ROST - Ross Stores, Inc.
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Buy
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PRICE TARGET:
$244.45
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HIGH:
$290.00
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$200.00
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$245.00
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Q1 2026 Earnings Call
2025-05-22Operator: Good afternoon and welcome to the Ross Stores First Quarter 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 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: Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer; Adam Orvos, Executive Vice President and Chief Financial Officer; and Connie Kao, Group Vice President, Investor Relations. I would like to start the call by thanking all of our associates throughout the entire organization who have worked tirelessly over the last few months to help us navigate through a volatile and uncertain external environment. I sincerely appreciate the team's continued dedication and hard work. Now let's turn to our first quarter results. As noted in today's press release, total sales grew 3% to $5 billion with comparable store sales flat versus last year. Earnings per share were $1.47 compared to $1.46 last year, while net income for the period was $479 million versus $488 million for the same period in 2024. Despite the slower start to the spring selling season in February, our monthly sales performance improved sharply month after month for the balance of the quarter. For the period, sales and earnings performed at the high end of our expectations, while operating margin of 12.2% was flat year-over-year. Cosmetics was the strongest merchandise area during the quarter, while geographic trends were broad-based with the Southeast performing the best. Our dd's DISCOUNT brand continued its strong momentum from 2024 with another quarter of solid sales and operating profits as the chain's value and fashion offerings again resonated with shoppers. At quarter end, total consolidated inventories were up 8% versus last year mainly due to opportunistic buys during the period. Average store inventories were up 4%, in line with our plan, and packaway merchandise represented 41% of total inventory similar to last year. We believe our inventory is well positioned as we enter the second quarter. Turning to store growth. We opened 16 new Ross and 3 dd's DISCOUNT locations in the first quarter. We continue to plan for approximately 90 new stores this year, comprised of about 80 Ross and 10 dd's. As usual, these numbers do not reflect our plans to close or relocate about 10 to 15 older stores. Before I turn the call over to Adam to provide further details on our financial performance and guidance, I wanted to briefly discuss tariffs and the potential impact they will have on our business. While we directly import only a small portion of our merchandise, more than half of the total merchandise that we sell originates in China. If tariffs remained at elevated levels, we will be working to find the right combination of pricing versus merchandise margin compression. We believe we have a number of levers available to minimize the overall impact, but it is possible that we will see short-term pressure on our profitability. That said, our focus has been and will continue to be to provide our customers high-quality branded merchandise at a great value. From a pricing standpoint, we expect modest but broad-based inflationary pressure across the retail industry. And we will remain focused on maintaining a substantial pricing umbrella below traditional retailers in order to deliver the bargains our customers have come to expect from us. Overall, trade policy remains unpredictable, and we will continue to make the necessary adjustments to best position the company to navigate through this uncertain environment. We are pleased with the momentum of the business given the sequential improvement in comp sales in the quarter. In addition, we believe our inventory is well positioned to maximize the availability of closeouts. And we have multiple strategies in place to gain market share while minimizing the margin impact from the tariffs. With that said, in our view, there are simply too many unknown variables that are limiting our visibility into the second half of the fiscal year, and we believe it is prudent to withdraw our previously provided annual guidance at this time. Ross Stores and the off-price sector in general have historically benefited from significant disruptions to the supply chain with more opportunistic buys available to us, and we believe it will be no different this time. I will now turn the call over to Adam to provide further details on our first quarter results and additional color on our second quarter outlook.
Adam Orvos: Thank you, Jim. As previously mentioned, our comparable store sales were flat for the quarter. First quarter operating margin of 12.2% was similar to last year. Cost of goods sold was relatively unchanged from a year ago. Merchandise margin declined 45 basis points mainly due to higher ocean freight costs and the initial impact of tariffs. A portion of this tariff impact was caused by purchase orders for goods that were on the water when tariffs were increased. Occupancy and distribution costs rose by 20 basis points and 5 basis points, respectively. Buying costs declined by 50 basis points from lower incentives and domestic freight leverage by 20 basis points. SG&A for the period was flat year-over-year as the benefit from lower incentive compensation was offset by sales deleverage. During the first quarter, we repurchased 2 million shares of common stock for an aggregate cost of $263 million under the company's 2-year $2.1 billion authorization approved by our Board of Directors in March of 2024. We remain on track to buy back a total of $1.05 billion in stock during 2025 and complete the program as planned. Now let's discuss our outlook. For the 13 weeks ending August 2, 2025, comparable store sales are projected to be flat to up 3%. Earnings per share for the second quarter are now projected to be in the range of $1.40 to $1.55 and includes a cost impact of $0.11 to $0.16 from the announced tariffs. Our guidance assumptions for the second quarter of 2025 include the following. Total sales are forecast to increase 2% to 6% versus the prior year. If same-store sales perform in line with our forecast, operating margin for the second quarter is projected to be in the 10.7% to 11.4% range, which includes a 90 to 120 basis point negative impact from announced tariffs, mostly in merchandise margin. This estimate is based on the current level of tariffs, but we recognize there could be a wide range of outcomes given the uncertainty with varying trade policy announcements. Excluding the tariff impact, we would expect merchandise margin to be similar to the prior year. We are also forecasting higher distribution costs as we opened our eighth distribution center earlier this month. Partially offsetting these higher costs are lower incentives. We expect to open 31 stores in the second quarter, including 28 Ross and 3 dd's locations. We expect net interest income to be approximately $29 million. The tax rate is projected to be 24% to 25%, and diluted shares outstanding are expected to be approximately $325 million. Now I'll turn the call back to Jim for closing comments.
James Conroy: Thank you, Adam. To sum up, after a slow start in February, we saw broad-based improvement throughout the quarter, and we're able to meet the high end of our guidance in both sales and earnings. As mentioned earlier, despite the underlying health of the business, we have limited visibility on how customer demand may evolve over the balance of the year given prolonged inflation, deteriorating consumer sentiment and still elevated and potentially fluctuating tariff levels. That said, we have a seasoned executive team, a flexible off-price business model and a strong financial foundation that should enable us to navigate through these uncertain times. I do want to specifically commend the entire buying and planning organization for managing through the tumultuous external environment, driving top line sales growth and working tirelessly to minimize the impact of tariffs on the performance of the business. At this point, we would like to open up the call and respond to any questions you may have. John?
Operator: [Operator Instructions] And the first question comes from the line of Matthew Boss with JPMorgan.
Matthew Boss: So maybe, Jim, could you elaborate on the cadence of comps or drivers of the sharp improvement that you cited as the first quarter progressed, maybe what you've seen in May relative to the flat to 3% comp outlook? And for Michael, I guess, is there a way to walk us through strategies that you have in place to mitigate tariffs in the back half of the year? Or just maybe any range of scenarios to consider if tariffs were to remain at today's level for the remainder of the year?
