Ross Stores, Inc.

Good afternoon and welcome to the raw stores third quarter 2025 earnings release conference call the call be given 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 raw 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 in the company's fiscal 2024 Form 10-K and fiscal 2025 Form 10-Qs 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, Bill Sheehan, Executive Vice President and Chief Financial Officer, and Connie Cao, Senior Vice President, Investor Relations. As noted in today's press release, we are very pleased with our third quarter sales results, which accelerated from the prior quarter. Total sales for the period grew 10% to $5.6 billion, with comparable store sales increasing a strong 7%. Our merchants delivered a compelling assortment of brand name values, which led to broad-based growth across all major merchandise categories. Those assortments, coupled with our new marketing campaigns, drove excitement, higher customer engagement, and increased store traffic. We had an excellent back-to-school selling season with strong trends that continued through the balance of the quarter. Additionally, the stores and supply chain organizations executed extremely well to support the elevated sales and inventory flow. The strength in top line, coupled with our continued focus on expense control, resulted in an operating margin of 11.6% that was much stronger than expected. Earnings per share for the 13 weeks ended November 1st, 2025, were $1.58, a net income of $512 million. Included in this year's third quarter earnings is an approximate 5 cents per share negative impact from tariff-related costs. These results compare to $1.48 per share on net earnings of $489 million in the prior year period. For the first nine months, earnings per share were $4.61, on net earnings of $1.5 billion, compared to $4.53 per share on net income of $1.5 billion for the same period last year. Included in year-to-date 2025 earnings are an approximate $0.16 per share negative impact from tariff-related costs. Sales for the year-to-date period grew to $16.1 billion, with comparable store sales up 3% over last year. For the third quarter at Ross, cosmetics, shoes, and ladies were the strongest merchandise areas. By geography, we saw broad-based strength with the Southeast and Midwest performing the best. Beattie's discounts, strong value, and fashion offerings continued to resonate with its shoppers and delivered comp gains relatively similar to Ross for the period. At quarter end, total consolidated inventories were up 9% versus last year, and average store inventories were up 15% as we advanced the inventory build for the holiday season into the tail end of October. Pack-away merchandise represented 36% of total inventories compared to 38% last year. We feel very good about the health and levels of our inventory and are well-positioned to deliver a broad assortment of values this holiday selling season. During the third quarter, we opened 36 new Ross and four DDs discount stores. Similar to our summer opening group, we are pleased with the performance of our fall openings, particularly the results in the new markets, including the New York metro area. The openings in the third quarter completed our expansion program for 2025. For the year, we added a total of 90 locations comprised of 80 Ross and 10 DDs. We plan to close and or relocate 10 locations in the fourth quarter and expect to end the year with 1,903 Ross stores and 360 DeeDee's locations. At this point, I would like to provide an update on our branded strategy, which has now been fully embedded in our merchandising approach for more than a year. Over this period of time, the merchants have been laser focused on delivering high quality, branded bargains at compelling values. They've been able to deliver an assortment that spans good, better, and best brands to ensure that we are providing exceptional values to our diverse customer base. We would attribute a portion of the sequential improvement in the business to the successful implementation of the branded strategy. This strategy has particularly helped the ladies' business, which further accelerated this quarter and comped above the chain average. Additionally, the increased emphasis on brands has further strengthened our vendor partnerships and increased closeout opportunities. These efforts not only drove higher sales, but also helped us partially offset tariff impacts, resulting in better than expected merchandise margins for the third quarter. While tariffs uncertainties persist, we are encouraged by the exceptional product availability in the marketplace. This has enabled us to secure opportunistic buys that position us favorably for the holiday season. As a result, we now expect tariff-related costs in the fourth quarter to be negligible. From a pricing perspective, it is clear the consumer is prioritizing value and our updated assortment is driving stronger customer engagement. While pricing has increased across the retail environment, our commitment to delivering value remains unchanged. we will continue to maintain a strong value proposition relative to traditional retailers while working to mitigate the impact on our merchandise margin. Bill will now provide further details on our third quarter results and fourth quarter guidance.

