Ross Stores (ROST) Q4 2025 Earnings Transcript

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DATE

March 3, 2026

CALL PARTICIPANTS

• Chief Executive Officer — Jim Conroy
• Group President and Chief Operating Officer — Michael J. Hartshorn
• Executive Vice President and Chief Financial Officer — Bill Sheehan
• Senior Vice President, Investor Relations — Connie Kao

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TAKEAWAYS

• Total Sales (Q4) -- $6.6 billion, up 12%, driven by accelerated business momentum and expansion efforts.
• Comparable Store Sales (Q4) -- 9% growth, predominately led by increased transactions and customer count, with all major categories and regions positive.
• Net Income (Q4) -- $646 million, compared to $587 million in the prior year, reflecting improved operating performance.
• Earnings Per Share (Q4) -- $2.00, versus $1.79 last year, excluding a $0.14 per share gain from a prior-year facility sale, resulting in 21% EPS growth excluding that benefit.
• Operating Margin (Q4) -- 12.3%, flat versus last year’s 12.4% including a nonrecurring 105 basis point benefit; excluding the prior-year benefit, operating margin increased by 95 basis points.
• Inventory Growth -- Consolidated inventories up 8% year over year; packaway inventory represented 37% versus 41% a year earlier.
• Store Count (Year End) -- 2,267 total stores (1,904 Ross Dress for Less and 363 dd’s DISCOUNTS), after opening 80 Ross and 10 dd’s DISCOUNTS locations and closing nine stores.
• Merchandise Margin (Q4) -- Improved by 10 basis points, with CFO Sheehan stating gains were "mainly driven by the better buying."
• SG&A Rate (Q4) -- Increased 75 basis points primarily from the previous year’s facility sale; excluding this, SG&A was down 30 basis points.
• Full-Year Sales -- $22.8 billion, representing 8% growth over the prior year’s $21.1 billion.
• Comparable Store Sales (Full Year) -- 5% growth, building on 3% growth reported for the previous year.
• Full-Year EPS -- $6.61, compared to $6.32 last year; adjusted for prior-year facility sale gain and $0.16 per share in tariff-related costs, EPS increased 10%.
• Share Repurchase -- 1,500,000 shares repurchased in Q4, completing the $2.1 billion, two-year program; new authorization of $2.55 billion over two years, a 21% increase.
• Quarterly Cash Dividend -- Increased by 10% to $0.45 per share.
• 2026 Guidance (Q1) -- Comparable sales expected to rise 7%-8%; EPS forecasted at $1.60-$1.67; total sales projected to increase 10%-12%.
• 2026 Guidance (Full Year) -- Comparable sales up 3%-4%, EPS expected at $7.02-$7.36, and total sales growth of 5%-7% anticipated.
• 2026 Operating Margin Guidance -- Projected range of 12.0%-12.3%, compared to 11.9% in 2025, on improvement in merchandise margin and distribution costs.
• Planned Store Openings (2026) -- 110 new stores (85 Ross and 25 dd’s DISCOUNTS), representing 5% unit growth, concentrated more heavily in summer and fall openings.
• Capital Expenditures (2026) -- $1.1 billion projected, with spend allocated among new stores, distribution centers, store maintenance, and technology.
• Store Productivity -- Noted as "one of our best years in a while," with new stores performing above expectations across both new and existing markets.
• Marketing Spend -- CEO Conroy said, "as a rate of sales, we have not changed our marketing spend," but left open the possibility of minor increases for experimentation.
• Customer Demographics -- Growth seen "broad-based across income demographics and age demographics, including 18- to 34-year-old customers," per CEO Conroy.

SUMMARY

Ross Stores (NASDAQ:ROST) reported double-digit revenue, earnings, and EPS growth for the fourth quarter, with broad-based positive comparable sales across merchandise categories and regions. Management highlighted continued positive trends in customer traffic and new store productivity, enabling an acceleration in store expansion plans. The company introduced an increased share repurchase program, a 10% dividend hike, and provided guidance for further EPS and margin improvement in 2026.