James Conroy: Sure. I'll take the first part, Matt. The sequential improvement was really broad-based across the merchandise hierarchy. And as we look at the April business, most departments were performing pretty nicely. As you know, we don't give current quarter performance trends, but we did guide to a flat to a plus 3%. So that should give you some sense of how we feel about the health of the business. Michael, do you want to take the tariffs question?
Michael Hartshorn: Sure. Matt, it's Michael Hartshorn. There's 3 very obvious ways to mitigate the cost. The first of which is to work with our vendors and get better costing, which we've done at this point, even in the second quarter. There is, you can pass along the price, but we want to be very careful with price increases. We don't want to be the first one to raise prices, and we want to make sure that we keep our value or pricing umbrella versus mainstream retail. And that's a substantial value gap to make sure we're delivering the values that customers come to expect. We also have the same toolkits other off-pricers have, and that includes taking advantage of closeouts already in the country. We did that in the second quarter. We also have our packaway. Again, much of that arrived prior to the tariffs. So those are unburdened by tariffs, and we'll use those as well. And in some cases, we'll be able to shift the country of origin.
Operator: And the next question comes from the line of Lorraine Hutchinson with Bank of America.
Lorraine Maikis: The 2Q gross margin hit from tariffs, that 90 to 120, it seems that, that would include tariffs at peak rates. Should we expect the impact to come down as we move through the year to current rates? And is that solely related to direct imports? Or were you already seeing brands pass-through costs for the second quarter product?
Michael Hartshorn: The second quarter impact really includes 2 primarily costs. One -- the first of which is it did include costs or orders that were already in place when the tariffs were announced. So that includes both the original 30% and also the 145%. The other thing we've done in our supply chain is we paused ticketing until we understood what the tariff impact was. So that also includes additional ticketing efforts in the DC until we understand what the ongoing tariff will be across the board. In terms of the back half, as Jim described in the commentary, there are too many variables to reliably predict the back half, and that includes both the consumer behavior on the revenue side and also retail sourcing market dynamics. I mentioned in Q2 that we did take the hit for goods already in transit. We used closeouts to take advantage of and we also used our own packaway. Those goods, again, were unburdened by tariffs. So that's a long-winded way of saying, we'll have to wait and see how the macro economy and retail environment involves and what the outlook looks for inflation.
Operator: And the next question comes from the line of Mark Altschwager with Baird.
Mark Altschwager: Maybe just -- first a quick follow-up on the comment you just made there. I think you said one of the factors impacting the visibility in the back half relates to maybe less certainty on the product flows. I guess, do I have that right? Maybe unpack how you're thinking about inventory availability. Anything you're seeing right now that is leading to maybe some concern about what the back half might look like? And then separately, Jim, when you joined, you spoke to some opportunities, with marketing, with store environment enhancements. I know those are longer-term initiatives as it is, but just curious how this disruption here with macro trade policy has affected kind of your near-term playbook there.
James Conroy: Sure. On the first part, we certainly think there is availability of closeouts out there. If you think about what happened when the 145% passed, a lot of goods were sort of frozen in time in China. And when that 145% then came back down to 30% about a month later, all those goods are relieved. So that does provide an influx of closeouts. Not all of them are going to be seasonally appropriate, but there's a bit of a sort of pig in a python there, where that product will be coming through. That said, the other thing that happened when the tariffs were passed at 145% is a lot of production in China came to a halt. So there's a bit potentially of a gap right behind that. We believe we're extremely well positioned to manage through that as we look at our receipt plans and our receipt flows over the next few months. We think we can get through that with no problem. So overall, in the short term, I think there'll be availability of closeouts. If there is a little bit of receipt risk, we think we've managed through that. And then once we get beyond this near term, given just this disruption in the economy and in mainstream retail, we believe that Ross Stores and the whole off-price sector will be benefactors to it. In terms of some of the things we had laid out on the last call and our -- any change in direction based on current environment, in the last call, we sort of laid out an early vision for some of the things that we think can improve the overall brand experience of Ross and the store experience to complement the great merchandise that the merchants bring and deliver to the stores. I also explained at that point that this is part of a transformational and evolutionary change and not sort of a revolutionary or significant step-function change. And so based on that, I see very little reason to drastically change our focus on our longer-term vision of trying to bring merchandising, marketing and stores in concert to really contemporize the brand and drive more store traffic. We'll be doing that in an expense-neutral way. We don't plan to overly invest, certainly, this year given environment, but nor do we want to put all of those plans on pause.
Operator: The next question comes from the line of Paul Lejuez with Citigroup.
Tracy Kogan: It's Tracy Kogan filling in for Paul. I just had one quick follow-up and then another question. So we should think about the $0.11 to $0.16 in 2Q as including some mitigations. I think you said you were able to negotiate some costs with vendors. So I just wanted to check on that. And then secondly I wondered if you're seeing -- if you think you're seeing a trade-down customer and if that maybe contributed to the improvement in the quarter?
Michael Hartshorn: In the second quarter, it does include some mitigation, but it also includes product that was on order, in transit when the tariff arrived. So there was no chance for mitigation. On the comp, if we look at comp by income band across the company, we saw the comps are fairly broad-based. So that's our only indicator, and it doesn't suggest a change across income band.
Operator: And the next question comes from the line of Michael Binetti with Evercore ISI.
Michael Binetti: So I guess I just want to ask, maybe a jump ball, but maybe the different scenarios that you're looking at for 2Q, but that would land us between 0 and a 3% comp, since it certainly sounds like [ the ] exit rate was good from 1Q or maybe even just the difference between the wider spread, 2% to 6% on total revenues. What are you leaving room for to decelerate if we entered the quarter at a better pace? And then I guess just backing up, looking at the inventory, I think we get a little lost in the narrative around off-price and the difference between direct sourcing being very small in China and your helpful comments today that it's up to half of the good -- total goods sold. How much of that is the indirect portion that's coming from China is semi-permanent and recurring goods that are made up for you versus the ability to quickly move some of that exposure that's been recurring in China for a long time to other geographies? Is that muscle that the sourcing team in Asia has today or is it muscle that you have to build? Maybe you could give us just a few thoughts on that.
Michael Hartshorn: Michael, I'll start with the guidance range. It was really just out of abundance of caution given the macroeconomic and geopolitical environment. We're cognizant that inflation has going -- been going on a long time, and it's impacting our core customer. And the impact of tariffs, we expect to start hitting the customer in the July, June -- late June, July time frame. So we want to see how we exit the quarter. So those are the really the 2 reasons that we're more cautious with the guidance and we have a bigger range. In terms of the sourcing, as we said in the commentary, about a small portion are directly sourced. And what that means for us, that's the piece that we're responsible for the tariff. There's some portion of our goods -- remember, we're in the closeout business. So we're agnostic to where it's sourced. We're looking for value -- branded value to the customer. So when you look at -- even though we take possession when it's already in the country, it was originally sourced from China. The piece that we have, the direct control over country of origin is the small portion that we directly import mainly in home and shoes.
