Ross Stores Q2 Earnings Top Estimates on Strong Sales Growth Momentum

Ross Stores, Inc. ROST reported second-quarter fiscal 2026 results, with earnings and sales surpassing the Zacks Consensus Estimate. Net sales and earnings per share (EPS) also increased from the prior-year period.

Ross Stores posted fiscal second-quarter earnings of $2.06 per share, beating the Zacks Consensus Estimate of $1.93 by 6.7% and exceeding the company’s guidance of $1.85-$1.93 per share.

The company delivered strong operating momentum as total sales rose 13% year over year to $6.27 billion, exceeding the Zacks Consensus Estimate of $6.14 billion by 1.9%. Sales growth was supported by strong customer traffic and a 10% comparable store sales increase. Customer acquisition, higher shopping frequency and improved merchandise offerings contributed to the quarter’s performance. Our model predicted comps growth of 6.9% for the second quarter of fiscal 2026.

Shares of the Zacks Rank #3 (Hold) company have rallied 27.1% in the year-to-date period compared with the industry's 11.4% growth.

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ROST Expands Sales Momentum With Traffic Growth

Ross Stores saw comparable store sales increase 10% year over year in the second quarter of fiscal 2026, primarily driven by higher transaction volume. Management noted strength from new customers, returning lapsed customers and increased engagement from existing shoppers.

The company reported broad-based performance across merchandise categories and geographies. Home and cosmetics were the strongest businesses during the quarter, while the ladies business continued to show solid growth, particularly among younger shoppers.

Ross Stores Improves Merchandise & Store Execution

Ross Stores benefited from stronger merchandise availability and improved vendor relationships. Management highlighted increased access to brands and continued opportunities to expand assortments while maintaining the company’s value-focused positioning.

Inventory at the end of the quarter increased 18% year over year, with packaway inventory representing 36% of the total inventory compared with 38% a year ago. The company said that inventory levels supported higher customer demand while maintaining strong inventory turns and merchandise margins.

ROST Expands Margins Despite Cost Pressures

The gross margin improved 625 basis points (bps), helped by tariff refunds, higher merchandise margins and lower distribution costs. These gains were partially offset by higher buying costs, increased incentives and freight cost pressure from higher fuel prices.

Our model predicted gross profit to increase 14.5% year over year and the gross margin to expand 140 bps to 29% for the fiscal second quarter.

ROST reported the fiscal second-quarter operating income of $1.1 billion compared with $638.3 million in the prior-year period. The operating margin expanded 610 bps, including a 405-bps benefit from tariff refunds. Excluding that benefit, the operating margin improved 205 bps year over year. 

Our model predicted 20.8% year-over-year growth in operating income, with a 130-bps operating margin expansion to 12.8% in the fiscal second quarter.

ROST Strengthens Shareholder Returns & Liquidity

The company ended the fiscal second quarter with cash and cash equivalents of $4.3 billion, and total stockholders’ equity of $6.7 billion. Management emphasized continued investment in growth initiatives, store expansion and customer experience improvements. The operating cash flow reached $1.7 billion for the first half of fiscal 2026.

ROST continued its capital return program in the fiscal second quarter, repurchasing 1.4 million shares for $319 million under its two-year $2.55-billion authorization. The company remains on track to repurchase $1.275 billion of stock in fiscal 2026.

Ross Stores Raises FY26 Outlook

ROST increased its store opening plans for fiscal 2026 to 115 locations, including 90 Ross Dress for Less stores and 25 dd’s DISCOUNTS locations. The company said that the recent store openings in existing and newer markets have performed ahead of expectations.

Management raised its outlook for the back half of fiscal 2026. Comparable store sales are expected to increase 6-7% in the third quarter of fiscal 2026 and 4-5% in the fourth quarter. Third-quarter earnings are projected at $1.75-$1.83 per share, whereas fourth-quarter earnings are expected at $2.17-$2.26 per share.

ROST Maintains Growth Strategy Ahead

Ross Stores expects ongoing initiatives across merchandising, marketing and store operations to support continued sales growth. Management noted that many of these efforts remain in early stages and are being expanded through testing across stores and categories.

The company continues to focus on improving brand relevance, expanding assortments and enhancing the shopping experience. Management believes that these actions can help drive additional market share gains while maintaining the company’s value proposition.

Stocks to consider

We have highlighted three better-ranked stocks, namely, Target Corporation TGT, Dollar Tree Inc. DLTR and Dollar General Corporation DG.

Target offers guests fashionable, differentiated merchandise and everyday essentials at discounted prices. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Target’s current financial-year sales and EPS indicates growth of 4.4% and 11.4%, respectively, from the year-ago reported numbers. TGT delivered a trailing four-quarter earnings surprise of 10.5%, on average.

Dollar Tree is an operator of discount variety stores offering a broad assortment of everyday consumables and discretionary merchandise. The company currently carries a Zacks Rank of 2. 

The Zacks Consensus Estimate for Dollar Tree’s current financial-year sales and EPS indicates growth of 6.5% and 21.7%, respectively, from the year-ago reported numbers. DLTR delivered a trailing four-quarter earnings surprise of 32.1%, on average.

Dollar General is one of the largest discount retailers in the United States, selling low-priced merchandise, typically $10 or less. The company currently has a Zacks Rank of 2.

The Zacks Consensus Estimate for Dollar General’s current financial-year sales and EPS is expected to rise 3.9% and 7.6%, respectively, from the year-ago reported figures. DG delivered a trailing four-quarter earnings surprise of 21%, on average.

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This article originally published on Zacks Investment Research (zacks.com).

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