By Teresa Rivas

First-quarter earnings season has mostly wrapped up for retailers -- but investors hoping for clarity about the impact of tariffs or the general health of the consumer were likely left holding the bag.

That much was obvious from the biggest retailers' reports. Walmart delivered a strong quarter, but warned that trade was making it difficult to predict how the rest of the year would go--other than the fact that prices would have to go higher. Target, too, said that tariffs and a nervous consumer were leading to lower discretionary sales amid an uncertain environment.

That theme filtered down to specialty retailers, as well. "The main theme was uncertainty," wrote Bernstein analyst Aneesha Sherman in her look back at the results. "Both through first-quarter performance and through full-year guidance and commentary, we saw a mixed set of results across the sector, with volatility in weather, consumer sentiment and supply mix driving a wide range of outcomes."

That's not surprising, given how unsettled things remain. Just this week, China's Ministry of Commerce said that the White House had " severely undermined" the trade truce, and a call between the countries' two leaders hasn't been fruitful.

Management teams were broadly cautious about the rest of 2025, with tariffs and consumer uncertainty impacting both the supply and demand sides of the equation, respectively.

Despite that, Sherman does see three key takeaways from the quarter. The first being the barbell effect: Brands at the high and value ends of the spectrum did fairly well, while those in the middle suffered. Well-heeled shoppers allowed companies such as Tapestry, Ralph Lauren, Canada Goose, and Aritzia to put up strong numbers, despite the shifting macro backdrop, while bargain hunters flocked to companies like Five Below and Citi Trends, helping them gain market share. By contrast, Macy's, Kohl's, and other department stores continued to log negative comparable sales.

Secondly, forward guidance was also all over the map, she noted, "while many companies withdrew or adjusted guidance, citing macro uncertainty, others maintained/raised." Ross Stores, Canada Goose, and American Eagle Outfitters were among those that yanked forecasts, while Aritzia, Macy's PVH Corp., and Capri Holdings lowered their outlooks, either partially or on the whole.

However, other retailers were more sanguine. TJX Cos., Burlington Stores, Five Below, Citi Trends, Tapestry, Abercrombie & Fitch, and Kohl's all either maintained or raised their forecasts.

Finally, President Donald Trump's April 2 tariff announcement and subsequent backtracking -- and the on-again-off-again U.S.-China trade pause that played out in April and May -- mean that the actual impact of higher levies hasn't really hit companies' bottom lines yet.

However, Sherman wrote that "almost all companies expect some margin headwinds, even net of various mitigation efforts. Due to the timing of inventory purchases and some proactive actions to pull forward inventory receipts into the first quarter, most brands/retailers have not yet been hit with tariff headwinds," but those will start to make themselves felt soon.

After all, renegotiating with vendors, cutting costs, and raising prices will only go so far -- leading companies like Macy's, Ross, Capri Ralph Lauren, Gap, Aritzia, Abercrombie, Five Below, and PVH to brace investors for margin pressure.

Still, there were a few that projected confidence that they will be able to mitigate these increased costs, including TJX, Burlington, Citi Trends, Canada Goose, and Kohl's.

For her part, Sherman has Outperform ratings on TJX, Burlington, and Tapestry.

TJX and Tapestry have been two winners amid a difficult year for retail--and the market as a whole. Both retailers' stocks have moved comfortably higher in 2025, while the S&P 500 is hovering around its breakeven point and the SPDR S&P Retail ETF has dipped more than 2%.

In the Academy Award-winning film Conclave, Ralph Fiennes, playing a Roman Catholic cardinal, warns against what he calls the "sin" of certainty. That might be the only problem retail doesn't have to worry about.

Write to Teresa Rivas at teresa.rivas@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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June 05, 2025 15:20 ET (19:20 GMT)

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