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Withthe Q2 earnings season reaching the tail end and retail being the only sector that is yet to come up with many reports, investors must have kept an eye on retail earnings and got sweet surprises on August 11 on a series of upbeat earnings reports.
As per the Earnings Trends issued on August 10, 2016, total earnings of the reported retailers are up 8.1% from the same period last year on 8.7% higher revenues. However, such flattering growth rates are mainly due to the stellar Amazon report. About 45.5% (which is the below the index average) of retailers surpassed on earnings and a meagre 18.2% exceeded revenue estimates.
Against such a backdrop, August 11 amazed retail investors. Below we highlight the key earnings and explain why these retail stocks surged on that day (read: Retail Sales in Fine Fettle: ETFs to Watch).
Retail Earnings in Detail
On August 11 before market, U.S. department store chain Macy’s Inc. (M - Free Report) came up with the fourth straight quarter of positive earnings surprise. Its adjusted earnings of $0.54 a share beat the Zacks Consensus Estimate of $0.40 while its net sales of $5.87 billion surpassed the Zacks Consensus Estimate of $5.75 billion.
What’s more striking is that Macy’s is to shut down 100 stores, over 13.7% of the 728 stores it currently operates and augment investment in its online business to respond to sliding sales. Both beats and such a growth-oriented and timely shift in the business model boosted Macy’s shares by over 17% in the key trading session.
On the same day, another department store retailer Kohl’s Corporation (KSS - Free Report) delivered better-than-expected Q2 of fiscal 2016, wherein both earnings and revenues exceeded the consensus mark.Earnings of $1.22 per share beat the Zacks Consensus Estimate by 17.3% while net sales of $4.182 billion beat the Zacks Consensus Estimate of $4.158 billion. However, the retailer slashed its earnings guidance due to soft comps and a tough sales scenario. But it still saw share price gains of about 16.2% on August 11, post earnings release.
Nordstrom Inc. (JWN - Free Report) reported after the bell on August 11 and saw the stock surge over 10.6% after hours on beefed-up earnings guidance. The company posted earnings of $0.67 per share, beating the Zacks Consensus Estimate of $0.55 in the second quarter of fiscal 2016. Its revenues of $3.651 billion marginally missed our estimate of $3.654 billion. The company raised its full-year EPS forecast to between $2.60 and $2.75, from the previous expectation of $2.50 and $2.70.
What to Expect Ahead?
While Macy’s and Kohl’s set the mood of the retail sector before the bell, Nordstrom’s raised guidance added more cheer to the retail party. The trio acted as a cornerstone for the entire space. In fact, in the key trading session, JWN stock was up over 7.5%. Another retail stock like J. C. Penney Company Inc. rose over 8.6% and added about 3.7% after hours.
Investors should also note that retail sales grew for the third consecutive month in June. Wage gains may have helped in boosting retail sales lately. Also, a dovish Fed is perhaps acting as a tailwind as a few more months of cheap dollar should boost consumers’ purchases and the investing world (read: A Positive-But-Cautious Fed Meet: Buy These ETFs)
ETFs in Focus
Given this positive trend, investors can cash in on the euphoria by investing in retail ETFs.SPDR S&P Retail ETF (XRT - Free Report) gained over 2.4% on August 11 and also added about 1.1% after hours (read: June Retail Sales Rejoice: ETFs & Stocks to Bet On).
Other retail ETFs that gained on that day and may be in focus ahead are VanEck Vectors Retail ETF (RTH - Free Report) (up about 0.9%) and PowerShares Dynamic Retail Portfolio ETF (up over 1.1%).
Having said this, we would like to note that consumer sentiment weakened in July from the previous month. Also, the gap between consumers’ perception about the current economy and their expectations is now the broadest since 2006.
While this can be concern for retail ETFs, investors can bet on the earnings euphoria for as long as the trend remains their friend.
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Should You Buy Retail ETFs Now?
Withthe Q2 earnings season reaching the tail end and retail being the only sector that is yet to come up with many reports, investors must have kept an eye on retail earnings and got sweet surprises on August 11 on a series of upbeat earnings reports.
As per the Earnings Trends issued on August 10, 2016, total earnings of the reported retailers are up 8.1% from the same period last year on 8.7% higher revenues. However, such flattering growth rates are mainly due to the stellar Amazon report. About 45.5% (which is the below the index average) of retailers surpassed on earnings and a meagre 18.2% exceeded revenue estimates.
Against such a backdrop, August 11 amazed retail investors. Below we highlight the key earnings and explain why these retail stocks surged on that day (read: Retail Sales in Fine Fettle: ETFs to Watch).
Retail Earnings in Detail
On August 11 before market, U.S. department store chain Macy’s Inc. (M - Free Report) came up with the fourth straight quarter of positive earnings surprise. Its adjusted earnings of $0.54 a share beat the Zacks Consensus Estimate of $0.40 while its net sales of $5.87 billion surpassed the Zacks Consensus Estimate of $5.75 billion.
What’s more striking is that Macy’s is to shut down 100 stores, over 13.7% of the 728 stores it currently operates and augment investment in its online business to respond to sliding sales. Both beats and such a growth-oriented and timely shift in the business model boosted Macy’s shares by over 17% in the key trading session.
On the same day, another department store retailer Kohl’s Corporation (KSS - Free Report) delivered better-than-expected Q2 of fiscal 2016, wherein both earnings and revenues exceeded the consensus mark.Earnings of $1.22 per share beat the Zacks Consensus Estimate by 17.3% while net sales of $4.182 billion beat the Zacks Consensus Estimate of $4.158 billion. However, the retailer slashed its earnings guidance due to soft comps and a tough sales scenario. But it still saw share price gains of about 16.2% on August 11, post earnings release.
Nordstrom Inc. (JWN - Free Report) reported after the bell on August 11 and saw the stock surge over 10.6% after hours on beefed-up earnings guidance. The company posted earnings of $0.67 per share, beating the Zacks Consensus Estimate of $0.55 in the second quarter of fiscal 2016. Its revenues of $3.651 billion marginally missed our estimate of $3.654 billion. The company raised its full-year EPS forecast to between $2.60 and $2.75, from the previous expectation of $2.50 and $2.70.
What to Expect Ahead?
While Macy’s and Kohl’s set the mood of the retail sector before the bell, Nordstrom’s raised guidance added more cheer to the retail party. The trio acted as a cornerstone for the entire space. In fact, in the key trading session, JWN stock was up over 7.5%. Another retail stock like J. C. Penney Company Inc. rose over 8.6% and added about 3.7% after hours.
Investors should also note that retail sales grew for the third consecutive month in June. Wage gains may have helped in boosting retail sales lately. Also, a dovish Fed is perhaps acting as a tailwind as a few more months of cheap dollar should boost consumers’ purchases and the investing world (read: A Positive-But-Cautious Fed Meet: Buy These ETFs)
ETFs in Focus
Given this positive trend, investors can cash in on the euphoria by investing in retail ETFs.SPDR S&P Retail ETF (XRT - Free Report) gained over 2.4% on August 11 and also added about 1.1% after hours (read: June Retail Sales Rejoice: ETFs & Stocks to Bet On).
Other retail ETFs that gained on that day and may be in focus ahead are VanEck Vectors Retail ETF (RTH - Free Report) (up about 0.9%) and PowerShares Dynamic Retail Portfolio ETF (up over 1.1%).
Having said this, we would like to note that consumer sentiment weakened in July from the previous month. Also, the gap between consumers’ perception about the current economy and their expectations is now the broadest since 2006.
While this can be concern for retail ETFs, investors can bet on the earnings euphoria for as long as the trend remains their friend.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>