Ross Stores Inc (ROST) — Q2 2025 Earnings Call Transcript

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; Bill Sheehan, Group Senior Vice President and Deputy Chief Financial Officer; and Connie Kao, Group Vice President, Investor Relations. I would like to begin the call by recognizing the efforts of the entire Ross organization this past quarter. Despite ongoing uncertainty in the external environment, the team's dedication and hard work have been truly commendable. Their commitment has helped us to adapt quickly, execute on our ongoing initiatives, and deliver a solid quarter. Now let's turn to our second quarter results. As noted in today's press release, we are encouraged by the sequential improvement in sales trends relative to the first quarter. This improvement was broad-based, with a positive change in trend in nearly all major merchandise categories and most of the regions across the company. During the second quarter, sales in May were strong and softened in June before rebounding sharply in July. We were pleased to see the improved trend at the end of the quarter, particularly with the early sales performance related to the back-to-school selling season, which bodes well for the third quarter. We ended the period with second quarter sales in line with our expectations, while earnings modestly exceeded the high end of our guidance range due to lower-than-expected tariff-related costs. Operating margin decreased 95 basis points to 11.5% compared to the prior year period, primarily reflecting tariff-related costs. Total sales for the period grew 5% to $5.5 billion, up from $5.3 billion last year, with comparable store sales up 2%. Earnings per share for the 13 weeks ended August 2, 2025, were $1.56 on net income of $508 million. Included in this year's second quarter earnings is an approximate $0.11 per share negative impact from tariff-related costs. These results compared to $1.59 per share on net earnings of $527 million in last year's second quarter. For the first six months, earnings per share were $3.03 on net income of $987 million. These results compared to earnings per share of $3.05 on net earnings of $1 billion for the first half of 2024. Sales for the 2025 year-to-date period grew to $10.5 billion, up from $10.1 billion in the prior year. Comparable sales for the first half of 2025 were up 1%. In the second quarter, cosmetics was the best merchandise area. By geographic region, the strongest markets were the Southeast and the Midwest. Overall comp store sales at dd's DISCOUNTS were solid and ahead of Ross, while monthly trends were closely aligned between the two chains throughout the quarter. It was encouraging that both chains saw growth in both traffic and basket size with strong momentum exiting the quarter. At quarter end, both total consolidated inventories and average store inventories were up 5% versus last year. Packaway merchandise was 38% of total inventories at quarter end compared to 39% last year. We feel good about our inventory levels and believe we are well positioned for the back half of the year. Turning to store growth. In Q2, we opened 28 new Ross and 3 dd's DISCOUNTS locations. These openings reflect our expansion into new and existing markets. New market entries included several stores in the New York Metro area as well as our 3 inaugural stores in Puerto Rico. We remain on track to open a total of approximately 90 new locations 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 provide an update on tariffs. While tariffs remain at elevated levels, we feel good about the progress the merchants have made to mitigate the impact on margin. The team has worked tirelessly to execute a multipronged approach, including vendor negotiations, diversifying our sourcing mix and adjusting prices strategically. Additionally, we were able to expand the portion of our business driven by closeouts, which further mitigated the impact. Looking ahead, we are confident that we can continue to offset most of the impact of tariffs, but we do anticipate modest pressure in the third quarter, which we expect will be further mitigated in the fourth quarter. From a pricing perspective, we are beginning to see higher prices across the retail industry. With this backdrop, we are focused on maintaining our value proposition relative to traditional retailers while balancing the opportunity to preserve our merchandise margin. Our top priority will always be providing high-quality branded merchandise at outstanding value. The off-price sector has historically benefited from disruptions within the supply chain and the retail industry. We believe this time will be no different. I will now turn the call over to Adam to provide further details on our second quarter results and additional color on our outlook for the remainder of fiscal 2025.

