Ross Stores, Inc. Q4 FY2024 Earnings Call

Good afternoon, and welcome to the Ross Stores Fourth Quarter and Fiscal 2024 Earnings Release Conference Call. The call will begin with prepared comments by management followed by a question-and-answer session. The operator provided instructions regarding the call. 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 2023 Form 10-K and fiscal 2024 Form 10-Qs and 8-Ks on file with the SEC. And now I'd like to turn the call over to Connie Kao, Group Vice President of Investor Relations.

Thank you, John, and thank you, everyone for joining our fourth quarter earnings call today. I have the great pleasure of introducing Jim Conroy, our newly appointed Chief Executive Officer, who joined us in December. Jim?

Thank you, Connie, and good afternoon. Also joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer; and Adam Orvos, Executive Vice President and Chief Financial Officer. I'd like to begin my remarks by expressing my appreciation to my predecessor, Barbara Rentler. Our two-month overlap was an invaluable transition period for me as I was able to immerse myself in the company while Barbara led the day-to-day operations of the business. I am grateful she will continue to serve as a Strategic Adviser, and I look forward to building on the foundation that she has created and the company's long history of success. Now let's turn to the fourth quarter results. As noted in today's press release, fourth quarter sales and earnings results were at the high end of our expectations. Sales were driven by our customers' positive responses to the improved assortments of quality branded bargains, coupled with strong execution by the store and supply chain teams during the critical holiday selling season. Earnings per share for the 13 weeks ended February 1, 2025, were $1.79 compared with $1.82 per share for the 14 weeks ended February 3, 2024. Net income for the period was $587 million versus $610 million last year. Sales for the fourth quarter of 2024 were $5.9 billion with a comparable store sales gain of 3% on top of a robust 7% gain in the same period last year. For the 2024 fiscal year, earnings per share were $6.32, up from $5.56 for the 53 weeks ended February 3, 2024. Net income for fiscal 2024 rose to $2.1 billion compared to $1.9 billion last year. Total sales for the year increased to $21.1 billion, up from $20.4 billion in the prior year period. Comparable store sales for the 52 weeks ended February 1, 2025, grew 3% versus a 5% gain in fiscal 2023. Both the fourth quarter and full year results included a one-time benefit to earnings equivalent to approximately $0.14 per share related to the sale of a packaway facility. Additionally, as a reminder, prior year sales and earnings results for the 2023 fourth quarter and fiscal year included approximately $308 million in sales and a $0.20 earnings per share benefit from the 53rd week. Fourth quarter operating margin of 12.4% was flat to last year as the gain from the sale of the packaway facility was offset by planned declines in merchandise margin and unfavorable timing of packaway-related costs. The sale of the facility contributed about 105 basis points to this year's fourth quarter operating margin, while the 53rd week benefited the prior year's period by about 80 basis points. Let's turn now to additional details on our fourth quarter results. For the holiday selling season, cosmetics and children's were the best-performing merchandise areas while geographically, the Pacific Northwest and Texas were the strongest regions. Similar to the prior quarter, dd's DISCOUNTS posted healthy sales gains as the chain's value and fashion offerings resonated with shoppers. We are especially encouraged by the ongoing improved performance of dd's in our newer markets and expect to begin rebuilding our pipeline there for expanded growth in the near future. At the end of the year, consolidated inventories were up 12%, mainly due to higher planned packaway levels. On an average store basis, inventories were up 2%. Packaway represented 41% of total inventories compared to 40% last year. Regarding our store expansion program, we added 75 new Ross Dress for Less stores and 14 dd's DISCOUNTS during the year. Inclusive of 12 closures, we ended the year with 2,186 stores including 1,831 Ross Dress for Less and 355 dd's DISCOUNTS locations. As noted in today's release, during the recently completed fourth quarter, 1.7 million shares were repurchased for a total price of $262 million. For fiscal 2024, a total of 7.3 million shares of common stock were repurchased for an aggregate purchase price of $1.05 billion. These purchases were made pursuant to the two-year $2.1 billion program announced in March 2024. We expect to complete the $1.05 billion remaining under this authorization in fiscal 2025. Our Board also recently approved a 10% increase in our quarterly cash dividend to $0.405 per share to be payable on March 31, 2025, to stockholders of record as of March 18, 2025. We ended the year with $4.7 billion of cash after funding the growth and capital needs of our business. As a result, our ongoing share buyback and increased dividend programs reflect our long-standing commitment to return excess cash to our shareholders. Now Adam will provide further details on our fourth quarter results and additional color on our outlook for fiscal 2025.

