What recent retail earnings revealed about the state of consumer health

Target reported its first quarter of sales growth in more than a year, driven by the success of viral partnerships with brands like Roller Rabbit, Parke and Pokémon that brought more people into stores. The off-price sector also continues to soar, with TJX reporting net sales of $14.3 billion in its fiscal first quarter, up 8% year over year on a constant currency basis. 

But this also isn’t an environment where retailers can rest on their laurels. Many retail executives remained cautious about their outlooks for the year, as they wait to see how increasing gas prices impact both their vendor partners and consumers. While many retail executives spoke at length about how their consumers remain resilient (especially those targeting high-income customers), they said they also continue to make trade-offs as they seek out the best value. In turn, success in today’s retail environment requires getting ahead of any signs of consumer fatigue. It also means making investments in both lower prices and high-quality experiences to convince customers they are getting the best deal. 

Here are the three biggest takeaways on the state of consumer health, according to last week’s earnings reports.

Consumers are starting to express some backlash to price increases 

Perhaps one of the most interesting pieces of news that came out of the earnings cycle last week was that E.l.f. Beauty is testing price increases on select items after seeing sales unit decline. 

Last year, E.l.f. Beauty raised prices by $1 across all its SKUs in response to tariffs, as well as years of inflation. But earlier this year, E.l.f. tested a $4 price decrease on its Halo Glow skin tint. CEO Tarang Amin said during E.l.f’s quarterly earnings call on Wednesday that “initial test results show a 38% lift on Amazon and a 36% lift across all retailers, including a triple-digit sales lift on TikTok Shop,” and said that the company is “exploring other pricing opportunities.”

“As we look at the state of the consumer today, we have recently seen a more pronounced decline in units,” Amin said. “As a result, we are keenly focused on how to deliver a better value and improve unit velocity.”

E.l.f. Beauty continues to report strong growth — it reported net sales growth of 35% year over year during its most recent quarter — but Amin positioned these moves as E.l.f. taking signals from its community and acting quickly upon them. 

Meanwhile, PepsiCo in February announced that it would be cutting prices by as much as 15% on its Frito-Lay snacks, including Lay’s, Doritos and Cheetos, ahead of the Super Bowl. According to Bloomberg, Frito-Lay “had missed internal revenue targets for two years in a row by over a billion dollars,” and the price drop was one tactic to bring customers back into the fold.

PepsiCo executives said during its first-quarter earnings call in April that it was starting to see sales of savory snacks accelerate. Net revenue for PepsiCo increased 8.5% year over year during the first quarter, though part of that was driven by buzzy brands PepsiCo acquired, like Poppi. 

‘Value’ is a multi-dimensional puzzle 

Retail executives spoke at length during their respective earnings calls about how they are delivering value to their consumers. But what that strategy looks like varies depending on where they sit in the retail landscape. At many retailers, focusing on value doesn’t mean focusing solely on price.

At many retailers, focusing on value no longer means focusing solely on price. As Jessica Ramirez, co-founder of The Consumer Collective, put it in an interview with Modern Retail, “the word value no longer means buying something cheaply, buying it on promotion — it really does mean, is this product [high] quality?”

Target had a banner quarter, with net sales up 6.7% year over year. Sales increased in all six of Target’s merchandising categories. The company said it remains focused on investing in “style, design and culture” to drive sales across all its major categories, as well as in value — in other words, price. 

In toys, for example, Chief Merchandising Officer Cara Sylvester said the company had seen “tremendous growth from new offerings priced at $20 or less, including many priced at $5 and $10.”

But buzzy collaborations that spanned categories also drove foot traffic, executives said. A Pokémon drop — which was a cross-category collaboration that lived across apparel, beauty, home goods and more — “set sales and social media engagement records,” according to Sylvester. 

In the baby category, Sylvester said the company has been focused on building a strong assortment of both owned and national brand products, and testing out a new baby boutique in-store concept.

It all points to the different puzzle pieces that Target feels like are necessary to win on value with its customer.

“Guests respond when we’re bold in our assortment, distinctive in our point of view and clear on value,” Sylvester said.

Meanwhile, over at TJX, though the company has reported seven consecutive quarters of positive revenue growth, CEO Ernie Hermann said the company is “continuously testing new ways to engage today’s consumers to demonstrate our value proposition.” That doesn’t just involve bringing in new merchandise, Hermann said, but also “highlight[ing] the joy of shopping our stores.” Each of TJX’s divisions — which include TJ Maxx, Home Goods and Marshalls — grew their customer base during the quarter, Hermann said. 

Of course, it helps that there’s a lot of volatility in the retail landscape right now, which means there’s a lot of excess inventory for an off-price retailer like TJMaxx to swoop up. 

“Availability of merchandise is off the charts,” Herman said. 

Fuel prices are the big question mark that could upend the rest of the year 

Despite the fact that many major retailers continue to report sales increases, executives struck a cautious tone on earnings calls in light of rising fuel prices. While this will impact all retailers, retailers with a fuel station business, like Walmart, are noticing some of the biggest effects at the moment. 

Walmart executives warned that they may have to raise prices if fuel costs continue to rise. Food is an example of just one category that could be heavily impacted, as fertilizer is made with nitrogen and phosphates that are heavily dependent on the Strait of Hormuz. 

And there are already indications that shoppers are limiting how much they fill up their cars, a sign that they are conscious about their spending right now. John Rainely, Walmart’s EVP and CFO, said during the earnings call that “the number of gallons that customers fill up when they come to our fuel stations fell below 10 for the first time since 2022.” 

That’s a problem for Walmart, Rainey said, because “a fuel member spends 1.6 times more on the rest of the basket than a nonfuel member.”

Still, it’s difficult to fully gauge just how much fuel prices may shift behavior, as different customer cohorts are behaving very differently. 

“We see with our customers that the high-income customer is spending with confidence into many categories, while the lower-income consumer is budget-conscious and perhaps navigating financial distress,” Rainey said. Similarly, Urban Outfitters executives said during its earnings call that consumer behavior has been remarkably consistent and resilient over the past couple of years, though many of its customers are higher-income. 

As the retail industry moves into the second quarter, there’s also a lingering question of just how much of the first-quarter sales increases were driven by higher-than-expected tax refunds and new tools like buy-now, pay-later. 

“We’ve seen that the retail sales numbers in recent months have been decent given the backdrop, but I do think that a lot of that came from the tax refunds,” Ramirez said.

Though, naturally, many retail executives would like to point to their operating prowess as another contributing factor. 

Tax refunds may have led to “an upward lift on general merchandise” during the first quarter, Rainey said. “But I don’t want to ascribe all of that to macro. Like, some of what the team is doing is really great.”