Ross Stores · 10-Q · Item 2 MD&A

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed below under the caption “Forward-Looking Statements” and also those in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for fiscal 2025. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for fiscal 2025. All information is based on our fiscal calendar.

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores—Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,952 locations in 44 states, the District of Columbia, Guam, and Puerto Rico as of August 1, 2026. Ross offers first-quality, in-season, brand name and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 376 dd’s DISCOUNTS stores in 23 states as of August 1, 2026 that feature a more moderately-priced assortment of first-quality, in-season apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Financial Highlights

Financial results for the second quarter of fiscal 2026 were as follows:

•Sales were $6,265 million, compared to $5,529 million in the second quarter of fiscal 2025.

•T1Comparable store sales increased 10%.

•T2Operating income was $1,104 million, which included a benefit of approximately $253 million related to refunds of IEEPA tariffs paid, compared to $638 million in the second quarter of fiscal 2025.

•T3Operating income as a percentage of sales was 17.6%, compared to 11.5% in the second quarter of fiscal 2025.

•Net earnings was $851 million, compared to $508 million in the second quarter of fiscal 2025.

•Diluted earnings per share were $2.66, compared to $1.56 in the second quarter of fiscal 2025.

•We opened 47 new stores in the second quarter of fiscal 2026, consisting of 35 Ross and 12 dd’s DISCOUNTS locations, and are increasing our store opening plan to approximately 115 new stores this year.

Key Initiatives

Our current key initiatives include the following:

•Merchandising: Delivering broad‑based assortments timely and offering more brands at compelling values for our customers.

•Marketing: Advancing our marketing initiatives to further increase customer acquisition and engagement.

•Stores: Making meaningful improvements to the in-store shopping experience for our customers.

We believe these initiatives will positively contribute to our performance and support our growth plans.

Store Openings

The following table summarizes the stores opened and closed during the three and six month periods ended August 1, 2026 and August 2, 2025:

Three Months Ended

Six Months Ended

Store Count

Ross Dress for Less

Beginning of the period

Opened in the period

Closed in the period

—

(2)

—

(2)

Total Ross Dress for Less stores end of period

dd’s DISCOUNTS

Beginning of the period

Opened in the period

3

6

Closed in the period

(1)

(1)

(3)

(1)

Total dd’s DISCOUNTS stores end of period

Total stores end of period

We opened 47 new stores in the second quarter of fiscal 2026, consisting of 35 Ross stores and 12 dd’s DISCOUNTS stores. We expect to open 51 stores in the three month period ending October 31, 2026, including 41 Ross and 10 dd’s DISCOUNTS locations. Due to the success of our expansion strategy across both new and existing markets, T4we are increasing our store opening plan to approximately 115 new stores this year, comprised of about 90 Ross stores and 25 dd’s DISCOUNTS stores.

Our long-term strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria. We continue to believe that customers’ focus on value and convenience supports opportunities to expand our reach and serve more customers over time.

Sales Metrics

Comparable store sales (“comp store sales”) is a metric used by management and across the retail industry to evaluate the performance of existing stores by measuring the change in net sales for a particular period over the comparable prior period of equivalent length. We define comp store sales to be sales from stores that have been open for 14 complete months.

Sales excluded from comp store sales (“non-comp store sales”) consist primarily of sales from new stores that have been open for less than 14 complete months. Non-comp store sales also include sales from stores that are permanently closed (beginning in the month prior to closure) and temporarily closed (i.e., stores that do not have sales for at least two weeks within a fiscal month).

The calculation of comp store sales varies across the retail industry; therefore, our measure of comp store sales may differ from other retailers.

Metrics relating to customer purchasing behavior, such as “traffic” (defined as the number of transactions) and “basket” (defined as average transaction value), may provide additional insight into our comp store sales results (see Sales discussion below).

Results of Operations

The following table summarizes our financial results for the three and six month periods ended August 1, 2026 and August 2, 2025:

Three Months Ended

Six Months Ended

(Rates shown as a percent of sales, except sales metrics)

Sales

Sales (millions)

$

$

$

$

Sales growth

%

5

%

%

4

%

Comparable store sales growth

%

2

%

%

1

%

Costs and expenses

Cost of goods sold

%

%

%

%

Selling, general and administrative

%

%

%

%

Operating income

%

%

%

%

Interest income, net

%)

%)

%)

%)

Net earnings

%

%

%

%

Sales. Sales for the three month period ended August 1, 2026 increased by approximately $736 million, or 13%, compared to the three month period ended August 2, 2025. This was primarily due to the 10% increase in comp store sales of $534 million and an increase in non-comp store sales of $202 million. The 10% increase in comp store sales was primarily driven by an approximately 7% increase in traffic and 3% increase in basket.

