Walmart Earnings Beat Lifts Leveraged Retail ETF

Strong consumer spending during the fourth quarter, particularly the holidays, helped Walmart Inc to report better-than-expected earnings to end 2018. Shares of Walmart went up 4 percent, while the news also lifted the Direxion Daily Retail Bull 3X ETF (NYSEArca: RETL) almost 2 percent on Tuesday.

RETL seeks daily investment results equal to 300% of the daily performance of the S&P Retail Select Industry Index. The index is a modified equal-weighted index that is designed to measure performance of the stocks comprising the S&P Total Market Index that are classified in the Global Industry Classification Standard (GICS) retail sub-industry.

“To us, the consumer looks like they’re in pretty good shape,” CFO Brett Biggs said. “Gas prices are down. … We’re always monitoring the consumer and are ready to act if things change, but we feel our guidance is good for the next year and our business model works well in most environments.”

Walmart reported that sales at U.S. stores that were open at least a year went up 4.2 percent. Analysts were expecting a sales gain of 2.96 percent, according to IBES data from Refinitiv.

“This is a blockbuster quarter for Walmart,” Moody’s analyst Charlie O’Shea said in an interview.

Furthermore, adjusted earnings per share increased to $1.41 per share, besting expectations of $1.33 per share. The shift to online sales from brick-and-mortar stores was also apparent as online sales at Walmart grew 43 percent during the quarter, which was boosted by the expansion of its online grocery pickup and delivery services.

Related: Less-Than-Expected Growth Could Affect Retail ETFs in 2019

“The retailer’s brick-and-mortar business is strong and showing increased productivity, thanks to higher employee engagement and technology improvements that help support same-store sales growth. Online sales are accelerating on improved assortment and grocery,” said Jennifer Bartashus, food retail analyst for Bloomberg Intelligence.

Guidance for its fiscal year 2020 remained the same as Walmart is predicting that earnings per share would decline in the low-single-digit percentage range. Walmart has been smashing U.S. growth, recording 18 quarters, or over four straight years of U.S. growth–an industry best.

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