Ross Stores (ROST) Q1 2026: Customer Count Surges Double Digits, Fueling 17% Comp Growth

2026-05-21 | By EarningsIQ Research

Ross Stores delivered its highest same-store sales growth in company history, powered by a double-digit increase in customer count and broad-based category strength. Strategic marketing, aggressive merchandising, and operational agility converged to drive robust transaction-led comps and margin expansion. With momentum carrying into Q2, management raised full-year guidance and signaled confidence in continued customer acquisition and store productivity gains.

Summary

• Transaction-Led Comp Strength: Double-digit new customer growth drove record sales gains across all demographics.
• Margin Expansion Outpaces Expectations: Merchandising and cost leverage offset incentive-driven SG&A headwinds.
• Strategic Initiatives Still Early: Leadership sees further upside from marketing, assortment, and store model transformation.

Business Overview

Ross Stores operates off-price retail chains Ross Dress for Less and DD’s Discounts, selling branded apparel, footwear, home, and beauty at significant discounts to department and specialty stores. The company earns revenue from in-store retail sales, with its largest segment, Ross, comprising the majority of total sales, and DD’s Discounts targeting value-focused consumers in select markets. Growth levers include new store openings, merchandising assortment, and customer acquisition through marketing and operational execution.

Performance Analysis

Ross Stores posted a standout quarter, with total sales up 21 percent and comparable store sales (comps) surging 17 percent, marking the highest comp growth in the company’s four-decade history. The primary driver was a double-digit increase in customer count, with gains across all income levels, age groups, and ethnicities—including outsized traction among 18 to 24-year-olds, a demographic often elusive to value retailers.

Transaction growth, rather than larger baskets or higher unit sales, was the core engine: units per transaction were flat, but more shoppers visited stores and converted at high rates. Every major category, led by ladies’ apparel and cosmetics, posted comp growth in the teens or higher, and geographic performance was similarly broad-based, with the Midwest outperforming. Operating margin expanded by 120 basis points to 13.4 percent, as merchandise margin improved and occupancy, distribution, and freight costs leveraged on strong sales. While SG&A deleveraged 25 basis points due to incentive compensation, underlying marketing and store costs were leveraged, reflecting disciplined expense management amid outperformance.

• Customer Acquisition Flywheel: Marketing and merchandising initiatives are fueling sustained transaction growth and new shopper conversion.
• Inventory and Product Availability: Aggressive buying and strong vendor relationships ensured in-stock positions, with closeout supply robust and first-call access improving.
• Store Expansion Momentum: 17 net new stores opened in Q1, with 5 percent unit growth planned for 2026 and new store productivity exceeding historical benchmarks.

Ross’s ability to chase inventory and flex its model in real time is a competitive advantage, supporting both top-line growth and margin protection. The broad nature of the comp and transaction gains suggests underlying health rather than one-off drivers.

Executive Commentary

Strategic Positioning

1. Marketing Modernization and Customer Acquisition

Ross is in the early innings of a modernized marketing strategy, shifting media mix, creative messaging, and event-driven campaigns to expand its reach and brand relevance. These efforts are directly translating into double-digit customer count increases, with a notable surge in younger demographics and first-time shoppers. Management emphasized that transaction-driven comps are healthier and more durable than those led by ticket or basket size.

2. Merchandising Agility and Vendor Relationships

Merchants aggressively chased inventory to meet spiking demand, leveraging strong relationships to secure first access to closeouts and new brands, especially in high-growth categories like cosmetics and ladies’ apparel. The ability to react quickly to market supply and consumer trends is a core differentiator, with management citing increased calls from vendors and opportunistic buys as a result of Ross’s accelerating growth profile.

3. Store Expansion and Productivity Gains

Ross opened 17 new stores in Q1 and remains on track for 5 percent unit growth in 2026, with new store productivity guidance raised above historical levels. Expansion is balanced between established and new markets, including ongoing densification in the Northeast. Early results from refreshed store prototypes and renovations show measurable sales and customer experience benefits, with further rollout paused to assess incremental impact and refine the model.

4. Assortment Breadth and Brand Laddering

The company has reinstated and expanded its “good, better, best” brand strategy, introducing more premium brands and broadening assortment to attract both core and adjacent customer segments. This supports both transaction growth and average basket expansion opportunities, while maintaining a sharp focus on value and price leadership.

