Retail Earnings Lag S&P 500—Tariffs and Thin Margins Cloud the Outlook

Interesting contrast between the major retailers raising prices, including Walmart (NYSE:) and Target (NYSE:), and those who aren’t (Home Depot (NYSE:) & Lowe’s (NYSE:)). The details provide better context.

Operating margins for HD/LOW are almost 3x more than WMT/TGT (chart attached), giving them more flexibility to “eat the costs” relative to the others. Walmart’s operating margins are already a razor thin 4.3%, even before the tariffs.

$19 billion in profits for WMT in FY2025 sounds like a lot, but not against $681 billion in sales. They spent $512 billion (75% of total sales) just on cost of revenue alone (AKA buying products from wholesalers).

It’s not an apples to apples comparison.

Earnings from the major retailers hasn’t been inspiring. Walmart posted the biggest earnings beat of the bunch (+5.2%), but below the market average (+6.8). Meanwhile EPS growth was negative for all but WMT.

Only Home Depot reported sales above expectations (+1.4%), and above the market average (+9.0%). Meanwhile they all have EPS growth expectations for the next 4 quarters that is below the market average.

Q1 results for all combined (with 92% having reported results now) has been impressive:

➡️ 14.3% growth
➡️ 76% beat rate
➡️ results coming in 6.8% above expectations

How much of this is pull forward from the tariffs is uncertain. The forward EPS estimates have already fallen from $279 to $270 since the Liberation Day. With prices rising, this has pushed the forward PE to 22.1x, against the backdrop of 4.5% interest rates.

Still a tough sell for me no matter which way you look at it.