Thank you, Jim. As previously mentioned, comparable store sales rose 3% for the quarter, generated by both higher traffic and average size of the basket. Fourth quarter operating margin of 12.4% was flat to last year and included a 105 basis point benefit from the facility sale. Cost of goods sold deleveraged by 80 basis points in the quarter. Merchandise margin declined by 85 basis points as planned due to the increased mix of quality branded assortments. Occupancy deleveraged by 45 basis points, as we anniversaried the extra week last year. Distribution costs were flat as unfavorable timing of packaway-related costs offset improved productivity. Domestic freight leveraged by 30 basis points, while buying improved by 20 basis points, mainly due to lower incentives. SG&A for the period leveraged by 80 basis points, primarily due to the facility sale. Now let's discuss our outlook for fiscal 2025, starting with the first quarter. While we were pleased with our 2024 results, including the holiday selling period, sales trends began softening later in January and into February. We believe that a combination of unseasonable weather and heightened volatility in the macroeconomic and geopolitical environment has negatively impacted customer traffic. Given the lack of visibility we have on these external factors, we believe it is prudent to take a cautious approach in forecasting our business, especially as we start the year. As a result, we expect comparable store sales for the 13 weeks ending May 3, 2025, to be down 3% to flat and earnings per share of $1.33 to $1.47 versus $1.46 last year. The operating statement assumptions that support our first quarter guidance include the following: Total sales are planned to be down 1% to up 3% versus last year's first quarter. This same-store sales performance in-line with our plan, operating margin for the first quarter is expected to be in the range of 11.4% to 12.1% compared to 12.2% last year. The expected decrease mainly reflects our forecast for sales deleverage and unfavorable timing of packaway-related costs. Merchandise margin is also expected to be down slightly in the first quarter. We plan to add 19 new stores consisting of 16 Ross and 3 dd's DISCOUNTS during the period. Net interest income is estimated to be $35 million. Our tax rate is expected to be approximately 24% to 25% and weighted average diluted shares outstanding are forecast to be about 328 million. Turning to our full year guidance assumptions for 2025. For the 52 weeks ending January 31, 2026, and while we hope to do better, we are planning same-store sales to be down 1% to up 2%. Based on these assumptions, fiscal 2025 earnings per share are projected to be $5.95 to $6.55 compared to $6.32 for fiscal 2024. As previously mentioned, last year's results included a per share benefit of $0.14 from the facility sale. Total sales are planned to be up 1% to up 5% for the year. If same-store sales perform in-line with our plan, operating margin for the full year is expected to be in the range of 11.5% to 12.2% compared to 12.2% in 2024, which benefited by 30 basis points from the facility sale. Excluding this one-time gain, our operating margin forecast reflects sales deleverage and higher distribution costs, as well as lower incentive compensation expenses as we anniversary higher incentive costs in 2024. In addition, we expect merchandise margin to be relatively neutral for fiscal 2025. For 2025, we expect to open approximately 90 new locations comprised of about 80 Ross and 10 dd's. These openings do not include our plans to close or relocate about 10 to 15 older stores. Net interest income is estimated to be $127 million. Depreciation and amortization expense inclusive of stock-based amortization are forecast to be about $690 million for the year. The tax rate is projected to be about 24% to 25% and weighted average diluted shares outstanding are expected to be around 325 million. In addition, capital expenditures for 2025 are planned to be approximately $855 million as we make further investments in our stores, supply chain and merchant processes to support our long-term growth and to increase efficiencies throughout the business. Now I'll turn the call back to Jim for closing comments.

