As US big-box retailers prepare to report their second-quarter results, RBC Capital Markets is signaling that investors should expect a mixed bag. According to the bank's analysts, Walmart and Lowe's are likely to come up short on comparable sales, while Target could surprise to the upside and even raise its full-year profit guidance.
Comparable sales—often called "comps"—are a key retail metric that measures revenue growth from stores and online channels that have been open for at least a year. They strip out the impact of new store openings and closures, giving investors a clearer picture of underlying demand. When a retailer misses on comps, it often signals weakening customer traffic or lower spending per visit.
Why the split?
The divergence in expectations likely reflects different customer bases and product mixes. Walmart, the world's largest retailer, leans heavily on groceries and everyday essentials, which tend to be less discretionary. Lowe's, a home-improvement chain, is more tied to the housing market and big-ticket renovation projects. Both could be feeling pressure from consumers who are becoming more cautious about spending.
Target, on the other hand, has a stronger mix of discretionary categories like apparel, home goods, and seasonal items. If its shoppers are still willing to open their wallets, the company could benefit from a more favorable comparison to last year's results. RBC's view suggests that Target's management might be confident enough to raise its profit outlook for the full year, a move that would likely be welcomed by shareholders.
The broader retail environment has been uneven. While back-to-school sales have been strong, retail stocks haven't always reflected that strength, as investors weigh the risk of slowing consumer demand. The latest data on retail sales and housing, which traders are watching closely, could provide more clues about the health of the American shopper.
What this means for investors
For everyday investors, the key takeaway is that not all big-box retailers are in the same boat. A split quarter means that stock performance could vary widely within the sector. If you own shares of Walmart or Lowe's, a miss on comparable sales could weigh on the stock in the short term. Conversely, a beat from Target, especially if accompanied by a raised outlook, could give its shares a boost.
It's also worth remembering that these are just forecasts from one bank. RBC's analysts are making educated guesses based on available data, but actual results can differ. Retailers often provide their own guidance, and surprises—both positive and negative—are common.
For those considering retail stocks, it's important to look beyond the headline numbers. Pay attention to how each company is managing inventory, what they're saying about consumer behavior, and whether they're gaining or losing market share. These details can be more telling than a single quarter's comps.
The retail sector has been a mixed bag lately. Some companies, like Inditex, which is testing physical retail in the US with its Bershka brand, are still investing in growth. Others are dealing with the fallout from changing consumer habits. The upcoming earnings reports will give investors a clearer picture of who's winning and who's struggling.
Looking ahead
Beyond the individual companies, these results will be watched as a barometer for the broader US consumer. If Walmart and Lowe's miss while Target beats, it could suggest that shoppers are trading down or being more selective—spending on essentials and value but pulling back on discretionary items. That would have implications for the wider economy, as consumer spending drives a large portion of GDP.
Investors will also be listening for any commentary on tariffs, inflation, and supply chain costs. These factors have been squeezing margins across the retail industry, and any guidance on how they're managing those pressures will be closely scrutinized.
In the meantime, the dollar has been wavering as traders await retail sales and housing data, which could provide additional context on the consumer's health. And for those looking at the broader market, the performance of retail stocks can sometimes signal where the economy is headed.
Ultimately, RBC's forecast is a reminder that the retail landscape is far from uniform. As earnings season unfolds, investors should be prepared for divergent outcomes and focus on the fundamentals of each company rather than painting the whole sector with one brush.
