The Q1 earnings picture for the retail sector is among the weakest this reporting cycle with results tracking below the past quarters. Total earnings from 90% of the sector’s total market capitalization reported so far are up 1.5% on 2.9% higher revenues with 63.6% of the companies beating on earnings and 54.5% exceeding top-line estimates, as per the latest Earnings Preview.

Positive earnings reports from Wal-Mart WMT), Target (TGT - Free Report) and Home Depot (HD - Free Report) offset some negativity of weak results from department stores like Macy’s (M - Free Report) , Kohl’s (KSS - Free Report) , Nordstrom (JWN - Free Report) and J.C. Penney (JCP - Free Report) . However, growth rates and beat ratios are unimpressive, resulting in a 0.8% negative price performance for the sector (read: Retailers Slide: Will ETFs Bear the Pain as Q1 Unfolds?).

Let’s dig into the details of the earnings releases:

Earnings Sending Stocks Higher

Big-box retailer, Target, emerged as the real champion in the Q1 earnings season as the stock surged as much as 4.5% following robust first-quarter fiscal 2017 results on May 17. The company topped our estimates by a huge 32 cents for earnings and by $377 million for revenues. It expects earnings per share in the range of $0.95–$1.15 for the ongoing quarter and $3.80–$4.20 for the year.

The world's largest retailer, Wal-Mart, jumped as much as 3.4% following robust first-quarter fiscal 2018 results on May 18 to hit a new 52-week high of $77.66. The company saw an increase of 1.4% in U.S. same store sales when other chain retailers are struggling. The mega retailer edged past our earnings estimates by four cents, while revenues fell short of our estimate by $84 million. Additionally, the company provided earnings per share guidance in the range of $1.00–$1.08 for the ongoing quarter. U.S. same-store sales are expected to grow 1.5–2%, higher than the analysts’ expectation of 1.2% (read: Wal-Mart Bucked the Weak Q1 Trend: ETFs to Buy).

Home Depot, the world's largest home improvement retailer, beat on first-quarter fiscal 2017 earnings by six cents and on revenues by $142 million. For fiscal 2017, Home Depot raised the earnings per share guidance to $7.15 from $7.13, which represents 11% increase year over year. The stock gained as much as 2.2% on the day of its earnings announcement on May 16.

The Dampeners

The second-largest department store retailer, Macy’s dampened the investors’ mood as its share price plunged 17% to its lowest since 2011 following fourth-quarter fiscal 2016 results. The retailer lagged our estimates for earnings by 11 cents and for revenues by $100 million. For fiscal 2017, it continues to project sales decline of 3.2–4.3% and earnings per share in the range of $2.90–$3.15.

One of the leading department store retailers, J.C. Penney, tanked as much as 15.3% following the earnings announcement on May 12. Though the company topped our bottom-line estimate by 28 cents, it missed on revenues by $52 million. For fiscal 2017, the company continued to expect earnings per share in the range of 40–65 cents (see: all the Consumer Discretionary ETFs here).

Specialty retailer, Nordstrom, dropped as much as 11.3% following first-quarter fiscal 2017 results. Though the company beat the Zacks Consensus Estimate for earnings by a huge 16 cents, revenues fell short of our estimate by $81 million. The company reaffirmed its earnings per share guidance in the range of $2.75–$3.00 for fiscal 2017. One of the leading departmental stores Kohl’s also tumbled nearly 8% on the day after posting a bigger-than-expected drop in quarterly sales. Earnings per share beat the Zacks Consensus Estimate by 11 cents while revenues missed our estimate by $27 million.

ETFs in Focus

Slew of negative earnings report led to terrible trading in retail ETFs over the past 10 trading sessions. Below we have highlighted them in details:  

SPDR S&P Retail ETF (XRT - Free Report)

This product tracks the S&P Retail Select Industry Index, holding 103 securities in its basket with each accounting for less than 2% of assets. Apparel retail takes the top spot at 20.9% share while internet & direct marketing retail, specialty stores, and automotive retail round off the next three spots with a double-digit allocation each. The fund has amassed $451.8 million in its asset base and charges 35 bps in annual fees. The fund shed 7.3% over the past 10 days and has a Zacks ETF Rank of 2 or Buy rating with a Medium risk outlook (read: 5 ETFs & Stocks to Shrug Off Sluggish Retail Sales).

VanEck Vectors Retail ETF (RTH - Free Report)

This fund provides exposure to the 26 largest retail firms by tracking the MVIS US Listed Retail 25 Index. It is highly concentrated on the top firm – Amazon (AMZN - Free Report) – at 17.1% while other firms hold less than 8.1% share. The ETF has a certain tilt toward specialty retail, which accounts for 28% share while Internet & direct marketing (23%), hypermarkets (11%), healthcare services (10%) and drug stores (9%) round off the top five. The product has amassed $67.6 million in its asset base and charges 35 bps in annual fees. RTH shed 1.3% in the same period and has a Zacks ETF Rank of 1 or Strong Buy rating with a Medium risk outlook.

PowerShares Dynamic Retail Portfolio (PMR - Free Report)

This fund follows the Dynamic Retail Intellidex Index. In total, the product holds 30 securities with each holding no more than 5.9% of assets. In terms of industrial exposure, specialty retail takes the top spot at 44%, while food retail (15%), hypermarkets (13%) and departmental stores (9%) round off the top three positions. The fund has accumulated just $14.1 million in its asset base and trades in a lower volume of 3,000 shares a day on average. It charges 63 bps in fees per year and lost 2.8% over the past 10 days. The product has a Zacks ETF Rank of 3 or Hold rating with a Medium risk outlook.

First Trust Nasdaq Retail ETF (FTXD - Free Report)

The fund follows the Nasdaq US Smart Retail Index and holds 50 stocks in its basket. It is moderately concentrated across components, with each firm holding less than 8.9% of assets. While specialty retailers and broadline retailers make up for a bigger chunk at 26.1% and 23.9%, respectively, apparel retailers round off the next spot with 16.2% share. FTXD has accumulated $2 million within eight months of its debut and has an expense ratio of 0.60%. Volume is paltry as it exchanges around 2,000 shares a day on average. The ETF is down 3.2% over the past 10 days.

Amplify Online Retail ETF (IBUY - Free Report)
This ETF has already attracted $39.9 million to its asset base since its debut a year ago. It offers global exposure to companies that derive 70% or more revenue from online and virtual retail by tracking the EQM Online Retail Index. The fund is home to 41 stocks that are widely diversified, with each holding no more than 4.43% of assets. The product charges 65 bps in fees per year and trades in a lower volume of about 18,000 shares. It has added 0.4% in the same time frame (read: 6 Hot ETF Charts of Q1 Earnings Season).