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The retail sector has been in focus this week, ahead of the earnings releases of big-box retailers like WalMart (WMT - Free Report) and Target (TGT - Free Report) . With the earnings season coming to an end, about 43% of the companies in the sector are yet to report, putting the traditional retail ETFs in focus.
SPDR S&P Retail ETF (XRT - Free Report) , VanEck Vectors Retail ETF (RTH - Free Report) and First Trust Nasdaq Retail ETF are up 7%, 7.5%, and 8%, respectively over the past three months.
Sector Earnings Trend
The overall picture is weak compared to the other sectors as retail earnings are expected to increase just 1.6%, the lowest of all, while revenues will likely grow 8.2%. Hotter inflation and reduced consumer confidence seem to have hurt the revenues and profitability of the retailers during the third quarter.
Consumer prices increased at the fastest pace in more than 30 years. The consumer price index rose 6.2% year over year in October, the highest since December 1990 and exceeded the 5.4% year-over-year rise in September. Inflation also topped 5% for the fifth straight month. Meanwhile, consumer sentiment unexpectedly collapsed in early November as Americans grew increasingly concerned about rising prices and the inflationary impact on their finances. Notably, the University of Michigan’s preliminary sentiment index dropped to a decade low of 66.8 in early November after falling to 71.7 in October from 72.8 in September (read: U.S. Inflation at a 30-Year High: 5 Sector ETFs to Win).
The Retail and Wholesale sector, which have a solid Zacks Rank in the top 38%, has gained just 2.1% over the past three months compared to 4.6% for the broad market.
The retail sector results reported so far are primarily from online vendors and restaurant players. Total earnings of 57% of the companies in the sector that have reported so far are up 4.4% on 14.2% revenue growth, with 80% beating both EPS and revenue estimates. Earnings and revenue growth rates are much lower than a respective 72.9% and 21.7% in the previous reported quarter.
A Peek into Walmart and Target Earnings
According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
WalMart is scheduled to report on Nov 16 before market open. It has a Zacks Rank #3 and an Earnings ESP of +2.44%, indicating higher chances of beating estimates this quarter. WalMart saw positive earnings estimate revision of a penny over the past seven days for the to-be-reported quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good indicator of some favorable trends for the stock.
WalMart delivered an average earnings surprise of 14.32% in the last four quarters. Additionally, the company has a VGM Score of A (see: all the Consumer Discretionary ETFs here).
Target is likely to report earnings on Nov 17 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of -0.95%.
Target saw positive earnings estimate revision of 4 cents over the past seven days for the to-be-reported quarter and delivered an average earnings surprise of 36.7% in the last four quarters. Target has a VGM Score of A.
ETFs in Focus
SPDR S&P Retail ETF
SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large-, mid-and small-cap stocks. It holds a well-diversified 107 stocks in its basket with none making up for more than 1.6% share. Additionally, SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in Internet & direct marketing retail, apparel retail, automotive retail, and specialty stores (read: Grab Retail ETFs on Upbeat Holiday Sales Forecast).
SPDR S&P Retail ETF is the largest and most popular in the retail space with AUM of $1.2 billion and an average trading volume of 2.7 million shares. It charges 35 bps in annual fees and has shed 1.4% in a week. SPDR S&P Retail ETF has a Zacks ETF Rank #1 with a Medium risk outlook.
VanEck Vectors Retail ETF
VanEck Vectors Retail ETF provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index, which measures the performance of the companies involved in retail distribution, wholesalers, online, direct mail and TV retailers, multi-line retailers, specialty retailers and food and other staples retailers. VanEck Vectors Retail ETF is highly concentrated on the top two firms with double-digit exposure each while the other firms hold no more than 5.6% share.
VanEck Vectors Retail ETF has amassed $222.8 million in its asset base and charges 35 bps in annual fees. It trades in a lower volume of 19,000 shares a day on average. VanEck Vectors Retail ETF has a Zacks ETF Rank #2 with a Medium risk outlook (read: Wall Street Still Has Room to Run: ETFs to Play).
First Trust Nasdaq Retail ETF
First Trust Nasdaq Retail ETF follows the Nasdaq US Smart Retail Index. It holds 52 stocks in its basket with each accounting for no more than 6.9% of assets. First Trust Nasdaq Retail ETF is slightly skewed toward specialty retail at 47.8%, while multiline retail and food & staples retailing round off the next two with double-digit exposure each.
First Trust Nasdaq Retail ETF has accumulated $24.3 million in its asset base and has an expense ratio of 0.60%. It trades in an average daily volume of 9,000 shares. First Trust Nasdaq Retail ETF carries a Zacks ETF Rank #3.
