Retail Earnings Just Exposed a Bigger Divide in the U.S. Consumer Economy

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Looking back on the latest earnings season for retail stocks, an unusual K-shaped pattern emerges: lower-income households appear to be struggling, with some value stores having a difficult time reconciling their low prices against increasingly costly inventory. At the same time, though, a handful of specialized stores, including homeowner and contractor supply chains, have had unexpected strong quarters in numerous respects.

This data helps to support the growing narrative that different groups of consumers are experiencing the economy in vastly different ways, with those with more disposable cash tending to spend freely and those without being forced to tighten belts to even more extreme degrees.

The situation means that some companies—like The Home Depot Inc. (NYSE: HD) and Lowe's Companies Inc. (NYSE: LOW)—have done better than others, including Walmart (NASDAQ: WMT) and Five Below Inc. (NASDAQ: FIVE), even while the latter have some hidden wins that suggest a more complicated consumer landscape than some may anticipate.

Home Depot Finds Resilience in Pro Demand and Smaller Projects

Home Depot's Q2 2026 earnings of $4.92 per share came on the back of revenue of nearly $48 billion, which was up about 6% year over year (YOY).

Both metrics were ahead of analyst predictions, fueled by comparable store sales growth of 1.7%, a notably high figure for the company.

Home improvement projects seem to be fairly robust, particularly among higher-income homeowners with more discretionary income to spend.

The company enjoyed strong demand across many of its departments, supported by its new three-hour express delivery service—this service is also one that may appeal to consumers with more disposable income who are willing to spend extra for the convenience.

To be sure, uncertainty about consumer sentiment in general, as well as concerns about housing affordability, may negatively impact some types of home improvement projects. Still, Wall Street analysts have rallied behind Home Depot stock, calling it a Moderate Buy overall and predicting about 18% in future upside.

Lowe’s Pro Growth Can’t Fully Offset Soft DIY Demand

On a macro level, Lowe's would seem to benefit from many of the same factors driving Home Depot's growth.

The company is also well-suited to providing for those big-ticket home improvement projects that some consumers are still prepared to spend large amounts of money on.

This is evidenced by Lowe's sales growth of 8.3% YOY in the latest quarter, as well as strong free cash flow and pro sales growth that reflects strong contractor demand.

The issue for Lowe's may be that its overall competitive position is weaker than Home Depot's. Management recently reduced its full-year outlook due to softer DIY demand. Comparable sales increased by just 0.2% YOY—while better than a decline, it's a much slower rate than Home Depot.

In addition, the company decided not to leverage tariff refunds to offer strong summer promotions to the same degree as some of its competitors, and performance suffered as a result.

Five Below and Walmart Show Different Sides of the Value Consumer

Five Below faces challenges to its margins as a result of significant increases to fuel costs, and tariff benefits are disappearing fast.

Still, the company has managed to post some crucial wins in key areas: profitability was still up, with merchandise-margin gains and fixed-cost leverage as two important contributing factors.

Where Five Below really succeeded in Q2 2026, though, was in sales growth of 23% YOY, including 14% YOY improvement to comparable sales.

This may suggest that consumers are still be willing to spend on discretionary items when the price point is compelling, even as economic pressures make them more selective about larger purchases. Five Below may have cracked the code to continuing to see robust traffic and transactions, even as economic pressures mount.

Walmart, on the other hand, disappointed investors with its latest earnings, even though it also raised its full-year guidance.

The issue may be that the company posted notably slow sales growth compared to other recent quarters. There also may be a concern that the company's results are artificially benefiting from near-term tariff refunds that are not going to last.

Still, Walmart's digital business appears to be thriving and building its margins.

Advertising remains a high-growth corner of the company's ecosystem, but it is also supported by growth in membership income, e-commerce, and more. This may be why, despite shares falling by about 2.7% year to date (YTD), analysts remain very bullish on WMT stock overall and see the stock gaining 24%.

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