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Wal-Mart's Solid Q4 Results Drive Consumer ETFs Higher

Sweta Killa

Wal-Mart’s WMT blockbuster fourth-quarter fiscal 2019 results have bolstered the consumer sector. The mega retailer topped earnings estimates and delivered the best holiday quarter in at least a decade boosted by higher grocery and booming e-commerce sales. This suggests no sign of weakness in U.S. consumer spending despite indications of an economic slowdown and revenues falling short of estimates (read: Will Weak Retail Sales Keep ETF Bulls at Bay??).

Earnings in Focus

Earnings per share came in at $1.41, beating the Zacks Consensus Estimate by 8 cents and improving 6% from the year-ago earnings. Revenues increased 1.9% year over year to $138.79 billion but fell short of the estimated $139.3 billion. U.S. same-store sales grew 4.2% in the quarter.

E-commerce sales jumped 43% driven by increased grocery pickup and delivery as well as an expanded online selection.

Based on strong momentum, the brick-and-mortar retailer reiterated fiscal 2020 guidance. It expects U.S. same-store sales to grow 2.5%-3% and e-commerce sales to rise 35%. Adjusted earnings per share is 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 2.2% on the day to its highest close in over three months and crushed its average daily volume figures as nearly 20.7 million shares moved hands compared with 8.3 million on average. Hike in dividend payouts fueled optimism further. Wal-Mart raised annual dividend by 2% to $2.12 per share from $2.08 per share (read: Look Beyond December Retail Slump, 4 ETF Areas to Rebound).

With this gain, Wal-Mart is on track for the best six-day performance returning 9.2% since it gained 9.9% during the six days ending Aug 17, 2018. 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 11%), suggesting strong upside in the coming months.

Consequently, ETFs having the highest allocation to the world's largest brick-and-mortar retailer has risen 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 9.6% share. The product has amassed $100 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 35,000 shares per day. RTH has gained 0.7% post WMT results and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read:  US Jobs Off to a Great Start to 2019: Sector ETF Winners).

Consumer Staples Select Sector SPDR Fund XLP

This is the most-popular consumer staples ETF with AUM of $10.1 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 18.2 million shares a day. In total, the fund holds about 33 securities in its basket with WMT taking the fourth spot with 8.5%. From a sector perspective, beverages take the largest share at 25.2% while household products, food and staples retailing, and food products account for a double-digit allocation each. XLP gained 0.5% on the day and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Fidelity MSCI Consumer Staples Index ETF FSTA

This fund tracks the MSCI USA IMI Consumer Staples Index, holding 93 stocks in its basket. Out of these, WMT takes the fourth spot with 8.1% share. The ETF is widely diversified across beverages, food and staples retailing, household products, food products, and tobacco. It has amassed $432.3 million in its asset base, while trading in moderate volume of around 213,000 shares a day on average. It charges 8 bps in annual fees from investors and has added 0.5% following WMT results. The product has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook (see: all Consumer Staples ETFs here).

Vanguard Consumer Staples ETF VDC

This fund manages a $4.4 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 206,000 shares. Here, WMT occupies the fourth position in the basket with 7.5% 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 is up 0.5% on the day and has a Zacks ETF Rank #3 with a Medium risk outlook.

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 223 stocks in its basket, WMT occupies the third position with 6.2% share. The fund has accumulated $5.4 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 0.6% following WMT results (read: 5 Discretionary ETFs in Focus on Low Consumer Confidence).

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 50 stocks in its basket, WMT takes the second spot with 6.3% 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 $25.5 million in AUM and trades in a paltry volume of about 13,000 shares. It charges 0.4% in annual fees and has added 0.5% on the day. The product has a Zacks ETF Rank #4.

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