Ross Stores' Q2 2025: Navigating Contradictions in Pricing, Tariffs, and Brand Strategy

Pricing strategy and brand strategy impact, tariff mitigation strategies and cost management, merchandise margin and brand strategy impact, closeout opportunities and merchandising strategy, tariff mitigation and pricing strategy are the key contradictions discussed in Ross Stores' latest 2025Q2 earnings call.



Sales and Earnings Trends:
- Ross Stores reported second quarter sales of $5.5 billion, up from $5.3 billion last year, with compared store sales improving by 2%.
- Earnings per share for the quarter were $1.56, with net income of $508 million.
- The improvement in sales trends was broad-based across nearly all major merchandise categories, particularly with strong performance in cosmetics and the ladies business.

Tariff Impact and Mitigation:
- The company faced a 90 basis point negative impact on operating margin due to tariff-related costs, contributing to a 95 basis point decrease in operating margin.
- Ross Stores have worked to mitigate tariff impacts through vendor negotiations, diversifying sourcing, and increasing the portion of business driven by closeouts.
- They anticipate modest pressure in the third quarter but expect further mitigation in the fourth quarter.

Inventory Management and Store Expansion:
- Total consolidated inventories and average store inventories were up 5% year-over-year, with packaway merchandise comprising 38% of total inventories.
- The company opened 28 new Ross and 3 dd's DISCOUNTS locations in the second quarter, including several stores in the New York Metro area and Puerto Rico.
- Ross Stores remain on track to open approximately 90 new locations this year, contributing to ongoing expansion and growth.

Pricing Strategy:
- Ross Stores have begun to see price increases across the retail industry, which may enable them to adjust their pricing strategy to balance value and merchandise margins.
- While noting a very low single-digit increase in average unit retail (AUR), they are cautious about raising prices and maintain a focus on offering outstanding value.