Ross Stores Q2 Results: What Is Left After the Tariff Refund

Ross Stores earned USD 2.66 per diluted share in the second quarter of its 2026 financial year, against company guidance of USD 1.85 to USD 1.93 and consensus of about USD 1.95. Roughly USD 0.60 of that came from tariff refunds. Net the refund out and the underlying figure is about USD 2.06 — still ahead of what the market expected, but an ordinary beat rather than the 38% blowout the headline implies, and one that does not repeat.

That single piece of arithmetic is the question hanging over the shares after Friday's session, in which they closed up around 5.5%. The durable part of the quarter is not the refund. It is a comparable store sales gain of 10%, driven primarily by customer traffic rather than by ticket, and an operating margin that improved 205 basis points before the refund against a company plan of 130 to 150. Those two things recur. The refund does not. The raised full-year range carries the same passenger, and very little of the coverage netted it out.

What actually happened

Ross Stores reported second-quarter results after the US close on 20 August, covering the 13 weeks to 1 August. Total sales rose 13% to USD 6.26bn from USD 5.53bn. Comparable store sales rose 10%. Net income was USD 851m against USD 508m in the same quarter last year, and diluted earnings per share of USD 2.66 compared with USD 1.56 a year earlier.

The margin detail is where the quarter is decided. Operating margin improved 610 basis points year on year, of which 405 basis points came from the tariff refunds. Strip those out and the improvement is 205 basis points — against a company plan of 130 to 150 basis points. So the refund accounted for roughly two-thirds of the reported margin expansion, and the third that Ross actually earned still beat its own plan by a comfortable margin. Both halves of that sentence matter, and most write-ups only carried the first.

Management raised guidance across the rest of the year. Third-quarter comparable sales are guided to 6% to 7%, total sales to 9% to 11%, and earnings per share to USD 1.75 to USD 1.83. Fourth-quarter comparable sales are guided to 4% to 5% and earnings per share to USD 2.17 to USD 2.26. The full-year range went to USD 8.61 to USD 8.77 from USD 7.50 to USD 7.74.

Here the arithmetic is worth doing slowly, because it is the most useful number in the release and nobody published it. The full-year raise is roughly USD 1.03 to USD 1.11. About USD 0.60 of that is the tariff refund. What is left — call it USD 0.43 to USD 0.51 — is the genuine upgrade to the operating business. That is a real raise, and a substantial one on a base of USD 7.50. It is simply not the same number as the one on the front of the release.

The company also lifted its 2026 store opening plan to 115 locations, roughly 90 Ross Dress for Less and 25 dd's DISCOUNTS, having opened 47 stores in the quarter. And the chief executive was unusually direct on the call about where the sales are coming from: the company said openly that it is taking share from full-price rivals.

Why the market reacted the way it did

Shares were quoted as much as 8% to 9% higher before the US open on Friday and finished the session up around 5.5%. The gap between those two numbers is itself informative — the market's first reaction was to the headline, and the session's work was partly the process of discounting the refund back out again.

What survived that process was the composition of the comparable sales number. A 10% comp built on traffic is a fundamentally different asset to a 10% comp built on price. Traffic means more people walked through the door; it is the metric that is hardest to manufacture and hardest to fake, and it is the one that tends to persist into the following quarter. Ticket-led comps decay when the pricing action stops. Traffic-led comps decay when the customer stops coming, which is a slower and more visible process.

The second thing the market rewarded was the ex-refund margin beat. A 205 basis point improvement against a 130 to 150 basis point plan says the merchandise margin and the cost line are both behaving. In off-price, that combination usually means the buying environment is favourable — that full-price retailers are sitting on inventory they need to clear, and that the off-price channel is getting first call on it at good terms. That is a supply-side tailwind that shows up in gross margin before it shows up anywhere else.

The Openbook read

Run the event through the five factors and the picture is more mixed than the share reaction suggests.

Momentum improves, and should be treated with some suspicion for exactly that reason. A stock that gaps on an earnings print carries a momentum score that reflects the gap, not the business. The honest framing is that momentum here is a description of what has already been paid for, not a forecast.

Growth is the factor that has the most work to do. A 10% traffic-led comp is genuinely strong, but the company itself is guiding the next quarter to 6% to 7% and the one after that to 4% to 5%. That is a planned deceleration of roughly half over two quarters. The question Growth has to answer is whether that glide path is conservatism — Ross has a long history of guiding below what it delivers — or whether it is management telling you what it can actually see in the forward order book. The difference between those two readings is most of the case.