Thank you, Adam. As Adam mentioned, we have seen softer business as we transitioned out of the fourth quarter and into the first quarter. While there are always opportunities for us to improve our execution, we believe the softness we are currently seeing is primarily due to macro pressures impacting consumer confidence, resulting in a pullback in discretionary spending. That said, we believe that some of the recent challenges we are seeing could be transitory in nature. Additionally, we anticipate that the volatile external environment will result in more opportunities for closeout merchandise and could set us up well to deliver even greater values on branded goods in future quarters. Turning to the broader business, as I reflect on my observations over the past few months, I believe that the brand and merchandising strategies that we have in place for both Ross and dd's are the right ones, and I do not foresee making significant changes to those strategies in the near future. In addition, we have a flexible business model that positions us well to navigate through the current uncertainty, and we will continue to focus on the strong execution of our key initiatives. In closing, I would like to thank the more than 100,000 associates throughout the company for their hard work and dedication and for delivering such solid fourth quarter and annual results in 2024. At this point, we would like to open the call and respond to any questions that you may have.

Thank you. We will now be conducting a question-and-answer session. The operator provided instructions regarding the call. And the first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Great. Thanks. And welcome back, Jim.

Thank you.

So Jim, maybe could you elaborate on your top strategic priorities. Any areas that you believe may require any level of structural change relative to opportunities you see to amplify market share in the near to intermediate term? And just on that near-term, Jim, and I know how much you like to get into the details, could you speak to trends maybe that you've seen in parts of the country with less weather impact or initiatives in place to drive comp improvement as the year progresses?

Sure. On the first piece, I've inherited a brand strategy for Ross and a comparable customer strategy for dd's and while I've only had about three months to evaluate it, they've all been extremely sound and very much worth continuing to pursue. So my focus early on really is to learn the off-price model and get immersed in the business. As I think about ongoing changes, they will be more evolutionary in nature and nothing abrupt. When I evaluate the company from a merchandising standpoint, it is second to none — a world-class merchandising team. The stores organization is extremely efficient and operationally very sound. We probably have some opportunity to enhance our store environment and shopping experience. From a marketing standpoint, I'd say it's probably the least developed muscle and least invested in part of the business. So there is opportunity to put the brand on a pedestal a bit more and amplify our messaging in the marketplace to some degree. But I would expect continuation of the overarching strategies for the two brands. In terms of the more color commentary across the country in different parts of the business, for the quarter, we had broad-based strength, both geographically and across merchandise categories. Some categories were standout winners, called out children's and cosmetics. But virtually all businesses in nearly all geographies were also pretty strong. I think that covers both of your questions, Matt. Did I miss anything?

Just maybe on the quarter-to-date, anything in areas of the country where the weather has been more conducive and just to give maybe some confidence on what you're seeing that's more transitory relative to potentially anything that's changed?

Yes. Certainly, the weather-impacted areas saw more of a decline in business. That said, we did see an inflection point as we got into February that seemed to get sequentially better throughout the month. Part of that we believe is consumer confidence. Part of that we believe is weather induced, both of which we think will be a transitory shock to the system that created a bit of a pause for the consumer, and we have seen them already start to re-engage. So as you can imagine, we embedded in our guidance the business that's behind us and what we expect to see for the balance of the quarter.

Great color. Best of luck. Welcome back.

Thank you.

And the next question comes from the line of Paul Lejuez with Citigroup. Please proceed with your question.

Hi, thanks Jim, welcome. Can you talk a little bit about the go deeper into state performance or regional performance in 4Q and in which regions or states drove the slowdown that you saw thus far in February? And also curious if there's any evidence that new immigration policies might be hurting sales in some way?

