Ross Stores, Inc.

Good afternoon and welcome to the Ross Stores second 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. 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 forecast 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 or current expectations. Risk factors are included in today's press release and in the company's Fiscal 2024 Form 10-K and Fiscal 2025 Form 10-Q and 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 Orvis, Executive Vice President and Chief Financial Officer, Bill Sheehan, Group Senior Vice President and Deputy Chief Financial Officer, and Connie Cao, Group Vice President, Investor Relations. I'd like to begin the call by recognizing the efforts of the entire Ross organization this past quarter. Despite ongoing uncertainty in the external environment, the team's dedication and hard work have been truly commendable. Their commitment has helped us to adapt quickly, execute on our ongoing initiatives, and deliver a solid quarter. Now let's turn to our second quarter results. As noted in today's press release, we are encouraged by the sequential improvement in sales trends relative to the first quarter. This improvement was broad-based with a positive change in trend in nearly all major merchandise categories in most of the regions across the company. During the second quarter, sales in May were strong and softened in June before rebounding sharply in July. 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, which bodes well for the third quarter. We ended the period with second quarter sales in line with our expectations while earnings modestly exceeded the high end of our guidance range due to lower than expected tariff related costs. Operating margin decreased 95 basis points to 11.5% compared to the prior year period primarily reflecting tariff-related costs. Total sales for the period grew 5 percent to $5.5 billion, up from $5.3 billion last year, with comparable store sales up 2 percent. Earnings per share for the 13 weeks ended August 2, 2025, were $1.56 on net income of $508 million. Included in this year's second quarter earnings is an approximate $0.11 per share negative impact from tariff-related costs. These results compared to $1.59 per share on net earnings of $527 million in last year's second quarter. For the first six months, earnings per share were $3.03 on net income of $987 million. These results compared to earnings per share of $3 and 5 cents on net earnings of $1 billion for the first half of 2024. Sales for the 2025 year-to-date period grew to $10.5 billion, up from $10.1 billion in the prior year. Comparable sales for the first half of 2025 were up 1%. In the second quarter, cosmetics was the best merchandise area. By geographic region, the strongest markets were the Southeast, and the Midwest. Overall comp store sales at DB's discounts were solid and ahead of Ross, while monthly trends were closely aligned between the two chains throughout the quarter. It was encouraging that bulk chains saw growth in bulk traffic and basket size, with strong momentum exiting the quarter. At quarter end, both total consolidated inventories and average store inventories were up 5% versus last year. PacAway Merchandise was 38% of total inventories at quarter end compared to 39% last year. We feel good about our inventory levels and believe we are well positioned for the back half of the year. Turning to store growth. In Q2, we opened 28 new Ross and three DeeDees discounts locations. These openings reflect our expansion into new and existing markets. New market entries included several stores in the New York metro area, as well as our three inaugural stores in Puerto Rico. We remain on track to open a total of approximately 90 new locations this year, comprised of about 80 Ross and 10 Speedy's. 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 provide an update on tariffs. While tariffs remain at elevated levels, we feel good about the progress the merchants have made to mitigate the impact on margin. The team has worked tirelessly to execute a multi-pronged approach, including vendor negotiations, diversifying our sourcing mix, and adjusting prices strategically. Additionally, we were able to expand the portion of our business driven by closeouts, which further mitigated the impact. Looking ahead, we are confident that we can continue to offset most of the impact of tariffs, but we do anticipate modest pressure in the third quarter, which we expect will be further mitigated in the fourth quarter. From a pricing perspective, we are beginning to see higher prices across the retail industries. With this backdrop, we are focused on maintaining our value proposition relative to traditional retailers while balancing the opportunity to preserve our merchandise margin. Our top priority will always be providing high-quality branded merchandise at outstanding value. The off-price sector has historically benefited from disruptions within the supply chain and retail industry. We believe this time will be no different. I will now turn the call over to Adam to provide further details on our second quarter results and additional color on our outlook for the remainder of fiscal 2025.

Thank you, Jim. Second quarter operating margin decreased 95 basis points to 11.5% and included an approximate 90 basis point negative impact from tariff-related costs. Cost of goods sold during the period increased by 70 basis points. Distribution costs deleveraged by 55 basis points, primarily from the opening of a new distribution center in the second quarter, and tariff-related processing costs. Merchandise margin decreased 30 basis points, which included the impact of tariffs, and occupancy deleveraged 10 basis points. Partially offsetting these higher costs were lower domestic freight and buying costs of 15 and 10 basis points, respectively. SG&A for the period deleveraged by 25 basis points, partly due to CEO transition costs. During the second quarter, we repurchased 1.9 million shares of common stock for an aggregate cost of $262 million. As a result, we remain on track to buy back a total of $1.05 billion in stock for the year. Now let's discuss our outlook for the remainder of 2025. As Jim noted in today's press release, given the uncertainty associated with the macroeconomic environment, we will maintain a somewhat cautious approach to planning our business for the balance of the year. For both the third and fourth quarters, we are planning comparable store sales growth of up two to three percent. If sales perform in line with this guidance, third quarter earnings per share are expected to be in the range of $1.31 to $1.37 versus $1.48 last year and $1.74 to $1.81 for the fourth quarter compared to $1.79 in 2024. These ranges include a negative tariff cost of approximately seven to eight cents and four to six cents per share in the third and fourth quarters respectively. These estimates are based on the current level of announced tariffs. If the second half of 2025 performs in line with these projections, earnings per share for the full year are now forecast to be in the range of $6.08 to $6.21 versus $6.32 last year. For fiscal 2025, we anticipate an approximate 22 to 25 cent per share impact from announced trade policies. As a reminder, last year's fourth quarter and fiscal year results included a one-time benefit to earnings equivalent to approximately 14 cents per share related to the sale of a pack-away facility. Now let's turn to our guidance assumptions for the third quarter of 2025. Total sales are forecast to increase five to seven percent versus the prior year. We expect to open 40 stores during the quarter, including 36 Roth and four DDs locations. Operating margin for the third quarter is planned to be in the 10.1 to 10.5% range, which includes a 50 to 60 basis point negative impact from tariff-related costs. Our forecast also reflects unfavorable timing of pack-away-related costs and continued deleverage from the opening of a new distribution center in the quarter. Net interest income is estimated to be approximately $27 million. The tax rate is projected to be about 25%, and diluted shares outstanding are expected to be approximately 323 million. Now I will turn the call over to Jim for closing comments.