• The new store productivity outperformance occurred in both established regions like California and Florida, and new markets, contributing materially to total sales growth.
• Packaway inventory as a percent of total ended the period at 37%, down from 41% last year, improving inventory flexibility.
• Executive commentary confirmed that fourth-quarter merchandise margin gains were "mostly by better buying" rather than lower markdowns.
• Incremental sales and profit initiatives included merchandising improvements, marketing refinements, and increased supply chain efficiency, with significant planned investment in distribution centers and technology.
• CFO Sheehan guided for first quarter operating margin compression versus last year, citing persistently higher distribution center costs, packaway-related timing, and higher incentive compensation—all partially offset by expected merchandise margin improvement.
• Expansion into the New York Metro Area and Puerto Rico marked important milestones for Ross Dress for Less’s geographic footprint during the quarter.
• Leadership noted the sequential improvement in the home category, which had been pressured by tariffs, as well as continued strength in cosmetics, shoes, and juniors apparel.

INDUSTRY GLOSSARY

• Packaway Inventory: Merchandise purchased well in advance and stored for future sale to enable timely in-store allocation and support inventory flexibility.
• IMU: Initial Markup; the difference between cost and retail price at the time merchandise is first offered for sale, before markdowns or discounts.

Full Conference Call Transcript

Jim Conroy: Thank you, and good afternoon, everyone. Joining me on our call today are Michael J. Hartshorn, Group President and Chief Operating Officer; Bill Sheehan, Executive Vice President and Chief Financial Officer; and Connie Kao, 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, 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 in stores, benefited from higher customer engagement through our new marketing campaign, 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 basket. 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. dd’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 is 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 dd’s DISCOUNTS 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 dd’s DISCOUNTS locations.

Before I turn the call over to Bill, I would 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 store, where we have delivered more brands at the right value 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 were 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 dd’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 dd’s chains to 2,900 and 700 stores, respectively, expanding our reach to even more customers over time. I will now turn the call over to Bill Sheehan for the financial results.

Bill Sheehan: 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 a 105 basis point benefit from the sale of a packaway 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 packaway 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 $2.00. 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 $0.14 per share related to the sale of a packaway 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 1,500,000 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, or approximately $1.275 billion each year for fiscal years 2026 and 2027. This new plan represents a 21% increase over the recently completed repurchase program. In addition, the Board also approved a 10% increase in our quarterly cash dividend to $0.45 per share. The increase to our stock repurchase and dividend programs reflects 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 05/02/2026 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 a new distribution center in the second quarter of last year and unfavorable timing of packaway-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 Ross and four dd’s 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 319 million. Turning to our full year guidance assumptions for 2026.

For the 52 weeks ended 01/30/2027, we are forecasting same store 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 12.0% 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 Ross and 25 dd’s DISCOUNTS.

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. 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.

Jim Conroy: Thank you, Bill. As I reflect on my first year as CEO, I am extremely grateful for the support and dedication of the entire team. The year had its early challenges with tariffs and uncertainty in the macro environment, but we remained resilient and focused on executing our strategies. Looking ahead, we are optimistic about the strength of our business and the initiatives planned for 2026. At this point, we would like to open the call and respond to any questions that you might have. Operator?

Operator: Thank you. We will now be conducting the question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press 2 to remove a question from the queue. We ask that you please limit yourself to one question and one follow-up. Thank you. One moment, please, while we poll for questions. The first question comes from the line of Matthew Robert Boss with JPMorgan. Please proceed with your question.

Matthew Robert Boss: Thanks, and congrats on a great quarter. So, Jim, could you elaborate on the inflection to 8% traffic-led comps in the back half of the year? Or, I guess, how would you bridge the more than 600 basis points of comp improvement relative to low single digits over the last four quarters? And on the 7% to 8% comp guide—and you know I had to ask you on this. I mean, this comes from a conservative company and a conservative guy historically. Could you elaborate on the further improvement you saw to start the quarter, maybe confirm the moderation that you are embedding for the remainder of the quarter?

And did you embed any potential lift from tax refunds or stimulus during the quarter?

Jim Conroy: Sure. Happy to answer both of those questions. In terms of the inflection point, it was really broad-based across essentially all merchandise categories and all regions of the country. You were talking about the sequential improvement from sort of the first half to the second half of the year. And if I look at the second half in total, there are a lot of great things that are coming together. We have had a lot of conversation on past calls about the ladies business. We mentioned on Q3 that the ladies business had returned to strength. It was slightly stronger than the company.

And then in the fourth quarter, the ladies business continued to be very strong, more in line with the overall business. Men’s continues to be strong. We have seen probably the most sequential improvement in the quadrant of the store that we would call center core. So we called out cosmetics and shoes specifically. Those were two very nicely growing businesses for us in both Q3 and Q4, and really nice sequential improvement throughout the year. And then finally, not to leave Gurnit and the home business and the home team out, the home business in the beginning of the year was difficult for us. And it was a business that was most under attack with tariffs.