Thank you, Jim. Second quarter operating margin decreased 95 basis points to 11.5% and included an approximate 90 basis point negative impact from tariff-related costs. Cost of goods sold during the period increased by 70 basis points. Distribution costs deleveraged by 55 basis points, primarily from the opening of a new distribution center in the second quarter and tariff-related processing costs. Merchandise margin decreased 30 basis points, which included the impact of tariffs and occupancy deleveraged 10 basis points. Partially offsetting these higher costs were lower domestic freight and buying costs of 15 and 10 basis points, respectively. SG&A for the period deleveraged by 25 basis points, partly due to CEO transition costs. During the second quarter, we repurchased 1.9 million shares of common stock for an aggregate cost of $262 million. As a result, we remain on track to buy back a total of $1.05 billion in stock for the year. Now let's discuss our outlook for the remainder of 2025. As Jim noted in today's press release, given the uncertainty associated with the macroeconomic environment, we will maintain a somewhat cautious approach to planning our business for the balance of the year. For both the third and fourth quarters, we are planning comparable store sales growth of up 2% to 3%. If sales perform in line with this guidance, third quarter earnings per share are expected to be in the range of $1.31 to $1.37 versus $1.48 last year and $1.74 to $1.81 for the fourth quarter compared to $1.79 in 2024. These ranges include a negative tariff cost of approximately $0.07 to $0.08 and $0.04 to $0.06 per share in the third and fourth quarters, respectively. These estimates are based on the current level of announced tariffs. If the second half of 2025 performs in line with these projections, earnings per share for the full year are now forecast to be in the range of $6.08 to $6.21 versus $6.32 last year. For fiscal 2025, we anticipate an approximate $0.22 to $0.25 per share impact from announced trade policies. As a reminder, last year's fourth quarter and fiscal year results included a one-time benefit to earnings equivalent to approximately $0.14 per share related to the sale of a packaway facility. Now let's turn to our guidance assumptions for the third quarter of 2025. Total sales are forecast to increase 5% to 7% versus the prior year. We expect to open 40 stores during the quarter, including 36 Ross and 4 dd's locations. Operating margin for the third quarter is planned to be in the 10.1% to 10.5% range, which includes a 50 to 60 basis point negative impact from tariff-related costs. Our forecast also reflects unfavorable timing of packaway-related costs and continued deleverage from the opening of a new distribution center in the quarter. Net interest income is estimated to be approximately $27 million. The tax rate is projected to be about 25%, and diluted shares outstanding are expected to be approximately 323 million. Now I will turn the call over to Jim for closing comments.

Thank you, Adam. We are encouraged by the sequential improvement in sales trend relative to the first quarter, particularly the strength of our early back-to-school business in July. We believe pricing will move higher across the entire retail landscape, leading consumers to seek more value this fall season. As such, we are positioning our assortments to deliver high-quality branded merchandise at compelling price points to reinforce our value proposition. We strongly believe this strengthens our competitive position to capture market share over the balance of the year. Before we turn to your questions, I would like to take a moment to recognize and thank Adam Orvos for his contributions to Ross. As many of you know, Adam is retiring from Ross at the end of September. His leadership and financial expertise have been instrumental to our success, and we wish him well in this exciting new chapter. We also appreciate Adam working closely with Bill to ensure a smooth transition. At this point, we would like to open the call and respond to any questions that you may have.

Nice to see the improvement. So Jim, could you speak to notable areas of sequential top line improvement that you saw and elaborate on the sharp rebound in July and early back-to-school trends that you're seeing maybe relative to your 2% to 3% comp guide, which I think you said embeds a somewhat cautious planning approach. And then just for Adam, gross margin drivers in the third and fourth quarter, if you could just help break down relative to the 70 basis point decline in the second quarter, I think, would be really helpful.

Is that your one question, Matt?

Trying my best for you, Jim.

