Title

Presentation

Ross Stores, Inc. beats earnings expectations. Reported EPS is $2, expectations were $1.9.

Operator: Good afternoon, and welcome to the Ross Stores Fourth Quarter and Fiscal 2025 Earnings Release Conference Call. [Operator Instructions] Before we get started, on behalf of Ross Stores, I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts, new store openings and other matters that are based on the company’s current forecast of aspects of its future business. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today’s press release and the company’s fiscal 2024 Form 10-K and fiscal 2025 Form 10-Qs and 8-Ks on file with the SEC. And now I’d like to turn the call over to Jim Conroy, Chief Executive Officer.

James Conroy: Thank you, John, and good afternoon, everyone. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer; Bill Sheehan, Executive Vice President and Chief Financial Officer, and Connie Kao, Senior Vice President, Investor Relations. Before I review our performance for the quarter and the year, I wanted to acknowledge all of the associates throughout the Ross organization. The results we achieved in 2025 are a direct reflection of your dedication and hard work throughout the year. The strong collaboration across the company in all functional areas was essential to our success. I want to thank all of you for your great work. Now turning to our quarterly results. As noted in today’s press release, we are pleased to report that our business momentum accelerated further in the fourth quarter, with both sales and earnings significantly surpassing our expectations.

Throughout the holiday season, we delivered compelling merchandise assortments to our stores, benefited from higher customer engagement through our new marketing campaigns and executed in-store initiatives that enhance the customer experience. These efforts, combined with healthy growth in new stores, contributed to a 12% growth in total sales for the quarter. Turning to comparable store sales growth. We delivered a robust 9% increase despite a 1 percentage point erosion in comps from weather, primarily the January storms that impacted many parts of the country. We were quite pleased with the health of the comp growth as it was driven mainly by an increase in transactions and customers with a modest increase in basket. We saw broad-based strength across both departments and geographies.

Every major merchandise category showed solid positive sales growth with shoes and cosmetics performing the best. Similarly, every region of the country was positive, with the Midwest and Mountain regions the strongest. dd’s DISCOUNTS also posted healthy sales gains as the chain value and passion offerings continue to resonate with shoppers. Similar to Ross, the growth was broad-based across both merchandise categories and regions. Moving to inventory. Consolidated inventories were up 8% and packaway represented 37% of total inventory compared with 41% last year. We are pleased with our inventory position at year-end. Regarding our store expansion program, 2025 is an exciting year of continued growth as we expanded into new markets while deepening our footprint in existing ones.

During the year, we added 80 new Ross Dress for Less stores and 10 dd’s DISCOUNTS stores. Importantly, we expanded into several new markets for Ross, including our first stores in the New York Metro area and Puerto Rico. Inclusive of 9 closures, we ended the year with 2,267 stores, consisting of 1,904 Ross Dress for Less and 363 dd’s DISCOUNTS locations. Before I turn the call over to Bill, I’d like to briefly review initiatives underway that position us well for incremental sales and profit growth as we enter 2026. First, with merchandising. We are pleased with the strength of our assortments across the store, where we have delivered more brands at the right value for our customers. Our buying organization has done an incredible job navigating through tariffs and strengthening our vendor relationships to deliver merchandise that is resonating with our customers.

It is encouraging to see the strength in the Ladies business as well as the solid growth and continued sequential improvement with our home category, which faced heavy pressure from tariffs throughout the year. Looking forward, we are pleased with our inventory levels and are seeing ample availability in the marketplace to support our business trend going forward. On the marketing front, we are pleased with our holiday campaign as we continue to refine our brand messaging and believe it is connecting with today’s shopper. We are encouraged by the higher levels of customer awareness and engagement we are seeing. We are also quite pleased with the increase in customer traffic and believe that this positions us well for continued growth as we look ahead.

In our stores, we have made meaningful merchandising and operational improvements which we believe also contributed to the outsized sales growth. The stores team did a great job of managing the holiday surge in the business. Additionally, the supply chain organization executed extremely well during the peak season, which enabled us to drive exceptional sales growth through fresh receipts and fast turning inventory. Overall, we are encouraged by the positive impact these initiatives have had on our recent performance, and we see opportunities to build on these learnings to support our growth plans in 2026 and beyond. As we enter the new year, we are seeing a very strong start to the first quarter, which gives us confidence that our focus on improving our connection with the customer is taking hold.

Turning to store expansion. Many of the changes we implemented that helped drive comp store sales growth also had a positive impact on new store productivity, which further bolsters our confidence in accelerating our store opening plans going forward. As a result, we are planning to open 110 new locations this year, which represents 5% growth. Part of that growth reflects the reacceleration of dd’s DISCOUNTS with plans to open 25 stores in 2026. For Ross, we see an opportunity to open 85 new stores this year, slightly above last year. As we continue to identify attractive real estate opportunities across our markets, we remain confident in the long-term potential to grow Ross and dd’s chains to 2,900 and 700 stores, respectively, and expand our reach to even more customers over time.

