What Q3 retail earnings say about the economy

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US consumers continued to shop steadily in Q3, but they were strongly focused on value. At least, that’s what earnings calls from major retailers suggest.

Prices are rising. Walmart, for instance, reported inflation for the quarter was up 1.3%, with prices for food and general merchandise rising by “low single digits,” CEO Doug McMillon said. TJX CEO Ernie Herrman said his stores have raised prices “selectively” and that he’s seen prices increase across other retailers and categories due to tariffs.

Against that backdrop, consumers are looking for deals. “Guests are choiceful, stretching budgets and prioritizing value,” Richard Gomez, Target’s chief commercial officer, said. John Rainey, CFO of Walmart, described the consumer landscape as “consistent” but with “some pockets of moderation.”

Those “pockets” may be concentrated in lower income brackets. US consumers are “still spending,” McMillon said, “upper and middle income households [are] driving our growth.” Lower-income families, he added, “have been under additional pressure of late.”

Target slips, Walmart shines: Retailers’ ability to address this consumer environment varied last quarter. Target continued to stumble. Its sales were down 1.5% year over year, while same-stores sales slipped 2.7%, and it reduced the top end of its full-year guidance. Walmart, on the other hand, had a strong quarter, with 5.8% revenue growth YoY and same-store sales growth of 4.5% in the US. It raised its guidance for net sales and adjusted operating income in fiscal year 2026.

Walmart also got a boost from its e-commerce arm, where growth rose 28% in the US, and it seems to have had more success drawing customers across the income spectrum. In particular, higher-income consumers may be looking for value now, too. The company is “gaining market share in grocery and general merchandise,” McMillon said, including among higher-income shoppers.

Discounters thrive: Discounters TJMaxx and Ross, which emphasize low prices, likewise saw success across income levels this quarter. Ross reported a 7% same-store YoY increase in sales, which “was very broad-based across all income levels,” COO Michael Hartshorn said during an earnings call. The business “didn’t see any distinction between the lower [and] higher-income customers,” he said. TJX likewise has been seeing strong growth “across all income demographics,” CFO John Klinger said.

Both discounters enjoyed a bumper quarter. Ross’s Q3 sales grew 10% year over year, and it raised its guidance for same-store sales and EPS for fiscal 2025. Sales at TJX, which owns discounters TJMaxx, Marshalls, and HomeGoods, among other stores, grew 7% YoY. TJX increased its full-year guidance for sales, profit, and EPS.

Coping with tariffs: Walmart saw “less impact” from tariffs than expected this quarter, according to John Furner, CEO and president of Walmart US, who said rollbacks of tariffs on some imported food helped. Ross employed tariff mitigation strategies like getting “cost concessions” and implementing “modest market-driven price increases,” Hartshorn said. It experienced some tariff impacts in Q3, CEO James Conroy said, but expects them to be “negligible” in Q4.

TJX likewise used tariff mitigation strategies, such as temporarily shifting its internal sales and inventory plans

“We might take those down for a couple months, but then the market cycles back,” Klinger said. “We’ve seen that happen numerous times because we’re not ready to take a big price increase if the vendors are coming to on a category if we can't show the great value.”

These moves, Klinger said, let the company “offset all the tariff pressure we saw in the third quarter.” 

In fact, tariffs may indirectly benefit discounters: If other retailers have to raise prices due to tariffs, that can lead to decreased sales and thus closeouts that discounters can purchase, Herrman said. “Retail across the board has been a little choppy,” he noted, which has led to “excess inventory.”