Ross Stores
ROST · NasdaqA tariff refund did most of the margin's work
Operating margin reached 17.6% against 11.5% a year earlier, and the filing names refunded tariffs as the primary reason, a recovery of past costs.
Q2 FY2027, the quarter to Aug 1, 2026 (Ross Stores's fiscal 2027 ends in February 2027) · 10-Q filed Sep 1, 2026
- Operating margin
- 17.6%
- Net income
- $851.3M
- Free cash flow, quarter
- $624.5M
Where Ross Stores's money goes
- 01
A tariff refund did most of the margin's work
Operating margin reached 17.6% against 11.5% a year earlier, and the filing names refunded tariffs as the primary reason, a recovery of past costs.
Why it matters
Cost of goods sold fell to 66.2% of sales, 6.22 points lower than a year earlier, and gross profit rose 38.8% while sales rose 13.3%. The filing names the primary reason. After the Supreme Court ruled in February that tariffs imposed under the International Emergency Economic Powers Act were not authorized, Ross claimed refunds of tariffs it had paid and recognized the recovery in cost of goods sold this quarter, with substantially all of it received by quarter end.1
The business added to the gain on its own account. The filing credits a higher merchandise margin, lower distribution costs from the timing of packaway carrying costs and higher productivity, and occupancy leverage on higher sales. Higher freight from fuel prices and higher incentive pay for buyers partly offset them, and selling, general and administrative costs grew 14.3%, slightly faster than sales, to 16.2% of sales.1
For comparison, operating income was 11.9% of revenue in the latest full fiscal year, $2.71B on $22.75B, and 11.5% of sales in the same quarter a year earlier. This quarter's 17.6% stands well above both, and operating income rose 72.9% on sales up 13.3%.1
AnalysisOur reading: because the refund recovers costs paid in earlier periods, it is not a run rate, and the jump in operating income overstates how fast the business's underlying earning power grew. What matters for later quarters is how much of the gain the filing credits to merchandise margin, distribution and occupancy holds once the refund is gone.
- 02
More visits, not higher prices, drove sales growth
Comparable store sales rose 10%, mainly from about 7% more transactions and a 3% larger basket, after growing just 2% a year earlier.
Why it matters
Comparable store sales measure stores open long enough to compare with a full prior period. The filing says their 10% rise was "primarily driven by an approximately 7% increase in traffic and 3% increase in basket," where traffic is the number of transactions and basket the average transaction value. In the same quarter a year earlier, comparable sales grew 2%.1
Total sales rose 13.3%, to $6.26B from $5.53B, while the store count rose 4.3%, to 2,328 from 2,233. The filing attributes most of the sales increase to comparable stores, with the rest from stores too new to count as comparable.1
AnalysisOur reading: visit-led growth is the sturdier kind for an off-price chain, because it reflects shoppers coming back for a changing assortment rather than paying more per item. The filing does not say where the extra visits came from, so whether they reflect shoppers trading down from pricier stores or regular customers visiting more often cannot be told from the numbers alone.
- 03
Free cash flow grew even as store spending jumped
Capital spending rose 24.6% to $251.3M as stores opened, yet free cash flow climbed 33.8% to $624.5M, or 10.0% of sales.
Why it matters
Operating cash flow in the quarter was $875.8M, against $668.4M a year earlier, and capital spending was $251.3M against $201.7M. That left free cash flow of $624.5M, 10.0% of sales, compared with $466.6M, or 8.4% of sales, in the same quarter a year earlier. Capital spending was 4.0% of sales.1
The filing attributes higher investing outflows primarily to opening new stores. Ross opened 47 stores in the quarter, has raised its opening plan for the year, and lists construction of its next distribution centers among its planned capital spending.1
Caveat: the filing says substantially all of the tariff refund was received by quarter end, so it lifts this quarter's operating cash flow as well as its earnings. Over the latest full fiscal year, capital spending was $819.3M on revenue of $22.75B, or 3.6%, a steadier measure of what the expansion costs.1
Sources
- 1.Ross Stores 10-Q for the period to 2026-08-01 (the filing), Sep 1, 2026, read Nov 2, 2026
Have a question about Ross Stores? Ask CXProWealth on ChatGPT.Free membership required.
Growth, profit and margin
Revenue went from $6.5B in FY2009 to $22.8B in FY2026, over 17 years.
- Revenue$22.8B
- Operating income$2.7B
- Operating margin11.9%
- Period
- Q2 FY2027
- Revenue
- $6.3B
- Operating income
- $1.1B
- Operating margin
- 17.6%
- Net income
- $851.3M
- Free cash flow
- $624.5M
Does the profit turn into cash?
