XLP Consumer Staples Select Sector

Wal-Mart (WMT), the largest retail player in the U.S., announced its fourth quarter fiscal 2014 results yesterday. Though the world's largest retailer provided a disappointing outlook, it managed to meet the consensus estimate for the reported quarter.
 
Wal-Mart Q4 Earnings in Focus
 
Earnings per share of $1.60 matched the Zacks Consensus Estimate but was below the year-ago earnings of $1.67. Revenues came in at $129.7 billion, up 1.5% year over year and in-line with our estimate. 
 
Cold weather, aggressive discounts during the crucial holiday season as well as continued growth in e-commerce business hurt the performance of traditional retailers like WMT during the quarter (read: 3 Best Performing Consumer ETFs This Holiday Season).
 
Bleak Outlook
 
For fiscal 2015, Wal-Mart projects earnings per share in the range of $5.10–$5.45, a substantial improvement from $5.11 reported in fiscal 2014, but much below the Zacks Consensus Estimate of $5.60. Revenue growth is now expected on the low end of the previous guidance of 3–5%.
 
Additionally, the company expects earnings per share in the range of $1.10–$1.20 for the first quarter, which is also below the Zacks Consensus Estimate of $1.26. Macroeconomic headwinds like a reduction in government benefits, higher taxes, tighter credit and higher group health care costs would continue to weigh on revenues and profits.
 
However, Wal-Mart plans to invest aggressively in the growing e-commerce business and increase the rollout of small stores in the U.S. in order to combat lower sales and broaden the customer base.
 
Market Impact
 
The sluggish guidance has sent WMT shares down by about 1.8% at the close on Thursday trading session on heavy volume (read: Consumer ETFs Slip as Wal-Mart Guides Earnings Lower). However, the short-term outlook for Wal-Mart doesn’t appear bad given the stock’s current Zacks Rank #3 (Hold).
 
This has put many consumer ETFs in focus for the coming days, especially the funds that have the largest allocation to this retail giant. Investors should closely monitor the movement in these funds and could catch the opportunity from any surge in the WMT price, or avoid them if the company seemingly drags down the space over the year:
 
Market Vectors Retail ETF (RTH)
 
This fund tracks the Market Vectors US Listed Retail 25 Index and holds about 26 stocks in its basket with AUM of $27.5 million. Average daily volume is small at under 45,000 shares while the expense ratio comes in at 0.35% (read: A Comprehensive Guide to Retail ETFs).
 
In terms of holdings, WMT is the top firm making up for 8.55% of assets while sector wise, specialty retail occupies the first position with one-third share, followed by modest allocation to hypermarkets, departmental stores and health care services.
 
RTH is down nearly 4% in the year-to-date time frame but still has room for upside given the Zacks ETF Rank of 2 or ‘Buy’ rating with a ‘Low’ risk outlook.
 
Consumer Staples Select Sector SPDR Fund (XLP)
 
The most popular consumer ETF on the market, XLP follows the S&P Consumer Staples Select Sector Index, and has amassed over $5.3 billion in its asset base. The fund charges 16 bps in fees per year from investors and trades in average volume of more than 9 million shares a day.
 
In total, the fund holds about 42 securities in its basket. Of these firms, Wal-Mart takes the fourth spot with 7.73%. The fund is skewed toward food & staples retailing which makes up for one-fourth share, closely followed by household products (20.83%) and beverages (19.76%) (see: all the Consumer Staples ETFs here).
 
The product lost 3% so far this year and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a ‘Low’ risk outlook.
 
Vanguard Consumer Staples ETF (VDC)
 
This fund manages a $1.6 billion asset base and provides exposure to a basket of 110 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 while it trades in modest volume of less than 78,000 shares a day.
 
Here, WMT takes the third spot with 7.4% allocation. The product is widely spread across household products, soft drinks, packaged foods & meat, tobacco and hypermarkets & super centers that make up for double-digit allocation.
 
VDC is down nearly 3% year-to-date and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a ‘Low’ risk outlook.
 
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MKT VEC-RETAIL (RTH): ETF Research Reports
 
VIPERS-CONS STA (VDC): ETF Research Reports
 
WAL-MART STORES (WMT): Free Stock Analysis Report
 
SPDR-CONS STPL (XLP): ETF Research Reports
 
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