Ross Stores' Flywheel Gains Traction: A Second Double-Digit Comp and a New Cohort of Customers

Ross Stores, Inc. (ROST) delivered a standout second quarter, with comparable store sales up 10%—its second consecutive quarter of double-digit comps. The results validate the company's growth-oriented strategy, which has shifted focus toward customer acquisition and engagement. Management's confidence is high, as they raised guidance for the back half despite tougher comparisons.

The Customer Flywheel Accelerates

Traffic was again the primary driver of comps, and the quality of that traffic is improving. “Customer traffic once again served as a primary driver of our comparable store sales increase which underscores the durability of our growth” — James G. Conroy, Chief Executive Officer · 2026-08-20. The customer base is broadening across demographics and income levels, a sign that the brand's appeal is expanding. Jim Conroy noted in Q&A that “We are seeing existing customers shop more frequently. We are seeing all customers spend more” — James G. Conroy, Chief Executive Officer · 2026-08-20. Crucially, the company is now explicitly measuring the contribution of lapsed customer recapture using third-party credit card data, allowing it to quantify the three levers of growth: new customers, returning customers, and increased frequency. As Conroy explained, “of those transactions, it was a combination of brand new customers, returning customers that used to shop with us, and existing customers shopping more frequently” — James G. Conroy, Chief Executive Officer · 2026-08-20.

The company has framed this as a customer capture flywheel, where marketing drives traffic, and a better store experience and assortment convert that traffic into repeat shoppers. The new customer cohort looks remarkably like the existing base—a diverse mix across age, income, and ethnicity—which gives management confidence that the initiatives will continue to resonate across segments.

This is a continuation of a theme management has been building. In the prior quarter, Conroy had said, “The health of our comp has been driven by transactions for the third consecutive quarter” — James Conroy, Chief Executive Officer · 2026-05-21 and earlier he noted that “the stickiest thing ultimately will be the power of the Ross Stores, Inc. brand” — Jim Conroy, Chief Executive Officer · 2025-11-20. The current quarter validates that trajectory.

Margin Expansion Amid Tariff Refunds

Gross margin improved 25 basis points, but the headline number was flattered by 405 basis points of tariff refunds. Excluding that benefit, operating margin expanded 205 basis points, demonstrating underlying operational leverage from strong sales and disciplined cost control. Merchandise margin rose 110 bps, and distribution costs leveraged 100 bps, partly due to favorable packaway timing and higher productivity. Operating margin increased 610 basis points in the quarter, but even excluding the refunds, the improvement underscores the strength of the model.

The company is careful to note that these refunds are a one-time tailwind, and guidance for the back half assumes elevated fuel costs and higher freight. Still, the momentum in the core business is evident.

Confidence in the Runway

Management raised its full-year EPS guidance to $8.61–$8.77 from $6.61 last year, reflecting a strong first half and raised comp assumptions for Q3 (6–7%) and Q4 (4–5%). The exit velocity is strong, with July comps the best of the quarter despite cycling a strong back-to-school period last year. Conroy acknowledged the tough compares but emphasized the durability of the strategy:

We believe we have only begun to tap into the full growth potential of the business.

The existing customers are spending more, and the company is intentionally maintaining its price point discipline—keeping the value umbrella under mainstream retail—while selectively adding new brands. This balanced approach has resonated.

The broader tape is supportive: tariff refunds are a recurring theme across retailers this quarter (e.g., HD, LOW, TGT), and ROST's recent price action shows a +8% move over the past 90 days, though it sits 6.3% below its August 7 peak. Investors appear to be taking profits after a strong run, but the fundamental story remains compelling.