XLP Consumer Staples Select Sector

Wal-Mart (WMT), the world's largest retailer, once again dampened investor’s mood by reporting lackluster first quarter fiscal 2015 results and presenting a weak outlook. The company lagged earnings estimates for the third time in the last five quarters.

Wal-Mart Earnings in Focus

Earnings per share of $1.10 missed the Zacks Consensus Estimate by a nickel and were at the lower end of the management guidance of $1.10–$1.20. The bottom line also deteriorated from the year-ago earnings of $1.14. Revenues inched up 0.8% year over year to $114.96 billion, but missed our estimate of $115.96 billion. This represents the smallest quarterly sales growth in nearly five years.

Unexpectedly cold and brutal winter during the quarter kept shoppers away from Wal-Mart stores resulting in higher-than-expected operating expenses that took a toll on its revenue and profits (read: Is It Finally Time to Buy Retail ETFs?).

The company expects earnings per share in the range of $1.15–$1.25 for the second quarter, which is below the Zacks Consensus Estimate of $1.28, suggesting that more pain is in store for the company. Further, Wal-Mart expects U.S. comp sales to be relatively flat for quarter against a decline of 0.3% in the year-ago quarter.

Rising investments in e-commerce and Sam's Club membership program as well as higher health care costs would continue to weigh on revenues and profits in the coming months.

Market Impact

The disappointing results and guidance sent WMT shares down as much as 3.0% on Thursday’s trading session on elevated volume. This trend will likely continue at least in the near term given that WMT has a poor Zacks Industry Rank in the bottom 29%, suggesting rough trading in the coming months.

Further, the stock has a Zacks Rank #3 (Hold), indicating that sluggish performance might continue at least for the near term (read: 3 Consumer Discretionary ETFs Set to Surge).

ETFs in Focus

This has put many consumer ETFs in focus for the coming days, especially those funds with 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 these if the company seemingly drags them down 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 light at under 40,000 shares while expense ratio came in at 0.35%.

In terms of holdings, WMT is the top firm making up for 11.23% of assets while sector wise, specialty retail occupies the first position with one-third share, followed by double-digit allocation to hypermarkets, departmental stores, drug stores and health care services (read: A Comprehensive Guide to Retail ETFs).

RTH lost 1.08% on the day following the weak Wal-Mart results and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium 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 $5.9 billion in its asset base. The fund charges 16 bps in fees per year from investors and trades in heavy volume of more than 8 million shares a day.

In total, the fund holds about 42 securities in its basket with Wal-Mart taking the fourth spot at 7.67%. The fund is skewed toward food & staples retailing which makes up for one-fourth share, closely followed by household products (20.41%) and beverages (19.25%).

The product lost nearly 0.9% in yesterday trading and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a Medium risk outlook.

Vanguard Consumer Staples ETF (VDC)

This fund manages a $1.8 billion asset base and provides exposure to a basket of 109 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 trades in low volume of less than 78,000 shares.

Here, WMT occupies the fifth position in the basket with 6.8% allocation. The product is widely spread across household products, soft drinks, packaged foods & meat and tobacco that make up for double-digit allocation (see: all the Consumer Staples ETFs here).

VDC was down nearly 0.9% yesterday and has a Zacks ETF Rank of 4 with a Medium 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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