Retail ETFs In Focus Ahead Of Big Box Q1 Earnings

We are at the tail end of the Q1 earnings season as all sectors save retail have reported. The retail sector has seen about half of its total releases. Total earnings for the sector reported so far are up 26.1% on 14.9% revenue growth with 68.4% companies beating EPS estimates and 63.2% beating revenue estimates.

While the proportion of positive earnings and revenue surprises are on the lower side, the pace of growth is tracking above the historical periods. As a result, retail ETFs SPDR S&P Retail ETF (XRT - Free Report), VanEck Vectors Retail ETF (RTHFree Report) and PowerShares Retail Fund (PMR - Free Report) gained 2.4%, 4.4%, and 3.1%, respectively, in the past month.

The focus has now shifted to traditional brick-and-mortar retailers like Macy’s (MFree Report), Nordstrom (JWN - Free Report), Wal-Mart (WMT - Free Report) and Home Depot (HD - Free Report) that are expected to report this week. Given that earnings are the most important drivers of stock performance, it is necessary to look at the expected surprise of these retailers. These have the potential to push the above-mentioned ETFs upward or downward.

According to our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases chances of an earnings beat. A Zacks Rank #4 or 5 (Sell rated) is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

A Peek into the Earnings Lined Up

Home Depot is slated to report earnings before the bell on May 15. The stock has a Zacks Rank #4 and an Earnings ESP of -0.36%. The company saw negative earnings estimate revision of a penny over the past seven days for the to-be-reported quarter but delivered a positive earnings surprise in each of the last four quarters, with an average beat of 2.88%. The stock has a VGM Score of B.

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