Ross Stores, Inc.

Good afternoon and welcome to the raw stores fourth quarter and fiscal 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 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 trust release and 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.

Thank you, John, and good afternoon, everyone. 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. Before I review our performance for the quarter and the year, I wanted to acknowledge all of the associates throughout the Ross organization. The results we achieved in 2025 are a direct reflection of your dedication and hard work throughout the year. The strong collaboration across the company in all functional areas was essential to our success. I want to thank all of you for your great work. Now turning to our quarterly results. As noted in today's press release, we are pleased to report that our business momentum accelerated further in the fourth quarter, with both sales and earnings significantly surpassing our expectations. Throughout the holiday season, we delivered compelling merchandise assortments to our stores, benefited from higher customer engagement through our new marketing campaigns, and executed in-store initiatives that enhanced the customer experience. These efforts, combined with healthy growth in new stores, contributed to a 12% growth in total sales for the quarter. Turning to comparable store sales growth, we delivered a robust 9% increase despite a one percentage point erosion in comps from weather, primarily the January storms that impacted many parts of the country. We were quite pleased with the health of the comp growth as it was driven mainly by an increase in transactions and customers with a modest increase in baskets. We saw broad-based strength across both departments and geographies. Every major merchandise category showed solid positive sales growth, with shoes and cosmetics performing the best. Similarly, every region of the country was positive, with the Midwest and mountain regions the strongest. CD's discounts also posted healthy sales gains as the chain's value and fashion offerings continued to resonate with shoppers. Similar to Ross, the growth was broad-based across both merchandise categories and regions. Moving to inventory, consolidated inventories were up 8%, and Packaway represented 37% of total inventory compared with 41% last year. We are pleased with our inventory position at year-end. Regarding our store expansion program, 2025 was an exciting year of continued growth as we expanded into new markets while deepening our footprint in existing ones. During the year, we added 80 new Ross Dress for Less stores and 10 DeeDees discount stores. Importantly, we expanded into several new markets for Ross, including our first stores in the New York metro area and Puerto Rico. Inclusive of nine closures, we ended the year with 2,267 stores consisting of 1,904 Ross Dress for Less and 363 DDs discounts locations. Before I turn the call over to Bill, I'd like to briefly review initiatives underway that position us well for incremental sales and profit growth as we enter 2026. First, with merchandising. We are pleased with the strength of our assortments across the store, where we have delivered more brands at the right values for our customers. Our buying organization has done an incredible job navigating through tariffs, and strengthening our vendor relationships to deliver merchandise that is resonating with our customers. It is encouraging to see the strength in the ladies' business, as well as the solid growth and continued sequential improvement with our home category, which faced heavy pressure from tariffs throughout the year. Looking forward, we are pleased with our inventory levels and are seeing ample availability in the marketplace to support our business trend going forward. On the marketing front, we are pleased with our holiday campaign as we continue to refine our brand messaging and believe it is connecting with today's shopper. We are encouraged by the higher levels of customer awareness and engagement we are seeing. We are also quite pleased with the increase in customer traffic and believe that this positions us well for continued growth as we look ahead. In our stores, we have made meaningful merchandising and operational improvements which we believe also contributed to the outsized sales growth. The stores team did a great job of managing the holiday surge in the business. Additionally, the supply chain organization executed extremely well during the peak season, which enabled us to drive exceptional sales growth through fresh receipts and fast turning inventory. Overall, we are encouraged by the positive impact these initiatives have had on our recent performance, and we see opportunities to build on these learnings to support our growth plans in 2026 and beyond. As we enter the new year, we are seeing a very strong start to the first quarter, which gives us confidence that our focus on improving our connection with the customer is taking hold. Turning to store expansion, many of the changes we implemented that helped drive comp store sales growth also had a positive impact on new store productivity, which further bolsters our confidence in accelerating our store opening plans going forward. As a result, we are planning to open 110 new locations this year, which represents 5% growth. Part of that growth reflects the reacceleration of BD's discounts with plans to open 25 stores in 2026. For Ross, we see an opportunity to open 85 new stores this year, slightly above last year. As we continue to identify attractive real estate opportunities across our markets, we remain confident in the long-term potential to grow Ross and DeeDee's chains to 2,900 and 700 stores respectively and expand our reach to even more customers over time. Now Bill will provide further details on our fourth quarter and fiscal year results and additional color on our outlook for fiscal 2026. Thank you, Jim.

