Q1 Retail Earnings in Uncertain Year

Because of ongoing uncertainty about tariffs and the economic outlook, first-quarter retail earnings themselves aren't that important. Instead, the markets will be looking for clues to the effects of, and responses to, a changing selling environment.

In coming weeks, investors can expect earnings reports from some big-box retailers: Walmart (WMT), Home Depot (HD), Lowe's (LOW), Target (TGT), and Costco (COST). Because first-quarter numbers for employment and GDP growth indicated stable economic growth, it's likely that first-quarter retail revenue and earnings numbers will show stable growth. Surprises and disappointments are more likely to show up when executives discuss the outlook for the rest of the year. Uncertainties about tariffs, including rates, timelines, and tactics to reduce them, are likely to weigh on results.

"Look for company-specific insight on navigating the uncertainty," said Alex Coffey, senior trading strategist at Schwab. "Will companies pull earnings guidance or announce hiring freezes? They'll announce plans like these if they have them when they announce quarterly earnings."

Walmart gets the ball rolling and reports this Thursday, followed by Home Depot on May 20, Target and Lowe's on May 21, and Costco on May 29.

Amazon (AMZN) kicked off the retail earnings season with its report on May 1. Sales climbed 9% to $155.7 billion in the fourth quarter, compared with $143.3 billion a year earlier. The company guided analysts to second-quarter revenue growth estimates of 7% and 11% compared to the second-quarter 2024, which includes that unfavorable effect of approximately 10 basis points from foreign exchange rates. Trade barriers remain a question: "Obviously, none of us knows exactly where tariffs will settle or when," said Andy Jassy, Amazon's president and CEO, on the company's earnings conference call.

Amazon has resiliency from its e-commerce domination and Prime membership fees. Walmart's resiliency draws from its continued focus on cost-saving investments, most recently in artificial intelligence. Target has struggled more with costs and product mix, possibly giving it less resiliency. 

Ultimately, though, Coffey said the outlook depends on how retailers handle tariffs: "Are they going to try to absorb some of those costs or are they going to pass them on?" One tactic sacrifices profits for revenue and market share. The other protects the bottom line, at least for a specific time period. 

Retailers are still grappling with how to present tariff-related cost increases to customers and how to deal with customer responses. Chinese discount retailers like Temu have been showing tariff fees as a separate line item. Amazon warned that it would do the same, then changed tack after receiving political pushback. Most grocery products are produced within the United States, so those prices may not be affected. However, other products are likely to see cost increases, and consumers may trade down to lower-cost items and discount retailers.

The April release of the University of Michigan's Surveys of Consumers shows how these uncertainties are affecting American families. The index was down 8% between March and April, its fourth-straight month of decline. Expectations have fallen 32% since January. The last three-month decline of this magnitude occurred in the 1990 recession. In addition to expecting a weak economy, consumers participating in the survey expect weak income growth for themselves in the next 12 months, which is likely to drag down future spending.

U.S. jobs growth slowed in April 2025 (177,000 new jobs added in April, down from 185,000 in March, for an unemployment rate of 4.2%). The Consumer Price Index for all items fell 0.1% in March for an annualized rate of 2.4%. Retail sales have mostly been steady, although the Census Department noted an 8.8% increase in motor vehicle and parts sales in March, possibly due to advance purchases before tariffs kick in. Beyond that, the numbers don't show much pre-tariff stocking activity. "That's often more headline than reality," Coffey explained. "Stretched consumers don't have a lot of capacity to hoard right now."

The financial markets have begun pricing in the effects of stretched consumers and waves of tariff news. The Consumer Discretionary Select Sector Index ($IXYTR) fell 15.02% between February 1 and May 1, compared to a 7.8% decline in the S&P 500^® index (SPX) over the same time period.

The slowdown hasn't happened yet. Nike (NKE), Deckers Outdoor Corporation (DECK), General Motors (GM), Ford (F), Visa (V), Mastercard (MA), and Albertsons (ACI) all reported better-than-expected earnings, although Ford management noted that it is suspending guidance for the rest of the year and sees a $1.5 billion impact from tariffs.

Another possible concern for retailers is product availability as shipments from China to the United States sank dramatically in the second half of April. Decreased demand could lead to decreased supply and empty store shelves, which could lead to reduced profit margins at big-box retailers and further stress out consumers used to abundance.

For the major retail firms reporting over the next two weeks, analysts expect the following, according to Yahoo Finance:

• WMT earnings per share (EPS) of $0.58, down 3.3% from a year ago, on revenue of $164.58 billion
• TGT EPS of $1.77, down 12.8% from a year ago, on revenue of $24.54 billion
• COST EPS of $4.23, up 11.9% from a year ago, on revenue of $39.23 billion
• HD EPS of $3.60, down 0.8% from a year ago, on revenue of $39.23 billion
• LOW EPS of $2.91, down 4.9% from a year ago, on revenue of $21.08 billion

Keep in mind, analysts can be wrong, even when viewed as an average. Another point to remember is that even if a company reports earnings in line with its expectation, the market's reaction remains unpredictable.