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Consumer ETFs in Focus as Wal-Mart Misses Q3 Revenue

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The world's largest retailer Wal-Mart WMT came up with mixed third-quarter fiscal 2017 results on Thursday. While the company edged past our earnings estimate buoyed by strong e-commerce sales, revenues fell short (read: Online Shopping Gaining Traction: ETFs to Buy).

Q3 Results in Focus

Earnings per share came in at 98 cents, beating the Zacks Consensus Estimate by a couple of cents but declining from the year-ago earnings of $1.03. Revenues inched up 0.7% year over year to $118.2 billion but were slightly below our estimated $118.5 billion. Lower food prices have taken a toll on the company’s revenues in the last quarter.

Investors should note that digital sales were the star performer in the quarter. This is especially true as e-commerce sales climbed 20.6% year over year after shrinking for two years thanks to the accelerated investment in global e-commerce initiatives. In particular, the acquisition of for $3 billion in summer helped the company to narrow down the gap with Amazon (AMZN - Free Report) in the digital world. The company will continue its digital investments at the cost of store expansion.

The mega retailer lifted the lower end of the fiscal 2016 earnings per share guidance. It now expects earnings to range from $4.20–$4.35 per share versus the previous forecast of $4.15–$4.35. The midpoint of the new guidance is much below the Zacks Consensus Estimate of $4.32 (see: all Consumer Staples ETFs here).    

Market Impact

The revenue miss led to a drop of as much as 4.6% in shares of WMT on the day. Meanwhile, the stock crushed the volume figure as more than 23 million shares exchanged in hands compared with 9.2 million on average. This rough trading might continue at least in the near term and spread to the ETF world as well. As such, we highlight four consumer ETFs having the largest allocation to this retail giant that are likely to be in focus in the days ahead.

Investors should closely monitor the movement in these funds and grab the opportunity when it arises or avoid if the stocks drags them down:

iShares Edge MSCI Multifactor Consumer Staples ETF CNSF

This ETF debuted in the space six months ago and has already attracted $2.4 million in its asset base. It trades in a meager volume of about 400 shares. It targets companies that have the potential to outperform the broad U.S. consumer staples sector and tracks the MSCI USA Consumer Staples Diversified Multiple-Factor Capped Index. Holding 28 stocks in its basket, Wal-Mart takes the second spot accounting for 8.4% of the portfolio. In terms of industrial exposure, more than half of the portfolio is dominated by food beverage tobacco while food & staples retailing, and household and personal product round off the next two spots with a double-digit exposure each. CNSF charges 35 bps in fees per year and is flat following Wal-Mart results.

VanEck Vectors Retail ETF RTH

This fund targets the retail sector and tracks the MVIS US Listed Retail 25 Index. It holds about 26 stocks in its basket with AUM of $105.5 million. Average daily volume is light at around 22,000 shares while expense ratio comes in at 0.35%. In terms of holdings, WMT is the third firm making up for 6.5% of assets while sector wise, specialty retail takes the largest share with 29% of assets, followed by a double-digit allocation to Internet and catalogue retail, hypermarkets, and departmental stores. The fund added 0.9% following Walmart earnings and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Retail Sales Sustain Winning Momentum: ETF & Stock Bets).

First Trust Nasdaq Retail ETF FTXD

The fund follows the Nasdaq US Smart Retail Index and holds 50 stocks in its basket. WMT occupies the fourth position in the basket with 6.2% of assets. While specialty retailers and apparel retailers make up for a bigger chunk at 29.4% and 26.3%, respectively, broadline retailers, and food retailers & wholesalers round off the next two spots. FTXD has accumulated $2 million within two months of its debut and trades in nearly 300 million shares a day on average. Expense ratio comes in at 0.60%. The product gained 1.8% on the day.

Consumer Staples Select Sector SPDR Fund XLP

This is the most popular consumer staples ETF that follows the Consumer Staples Select Sector Index and has about $7.8 billion in its asset base. The fund charges 14 bps in fees per year from investors and trades in heavy volume of nearly 12.4 million shares a day. In total, the fund holds about 37 securities in its basket with Wal-Mart taking the fifth spot at 6.1%. From a sector look, food and staples retailing takes the top spot at 23.1% while beverages, household products, food products and tobacco account for a double-digit allocation each. XLP shed 0.2% on the day and has a Zacks ETF Rank of 3 with a Medium risk outlook (read: What Lies Ahead for Consumer Staples ETFs?).

Fidelity MSCI Consumer Staples Index ETF FSTA

This fund tracks the MSCI USA IMI Consumer Staples Index, holding 101 stocks in its basket. Out of these, WMT takes the sixth spot with 5.8% share. The ETF is widely diversified across food and staples retailing, beverages, food products, household products, and tobacco (16.3%). It has amassed $258.1 million in its asset base while trades in a moderate volume of around 78,000 shares a day on average. It charges 8 bps in annual fees from investors. The fund was down 0.1% following WMT results and has a Zacks ETF Rank of 3 with a Medium risk outlook.

Bottom Line

Given that some of the ETFs performed quite well despite the Wal-Mart slide, investors shouldn’t completely write off these from their holdings. This is because these funds could easily counter shocks from some of the industry’s biggest components given their spread out exposure in various types of industries.

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