Now Bill will provide further details on our fourth quarter and fiscal year results and additional color on our outlook for fiscal 2026.

William Sheehan: Thank you, Jim. Turning to our financial results. Starting with the fourth quarter. Total sales for the quarter grew 12% to $6.6 billion. Comparable store sales grew a robust 9% primarily driven by an increase in the number of transactions. Fourth quarter 2025 operating margin was 12.3% compared to last year’s 12.4%, which included a 105 basis point benefit from the sale of a packaway facility. Excluding the benefit last year, operating margin increased 95 basis points. Cost of goods sold was 65 basis points lower in the quarter. Occupancy leveraged by 30 basis points on strong sales results, while distribution and domestic freight costs declined by 20 and 15 basis points, respectively. Merchandise margin improved by 10 basis points.

Partially offsetting these benefits were buying costs that rose by 10 basis points mainly due to higher incentives given the earnings outperformance. SG&A for the period rose 75 basis points, primarily due to last year’s packaway facility sale. Excluding the sale, SG&A was 30 basis points lower. Fourth quarter net income was $646 million, and earnings per share for the fourth quarter was $2. This compares to net income of $587 million and $1.79 in earnings per share in the prior year, which included the previously mentioned benefit of approximately $0.14 per share related to the sale of a packaway facility. Excluding the benefit, earnings per share for the quarter grew 21%. Now turning to results for the full year. Total sales for the year increased 8% to a record $22.8 billion, up from $21.1 billion last year.

Comparable store sales grew 5% on top of a solid 3% gain in fiscal 2024. Net income for fiscal 2025 was $2.1 billion, similar to last year. Earnings per share were $6.61, up from $6.32 in the prior year. Excluding the previously mentioned $0.14 gain from the facility sale last year and the approximate $0.16 per share impact from tariff-related costs this year, earnings per share grew 10%. Now to our shareholder return activity. As noted in today’s release, we repurchased 1.5 million shares during the quarter, completing the 2-year $2.1 billion program announced in March 2024, in line with our plans. Our Board of Directors recently approved a new 2-year $2.55 billion stock repurchase authorization or approximately $1.275 billion each year for fiscal year 2026 and 2027.

This new plan represents a 21% increase over the recently completed repurchase program. In addition, the Board also approved a 10% increase in our quarterly cash dividend to $0.445 per share. The increase to our stock repurchase and dividend programs reflect our continued commitment to return excess cash to our shareholders after funding growth and other capital needs of our business. Now let’s discuss our outlook for fiscal 2026, starting with the first quarter. As Jim noted earlier, we ended the quarter with solid momentum. And while early, we are encouraged by the continued strength in the business as the spring season begins. As a result, we are projecting comparable store sales for the 13 weeks ending May 2, 2026, to be up 7% to 8% and earnings per share of $1.60 to $1.67.

The operating statement assumptions that support our first quarter guidance include total sales are projected to increase 10% to 12% versus last year. If same-store sales perform in line with our forecast, operating margin for the first quarter is expected to be in the range of 11.8% to 12.1% compared to 12.2% last year. The expected decrease reflects higher DC costs from the opening of a new distribution center in the second quarter of last year and unfavorable timing of packaway-related expenses. In addition, we project higher incentive costs versus 2025 when we underperformed our plan. Partially offsetting these higher costs is our expectation of an increase in merchandise margin. We plan to add 17 new stores, consisting of 13 Ross and 4 dd’s DISCOUNTS during the period.

Net interest income is estimated to be $27 million. Our tax rate is expected to be approximately 23% to 24%, and weighted average diluted shares outstanding are forecasted to be about 322 million. Turning to our full year guidance assumptions for 2026. For the 52 weeks ended January 30, 2027, we are forecasting same-store sales to be up 3% to 4%, and earnings per share to be $7.02 to $7.36 compared to $6.61 for fiscal 2025. Total sales are projected to be up 5% to 7% for the year. If same-store sales performed in line with our forecast, operating margin for the full year is expected to be in the range of 12% to 12.3% compared to 11.9% in 2025. This plan reflects higher merchandise margin and lower distribution costs for the year. As Jim mentioned earlier, we expect to grow our store base by 5%, reflecting approximately 110 new locations comprised of about 85 Ross and 25 dd’s DISCOUNTS.

