Ross Stores (ROST -0.58%), the off-price retail chain known for offering brand-name merchandise at a discount, released its Q2 FY2025 earnings on August 21, 2025. The company reported $5.5 billion in GAAP revenue and a 2% rise in comparable store sales. Diluted earnings per share (GAAP) were $1.56, coming in above the top end of management’s guidance range of $1.40 to $1.55 (GAAP), supported by lower-than-expected tariff-related costs. Revenue (GAAP) increased 4.6% year-over-year, but EPS slipped 1.9 %. Operating margin was 11.5%, nearly one percentage point lower than last year, due primarily to tariff headwinds. The quarter generally tracked management’s cautious expectations, with revenue momentum building especially toward the end of the quarter, setting up a measured but constructive outlook for the rest of the year.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (GAAP) | $1.56 | $1.53 | $1.59 | -1.9% |
| Revenue (GAAP) | $5.53 billion | $5.54 billion | $5.29 billion | 4.6% |
| Operating Margin | 11.5% | N/A | N/A | |
| Net Income | $508 million | $527 million | (3.6%) | |
| Comparable Store Sales Growth | 2% | N/A | N/A |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Business Overview and Strategic Focus
Ross Stores operates an extensive off-price retail network across the United States, selling apparel, home items, footwear, and accessories at prices below those of traditional department and specialty stores. Its two core chains, Ross Dress for Less and dd’s DISCOUNTS, target value-driven shoppers looking for branded merchandise at a lower price point. The company’s model relies on sourcing closeout and overstock inventory, delivering a constantly changing assortment at discount prices.
Across recent years, the company has focused on five key areas: off-price buying, store expansion, supply chain optimization, marketing, and managing its workforce. Securing merchandise at attractive terms, quick inventory turnover, and opening new locations underpin its core strategy. Ongoing success depends on responding quickly to changing consumer preferences, negotiating favorable supply deals, and managing costs in areas such as distribution and real estate.
Quarter Highlights: Growth, Margin Pressures, and Operational Trends
During the period, sales (GAAP) climbed to $5.53 billion, a 5% increase from a year earlier. Rising comparable store sales of 2% suggest improving customer demand, particularly late in the quarter, which management linked to back-to-school shopping. The company's earnings release noted that revenue was in line with previous guidance, which had forecast 2–6% growth.
Earnings per share were $1.56, which exceeded the top end of management’s prior range ($1.40–$1.55). The primary driver was lower-than-expected costs related to tariffs on imported merchandise. Specifically, tariffs reduced GAAP EPS by $0.11, which was less than the $0.11–$0.16 per share impact outlined in earlier guidance. However, GAAP EPS still came in below the prior year's $1.59. Net income fell by 3.6% year-over-year.
Operating margin declined to 11.5%, down from 12.4% last year, as it signals that cost pressures—mainly from tariffs and inflation—are eroding profitability even as sales grow. The company had previously expected an operating margin between 10.7% and 11.4%. SG&A (selling, general, and administrative) expenses (GAAP) grew to $888.7 million from $836.4 million. Net interest income (GAAP) fell to $32.3 million from $43.4 million last year, a result of share repurchases and debt repayment efforts.
On the operational front, store count expanded to 2,233 by the end of the second quarter of fiscal year 2026, up from 2,148 a year ago. Inventory rose to $2.61 billion. This suggests inventory is being managed in line with demand, an important factor for off-price retailers that need to move product quickly. Cash reserves at the end of the quarter were $3.85 billion, down from $4.67 billion last year, reflecting ongoing cash outflows from share buybacks, dividends, and capital expenditures. The focus remains on delivering branded goods at value prices and maintaining a flexible buying approach to navigate volatile sourcing costs.
Understanding Product Offerings and Segment Focus
Ross Stores’ product strategy emphasizes branded and in-season goods across apparel, footwear, home décor, and accessories. These products are sourced through its off-price buying model, which allows the company to secure excess inventory or cancelled orders from manufacturers at substantial discounts. While specific category performance was not highlighted in the quarter, management pointed to a sales rebound late in the period.
The company operates two main retail chains: Ross Dress for Less, which targets a broad demographic seeking significant discounts, and dd’s DISCOUNTS, which caters primarily to lower- to moderate-income shoppers. The earnings release did not break out individual segment or region results, and it offered no details on shifts by merchandise type or store brand. In prior quarters, management mentioned cosmetics and the dd’s DISCOUNTS chain as positive contributors, but no such callouts appeared for this period. No commentary was provided on geographic or category-specific results.
Looking Forward: Guidance, Risks, and Shareholder Returns
For the second half of fiscal 2025, management projects continued growth but at a measured pace. Comparable store sales are expected to rise 2–3% in both Q3 and Q4. Management guidance puts earnings per share for Q3 at $1.31 to $1.37, which is lower than last year’s $1.48, and fourth-quarter GAAP earnings per share projected to be between $1.74 and $1.81, near last year’s $1.79. For the full year, projected EPS (GAAP) is $6.08 to $6.21 compared to $6.32 last year.
Tariff impacts are set to weigh further on profits, with full-year costs expected between $0.22 and $0.25 per share. The company’s leadership remains cautious about consumer demand due to the “uncertainty associated with the macroeconomic environment,” and expects retail inflation to drive more price-sensitive consumers toward value players like off-price chains. No material changes to guidance on store expansion or capital priorities were announced. The company repurchased 1.9 million shares during the quarter for $262 million and continues to target $1.05 billion in share buybacks for the year under its latest authorization.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
