Retail Earnings Loom: What Can Investors Expect?

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2 hours ago

Walmart WMT shares have been standout performers this year, handily outperforming not just the broader market indexes and peers like Target TGT but also the likes of Amazon AMZN and many members of the Magnificent 7 group.
With the company on deck to report quarterly results on Thursday, August 21st, it will be interesting to see if the stock can maintain its momentum after the results.
The chart below shows the year-to-date performance of Walmart shares (green line, up +11.7%) relative to the Mag 7 group (blue line, up +15.6%), the S&P 500 index (red line, up +9.9%), Amazon (orange line, up +5.3%) and Target shares (bottom line in the chart, down -22.8%). We have also added Home Depot (HD) to the chart, as the home improvement retailer is also reporting results on Tuesday, August 19th.
Image Source: Zacks Investment Research
We should keep in mind, however, that the performance pecking order shifts once the starting point of this chart shifts to April 8th, when the market bottomed following the tariff-induced sell-off. While Target and Home Depot are laggards in the market's rebound from the April 8th lows as well, Walmart lags behind the Mag 7, Amazon, and the S&P 500 index in that time period, as the chart below shows.
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Walmart shares' relatively subdued performance in the market's rebound from the April 8 lows reflects the company's low-beta status and defensive orientation. Today's Walmart has a big and growing digital operation, but the company's merchandise continues to be heavily indexed towards groceries and other essential and must-have necessities.
This orientation towards essentials, coupled with Walmart's well-earned reputation for low prices, provides the company's results with a high degree of cyclical stability, hence the stock's defensive attributes.
We should note, however, that a big contributing factor to Walmart's stock market momentum over the last few years reflects its ability to gain market share among higher-income households. Driving those gains has been a combination of higher-income households trading down to Walmart in response to the effects of inflation and also the ease of using the company's e-commerce abilities.
Walmart has consistently reported market share gains across all income categories in recent quarterly releases, particularly in the high-income category. We expect further gains on that front in this quarterly report as well.
Results likely benefited from pulled-forward demand in anticipation of tariffs, particularly in specific categories, such as electronics. Growth in e-commerce and steadily lower losses in that business, coupled with gains from third-party fulfillment and advertising, are some of the other areas that will benefit results this quarter.
The e-commerce business in the U.S. is now profitable, and management views it as a significant contributor to earnings for the year. E-commerce accounts for an estimated 15% of total ex-gasoline sales at present, which management expects to eventually increase to more than double that level over time.
Concerning tariffs, management noted earlier in the year that roughly two-thirds of U.S. sales were from domestically-sourced products, which gave them a degree of insulation from the tariffs issue compared to others. A significant part of this is Walmart's grocery business, which accounts for almost 60% of its sales, unlike Target, where groceries make up a much smaller portion of the revenue mix.
Management has reiterated its commitment to maintaining a price advantage over rivals, a function of Walmart's size, the nature of its supplier relationships, and the increasing automation of its logistical operations. Walmart's value orientation and well-executed digital strategy have been key to gaining grocery market share by attracting higher-income households.
Management has acknowledged some near-term challenges as a result of the uncertain macroeconomic environment; however, they remain confident of achieving their long-term plans and targets, including sales growth of at least +4% and operating income growth in excess of the sales growth pace. Walmart has consistently exceeded its targets over the last two years, with sales increasing by +5.5% and operating income rising by +9.5%.
Walmart is expected to report $0.73 in EPS on $175.51 billion in revenues, representing a year-over-year change of +8.9% and +3.6%, respectively. Estimates have remained stable, although they have increased modestly since the quarter began.
In terms of same-store sales, the expectation is of U.S. comps (ex-fuel) of +4.17%, which will compare to a +4.8% gain in the preceding quarter (vs. expectations of +4%) and a +4.3% gain in the year-earlier period (vs. expectations of +3.65%). A positive general merchandise read will also have positive read-throughs for Target.
Same-store sales at Target are expected to decline -3.03% when it reports results on Wednesday, August 20th. Target comps declined -3.80% in the preceding quarter (vs. expectations of -1.91%) and the year-earlier period of +2% (vs. expectations of +1.23%).
With respect to the Retail sector 2025 Q2 earnings season scorecard, we now have results from 21 of the 32 retailers in the S&P 500 index. Regular readers know that Zacks has a dedicated stand-alone economic sector for the retail space, which is unlike the placement of the space in the Consumer Staples and Consumer Discretionary sectors in the Standard & Poor's standard industry classification.