But they have done a really nice job of turning around that business across the board within home. On our last call, we spoke specifically about toys being important, and we finished up the holiday quarter with very strong business in toys. In terms of the comp guide, I would turn to Bill or to Michael. I would preface it with we, of course, are excited about a 7% to 8% comp guide, but we have not changed the conservative nature of our guide. So it is not like we are putting out some high-flying number to get headlines. We still feel pretty good about it. I do not know if either of you would like to add to that.

Michael J. Hartshorn: Matt, I would say, one, it is a reflection of the initiatives we have in place and the momentum we have coming out of the fourth quarter. The merchants did a tremendous job transitioning into the first quarter that we can see in the business. We are in the inverse position we were last year where we started off very, very weak. So we feel good about how we started the year. You had a question on tax refunds. We have not built in for the tax refunds. It is still early, obviously, in the tax refund season.

The significant refunds just began to flow last week, and from what we can see from the Treasury, they are up about 7% thus far. But with roughly two-thirds of the refunds left to come, we will have to wait and see the impact over the entire quarter.

Matthew Robert Boss: Great. And then just one follow-up, Jim. On new stores productivity that you are seeing in the Northeast, how does that inform your opportunity to expand unit growth opportunity over time?

Michael J. Hartshorn: Matt, it is Michael again. We would not get into the specifics of the Northeast other than it has been very strong, and it gives us a lot of confidence that we can grow there, I would say, not only in the Northeast, and you can see it in the difference between comp and total sales growth. We had one of our best years in a while in terms of new store productivity, which also gives us confidence that we can grow in our existing markets.

Matthew Robert Boss: Great color. Best of luck.

Jim Conroy: Thank you, Matt.

Operator: The next question comes from the line of Paul Lawrence Lejuez with Citigroup. Please proceed with your question.

Tracy Kogan: Thank you. It is Tracy Kogan filling in for Paul. I had a couple of questions. The first is on your merchandise margin improvements in 4Q. How much of it was driven by better IMU from buying better versus how much was driven by lower markdowns? And what are you expecting in fiscal 2026? And then I have a follow-up. Thanks.

Jim Conroy: For the merchandise margin, that 10 basis points improvement, we feel good about it. It was driven mostly by better buying and our merchants just making good decisions, as they always do, around how to deliver value while at the same time flowing some benefit through to us.

Bill Sheehan: And on 2026, it is again mainly driven by the better buying. To some extent, we get some benefit from recapturing some of the tariff pressure early in the year.

Tracy Kogan: Great. And then on the flow-through in 1Q, I know you mentioned higher incentive comp and timing of packaway. Can you size either of those headwinds? And which one is bigger? Thanks.

Jim Conroy: Could you repeat the question for me one more time?

Tracy Kogan: Yeah, sure. I think on the 7% to 8% comp, we would have expected maybe more flow-through to the EPS line. And I think you mentioned that you had a higher incentive comp in there as well as timing of packaway. And I was just wondering if you could frame how big either of those are in terms of basis points of pressure.

Jim Conroy: For the quarter.

Michael J. Hartshorn: Tracy, as you can see on the full year guidance, at a 3% to 4% comp, we leverage EBIT by 10 to 30 basis points, so that is actually above what our normal kind of long-range algorithm is. Always timing quarter to quarter. In the first quarter, we have a couple things driving the deleverage, the first of which is we have not yet lapped the distribution center opening from last year. So we will begin to lap that in the second quarter, but that has a bigger impact in the first quarter. Number two, we have built into our forecast—see how it plays out—some pressure on the packaway expense.

And then finally, we had a pretty disappointing first quarter for us last year, which means the incentive comp base will be lower from last year but pressure this year. Among those, they are pretty evenly split.

Tracy Kogan: Got it. Thanks very much. Good luck, guys.

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

Lorraine Hutchinson: Thank you. Good afternoon. What are the key factors driving the acceleration in the ladies business? And what is your outlook for the category as we move through the year?

Jim Conroy: The acceleration in the ladies business is rooted back with the brand strategy the company had put in place maybe two years ago now. That team has really done a great job of resetting that vendor base and the assortment there, finding a really nice balance of bringing in branded bargains across good, better, and best. We have seen some nice strength in the juniors business specifically, so that has been a part of the growth there. In terms of the outlook going forward, right now a lot of things are performing quite well, and I would imagine we are going to see continued strength in that business going forward, certainly in 2026.

