Ross Stores, Inc. (NASDAQ:ROST) Q2 2025 Earnings Call Transcript

Ross Stores, Inc. (NASDAQ:ROST) Q2 2025 Earnings Call Transcript August 21, 2025

Ross Stores, Inc. beats earnings expectations. Reported EPS is $1.56, expectations were $1.53.

Operator: Good afternoon, and welcome to the Ross Stores Second Quarter 2025 Earnings Release Conference Call. [Operator Instructions] 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 in the company’s fiscal 2024 Form 10-K and fiscal 2025 Form 10-Q and 8-Ks on file with the SEC. And now I’d like to turn the call over to Jim Conroy, Chief Executive Officer.

James G. 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; Bill Sheehan, Group Senior Vice President and Deputy Chief Financial Officer; and Connie Kao, Group Vice President, Investor Relations. I would like to begin the call by recognizing the efforts of the entire Ross organization this past quarter. Despite ongoing uncertainty in the external environment, the team’s dedication and hard work have been truly commendable. Their commitment has helped us to adapt quickly, execute on our ongoing initiatives and deliver a solid quarter. Now let’s turn to our second quarter results. As noted in today’s press release, we are encouraged by the sequential improvement in sales trends relative to the first quarter.

This improvement was broad-based with a positive change in trend in nearly all major merchandise categories and most of the regions across the company. During the second quarter, sales in May were strong and softened in June before rebounding sharply in July. We were pleased to see the improved trend at the end of the quarter, particularly with the early sales performance related to the back-to-school selling season, which bodes well for the third quarter. We ended the period with second quarter sales in line with our expectations, while earnings modestly exceeded the high end of our guidance range due to lower-than-expected tariff-related costs. Operating margin decreased 95 basis points to 11.5% compared to the prior year period, primarily reflecting tariff-related costs.

Total sales for the period grew 5% to $5.5 billion, up from $5.3 billion last year, with comparable store sales up 2%. Earnings per share for the 13 weeks ended August 2, 2025, were $1.56 on net income of $508 million. Included in this year’s second quarter earnings is an approximate $0.11 per share negative impact from tariff-related costs. These results compared to $1.59 per share on net earnings of $527 million in last year’s second quarter. For the first 6 months, earnings per share were $3.03 on net income of $987 million. These results compared to earnings per share of $3.05 on net earnings of $1 billion for the first half of 2024. Sales for the 2025 year-to-date period grew to $10.5 billion, up from $10.1 billion in the prior year. Comparable sales for the first half of 2025 were up 1%.

In the second quarter, cosmetics was the best merchandise area. By geographic region, the strongest markets were the Southeast and the Midwest. Overall comp store sales at dd’s DISCOUNTS were solid and ahead of Ross, while monthly trends were closely aligned between the 2 chains throughout the quarter. It was encouraging that both chains saw growth in both traffic and basket size with strong momentum exiting the quarter. At quarter end, both total consolidated inventories and average store inventories were up 5% versus last year. Packaway merchandise was 38% of total inventories at quarter end compared to 39% last year. We feel good about our inventory levels and believe we are well positioned for the back half of the year. Turning to store growth.

In Q2, we opened 28 new Ross and 3 dd’s DISCOUNTS locations. These openings reflect our expansion into new and existing markets. New market entries included several stores in the New York Metro area as well as our 3 inaugural stores in Puerto Rico. We remain on track to open a total of approximately 90 new locations 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 provide an update on tariffs. While tariffs remain at elevated levels, we feel good about the progress the merchants have made to mitigate the impact on margin. The team has worked tirelessly to execute a multipronged approach, including vendor negotiations, diversifying our sourcing mix and adjusting prices strategically.

Additionally, we were able to expand the portion of our business driven by closeouts, which further mitigated the impact. Looking ahead, we are confident that we can continue to offset most of the impact of tariffs, but we do anticipate modest pressure in the third quarter, which we expect will be further mitigated in the fourth quarter. From a pricing perspective, we are beginning to see higher prices across the retail industry. With this backdrop, we are focused on maintaining our value proposition relative to traditional retailers while balancing the opportunity to preserve our merchandise margin. Our top priority will always be providing high-quality branded merchandise at outstanding value. The off-price sector has historically benefited from disruptions within the supply chain and the retail industry.

