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Retailpocalypse Now? By Spencer Jakab

Stocks are wobbling in premarket trading on more tariff talk from President Trump, while Treasury prices are rising as signs of economic weakness make Federal Reserve rate cuts later this year more likely. And, failing as a safe haven once again, bitcoin fell below $90,000.

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The fun's over at Party City, they've packed up at Container Store, nobody's parked at Big Lots and Lumber Liquidators barely avoided liquidation.

Other than 2020, when the pandemic crippled in-person shopping, last year had the most U.S. retail bankruptcies since 2017, according to S&P Global Market Intelligence. 2025 hasn't started off promisingly either: Retail sales last month surprised economists with their biggest drop in nearly two years.

There were mitigating factors like cold weather and wildfires, but it's hard to shake the sense that forecasters also are missing other issues they can read about in the newspaper. Taken individually, they might not be material, yet the simultaneous impact of government worker firings, tariffs and deportations could leave a mark at an already tough time for many shoppers.

Fewer than 300,000 federal employees are facing voluntary or involuntary job losses so far. Others live in uncertainty , though, and could curtail discretionary spending. Most earn more than the U.S. average salary so their caution goes a long way.

Undocumented immigrants tend to earn less, yet there are five or six times as many of them. Chains believed to have higher exposure like Dollar Tree and Burlington Stores already were scuffling.

News of the retail industry's demise has been greatly exaggerated before, of course. Six years ago, before the pandemic, analysts at UBS warned of an "apocalypse" of store closures because of tariffs and e-commerce. Landlords are experiencing the exact opposite -rising rents and low vacancy-especially as more people spend a weekday or two near home instead of at the office.

But what people buy, and where, matters. The weak retail sales report showed that wants suffered while needs held steady. Home Depot's results today and those from Lowe's tomorrow should shed more light on discretionary purchases like home renovation.

There is also an economic divide: The only group spending freely seems to be the top 10% of earners enjoying record stock and home prices. Investors know this and have bid some retail stocks like Costco up because they cater to people with money. Walmart is a hybrid , having won upper-middle-class customers as well as poor ones defecting from dollar stores.

Yet Walmart's stock tumbled 6.5% after decent results last week on cautious guidance . That might also have been a case of sticker-shock: Its shares fetched 43 times trailing earnings or one-and-a-half times its average over the preceding decade, according to FactSet.

That could be a preview of Costco's experience next Thursday. The membership-only chain is in a league of its own financially, but so is its price-to-earnings ratio at an eye-watering 60 times.

Of 22 listed retailers yet to report, Costco is one of only three that grew same-store-sales more quickly than inflation last quarter, according to estimates compiled by Factset. Another is Lululemon, home of $68 T-shirts. Others might lag even muted expectations, but many of them are already marked down. Dollar General, with a largely poor, rural clientele, already trades at more than a one-third discount to its decade average.

Investors should be cautious about retail stocks, not terrified. There could be some finds in the bargain bin-especially if earnings spook the market.

Stocks I'm Watching

Hims & Hers Health : While not in the same league as Pets.com, which went bust 25 years ago shortly after its own buzzy Super Bowl commercial, the online pharmacy is down again sharply premarket as the window closes on the legal loophole it used to sell patent-protected weight loss drugs. The company had been worth as much as $15 billion a few weeks ago or around 140 times trailing 12-month earnings.

Novo Nordisk : Meanwhile, one of the companies that went through the trouble of developing and testing those miracle drugs is packing on some weight-the good kind-after a chunky gain on Monday.

Robinhood Markets : The relief at the discount broker was short-lived after news that the SEC would drop an investigation of its fast-growing cryptocurrency operations. Shares fell 3.2% Monday and are down by more than that in premarket trading today. At its peak earlier this month the stock had been up fivefold in a year.

MarineMax : It's anchors aweigh for the company, an operator of marinas, after Blackstone committed $5.65 billion to acquire a similar division from real-estate investment trust Sun Communities. All of those private-equity barons' yachts have to dock somewhere.

Nvidia : The seller of AI chips worth their weight in gold had a bad Monday on jitters about how much so-called hyperscalers will keep spending on AI data centers. Its shares look weak again. A report on caution from Microsoft may have been the trigger . Nvidia reports quarterly results tomorrow after the bell.

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About Me

My name is Spencer Jakab and I've been musing about money and markets for more than 30 years, including editing The Wall Street Journal's Heard on the Street column for a decade, writing two investing books and running a team of stock analysts at a global investment bank.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

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February 25, 2025 06:36 ET (11:36 GMT)

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