Did I get all of your questions there, Lorraine?

Lorraine Hutchinson: Thanks. Yeah. It seems like you brought more inventory into the stores during the holiday season. Is this a change in strategy? And would you expect to move more from the distribution centers into the stores as you did for 4Q?

Michael J. Hartshorn: Lorraine, on inventory, we did mention in our remarks that inventory grew 8%. Obviously, that is one point in the quarter, but that is lower than our overall sales growth. We did see opportunities to increase our inventory position in front of the customer, and we believe that supported our growth and ability to chase sales while also better transitioning into Q1, all of that while maintaining solid margins and inventory turns.

Jim Conroy: I think we do have more opportunity, but we feel good about the levels coming into the first quarter.

Jim Conroy: Great. Thanks, Michael. Thanks, Lorraine.

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

Chuck Grom: Hey, good afternoon. Great results. Jim, you have talked a lot about the changes made in marketing, and the social media campaigns have been highly successful. I guess I am curious how you continue to evolve the marketing strategy in 2026. And do you expect marketing expenses as a percentage of sales to start to move higher over the next couple of years or do they stay consistent?

Jim Conroy: Great question. We are really pleased with the marketing team, the new campaigns, and the agency that was put in place. In 2025, their work started to hit the market, so to speak, for back-to-school. I would say we are really pleased that, amongst a number of other factors, the change in marketing was one of the things that helped the business have a positive inflection point. So the change in marketing, some in-store changes, and of course the assortments being really great. In terms of marketing spend, you put all that together, and it just made for a really good Q3 and Q4.

We have had questions as to whether we are going to spend or invest more in marketing. We are pretty pleased with the results in Q3 and Q4. And as a rate of sales, we have not changed our marketing spend. It certainly seems like it could be a lever for us to use going forward, so we might experiment with some slight increase there. But we do not feel like we need to make any major investments in new marketing to drive traffic because the demand generation part of the business right now seems so strong.

Chuck Grom: Okay. That is great. And then just to double click on the second part of your answer there on the store experience. Can you dive in there? What has worked? What can you expand? How much is left on the set within the stores themselves? Because clearly, and to your point earlier, it was very strong for the second quarter in a row along with the good comp.

Michael J. Hartshorn: On the store front, similar to marketing, we have not made major investments there, but we do have pretty strong test-and-learn capability in our store organization. What we did during the back half of the year is we targeted payroll investments to improve both store recovery and throughput, really focusing on high-volume activity in the store. We clearly saw some early successes that we can build on in 2026. The other thing that you will see in 2026—as we have discussed in the past—we have been piloting self-checkout actually for some time now, and we plan to expand to more stores given the positive results we have seen thus far.

Jim Conroy: Great. Thank you.

Operator: The next question comes from the line of Brooke Siler Roach with Goldman Sachs. Please proceed with your question.

Brooke Siler Roach: Jim, I wanted to follow up on your marketing comments. As you assess the higher pace of traffic that is coming into the store, are you seeing any shifts in the age or household income demographic of your customer base? Is this a reactivation of lapsed customers? Or are these new younger customers coming into the store that can repeat?

Jim Conroy: It is a great question. Starting at the top side, we are very encouraged that we are seeing nice customer count growth. It is hard to determine sometimes whether that is a brand-new customer or a lapsed customer returning. But it is really exciting for us to have comp sales growth driven not only by transactions but by customers finding Ross, and we are really investing in the Ross brand. In terms of how those customers split by income and age, etc., once you push down to that level, the data becomes a little bit more complicated to read.

We are very comfortable saying that we have seen growth, very broad-based across income demographics and age demographics, including 18- to 34-year-old customers. We are pleased with our juniors business and pleased with our young men’s business. So we feel good about the younger portion of the customer base, but overall, we are just quite encouraged to start to see some really nice acceleration in customer count.

Brooke Siler Roach: Great. And then as a follow-up, can you share your latest view on the earnings algorithm for Ross on a multiyear basis? Is there anything that is structural preventing you from returning to a 14% operating margin over time?

Michael J. Hartshorn: The algorithm has not changed dramatically. New store growth, we have it at 5%, and obviously that would suggest this year we are at 5% that we would continue to grow both banners, and we think we can do that over time to maintain the new store growth there.