Sales for the six month period ended August 1, 2026 increased by approximately $1,761 million, or 17%, compared to the six month period ended August 2, 2025. This was primarily due to the 13% increase in comp store sales of $1,375 million and an increase in non-comp store sales of $386 million. The 13% increase in comp store sales was primarily driven by an approximately 9% increase in traffic and 4% increase in basket.

Our sales mix for the three and six month periods ended August 1, 2026 and August 2, 2025 is shown below:

Three Months Ended

Six Months Ended

Home Accents and Bed and Bath

%

%

%

%

Ladies

%

%

%

%

Men’s

%

%

%

%

Accessories, Lingerie, Fine Jewelry, and Cosmetics

%

%

%

%

Shoes

%

%

%

%

Children’s

9

%

9

%

9

%

9

%

Total

%

%

%

%

Cost of goods sold. Cost of goods sold for the three and six month periods ended August 1, 2026 increased by approximately $143 million and $792 million, respectively, compared to the three and six month periods ended August 2, 2025, primarily due to the increase in sales. The increase was partially offset by the recovery of approximately $253 million of IEEPA tariffs during the three months ended August 1, 2026.

Cost of goods sold as a percentage of sales decreased by approximately 625 basis points for the three month period ended August 1, 2026, compared to the three month period ended August 2, 2025, primarily due to a 405 basis point benefit from the recovery of IEEPA tariffs. Merchandise margin increased 110 basis points. Distribution costs decreased 100 basis points mainly due to the timing of packaway inventory carrying costs, higher productivity, and tariff-related processing costs in the second quarter of fiscal 2025. Occupancy costs leveraged 25 basis points. Partially offsetting these benefits were higher domestic freight costs of 10 basis points due to increased fuel prices and higher buying costs of 5 basis points from higher incentive compensation expense.

Cost of goods sold as a percentage of sales decreased by approximately 390 basis points for the six month period ended August 1, 2026, compared to the six month period ended August 2, 2025, primarily due to a 205 basis point benefit from the recovery of IEEPA tariffs. Merchandise margin increased 100 basis points. Distribution costs decreased 60 basis points mainly due to the timing of packaway inventory carrying costs, higher productivity, and tariff-related processing costs in the second quarter of fiscal 2025. Occupancy costs leveraged 40 basis points. Partially offsetting these benefits were higher buying costs of 15 basis points from higher incentive compensation expense.

Selling, general and administrative expenses. For the three and six month periods ended August 1, 2026, selling, general and administrative expenses (“SG&A”) increased by approximately $127 million and $306 million, respectively, compared to the three and six month periods ended August 2, 2025, primarily due to higher store-related costs.

SG&A as a percentage of sales for the three and six month periods ended August 1, 2026 increased by approximately 15 basis points and 20 basis points, respectively, compared to the three and six month periods ended August 2, 2025, primarily due to higher incentive compensation expense.

Operating income. Operating income as a percentage of sales for the three and six month periods ended August 1, 2026 increased by approximately 610 basis points and 370 basis points, respectively, compared to the three and six month periods ended August 2, 2025, primarily driven by the decrease in cost of goods sold as a percentage of sales period-over-period, partially offset by the increase in SG&A as a percentage of sales period-over-period.

Interest income, net. For the three and six month periods ended August 1, 2026, interest income, net was relatively flat compared to the three and six month periods ended August 2, 2025, as shown in the table below:

Three Months Ended

Six Months Ended

Interest income

$

$

$

$

Capitalized interest

Interest expense on long-term debt

Other interest expense

Interest income, net

$

$

$

$

Taxes on earnings. Our effective tax rates for the three month periods ended August 1, 2026 and August 2, 2025 were approximately 25.0% and 24.2%, respectively. The increase of 0.8% in the effective tax rate for the three month period ended August 1, 2026 compared to the three month period ended August 2, 2025 was primarily due to the resolution of tax positions with various tax authorities. Our effective tax rates for the six month periods ended August 1, 2026 and August 2, 2025 were approximately 23.9% and 24.7%, respectively. The decrease of 0.8% in the effective tax rate for the six month period ended August 1, 2026 compared to the six month period ended August 2, 2025 was primarily due to the tax effects associated with stock-based compensation.

Our effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns. Our effective tax rate is impacted by changes in tax laws and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and the resolution of tax positions with various tax authorities.