On the first part of your question, I'll give you some color on the specifics, but the most encouraging thing was we've seen broad-based sequential improvement from the first quarter into the second quarter. Nearly every merchandise category improved, and most were positive in the second quarter. And towards the tail end of the second quarter, particularly in July, nearly everything was turning positive or was positive. So we felt very good about that. And if you went back even to the end of the first quarter, we had called out that we had sequential improvement from February into March, March into April. Part of that was the Easter shift. We had a solid May. June was a little bit depressed going up against the strongest month last year, but then July was very strong. So we felt very good or feel very good about the momentum coming out of the quarter. From a category perspective, cosmetics was very strong. It was nice to see the ladies business comping nicely positive and better than the chain average. That's gotten a lot of attention over the last few years. So kind of kudos to that merchandising team that has gotten that business up to the comps that they're achieving now. And with that, I'll turn it over to Adam for the balance of this question.

Yes, Matt. On the second half, so let me take tariff costs first. So I talked about the 90 basis point impact on operating margin in Q2. That was primarily in two components of cost of goods sold. The impact on product cost was the primary driver and the other is DC processing costs as we had less merchandise pre-ticketed by our vendors, which impacted our profitability. So we do expect tariff pressure on merchandise margin in the balance of the year, but expect it to be slightly lower than what we experienced in Q2. The remaining improvement quarter by quarter in tariff cost is primarily in distribution as we expect to revert back closer to those historical pre-ticketing levels. Other moving parts in the back half, I mentioned in the call commentary, packaway, just based on how we see the flow of goods in the back half. That will put pressure on our Q3 earnings and then expect to recoup that in fourth quarter based on how we see year-end inventory. The other big moving part is, I mentioned the new distribution center in Q2. As we ramp up the production in that facility, it will put pressure on that portion of DC costs for the balance of the year.

Matt, I want to circle back there. There was a piece of your question I didn't address, which was the 2% to 3% comp guide. As we put in the press release, we are looking at the balance of the year with some cautious optimism. So we've embedded a little bit of that into the 2% to 3% guide. If you want to play at a bullish case, we are going up against a softer quarter last year in Q3 than Q2. But there's a lot going on in the macro environment. So we want to embed some conservatism.

It sounds like your appetite for raising prices has increased as you see, I think it's going up throughout the industry. How is the customer responding? And do you expect prices to fully offset the tariff pressures by next year?

I wouldn't read too much into our recent price changes, which have been very modest with a low single-digit change in average unit retail. We will proceed cautiously with any adjustments to our pricing moving forward. The Ross brand relies on being the best value in the market, and we will be monitoring our direct competitors and the broader retail landscape before making significant changes. Regarding your last question, I believe that as we move into next year, we will establish a new price equilibrium. Notably, the impact of tariffs will decrease between the second and third quarters and again from the third to fourth quarters this year. While I won’t provide specific guidance on tariffs during this call, I anticipate that by next year, there will be a new set of retail pricing dynamics, allowing us to position ourselves competitively within that framework.

Congratulations on the improvement in the quarter. Can you help me understand a few components of the guidance? The original guidance for the year had a high end of $6.55, which is good performance compared to what you planned for the first half. However, we have had $0.22 to $0.25 related to tariffs. I would have expected a range of $6.30 to $6.33 instead of the new guidance of $6.21 at the high end. Is there anything beyond tariffs that you have considered for this year? Also, Jim, could you share some insights on the initiatives you mentioned earlier? You talked about signage, marketing, store operations, and queue line improvements. Are there any positive indicators from the stores that have implemented most of these initiatives?

Michael, I will begin by discussing some of the initiatives. It's Michael Hartshorn. One of the key topics we addressed is the store refreshes. We anticipate updating about half of our stores this year. To remind you, in the existing stores, we are upgrading our signage, which includes new perimeter and wayfinding signs, and we are also tackling cosmetic repairs throughout the stores. We are confident that the stores we've completed look excellent, and we aim to finish this process across all locations by 2026. Additionally, we have been experimenting with self-checkout, currently implemented in around 80 stores, and it has proven to be very successful. Customers have really appreciated the experience, which has helped us reduce line lengths and manage shortages effectively. We plan to expand this initiative to more stores next year, focusing primarily on our high-volume locations to enhance customer throughput.