We believe this time will be no different. I will now turn the call over to Adam to provide further details on our second quarter results and additional color on our outlook for the remainder of fiscal 2025.

Adam M. Orvos: Thank you, Jim. Second quarter operating margin decreased 95 basis points to 11.5% and included an approximate 90 basis point negative impact from tariff-related costs. Cost of goods sold during the period increased by 70 basis points. Distribution costs deleveraged by 55 basis points, primarily from the opening of a new distribution center in the second quarter and tariff-related processing costs. Merchandise margin decreased 30 basis points, which included the impact of tariffs and occupancy deleveraged 10 basis points. Partially offsetting these higher costs were lower domestic freight and buying costs of 15 and 10 basis points, respectively. SG&A for the period deleveraged by 25 basis points, partly due to CEO transition costs.

During the second quarter, we repurchased 1.9 million shares of common stock for an aggregate cost of $262 million. As a result, we remain on track to buy back a total of $1.05 billion in stock for the year. Now let’s discuss our outlook for the remainder of 2025. As Jim noted in today’s press release, given the uncertainty associated with the macroeconomic environment, we will maintain a somewhat cautious approach to planning our business for the balance of the year. For both the third and fourth quarters, we are planning comparable store sales growth of up 2% to 3%. If sales perform in line with this guidance, third quarter earnings per share are expected to be in the range of $1.31 to $1.37 versus $1.48 last year and $1.74 to $1.81 for the fourth quarter compared to $1.79 in 2024.

These ranges include a negative tariff cost of approximately $0.07 to $0.08 and $0.04 to $0.06 per share in the third and fourth quarters, respectively. These estimates are based on the current level of announced tariffs. If the second half of 2025 performs in line with these projections, earnings per share for the full year are now forecast to be in the range of $6.08 to $6.21 versus $6.32 last year. For fiscal 2025, we anticipate an approximate $0.22 to $0.25 per share impact from announced trade policies. As a reminder, last year’s fourth quarter and fiscal year results included a onetime benefit to earnings equivalent to approximately $0.14 per share related to the sale of a packaway facility. Now let’s turn to our guidance assumptions for the third quarter of 2025.

Total sales are forecast to increase 5% to 7% versus the prior year. We expect to open 40 stores during the quarter, including 36 Ross and 4 dd’s locations. Operating margin for the third quarter is planned to be in the 10.1% to 10.5% range, which includes a 50 to 60 basis point negative impact from tariff-related costs. Our forecast also reflects unfavorable timing of packaway-related costs and continued deleverage from the opening of a new distribution center in the quarter. Net interest income is estimated to be approximately $27 million. The tax rate is projected to be about 25%, and diluted shares outstanding are expected to be approximately 323 million. Now I will turn the call over to Jim for closing comments.

James G. Conroy: Thank you, Adam. We are encouraged by the sequential improvement in sales trend relative to the first quarter, particularly the strength of our early back-to-school business in July. We believe pricing will move higher across the entire retail landscape, leading consumers to seek more value this fall season. As such, we are positioning our assortments to deliver high-quality branded merchandise at compelling price points to reinforce our value proposition. We strongly believe this strengthens our competitive position to capture market share over the balance of the year. Before we turn to your questions, I would like to take a moment to recognize and thank Adam Orvos for his contributions to Ross. As many of you know, Adam is retiring from Ross at the end of September.

His leadership and financial expertise have been instrumental to our success, and we wish him well in this exciting new chapter. We also appreciate Adam working closely with Bill to ensure a smooth transition. At this point, we would like to open the call and respond to any questions that you may have. John?

Q&A Session

Operator: [Operator Instructions] And the first question comes from the line of Matthew Boss with JPMorgan.

Matthew Robert Boss: Nice to see the improvement. So Jim, could you speak to notable areas of sequential top line improvement that you saw and elaborate on the sharp rebound in July and early back-to-school trends that you’re seeing maybe relative to your 2% to 3% comp guide, which I think you said embeds a somewhat cautious planning approach. And then just for Adam, gross margin drivers in the third and fourth quarter, if you could just help break down relative to the 70 basis point decline in the second quarter, I think, would be really helpful.

