American retailers live or die on the gap between what they pay for goods and what shoppers will pay them. That gap is getting squeezed from the supply side. Five of the largest US chains report third-quarter results over three days this week, straight into the hottest wholesale inflation in four years.
Costs are climbing at the warehouse
Producer prices rose 6.5% for the 12 months ended in October. That's the biggest annual jump since November 2022.
Goods alone ran hotter at 10.2%, and processed goods used as business inputs rose 14.6%, the largest since July 2022. Producer prices track what businesses pay and charge, not any one retailer's own purchasing costs.
On a monthly basis, producer prices rose 0.3% in October, while consumer prices increased 0.4% after a 0.6% rise in September. Within the consumer index, household furnishings and operations rose 0.2% over the month, and apparel added 0.1%.
October Inflation, Producer And Consumer
Producer prices rose 0.3% in October and consumer prices rose 0.4%, in percent
Bar chart. Percent. Producer prices, monthly: Percent change 0.30. Consumer prices, monthly: Percent change 0.40.
Source: U.S. Bureau of Labor Statistics
The demand side keeps surprising
The National Retail Federation expects holiday retail sales in November and December to grow 4.2% over 2025, reaching $1.013T. Its forecast excludes autos, gas stations, and restaurants and runs Nov. 1 through Dec. 31.
The Mastercard Economics Institute expects retail sales excluding gas and autos to grow 5.5% between Nov. 1 and Dec. 24, the strongest in four years and up from a 3.6% forecast for 2025. Online sales are projected to grow ~11%.
About half of that projected growth comes from higher prices, driven partly by energy costs, rather than extra items in carts.
Who reports and what's expected
Home Depot opens the week on Tuesday, Nov. 17, with Lowe's, Target and TJX following on Wednesday, and Walmart closing the week Thursday, Nov. 19. All five report before the opening bell, with TJX releasing before 9:30 a.m. ET, so the reaction lands the same day.
Consensus puts Home Depot at earnings of $3.84 a share for the quarter. Target sits at $2.06, Walmart at $0.64, and Lowe's at $2.89.
The Street's Earnings Bar Sits Modest
Consensus earnings estimates for the third quarter, in dollars
Bar chart. Consensus EPS, US$. Home Depot: Consensus EPS $3.8. Lowe's: Consensus EPS $2.9. Target: Consensus EPS $2.1. Walmart: Consensus EPS $0.6.
Source: Kalkine Media
Morgan Stanley's Nov. 9 preview put two of the four names above the street and two in line. Lowe's was projected at about $2.95 a share, with comparable sales up ~0.5% against 0.1% expected.
Target was projected above consensus on both sales and earnings. Home Depot was projected at about $3.82 a share, in line with the street, with comparable sales up 1.5% to 2% against 1.7% expected.
Walmart was the other name in line, with US comparable sales of 2.9% matching consensus. Its own August guidance called for third-quarter net sales growth of 3.0% to 3.75%.
Who eats the cost and who passes it on
On costs, the same preview expects Home Depot's gross margin to come under pressure as the company absorbs higher fuel and energy costs alongside acquisition dilution. With comparable sales below its ~3% operating leverage threshold, that works out to about 2% earnings growth.
Walmart's cost line looks different. The bank puts the diesel headwind at an annualized $2.5B, one it thinks Walmart can hedge through its own fleet and ocean freight capacity.
It also projects that roughly $600M in third-quarter price cuts, tied to tariff refunds unused in the second quarter, dragged adjusted operating profit growth by about 9 percentage points.
Target is the one name Morgan Stanley flags as capable of a surprise. It sees earnings of $2.15 to $2.20, helped by category resets and advertising revenue that grew ~40% in the first half.
How to think about exposure
Home improvement remains the weakest link. Existing home sales have turned negative year over year as mortgage rates rise, and contractor surveys point to order backlog improvement waiting until 2027.
Lowe's carries a second date worth tracking. Its Investor Day on Dec. 9 is expected to clarify the three-year financial framework, and Morgan Stanley warns preliminary 2027 guidance may land below consensus, with the possibility of declining EBIT margins.
Guidance could carry more weight than the quarter itself, because the fourth quarter contains the entire holiday season. The scoreboard is how much of each chain's sales came from volume, how much from price, and how much profit remains after the cost of goods.
