the next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

[Brooke Roach, Vice President - Equity Research at Goldman Sachs]

Good afternoon and thank you for taking our question. I was hoping you could dig into the performance of Didi's discounts. It sounds like you're seeing some good results there such that you're willing to rebuild the pipeline of store growth in the future. Is Didi seeing the same slowdown that the rest of Ross Stores is seeing? And how would you describe demographic changes as we've entered 1Q to date?

[Brooke Roach, Vice President - Equity Research at Goldman Sachs]

What drives your confidence in Didi's on a go forward basis?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Sure, Brooke. Didi's posted healthy sales gains that were above Ross not only for Q4, but throughout 2024. And we feel really good about the fashion and value offerings that we've been able to upgrade at Didi's. It's resonating very well with the customers. We're especially encouraged.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

If you recall, we slowed down or stopped our real estate program in newer markets and we're encouraged by the ongoing improved performance which has been ongoing for a little over a year now. And we are going to start rebuilding that pipeline for expanded growth in the near future, although it does take some time to get the pipeline started again and I suspect you'll see increased growth into 'twenty six. Though performing well, Didi saw similar change in trend as Ross in January, February timeframe.

[Brooke Roach, Vice President - Equity Research at Goldman Sachs]

Great. Thanks so much. Best of luck going forward.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Thanks.

[James Conroy, CEO & Director at Ross Stores]

Thank you.

[Operator]

And the next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

[Chuck Grom, Managing Director at Gordon Haskett Research Advisors]

Hey, good afternoon. Thanks. Just still pretty early in earnings here, but one takeaway is that inventory levels appear much heavier, say, at target today. I guess, how are you thinking about that from a potential headwind on the promotional front if we see more aggressive promotions later in the quarter? And then on category performance in the quarter, can you just double click on apparel and footwear in addition to cosmetics and beauty?

[Chuck Grom, Managing Director at Gordon Haskett Research Advisors]

It sounds like generally things were good, but can you just double click on that? Thanks.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

On inventory levels, we actually feel good about the levels that we're currently at. We ended the year with average store inventories up about 2%. We had planned our Packaway higher versus last year because we last year at this time we used the Packaway merchandise to fuel our robust 7% gain in the fourth quarter. So the increase at the end of the year was planned against last year.

[James Conroy, CEO & Director at Ross Stores]

And in terms of merchandise classifications, overall non apparel businesses did better than apparel and footwear. We talked about the strength in children. The footwear business was comp eroding for us for the fourth quarter.

[Operator]

And the next question comes from the line of Alex Straton with Morgan Stanley. Please proceed with your question.

[Alex Straton, Analyst at Morgan Stanley]

Perfect. Thanks so much. Can you just go through what guidance assumes as it relates to freight? Just seems like that might be a source of pressure for all off pricers this year. And then separately, the supply chain and merchant processes focus you highlighted within the CapEx guide.

[Alex Straton, Analyst at Morgan Stanley]

Can you just elaborate on what you're doing there exactly or if there are any changes relative to 2024? Thanks so much.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

On freight, we typically our freight contracts are May, June timeframe. So during this first part of the year, we're still operating under the current contracts. That said, we currently expect domestic freight to be a headwind in Q1 and the full year. Obviously, that's based on fuel and what happens with fuel over the year. And right now it's favorable versus last year, but that could change.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

On the ocean freight, that market has changed pretty dramatically in the last six months. There was a lot of buildup in congestion, spot rates were very high, that has since come down. So we'll wait and see how our contract renewal happens in May.

[Adam Orvos, Executive VP & CFO at Ross Stores]

And Alex, I think the second part of your question was on CapEx. What we guided to was $855,000,000 for 2025. Most of that step up from 2024 is in supply chain. So we will open our eighth facility this year, but the costs are really driven by our ninth facility, which will open up two to three years from now, but do most of that construction in 2025.

[Alex Straton, Analyst at Morgan Stanley]

And then on that piece of the merchant processes, what exactly are you guys changing there or I guess investing in there?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Most of the investments that are happening in the merchant organization is around really two things. The upfront process we're putting in new tools for the merchants that will make it much easier from purchase order to completion of buy and we're also investing in enterprise wide data that will allow the entire organization, but most specifically the merchants to have a better view of the business at any point in time.

