Finance

Confidence is back, but earnings show the consumer is being picky

MarketBeat · Jul 21, 2026 18:20 · 5 min read

Confidence Is Back, But Earnings Show the Consumer Is Being Picky — A wallet with cash, coffee, a sweater, sunglasses, and perfume on a counter beside a stainless steel refrigerator.

Key Points Interested in Domino's Pizza Inc? Here are five stocks we like better. Consumer discretionary stocks remain among the weakest S&P 500 sectors in 2026 despite improving consumer sentiment. Domino's Pizza posted revenue growth, but flat same-store sales and a fifth earnings miss in seven quarters, showing value-focused deals aren't translating into meaningful growth. Higher-end brands like Darden Restaurants, Williams-Sonoma, and Ralph...

Key Points

Interested in Domino's Pizza Inc? Here are five stocks we like better.
Consumer discretionary stocks remain among the weakest S&P 500 sectors in 2026 despite improving consumer sentiment.
Domino's Pizza posted revenue growth, but flat same-store sales and a fifth earnings miss in seven quarters, showing value-focused deals aren't translating into meaningful growth.
Higher-end brands like Darden Restaurants, Williams-Sonoma, and Ralph Lauren beat earnings expectations, while Best Buy and Home Depot showed weaker results reflecting cautious middle-income spending.

This year, as the market is preoccupied with how the Iran war is propping up the energy sector and how the memory chip shortage has been driving the AI rally, there has been little focus on consumer discretionary stocks' underperformance.

In 2026, consumer discretionary remains among the weakest S&P 500 sectors. The Consumer Discretionary Select Sector SPDR Fund, a commonly used proxy for the sector, is down nearly 4% year-to-date.

But as Q2 earnings season continues, signs are pointing to a rebound in consumer confidence. While that may bode well for the sector broadly, a sampling of consumer discretionary companies shows that if it is sustainable, the results are anything but uniform.

After hitting all-time lows earlier this year, the University of Michigan's Surveys of Consumers showed a minor uptick in July, with the index jumping from 49.5 in June to 54.4. Despite remaining below the critical threshold of 60-the historical level that serves as a recession risk warning-the sentiment reading marked the second straight month of a 10% increase and the highest reading since February.

However, economists chalk that up to lower prices at the pump over the past few weeks, which have already begun to reverse course as the United States and Iran have resumed fighting. That was reinforced with a lower June Consumer Price Index reading, with the moderated 3.5% year-over-year (YOY) increase attributed to a drop in gas prices.

Nonetheless, the reprieve from higher prices-even if momentary-has had a psychological impact on consumers. But thus far, consumer discretionary earnings have been a mixed bag, telling a more complicated story.

Domino's Value Deals Drive Orders, But Not Meaningful Growth

As Domino's Pizza (NASDAQ: DPZ) recently demonstrated, everyday consumers may still be ordering, but they are barely growing their tabs. Instead, they are showing highly selective behavior.

The company reported Q2 earnings on Monday, July 20, announcing a revenue beat alongside YOY revenue growth of 4.3%.

But the real takeaway wasn't revenue growth or even the earnings per share (EPS) miss. Rather, it was same-store sales, which rose just 0.1%.

As a result, Domino's revised its 2026 guidance. While it maintained full-year sales and profit forecasts and still expects U.S. and international comps to rise in the low-single digits, the company trimmed its outlook for U.S. net unit growth to about 175 stores as franchisee profitability and the company's development pipeline face elevated near-term pressure.

The EPS miss was symptomatic of a developing long-term trend. Dating back to Q4 2024, Domino's has now missed on earnings in five of its last seven quarters, including three of the last four. Importantly, income from operations only grew by 2.6% in Q2, which the company admitted during its earnings call was below expectations.

Domino's has a broad target market, but it ramped up its value-focused campaigns and lower price points-including lengthy Mix & Match and Best Pizza Deal Ever promotions-in 2026, which has successfully attracted a growing share of lower-income consumers. Much of that decision was driven by cautious consumer spending in the latter half of 2025 and into this year, but it has yet to translate to Domino's income statements.

Full-Service Restaurants and High-End Brands Capture the Stronger Consumer

Meanwhile, multi-brand, full-service restaurant conglomerate Darden Restaurants (NYSE: DRI) tells a very different story.

The company, which owns and operates a portfolio including Olive Garden, LongHorn Steakhouse, Yard House, Ruth's Chris Steak House, Cheddar's, The Capital Grille, and Seasons 52-among others-reported its fiscal Q4 2026 earnings in late June.

EPS of $3.66 beat analyst expectations of $3.63, and while revenue of $3.72 billion just missed the forecasted $3.73 billion, it marked a 13.7% YOY increase.

With a trailing price-to-earnings (P/E) ratio of 18.76, the company's earnings are expected to increase 9.84% over the next year.

Notably, Darden's Q4 same-restaurant sales were up 4.6% YOY and 4.5% for the full fiscal year as diners continue to prioritize experiences over convenience. Olive Garden, LongHorn, and Yard House all posted their fifth consecutive year of positive comp sales, with LongHorn delivering 7.2% same-restaurant sales growth for the full fiscal year and 9.5% growth in Q4.

Cardenas specifically highlighted how Darden offers full-service dining for a variety-seeking demographic, offering "a collection of brands that gives us reach across multiple dining occasions, guest demographics, price points, geographies, and cuisine types." In turn, the company doesn't rely on a single brand or consumer segment.

High-end specialty retailer Williams-Sonoma (NYSE: WSM) also showed that higher-income consumers are spending more freely. When it reported fiscal Q1 earnings on May 21, it beat on earnings and revenue while announcing a 4.8% increase in comps and an operating margin of 16.2%.

Premium apparel maker Ralph Lauren (NYSE: RL) also beat on earnings and revenue when it reported fiscal Q4 2026 results on May 21, with revenue climbing 16.6% YOY.

Big-Ticket Purchases Are Still Lagging

Takeout pizza may be lagging the performances of high-end consumer goods and full-service restaurants aimed at affluent shoppers, but there are indications that middle-income consumers are also delaying gratification, especially for big-ticket items and home renovations.

Best Buy (NYSE: BBY) reported fiscal Q1 2027 revenue growth of just 1.9% YOY while comparable sales increased 2.0% YOY.

Another indication that middle- and lower-income consumers aren't spending more: tepid financials from Home Depot (NYSE: HD). Often regarded as a bellwether of the economy, the home improvement giant reported negative 4.35% YOY EPS growth for fiscal Q1 2016, while sales rose 4.8% and comparable sales increased 0.6%.

Taken together, despite minor improvements in consumer sentiment, the inconsistencies in consumer discretionary stocks continues to demonstrate that shoppers continue to navigate uncertainty, and any increases in spending are showing distinct disparities among income groups.

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