Thank you, Jim. As previously stated, comparable store sales rose 7% in the quarter. The gain was a result of both higher transactions and a larger average basket size. Operating margin decreased by 35 basis points to 11.6%, mainly due to the impact of tariffs. Cost of goods sold increased by 35 basis points in the quarter. Distribution costs were higher by 60 basis points, primarily due to the opening of a new distribution center earlier this year and tariff-related processing costs. Merchandise margin deleveraged by 10 basis points while buying expenses were flat compared to the prior year. Partially offsetting the higher costs in the quarter were lower domestic freight and occupancy costs of 25 and 10 basis points respectively. SG&A costs were flat year over year despite the headwinds from CEO transition costs. During the quarter, we repurchased 1.7 million shares of common stock for an aggregate cost of $262 million. We remain on track to buy back a total of $1.05 billion in shares this year. Now let's discuss our fourth quarter guidance. We're encouraged by our business momentum as we enter the critical holiday season. As a result, for the 13 weeks ending January 31, 2026, we are raising our comparable store sales forecast to be up 3% to 4%, with earnings per share in the range of $1.77 to $1.85. This updated guidance range reflects approximately $0.03 earnings per share of unfavorable timing of pathway-related expenses that benefited the third quarter. Based on our year-to-date results and updated fourth quarter forecast, we are increasing our earnings per share guidance for fiscal 2025 to be in the range of $6.38 to $6.46. As for tariffs, we now forecast the fourth quarter impact to be negligible. leading to a full-year cost of approximately $0.16 per share. These estimates are based on the current level of tariffs. In addition, and as a reminder, 2024 fourth quarter and full-year earnings per share of $1.79 and $6.32 respectively included a benefit of approximately $0.14 in earnings per share related to the sale of a pack-away facility. The operating statement assumptions that support our fourth quarter guidance include the following. Total sales are projected to increase 6% to 8%. We expect operating margin to be in the range of 11.5% to 11.8% compared to 12.4% last year. Year-over-year change primarily reflects last year's benefit from the sale of a Peckaway facility that was worth about 105 basis points. Net interest income is estimated to be about $30 million. Our tax rate is expected to be approximately 24%. And weighted average saluted shares outstanding are projected to be about $322 million. Now I'll turn the call back to Jim for closing comments.

Thank you, Bill. To sum up, we are pleased with our third quarter results and encouraged by our sales momentum. With a strong merchandising plan and a terrific product assortment in place, we are optimistic about our prospects for the fourth quarter. Additionally, the store and supply chain teams are well positioned for the holiday season, and our marketing campaigns have continued to build excitement. We believe that this multifaceted approach will help us continue our positive momentum and enable us to capture additional market share. Finally, I would like to thank the entire organization for their hard work and solid execution, which enabled us to deliver a strong third quarter performance. Despite the ongoing challenges and uncertainty in the macro environment, we remained focused on our core strategies and executed well as a cohesive team across the entire company. At this point, we would like to open the call and respond to any questions you might have. John?

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up. Thank you. One moment, please, while we poll for questions. And the first question comes from the line of Matthew Boss with J.P. Morgan. Please proceed with your question.

Thanks, and congrats on a really great print. Thank you, Matt. So, Jim, could you help break down the inflection in same-store sales or the 500 basis points sequential acceleration that you saw? How much would you attribute to company-specific initiatives as we think about marketing or the early stages of store experience? relative to the macro backdrop? And could you just elaborate on the strong momentum that you cited in November that supported the fourth quarter raise?

Sure.

It was a really nice sequential improvement, and I think in the prepared remarks we used the word broad-based. So the merchandise categories, every single merchandise category in the third quarter, every single major merchandise category anyways, was positive or nicely positive. We had some businesses in the second quarter that were somewhat underperforming and they've really caught up and we've seen some really great improvement in most categories across the business. We also had broad-based strength across the country in terms of our geographic regions, including regions that you would otherwise think would be under pressure. So broad-based breadth across the business. How much of it is internal versus external? It's hard to say. We acknowledge that there probably has been some tailwinds out there. Some people are calling out that weather may have been a help. Last year we called out that weather was a hindrance to our business a little bit. But then in terms of headwinds, there's a whole bunch of other macro uncertainties that have probably left consumers a little bit uneasy in their shopping. So I'd give a lot of credit to the team. The product team leads the charge. The assortments look fantastic. They've navigated through tariffs and very strategically have maneuvered AURs. The marketing team has done a very nice job. The stores team has stepped up. Really, the whole company. So I'm sure there might be something in the macro backdrop that's a tailwind to us, but I also give some credit to the team for just executing extremely well.

And the next question comes from the line of Corey Tarlow with Jefferies. Please proceed with your question.