Jim Conroy: Productivity,

Michael J. Hartshorn: Jim mentioned that we have seen heightened productivity. Built into our guidance this year is about 70% to 75% new store productivity of an average store. So that gets you to 3% to 4% growth. The EBIT margin, we have said historically, we will get leverage between 10 to 15 basis points per point of comp. Occupancy is about 4%, SG&A is 3% to 4%. And then the stock repurchase is about 2%. It gets you to about 8% to 10% long-term earnings growth.

Brooke Siler Roach: Thanks so much. I will pass it on.

Jim Conroy: Thanks, Brooke.

Operator: The next question comes from the line of Michael Charles Binetti with Evercore. Please proceed with your question.

Michael Charles Binetti: Hey, guys. Great quarter. So first quarter has been a source of underperformance on a multiyear basis. You thought there was an opportunity to maybe come out of the holiday, Jim, and transition more aggressively into the transition inventory. Can you help us understand within the context of the 7% to 8% comp and with the margins compressing on some of the biggest comps, can you just walk us through is there something unique in first quarter that you are kind of going for to get to that 7% to 8% comp that is as much of an opportunity as you get out to the rest of the year?

And is it something that you have to invest in to get there as we look at the margin? And then on the margins, if I look at 2025, that is coming in at 11.9% for the year. Excluding tariffs, that was probably in the low 12s. This year, you are guiding 12.1% to 12.3% on the best comp guidance we have seen in a while. And that is lapping some of the duplicative executive costs, the distribution center costs that wrap around for just one quarter, and then there is some reticketing last year.

Can you just talk about what is conservative there or if there is a change to the long-term language of 15 basis points of expansion above the 2 to 3 points of comp or anything like that we should think about?

Michael J. Hartshorn: I am happy to walk through this. I would separate the EBIT margin in the first quarter from the comp because I think there are distinct things that I walked through. We have not lapped the DC. We have packaway pressure in the first quarter, and also we had a lousy start last year. So we are working off a lower incentive base from last year. Those are really the things that are impacting EBIT margin in the first quarter.

In terms of the 7% to 8% guidance, it is a reflection of certainly the momentum coming out of the fourth quarter, but also we are up against pretty weak compares, not only last year, as you mentioned, but over the last couple of years. And we think the initiatives we have in place, as I mentioned earlier, with inventory levels are having an impact in the first quarter and are sustained. In terms of the back half of the year, nothing has really changed in our earnings algorithm. For every point of comp over the guidance, it is worth about 10 to 15 basis points of EBIT margin.

Jim Conroy: And just to add, there have been questions for the last year about are we investing more in marketing or investing more in store labor. As a rate of sales, both marketing and store labor are very much in line with last year. We do not intend to buy the comp in Q1 or for the year going forward. I think Michael answered the flow-through question better than I could have. But if and when we decide at some point to overinvest in a part of the business hoping for an ROI on it, we will signal that. But at the moment, we are getting some really nice growth without making artificial investments.

Michael Charles Binetti: Right. Thanks a lot, guys, and congrats again.

Operator: The next question comes from the line of Mark R. Altschwager with Baird. Please proceed with your question.

Mark R. Altschwager: Thank you. Good afternoon. Could you expand on the higher new store productivity you are seeing? Is that a function of the markets you are entering that are perhaps higher rent but structurally higher sales per square foot? Is it a reflection of the operational improvements you cited in the prepared remarks? Just what are the key factors there?

Michael J. Hartshorn: We are, first, I would say it is overall. It is not just the new markets. We are seeing it across the regions, even some of our tried and true regions in California and Florida, and I think it is a reflection of some of the things we are doing in existing stores, being more aggressive out of the gate in new stores and seeing it pay off. That said, to your point, we are entering more populated higher-rent markets and we are very pleased with our entry and are seeing great performance there.

Mark R. Altschwager: Thank you. And then following up on the branded strategy and the success in ladies apparel, can you talk about the roadmap for replicating that success in other categories? What is the next area of focus?

Jim Conroy: Well, the brand strategy cuts across the whole store. It is probably most prominent within the ladies business. But as we talked a bit in the prepared remarks, the growth for the quarter—actually, for each of the last few quarters—was very broad-based. And as I look at comps by merchandise category, between men, ladies, kids, the whole center core set of businesses, cosmetics, and shoes, all very strong. Home has really regained its ground. It is slightly comp eroding, but given where it started in the beginning of the year, it is very much in play for helping us drive a very strong fourth quarter comp. So it is not really a sequential rollout between ladies and the other businesses.

