Ross Stores, Inc. (NASDAQ:ROST) Q1 2025 Earnings Call Transcript

Ross Stores, Inc. (NASDAQ:ROST) Q1 2025 Earnings Call Transcript May 22, 2025

Ross Stores, Inc. beats earnings expectations. Reported EPS is $1.47, expectations were $1.44.

Operator: Good afternoon, and welcome to the Ross Stores First Quarter 2025 Earnings Release Conference Call. The call will begin 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 2024 Form 10-Ks and fiscal 2025 Form 8-Ks on file with the SEC. And now, I’d like to turn the call over to Jim Conroy, Chief Executive Officer.

Jim Conroy: Good afternoon, joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer, Adam Orvos, Executive Vice President and Chief Financial Officer, and Connie Kao, Group Vice President, Investor Relations. I would like to start the call by thanking all of our associates throughout the entire organization who have worked tirelessly the last few months to help us navigate through a volatile and uncertain external environment. I sincerely appreciate the team’s continued dedication and hard work. Let’s turn to our first quarter results. As noted in today’s press release, total sales grew 3% to $5 billion with comparable store sales flat versus last year. Earnings per share were $1.47 compared to $1.46 last year, while net income for the period was $479 million versus $488 million for the same period in 2024.

Despite the slower start to the spring selling season in February, our monthly sales performance improved sharply month after month for the balance of the quarter. For the period, sales and earnings performed at the high end of our expectations while operating margin of 12.2% was flat year over year. Cosmetics was the strongest merchandise area during the quarter while geographic trends were broad-based with the southeast performing the best. Our dd’s discount brand continued its strong momentum from 2024 with another quarter of solid sales and operating profits as the chain’s value and fashion offerings again resonated with shoppers. At quarter end, total consolidated inventories were up 8% versus last year mainly due to opportunistic buys during the period.

Average store inventories were up 4% in line with our plan and packaway merchandise represented 41% of total inventory similar to last year. We believe our inventory is well-positioned as we enter the second quarter. Turning to store growth, we opened 16 new Ross and 3 dd’s discount locations in the first quarter. We continue to plan for approximately 90 new stores this year comprised of about 80 Ross and 10 dd’s. As usual, these numbers do not reflect our plans to close or relocate about 10 to 15 older stores. Before I turn the call over to Adam to provide further details on our financial performance and guidance, I wanted to briefly discuss tariffs and the potential impact they will have on our business. While we directly import only a small portion of our merchandise, more than half of the total merchandise that we sell originates in China.

As tariffs remain at elevated levels, we will be working to find the right combination of pricing versus merchandise margin compression. We believe we have a number of levers available to minimize the overall impact but it is possible that we will see short-term pressure on our profitability. That said, our focus has been and will continue to be to provide our customers high-quality branded merchandise at a great value. From a pricing standpoint, we expect modest but broad-based inflationary pressure across the retail industry. We will remain focused on maintaining a substantial pricing umbrella below traditional retailers in order to deliver the bargains our customers have come to expect from us. Overall, trade policy remains unpredictable and we will continue to see an uncertain environment.

We are pleased with the momentum of the business given the circumstances. In addition, we believe our inventory is well-positioned to maximize availability of closeouts, and we have multiple strategies in place to gain market share while minimizing the margin impact from the tariffs. With that said, in our view, there are simply too many unknown variables that are limiting our visibility into the second half of the fiscal year and we believe it is prudent to withdraw our previously provided annual guidance at this time. Ross Stores and the off-price sector in general have historically benefited from significant disruptions to the supply chain, with more opportunistic buys available to us. We believe it will be no different this time. I will now turn the call over to Adam to provide further details on our first quarter results and additional color on our second quarter outlook.

Adam Orvos: Thank you, Jim. As previously mentioned, our comparable store sales were flat for the quarter. First quarter operating margin of 12.2% was similar to last year. Cost of goods sold was relatively unchanged from a year ago. Merchandise margin declined 45 basis points mainly due to higher ocean freight costs and the initial impact of tariffs. A portion of this tariff impact was caused by purchase orders for goods that were on the water when tariffs were increased. Occupancy and distribution costs rose by 20 basis points and 5 basis points respectively. Filing costs declined by 50 basis points from lower incentives and domestic freight leveraged by 20 basis points. SG&A for the period was flat year over year as the benefit from lower incentive compensation was offset by sales deleverage.