These openings do not include our plans to close or relocate about 10 to 15 older stores. Net interest income is estimated to be $92 million. Depreciation and amortization expense inclusive of stock-based amortization is forecasted to be about $740 million for the year. The tax rate is projected to be about 24% to 25% and weighted average diluted shares outstanding are expected to be about 319 million. In addition, capital expenditures for 2026 are projected to be approximately $1.1 billion. There are several key investments included in our 2026 plans. First, as previously mentioned, we are reaccelerating our store opening plans. At dd’s, we are opening 25 stores this year compared to 10 last year. In addition, we plan to open 85 new Ross stores this year compared to 80 last year.

Next, we plan to make further investments in our supply chain, including the continued buildout of our next distribution center as well as the initial outlay for another DC. Lastly, we are investing in our existing store base to drive an improved customer experience. Now I will turn the call back to Jim for closing comments.

James Conroy: Thank you, Bill. As I reflect on my first year as CEO, I’m extremely grateful for the support and dedication of the entire team. The year had its early challenges with tariffs and uncertainty in the macro environment, but we remain resilient and focused on executing our strategies. Looking ahead, we are optimistic about the strength of our business and the initiatives planned for 2026. At this point, we would like to open the call and respond to any questions that you might have. John?

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Operator: [Operator Instructions] And the first question comes from the line of Matthew Boss with JPMorgan.

Matthew Boss: Congrats on a great quarter. So Jim, could you elaborate on the inflection to 8% traffic-led comps in the back half of the year? Or I guess, how would you bridge the more than 600 basis points of comp improvements relative to low single digits over the last 4 quarters? And on the 7% to 8% comp guide, you know I had to ask you on this. I mean this comes from a conservative company and a conservative guy historically. Could you elaborate on the further improvement you saw to start the quarter, maybe confirm the moderation that you’re embedding for the remainder of the quarter. And did you embed any potential lift from tax refunds or stimulus during the quarter?

James Conroy: Sure. Happy to answer both of those questions. In terms of the inflection point, it was really broad-based across essentially all merchandise categories, all regions of the country. You were talking about the sequential improvement from sort of the first half to the second half of the year. And if we look at the second half in total, there’s a lot of great things that are coming together. We’ve had a lot of conversation on past calls about the Ladies business. We mentioned on Q3 that the Ladies business had returned to strength and was slightly stronger than the company. And then on the fourth quarter, the Ladies business continued to be very strong, more in line with the overall business. Men’s continues to be strong.

We’ve seen probably the most sequential improvement in the quadrant of the store that we would call center core. So we called out cosmetics and shoes specifically. Those were 2 very nicely growing businesses for us in both Q3 and Q4 and really nice sequential improvement throughout the year. And then finally, not to leave Gurmeet and the home business and the home team out, the home business in the beginning of the year was kind of difficult for us, and it was a business that was most under attack with tariffs, but they have done a really nice job of turning around that business across the board within home. On our last call, we spoke specifically about toys being important and we finished up the holiday quarter with very strong business in toys.

In terms of the comp guide, I would turn to Bill or to Michael, I would preface it with — we, of course, are excited about a 7% to 8% comp guide, but we haven’t changed the conservative nature of our guide. So it’s not like we’re putting out some high-flying number to get headlines, we still feel pretty good about it. I don’t know if either of you would like to add to that.

Michael Hartshorn: No. Matt, I would say, one, it is a reflection of the initiatives we have in place and the momentum we have coming out of the fourth quarter, the merchants did a tremendous job transitioning into the first quarter that we can see in the business. We’re in the inverse position we were last year where we started off very, very weak. So we feel good about how we started the year. You had a question on tax refunds. We haven’t built anything in for the tax refunds. It’s still early. Obviously, in the tax refund season, the significant refunds just began to flow last week. And from what we can see from the treasury, they’re up about 7% thus far. But with roughly 2/3 of the refunds left to come, we’ll have to wait and see the impact over the entire quarter.

Matthew Boss: And then just one follow-up, Jim, on new stores, productivity that you’re seeing in the Northeast, how does that inform your opportunity to expand the unit growth opportunity over time?

Michael Hartshorn: Matt, it’s Michael again. We wouldn’t get into the specifics of the Northeast other than it’s been very strong and it gives us a lot of confidence that we can grow there. I would say, but not only in the Northeast and you can see it in the difference between comp and total sales growth. We had one of our best years in a while in terms of new store productivity, which also gives us confidence that we can grow in our existing markets.

Operator: And the next question comes from the line of Paul Lejuez with Citigroup.

Tracy Kogan: It’s Tracy Kogan, filling in for Paul. I had two questions. The first is on your merchandise margin improvements in 4Q, how much of it was driven by better IMU from buying better versus how much was driven by lower markdowns? And what are you expecting in F ’26? And then I have a follow-up.

