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    ROSS STORES (ROST)

    Q1 2025 Earnings Summary

    Reported on Feb 18, 2025 (After Market Close)
    Pre-Earnings Price$131.86Last close (May 23, 2024)
    Post-Earnings Price$141.86Open (May 24, 2024)
    Price Change
    $10.00(+7.58%)
    • Improved Performance at dd's DISCOUNTS: dd's DISCOUNTS sales trends were ahead of Ross, as shoppers responded favorably to improved value offerings, including better assortments, improved quality, and sharper pricing. This positive response suggests potential for continued growth in this segment.
    • Increased Customer Traffic and Broadening Demographics: Ross Stores experienced increased traffic, driven by higher Average Unit Retail (AUR) due to a higher mix of brands. The company continues to do well with younger customers and is attracting a broad customer base across various demographics and income levels, indicating strong market positioning.
    • Strategic Focus on Branded Merchandise at Sharp Prices: The company's initiative to offer more sharply priced branded products is showing progress, with customers responding positively. Although this strategy may pressure margins in the short term, management believes it will position Ross Stores to capture market share and drive long-term growth.
    • The company's core low to moderate income customers are still being squeezed by prolonged inflation and macroeconomic pressures, which may negatively impact sales growth. "Our low to moderate income consumer is still being squeezed... I don't foresee anyone thinking that the pressure on that customer is going to be any different."
    • The Q1 operating margin improvement benefited from one-time factors such as packaway timing and lower distribution costs, which are not expected to recur at the same level in future quarters. "But not -- just clarifying, not at the level we saw in Q1, right? So the Q1 number that we reported is -- it has the benefit of the packaway timing right?"
    • Returning to pre-COVID gross margin levels will be challenging, as it requires outsized comp sales growth and favorable macroeconomic conditions, which may not materialize. "It'll take -- to get back to pre-COVID levels, it'll take outsized comp sales growth... The kind of the biggest variables are where fuel prices over time and assuming that wages continue to stabilize."
    1. Margin Outlook
      Q: Is 3% comp growth and 200 bps margin expansion the new normal?
      A: Management does not expect to leverage 200 basis points on a 3% comp going forward. The first quarter benefited from lower distribution costs and favorable freight expenses, which may not repeat at the same level. Margins will be pressured throughout the year, especially in the back half, due to investments in higher-quality branded merchandise that typically carries lower margins. , ,

    2. Comp Guidance and Sales Growth
      Q: What drives your confidence in accelerating comps to 2%-3%?
      A: Management believes the business is appropriately planned based on merchandising initiatives to increase branded bargains as the year progresses. Historically, stronger comps are achieved beyond the first quarter, and they plan to continue executing strategies to drive sales and gain market share. , ,

    3. Impact of Value Strategy on Margins
      Q: What is the margin impact of offering more branded products?
      A: Investing in higher-quality branded merchandise will pressure margins throughout the year, particularly in the back half of fiscal 2024. These brands typically carry lower margins compared to less recognizable brands, but management believes this strategy will help gain market share long term. ,

    4. dd's Performance and Strategy
      Q: What drove dd's outperformance, and plans to adjust growth?
      A: dd's sales trends were ahead of Ross due to easier prior year comparisons and improved value offerings that resonated with customers. While encouraged by the initial response, sustained trends are needed before reaccelerating growth in newer markets. , ,

    5. Buying Environment and Merchandise Availability
      Q: How is the current buying environment across categories?
      A: There is broad-based merchandise availability, with some categories offering more opportunities than others. Merchants are obtaining better deals, and the company passes these savings to customers by offering good quality, branded products at sharp prices. ,

    6. Consumer Health and Outlook
      Q: What's your view on the health of your core consumer?
      A: The low- to moderate-income consumer remains under pressure due to prolonged inflation and the macroeconomic environment. However, customers are seeking value more than ever, and management aims to deliver the best possible branded bargains to drive sales and gain market share.

    7. Inventory Levels and Implications
      Q: Why did inventory grow faster than sales?
      A: Inventory increased due to a fiscal calendar shift placing the company closer to Mother's Day, driving receipts and leading to in-store inventory up 4%. Additionally, more goods are in transit due to the Suez Canal situation, affecting transit times but not costs.

    8. Gross Margin Outlook
      Q: What is the gross margin outlook for fiscal '24 and path to pre-COVID levels?
      A: Merchandise margins will be below last year as the company invests in branded merchandise. Returning to pre-COVID gross margin levels of 28%-29% will require outsized comp sales growth. Key factors include fuel prices and wage stabilization.

    9. Distribution and Freight Costs
      Q: Will distribution and freight cost efficiencies continue?
      A: Favorable domestic freight costs and higher productivity in distribution centers are expected to continue through the year but not at the same level as the first quarter, which included benefits from packaway timing. , ,

    10. Marketing and Customer Acquisition
      Q: Are you attracting younger shoppers through more digital marketing?
      A: The marketing strategy has shifted more towards digital channels, which may be reaching younger customers. The company continues to perform well with younger shoppers and is attracting a broad customer base across demographics.

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