It's Michael. In the quarter, as we said in the commentary, the Pacific Northwest and Texas were the top performing regions. Other larger markets, California and Florida, were relatively in-line with the chain. Regarding immigration policy, we serve a very broad segment of the population. From an ethnic perspective, as you know, we over-index to the Hispanic customer versus the general population. We'll have to wait and see how the macroeconomic environment and immigration policy impacts this important customer for us longer-term. As Jim said, we believe the initial shock value of the recent policy actions could dissipate over time, while we continue to provide great values and support the communities we serve.

And then just one follow-up. As you think about the comp guidance for F '25, how are you thinking about traffic versus transactions? And maybe just, again back to the slowdown, is that a transaction or average ticket sort of slowdown?

We don't plan the business on traffic or transactions. Over the past couple of years the comp has been driven by both. What we've seen recently is more traffic related, which points to some of the external volatility that everyone is seeing.

Thank you good luck.

Thanks Paul.

And the next question comes from the line of Mark Altschwager with Baird. Please proceed with your question.

Good afternoon. Thanks for taking my question. Just first, with respect to the guide, I believe you said merchandise margins are expected to be relatively neutral for the year. What's the takeaway there just with respect to the merchandising strategy and striking the right balance of value in the assortment? Is that still an area of investment and headwind offset by other factors? And then separately, just any comments on changes you're seeing in the buying environment post-holiday? Wondering if this consumer choppiness to start the year is yielding some better buying opportunities. Thank you.

Mark, on the first piece, this is Adam. On merchandise margin, I think we voiced throughout 2024 that was kind of our investment year, where we wanted to change the penetration of our branded goods. We feel like we accomplished that by year-end. I think 2025 is going to be about learning, listening to what the customer is telling us and we'll certainly react accordingly. That's why we feel like merchandise margin this year is relatively neutral, and that's what's embedded for the year.

In just the first quarter, we did build some impact of the tariffs that we know thus far, which are the goods in transit when the initial tariffs were announced. Beyond that, we haven't included any impact, but merchandise margin is relatively neutral for the year in our guidance.

On the second part of your question, relative to whether we are starting to see more closeout opportunities: absolutely. As we've seen some softness across mainstream retailers, more store closures and a disrupted supply chain, we're being very opportunistic in picking up these opportunities for closeout product. We think that bodes well for adding more excitement to the stores going forward and for buying margin-accretive goods. In this off-price industry, we tend to benefit from dislocations in the broader retail market.

That's great. Thank you.

And the next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Hi, thanks. Good afternoon. Jim, when I hear words like enhancing the store environment and developing the marketing muscle, I see dollar signs. Do you foresee a step-up in investment in the store fleet and marketing expense? Or do you think that you can accomplish this under the confines of the existing margin structure?

At first, I thought your dollar signs were enhanced comp sales dollars — more about the expense side. Yes, of course, we need to be prudent and responsible with that. I think we can either do it from a cost-neutral standpoint or we would need to be able to prove an ROI on any additional spending. It's very early days to get ahead of myself as to what we'll be doing differently. I would expect that we'll find some dollars to invest in both of those areas over time. The company has been investing in upgrading the fleet over the last few years as well. I think we'll continue that going forward and perhaps try to find some dollars to enhance our marketing program a bit.

Thank you.

And the next question comes from the line of Michael Binetti with Evercore ISI. Please proceed.

Hi guys. Jim, nice to meet you. Welcome to Ross. As we look at the first quarter guidance, it looks like second quarter through fourth quarter same-store sales allows for comps to be flatter, maybe just a touch negative in the back half of the year. Could you help us understand what you're baking in at the low end versus the high end, which I think is closer to 2.5% or 3% on the year? And then, Adam, are there any expectations for merchandise margin to leverage as you become more important to brands, or is the second half still in listen-and-learn mode?

Michael, on comp trends for the year, we typically would come out with 2% to 3% comp. We lowered the guidance based on what we saw earlier in the year and widened the guidance. The variance between the first quarter and the rest of the year has comps fairly neutral through Q2, Q3 and Q4 to get to the down 1% to up 2% range.

