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What in Store for Retail ETFs in Big-Box Q4 Earnings?

The retail sector has been in focus ahead of the earnings releases of big-box retailers like Wal-Mart WMT, Home Depot HD, Lowe’s LOW and Target TGT, and store channels like Nordstrom JWN and Kohls KSS that are expected to report this week and the next.

With the earnings season coming to an end, about 56% of the companies in the sector are yet to report, putting the traditional retail ETFs in focus. SPDR S&P Retail ETF XRT and VanEck Vectors Retail ETF RTH are down 12.5% and 8%, respectively, so far this year.

Sector Earnings Trend

The overall picture seems impressive compared to the other sectors as retail earnings are expected to increase 36.7% on revenue growth of 7%. Solid holiday sales and rising consumer confidence are expected to buoy retail earnings for the fourth quarter (read: Holiday Sales Boom: Retail ETFs to Buy At a Bargain).

U.S. holiday retail sales surged the most in nearly two decades, powered by soaring ecommerce sales. Shoppers also rushed to stores amid supply chain concerns, rising inflation and the raging new COVID-19 variant. Per a report from Mastercard, U.S. retail sales jumped 8.5% (for the period Nov 1-Dec 24) from last year, the highest in 17 years, and are up 10.7% from the pre-pandemic 2019 holiday period. U.S. ecommerce sales jumped 11%, while in-store sales rose 8.1% year over year. Apparel and jewelry experienced strong year-over-year growth of 47.3% and 32%, respectively. Departmental stores and electronics sales surged 21.2% and 16.2%, respectively.

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.

Wal-Mart is scheduled to report on Feb 17 before market open. It has a Zacks Rank #3 and an Earnings ESP of +2.25%, indicating reasonable chances of beating estimates this quarter. 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 12.25% in the last four quarters. Wal-Mart has a VGM Score of B (see: all the Consumer Discretionary ETFs here).

Home Depot has a Zacks Rank #3 and an Earnings ESP of +6.42%. It saw no earnings estimate revision for the to-be-reported quarter in the past 30 days and delivered an average earnings surprise of 12.09% in the last four quarters. The stock has a VGM Score of B. The company is expected to report earnings before the opening bell on Feb 22.

Lowe’s is slated to report earnings before the bell on Feb 23. The stock has a Zacks Rank #2 and an Earnings ESP of +6.81%, indicating higher chances of beating estimates this quarter. The company witnessed no earnings estimate revision over the past 30 days for the to-be-reported quarter and delivered an earnings surprise of 14.28%, on average, in the last four quarters. The stock has a VGM Score of B.

Target is also likely to report earnings on Mar 1 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of 0.00%. The company saw no earnings estimate revision over the past 30 days for the to-be-reported quarter and delivered an average earnings surprise of 19.74% in the last four quarters. It has a VGM Score of A.

Nordstrom, which will likely report earnings on Mar 1 after the closing bell, has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of 0.00%. It saw no earnings estimate revision for the to-be-reported quarter in the past 30 days. The company delivered an earnings surprise of 24.72%, on average, over the past four quarters. It has a VGM Score of A.  

Kohls has a Zacks Rank #3 and an Earnings ESP of -9.10%. It saw a negative earnings estimate revision of a couple of cents for the to-be-reported quarter in the past 30 days. It delivered an average earnings surprise of 114.45% in the last four quarters and has a VGM Score of A. The company is expected to report before the opening bell on Mar 1.

ETFs in Focus

SPDR S&P Retail ETF

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 109 stocks in its basket, with none making up for more than 1.4% share. Additionally, SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in Internet & direct marketing retail, apparel retail, automotive retail and specialty stores (read: U.S. Inflation at a 40-Year High: 4 Sector ETFs to Win).

SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $425.1 million and an average trading volume of 4.8 million shares. It charges 35 basis points (bps) in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook.

VanEck Vectors Retail ETF

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 double-digit exposure each while the other firms hold no more than 5.5% share.

VanEck Vectors Retail ETF has amassed $222.8 million in its asset base and charges 35 bps in annual fees. It trades in a lower volume of 13,000 shares a day on average. VanEck Vectors Retail ETF has a Zacks ETF Rank #3 with a Medium risk outlook.


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Target Corporation (TGT) : Free Stock Analysis Report
 
Kohl's Corporation (KSS) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
Lowe's Companies, Inc. (LOW) : Free Stock Analysis Report
 
The Home Depot, Inc. (HD) : Free Stock Analysis Report
 
Nordstrom, Inc. (JWN) : Free Stock Analysis Report
 
SPDR S&P Retail ETF (XRT): ETF Research Reports
 
VanEck Retail ETF (RTH): ETF Research Reports
 
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