And Michael, this is Adam. If your question was back to how we guided at the beginning of the year, obviously, the biggest driver is the tariff impact, right, which we're now kind of pegging at $0.22 to $0.25 for the year. And then secondarily have a little bit more conservative sales assumption for the full year than we did back in March.

Could I follow that by just asking the SG&A dollar budget for the year, where it's at today versus what you initially set it at coming into the year in March? Any change there would be noted?

I think we're pretty consistent, Michael. There isn't significant changes in SG&A.

Michael, we didn't get to your question about initiatives, store environment, and marketing. Michael Hart, could you talk about the store signage, which is a great upgrade to modernize the store's look and feel? We are exploring many aspects of the store labor model since we have over 2,000 stores, and it's quite complex. We've initiated several tests to adjust various factors to increase throughput and boost sales by allocating more staff to certain stores. It's too early to discuss the results of that. On the marketing side, we've launched a new campaign. At Ross, it's called Work Your Magic!, featuring four great spots that emphasize brands at a great value while creating a stronger emotional connection for customers. Additionally, dd's has its own campaign called Don't Sleep on dd's, which is fully digital. You'll need to be on one of the meta platforms or TikTok to see it, but it's a very dynamic and exciting campaign for dd's as well. Although it's early days, I'm really pleased with how quickly the organization has responded and implemented what I think are some excellent changes.

Curious if you could talk a little bit more about your transactions versus ticket, how that changed during the quarter when you referenced acceleration in July, curious what those metrics were a bigger driver. Any color you can give there? And just also how you're thinking about transactions versus ticket in the back half? And then second, Jim, I'm sure you guys had an availability of merchant in terms of like what merchandise would look like, availability of merchandise would look like before the quarter coming into the quarter. I'm curious what you're seeing relative to your expectations? Any surprises within certain categories? Do you anticipate having any holes in the assortment for holiday?

Paul, it's Michael Hartshorn. You're breaking up a bit, but I think your question was the composition of the comp in terms of transactions and what we saw during the quarter. As we said in the commentary, the 2% comp was driven by a slight increase in traffic and also an average increase in the average basket. The basket itself was driven by both slight increases in AUR and units per transaction. If you looked at that, where we were very strong in May, dipped in June, and then strong again in July, across the quarter, it was driven by a mix of traffic and also a higher basket.

In terms of availability, we feel very good about the availability of closeouts in the second quarter; one of the things we called out in the script was that was one of the things that helped us get to the low end of the range of the tariff impact by leaning in more into closeouts. So I'd say availability is super strong.

Perfect. Congrats on a nice quarter. Maybe just looking at profitability, I know that the second quarter makes for the second one where you're lapping that branded strategy from last year. So is higher branded mix a permanent margin headwind to the business? Or do you see scope for it to eventually drive total profitability higher, which I think was the initial intent? And maybe bigger picture, can this business return to kind of low teens margin over time? Or does that branded mix being higher keep you from getting there?

Alex, our initial idea with the branded strategy is that early on, it would be a margin hit, but we'd be able to build on that over time as we sharpened our expertise, built better vendor relationships, had access to branded closeouts, and our thoughts on that have not changed. So we believe we can build on it over time.

Are you seeing any increased signs of consumer trade down activity or changes in the demographic mix of consumers in your store either by income or race as prices have increased across the ecosystem this holiday season?

Brooke, on trade down, we didn't see a change in income cohorts. It was pretty broad-based in the quarter. From an ethnic standpoint, as we've said in the past, we do serve a broad customer base, but our Hispanic customers are very important to us. They skew higher than the U.S. census. During the quarter, stores that had a high concentration of Hispanic population underperformed the chain. That was especially true in June and especially in Southern California. The good news is we did see a bounce back in July.

Just on the tariff mitigation front, I wanted to get a little bit more detail there. Just any update on the actions you're taking that are working here as we think about better buying, category flexibility, price, what's moving the needle to offset the pressure on merchandise margin? And what are the factors that could potentially drive greater-than-expected mitigation in the back half of the year?