The Zacks Retail sector includes not only Walmart, Target, and other traditional retailers, but also online vendors like Amazon AMZN and restaurant players. The 21 Zacks Retail companies in the S&P 500 index that have reported Q2 results already belong mostly to the ecommerce and restaurant industries, though we have several restaurant companies on deck to report results this week as well.
Total Q2 earnings for these 21 retailers that have reported are up +20.5% from the same period last year on +8.7% higher revenues, with 81% beating EPS estimates and an equal proportion beating revenue estimates.
The comparison charts below put the Q2 beats percentages for these retailers in a historical context.
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As you can see above, the EPS and revenue beats percentages for these online players and restaurant operators are tracking significantly above the historical averages for this group of companies, with the variance particularly notable on the revenues side.
With respect to the elevated earnings growth rate at this stage, we like to show the group's performance with and without Amazon, whose results are among the 21 companies that have reported already. As we know, Amazon's Q2 earnings were up +37.9% on +13.3% higher revenues, as it beat EPS and top- line expectations.
As we all know, digital and brick-and-mortar operators have been converging for some time now, with Amazon now a sizable brick-and-mortar operator after acquiring Whole Foods, and Walmart a growing online vendor. As we noted in the context of discussing Walmart's coming results, the retailer is steadily becoming a big advertising player, thanks to its growing digital business. This long-standing trend received a significant boost from the COVID-19 lockdowns.
The two comparison charts below show the Q2 earnings and revenue growth relative to other recent periods, both with Amazon's results (left side chart) and without Amazon's numbers (right side chart)
Image Source: Zacks Investment Research
As you can see above, earnings for the group outside of Amazon are up +2.3% on a +5.3% top-line gain, which represents a notable improvement from what we have seen from this ex-Amazon group in other recent periods.
Key Earnings Reports This Week
We have more than 100 companies on deck to report results this week, including 15 S&P 500 members. In addition to Walmart, Target, Home Depot, and Lowe's, other notable companies reporting this week include Palo Alto Networks, Toll Brothers, Estee Lauder, and others.
The Q2 Earnings Scorecard
Through Friday, August 15th, we have seen Q2 results from 462 S&P 500 members or 92.4% of the index's total membership. Total earnings for these 462 index members are up +11.4% from the same period last year on +5.8% revenue gains, with 80.5% of the companies beating EPS estimates and 78.8% beating revenue estimates.
The comparison charts below put the Q2 earnings and revenue growth rates for these index members in a historical context.
Image Source: Zacks Investment Research
The comparison charts below put the Q2 EPS and revenue beats percentages in a historical context.
Image Source: Zacks Investment Research
As you can see here, the EPS and revenue beats percentages are tracking above historical averages, with the Q2 EPS beats percentage of 80.5% for the companies that have reported already comparing to the average for the same group of 77.6% over the preceding 20-quarter period (5 years). The Q2 revenue beats percentage of 78.8% compares to the 5-year average for this group of index members of 70.5%.
Is the Turnaround in Estimates for Real?
Looking at Q2 as a whole, combining the actuals from the 462 S&P 500 members with estimates for the still-to-come companies, the expectation is that earnings will be up +12.1% from the same period last year on +6% higher revenues, which would follow the +12.2% earnings growth on +4.6% revenue gains in the preceding period.
The chart below shows current earnings and revenue growth expectations for 2025 Q2 in the context of where growth has been over the preceding four quarters and what is currently expected for the following four quarters.
Image Source: Zacks Investment Research
As you can see above, earnings for the current period (2025 Q3) are expected to be up +4.8% from the same period last year on +5.5% higher revenues.
We noted in recent weeks that estimates for the current period have notably firmed up, as you can see in the chart below.
Image Source: Zacks Investment Research
Since the start of the period, estimates have increased for 5 of the 16 Zacks sectors. These include Tech, Finance, Energy, Retail, and Conglomerates. On the negative side, estimates remain under pressure for the remaining 11 sectors, with the biggest pressure at the Medical, Transportation, Basic Materials, Consumer Discretionary, Consumer Staples, and other sectors.
The chart below shows how Tech sector earnings estimates for the period have evolved since the quarter got underway.
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture on a calendar-year basis.
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This article originally published on Zacks Investment Research (zacks.com).
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