Shares of Ross Stores, Inc. (NASDAQ: ROST) surged 4.4% on Friday, adding approximately $3.2 billion to its market capitalization, after the off-price retailer delivered a robust second-quarter earnings report that beat expectations and prompted a full-year guidance increase. The stock closed at $239.04, up from $228.99 the prior day, though it still ended the week down 2.6%.
The company reported a 10% increase in comparable sales, driven by higher customer traffic, a significant acceleration from the 2% growth seen in the same quarter last year. Total sales climbed 13% to $6.3 billion. Net income rose to $851 million, or $2.66 per share, compared to $508 million, or $1.55 per share, in the year-ago period.
Investors focused on the quality of the earnings beat. A one-time tariff refund of $253 million contributed $0.60 to quarterly earnings per share. Excluding that benefit, earnings were roughly $2.06 per share, still well above consensus estimates. The company’s operating margin expanded by 205 basis points excluding the refund, surpassing management’s target range of 130 to 150 basis points.
This underlying margin improvement is seen as a more sustainable indicator of the company's health, reflecting better merchandise execution, increased customer engagement, and successful store operations. Chief Executive Jim Conroy attributed the growth to both new customer acquisition and higher spending by existing customers.
Management raised its full-year earnings guidance by $1.07 at the midpoint, now projecting annual EPS of $8.61 to $8.77, up from the previous range of $7.50 to $7.74. The updated guidance still includes the $0.60 per share benefit from the tariff refund. For the third quarter, the company forecasts same-store sales growth of 6% to 7% and EPS of $1.75 to $1.83. Fourth-quarter same-store sales are expected to rise 4% to 5%, with EPS of $2.17 to $2.26. Ross also increased its planned store openings for the year to 115, up from 110 previously.
Analysts responded positively to the report, with several raising their price targets. Truist lifted its target from $290 to $310, while JPMorgan increased its target from $262 to $272. BofA Securities raised its target to $265 from $255, and Baird moved to $270 from $250. Bernstein, which rates the stock as market perform, raised its target to $240 from $230. The consensus rating remains a buy, with an average price target near $258, implying roughly 8% upside from Friday's close.
During the quarter, Ross repurchased 1.4 million shares for $319 million, at an average price of about $228 per share, which is below the current trading level. The company’s inventory was built up in anticipation of strong sales, which could pose a risk if customer traffic decelerates, potentially leading to discounting.
The tariff refund is a one-time event, and investors will watch whether the company can sustain its margin momentum without such tailwinds. The stock's ability to hold above $228.99, its close on August 20, will be a key technical level to watch in the coming sessions. If that support holds, the focus will remain on the underlying 205 basis point margin improvement as a driver for future gains.
