Ross Stores' Q3 2026: Contradictions Emerge on Marketing Strategy, Tariff Mitigation and Pricing Strategy, Inventory Management, and Sales Growth Drivers

Date of Call: November 25, 2025

Financials Results

• Revenue: $5.6B, up 10% YOY
• EPS: $1.58 per share, up from $1.48 in prior-year quarter (net income $512M)
• Operating Margin: 11.6%, down 35 basis points year-over-year

Guidance:

• Comparable store sales for Q4 (13 weeks ending Jan 31, 2026) expected to be up 3–4%.
• Q4 EPS guidance $1.77–$1.85 (includes ~ $0.03 unfavorable timing of Packaway-related expenses).
• Fiscal 2025 EPS guidance raised to $6.38–$6.46.
• Expect Q4 tariff impact to be negligible; full-year tariff cost ~ $0.15 per share based on current tariffs.
• Total sales projected to increase 6–8%; operating margin expected 11.5–11.8%.
• Net interest income ~ $30M; tax rate ~24%; diluted shares ~322M.

Business Commentary:

• Sales and Market Performance:
• Ross Stores reported total sales for the period grew 10% to $5.6 billion, with comparable store sales increasing a strong 7%.
• The growth was driven by a compelling assortment of brand-name values, new marketing campaigns, and an excellent back-to-school selling season.

• Operating Margin and Earnings:
• The operating margin was 11.6%, which was stronger than expected, supported by a continued focus on expense control.

• Earnings per share were $1.58, with an $0.05 per share negative impact from tariff-related costs.

• Marketing and Store Experience:

• Ross Stores has implemented a new marketing strategy, which has resulted in increased customer engagement and store traffic.
• The company is focusing on enhancing the in-store shopping experience, including refreshing store interiors and improving line lengths.

• Tariff Mitigation and Strategic Initiatives:
• Efforts to mitigate tariff impacts were successful, resulting in negligible tariff costs for the fourth quarter.
• The branded strategy, focusing on high-quality, branded bargains, helped offset tariff impacts and improved merchandise margins.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "very pleased with our third quarter sales results... Total sales for the period grew 10% to $5.6 billion" and highlighted "operating margin of 11.6% that was much stronger than expected." They also said "we are raising our comparable store sales forecast" and expect tariffs to be negligible in Q4, indicating constructive near-term outlook.

Q&A:

• Question from Matthew Boss (JP Morgan): Could you help break down the inflection in same-store sales or the 500 basis point sequential acceleration — how much is company-specific (marketing/store experience/branded strategy) versus macro tailwinds?
  Response: Management: Broad-based strength across categories and regions; primary credit to merchandising, marketing and store execution (some macro/weather tailwinds possible but hard to quantify).

• Question from Matthew Boss (JP Morgan): What are the major drivers of the improvement and which changes are most likely to be sticky for multi-year growth?
  Response: Management: Core enduring driver is strong merchandising; added emphasis on marketing and stores (aligned with supply chain) to amplify traffic — the integrated approach should sustain gains.

• Question from Mark Altschwager (Baird): Update on tariff mitigation, what's working, AUR trends, and implications for early 2026?
  Response: Management: Merchants mitigated tariffs via closeouts and vendor concessions and normalized ticketing; modest AUR increases mixed with higher transactions; expect tariffs negligible in Q4 and pricing stability into 2026 barring policy changes.

• Question from Chuck Grom (Gordon Haskett): Is marketing driving new or lapsed customers vs increased engagement with existing customers, and will marketing spend as % of sales increase?
  Response: Management: Evidence of both new and re-engaged customers and improved digital engagement; no immediate plan to increase marketing % of sales — will monitor ROI and stay within current model.

• Question from Lorraine Hutchinson (Bank of America): How has the branded strategy built over time and how much runway remains, especially for the ladies' business?
  Response: Management: Branded strategy has turned ladies' from a drag to comp-enhancing; after several quarters of investment this quarter showed outsized gains and team expects further upside in the near term.

• Question from Paul Lejue (Citibank): Any monthly cadence color, AURs by category (home vs apparel), and shifts in customer demographics?
  Response: Management: Transactions were the largest comp driver; cosmetics, shoes and ladies led, home slightly below chain but improved; sales gains were broad across trade-area income levels with no material demographic shift.

• Question from Alex Stratton (Morgan Stanley): Did store experience upgrades contribute to the comp acceleration and what's the rollout priority going into next year?
  Response: Management: Store refresh program (~half complete) has yielded positive customer feedback; priorities are signage, throughput and recovery improvements with gradual build in impact over time.

• Question from Brooke Roach (Goldman Sachs): How much of AUR growth was price vs mix and any signs of consumer elasticity from price actions?
  Response: Management: Modest AUR increase alongside higher transactions and UPT; held value promise with selective price actions and have not seen material unit elasticity or significant markdown pressure.

• Question from Ike Borichow (Wells Fargo): Self-checkout rollout status and ROI expectations?
  Response: Management: Self-checkout in ~80 stores, showing lower shrink, high adoption and sales uplift; will expand to more high-volume stores in 2026.