James Conroy: And on that other portion, the market available piece, all the off-price players essentially shop from the same market. So we don't think we're going to be uniquely less competitive, at least in any significant way. It's just the market is still pretty heavily reliant on China imports.
Operator: The next question comes from the line of Alex Straton with Morgan Stanley.
Alexandra Straton: I wanted to touch on the branded strategy that you started enacting last year, just where that stands now, if the mix is where you want it to be and if it does still remain a margin drag and how you think about that for the rest of the year? And related to that, I just wanted to dig into women's apparel. I know that's been a focus for you all. So just curious how that particular category is doing for you if the branded product is helping out there.
James Conroy: Sure. So we feel very good about the team's execution of the branded strategy. And I think at this point, we can say we're sort of hitting the guidelines or targets that we had hoped to. Those are a little bit fluid. They're not hard and fast rules. But we've gotten the entire assortment repositioned in a way where we are bringing true branded value to the consumer. So we feel great about that. There was a slight tail of an impact in margin in the beginning of this quarter, but now we fully anniversaried it. So I don't -- we don't expect margin headwinds going forward any longer from the brand strategy. And as you pointed out in your question, it was very astute, the branded strategy was really for the entire business. It tended to then take on a more heavy focus on the Ladies business. We generally keep our cards close to our vest in terms of how the business performs by category. That said, in this particular quarter, we were very encouraged that the Ladies business was in line, in fact, slightly better than the chain average. So I think we can -- it's early days, and we perhaps have some business owed to us in the Ladies category over the last few years, but it's now at least trending in line with the rest of the company.
Operator: The next question comes from the line of Chuck Grom with Gordon Haskett.
Charles Grom: Just on the tariff topic. Can you talk about your expectations for elasticity if you have to raise prices as we progress throughout the year, maybe what you've learned in the past, what categories your confidence is the most high?
James Conroy: I don't have a great sort of knowledge base for past years here. I think the elasticity is -- it's going to depend on the category of business and whether it's discretionary or functional in nature. So when we're looking at pricing, we're being very strategic in terms of sort of what's the end use of that item and how much leeway do we have to change prices. And we're also very cognizant of what's happening across mainstream retail, both their full-price goods and what they're clearing as well as the other players within our sector. So there's a lot of factors that go into it. And the elasticity, I think, will depend not only across categories but even within categories down to the specific item. I would circle back to a comment I made earlier. I think we're all in the same boat here as it relates to elasticity, right? So all retailers that are selling footwear and apparel and home goods are going to face into the same set of questions. And it will be interesting to see how it all plays out. But we do expect broad-based inflationary pressure across all retailers, and that will create some disruptions and we tend to come out on top and victorious being an off-pricer when that happens.
Operator: And the next question comes from the line of Brooke Roach with Goldman Sachs.
Brooke Roach: I was hoping you could talk about your category plans for mitigating tariffs. Are there any opportunities for you to shift assortment either within categories or within subcategories to try and minimize the sourcing impact from China towards other countries? Over time, how much can that be shifted both for your direct sourcing and also for some of your vendor partners?
James Conroy: Sure. So there's a tremendous amount of flexibility. It does, again, kind of depend on the item specifically and the timing. So as we roll into back-to-school, if you need to have certain signature items like backpacks, you need to find a way to get backpacks into the assortment one way or another. As you get further into the fall, you might have the ability to amplify one part of the assortment and downplay another to mix out the margin or to mitigate the tariff a bit. There are certain signature items and signature categories that we want to have in the assortment regardless of the impact to mark up. So we're sort of thinking about it very strategically. All of the vendors, the entire marketplace is trying to resource goods, right? So for a third-party product, all of our vendor partners are moving quite quickly to resource product but still a several month process. And then similarly for the product that we direct import. On occasion, you can find another country that manufactures a very similar item, and hopefully, at the same quality level. Otherwise, we would sort of void it out. But that also -- as we switch to new countries or try to resource goods, there's a time line associated with that at all. So that's a 2026 sort of adjustment, not a 2025 adjustment.
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 just wanted to ask, when we're thinking about the impact that we're seeing by consumer and by income level, what you're seeing there and if there's anything that you could parse out between the traffic and spend trends there as well.
Michael Hartshorn: Sure. As I said earlier on the call, for us, we look at stores on the population around the store and the income levels to try to band performance by income level. And for us, it was fairly broad-based across income levels. As far as comp components for the quarter, comps were flat, as we said. Slightly higher basket was offset by a slight decline in traffic, particularly early -- earlier in the quarter. The higher average basket was driven primarily by a number of units sold as average unit retails were flat.
Operator: And the next question comes from the line of Simeon Siegel with BMO Capital Markets.
Simeon Siegel: Understanding if there are moving pieces like incentive comp you mentioned, I just -- what's the best way for us to think about what comp you need to leverage overall SG&A at this point, just reflecting on, I think, the flat SG&A on black comp this quarter? And then just general thoughts on various category opportunities and challenges going forward, specifically wondering about Children's. I think this is the first quarter in over a year that you haven't -- you didn't call that out as the area of strength. So anything there would be helpful.
Michael Hartshorn: Excluding -- on the first question, obviously, excluding the impact of tariffs, obviously, this can vary quarter-to-quarter. In the first quarter, we were able to hold EBIT margins at the flat comp. But generally, over an annual period or over a longer term, it's 3% to 4% to be able to lever.
James Conroy: And in terms of the category detail, I wouldn't read anything into it. We tend to try to provide a small amount of color on the categories that are overperforming. Occasionally, we call out those that are massively underperforming. There's nothing really notable about the kids business to call out.
Operator: And the next question comes from the line of Dana Telsey with the Telsey Advisory Group.
Dana Telsey: As you think about the performance this quarter, was there a difference between the stores along the border versus the [ base ]? And also, any color on how dd's has done? And then lastly, as you're thinking about the merchandise margin go forward, how do you think about that margin puts and takes and how you're planning inventory? And then I just have a quick follow-up.
Michael Hartshorn: Dana, okay, let me get through all of those. First, let me talk through the geographies and border store locations. We mentioned in the release that Southeast was the strongest region for us. Our largest markets, California, Florida and Texas were relatively in line with the chain. Texas, specifically, the border stores were well below the chain average and had a slightly negative impact to the overall chain even with the low number of stores. What we attribute the quarterly performance to was the long delays for cross-border traffic to get in and out of the country. We also saw a negative impact in our Northern border stores, but we have very few stores there. So not a large impact to the chain. You want to take dd's?