Thanks and good afternoon and congrats on the strong results. Uh, Jim, I just wanted to hone in on this element of change and you've come into the business and we were pumping flat to start the year and we've really substantially accelerated and I, and I wanted to get a flavor for what in your view are the major drivers of this improvement in the momentum and then what do you think is perhaps the stickiest of all of these changes that is going to propel the business on a multi-year trajectory for continued growth and improvement and outperformance?

Sure. Happy to have a shot at that. First, I'd start with I absolutely inherited a strong company that was being managed extremely well. So the company has been growing for years before I showed up. The first quarter was a bit of an anomaly, right? We had a lot of macro headwinds that pushed the business to a flat after a challenging latter part of January and a very challenging February, which we called that last year. In terms of some of the things that have changed, it's not very different than my remarks on some of the first couple of investor calls. The merchandising team is extremely sophisticated, and some of the best merchants in the world work for Ross, and that strength continues to propel the business forward. If I added anything to the business, it is to sort of raise or amplify the voices of the marketing group and the stores team so we can drive more traffic from a marketing standpoint. And when they get to the stores, they can enjoy a slightly better or hopefully much better in-store shopping environment. And the overarching strategy is quite simple, which is just to get merchandising, marketing, and stores, perhaps add supply chain to that mix, operating in unison so we're all kind of pushing the business forward for more growth.

Understood.

And then just as a follow-up, the new marketing campaigns have clearly resonated. What is it, in your view, that you think has materially helped to accelerate the amplification of all of these improvements that you've made in the business, particularly from a branded perspective? that's really working from a marketing standpoint, and that's helping to amplify the message even more and resonate with consumers.

Sure, sure. Coming in as an outsider, there's some disadvantages. I wasn't an off-price person, and I'm not a true merchant. But perhaps if there was one advantage, it was a set of fresh eyes. So from a marketing standpoint, we absolutely want to remain rooted in great branded values. But the challenge that I gave to the marketing team and to the new agency was, how do we create cut through with a refreshed marketing message? So we've really contemporized how we go to market in terms of a creative standpoint. We've tweaked the merchandise mix a bit. Notably, we have an increased marketing expense, at least as a percentage of sales. But I think sort of this refreshed view of how you can look at the store and reach out to customers in a slightly different way, and perhaps reach out to younger customers in a more aggressive way. It seems to be taking root. We are encouraged by it. We're excited by it. We've seen some hard metrics improve and we've seen some qualitative factors improve nicely. And I certainly don't want to dampen anybody's enthusiasm because it's fantastic to see. But let's just remember that it's only been a few months now, right? We've got a very busy holiday season to get through. And then we'll see why it becomes sticky in your mind. Coming back to that part of your question, I think part of the stickiest thing ultimately will be the power of the Ross brand and just what that means for customers and the promise that it delivers to shoppers. And it's had a great legacy up to this point. If I had any impact on it, how can we modernize it slightly so we continue to resonate with all customers, particularly younger customers?

That's a great color. Thanks so much, and best of luck. Thank you.

And the next question comes from the line of Mark Altschwager with Baird. Please proceed with your question.

Thank you for taking my question. You're expecting tariff costs now to be negligible in Q4, which is great to hear. I was hoping you could update us on the mitigation efforts, what's working, what's giving you the comfort with your ability to fully offset. And with that, hoping you could speak specifically to the AUR trend you're seeing and also how we should interpret that Q4 guide as we think about the wraparound effects of tariffs for early 2026.

Hi, Mark. It's Michael Hartshorn. Similar to what happened in the second quarter, as you saw in our commentary, the tariff-related costs came in lower than we expected, and our merchant teams have done a tremendous job balancing cost concessions with modest market-driven price increases where we can maintain our value gap against other retailers. In addition, they were able to take advantage, given the closeout availability, take advantage of closeouts in the marketplace and chase above plan sales. As we expected, as we imagined the year when we had additional lead time from the initial tariff announcements and had open to buy to fill, our merchant teams have been able to mitigate the impact of tariffs as we progress through the year. In addition, with some tariff stability, we've been able to normalize ticketing activities in our distribution centers. Going forward, it's too early to speak for 2026, but barring any meaningful changes in the tariff policy, we would expect pricing stability, which would eliminate the need for merchants to make pricing decisions against a moving target.

Thank you. And then a quick follow-up on the comp acceleration. I believe you said consistency or you said strength across regions, but I'm wondering if there's any call-out by demographic or income cohort.

