Ross Stores, Inc.

afternoon and welcome to the Ross Stores first quarter 2025 earnings release conference call. The call will begin with prepared comments by management followed by a question and answer session. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 forecasts 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 to current expectations. Risk factors are included in today's press release and the company's fiscal 2024 Form 10-K and fiscal 2025 Form 8-Ks on file with the SEC. And now I'd like to turn the call over to Jim Conroy, Chief Executive Officer.

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, and Connie Cao, Group Vice President, Investor Relations. I would like to start the call by thanking all of our associates throughout the entire organization who have worked tirelessly over the last few months to help us navigate through a volatile and uncertain external environment. I sincerely appreciate the team's continued dedication and hard work. Now let's turn to our first quarter results. As noted in today's press release, total sales grew 3% to $5 billion, with comparable store sales flat versus last year. Earnings per share were $1.47 compared to $1.46 last year, while net income for the period was $479 million versus $488 million for the same period in 2024. Despite the slower start to the spring selling season in February, our monthly sales performance improved sharply month after month for the balance of the quarter. For the period, sales and earnings performed at the high end of our expectations, while operating margin of 12.2% was flat year over year. Cosmetics was the strongest merchandise area during the quarter, while geographic trends were broad-based, with the Southeast performing the best. Our DB's discount brand continued its strong momentum from 2024 with another quarter of solid sales and operating profits as the chain's value and fashion offerings again resonated with shoppers. At quarter end, total consolidated inventories were up 8% versus last year, mainly due to opportunistic buys during the period. Average store inventories were up 4% in line with our plan, and pack-away merchandise represented 41% of total inventory, similar to last year. We believe our inventory is well-positioned as we enter the second quarter. Turning to store growth, we opened 16 new Ross and three DDs discount locations in the first quarter. We continue to plan for approximately 90 new stores this year, comprised of about 80 Ross and 10 DDs. 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 briefly discuss tariffs and the potential impact they will have on our business. While we directly import only a small portion of our merchandise, more than half of the total merchandise that we sell originates in China. If tariffs are made at elevated levels, we will be working to find the right combination of pricing versus merchandise margin compression. We believe we have a number of levers available to minimize the overall impact, but it is possible that we will see short-term pressure on our profitability. That said, our focus has been and will continue to be to provide our customers high-quality branded merchandise at a great value. From a pricing standpoint, we expect modest but broad-based inflationary pressure across the retail industry, and we will remain focused on maintaining a substantial pricing umbrella below traditional retailers in order to deliver the bargains our customers have come to expect from us. Overall, trade policy remains unpredictable, and we will continue to make the necessary adjustments to best position the company to navigate through this uncertain environment. We are pleased with the momentum of the business given the sequential improvement in comp sales in the quarter. In addition, we believe our inventory is well positioned to maximize the availability of closeouts and we have multiple strategies in place to gain market share while minimizing the margin impact from the tariffs. With that said, in our view, there are simply too many unknown variables that are limiting our visibility into the second half of the fiscal year and we believe it is prudent to withdraw our previously provided annual guidance at this time. Raw stores and the off-price sector in general have historically benefited from significant disruptions to the supply chain with more opportunistic buys available to us, and we believe it will be no different this time. I will now turn the call over to Adam to provide further details on our first quarter results and additional color on our second quarter outlook.

Thank you, Jim. As previously mentioned, our comparable store sales were flat for the quarter. First quarter operating margin of 12.2% was similar to last year. Cost of goods sold was relatively unchanged from a year ago. Merchandise margin declined 45 basis points, mainly due to higher ocean freight costs and the initial impact of tariffs. A portion of this tariff impact was caused by purchase orders for goods that were on the water when tariffs were increased. Occupancy and distribution costs rose by 20 basis points and five basis points respectively. Buying costs declined by 50 basis points from lower incentives and domestic freight leveraged by 20 basis points. SG&A for the period was flat year over year as the benefit from lower incentive compensation was offset by sales deleverage. During the first quarter, we repurchased 2 million shares of common stock for an aggregate cost of $263 million under the company's two-year, $2.1 billion authorization approved by our board of directors in March of 2024. We remain on track to buy back a total of $1.05 billion in stock during 2025 and complete the program as planned. Now let's discuss our outlook. For the 13 weeks ending August the 2nd, 2025, comparable store sales are projected to be flat to up 3%. Earnings per share for the second quarter are now projected to be in the range of $1.40 to $1.55 and includes a cost impact of 11 to 16 cents from the announced tariffs. Our guidance assumptions for the second quarter of 2025 include the following. Total sales are forecast to increase 2 to 6% versus the prior year. If same-store sales perform in line with our forecast, operating margin for the second quarter is projected to be in the 10.7 to 11.4% range, which includes a 90 to 120 basis point negative impact from announced tariffs. mostly in merchandise margin. This estimate is based on the current level of tariffs, but we recognize there could be a wide range of outcomes given the uncertainty with varying trade policy announcements. Excluding the tariff impact, we would expect merchandise margin to be similar to the prior year. We are also forecasting higher distribution costs as we opened our eighth distribution center earlier this month. Partially offsetting these higher costs are lower incentives. We expect to open 31 stores in the second quarter, including 28 Ross and three DDs locations. We expect net interest income to be approximately $29 million. The tax rate is projected to be 24 to 25%, and diluted shares outstanding are expected to be approximately $325 million. Now I'll turn the call back to Jim for closing comments.