By Sabrina Escobar

With Walmart and Wayfair set to report earnings on Thursday, one thing is clear: brand power and operational efficiency are the only reliable defenses against retail volatility.

From a demand standpoint, the 2025 holiday season was "solid, but not spectacular," said Heather Long, chief economist at Navy Federal Credit Union. Retail sales data suggest that consumers took advantage of discounts in November and pulled back in December.

The soft December reading wasn't a problem for companies like Tapestry's Coach, Ralph Lauren, or e.l.f. Beauty, which reported earnings earlier in the season. Their healthy revenue growth throughout the quarter suggests that Americans are willing to spend on brands and items that excite them. Weaker companies are likely on more precarious footing heading into earnings, however.

"Although headlines look for easy narratives of divergence, the reality is that across subsectors & demographics, companies selling the same exact thing to the exact same people are seeing very different results," wrote Simeon Siegel, an analyst at Guggenheim Partners.

In other words, execution matters, and investors are likely to reward management teams that have been better at offsetting any challenges that the 2025 holiday season threw their way.

Tariffs have a lot to do with that. Even though many companies have offset some of the levies by sourcing products from lower-tariff countries or making up the costs elsewhere, they continue to dent profit -- for some companies more than others. Siegel calculates that on average, gross margins declined by about 60 basis points year over year across 17 retailers in his coverage area that already reported earnings, even as sales grew an average of 7%.

"The tariff and [foreign exchange] drag is very real for us and impacting our margin by 200 basis points for fiscal 2026. Without that pressure, Ebitda margin would have been up nicely year-over-year," said Ivica Krolo, Birkenstock's chief financial officer, at the company's Feb. 12 earnings call.

The State Street SPDR S&P Retail ETF is flat this year after seeing an impressive run-up at the end of 2025.

Walmart and Wayfair report results Thursday morning. Home Depot, Lowe's, TJX Cos. report the following week.

While fourth-quarter results matter, company commentary about the new fiscal year may carry even more weight, especially because monthly retail sales are still being reported on a lag after October's government shutdown delayed economic data releases.

"We will have to seek further confirmation of this weakness in the coming months as it seems inconsistent with consumption, which is being driven by a combination of strong real income growth, a wealth effect, and savings drawdowns," wrote Richard de Chazal, an analyst at William Blair.

Indeed, Wall Street is hoping that easing inflation and higher tax refunds will make 2026 a better year for consumer spending.

"Our optimism is supported by easing cost pressures on consumers, while a more settled tariff backdrop and favorable comparisons should allow retailers to operate in a more normalized environment, allowing for greater focus on newness/innovation/efficiencies rather than crisis management," wrote Gordon Haskett analyst Chuck Grom.

Let's see if retail executives agree.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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February 17, 2026 14:15 ET (19:15 GMT)

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