Retail earnings outlook
The LSEG Retail/Restaurant Index reported Q1 2026 earnings growth of 27.2% (Exhibit 1). Among the companies that have reported, 74.0% exceeded analyst earnings expectations, 4% met expectations, and 22% fell short. This compares with a typical quarter, when 71% of companies beat estimates, 3% meet expectations, and 26% miss. Over the past four quarters, an average of 70% of companies exceeded estimates, 4% met expectations, and 26% missed.
In aggregate, Q1 earnings were 4.0% above consensus estimates, below both the long-term average earnings surprise of 11.4% and the 6.0% average surprise recorded over the previous four quarters.
Exhibit 1: The LSEG Retail/Restaurant Earnings Index: Q1 2024 Act – Q4 2026 Est.
Source: LSEG I/B/E/S
Retail earnings in the first quarter of 2026 received a significant boost from a historic tax refund season, reinforcing consumer spending at a time when the labor market remained resilient. However, recent earnings reports suggest that spending momentum is beginning to moderate and that consumer behavior is becoming increasingly segmented across income cohorts.
Higher-income consumers continue to spend freely on premium merchandise, supporting strong results at retailers such as Williams-Sonoma and Ralph Lauren. Both companies highlighted robust demand for full-price products, underscoring the resilience of affluent shoppers despite ongoing economic uncertainty.
By contrast, middle-income consumers are becoming more selective with discretionary purchases. Best Buy reported continued weakness in appliance sales, while Home Depot and Lowe’s noted that customers are delaying larger home improvement projects. At the same time, these consumers remain willing to purchase premium brands when offered at attractive prices, benefiting off-price retailers such as TJX Companies, Ross Stores and Burlington.
Among lower-income households, value remains the dominant purchasing consideration. Dollar Tree reported a 4.5% increase in average ticket size, partially offset by a 1.0% decline in customer traffic, suggesting that budget-conscious consumers are consolidating purchases into fewer shopping trips as higher gasoline prices and other living expenses continue to pressure household budgets.
Looking ahead, consumer sentiment has softened. The LSEG/Ipsos Consumer Sentiment Index declined for the third time in the past four months, reflecting weaker expectations for local economic conditions and reduced confidence in making major household purchases. Consumers’ perceptions of both current economic conditions and the outlook have deteriorated since the onset of geopolitical unrest in the Middle East earlier this year. Rising gasoline prices and persistent cost-of-living pressures remain key concerns, leaving overall consumer confidence subdued.
Against this backdrop, analysts surveyed by LSEG have become increasingly cautious on the retail sector’s near-term earnings outlook. Consensus forecasts for second-quarter earnings growth have been revised down from 8.1% at the start of the year to 4.2%, reflecting concerns over moderating consumer spending, higher fuel costs, and evolving trade and tariff-related pressures. If achieved, second-quarter earnings growth would represent a sharp slowdown from the 27.2% growth reported in the first quarter (Exhibit 1).
Q2 2026 earnings are currently expected to mark the weakest growth rate of the year, with consensus forecasts calling for a gradual improvement during the second half of the year. Nevertheless, retailers continue to prepare for an operating environment characterized by cautious consumers, persistent inflationary pressures, geopolitical uncertainty, evolving trade policies, and ongoing tariff-related disruptions. While consumer spending has remained resilient, the margin for error is narrowing as households become increasingly focused on value and affordability.
Sector outlook
A closer look at the data shows that, despite this year’s broader slowdown, pockets of strength remain concentrated in three consumer categories. The Hotels, Restaurants & Leisure sector is expected to deliver consistently strong earnings growth throughout 2026, suggesting consumers continue to prioritize experiences over goods (Exhibit 2). The Leisure Products category also posted a sharp 130.9% earnings growth rate in Q1 2026, consistent with recent U.S. retail sales data showing strong year-over-year growth in the hobby and sporting goods segment. This may reflect a shift among increasingly value-conscious consumers toward lower-cost recreational activities. The Consumer Staples and Personal Care Products sectors are also on track to report positive earnings growth in 2026, underscoring the relative resilience of essential and everyday categories while discretionary spending remains under pressure.
Exhibit 2: The LSEG Retail Index Sectors: Q1 2026 Act – Q4 2026 Est.
Source: LSEG I/B/E/S
Despite broader discretionary sector challenges, there are pockets of optimism. Looking ahead to Q2 earnings, analysts surveyed by LSEG are already constructive on Dillard’s Inc. The consensus estimate for Dillard’s Q2 2026 EPS stands at $4.31. Notably, a highly rated five-star analyst has issued a Bold Estimate of $4.58, above the consensus. This positive divergence between the Bold Estimate and consensus suggests the potential for an earnings beat and a favorable surprise when the company reports.
