Ross Stores (ROST) Q4 2025: 21% EPS Growth Marks Inflection as Store Expansion Accelerates
Ross Stores delivered a traffic-led comp surge and double-digit EPS growth, signaling a pronounced inflection in both core and new markets. Strategic merchandising, disciplined cost management, and a ramp in new store productivity drove robust momentum into 2026. Management’s guidance and capital allocation reinforce confidence in sustained outperformance, but the durability of recent gains will be tested as comps lap tougher prior periods and macro headwinds persist.
Summary
- Traffic-Led Comp Inflection: Customer transactions and broad-based merchandise gains fueled a sharp acceleration in comp sales and earnings.
- Store Expansion Upshift: New store productivity and market entry success support a 5% increase in unit growth for 2026.
- Margin Leverage and Capital Return: Operating margin expansion and a 21% boost in buyback authorization highlight disciplined execution and shareholder focus.
Performance Analysis
Ross Stores posted a decisive acceleration in both sales and earnings, with comparable sales up robustly and EPS growth outpacing revenue gains. The quarter’s comp growth was driven by an increase in customer transactions, not just basket size, as the company benefited from improved merchandise assortments, higher customer engagement, and effective in-store initiatives. All major merchandise categories contributed, with shoes and cosmetics as standouts, and every region posted positive results, led by the Midwest and Mountain regions.
Margin improvement was notable, with operating margin expansion excluding prior-year facility sale benefits. Cost of goods sold declined as a percentage of sales, aided by occupancy leverage and lower distribution and freight costs. Merchandise margin improved due to better buying, even as SG&A was impacted by incentive compensation and the absence of one-time gains. Inventory growth remained below sales growth, supporting healthy turns. The company closed the year with record sales and a strong balance sheet, completing a $2.1 billion buyback and raising its dividend.
- Merchandise Margin Tailwind: Better buying, particularly in apparel and home, lifted merchandise margin by 10 basis points, offsetting tariff pressures earlier in the year.
- Transaction-Driven Growth: Comp gains were led by increased customer traffic, not price, signaling sustainable demand rather than one-time pricing actions.
- Inventory Discipline: Inventory rose 8%, below the 12% sales growth, and packaway inventory was managed to 37% of total, reflecting efficient inventory management.
Ross’s performance reflects a well-executed multi-pronged strategy, with broad-based strength and new store productivity setting up continued momentum into the new fiscal year.
Executive Commentary
"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."
Jim Conroy, Chief Executive Officer
"Operating margin increased 95 basis points excluding last year’s facility sale, driven by lower cost of goods sold, occupancy leverage, and improved merchandise margin. Our new two-year $2.55 billion stock repurchase authorization and 10% dividend increase reflect our continued commitment to return excess cash to shareholders after funding growth."
Bill Sheehan, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. Merchandising and Brand Strategy
Ross’s branded strategy, focused on delivering more brands at attractive values, is driving both traffic and basket gains. The company’s buying organization has navigated tariff headwinds and strengthened vendor relationships, particularly in the ladies’ and home categories. Sequential improvement in home and strong growth in juniors and center core (cosmetics, shoes) demonstrate the breadth of the merchandising rebound.
2. Store Expansion and Market Penetration
Management is accelerating store openings to 110 new locations in 2026, a 5% increase, underpinned by strong new store productivity in both new and established markets. The company’s entry into the New York metro area and Puerto Rico, along with continued growth in core regions, highlights untapped market potential. DeeDee’s Discounts, value-focused stores, will see a significant ramp, with 25 openings planned versus 10 last year.
3. Operating Model and Cost Discipline
Ross continues to leverage its flexible, low-cost operating model, with a focus on test-and-learn store investments and disciplined marketing spend. The company achieved outsized comp growth without incremental investment in marketing or store labor, relying on targeted payroll and operational improvements. Self-checkout pilots and supply chain investments are positioned to drive further efficiency and customer experience gains.