And I think it is kind of now in our DNA. Now we are just looking forward as to how we grow our business going forward quarter to quarter. But, again, nearly every piece of our business—actually, every major merchandise category—was solidly positive, with a very strong business in outerwear, which was a bigger business for us this quarter than it has been in the past. So it is very broad-based.

Mark R. Altschwager: Excellent. Thank you. Thank you.

Operator: The next question comes from the line of Simeon Siegel with Guggenheim. Please proceed with your question.

Simeon Siegel: Thanks. Hey, good afternoon, everyone. Really nice job. Just following up on the last one, when thinking about the branded effort. Any way to frame how AUR has been looking on a category level? So just before accounting for any category shifts, within the categories that you are working after, how AUR looks. And then can you guys quantify the new store versus maintenance CapEx within next year’s guide? Thank you.

Jim Conroy: On the AUR piece, our AUR increase was pretty modest in the quarter. I think we have called out basket a modest increase in the basket, but most of the comp coming from transactions. The UPT was flattish versus last year, so you could surmise then AUR was just a modest increase as well. It was a little disproportionate to the part of the business that got hit hardest by tariffs, which was home. So home was up. The other businesses did not see that much of an AUR increase.

I think if we had a learning coming out of the quarter, it is that we probably have the ability to push for some either higher-priced goods or potentially taking some retails up. But what has made us successful for years and years is having the best bargains in retail and always maintaining our umbrella relative to mainstream retail. We are going to focus on that for sure. But we probably have gained some confidence in shifting our assortment to, again, slightly higher-priced goods—new goods, not like-for-like and higher prices—and maybe in certain targeted places, if we feel like we have merchandise categories that are margin eroding, increasing AUR a little bit to recapture some of that.

So we feel just really well positioned as we start 2026. We are excited about the current growth. But there are seemingly another dozen levers that we can pull for additional growth going forward. And then regarding capital, the best way to probably think about it for us is maybe think about a third each for DCs and new stores, and maybe 25% for store maintenance, and the balance for technology enhancements to merchandising tools and initiatives and other things that are going to support long-term growth.

Simeon Siegel: That is great.

Chuck Grom: Thanks, guys. Best of luck for the year.

Jim Conroy: Thank you. Thank you.

Operator: The next question comes from the line of Irwin Bernard Boruchow with Wells Fargo. Please proceed with your question.

Juliana Duque: Good afternoon. This is Juliana Duque on for Ike. Thank you for taking our question. I wanted to ask if you have seen any changes in the type of consumer shopping you have been seeing across both the brands, whether that is between the good, better, best, towards branded, or any other commentary you could give there. Thank you.

Jim Conroy: The quick answer, I would say, is no. The composition of our customer base seems to be very much intact. We have seen growth across essentially all pieces of it. In terms of income level, age, different ethnicities, to tease out any minor differences would be unnecessary. It has been an overarching rising tide, I think, for essentially all customers.

Juliana Duque: Got it. Thank you.

Jim Conroy: Of course.

Operator: The next question comes from the line of Dana Lauren Telsey with Telsey Group. Please proceed with your question.

Dana Lauren Telsey: Hi, good afternoon, and congratulations on the very nice results. As you talked about expanding dd’s, I believe, going from 10 new store openings in ’25 to 25 in ’26. Is it the same strategies that give you confidence in dd’s and that you are seeing the results on? And is there any changes either to cost of store, size of store in dd’s that you are seeing? And is the good, better, best strategy how it is applied to dd’s? And just lastly, new store openings cadence this year, how do they flow through, and what percentage of the stores will be in the Northeast this year? Thank you.

Michael J. Hartshorn: Dana, on dd’s, what really gives us confidence is the underlying merchandising strategies that we have been working on the last couple years and certainly the overall performance of dd’s, which, like Ross, has had very, very strong trends. On the reacceleration, no change in store size. Like Ross, we are seeing very strong new store performance, which also gives us confidence. This year’s new stores are primarily in some of their older markets. We were able to take advantage of some Rite Aid bankruptcy deals that helped shore up the pipeline for this year.

Jim Conroy: In terms of cadence,

Michael J. Hartshorn: I think it will be more weighted to the summer and fall opening groups. I think those are going to be pretty even with about, I think we have said, 17 new stores in the first opening window.

Jim Conroy: Thank you.

Michael J. Hartshorn: Sure. Thanks, Dana.

Operator: The next question comes from the line of Marni Shapiro with The Retail Tracker. Please proceed with your question.