During the first quarter, we repurchased 2 million shares of common stock for an aggregate cost of $263 million under the company’s two-year $2.1 billion authorization approved by our board of directors in March of 2024. We remain on track to buy back a total of $1.05 billion in stock during 2025 and complete the program as planned. Now let’s discuss our outlook. For the 13 weeks ending August 2, 2025, comparable store sales are projected to be flat to up 3%. Earnings per share for the second quarter are now projected to be in the range of $1.40 to $1.55 and includes a cost impact of $0.11 to $0.16 from the announced tariffs. Our guidance assumptions for the second quarter of 2025 include the following: Total sales are forecast to increase 2% to 6% versus the prior year.

If same-store sales perform in line with our forecast, operating margin for the second quarter is projected to be in the 10.7% to 11.4% range which includes a 90 to 120 basis point negative impact from announced tariffs, mostly in merchandise margin. This estimate is based on the current level of tariffs but we recognize there could be a wide range of outcomes given the uncertainty with varying trade policy announcements. Excluding the tariff impact, we would expect merchandise margin to be similar to the prior year. We are also forecasting higher distribution costs as we opened our eighth distribution center earlier this month. Partially offsetting these higher costs are lower incentives. We expect to open 31 stores in the second quarter, including 28 Ross and 3 dd’s locations.

We expect net interest income to be approximately $29 million. The tax rate is projected to be 24% to 25% and diluted shares outstanding are expected to be approximately 325 million. Now I will turn the call back to Jim for closing comments.

Jim Conroy: Thank you, Adam. To sum up, after a slow start in February, we saw broad-based improvement throughout the quarter and were able to meet the high end of our guidance in both sales and earnings. As mentioned earlier, despite the underlying health of the business, we have limited visibility on how customer demands may evolve over the balance of the year given prolonged inflation, deteriorating consumer sentiment, and still elevated and potentially fluctuating tariff levels. That said, we have a seasoned executive team, a flexible off-price business model, and a strong financial foundation that should enable us to navigate through these uncertain times. I do want to specifically commend the entire buying and planning organization for managing through the tumultuous external environment, driving top-line sales growth, and working tirelessly to minimize the impact of tariffs on the performance of the business.

At this point, we would like to open up the call and respond to any questions you may have. John?

Operator: Thank you. We will now be conducting the question and answer session. If you would like to ask a question, your line is in the queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, we ask that you please limit yourself to one question. Thank you. One moment, please, while we poll for questions. And the first question comes from the line of Matthew Boss with JPMorgan.

Q&A Session

Matthew Boss: Great. Thanks. And thanks for all the color. So maybe, Jim, could you elaborate on the cadence of comps or drivers of the sharp improvement that you cited as the first quarter progressed, maybe what you’ve seen in May relative to the flat to 3% comp outlook? And for Michael, I guess, is there a way to walk us through strategies that you have in place to mitigate tariffs in the back half of the year or just maybe any range of scenarios to consider if tariffs were to remain at today’s level the remainder of the year?

Jim Conroy: Sure. I’ll take the first part, Matt. The sequential improvement was really broad-based across the merchandise hierarchy. And as we look at the April business, most departments were performing pretty nicely. As you know, we don’t give current quarter performance trends, but we did guide to a flat to a plus three. So that should give you some sense of how we feel about the health of the business. Michael, do you want to take the tariffs question?

Michael Hartshorn: Sure. Matt, it’s Michael Hartshorn. There’s three very obvious ways to mitigate the cost. The first of which is to work with our vendors and get better costing, which we’ve done at this point even in the second quarter. You can pass along the price, but we want to be very careful with price increases. We don’t want to be the first one to raise prices, and we want to make sure that we keep our value or pricing umbrella versus mainstream retail. And that’s a substantial value gap to make sure we’re delivering the values that customers come to expect. We also have the same toolkit other off-pricers have and that taking advantage of closeouts already in the country. We did that in the second quarter. We also have our packaway. Again, much of that arrived prior to the tariffs so those are unburdened by tariffs. And we’ll use those as well. And in some cases, we’ll be able to shift country of origin.