On merchandise margin, there are a lot of moving parts. Entering the branded strategy, over time we expected to be buying better as we become more important to those brands and cultivate expanded relationships. That's a component. Tariffs and shrink are other variables. We are guiding flattish for the year given the external environment, and we think the actions we stepped up at the end of last year support that prudent guide for the year.

Did I miss it, did you give shrink for fourth quarter and into 2024?

On shrink, we actually take our physical inventory in the third quarter, and we trued it up then. It didn't change our forecast. We ended relatively flat to 2023.

Great. Thanks guys.

And the next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Good afternoon and thank you for taking our question. I was hoping you could dig into the performance of dd's DISCOUNTS. It sounds like you're seeing good results there, such that you are willing to rebuild the pipeline of store growth in the future. Is dd seeing the same slowdown that the rest of Ross stores is seeing? And how would you describe demographic changes as we've entered 1Q to date? What drives your confidence in dd on a go-forward basis?

dd's posted healthy sales gains that were above Ross, not only for Q4, but throughout 2024. We feel really good about the fashion and value offerings that we've been able to upgrade at dd's. It is resonating very well with customers. We're especially encouraged — we had slowed or stopped our real estate program in newer markets, and we are encouraged by the ongoing improved performance, which has been ongoing for a little over a year now. We will start rebuilding that pipeline for expanded growth in the near future, although it takes some time to get the pipeline started again. I suspect you'll see increased growth into 2026. Though performing well, dd's saw a similar change in trend as Ross in the January-February time frame.

Great. Thanks so much. Best of luck, going forward.

Thank you.

And the next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Hi good afternoon. Thanks. Still pretty early in earnings here, but one takeaway is that inventory levels appear much heavier than target today. How are you thinking about that from a potential headwind on the promotional front if we see more aggressive promotions later in the quarter? And then on category performance in the quarter, can you just double-click on apparel and footwear in addition to cosmetics and beauty? It sounds like generally things were good, but can you just double-click on that? Thanks.

On inventory levels, we feel good about the levels we are currently at. We ended the year with average store inventory up about 2%. We planned our packaway higher versus last year because last year at this time we used the packaway merchandise to fuel a robust 7% gain in the fourth quarter. So the increase at the end of the year was planned against last year.

In terms of merchandise classifications, overall, non-apparel businesses did better than apparel and footwear. We talked about the strength in children's; the footwear business was comp-eroding for us in the fourth quarter.

And the next question comes from the line of Alex Straton with Morgan Stanley. Please proceed with your question.

Perfect. Thanks so much. Can you just go through what guidance assumes as it relates to freight? It just seems like that might be a source of pressure for all off-pricers this year. And then separately, the supply chain and merchant processes focus you highlighted within the CapEx guide — can you elaborate on what you are doing there exactly or if there are any changes relative to 2024? Thanks so much.

On freight, our freight contracts are in the May-June timeframe. During the first part of the year we are still operating under current contracts. We currently expect domestic freight to be a headwind in Q1 and the full year. Obviously, that's based on fuel and what happens with fuel over the year — right now fuel is favorable versus last year but that could change. On ocean freight, that market has changed dramatically in the last six months. There was a lot of buildup in congestion and spot rates were very high; that has since come down. We'll wait and see how our contract renewal happens in May.

And Alex, on CapEx we guided to $855 million for 2025. Most of that step-up from 2024 is in supply chain. We will open our eighth facility this year, but costs are really driven by our ninth facility, which will open in two to three years; we will do most of that construction in 2025.

And then on that piece of the merchant processes, what exactly are you changing there or investing in?

Most of the investments in the merchant organization are around two things: the upfront process — we are putting in new tools for merchants that will make it much easier from purchase order to completion of buy, and we are also investing in enterprise-wide data that will allow the entire organization, but especially merchants, to have a better view of the business at any point in time.

Great. Thanks so much.

Thank you.

