Ross Stores, Inc. (ROST) FY2025 10-K and Q2 FY2026 10-Q Summary

Business

Source: annual report on Form 10-K for fiscal 2025 (year ended January 31, 2026), accession 0000745732-26-000006, Item 1, Item 2 and Item 7.

Ross Stores is an off-price retailer. It buys first-quality, in-season, brand-name and designer apparel, accessories, footwear and home fashions below the prices that department and specialty stores pay, and sells them at everyday discounts in its own stores. All of its revenue comes from merchandise sold in brick-and-mortar stores in the United States and its territories; it has no e-commerce business. Fiscal 2025 sales were $22,751 million. The company operates two chains, which it reports as one segment because they share similar economic characteristics:

• Ross Dress for Less, 1,904 stores in 44 states, the District of Columbia, Guam and Puerto Rico at January 31, 2026, which the company describes as the largest off-price apparel and home fashion chain in the United States. Prices are 20% to 60% below department and specialty store regular prices, and the target customer is primarily from middle-income households.
• dd's DISCOUNTS, 363 stores in 22 states, with more moderately priced merchandise at 20% to 70% below moderate department and discount store regular prices. Stores are typically in established shopping centres in densely populated urban or suburban neighbourhoods, and the target customer comes from lower- to moderate-income households.

Home is the largest merchandise category. The fiscal 2025 sales mix was home accents and bed and bath 26%, ladies 22%, men's 15%, accessories, lingerie, fine jewelry and cosmetics 15%, shoes 13% and children's 9%.

How the model makes money. Ross buys late in the merchandise cycle, taking advantage of imbalances between retailers' demand and manufacturers' supply. Its sources are manufacturer and brand overruns, cancelled orders and end-of-season "close-out" goods, plus "upfront" production bought directly from brands and factories. It typically does not ask vendors for promotional or advertising allowances, return privileges or drop shipments, which helps it negotiate lower prices. It then marks merchandise up less than a department store would. Part of what it buys is held as "packaway" inventory in its warehouses for release in a later season, typically within six months. This lets it carry more prestige and national brands. Packaway was 37% of total inventory at the end of fiscal 2025, against 41% a year earlier. The company buys most of its merchandise directly from manufacturers, through more than 800 merchants working from buying offices in New York City and Los Angeles and a smaller office in Boston. Ross and dd's DISCOUNTS have separate buying organisations, each led by its own chief merchandising officer. Stores receive new merchandise three to six times a week. They use a self-service, "treasure-hunt" format on a single-floor racetrack layout, which keeps labour costs below those of full-price department and specialty stores.

Footprint and supply chain. The company operated 2,267 stores at January 31, 2026, with 45.1 million square feet of selling space. Nearly all stores are leased, and most new stores have unexpired original lease terms of three to ten years, with three to four five-year renewal options. In fiscal 2025 it opened 90 stores (80 Ross, 10 dd's DISCOUNTS), entering new markets including Puerto Rico and the New York metro area, and closed nine. Distribution runs through large, highly automated distribution centres and packaway warehouses in Arizona, California, Pennsylvania, South Carolina and Texas. The eighth distribution centre opened in Buckeye, Arizona in May 2025, and another is under construction in Randleman, North Carolina. From the distribution centres, merchandise moves through regional cross-dock facilities to the stores. Marketing is shifting toward digital channels, including social media, influencer marketing, digital video and audio, alongside traditional and streaming television. Sales are generally higher in the second half of the year, which includes back-to-school and the holidays.

People and leadership. Ross had about 111,000 full- and part-time associates at January 31, 2026, over 85% of them in stores, and none is covered by a collective bargaining agreement. James G. Conroy has been Chief Executive Officer since 2025. He joined in December 2024 after running Boot Barn Holdings from 2012 to November 2024. William W. Sheehan II became Chief Financial Officer in October 2025, and Michael J. Hartshorn is Group President and Chief Operating Officer. Headquarters are in Dublin, California.

Risk factors

Source: Form 10-K for fiscal 2025, accession 0000745732-26-000006, Item 1A, Item 1C and Item 3. The Form 10-Q for the second quarter of fiscal 2026 (accession 0000745732-26-000041) refers back to these risk factors and reports no changes to them.