The StarMine SmartEstimate is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate differs from the consensus (I/B/E/S mean) by more than 2%, the company is likely to post subsequent earnings surprises directionally correct 70% of the time. This percentage difference is referred to as the Predicted Surprise (PS%) (Exhibit 3).
Exhibit 3: Dillard’s Inc. StarMine Predicted Surprise %: Q2 2026 Est.
Source: LSEG Workspace
More broadly, the companies listed below have LSEG Predicted Surprise values exceeding 2.0% for Q2 2026, Q3 2026, and/or the current fiscal year (Exhibit 4). Elevated Predicted Surprise scores indicate that earnings expectations may still be too conservative, increasing the likelihood that these companies outperform consensus estimates and deliver positive earnings surprises.
Exhibit 4: Strongest StarMine Predicted Surprise %: 2026 Est.
Source: LSEG Workspace
Conversely, the companies listed below have a negative Predicted Surprise of less than -2.0% for Q2 2026, Q3 2026, and/or the current fiscal year; indicating they are likely to miss earnings expectations and deliver negative surprises.
Exhibit 5: Weakest StarMine Predicted Surprise %: 2026 Est.
Source: LSEG Workspace
Inflation & pricing trends
According to the U.S. Bureau of Labor Statistics, the Consumer Price Index rose a sharp 0.5% month over month in May 2026 and 4.2% year over year. The acceleration was largely driven by energy prices, which increased 23.5% from a year earlier. The latest CPI data underscores the pressure consumers continue to face from higher costs for essentials, including food, electricity, and transportation. For retailers, this reinforces ongoing headwinds from weak consumer sentiment and increasingly value-conscious shoppers managing elevated living expenses.
In collaboration with Centric Market Intelligence, LSEG is tracking weekly average original prices across selected categories in U.S. mall stores. From December 2024 through June 2026, Backpacks recorded the steepest increase among the tracked categories, with average prices rising 5.6% ahead of the back-to-school season. Accessories followed with a 5.3% increase, while Footwear prices rose 2.6% (Exhibit 6).
Meanwhile, Men’s apparel increased a more modest 1.3%. Women’s apparel saw the smallest price increase, edging up just 0.4%. Overall, the data suggests consumers are facing the greatest pricing pressure in travel-related and accessory categories, while core apparel inflation has remained subdued amid softer demand and heightened promotional activity as retailers compete aggressively for value-conscious shoppers.
Exhibit 6: Average Price Changes: December 2024 – June 2026 Est.
Source: Centric Market Intelligence
Despite the recent resilience in consumer spending, the latest Producer Price Index (PPI) data, which measures price changes before they reach consumers, suggests inflationary pressures may be building beneath the surface. Over the past year, consumer prices have remained relatively contained, partly due to strategic actions by importers and retailers, including preordering inventory and absorbing tariff-related costs to shield consumers in the near term. However, that buffer may be fading. The latest PPI data indicates that higher costs are increasingly moving through the supply chain, driven in part by persistent tariff and transportation pressures. As these upstream costs continue to accumulate, consumers may soon begin to feel the impact more directly.
Promotional Activity
One factor supporting stronger first-quarter retail sales was an increase in promotional activity. The discount penetration, defined as the percentage of merchandise on sale, rose to its highest level in six years (Exhibit 7). Average discount penetration reached 40% in March and April, up from a year-to-date average of 38% in 2026 and above levels recorded a year earlier.
The increase in promotional activity reflects retailers’ efforts to stimulate demand in an environment where consumers remain highly value-conscious. As elevated living costs continue to pressure household budgets, retailers are relying more heavily on discounts to drive store traffic and maintain sales momentum. Entering the second quarter, discount penetration remains elevated, holding above its long-term average of 37%, suggesting promotional intensity is likely to remain a defining feature of the retail landscape through the remainder of the year.
Exhibit 7: Average Discount Penetration: U.S. Online Retailers
Source: Centric Market Intelligence
However, the average percentage discount has remained near 32%, making it the lowest year-to-date average since LSEG began tracking the data in 2019 (Exhibit 8). This suggests that while retailers are expanding the breadth of promotional activity by placing more merchandise on sale, they have largely resisted offering deeper discounts. The trend points to a more disciplined pricing environment, with retailers using targeted promotions to drive traffic and appeal to value-conscious consumers while helping to preserve margins.
Exhibit 8: Average Discount: U.S. Online Retailers
Source: Centric Market Intelligence
Retail same store sales outlook
In the retail sector, approximately 42% of companies in our SSS index are on track to deliver positive same-store sales growth in 2026. Aritzia leads the group with the strongest first-quarter SSS estimate and is expected to sustain robust comparable sales throughout the year (Exhibit 9). Ralph Lauren continues to benefit from demand among high-end consumers, while TJX and Ross Stores are also projected to deliver consistently healthy same-store sales growth, supported by strong value-seeking behavior in 2026.