Sure. And just to follow up on your question on AUR. So the comp components for the quarter, traffic, UPT, and AUR all increased in transactions where the biggest of those. In terms of demographic performance, we called out in previous quarter our Hispanic stores during the quarter at both Ross and DeeDee's stores that have what I'd say is high trade area Hispanic population, saw an improvement that was similar to the chain from quarter to quarter. and ended up posting solid comps despite trailing the chain slightly. Other call-outs, we did mention in the call, Southeast and the Midwest are top-performing markets. In terms of bigger markets, California, Florida, and Texas were all relatively in line with the chain.

Thank you.

Sure.

And the next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Hey, thanks, Tom. Good afternoon. Thanks. On the marketing change, can we double-click on that a little bit? And do you think you're driving new or lapsed customers? Do you think you're increasing engagement with existing customers? Where do you still see opportunity on that front?

It's hard to tease out. the components of the traffic. We do believe we're gaining some new customers and re-engaging with last customers. If you go through the analytics provided by Meta Platform and you go through TikTok, I think it's safe to say we have improved our engagement. In terms of where we are, in terms of our evolution from a marketing and branding standpoint, It's very, very early. We hired an agency in the beginning of the year. Their first output was in the July timeframe. We just released a couple of new spots for holiday that then translate across all the digital platforms as well. So very early innings. Deepa and the marketing team have done an unbelievable job. But there's just even more in front of us, I think, for us to continue to learn and react to that and continue to deliver some great messaging.

That's great. And just as a follow-up, you noted that as a percentage of sales, you didn't increase the spend. But it's well known that you spend far less in dollars and as a percentage of sales relative to your largest peer. When you look ahead, do you think you need to grow that or do you think you continue to just reinvest and redeploy those dollars?

It's a good question. Right now, we're going to maintain our percent of sales where it is. We have a financial and operating model that I want to kind of work within. Clearly, if we can spur on more business and drive more customers and drive more sales, even at the same rate, we'll get some more marketing dollars So it's too early to say we'll invest any more in it. And right now the amount we're spending seems to be paying dividends. So stay tuned for that. But there's no immediate plan for an increased spend there.

Got it.

Thank you.

Thank you.

And the next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Thank you. Good afternoon. Jim, you called out the branded strategy as a key driver of the comp acceleration. Can you talk about how this benefit has built over time and how much more opportunity you see going forward?

Sure. Absolutely. If you want to go through the timeline, in the fourth quarter last year, we had a decent quarter. We called out... The branded strategy touches everything, but it's probably most impactful to ladies. So if we just look at the ladies' business and how it's sequentially changed over the last few quarters, last year fourth quarter was pretty strong, but ladies was a drag on the comp. Then in Q1 and in Q2, the ladies' business was slightly better, but still flattish, and a slight drag on the comp in Q1. In Q2, it started to show some improvement. It was kind of in line with the company, maybe slightly comp enhancing. And in this most recent quarter, the entire business got better, substantially better, and the ladies' business was actually comp enhancing. So if we posted a plus 7, you can intuit that the ladies' business was better than a plus 7.

How much more opportunity going forward do you see in this ladies' business from the branded strategy?

A fair amount, I think. As you know, we've been investing in that over four or five quarters. It had a drag on our merchandise margin that we thought would be an investment in the business, and that investment seems to be paying off now. I think with one very solid quarter under our belt, I'd like to think that for the next three quarters, until we at least anniversary that, we'll see some outsized growth. And then, of course, that team has really started to build excitement, some great leadership there, and I think even after we anniversary I think they'll find some opportunities for more comp improvement. There's not a lack of ideas for innovation in that part of the business.

Thank you.

And the next question comes from the line of Paul Lejouet with Citibank. Please proceed with your question.

Hey, thanks. Jim, sorry if I missed a bit. Did you say anything about the monthly cadence? I'm curious if you could share anything on that front. Home versus apparel, and specifically not just performance, home versus apparel, but AURs in each of those categories. And then is there any quantification of how your customer base has changed? Like, within that ladies' business, you know, can you isolate that you are getting a customer of a certain age that you did not previously have?

Is there any quantification to that?

I'll just start on a couple of those, Paul.

During the quarter, we had a very strong back-to-school and held the trend throughout the quarter. So throughout, the trends were... fairly consistent and that was true for both Ross and DeeDee's. On the AUR, I said in a previous commentary that it was driven by increases in traffic, UPT and AUR with the traffic or transactions for us, the biggest of those. Traffic and the basket were very similar. In terms of overall category performance, we mentioned children's and men's were relatively in line with the chain. Cosmetics, shoes, and ladies were best performers.

Home was slightly below the chain average.