Turning to our financial results, starting with the fourth quarter. Total sales for the quarter grew 12% to $6.6 billion. Comparable store sales grew a robust 9%, primarily driven by an increase in the number of transactions. Fourth quarter 2025 operating margin was 12.3%, compared to last year's 12.4%, which included 105 basis point benefits, from the sale of a pack-away facility. Excluding the benefit last year, operating margin increased 95 basis points. Cost of goods sold was 65 basis points lower in the quarter. Occupancy leveraged by 30 basis points on strong sales results, while distribution and domestic freight costs declined by 20 and 15 basis points, respectively. Merchandise margin improved by 10 basis points. Partially offsetting these benefits were buying costs that rose by 10 basis points, mainly due to higher incentives given the earnings outperformance. SG&A for the period rose 75 basis points, primarily due to last year's pack-away facility sale. Excluding the sale, SG&A was 30 basis points lower. Fourth quarter net income was $646 million. and earnings per share for the fourth quarter was $2. This compares to net income of $587 million and $1.79 in earnings per share in the prior year, which included the previously mentioned benefit of approximately 14 cents per share related to the sale of a pack-away facility. Excluding the benefit, earnings per share for the quarter grew 21%. Now turning to results for the full year. Total sales for the year increased 8% to a record $22.8 billion, up from $21.1 billion last year. Comparable store sales grew 5% on top of a solid 3% gain in fiscal 2024. Net income for fiscal 2025 was $2.1 billion, similar to last year. Earnings per share were $6.61, up from $6.32 in the prior year. Excluding the previously mentioned $0.14 gain from the facility sale last year and the approximate $0.16 per share impact from tariff-related costs this year, earnings per share grew 10%. Now to our shareholder return activity. As noted in today's release, we repurchased 1.5 million shares during the quarter. completing the two-year $2.1 billion program announced in March 2024 in line with our plans. Our Board of Directors recently approved a new two-year $2.55 billion stock repurchase authorization for approximately $1.275 billion each year for fiscal years 2026 and 2027. This new plan represents a 21% increase over the recently completed repurchase programs. In addition, the board also approved a 10% increase in our quarterly cash dividend to 44.5 cents per share. The increase to our stock repurchase and dividend programs reflect our continued commitment to return excess cash to our shareholders after funding growth and other capital needs of our business. Now let's discuss our outlook for fiscal 2026, starting with the first quarter. As Jim noted earlier, we ended the quarter with solid momentum. And while early, we are encouraged by the continued strength in the business as the spring season begins. As a result, we are projecting comparable store sales for the 13 weeks ending May 2, 2026 to be up 7% to 8% and earnings per share of $1.60 to $1.67. The operating statement assumptions that support our first quarter guidance include total sales are projected to increase 10 to 12% versus last year. If same-store sales perform in line with our forecast, operating margin for the first quarter is expected to be in the range of 11.8 to 12.1% compared to 12.2% last year. The expected decrease reflects higher DC costs from the opening of the new distribution center in the second quarter of last year and unfavorable timing of pack-away related expenses. In addition, We project higher incentive costs versus 2025 when we underperformed our plan. Partially offsetting these higher costs is our expectation of an increase in merchandise margin. We plan to add 17 new stores consisting of 13 Roths and 4 Deities discounts during the period. Net interest income is estimated to be $27 million. Our tax rate is expected to be approximately 23% to 24%. and weighted average diluted shares outstanding are forecasted to be about $322 million. Turning to our full year guidance assumptions for 2026. For the 52 weeks ended January 30th, 2027, we are forecasting same source sales to be up 3 to 4% and earnings per share to be $7.02 to $7.36 compared to $6.61 for fiscal 2025. Total sales are projected to be up 5% to 7% for the year. If same-store sales perform in line with our forecast, operating margin for the full year is expected to be in the range of 12% to 12.3% compared to 11.9% in 2025. This plan reflects higher merchandise margin and lower distribution costs for the year. As Jim mentioned earlier, we expect to grow our store base by 5%, reflecting approximately 110 new locations comprised of about 85 Roths and 25 DDs discounts. These openings do not include our plans to close or relocate about 10 to 15 older stores. Net interest income is estimated to be $92 million. Depreciation and amortization expense, inclusive of stock-based amortization, is forecasted to be about $740 million for the year. The tax rate is projected to be about 24% to 25%, and weighted average diluted shares outstanding are expected to be about $319 million. In addition, capital expenditures for 2026 are projected to be approximately $1.1 billion. There are several key investments included in our 2026 plans. First, as previously mentioned, we are reaccelerating our store opening plans. At DeeDees, we are opening 25 stores this year, compared to 10 last year. In addition, we plan to open 85 new raw stores this year, compared to 80 last year. Next, we plan to make further investments in our supply chain, including the continued build-out of our next distribution center, as well as the initial outlay for another DC. Lastly, we are investing in our existing store base to drive an improved customer experience. Now I will turn the call back to Jim for closing comments.