Q2 FY2027: free cash flow of $624.5M against net income of $851.3M in the quarter.
- Operating cash flow$3.0B
- Capital expenditure$819.3M
- Free cash flow$2.2B
- Net income$2.1B
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
The figures
Margins, cash and growth for the period, each with what it was computed from.
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
This filing reports no breakdown of revenue by product, segment or region for the period.
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.
| Cost line | Q2 FY2027 | Of revenue | Source |
|---|---|---|---|
| Cost of goods sold | $4.1B | 66.2% | Source10-Q, us-gaap:CostOfGoodsAndServicesSold, as reported in the 10-Q filed 2026-09-01 |
| Operating income | $1.1B | 17.6% | Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-09-01 |
Operating figures the company states
From the text of the filing rather than its statements, each with the sentence that states it.
View source
Accounts payable leverage was 85% as of August 1, 2026 and August 2, 2025.
View source
The 10% increase in comp store sales was primarily driven by an approximately 7% increase in traffic and 3% increase in basket.
View source
Comparable store sales increased 10%.
View source
We also operate 376 dd's DISCOUNTS stores in 23 states as of August 1, 2026
View source
We opened 47 new stores in the second quarter of fiscal 2026, consisting of 35 Ross stores and 12 dd's DISCOUNTS stores.
View source
As of August 1, 2026, January 31, 2026, and August 2, 2025 packaway inventory was 36%, 37%, and 38% of total inventory, respectively.
View source
Ross is the largest off-price apparel and home fashion chain in the United States, with 1,952 locations in 44 states, the District of Columbia, Guam, and Puerto Rico as of August 1, 2026.
View source
Total stores end of period 2,328 2,233 2,328 2,233
View source
The 10% increase in comp store sales was primarily driven by an approximately 7% increase in traffic and 3% increase in basket.
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement12 lines, as presented in the 10-Q
Cash flow statement4 lines, as presented in the 10-Q
Year to date, as a quarterly filing reports it.
| Line | Q2 FY2027 | A year earlier | Change | Source |
|---|---|---|---|---|
| Cash Flows From Operating Activities | ||||
| Net earnings | $851.3M | $508.0M | +68% | Source10-Q, us-gaap:NetIncomeLoss, as reported in the 10-Q filed 2026-09-01 |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||
| Depreciation and amortization | $140.2M | $126.4M | +11% | Source10-Q, us-gaap:DepreciationDepletionAndAmortization, as reported in the 10-Q filed 2026-09-01 |
| Stock-based compensation | $47.3M | $43.9M | +7.5% | Source10-Q, us-gaap:ShareBasedCompensation, as reported in the 10-Q filed 2026-09-01 |
| Cash, cash equivalents, and restricted cash and cash equivalents: | ||||
| End of period | $4.36B | $3.91B | +11% | Source10-Q, us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents, as reported in the 10-Q filed 2026-09-01 |
Balance sheet32 lines, as presented in the 10-Q
About this data
- Source
- Ross Stores 10-Q, accession 0000745732-26-000041, filed Sep 1, 2026, read on Nov 2, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
What holds Ross Stores's model up, and what could bend it
Competitive edge
Suppliers fund most of the stock on the shelves
Accounts payable equal 85% of inventory, as a year earlier, so vendors finance most stock and earnings arrive as cash 1.03 times over.
The detail
The filing calls short-term trade credit "a significant source of financing for merchandise inventory" and names it, with operating cash flow, as a primary source of funds. Accounts payable leverage, which compares what Ross owes suppliers with the inventory it holds, was 85% at quarter end, the same as a year earlier.1
Earnings turn into cash. Operating cash flow of $875.8M compares with net earnings of $851.3M, a cash conversion ratio of 1.03. In the weakest year of the eight-year history, net earnings fell to $85.4M on revenue of $12.53B, down from $16.04B, yet operating cash flow was $2.25B, far above net earnings, and free cash flow of $1.84B exceeded the prior year's $1.62B.1
AnalysisOur reading: when sales fall, an off-price chain buys less, inventory shrinks and the cash tied up in it comes back, which would explain why cash held up in the weak year while profit nearly vanished. The same mechanism works in reverse in a strong period: growing inventory absorbs cash, and supplier terms are what keep that from requiring borrowing.
Packaway lets buying follow deals, not the season
Packaway, goods bought now and stored for later, was 36% of inventory against 38% a year earlier, letting buyers act when surplus appears.