4. Capital Allocation and Shareholder Returns
Ross’s 21% increase in buyback authorization and 10% dividend hike underscore confidence in cash generation and long-term growth prospects. The capital plan balances aggressive store growth, supply chain investments, and technology enhancements, while maintaining a commitment to returning excess cash to shareholders.
5. Customer Acquisition and Demographic Breadth
Comp growth is being driven by both new and returning customers across income and age segments, with particular strength in younger demographics and juniors’ apparel. Management sees a broad-based customer response to marketing and merchandise initiatives, supporting the sustainability of recent traffic gains.
Key Considerations
This quarter showcased a pronounced inflection in Ross’s operating and financial trajectory, but the sustainability of elevated comps and margins will be tested as the company laps easier comparisons and faces ongoing macro and tariff headwinds.
Key Considerations:
- Traffic-Led Growth: Comp acceleration is rooted in increased transactions, not price, suggesting underlying demand strength and potential for sustained share gains.
- Store Productivity Upside: New store productivity, including in high-rent, high-density markets, exceeded expectations and supports longer-term expansion targets.
- Margin Expansion Levers: Merchandise margin gains from better buying and receding tariff pressure provide incremental cushion, but incentive comp and distribution costs will pressure near-term flow-through.
- Capital Allocation Discipline: Aggressive buybacks and dividend increases are enabled by robust free cash flow and a balanced approach to growth investments.
- Marketing and Store Investment Flexibility: Current comp gains have been achieved without outsized marketing or store labor investment, but management retains flexibility to invest further if ROI is compelling.
Risks
Ross faces risks from tougher comp comparisons in the second half, ongoing tariff and supply chain cost volatility, and uncertain macroeconomic conditions that could impact discretionary spending. Management’s guidance embeds a conservative stance for the back half, but a reversal in traffic trends or a failure to sustain new customer acquisition could pressure both sales and margin trajectories. Additionally, further wage inflation or competitive responses in off-price retail could challenge operating leverage.
Forward Outlook
For Q1 2026, Ross guided to:
- Comparable store sales up 7% to 8%
- Earnings per share of $1.60 to $1.67
For full-year 2026, management raised guidance:
- Same-store sales up 3% to 4%
- Earnings per share of $7.02 to $7.36
- Operating margin in the 12% to 12.3% range
Management highlighted several factors that will shape results:
- Higher distribution center costs and incentive comp will weigh on Q1 margin flow-through
- Full-year margin expansion is driven by merchandise margin gains and lower distribution costs
- Store openings will be weighted to summer and fall, with 110 new locations planned
Takeaways
Ross’s Q4 results mark a clear operating inflection, with traffic-led comp gains, margin expansion, and outsized new store productivity driving optimism for 2026 and beyond.
- Comp and Margin Inflection: Traffic-driven sales growth and disciplined cost management delivered double-digit EPS growth and record profitability, setting a new baseline for future performance.
- Strategic Expansion: Success in new markets and robust new store productivity support an accelerated store opening plan and reinforce the long-term growth narrative.
- Watch for Durability: Investors should monitor the sustainability of traffic gains and margin expansion as the company laps easier comps and faces evolving macro risks in the back half of the year.
Conclusion
Ross Stores exits 2025 with clear momentum, driven by broad-based merchandise strength, disciplined execution, and a reaccelerated store growth strategy. While near-term margin flow-through faces some headwinds, the company’s underlying demand and capital allocation discipline position it well for continued share gains and long-term value creation.
Industry Read-Through
Ross’s traffic-led comp acceleration and margin expansion signal a broader consumer shift toward value and off-price formats, with both existing and new customers trading down from mainstream retail. The success of new store openings in high-density and higher-rent markets highlights ongoing real estate opportunities for off-price players, while the ability to drive comp growth without heavy marketing spend raises the bar for operational efficiency across retail. Competitors in both off-price and department store segments should expect continued share pressure as Ross and its peers capitalize on macro uncertainty and evolving consumer preferences. The strong capital return program also underscores the importance of balanced growth and shareholder discipline in a competitive landscape.