What’s News in Earnings: Big Retailers Start to Worry
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What is the focus of this special bonus episode?
Hey, listeners, it's March 6th. I'm Chip Cutter for The Wall Street Journal, and this is What's News 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.
How are tariffs affecting major retailers?
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? 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.
What are the challenges for Best Buy regarding tariffs?
And so Best Buy chief executive Corey 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?
How are companies negotiating to manage tariff impacts?
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.
Why is Target experiencing profit pressure?
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 dipped.
What is Walmart's outlook for the year?
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.
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Chapters
6 chapters
1
What is the focus of this special bonus episode?
0:03–0:45
2
How are tariffs affecting major retailers?
0:45–1:33
3
What are the challenges for Best Buy regarding tariffs?
1:33–1:56
4
How are companies negotiating to manage tariff impacts?
1:56–2:24
5
Why is Target experiencing profit pressure?
2:24–2:57
6
What is Walmart's outlook for the year?
2:57–6:07
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