We are not fully in the Q1 reporting cycle yet, as that will get going when the big banks report their March-quarter results on April 11^th. However, we have been seeing some of the early results in recent days, which are mixed at best. These results are from companies reporting for their fiscal quarters ending in February, which we and other data vendors count as part of the official March quarter tally.

Through Friday, March 21^st, we have seen February-quarter results from 14 S&P 500 members, including bellwethers like Nike NKE, FedEx FDX, and others. We have another five index members on deck to report results this week, including Lululemon LULU, Paychex PAYX, and others. By the time the big banks come out with their quarterly results about a month from now, we will have such Q1 results from almost two dozen S&P 500 members.

The market has been unimpressed with the results we have seen in recent days. Nike investors initially bid the stock up following the better-than-expected quarterly results, but it eventually lost all of those earlier gains and then some as they realized that Nike still had a long and bumpy recovery ahead of it. The market’s initial optimism about the Nike release most likely reflected relief that the numbers weren’t as bad as many appeared to fear.

Nike’s top- and bottom-line beats were reflective of depressed expectations; FedEx didn’t have that advantage and came up short on both counts. What’s more, FedEx guided lower, reflecting the third straight quarter of a downgraded outlook. Both companies are dealing with multi-year company-specific issues that have yet to be fully sorted out, resulting in the stocks being big-time laggards. The challenging macroeconomic and policy backdrop adds to the headwinds.

One would think that Nike’s troubles will have read-through for Lululemon, as the athletic footwear and athleisure apparel categories depend on healthy consumer spending trends and are vulnerable to trade/tariff uncertainties. Lululemon shares haven’t performed much better than Nike shares over the past year, as the chart below of the one-year performance of Lululemon, Nike, and FedEx relative to the S&P 500 index shows. But that’s where the similarities end.

Image Source: Zacks Investment Research

Lululemon shares really lost ground at the time of its year-earlier quarterly release on March 21^st, which had ignited worries about the sustainability of the company’s growth momentum. You can see this in the three-year performance chart relative to Nike and the market index below.

Image Source: Zacks Investment Research

Lululemon had provided an upgraded outlook for this quarter back in January, which followed raised guidance at its preceding quarterly release on December 5^th. You can see the effect of the favorable January preannouncement in the revisions trend for the period, with the current $5.85 per share earnings estimate up from $5.80 two months ago and $5.65 three months back.

Same-store sales are expected to be up +5.16% for the quarter, up from the preceding period’s +4% increase (vs. estimates of +2.37% increase). In the aforementioned year-earlier quarterly release, following which the stock had gotten on a sustained downtrend, Lululemon had come out with comps of +12% vs. estimates of +11.63%, but they had guided towards a lower comp trajectory for the following quarters. The low- to mid-single-digit comp growth in the three quarterly releases after the March 2024 quarterly report followed many quarters of consistent double-digit comp growth, explaining the growth worries that have weighed on the stock.

LULU shares have lost ground this year, reflecting the all-around tariff worries and renewed macroeconomic headwinds, with the stock down -15.6% in the year-to-date period vs. the -4.2% decline for the S&P 500 index. While a stronger comp showing in this quarterly release will help the stock, the key catalyst will be guidance for the year. The expectation is that earnings and revenues for the coming fiscal year will increase by +6.8% and +7.5%, respectively.

Early Q1 Earnings Scorecard

As noted earlier, we have already seen February-quarter results from 14 S&P 500 members. Total earnings for these 14 index members are up +10.5% from the same period last year on +5.9% revenue gains, with 57.1% of the companies beating EPS estimates and 71.4% beating revenue estimates.

The comparison charts below put the Q1 earnings and revenue growth rates for these index members in a historical context.

Image Source: Zacks Investment Research

The comparison charts below put the Q1 EPS and revenue beats percentages in a historical context.

Image Source: Zacks Investment Research

As you can see here, these early companies appear to be struggling to beat consensus estimates, with the EPS beats percentage for this group of companies the lowest in the preceding 20-quarter period. This is disconcerting, but we want to caution against reading too much into these early results, given the sample size.

Q1 Earnings Estimates Under Pressure

The expectation is that Q1 earnings will be up +5.9% from the same period last year on +3.8% higher revenues, which would follow the +13.8% earnings growth on +5.4% revenue gains in the preceding period.

The chart below shows current earnings and revenue growth expectations for 2025 Q1 in the context of where growth has been over the preceding four quarters and what is currently expected for the following three quarters.

Image Source: Zacks Investment Research

We have been experiencing a relatively elevated magnitude of negative revisions to estimates for the current period (2025 Q1) even before the more recent signs of weakness in data that drove the recent run of soft guidance from a number of companies.

The chart below shows how Q1 earnings growth expectations have evolved since the quarter got underway.

Image Source: Zacks Investment Research

As noted earlier, this is more negative revisions to Q1 estimates since the start of January compared to the comparable periods of the preceding few quarters. Not only is the magnitude of negative revisions to Q1 estimates more pronounced relative to the last few quarters, but it is also more widespread.

Since the start of the period in January, estimates have come down for 13 of the 16 Zacks sectors, with the biggest declines for the Conglomerates, Autos, Basic Materials, Aerospace, Consumer Discretionary, and others.

The three sectors whose Q1 estimates have moved up since the quarter got underway are Medical, Utilities, and Construction.

The Tech sector, whose estimates have consistently been positive over the past year, is also suffering negative revisions to Q1 estimates. Optimism about the AI investment cycle suffered a psychological blow following China’s DeepSeek announcement. The resulting shift in market sentiment has weighed on the space ever since, causing the underperformance of AI-focused stocks this year.

The sector still remains a key growth driver in Q1 and beyond, with 2025 Q1 earnings for the Tech sector expected to be up +12.4% on +10.1% higher revenues. A lot will be riding on the evolving earnings expectations for the Tech sector, which has been a pillar of growth over the last two years.

The recent underwhelming guidance releases are coming at a time of growing anxiety about the macroeconomic backdrop, with many in the market starting to worry about the U.S. economy’s near-term growth momentum. Uncertainty about the Trump administration’s tariff policies is beginning to show up in business and consumer confidence measures. Some have started to worry if the ongoing public sector job cuts will eventually seep into the private sector as well.

While we acknowledge that near-term risks have increased for the economy, we remain sanguine in our outlook and see the ongoing market weakness as a buying opportunity. The U.S. economy defied skeptics during and after the extraordinary Fed tightening cycle and remains resilient enough to withstand the current bout of tariffs-centric uncertainty.

Importantly, for the first time in a long time, the U.S. economy enjoys the backstop of the Fed with more than enough ‘dry powder’ to jumpstart growth should investors’ worst fears come to fruition.

Depending on where the emerging tariff regime settles, earnings estimates will need to come down in response. But we all need to look past the daily noise around tariffs and remind ourselves that the overall corporate earnings picture has been steadily improving in recent quarters.

We believe that these favorable growth trends will remain in place in the current and coming quarters, with the sectors contributing to the growth momentum expanding beyond the Tech core of the last couple of years.

The chart below shows the overall earnings picture on a calendar-year basis, with a strong growth momentum expected through 2027.

Image Source: Zacks Investment Research

For more details about the evolving earnings picture, please check out our weekly Earnings Trends report here >>>>A Closer Look at Earnings Expectations for Q1 and Full Year 2025

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This article originally published on Zacks Investment Research (zacks.com).

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