Finance
Verizon Shares Take a Hit After Q1 Sales Warning
March 13, 2025
The once-thriving food court on Santa Monica's Third Street Promenade now stands eerily quiet, a stark contrast to the bustling retail environment it once symbolized. As retailers wrap up their holiday season earnings reports, the mood has shifted from optimism to cautious anticipation. While most companies exceeded fourth-quarter expectations, many are issuing more subdued forecasts for the year ahead, and the retail sector is struggling in the market—especially when compared to consumer staples, which have outperformed in recent weeks.
Despite a strong holiday performance, 2025 has brought challenges. Strong job growth and rising wages had kept consumer spending steady, even amid rising prices and diminishing savings. However, January's consumer spending dip marked the first decline since March 2023 and the sharpest drop in almost four years. Although factors like unseasonably cold weather and wildfires in California could partially explain the downturn, it’s harder to ignore the growing concerns among retailers themselves. Many are now revising their earnings expectations downward, citing both a slowdown in consumer confidence and the looming impact of tariffs on their bottom lines.
Some of the industry’s top performers are signaling caution as they prepare for potential challenges ahead. Walmart, for instance, saw a significant drop in share prices after it warned of a steep sales slowdown, even though it had beaten fourth-quarter estimates. The company’s forecast of earnings per share well below expectations added to the uncertainty, though some analysts note that Walmart has a history of issuing conservative guidance.
Target also struggled, with its stock price falling after it reported a disappointing outlook. The retailer pointed to weak February sales and consumer hesitation as reasons for its cautious stance, warning of a “meaningful” profit drop in the first quarter. Similarly, Costco faced its worst stock performance in nearly a year after missing earnings expectations, despite modestly exceeding sales targets. The downturn in consumer sentiment, highlighted by a sharp drop in February’s University of Michigan Consumer Sentiment Index, underscores the increasingly cautious mood among shoppers.
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Another significant concern for retailers is the impact of tariffs, particularly those associated with the Trump administration’s trade policies. Target has expressed concerns that 25% tariffs on Mexican imports could raise prices on essential goods, like bananas and avocados. Best Buy has warned that electronics prices may rise due to tariffs on imports from China and Mexico, while Victoria’s Secret is bracing for a $10 million to $20 million hit from a new 10% tariff on Chinese-made goods. Even Walmart is acknowledging the potential impact, with some reports indicating the company has requested price reductions from its Chinese suppliers in an effort to offset the expected cost increases.
Not all retailers are facing dark days ahead. Off-price retailers like Burlington Stores and TJX are finding success in the current climate, as consumers shift their spending to discount options. Burlington saw nearly 12% growth in its stock price after surpassing sales expectations, while TJX, the parent company of T.J. Maxx, Marshalls, and HomeGoods, reported record annual sales. These discount chains are thriving as cash-strapped shoppers look for more affordable alternatives.
Other unexpected winners include Gap, which saw a 13% rise in stock price following a strong fiscal year, and home improvement giants Home Depot and Lowe’s, both of which reported better-than-expected results. These companies have capitalized on strong demand for home improvement products, even as other sectors face headwinds.
As consumer spending accounts for nearly 70% of the U.S. GDP, any signs of weakness in this area are a major concern for the broader economy. Retailers are preparing for more difficult times, with many anticipating that shoppers will visit stores more frequently but spend less, focusing primarily on essentials. According to Deloitte’s 2025 U.S. Retail Industry Report, two-thirds of executives expect this shift in behavior.
The retail sector's struggles are reflected in the performance of the SPDR S&P Retail ETF, which has underperformed compared to consumer staples stocks. The latest Beige Book from the Federal Reserve echoed these concerns, noting slower consumer spending, particularly among lower-income households, as a key driver of the retail slowdown. With several major retailers, including Dick’s Sporting Goods, Kohl’s, American Eagle, and Ulta Beauty, scheduled to report earnings this week, all eyes are on how the sector navigates the challenges ahead.
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