Marni Shapiro: Hey, everyone. Congrats on a great quarter. I just want to, on Dana’s comments on dd’s, I was curious, did you see the same trends there as well? It was driven by traffic and not basket. And have you taken over the last year, due to tariffs, any price increases at dd’s? And then just one last follow-up on dd’s. Do you have much of a home business there compared to Ross, or is it smaller?

Michael J. Hartshorn: On the trends for dd’s, I would say they are very similar to Ross, including basket and modest price increases.

Jim Conroy: And they have a very vibrant home at dd’s in line with the percent of total store that Ross has. The categories are slightly different. The mix of categories within home are slightly different. But it is a very strong part of that business as well.

Marni Shapiro: And I remember when you guys were first tinkering with dd’s and over the years as you played with dd’s, you have had a larger kids business. Is that still true or is it more balanced today? Is it more like Ross?

Jim Conroy: I am not sure I know the info off the top of my head, but they also have a decent kids business. And we tend to not want to disclose with such specificity the size of each of our businesses.

Marni Shapiro: Fair enough. Actually, do not disclose it. Keep it to yourself. Thank you, guys. Best of luck in the first quarter.

Jim Conroy: I rescind my question. No one needs to know the answers.

Marni Shapiro: Good luck with the first quarter.

Jim Conroy: Thanks, Marni. Thanks so much.

Operator: The next question comes from the line of Aneesha Sherman with Bernstein. Please proceed with your question.

Aneesha Sherman: Thank you so much, and great quarter. So you talked about capturing additional market share. Jim, you used the word inflection that you saw during back to school. You are obviously guiding for a step down in comp in the second half. You are facing some tougher compares. Can you talk about how you are thinking about how sustainable this accelerated level of comp is? Do you see it as you lap a year and then you go back to algo, or do you see this as more sustainable as you are winning over new customers who can be more permanent, fixed in comp growth going forward?

Jim Conroy: I will take a crack at it and then my partner will probably give a more conservative view. I do not—you know, look. We came out of a nice third quarter and we feel excited about our fourth quarter. We are clearly exiting Q4 with strength and putting up what we think is a nice guide for Q1. I do not think it is overly aggressive given where the business is. There are two schools of thought in retail. One is, as soon as you start lapping these numbers, everybody is looking at two-year, and you cannot put great numbers on top of great numbers. I think sometimes that is true.

I think it is much too early as we sit here in early March to prognosticate the back half of the year, and we have a guide that we just put out there. But there is another school of thought that says we are inviting new customers into the brand. The assortment and in-store experience is converting them into shoppers. The in-store experience is better. They are returning more quickly. Word-of-mouth begins to spread, bringing even more customers in. As comp store sales increase, you naturally get more marketing dollars as we do it at a rate of sales.

You naturally get more labor so the stores look better, and you can start spinning that proverbial flywheel or virtuous cycle or whatever. That is the school of thought that I come from, and the one that we are trying to embed in the culture here: a growth orientation, getting all the functional areas in alignment, and when we look at the back half of the year, certainly this early, we want to remain conservative. But I see tremendous opportunity for us to grow the business in a somewhat outsized way.

Aneesha Sherman: Is it fair to say that your guidance encompasses the first school of thought where you are looking at the two-year stacks or CAGRs and normalizing for that, but then you internally are pushing your bias to the second school of thought where it is more sustainable?

Jim Conroy: Perhaps that is part of it. The other part of it is it is just so early. And, we have had two nice quarters. But the two quarters prior to that were not so great. And, clearly, there is a lot going on in the macro environment right now. So we just felt it would have been irresponsible to be more aggressive for the balance of the year. And let us face it. It is, I think, one of the stronger full-year comps we have put out as a company in a while. So we thought that should have been an indication of positive momentum.

Aneesha Sherman: Got it. Thank you.

Jim Conroy: Of course.

Operator: The next question comes from the line of Jay Sole with UBS. Please proceed with your question.

Jay Sole: Great. Thank you so much. I want to ask a little about market share in a different way. Jim, do you think you are taking market share from other off-price retailers, or do you think it is coming more from traditional retailers? How do you see that? Thank you.

Jim Conroy: Well, it is a giant retail market out there, of course. And I think the bigger forfeiture of market share is coming from mainstream retail. One of our other off-price competitors just posted a very solid quarter as well, and they are a bigger business than us. So it would be foolhardy to say we are taking a lot of share from them. I think the share shift is more from mainstream retail, department stores, and other places like that to off-price in general, and we would just like to get our fair share or, of course, more than our fair share from that shift.

