The overall trend in the second quarter retail sector results was weaker, with most operators suffering from slower sales, higher spending, higher inventory build than forecast and a downward revision of forecasts for the current period.
According to recent equity research notes produced by Zacks Investment Research, Inc., several factors are at play. Many companies have made merchandising mistakes and failed to accurately read changing consumer behavior . On top of that, retailers have failed to react to an admittedly difficult operating environment characterized by rising costs.
The consumer is still healthy, supported by low debt levels, adequate savings and rising wages due to a tight labor market. But there is growing evidence that low-income consumers are starting to feel the pressure, as runaway inflation is eating away at, if not completely offsetting, wage gains. It would make sense for such a consumer to spend less on discretionary items and more on basic necessities.
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As a result of these factors, a significantly lower proportion of retailers were able to exceed consensus EPS estimates. Additionally, while third-quarter estimates have fallen for most sectors, the retail sector is among those suffering a greater magnitude of negative revisions.
On the Retail Sector Dashboard, there are now second quarter results for 32 of the 34 retailers in the S&P 500 Index. Total revenue for these retailers is down -20.3 % over the same period last year, with revenue up +7.7%, with 71.9% beating EPS estimates and 43.8% beating revenue estimates.
A key driver of the -20.3% profit decline for the quarter was the drag on Amazon, whose second quarter profits were down -86.5% year-on-year. former. Excluding the Amazon drag, second-quarter revenue for the remaining retailers would be down -3.4%.
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There are a few ETFs tied to the fortunes of the retail sector. The SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure to large, mid and small capitalization stocks.
VanEck Vectors Retail ETF provides exposure to the 25 largest retail companies by tracking the MVIS US Listed Retail 25 Index, which measures the performance of companies involved in retail distribution, wholesalers, online retailers, direct mail and television, multi-line retailers, specialty retailers and retailers of food and other basic necessities.
Amplify Online Retail ETF provides global exposure to companies that derive 70% or more of revenue from online and virtual retail by tracking the EQM Online Retail Index.
ProShares Online Retail ETF provides exposure to the company that primarily sells online or through other non-store channels, then focuses on companies that are reshaping the retail space.