[Alex Straton, Analyst at Morgan Stanley]

Great. Thanks so much.

[James Conroy, CEO & Director at Ross Stores]

Thank you.

[Operator]

And the next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question.

[Adrienne Yih, Managing Director, Consumer Discretionary Analyst at Barclays]

Thank you very much. I'm going to go back to I think you'd mentioned doing work on the tariffs. Can you remind us what your sort of direct sourcing exposure is? I know it's pretty de minimis from China, Canada and Mexico. And then how are you handling or how did you handle in the last tariff cycle kind of negotiating power?

[Adrienne Yih, Managing Director, Consumer Discretionary Analyst at Barclays]

It would seem that you can certainly push back more so than other business models. And then my follow-up question is on the branded product. Given that the merch margins are flat, are we anniversarying the penetration of branded? And are you seeing ATV higher driven by the new branded product? Thank you.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

On the tariff, we don't disclose the actual percentage of the direct tariff, but it is a small portion of our business. Obviously, we're continuing to monitor the day to day changes in the tariff policy. Mexico and Canada are very small portion, very de minimis part of our overall business. Clearly, our focus will be maintaining the price umbrella versus traditional retailer and offer the best values to the customer. We certainly wouldn't be on the forefront of raising prices.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

For us, disruptions like this, as Jim mentioned, could be beneficial to off price and as there'll be more closeout opportunities down the road.

[Adam Orvos, Executive VP & CFO at Ross Stores]

And I think, Adrian, on the branded question, in terms of mix of assortment, we feel like we are at that inflection point and have now anniversary last year on that. Your question about AUR also, again, as Michael said, we don't plan the business that way going forward. But looking back and forth quarter, we did have a slight increase in AUR just how the business mixed out with some of those better branded goods as part of the assortment.

[Adrienne Yih, Managing Director, Consumer Discretionary Analyst at Barclays]

Great. Thank you so much. Best of luck.

[James Conroy, CEO & Director at Ross Stores]

Thank you.

[Operator]

And the next question comes from the line of Anisha Sherman with Bernstein. Please proceed with your question.

[Aneesha Sherman, Analyst at Bernstein]

Thank you so much. Jim, I want to ask your view about the store opening strategy as you talked about earlier on the call. Some of your competitors are talking about moving into more rural areas, moving into different sized boxes, smaller urban boxes. Do you see opportunities for different store formats for your Ross and Didi's? And for the stores that have opened in newer states like Michigan, like New York last couple

[Aneesha Sherman, Analyst at Bernstein]

of years, can you comment on

[Aneesha Sherman, Analyst at Bernstein]

the performance of those? And I also have a quick follow-up on Adrian's question on the branded strategy. Are you seeing an inflection in comp related to that strategy as part of what you had planned? Are you seeing an actual uptick in comp on some of these categories and divisions where you upped the brandedness in the category? Thank you.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Anisha, I'll walk through the real estate strategy. We have we believe we have plenty of growth with the existing concept. DVs is 18,000 to 20,000 square foot stores. Ross is 23,000 to 25,000 square foot footprint. We see the real estate landscape.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

We have a healthy pipeline. While there's high volume, not a high volume of new development, we continue to see store closures from bankruptcies or downsizing of existing store fleets that we've been able to take advantage of. As you mentioned, about 30% of our openings are in newer markets. I think it's too early to talk about New York and Michigan. We're pleased with the results thus far.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Overall though, over the portfolio, our new store productivity has not changed. It was 60% to 65% of an average store last year and we expect it to be about that level in 2025.

[James Conroy, CEO & Director at Ross Stores]

And then the second piece of your question on the branded strategy, we feel good about the branded strategy, right? We just delivered I'd say we I just showed up, but the company just delivered four consecutive quarters of positive comps driven by both traffic and basket size. The branded strategy, while perhaps it's a little bit more important in certain categories, was really a store wide strategy. So to see the whole company perform well and have that performance be across merchandise categories and again traffic and ticket. In terms of specific categories, we have seen some nice sequential improvement in the ladies business from the third quarter into the fourth quarter.

