In the latest sign that this recovery just might have some staying power, several major retailers reported strong earnings reports for the third quarter. But along with these pleasant surprises came warnings of tough times ahead, indicating that forecasts for the upcoming holiday remain murky. The major retail earnings announcements made so far this week range from high end stores to borderline bargain basement centers: High end retailer Saks posted a surprise profit for the first time in six quarters by cutting expenses and avoiding the temptation to push promotions and clearance discounts amid falling sales. Instead, Saks has been working with suppliers to lower prices on designer goods, allowing the company’s stores to sell more luxury brands starting at lower prices. “I think there have been some changes in the luxury consumer,” Chief Executive Steve Sadove said on a call with analysts. “People are very much focused on value.”
On the other end of the luxury spectrum, Target posted an 18% jump in third quarter earnings on stronger gross margins. But the company also warned that November sales have been soft and that expectations for the fourth quarter were low. Target CEO Greg Steinhafel was surprisingly blunt in his assessment of the importance of this year’s Black Friday, saying that “the fourth quarter will be decided by the two days after Thanksgiving and the two days before Christmas.”
Off-price retailer TJX Cos., which includes retailers TJMaxx and Marshalls reported profit for the quarter ended October 31 of $347.8 million, compared to $235.9 million in the same period a year ago.
ETF Plays On A Retail Recovery
While consumers are out monitoring for holiday bargains on Black Friday, investors will be out monitoring the consumers. Holiday shopping trends are always closely scrutinized by Wall Street, but this year’s performance brings added importance, with many retailers needing strong sales over the next five weeks to salvage an otherwise disappointing year.
For investors looking to make a play on the retail sector, there are several ETF options. To get more actionable ETF ideas delivered to your inbox, sign up for our free ETF newsletter.
- SPDR S&P Retail ETF (XRT): This ETF tracks the S&P Retail Select Industry Index, offering diversified exposure to both brick and mortar retailers (such as Wal-Mart, Target, and Best Buy) and online sellers (such as Amazon). XRT has been one of the best performing sector-specific ETFs, gaining about 75% so far in 2009.
- PowerShares Dynamic Retail Portfolio (PMR): This ETF is based on an “Intellidex” benchmark that seeks to identify stocks poised for outperformance through proprietary quantitative analysis. About 65% of PMR’s holdings are allocated to consumer discretionary stocks, with 22% to consumer staples and the remainder to industrials and technology companies. PMR has gained about 25% year-to-date.
- Claymore/Robb Report Global Luxury Index ETF (ROB): As this ETF’s name suggests, it focuses primarily on purveyors of luxury goods, including Swatch, Christian Dior, and BMW. As consumers have begun making big ticket purchases once again, ROB has surged, gaining more than 50% so far this year.
For a complete list of consumer discretionary ETFs, see this list. ETFdb Pro members can read more about these funds in our ETFdb Category Report (if you’re not a Pro member yet, you can sign up for a free trial or read more here).
Disclosure: No positions at time of writing.