Sure. Well, the merchandising team has just been working tirelessly to mitigate the impact. If you were to take the tariff rates that are out there and just do simple back of the envelope math and just flow it through unmitigated, of course, the impact would be much greater than what we've seen. So that's thanks to a tremendous amount of hard work in shifting buys, negotiating with vendors, and very little increase in AUR. So that really hasn't been a factor, but also increasing the amount of closeout merchandise versus upfront than we initially had planned. So as we roll forward, as I said earlier, I do think we'll wind up with pricing equilibrium. We have no intentions of being the first ones to go out with higher prices. So we'll be watching sort of the rest of the retail industry. And as soon as that equilibrium starts to take effect, we'll have some room to kind of grow into any inflated costs that we need to accept.

The other change that Adam mentioned is at the very beginning, when China was at 145%, we stopped vendor pre-ticketing to give us the flexibility to change prices once the goods arrived in the country. We did see an impact in Q2, a lesser impact in Q3, and we expect that effect to completely disappear in the latter half of the year as we return to our historic levels of vendor pre-ticketing.

This is Ryan Volger on for Chuck here. I wanted to ask a related question on the restored guide. Obviously, you have a lot more confidence now in what business is going to look like for the second half of the year as compared to 1Q. And I was just wondering if you could unpack how much of that is more stability in the environment versus things you've learned as you've undertaken these efforts over the past few months.

Sure, Ryan. It's actually pretty straightforward. At that time, we had just completed the 145, and we hadn't bought a significant amount of our merchandise for the latter half of the year. Now that we're in Q3, we've made the majority of our purchases, more than we have for Q4. We have a solid understanding of our fall purchasing. Although the situation with tariffs is still subject to change and remains dynamic, it is more stable than it was at the start of May.

Great. And then one other thing I wanted to ask, have you seen anything different on customer cohort trends by age? Are you mixing any younger, seeing any more millennials or Gen Z customers?

Adam, just a little bit more on the third quarter, trying to make sure I understand. So the margin degradation relative to 2Q is decently greater, but the revenue is pretty similar, 2% to 3% comp. The tariff headwind is a little bit less. I guess I'm just trying to make sure I understand what's the driving factor? If you can maybe just give us what the gross margin plan is for third quarter? Just trying to understand the moving pieces.

Yes. The biggest piece is the packaway impact. We're on second quarter on a year-over-year basis was pretty flat in Q3 based on how we see that inventory flowing. It will be a significant headwind in Q3 and again, would expect that to revert in Q4.

It's great to see the progress. My first question is about pricing; I understand you're starting to see it come through. In terms of frontline retail, how are prices changing for you? Are there specific categories, like apparel or footwear, where you're noticing greater increases? Additionally, could you clarify the impact of tariffs? Is this effect only on the portion that directly affects you, or does it also include costs from your upfront purchases that are being passed along?

On your last question, it's across the merchandise categories. We have a small percentage; we have a direct impact because we're paying the tariff, but we the vendors, we are seeing cost increases outside our direct imports. So it's across the universe of merchandise categories.

And then in terms of where we're seeing some inflation, if you go to some of the sort of more mainstream retailers, you can see some of their prices are going up in terms of apparel or home. Probably the center of the bull's eye are products made with metals. That's been one of the most obvious places where we've seen prices go up. And a lot of that falls, of course, into the home category. So we have a very experienced team of merchants that are just constantly comp shopping. And we're going to ensure that we have the best bargains in the store. And at some point over time, this pressure that we're facing today will abate.

Okay. Just to clarify, we're hearing about a grace period for shipments made before August 9th or 7th that arrive by October 5th, which means they'll still be subject to the previous tariffs. This suggests that much of the retail inventory for the holidays will fall under those earlier tariffs. Some brands have mentioned that they plan to raise prices again next spring due to the next round of tariffs. Do you think the impact of the tariffs will be isolated, or have you implemented enough mitigation strategies to offset these potential price increases in the spring?

No, I think it will happen. To your point, some of the India tariffs, especially if the 25 goes to 50. No, I think that you'll see this go into next year, and I think we would expect to see price increases. But over time, as Jim mentioned, we think it will reach equilibrium, and it will be business as usual.