James G. Conroy: Is that your one question, Matt?

Matthew Robert Boss: Trying my best for you, Jim.

James G. Conroy: On the first part of your question, I’ll give you some color on the specifics, but the most encouraging thing was we’ve seen broad- based sequential improvement from the first quarter into the second quarter. nearly every merchandise category improved and most were positive in the second quarter. And towards the tail end of the second quarter, particularly in July, nearly everything was turning positive or was positive. So we felt very good about that. And if you went back even to the end of the first quarter, we had called out that we had sequential improvement from February into March, March into April. Part of that was the Easter shift. We had a solid May. June was a little bit depressed going up against the strongest month last year, but then July was very strong.

So we felt very good or feel very good about the momentum coming out of the quarter. From a category perspective, cosmetics was very strong. It was nice to see the ladies business comping nicely positive and better than the chain average. That’s gotten a lot of attention over the last few years. So kind of kudos to that merchandising team that has gotten that business up to the comps that they’re achieving now. And with that, I’ll turn it over to Adam for the balance of this question.

Adam M. Orvos: Yes, Matt. On the second half, so let me take tariff costs first. So I talked about the 90 basis point impact on operating margin in Q2. That was primarily in 2 components of cost of goods sold. The impact on product cost was the primary driver and the other is DC processing costs as we had less merchandise pre-ticketed by our vendors, which impacted our profitability. So we do expect tariff pressure on merchandise margin in the balance of the year, but expect it to be slightly lower than what we experienced in Q2. The remaining improvement quarter-by-quarter in tariff cost is primarily in distribution as we expect to revert back closer to those historical pre-ticketing levels. Other moving parts in the back half, I mentioned in the call commentary, packaway, just based on how we see the flow of goods in the back half.

That will put pressure on our Q3 earnings and then expect to recoup that in fourth quarter based on how we see year-end inventory. The other big moving part is, I mentioned the new distribution center in Q2. As we ramp up the production in that facility, it will put pressure on that portion of DC costs. for the balance of the year.

James G. Conroy: Matt, I want to circle back there. There was a piece of your question I didn’t address, which was the 2% to 3% comp guide. As we put in the press release, we are looking at the balance of the year with some cautious optimism. So we’ve embedded a little bit of that into the 2% to 3% guide. If you want to play at a bullish case, we are going up against a softer quarter last year in Q3 than Q2. But there’s a lot going on in the macro environment. So we want to embed some conservatism.

Operator: And the next question comes from the line of Lorraine Hutchinson with Bank of America.

Lorraine Corrine Maikis Hutchinson: It sounds like your appetite for raising prices has increased as you see, I think it’s going up throughout the industry. How is the customer responding? And do you expect prices to fully offset the tariff pressures by next year?

James G. Conroy: So I wouldn’t read too much into our — we’ve had a very, very modest change in prices. The low, low single-digit change in AUR. We’re going to be very cautious about our changes in AUR going forward. The Ross brand depends on being the best bargains in the market, and we’ll — we’re going to be looking at our direct competitors and sort of the broader retail landscape to see movement before we make any significant changes in AUR. On the last part of your question, I do think that going into next year, there’ll be just a new equilibrium of prices. And as you’ll note in this particular year, the tariff-related impact will get smaller between Q2 and Q3 and Q3 and Q4. And we’d like to come out next year, and we’re certainly not going to guide on this call and not be spiking out tariffs separately.

But I think by then, there’ll be just another set of retail price equilibrium, and we’ll find our place with an umbrella underneath where everybody else is price.

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

Michael Charles Binetti: Congrats on the improvement in the quarter. Maybe just help me think through a couple of the guidance components. The original guidance you gave us for the year, the high end was $6.55, good performance against what you were planning in the first half here, but then we had $0.22 to $0.25 of tariff. I would have thought maybe $6.30 to $6.33 versus the new guidance at $6.21 at the high end. Is there anything you can point me to beyond tariffs that you guys have embedded in this year? And then can you — I guess, Jim, can you just — can we hear a little bit about some of the initiatives that you spoke to early on here? You outlined signage, marketing, store operations, queue line. Any positive proof points you can point to so far in the stores that have received the majority of those initiatives?