James Conroy: Both brands, both Ross and dd's saw nice sequential improvement throughout the quarter from month-to-month. The acceleration, if I compare the February to April, was actually much stronger in Ross. But admittedly, it started at a lower point. So the dd's business continues to perform well. It was comp-enhancing for us for the quarter. And I think it's a testament to some of the strategies around the cold weather stores, the young customer, et cetera, that have proven out to be the right strategies. And the team is executing very well against them.
Adam Orvos: And Dana, your question on merchant margin going forward and puts and takes, outside of the tariff impact, we'd expect merchant margin to be neutral versus last year in the second quarter. And Jim mentioned earlier our brand strategy, that's put pressure on merchandise margin over the last, call it, year. We're past that point of pressure.
Operator: And the next question comes from the line of Aneesha Sherman with Bernstein.
Aneesha Sherman: I'm curious to hear some context around how you're thinking about pricing. Over the last few years, you've chosen at a couple of times not to pass on cost inflation at price, but rather [ took a hit ]. And you did this in 2023 with freight costs. You did it again over the last year with the branded strategy and chose to absorb that. Why is your approach different now? I heard what you said around competitors raising prices, but that was also the case in recent years. What's driving a different approach? And do you still think that Ross can maintain the perception of value with your lower-income consumer whilst raising prices?
Michael Hartshorn: Aneesha, on the pricing, I would disaggregate the brand strategy from choosing not to raise prices. We were indeed shifting brands, but we were also maintaining our value proposition versus not only our direct competitors in off-price but also traditional retailers within department and specialty stores. In this case, we expect to see broad-based inflation, not category-specific, with the tariffs. And so we would expect to be able to maintain that value proposition against the whole retail set.
Operator: And the next question comes from the line of Marni Shapiro with Retail Tracker.
Marni Shapiro: One just clarification, did you -- how many dd's stores did you say opened in the quarter? You said it kind of quickly, and I missed that. And then if you could talk a little bit about your use of packaways. And specifically, you've been very effective using them for times when you really needed the goods on time. So polos for Father's Day, dresses for Mother's Day or Easter. Were you able to packaway as much as possible, I guess, for back-to-school, back to your backpack analogy, your comment or Christmas decorations and tchotchkes because all of that stuff is from China. What does that look like? What is the complexion of your packaway look like?
James Conroy: Sure. On the first part of your question, apologies if that wasn't clear, 3 dd's were opened in the quarter. In terms of packaway, I don't think the complexion of packaway is -- all that different in past years, but for -- we are really focused on places where if we thought there was any receipt risk, we could fill it in with products from the wholesale. So I think we're extremely well positioned to kind of maximize our business and continue to flow goods to the store and while at the same time, work through this tariff situation and minimize the impact as much as we can. And perhaps the last piece I would add to that circling back to the prior question, what we fully intend to continue to be quality product branded values in the store. So the pricing piece, I don't think we will lose our reputation at all for being extremely well branded [ and at ] great values.
Operator: And the next question comes from the line of Laura Champine with Loop Capital Markets.
Laura Champine: I know that we've talked about tariffs sort of ad nauseam, but I'm still not clear on what the strategy is. So if you're a more than 50% of goods from China today, assuming tariffs don't change from here, where would you expect to be at the end of the year?
James Conroy: So there's multiple things we can do to try to source product from other countries. But at the end of the day, there's a lot of product, particularly over the next 6 months, that is going to be imported from China for us and for every other retailer and every other off-price company. So there's -- the amount of flexibility that you have as you sit in the middle of the year for the next 3 to 6 months is somewhat limited. So I'm not prepared to give you an exact number for what our sourcing by country will look like 6 months from now. I would tell you that what the merchants are looking at is, how do I deliver product to the store that is part of a compelling assortment at a great value? And in this environment, we expect a lot of that will come from a closeout part of our business, and some of it might come from resourcing merchandise overseas. But they don't start with the country of origin in mind, right? In most cases, we're not the first company importing the product. I hope that helps.
Operator: And the next question comes from Corey Tarlowe with Jefferies.
Corey Tarlowe: Jim, I was wondering if you could just provide a little bit of color on traffic trends that you saw in the quarter. I think you implied that things got better, but it was down. So did you end up? And then just on AUR, what have been the key drivers there beyond -- is it just bringing in good, better -- more of the better and best-type products?
James Conroy: Sure. So the quarter started off slow. It seems like a lot of retailers started off slow in February. And then the business got better from -- between February and March, and then got better again between March and April, significantly so at Ross. A portion of that, not all of it, a portion of that was the shift in Easter. In terms of traffic or transactions, if we look at just the April business, we had a pretty solid comp there and it was largely transactions-based, a little bit of help from AUR, but very small increase in AUR. And then we had a bigger basket driven by more units per transaction. So if I were to look at the April business in a vacuum, I would be pretty pleased, right? We had growth across all 3 elements, transactions, AUR and UPT, sort of a very healthy way to drive a comp. And our exit performance coming out of the quarter was pretty strong.
Operator: And the next question comes from the line of Krisztina Katai with Deutsche Bank.
Jessica Taylor: This is Jessica Taylor on for Christina. I just wanted to follow up a little bit on the performance by income and the health of the customer. And just to follow up on Juliana's question a little, asked differently. Have you seen any changes in terms of the customer behavior in their spend, how they're approaching their buying from last quarter or the last 6 months?
James Conroy: I would say, not really. Michael commented a little bit about the income bands, and there's some very slight movements there. But anticipating this question, we were looking to try to find and support or validate the logical hypothesis, but it just wasn't obvious within the data. In terms of customer behavior, perhaps you could say there's a little bit of a shift towards more functional item versus discretionary items. But it's -- I wouldn't say there's anything that's glaringly different.
Operator: And our final question comes from the line of Adrienne Yih with Barclays.
Angus Kelleher-Ferguson: This is Angus Kelleher on for Adrienne. You noted that cosmetics was the strongest merchandise area in Q1. Can you elaborate on what's driving that strength? Was it brand, mix, pricing or something else? And do you expect this momentum to continue? Then also given the flat comp performance and cautious consumer backdrop, are you seeing any shifts in consumer behavior around basket size or frequency specifically?
James Conroy: So on the cosmetics piece, I would give kudos to the team for some really strong execution and for putting together a great assortment there. But is -- cosmetics is a pretty broad category, but part of what's driving it is some of the better brands there and a little bit of a trend in that space for a particular type of cosmetics. And so we feel good about that. In terms of frequency and basket size, et cetera, there's very small changes. Nothing to call out just yet in terms of consumer behavior in the quarter, certainly in the second half of the quarter, versus if you go back to our fourth quarter, where we had a nicely positive comp they feel relatively similar to us.
Operator: And there are no further questions at this time. I would like to turn the floor back over to Jim Conroy for any closing remarks.