You also asked about shifts in business. You know, the things we measure against usually you see bigger trends over time. We certainly talked about demographics and the Hispanic customer. In terms of household income, not only was the sales very broad-based across geographies and merchandise categories, they were also very broad-based across trade area income levels, and we did not see any significant shifts there.

Thank you. Good luck. Thank you.

And the next question comes from the line of Alex Stratton with Morgan Stanley. Please proceed with your question.

Thanks so much. Congrats on a great quarter. Maybe just on, maybe for you, Jim, on the upgrading the store experience. I think you highlighted that as an opportunity when you first started. Did any changes there play a role in the comp acceleration and maybe how do you gauge effectiveness of those strategies and what are your priorities on that front as you think about 4Q and into next year?

I can take that. We're addressing the store experience on a couple different factors. First, we have begun refreshing. We expect to refresh all stores in the chain, which we believe will provide a more modern look and feel for the customer. This includes new perimeter signing, wayfinding signage, along with addressing cosmetic-type repairs. We're halfway through the chain there, and though it's very early, the customer feedback has been has been good. The other focus areas within the store is you can imagine improving line lengths and throughput through the front end of the store and also improving our recovery throughout the day and we're finding places to get efficiencies within the store and then reinvest it in those focus areas. In terms of immediate impact in the quarter, I think it's very early days, and if anything, we'd expect to build momentum over time.

Great. Thank you. Good luck. Sure. Thank you.

And the next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Good afternoon, and thank you for taking our question. Jim, I wanted to get your thoughts on Ross's approach to value gaps into holiday and 2026 as market prices move up. How much of the AUR growth in the third quarter was driven by price actions versus mix? And are there any categories where you've taken action on pricing where you're starting to see any signs of consumer elasticity?

Sure, happy to take it. In terms of the first part of your question, our strategy is I think a pretty typical off-price strategy of keeping an umbrella under traditional retailers in terms of pricing. We tend to be very intensely focused on the values that we provide which is one of the reasons why we were a little bit slower to make any changes to AUR because we really wanted to underscore with the customer that we were going to be delivering values, including during a tariff environment. And holding true to that, and we've called out tariff impacts in the last couple of quarters, although they're going away for the fourth quarter, but holding true to that sort of promise perhaps has helped us pull in some new customers or bring back lapsed customers. So we're excited about that. I think Michael talked about in terms of Transactions, AUR and UPT transactions was still the biggest driver of the comp. As we look at the fourth quarter, we've been pretty much bought up for the fourth quarter for a while, so I wouldn't expect any significant changes in our strategy from a pricing standpoint for the fourth quarter. I think it was encouraging that we were able to have a modest increase in our AUR and not see degradation in units per transaction. That was up a little bit. And also continuously see transactions. So hopefully that answers the question. I mean, it's been a very difficult thing to navigate for the last several months looking at the changing in tariffs and the changes in the retail environment and trying to find exactly the right set of prices for every single category. Have we made mistakes within that? Probably. What ultimately falls out of that is a business that may start turning slightly slower, so you may mark it down and then you move through it. But on balance, we haven't had any significant footfalls that have created massively increased markdowns or slowed down in our terms.

Thanks so much. Best of luck going forward.

Thank you.

And the next question comes from the line of Michael Benetti with Evercore ISI. Please proceed with your question.

Hey, guys. Thanks for taking our questions here. Congrats on a nice quarter. Tim, I guess as you look at marketing and some of the store refreshes in the state of the fleet today, as you look at some of the initial successes and the top line impact here, how do you think about what to invest in and accelerate those things that are working to keep the top line going versus how you think about flowing through some of the earnings on these initiatives to investors next year? You know, I think just at the highest level, maybe some thinking on the trade-offs between pushing sales harder. Now you've got some things that are very obviously working and then flow through versus investment next year. And then separately, you know, you've spoken a little bit about a strong pipeline of DD stores in the past. How, How are the Ross Banner stores in the Northeast area doing, and do you see an opportunity to accelerate store growth at both chains, at Ross in addition to DeeDee's?

