After seven consecutive quarters of double-digit growth, the LSEG Retail/Restaurant Index posted a 7.5% blended earnings growth rate for Q1 2025 (Exhibit 1). Of these companies, 65.0% reported earnings above analyst expectations, 5% matched and 30% reported earnings below analyst expectations. In a typical quarter, 71.5% of companies beat estimates, 3% matched and 25.4% miss estimates. Over the past four quarters, 69% of companies beat the estimates, 5% matched and 26% missed estimates. In aggregate, companies are reporting earnings that are 7.5% above estimates, which compares to a long-term average surprise factor of 12.9% and the average surprise factor over the prior four quarters of 8.3%.

Exhibit 1: The LSEG Retail/Restaurant Earnings Index: Q4 2022 Act. – Q4 2025 Est.

Source: LSEG I/B/E/S

Consumer spending continues to benefit from a resilient labor market, though momentum has begun to moderate. The resumption of student loan payments in the U.S. has added financial pressure on households, compounding concerns over rising tariffs. Earlier this year, anticipation of new tariffs prompted a pull-forward in spending, particularly on big-ticket items like motor vehicles. All the heightened discussion around tariffs has not only impacted business strategies but also weighed on consumer sentiment. The constant media coverage and policy uncertainty have made consumers increasingly anxious about potential price hikes and economic instability, further dampening their willingness to spend. Moreover, it has led many retailers to revise their earnings outlook downward for the remainder of the year.

Accordingly, the Q1 2025 LSEG Retail/Restaurant Index 7.5% earnings growth rate is expected to decline to -1.7% in Q2 2025, its first negative showing since the pandemic, underscoring a slowdown in consumer spending (Exhibit 2). The index is also estimated to remain in the low single digits for the second half of the year. Similarly, the blended revenue growth estimate for the 197 companies in this index is 2.0% for Q2 2025 (Exhibit 2). This is also the weakest showing since the pandemic and is also expected to remain below 3.0% for the second half of the year. Looking ahead, retailers are bracing for a challenging and volatile environment. They report that consumers are increasingly value-conscious, navigating a landscape shaped by persistent inflationary pressures, geopolitical tensions, regulatory uncertainty, and tariff-related disruptions.

Exhibit 2: LSEG Retail/Restaurant Revenue and Earnings Growth Rates: Q4 2022 Act – Q4 2025 Est.

Source: LSEG I/B/E/S

A closer look at the data reveals that this year’s slowdown is concentrated around three main consumer sectors. The Leisure Products sector is expected to post the weakest Q2 2025 performance, with profits projected to decline by 44.7% (Exhibit 3). The Textiles, Apparel & Luxury Goods sector follows, with a -44.4% growth estimate that reflects underlying softness in earnings momentum. Both sectors are also forecast to deliver the weakest earnings growth in the second half of the year. Additionally, the Household Durables sector is on track to report negative earnings growth for 2025, further highlighting the pressure facing consumer discretionary categories.

Exhibit 3: The LSEG Retail Index Sectors: Q4 2022 Act. – Q4 2025 Est.

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 has declined for three consecutive months. The latest drop in consumer sentiment is driven by a sharp decline in purchasing comfort and the continued decline in current views of the 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 Q2 earnings, analysts surveyed by LSEG are already bullish on MGM Resorts International. The consensus estimate for MGM’s Q2 2025 EPS stands at $0.52. Notably, a highly rated five-star analyst with a very accurate rating has issued a Bold Estimate of $0.83, significantly above the consensus. This divergence suggests a potential earnings beat and the possibility of a positive surprise when MGM 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 4).

Exhibit 4: MGM Resorts International StarMine Predicted Surprise %: Q2 2025 Est.

Source: LSEG Workspace

Similarly, the companies listed below have a Predicted Surprise exceeding 2.0% for Q2 2025, Q3 2025, and the current fiscal year. This indicates a strong likelihood of outperforming earnings expectations and delivering positive surprises.

Exhibit 5: Strongest StarMine Predicted Surprise %: 2025 Est.

Source: LSEG Workspace

Conversely, the companies listed below have a negative Predicted Surprise of less than -2.0% for Q2 2025, Q3 2025, and the current fiscal year; indicating they are likely to miss earnings expectations and deliver negative surprises.

Exhibit 6: Weakest StarMine Predicted Surprise %: 2025 Est.

Source: LSEG Workspace
 

Pricing pressures

According to the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 0.1% month-over-month from April to May 2025, and 2.4% year-over-year. Retailers continue to face headwinds from weak consumer sentiment and a value-conscious shopper grappling with elevated living expenses. The CPI data highlights that consumers are contending with higher costs for essentials such as food, electricity, medical care, and transportation compared to a year ago.

However, apparel prices have bucked the broader inflation trend, declining 0.4% month-over-month and 0.9% year-over-year. This trend is consistent with LSEG data, which shows widespread apparel price reductions. In collaboration with Centric Market Intelligence, we are tracking weekly average original prices across selected categories in U.S. mall stores. Since December 2024, average prices have been monitored weekly through June 2025. Among the categories tracked, Men’s Apparel has experienced the steepest decline, with prices falling 3.0%, followed by Women’s Apparel falling 2.2% (Exhibit 7).

