ROST Q2 Deep Dive: Broad-Based Sales Improvement, Tariff Pressures, and Store Expansion

August 22, 2025 at 08:40 AM EDT

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Off-price retail company Ross Stores (NASDAQ: ROST) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 4.6% year on year to $5.53 billion. Its GAAP profit of $1.56 per share was 1.4% above analysts’ consensus estimates.

Is now the time to buy ROST? Find out in our full research report (it’s free).

Ross Stores (ROST) Q2 CY2025 Highlights:

Revenue: $5.53 billion vs analyst estimates of $5.54 billion (4.6% year-on-year growth, in line)
EPS (GAAP): $1.56 vs analyst estimates of $1.54 (1.4% beat)
Adjusted EBITDA: $745.3 million vs analyst estimates of $762.1 million (13.5% margin, 2.2% miss)
EPS (GAAP) guidance for the full year is $6.15 at the midpoint, roughly in line with what analysts were expecting
Operating Margin: 11.5%, in line with the same quarter last year
Locations: 2,233 at quarter end, up from 2,148 in the same quarter last year
Same-Store Sales rose 2% year on year (4% in the same quarter last year)
Market Capitalization: $47.63 billion

StockStory’s Take

Ross Stores’ second quarter results were well received by the market, reflecting broad-based improvements in sales trends across most product categories and regions. Management cited particular strength in cosmetics and noted that both the Ross and dd’s DISCOUNTS chains saw growth in both store traffic and basket size. CEO James Conroy emphasized, “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.” While tariff-related costs weighed on operating margin, the company’s ability to mitigate these pressures through vendor negotiations and closeout buying contributed to the positive momentum heading into the second half of the year.

Looking ahead, Ross Stores’ outlook is shaped by continued caution around the macroeconomic environment and the persistent impact of tariffs. Management’s guidance reflects a conservative approach, with plans to offset most tariff headwinds through strategic sourcing and price adjustments. Conroy noted, “We are focused on maintaining our value proposition relative to traditional retailers while balancing the opportunity to preserve our merchandise margin.” The company’s expansion into new markets, store refresh initiatives, and a measured approach to pricing are expected to be key factors supporting performance through the rest of the year.

Key Insights from Management’s Remarks

Management attributed the quarter’s sales improvements to category strength, increased store traffic, and effective inventory management, while noting ongoing margin pressure from tariffs and distribution costs.

Cosmetics and apparel strength: Cosmetics led merchandise growth, with the ladies’ apparel segment outperforming the chain average, driven by improvements in the branded strategy and targeted merchandising.
Store traffic and basket gains: Both Ross and dd’s DISCOUNTS saw increases in customer traffic and average basket size, with July showing particularly strong momentum ahead of the back-to-school season.
Tariff mitigation actions: The company implemented a multipronged approach to offset tariff costs, including vendor negotiations, diversifying sourcing, and leaning into closeout merchandise, which helped limit the negative margin impact.
Expansion and new markets: Ross Stores opened 31 new locations in the quarter, including its first stores in Puerto Rico and several in the New York Metro area, supporting long-term growth plans.
Store refresh and operational initiatives: Management continued rolling out store refreshes—updating signage and layouts—and piloted self-checkout in 80 stores, aiming to enhance customer experience and operational efficiency.

Drivers of Future Performance

Ross Stores’ forward outlook centers on mitigating tariff pressures, disciplined pricing, and leveraging new store growth to maintain earnings stability.

Tariff and pricing strategy: Management expects tariffs to remain a margin headwind but believes ongoing vendor negotiations, diversification of sourcing, and cautious, market-aligned price increases will offset most of the impact. CEO James Conroy stated that the company will “maintain our value proposition” while adapting to pricing shifts in the broader retail industry.
Store growth and market entry: The company plans to open approximately 90 new stores this year, including continued expansion into markets like Puerto Rico and the Northeast. Management highlighted strong initial results in these markets and sees potential for accelerated unit growth if supply chain capabilities keep pace.
Operational initiatives and cost control: Investments in distribution centers and store refreshes are expected to support sales growth and eventually drive operating leverage. While short-term margin pressure from new facilities is anticipated, management believes these projects will contribute to cost efficiencies and improved customer throughput over time.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will focus on (1) Ross Stores’ ability to further mitigate tariff and cost pressures through sourcing and pricing actions, (2) the performance of newly opened stores in Puerto Rico and the Northeast as indicators of expansion potential, and (3) the impact of ongoing store refreshes and self-checkout pilots on customer experience and sales. Monitoring same-store sales trends and merchandise category mix will also be important for assessing execution.

Ross Stores currently trades at $150.72, up from $145.63 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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