This Holding's Earnings Report Could Reveal a Lot About Tariff Impact

Findings from the New York Fed’s Liberty Street Economics show that companies expect both cost and price increases to move higher in 2025 and year-ahead inflation expectations have risen from 3% last year to 3.5% to 4.0% for this year.

That builds on rising consumer expectations for inflation captured in recent consumer surveys and backs the pop captured in February PMI pricing data from ISM. So, when we read that Walmart WMT is reportedly asking Chinese firms for major price cuts to shift the burden of Trump tariffs, we are not surprised.

We’re already seeing signs that margins are poised to get squeezed, but Walmart’s move reaffirms our view that will be a key topic when we shift into the March quarter earnings season and companies serve up their June quarter guidance. S&P Global’s (SPGI) final February Service PMI report out on Wednesday found that “cost inflation also picked up in February as suppliers raised prices, although competitive pressures meant that service providers increased their own charges only modestly.”

That concern for margins as well as consumers trimming spending expectations ahead of even higher prices, explains why multiple retailers from Ross Stores ROST to Foot Locker FL and Victoria’s Secret VSCO delivered guidance that fell short of market expectations for their April quarters. But with reciprocal Trump tariffs targeted for April 2 as well as others for copper and aluminum expected, the odds of seeing more of this across a wider array of sectors is rising. The question we’re pondering is: To what degree are companies aiming to get ahead with price increases ahead of these telegraphed tariffs?

That should make for some interesting listening as we move through the earnings conference call conversation from Macy’s M on Thursday and Costco COST and Gap GPS after Thursday's market close. We can say the same as Dick’s Sporting Goods DKS, Kohl’s KSS, American Eagle AEO and Williams Sonoma WSM do the same next week.

Getting Ready for Costco’s Earnings Call

Over the last several months, Costco has clearly won consumer wallet share and renewed consumer inflation concerns mean that should continue to happen. We will want to keep in mind that Costco will soon lap strong comp sales comparisons, but even so, we should still see positive figures in the month ahead.

We should also start to see a greater contribution from Costco’s 2024 membership price hike. Paired with continued footprint expansion, we should see some nice growth in the high-margin membership fee revenue stream, a key differentiator between Costco and other retailers.

For Thursday night's quarterly earnings report, Costco is expected to deliver EPS of $4.11 on revenue of $63 billion. Given what we’ve seen with Nvidia NVDA, Marvell MRVL and the impact of whisper numbers, we’ll share the EPS range for Thursday night's report spans $3.89 to $4.11 on revenue between $61.35 billion to $64.54 billion. While the consensus forecast for the May quarter is $4.25 on revenue of $62.54 billion the market range for those is $3.80 $4.64 in EPS on $61.13 billion to $65.1 billion in revenue.

As we digest the earnings report, we’ll be gauging the market reaction, and the post-earnings move in COST shares. While COST shares are among the larger position sizes in the Portfolio, if we see them drift back to the 50-day moving average near $988, that would be a good pick-up point for members. If they retreat further and find support near $960, that would be an even better one, and it may give us a reason to revisit our current COST rating.

What We're Look for From Broadcom

Following our upgrade of Marvell shares on Thursday morning, we’ll also be tracking quarterly results out tonight from Broadcom AVGO.

Inside those results and comments, we’ll also be mining for fresh insights on connected devices and cybersecurity demand with an eye toward our positions in Apple AAPL, Universal Display OLED, Qualcomm QCOM, Elastic ESTC and the First Trust Nasdaq Cybersecurity ETF CIBR.

More Pro Portfolio

At the time of publication, TheStreet Pro Portfolio was long COST, NVDA, MRVL, AAPL, OLED, QCOM, ESTC and CIBR.