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In a surprise move that has circulated through the retail industry like a live wire, Ross Stores, the discount off-price company known for its deep-discounted home goods and apparel, reduced its fiscal 2025 financial outlook, citing harsh pressures from U.S. tariffs and ongoing inflation. The news, which was issued on May 23, 2025, is well-timed because the company has been contending with a challenging economic climate driven by the policies of tariffs by President Donald Trump that have already hit big box stores like Walmart and Target. With looming price hikes on the cards, Ross Stores' consumers might soon begin experiencing the impact of these macroeconomic pressures in their wallets.
A Drastic Decision Amid Tariff Uncertainty
Ross Stores, which operates more than 1,800 stores in the U.S. under the Ross Dress for Less and dd's DISCOUNTS names, made headlines last week when it pulled its fiscal 2025 full-year revenue and earnings guidance. It did so during its first-quarter earnings call on May 22, 2025, as executives named "too many unknown variables" that affected visibility into the second half of the fiscal year. Chief among these uncertainties are the tariffs imposed by the Trump administration, which have introduced volatility into the retail sector by increasing the cost of imported goods.
According to CEO Jim Conroy, more than half of the goods Ross Stores sells originate from China, making the company particularly vulnerable to the elevated tariff levels. "The uncertainty of trade policy and the subsequent impact on our economy, our consumer, and our profitability is very hard to predict," Conroy explained to analysts on the earnings call. The company said the tariffs imposed are expected to impact second-quarter earnings between $0.11 and $0.16 per share, with quarterly guidance at $1.40 to $1.55 per share—well below Wall Street expectations of $1.66 per share. This shortfall, plus the withdrawal of annual guidance, sent Ross Stores' shares down 11% in extended trading May 23, 2025.
Inflation and Changing Consumer Behavior Add to the Weight
Besides tariffs, Ross Stores is also contending with persistent inflation and changing consumer purchasing patterns. Conroy noted a "slower start to the spring selling season" in February, attributing it to continued inflationary pressures which have affected the company's core customer base—traditionally price-sensitive shoppers seeking bargains. "There is a bit of a trend towards more functional products compared to discretionary products," he said, explaining how rising costs for commodities like food and housing are forcing consumers to save on essentials rather than discretionary items like fashion or household furnishings.
Backing up this observation is evidence from Placer.ai, which tracks store traffic, with average per-visit customer visits to Ross stores down 2.7% in the first quarter of 2025. Ross store foot traffic grew modestly by 0.5% year-over-year—higher than the overall full-price apparel category, where visits dropped 3.2%—but declining average visits per store on hand speaking to a wary shopper. This trend coincides with the recent survey conducted by Numerator, where 83% of Americans said they had altered their behavior in shopping in expectation of price increases due to tariffs by shopping sales, clipping coupons, or postponing purchases altogether.
Possible Price Increases Looming
One of the most important consequences of Ross Stores' announcement is the potential for price hikes within its stores—a radical departure for a discounter that boasts prices between 20% to 60% below department store prices. Conroy did admit that the company is searching "the right combination of pricing versus merchandise margin compression" to try to offset the tariff effect. Even while Chief Operating Officer Michael Hartshorn emphasized Ross will be careful when it comes to raising prices, the company's heavy reliance on imports from China leaves it with limited options to pass along the added expense.
While as long as the tariffs remain high, we expect pressure on our profitability," Conroy said. "We believe we have a number of levers to reduce the overall effect to a minimum, but we could see short-term pressure on our margins." For shoppers, it could mean higher prices on common items like apparel, accessories, and home furnishings, which could erode the value proposition that has so long defined Ross Stores' appeal.
A Mixed First-Quarter Performance
In contrast to the bleak forecast, Ross Stores' first-quarter report, released on May 22, 2025, gave us a glimpse of resilience. The retailer's earnings per share of $1.47 trumped Wall Street's expectation of $1.44, and revenue of $4.98 billion, narrowly surpassing the projected $4.96 billion—a 2.6% year-over-year increase. Net income in the last quarter came in at $479 million, compared with $488 million a year ago, and operating margin was flat at 12.2%. These numbers indicate that Ross Stores can survive adversity even though it is facing a lot of headwinds.
This was notwithstanding, however, as the positive earnings were overshadowed by the firm's retraction of its full-year guidance as well as its poor second-quarter forecast. Analysts at the company, including those at Morgan Stanley, cut price targets, with Morgan Stanley cutting its target from $128 to $126 and maintaining an Equal Weight rating on the stock. TD Cowen cut its target to $161, citing merchandise margin pressures of 90 to 120 basis points in the second quarter due to tariffs.
Industry-Wide Impacts and Competitive Forces
Ross Stores is not the only one to feel the heat of Trump's tariff strategies. Walmart and Target, too, are retail giants that have signaled price increases and revised estimates as a result of the tariffs, with Walmart CEO Doug McMillon announcing on May 15, 2025, that the company would struggle to swallow the pressure on costs against the backdrop of slim retail margins. In the meantime, Ross Stores' off-price retail competitor TJX Companies (owner of TJ Maxx and Marshalls) upheld its year-long objectives for sales and profit growth, relying on its tactics to temper the tariff effect.
The disparity between Ross Stores and TJX highlights the competition at play. While TJX reported better traffic growth—3.8% at TJ Maxx and 3.3% at Marshalls in the first quarter—Ross Stores' conservative guidance and pricing approach may be a begrudging step to navigate the treacherous trade waters. Yet prudence may come at the cost of losing market share from rivals better able to absorb or pass tariff expenses.
What Lies Ahead for Ross Stores and Its Consumers?
During this tumultuous period, the focus of the company will remain on keeping inventories in place, streamlining its supply chain, and striking a balance between profitability and value commitment. The potential for price hikes, though necessary to cover tariff cost, risks antagonizing its essential customer base at a time when consumers are already tightening their purses. For Ross Stores' bargain-conscious customers who rely on the chain for discounts, any such changes could mean a rethink of their shopping habits, perhaps to competition or alternative retailing sources.
The rest of the retailing world will be watching in the future as the implications of Trump's tariffs play out. Since the 90-day tit-for-tat tariff suspension, set to lapse in July next year, affects around 60 countries, importers like Ross Stores will not likely see the pressure ease in the foreseeable future. For now, the company's cancellation of its 2025 guidance is a cautious acknowledgment of the challenges ahead—it also reveals the weakness of the retail sector against the backdrop of geopolitical trade tensions.
As a shopper, what are your thoughts about the potential for Ross Stores to increase its prices as a result of tariffs? Share your thoughts in the comments section below, and don't forget to check back later for updates on how tariffs are revolutionizing retail!
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