James G. Conroy: Michael, I’ll start with some of the initiatives. It’s Michael Hartshorn. On the — some of the things we spoke about, first was the store refreshes. We’re — we expect to get through about half of our stores this year. And as a reminder, what we’re doing in the existing stores is changing up the signage, which includes new perimeter and wayfinding signage along with addressing cosmetic type repairs in the stores. We expect to get through half of the stores this year for the stores we completed. We think the stores look great, and then we expect to complete the chain in 2026. I think you also know we’ve been piloting self-checkout. We have that in about 80 stores today, and that’s been very successful for us.

We’ve been able to — the customer has really enjoyed the experience. It’s allowed us to reduce line lengths, and we’ve been able to control shortage. So we’ll — we’re planning to expand to a number of stores next year, mainly in our high-volume stores that will help us improve customer throughput.

Adam M. Orvos: And Michael, this is Adam. If your question was back to how we guided at the beginning of the year, obviously, the biggest driver is the tariff impact, right, which we’re now kind of pegging at $0.22 to $0.25 for the year. And then secondarily have a little bit more conservative sales assumption for the full year than we did back in March.

Michael Charles Binetti: Could I follow that by just asking the SG&A dollar budget for the year, where it’s at today versus what you initially set it at coming into the year in March. Any change there would be noted?

Michael J. Hartshorn: I think we’re pretty consistent, Michael. There isn’t significant changes in SG&A.

James G. Conroy: And Michael, we never got to your question around initiatives, store environment, marketing. Michael Hart, you want to address the store signage piece, which is a very nice upgrade to contemporizing the store look and feel. We are looking at a lot of things in terms of the store labor model, given the fact that we have more than 2,000 stores and it’s a very complicated equation, we have deployed a number of tests that are out there right now, tweaking different things to see if we can get more throughput and try to drive sales by putting more labor into some stores. So it’s much too early to comment on the results of that. From a marketing standpoint, we have launched a new campaign in [indiscernible]. So at Ross, it’s a campaign called Work Your Magic!.

There’s 4, just terrific spots that the team has put together. They parking back to brands at a great value, but maybe with a bit more of an emotional connection for a customer. And then dd’s has its own campaign called Don’t sleep on dd’s. That’s entirely a digital campaign. So you have to be on one of the meta platforms or on TikTok to see it. But a very cool and energetic campaign for dd’s as well. So it’s very early days, but I’m really pleased to see the organization respond so quickly and come up with some — what I believe to be some really nice changes early on.

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

Paul Lawrence Lejuez: Curious if you could talk a little bit more about your transactions versus ticket, how that changed during the quarter when you referenced acceleration in July, curious what those metrics were a bigger driver. Any color you can give there? And just also how you’re thinking about transactions versus ticket in the back half? And then second, Jim, I’m sure you guys had an availability of merchant in terms of like what merchandise would look like, availability of merchandise would look like before the quarter coming into the quarter. I’m curious what you’re seeing relative to your expectations? Any surprises within certain categories? Do you anticipate having any holes in the assortment for holiday?

Michael J. Hartshorn: Paul, it’s Michael Hartshorn. You’re breaking up a bit, but I think your question was the composition of the comp in terms of transactions and what we saw during the quarter. As we said in the commentary, the 2 comp was driven by a slight increase in traffic and also an average increase in the average basket. The basket itself was driven by both slight increases in AUR and units per transaction. If you looked at that, where we were very strong in May, dipped in June and then strong again in July, across the quarter, it was driven by a mix of traffic and also a higher basket.

James G. Conroy: In terms of availability, we feel very good about the availability of closeouts in the second quarter, one of the things we called out in the script was that was one of the things that helped us get to the low end of the range of the tariff impact by leaning in more into closeouts. So I’d say availability is super strong.

