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What's in Store for Retail ETFs As Big-Box Q2 Earnings Unfold

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The retail sector is in focus as big-box retailers like Wal-Mart (WMT - Free Report) and Home Depot (HD - Free Report) have come up with their earnings reports. Many others like Target (TGT - Free Report) and Lowe’s (LOW - Free Report) as well as store channels like Nordstrom (JWN - Free Report) and Kohls (KSS - Free Report) are set to report this week and the next.

Both Wal-Mart and Home Depot topped the Zacks Consensus Estimate for both earnings and reveneus. Wal-Mart also raised its earnings per share forecast for fiscal 2023 that has fueled a rally in shares of WMT (read: Wal-Mart Tumbles on Profit Warnings: ETFs in Focus).

Overall, the retail sector is expected to report an earnings decline of 22.1% on 7.2% 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) gained 13.2% and 10.9%, respectively, over the past three months (read: Buy Discretionary ETFs on Improving Consumer Sentiment).

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.

Target is also likely to report earnings on Aug 17 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of -7.91%. 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 1.32% in the last four quarters.

Lowe’s is slated to report earnings before the bell on Aug 17. The stock has a Zacks Rank #3 and an Earnings ESP of -1.71%. The company witnessed a positive earnings estimate revision of a couple of cents over the past 7 days for the to-be-reported quarter and delivered an earnings surprise of 8.88%, on average, in the last four quarters (see: all the Consumer Discretionary ETFs here).

Nordstrom, which will likely report earnings on Aug 23 after the closing bell, has a Zacks Rank #3 and an Earnings ESP of -1.49%. It saw no earnings estimate revision for the to-be-reported quarter in the past 7 days. The company delivered an earnings surprise of 25.34%, on average, over the past four quarters.

Kohls has a Zacks Rank #5 and an Earnings ESP of +8.37%. It saw a negative earnings estimate revision of 21 cents for the to-be-reported quarter in the past 7 days. Kohls delivered an average earnings surprise of 37.33% in the last four quarters. The company is expected to report before the opening bell on Aug 18.

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 100 stocks in its basket, with none making up for more than 2.2% share. Additionally, SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in automotive retail, apparel 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 $470.8 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 - 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% share (read: Amazon Posts Q2 Losses, Shares Spikes: ETFs in Focus).

VanEck Vectors Retail ETF has amassed $168.5 million in its asset base and charges 35 bps in annual fees. It trades in a lower volume of 8,000 shares a day on average. VanEck Vectors Retail ETF has a Zacks ETF Rank #3 with a Medium risk outlook.