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Ross Stores’ move to withdraw guidance for the year has again raised doubts that off-pricers won’t be as spared from the tariff blows as initially hoped.
“Heightened macroeconomic and geopolitical uncertainty persists, most notably prolonged inflation and evolving trade policies,” said CEO Jim Conroy in a press release discussing Ross’ first-quarter earnings and second-quarter guidance. “While we directly import only a small portion of our merchandise, more than half of the goods we sell originate from China. As such, we expect pressure on our profitability if tariffs remain at elevated levels. Given the varying nature of tariff announcements, we are only providing an outlook for the second quarter at this time and are withdrawing our previously provided annual sales and earnings guidance.”
Ross provided guidance for the second quarter that was below analyst targets and included a tariff cost impact in the range of 11 to 16 cents a share.
On the company’s analyst call, Conroy said that the off-price sector has “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.”
He also noted that Ross has a number of levers to minimize tariffs, including negotiating better prices with vendors, strategically raising prices, leveraging packaway stock, and taking advantage of closeouts. Conroy noted that “a lot of goods were sort of frozen in time in China” when the tariff rates were at 145%, and the recently lowered rates opened up inventory flow to create opportunistic buys.
However, Conroy added that it’s “possible that we will see short-term pressure on our profitability.”
Both TJX Cos. and Burlington Stores maintained their guidance for the year, with both management teams indicating their flexible and opportunistic buying approach, price adjustments, and diversified sourcing are offsetting tariff impacts.
Ernie Herrman, TJX’s CEO, said on his company’s second-quarter analyst call that while vendors may cut back or delay purchases amid tariff-related uncertainty to create less inventory availability in certain categories, TJX would focus on other categories offering deals. Herrman said, “I always emphasize this: our only contract to the customer is that we will have great value on the goods that we put out there, and it will be below the out-the-door price of traditional retailers, specialty retailers, etc.”
He also said “uneasiness” within the vendor community had already supported “great” deals in the current quarter, and he expects that to continue.
Michael O’Sullivan, CEO at Burlington Stores, told analysts that a broader pullback in consumer spending and inflationary pressures could hinder sales growth. He also agreed that the “stop-start surge volatility” of tariff changes will likely lead to shortages in some categories while creating excess supply in others. However, he sees tariffs as a “short-term disruption” as vendors adjust their sourcing. O’Sullivan said, “The next six to 12 months could be challenging, but when we get to the other side, if we navigate this well, we should be in good shape. In fact, we expect to come out ahead.”