ROSS STORES, INC. (ROST)

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed below under the caption “Forward-Looking Statements” and also those in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for fiscal 2025. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for fiscal 2025. All information is based on our fiscal calendar.

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores—Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,917 locations in 44 states, the District of Columbia, Guam, and Puerto Rico as of May 2, 2026. Ross offers first-quality, in-season, brand name and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 365 dd’s DISCOUNTS stores in 23 states as of May 2, 2026 that feature a more moderately-priced assortment of first-quality, in-season apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Financial Highlights

Financial results for the first quarter of fiscal 2026 were as follows:

•Sales were $6,010 million, compared to $4,985 million in the first quarter of fiscal 2025.

•Comparable store sales increased 17%.

•Operating income was $804 million, compared to $606 million in the first quarter of fiscal 2025.

•Operating income as a percentage of sales was 13.4%, compared to 12.2% in the first quarter of fiscal 2025.

•Net income was $650 million, compared to $479 million in the first quarter of fiscal 2025.

•Diluted earnings per share were $2.02, compared to $1.47 in the first quarter of fiscal 2025.

Key Initiatives

Our current key initiatives include the following:

•Merchandising: Delivering broad‑based assortments timely and offering more brands at compelling values for our customers.

•Marketing: Advancing our marketing initiatives to further increase customer acquisition and engagement.

•Stores: Making meaningful improvements to the in-store shopping experience for our customers.

We believe these initiatives will positively contribute to our performance and support our growth plans.

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Store Openings

The following table summarizes the stores opened and closed during the three month periods ended May 2, 2026 and May 3, 2025:

We opened 17 new stores in the first quarter of fiscal 2026 and remain on track to open a total of approximately 110 new stores this year, comprised of about 85 Ross stores and 25 dd’s DISCOUNTS stores. We expect to open 47 stores in the three month period ending August 1, 2026, including 35 Ross and 12 dd’s DISCOUNTS locations.

Our long-term strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria. We continue to believe that customers’ focus on value and convenience supports opportunities to expand our reach and serve more customers over time.

Sales Metrics

Comparable store sales (“comp store sales”) is a metric used by management and across the retail industry to evaluate the performance of existing stores by measuring the change in net sales for a particular period over the comparable prior period of equivalent length. We define comp store sales to be sales from stores that have been open for 14 complete months.

Sales excluded from comp store sales (“non-comp store sales”) consist primarily of sales from new stores that have been open for less than 14 complete months. Non-comp store sales also include sales from stores that are permanently closed (beginning in the month prior to closure) and temporarily closed (i.e., stores that do not have sales for at least two weeks within a fiscal month).

The calculation of comp store sales varies across the retail industry; therefore, our measure of comp store sales may differ from other retailers.

Metrics relating to customer purchasing behavior, such as “traffic” (defined as the number of transactions) and “basket” (defined as average transaction value), may provide additional insight into our comp store sales results (see Sales discussion below).

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Results of Operations

The following table summarizes our financial results for the three month periods ended May 2, 2026 and May 3, 2025:

Sales. Sales for the three month period ended May 2, 2026 increased by approximately $1,026 million, or 21%, compared to the three month period ended May 3, 2025. This was primarily due to the 17% increase in comp store sales of $841 million and an increase in non-comp store sales of $185 million. The 17% increase in comp store sales was primarily driven by an approximately 11% increase in traffic and 6% increase in basket.

Our sales mix for the three month periods ended May 2, 2026 and May 3, 2025 is shown below:

Cost of goods sold. Cost of goods sold for the three month period ended May 2, 2026 increased by approximately $649 million compared to the three month period ended May 3, 2025, primarily due to the increase in sales.

Cost of goods sold as a percentage of sales for the three month period ended May 2, 2026 decreased by approximately 145 basis points compared to the three month period ended May 3, 2025, primarily due to an 85 basis point increase in merchandise margin. Occupancy costs levered by 60 basis points. Distribution and domestic freight costs declined by 15 and 10 basis points, respectively. Partially offsetting these lower costs were higher buying costs of 25 basis points from higher incentive compensation expense.

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Selling, general and administrative expenses. For the three month period ended May 2, 2026, selling, general and administrative expenses (“SG&A”) increased by approximately $179 million, compared to the three month period ended May 3, 2025, primarily due to higher store-related costs.