William Sheehan: For the merchandise margin, that 10 basis points improvement, I think we feel good about it. It was driven mostly by better buying and our merchants just making good decisions as they always do around how to deliver value at the same time flowing some benefit through to us.

Michael Hartshorn: And on ’26, it’s again, it’s mainly driven by the better buying. To some extent, we get some benefit from recapturing some of the tariff pressure early in the year.

Tracy Kogan: Great. And then on the flow-through in 1Q, I know you mentioned higher incentive comp and timing of packaway. Can you size either of those headwinds and which one is bigger?

William Sheehan: Could you repeat the question for me one more time?

Tracy Kogan: Yes, sure. I think on the 7% to 8% comp, we would have expected maybe more flow-through to the EPS line. And I think you mentioned that you had a higher incentive comp in there as well as timing of packaway. And I was just wondering if you could frame how big either of those are in terms of basis points of pressure for the quarter.

Michael Hartshorn: Tracy, it’s Michael. As you can see on the full year guidance, at a 3% to 4% comp, we leveraged EBIT by 10 to 30. So that’s actually above what our normal kind of long-range algorithm, always timing quarter-to-quarter. In the first quarter, we have a couple of things driving the deleverage. The first of which is we haven’t yet lapped the distribution center opening from last year. So we’ll begin to lap that in the second quarter, but that has a bigger impact in the first quarter. Number two, we have built into our forecast, let’s see how it plays out, some pressure on the packaway impact, the packaway expense. And then finally, we had a pretty disappointing first quarter for us last year, which means the incentive comp base will be lower from last year, but pressure this year. Among those, they’re pretty evenly split.

Operator: And the next question comes from the line of Lorraine Hutchinson with Bank of America.

Lorraine Maikis: What are the key factors driving the acceleration in the ladies business? And what’s your outlook for the category as we move through the year?

James Conroy: The acceleration in the ladies business is rooted back with the brand strategy. The company had put that in place maybe 2 years ago now, and that team has really done a great job of resetting that vendor base and the assortment there, finding a really nice balance of bringing in branded bargains across good, better and best. We’ve seen some nice strength in the Juniors business specifically. So that’s been a part of the growth there. In terms of the outlook going forward, right now, a lot of things are performing quite well. And I would imagine we’re going to see continued strength in that business going forward, certainly in the first half of 2026. Did I get all of your questions there, Lorraine?

Lorraine Maikis: Yes. It seems like you brought more inventory into the stores during the holiday season. Is this a change in strategy? And would you expect to move more from the distribution centers into the stores as you did for the 4Q?

Michael Hartshorn: Lorraine, on inventory, we did mention in our remarks that inventory grew 8%. Obviously, that’s 1 point in the quarter, but that’s lower than our overall sales growth. We did see opportunities to increase our inventory position in front of the customer. And we believe that supported our growth and ability to chase sales in Q4 while also better transitioning into Q1, all of that while maintaining solid margins and inventory turns. So I think we do have more opportunity, but we feel good about the levels coming into the first quarter.

Operator: The next question comes from the line of Chuck Grom with Gordon Haskett.

Charles Grom: Jim, you talked a lot about the changes made in marketing and social media campaigns have been highly successful. I guess I’m curious how you continue to evolve the marketing strategy in ’26? And do you expect marketing expenses as a percentage of sales to start to move higher over the next couple of years? Or do they stay consistent?

James Conroy: Great question. We’re really pleased with the marketing team, the new campaigns and the agency that was put in place at the beginning of 2025. Their work started to hit the market, so to speak, for back-to-school. So I would say we’re really pleased with — amongst a number of other factors the change in marketing was one of the things that helped the business have an inflection point positive. So the change in marketing, some in-store changes, of course, the assortments being really great. You put all that together and just make for a really good Q3 and Q4. In terms of marketing spend, we’ve had questions as to whether we’re going to spend or invest more in marketing. We’re pretty pleased with the results in Q3 and Q4.

And as a rate of sales, we haven’t changed our marketing spend. It certainly seems like it could be a lever for us to use going forward. So we might experiment with some slight increase there. But we don’t feel like we need to make any major investments in new marketing to drive traffic because the demand generation part of the business right now seems so strong.

Charles Grom: That’s great. And then just to double click on the second part of your answer on the store experience. Can you dive in there? What’s worked? What can you expand? How much is left on the opportunity set within the storage themselves? Because clearly, NSP, to your point earlier, was very strong for the second quarter in a row along with a good comp.

