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Wal-Mart Bucked the Weak Q1 Trend: ETFs to Buy

Wal-Mart WMT infused fresh optimism into the sector yesterday after announcing robust first-quarter fiscal 2018 results. While revenues fell short of our estimate, earnings topped. Additionally, the company saw increase in same store sales when other chain retailers like Macy's M, Kohl's KSS, J.C. Penney JCP and Target TGT are struggling.

This suggests that the world's largest retailer has bucked the sector slump and is thriving in a challenging environment (read: Is a Wave of Store Closures Troubling Retail ETFs?).

Q1 Results in Focus

Earnings per share came in at $1.00, beating the Zacks Consensus Estimate by four cents and improving from the year-ago earnings of 98 cents. Revenues inched up 1.4% year over year to $117.5 billion but were slightly below our estimate of $117.6 billion.

U.S. same store sales grew for the eleventh consecutive quarter, climbing 1.4% year over year buoyed by a 1.5% increase in foot traffic and strong e-commerce sales. E-commerce sales jumped 63% year over year, representing a dramatic acceleration from 29% growth in Q4, 20.6% in Q3, 11.8% in Q2 and 7% in Q1 of fiscal 2017. The impressive performance came on the back of changes in the shipping strategy and discounts on an increasing selection of items that shoppers order online and pick up in the store.

Wal-Mart continued to expand its business in the digital world. The mega retailer expects earnings per share in the range of $1.00–$1.08 for the ongoing quarter. The midpoint of the guidance is much below the Zacks Consensus Estimate of $1.07. U.S. same-store sales are expected to grow 1.5–2%, higher than the analysts’ expectation of 1.2%.    

Market Impact

Driven by big e-commerce sales boosts, the stock rallied as much as 3.4% to hit new 52-week high of $77.66. Meanwhile, the stock crushed the volume figure as nearly 19.2 million shares exchanged in hands compared with 8.4 million on average (read: Retailers Slide: Will ETFs Bear the Pain as Q1 Unfolds?).

Currently, Wal-Mart has a Zacks Rank #3 (Hold) with a VGM Style Score of A and boasts a solid Industry Rank in the top 29%, indicating room for more upside in the near term. Further, the retailer has returned 12.1% over the past one year, much below the Zacks categorized Retail - Supermarkets industry’s gain of 5.9%

Smooth trading and good tidings will spread to the ETF world as well. As such, we highlight four consumer ETFs having the largest allocation to this retail giant that are likely to be in focus in the days ahead. Investors should closely monitor the movement in these funds and grab the opportunity when it arises:

First Trust Nasdaq Retail ETF FTXD

The fund follows the Nasdaq US Smart Retail Index and holds 50 stocks in its basket. WMT occupies the top position in the basket with 8.5% of assets. While specialty retailers and broadline retailers make up for a bigger chunk at 26.2% and 23.3%, respectively, apparel retailers, and home improvement retailers round off the next two spots. FTXD has accumulated $2 million within eight months of its debut and trades in nearly 2,000 shares a day on average. Expense ratio comes in at 0.60%. The product shed 1.4% on the day.

iShares Edge MSCI Multifactor Consumer Staples ETF CNSF

This ETF debuted in the space a year ago and has attracted $2.5 million in its asset base. It trades in a meager volume of about 300 shares. The fund targets companies that have the potential to outperform the broad U.S. consumer staples sector and tracks the MSCI USA Consumer Staples Diversified Multiple-Factor Capped Index. Holding 30 stocks in its basket, Wal-Mart takes the second spot accounting for 8.3% of the portfolio. In terms of industrial exposure, more than half of the portfolio is dominated by food beverage tobacco while household and personal product, and food & staples retailing takes the remainder with a double-digit exposure each. CNSF charges 35 bps in fees per year and is down 1.1% following Wal-Mart results.

VanEck Vectors Retail ETF RTH

This fund targets the retail sector and tracks the MVIS US Listed Retail 25 Index. It holds about 26 stocks in its basket with AUM of $70.3 million. Average daily volume is light at around 22,000 shares while expense ratio comes in at 0.35%. In terms of holdings, WMT is the third firm making up for 6% of assets while sector wise, specialty retail takes the largest share with 28% of assets, followed by a double-digit allocation to Internet and direct marketing, hypermarkets, and drugstores. The fund added 0.7% following Walmart earnings and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: 5 ETFs & Stocks to Shrug Off Sluggish Retail Sales).

Consumer Staples Select Sector SPDR Fund XLP

This is the most popular consumer staples ETF that follows the Consumer Staples Select Sector Index and has about $8.9 billion in its asset base. The fund charges 14 bps in fees per year from investors and trades in heavy volume of nearly 11 million shares a day. In total, the fund holds about 39 securities in its basket with Wal-Mart taking the fifth spot at 5.9%. From a sector look, food and staples retailing takes the largest share at 22% while beverages, household products, tobacco and food products account for a double-digit allocation each. XLP added 0.1% on the day and has a Zacks ETF Rank of 3 with a Medium risk outlook.

Fidelity MSCI Consumer Staples Index ETF FSTA

This fund tracks the MSCI USA IMI Consumer Staples Index, holding 103 stocks in its basket. Out of these, WMT takes the sixth spot with 5.6% share. The ETF is widely diversified across beverages, food and staples retailing, food products, tobacco and household products. It has amassed $295.7 million in its asset base while trades in a moderate volume of around 80,000 shares a day on average. It charges 8 bps in annual fees from investors. The fund was relatively flat following WMT results and has a Zacks ETF Rank of 3 with a Medium risk outlook (see: all Consumer Staples ETFs here).

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SPDR-CONS STPL (XLP): ETF Research Reports
VANECK-RETAIL (RTH): ETF Research Reports
ISHRS-EMS MCS (CNSF): ETF Research Reports
FT-NDQ RETAIL (FTXD): ETF Research Reports
FID-STAPLES (FSTA): ETF Research Reports
Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report
Target Corporation (TGT): Free Stock Analysis Report
Macy's Inc (M): Free Stock Analysis Report
J.C. Penney Company, Inc. Holding Company (JCP): Free Stock Analysis Report
Kohl's Corporation (KSS): Free Stock Analysis Report
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