Nice to see the progress. Jim, we heard about cosmetics continuing to be the best-performing category. Can you expand on apparel and what you've been seeing there with the initiatives that you've put in place and also on home? And then secondly, with the new store openings, what are you seeing in cost to open leasing costs and productivity of new stores as they're opening?

I'll address the merchandising aspect, while Michael will cover the new stores. We are quite optimistic. The business has seen a significant improvement from Q1 to Q2 overall. The performance in July was strong across almost all major merchandise departments. Specifically in apparel, the ladies' segment, which is a key part of our branded strategy, showed excellent results. It's encouraging to see that this segment is performing better than the overall chain. When looking at category by category within ladies, there was broad strength and improvement across most subclasses. On the home front, things have been a bit more complex. There was some comp erosion during the quarter, but we managed to finish with a slight positive comp. A contributing factor was likely the initial issues we faced with product delivery due to tariffs, leading to a lag in receipts during June. We've reorganized that team, and I am optimistic about the future of our home business. Although it’s still early, it is a positive sign to see that business improve slightly in July.

On real estate, so we feel good about the real estate landscape, Dana, and have a healthy pipeline. As you know, there's not a high volume of any new development, and we've been able to take advantage of store closures from bankruptcy filings or other retailers downsizing their fleets. During the quarter, we did acquire a number of stores in the Rite Aid bankruptcy deal, mostly in our core West Coast markets. That strengthens our existing pipeline, especially for 2026 and also helps in reaccelerating dd's growth for us. In terms of new store openings, we noted a couple of these in our comments, but we entered Puerto Rico during the quarter with three stores in July. The initial response has, I would say, far exceeded our expectations. It's still early, but based on this, we're optimistic this will be a strong market for us. We also had a number of New York Metro stores that we opened, again, very good customer response. So based on this, thus far, we're optimistic about expanding in the Northeast.

I'm curious about your comments around pricing, Jim. Last quarter, you said you were planning to maintain the price umbrella versus full price retail. It sounds like you're now saying you're being a little bit more cautious, very low single-digit increases and perhaps broadening the gap versus full price retail. And I think you said you will grow into those price points over time. Can you talk about what may have changed? Are you seeing a consumer response that's maybe making you a little bit more cautious than perhaps a few months ago? And then a quick follow-up on the ladies business. You talked about ladies comping better than chain average. That's a real clear acceleration there. Can you talk about what's driving that? Do you attribute that to the better brand strategy paying off? Or is it around availability of closeout? Or anything in particular that's driving that outperformance versus what we've seen in the last few quarters?

Sure. I don't think we're being particularly more cautious. I think we'll continue to maintain the price umbrella against mainstream retail. And we're just hyper conscious of what's going on in the broader retail landscape now. We're taking somewhat of a longer-term view that we want to impress a customer that comes in looking to buy something and have them feel like we're still delivering the bargains that they've become accustomed to. And as we see prices start to move, we'll start to move as well. Of course, there's always a lag for competitors and for us based on product that's come in pre-ticketed. We're not going to go throughout the chain in the store and reticket things. So it would be on the next set of receipts anyway. On the ladies acceleration, again, I'd come back to giving credit to the team. The buying offices have really been steadfast in executing against the brand strategy. They've leaned into young contemporary a bit more. We've seen a nice impact in our juniors business. The ladies business kind of across the board has been strong. The denim business has been strong. So we've seen a lot of strength in ladies.

Congratulations on the momentum heading into back-to-school and the fall season. Regarding the expenses in cost of goods sold related to the distribution centers, as well as the capital expenditures, many of which seem to be allocated to the distribution centers, what are the expected near and long-term returns? How can this enhance the overall margin profile of the business in the long run?

Typically, distribution centers are a way to manage capacity as sales increase, requiring additional capacity. When a new distribution center is operational, it allows us to utilize the increased volume, which should lead to improved efficiency over time. The distribution center we recently opened is in Arizona, and this year, it accounts for just over 28% of our total capital investment. We are also in the process of developing our next distribution center, which will be ready in about 2.5 years. Therefore, over the next two years, we anticipate gaining efficiencies from our distribution centers.