Michael Hartshorn: It’s Michael. On the store front, similar to marketing, we haven’t made major investments there. But we do have a pretty strong test and learn capability in our store organization. And what we did during the back half of the year is we targeted payroll investments to improve both store recovery and registered throughput, really focusing on high-volume activity in the store. And we clearly saw some early successes that we can build on those learnings in 2026. The other thing that you’ll see in ’26, as we’ve discussed in the past, we’ve been piloting self-checkout actually for some time now, and we plan to expand to more stores given the positive results we’ve seen thus far.

Operator: And the next question comes from the line of Brooke Roach with Goldman Sachs.

Brooke Roach: Jim, I wanted to follow up on your marketing comments. As you assess the higher piece of traffic that’s coming into the store, are you seeing any shifts in the age or household income demographic of your customer base? Is this a reactivation of lapsed customers? Or are these new younger customers coming into the store that can repeat?

James Conroy: It’s a great question. Starting at the top side, we’re very encouraged that we are seeing nice customer count growth, right? And it’s hard to determine sometimes whether that’s a “brand new customer” or a lapsed customer returning, but it’s really exciting for us to have comp sales growth driven not only by transactions, but by customers finding Ross and we’re really investing in the Ross brand. In terms of how those customers split by income and age, et cetera, once you push down to that level, the data becomes a little bit more complicated to read. We’re very comfortable saying that we’ve seen growth very broad-based across income demographics, age demographics, including 18- to 34-year-old customers. We’re pleased with our Juniors business. We’re pleased with our young men’s business. So we feel good about the younger portion of the customer base, but overall, we’re just quite encouraged to start to see some really nice acceleration in customer count.

Brooke Roach: And then as a follow-up, can you share your latest view on the earnings algorithm for Ross on a multiyear basis? Is there anything that’s structural preventing you from returning to a 14% operating margin over time?

Michael Hartshorn: Sure, Brooke. The algorithm hasn’t changed dramatically. New store growth, we have at 5%. And obviously, that would suggest — this year, we’re at 5% that we’d continue to grow both banners, and we think we can do that over time to maintain the new store growth there. Productivity, Jim mentioned that we’ve seen heightened productivity built into our guidance this year is about 70% to 75% new store productivity of an average store. So that gets you to 3% to 4% growth. The EBIT margin, we’ve said historically, will get leverage between 3 to 4. Occupancy is about 4%, SG&A is 3% to 4%. And then the stock repurchase is about 2%. It gets you to the about 8% to 10% long-term earnings growth.

Operator: And the next question comes from the line of Michael Binetti with Evercore.

Michael Binetti: Great quarter. So first quarter has been a source of underperformance on a multiyear basis. You thought there was an opportunity to maybe come out of the holiday, Jim, and transition to a little more aggressively into the transition inventory. Can you help us understand within the context of the 7% to 8% comp then with the margins compressing on some of the biggest comps. Can you just walk us through, is there something unique in the first quarter that you’re kind of going forward to get to that 7% to 8% comp that isn’t as much of an opportunity as you get out to the rest of the year? And is it something that you have to invest in to get there as we look at the margin? And then on the margins, if I look at 2025, that’s coming in at 11.9% for the year, excluding tariffs, that was probably in the low 12s.

This year, you’re guiding 12.1% to 12.3% on the best comp guidance we’ve seen in a while and that’s lapping some of the duplicative executive costs, the distribution center costs that wrap around for just 1 quarter, and then there’s some reticketing last year. Can you just talk about what’s conservative there if there’s a change to the to the long-term language of 15 basis points of expansion above the 2 to 3 points of comp or anything like that we should think about?

Michael Hartshorn: I’m happy to walk through this. So I would separate the EBIT margin. I would separate the EBIT margin in the first quarter from the comp because I think there’s distinct things that I walked through with — we haven’t lapped the DC. We have packaway pressure in the first quarter. And also, we had a lousy start last year. So we’re working off a lower incentive base from last year. Those are really the things that are impacting EBIT margin in the first quarter. In terms of the 7% to 8% guidance, it’s a reflection of certainly the momentum coming out of the fourth quarter, but also we’re up against pretty weak compares, not only last year, as you mentioned, but over the last couple of years. And we think the initiatives we have in place, including, as I mentioned earlier, with inventory levels are having an impact in the first quarter and are sustaining.

In terms of the back half of the year, nothing has really changed in our earnings algorithm for every point of comp over the guidance, it’s worth about 10 to 15 basis points of EBIT margin.

James Conroy: And just to add, there’s been questions for the last year about are we investing more in marketing or investing more in store labor as a rate of sales, both marketing and for labor are very much in line with last year. We don’t intend to sort of buy the comp in Q1 or for the year going forward. I think Michael answered the flow-through question better than I could have. If and when we decide at some point to overinvest in part of the business, hoping for an ROI on it, we will signal that. But at the moment, we’re getting some really nice growth without making artificial investments.