Matthew Boss: Great. Best of luck.

Operator: Thanks, Matt. And the next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Lorraine Hutchinson: Thank you. Good afternoon. The 2Q gross margin hit from tariffs that 90 to 120. It seems that that would include tariffs at peak rates. Should we expect the impact to come down as we move through the year to current rates? And is that solely related to direct imports, or were you already seeing brands pass through costs the second quarter product?

Michael Hartshorn: The second quarter impact really includes two primary costs. One, the first of which is it did include costs or orders that were already in place when the tariffs were announced. So that includes both the original 30% and also the 145%. The other thing we’ve done in our supply chain is we paused ticketing until we understood what the tariff impact was. So that also includes additional ticketing efforts in the DC until we understand what the ongoing tariff will be across the board. In terms of the back half, as Jim described in the commentary, there are too many variables to reliably predict the back half, and that includes both the consumer behavior on the revenue side, and also retail sourcing market dynamics.

Jim Conroy: I mentioned in Q2, that we did take the hit for goods already in transit. We use closeouts to take advantage of, and we also used our own packaway. Those goods, again, were unburdened by tariffs. So that’s a long-winded way of saying we’ll have to wait and see how the macro economy and retail environment evolves.

Lorraine Hutchinson: Thank you.

Operator: And the next question comes from the line of Mark Altschwager with Baird.

Mark Altschwager: Good afternoon. Thank you for taking the question. Maybe just first a quick follow-up on the comment you just made there. I think you said one of the factors impacting the visibility in the back half relates to maybe less certainty on the product flows. I guess, do I have that right? Maybe unpack how you’re thinking about inventory availability, anything you’re seeing right now that is leading to maybe some concern about what the back half might look like? And then, separately, Jim, you know, when you joined, you spoke to some opportunities in marketing with store environment enhancements. I know those are longer-term initiatives as it is, but just curious how this disruption here with macro trade policy is affecting your short-term playbook there. Thank you.

Jim Conroy: Sure. On the first part, we certainly think there’s availability of closeouts out there. If you think about what happened when the 145 passed, a lot of goods were sort of frozen in time in China. And when that 145 then came back down to 30 about a month later, all those goods were released. So that does provide an influx of closeouts. Not all of them are going to be seasonally appropriate. But there’s a bit of a sort of pig in the python there where that product will be coming through. That said, the other thing that happened when the tariffs were passed at 145 is a lot of production in China came to a halt. So there’s a bit potentially of a gap right behind that. We believe we’re extremely well-positioned to manage through that.

As we look at our receipt plans and our receipt flows for the next few months, we think we can manage through that with no problem. So overall, in the short term, I think there’ll be availability of closeouts. If there is a little bit of receipt risk, we think we’ve managed through that. And then once we get beyond this near term, given just this disruption in the economy and in mainstream retail, we believe that Ross Stores and the whole off-price sector will be benefactors to it. In terms of, you know, some of the things we have laid out in the last call, and, you know, are any change in direction based on the current environment. In the last call, we’ve sort of laid out an early vision for some of the things that we think can improve the overall brand experience across and the store experience to complement the great merchandise that the merchants bring and deliver to the stores.

I also explained at that point that this is part of a transformational and evolutionary change and not sort of a revolutionary or significant step function change. And so based on that, I see very little reason to drastically change our focus on that longer-term vision of trying to bring merchandising, marketing, and stores in concert to really contemporize the brand and drive more store traffic. We’ll be doing that in an expense-neutral way. We don’t plan to overly invest this year, given the macro environment, but nor do we want to put all of those plans on pause.

Mark Altschwager: Thank you.

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

Tracy Kogan: Thanks. It’s Tracy Kogan filling in for Paul. I just had one quick follow-up and then another question. So we should think about the $0.11 to $0.16 in 2Q as including some mitigation because I think you said that you were able to negotiate some costs with vendors. So I just wanted to check on that. And then secondly, I wondered if you’re seeing a trade-down customer, and if that may be contributed to the improvement in the quarter? Thanks.