Understood. And then, Jim, maybe a quick follow-up for you. Ex tariffs, the business at a 2% to 3% comp would have seen about mid-single-digit earnings growth based on the new full-year guidance. With Bill stepping into the CFO seat pretty soon, what do you see as like a long-term earnings algorithm? Where is the opportunity on the margin profile of the business?

The long-term algorithm suggests approximately 5% growth from new stores, which currently yield about 60% sales performance. This contributes roughly 2% to earnings per share growth. If we see a comparable sales growth of 3%, that translates to another 3% earnings per share growth, achieving a total of 5%. Additionally, there is an expected EBIT increase of 1% to 3%, along with a stock buyback contributing another 2% to 3%. This combination leads us to anticipate around double-digit earnings per share growth with a 3% comparable sales increase.

I have a broader question for Jim, followed by a follow-up. Regarding growth, as you've analyzed the current state of Ross and its competitive position, what are some key factors that you believe are crucial for scalability from a unit perspective? Looking ahead, what advantages do you foresee in potentially accelerating unit growth, and how feasible do you believe that may be for the business?

Sure. Great question, Corey. I guess a couple of things. I was fortunate enough to be recruited into a company that was already extremely well run and already growing. So I've had the good fortune of spending the first six months and intend to spend the balance of this year really learning about the business. That said, and answering your question maybe a little bit more specifically, there's a tremendous amount of organizational muscle here. And we've been adding 90-ish stores. I think that's the plan for this year. We're certainly not going to guide future years, but you know me well. I do think there's an opportunity for us to accelerate. And I certainly don't think we have any capability shortfall. I think we have the resources to do that. We would have to grow the supply chain capability at the same time we grow the store footprint, but we have the capability to do that as well. And we've been experiencing some really nice openings in our existing markets, but what Michael covered is very encouraging right? We've been opening up stores in brand-new markets to us that are well established to our competitors and seeing some really nice returns. So if I'm just thinking about what our white space opportunities just for unit growth and unit acceleration, I think it's pretty optimistic.

That's great. And then just as a follow-up on the renovation plan, can you just remind us what the comp lift is and what some of the benefits are that you're seeing from the initiative?

We haven't disclosed it's still early innings. We're doing the first half of the stores this year, so we'll finish up the first half. and then complete the chain next year. Customer response has been good. It's too early to measure the impact.

Congratulations on all the improvements. I have two quick questions. First, I want to clarify the earlier conversation about AUR. To date, it has increased only slightly, as you mentioned. However, there are factors related to pricing and mix. As we move into the latter half of the year, and given what we’ve been hearing from retailers and suppliers, prices are rising. Will you adjust your prices in line with the industry? Should we expect to see AUR increases in the second half of the year? The second question I have is about your packaway strategy. Could having some appealing holiday items from last year stored away help offset some of these changes?

Marni, on how we move into it, I think we used the word cautious, but we won't be the first to raise retails. If retails go up, it will certainly give us flexibility to follow. In some places, we'll move along and raise prices, test it, see how the customer impacts. In other places, we may give more value. So it really is area-by-area decision by the merchant. But if prices go up, it gives us the flexibility to follow for sure.

Right. And then just one following question. Are you seeing a reversal or less pressure on wages at the stores and the DCs? I know retail has a lot of turnover, but I'm also wondering if you're finding less turnover as more broadly, people are staying in their jobs and kind of it's shifted from the worker to the employer in general out there. Curious what you guys are seeing.

Yes, the workforce has been stable for the last couple of years, so I don't think anything has changed. We haven't had any issues filling jobs related to our ticketing efforts and tariffs. Overall, the environment seems fairly stable.

I would say stable. It hasn't changed a lot for us.

Turnover has been stable for a while.

Thank you, everyone, for joining us on the call today, and we look forward to speaking with you on our next earnings call. Take care.