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After two years of double-digit growth, the LSEG Retail/Restaurant Index is on track to report a 5.9% earnings growth rate for calendar year 2025. Retailers just posted an 8.2% earnings growth rate for Q3 2025  and are on track to report a 1.1% gain for Q4 2025 (Exhibit 1).

The LSEG Retail/Restaurant Index anticipates steady growth in the sector, projecting earnings to increase by 5.9% and revenue by 4.6% for the calendar year 2025. This outlook reflects continued consumer demand resilience. Looking ahead to 2026, growth momentum is expected to accelerate, with earnings forecasted to rise by 10.9% and revenue by 5.8%. These projections underscore a positive trajectory for the sector as it adapts to evolving consumer behaviors and macroeconomic conditions.

Exhibit 1: The LSEG Retail/Restaurant Earnings Index: Q1 2024 Act – Q4 2026 Est.

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Source: LSEG I/B/E/S

A closer look at the data reveals that the slowdown is concentrated around two main consumer sectors. The Household Durables sector is expected to post the weakest Q4 2025 performance, with profits projected to decline by 27.4% (Exhibit 2). The Textiles, Apparel & Luxury Goods sector follows, with a -16.4% Q4 2025 growth estimate that reflects underlying softness in earnings momentum. Additionally, the Household Durables sector is forecast to deliver the weakest earnings growth in the first half of 2026, further highlighting the pressure facing consumer discretionary categories. Conversely, the Hotels, Restaurants & Leisure sector is poised to lead growth in 2026, driven by consumers’ continued preference for experiences over goods.

Exhibit 2: The LSEG Retail Index Sectors: Q3 2025 Act – Q4 2026 Est.

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Source: LSEG I/B/E/S

This is in line with the LSEG/Ipsos Primary Consumer Sentiment Index, which finds that overall American consumer sentiment remains lower than last year. The softness is driven by a sharp decline in purchasing comfort and a continued deterioration in perceptions of the current job market. Previously, much of the unease shown by consumers was rooted in fears about the future of the economy. However, consumers are now more pessimistic about their current situation. American consumer confidence continues to demonstrate the broader economic uncertainty the public feels today.

Despite broader sector challenges, there are pockets of optimism. Looking ahead to Q4 2025 earnings, analysts surveyed by LSEG are already bullish on Dillard’s. The consensus estimate for Dillard’s Q4 2025 EPS stands at $10.61. Notably, a highly rated five-star analyst with a very accurate rating has issued an estimate of $11.03, above the consensus. This divergence suggests a potential earnings beat and the possibility of a positive surprise when Dillard’s reports.

The StarMine SmartEstimate is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate differs from the consensus (I/B/E/S mean) by more than 2%, the company is likely to post subsequent earnings surprises directionally correct 70% of the time. This percentage difference is referred to as the Predicted Surprise (PS%) (Exhibit 3).

Exhibit 3: Dillard’s StarMine Predicted Surprise %: Q4 2025 Est.

Source: LSEG Workspace

Similarly, the companies listed below have a Predicted Surprise exceeding 2.0% for Q4 2025, and Q1 2026 (Exhibit 4). This indicates a strong likelihood of outperforming earnings expectations and delivering positive surprises.

Exhibit 4: Strongest StarMine Predicted Surprise %: Q4 2025 and Q1 2026 Est.

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Source: LSEG Workspace

Conversely, the companies listed below have a negative Predicted Surprise of less than -2.0% for Q4 2025, and Q1 2026; indicating they are likely to miss earnings expectations and deliver negative surprises.

Exhibit 5: Weakest StarMine Predicted Surprise %: Q4 2025 and Q1 2026 Est.

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Source: LSEG Workspace

Pricing pressures

According to the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) increased 0.2% from September to November 2025 and rose at an annual rate of 2.7% as of November 2025. Retailers continue to face headwinds from subdued consumer sentiment and heightened price sensitivity as shoppers manage elevated living costs. CPI data underscores that consumers are paying more for essentials such as food, electricity, medical care, and transportation compared to a year ago.

In contrast, apparel prices have diverged from the broader inflation trend, reflecting widespread markdowns. This pattern aligns with LSEG data showing significant price reductions across apparel categories. In partnership with Centric Market Intelligence, we have tracked weekly average original prices in U.S. mall stores since December 2024 through January 2026. Among the monitored categories, Women’s Apparel posted the steepest decline, while Men’s Apparel recorded a modest 1.0% increase (Exhibit 6).

