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Ross Stores (ROST +1%) is ticking higher today after reporting its Q2 (Jul) results last night. This off-price retailer reported EPS above expectations. EPS included an $0.11 negative impact from tariff-related costs, though that was less than expected. Revenue was in line with consensus estimates, growing 4.6% yr/yr to $5.53 bln. It was also nice to see ROST provide Q4 EPS and comp guidance, providing extra visibility towards the end of the year, after withdrawing its annual guidance in Q1 (Apr).

More generally, this is similar to what we saw in TJX's (TJX) Q2 report earlier in the week, as both retailers are benefitting from value-seeking consumers drawn to their lower prices.

• ROST saw a sequential improvement in sales trends relative to the first quarter, with a positive change in trend in nearly all major merchandise categories and most regions. As a result, Q2 comps came in at +2%, above the midpoint of its prior guidance of flat to +3%. Encouragingly, management noted sales rebounded sharply in July, primarily due to the early sales performance related to back-to-school season, which bodes well for Q3 (Oct).
• In particular, cosmetics was its best merchandise area, while the Southeast and Midwest were its strongest markets. Notably, comp sales at dd's DISCOUNTS were ahead of Ross Stores, highlighting consumer focus on value. That said, both chains saw growth in both traffic and basket size, with strong momentum exiting the quarter.
• For Q3 and Q4 (Jan), ROST sees comps of +2-3%. Management noted that it is looking toward the 2H25 with some cautious optimism, so there is some conservatism embedded in the guide. That said, they also noted that Q3 compares against a softer quarter last year than Q2, which could provide a relative tailwind.
• On the other hand, tariffs are proving to be a bit of a headwind. Its operating margin decreased 95 bps yr/yr to 11.5%, which included an approximate 90 bps negative impact from tariff related costs, while merchandise margin slipped 30 bps. Encouragingly, it does see tariff pressures easing in 2H25, with modest pressure in Q3, further mitigated in Q4, reflecting merchant progress and increased use of closeout deals.

Overall, this was a solid Q2 for ROST and continues the trend of what we saw with TJX earlier in the week. Investors are encouraged to see the sequential improvement from Q1, capped by a sharp rebound in July tied to early-back-to-school demand, which bodes well for Q3. Its Q3 revenue guidance of 5-7% growth (computes as $5.32-5.43 bln) sits above the mid-point of consensus estimates. Looking ahead, another off-price retailer, Burlington Stores (BURL), reports next week on Thursday.