U.S. Retail/Restaurant Earnings Growth Slows to 7.5% in Q1 2025

The US Retail/Restaurant Index reported a 7.5% blended earnings growth rate for Q1 2025, with 65% of companies exceeding analyst expectations. This growth follows seven consecutive quarters of double-digit growth. The index has been driven by strong consumer demand and improved operational efficiency. However, some companies reported below-average earnings, indicating ongoing challenges in the retail and restaurant sectors.

Title: U.S. Retail/Restaurant Index Reports Mixed Q1 2025 Results

The U.S. Retail/Restaurant Index reported a 7.5% blended earnings growth rate for Q1 2025, with 65% of companies exceeding analyst expectations. This growth follows seven consecutive quarters of double-digit growth, driven by strong consumer demand and improved operational efficiency. However, some companies reported below-average earnings, indicating ongoing challenges in the retail and restaurant sectors.

The index, which includes 197 companies, saw 65.0% of companies report earnings above analyst expectations, 5% matched expectations, and 30% reported earnings below analyst expectations. This compares to a long-term average surprise factor of 12.9% and the average surprise factor over the prior four quarters of 8.3% [1].

The Consumer Price Index (CPI) rose 0.1% month-over-month from April to May 2025 and 2.4% year-over-year, highlighting the ongoing inflationary pressures faced by consumers. Retailers are contending with higher costs for essentials such as food, electricity, medical care, and transportation, which is dampening consumer spending. Despite this, apparel prices have shown a decline, with Men's Apparel prices falling by 3.0% and Women's Apparel prices falling by 2.2% since December 2024 [1].

The LSEG Retail/Restaurant Index is expected to decline to -1.7% in Q2 2025, its first negative showing since the pandemic, underscoring a slowdown in consumer spending. The blended revenue growth estimate for the 197 companies in this index is 2.0% for Q2 2025, the weakest showing since the pandemic and expected to remain below 3.0% for the second half of the year [1].

Retailers are bracing for a challenging and volatile environment, with consumers increasingly value-conscious. The Leisure Products sector is expected to post the weakest Q2 2025 performance, with profits projected to decline by 44.7%. The Textiles, Apparel & Luxury Goods sector follows, with a -44.4% growth estimate, and the Household Durables sector is on track to report negative earnings growth for 2025 [1].

MGM Resorts International is expected to report a strong earnings beat in Q2 2025, with the consensus estimate at $0.52 and a highly rated analyst issuing a Bold Estimate of $0.83. This suggests a potential earnings surprise when the company reports [1].

The shift in promotional activity is evident, with discount penetration falling below the historical range of 34% to 42% observed over the past decade. Year-to-date in 2025, the average discount penetration stands at just 26%, down from 34% last year and below pre-pandemic levels. However, the average percent discount has remained relatively stable at 35% [1].

Approximately 42% of the retailers in the SSS Index are on track to deliver positive same-store sales (SSS) results for 2025, led by Aritzia, Ralph Lauren, and TJX. Meanwhile, about 58% of the retailers are on track to report negative comps, including Target, which reported a -3.8% comp in Q1 2025 [1].

In the restaurant sector, approximately 56% of the companies are on track to deliver positive SSS results for 2025, led by Brinker and Texas Roadhouse. Meanwhile, about 44% of the restaurants are on track to report negative comps, including Jack In the Box [1].

E-commerce sales reached $300 billion in Q1 2025, representing a 6.1% year-over-year increase, but this marks a slowdown from the 7.6% growth observed over the past year. Total consumer spending online in 2025 is likely to remain below 2024 levels, indicating that the majority of consumers still prefer shopping in brick-and-mortar stores [1].

The U.S. Retail/Restaurant Index reports mixed results for Q1 2025, with earnings growth slowing and challenges ahead for the sector. Retailers and restaurants will need to navigate ongoing inflationary pressures, consumer sentiment shifts, and evolving demand dynamics to maintain profitability.

References:
[1] https://lipperalpha.refinitiv.com/2025/07/u-s-retail-restaurant-2025-mid-year-outlook/