By Sabrina Escobar

Retail stocks face two new challenges Wednesday after their ride through the wringer in response to President Donald Trump's April 2 tariff announcement.

Two of the U.S.'s biggest retailers will offer updates that will shed light on how consumers are responding to the Trump administration's aggressive stance on trade. Walmart is hosting investors Tuesday and Wednesday, and will broadcast its biennial community meeting Wednesday at 9 a.m. Costco Wholesale is scheduled to disclose its sales for March after the close of trading.

That will set the stage for a Friday report on consumer sentiment by the University of Michigan.

Investors are looking forward to hearing about Walmart's growth plans, but they are far more anxious for any detailed commentary about how the world's largest retailer plans to navigate a higher-tariff world, or insights into how the chain believes consumers will respond to the levies.

"Few companies have been able to lay out a playbook even for the additional 10% tariff in China in March," wrote Seth Sigman, an analyst at Barclays, on Friday. "Most will be looking to WMT for cues."

Levi Strauss reported earnings on Monday, becoming the first retailer to do so since the tariffs were unveiled. Management maintained its full-year financial forecasts, but said that doesn't factor in the effects of the tariffs.

"We recognize this is a quickly evolving macro situation and we have to see where the dust settles to give you the guidance that is going to be as helpful to you as possible," said Harmit Singh, Levi's chief financial officer.

Investors will want more from Walmart, wrote Carey Kaufman, U.S. consumer strategist at Jefferies, in a research note Tuesday. Because the company is such a big importer, Wall Street hopes management can give investors some idea about how the tariffs will affect Walmart's business and outlook for the year. For instance, is the company planning to forego some profits to keep prices low and keep gaining market share, or will it raise prices more aggressively to preserve margins, potentially at the expense of customer acquisition?

Kaufman will also be looking for commentary about how Walmart plans to order inventory for the fall. Will it shift production to other countries, and if so, how much flexibility does it have to do so? While Walmart's scale gives it the upper hand to negotiate with vendors, it also poses a problem because there aren't many factories in the world that can meet demand, he said.

What Walmart's executives say won't just give other retailers a playbook. It could also have repercussions for the broader sector's share prices, particularly if management strikes a more cautious tone. Economists have warned that the new levies could dampen consumer demand, something Walmart may speak about on Wednesday.

"This management team has some of the most credibility in America," Kaufman wrote. "Seems unlikely they will say 'it will be fine.' So the risk seems skewed to the downside near term for the broader group."

Costco's sales data will offer another indication about consumers' willingness to spend. Like Walmart, Costco has been outperforming its peers, steadily increasing its sales even as other retailers have encountered a slowdown. If Costco's March results worsen starkly, it would be a negative sign for the whole sector.

The SPDR S&P Retail exchange-traded fund is down 17% this year, underperforming the S&P 500's 11% loss.

Investors will also be on the lookout for updates on Walmart's long-term growth strategy. The company has been firing on all cylinders over the past few years, gaining market share and rapidly increasing its profitability as it begins to benefit from investments in alternative revenue sources. Two critical initiatives are advertising and using its web presence as a marketplace for third parties.

Walmart's stock has gained 40% since in the last 12 months. Analysts largely believe the company is well positioned to navigate the macroeconomic challenges ahead.

The dilemma, writes Melius Research analyst Karen Short, is whether the stock's outperformance can continue given its lofty valuation. Walmart stock sells for 31.3 times the earnings per share expected for the next 12 months, compared with 26.3 times for Amazon.com and 12.4 times for the retail sector. That concern, coupled with uncertainty about tariffs, has dragged shares about 5% lower year to date. The stock is off about 18% from a record high it reached in February.

Short believes Walmart's valuation is warranted. The investor day could go a long way toward solidifying that view, or proving it wrong.

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

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April 08, 2025 12:32 ET (16:32 GMT)

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