Exhibit 7: Average Price Changes: December 2024 – June 2025 Est.

Source: Centric Market Intelligence.
 

Discount levels – U.S. online retailers

Despite declining apparel prices, retailers are offering fewer promotions. The discount penetration, defined as the percentage of merchandise on sale, has fallen below the historical range of 34% to 42% observed over the past decade (Exhibit 8). Year-to-date in 2025, the average discount penetration stands at just 26%, down from 34% last year and below pre-pandemic levels. This shift comes at a time when retailers are contending with increasingly value-conscious consumers, highlighting a strategic shift in promotional activity amid evolving demand dynamics.

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

Source: Centric Market Intelligence.

However, the average percent discount has remained relatively stable at 35%, just below last year’s average of 36%.

Exhibit 9: Average Discount: U.S. Online Retailers

  Source: Centric Market Intelligence.
 

Retail Same Store Sales

In the retail sector, approximately 42% of the companies in our SSS index are on track to deliver positive same-store sales (SSS) results for 2025. Aritzia led the pack with the strongest SSS performance in Q1 and is expected to maintain robust comps throughout the year. Similarly, Ralph Lauren and TJX are also projected to post consistently healthy same-store sales in 2025.

Exhibit 10: Retail Strongest SSS estimates: Q1 2025 – Q4 2025

Source: LSEG I/B/E/S

Meanwhile, Kohl’s is on track to report consistently negative comps in 2025. In fact, about 58% of the retailers in our SSS Index are on track to report consistently negative comps this year. Target reported a -3.8% comp in Q1 2025. While the following quarters’ estimates remain negative, the results reflect a sequential improvement in performance (Exhibit 11).

Exhibit 11: Retail Weakest SSS estimates: Q1 2025 – Q4 2025

Source: LSEG I/B/E/S
 

Restaurant same store sales

In the restaurant sector, approximately 56% of the companies in our SSS index are on track to deliver positive same-store sales (SSS) results for 2025. Brinker led the pack with the strongest SSS performance in Q1 and is expected to maintain robust comps throughout the year. Texas Roadhouse is also projected to post consistently healthy same-store sales in 2025. The other restaurants will experience low single-digit positive comps.

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

Source: LSEG I/B/E/S

Meanwhile, Jack In the Box is on track to report consistently negative comps in 2025. In fact, about 44% of the restaurants in our SSS Index are on track to report negative comps this year.

Exhibit 13: Restaurant Weakest SSS estimates: Q1 2025 – Q4 2025

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 $300 billion in Q1 2025, representing a 6.1% year-over-year increase. However, this marks a slowdown from the 7.6% growth observed over the past year (Exhibit 14). LSEG data suggests that total consumer spending online in 2025 is likely to remain below 2024 levels.

E-commerce currently accounts for just 16.2% 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 14: E-commerce growth data

Source: LSEG Workspace
 

Shifting consumer behavior

Retailers have just concluded reporting Q1 2025 earnings, with 88% referencing tariffs during their earnings calls, underscoring the growing influence of trade policy on the sector. New and expanded tariffs on imports from key trade partners, including China, are reshaping cost structures and altering supply chain dynamics. While large retailers such as Walmart have the scale, capital, and pricing power to absorb or strategically offset these pressures, smaller players remain significantly more vulnerable, with limited flexibility to manage rising costs and operational disruptions.

Despite elevated import costs, many retailers are choosing to absorb part of the burden rather than risk losing demand from increasingly price-sensitive consumers. Preserving market share has become a top priority, prompting companies to implement mitigation strategies such as diversifying supply chains, renegotiating supplier terms, and optimizing inventory management. Still, some are selectively raising prices or absorbing costs to remain competitive in a challenging environment.

The recent decline in consumer sentiment reflects a sharp drop in purchasing confidence, driven largely by rising prices, and a continued deterioration in perceptions of the labor market. While earlier concerns were centered on long-term economic uncertainty, consumers are now increasingly focused on immediate financial pressures.

Although gasoline prices have eased over the past four months, renewed tensions in the Middle East have reignited concerns about a potential rebound. Federal Reserve Chair Jerome Powell noted that, as a rule of thumb, every $10 increase in oil prices can add approximately 0.2 percentage points to the inflation rate. He also emphasized that the Fed is in no rush to cut interest rates, preferring to wait for more data to assess the broader economic impact of tariffs and inflationary pressures.

Amid rising costs for essentials such as food, housing, and energy, apparel stands out as one of the few categories experiencing outright price declines. This deflationary trend may signal a broader consumer pullback. According to LSEG Retail Index data, the apparel sector is on track to post the weakest earnings growth in 2025. Brands caught between rising production costs and softening demand are increasingly turning to discounting strategies, an approach that risks eroding both margins and brand equity.

Despite inflation across most sectors, falling apparel prices, driven by subdued demand, excess inventory, and retailers’ reluctance to pass on cost increases, highlight the strain on consumer spending. This underscores the delicate balance retailers must strike between maintaining competitiveness and protecting profitability in today’s volatile economic landscape.

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