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The overall Q3 earnings picture for the retail sector has been good so far. Total earnings from 80.9% of the sector’s total market capitalization reported so far are up 38.5% on 8.3% higher revenues, with 87% beating EPS estimates and 78.3% beating revenue estimates. This is a notably better performance relative to other recent periods, both in terms of the growth rates as well as the beats ratios.

Most of the big-box retailers came up with an earnings or revenue beat or both. The robust results fueled a rally in retail ETFs. VanEck Vectors Retail ETF (RTH - Free Report), Amplify Online Retail ETF (IBUY - Free Report), SPDR S&P Retail ETF (XRT - Free Report) and ProShares Online Retail ETF (ONLN - Free Report) have gained 7.99%, 13.4%, 7.1% and 8.9%, respectively, over the past month.  

Let’s dig into the details of some of the earnings releases.

Earnings in Focus

Walmart (WMT - Free Report) came up with a revenue beat but matched the earnings estimates. Earnings per share came in at $1.53, on par with the Zacks Consensus Estimate, and improving 2% from the year-ago earnings. Revenues rose 5.2% year over year to $160.8 billion and topped the consensus mark of $159.5 billion. The mega-retailer lifted fiscal 2024 guidance. It now expects revenues to rise 5-5.5% compared with the previous projection of 4-4.5% and earnings per share in the range of $6.40-$6.48, up from $6.36-$6.46.

Home Depot (HD - Free Report), the world's largest home improvement retailer, reported solid results. Earnings per share of $3.81 surpassed the Zacks Consensus Estimate by 5 cents and revenues exceeded by $187 million. The retailer narrowed its outlook for fiscal 2023. Home Depot now anticipates sales to decline in the range of 3-4% compared with the earlier guidance of a 2-5% year-over-year decline. It estimates earnings per share to decline 9-11% compared with the previous guidance of a 7-13% decrease year over year in fiscal 2023.

Meanwhile, the second-largest home improvement retailer, Lowe’s (LOW - Free Report) beat estimates for earnings by a penny but lagged on revenues by $503 million. It lowered its revenue and earnings per share guidance for fiscal 2023. Revenues are expected to be $86 billion, down from the range of $87-$89 billion, and earnings per share are expected to be $13.00, down from the previous range of $13.20-$13.60.

Big-box retailer Target (TGT - Free Report) topped the Zacks Consensus Estimate for earnings by 62 cents and revenues by $156 million. The retailer foresees a mid-single-digit decline in comparable sales in the final quarter of fiscal 2023. It expects adjusted earnings per share between $1.90 and $2.60 compared with $1.89 reported in the year-ago period.

Leading departmental store Kohl’s (KSS - Free Report) came up with mixed results. Kohl’s posted earnings of 53 cents per share, beating the Zacks Consensus Estimate of 34 cents. Revenues of $4 billion came in slightly below the consensus mark by $49 million. Kohl’s raised the lower end of the top and bottom-line guidance for fiscal 2023. It expects net sales to decline 2.8-4% versus the previous guidance of sales decline of 2-4%. Earnings per share are envisioned in the band of $2.30-$2.70 compared with the $2.10-$2.70 band projected earlier.

ETFs in Focus

Below, we have highlighted the ETFs in detail:  

VanEck Vectors Retail ETF (RTH)

VanEck Vectors Retail ETF provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index, which measures the performance of the companies involved in retail distribution, wholesalers, online, direct mail and TV retailers, multi-line retailers, specialty retailers and food and other staples retailers. VanEck Vectors Retail ETF is highly concentrated on the top firm with double-digit exposure, while the other firms hold no more than an 8.5% share.

VanEck Vectors Retail ETF has amassed $172 million in its asset base and charges 35 bps in annual fees. It trades in a lower volume of 5,000 shares a day on average. VanEck Vectors Retail ETF has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Amplify Online Retail ETF (IBUY)

Amplify Online Retail ETF offers global exposure to publicly-traded companies with significant revenues from the online retail business, traditional online retail, online travel, online marketplace, and omni channel retail by tracking the EQM Online Retail Index. IBUY holds 72 stocks in its basket, with none accounting for more than 3% of the assets. Amplify Online Retail ETF has the largest allocation, with 39% in online retail and 38% in online marketplace.

Amplify Online Retail ETF has attracted $174.5 million in its asset base and charges 65 bps in annual fees. IBUY trades in an average daily volume of 14,000 shares.

SPDR S&P Retail ETF (XRT)

SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It holds well-diversified 78 stocks in its basket, with none making up for more than 2.3% share. SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in apparel retail, specialty stores, automotive retail, and broadline retail.

SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $396.7 million and an average trading volume of 8 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

ProShares Online Retail ETF (ONLN)

ProShares Online Retail ETF offers exposure to companies that principally sell online or through other non-store channels, and then zeroes in on companies reshaping the retail space. It tracks the ProShares Online Retail Index, holding 19 stocks in its basket. ONLN is highly concentrated on the top firm, while the other firms hold no more than 8% of the assets. American firms make up 61% of the portfolio, while Chinese firms account for a 16% share.

ProShares Online Retail ETF has accumulated $96.7 million in its asset base and charges 58 bps in annual fees. ONLN trades in an average daily volume of 18,000 shares.

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