And the next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question.

Thank you very much. I'm going to go back to the tariffs. Can you remind us your direct sourcing exposures? I know it is pretty de minimis from China, Canada and Mexico. How did you handle the last tariff cycle in terms of negotiating power? It would seem you can push back more so than other business models. And then my follow-up on the branded product: given the merch margins are flat, are we anniversary-ing the penetration of branded, and are you seeing average unit retail higher driven by the new branded product?

On tariffs, we don't disclose the actual percentage of direct sourcing, but it is a small portion of our business. We're continuing to monitor the day-to-day changes in tariff policy. Mexico and Canada are a very small, de minimis part of our overall business. Our focus will be maintaining the price umbrella versus traditional retailers and offering the best values to the customer. We would not be on the forefront of raising prices. Disruptions like this could be beneficial to off-price as there will be more closeout opportunities down the road.

On the branded question and mix of assortment, we feel like we're at an inflection point and will be anniversary-ing last year on that. Regarding AUR, we don't plan the business that way going forward, but looking back to the fourth quarter we did have a slight increase in AUR driven by how the business mixed out with better branded goods as part of the assortment.

Great. Thank you so much. Best of luck.

And the next question comes from the line of Aneesha Sherman with Bernstein. Please proceed with your question.

Thank you. Jim, I want to ask your view about the store opening strategy. Some competitors are moving into more rural areas or different size boxes, smaller urban boxes. Do you see opportunities for different store formats for Ross and dd's? For stores opened in newer states like Michigan and New York the last couple of years, can you comment on the performance? And a quick follow-up on the branded strategy: are you seeing an inflection in comp related to that strategy?

I'll walk through the real estate strategy. We believe we have plenty of growth with the existing concept. dd's stores are 18,000 to 20,000 square feet; Ross is 23,000 to 25,000 square feet. We have a healthy pipeline while there is not a high volume of new development; we continue to see store closures from bankruptcies or downsizing of existing store fleets that we can take advantage of. About 30% of our openings are in newer markets. It's too early to talk in detail about New York and Michigan, but we're pleased with results thus far. Overall, our new store productivity has not changed — it was 60% to 65% of an average store last year, and we expect it to be about that level in 2025.

On the branded strategy, we feel good about it. The company delivered four consecutive quarters of positive comps driven by both traffic and basket size. The branded strategy was a store-wide approach. We've seen company-wide performance across categories; we've seen some sequential improvement in the women's business from Q3 into Q4. The fourth quarter was the first time we hit the percentage of branded penetration targets we aimed for. Overall it's a solid strategy being executed well, though there are opportunities to improve and tweak it going forward.

The next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

Hi, good afternoon. Nice to meet you, Jim. I have a clarification and then a question. The clarification: I think you said fuel is favorable to last year but a headwind to Q1 and fiscal year margin. Did you mean tailwind?

It should have been tailwind.

Tailwind. Great. And then how much of the slowdown is weather-related versus something in the customer demographic? Have you seen any notable softness in the Hispanic customer base? I know you have ZIP-code-level data.

We don't like talking about inter-quarter trends too much. At this time of year it's extremely difficult to parse out specific impacts of weather versus tax refunds. Tax refunds this year were initially delayed by about half a week week-over-week, which complicated the timing. As weather improved, we did see an improvement in trend. We'll have to wait through the first quarter to understand the real impact of each factor. We have not drawn a definitive conclusion yet on demographic-driven softness.

And the next question comes from the line of Marni Shapiro with The Retail Tracker. Please proceed with your question.

Hi guys. Congrats on the great quarter. Can you touch a little bit more on advertising because Ross has never been a big advertiser? Is this a shift to invest more there? Would you consider loyalty programs? Are you thinking about social media? You have a decent following on Instagram. Curious about your thoughts around marketing.

It's early to give specifics. We probably have the ability to invest more in marketing and to refine our messaging. I'd ask for some patience as I get my arms around the team; we are onboarding a new ad agency and will share more about our plans through the year.