SG&A as a percentage of sales for the three month period ended May 2, 2026 increased by approximately 25 basis points compared to the three month period ended May 3, 2025, primarily due to higher incentive compensation expense.

Operating income. Operating income as a percentage of sales for the three month period ended May 2, 2026 increased by approximately 120 basis points compared to the three month period ended May 3, 2025, primarily driven by the decrease in cost of goods sold as a percentage of sales period-over-period, partially offset by the increase in SG&A as a percentage of sales period-over-period.

Interest income, net. For the three month period ended May 2, 2026, interest income, net was relatively flat compared to the three month period ended May 3, 2025, as shown in the table below:

Taxes on earnings. Our effective tax rates for the three month periods ended May 2, 2026 and May 3, 2025 were approximately 22.4% and 25.2%, respectively. The decrease of 2.8% in the effective tax rate for the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 was primarily due to the tax effects associated with stock-based compensation. Our effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns. Our effective tax rate is impacted by changes in tax laws and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and the resolution of tax positions with various tax authorities.

Earnings per share. Diluted earnings per share for the three month period ended May 2, 2026 was $2.02 compared to $1.47 for the three month period ended May 3, 2025. The $0.55, or 37%, increase in diluted earnings per share for the three month period ended May 2, 2026 was primarily attributable to an approximately 36% increase in net earnings and 1% reduction in weighted-average diluted shares outstanding, largely due to stock repurchases under our stock repurchase program.

Financial Condition

Liquidity and Capital Resources

The primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, operating and variable lease costs, taxes, capital expenditures related to our new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to repurchase stock under active stock repurchase programs, repay debt as it becomes due, and pay dividends. In April 2026, we repaid at maturity $500 million of Senior Notes, and in April 2025, we repaid at maturity $700 million of Senior Notes. As of May 2, 2026, we had $242 million principal amount of Senior Notes that will reach maturity in 2027.

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Our cash flows for the three month periods ended May 2, 2026 and May 3, 2025, are summarized in the table below:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section and other parts of this Form 10-K contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed below under the caption “Forward-Looking Statements” and also those in ITEM 1A. RISK FACTORS in this Annual Report on Form 10-K. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores—Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,904 locations in 44 states, the District of Columbia, Guam, and Puerto Rico as of January 31, 2026. Ross offers first-quality, in-season, brand name and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 363 dd’s DISCOUNTS stores in 22 states as of January 31, 2026 that feature a more moderately-priced assortment of first-quality, in-season apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Fiscal Years

The fiscal years ended January 31, 2026, February 1, 2025, and February 3, 2024 are referred to as fiscal 2025, fiscal 2024, and fiscal 2023, respectively. Fiscal 2025 and 2024 were each 52-week years. Fiscal 2023 was a 53-week year.

The discussion that follows relates to fiscal 2025 and fiscal 2024. Discussion of fiscal 2023 items and year-to-year comparisons between fiscal 2024 and fiscal 2023 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal 2024.

Fiscal 2025 Highlights

Financial results for fiscal 2025 were as follows:

•Sales were $22,751 million, compared to $21,129 million in fiscal 2024.

•Comparable store sales increased 5%.

•Operating income was $2,707 million, compared to $2,586 million in fiscal 2024.

•Operating income as a percentage of sales was 11.9%, compared to 12.2% in fiscal 2024.

•Net income was $2,145 million, compared to $2,091 million in fiscal 2024.

•Diluted earnings per share were $6.61, compared to $6.32 in fiscal 2024.

Key Initiatives

Our current key initiatives include the following:

•Merchandising: Delivering broad‑based assortments timely and offering more brands at compelling values for our customers.

•Marketing: Advancing our marketing initiatives to further strengthen customer awareness and engagement.

•Stores: Making meaningful improvements to the in-store shopping experience for our customers.

While we believe these initiatives are contributing positively to our business, there remains uncertainty in the broader environment in which we operate. We continue to monitor ongoing macroeconomic factors such as tariffs, inflation, and geopolitical conditions. Our initiatives and our focus on providing merchandise that resonates with our customers remain central to supporting our efforts to drive sustainable, profitable growth.

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Store Openings

The following table summarizes the stores opened and closed during fiscal 2025, 2024, and 2023:

The number of stores at the end of fiscal 2025, 2024, and 2023 increased by 4%, 4%, and 5% from the respective prior years. Our fiscal 2025 expansion program added 90 new stores, and included entry into new geographic markets such as Puerto Rico and the New York Metro area.

