Retail ETFs in Focus Ahead of Big-Box Q1 Earnings

The retail sector is in focus with big retailers like Walmart WMT, Home Depot HD, Lowe’s LOW and Target (TGT), as well as store channels like Nordstrom JWN and Kohl’s (KSS), due to report earnings. 

So far, 20 out of 33 retailers on the S&P 500 Index have already reported. Earnings of these companies are up 20.2% from the same period last year on 6.9% higher revenues, with 55% beating EPS estimates and 45% beating revenue estimates. Overall, the retail sector is expected to report earnings growth of 20.1% on 7% revenue growth. 

Given this, traditional retail ETFs are in focus. SPDR S&P Retail ETF XRT and VanEck Vectors Retail ETF RTH have gained nearly 13.3% and 9.8%, respectively, over the past month.

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. 

Walmart has an Earnings ESP of -1.76% and a Zacks Rank #3. The company saw a negative earnings estimate revision of a penny over the past seven days for first quarter fiscal 2006. Walmart delivered an average four-quarter earnings surprise of 7.36%. Walmart is scheduled to report on May 15, before market open (see: all the Consumer Discretionary ETFs here).

Home Depot has an Earnings ESP of +0.43% and a Zacks Rank #3. The company saw no earnings estimate revision over the past 30 days for the to-be-reported quarter. The company delivered an average earnings surprise of 2.56% in the last four quarters. Home Depot is scheduled to report on May 20, before market open.

Lowe’s has an Earnings ESP of -0.16% and a Zacks Rank #3. The company saw no earnings estimate revision for the to-be-reported quarter over the past 30 days and delivered an earnings surprise of 3.89%, on average, in the last four quarters. LOW is slated to report earnings on May 21. 

Target has an Earnings ESP of -2.45% and a Zacks Rank #4 (Sell). The company saw a negative earnings estimate revision of a couple of cents over the past month for the to-be-reported quarter. It delivered an earnings surprise of 1.48% for the last four quarters. Target will report earnings on May 21, before the opening bell. 

Nordstrom has an Earnings ESP of -25.37% and a Zacks Rank #2. It saw no earnings estimate revision for the to-be-reported quarter over the past 30 days. The company delivered a negative earnings surprise of 26.1%, on average, over the past four quarters. It is scheduled to report earnings on May 29, after the closing bell. 

Kohl’s has an Earnings ESP of +35.91% and a Zacks Rank #3. It saw a positive earnings estimate revision of a couple of cents for the to-be-reported quarter over the past seven days. Kohl’s delivered a negative average earnings surprise of 166.43% in the last four quarters. The company is slated to report before the opening bell on May 29.

ETFs in Focus

SPDR S&P Retail ETF (XRT)

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 76 well-diversified stocks in its basket, with none making up for more than a 2% share. Additionally, SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in specialty retail, automotive retail, apparel retail and food retail (read: Oil Slumps to Below $60: ETFs to Gain).

SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $437.7 million and an average trading volume of 7 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.

VanEck Vectors Retail ETF (RTH)

VanEck Vectors Retail ETF provides exposure to the 26 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 firm with nearly 18.8% exposure, while the other firms hold no more than 9.6% share. 

VanEck Vectors Retail ETF has amassed $239.6 million in its asset base and charges 35 bps in annual fees. It trades in a lower volume of 6,000 shares a day on average. VanEck Vectors Retail ETF has a Zacks ETF Rank #3 with a Medium risk outlook (read: 5 Sector ETFs to Make the Most of the U.S.-China Trade Deal).

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This article originally published on Zacks Investment Research (zacks.com).

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