Retail earnings show consumer spending remains strong

Consumer sentiment hit new lows in May, according to the University of Michigan’s consumer sentiment index, but quarterly retail earnings show a resilient consumer that is still willing to spend.

Last week, retail giants including Home Depot, Walmart, Target, TJX and Urban Outfitters, Inc. reported their quarterly earnings.

There were a surprising number of bright spots considering the inflationary pressure both retailers and consumers have faced over the past year.

Target reported its first quarter of sales growth in more than a year, driven by the success of viral partnerships with brands like Roller Rabbit, Parke and Pokémon that brought more people into stores.

The off-price sector also continues to soar, with TJX reporting net sales of $14.3 billion in its fiscal first quarter, up 8% year over year on a constant currency basis.

Many retail executives remained cautious about their outlooks for the year, as they wait to see how increasing gas prices impact both their vendor partners and consumers.

While many retail executives spoke at length about how their consumers remain resilient, they said they also continue to make trade-offs as they seek out the best value, including looking for mixed first quarter results.

State of Consumer Health

One of the most interesting pieces of news that came out of the earnings cycle last week was that E.l.f. Beauty is testing price increases on select items after seeing sales unit decline.

Last year, E.l.f. Beauty raised prices by $1 across all its SKUs in response to tariffs, as well as years of inflation.

But earlier this year, E.l.f. Beauty tested a $4 price decrease on its Halo Glow skin tint.

CEO Tarang Amin said during E.l.f’s quarterly earnings call that “initial test results show a 38% lift on Amazon and a 36% lift across all retailers, including a triple-digit sales lift on TikTok Shop,” and said that the company is “exploring other pricing opportunities.”

Retail Strategies

Retail executives spoke at length during their respective earnings calls about how they are delivering value to their consumers, with a focus on high-quality products.

At many retailers, focusing on value doesn’t mean focusing solely on price.

As Jessica Ramirez, co-founder of The Consumer Collective, put it in an interview, “the word value no longer means buying something cheaply, buying it on promotion — it really does mean, is this product high quality?”

Target had a banner quarter, with net sales up 6.7% year over year, driven by investments in “style, design and culture” to drive sales across all its major categories, as well as in value — in other words, price.

Consumer Behavior

Despite the fact that many major retailers continue to report sales increases, executives struck a cautious tone on earnings calls in light of rising fuel prices, which may impact consumer behavior and lead to changes in gift-giving habits.

Walmart executives warned that they may have to raise prices if fuel costs continue to rise, which could impact categories like food.

John Rainely, Walmart’s EVP and CFO, said during the earnings call that “the number of gallons that customers fill up when they come to our fuel stations fell below 10 for the first time since 2022.”