Weak Earnings Hurting Retail ETFs? [Merrill Lynch Retail HOLDRS ETF, SPDR S&P Retail (ETF)]

retail etfRetailers saw a weak Q1 with total earnings from 97.3% of the sector’s total market capitalization reported so far being flat on 3.3% revenue growth. Earnings surprises were predominantly negative for retailers, with only 43.9% of the companies beating earnings estimates, the lowest in the S&P 500, and an even lower 39.0% beating revenues.

Further, the retail sector has been the weakest among the 16 Zacks sectors in terms of price performance from a year-to-date look. This is especially true as the retail sector stocks in the S&P 500 are down over 5% versus over 3% gain for the S&P 500. Harsh winter, intense price competition and lower consumer income have taken a toll on the broad retail space.

In particular, lower-than-expected earnings from retailers like Wal-Mart (WMT), Staples (SPLS), Urban Outfitters (URBN) and Dicks Sporting Goods (DKS), and their sliding stock prices have been the major culprits, spreading bearishness in the retail sector on the whole.

However, modest price appreciation by Home Depot (HD) and Lowe’s (LOW) despite soft results as well as solid earnings beat by Tiffany & Company (TIF) and J. C. Penney (JCP) have been reassuring and managed to hold better than others.

Retail Earnings in Focus:

The Real Dampeners

Dicks Sporting Goods is the major loser as the stock has tumbled nearly 19% to date post its earnings announcement and touched a new 52-week low of $42.55 last week. The company missed the Zacks Consensus Estimate by 3 cents on earnings and $20 million on revenues. Further, the company cut its full-year earnings guidance from $3.03–$3.08 to $2.70–$2.85 on weak demand for its golf and hunting products. The midpoint ($2.78) is in line with the Zacks Consensus Estimate.

Shares of specialty retailer, Urban Outfitters, also fell about 10% and are currently hovering around its two-year low. This is because the company reported earnings per share of 26 cents, missing our estimate by a penny, and revenues of $686.3 million which fell shy of the Zacks Consensus Estimate of $688 million.

The U.S. largest office product retailer, Staples, has also fallen 13% to date post lackluster earnings results. Earnings per share came in at 18 cents, much below the Zacks Consensus Estimate of 21 cents but revenues of $5,654.0 million was above our estimate of $5,626.0 million (read: A Comprehensive Guide to Retail ETFs).

Retail Stocks Springing Surprises

Home Depot and Lowe’s, the world’s largest home improvement retailers, bucked the negative trend in the price performances despite lagging the Zacks Consensus Estimate on both earnings and revenues due to a slow start to spring selling season.

The shares of HD are up 1.6% post earnings announcement as the company raised its full year earnings guidance from $4.38 to $4.42 (midpoint $4.40), which is on par with the Zacks Consensus Estimate. LOW added 3.6% to date after its quarterly results and raised its full-year earnings guidance from $2.60 to $2.63, which is well above the Zacks Consensus Estimate of $2.59.

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