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Wal-Mart Tumbles on Profit Warnings: ETFs in Focus

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Wal-Mart (WMT - Free Report) tumbled nearly 10% after market hours following a surprise profit warning. The mega-retailer cut its profit outlook for the second quarter and fiscal full-year owing to rampant inflation and a consumer cutback.

This has spread an air of pessimism in the retail sector and prompted a sell-off in shares of rivals, including Target (TGT - Free Report) , Amazon.com (AMZN - Free Report) , Costco (COST - Free Report) and Home Depot (HD - Free Report) (read: Amazon Soars Ahead of Stock Split: ETFs to Gain).

Terrible trading is expected in the ETF world, especially ETFs having the highest allocation to the world's largest brick-and-mortar retailer. These include VanEck Vectors Retail ETF (RTH - Free Report) , Vanguard Consumer Staples ETF (VDC - Free Report) , Fidelity MSCI Consumer Staples Index ETF (FSTA - Free Report) and iShares Evolved U.S. Discretionary Spending ETF (IEDI - Free Report) .

What Happened?

Wal-Mart projects earnings per share to drop around 8-9% for the second quarter and 11-13% for the full fiscal year. It guided for earnings of flat to slightly up previously. Higher prices for food and fuel have curtailed consumers’ purchases of discretionary items, hurting consumer spending and building mountains of inventory. In May, Walmart said it was sitting on over $60 billion of inventory at the end of the first quarter, 32% higher than last year.

Notably, inflation is sitting at a level not seen in more than four decades. The consumer price index climbed 9.1% year over year in June to a fresh 40-year high, up from an 8.6% jump in May (read: 5 ETFs to Ride High Amid Red-Hot Inflation).

Operating income is also expected to decline 13-14% for the second quarter, down from the previous expectation of flat to up slightly. However, revenues are expected to increase 7.5% versus the previous expectation of 5%.

WMT Estimate Revisions Sinking

Wal-Mart has seen negative earnings estimate revision of three cents for the current fiscal year over the past 60 days. For FY23, the Zacks Consensus Estimate is currently pegged at $6.40, representing a decline of 0.9% from the year-ago quarter and well below the industry’s average growth of 0.9%.

Over the past three months, shares of WMT declined about 14% compared to the loss of 7.8% shed by SPDR Dow Jones Industrial Average ETF (DIA), which tracks the Dow Jones Industrial Average Index. The stock currently is placed in the bottom 9% in terms of ranking among more than 250 Zacks industries.

Below, we have detailed the ETFs:

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. Walmart takes the fourth spot with 7.7% share (read: Has the Market Bottomed? 6 ETFs in High Momentum).

VanEck Vectors Retail ETF has amassed $161.6 million in its asset base and charges 35 bps in annual fees. It trades in a lower volume of 10,000 shares a day on average. VanEck Vectors Retail ETF has a Zacks ETF Rank #3 with a Medium risk outlook.

Vanguard Consumer Staples ETF (VDC - Free Report)

Vanguard Consumer Staples ETF also targets the broad consumer staples by tracking the MSCI US Investable Market Consumer Staples 25/50 Index. It holds 101 stocks in its basket, with Walmart occupying the fifth position, having a 6.7% allocation. Vanguard Consumer Staples ETF is widely spread across soft drinks, household products, packaged foods & meats, and hypermarkets & supercenters that make up for a double-digit allocation each.

Vanguard Consumer Staples ETF manages a $6.7 billion asset base and charges a fee of 10 bps per year. VDC trades in a good volume of around 218,000 shares per day, on average, and has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.

Fidelity MSCI Consumer Staples Index ETF (FSTA - Free Report)

Fidelity MSCI Consumer Staples Index ETF tracks the MSCI USA IMI Consumer Staples Index, holding 110 stocks in its basket. Of these, Walmart takes the fifth spot with a 6.7% share in FSTA. Fidelity MSCI Consumer Staples Index ETF is widely diversified across beverages, food and staples retailing, food products and household products with double-digit exposure each (see: all Consumer Staples ETFs here).

Fidelity MSCI Consumer Staples Index ETF has amassed $1 billion in its asset base while trading in a moderate volume of around 164,000 shares a day, on average. FSTA charges 8 bps in annual fees from investors and has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.

iShares Evolved U.S. Discretionary Spending ETF (IEDI - Free Report)

iShares Evolved U.S. Discretionary Spending ETF is an actively managed ETF that employs data science techniques to identify companies with exposure to the discretionary spending sector. It follows the Cboe BZX, formerly known as BATS, and holds 218 stocks in its basket. Walmart occupies the fourth position with a 6.1% share. IEDI is dominated by retailing with half of the portfolio, while food & staples retailing and consumer services round off the next two with double-digit exposure each.

iShares Evolved U.S. Discretionary Spending ETF has accumulated $15.4 million in its asset base and charges 18 bps in fees per year. Volume is paltry for IEDI as it exchanges 2,000 shares a day, on average.