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

Alexandra Ann Straton: Perfect. Congrats on a nice quarter. Maybe just looking at profitability, I know that the second quarter makes for the second one where you’re lapping that branded strategy from last year. So is higher branded mix a permanent margin headwind to the business? Or do you see scope for it to eventually drive total profitability higher, which I think was the initial intent? And maybe bigger picture, can this business return to kind of low teens margin over time? Or does that branded mix being higher keep you from getting there?

Michael J. Hartshorn: Alex, our initial idea with the branded strategy is that early on, it would be a margin hit, but we’d be able to build on that over time as we sharpened our expertise, built better vendor relationships, had access to branded closeouts and our thoughts on that have not changed. So we believe we can build on it over time.

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

Brooke Siler Roach: Are you seeing any increased signs of consumer trade down activity or changes in the demographic mix of consumers in your store either by income or race as prices have increased across the ecosystem this holiday season?

Michael J. Hartshorn: Brooke, on trade down, we didn’t see a change in income cohorts. It was pretty broad-based in the quarter. From an ethnic standpoint, as we’ve said in the past, we do serve a broad customer base, but our Hispanic customers are very important to us. They skew higher than the U.S. census. During the quarter, stores that had a high concentration of Hispanic population underperformed the chain. That was especially true in June and especially in Southern California. The good news is we did see a bounce back in July.

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

Mark R. Altschwager: Just on the tariff mitigation front, I wanted to get a little bit more detail there. Just any update on the actions you’re taking that are working here as we think about better buying, category flexibility, price, what’s moving the needle to offset the pressure on merchandise margin? And what are the factors that could potentially drive greater-than-expected mitigation in the back half of the year?

James G. Conroy: Sure. Well, the merchandising team has just been working tirelessly to mitigate the impact. If you were to take the tariff rates that are out there and just do simple back of the envelope math and just flow it through unmitigated, of course, the impact would be much greater than what we’ve seen. So that’s thanks to just a tremendous amount of hard work in shifting buys, negotiating with vendors, very little increase in AUR. So that really hasn’t been a factor, but also increasing the amount of closeout merchandise versus upfront than we initially had planned. So as we roll forward, as I said earlier, I do think we’ll wind up with pricing equilibrium. We have no intentions of being the first ones to go out with higher prices. So we’ll be watching sort of the rest of the retail industry. And as soon as that equilibrium starts to take effect, we’ll have some room to kind of grow into any inflated costs that we need to accept.

Michael J. Hartshorn: The other change that Adam had mentioned is at the very beginning, when China was at 145%, we stopped vendor pre-ticketing to give us the flexibility if we chose to change prices once the goods came into the country. We expect — we did have an impact in Q2. We had a lesser impact in Q3, and we expect that to completely wane in the back half of the year as we return to our historic levels of vendor preticketing.

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

Unidentified Analyst: This is Ryan Volger on for Chuck here. I wanted to ask a related question on the restored guide. Obviously, you have a lot more confidence now in what business is going to look like for the second half of the year as compared to 1Q. And I was just wondering if you could unpack how much of that is more stability in the environment versus things you’ve learned as you’ve undertaken these efforts over the past few months.

Michael J. Hartshorn: Sure, Ryan. It’s actually pretty simple. At the time, we had just come off the 145, and we hadn’t purchased a significant majority of our merchandise for the back half of the year. So now that we’re Q3 substantially bought, we have the majority bought — more than the majority bought in Q4. We have a good read on our fall purchasing. At the same time, although it still changes quite often and it’s dynamic on the tariff front, it’s more stable than it was at the beginning of May.

Unidentified Analyst: Great. And then one other thing I wanted to ask, have you seen anything different on customer cohort trends by age? Are you mixing any younger, seeing any more millennials or Gen Z customers?

Operator: And the next question comes from the line of Irwin Boruchow with Wells Fargo.

Irwin Bernard Boruchow: Adam, just a little bit more on the third quarter, trying to make sure I understand. So the margin degradation relative to 2Q is decently greater, but the revenue is pretty similar, 2% to 3% comp. The tariff headwind is a little bit less. I guess I’m just trying to make sure I understand what’s the driving factor? If you can maybe just give us what the gross margin plan is for third quarter? Just trying to understand the moving pieces.

