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Ross Stores (ROST) is trading nicely higher after a strong Q2 (Jul) report last night. The off-price retailer beat expectations on the top and bottom lines, with revenue increasing 13.3% yr/yr to $6.26 bln. EPS of $2.66 included an approximately $0.60 benefit from tariff refunds, although EPS still exceeded expectations excluding the benefit. ROST also raised its back-half outlook despite facing more difficult comparisons and now expects FY27 EPS of $8.61-8.77, which is also above expectations after backing out the tariff benefit.

• Comp sales: Comp sales increased a healthy 10%, well above ROST's 6-7% plan and marking its second consecutive quarter of double-digit growth. Encouragingly, the increase was again primarily transaction-driven, reflecting gains from new and returning customers as well as existing customers shopping more frequently.
• Trend and consumer: Sales were strong in May and improved sequentially each month during Q2, with July delivering the strongest performance despite cycling a strong back-to-school period last year. August trends have also remained encouraging, while new customer gains have been broad across income and age groups.
• Margins: Gross margin expanded 625 bps yr/yr, while operating margin expanded 610 bps, although both included a 405 bp benefit from tariff refunds. Excluding that benefit, operating margin expanded 205 bps yr/yr, supported by a 110 bp increase in merchandise margin and lower distribution costs. For Q3, ROST expects operating margin of 11.7-12.0% versus 11.6% last year, reflecting comp leverage and slightly higher merchandise margin, partially offset by higher freight costs.
• Outlook: ROST raised its back-half expectations despite facing increasingly difficult comparisons, now forecasting Q3 comp growth of 6-7% and Q4 growth of 4-5% on top of +9% last year. ROST also increased its FY27 store opening plan to 115 locations from 110, with recent openings performing ahead of plan and providing further confidence in its unit-growth opportunity.

Briefing.com Analyst Insight

This marks another strong quarter for ROST, with a second consecutive double-digit comp that was again primarily transaction-driven and supported by broad customer gains across income and age groups. Although the outsized EPS beat and increase to full-year guidance include the roughly $0.60 tariff-refund benefit, results still came in above expectations and prior guidance excluding that benefit, supported by solid underlying margin expansion. The raised back-half comp outlook is also encouraging, especially as ROST faces increasingly difficult comparisons following several quarters of strong growth. Peer TJX confirmed a favorable off-price backdrop earlier this week, although ROST's broad-based strength stands in contrast to the merchandise-mix and planning issues that weighed on Marmaxx. Better assortments, improved store execution and stronger vendor access suggest ROST's recent strength reflects company-specific execution as well as a supportive industry backdrop. With further opportunity across these areas and the store-opening outlook moving higher, ROST appears to be operating from a position of strength even as comparisons become increasingly difficult.