[James Conroy, CEO & Director at Ross Stores]

And the fourth quarter is really the first time we had hit the percentage of our business targets that we wanted to hit from a branding standpoint. So overall, I think it's a solid strategy. I think we're executing pretty well. Certainly, we have opportunities to improve it and tweak it going forward. And the team is working on that now.

[James Conroy, CEO & Director at Ross Stores]

But I think it's starting to pay some nice dividends.

[Operator]

The next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

[Ike Boruchow, Analyst at Wells Fargo]

Hey, good afternoon. Nice to meet you, Jim. I think Michael, I have a clarification and then a question for you. The clarification is, I think you said in one of your answers fuel is favorable to last year, but a headwind to 1Q and fiscal year margin. Did you mean tailwind or did I not follow that correctly?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Should have been tailwind.

[Ike Boruchow, Analyst at Wells Fargo]

Tailwind, okay,

[Ike Boruchow, Analyst at Wells Fargo]

great. And then Michael, I'll be the fourth person to try to get this question in view. But

[Ike Boruchow, Analyst at Wells Fargo]

I guess when you look at

[Ike Boruchow, Analyst at Wells Fargo]

the business, the slowdown that you're seeing quarter to date, clearly dynamic environment, but how much of the slowdown would you call weather related versus potentially something in the customer demographic? Or just more directly, have you seen any notable softness in the Hispanic consumer quarterly? I know you have to wait to see more and get more information, but I know you guys probably have data and look at the store based on zip code. So I just know that we get asked that question a lot. I'm curious if

[Ike Boruchow, Analyst at Wells Fargo]

you have anything to share.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Ike, you know from history we don't love talking about intra quarter trends. I will say though, at this time of year, it is extremely difficult to parse out specific impacts of weather versus tax refunds. Tax refunds this year have caught up, but early on they were delayed by half a week or a week. So and then also trying to parse out external factors. So we did see as Jim said as weather improved, we did see an improvement in the trend.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

So we'll have to wait to see all the way through the first quarter to understand the real impact of each of those.

[Operator]

And the next question comes from the line of Marni Shapiro with The Retail Tracker. Please proceed with your question.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Hey guys, congrats on a great quarter. And I saw for a minute between our Jim, U. S. CEO and our new CFO, we almost didn't have any mics on a Rostource conference call. In my decades of following you guys, there's always been a mic.

[Marni Shapiro, Managing Partner at The Retail Tracker]

So can we just talk about

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Are you trying

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

to get rid of me?

[Marni Shapiro, Managing Partner at The Retail Tracker]

No. You can't leave. I think isn't it in the board somewhere, the board packet there has to be a mic involved. So could you just touch a little bit back onto the advertising question because Ross has never been a big advertising company. Is it a shift to invest more there or how you advertise?

[Marni Shapiro, Managing Partner at The Retail Tracker]

Would you consider loyalty programs? Are you thinking about social media? You have a somewhat decent following at least on Instagram. Just kind of curious what your thoughts are around the marketing?

[James Conroy, CEO & Director at Ross Stores]

Sure. I think it's a little early to give some real specifics there. We probably have the ability to invest some more money there and we probably inability to sort of perfect our messaging a little. I guess what I'd ask is just some patience as I get my arms around the team, we onboard a new ad agency, etcetera. We'll be able to share a little bit more about our plans as we go forward throughout the year.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Fair enough. And can you guys quantify at all any impact from the fires in LA to your business and have you seen it rebound since then?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Overall, obviously we saw an impact when it happened and it impacted our consumers, our associates is very devastating, but minimal impact to the quarter and we have seen it rebound since.

[Operator]

And the next question comes from the line of John Kernan with TD Cowen. Please proceed with your question.

[John Kernan, Managing Director at TD Cowen]

Good afternoon. Thanks for taking my question. Welcome, Jim.

[James Conroy, CEO & Director at Ross Stores]

Thanks, John.

