Confidence Is Back, But Earnings Show the Consumer Is Being Picky

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 Domino's Pizza Today DPZ Domino's Pizza $327.42 -1.55 (-0.47%) As of 02:40 PM Eastern This is a fair market value price provided by Massive. Learn more. 52-Week Range $282.00 ▼ $486.68 Dividend Yield 2.43% P/E Ratio 18.86 Price Target $402.16 Add to Watchlist 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...