Amid tariff agita, Wall Street is a bit more cautious than normal on second-quarter earnings

Analysts have become more cautious regarding second-quarter earnings for S&P 500 companies, with EPS estimates being cut by 4% from March 31 to May 29, exceeding the average reduction over the past 5 and 20 years. This increased caution reflects concerns about the impact of tariffs and higher costs of living, despite improved consumer sentiment. Several retailers, including Dollar General, Dollar Tree, and Victoria's Secret, are set to report earnings this week, offering insights into how they are navigating trade tensions and potential price increases.

Analysis

Wall Street analysts are exhibiting heightened caution for second-quarter earnings, with S&P 500 earnings-per-share (EPS) estimates experiencing a 4% reduction between March 31 and May 29, a more significant cut than the 2.6% average over the past five years and the 3.1% average over the past twenty years for the first two months of a quarter. This increased pessimism, despite some improvement in consumer sentiment, is primarily driven by concerns over tariff-related turmoil and its potential impact on corporate profitability, alongside higher costs of living. The market anticipates a 5% per-share profit growth for S&P 500 companies in Q2. Upcoming earnings reports from a slew of retailers, including discount chains Dollar General (DG) and Dollar Tree (DLTR), and apparel firms like Victoria’s Secret (VSCO), PVH Corp. (PVH), and G-III Apparel Group (GIII), will be critical in assessing how companies are navigating these trade tensions and managing potential price increases. Specific concerns surround Victoria’s Secret, which faces challenges from a lack of growth drivers in intimate apparel, competition from celebrity brands, tariff impacts, and a recent website security mishap. Dollar General and Dollar Tree results will shed light on the impact of tariffs on low-income consumers, with Dollar Tree also managing its planned separation from Family Dollar. Other companies like Mission Produce (AVO) are navigating specific trade stances, such as those concerning Mexico, while Vail Resorts (MTN) reports amidst a leadership shakeup and a recent stock price decline.

Key Decisions for Investors

• Given the larger-than-average downward revisions to Q2 S&P 500 EPS estimates, investors should anticipate potential earnings misses and exercise caution, particularly with companies heavily exposed to international trade and tariffs.
• Closely monitor upcoming earnings reports from retailers such as Dollar General (DG), Dollar Tree (DLTR), and Victoria’s Secret (VSCO) for critical insights into consumer demand, margin pressures from tariffs, and specific mitigation strategies.
• Scrutinize Victoria’s Secret's (VSCO) results and outlook due to multiple headwinds including weak growth drivers, competitive pressures, tariff impacts, and recent cybersecurity issues.
• Pay particular attention to companies like Mission Produce (AVO) and Vail Resorts (MTN) due to specific adverse factors, including trade policy risks for AVO and internal challenges coupled with stock underperformance for MTN.