James Conroy: Very good. Well, thank you, everyone, for joining us on our call today. We look forward to speaking with you on our next earnings call. Take care.
Operator: Ladies and gentlemen, that does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
James Conroy: Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer; Adam Orvos, Executive Vice President and Chief Financial Officer; and Connie Kao, Group Vice President, Investor Relations. I would like to start the call by thanking all of our associates throughout the entire organization who have worked tirelessly over the last few months to help us navigate through a volatile and uncertain external environment. I sincerely appreciate the team's continued dedication and hard work. Now let's turn to our first quarter results. As noted in today's press release, total sales grew 3% to $5 billion with comparable store sales flat versus last year. Earnings per share were $1.47 compared to $1.46 last year, while net income for the period was $479 million versus $488 million for the same period in 2024. Despite the slower start to the spring selling season in February, our monthly sales performance improved sharply month after month for the balance of the quarter. For the period, sales and earnings performed at the high end of our expectations, while operating margin of 12.2% was flat year-over-year. Cosmetics was the strongest merchandise area during the quarter, while geographic trends were broad-based with the Southeast performing the best. Our dd's DISCOUNT brand continued its strong momentum from 2024 with another quarter of solid sales and operating profits as the chain's value and fashion offerings again resonated with shoppers. At quarter end, total consolidated inventories were up 8% versus last year mainly due to opportunistic buys during the period. Average store inventories were up 4%, in line with our plan, and packaway merchandise represented 41% of total inventory similar to last year. We believe our inventory is well positioned as we enter the second quarter. Turning to store growth. We opened 16 new Ross and 3 dd's DISCOUNT locations in the first quarter. We continue to plan for approximately 90 new stores this year, comprised of about 80 Ross and 10 dd's. As usual, these numbers do not reflect our plans to close or relocate about 10 to 15 older stores. Before I turn the call over to Adam to provide further details on our financial performance and guidance, I wanted to briefly discuss tariffs and the potential impact they will have on our business. While we directly import only a small portion of our merchandise, more than half of the total merchandise that we sell originates in China. If tariffs remained at elevated levels, we will be working to find the right combination of pricing versus merchandise margin compression. We believe we have a number of levers available to minimize the overall impact, but it is possible that we will see short-term pressure on our profitability. That said, our focus has been and will continue to be to provide our customers high-quality branded merchandise at a great value. From a pricing standpoint, we expect modest but broad-based inflationary pressure across the retail industry. And we will remain focused on maintaining a substantial pricing umbrella below traditional retailers in order to deliver the bargains our customers have come to expect from us. Overall, trade policy remains unpredictable, and we will continue to make the necessary adjustments to best position the company to navigate through this uncertain environment. We are pleased with the momentum of the business given the sequential improvement in comp sales in the quarter. In addition, we believe our inventory is well positioned to maximize the availability of closeouts. And we have multiple strategies in place to gain market share while minimizing the margin impact from the tariffs. With that said, in our view, there are simply too many unknown variables that are limiting our visibility into the second half of the fiscal year, and we believe it is prudent to withdraw our previously provided annual guidance at this time. Ross Stores and the off-price sector in general have historically benefited from significant disruptions to the supply chain with more opportunistic buys available to us, and we believe it will be no different this time. I will now turn the call over to Adam to provide further details on our first quarter results and additional color on our second quarter outlook.
Adam Orvos: Thank you, Jim. As previously mentioned, our comparable store sales were flat for the quarter. First quarter operating margin of 12.2% was similar to last year. Cost of goods sold was relatively unchanged from a year ago. Merchandise margin declined 45 basis points mainly due to higher ocean freight costs and the initial impact of tariffs. A portion of this tariff impact was caused by purchase orders for goods that were on the water when tariffs were increased. Occupancy and distribution costs rose by 20 basis points and 5 basis points, respectively. Buying costs declined by 50 basis points from lower incentives and domestic freight leverage by 20 basis points. SG&A for the period was flat year-over-year as the benefit from lower incentive compensation was offset by sales deleverage. During the first quarter, we repurchased 2 million shares of common stock for an aggregate cost of $263 million under the company's 2-year $2.1 billion authorization approved by our Board of Directors in March of 2024. We remain on track to buy back a total of $1.05 billion in stock during 2025 and complete the program as planned. Now let's discuss our outlook. For the 13 weeks ending August 2, 2025, comparable store sales are projected to be flat to up 3%. Earnings per share for the second quarter are now projected to be in the range of $1.40 to $1.55 and includes a cost impact of $0.11 to $0.16 from the announced tariffs. Our guidance assumptions for the second quarter of 2025 include the following. Total sales are forecast to increase 2% to 6% versus the prior year. If same-store sales perform in line with our forecast, operating margin for the second quarter is projected to be in the 10.7% to 11.4% range, which includes a 90 to 120 basis point negative impact from announced tariffs, mostly in merchandise margin. This estimate is based on the current level of tariffs, but we recognize there could be a wide range of outcomes given the uncertainty with varying trade policy announcements. Excluding the tariff impact, we would expect merchandise margin to be similar to the prior year. We are also forecasting higher distribution costs as we opened our eighth distribution center earlier this month. Partially offsetting these higher costs are lower incentives. We expect to open 31 stores in the second quarter, including 28 Ross and 3 dd's locations. We expect net interest income to be approximately $29 million. The tax rate is projected to be 24% to 25%, and diluted shares outstanding are expected to be approximately $325 million. Now I'll turn the call back to Jim for closing comments.
James Conroy: Thank you, Adam. To sum up, after a slow start in February, we saw broad-based improvement throughout the quarter, and we're able to meet the high end of our guidance in both sales and earnings. As mentioned earlier, despite the underlying health of the business, we have limited visibility on how customer demand may evolve over the balance of the year given prolonged inflation, deteriorating consumer sentiment and still elevated and potentially fluctuating tariff levels. That said, we have a seasoned executive team, a flexible off-price business model and a strong financial foundation that should enable us to navigate through these uncertain times. I do want to specifically commend the entire buying and planning organization for managing through the tumultuous external environment, driving top line sales growth and working tirelessly to minimize the impact of tariffs on the performance of the business. At this point, we would like to open up the call and respond to any questions you may have. John?
Operator: [Operator Instructions] And the first question comes from the line of Matthew Boss with JPMorgan.
Matthew Boss: So maybe, Jim, could you elaborate on the cadence of comps or drivers of the sharp improvement that you cited as the first quarter progressed, maybe what you've seen in May relative to the flat to 3% comp outlook? And for Michael, I guess, is there a way to walk us through strategies that you have in place to mitigate tariffs in the back half of the year? Or just maybe any range of scenarios to consider if tariffs were to remain at today's level for the remainder of the year?