Sure. Maybe I'll take the first one, and Michael will take the second piece of that in terms of store growth. On the investors to flow through, yeah, I'm not even here a year, and I was very cautious when I first got here to – quote unquote, listen, learn, and lead. I really wanted to learn a new business, a much bigger business, the off-price sector, et cetera. And while I had some hypotheses for change, as did the team, I really wanted to be respectful of the financial model and the operating model that has been successful for the company for so long. So while we've made some changes over the last couple of quarters, and perhaps we're seeing fruits of those changes now, I'd like to let some more time go before we come out and say we're going to overinvest betting on the come for future results. So anything we've done so far has been, again, within the expense structure, within the financial model the company has, and we haven't spent anything in an outsized way from a marketing perspective, or really even from a store's perspective outside the sort of capital plan that was here when I got here. Three months from now, six months from now, if we continue to see positive ROI, to your point, we may then get more aggressive and say, look, if we can break the model slightly from a financial standpoint, Will we deliver higher comps and additional earnings? Perhaps. But right now, I think we're all kind of committed to the operating model that's worked for the company for decades.

Michael, on real estate, first on this year's store openings, as we said in the commentary, we opened 80 Ross and 10 Didi's. As an entire group, the new stores have outperformed our plan and we're very excited, although it's very early, with the success in both the Northeast and the New York stores and also in our Puerto Rico stores that opened over the summer. So, as I said, what we've seen thus far, we're really optimistic about a Northeast expansion. We feel good about the real estate landscape. We have a very healthy pipeline. We've said before that we're going to re-accelerate the DD's growth. In terms of the combined groups, we'll have more to say when we get to the end of the year in our 2026 guidance. All right, guys.

Congrats again. Best of luck to the holidays.

Thank you. Thank you very much.

And the next question comes from the line of Ike Borachow with Wells Fargo. Please proceed with your question.

Hey, everyone. Jim, I figured I would ask about self-checkout. I think it's something you've talked about in the past as a driver. How many stores is that rolled out to? How meaningful can that be, you know, or maybe over the next 12 months? And just kind of how are you thinking about ROI on that investment?

Sure, Ike. It's in 80 stores today, and it's taken us a while to get to this point. We tried a couple different models, and it's taken us a while to get the shrink aspect of self-checkout correct. We now have a prototype that's worked well for us over the last year, and we're not only seeing lower shrink, but we're seeing high customer adoption rates We're seeing sales impacts in the stores that we put it in, and we'll be rolling it out to further stores next year. How big it will be depends on kind of the next phase of rollout, but where it works best for us is in our high volume stores. So we'll continue to roll it out. We'll have more to say on how many of those stores in the 26 previews.

Great. Thank you.

And the next question comes from the line of Adrian Yee with Barclays.

Please proceed with your question.

Great. Thank you. Good afternoon. Congratulations on a great acceleration into holiday. First question on DDs. Did you see any, I mean, was it patterned very similarly to the Ross Dress for Less stores? Or did you see any pressure, particularly in the early part of November, with the delay of the SNAP benefit, so has that rebounded? And then secondly, you mentioned that the results fully offset all of the tariff, the gross tariff amount. So should we assume that that obviously is the case for the fourth quarter, But that kind of the biggest impact, because of your turns being so fast, that the biggest impact would have been felt in 2025, and we enter 26 in a pretty normal way state in terms of tariffs, or there's probably a little bit of overhang in Q1. Thank you.

Adrian, on the DDs, DDs was very similar to Ross. The business was very consistent across the quarter, so there's nothing that I would call out there. In terms of tariffs, we did say there continued to be an impact in Q3, but it will be neutral in Q4 as we've been able to chase the business with closeouts, we've been able to work with vendors on cost concessions, and I would expect it to be somewhat neutral It is neutral in Q4 and expected to be neutral as we move into 26.

Okay. And then my quick follow-up is just going to be, there are very few companies that are exiting the third quarter with overall sales growing faster than inventory on an average basis or even at the end of the quarter. Obviously, you've built some inventory up. The availability is fantastic. Is this just sort of – do you feel – Well, I'm going to ask a question that I know the answer to. I mean, clearly you can chase that inventory. But I guess as you think about kind of like heading into spring, what are you seeing in terms of kind of being a little bit more maybe disciplined or judicious about taking some of that pack away? Any changes to strategy as we head into spring when we think that broader retail will raise prices across the board?

On the ending inventory, as we said in the commentary, we did end up 15% on the last day of the quarter. Actually, during the quarter, inventory was in line with sales. Similar to prior years, holiday shopping and promotions are well underway ahead of Thanksgiving holiday, and in anticipation of those shifts, we set the sales for the holiday at the end of October, which is earlier than last year, and also advance some of the inventory into the store.

Okay, perfect. Thanks. Best of luck. Great quarter.

Thank you.

And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.