5. Operational Discipline and Margin Management

Despite higher incentive costs, Ross leveraged marketing and store expenses, and expects further margin benefit from distribution center efficiencies and ongoing merchandise margin improvement. Management remains disciplined on capital allocation, with $1.275 billion in buybacks planned for 2026 and CapEx focused on high-return growth investments.

Key Considerations

This quarter marks a clear inflection point for Ross, with structural gains in new customer acquisition and transaction-driven comps suggesting a more durable growth trajectory. However, several factors warrant close investor attention as the business scales and laps record results.

Key Considerations:

• Durability of Transaction Growth: Customer count gains have accelerated for three consecutive quarters, but sustaining double-digit increases will require ongoing marketing and assortment innovation.
• Closeout Market Supply: The abundance of branded closeouts is a current tailwind, but any tightening of supply or increased competition could pressure product availability and margin.
• Fuel and Freight Cost Volatility: Elevated fuel prices are expected to pressure freight costs in the second half, with guidance reflecting DOE estimates but risk of further inflation.
• SG&A Sensitivity to Incentives: Outperformance has triggered higher incentive compensation, which while supporting growth, could limit operating leverage if comps moderate.
• Store Model Evolution: Success of new prototypes and refreshes is promising, but the decision to pause further rollout to assess impact introduces a temporary cap on related productivity upside.

Risks

Ross faces several key risks in the coming quarters: A reversal in closeout supply or intensification of off-price competition could erode its buying advantage. Fuel and freight cost inflation may pressure margins if not offset by further sales leverage. Additionally, sustaining high levels of new customer acquisition and comp growth will become more challenging as the business laps historic gains. Any macroeconomic downturn or consumer pullback could test the durability of recent transaction-led growth.

Forward Outlook

For Q2 2026, Ross guided to:

• Comparable store sales growth of 6 to 7 percent
• Earnings per share of $1.85 to $1.93
• Operating margin of 12.8 to 13.0 percent
• 47 new store openings (35 Ross, 12 DD’s Discounts)

For full-year 2026, management raised guidance:

• Comparable store sales growth of 6 to 7 percent (on top of 5 percent last year)
• Earnings per share of $7.50 to $7.74, up 13 to 17 percent year-over-year

Management emphasized ongoing momentum, robust closeout supply, and early-stage progress on multiple growth initiatives as key drivers supporting the higher outlook. They also highlighted continued focus on marketing, merchandising, and operational improvements as levers for future upside.

• Momentum in customer acquisition and transaction growth is expected to continue, though at a more normalized rate.
• Cost pressures from fuel and freight are embedded in second-half guidance, with flexibility to adjust as market conditions evolve.

Takeaways

Ross’s Q1 results signal a step change in both operational execution and strategic direction, with broad-based comp growth, expanding margins, and record new customer acquisition. The company’s off-price model, marketing modernization, and merchandising agility are converging to drive sustainable growth, though risks remain as comps normalize and cost pressures persist.

• Transaction-Driven Comp is Key: The healthiest form of comp growth—new customer transactions—led Q1, de-risking the quality of outperformance and supporting future durability.
• Strategic Levers Remain Early: Marketing, merchandising, and store model initiatives are still in the early stages, offering additional upside as they scale and mature.
• Watch for Margin and Traffic Trends: Investors should monitor the sustainability of customer count gains, closeout supply, and the impact of fuel costs on margin trajectory in the second half and beyond.

Conclusion

Ross Stores delivered a record-breaking quarter, demonstrating the power of its transaction-led off-price model and the early benefits of strategic transformation. With momentum strong and multiple growth levers still ramping, Ross is well-positioned, though investors should watch for normalization as comps get tougher and macro risks remain.

Industry Read-Through

Ross’s performance underscores the enduring appeal of the off-price retail model in a value-seeking consumer environment. Double-digit customer growth and broad-based category strength suggest that shoppers are actively trading down or expanding wallet share to off-price channels, especially as inflation and macro uncertainty persist. Closeout supply remains robust, benefiting large-scale buyers like Ross, but this could tighten if mainstream retail inventory normalizes or competition intensifies. The success of marketing modernization and store refreshes at Ross may prompt peers to accelerate similar initiatives. Retailers with strong vendor relationships, merchandising agility, and a focus on customer acquisition are best positioned to capitalize on shifting consumer behavior and supply chain volatility.

ROST Consumer Discretionary Retail Off-Price Customer Acquisition Store Expansion Merchandising Margin