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

Summary

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

Release Date: March 6, 2025
Host: Chip Cutter
Guest: Sarah Nassauer, Retail Reporter for The Wall Street Journal

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Introduction

In the March 6th episode of WSJ What’s News, host Chip Cutter delves into the pressing challenges facing major retailers amidst the latest earnings season. Titled "What’s News in Earnings: Big Retailers Start to Worry," the episode explores how tariffs, consumer caution, and inflationary pressures are reshaping the retail landscape. Sarah Nassauer, a seasoned retail reporter for The Wall Street Journal, joins Cutter to provide in-depth analysis and insights.

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Impact of New Tariffs on Retailers

The episode opens with the Trump administration implementing long-anticipated tariffs on goods from Mexico and Canada, adding to existing tariffs on Chinese imports. Sarah Nassauer (00:14) explains:

"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."

These tariffs pose a significant challenge as retailers grapple with increased costs that threaten to squeeze margins and force price hikes for consumers.

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Retailers’ Strategic Responses

Nassauer highlights how retailers have been preparing for tariffs on Chinese goods by diversifying supply chains and manufacturing networks. However, the new tariffs on Mexican and Canadian goods present a tougher hurdle:

"Canada and Mexico are different and a tougher thing for them to absorb those price increases." (01:26)

Best Buy's CEO, Corey Barry, emphasizes the likelihood of higher consumer prices due to the reliance on imports from these countries (02:02).

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Negotiations and Cost Management

Addressing how companies might mitigate the impact of tariffs, Nassauer discusses the delicate balancing act between negotiating with suppliers and maintaining profit margins:

"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 in a way that doesn't eat into anyone's margins too much." (02:24)

She anticipates a period of intense negotiations, with some tariff costs inevitably being passed on to consumers.

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Case Study: Target’s Financial Performance

Target provided a cautionary tale this earnings season. With net sales shrinking by 0.8% to approximately $107 billion, Target warns of flat sales and profit pressures due to consumer uncertainty and rising tariffs (02:52). Nassauer notes:

"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..." (03:06)

This cautious outlook echoes across the retail sector, contributing to investor concerns despite some companies showing robust sales figures.

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Walmart’s Resilience and Continued Caution

Walmart, despite posting substantial revenues of $180.6 billion and meeting Wall Street expectations, remains cautious. As the largest grocer in the U.S., Walmart benefits from greater maneuverability:

"They mentioned some of the same issues in terms of tariffs, unpredictable consumer behavior as a reason they're a little bit more cautious on their guidance for earnings for the current year." (03:53)

Nassauer underscores that even retail giants are not immune to the broader economic uncertainties affecting the sector.

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Shifts in Consumer Behavior

When probing whether consumer purchasing patterns have shifted, Nassauer observes:

"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..." (04:21)

Consumers are reportedly focusing more on essential items while being selective with discretionary spending, reflecting a cautious approach influenced by economic pressures.

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Challenges in In-Store Shopping

Suzanne Kapner’s observations on the deteriorating in-store shopping experience add another layer to the challenges retailers face. Nassauer elaborates on consumer frustrations:

"A lot of shoppers that get frustrated when they can't find what they want on the shelf, then they can't buy it... if the price is higher than they expected... or the checkout line is too long." (05:01)

Retailers like Target are actively working to address these pain points by improving stock levels and reducing checkout wait times.

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Economic Implications and Future Outlook

Nassauer emphasizes the broader economic signals conveyed by the retail sector's performance:

"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." (05:44)

She plans to monitor government data on consumer sentiment and price trends, including curious remarks like the potential price movement of an avocado (05:44), to gauge the ongoing economic climate.

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Conclusion

The episode concludes with Cutter acknowledging the complex environment retailers are navigating, from tariff-induced cost pressures to evolving consumer behaviors. As the earnings season progresses, the insights provided by Sarah Nassauer offer a comprehensive understanding of the challenges and strategic responses shaping the future of retail.