Exhibit 9: Retail Strongest SSS Estimates: Q1 2026 – Q4 2026
Source: LSEG I/B/E/S
At the other end of the spectrum, Destination XL Group is expected to post consistently negative same-store sales throughout 2026. Overall, approximately 58% of retailers in our SSS Index are projected to report negative comparable sales this year, highlighting the challenging operating environment facing much of the sector. Kohl’s reported a 1.1% decline in comparable sales in Q1 2026. Although consensus estimates call for continued negative comparable sales over the next two quarters, they also point to a gradual sequential improvement in performance (Exhibit 10).
Exhibit 10: Retail Weakest SSS Estimates: Q1 2026 – Q4 2026
Source: LSEG I/B/E/S
Restaurant same store sales outlook
In the restaurant sector, approximately 65% of the companies in our SSS index are on track to deliver positive same-store sales (SSS) results for 2026. Texas Roadhouse lead the group with the strongest SSS performance in Q1 and is expected to maintain robust comps throughout the year. Starbucks is also projected to post consistently healthy same-store sales in 2026. Most remaining restaurant operators are expected to report low single-digit comparable sales growth.
Exhibit 11: Restaurant Strongest SSS Estimates: Q1 2026 – Q4 2026
Source: LSEG I/B/E/S
Meanwhile, Wingstop is on track to report consistently negative comps over the next two quarters in 2026. In fact, about 35% of the restaurants in our SSS Index are on track to report negative comps this year.
Exhibit 12: Restaurant Weakest SSS Estimates: Q1 2026 – Q4 2026
Source: LSEG I/B/E/S
E-commerce outlook
According to the latest U.S. Census Bureau e-commerce report, online retail sales reached $326 billion in the first quarter of 2026, a robust increase of 9.8% from a year earlier (Exhibit 13). Looking ahead, LSEG IFR expects e-commerce growth to remain within the 4% – 8% range that has prevailed over the past three years. This outlook is consistent with recent U.S. retail sales data, which continue to show solid year-over-year growth in the non-store retail segment.
Steady online sales growth may also reflect changing consumer behavior. As gasoline prices remain elevated, consumers appear to be placing greater value on the convenience of home delivery and digital shopping, reducing the need for discretionary trips to physical stores.
Despite this steady growth, e-commerce still accounts for only about 16% of total U.S. retail sales, underscoring the continued dominance of brick-and-mortar retail. While online penetration continues to expand gradually, a substantial portion of U.S. retail spending remains outside the reach of even the largest e-commerce platforms, including Amazon.
Exhibit 13: E-commerce Growth Data: 2023 – 2026
Source: LSEG IFR
Consumer outlook
Retailers have now concluded reporting first-quarter 2026 earnings, with roughly half of companies citing tariffs and rising fuel prices during their earnings calls, underscoring the growing influence of both on the sector. While large retailers such as Walmart possess the scale, balance sheet strength, and pricing power to absorb or mitigate these pressures, smaller retailers remain considerably more exposed, with limited flexibility to offset rising costs and supply chain disruptions. Still, during its last earnings’ call, CEO Doug McMillon warned that higher tariffs and transportation expenses could eventually lead to higher prices.
Recent increases in both the Consumer Price Index (CPI) and Producer Price Index (PPI) suggest that cost pressures are continuing to build across the retail value chain. At the same time, consumer sentiment has deteriorated as households contend with higher prices, elevated gasoline costs and growing concerns about the labor market. The shift in consumer focus from long-term economic uncertainty to immediate affordability highlights a more cautious spending environment heading into the second half of the year.
Apparel remains one of the clearest examples of these competing forces. Despite persistent inflation across much of the economy, apparel prices have remained subdued as retailers prioritize demand over pricing power. Faced with higher input costs and softer consumer spending, many brands have expanded promotional activity rather than fully passing through price increases. According to the LSEG Retail & Restaurant Index, the apparel sector is expected to report one of the weakest earnings growth rates in the second quarter, at -4.9%, illustrating the pressure on both margins and profitability.
Looking ahead, the retail landscape is likely to remain defined by cautious consumers, elevated input costs, and continued geopolitical and trade-related uncertainty. Retailers with differentiated brands, pricing power, strong balance sheets and disciplined inventory management should be best positioned to navigate this environment, while retailers lacking pricing power or relying heavily on promotional activity are likely to face continued pressure on both margins and earnings through the remainder of 2026.