Profitability should be assessed on the 205 basis point ex-refund figure and nothing else. Run on reported numbers it flatters badly: 610 basis points of margin expansion would put Ross among the best operating performances in US retail this year, and two-thirds of it is a tax event. Adjusted properly, the read is still good — beating your own margin plan by 55 to 75 basis points while comping 10% is a strong result — but it is a normal-good result rather than an exceptional one.

Solvency is the least interesting of the five here, which is itself worth saying. Off-price is a cash-generative, low-capital-intensity model, and Ross funds its store growth from operations. Adding 115 stores in a year does not change the balance sheet materially. There is no gearing question in this story, and any analysis that spends time on one is padding.

Reward/Risk is where the piece has to land, and it is genuinely two-sided. On one side: the operating business raised full-year earnings by USD 0.45 or so on a durable, traffic-led comp, in a channel with a structural supply tailwind. On the other side, and less comfortably: the guided second half quietly assumes the consumer stays weak enough to keep trading down. Ross's raised numbers are, in effect, a position on continued consumer stress. That is an unusual thing to own. If the US consumer recovers, the trade-down flow that produced the 10% comp reverses, and the shares are left holding a multiple that was set at the top of the trade-down cycle. If the consumer deteriorates further, the flow strengthens but the off-price customer's own budget starts to bind. The comfortable middle — a consumer weak but stable — is where the guidance sits, and it is a narrower window than the share reaction implies.

The read-across

The most striking thing about this quarter is not Ross in isolation. It is Ross next to TJX, which reported the same weeks and produced a comparable sales gain of 4%. Its shares fell about 4% on the day and continued lower, leaving them within roughly 5% of a 52-week low. Where Ross guided the coming quarter to 6% to 7% comps, TJX guided to 2% to 3%, with its flagship division near flat.

Two off-price retailers, the same thirteen weeks, the same consumer, and a six-point gap in comparable sales. That is not a sector story — it is a share-shift story inside a sector, and it is the single most useful fact to come out of the week. Whatever is driving the American value shopper, it is not lifting the channel evenly. TJX has responded by raising its long-term store target to 7,500 locations, which puts more of its estate on exactly the real-estate footprint Ross and Burlington already occupy. The competitive intensity in off-price is going up, not down.

On the other side of the trade sit the full-price apparel and footwear retailers Ross says it is taking share from. Openbook wrote earlier this week about JD Sports cutting profit guidance on a North American like-for-like decline, in a business where the United States is roughly a third of revenue. Read the two releases together and they are the same fact from opposite ends: the US apparel and footwear shopper has not stopped spending, but has moved down-market, and the money is landing in off-price rather than staying at full price. That is a far more specific and more useful conclusion than "the consumer is weak", which is how most of the week's coverage framed both stories.

For the wider index, the read is narrower than it looks. Off-price outperformance is a redistribution, not an expansion. Nothing in Ross's numbers says total US apparel spend is growing.

What to watch next

• The third quarter, reported in November. This is the first clean comparison — no tariff refund in the guidance, a 6% to 7% comp target, and an earnings range of USD 1.75 to USD 1.83 to be measured against. Whether the traffic-led comp decelerates gracefully into that range or overshoots it is the single most informative data point available between now and the year end.
• The gap to TJX. If the six-point comparable sales spread persists into the next quarter, it is a durable share shift and should be treated as one. If it narrows sharply, this quarter was a timing effect in the buying calendar rather than a structural win.
• Merchandise margin excluding refunds. The 205 basis point figure is the number to track. If off-price is genuinely getting first call on distressed full-price inventory, that shows up here before it shows up in sales.
• The holiday quarter. Fourth-quarter guidance of 4% to 5% comps and USD 2.17 to USD 2.26 in earnings is the point at which a trade-down thesis either survives contact with the most promotional weeks of the year or does not.
• Any further tariff developments. The refund was a one-off recovery, but the underlying tariff regime is what created it. Changes to that regime affect the cost of goods for every retailer in the comparison set, not just this one.

The five-factor scores for Ross Stores, alongside the off-price peer group, are on the ROST factor page, and the sector can be filtered against the wider US retail universe in the Openbook screener.