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Notable Quotes:

• Sarah Nassauer (01:14): "The retailers said they're not fans and they expect to raise prices."
• Sarah Nassauer (02:24): "Executives say they're going to try to do everything they can to negotiate with suppliers..."
• Sarah Nassauer (03:06): "They really hit a note of caution for the current year..."
• Sarah Nassauer (05:44): "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."

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This comprehensive summary encapsulates the critical discussions and insights from the episode, providing listeners with a clear understanding of the current state and future outlook of major retailers in a challenging economic environment.

Transcript

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[Chip Cutter]

Hey listeners, it's March 6th.

[Unknown Speaker 3]

I'm chip cutter for the Wall Street.

[Chip Cutter]

Journal, and this is what's news in earnings, our look at the broad themes.

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That stood out in the latest earnings season.

[Chip Cutter]

Today we're talking about retailers. For years, consumers have gravitated towards companies.

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Such as Walmart, Amazon and Costco that.

[Chip Cutter]

Are known for low prices and fast.

[Unknown Speaker 3]

Shipping on lots of items.

[Chip Cutter]

But now the industry is grappling with a growing list of issues tariffs, cautious consumers and still high infl.

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Some big companies like Best Buy are.

[Chip Cutter]

Already warning of challenges ahead and possibly.

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Higher prices for shoppers.

[Chip Cutter]

Sarah Nassauer covers the biggest retailers for.

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The Journal and is here to explain all that's happening across the industry. Sarah, so good to see you.

[Sarah Nassauer]

Thanks for having me.

[Chip Cutter]

So let's start with what happened this week.

[Unknown Speaker 3]

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.

[Chip Cutter]

But what did retailers have to say.

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About them and what will it mean for consumers?

[Sarah Nassauer]

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.

[Unknown Speaker 3]

And so Best Buy chief executive Corey Barry said US Consumers are likely to face higher prices as a result of this. A lot of electronics come from places like China and Mexico.

[Chip Cutter]

What can companies do to negotiate with.

[Unknown Speaker 3]

Suppliers and to try to avoid some of these tariffs? Obviously, they would like to negotiate around them. How likely is that? How doable is it for companies trying to avoid these?

[Sarah Nassauer]

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 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.

[Chip Cutter]

Target this week warned that its profit.

[Unknown Speaker 3]

Would come under pressure this quarter and.

[Chip Cutter]

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 and its results?

[Sarah Nassauer]

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. You saw some of the companies, their stocks dipped. 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.

[Chip Cutter]

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?

[Sarah Nassauer]

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 as a reason they're a little bit more cautious on their guidance for earnings for the current year.

[Chip Cutter]

Is there any evidence that shoppers are.

[Unknown Speaker 3]

Just changing what they're buying yet? Do these companies tell us we're seeing a totally different mix of what consumers are spending on?

[Sarah Nassauer]

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.

[Unknown Speaker 3]

In so our colleague Suzanne Kapner 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, what are they experiencing?

[Sarah Nassauer]

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 stocked, that checkout lines are shorter. They're aware of some of these consumer pain points.

[Unknown Speaker 3]

Finally, Sara, lots of companies are trying.

[Chip Cutter]

To understand just how consumers are feeling right now. This goes beyond retail, of course, but.

[Unknown Speaker 3]

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 understand how consumers feel about all this?

[Sarah Nassauer]

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 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.

[Unknown Speaker 3]

Sarah Nassauer, retail reporter for the Journal, thanks for being here.

[Sarah Nassauer]

Thanks for having me.

[Chip Cutter]

And that was what's News and Earnings. Today's show was produced by Zoe Kulkan.

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And Pierre Bienname with supervising producer Michael Cosmitez.

[Chip Cutter]

Later today, we'll have the PM edition of what's NEWS out for you as usual.

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And we'll be back with you in.

[Chip Cutter]

The next earnings season with a look.

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At the earnings reports of major US Companies. Until then, I'm Chip Cutter. Have a great day.