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Wal-Mart's Mixed Q1 Results Drive Consumer ETFs Higher

Sweta Killa
Retail firms have learnt the hard way that quality supersedes quantity and overexposure though higher number of stores often fail to yield the desired effect.

Wal-Mart WMT spread optimism in the retail space by reporting solid first-quarter fiscal 2020 results. The mega retailer topped earnings estimates but fell shy of the consensus mark for revenues.

Earnings per share came in at $1.13, beating the Zacks Consensus Estimate by 11 cents but declined a penny from the year-ago earnings. Revenues increased 1% year over year to $123.92 billion but fell short of the estimated $125.33 billion. U.S. same-store sales grew 3.4% in the quarter, representing the best first quarter in nine years and the fourth consecutive quarter of same-store sales above 3% (read: Forget Earnings Recession: Tap Revenue Growth With These ETFs).

E-commerce sales jumped 37% driven by strong growth in online grocery and its home and fashion categories on Walmart.com.

Per the previous guidance, the brick-and-mortar retailer expects U.S. same-store sales to grow 2.5%-3% and e-commerce sales to rise 35% in fiscal 2020. Adjusted earnings per share are expected to decline by low single-digit percentage compared with fiscal 2019 but will increase by low-to-mid single-digits excluding Flipkart.

Market Impact

Based on strong results, shares of WMT rose 1.4% on the day and crushed its average daily volume figures as nearly 15.6 million shares moved hands compared with 6.7 million on average. Wal-Mart currently has a Zacks Rank #3 (Hold) and a top VGM Score of A. Further, it belongs to a top-ranked Zacks industry (top 17%), suggesting strong upside in the coming months.

Consequently, ETFs having the highest allocation to the world's largest brick-and-mortar retailer rose following the results. Below, we have highlighted six of them:

VanEck Vectors Retail ETF RTH

This fund provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index. Of these, WMT occupies the third position in the basket with 9.2% share. The product has amassed $75.4 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 26,000 shares per day. RTH gained 0.7% post WMT results and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Consumer Staples Select Sector SPDR Fund XLP

This is the most-popular consumer staples ETF with AUM of $11 billion and follows the Consumer Staples Select Sector Index. The fund charges 13 bps in fees per year from investors and trades in heavy volume of nearly 16.3 million shares a day. In total, the fund holds about 33 securities in its basket with WMT taking the fourth spot with 8%. From a sector perspective, beverages takes the largest share at 26.3% while household products, food and staples retailing, and food products account for a double-digit allocation each. XLP gained 0.8% on the day and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: U.S. Consumer Sentiment Disappointing: ETFs in Focus).

Fidelity MSCI Consumer Staples Index ETF FSTA

This fund tracks the MSCI USA IMI Consumer Staples Index, holding 91 stocks in its basket. Out of these, WMT takes the fourth spot with 7.6% share. The ETF is widely diversified across beverages, household products, food and staples retailing, food products, and tobacco. It has amassed $501.6 million in its asset base, while trading in moderate volume of around 159,000 shares a day on average. It charges 8 bps in annual fees from investors and added 0.7% following WMT results. The product has a Zacks ETF Rank #1 with a Medium risk outlook (see: all Consumer Staples ETFs here).

Vanguard Consumer Staples ETF VDC

This fund manages a $4.9 billion asset base and has exposure to a basket of 92 consumer stocks by tracking the MSCI US Investable Market Consumer Staples 25/50 Index. It charges a fee of 10 bps per year and trades in a good volume of around 215,000 shares. Here, WMT occupies the fourth position in the basket with 7.2% allocation. The product is widely spread across household products, soft drinks, packaged foods & meat, hypermarkets & super centers, and tobacco that make up for a double-digit allocation each. The fund was up 0.8% on the day and has a Zacks ETF Rank #1 with a Medium risk outlook (read: Forget Trade Fears, Invest in Defensive Sector ETFs).

iShares Evolved U.S. Discretionary Spending ETF IEDI

This is an actively-managed ETF that employs data science techniques to identify companies with exposure to the discretionary spending sector. Holding 210 stocks in its basket, WMT occupies the third position with 5.9% share. The fund has accumulated $5.6 million in its asset base and charges 18 bps in fees per year. Volume is paltry as it exchanges 1,000 shares a day on average. IEDI gained 0.7% following WMT results.

John Hancock Multifactor Consumer Staples ETF JHMS

This product targets the consumer staples sector by tracking the John Hancock Dimensional Consumer Staples Index. It takes into account factors (smaller cap, lower relative price, and higher profitability) that academic research has linked to higher expected returns. Holding 45 stocks in its basket, WMT takes the fourth spot with 5.8% share. Food products takes the largest share in terms of industrial exposure with 29% while food and staples retailing, beverages, and household products round off the next three spots. The fund has accumulated $27.8 million in AUM and trades in a paltry volume of about 12,000 shares. It charges 0.40% in annual fees and added 0.6% on the day. The product has a Zacks ETF Rank #4 (Sell).

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