Operator: And the next question comes from the line of Mark Altschwager with Baird.

Mark Altschwager: Could you expand on the higher new store productivity you’re seeing? Is that a function of the markets you’re entering that are perhaps higher rent, but structurally higher sales per square foot? Is it a reflection of the operational improvements you cited in the prepared remarks? Just what are the key factors there?

Michael Hartshorn: First, I’d say overall, it’s not just the new markets. We’re seeing it across the regions, even some of our tried and true regions in California, Florida and Texas. And I think it is a reflection of some of the things we’re doing in existing stores being more aggressive out of the gate in new stores and seeing it pay off. That said, to your point, we are entering more populated higher rent markets, and we’re very pleased with our entry and are seeing great performance there.

Mark Altschwager: And then following up on the branded strategy and the success in ladies apparel. Can you talk about the road map for replicating that success in other categories? What’s the next area of focus?

Michael Hartshorn: Well, the brand strategy cuts across the whole store, it’s probably most prominent within the ladies business. But as we talked a bit in the prepared remarks, the growth for the quarter, actually for each of the last few quarters was very broad-based. And as I look at comps by merchandise category between men’s, ladies, kids, the whole center core set of businesses, cosmetics and shoes, all very strong. Home has really regained its ground. It’s slightly comp eroding. But given where it started at the beginning of the year, it’s very much in play for helping us drive a very strong fourth quarter comp. So it’s not really a sequential rollout between Ladies and the other businesses. And I think it’s kind of now in our DNA.

Now we’re just kind of looking forward as to how we grow our business going forward quarter-to-quarter. But again, nearly every piece of our business, actually, every major merchandising category was solidly positive with a very strong business in outerwear, which was a bigger business for us this quarter than it’s been in the past. So it’s very broad-based.

Operator: The next question comes from the line of Simeon Siegel with Guggenheim.

Simeon Siegel: Really nice job. Jim, just following up on the last one. When thinking about the branded effort, any way to frame how AUR has been looking at a category level. So before accounting for any category shifts, just within the categories that you’re working after, how AUR looks? And then, did you guys quantify the new store versus maintenance CapEx within next year’s guide?

James Conroy: On the AUR piece, our AUR increase was pretty modest in the quarter. I think we’ve called out a modest increase in the basket, but most of the comp coming from transactions. The UPT was flattish versus last year. So you could surmise that AUR was just a modest increase as well. It was a little disproportionate to the part of the business that got hit hardest by tariffs, which was home. So home was up. The other businesses didn’t see that much of an AUR increase. I think if we had a learning coming out of the quarter is that we probably have the ability to push for some either higher-priced goods or potentially taking some retails up. But what’s made us successful for years and years is having the best bargains in retail and always maintaining our umbrella relative to mainstream retail.

So we’re going to focus on that for sure. But we probably have gained some confidence in shifting our assortment to, again, slightly higher-priced goods, new goods, not like-for-like in higher prices and maybe in certain targeted places, if we feel like we have merchandise categories that are margin eroding, increasing AUR a little bit to recapture some of that. So we feel just really well positioned as we start 2026. We’re excited about the current growth, but they’re seemingly another dozen levers that we can pull for additional growth going forward.

William Sheehan: And then regarding capital, right, the best way to probably think about it for us is maybe think about 1/3 each for DCs and new stores and maybe 25% for store maintenance and the balance for technology enhancements to merchandising tools and initiatives and other things that are going to support long-term growth.

Operator: And the next question comes from the line of Ike Boruchow with Wells Fargo.

Juliana Duque: This is Juliana Duque, on for Ike. I wanted to ask if you’ve seen any changes in the type of consumer shopping you’ve been seeing across both the brands whether that’s between the good, better, best towards branded or any other commentary to get there?

James Conroy: The quick answer, I would say is no. The composition of our customer base seems to be very much intact. We’ve seen growth across essentially all pieces of it in terms of income levels, age, different ethnicities. So to tease out any minor differences, it would be kind of unnecessary. It’s been an overarching rising tide, I think, for essentially all customers.

Operator: And the next question comes from the line of Dana Telsey with the Telsey Group.

Dana Telsey: Congratulations on the very nice results. As you talked about expanding dd’s, I believe, going from 10 new store openings in ’25 to 25 in ’26. Is it the same strategies that give you confidence in dd’s and that you’re seeing the results on and is there any changes either to cost of stores, size of store in dd’s that you’re seeing? And the good, better, best strategy, how it is applied to dd’s. And just lastly, new store openings cadence this year? How do they flow through? And what percentage of the stores will be in the Northeast this year?