Adam M. Orvos: Yes. The biggest piece is the packaway impact. We’re on second quarter on a year-over-year basis was pretty flat in Q3 based on how we see that inventory flowing. It will be a significant headwind in Q2 — in Q3 and again, would expect that to revert in Q4.

Operator: And the next question comes from the line of Adrienne Yih with Barclays.

Adrienne Eugenia Yih-Tennant: Nice to see the progress. My first question is the comment on pricing you’re starting to see it come through. And what type of — I know for you, you’re at the low, low single-digit range. But across kind of frontline retail, how are you seeing kind of those prices come up? And are there categories, say, apparel or footwear where you’re seeing it more so? And then just clarification on the tariff impact. Is this just the portion that is direct to you? Or does it also encompass things that you’re seeing from your upfront buys getting passed along to you?

Michael J. Hartshorn: On your last question, it’s across the merchandise categories. We have a small percentage, we have a direct impact because we’re paying the tariff, but we the vendors, we are seeing cost increases outside our direct imports. So it’s across the universe of merchandise categories.

James G. Conroy: And then in terms of where we’re seeing some inflation, if you go to some of the sort of more mainstream retailers, you can see some of their prices are going up in terms of apparel or home, probably the center of the bull’s eye are products made with metals. That’s been one of the most obvious places where we’ve seen prices go up. And a lot of that falls, of course, into the home category. So we have a very experienced team of merchants that are just constantly comp shopping. And we’re going to ensure that we have the best bargains in the store. And at some point over time, this pressure that we’re facing today will abate.

Adrienne Eugenia Yih-Tennant: Okay. And then just a final clarification. We’re hearing from — there’s this grace period that if you shipped out before, I think it was August 9th or 7th and then it arrived here before October 5th, it’s still on the prior tariffs. So it would seem that a lot of the retail inventory for holiday will be under that prior tariff and that we’ve been told by some brands that they will be raising prices again in spring of next year under the second wave of tariffs. Do you believe that the tariff is kind of isolated or you will have had enough mitigation strategies put in place that you’ll be able to offset this kind of next kind of tick it down the road into — or do you even think that, that’s actually happening into spring?

Michael J. Hartshorn: No, I think it will happen. To your point, some of the India tariffs, especially if the 25 goes to 50. no, I think that you’ll see this go into next year, and I think we would expect to see price increases. And — but over time, as Jim mentioned it, we think it will reach equilibrium, and it will be business as usual.

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

Dana Lauren Telsey: Nice to see the progress. Jim, we heard about cosmetics continuing to be the best-performing category. Can you expand on apparel and what you’ve been seeing there with the initiatives that you’ve put in place and also on home? And then secondly, with the new store openings, what are you seeing in cost to open leasing costs and productivity of new stores as they’re opening?

James G. Conroy: I’ll take the merchandising piece of it. Michael can take the new stores piece. I think we’re pretty encouraged. The business has just improved between Q1 and Q2 across the board. The exit velocity, so to speak, in July was very strong across nearly every major merchandise department. Within apparel, the ladies business, which is the — probably the driver of the branded strategy, not the only piece of the branded strategy, but the driver was really to get the ladies business red. And it’s just been great to see that part of the business comping more positively than the chain. And then beneath ladies, if you went sort of category by category, we’ve seen once again, broad-based strength and broad-based improvement within each of the sort of subclassifications there or at least most of them.

So that’s been great. From a home perspective, home has been a little bit more complicated. It was comp eroding in the quarter. It eked out a positive comp at the end of the quarter. I think part of that was we had probably a little bit of a footfall in getting our product inbound when tariffs first came out. So we had a little bit of a receipt pull, if you will, towards — as we got through the June period. We’ve shuffled that organization a little bit. We feel really good about the team that’s in place there now. And I’m optimistic about the future of the home business for us. Still very early days, but it’s nice to see that business turn slightly positive in July.