James Conroy: Sure. I'll take the first part, Matt. The sequential improvement was really broad-based across the merchandise hierarchy. And as we look at the April business, most departments were performing pretty nicely. As you know, we don't give current quarter performance trends, but we did guide to a flat to a plus 3%. So that should give you some sense of how we feel about the health of the business. Michael, do you want to take the tariffs question?
Michael Hartshorn: Sure. Matt, it's Michael Hartshorn. There's 3 very obvious ways to mitigate the cost. The first of which is to work with our vendors and get better costing, which we've done at this point, even in the second quarter. There is, you can pass along the price, but we want to be very careful with price increases. We don't want to be the first one to raise prices, and we want to make sure that we keep our value or pricing umbrella versus mainstream retail. And that's a substantial value gap to make sure we're delivering the values that customers come to expect. We also have the same toolkits other off-pricers have, and that includes taking advantage of closeouts already in the country. We did that in the second quarter. We also have our packaway. Again, much of that arrived prior to the tariffs. So those are unburdened by tariffs, and we'll use those as well. And in some cases, we'll be able to shift the country of origin.
Operator: And the next question comes from the line of Lorraine Hutchinson with Bank of America.
Lorraine Maikis: The 2Q gross margin hit from tariffs, that 90 to 120, it seems that, that would include tariffs at peak rates. Should we expect the impact to come down as we move through the year to current rates? And is that solely related to direct imports? Or were you already seeing brands pass-through costs for the second quarter product?
Michael Hartshorn: The second quarter impact really includes 2 primarily costs. One -- the first of which is it did include costs or orders that were already in place when the tariffs were announced. So that includes both the original 30% and also the 145%. The other thing we've done in our supply chain is we paused ticketing until we understood what the tariff impact was. So that also includes additional ticketing efforts in the DC until we understand what the ongoing tariff will be across the board. In terms of the back half, as Jim described in the commentary, there are too many variables to reliably predict the back half, and that includes both the consumer behavior on the revenue side and also retail sourcing market dynamics. I mentioned in Q2 that we did take the hit for goods already in transit. We used closeouts to take advantage of and we also used our own packaway. Those goods, again, were unburdened by tariffs. So that's a long-winded way of saying, we'll have to wait and see how the macro economy and retail environment involves and what the outlook looks for inflation.
Operator: And the next question comes from the line of Mark Altschwager with Baird.
Mark Altschwager: Maybe just -- first a quick follow-up on the comment you just made there. I think you said one of the factors impacting the visibility in the back half relates to maybe less certainty on the product flows. I guess, do I have that right? Maybe unpack how you're thinking about inventory availability. Anything you're seeing right now that is leading to maybe some concern about what the back half might look like? And then separately, Jim, when you joined, you spoke to some opportunities, with marketing, with store environment enhancements. I know those are longer-term initiatives as it is, but just curious how this disruption here with macro trade policy has affected kind of your near-term playbook there.
James Conroy: Sure. On the first part, we certainly think there is availability of closeouts out there. If you think about what happened when the 145% passed, a lot of goods were sort of frozen in time in China. And when that 145% then came back down to 30% about a month later, all those goods are relieved. So that does provide an influx of closeouts. Not all of them are going to be seasonally appropriate, but there's a bit of a sort of pig in a python there, where that product will be coming through. That said, the other thing that happened when the tariffs were passed at 145% is a lot of production in China came to a halt. So there's a bit potentially of a gap right behind that. We believe we're extremely well positioned to manage through that as we look at our receipt plans and our receipt flows over the next few months. We think we can get through that with no problem. So overall, in the short term, I think there'll be availability of closeouts. If there is a little bit of receipt risk, we think we've managed through that. And then once we get beyond this near term, given just this disruption in the economy and in mainstream retail, we believe that Ross Stores and the whole off-price sector will be benefactors to it. In terms of some of the things we had laid out on the last call and our -- any change in direction based on current environment, in the last call, we sort of laid out an early vision for some of the things that we think can improve the overall brand experience of Ross and the store experience to complement the great merchandise that the merchants bring and deliver to the stores. I also explained at that point that this is part of a transformational and evolutionary change and not sort of a revolutionary or significant step-function change. And so based on that, I see very little reason to drastically change our focus on our longer-term vision of trying to bring merchandising, marketing and stores in concert to really contemporize the brand and drive more store traffic. We'll be doing that in an expense-neutral way. We don't plan to overly invest, certainly, this year given environment, but nor do we want to put all of those plans on pause.
Operator: The next question comes from the line of Paul Lejuez with Citigroup.
Tracy Kogan: It's Tracy Kogan filling in for Paul. I just had one quick follow-up and then another question. So we should think about the $0.11 to $0.16 in 2Q as including some mitigations. I think you said you were able to negotiate some costs with vendors. So I just wanted to check on that. And then secondly I wondered if you're seeing -- if you think you're seeing a trade-down customer and if that maybe contributed to the improvement in the quarter?
Michael Hartshorn: In the second quarter, it does include some mitigation, but it also includes product that was on order, in transit when the tariff arrived. So there was no chance for mitigation. On the comp, if we look at comp by income band across the company, we saw the comps are fairly broad-based. So that's our only indicator, and it doesn't suggest a change across income band.
Operator: And the next question comes from the line of Michael Binetti with Evercore ISI.
Michael Binetti: So I guess I just want to ask, maybe a jump ball, but maybe the different scenarios that you're looking at for 2Q, but that would land us between 0 and a 3% comp, since it certainly sounds like [ the ] exit rate was good from 1Q or maybe even just the difference between the wider spread, 2% to 6% on total revenues. What are you leaving room for to decelerate if we entered the quarter at a better pace? And then I guess just backing up, looking at the inventory, I think we get a little lost in the narrative around off-price and the difference between direct sourcing being very small in China and your helpful comments today that it's up to half of the good -- total goods sold. How much of that is the indirect portion that's coming from China is semi-permanent and recurring goods that are made up for you versus the ability to quickly move some of that exposure that's been recurring in China for a long time to other geographies? Is that muscle that the sourcing team in Asia has today or is it muscle that you have to build? Maybe you could give us just a few thoughts on that.
Michael Hartshorn: Michael, I'll start with the guidance range. It was really just out of abundance of caution given the macroeconomic and geopolitical environment. We're cognizant that inflation has going -- been going on a long time, and it's impacting our core customer. And the impact of tariffs, we expect to start hitting the customer in the July, June -- late June, July time frame. So we want to see how we exit the quarter. So those are the really the 2 reasons that we're more cautious with the guidance and we have a bigger range. In terms of the sourcing, as we said in the commentary, about a small portion are directly sourced. And what that means for us, that's the piece that we're responsible for the tariff. There's some portion of our goods -- remember, we're in the closeout business. So we're agnostic to where it's sourced. We're looking for value -- branded value to the customer. So when you look at -- even though we take possession when it's already in the country, it was originally sourced from China. The piece that we have, the direct control over country of origin is the small portion that we directly import mainly in home and shoes.