Jay Sole: Got it. Okay. Thank you so much. Thank you.

Operator: The next question comes from the line of Krisztina Katai with Deutsche Bank. Please proceed with your question.

Krisztina Katai: Hi, good afternoon, and congrats on a great quarter. You credited the branded strategy with sequential comp improvement. Can you just help contextualize for us how it is helping evolve your vendor base and strengthen the existing vendor relationship? And then secondly, when thinking about the new customer acquisition, how do you see their behavior in terms of spend or frequency of trips? How would you take existing shoppers? Or just any early reads in terms of how you think about the stickiness of the newer customers that have been coming to you? Thank you.

Jim Conroy: On the branded strategy, that has been in place for a while now, and we sort of anniversaried it a couple of quarters ago. I think that team, particularly in ladies—maybe across the whole store, but particularly in ladies—has really started to build some nice momentum there. And the underpinning of it was the branded strategy. For the rest of the business, though, there have been a whole bunch of different changes made to the assortment. Some modest increase in inventory selection in the store. So it is not specifically the branded strategy in every business.

I would say the sequential improvement in comps was much broader than just the branded strategy and included marketing changes, in-store merchandising, and operational changes, bringing the store experience up a couple of levels so a shopper would feel like the store was tidier and they could get in and out more quickly, etc. In terms of the customer count and customer frequency behavior, we simply just do not have enough good data to say our current customers are shopping more frequently, or is it all new customers, or is it lapsed customers?

In some of the same sets of data that you all receive from the credit card tracking companies, we get some pretty specific data on customer cards and card numbers and then we have to make sense of all of that. But it is hard to say, is that the same customer shopping with a different card, or is it a new customer, or a lapsed customer with a different card, etc. When you zoom out a little bit and open the aperture a little bit, it is clear to us that we are starting to build customer count growth, and that is exciting for us. Did that answer your question? We may have lost her.

I think that is the end of the queue. Operator, are you there?

Operator: Yes. Our final question comes from the line of John Carden with William Blair. Please proceed.

John Carden: Snuck me in there. Just, Jim, you alluded to this thought that there was going to be this big increase in marketing and increase in store investment, and you are proving kind of comp acceleration with leverage. If you look at the fourth quarter—you mentioned some of the things that are blocking out the first quarter—but I am curious on what the right way to think about marketing and store investment is going forward. Is it that there is a more flexible nature of marketing, more variable nature to marketing that you can be more nimble in any given period?

And the store investment is just minute or simple in nature and tails off where you will be more focused on keeping it fresh going forward? What is the right way to think about this?

Jim Conroy: Thanks. Happy to answer that. I am not sure what I said that led you to that conclusion. I thought I said almost the exact opposite of that, which is we have not made outside investments in marketing or outside investments in store labor, and we have gotten the comp growth that we have gotten within the confines of our operating model, and in Q4, with some really nice leverage based on the fact that we have not made those investments. I do think going forward we might experiment a little bit, but still within the confines of the operating model of should we pick up marketing slightly—not meaningfully, but slightly.

We are always doing targeted investments—Michael talked a lot about test and learn. If we do certain things in a store with store labor—either some additional hours or reallocating hours—what is the benefit to the way the store looks or how fast we move through the queue line? So we will be experimenting going forward, but I would hope that the takeaway from the call is we have been achieving some really nice, I would say, outsized comp sales growth in Q3, Q4, and our guide for Q1 without having to do any unnecessary or artificial investments in either marketing, store labor, or CapEx.

I think those levers exist out there for us, and if we can find ROI on them, we might start playing with those. It was funny. It was on this call last year where we said we are going to look to try to do all of these things expense neutral. And I think we have achieved that twelve months later. As we go forward, I am in my second year. The team has really come together nicely. The two chief merchants that have now been in their roles for a year are both doing unbelievably well. And we are sort of just hitting our stride and building momentum going forward. So for 2026, a lot more opportunities going forward.

As Michael teases me all the time, the best is yet to come.

Operator: Let us leave it there. That is awesome. Thank you very much.

Jim Conroy: Alright. Thank you.

Operator: Thank you. This now concludes the question and answer session. I would now like to turn the floor back over to Jim Conroy for any closing comments.

Jim Conroy: Thank you, everyone, for joining us on today's call. We look forward to speaking with you on our next earnings call. Take care.

Operator: Thank you, ladies and gentlemen. That does conclude today's conference call. We thank you for your participation. Please disconnect your lines. Have a wonderful day.

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