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Retail ETFs in Focus Ahead of Big-Box Q3 Earnings
The retail sector has been in focus this week, ahead of the earnings releases of big-box retailers like WalMart (WMT - Free Report) and Target (TGT - Free Report) . With the earnings season coming to an end, about 43% of the companies in the sector are yet to report, putting the traditional retail ETFs in focus.
SPDR S&P Retail ETF (XRT - Free Report) , VanEck Vectors Retail ETF (RTH - Free Report) and First Trust Nasdaq Retail ETF are up 7%, 7.5%, and 8%, respectively over the past three months.
Sector Earnings Trend
The overall picture is weak compared to the other sectors as retail earnings are expected to increase just 1.6%, the lowest of all, while revenues will likely grow 8.2%. Hotter inflation and reduced consumer confidence seem to have hurt the revenues and profitability of the retailers during the third quarter.
Consumer prices increased at the fastest pace in more than 30 years. The consumer price index rose 6.2% year over year in October, the highest since December 1990 and exceeded the 5.4% year-over-year rise in September. Inflation also topped 5% for the fifth straight month. Meanwhile, consumer sentiment unexpectedly collapsed in early November as Americans grew increasingly concerned about rising prices and the inflationary impact on their finances. Notably, the University of Michigan’s preliminary sentiment index dropped to a decade low of 66.8 in early November after falling to 71.7 in October from 72.8 in September (read: U.S. Inflation at a 30-Year High: 5 Sector ETFs to Win).
The Retail and Wholesale sector, which have a solid Zacks Rank in the top 38%, has gained just 2.1% over the past three months compared to 4.6% for the broad market.
The retail sector results reported so far are primarily from online vendors and restaurant players. Total earnings of 57% of the companies in the sector that have reported so far are up 4.4% on 14.2% revenue growth, with 80% beating both EPS and revenue estimates. Earnings and revenue growth rates are much lower than a respective 72.9% and 21.7% in the previous reported quarter.
A Peek into Walmart and Target Earnings
According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
WalMart is scheduled to report on Nov 16 before market open. It has a Zacks Rank #3 and an Earnings ESP of +2.44%, indicating higher chances of beating estimates this quarter. WalMart saw positive earnings estimate revision of a penny over the past seven days for the to-be-reported quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good indicator of some favorable trends for the stock.
WalMart delivered an average earnings surprise of 14.32% in the last four quarters. Additionally, the company has a VGM Score of A (see: all the Consumer Discretionary ETFs here).
Target is likely to report earnings on Nov 17 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of -0.95%.
Target saw positive earnings estimate revision of 4 cents over the past seven days for the to-be-reported quarter and delivered an average earnings surprise of 36.7% in the last four quarters. Target has a VGM Score of A.
ETFs in Focus
SPDR S&P Retail ETF
SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large-, mid-and small-cap stocks. It holds a well-diversified 107 stocks in its basket with none making up for more than 1.6% share. Additionally, SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in Internet & direct marketing retail, apparel retail, automotive retail, and specialty stores (read: Grab Retail ETFs on Upbeat Holiday Sales Forecast).
SPDR S&P Retail ETF is the largest and most popular in the retail space with AUM of $1.2 billion and an average trading volume of 2.7 million shares. It charges 35 bps in annual fees and has shed 1.4% in a week. SPDR S&P Retail ETF has a Zacks ETF Rank #1 with a Medium risk outlook.
VanEck Vectors Retail ETF
VanEck Vectors Retail ETF provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index, which measures the performance of the companies involved in retail distribution, wholesalers, online, direct mail and TV retailers, multi-line retailers, specialty retailers and food and other staples retailers. VanEck Vectors Retail ETF is highly concentrated on the top two firms with double-digit exposure each while the other firms hold no more than 5.6% share.
VanEck Vectors Retail ETF has amassed $222.8 million in its asset base and charges 35 bps in annual fees. It trades in a lower volume of 19,000 shares a day on average. VanEck Vectors Retail ETF has a Zacks ETF Rank #2 with a Medium risk outlook (read: Wall Street Still Has Room to Run: ETFs to Play).
First Trust Nasdaq Retail ETF
First Trust Nasdaq Retail ETF follows the Nasdaq US Smart Retail Index. It holds 52 stocks in its basket with each accounting for no more than 6.9% of assets. First Trust Nasdaq Retail ETF is slightly skewed toward specialty retail at 47.8%, while multiline retail and food & staples retailing round off the next two with double-digit exposure each.
First Trust Nasdaq Retail ETF has accumulated $24.3 million in its asset base and has an expense ratio of 0.60%. It trades in an average daily volume of 9,000 shares. First Trust Nasdaq Retail ETF carries a Zacks ETF Rank #3.