James Conroy: And on that other portion, the market available piece, all the off-price players essentially shop from the same market. So we don't think we're going to be uniquely less competitive, at least in any significant way. It's just the market is still pretty heavily reliant on China imports.
Operator: The next question comes from the line of Alex Straton with Morgan Stanley.
Alexandra Straton: I wanted to touch on the branded strategy that you started enacting last year, just where that stands now, if the mix is where you want it to be and if it does still remain a margin drag and how you think about that for the rest of the year? And related to that, I just wanted to dig into women's apparel. I know that's been a focus for you all. So just curious how that particular category is doing for you if the branded product is helping out there.
James Conroy: Sure. So we feel very good about the team's execution of the branded strategy. And I think at this point, we can say we're sort of hitting the guidelines or targets that we had hoped to. Those are a little bit fluid. They're not hard and fast rules. But we've gotten the entire assortment repositioned in a way where we are bringing true branded value to the consumer. So we feel great about that. There was a slight tail of an impact in margin in the beginning of this quarter, but now we fully anniversaried it. So I don't -- we don't expect margin headwinds going forward any longer from the brand strategy. And as you pointed out in your question, it was very astute, the branded strategy was really for the entire business. It tended to then take on a more heavy focus on the Ladies business. We generally keep our cards close to our vest in terms of how the business performs by category. That said, in this particular quarter, we were very encouraged that the Ladies business was in line, in fact, slightly better than the chain average. So I think we can -- it's early days, and we perhaps have some business owed to us in the Ladies category over the last few years, but it's now at least trending in line with the rest of the company.
Operator: The next question comes from the line of Chuck Grom with Gordon Haskett.
Charles Grom: Just on the tariff topic. Can you talk about your expectations for elasticity if you have to raise prices as we progress throughout the year, maybe what you've learned in the past, what categories your confidence is the most high?
James Conroy: I don't have a great sort of knowledge base for past years here. I think the elasticity is -- it's going to depend on the category of business and whether it's discretionary or functional in nature. So when we're looking at pricing, we're being very strategic in terms of sort of what's the end use of that item and how much leeway do we have to change prices. And we're also very cognizant of what's happening across mainstream retail, both their full-price goods and what they're clearing as well as the other players within our sector. So there's a lot of factors that go into it. And the elasticity, I think, will depend not only across categories but even within categories down to the specific item. I would circle back to a comment I made earlier. I think we're all in the same boat here as it relates to elasticity, right? So all retailers that are selling footwear and apparel and home goods are going to face into the same set of questions. And it will be interesting to see how it all plays out. But we do expect broad-based inflationary pressure across all retailers, and that will create some disruptions and we tend to come out on top and victorious being an off-pricer when that happens.
Operator: And the next question comes from the line of Brooke Roach with Goldman Sachs.
Brooke Roach: I was hoping you could talk about your category plans for mitigating tariffs. Are there any opportunities for you to shift assortment either within categories or within subcategories to try and minimize the sourcing impact from China towards other countries? Over time, how much can that be shifted both for your direct sourcing and also for some of your vendor partners?
James Conroy: Sure. So there's a tremendous amount of flexibility. It does, again, kind of depend on the item specifically and the timing. So as we roll into back-to-school, if you need to have certain signature items like backpacks, you need to find a way to get backpacks into the assortment one way or another. As you get further into the fall, you might have the ability to amplify one part of the assortment and downplay another to mix out the margin or to mitigate the tariff a bit. There are certain signature items and signature categories that we want to have in the assortment regardless of the impact to mark up. So we're sort of thinking about it very strategically. All of the vendors, the entire marketplace is trying to resource goods, right? So for a third-party product, all of our vendor partners are moving quite quickly to resource product but still a several month process. And then similarly for the product that we direct import. On occasion, you can find another country that manufactures a very similar item, and hopefully, at the same quality level. Otherwise, we would sort of void it out. But that also -- as we switch to new countries or try to resource goods, there's a time line associated with that at all. So that's a 2026 sort of adjustment, not a 2025 adjustment.
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 just wanted to ask, when we're thinking about the impact that we're seeing by consumer and by income level, what you're seeing there and if there's anything that you could parse out between the traffic and spend trends there as well.
Michael Hartshorn: Sure. As I said earlier on the call, for us, we look at stores on the population around the store and the income levels to try to band performance by income level. And for us, it was fairly broad-based across income levels. As far as comp components for the quarter, comps were flat, as we said. Slightly higher basket was offset by a slight decline in traffic, particularly early -- earlier in the quarter. The higher average basket was driven primarily by a number of units sold as average unit retails were flat.
Operator: And the next question comes from the line of Simeon Siegel with BMO Capital Markets.
Simeon Siegel: Understanding if there are moving pieces like incentive comp you mentioned, I just -- what's the best way for us to think about what comp you need to leverage overall SG&A at this point, just reflecting on, I think, the flat SG&A on black comp this quarter? And then just general thoughts on various category opportunities and challenges going forward, specifically wondering about Children's. I think this is the first quarter in over a year that you haven't -- you didn't call that out as the area of strength. So anything there would be helpful.
Michael Hartshorn: Excluding -- on the first question, obviously, excluding the impact of tariffs, obviously, this can vary quarter-to-quarter. In the first quarter, we were able to hold EBIT margins at the flat comp. But generally, over an annual period or over a longer term, it's 3% to 4% to be able to lever.
James Conroy: And in terms of the category detail, I wouldn't read anything into it. We tend to try to provide a small amount of color on the categories that are overperforming. Occasionally, we call out those that are massively underperforming. There's nothing really notable about the kids business to call out.
Operator: And the next question comes from the line of Dana Telsey with the Telsey Advisory Group.
Dana Telsey: As you think about the performance this quarter, was there a difference between the stores along the border versus the [ base ]? And also, any color on how dd's has done? And then lastly, as you're thinking about the merchandise margin go forward, how do you think about that margin puts and takes and how you're planning inventory? And then I just have a quick follow-up.
Michael Hartshorn: Dana, okay, let me get through all of those. First, let me talk through the geographies and border store locations. We mentioned in the release that Southeast was the strongest region for us. Our largest markets, California, Florida and Texas were relatively in line with the chain. Texas, specifically, the border stores were well below the chain average and had a slightly negative impact to the overall chain even with the low number of stores. What we attribute the quarterly performance to was the long delays for cross-border traffic to get in and out of the country. We also saw a negative impact in our Northern border stores, but we have very few stores there. So not a large impact to the chain. You want to take dd's?
