Ross Stores (NASDAQ:ROST) reported strong second-quarter fiscal 2026 results, with sales rising 13% to $6.3 billion and comparable-store sales increasing 10%, driven primarily by higher transaction volume. The company said the quarter marked its second consecutive period of double-digit comparable-store sales growth and that sales strengthened through the quarter, with July producing the strongest performance.
Chief Executive Officer Jim Conroy said customer traffic remained the primary contributor to the comparable-sales increase. The company saw gains from new shoppers, returning customers who had not visited in some time, and more frequent trips from existing customers. Those customers also spent more per visit, Conroy said.
Sales strength across categories and regions
Ross said its customer gains spanned income levels, age groups and ethnicities, including younger shoppers. Conroy attributed the results to customer-acquisition efforts, marketing, improved store execution, broader merchandise assortments and expanded vendor relationships.
At the Ross banner, results were broad-based across merchandise categories and geographies. Home and cosmetics were the strongest businesses in the quarter, while the Midwest was the strongest region. The dd’s DISCOUNTS chain also posted solid and broad-based performance across merchandise and geographic areas, management said.
Conroy said the company’s merchant teams have added vendors and brands, while store teams have improved organization, inventory recovery and checkout queues. He said Ross is also gaining access to more popular brands, though not necessarily at higher price points, and remains committed to maintaining value-oriented pricing.
“We absolutely want to have the best values in our store,” Conroy said. He added that the company expects modest, low-single-digit average unit retail increases during the second half of the year.
Margins benefited from tariff refunds
Second-quarter gross margin increased 625 basis points from the prior year, including 405 basis points of tariff refunds. Merchandise margin rose 110 basis points, while distribution costs declined 100 basis points, which the company attributed to favorable timing of packaway-related expenses, higher productivity and the anniversary of prior-year tariff-related processing costs.
Occupancy costs leveraged by 25 basis points. Those gains were partly offset by a 5-basis-point increase in buying costs from higher incentives and a 10-basis-point increase in freight costs due to higher fuel prices.
SG&A expense deleveraged by 15 basis points because of higher incentive compensation tied to earnings outperformance. Operating margin rose 610 basis points; excluding tariff refunds, operating margin increased 205 basis points year over year.
Net income increased to $851 million, or $2.66 per share, from $508 million, or $1.56 per share, a year earlier. For the first six months of fiscal 2026, sales rose 17% to $12.3 billion, comparable-store sales increased 13%, and earnings per share reached $4.69, compared with $3.03 in the prior-year period.
The company said its second-quarter and first-half results included $253 million, or about $0.60 per share, in tariff refunds.
Inventory and store growth plans
Consolidated inventory was up 18% at quarter-end. Packaway inventory accounted for 36% of total inventory, compared with 38% a year earlier. Management said the inventory position supports elevated customer traffic and a broader selling-floor assortment while maintaining fast inventory turns.
Group President and Chief Operating Officer Michael Hartshorn said store-level inventory increased partly to support stronger demand, but in-store turns remained strong and clearance levels stayed low. He said Ross retains flexibility in its open-to-buy plans to respond to closeout opportunities or adjust inventory if demand changes.
Ross raised its planned store openings for fiscal 2026 to 115 locations from 110 previously, along with approximately five to 10 relocations and closures. The company expects to open 51 stores in the third quarter, including 41 Ross locations and 10 dd’s DISCOUNTS stores.
Hartshorn said recent openings have performed ahead of the company’s expectations, including in the Northeast, where Ross is continuing its expansion. The company’s long-term model contemplates approximately 5% annual unit growth, he said.
Raised second-half outlook
Ross raised its outlook for both the third and fourth quarters despite more difficult comparisons in the second half.
- Third-quarter comparable-store sales are expected to rise 6% to 7%, with total sales up 9% to 11%.
- Third-quarter earnings per share are forecast at $1.75 to $1.83, compared with $1.58 a year earlier.
- Fourth-quarter comparable-store sales are projected to increase 4% to 5%, following a 9% increase in the prior-year period.
- Fourth-quarter earnings per share are expected to range from $2.17 to $2.26, compared with $2.00 last year.
- Full-year earnings per share are now forecast at $8.61 to $8.77, versus $6.61 in fiscal 2025, including approximately $0.60 per share from tariff refunds.
Chief Financial Officer Bill Sheehan said the third-quarter operating-margin outlook of 11.7% to 12.0%, versus 11.6% last year, assumes leverage from comparable-store sales growth and slightly higher merchandise margins. Higher fuel-related freight expense is expected to partially offset those gains.
Ross repurchased approximately 1.4 million shares for $319 million during the quarter and said it remains on track to repurchase $1.275 billion of stock during fiscal 2026 under its current authorization.
Management said it plans to continue testing and scaling initiatives across merchandising, marketing and store operations, while keeping investments within its established financial model. Conroy said the company believes it is still in the early stages of realizing the potential of its growth initiatives.
About Ross Stores (NASDAQ:ROST)
Ross Stores, Inc (NASDAQ: ROST) is an American off?price retailer headquartered in Dublin, California, that operates the Ross Dress for Less and dd’s DISCOUNTS store formats. The company sells a broad assortment of apparel, footwear, home fashions, accessories and other soft goods, positioning itself as a value-oriented destination for brand?name and fashion merchandise at reduced prices.
Ross’s business model centers on opportunistic buying of excess inventory, closeouts, cancelled orders and overstocks from manufacturers, department stores and other suppliers.