Michael Hartshorn: In the second quarter, it does include some mitigation, but it also includes product that was on order in transit when the tariff arrived. So there was no chance for mitigation. On the comp, if we look at comp by income band across the company, we saw the comps are fairly broad-based. So that’s our only indicator, and it doesn’t suggest a change across income bands.

Tracy Kogan: Great. Thank you.

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

Michael Binetti: Hey guys, thanks for taking our questions here. So I guess I just want to ask maybe a jump ball, but maybe the different scenarios that you’re looking at for 2Q, but, you know, that would land us between a zero and a three comp since it certainly sounds like the exit rate was good from 1Q or maybe even just the difference between the wider spread 2% to 6% on total revenues. Or, you know, what are you leaving room for to decelerate if we entered the quarter at a better pace? And then I guess just the narrative around off-price and the difference between direct sourcing being very small in China and your helpful comments today that it’s up to half of the total goods sold. How much of that is the indirect portion is coming from China is semi-permanent and recurring goods that are made up for you versus, you know, the ability to quickly move some of that exposure that’s been recurring in China for a long time to other geographies?

Is that muscle that the sourcing team in Asia has today or is that muscle that you have to build? Maybe you could give us just a few thoughts on that.

Michael Hartshorn: Michael, I’ll start with the guidance range. It was really just out of abundance caution given the macroeconomic and geopolitical environment. You know, we’re cognizant that inflation has been going on a long time, and it’s impacting our core customer. And the impact of tariffs, we expect to start hitting the customer, you know, in July, June, July timeframe. So we want to see how we exit the quarter. So those are really the two reasons that we’re more cautious with the guidance and we have a bigger range. In terms of the sourcing, as we said in the commentary, about a small portion are directly sourced and what that means for us. That’s the piece that we’re responsible for the tariff. There’s some portion of our goods, remember, we’re in the closeout business.

So we’re agnostic to where it’s sourced. We’re looking for value-branded value to the customer. So when you look at even though we take possession where it’s already in the country, it was originally sourced from China. The piece that we have, the direct control over country of origin is the small portion that we directly import in mainly in home and shoes. And on that other portion there, the market available piece, all the off-price players essentially shop from the same market. So we don’t think we’re going to be uniquely less competitive at least in any significant way. It just the market is still pretty heavily reliant on China imports.

Michael Binetti: Understood. Okay. Thanks for all the clarifying comments. Appreciate it, guys.

Michael Hartshorn: No problem.

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

Alex Straton: Perfect. Thanks so much. I wanted to touch on the branded strategy that you started enacting last year. Just, you know, where that stands now, if the mix is where you want it to be, and if it does still remain a margin drag or and how you think about that for the rest of the year. And related to that, I just wanted to dig into women’s apparel. I know that’s been a focus for you all. So just curious how that particular category is doing for you if the brand and product is helping out there. Thanks so much.

Jim Conroy: Sure. So we feel very good about the team’s execution of the branded strategy. And I think at this point, we can say we’re sort of hitting the guidelines or targets that we had hoped to. Those are a little bit fluid. They’re not hard and fast rules, but we’ve gotten the entire assortment repositioned in a way where we are bringing true branded values to the consumer. So we feel great about that. There was a slight tail of an impact in margin in the beginning of this quarter, but now we fully anniversaried it. So we don’t expect margin headwinds going forward any longer from the brand strategy. And as you pointed out in your question, it was very astute. The branded strategy was really for the entire business. It tended to then take on a more heavy focus on the ladies’ business.

We generally keep our cards close to our vest in terms of how the business performs by category. That said, in this particular quarter, we were very encouraged that the ladies’ business was in line, in fact, slightly better than the chain average. So I think we can, you know, it’s early days, and we’ve perhaps have some business owed to us in the ladies’ category over the last few years. But it’s now at least trending in line with the rest of the company.

Alex Straton: Thanks so much. Good luck.

Michael Hartshorn: Thank you.

Operator: And the next question comes from the line of Chuck Grom with Gordon Haskett.

Chuck Grom: Hi, thanks. Good afternoon. Just on the tariff topic, can you talk about your expectations for elasticity if you have to raise prices as we progress throughout the year, you know, maybe what you’ve learned in the past, what categories your confidence is the most high. Thank you.