The company groups its risks under macroeconomic, strategic, operational and compliance headings. These are the ones that bear most on this business:

• Tariffs and China sourcing. Ross imports only a small portion of its merchandise directly, but more than half of the goods it sells originate in China, and a predominant share is made abroad. Higher tariffs, quotas or trade-policy changes, particularly toward China, could raise its cost of goods, disrupt sourcing and make margins harder to forecast. Even goods bought from domestic vendors carry this exposure. Tariff-related costs reduced fiscal 2025 earnings by about $0.16 per share. Separately, on February 20, 2026 the U.S. Supreme Court ruled that the tariffs imposed in 2025 under the International Emergency Economic Powers Act (IEEPA) were not authorised by that statute.
• Consumer spending and the macro environment. Ross's customers are value-driven and come from middle-, moderate- and lower-income households. Their spending responds to inflation, fuel, food, housing and interest costs, wages, unemployment, credit availability, the timing of tax refunds and government policies, including immigration policy.
• Merchandise availability. The off-price model depends on a steady supply of quality branded goods at deep discounts. If vendors manage their inventories more tightly, stop selling to Ross or go out of business, the supply of such goods could fall. Shipping constraints, conflicts and public-health events could also disrupt it.
• Inventory, markdowns and shrink. Buying against sales plans risks excess inventory and markdowns. Packaway buys are made months before release and may no longer match tastes when the goods reach stores. Damaged, lost or stolen inventory ("shortage") above forecast reduces margins.
• Competition. Barriers to entering off-price retail are limited. Ross competes with other off-price chains, department stores, mass merchants, specialty stores and online retailers. Its business is entirely in physical stores while e-commerce keeps growing, and it notes that competitors may adopt AI and data analytics faster or more effectively.
• Growth execution and real estate. Ross's growth depends on opening stores in existing and new markets, which requires suitable sites on acceptable terms. New-market stores may take longer to reach expected sales and profit and may cost more to build and run. New stores may also take sales from existing ones.
• Labour. Many store roles are entry-level or part-time, with high turnover. The company is exposed to wage rates, minimum-wage and healthcare legislation and potential labour organising. Keeping experienced buyers matters especially to the off-price model.
• Geographic concentration. California, Texas and Florida together hold almost 50% of the stores. California alone has about 22% of the stores, roughly half of distribution and warehouse capacity, and the headquarters, which leaves the company exposed to earthquakes, wildfires and other regional disasters.
• Cybersecurity and systems. Payment-card and personal data are targets for criminals, including ransomware groups. Disruption of the supply-chain or logistics systems, or problems while replacing key systems, could interrupt operations. The Audit Committee oversees cybersecurity and receives quarterly reports, and the company says no cybersecurity threat or incident has materially affected it to date.
• Product safety and vendor compliance. Opportunistic buying brings in new categories and new vendors, which raises the risk of recalls, authenticity problems and vendor labour or compliance violations that could damage the brand.
• Legal, regulatory and tax. Ross faces a number of employment-related class and representative actions, mostly in California and mainly alleging wage-and-hour violations. Management does not expect these to have a material adverse effect. In a separate case, Ross is the plaintiff: it sued its insurers in Alameda County, California in December 2020 over COVID-19 business-interruption coverage, and that case is ongoing.
• Liquidity and capital allocation. Store and distribution-centre growth, buybacks, dividends and debt repayment all depend on strong operating cash flow and access to capital.

Management's discussion, fiscal 2025

Source: Form 10-K for fiscal 2025, accession 0000745732-26-000006, Item 7.

Fiscal 2025 sales rose 8% (about $1,621 million) to $22,751 million. A 5% comparable store sales gain contributed about $961 million, driven by a roughly 3% larger average basket and 2% more transactions. Non-comparable stores, mainly new ones, added about $660 million. Operating income rose to $2,707 million from $2,586 million, but operating margin narrowed 35 basis points to 11.9%. Net income was $2,145 million against $2,091 million, and diluted EPS rose 5% to $6.61 from $6.32. That increase came from 3% higher net earnings and a 2% lower diluted share count.

The margin decline had two causes:

• Cost of goods sold rose about 10 basis points as a percentage of sales. Distribution costs added 25 basis points, mainly from the deleveraging effect of opening the Buckeye distribution centre. Merchandise margin fell 20 basis points, primarily because of tariff-related costs. Lower domestic freight (20 basis points), lower buying costs (10 basis points) and occupancy leverage (5 basis points) partly offset these.
• SG&A rose 25 basis points as a percentage of sales, primarily because fiscal 2024 had included a $61.6 million pre-tax gain on the December 2024 sale of a packaway warehouse. That gain was worth about $0.14 per share in fiscal 2024.