[John Kernan, Managing Director at TD Cowen]

So I think just you've been asked this question on a lot of calls, but I guess looking back at the margin structure of the business, pre COVID, whatever time period you want to look at, to now, the biggest difference is the SG and A rate has risen. And where do you see opportunities to potentially leverage SG and A going forward? Obviously, there's a certain level of comps that would generate that, but are there specific expenses and line items within SG and A that you see under your control that you could bring down as a percent of sales over time?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

The change, I'll be the historical year, the change between pre COVID and post COVID in SG and A is primarily store related costs driven by minimum wage increases. We're continuously looking for opportunities to be more efficient in the store without impacting the customer experience. But going forward, the leverage point for SG and A is about a 3% comp every year.

[John Kernan, Managing Director at TD Cowen]

Got it. Thank you.

[James Conroy, CEO & Director at Ross Stores]

Thanks, John.

[Operator]

And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.

[Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group]

Hi, good afternoon, everyone, and welcome, Jim. Jim, as you think about your time and accomplishments at Boot Barn, what from those accomplishments there in that chain, what do you bring to raw stores that you think can be impactful to the business model given it is a different merchandising and buying strategy? And then just a quick follow-up.

[James Conroy, CEO & Director at Ross Stores]

Sure. No, there's a lot of differences. Certainly the off price buying model is completely different than what I'm used to. There are some similarities, right? Our core customer is roughly the same income, roughly the same age, roughly the same ethnic diversity.

[James Conroy, CEO & Director at Ross Stores]

Blue Barn skewed a little bit more male and cross of course skews a little bit more female. I guess my goal is if I look at the transformation of Boot Barn over a twelve year period, We slowly made progress on different things like store environment and marketing and perhaps there's some similarities here. But I think it's also important to recognize sort of as the CEO my number one, two and three priorities are to sort of pull the team together and establish a go forward strategy and have us all sort of rowing in the same direction. And I feel very fortunate that as I've gotten brought into the business. I feel great about the reception from the management team.

[James Conroy, CEO & Director at Ross Stores]

I think we're already a very cohesive management team. I feel great about the talent that surrounds me. I have two very strong chief merchants, one over Ross and one over Didi's. We have the ongoing support of Barbara from a merchandising standpoint. And so if I were to try to draw a parallel to what I hope to bring here that perhaps helped Boot Barn be successful is just to kind of get the entire team pointing in the same direction and working collaboratively and to build on the success that Barbara has left behind for me.

[Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group]

Thank you. And then just on the topic of tariffs, from the last time there were tariffs, can you just remind us what did the business do to react to those tariffs? What changed in terms of pricing? And does this time, how is it different or the same? Thank you.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

I think overall it will be the same. How did we react? We negotiated costs. We mixed the business where we needed to differently and in some cases we did raise prices. And I think it will be a mix of all of those, but will be partly dependent especially on the price front, what the market how the market responds.

[James Conroy, CEO & Director at Ross Stores]

Yes. As you'd imagine, we're meeting on this, if not daily, extremely frequently with the ever changing landscape. Fortunately for the team, it's not their first rodeo, right? They've seen this before. And I think we have some good strategies in place to sort of mitigate any potential downside, but also to maximize the opportunities that might come our way based on the disruption to the supply chain.

[Operator]

And the next question comes from the line of Jay Sole with UBS. Please proceed with your question.

[Jay Sole, Managing Director at UBS Group]

Great. Thank you. I know this has been asked in

[Jay Sole, Managing Director at UBS Group]

a similar way before, but if you can just let us know if you need any improvement in the comp trend to get to the negative 3% comp guide at the low end of the guide for Q1? And then secondly, just on the fact that there's a 300 basis point difference between the low end and the high end of the comp range, What's the reason for the wider range than normal? Is there less visibility now? If you could just sort of provide more color on that, that'd be helpful. Thank you.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Sure. On the wider comp range, it is absolutely driven by visibility entering the year. What we said on the comp trend is we have seen an improvement and we've built since early February and since weather has improved and we've built that into the first quarter

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

guidance.

[Jay Sole, Managing Director at UBS Group]

So are you saying that you built continued improvement into the guidance is what you're saying?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Correct.

[Jay Sole, Managing Director at UBS Group]

Got it. Okay. Thank you so much.

