Consumer spending is steady – with some exceptions
As some of the biggest names in retail, including Walmart and Home Depot delivered earnings results in recent weeks, they updated Wall Street on how they and their shoppers are responding to President Donald Trump’s wave of tariff increases.
The takeaway?
Tariff costs are rising for retailers, and they’ve had to get creative to avoid widespread price hikes.
Yet consumer spending has largely stayed strong so far – and the pinch from higher duties hasn’t been as severe as some companies had feared. Compared with their concerns in the spring, retail executives struck a measured tone and said they don’t expect their costs, or customers’ prices, to jump dramatically.
Walmart had given one of the strongest warnings in May, as CFO John David Rainey said he expected some prices to rise during the summer. In an interview with CNBC on Thursday, however, Rainey said the nation’s biggest retailer has raised prices on some items, but in other parts of its stores has kept prices down or expanded discounts.
“There are certainly areas where we have fully absorbed the impact of higher tariff costs,” he said. “There are other areas where we’ve had to pass some of those costs along.But when you look across the basket of items, we’re certainly trying to keep prices as low as we can.”
Scot Ciccarelli, a retail analyst for truist, said retailers are raising prices “but not nearly to the degree that might have been expected in early April” when Trump frist announced his steep tariffs on dozens of countries.
“Most of the companies are kind of downplaying the impact of tariffs,” he said. “They’ve all talked about considerable mitigation efforts, whether that is diversifying sourcing, whether that is pushing price back to vendors.”
Here are three takeaways from a busy couple of weeks of retail earnings.
Retailers have blunted the effects of tariffs … so far
Retailers have jumped into action to try to minimize cost increases from tariffs or avoid them altogether.
Those tactics have included importing goods from a wider range of countries, getting items to the U.S.early and stocking up on high-frequency purchases or fresh merchandise that consumers are more likely to buy, even at higher prices, according to interviews of retail executives and earnings calls.Yet as Walmart showed, retailers have been strategic about price increases – to not only avoid spooking customers, but also to dodge potential scrutiny from the White House. Trump criticized Walmart in May after the company warned it would have to raise prices.
Sharkninja, which makes a wide range of items including blenders and hairstyling tools, has “increased sell price on products, but done it very, very carefully,” CEO Mark Barrocas said in an interview. And in some cases, it had to roll back part of those price increases, he said.
The company has also reduced discounting and raised the price of new merchandise when it debuts. For example, Sharkninja initially planned to launch a new infrared skin care mask called CryoGlow at $299, but instead decided to price it at $349, he said.
For Walmart, Target and Tapestry-owned Coach, importing goods early and having merchandise in warehouses before tariffs took effect have helped them curb the hit from higher rates.
Home depot Chief Financial Officer Richard McPhail told CNBC most of the imported products the company sold during the quarter landed ahead of tariffs. And Home Depot is taking more steps to blunt the effects: More than half of what the company sells comes from the U.S. and it aims to import no more than 10% from any single country by the end of the year.
Yet the tariff bill is still adding up. Walmart’s McMillon said he expects higher costs from duties to continue through the second half of the fiscal year. Other companies also provided specific estimates of how much the higher duties will cost them.
Even as tapestry posted sales growth, its shares tumbled last week after it said costs from higher duties would total $160 million this upcoming fiscal year and ding profits.
While Trump’s tariff policy appears more settled than in the spring, tariffs on some countries could still rise.
Many of Trump’s tariffs on countries began in early August.
Walmart and Brands Navigate Tariffs and shifting Consumer Demand
Walmart is demonstrating resilience in the face of economic headwinds, bolstered by diversifying revenue streams beyond traditional retail, while other brands are experiencing varied impacts from tariffs and changing consumer behavior.The retail giant reported strong earnings, benefiting from growth in its advertising business and third-party marketplace. Walmart’s global advertising revenue increased by 46% in the most recent quarter, fueled in part by its acquisition of ad-enabled smart TV maker Vizio last year. Marketplace revenue also grew 17% year-over-year, driven by commissions and fees from sellers utilizing Walmart’s advertising and fulfillment services. These diversified profit streams, which offer higher margins than traditional retail sales, contribute to more stable earnings, according to Walmart’s CFO John rainey.”We are more than just a standard brick-and-mortar retail business,” Rainey stated during the company’s earnings call.
Walmart’s success also follows a trend of strategic acquisitions, including SRS Distribution, its largest acquisition to date.
However,not all brands are faring as well.The impact of tariffs and fluctuating consumer demand is creating a mixed landscape. Some companies are successfully navigating these challenges, while others are struggling.
For example, sandal maker Birkenstock reported no negative impact from price increases implemented in July due to tariffs,according to CEO Oliver Reichert.Similarly, Coach, which has focused on increasing average prices and reducing markdowns over the past five years, is better positioned to absorb rising input costs, according to CEO Todd Kahn in a CNBC interview.
Conversely,some brands are feeling the pressure more acutely. Target reported that profit margins were negatively affected by the costs associated with cancelling orders. Crocs is also taking a cautious approach, reducing order volume for the second half of the year due to consumer uncertainty. In an unusual move,Crocs is even taking back older inventory of its Heydude shoe brand from retailers to replace it with newer styles.Truist analyst Joseph Ciccarelli notes that a brand’s negotiating power with vendors plays a significant role. “If you’re a struggling brand, or you’re not really growing your business with a vendor, that vendor has less incentive to absorb incremental costs, whether it’s from tariffs or supply chain or whatever,” he explained.