Earnings per share. Diluted earnings per share for the three month period ended August 1, 2026 was $2.66 compared to $1.56 for the three month period ended August 2, 2025. The $1.10, or 71%, increase in diluted earnings per share for the three month period ended August 1, 2026 was primarily attributable to an approximately 68% increase in net earnings and an approximately 3% reduction in weighted-average diluted shares outstanding, largely due to stock repurchases under our stock repurchase program.

Diluted earnings per share for the six month period ended August 1, 2026 was $4.69 compared to $3.03 for the six month period ended August 2, 2025. The $1.66, or 55%, increase in the diluted earnings per share for the six month period ended August 1, 2026 was primarily attributable to an approximately 52% increase in net earnings and an approximately 3% reduction in weighted-average diluted shares outstanding largely due to stock repurchases under our stock repurchase program.

Earnings for both the three and six month periods ended August 1, 2026 included approximately a $0.60 per share benefit from refunds of IEEPA tariffs paid. Earnings for both the three and six month periods ended August 2, 2025 included approximately an $0.11 per share negative impact from tariff-related costs.

Financial Condition

Liquidity and Capital Resources

The primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, operating and variable lease costs, taxes, capital expenditures related to our new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to repurchase stock under active stock repurchase programs, repay debt as it becomes due, and pay dividends. In April 2026, we repaid at maturity $500 million of Senior Notes, and in April 2025, we repaid at maturity $700 million of Senior Notes. As of August 1, 2026, we had $242 million principal amount of Senior Notes that will reach maturity in 2027.

Our cash flows for the six month periods ended August 1, 2026 and August 2, 2025, are summarized in the table below:

Six Months Ended

($ millions)

Cash provided by operating activities

$

$

Cash used in investing activities

Cash used in financing activities

Net decrease in cash, cash equivalents, and restricted cash and cash equivalents

$

$

Operating Activities

Net cash provided by operating activities for the six month period ended August 1, 2026 increased by approximately $634 million compared to the six month period ended August 2, 2025, primarily due to higher net earnings and higher current year incentive compensation accruals. Accounts payable leverage was 85% as of August 1, 2026 and August 2, 2025.

Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date. As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling merchandise purchase opportunities in the marketplace and our decisions on the timing for release of that inventory to our stores. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to our store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchase, but typically packaway remains in storage for less than six months. We expect to continue to take advantage of packaway inventory opportunities to maximize our ability to deliver bargains to our customers.

Changes in packaway inventory levels affect our operating cash flow. As of August 1, 2026, January 31, 2026, and August 2, 2025 packaway inventory was 36%, 37%, and 38% of total inventory, respectively.

Investing Activities

Net cash used in investing activities for the six month period ended August 1, 2026 increased by approximately $51 million compared to the six month period ended August 2, 2025, due to higher capital expenditures primarily related to the opening of new stores.

T5Capital expenditures for fiscal 2026 are projected to be approximately $1.1 billion. Our planned capital expenditures for fiscal 2026 include costs to open new stores and improve existing stores, investments in our supply chain to support long-term growth, including construction of our next distribution centers, investments in our information technology systems, and for various other expenditures related to our stores, distribution centers, and buying and corporate offices. We expect to fund capital expenditures with available cash.

Financing Activities

Net cash used in financing activities for the six month period ended August 1, 2026 was relatively flat compared to the six month period ended August 2, 2025.

Revolving credit facility. As of August 1, 2026, we had no borrowings or standby letters of credit outstanding under the Credit Facility, and we were in compliance with the financial covenant. Refer to Note E: Debt in the Notes to Condensed Consolidated Financial Statements for additional information.

Senior notes. As of August 1, 2026, we had approximately $1.0 billion of outstanding Senior Notes, of which $241.5 million was classified in Current Liabilities on our Condensed Consolidated Balance Sheet. Refer to Note E: Debt in the Notes to Condensed Consolidated Financial Statements for additional information.

Stock Repurchases. In March 2026, T6our Board of Directors approved a new, two-year program to repurchase up to $2.55 billion of our common stock through January 29, 2028. During the six month period ended August 1, 2026, we repurchased 2.9 million shares of common stock for $637.5 million (excluding excise tax) under this program. Refer to Note A: Summary of Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements for additional information relating to our stock repurchase program.

Dividends. On August 19, 2026, our Board of Directors declared a quarterly cash dividend of $0.4450 per common share, payable on September 30, 2026.

Our Board of Directors declared a quarterly cash dividend of $0.4450 per common share in March and May 2026. Our Board of Directors declared a quarterly cash dividend of $0.4050 per common share in March, May, August, and November 2025.

For the six month periods ended August 1, 2026 and August 2, 2025, we paid cash dividends of $286.2 million and $265.6 million, respectively.

