Tariff Impact vs. Consumer Resilience, Can Walmart and Other U.S. Retailers Withstand Q2 Earnings?

TradingKey - After a wave of strong earnings from tech giants, markets now turn to U.S. retailers, the sector most directly impacted by Trump’s tariffs. With retail sales showing resilience, investors are looking to companies like Walmart and Target for clear signs of tariff pass-through and consumer behavior shifts.

According to Bloomberg, over 90% of S&P 500 companies have now reported their latest quarterly results. Overall, they are on track for strong performance:

• Revenue has grown for eight consecutive quarters
• Earnings rose 11% YoY, more than triple the initial expectations at the start of the quarter

For months, markets have searched for evidence of how U.S. tariff policy is affecting inflation and the economy. This week, earnings from major retailers will offer the most direct insight:

• Tuesday: Home Depot
• Wednesday: Target, Lowe’s, and Estée Lauder
• Thursday: Walmart

As key barometers of U.S. consumer health and tariff exposure, these reports are critical.

In its Q1 earnings, Walmart, the largest U.S. retailer, warned that the retail environment was increasingly challenging, citing unprecedented speed and scale of price increases. Even with lowered tariff rates and efforts to keep prices low, the company said it could not absorb all cost pressures.

TradingKey analyst Mario Ma believes that for Q2, Walmart is still likely to deliver positive revenue and EPS growth, supported by ongoing strength in grocery and e-commerce — despite slowing consumer spending and potential tariff pressures.

Ma noted:

“If inflation eases but consumer spending remains weak (such as affected by high interest rates), it may lead to revenue falling short of expectations, negatively impacting the stock price; conversely, if Walmart maintains market share through pricing strategies, it will strengthen its defensive position and boost investor confidence.”

However, not all retailers are weathering the tariff storm equally. Tapestry, parent of Coach, plunged over 15% after warning of greater-than-expected tariff headwinds. Advance Auto Parts fell 8% on expectations of more visible tariff impacts in the second half.

In contrast, U.S. consumers have remained relatively resilient.

• July retail sales rose 0.5% MoM
• June’s figure was revised up from 0.6% to 0.9%
• Real retail sales (inflation-adjusted) rose 1.2% YoY — the tenth consecutive month of growth

Morgan Stanley noted on Friday that while consumer spending growth has slowed from last year, it continues at a moderate pace.

Still, cautionary signs remain. The only service category in the retail sales report — restaurants and bars — saw the largest decline since February.

TD Securities analysts said service spending is the most important indicator of consumer health, so the overall report, while positive, doesn’t fully reflect consumer stress.

Bloomberg economists added this suggests households facing slower disposable income growth shifted spending toward essentials and away from discretionary last month.

Additionally, the University of Michigan’s latest survey showed the first drop in consumer sentiment in four months, with both 1-year and 5-year inflation expectations rising.

These recent data remind investors that forward-looking guidance from retailers is just as important as quarterly results: even if companies navigated Q2 well, the pressure on growth and profits in coming months remains a key test.

Morgan Stanley expects that tariff-driven price increases will continue to pressure consumer purchasing power, potentially leading to further softening in spending later this quarter and into Q4.