Retailer earnings could put this season to the test
Retail
Earnings season may be stellar so far — but the question remains if the big retailers reporting this week can continue that trend. More than 91% of the S & P 500 has posted second-quarter earnings, with 84% topping expectations, according to FactSet. Home Depot kicked things off on a positive note Tuesday, reporting a beat on both the top and bottom lines. Other retailers set to report this week include Walmart , Lowe’s , TJX and Target . It may not be smooth sailing across the board. Concerns remain about the K-shaped economy , which sees high income households continuing to do well while lower-income families struggle. On Friday, the Commerce Department said retail sales fell in July for the first time in nine months. LSEG believes the consumer is strong enough to support earnings growth, although this resilience is increasingly concentrated, Jharonne Martis, the firm’s director of consumer research, said in a report Monday. “Strong profit growth is being driven by a handful of large, high-margin retailers, while guidance across the broader sector points to a more cautious outlook for discretionary spending in the second half of the year,” she wrote. The LSEG U.S. Retail and Restaurant Q2 earnings index is expected to show a 67% growth over last year’s levels, Martis noted. The broadline retail sector, consisting of 185 retailers that LSEG tracks, is expected to see an earnings growth rate jump of 231% over last year’s levels, she added. Stay selective Wall Street analysts say selectivity is key. “Demand trends are signaling continued consumer pressure, most notably with a deceleration of traffic, sales and an uptick on promotional intensity – which is clearly evident from what we have seen in both [North America] and Europe from the companies reported thus far,” Wells Fargo analyst Ike Boruchow said in a recent note. “We remain selective on companies with idiosyncratic drivers.” He is most confident that Amer Sports , Bath & Body Works , Ross Stores , and Victoria’s Secret have these factors. Amer Sports, which owns Arc’teryx and Salomon, posted an earnings and revenue beat on Tuesday, sending shares up 2%. ROST YTD mountain Ross Stores year to date Ross Stores is slated to report on Thursday. Bath & Body Works will shares results on Aug. 26, while Victoria’s Secret reports on Sept. 3. All eyes on Walmart One of the most highly anticipated reports comes from Walmart, which releases its results on Thursday. Analysts expect earnings of 74 cents per share, versus the company’s guidance of 72 cents to 74 cents, according to FactSet. The consensus estimate for revenue is $186.62 billion. Year to date, the stock is up less than 3%. It has an average rating of overweight and roughly 21% upside to the average price target, per FactSet. WMT YTD mountain Walmart year to date Investors are most concerned about weak quarterly comps for Walmart, Bernstein analyst Zhihan Ma said in a July 31 note. “It is our understanding that Walmart US is experiencing a comp slowdown due to the lapping of tariff-driven price increases in the gen merch category,” she wrote. “This, combined with price cut talks from grocers, weak read-across from peers, and ongoing inflationary pressure on the low income consumer, has created an elevated level of uncertainty.” However, despite a potential near-term comp deceleration, she still believes Walmart is in a strong fundamental position. “[W]e recommend buying on weakness if the stock pulls back meaningfully on a disappointing comp,” Ma said. Her top picks for the second half include Dollar General , set to report on Aug. 27, and Costco , which will share results on Sept. 24. DG YTD mountain Dollar General year to date Meanwhile, Morgan Stanley sees Walmart’s dominance losing some ground. “Walmart is a heavily grocer, grocery-oriented retailer. That mix is not that elastic in general,” Morgan Stanley analyst Simeon Gutman said on CNBC’s “The Exchange” Monday. “If the consumer … is strong and pushing more on discretionary, that favors other retailers that have slightly more discretionary mix in that quarter.” That said, the metrics tied to Gutman’s long-term bull thesis on Walmart look healthy, such as grocery market share gains and the key drivers of the flywheel — membership, marketing and advertising, continue to thrive, he said in a Thursday note. Target’s turnaround effort Another big retailer, Target, is set to report on Wednesday. Analysts polled by FactSet are expecting EPS of $2.35 and revenue of $26.15 billion. They anticipate comparable sales growth of 2.4%. TGT YTD mountain Target year to date Investor expectations are high heading into the retailer’s earnings, said Deutsche Bank analyst Krisztina Katai, who has a hold rating on the stock. She recently raised her second-quarter same-store sales estimate to 2.9% and EPS estimate to $2.51. The retailer is in the midst of a turnaround effort, overhauling its baby aisle , expanding grocery offerings and investing more payroll in its stores. “We think much of the turnaround progress is reflected in the stock, and believe the stock is increasingly trading on confidence in TGT’s ability to deliver $10+ of EPS in FY27, making the durability of recent traffic and sales gains the most important takeaway from the quarter,” Katai said in a Friday note. The stock has an average rating of hold and 3% downside to the average price target, per FactSet.
Retailer earnings could put this season to the test
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