Retail may not be one of the thriving sectors in Q2, but
retailers' earnings growth and beat ratio fared better than Q1.
Total earnings from 91.3% of the sector's total market
capitalization reported so far are up only 2% on 5.6% revenue
growth. This is, however, better than no earnings growth and 3.6%
revenue growth in Q1.
Earnings surprises were predominantly zero for retailers, with only
44.1% of the companies beating earnings estimates, the second
lowest in the S&P 500, and 52.9% beating revenues. Though
earnings beat ratio is below the four-quarter average of 54.4%,
this is higher than 38.2% in Q1 (read:
Can Carl Icahn Revitalize Retail ETFs?
This is because most of the retailers including Wal-Mart (
), Macy's (
) and Target (
) have seen modest price gains despite meeting or missing on bottom
lines and guiding lower. Further, robust earnings beat by Home
), Lowe's (
) and Dicks Sporting Goods (
), as well as solid strength in Urban Outfitters (
) have been promising, propelling the stocks higher.
Retail Earnings in Focus
, the world's largest home improvement retailer, emerged as the
real champion in the Q2 earnings season as the stock climbed about
9% to date post its earnings announcement and touched a new 52-week
high of $91.81 yesterday. The company surpassed the Zacks Consensus
Estimate by 8 cents on earnings and by $241 million on revenues.
Further, it raised its full-year earnings guidance from $4.42 to
$4.52, which is well above the Zacks Consensus Estimate of $4.50,
based on a strong spring selling season. This has spread an air of
optimism in the entire retail sector.
gained 3.6% in the last two trading sessions following its
quarterly results that topped our earnings estimate by a couple of
cents and revenue estimates by $70 million. The second largest home
improvement retailer reaffirmed its full-year earnings guidance of
$2.63, which is a penny ahead of our estimate, but trimmed its
full-year sales growth outlook to 4.5% from 5%.
Dicks Sporting Goods
also added 2.6% as it beat the Zacks Consensus Estimate by couple
of cents on earnings and by $35.9 million on revenues despite weak
demand for its golf and hunting products. The sporting-goods
retailer reiterated its earnings per share guidance of $2.70-$2.85
for fiscal 2014. The midpoint is higher than the Zacks Consensus
Estimate of $2.76.
The specialty retailer,
, met the Zacks Consensus Estimate of 49 cents on earnings but
outpaced our estimate on revenues by $5.3 million. The shares of
URBN are up 6.4% to date post earnings announcement.
, the world's largest retailer, also matched the Zacks Consensus
Estimate of $1.21 but revenues of $120.1 billion were well ahead of
our estimate of $119.1 billion. The company slashed its full-year
earnings guidance to $4.90-$5.15 per share from $5.10-$5.45. The
midpoint is below the current Zacks Consensus Estimate of $5.04.
Despite the weak guidance, shares of WMT are up nearly 2% to date
post its earnings announcement (see:
all the Consumer Discretionary ETFs here
, saw a jump of 3.1% in its share price over the past two trading
sessions despite uninspiring results and a reduced earnings
outlook. Earnings met our estimate of 78 cents but revenues of
$17,406 million fell short of our estimate of $17,437 million due
to the aftereffect of a massive data breach. The company projects
earnings per share in the range of 40-50 cents for the third
quarter and cut the full-year guidance from $3.60-$3.90 to
$3.10-$3.30. The current Zacks Consensus Estimate for the third
quarter and fiscal 2014 are 48 cents and $3.19, respectively.
Finally, the second largest department store retailer -
- dampened investors' mood with its sluggish quarterly results.
Earnings per share of 80 cents and revenues of $6,267 million
missed the Zacks Consensus Estimate of 86 cents and $6,294 million,
respectively. Further, the company slashed its sales growth outlook
for the full year to the range of 1.5-2% from 2.5-3%. Macy's shares
dropped 5.5% on the day of the earnings announcement but recovered
fully, adding 1.6% to date post results.
ETFs in Focus
The strong performances by retailers have given a new lease of life
to the retail ETFs, which were struggling with soft industry trends
such as reduced consumer spending since the start of the year.
Given this, investors could ride out the bullish sentiment in the
space at least for the near term with the following three ETFs
A Comprehensive Guide to Retail ETFs
PowerShares Retail Fund (
This retail fund provides diversified exposure across various
market caps with 41% in large caps, 36% in small caps and the rest
in mid caps. This is easily done by tracking the Dynamic Retail
Intellidex Index. The fund has accumulated $20.2 million in its
asset base while trades in a light volume of under 8,000 shares a
day. The ETF charges 63 bps in fees per year.
In total, the product holds 29 securities with moderate
concentration of 36.3% across the top 10 holdings. In terms of
industrial exposure, specialty retail takes the top spot at 31%,
followed by food retail (18%) and hypermarkets (13%). PMR was up
3.3% in the past 10 trading sessions and has a Zacks Rank of 2 or
'Buy' rating with a Medium risk outlook.
SPDR S&P Retail ETF (
This product tracks the S&P Retail Select Industry Index,
holding 103 securities in its basket. It is widely spread across
each component with none holding more than 1.19% of total assets.
About 61% of the portfolio is dominated by small caps while the
rest have been split between the other two market cap levels (read:
Guide to Small Cap Growth ETFs Investing
In terms of sector holdings, apparel retail takes the top spot with
one-fourth share in the basket while specialty stores, automotive
retail and Internet retail round off the next three spots. The fund
has amassed about $740.4 million in its asset base and trades in
heavy volume of more than 2.5 million shares per day. The ETF
charges 35 bps a year in fees. XRT gained 4.2% over the past 10
trading sessions and has a Zacks ETF Rank of 3 or 'Hold' rating
with Medium risk outlook.
Market Vectors Retail ETF (
This fund follows the Market Vectors US Listed Retail 25 Index and
holds about 26 stocks in its basket with AUM of $72 million.
Average daily volume is light at under 25,000 shares while expense
ratio is at 0.35%. The product is a large cap centric fund and
heavily concentrated on the top 10 holdings at 63.4% of assets with
double-digit allocation to WMT.
Sector wise, specialty retail occupies the top position with less
than one-third share, followed by double-digit allocation to
hypermarkets, departmental stores, drug stores and health care
services. RTH added about 5.5% over the past 10 days but has a
Zacks ETF Rank of 4 or 'Sell' rating with a Medium risk outlook.
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SPDR-SP RET ETF (XRT): ETF Research Reports
PWRSH-DYN RETL (PMR): ETF Research Reports
MKT VEC-RETAIL (RTH): ETF Research Reports
WAL-MART STORES (WMT): Free Stock Analysis
HOME DEPOT (HD): Free Stock Analysis Report
LOWES COS (LOW): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
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