Net interest income fell about $37 million to $135 million because of lower rates and lower average cash balances after the company repaid senior notes. The effective tax rate rose to about 24.5% from 24.2%, mainly because of the tax effects of stock-based compensation. In the 10-K, management said it expected fiscal 2026 operating margin to be slightly higher than in fiscal 2025, reflecting higher merchandise margin and lower distribution costs, partly offset by higher store costs from its initiatives. Those initiatives are broader merchandise assortments with more brands, marketing aimed at customer awareness and engagement, and in-store experience improvements.

Cash flow and capital. Operating cash flow was $3,027 million, up from $2,357 million. The increase came from higher accounts-payable leverage (91% against 87%), lower taxes paid, lower incentive bonus payments and higher earnings. Capital expenditures were $819 million: $297 million on distribution and transportation, $232 million on new stores, $189 million on existing stores and $101 million on information systems, corporate and other. The company projected about $1.1 billion of capital spending for fiscal 2026, covering new and existing stores, its next distribution centres and IT. Financing outflows of $2,342 million were made up of share buybacks, dividends and repayment of $700 million of senior notes in April 2025.

Shareholder returns and balance sheet. Ross repurchased 7.1 million shares for $1,050 million in fiscal 2025 at an average of $147.61, completing its two-year $2.1 billion programme. Dividends paid were $528.1 million. In March 2026 the board approved a new two-year buyback programme of up to $2.55 billion through January 29, 2028. It also raised the quarterly dividend 10% to $0.4450 per share from $0.4050. Ross ended fiscal 2025 with $4.6 billion of unrestricted cash, about $1.5 billion of senior notes (of which $500 million of 0.875% notes was due in April 2026), and an undrawn $1.3 billion revolving credit facility entered into in 2025.

Current quarter, second quarter of fiscal 2026

Source: Form 10-Q for the quarter ended August 1, 2026, accession 0000745732-26-000041, financial statements, Notes A, E and G, and Item 2. Outlook from the earnings release furnished as Exhibit 99.1 to the Form 8-K of August 20, 2026, accession 0000745732-26-000038, and the earlier releases cited below.

The second quarter's reported earnings were lifted by a one-time recovery of tariffs, but sales growth was broad, and margins also improved after that recovery is excluded.

Sales. Sales rose 13% (about $736 million) to $6,265 million from $5,529 million. Comparable store sales rose 10%, against a 2% gain a year earlier, which contributed $534 million; non-comparable stores added $202 million. The comparable gain came mainly from about 7% more transactions and a roughly 3% larger basket. In its release, management attributed the traffic growth to both new customers and higher engagement from existing ones. The sales mix was little changed: home accents and bed and bath rose to 24% from 23%, men's slipped to 16% from 17%, and ladies (23%), accessories, lingerie, fine jewelry and cosmetics (15%), shoes (13%) and children's (9%) held steady. For the first six months, sales rose 17% to $12,275 million on a 13% comparable gain, with traffic up about 9% and basket up about 4%. The first quarter alone had produced a 17% comparable gain, which management partly credited to higher spending from tax refunds.

IEEPA tariff refunds. After the Supreme Court's February 2026 ruling, Ross filed claims for refunds of the IEEPA tariffs it had paid. In the second quarter it recognised a benefit of about $253 million in cost of goods sold, and substantially all of it had been received by August 1, 2026. The refunds added about $0.60 to quarterly EPS. A year earlier, tariff-related costs had reduced EPS by about $0.11.

Margins. Operating income was $1,104 million against $638 million, and operating margin widened 610 basis points to 17.6% from 11.5%. Cost of goods sold fell about 625 basis points as a percentage of sales, made up of:

• 405 basis points from the tariff recovery;
• 110 basis points of higher merchandise margin;
• 100 basis points of lower distribution costs, from the timing of packaway carrying costs, higher productivity and the absence of last year's tariff-related processing costs;
• 25 basis points of occupancy leverage;
• partly offset by 10 basis points of higher domestic freight, from fuel prices, and 5 basis points of higher buying costs, from incentive compensation.

SG&A rose about $127 million, mainly from store-related costs, and 15 basis points as a percentage of sales, mainly from higher incentive compensation. In the release, the company said operating margin rose 205 basis points excluding the refund benefit, against a plan of 130 to 150 basis points.