James Conroy: Dana, on dd’s, what really gives us confidence is the underlying merchandising strategies that we’ve been working on in the last couple of years and certainly the overall performance of dd’s, which has, like Ross has had very, very strong trends. On the reacceleration, no change in store size. Like Ross, we’re seeing very strong new store performance, which also gives us confidence. This year’s new stores are primarily in some of their older markets. We were able to take advantage of some Rite Aid bankruptcy deal that helped shore up the pipeline for this year. In terms of cadence, I think, it will be more weighted to the summer and fall opening groups. I think those are going to be pretty even with about, I think, we said 17 new stores in the first opening window.

Operator: And the next question comes from the line of Marni Shapiro with Retail Tracker.

Marni Shapiro: I just want to follow up on Dana’s comments on dd’s. I was curious, did you see the same trends there as well. It was driven by traffic in our basket. And have you taken over the last year due to tariffs any price increases at dd’s? And then just one last follow-up on dd’s. Do you have much of a home business there compared to Ross? Or is it smaller?

Michael Hartshorn: On the trends for dd’s, I’d say they’re very similar for us, including basket and modest price increase.

James Conroy: And they have a very vibrant home business at dd’s in line with the percent of total store that process. The categories are slightly different. The mix of categories within home are slightly different. But it’s a very strong part of that business as well.

Marni Shapiro: And I remember when you guys were first tinkering with dd’s and over the years as you played with dd’s, you’ve had a larger kids business. Is that still true? Or is it more balanced today? Is it more like Ross?

James Conroy: I’m not sure I know the answer to that off the top of my head, but they also have a decent kids business, and we tend to not want to disclose sort of with such specificity the size of each of our businesses.

Marni Shapiro: Fair enough. Actually, don’t disclose it, keep it to yourself. Thank you, guys. Best of luck in the first quarter. I rescind my question. No one needs to know the answers. Good luck with the first quarter.

Operator: And the next question comes from the line of Aneesha Sherman with Bernstein.

Aneesha Sherman: Great quarter. So you talked about capturing additional market share. Jim, you used the word inflection that you saw during back-to-school. You’re obviously guiding for a step down in comp in the second half. You’re facing some tougher compares. Can you talk about how you’re thinking about how sustainable this accelerated level of comp is. Do you see it as you lap a year and then you go back to algo? Or do you see this as more sustainable as you’re winning over new customers who can be a more permanent fixture in the comp growth going forward?

James Conroy: I’ll take a crack at it, and then my partner will probably give a more conservative view. Look, we came out of a nice third quarter and we feel excited about our fourth quarter. We’re clearly exiting Q4 with strength and putting up a — we think, a nice guide for Q1. I don’t think it’s overly aggressive given where the business is. There are 2 schools of thought in retail. One is, as soon as you start lapping these numbers, everybody looking at 2-year, you can put great numbers on top of great numbers. I think sometimes that’s true. It’s much too early as we sit here in the very beginning of March to prognosticate the back half of the year, and we have a guide that we just put out there. But there’s another school of thought that says we’re inviting new customers into the brand, the assortment and in-store experience is converting them into shoppers.

The in-store experience is better, they’re returning more quickly, word of mouth begins to spread, bringing even more customers in. As comp store sales increases you naturally get more marketing dollars as we do it as a rate of sales. So you naturally get more labor, so the stores look better and you can start spinning that proverbial flywheel or virtuous cycle or whatever. That’s the school of thought that I come from. And the one that we’re trying to sort of embed in the culture here, a growth orientation, getting all of the functional areas in alignment. And when we look at the back half of the year, certainly this early, we want to remain conservative, but I see tremendous opportunity for us to continue to grow the business in a somewhat outsized way.

Aneesha Sherman: Helpful. Is it fair to say that your guidance encompasses the first school of thought where you’re looking at the 2-year stacks or CAGRs and normalizing for that, but then you internally are pushing your bias to the second school of thought, where it’s more sustainable?

James Conroy: Perhaps that’s part of it. The other part of it is it’s just so early. And we’ve had 2 nice quarters, but the 2-quarter part that weren’t so great. And clearly, there’s a lot going on in the macro environment right now. So we just felt it would have been irresponsible to be more aggressive for the balance of the year. And let’s face it, it’s I think, one of the stronger full year comps we’ve put out as a company in a while. So we thought that was — should have been an indication of positive momentum.

Operator: And the next question comes from the line of Jay Sole with UBS.

Jay Sole: I want to ask about market share in a different way. Jim, do you think you’re taking market share from other off-price retailers? Or do you think it’s coming more from traditional retailers? How do you see that?