Fair enough. Can you quantify any impact from the L.A. fires to your business, and have you seen a rebound?

Overall, we saw an impact when it happened and it was devastating for consumers and associates, but minimal impact to the quarter, and we have seen a rebound since.

And the next question comes from the line of John Kernan with TD Cowen. Please proceed with your question.

Hi, good afternoon. Welcome, Jim. Looking back at the margin structure of the business pre-COVID to now, the biggest difference is SG&A rate has risen. Where do you see opportunities to potentially leverage SG&A going forward? Are there specific expenses within SG&A you could reduce as a percent of sales over time?

The change between pre-COVID and post-COVID in SG&A is primarily store-related costs driven by minimum wage increases. We're continuously looking for opportunities to be more efficient in the store without impacting customer experience. Going forward, the leverage point for SG&A is about a 3% comp every year.

Got it. Thank you.

And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.

Hi good afternoon everyone. Welcome, Jim. From your time at Boot Barn, what accomplishments there do you bring to Ross that could be impactful given the different merchandising and buying strategy? And then a quick follow-up on tariffs: from the last time there were tariffs, how did the business react and how is this time similar or different?

There are differences — the off-price buying model is different from what I'm used to. There are similarities: our core customer is roughly the same income, age and ethnic diversity; Boot Barn skewed more male, Ross skews more female. Over a 12-year period at Boot Barn we slowly made progress on store environment and marketing. My priorities as CEO are to align the team, establish a go-forward strategy, and have everyone rowing in the same direction. I feel fortunate about the reception from management and the talent around me. I hope to bring leadership in aligning teams and building on the success Barbara left behind.

On tariffs, historically we negotiated costs, mixed the business differently and in some cases raised prices. It will be a mix of those actions depending on how the market responds.

We are monitoring the changing landscape frequently. The team has experience with this and we have strategies to mitigate potential downside and maximize opportunities from supply chain disruption.

And the next question comes from the line of Jay Sole with UBS. Please proceed with your question.

Thanks. If you could let us know what improvement in comp trend you need to get to the negative 3% comp guidance low end for Q1? And why is the comp range wider than normal — less visibility?

The wider comp range is driven by visibility entering the year. We have seen an improvement and we've built that in since early February as weather improved, and we've built that into the first quarter guidance.

So you built continued improvement into the guidance?

Correct.

Got it. Thank you so much.

And the next question comes from the line of Krisztina Katai with Deutsche Bank. Please proceed.

Hi, good afternoon, and welcome Jim. As you think about the improvement in some of your businesses like ladies apparel, you noted a nice improvement into the fourth quarter from Q3. What are the areas within that driving it? Is branded strategy one of them? Can that continue in 2025? How would you rate performance relative to where you'd like it to be?

The team has made nice progress. We've achieved the brand levels we wanted from a target standpoint. The content of the assortment was good through the holiday period and that played out in the comp line. Within women's, you'll see differences across missy, sportswear, active and juniors. There are always places to improve; the team is on top of them. I've been involved in assortment planning for spring and fall and I like the strategies and direction the team is taking.

Great. Thank you so much.

And our final question comes from the line of Laura Champine with Loop Capital Markets. Please proceed with your question.

Thanks for taking my question. Regarding the full year comp guide which is wider than normal and lower than normal given the trend, as you look to improve comp trend in coming quarters, can you get there just from improved weather? Or do you need market share to accelerate or the macro to improve?

Improved weather will help, but the macro backdrop matters a lot. We're not sure if the softness is a shock due to volatility or an underlying trend. The good news for off-price is we can operate well in a number of environments while others struggle. That means more closeouts for us, which allows us to provide better values to consumers. Historically, even in tough macro periods like 2008-2009, we've navigated the off-price environment fairly well.

Understood. Thank you.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to Jim Conroy for any closing remarks.

Sure. Thank you for joining us on our call today. We look forward to speaking with you on our next earnings call. Take care.

And thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.