Jim Conroy: I don’t have a great sort of knowledge base for past years here. I think the elasticity is going to depend on the category of business and whether it’s discretionary or functional in nature. So when we’re looking at pricing, we’re being very strategic in terms of sort of what’s the end use of that item and how much leeway do we have to change prices. And we’re also very cognizant of what’s happening across mainstream retail, both their full price goods and what they’re clearing as well as the other players within our sector. So there’s a lot of factors that go into it. And the elasticity, I think, will depend, not only across categories, but even within categories down to the specific item. I would circle back to a comment I made earlier.

Right? I think we’re all in the same boat here as it relates to elasticity. Right? So all retailers that are selling footwear and apparel and home goods are going to face into the same set of questions. And it’ll be interesting to see how it all plays out. We do expect broad-based inflationary pressure across all retailers. And that will create some disruptions and we tend to come out on top and victorious being an off-price or when that happens.

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

Brooke Roach: Good afternoon, and thank you for taking our question. I was hoping you could talk about your category plans for mitigating tariffs. Are there any opportunities for you to shift assortment either within categories or within subcategories to try and minimize the sourcing impact from China towards other countries? Over time, how much can that be shifted both for your direct sourcing and also for some of your vendor partners? Thank you.

Jim Conroy: Sure. So there’s a tremendous amount of flexibility. It does, again, kind of depend on the item specifically and the timing. So as we roll into back to school, if you need to have certain signature items like backpacks, you need to find a way to get backpacks into the assortment one way or another. As you get further into the fall, you might have the ability to amplify one part of the assortment and downplay another to mix out the margin or to mitigate the tariff a bit. There are certain signature items and signature categories that we want to have in assortment regardless of the impact to markup. So we’re sort of thinking about it very strategically. All of the vendors, the entire marketplace is trying to resource goods.

Right? So for third-party product, all of our vendor partners are moving quite quickly to resource product, but it’s still a several-month process. And then similarly for the product that we direct import, on occasion, you can find another country that manufactures a very similar item and hopefully at the same quality level. Otherwise, we would sort of void it out. But that also as we switch to new countries or try to resource goods, there’s a timeline associated with that at all. So that’s a 2026 sort of adjustment, not a 2025 adjustment.

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

Juliana Duque: Hi. This is Juliana Duque on for Ike. Thank you for taking my question. Just wanted to ask when we’re thinking about the impact that we’re seeing by consumer and by income level, what you’re seeing there and if there’s anything that you could parse out between the traffic and spend trends there as well. Thank you.

Michael Hartshorn: Sure. As I said earlier on the call, for us, we look at stores on the population around the store and the income levels to try to band performance by income level. And for us, it was fairly broad-based across income levels. As far as comp components for the quarter, comps were flat. As we said, a slightly higher basket was offset by a slight decline in traffic, particularly earlier in the quarter. The higher average basket was driven primarily by the number of units sold as average unit retails was flat.

Operator: And the next question comes from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your question.

Simeon Siegel: Thanks. Hey, guys. Good afternoon. Understanding that there are moving pieces like incentive comp you mentioned, I just what’s the best way to think about what comp you need to leverage overall SG&A at this point? Just reflecting on, I think, the flat SG&A on a flat comp this quarter. And then just general thoughts on various category opportunities and challenges going forward as I was wondering about Children’s. I think this is the first quarter in over a year that you haven’t even called that out as an area of strength. So anything there would be helpful. Thank you.

Michael Hartshorn: Excluding on the first question, obviously, excluding the impact of tariffs, obviously, this can vary from quarter to quarter. In the first quarter, we were able to hold EBIT margins at the flat comp. But, generally, over an annual period over a longer term, it’s 3% to 4% to be able to leverage. And in terms of the category detail, I wouldn’t read anything into it. We tend to try to provide a small amount of color on the categories that are overperforming. Occasionally, we call out those that are massively underperforming. There’s nothing really notable about the kids’ business to call out.

Operator: And the next question comes from the line of Dana Telsey with the Telsey Advisory Group.

