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Retail ETFs in Focus Ahead of Big-Box Q1 Earnings

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The retail sector is in focus ahead of the earnings releases of big-box retailers like Wal-Mart (WMT - Free Report) , Home Depot (HD - Free Report) , Lowe’s (LOW - Free Report) and Target (TGT - Free Report) , and store channels like Nordstrom (JWN - Free Report) and Kohls (KSS - Free Report) that are expected to report this week and the next.

Overall, the retail sector is expected to report an earnings decline of 18.8% on 5.2% revenue growth. With the earnings season coming to an end, about 40% 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) and VanEck Vectors Retail ETF (RTH - Free Report) are down 14.7% and 9%, respectively, so far this year (read: Amazon Posts Slowest Sales Growth in 2 Decades: ETFs in Focus).

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.

Wal-Mart is scheduled to report on May 17 before market open. It has a Zacks Rank #4 and an Earnings ESP of -2.17%. The company saw a negative earnings estimate revision of a penny over the past 7 days for the to-be-reported quarter. The company delivered an average earnings surprise of 14.74% in the last four quarters.

Home Depot has a Zacks Rank #3 and an Earnings ESP of +0.90%. It saw positive earnings estimate revision of a penny for the to-be-reported quarter in the past 7 days. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. Home Depot delivered an average earnings surprise of 11.13% in the last four quarters. The company is expected to report earnings before the opening bell on May 17.

Lowe’s is slated to report earnings before the bell on May 18. The stock has a Zacks Rank #3 and an Earnings ESP of +1.13%. The company witnessed no earnings estimate revision over the past 7 days for the to-be-reported quarter and delivered an earnings surprise of 12.90%, on average, in the last four quarters.

Target is also likely to report earnings on May 18 before the opening bell. It has a Zacks Rank #2 and an Earnings ESP of -0.93%. The company saw a negative earnings estimate revision of 4 cents over the past 7 days for the to-be-reported quarter and delivered an average earnings surprise of 21.25% in the last four quarters (see: all the Consumer Discretionary ETFs here).

Nordstrom, which will likely report earnings on May 24 after the closing bell, has a Zacks Rank #3 and an Earnings ESP of 54.29%. It saw no earnings estimate revision for the to-be-reported quarter in the past 7 days. The company delivered an earnings surprise of 13.91%, on average, over the past four quarters.

Kohls has a Zacks Rank #3 and an Earnings ESP of -10.06%. It saw no earnings estimate revision for the to-be-reported quarter in the past 7 days. It delivered an average earnings surprise of 78.22% in the last four quarters. The company is expected to report before the opening bell on May 19.

ETFs in Focus

SPDR S&P Retail ETF (XRT - Free Report)

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 108 stocks in its basket, with none making up for more than 1.5% share. Additionally, SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in apparel retail, automotive retail, Internet & direct marketing retail and specialty stores.

SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $514.8 million and an average trading volume of 5.8 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook (read: 5 Top-Ranked ETFs to Weather the Market Storms).

VanEck Vectors Retail ETF (RTH - Free Report)

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 nearly double-digit exposure each, while the other firms hold no more than 8.6% share.

VanEck Vectors Retail ETF has amassed $155.1 million in its asset base and charges 35 bps in annual fees. It trades in a lower volume of 9,000 shares a day on average. VanEck Vectors Retail ETF has a Zacks ETF Rank #3 with a Medium risk outlook.

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