Retail ETFs mixed amid upbeat financial data from Walmart

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Retail ETFs are mixed on Tuesday amid news that walmart fiscal third-quarter earnings beat analysts’ expectations as price-conscious grocery shoppers returned to its stores despite soaring inflation for household staples.

Walmart’s massive size helps the company navigate bottlenecked supply chains as it negotiates with manufacturers, shores up inventory and uses its own ships to move goods around the world. The multinational retailer raised its forecast for 2021, suggesting adjusted earnings per share will be around $6.40 from its previous expectation of between $6.20 and $6.35.

Despite the adjusted outlook, the company’s shares fell nearly 3% early Tuesday afternoon.

Walmart CEO Doug McMillon said the company hopes to have full inventory for the holiday season. Walmart’s U.S. inventory rose 11.5% ahead of the hectic shopping season, McMillon said, with Walmart preparing its seasonal merchandise and preparing space for merchandise on ships.

“There’s a level of excitement in the air,” McMillon said on the company’s earnings call. “You can feel it. I walked away from these stores with a recurring thought: ‘We are ready, we have the people, the products and the prices to deliver a great holiday season.’

Walmart’s net income fell to $3.11 billion, or $1.11 per share, from $5.14 billion, or $1.80 per share, a year earlier. Excluding items, the company earned $1.45 per share. Analysts expected Walmart to earn $1.40 per share, according to Refinitiv.

Total revenue rose about 4% to $140.53 billion from $134.7 billion a year earlier, beating analysts’ expectations of $135.60 billion.

Walmart’s U.S. same-store sales rose 9.2% excluding fuel, higher than the 6.9% projected by a StreetAccount survey. Meanwhile, the retailer’s online sales in the United States rose 8% from the year-ago quarter.

The news saw mixed results among retail ETFs. While the major benchmark stock ETFs were all green on Tuesday, some consumer discretionary ETFs with Walmart, like the iShares Evolved US Discretionary Spending ETF (IEDI) are higher, up more than 1.1%, while other funds like the Vanguard Consumer Staples ETF (VDC) are down the day.

According to ETF Database analyst reports, “VDC offers targeted exposure to the US consumer staples sector, making it a potentially useful tool for those implementing a sector rotation strategy or looking to steer their portfolio to low-beta holdings. Vanguard ETFs are generally among the most profitable choices in all categories, but that’s not necessarily the case here; both DCF and XLPare slightly cheaper in terms of expense ratio. There is, however, no consumer staples ETF that can match the depth of holdings provided by VDC; Vanguard’s unique structure allows this fund to hold over 100 individual stocks and avoid excessive concentration in a small handful of mega-cap stocks.

Meanwhile, IEDI owns a number of key stocks alongside Walmart, including Amazon, Home Depot and Apple.

Inflation brutally affects consumers on a daily basis, from filling the gas tank to buying food and household supplies. Annual inflation climbed to its fastest pace in more than 30 years in September, according to the Commerce Department.

To that end, Walmart, known for its emphasis on “everyday low prices,” is one of the retailers that is well positioned to weather an extended period of rising prices. Consumers may choose to buy more groceries, clothing and other products from stores and the retailer’s website instead of turning to competitors, given the low price history of the store.

“We’ve always been an inflation fighter for customers,” Walmart chief financial officer Brett Biggs said in an interview with CNBC. “Our scale and the breadth of our products allow us to do things in a way that benefits customers and shareholders.”

Biggs said food inflation has been rising steadily lately and Walmart is under pressure due to rising fuel, shipping and product costs, but has been able to reduce the number of promotions. without harming sales. Additionally, he got a boost from new revenue from his booming advertising business.

The retailer’s chief financial officer noted that consumers continue to buy items in bulk and have yet to significantly shift their shopping preferences.

McMillon said in a press release that the company was increasing its grocery market share as U.S. consumers returned to stores.

At Walmart’s warehouse club, Sam’s Club, same-store sales rose 13.9%, excluding fuel, compared to the 8.7% growth expected by StreetAccount.

“Overall, the consumer seems to us to be in very good shape,” McMillon said. “Wages are up. Jobs are available and spending looks strong.

As of Monday’s close, Walmart shares are up about 2% this year. The stock closed down less than 1% on Monday at $146.91, taking Walmart’s market value to $409.66 billion. Its shares have lagged the S&P 500, which has risen about 30% this year.

Investors looking to use ETFs to buy Walmart can also explore the Invesco S&P 500 Enhanced Value ETF (SPVU)the Nasdaq First Trust Retail ETF (FTXD)and the VanEck Retail ETF (RTH).

For more news, insights and strategy, visit ETF Trends.

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