The consumer sector has held up pretty well so far this year
on the back of increasing consumer confidence and spending. We
have seen encouraging data in a number of key areas that are
important to consumers.
Meanwhile, the job market is improving slowly, housing is on
the upswing and oil prices are at moderate levels. This suggests
that a continuation of the bull run could take place in this
important market segment as consumers have plenty of extra cash
to spend on discretionary products and services (read:
3 Top Ranked Consumer ETFs to Buy Now
However, weak earnings results and a bleak outlook from some
major retailers such as Wal-Mart (
), Macy's (
), Nordstrom (
), and Kohls (
), have raised concerns about the prospects of spending in the
coming months. A challenging retail environment in the U.S. and
most of the international markets due to cautious consumer
spending hurt the top line of these firms in the quarter.
Retail Earnings in Focus
Wal-Mart, the world's biggest retailer, again saw sluggish
trends in the second quarter. EPS came in at $1.24, missing the
Zack's Consensus Estimate by a penny. The company also missed
revenue expectation marginally, coming in at $116.9 billion. This
is the second consecutive earnings miss by Wal-Mart.
Due to a challenging retail environment, the company lowered
its outlook for the fiscal 2014. Wal-Mart now expects sales to
grow in the range of 2-3% from the earlier prediction of 5-6%.
EPS guidance has reduced by 10 cents to $5.10-$5.30. Based on
this lackluster result, the shares of WMT fell nearly 3% (read:
The Comprehensive Guide to Retail ETFs
Additionally, Macy's also posted lower-than expected results
in the quarter. EPS of 72 cents came in below the Zacks Consensus
Estimate of 78 cents and revenue of $6.1 billion fell short of
the Zacks Consensus Estimate of $6.2 billion.
For fiscal 2013, the company expects earnings per share in the
range of $3.80-$3.90 on sales growth of 2-2.9% compared to the
previous guidance of $3.90-$3.95 on 3.5% sales growth. The shares
of Macy's were down about 5% on the day of the earnings
announcement (on Aug 14).
Meanwhile, Nordstrom and Kohls bucked this trend on the bottom
line beating their Zacks Consensus Estimate (read:
Retail ETFs to Watch on Sales Data and Q2
JWN posted EPS of 93 cents that strongly topped our estimate
of 88 cents. Revenue of $3.2 billion came in below our
The company cut its full-year EPS guidance to $3.60-3.70 from
$3.65-3.80 and revenue growth to 3-4% from 4-6%. Shares of JWN
slumped by about 3% in after-hours trading.
Kohls' quarterly EPS came in $1.04, outpacing our estimate by
a penny. Revenues of $4.289 billion slightly missed our estimate
of $4.298 billion. The company narrowed its higher end of the
full-year EPS guidance by 10 cents to $4.15-$4.35. However, the
shares climbed 5.3% at the close, marking the biggest increase
since July 2012.
Consumer ETF Impact
Declining consumer spending and pessimism over the outlook by
these four major players were obviously poorly received by
investors. The news not only hurt these companies but also a
number of retail companies in the broad consumer space, as these
are considered bellwethers in the sector.
This is best represented by the following
, as these funds have the biggest allocations to the retail
sector and thus could be the most in focus in the coming weeks
(see more in the
PowerShares Retail Fund (
This fund provides exposure to the companies engaged in
general merchandise stores such as department stores, discount
stores, warehouse clubs and superstores by tracking the Dynamic
Retail Intellidex Index. The ETF has managed assets worth $39.2
million and charges 63 bps in fees and expenses.
In total, the product holds 30 securities, which is somewhat
concentrated on its top 10 holdings. Kroger (
), Gap (
) and Whole Foods Market (
) occupy the top three spots in the basket with a combined 15.35%
PMR lost 2.05% on the day but is up 27.38% year-to-date. The
product has a Zacks Rank of 1 or 'Strong Buy' rating with a
'Medium' risk outlook.
Vanguard Consumer Staples ETF (
This fund manages over $1.5 billion asset base and provides
exposure to a basket of 113 consumer stocks by tracking the MSCI
US Investable Market Consumer Staples 25/50 Index. The product
charges a low fee of 14 bps per year from investors (read:
The Comprehensive Guide to Consumer Staples
The ETF is highly concentrated across its top 10 companies at
nearly 62% of the assets. The product is widely spread across
household products, soft drinks, packaged foods & meat,
tobacco and hypermarkets & super centers which make up for
double-digit allocations in the fund.
VDC lost 1.74% on the day but delivered strong returns of
18.7% in the year-to-date timeframe. The fund has a Zacks ETF
Rank of 3 or 'Hold' rating with a 'Low' risk outlook.
iShares U.S. Consumer Services ETF (
This ETF tracks the Dow Jones U.S. Consumer Services Index,
giving investors exposure to the broad consumer discretionery
space. The fund holds about 183 stocks in its basket with AUM of
$447.3 million while charging a slightly higher fee of 46 bps per
year from investors.
The product is well spread across each security as top 10
holdings account for 39% share. WMT, Comcast (
) and Walt Disney (
) take the top three spots in the basket with a combined 15% of
IYC. From a sector look, about two-fifths of the assets are
allocated to general retail, followed by media (28.78%) and
travel & leisure (19.82%).
The fund lost 1.83% on the day but is up 21.94% in the
year-to-date time frame. The product has a Zacks ETF Rank of 2 or
'Buy' with a 'Low' risk outlook (read:
Time to Buy This High Ranked Consumer ETF?
It seems that many retailers would be dealing with strong
headwinds for the remainder of the year especially with the lower
outlook form Wal-Mart, Macys, Kohls and Nordstorm. So, investors
should be cautious while trading in the above consumer ETFs that
have a big allocation to the retail sector.
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ISHARS-US CN CY (IYC): ETF Research Reports
NORDSTROM INC (JWN): Free Stock Analysis
KOHLS CORP (KSS): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
PWRSH-DYN RETL (PMR): ETF Research Reports
VIPERS-CONS STA (VDC): ETF Research Reports
WAL-MART STORES (WMT): Free Stock Analysis
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