Michael J. Hartshorn: On real estate, so we feel good about the real estate landscape, Dana, and have a healthy pipeline. As you know, there’s not a high volume of any new development, and we’ve been able to take advantage of store closures from bankruptcy filings or other retailers downsizing their fleets. During the quarter, we did acquire a number of stores in the Rite Aid bankruptcy deal, mostly in our core West Coast markets. That strengthens our existing pipeline, especially for 2026 and also helps in reaccelerating dd’s growth for us. In terms of new store openings, we noted a couple of these in our comments, but we entered Puerto Rico during the quarter with 3 stores in July. And the initial response has, I would say, far exceeded our expectations.

It’s still early, but based on this, we’re optimistic this will be a strong market for us. We also had a number of New York Metro stores that we opened, again, very good customer response. And so based on this, thus far, we’re optimistic about expanding in the Northeast.

Operator: And the next question comes from the line of Aneesha Sherman with Bernstein Research.

Aneesha Sherman: I’m curious about your comments around pricing, Jim. Last quarter, you said you were planning to maintain the price umbrella versus full price retail. It sounds like you’re now saying you’re being a little bit more cautious, very low single-digit increases and perhaps broadening the gap versus full price retail. And I think you said you will grow into those price points over time. Can you talk about what may have changed? Are you seeing a consumer response that’s maybe making you a little bit more cautious than perhaps a few months ago? And then a quick follow-up on the ladies business. You talked about ladies comping better than chain average. That’s a real clear acceleration there. Can you talk about what’s driving that? Do you attribute that to the better brand strategy paying off? Or is it around availability of closeout? Or anything in particular that’s driving that outperformance versus what we’ve seen in the last few quarters?

James G. Conroy: Sure. I don’t think we’re being particularly more cautious. I think we’ll continue to maintain the price umbrella against mainstream retail. And we’re just hyper conscious of what’s going on in the broader retail landscape now. We’re taking somewhat of a longer-term view that we want to impress a customer that comes in looking to buy something and have them feel like we’re still delivering the bargains that they’ve become accustomed to. And as we see prices start to move, we’ll start to move as well. Of course, there’s always a lag for competitors and for us based on product that’s come in pre-ticketed. We’re not going to go throughout the chain in the store and reticket things. So it would be on the next set of receipts anyway.

On the ladies acceleration, again, I’d come back to giving credit to the team. The buying offices have really been steadfast in executing against the brand strategy. They’ve leaned into young contemporary a bit more. We’ve seen a nice impact in our juniors business. The ladies business kind of across the board has been strong. The denim business has been strong. So we’ve seen a lot of strength in ladies.

Operator: And the next question comes from the line of John Kernan with TD Cowen.

John David Kernan: Congrats on the momentum into — or through back-to-school and into fall. Just on the expenses in COGS related to the distribution centers, also the CapEx dollars, which are being — a lot of which I think are being dedicated to DCs, what are the near and long-term returns on this? How can this lift the overall margin profile of the business long term?

Michael J. Hartshorn: Well, what typically happens with the DCs is it’s a capacity play. So as sales grow, you need the excess capacity. And then what happens when you open it up, you are able to leverage the volume in that DC and you should get leverage over time. Right now, the DC that we opened is in Arizona, DC capital that we’re devoting this year, it’s about 20 — a little over 28% of our total capital. We are building our next DC, but it’s 3 years — 2.5 years away, 2 to 3 years away would be the next opening. So over the next 2 years, we expect to get leverage on DC.

John David Kernan: Understood. And then, Jim, maybe a quick follow-up for you. Ex tariffs, the business at a 2% to 3% comp would have seen about mid- single-digit earnings growth based on the new full year guidance. With Bill stepping into the CFO seat pretty soon, what do you see as like a long-term earnings algorithm? Where is the opportunity on the margin profile of the business?

Michael J. Hartshorn: Well, I’ll answer that for you. So the long-term algorithm is about 5% new store growth. You get — our new stores are in the 60% range. So that drives 2% of the EPS growth. If you comp at 3%, that gets you 3% in EPS growth, that gets you to 5%. There’s EBIT upside in that of 1% to 3% and then you have your stock buyback at 2% to 3%, and that gets you to right around double-digit EPS growth on a 3 comp.