The detail
Packaway merchandise is bought with the intent of storing it in Ross's warehouses until a later date, typically for less than six months. The filing says its level varies "based on availability of compelling merchandise purchase opportunities in the marketplace" and on decisions about when to release it to stores. It was 36% of total inventory at quarter end, against 38% a year earlier.1
The mechanism also shows in costs. The filing credits part of this quarter's lower distribution costs to the timing of packaway carrying costs, and names a higher merchandise margin among the gains the business made on its own.1
AnalysisOur reading: the advantage is optionality. A chain that buys to a seasonal plan must take what is offered when it needs stock; one with warehouse room can wait for the best deal. The flip side, which the filing lists as a risk, is dependence on a steady supply of brand-name surplus at desirable discounts. A lower packaway share can mean fewer deals or simply faster release to stores, and the filing does not say which.
What to watch
Tariffs turned from a cost into a refund
Tariff costs weighed on the quarter a year earlier and refunds lifted this one; the filing still lists tariff increases among its risks.
The detail
The filing says the same quarter a year earlier carried a negative impact from tariff-related costs, and that this quarter's earnings include a benefit from refunds of IEEPA tariffs after the Supreme Court ruling. Among its listed risks are "Tariff increases (or threats of increases) and other changes and uncertainty in U.S. trade or tax policy" on apparel, home goods, shoes and other goods produced in other countries.1
AnalysisOur reading: the refund closes out one set of tariffs; it does not remove the exposure. Ross imports and sells goods made in other countries, so new tariffs would land in cost of goods sold, where gains in merchandise margin, distribution and occupancy would have to absorb them, as tariff-related costs weighed on the prior year's quarter.
Full-year net margin sits below its earlier level
Across the eight-year history revenue rose to $22.75B from $14.98B, but net earnings only to $2.15B from $1.59B, leaving a thinner net margin.
The detail
Revenue was $22.75B in the latest full fiscal year, against $14.98B in the earliest year of the eight-year history. Net earnings were $2.15B against $1.59B, so they grew more slowly than revenue and net margin is lower than it was then. Cost of revenue was $16.45B against $10.73B, growing faster than revenue.1
The filing names the cost pressures that can cause such drift: labor shortages, turnover and rising labor costs, fuel and freight, and the need to manage markdowns and inventory shortage to reach planned gross margins. This quarter, higher incentive compensation raised both buying costs and selling, general and administrative expense.1
AnalysisOur reading: scale has not yet widened the full-year margin. Revenue grew by about half, but costs grew faster still, so the margin story rests on whether gains like this quarter's merchandise margin and distribution productivity can outrun wage and freight costs. Caveat: this compares net margin, which also moves with interest income and tax rates, because the history does not report operating income for the earlier years.
Labor costs are already visible in the numbers
Selling, general and administrative costs grew 14.3% against sales up 13.3%, and the filing points to higher incentive compensation.
The detail
Selling, general and administrative costs, mainly store payroll and advertising, rose to $1.02B from $888.7M, 16.2% of sales and 0.15 points more than a year earlier. The filing attributes the rise in that share primarily to higher incentive compensation, and higher incentive pay also added to buying costs inside cost of goods sold.1
The filing lists among its risks the need to "attract, train, and retain associates" amid labor shortages, increased turnover or increased labor costs, and Ross faces pending class and representative actions, primarily in California, alleging violations of wage and hour laws.1
AnalysisOur reading: incentive pay rises with results, so part of this pressure follows the strong quarter itself. The structural part is store wages: a payroll-heavy cost base grows with the fleet as stores open, and the margin depends on sales per store rising fast enough to cover it.
Sources
- 1.Ross Stores 10-Q for the period to 2026-08-01 (the filing), Sep 1, 2026, read Nov 2, 2026
Ross Stores, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Ross Stores's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What the margin looks like once the tariff refund is set aside
Which of the cost gains the filing credits to the business itself can carry forward, and which pressures, from incentive pay to freight, push the other way.
- How far the store expansion can run
What new stores have to deliver for the raised opening plan to add demand rather than spread it, and the signals in each filing that show which is happening.
Loading…
Have a question about Ross Stores?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- How much of Ross's 17.6% operating margin would remain without the refund of IEEPA tariffs?
- Why did Ross's comparable store sales growth come mostly from more transactions rather than bigger baskets?
- How did Ross produce more free cash flow in its weakest year than in the year before it?
Business Lens describes Ross Stores from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.