Retail Earnings Reflect a Stable but More Selective Consumer

Consumer Resilience Continues to Support the Economy

For the past several years, consumer resilience has remained one of the most consistent themes supporting the U.S. economy, and recent data continues to reinforce that view. Commentary from large banks, improving credit trends, and stronger loan growth all point toward a consumer that remains in relatively healthy condition despite higher interest rates and ongoing geopolitical uncertainty. Recent earnings from major retailers have further validated this backdrop, with spending activity continuing to hold up across multiple categories.

Recent commentary from Bank of America CEO Brian Moynihan highlighted this trend, stating, “What we see in our customer base is, in the month of April, our customers moved 5% more money in the economy than they did last April. And the gas increase is less than half a percentage point of that. The rest of it is just more spending. People are employed. They have more money in their accounts. Credit quality is good … There is nothing that gives you pause when you look at what people are actually doing.”¹

The underlying credit data supports this narrative. April credit card trends showed average delinquency rates improving by 21 basis points year-over-year, while net charge-off rates declined by 41 basis points. At the same time, lenders such as Capital One Financial, Bread Financial, and Synchrony Financial all reported improving loan growth trends, reinforcing the view that consumer activity remains stable and credit conditions remain constructive.²

Home Depot Reports Stable Consumer Trends Despite Macro Pressure

The Home Depot reported a generally mixed quarter, delivering both an earnings and revenue beat and a miss on same-store sales and gross margins while reaffirming full-year guidance. Comparable sales came in at 0.6%, ahead of the prior year’s decline of 0.3%, though still modest relative to expectations.³ The broader takeaway from the quarter was largely unchanged from recent trends; demand remains stable, but elevated interest rates continue to pressure larger discretionary home improvement projects.

Management continued to emphasize that the core Home Depot customer remains financially healthy and engaged. This customer base has benefited from significant home price appreciation over the past several years, alongside strong gains in equity markets, both of which continue to support household balance sheets and spending capacity. Importantly, management made clear that the primary headwind remains macroeconomic conditions rather than deterioration in the consumer itself.

While engagement across categories remains healthy, customers are still hesitant to commit to larger-scale renovation projects, a trend that has persisted for several quarters. That said, one encouraging sign was continued activity across more departments and stable early second-quarter trends in May, which remained consistent with February and March levels. Overall, the results suggest that consumer demand is holding steady rather than deteriorating, even if a broader reacceleration has yet to emerge.

Pro Demand Despite Housing Headwinds

Lowe’s reported a mixed quarter that largely reinforced the same themes seen across the housing and home improvement landscape over the past several quarters. Revenue increased 10% year-over-year to $23.08 billion, while gross margins came in stronger than expected at 32.7%.⁴ However, comparable sales growth of 0.6% modestly missed expectations, and EPS also came in below estimates due to weaker operating margins, driven by higher-than-expected operating expenses.

Looking ahead, the setup for the second quarter appears somewhat more constructive. Weather disruptions early in the first quarter, particularly February storms, likely delayed some demand, while trends improved through March and April. Management also highlighted strong inventory positioning and promotional activity heading into the key seasonal selling season. Additionally, a meaningful amount of tax refund dollars has yet to fully enter the economy due to filing extensions, which could provide a modest tailwind to consumer spending over the coming months.

That said, underlying demand trends remain relatively unchanged. Management reiterated that this remains the most difficult housing environment since the Global Financial Crisis, with larger discretionary projects continuing to face pressure. Similar to Home Depot, the Pro customer remains more resilient than DIY demand, supported by stable repair and maintenance activity and relatively steady backlog trends. However, rising labor, transportation, and input costs are beginning to emerge as incremental headwinds heading into the second quarter.

Target Sees Traffic Growth and Merchandising Improvements

Target delivered a solid rebound quarter operationally, though management commentary during the Q&A portion of the call ultimately weighed on investor sentiment. While results came in ahead of expectations across several key metrics, concerns around rising costs, softer consumer sentiment, tougher upcoming comparisons, and increased shrink pressured shares following the release.

Operationally, the quarter showed encouraging signs of improvement. Comparable sales increased 5.6%, well ahead of expectations, driven primarily by a 4.4% increase in traffic. Digital comparable sales also remained strong, rising 8.9%, while operating margins improved to 4.5%, above consensus estimates.⁵ Much of the improvement appears tied to Target’s aggressive merchandising refresh strategy, with management focusing on introducing new brands and updating assortments across multiple categories to drive customer engagement. The company continues to lean heavily into wellness and health-oriented brands, while also significantly refreshing product selection across food and home categories, where assortment changes are particularly meaningful.

From an operational standpoint, inventory management improved meaningfully, with inventories declining 5.6% year-over-year and inventory turns improving roughly 10%. Capital investment also remains elevated, with first-quarter capital expenditures rising 31% year-over-year to $1 billion,⁶ driven largely by investments in new stores and remodels. Importantly, sales growth was broad-based across all six merchandise categories, led by particularly strong performance in hardlines, beauty, and food and beverage, reinforcing that consumer spending activity remains intact even as broader sentiment becomes more cautious.

Walmart’s Traffic Trends Remain Strong Despite Margin Pressure

Walmart delivered another quarter that reinforced the resilience of the consumer, though rising costs created some pressure on profitability. Revenue increased 7.3% year-over-year to $177.75 billion, ahead of expectations, while Walmart U.S. comparable sales excluding fuel came in at 4.1%. Traffic trends also remained healthy, with Walmart U.S. traffic increasing 3%, and Sam’s Club comparable sales excluding fuel rising 3.9%, both ahead of expectations.⁷

The primary weakness in the quarter came on the earnings side, where EPS and forward guidance fell short of expectations. Management attributed much of the pressure to higher fuel costs, noting that Walmart absorbed virtually all of those increases during the quarter rather than passing them along to consumers. As a result, gross margins came in lighter than expected, highlighting the ongoing balancing act between protecting market share and preserving profitability. If elevated costs tied to the Middle East conflict persist, management may ultimately need to implement additional pricing actions.

Importantly, the results also reinforced the increasingly bifurcated nature of the consumer environment. Higher-income customers continue to spend relatively confidently, supported by stronger balance sheets and asset appreciation, while lower-income consumers remain far more budget conscious and continue to face greater financial pressure. Even so, overall spending trends and traffic levels suggest the broader consumer backdrop remains stable.

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Sources:

1. The Wall Street Journal: As of May 18, 2026 ↩︎
2. Barclays: As of May 18, 2026 ↩︎
3. HD Earnings Call: As of May 19, 2026 ↩︎
4. LOW Earnings Call: As of May 20, 2026 ↩︎
5. TGT Earnings Call: As of May 20, 2026 ↩︎
6. TGT Earnings Call: As of May 20, 2026 ↩︎
7. WMT Earnings As of May 21, 2026 ↩︎

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