Earnings. Net earnings rose to $851 million from $508 million. Diluted EPS rose 71% to $2.66 from $1.56: net earnings rose about 68% and the diluted share count fell about 3%. Q2 EPS guidance had been $1.85 to $1.93. The effective tax rate rose to about 25.0% from 24.2%, mainly because of the resolution of tax positions. For the first half, diluted EPS was $4.69 against $3.03, and net earnings were $1,501 million against $987 million.

Stores. Ross opened 47 stores in the quarter (35 Ross, 12 dd's DISCOUNTS) and closed one dd's DISCOUNTS store, ending with 2,328 stores: 1,952 Ross and 376 dd's DISCOUNTS in 23 states. It planned 51 openings in the third quarter (41 Ross, 10 dd's DISCOUNTS). Citing the success of its expansion in new and existing markets, it raised the fiscal 2026 opening plan to about 115 stores, about 90 Ross and 25 dd's DISCOUNTS, up from the roughly 110 planned at the start of the year.

Cash, inventory and capital returns. First-half operating cash flow rose about $634 million to $1,712 million, mainly from higher earnings and higher incentive-compensation accruals. Merchandise inventory was $3,087 million at August 1, 2026, against $2,608 million a year earlier. Accounts-payable leverage was 85% in both years, and packaway was 36% of inventory. Capital spending was $460 million in the half, and the fiscal 2026 projection remained about $1.1 billion. In April 2026 the company repaid the $500 million of 0.875% senior notes at maturity. That left about $1.0 billion of senior notes in four series, of which $241.5 million (the 4.700% notes maturing in 2027) is classified as current. The $1.3 billion revolver, which runs to June 2030, was undrawn. Unrestricted cash was $4.3 billion. In the first half Ross bought back 2.9 million shares for $637.5 million, about 1.4 million of them in the second quarter. That left $1.9 billion of the $2.55 billion authorisation, and the company says it is on track to repurchase $1.275 billion in fiscal 2026. Dividends paid in the half were $286.2 million. At the May 20, 2026 annual meeting, stockholders approved the 2026 Equity Incentive Plan, which has an initial reserve of about 15.8 million shares.

Outlook. Ross raised its outlook for a second time in the August 20, 2026 release:

• Third quarter: comparable store sales up 6% to 7%, and EPS of $1.75 to $1.83.
• Fourth quarter: comparable store sales up 4% to 5%, and EPS of $2.17 to $2.26.
• Fiscal 2026: EPS of $8.61 to $8.77, including the roughly $0.60 tariff-refund benefit recognised in the second quarter.

That full-year EPS range has risen through the year. At the March 3, 2026 fiscal 2025 results (Form 8-K, accession 0000745732-26-000003), the company guided to $7.02 to $7.36 on 3% to 4% comparable growth. With the May 21, 2026 first-quarter results (Form 8-K, accession 0000745732-26-000025), it raised the range to $7.50 to $7.74 on 6% to 7% comparable growth. Management notes that the second half faces significantly harder comparisons than the first.

Subsequent events

Sources: Form 10-Q, accession 0000745732-26-000041 (Note A, "Cash dividends", and Item 2, "Dividends"); Form 8-K of August 20, 2026, accession 0000745732-26-000038; Form 8-K of September 17, 2026, accession 0000745732-26-000043, and its Exhibit 99.1.

The Form 10-Q has no separate subsequent-events note. Neither it nor the Form 8-Ks filed since the quarter ended disclose any acquisition, divestiture, new borrowing or debt issuance, or litigation outcome after August 1, 2026. These are the events disclosed after the quarter ended:

• Dividend (August 19, 2026). The board declared a quarterly cash dividend of $0.4450 per share, payable on September 30, 2026.
• Results and raised outlook (August 20, 2026). Ross reported its second-quarter results and raised its third-quarter, fourth-quarter and full-year guidance as described above.
• Board changes (announced September 17, 2026). Sharon D. Garrett, a director since 2000, tendered her resignation on September 11, 2026 and is retiring from the board effective October 1, 2026. Shelley H. Bransten and Christian B. Johnson join the board on October 1, 2026, and both will serve on the Audit Committee. Bransten is a Corporate Vice President at Microsoft and was previously at Salesforce and Gap. Johnson has been a Partner at the private-equity firm Freeman Spogli since 2016. The board grows to ten members, and the new directors' initial terms run to the 2027 annual meeting.