This year, with the market preoccupied with how the war in Iran is affecting the energy sector and how memory chip shortages are driving the AI rally, there has been little focus on the poor performance of consumer stocks.
In 2026, consumer discretionary remains among the weakest sectors of the S&P 500. The Consumer Discretionary Select Sector SPDR Fund, the sector's most used proxy, is down about 4% year to date.
But as the Q2 earnings season continues, signs are pointing to a rebound in consumer confidence. While that may bode well for the industry at large, a sample of consumer preference companies show that when they are stable, the results are mixed.
After falling sharply earlier this year, the University of Michigan Consumer Survey showed a slight increase in July, with the index jumping from 49.5 in June to 54.4. Despite remaining below the key threshold of 60—the historic level that serves as a warning of the risk of recession—the sentiment reading marked the second straight month of 10% gains and the highest reading since February.
However, economists say that the low prices at the tap in the past few weeks, have already started to reverse as the United States and Iran have resumed fighting. That was reinforced by June's lower Consumer Price Index reading, with a modest increase of 3.5% year-over-year (YOY) driven by lower gas prices.
However, the withdrawal of high prices—even if temporarily—had a psychological effect on consumers. But so far, consumer discretionary earnings have been a mixed bag, which tells a very difficult story.
Domino's Value Deals Drives Orders, But Not Meaningful Growth
Domino's Pizza Today
Domino's Pizza
- 52 week interval
- $282.00
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$486.68
- Dividend Yield
- 2.43%
- The P/E ratio
- 18.89
- Target Value
- $402.16
Like Domino's Pizza NASDAQ: DPZ As recently shown, everyday shoppers may still be ordering, but not increasing their tabs. Instead, they show the behavior that you choose.
The company reported Q2 earnings on Monday, July 20, announcing a revenue beat alongside YOY revenue growth of 4.3%.
But the real takeaway was not the revenue growth or even the earnings per share (EPS) miss. Instead, it was same-store sales, which rose 0.1%.
As a result, Domino's revised its 2026 guidance. While it maintained full-year sales and profit forecasts and still expects US and international comps to rise in the low single digits, the company adjusted its US unit growth outlook to about 175 stores as franchisee profits and the company's development pipeline face near-term pressure.
The EPS miss was a sign of a long-term upward trend. As of Q4 2024, Domino's has now missed earnings in its last seven quarters, including three of its last four. Importantly, operating income grew only 2.6% in Q2, which the company admitted during the earnings call was below expectations.
Domino's has a broad target market, but increased its product-focused campaigns and low price points—including long-running Mix & Match promotions and Best Pizza Deal Ever—in 2026, which successfully attracted a growing segment of low-income consumers. Much of that decision was driven by cautious consumer spending in the last quarter of 2025 through this year, but it has yet to translate into Domino's statements.
Full-service restaurants and high-quality products capture a strong customer base
Darden Restaurants Today
Restaurants in Darden
- 52 week interval
- $169.00
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$220.65
- Dividend Yield
- 3.36%
- The P/E ratio
- 18.59
- Target Value
- $228.88
Meanwhile, Darden's many, full-service restaurants NYSE: DRI it tells a very different story.
The company, which owns and manages a portfolio that includes Olive Garden, LongHorn Steakhouse, Yard House, Ruth's Chris Steak House, Cheddar's, Capital Grille, and Seasons 52—among others—reported its Q4 2026 earnings at the end of June.
EPS of $3.66 beat analyst expectations of $3.63, and while revenue of $3.72 billion just missed the $3.73 billion forecast, it marked a YOY increase of 13.7%.
With a trailing price-to-earnings (P/E) ratio of 18.76, the company's earnings are expected to rise 9.84% next year.
Notably, Darden same-restaurant sales increased 4.6% YOY and 4.5% for the full fiscal year as diners continue to prioritize experience over luxury. Olive Garden, LongHorn, and Yard House all posted their fifth consecutive year of positive sales, with LongHorn delivering same-restaurant sales growth of 7.2% for the full fiscal year and 9.5% growth in Q4.
Cardenas clearly highlighted how Darden caters to people who want variety, offering “a collection of products that gives us access to all the most dining times, guest demographics, price points, locations, and cuisines.” Consequently, the company is not dependent on a single product or consumer segment.
Top seller Williams-Sonoma NYSE: WSM it also showed that high-income consumers spend more liberally. When it reported Q1 earnings on May 21, it beat earnings and revenue while announcing a 4.8% increase in comps and a 16.2% operating margin.
Premium clothing maker Ralph Lauren NYSE: RL also beat on earnings and revenue when it reported Q4 2026 financial results on May 21, with revenue up 16.6% YOY.
Big Ticket Purchases Still Delayed
Home Depot Today
The Home Depot
- 52 week interval
- $289.10
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$426.75
- Dividend Yield
- 2.82%
- The P/E ratio
- 23.48
- Target Value
- $371.71
Takeout pizza may be lagging behind the performance of high-end consumer goods and full-service restaurants aimed at affluent consumers, but there are indications that lower-income consumers are holding back on luxury, especially in big-ticket items and home improvement.
Best Buy NYSE: BBY reported Q1 2027 revenue growth of just 1.9% while comparable sales rose 2.0% YOY.
Another indication that middle-income and lower-income shoppers aren't spending more: strong earnings from Home Depot NYSE: HD. Often considered an economic powerhouse, the home improvement giant reported a negative 4.35% YOY EPS growth in fiscal Q1 2016, while sales rose 4.8% and comparable sales rose 0.6%.
Together, despite the small improvement in consumer sentiment, the conflict in the stock of consumer choice continues to show that consumers continue to wander in uncertainty, and any increase in costs shows a different disparity between income groups.
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