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Retail has been the hottest sector lately. The overall strength of the sector can be attributed to strong corporate earnings coupled with higher consumer spending and a booming economy. Total earnings from 85.1% of the sector’s total market capitalization reported so far are up 34.9%% on 9.7% higher revenues, with 91.7% of the companies beating on earnings and 75% exceeding top-line estimates.
Both the growth rates and beat ratios are encouraging, given that these are tracking above the historical periods. Positive share price response from Wal-Mart (WMT - Free Report) , Target (TGT - Free Report) , Nordstrom (JWN - Free Report) , and Kohl’s (KSS - Free Report) offset negativity of some weak results or decline in share price at J.C. Penney , Macy’s (M - Free Report) , and Home Depot (HD - Free Report) .
Let’s dig into the details of the earnings releases:
Earnings Sending Stocks Higher
The world's largest retailer, Wal-Mart, rallied 6.6% in response to the earnings announcement. It surpassed earnings and revenue estimates by 8 cents and $2.3 billion, respectively. Additionally, the company recorded the strongest growth in more than a decade in sales at established stores and raised its earnings per share guidance to the range of $4.90-$5.05 from $4.75-$5.00 for the full fiscal year (read: Wal-Mart Blockbuster Q2 Earnings Pushes Consumer ETFs Higher).
Specialty retailer, Nordstrom emerged as the real champion in the Q2 earnings season as the stock gained 7.3% in response to earnings announcement. The company beat the Zacks Consensus Estimate for earnings by 11 cents and for revenues by $80 million. It also raised its earnings per share guidance to $3.50-$3.65 from $3.35-$3.55 and revenue guidance to $15.4-$15.5 billion from $15.2-$15.4 billion.
Big-box retailer, Target, rose 5% to an all-time high in response to its best quarterly results in more than a decade. The company topped the Zacks Consensus Estimate by 7 cents for earnings and by $441 million for revenues. It raised its earnings estimate from 90 cents to $1.00-$1.20 for the third quarter and from $5.15-$5.45 to $5.30-$5.50 for the fiscal full year.
One of the leading departmental stores Kohl’s also saw its share price rising 0.2% in response to earnings announcement. Earnings per share beat the Zacks Consensus Estimate by 11 cents and revenues came in higher than the estimate by $124 million. The company raised its fiscal year earnings per share guidance to the band of $5.15-$5.55 from the prior guidance of $5.05-$5.50.
The Dampeners
One of the leading department store retailers, J.C. Penney, dampened investors’ mood as its share price plunged 25.7% in response to its earnings announcement. The company posted loss per share of 38 cents, much wider than the Zacks Consensus Estimate of a loss of 8 cents. Revenues also came in lower than the estimate by $51 million. For fiscal 2018, the company lowered its bottom line estimate to loss per share of 80 cents-$1.00 from a loss of 7 cents to earnings of 13 cents a share (read: U.S. Retail Sales Steady in July: ETFs & Stocks to Play).
The second-largest department store retailer, Macy’s tanked 14.4% in response to the earnings announcement. Though the retailer beat estimates for earnings by 10 cents, it lagged revenue estimates by $47 million. For fiscal 2018, the company raised its fiscal year outlook with sales growth now projected to be flat to up 0.7% compared with the previous guidance of 1% decline to 0.5% increase. Earnings per share are expected in the range of $3.95-$4.15, up from the prior guidance of $3.75-$3.95.
Home Depot, the world's largest home improvement retailer, beat second-quarter fiscal 2018 earnings estimates by 21 cents and revenue estimates by $442 million. For fiscal 2018, Home Depot expects sales growth of nearly 7% compared with the previous forecast of 6.7% growth. Earnings per share are expected to be up nearly 29.2% compared with the previous earnings per share growth forecast of 28%.
ETFs in Focus
A slew of positive price reactions are driving the retail space and ETFs higher. Investor could easily tap any decline in stock prices resulting from soft earnings through ETFs. Below, we have highlighted six ETFs in details that are going to be in focus in the weeks ahead (see: all the Consumer Discretionary ETFs here):
This product tracks the S&P Retail Select Industry Index, holding 89 securities in its basket with each accounting for less than 2% of assets. Apparel retail takes the top spot at 23.2% share while automotive retail, internet & direct marketing retail, and specialty stores round off the next three spots with a double-digit allocation each. The fund has risen 5.2% in a month and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 4 Sector ETFs to Tap at New Highs).