The total selling square footage as of January 31, 2026, February 1, 2025, and February 3, 2024 was 45.1 million, 43.9 million, and 42.8 million, respectively.

Looking forward to 2026, we expect to open approximately 110 new stores, which represents 5% growth. We are planning to open 85 Ross stores and 25 dd’s DISCOUNTS stores in 2026, which reflects the reacceleration of growth for dd’s DISCOUNTS. Our long-term strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria. We continue to believe that customers’ focus on value and convenience supports opportunities to expand our reach and serve more customers over time.

Sales Metrics

Comparable store sales (“comp store sales”) is a metric used by management and across the retail industry to evaluate the performance of existing stores by measuring the change in net sales for a particular period over the comparable prior period of equivalent length. We define comp store sales to be sales from stores that have been open for 14 complete months.

Sales excluded from comp store sales (“non-comp store sales”) consist primarily of sales from new stores that have been open for less than 14 complete months. Non-comp store sales also include sales from stores that are permanently closed (beginning in the month prior to closure) and temporarily closed (i.e., stores that do not have sales for at least two weeks within a fiscal month).

The calculation of comp store sales varies across the retail industry; therefore, our measure of comp store sales may differ from other retailers.

Metrics relating to customer purchasing behavior, such as “traffic” (defined as the number of transactions) and “basket” (defined as average transaction value), may provide additional insight into our comp store sales results (see Sales discussion below).

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Results of Operations

The following table summarizes our financial results for fiscal 2025, 2024, and 2023:

Sales. Sales for fiscal 2025 increased approximately $1,621 million, or 8%, compared to the prior year. This was primarily due to the 5% increase in comparable store sales of approximately $961 million and an increase in non-comparable store sales of approximately $660 million. The 5% increase in comparable store sales was driven by an approximate 3% increase in basket and 2% increase in traffic.

Our sales mix is shown below for fiscal 2025, 2024, and 2023:

Cost of goods sold. Cost of goods sold in fiscal 2025 increased approximately $1,187 million compared to the prior year, primarily due to the increase in sales.

Cost of goods sold as a percentage of sales for fiscal 2025 increased approximately 10 basis points from fiscal 2024, primarily due to a 25 basis point increase in distribution costs mainly due to the deleveraging effect from the opening of our eighth distribution center in Buckeye, Arizona in May 2025. Merchandise margin decreased 20 basis points primarily due to tariff-related costs. Partially offsetting these higher costs were lower domestic freight costs of 20 basis points, lower buying costs of 10 basis points, and 5 basis points of leverage in occupancy costs.

Selling, general and administrative expenses. For fiscal 2025, selling, general and administrative expenses (“SG&A”) increased approximately $313 million compared to the prior year, primarily due to higher store-related costs.

In December 2024, we completed the sale of a packaway warehouse facility and recognized a pre-tax gain on sale of $61.6 million. SG&A as a percentage of sales for fiscal 2025 increased 25 basis points compared to fiscal 2024, primarily due to the gain recognized from this sale in fiscal 2024.

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Operating income. Operating income as a percentage of sales for fiscal 2025 decreased by 35 basis points compared to fiscal 2024, as both SG&A and cost of goods sold increased as a percentage of sales period-over-period.

We expect our operating income as a percentage of sales to be slightly higher in fiscal 2026 than in fiscal 2025, reflecting higher merchandise margin and lower distribution costs, partially offset by higher store-related costs related to our key initiatives.

Interest income, net. In fiscal 2025, interest income, net decreased by approximately $37 million compared to fiscal 2024, primarily due to decreased interest income both from lower average interest rates and from lower average cash balances, which decreased largely due to our repayment at maturity of unsecured senior debt (“Senior Notes”) of $700 million in April 2025 and $250 million in September 2024. The decrease in interest income was partially offset by lower interest expense primarily due to the repayment of those Senior Notes.

The table below shows the components of interest income, net for fiscal 2025, 2024, and 2023:

Taxes on earnings. Our effective tax rates for fiscal 2025, 2024, and 2023 were approximately 24.5%, 24.2%, and 24.2%, respectively. The increase in the effective tax rate compared to the prior year was primarily due to the tax effects associated with stock-based compensation. Our effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns. Our effective tax rate is impacted by changes

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