Hi, good afternoon, everyone, and congratulations on the terrific results. As you take a look at your customer, as you take a look at your customer, and particularly an assessment of the lower income customers, are you seeing anything, are you seeing a trade down to the core Roth? What are you seeing in DDs? And is there any difference in performance of the lower income stores and lower income areas versus others? And then just lastly, with the expansion into the New York area or the Northeast, if you think about your store expansion plans for next year, Will a greater portion of those stores be in the Northeast? And how do you see opening costs? And is the opportunity for greater sales from those stores in more dense areas leveraging the cost, given it may be a higher cost structure? Thank you.

Dana, on the trade-down customer, it's really hard to peel apart in the data. We do measure... the trade area demographics around the stores and the seven comp was very broad based across all income levels. So we didn't see any distinction between the lower, higher income customers. In terms of entry into the northeast, today about 70% of our store openings are in what I call existing markets and 30% in newer markets, which would now include the Northeast and Puerto Rico over the last couple of years. It's included the upper Midwest. I'd expect that pace to continue and will gradually continue to add in New York over time into Puerto Rico and continue to expand those markets. We don't think our return on opening a new store will decline as we enter the Northeast. As you say, it's more dense population should drive up higher sales to support the additional investment and higher cost in some of the store they sell.

And then just one more thing, Jim. In terms of what you're seeing with the store refreshes, the great enhancements that you're making in brand in general, Other categories besides women's where you're seeing this opportunity for? And when you think about the store refreshes, anything that is particularly notable that you see as the opportunity for next year? Thank you.

Well, we certainly have some ideas about next year, and we don't want to sort of necessarily divulge those just yet. In terms of categories that have improved, We've seen sequential improvement across a number of different businesses. Perhaps the one to call out is the home business was a drag in Q2 and was nicely positive in Q3. And we feel well-positioned in that piece of the business as we go into the fourth quarter when it spikes as a percent of sales. So I think that may be another category that we can talk about some of the... the wins that that merchandise team has pulled together. And yes, I'm glad to hear the enthusiasm on store refreshes and the stores, I think, are looking a bit better. I would come back to some of my earlier comments that it's still very early innings in some of these changes. So maybe that just is good news in terms of the best is yet to come.

Thank you.

Thank you.

And the next question comes from the line of John Kernan with TD Cowan. Please proceed with your question.

All right. Congrats on the great quarter, guys. Phil, just wanted to circle back to gross margin. The merch margin was down slightly. You're now lapping a lot of the initiatives in the branded segment. I'm just curious what you think the opportunities for merch margin are going forward. You are comfortably above the levels you were at pre-COVID as a benchmark. I'm just curious what you see as long-term drivers, and I just have a quick follow-up on distribution costs.

I mean, like you said, merch margin, although it declined, it was a little better than we expected as we had less ticketing and some stronger shrink results helped there. Moving forward, you know, it's an area of continued focus, and certainly we would like it. to get better, but I think currently we'd expect it to be relatively stable over time.

I think there is. We talked about we're a year and a half into the brand strategy. I think there's going to continue to be opportunity to gain some leverage as we move through time, as we've built the branded relationships with the vendors, given us opportunity for closeouts. So I think there's still some opportunity there. Within gross margin, the transportation cost will be a year-to-year kind of market-based discussion. But I think there's ongoing improvement capture in merchandise margins.

Obviously, the new DC is going to give you a lot of capacity. Just curious on distribution at deleverage. Is that something that continues into next year? Looks like it picked up in Q2 this year, and I'm assuming it continues a little bit in the fourth quarter.

Yeah, in Q3, that deleverage, like we've talked about a bit before, the full impact of the opening of a new distribution center and also some tariff-related processing costs, as we move forward, we'd expect that pressure from the new DC continued, but that pre-ticketing pressure we've seen before related to tariffs should improve a bit, so we'd expect just a slight headwind in Q4.

And as we grow capacity and we look beyond this year, we'll be able to continue to lever that new capacity until we open our next distribution center, which is two to three years away.

That's great. Thanks, guys.

And the next question comes from the line of Anisha Sherman with Bernstein. Please proceed with your question.

I want to follow up on the brand strategy. As you've discussed it in the past, you've talked about not changing the good, better, best mix, but rather increasing the availability of branded goods versus unbranded and labeled. As you're now attracting new customers and growing AUR and basket size, are you rethinking that and potentially considering adding more higher-end brands to expand the mix on the higher side? And then a follow-up on home. Jim, you talked about home getting better this quarter, though it was still weaker than the chain for two quarters in a row. Have you pulled back on the assortment at all in response to that weakness? And are there any implications there in terms of holiday and gifting and home decor assortment going into the holiday period? Thank you.