• Question from Adrienne Yih (Barclays): Did dd's performance mirror Ross; SNAP/timing effects; tariffs and inventory build implications going into spring?
  Response: Management: dd’s results were similar to Ross; Q3 saw tariff impact but Q4 is expected neutral and outlook into 2026 neutral absent policy changes; inventory up ~15% on Oct 31 due to advancing holiday packaway but in-quarter inventory aligned with sales.

• Question from John Kernan (TD Cowen): Outlook for merchandise margin and distribution cost leverage after new DC?
  Response: Management: Merchandise margin slightly down but better than expected with room to capture improvement via branded vendor relationships; distribution costs pressured by new DC and tariff processing but new capacity will be leveraged over coming years.

• Question from Jay Sole (UBS): Why guide to 3–4% comp for Q4 when historically company guided 2–3% — any change in methodology or signaling?
  Response: Management: No methodology change — guidance reflects internal plan and momentum from the seven-point comp in Q3; guidance aligned to current business forecast.

Contradiction Point 1

Marketing Strategy and Customer Engagement

It involves a shift in the company's focus on marketing strategies and customer engagement, which directly impacts sales performance and customer retention.

Are marketing changes driving new or lapsed customers, and where are further opportunities? - Chuck Grom (Gordon Haskett)

2026Q3: The goal is to gain new customers and re-engage lapsed ones. Engagement has improved with better analytics and social media presence. The new marketing strategy has not increased marketing spend but focused on modernizing the brand, particularly reaching younger customers more aggressively. - Jim Conroy(CEO)

Can you explain the comps trend or drivers behind the sharp improvement during Q1? - Matthew Boss (JPMorgan)

2025Q1: We remain confident that our effective marketing efforts, brand recognition and compelling value proposition will continue to draw shoppers to our stores and that we will remain competitive in our target markets. - James Conroy(CEO)

Contradiction Point 2

Tariff Mitigation and Pricing Strategy

It involves the company's approach to mitigating tariff pressures and adjusting its pricing strategy, which affects profitability and customer value perception.

Can you break down the inflection in same-store sales by internal initiatives vs. external factors, and what drove the fourth-quarter growth? - Matthew Boss (JP Morgan)

2026Q3: Our team is working to increase the productivity of our existing stores. We have also refined our pricing strategy to ensure that we remain more value-oriented than our traditional competitors. - Jim Conroy(CEO)

How is the customer responding to your price increases? Will price increases fully offset tariff pressures by next year? - Lorraine Corrine Maikis Hutchinson (BofA Securities)

2025Q2: The price increases are very modest, and Ross will only adjust prices as they see broader retail price movement. An equilibrium will be reached next year, and prices should stabilize, allowing Ross to maintain its value proposition. - James G. Conroy(CEO)

Contradiction Point 3

Inventory and Supply Chain Management

It highlights a change in the company's assessment of its inventory and supply chain management, which could impact product availability and sales performance.

How do you balance marketing investments with investor returns? - Michael Benetti (Evercore ISI)

2026Q3: We're very pleased with our inventory position. We feel like we have got a good balance between having a lot of great product, but also giving us the flexibility to react to the seasons. - Michael Hartshorn(Group President)

Can you clarify how inventory availability is being addressed, given uncertainties in product flows? - Mark Altschwager (Baird)

2025Q1: We are in a strong position with regard to inventory availability and are confident in our team's ability to manage supply chain disruptions. - Michael Hartshorn(Group President and COO)

Contradiction Point 4

Same-Store Sales and Sales Growth Drivers

It involves the explanation of drivers for same-store sales growth, which is a key performance metric for the retail industry.

What drove the inflection in same-store sales, and how much was due to company-specific initiatives versus external factors? What supported the fourth-quarter raise? - Matthew Boss (J.P. Morgan)

2026Q3: Broad-based strength across merchandise categories and regions. - Jim Conroy(CEO)

What is driving the challenging comps in Q3? - Chuck Grom (Gordon Haskett)

2025Q4: Certainly, we're lapping some pretty easy compares on our private brands and ladies from the first half of last year. - Michael Hartshorn(Group President)

Contradiction Point 5

Tariff Mitigation Strategies

It involves a shift in the company's strategies to mitigate the impact of tariffs, which directly affects cost management and financial performance.

How do you address value gaps in the holiday season and 2026, and what drove AUR growth in Q3? - Brooke Roach (Goldman Sachs)

2026Q3: The second quarter impact includes two primary costs: orders already in transit when tariffs were announced and additional ticketing efforts until the ongoing tariff outlook is understood. - Michael Hartshorn(Group President)

What was the Q2 gross margin impact from tariffs (90-120 bps), and will this impact decrease as tariffs return to current levels? - Lorraine Hutchinson (Bank of America)

2025Q1: Strategies to mitigate tariffs include working with vendors for better costs, maintaining pricing values against mainstream retail, and leveraging closeouts and packaway merchandise. - Michael Hartshorn(Group President and COO)