This fund provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index. It is highly concentrated on the top two firms — Amazon (AMZN - Free Report) at 20.4% and Home Depot (HD - Free Report) at 11.5% — while the other firms hold no more than 8.6% share. The ETF has a certain tilt toward specialty retail, which accounts for 32% share while internet & direct marketing (23%), hypermarkets (14%), departmental stores (11%) and drug stores (9%) round off the top five. The product has amassed $100.8 million in its asset base and charges 35 bps in annual fees. RTH has gained 5.9% in the same period and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Invesco Dynamic Retail ETF
This fund follows the Dynamic Retail Intellidex Index. In total, the product holds 30 securities with each holding less than 5.6% of the assets. In terms of industrial exposure, specialty retail takes the top spot at 36%, while department stores (22%), hypermarkets (13%) and food retail (11%) round off the top three positions. The fund has accumulated just $12.7 million in its asset base and charges 63 bps in fees per year. It has gained 6.5% in a month and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Retail ETF Hits New 52-Week High).
The fund follows the Nasdaq US Smart Retail Index and holds 50 stocks in its basket. It is moderately concentrated across components, with each firm holding less than 8.2% of the assets. While department stores make up for a bigger chunk at 29%, specialty retailers, internet & direct marketing, commercial services & supplies, and healthcare services round off the next spots. FTXD has accumulated $2.5 million in its asset base and has an expense ratio of 0.60%. The ETF is up 6.4% in a month.
This ETF has attracted $543.9 million to its asset base and offers global exposure to companies that derive 70% or more revenues from online and virtual retail by tracking the EQM Online Retail Index. The fund is home to 39 stocks that are widely diversified, with added 2.1% in the same time frame (read: Bet on These ETFs for Back-to-School Shopping).
This newly debuted ETF focuses on global retailers that derive significant revenues from online sales. It tracks the ProShares Online Retail Index, holding 21 stocks in its basket with highest concentration going to the top firm, Amazon with one-fourth share. American firms make up three-fourth of the portfolio, while China accounts for 21.5% share and Argentinean companies have a minor share at 3.01%. ONLN has accumulated $10.7 million in a month and charges 58 bps in annual fees. It is down 0.3% in a month.
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Wave of Solid Q2 Results Boosts Retail ETFs
Retail has been the hottest sector lately. The overall strength of the sector can be attributed to strong corporate earnings coupled with higher consumer spending and a booming economy. Total earnings from 85.1% of the sector’s total market capitalization reported so far are up 34.9%% on 9.7% higher revenues, with 91.7% of the companies beating on earnings and 75% exceeding top-line estimates.
Both the growth rates and beat ratios are encouraging, given that these are tracking above the historical periods. Positive share price response from Wal-Mart (WMT - Free Report) , Target (TGT - Free Report) , Nordstrom (JWN - Free Report) , and Kohl’s (KSS - Free Report) offset negativity of some weak results or decline in share price at J.C. Penney , Macy’s (M - Free Report) , and Home Depot (HD - Free Report) .
Let’s dig into the details of the earnings releases:
Earnings Sending Stocks Higher
The world's largest retailer, Wal-Mart, rallied 6.6% in response to the earnings announcement. It surpassed earnings and revenue estimates by 8 cents and $2.3 billion, respectively. Additionally, the company recorded the strongest growth in more than a decade in sales at established stores and raised its earnings per share guidance to the range of $4.90-$5.05 from $4.75-$5.00 for the full fiscal year (read: Wal-Mart Blockbuster Q2 Earnings Pushes Consumer ETFs Higher).
Specialty retailer, Nordstrom emerged as the real champion in the Q2 earnings season as the stock gained 7.3% in response to earnings announcement. The company beat the Zacks Consensus Estimate for earnings by 11 cents and for revenues by $80 million. It also raised its earnings per share guidance to $3.50-$3.65 from $3.35-$3.55 and revenue guidance to $15.4-$15.5 billion from $15.2-$15.4 billion.
Big-box retailer, Target, rose 5% to an all-time high in response to its best quarterly results in more than a decade. The company topped the Zacks Consensus Estimate by 7 cents for earnings and by $441 million for revenues. It raised its earnings estimate from 90 cents to $1.00-$1.20 for the third quarter and from $5.15-$5.45 to $5.30-$5.50 for the fiscal full year.
One of the leading departmental stores Kohl’s also saw its share price rising 0.2% in response to earnings announcement. Earnings per share beat the Zacks Consensus Estimate by 11 cents and revenues came in higher than the estimate by $124 million. The company raised its fiscal year earnings per share guidance to the band of $5.15-$5.55 from the prior guidance of $5.05-$5.50.