Of course. On the home piece, absolutely not. We feel that the home business is really building momentum and the team there has just created tremendous sequential improvement. As we get into the fourth quarter, the categories change a bit, right? Toys increases quite a bit, food increases, et cetera. So those businesses kind of have nothing to do with the incoming trend line. And we feel extremely well positioned from a gifting standpoint, from a toy standpoint. In terms of branded versus unbranded, a couple of points I guess I would say is we've, over the last several years, the reason the brand strategy was put in place and certainly predated me was there was a notion that the company had migrated away a little bit too much from known brands chasing higher margin or higher markup kind of tertiary players, and we needed to right that ship. That doesn't always mean higher end brands though. There are some really great brands at all price points within the store, and we have a very diverse customer base in every definition of that term. So we want to have the best branded values for a good, better, or best pricing tier. Is there some opportunity to stretch higher? Perhaps. The merchants are always out there looking for the next new brand. It's always a small celebration within the buying office when we've opened a new brand and we've gotten access to new clothes, etc. And over time, perhaps that will be that will include reaching up a little bit. But I would say it's across the board.

That's helpful. Thank you.

Of course.

And the next question comes from the line of Marnie Shapira with Retail Tracker. Please proceed with your question.

Hey, guys. Congratulations on the great quarter, and congratulations on the New York store. I hear it is the place to be. I'm just curious on the marketing. It's what I'm hearing. It's what my people say. So I'm so curious on the marketing side as you kind of dive a little bit more into marketing. Two things. Will you at some point consider a loyalty program and what would that look like if you thought about it? And are you doing even some of the more basic stuff like email or phone number capture so that you can more directly talk to your consumers?

So I'm not sure about the loyalty program yet. On the email and text, we do have a pretty decent email database in existence today, a few million active email addresses. And while we don't constantly update that number to the street, we saw a really nice increase in active emails over the last quarter. So that was great. We don't have an active text program at the moment. But who knows? The first order of business from a marketing standpoint was to experiment with some slightly different messaging and maybe a slightly more contemporary aesthetic. And over time you might try some of these other ideas. Yes, the Brooklyn store has been just a great addition to the portfolio. I'm glad it's the place to be seen. We've seen a lot of interesting people come in recently, and we're constantly kind of spying on it with our CCTV, so we kind of know everybody that goes in and out. But, yes, the store... Yeah, yeah, yeah. No, everybody, competitors, everybody. That store has been a really nice arrow in the quiver, and who knows what it bodes for future stores there. I mean, that particular location is pretty unique, very high traffic. There are other stores that we've seen open up in that area, in the New York metro area, that have had very strong openings, perhaps, you know... That would probably be the outlier one, the one in Brooklyn that you're talking about.

Yep. All right, great. Thanks, guys. Best of luck for the holiday. Have a nice Thanksgiving holiday.

Likewise. Thank you. Thanks, Marnie.

Bye. We have time for one last question coming from the line of Jay Sol with UBS. Please proceed with your question.

Great. Thank you so much for taking my question. You know, Jim, my question is about the guidance because you're guiding to three to four comp, and I look back, you know, X the post-COVID period and the company hasn't guided above a two to three in at least 10 years. I'm just wondering what this signals. I mean, are you taking a different approach to guiding now being CEO or is it just that the quarter day trends you're seeing are so good that you just felt like two to three just wasn't even relevant and you had to guide to three to four? Because sometimes the thought is that the guide is as much as internal signals and external signal, sort of a signal to sort of plan conservatively and then just be prepared to chase, keep a lot of open liquidity if, you know, opportunities materialize in the quarter. So just kind of wondering how you're thinking about guiding and why you decided to go to three to four instead of just taking to the same old two to three.

Jay, it's Michael Hartshorn. It's probably less tricky than you think. It is our internal plan. So... You know, currently coming off a seven comp, that's how the underlying business is planned. And we always try to align the internal latest forecast with the plan. So there's no change in methodology. It is really how we're planning the business for the fourth quarter based on the momentum in Q3. Got it.

All right. Thank you so much.

You're welcome.

Of course.

There are no further questions at this time, and I would like to turn the floor back over to Jim Conroy for closing remarks.

Very good. Well, thank you, everybody, for your interest in raw stores. We wish you all a very happy holiday season. Take care.

And thank you. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.