Other financing activities. Short-term trade credit represents a significant source of financing for merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources, and expect to be able to maintain adequate trade credit, bank credit, and other credit sources to meet our capital and liquidity requirements.

T7We ended the second quarter of fiscal 2026 with $4.3 billion of unrestricted cash balances, which were held primarily in bank deposits, money market mutual funds, and U.S. Government and agency securities across a highly diversified set of banks and other financial institutions. We also have $1.3 billion available under our Credit Facility. We estimate that existing cash and cash equivalent balances, cash flows from operations, our Credit Facility, and trade credit are adequate to meet our operating cash needs and to fund our common stock repurchases, planned capital investments, quarterly dividend payments, debt repayments, and interest payments, for at least the next 12 months.

Contractual Obligations

As of August 1, 2026, there have been no material changes to our contractual obligations as disclosed in our Annual Report on Form 10-K as of January 31, 2026, other than those which occur in the ordinary course of business.

Critical Accounting Estimates

During the second quarter of fiscal 2026, there were no significant changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the year ended January 31, 2026.

Forward-Looking Statements

This report contains a number of forward-looking statements regarding, without limitation, projected sales, costs and earnings, planned new store growth, capital expenditures, liquidity, and other matters. These forward-looking statements reflect our then-current beliefs, plans, and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” “outlook,” “looking ahead,” and similar expressions identify forward-looking statements.

Future impact from inflation, changes in tariffs on imported goods, interest rate changes, ongoing military conflicts and economic sanctions, extreme weather, public health crises (including pandemics), natural disasters, and other economic, regulatory, consumer spending, and industry events and trends that could potentially adversely affect our revenue, profitability, operating conditions, and growth are difficult to predict. Our forward-looking statements are subject to risks and uncertainties which could cause our actual results to differ materially from those forward-looking statements and our previous expectations, plans, and projections. Risks and uncertainties, any of which could adversely affect our sales, profitability, and growth, and harm our business may include (but are not limited to):

•Adverse changes in the macroeconomic environment, government regulations and policies, geopolitical conditions and conflicts, and financial and credit markets.

•Increased costs of fuel and other consumer necessities, continuing inflation, and other external economic trends and events may have significant negative effects on consumer confidence, shopping behavior, and spending, and also on our costs.

•T8Tariff increases (or threats of increases) and other changes and uncertainty in U.S. trade or tax policy regarding apparel, home-related merchandise, shoes, and other goods we sell that are produced in other countries.

•Competitive pressures and the pace of change in the retailing industry.

•Unexpected changes in the level of consumer spending or preferences.

•Adverse or unseasonable weather may affect shopping patterns and consumer demand for seasonal apparel and other merchandise, and may result in temporary store closures and disruptions in deliveries of merchandise to our stores.

•Our dependence on the market availability, quantity, and quality of attractive brand name merchandise at desirable discounts, and on the ability of our buyers to source and purchase merchandise to enable us to offer customers a wide assortment of merchandise at competitive prices.

•Our need to expand in existing markets and enter new geographic markets in order to achieve growth.

•Our need to obtain acceptable new store sites with favorable consumer demographics in order to achieve growth.

•Our need to continually attract, train, and retain associates with the retail talent necessary to execute our off-price retail strategies, as well as labor shortages, increased turnover, or increased labor costs.

•Our need to effectively manage our inventories, markdowns, and inventory shortage in order to achieve our planned gross margins.

•Information or data security breaches, including cyberattacks on our transaction processing and computer information systems, including malware intrusion, data exfiltration, identity theft, and other types of cybersecurity threats, could disrupt our operations, result in theft or unauthorized disclosure of our confidential and valuable business information or credit card and other customer information, and could disrupt our operations, damage our reputation, increase our costs, and create significant legal exposure.

•Disruptions in our supply chain or in our information systems could impact our ability to process sales and to deliver product to our stores in a timely and cost-effective manner.

•Risks associated with importing and selling merchandise produced in other countries.

•Damage to our corporate reputation or brands.

•A natural or man-made disaster in a region where we have a concentration of stores, offices, or a distribution center.

•Consumer problems or legal issues involving the quality, safety, or authenticity of products we sell could harm our reputation, result in lost sales, and/or increase our costs.

•An adverse outcome in various legal, regulatory, or tax matters, could damage our reputation or brand and increase our costs.

Other risk factors are set forth in our filings with the Securities and Exchange Commission including our Annual Report on Form 10-K for the year ended January 31, 2026 and fiscal 2026 Form 8-Ks and 10-Q on file with the Securities and Exchange Commission. The factors underlying our forecasts and plans are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.