James Conroy: Well, it’s a giant retail market out there, of course. And I think the bigger forfeiture of market share is coming from mainstream retail. One of our other off-price competitors just posted a very solid quarter as well and they’re a bigger business than us. So it would be foolhardy to say we’re taking a lot of share from them. I think the share shift is more from mainstream retail, department stores, and other places like that to off-price in general. And we would just like to get our fair share or of course, more than our fair share from that shift.

Operator: The next question comes from the line of Krisztina Katai with Deutsche Bank.

Krisztina Katai: Congrats on a great quarter. You credited the branded strategy with sequential comp improvement. Can you just help contextualize for us how it’s helping evolve your vendor base and strengthen the existing vendor relationships and then secondly, when thinking about the new cluster acquisition, just how do you see their behavior in terms of spend or frequency of trips that take the existing shoppers? Or just any early reads in terms of how you think about the stickiness of the newer customers that have been coming to you.

James Conroy: Yes. On the branded strategy, that’s been in place for a while now, and we sort of anniversaried it a couple of quarters ago. So I think that team particularly in Ladies — maybe across the wholesale, but particularly in Ladies, has really started to build some nice momentum there, and the underpinning of it was the branded strategy. But the rest of the business, though, there’s been a whole bunch of different changes made to the assortment, some modest increase in inventory selection in the store. So it’s not specifically the branded strategy in every particular business. I would say the sequential improvement in comps was much broader than just the branded strategy and included marketing changes, in-store merchandising and operational changes, bringing the store experience up a couple of levels.

So a shopper would feel like the store was tidier and that you get in and out more quickly, et cetera. In terms of the customer count and customer frequency behavior, we simply just don’t have enough good data to say are our current customer shopping more frequently? Or is it all new customers? Or is it lapsed customers. In some of the same sets of data that you all receive from the credit card tracking companies. We get some pretty specific data on customer cards and card numbers, and then we have to sort of make sense of all of that. But it’s hard to then say, is that the same customer shopping with a different card or is it new customer or a lapsed customer or a different card, et cetera. When you zoom out a little bit and open aperture a little bit, it is clear to us that we’re starting to build customer count growth, and that’s exciting for us.

Did that answer your question? We may have lost her. I think that’s the end of the queue. John, are you there?

Operator: Yes. Our final question comes from the line of John Carden with William Blair.

Dylan Carden: Jim, you alluded to this thought that there was going to be this big or increase in marketing, increase in store investment and you’re proving kind of comp acceleration with leverage if you look at kind of the fourth quarter. You mentioned some of the things that are blocking out the first quarter. But I’m curious on what the right way to think about marketing and store investment go forward. Is it that there’s a more flexible nature of marketing, more variable nature to marketing that you can kind of be more nimble in any given period and the store investment is just minute or simple in nature and kind of tails off or you’ll be more focused on keeping it fresh go forward. Sort of what is the right way to think about this.

James Conroy: Happy to answer that. I’m not sure what I said that led you to that conclusion. I thought I said almost the exact opposite of that, which is we have not made investments — outsized investments in marketing or outsized investments in store labor. And we’ve gotten the comp growth that we’ve gotten within the confines of the operating model and coming out of Q4, which is a really nice leverage based on the fact that we haven’t made those investments. I do think going forward, we might experiment a little bit, but still within the confines of the operating model of should we pick up marketing slightly, not meaningfully, but slightly. We’re always doing targeted investments to — Michael talks a lot about test and learn.

If we do certain things in a store with store labor, either some additional hours or reallocating hours, what’s the benefit to the way the store looks or how fast we move through the queue line. So we’ll be experimenting going forward. But I would hope that the takeaway from the call is we’ve been achieving some really nice, I’d say, outsized comp sales growth in Q3, Q4 and our guide for Q1 without having to do any unnecessary or artificial investment in either marketing store labor or CapEx. I think those levers exist out there for us, and we might — if we can find ROI on them, we might start playing with those, but it was funny. It was on this call last year where we said we’re going to look to try to do all of these things expense neutral.

And I think we’ve achieved that 12 months later. As we go forward, I’m in my second year, the team has really come together nicely, the 2 chief merchants that have now been in their roles for a year are both doing unbelievably well. And we’re sort of just hitting our stride in building momentum going forward. So for 2026, a lot more opportunities going forward. As Michael teases me all the time, the best is yet to come.

Operator: This now concludes the question-and-answer session. I would like to turn the floor back over to Jim Conroy for any closing comments.

James Conroy: So thank you, everyone, for joining us on today’s call, and we look forward to speaking with you on our next earnings call. Take care.

Operator: Thank you, ladies and gentlemen, that does conclude today’s conference call. We thank you for your participation. Please disconnect your lines, and have a wonderful day.

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