Retail ETFs in Focus As Big-Box Q4 Earnings Unfold
The retail sector is in focus ahead of the earnings releases from big retailers. Wal-Mart WMT and Home Depot HD have released their earnings today, while other big-box retailers like Lowe’s LOW and Target TGT, as well as store channels like Nordstrom JWN and Kohls KSS are expected to report in the next couple of weeks.
Wal-Mart topped the Zacks Consensus Estimate for both earnings and revenues but disappointed investors with dismal guidance. Wal-Mart offered a weak outlook for fiscal 2024. On the other hand, Home Depot topped the earnings estimate but missed on revenues. The retailer forecast a drop in profit this year and flat sales with last year as consumer spending declines amid persistent inflation pressures.
Overall, the retail sector is expected to report an earnings decline of 32% on 5.1% revenue growth. The earnings season is coming to an end, with about 50% of the companies only from this sector yet to report. The traditional retail ETFs are thus in focus. SPDR S&P Retail ETF XRT and VanEck Vectors Retail ETF RTH gained 17.8% and 5.2%, respectively, so far this year.
Most of the gains were driven by the rise in retail sales. This is especially true as retail sales increased the most in nearly two years in January after two straight monthly declines. Americans lifted purchases of motor vehicles and other goods, pointing to the economy's continued resilience despite higher borrowing costs (read: ETF Areas to Win on Upbeat January Retail Sales).
What Our Model Unveils for Retailer 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.
Lowe’s is slated to report earnings before the bell on Mar 1. The stock has a Zacks Rank #3 and an Earnings ESP of -2.46%. The company witnessed a negative earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter and delivered an earnings surprise of 4.46%, on average, in the last four quarters (see: all the Consumer Discretionary ETFs here).
Target is likely to report earnings on Feb 28, before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of -2.55%. The company saw a negative earnings estimate revision of a penny over the past 7 days for the to-be-reported quarter and delivered an average negative earnings surprise of 22.2% in the last four quarters.
Nordstrom, which will likely report earnings on Mar 2 after the closing bell, has a Zacks Rank #5 and an Earnings ESP of 0.00%. It saw negative earnings estimate revision of 80 cents for the to-be-reported quarter in the past 30 days. However, the company delivered an earnings surprise of 21.8%, on average, over the past four quarters.
Kohls has a Zacks Rank #3 and an Earnings ESP of +11.70%. It saw a negative earnings estimate revision of a penny for the to-be-reported quarter in the past 30 days. Kohls delivered a negative average earnings surprise of 19.14% in the last four quarters. The company is expected to report before the opening bell on Mar 1.
ETFs in Focus
SPDR S&P Retail ETF (XRT)
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 94 stocks in its basket, with none making up for more than 2.4% share. Additionally, SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in automotive retail, apparel retail, specialty stores and Internet & direct marketing retail.
SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $514.7 million and an average trading volume of 4.8 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.
VanEck Vectors Retail ETF (RTH)
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 firm with more than 20% exposure each, while the other firms hold no more than 7.8% share (read: ETFs in Focus Posts Amazon's Biggest Annual Loss Ever).
VanEck Vectors Retail ETF has amassed $153.9 million in its asset base and charges 35 bps in annual fees. It trades in a lower volume of 7,000 shares a day on average. VanEck Vectors Retail ETF has a Zacks ETF Rank #3 with a Medium risk outlook.
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Target Corporation (TGT) : Free Stock Analysis Report
Kohl's Corporation (KSS) : Free Stock Analysis Report
Walmart Inc. (WMT) : Free Stock Analysis Report
Lowe's Companies, Inc. (LOW) : Free Stock Analysis Report
The Home Depot, Inc. (HD) : Free Stock Analysis Report
Nordstrom, Inc. (JWN) : Free Stock Analysis Report
SPDR S&P Retail ETF (XRT): ETF Research Reports
VanEck Retail ETF (RTH): ETF Research Reports