James Conroy: Both brands, both Ross and dd's saw nice sequential improvement throughout the quarter from month-to-month. The acceleration, if I compare the February to April, was actually much stronger in Ross. But admittedly, it started at a lower point. So the dd's business continues to perform well. It was comp-enhancing for us for the quarter. And I think it's a testament to some of the strategies around the cold weather stores, the young customer, et cetera, that have proven out to be the right strategies. And the team is executing very well against them.
Adam Orvos: And Dana, your question on merchant margin going forward and puts and takes, outside of the tariff impact, we'd expect merchant margin to be neutral versus last year in the second quarter. And Jim mentioned earlier our brand strategy, that's put pressure on merchandise margin over the last, call it, year. We're past that point of pressure.
Operator: And the next question comes from the line of Aneesha Sherman with Bernstein.
Aneesha Sherman: I'm curious to hear some context around how you're thinking about pricing. Over the last few years, you've chosen at a couple of times not to pass on cost inflation at price, but rather [ took a hit ]. And you did this in 2023 with freight costs. You did it again over the last year with the branded strategy and chose to absorb that. Why is your approach different now? I heard what you said around competitors raising prices, but that was also the case in recent years. What's driving a different approach? And do you still think that Ross can maintain the perception of value with your lower-income consumer whilst raising prices?
Michael Hartshorn: Aneesha, on the pricing, I would disaggregate the brand strategy from choosing not to raise prices. We were indeed shifting brands, but we were also maintaining our value proposition versus not only our direct competitors in off-price but also traditional retailers within department and specialty stores. In this case, we expect to see broad-based inflation, not category-specific, with the tariffs. And so we would expect to be able to maintain that value proposition against the whole retail set.
Operator: And the next question comes from the line of Marni Shapiro with Retail Tracker.
Marni Shapiro: One just clarification, did you -- how many dd's stores did you say opened in the quarter? You said it kind of quickly, and I missed that. And then if you could talk a little bit about your use of packaways. And specifically, you've been very effective using them for times when you really needed the goods on time. So polos for Father's Day, dresses for Mother's Day or Easter. Were you able to packaway as much as possible, I guess, for back-to-school, back to your backpack analogy, your comment or Christmas decorations and tchotchkes because all of that stuff is from China. What does that look like? What is the complexion of your packaway look like?
James Conroy: Sure. On the first part of your question, apologies if that wasn't clear, 3 dd's were opened in the quarter. In terms of packaway, I don't think the complexion of packaway is -- all that different in past years, but for -- we are really focused on places where if we thought there was any receipt risk, we could fill it in with products from the wholesale. So I think we're extremely well positioned to kind of maximize our business and continue to flow goods to the store and while at the same time, work through this tariff situation and minimize the impact as much as we can. And perhaps the last piece I would add to that circling back to the prior question, what we fully intend to continue to be quality product branded values in the store. So the pricing piece, I don't think we will lose our reputation at all for being extremely well branded [ and at ] great values.
Operator: And the next question comes from the line of Laura Champine with Loop Capital Markets.
Laura Champine: I know that we've talked about tariffs sort of ad nauseam, but I'm still not clear on what the strategy is. So if you're a more than 50% of goods from China today, assuming tariffs don't change from here, where would you expect to be at the end of the year?
James Conroy: So there's multiple things we can do to try to source product from other countries. But at the end of the day, there's a lot of product, particularly over the next 6 months, that is going to be imported from China for us and for every other retailer and every other off-price company. So there's -- the amount of flexibility that you have as you sit in the middle of the year for the next 3 to 6 months is somewhat limited. So I'm not prepared to give you an exact number for what our sourcing by country will look like 6 months from now. I would tell you that what the merchants are looking at is, how do I deliver product to the store that is part of a compelling assortment at a great value? And in this environment, we expect a lot of that will come from a closeout part of our business, and some of it might come from resourcing merchandise overseas. But they don't start with the country of origin in mind, right? In most cases, we're not the first company importing the product. I hope that helps.
Operator: And the next question comes from Corey Tarlowe with Jefferies.
Corey Tarlowe: Jim, I was wondering if you could just provide a little bit of color on traffic trends that you saw in the quarter. I think you implied that things got better, but it was down. So did you end up? And then just on AUR, what have been the key drivers there beyond -- is it just bringing in good, better -- more of the better and best-type products?
James Conroy: Sure. So the quarter started off slow. It seems like a lot of retailers started off slow in February. And then the business got better from -- between February and March, and then got better again between March and April, significantly so at Ross. A portion of that, not all of it, a portion of that was the shift in Easter. In terms of traffic or transactions, if we look at just the April business, we had a pretty solid comp there and it was largely transactions-based, a little bit of help from AUR, but very small increase in AUR. And then we had a bigger basket driven by more units per transaction. So if I were to look at the April business in a vacuum, I would be pretty pleased, right? We had growth across all 3 elements, transactions, AUR and UPT, sort of a very healthy way to drive a comp. And our exit performance coming out of the quarter was pretty strong.
Operator: And the next question comes from the line of Krisztina Katai with Deutsche Bank.
Jessica Taylor: This is Jessica Taylor on for Christina. I just wanted to follow up a little bit on the performance by income and the health of the customer. And just to follow up on Juliana's question a little, asked differently. Have you seen any changes in terms of the customer behavior in their spend, how they're approaching their buying from last quarter or the last 6 months?
James Conroy: I would say, not really. Michael commented a little bit about the income bands, and there's some very slight movements there. But anticipating this question, we were looking to try to find and support or validate the logical hypothesis, but it just wasn't obvious within the data. In terms of customer behavior, perhaps you could say there's a little bit of a shift towards more functional item versus discretionary items. But it's -- I wouldn't say there's anything that's glaringly different.
Operator: And our final question comes from the line of Adrienne Yih with Barclays.
Angus Kelleher-Ferguson: This is Angus Kelleher on for Adrienne. You noted that cosmetics was the strongest merchandise area in Q1. Can you elaborate on what's driving that strength? Was it brand, mix, pricing or something else? And do you expect this momentum to continue? Then also given the flat comp performance and cautious consumer backdrop, are you seeing any shifts in consumer behavior around basket size or frequency specifically?
James Conroy: So on the cosmetics piece, I would give kudos to the team for some really strong execution and for putting together a great assortment there. But is -- cosmetics is a pretty broad category, but part of what's driving it is some of the better brands there and a little bit of a trend in that space for a particular type of cosmetics. And so we feel good about that. In terms of frequency and basket size, et cetera, there's very small changes. Nothing to call out just yet in terms of consumer behavior in the quarter, certainly in the second half of the quarter, versus if you go back to our fourth quarter, where we had a nicely positive comp they feel relatively similar to us.
Operator: And there are no further questions at this time. I would like to turn the floor back over to Jim Conroy for any closing remarks.
James Conroy: Very good. Well, thank you, everyone, for joining us on our call today. We look forward to speaking with you on our next earnings call. Take care.
Operator: Ladies and gentlemen, that does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.