Dana Telsey: Hi. Good afternoon, everyone. As you think about the performance this quarter, was there a difference between the stores along the border versus the base? And also any color on how dd’s has done. And then lastly, as you’re thinking about the merchandise margin go forward, how do you think about that margin puts and takes and how you’re planning inventory? Now I just have a quick follow-up. Thank you.

Jim Conroy: Dana, okay. Let me go through all of the first, let me talk through the geographies and border store locations. We mentioned in the release that Southeast was the strongest region for us. Our largest market, California, Florida, and Texas, were relatively in line with the chain. Texas, specifically, the border stores were well below the chain average and had a slightly negative impact on the overall chain, even with the low number of stores. What we attribute the quarterly performance to was the long delays for cross-border traffic to get in and out of the country. We also saw a negative impact in our northern border stores, but we have very few stores there. So not a large impact on the chain. You want to take dd’s?

Both brands, both Ross and dd’s, saw nice sequential improvement throughout the quarter from month to month. The acceleration if I compare February to April, was actually much stronger in Ross. But admittedly, it started at a lower point. So dd’s business continues to perform well. It was comp enhancing for us for the quarter. I think it’s a testament to some of the strategies around cold weather stores, the young customer, etcetera, that have proven out to be the right strategies and the team is executing very well against them. And, Dana, your question on merch margin going forward and puts and takes, outside of the tariff impact, you know, we’d expect merchandise margin to be neutral versus last year in the second quarter. And, Jim, mentioned earlier, our brand strategy that’s put pressure on merchandise margin over the last, call it, year.

We’re past that point of pressure.

Operator: And the next question comes from the line of Aneesha Sherman with Bernstein. Please proceed with your question.

Aneesha Sherman: Thank you so much. I’m curious to hear some context around how you’re thinking about pricing. Over the last few years, you’ve chosen at a couple of times not to pass on cost inflation but rather absorb it, and you did this in 2023 with freight costs. You did it again over the last year with the branded strategy and chose to absorb that. Why is your approach different now? I heard what you said around competitors raising prices, but that was also the case in recent years. What’s driving a different approach? And do you still think that Ross can maintain the perception of value with your lower-income consumer whilst raising prices? Thank you.

Michael Hartshorn: Aneesha, on the pricing, I would disaggregate the brand strategy from choosing not to raise prices. We were indeed shifting brands, but we were also maintaining our value proposition versus not only our direct competitors in off-price, but also traditional retailers, whether it’s department and specialty stores. In this case, we expect to see broad-based inflation, not category-specific, with the tariffs. And so we would expect to be able to maintain that value proposition against the whole retail set.

Operator: And the next question comes from the line of Marnie Shapiro with Retail Tracker. Please proceed with your question.

Marnie Shapiro: Hey, guys. One just clarification. How many dd’s stores did you say you opened in the quarter? You said it kind of quickly and I missed that. And then you could talk a little bit about your use of packaways and specifically you’ve been very effective using them for times when you really needed the goods on time. So polos for Father’s Day, dresses for Mother’s Day or Easter. Were you able to pack away as much as possible for back to school, you know, back to your backpack analogy or comment? Or Christmas decorations and tchotchkes because you know, all of that stuff is from China. What does that look like? What does the hunt auction of your packaway look like?

Jim Conroy: Sure. On the first part of your question, apologies if that wasn’t clear. Three dd’s were opened in the quarter. In terms of packaway, I don’t think the complexion of packaway is all that different in past years, but we are really focused on places where if we thought there was any receipt risk, we could fill it in with products from the hotel. So I think we’re extremely well-positioned to kind of maximize our business and continue to flow goods to the store and while at the same time work through this tariff situation and minimize the impact as much as we can. And perhaps the last piece I would add to that circle back to the prior question, we fully intend to continue to be quality product, branded values in the store. So the pricing piece, I don’t think we will lose our edge at all for being extremely well branded at great values.

Operator: And the next question comes from the line of Laura Champine with Loop Capital Markets. Please proceed with your question.

Laura Champine: Hi. Thanks for taking my question. I know that we’ve talked about tariffs sort of ad nauseam, but I’m still not clear on what the strategy is. So if you’re at more than 50% of goods from China today, assuming tariffs don’t change from here, where would you expect to be at the end of the year?

