Walmart set a somber tone for the first week of retailer earnings, but that wasn't the whole story. From tariff refunds to price cuts, the quarter showcased a shifting landscape as the industry heads into its most critical period of the year.
The big news was Walmart's sales woes as the Bentonville, Ark.-based giant reported a same-store sales decline-the first since 2020. Target, meanwhile, showed some signs of life, reflecting its turnaround efforts. Reports also arrived from home improvement merchants Home Depot and Lowe's as well as off-pricer TJ Max parent TJX.
The docket is full for next week too, with reports slated from Kohl's, Gap, and Best Buy, among others, so there will be more data points to come. (Ross Stores is expected to report after the market closes today.)
These earnings are important for investors who are particularly keen on any clues that would reveal prospects for the make-or-break back-to-school and holiday seasons.
Here are a few main takeaways from week one:
All Eyes on Bentonville
The company is a bellwether for not only the retail industry but the economy as a whole as consumers grapple with high gasoline prices and inflation in general. Walmart's postearnings tumble was a reflection of disappointing comparable sales-a measly 2.6%. The chain took a big hit from changes in pharmacy drug rules. Same-store sales would have risen 3.4% if not for the drug hit. (Below, analyst projections for those keeping score.) But there was plenty of positive news, including market share gains across categories and impressive growth in alternative revenue streams like advertising and membership. Particularly encouraging were e-commerce sales, up 24%. However the focus on comps showed that investors are looking past strong margins this quarter; instead they are laser focused on the second half. Can Walmart-or any retailer-cut prices fast enough to bring in new customers and retain loyal ones? And at what cost?
The Tariff Factor
Tariff refunds have made a muddle of margins.
Although this phenomenon should be largely contained to the second and third quarters, it's still made most investors sift through recent margin results, as Barron's previously noted was likely to happen. While Walmart-which received $2.9 billion in its quarter-had been the only major company to quantify its tariff refunds, billions in benefits are now embedded in other retailers' outlook, from Target to Home Depot, which received $994 million and $730 million, respectively. These checks are likely hitting at an opportune time, given recent pressure on retailers, notably Walmart and Target, to lower prices. The coming quarters will show how many companies put the money to work.
It's Affordability, Stupid
The ongoing affordability crisis weighing on the housing market is still a problem for home improvement retailers, recent legislation to address the problem aside.
Despite a nascent recovery in some parts of the country, the spring and summer selling seasons were underwhelming and mortgage rates remain a moving target. So it's not a shocker that Home Depot and Lowe's felt the pinch, with do-it-yourself particularly under pressure.
There were glimmers of hope: Home Depot, which reported a same-store sales increase of 1.7%, noted that its shoppers are still going ahead with smaller projects, even if major renovations are out of reach. And Lowe's anemic 0.2% same-store-sales growth was still better than some whisper numbers floating up from the Street.
Investors may assume that the companies are doing their best with the bad hand they've been dealt. But, truth be told, it's hard to see the two stocks breaking out of their range until the housing market thaws more thoroughly.
Red Flags for Mall Merchants
There may be some concern about companies like Gap, Abercrombie & Fitch, and other specialty apparel retailers whose reports are next up. That's because clothing was the weakest growth category for Target, with just 0.1% growth in the quarter-squeaking ahead of home furnishings. It is also not a great sign that TJX's main division delivered only a 1% increase in same-store sales in the quarter.
No Proxies
Finally, apparel aside, it may be particularly hard this quarter to expect one retailer's results-maybe Walmart is the exception- to provide a clear line of sight for other merchants and their stock prices.
For example, Target shares are up some 65% since the start of 2026, compared to about 4% for Walmart and the State Street SPDR S&P Retail exchange-traded fund. It's all about the chain's comeback-not particularly a sign that the industry is vibrant. In other words, it isn't a proxy for big box stores.
Likewise it's tough to extrapolate TJX's results to other off-price retailers. The slowdown in comparable sales at TJX's biggest division was seen in no small part as potential customer attrition to Ross Stores.
Elsewhere Home Depot's relative comparable sales strength may have raised hopes unrealistically before Lowe's second-quarter report, which disappointed. Estee Lauder's 5% organic sales growth could be a good signal for beauty as a whole. But it undoubtedly also reflects the strength of wealthier consumers-as well as its own organizational changes and long-term turnaround efforts.
Second-Half Jitters
Looking ahead, it consumers will likely keep focusing on value amid inflation's strain rather than closing their wallets all together. If companies use tariff refunds to lower prices, bargain hunters will have plenty of options, and more market share may be up for grabs. Back to school season is already poised to set spending records; to win, retailers need to be the ones making those sales. Maybe at the expense of their rivals.
Write to teresa.rivas@barrons.com
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