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

Corey Tarlowe: Great. I had a bigger picture question for Jim and then just a follow-up. On the big picture question on growth, as you’ve come into the business and you’ve assessed sort of where Ross is at and where the competition is in terms of growth and you think about the scalability of Ross from a unit perspective, what are some key attributes that stand out to you? And where do you think kind of longer term and what the advantage could be of kind of accelerating — potentially accelerating unit growth, could that be a possibility? And how do you think about the ability of the business to potentially do something like that if it even was feasible?

James G. Conroy: Sure. Great question, Corey. I guess a couple of things. I was fortunate enough to be recruited into a company that was already extremely well run and already growing. So I’ve had the good fortune of spending the first 6 months and intend to spend the balance of this year really learning about the business. That said, and answering your question maybe a little bit more specifically, the — there’s a tremendous amount of organizational muscle here. And we’ve been adding 90-ish stores. I think that’s the plan for this year. We’re certainly not going to guide future years, but you know me well. I do think there’s an opportunity for us to accelerate. And I certainly don’t think we have any capability shortfall. I think we have the resources to do that.

We would have to grow the supply chain capability at the same time, we grow the store footprint, but we have capability to do that as well. And we also have — we’ve been experiencing some really nice openings in our existing markets, but what Michael covered is very encouraging, right? We’ve been opening up stores in brand-new markets to us that are well established to our competitors and seeing some really nice returns. So if I’m just thinking about what our white space opportunities just for unit growth and unit acceleration, I think it’s pretty optimistic.

Corey Tarlowe: That’s great. And then just as a follow-up on the renovation plan, can you just remind us what the comp lift is and what some of the benefits are that you’re seeing from the initiative?

Michael J. Hartshorn: We haven’t disclosed it’s still early innings. We’re doing the first half of the stores this year, so we’ll finish up the first half. and then complete the chain next year. Customer response has been good. It’s too early to measure the impact.

Operator: And our final question comes from the line of Marni Shapiro with Retail Tracker.

Marni Shapiro:

The Retail Tracker: Congrats on all the improvements. I had 2 quick questions. One, I just want to clarify on the AUR conversation from earlier. To date, AUR is up very minimally low single digits, I believe you said. However, you’re seeing pricing…

James G. Conroy: And mix related, Marni, versus price.

Marni Shapiro:

The Retail Tracker: And mix related. So as we get into the back half of the year, and we’ve all heard this from retailers, I’ve heard it from so many friends from suppliers, prices are going up. Will you move up in line with the industry? So could we — should we expect to see in the back half of the year AUR increases? And I guess the kind of adjacent question is, how does your packaway strategy impact that? Because could you have had some really great holiday items packed away from last year that could kind of mitigate some of this as well?

Michael J. Hartshorn: Marni, on how we move into it, I think we used the word cautious, but we won’t be the first to raise retails. If retails go up, it will certainly give us flexibility to follow. In some places, we’ll move along and raise prices, test it, see how the customer impacts. In other places, we may give more value. So it really is area-by-area decision by the merchant. But if prices go up, it gives us the flexibility to follow for sure.

Marni Shapiro:

The Retail Tracker: Right. And then just one following question. Are you seeing a reversal or less pressure on wages at the stores and the DCs? I know retail has a lot of turnover, but I’m also wondering if you’re finding less turnover as more broadly, people are staying in their jobs and kind of it’s shifted from the worker to the employer in general out there. Curious what you guys are seeing.

Michael J. Hartshorn: Yes. The workforce has been — it’s nothing new, but the workforce has been stable for the last couple of years. So I don’t think anything has changed. We’ve had — with all the ticketing efforts, for instance, related to the tariffs, we’ve had no problem filling jobs to be able to do that. So I think the overall environment is fairly stable.

Marni Shapiro:

The Retail Tracker: And fairly favorable, I’m assuming, for you guys.

James G. Conroy: I would say stable. It hasn’t changed a lot for us.

Michael J. Hartshorn: Turnover has been stable for a while.

Operator: There are no further questions at this time. I’d now like to turn the floor back over to Jim Conroy for any closing remarks.

James G. Conroy: Thank you, everyone, for joining us on the call today, and we look forward to speaking with you on our next earnings call. Take care.

Operator: And thank you, everyone. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time.