The Dampeners
One of the leading department store retailers, J.C. Penney, dampened investors’ mood as its share price plunged 25.7% in response to its earnings announcement. The company posted loss per share of 38 cents, much wider than the Zacks Consensus Estimate of a loss of 8 cents. Revenues also came in lower than the estimate by $51 million. For fiscal 2018, the company lowered its bottom line estimate to loss per share of 80 cents-$1.00 from a loss of 7 cents to earnings of 13 cents a share (read: U.S. Retail Sales Steady in July: ETFs & Stocks to Play).
The second-largest department store retailer, Macy’s tanked 14.4% in response to the earnings announcement. Though the retailer beat estimates for earnings by 10 cents, it lagged revenue estimates by $47 million. For fiscal 2018, the company raised its fiscal year outlook with sales growth now projected to be flat to up 0.7% compared with the previous guidance of 1% decline to 0.5% increase. Earnings per share are expected in the range of $3.95-$4.15, up from the prior guidance of $3.75-$3.95.
Home Depot, the world's largest home improvement retailer, beat second-quarter fiscal 2018 earnings estimates by 21 cents and revenue estimates by $442 million. For fiscal 2018, Home Depot expects sales growth of nearly 7% compared with the previous forecast of 6.7% growth. Earnings per share are expected to be up nearly 29.2% compared with the previous earnings per share growth forecast of 28%.
ETFs in Focus
A slew of positive price reactions are driving the retail space and ETFs higher. Investor could easily tap any decline in stock prices resulting from soft earnings through ETFs. Below, we have highlighted six ETFs in details that are going to be in focus in the weeks ahead (see: all the Consumer Discretionary ETFs here):
SPDR S&P Retail ETF (XRT - Free Report)
This product tracks the S&P Retail Select Industry Index, holding 89 securities in its basket with each accounting for less than 2% of assets. Apparel retail takes the top spot at 23.2% share while automotive retail, internet & direct marketing retail, and specialty stores round off the next three spots with a double-digit allocation each. The fund has risen 5.2% in a month and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 4 Sector ETFs to Tap at New Highs).
VanEck Vectors Retail ETF RTH)
This fund provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index. It is highly concentrated on the top two firms — Amazon (AMZN - Free Report) at 20.4% and Home Depot (HD - Free Report) at 11.5% — while the other firms hold no more than 8.6% share. The ETF has a certain tilt toward specialty retail, which accounts for 32% share while internet & direct marketing (23%), hypermarkets (14%), departmental stores (11%) and drug stores (9%) round off the top five. The product has amassed $100.8 million in its asset base and charges 35 bps in annual fees. RTH has gained 5.9% in the same period and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Invesco Dynamic Retail ETF
This fund follows the Dynamic Retail Intellidex Index. In total, the product holds 30 securities with each holding less than 5.6% of the assets. In terms of industrial exposure, specialty retail takes the top spot at 36%, while department stores (22%), hypermarkets (13%) and food retail (11%) round off the top three positions. The fund has accumulated just $12.7 million in its asset base and charges 63 bps in fees per year. It has gained 6.5% in a month and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Retail ETF Hits New 52-Week High).
First Trust Nasdaq Retail ETF FTXD
The fund follows the Nasdaq US Smart Retail Index and holds 50 stocks in its basket. It is moderately concentrated across components, with each firm holding less than 8.2% of the assets. While department stores make up for a bigger chunk at 29%, specialty retailers, internet & direct marketing, commercial services & supplies, and healthcare services round off the next spots. FTXD has accumulated $2.5 million in its asset base and has an expense ratio of 0.60%. The ETF is up 6.4% in a month.
Amplify Online Retail ETF (IBUY - Free Report)
This ETF has attracted $543.9 million to its asset base and offers global exposure to companies that derive 70% or more revenues from online and virtual retail by tracking the EQM Online Retail Index. The fund is home to 39 stocks that are widely diversified, with added 2.1% in the same time frame (read: Bet on These ETFs for Back-to-School Shopping).
ProShares Online Retail ETF ONLN
This newly debuted ETF focuses on global retailers that derive significant revenues from online sales. It tracks the ProShares Online Retail Index, holding 21 stocks in its basket with highest concentration going to the top firm, Amazon with one-fourth share. American firms make up three-fourth of the portfolio, while China accounts for 21.5% share and Argentinean companies have a minor share at 3.01%. ONLN has accumulated $10.7 million in a month and charges 58 bps in annual fees. It is down 0.3% in a month.
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 >>