WSJ What’s News - What’s News in Earnings: Big Retailers Start to Worry

Episode Date: March 6, 2025

Bonus Episode for Mar. 6. When consumers feel uncertain about the economy, retailers tend to get nervous too. Big companies like Walmart, Target and Best Buy are trying to navigate uncertainties on tariffs along with shoppers still reeling from inflation. Retail reporter Sarah Nassauer analyzes the latest earnings results from some of the nation’s top retailers and explains why consumer behavior looks increasingly unpredictable this year. Chip Cutter hosts this special bonus episode of What's News in Earnings, where we dig into companies’ earnings reports and analyst calls to find out what’s going on under the hood of the American economy. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

With the Fizz loyalty program, you get rewarded just for having a mobile plan. You know, for texting and stuff. And if you're not getting rewards like extra data and dollars off with your mobile plan, you're not with Fizz. Switch today. Conditions apply. Details at fizz.ca. Hey, listeners. It's March 6th. I'm Chip Cutter for The Wall Street Journal. And this is What's New in Earnings, our look at the broad themes that stood out in the latest earnings season.

Today we're talking about retailers. For years, consumers have gravitated towards companies such as Walmart, Amazon and Costco that are known for low prices and fast shipping on lots of items. But now the industry is grappling with a growing list of issues, tariffs, cautious consumers and still high inflation. Some big companies like Best Buy are already warning of challenges ahead and possibly higher prices for shoppers. Sarah Nassauer covers the biggest retailers for the Journal and is here to explain all that's happening across the industry. Sarah, so good to see you. Thanks for having me. So let's start with

what happened this week. The Trump administration's long-awaited, long-feared tariffs on Mexico and Canada took effect, adding to those already in place for goods from China. These of course could still be retracted. But what did retailers have to say about them and what will it mean for consumers? The retailers said they're not fans and they expect to raise prices. They've said that kind of thing for a while now because they've known that this is a possibility. And some themes emerged in these earning calls,

which was when it comes to China, a lot of retailers had planned for that and have already been dealing with tariffs on goods out of China and have diversified their supply chains and their manufacturing networks with that in mind. But Canada and Mexico are different and a tougher thing for

them to absorb those price increases. And so Best Buy Chief Executive Cory Berry said, U.S. consumers are likely to face higher prices as a result of this. A lot of electronics come from places like China and Mexico. What can companies do to negotiate with suppliers and to try to avoid some of these tariffs? Obviously, they would like to try to negotiate around them. How likely is that? How doable is it for companies trying to avoid these? LESLIE KENDRICK, BUSINESS ADVISOR, CREDITS AND CREDITS, CREDITS AND CREDITS Executives say they're going to try to do everything they can to negotiate with suppliers or different

members that are part of various parts of their supply chain about how they can share these costs and in a way that doesn't eat into anyone's margins too much, but at some point, they're going to pass some of those costs along. We're going to enter a period here of really fierce negotiations between all those parties because when you raise prices, customers, especially consumers, are still sensitive on prices, aren't necessarily going to buy as much of your stuff. Target this week warned that its profit would come under pressure this quarter and its sales could be flat this year because of consumer uncertainty and escalating tariffs.

Its net sales shrank by 0.8% for the full year to around $107 billion. What stood out to you in its results? They said that sales over the holidays were fairly solid. Didn't grow like gangbusters, but fairly solid. But they really hit a note of caution for the current year. And that is a theme we've seen from lots of other retailers this earnings season is, yep, people are still buying, but this year is really unpredictable. And you saw some of the companies, their stocks,

Stipp, Walmart, for example, even though their sales were great, said they're kind of cautious for the year. And that has investors a little bit spooked about what might come. Walmart had been on a tear until fairly recently. Walmart enjoyed a post-pandemic streak that had pushed the company's stock price near all time highs.

This quarter, it reported $180.6 billion in total revenue and $7.9 billion in operating income meeting Wall Street's expectations. Even so, is it still worried about some of these same issues as Target? It's a slightly different situation in that Walmart is the country's largest grocer and is known for low prices. So they have a little bit of more maneuverability through a period like this, but they mentioned some of the same issues in terms of tariffs, unpredictable consumer behavior is a reason they're a little bit more cautious on their guidance for earnings for the current year.

Is there any evidence that shoppers are just changing what they're buying yet? Like do these companies tell us like, oh, we're seeing just a totally different sort of mix of what consumers are spending on? They've said that people continue to do sort of what they've done. It's not really a big change, but prioritize needs versus wants, and that they might look to save money on something like milk and lettuce and cleaning supplies and splurge on something that's more unique, like a trip. We're seeing some of that high-low behavior, but it really depends on what socioeconomic

group this shopper happens to be in. So our colleague Suzanne Kappner recently wrote that the internet had made in-store shopping kind of miserable right now. So in addition to all the big themes that we're talking about, she had written that physical stores don't have enough staff, they also now don't have enough stuff. I just wonder, for someone just going into stores right now, like, what are they experiencing? A lot of shoppers that get frustrated when they can't find what they want on

the shelf, then they can't buy it. And they took a trip to the store. They didn't order it online. And if the price is higher than they expected or higher than it used to be, that can be a point of disappointment or the checkout line is too long. And you heard Target noting some of those things in their earnings that they're working to make sure shelves are better stock, that checkout lines are shorter. They're aware of some of these consumer pain points.

Finally, Sarah, lots of companies are trying to understand just how consumers are feeling right now. This goes beyond retail, of course, but what are the reports from big retailers tell us about just the state of the economy and what signs will you be watching in the weeks ahead to sort of understand how consumers feel about all this? Retailers are saying that consumers are still very cautious and that for many consumers, prices still feel so much higher than they did a few years ago that that has a real impact on how people are able to buy things. I'm definitely going to be watching some of the government data around consumer sentiment,

what retailers say about their prices as tariffs take effect if they do. And I want to watch these prices really carefully. I'm really curious what's going to happen to the price of an avocado next week. Sarah Nassauer, Retail Reporter for The Journal. Thanks for being here. Thanks for having me. And that was What's News in Earnings. Today's show was produced by Zoe Koken and Pierre Bienimé with

supervising producer Michael Cosmides. Later today we'll have the PM edition of What's News out for you as usual and we'll be back with you in the next earnings season with a look at the earnings reports of major US companies. Until then, I'm Chip Cutter. Have a great day.