MW Inflation and tariffs might scare shoppers. Have they scared CEOs?

By Bill Peters

Earnings Watch: Executives are talking a lot about tariffs, but little about a recession. Adobe, Oracle and more retailers report during the week

Consumer confidence is sinking, as President Donald Trump's tariffs - whether they're in place or not - rattle consumers. Prices are still high. Retailers like Target Corp. and Best Buy Co. Inc. $(BBY)$ have warned that tariffs risked hurting profits and consumers' wallets. The S&P 500 Index has slipped around 2% year to date.

But within the broader universe of corporate earnings reports, executives haven't sounded the alarm about the economy overall, at least yet.

Executives might be talking a lot about tariffs on earnings calls, and Wall Street analysts might be cutting their first-quarter estimates a little more aggressively. But the number of S&P 500 SPX companies that mentioned the word "recession" on earnings calls sat at its lowest level in more than five years, according to a new FactSet analysis of earnings calls from Dec. 15 through March 6.

Fourth-quarter results and the companies' own first-quarter forecasts, for now, also point to something of a wash.

According to FactSet, 76% of S&P 500 companies so far have reported fourth-quarter earnings-per-share figures that beat Wall Street's estimates. That's a tad below the five-year average of 77%. But it's a bit above the 10-year average of 75%.

For first-quarter forecasts, which offer a better read on how executives are currently thinking about the economic backdrop, 62% of S&P 500 companies have issued downbeat per-share profit forecasts for the period. On one hand, that's above the five-year average of 58%. But it's the same as the 10-year average of 62%.

Economists have worried that tariffs, which amount to a tax on imports, could prompt companies to raise prices on consumers as they look to offset the extra costs and shield profits. Trump last week said that his tariffs - intended to help negotiate trade deals that are more favorable to the U.S. - might cause "a little disturbance," but added "we're OK with that."

Still, those extra costs, if businesses pass them on to shoppers, would arrive on top of nearly five years of economic upheaval from the pandemic and other supply shocks. Those disruptions have led to price increases, kept many shoppers focused on buying the basics, made things like dining out a tougher choice, and kept executives trying to gauge when, in the months ahead, consumer spending patterns might even out.

"There's too much noise right now," G.J. Hart, chief executive of Red Robin Gourmet Burgers $(RRGB)$, said in an interview. "I just believe it will settle down. Will it happen later this year and when later? I don't know, but I do believe it's going to happen."

He said the burger chain had leaned into higher-quality ingredients - like beef, bacon and mayonnaise -as part of a broader turnaround plan, and said spending on going out with family and friends still mattered to diners. And even as the threat of tariffs hangs over the economy, he said the chain currently had minimal price increases planned for this year.

He said that the chain's biggest tariff exposure was related to produce like tomatoes and avocados that came in from Mexico. And he said the nuances in growing seasons made a precise calculation of the impact a moving target.

"Overall, I'd say we're probably low to medium exposure compared to other brands," he said.

But elsewhere, specific worries about tariffs haven't been hard to find. Brian Cornell, Target's chief executive, told CNBC that during the winter, the company brings in a "significant amount" of fruits and vegetables from Mexico.

"Those are categories where we'll try to protect pricing, but the consumer will likely see price increases over the next couple of days," he said.

Over at Costco, Chief Financial Officer Gary Millerchip told Wall Street analysts that customers were still being "choiceful" on their spending decisions.

"We think that's likely to continue and maybe even become more choiceful as the impact of some return of inflation and the potential impact of tariffs could flow through as well," he added.

Costco said that the situation around tariffs was "fluid," as Trump suspends duties on some products coming in from Mexico and Canada. But the company said it had enough flexibility to swap out products affected by tariffs with those that aren't.

Companies like Tesla Inc. $(TSLA)$ - whose chief executive, Elon Musk, is helping Trump cut government spending - and Ford Motor Co. $(F)$ have also warned about the impact of tariffs. But others, like Coca Cola Co., $(KO)$ downplayed the impact of duties on aluminum, which it uses to make soda cans.

"I think we're in danger of exaggerating the impact of the 25% increase in the aluminum price relative to the total system," Chief Executive James Quincey said last month. "It's not insignificant, but it's not going to radically change a multibillion-dollar U.S. business."

This week in earnings

During the week, earnings are due from Vail Resorts Inc. (MTN), United Natural Foods Inc. $(UNFI)$, Vera Bradley, Inc. (VRA) and Docusign Inc. (DOCU). Results from avocado producer Mission Produce Inc. $(AVO)$ - which gets its avocados from California, Mexico and Peru - could also offer more detail on the impact from tariffs.

The calls to put on your calendar

More retailers: After the latest round of financials from Costco Wholesale Corp. $(COST)$ and Walmart Inc. $(WMT)$ disappointed investors, a number of smaller retailers - with less flexibility to keep prices low - report in the week ahead.

Among them are department store chain Kohl's Corp. $(KSS)$, after Macy's warned of "external uncertainties" as it tries to turn itself around. Dick's Sporting Goods Inc. $(DKS)$ reports, after Foot Locker Inc. $(FL)$ stayed cautious on its own business outlook. Dollar-store Dollar General Corp. $(DG)$ reports amid steeper competition from Walmart and e-commerce. Results are due from Ulta Beauty Inc. $(ULTA)$, as its new chief executive also tries to steer the beauty-products chain through steeper competition - including from Walmart and Amazon.com Inc. $(AMZN)$.

American Eagle Outfitters Inc. $(AEO)$, Stitch Fix Inc. (SFIX), Casey's General Stores Inc. $(CASY)$, Duluth Holdings Inc. (DLTH) and Allbirds Inc. $(BIRD)$ also report during the week.

The numbers to watch

Adobe, Oracle sales: Adobe Inc. $(ADBE)$ - best known for design software like Photoshop - and software company Oracle Corp. $(ORCL)$ report results during the week. Those results will offer a look at whether - and where - spending on artificial intelligence is starting to pay off downstream from the big tech companies.

-Bill Peters

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March 09, 2025 07:00 ET (11:00 GMT)

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