Target's 20% Shares Plunge Weighs on Retail ETFs

Shares of Target plunged by more than 20% on Wednesday after the retail giant announced weaker-than-expected sales and profits for the third quarter.

The drop in the stock weighed on retail ETFs, like the SPDR S&P Retail ETF (XRT) and the VanEck Retail ETF (RTH), each of which was down by around 1.5% on Wednesday. By comparison, the SPDR S&P 500 ETF Trust (SPY) was lower by 0.6%. 

Target said that comparable store sales in Q3 rose barely—just 0.3%—, well below the 1.5% that analysts were expecting and the 5.3% gain that rival Walmart had reported earlier in the week.

Target's Earnings Per Share Lower Than Expected

At the same time, earnings per share for the quarter came in at $1.85, below the $2.30 that was expected.

Target blamed the weak results on “macro short-term headwinds,” and forecast lower-than-expected earnings for the next quarter as well.

The retailer’s poor results stand in contrast to the strength seen in other big retail businesses, including Walmart and Costco.

While those stocks have zoomed to record highs, shares of Target trade at less than half their peak levels from 2021.

There are 271 U.S.-listed ETFs that hold Target, according to etf.com’s stock finder tool. Of those, RTH and the Consumer Staples Select Sector SPDR Fund (XLP) have the largest exposure to the stock at just over 4%. 

While representing a significant position in those ETFs, the stock is dwarfed by Walmart and Costco. Both funds allocate roughly 9% to 10% of their portfolios to each of those two stocks. 

Notably, in RTH there’s an even bigger holding—Amazon—which is weighed at a whopping 21% of the portfolio. 

On the other hand, the e-commerce and cloud computing giant isn’t found at all in XLP, as the company is classified as a consumer discretionary stock under the Global Industry Classification Standard.