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Thanks, Jay.

[Operator]

And the next question comes from the line of Christina Catay with Deutsche Bank. Please proceed with your question.

[Krisztina Katai, Analyst at Deutsche Bank]

Hi. Good afternoon and welcome, Jim. So as you think about the improvement in some of your businesses like ladies apparel, you noted a nice improvement into the fourth quarter from 3Q. Can you touch on what are the areas within that are driving that? I think you spoke to the branded strategy being one of them.

[Krisztina Katai, Analyst at Deutsche Bank]

Do you think that can continue in 2025? And just how would you rate the performance relative to where you'd like it to be?

[James Conroy, CEO & Director at Ross Stores]

I would say the team has made some really nice progress. We've achieved the sort of levels of brands that we were hoping to achieve from a target standpoint. I think the content of the assortment was good through the holiday period and it kind of played out in the comp line. In terms of more specificity under that, of course, if you go through the different classifications, you'll see a different trend line between Mitsy Sportswear and active and juniors, etcetera. So there's always places for us to make some ongoing improvements.

[James Conroy, CEO & Director at Ross Stores]

And I think the team is on top of them. I've been sitting through the assortment planning meetings as we look forward for the spring and fall season. And I really like the strategies they have in place and the direction they're taking the assortment.

[Krisztina Katai, Analyst at Deutsche Bank]

Great. Thank you so much.

[Operator]

And our final question comes from the line of Laura Champine with Loop Capital Markets. Please proceed with your question.

[Laura Champine, Director of Research at Loop Capital Markets LLC]

Thanks for taking my question. It's a follow-up to all the discussion about your full year comp guide, which you've explained is wider than normal, lower than normal given the trend. As you look to improve the comp trend in coming quarters, can you get there just from improved weather or do you need market share to accelerate or the macro to improve?

[Michael Hartshorn, Group President, COO & Director at Ross Stores]

Well, the improved weather will obviously help, but the macro backdrop, there's a lot dependent on that. We're not sure if what we're seeing now is shock value of all the volatility in the market or in fact the underlying trend will improve. The good news in off price is we can operate well in a number of environments as others around us struggle in a tough macro economic environment. That means more closeouts for us, which means our ability to get them and pass that on to the consumer with better values. If you go back in history, even in tough macroeconomic times, you have to go back the 02/2008, '2 thousand and '9 levels, we've been able to navigate in the off price environment fairly well.

[Laura Champine, Director of Research at Loop Capital Markets LLC]

Understood. Thank you.

[Operator]

And ladies and gentlemen, at this time, we have reached the end of the question and answer session. And I would like to turn the floor back over to Jim Conroy for any closing remarks.

[James Conroy, CEO & Director at Ross Stores]

Sure. Thank you for joining us on our call today. We look forward to speaking with you on our next earnings call. Take care.

[Operator]

And thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

Participants

Executives

• Connie Kao, Group VP - Investor Relations
• James Conroy, CEO & Director
• Adam Orvos, Executive VP & CFO

Analysts

• Matthew Boss, Analyst at JPMorgan Chase
• Paul Lejuez, Managing Director at Citi
• Michael Hartshorn, Group President, COO & Director at Ross Stores
• Mark Altschwager, Senior Research Analyst at Robert W. Baird & Co
• Lorraine Hutchinson, Managing Director at Bank of America
• Michael Binetti, Senior Managing Director at Evercore ISI
• Brooke Roach, Vice President - Equity Research at Goldman Sachs
• Chuck Grom, Managing Director at Gordon Haskett Research Advisors
• Alex Straton, Analyst at Morgan Stanley
• Adrienne Yih, Managing Director, Consumer Discretionary Analyst at Barclays
• Aneesha Sherman, Analyst at Bernstein
• Ike Boruchow, Analyst at Wells Fargo
• Marni Shapiro, Managing Partner at The Retail Tracker
• John Kernan, Managing Director at TD Cowen
• Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group
• Jay Sole, Managing Director at UBS Group
• Krisztina Katai, Analyst at Deutsche Bank
• Laura Champine, Director of Research at Loop Capital Markets LLC