Exhibit 6: Average Price Changes: December 2024 – January 2026 Est.

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*Accessories includes scarves, hats, gloves, keychains/bag charms, glasses, ties, wallets, belts
Source: Centric Market Intelligence

Retailers entered the holiday season with an elevated level of promotional activity. The discount penetration, defined as the percentage of merchandise on sale, rose to 43% in December, slightly above the historical range of 34% to 42% observed over the past decade (Exhibit 7). For the full year 2025, average discount penetration settled at 28%, down from 34% in the prior year and below pre-pandemic norms. This decline reflects a strategic recalibration as retailers respond to increasingly value-conscious consumers and shifting demand dynamics. Notably, elevated discounting persisted into January 2026, with penetration at 40%, as retailers work to clear winter inventory ahead of introducing full-priced spring assortments.

Exhibit 7: Average Discount Penetration: U.S. Online Retailers

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Source: Centric Market Intelligence

The average discount rate moderated to 33%, below both the 2025 average of 35% and the prior year’s 36%.

Exhibit 8: Average Discount: U.S. Online Retailers

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Source: Centric Market Intelligence

Retail Same Store Sales

In the retail sector, approximately 74% of the companies in our SSS index are on track to deliver positive same-store sales (SSS) results for 2026. Aritzia is leading the pack with the strongest SSS performance in Q4 2025 and is expected to maintain robust comps throughout this year. Similarly, Tapestry and Costco are also projected to post consistently healthy same-store sales in 2026.

Exhibit 9: Retail Strongest SSS estimates: Q4 2025 – Q4 2026

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Source: LSEG I/B/E/S

Meanwhile, mall based stores including J.Jill and Kirkland are on track to report the weakest comps in 2026. In fact, about 26% of the retailers in our SSS Index are on track to report consistently weak comps this year. Target is on track to report a -2.3% comp in Q4 2025. While the following quarters’ estimates remain weak, the results reflect a sequential improvement in performance (Exhibit 10).

Exhibit 10: Retail Weakest SSS estimates: Q4 2025 – Q4 2026

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Source: LSEG I/B/E/S

Restaurant Same Store Sales

In the restaurant sector, approximately 61% of the companies in our SSS index are on track to deliver positive same-store sales (SSS) results for 2026. The Quick Service sector is on track to outperform Casual Dining, with Papa John’s and Domino’s Pizza leading the pack with the strongest SSS performance in Q4, and is expected to maintain robust comps in 2026. The other restaurants will experience low single-digit positive comps.

Exhibit 11: Restaurant Strongest SSS estimates: Q1 2025 – Q4 2025

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Source: LSEG I/B/E/S

Meanwhile, CBR Group is on track to report consistently negative comps into the first half of 2026. In fact, about 39% of the restaurants in our SSS Index are on track to report weak comps this year.

Exhibit 12: Restaurant Weakest SSS estimates: Q1 2025 – Q4 2025

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Source: LSEG I/B/E/S

E-commerce sales

According to the latest e-commerce report from the U.S. Census Bureau, online sales reached $310 billion in Q3 2025, representing a 5.1% year-over-year increase. However, this marks a slowdown from the 7.6% growth observed over the previous year (Exhibit 13). LSEG data suggests that total consumer spending online in 2026 is likely to remain below 2025 levels.

E-commerce currently accounts for just 16.4% of total U.S. retail sales, indicating that the majority of consumers still prefer shopping in brick-and-mortar stores. A significant portion of the retail market remains underpenetrated by major online players like Amazon.

Exhibit 13: E-commerce growth data

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Source: LSEG Workspace

Shifting consumer behavior

With rising product and living costs, consumers have become increasingly discerning, delaying big-ticket purchases and capitalizing on promotions and discounts before opening their wallets. This behavior has driven a spike in discounting as retailers strategically lean on markdowns to attract traffic. The approach proved effective during the holiday season, with specialty retailers, the most promotional sector, also recording the highest sell-through rates.

At the same time, consumers continue to trade down to discounters and off-price retailers, while discretionary splurges are shifting toward travel and experiences rather than goods. Despite these trends, shoppers remain engaged largely because of stable employment, though job security remains the biggest risk to future spending.

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