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Amid uncertain tariff policy, American consumers are in limbo after a strong Q4 spending performance
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Earnings from Lululemon and Disney’s annual shareholder meeting may offer fresh insights into the health of household finances
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Markets remain on edge, and every new hard-data clue on spending trends is important
The Volatility Index (VIX) is stubborn in the 20s. Treasury yields are whipsawing, and stock prices flirted with correction territory last week. The US Dollar Index, meanwhile, has plunged from above 110 in January to near 104—a big move in the currency space.
Consumer Anxiety
This week, let’s drill down to see how the consumer is handling the President’s efforts. On the one hand, heated trade battles shouldn’t come as a surprise, as they were a key part of his 2024 campaign. Moreover, wielding tariffs as a trade-policy weapon was a lynchpin of Trump 1.0. An emerging problem is that American households, many of whom support the President’s tariff policy in principle, already show fatigue.
Consumer confidence numbers are down, cautionary guidance was put forward on earnings calls over the back half of the Q4 reporting season, and the January Retail Sales report was concerning, to put it lightly. February’s Retail Sales were more encouraging, and other data suggest retail spending is holding up.
For example, the Johnson Redbook Index (a sales-weighted measure of year-over-year same-store sales growth of US general merchandise retailers) is steady in the 4% to 7% range since late 2023. Additionally, the latest Consumer Checkpoint published by Bank of America Institute revealed, “Consumers continued to show forward momentum, with spending up 2.4% on an annualized basis in February 2025.”
More anecdotally, Delta Air Lines (NYSE:DAL) slashed its earnings outlook last week, citing weaker consumer and corporate travel demand. American Airlines (NASDAQ:AAL) and Southwest (LUV) also cut their Q1 projections amid concerning travel trends. Shares of apparel retailer Kohl’s (NYSE:KSS) plunged nearly 25% on March 11, its worst day ever, as turnaround efforts failed to produce meaningful profits in its most recent quarter. On its conference call earlier this month, Costco (NASDAQ:COST) described shoppers as “choiceful,” which has become a meme of sorts. Foot Locker (NYSE:FL) and Dollar General (NYSE:DG) joined the chorus of companies reporting weak February demand.
Earlier this year, Walmart (NYSE:WMT) was perhaps the loudest to sound consumer alarm bells, calling consumers “budget pressured.” Despite handily beating Q4 earnings expectations, posting solid sales numbers, and tallying healthy margins and e-commerce activity, its guidance was below street estimates. Shares have swiftly fallen from $105 to $85 possibly thanks to fresh worries about overall household consumption.
The Q4 reporting period has wrapped up, but there are key corporate events, including off-season earnings releases, to keep watch on. Any fresh consumer clues could uncover the true state of that all-important “C” in the GDP calculation.
Lululemon Earnings On Tap
Next week, Lululemon (NASDAQ:LULU) reports Q4 2024 earnings on Thursday, March 27. Shares of the Canadian retailer have gone cold, dropping from $423 at the end of January to just above $325 today. The correction coincides with broader retail weakness; the SPDR S&P Retail ETF (NYSE:XRT) notched 52-week lows in mid-March as many of the industry’s stocks show the same technical pattern. Fundamentally, LULU issued a preliminary earnings update two months ago ahead of the ICR Conference. Back then, “animal spirits” was the talk of Wall Street, and LULU stock was flying high, having rallied from $226 last August to $420 by December.
On January 13, the firm said it expects fourth-quarter net revenue to be in the range of $3.56 billion to $3.58 billion, which would be a stout 11% to 12% increase compared to the same period a year earlier. Backing out a 53rd week, and the comp is still seen strong in the 6% to 7% range. Diluted EPS, at the time, was forecast to be $5.81 to $5.85. Its Q4 ended on February 2, so there will be some early-2025 color in the full earnings report due out next Thursday night.
The $40 billion market cap Consumer Discretionary company has weathered quite a consumer storm in recent years. Fashion trends are wont to shift quickly, and the return to office narrative may have weighed on this once high-P/E stock. Now trading 22 times forward earnings estimates, LULU rocked a 50+ P/E for much of 2021. The multiple plunged to a large discount to the market last summer before climbing back into the mid-20s around the turn of the year when shares were stretched to the downside.
Its recent retreat could indicate anxiety around consumer spending uncertainty. Back in December, the management team raised guidance and voiced confidence on its earnings call—Q3 revenue beat estimates and there was a notable uptick in international sales. The company also bought back $409 million of stock while being upbeat about entering new markets in 2025. That was then though, and the consumer landscape may have turned significantly. Next week’s full Q4 report will shed further light on how discretionary spending trends are playing out.
Disney’s Annual Meeting of Shareholders
Disney’s (NYSE:DIS) Annual Meeting of Shareholders will be held virtually on March 20 at 10 a.m. PT. Investors may hear updates on possible changes to the Disney+ streaming service and content strategies from the management team along with color on film and TV releases for the balance of 2025. More directly tied to the consumer, be on the lookout for activity data at its theme parks as we head into spring. Figures related to Disney Cruise Line would be particularly interesting given the volatility in cruise line stocks lately.
More broadly, optimism is not high heading into the meeting as the stock is down more than 10% year to date, and, just two weeks ago, Disney announced it was cutting 6% of jobs across ABC News and Disney Entertainment. It feels like a whole new world since late last year, so this meeting could be particularly revealing for the economy writ large.
The Bottom Line
Fears of a consumer slowdown have weighed on markets in recent weeks. Even JPMorgan CEO Jamie Dimon has waved the yellow flag. Households’ torrid Q4 spending pace surely could not have lasted, and constant macro volatility around tariffs and the softening labor market are significant risks to retail activity as we progress through 2025. Earnings from Lululemon and Disney’s shareholder meeting could offer important updates in this crucial part of the economy.