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Q1 Earnings Fail to Boost Retail ETFs

Sweta Killa
Salesforce.com agreed to buy big data firm Tableau Software for $15.3 billion in an all-stock deal. This has put the spotlight on ETFs having large exposure to Salesforce.

The Q1 earnings picture for the retail sector is among the strongest this reporting cycle with the sector gaining 0.7% (average price difference between a day before and after the earnings announcement of a stock) post results.

Total earnings from 92.8% of the sector’s total market capitalization reported so far are up 13.7% on 8.3% higher revenues with 75% of the companies beating on earnings and 53.6% exceeding top-line estimates. While EPS beat is tracking above or is almost in-line with historical periods, revenue beat is tracking below for the same group of retailers (read: ETFs & Stocks to Tap on Highest Retail Sales Gain in 1.5 Years).

Investors should note that most of the retailers came up with solid earnings either beating on top or bottom lines or both. However, their share price responded negatively.

Let’s dig into the details of some of the earnings releases. We have detailed the share price movement based on the earnings release as the recent broad sell-off has hurt almost all the sectors, including retailers. Therefore, price movement since the earnings releases can mislead investors who are considering exposure to the space based on earnings.

Earnings Sending Stocks Higher

Big-box retailer Target TGT emerged as the real champion in the Q1 earnings season as the stock jumped 7% following solid earnings. The company topped the Zacks Consensus Estimate by 10 cents for earnings and by $87 million for revenues.

The world's largest retailer, Wal-Mart WMT, gained nearly 1% in response to the earnings announcement. It topped earnings estimates by 11 cents but fell shy of the consensus mark for revenues by $1.3 billion. Additionally, the company recorded the best first quarter same store sales in nine years (read: Wal-Mart's Mixed Q1 Results Drive Consumer ETFs Higher).    

The Dampeners

One of the leading departmental stores, Kohl’s KSS lost the most. The stock has tumbled nearly 15% following lackluster first-quarter fiscal 2019 results. Earnings per share missed the Zacks Consensus Estimate by 6 cents and revenues came in lower than the estimate by $116 million. The company slashed its fiscal year earnings per share guidance to $5.15-$5.45 from the prior guidance of $5.80-$6.15.

One of the leading department store retailers, J.C. Penney JCP, also dampened investors’ mood as its share price plunged 12.2% in response to its earnings announcement. The company posted loss per share of 46 cents, much wider than the Zacks Consensus Estimate of a loss of 39 cents. Revenues nevertheless came in higher than the estimate by $6 million.

Specialty retailer, Urban Outfitters URBN tanked 9.7% despite beating both on top and bottom lines. Earnings per share and revenue surpassed the Zacks Consensus Estimate by 5 cents and $8 million, respectively (read: Should Consumer ETFs Fear U.S.-China Trade Clash At All?).

Specialty retailer, Nordstrom JWN lost 8.3% in response to earnings announcement. While the company’s earnings missed the Zacks Consensus Estimate after four consecutive beats, sales lagged for the second straight quarter. Earnings came in 20 cents below the consensus estimate while revenues were 2.81% lower than the same. The retailer lowered its earnings per share guidance for fiscal 2019 to $3.25-$3.65 from $3.65-$3.90. It estimates net sales to be flat to down 2% against increase of 1-2% projected earlier.

The second-largest department store retailer, Macy’s M saw a decline of 1.4% in its stock price despite beating the earnings estimate by 13 cents. However, revenues fell short of the estimate by $25 million. Management retained earnings per share view of $3.05-$3.25 for fiscal 2019.

Home Depot HD, the world's largest home improvement retailer, beat first-quarter fiscal 2019 earnings estimate by 11 cents and revenue estimate by $83 million. For fiscal 2019, the company continues to expect sales growth of nearly 3.3% and earnings per share of $10.03. The stock was down 1% in response to the earnings announcement.

The second-largest home improvement retailer, Lowe’s LOW reported mixed first-quarter fiscal 2019 results, wherein it missed earnings estimate by 11 cents but beat on revenues by $109 million. Moreover, the company cut its earnings per share guidance to $5.45-$5.65 from the previous guidance of $6.00-$6.10.

ETFs in Focus

A slew of negative price reactions and strong results have led to mixed trading in retail ETFs over the past week. Investors could easily tap any decline in stock prices resulting from soft earnings through ETFs. Below, we have highlighted six ETFs in detail that are in focus in the weeks ahead (see: all the Consumer Discretionary ETFs here):  

Amplify Online Retail ETF IBUY

This ETF has attracted $263.7 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 40 stocks with each accounting for less than 3.9% of the assets. In terms of industrial exposure, traditional retail makes up for 59% share while marketplace and travel round off the next two spots. IBUY was down 1.9% in a week.

SPDR S&P Retail ETF XRT

With AUM of $260.5 million, this product tracks the S&P Retail Select Industry Index, holding 94 securities in its basket with each accounting for no more than 1.61% 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 shed 1.6% in a week and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

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 at 21.7% and Home Depot at 11% — while the other firms hold no more than 9.2% share. The product has amassed $76 million in its asset base and charges 35 bps in annual fees. RTH has added 0.1% in a week and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Consumer Sentiment Jumps to 15-Year High: ETFs to Buy).

ProShares Online Retail ETF ONLN

This ETF focuses on global retailers that derive significant revenues from online sales. It tracks the ProShares Online Retail Index, holding 20 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 22.6% share while Argentina based companies have a minor share at 3.1%. ONLN has accumulated $22.3 million in a month and charges 58 bps in annual fees. It was down 1.8% in a week.

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 7% of the assets. While discount stores make up for a substantial 20.4%, food retail & distribution, auto vehicles parts & service retailers, drug retailers and other specialty retailers round off the next spots. FTXD has accumulated $7.7 million in its asset base and has an expense ratio of 0.60%. The ETF has added 1.1% in a week and has a Zacks ETF Rank #3.

Invesco Dynamic Retail ETF PMR

This fund follows the Dynamic Retail Intellidex Index. In total, the product holds 30 securities with each holding less than 6.1% of the assets. In terms of industrial exposure, apparel & accessories retailers, other specialty retailers, food retail & distribution, auto vehicles parts & service retailers and discount stores takes double-digit exposure each. The fund has accumulated just $7.3 million in its asset base and charges 63 bps in fees per year. It has lost 0.5% in a week and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Full-Blown Trade Spat: 5 Most-Vulnerable Sector ETFs & Stocks).

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