Jim Conroy: So there’s multiple things we can do to try to source product from other countries, but at the end of the day, there’s a lot of product, particularly over the next six months, that is going to be imported from China for us and for every other retailer and every other off-price company. So the amount of flexibility that you have as you sit in the middle of the year for the next three to six months is somewhat limited. I’m not prepared to give you an exact number for what our sourcing by country will look like six months from now. I would tell you that what the merchants are looking at is how do I deliver product to the store that is part of a compelling assortment at a great value? And in this environment, I expect a lot of that will come from the closeout part of our business.

And some of it might come from resourcing merchandise overseas. But they don’t start with a country of origin in mind. Right? In most cases, we’re not the first company importing the product. I hope that helps.

Operator: And the next question comes from the line of Corey Tarlowe with Jefferies. Please proceed with your question.

Corey Tarlowe: Great. Thanks. Jim, I was wondering if you could just provide a little bit of color on traffic trends that you saw in the quarter. I think you implied that things got better, but it was down. So did you end up? And then just on AUR, what have been the key drivers there beyond is it just bringing in good better more of the better invest type products?

Jim Conroy: Sure. So the quarter started off slow. It seems like a lot of retailers started off slow in February. And then the business got better from between February and March, and then got better again between March and April. And significantly so at Ross. A portion of that, not all of it, a portion of that was the shift in Easter. In terms of traffic or transactions, if we look at just the April business, you know, we had a pretty solid comp there. And it was largely transactions-based, a little bit of help from AUR, but a very small increase in AUR. And then we had a bigger basket driven by more units per transaction. If I were to look at the April business in a vacuum, I would be pretty pleased. Right? We had growth across all three elements, transactions, AUR, and UPT, sort of a very healthy way to drive a comp. And our exit performance coming out of the quarter was pretty strong.

Corey Tarlowe: Okay. Great.

Operator: And the next question comes from the line of Krisztina Katai with Deutsche Bank. Please proceed with your question.

Jessica Taylor: Hi. This is Jessica Taylor on for Krisztina. Thanks for taking our questions. I just wanted to follow-up a little bit on the performance by income and the health of the customer. And just to follow-up on Juliana’s question a little, asked differently. Have you seen any changes in terms of the customer behavior, in their spend, how they’re approaching their buying from, you know, last quarter or, you know, the last six months? Thanks.

Jim Conroy: I would say not really. Michael commented a little bit on the income bands, and there’s some very slight movement there. But anticipating this question, we were looking to try to find that, you know, and support or validate the logical hypothesis, but it just wasn’t obvious within the data. In terms of customer behavior, perhaps you could say there’s a little bit of a shift towards more functional items versus discretionary items. Right. I wouldn’t say there’s anything that’s glaringly different.

Operator: And our final question comes from the line of Adrienne Yih with Barclays. Please proceed with your question.

Angus Kelleher: Hi. This is Angus Kelleher on for Adrienne. You noted that cosmetics was the strongest merchandise area in Q1. Can you elaborate on what’s driving that strength? Was it brand mix, pricing, or something else? And do you expect this momentum to continue? Then, also, given the flat comp performance and cautious consumer backdrop, are you seeing any shifts in consumer behavior around basket size or frequency specifically? Thank you.

Jim Conroy: So on the cosmetics piece, I would give kudos to the team for some really strong execution and for putting together a great assortment there. That is because cosmetics is a pretty broad category, but part of what’s driving it is some of the better brands there. And a little bit of a trend in that space for a particular type of cosmetic. So we feel good about that. In terms of frequency and basket size, etcetera, there’s very small changes. Nothing to call out just yet in terms of consumer behavior in the quarter, certainly in the second half of the quarter versus if you go back to our fourth quarter, where we had a nicely positive comp, they feel relatively similar to us.

Operator: And there are no further questions at this time. I would like to turn the floor back over to Jim Conroy for any closing remarks.

Jim Conroy: Very good. Well, thank you everyone for joining us on our call today. Look forward to speaking with you on our next earnings call. Take care.

Operator: Ladies and gentlemen, that does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time.