Is Whole Foods Sheltered?

August 19, 2013, 08:03 am ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

In recent days we have seen Wal-Mart Stores, Inc. (NYSE:WMT) get hit, Macy's, Inc. (NYSE:M) get hit, and in the coming days we will learn if Target Corporation (NYSE:TGT) is affected by the same thing as these other retailers.  From what we know thus far consumers are little more frugal, they seem to be spending less and the low and mid tier retailers are feeling the pain.  There hasn’t been much evidence of the high end retailers like Whole Foods Market, Inc.(NASDAQ:WFM) being impacted by what seems to be a trend on the low end, but we can take a look at these stocks to determine whether there are opportunities to buy or short going forward.

There is a sharp contrast in forward guidance between WMT and WFM. WMT cut its forecast for full-year sales growth by 50%. Chief Financial Officer Charles Holley said during the conference call “Our expectations in the back half of the year are through the lens of cautious consumer spending,” Meanwhile, WFM raised the company’s guidance for the back half of 2013 and even opened a new store in Detroit of all places. The new Detroit store has lower prices, reduced staff and more pre-packaged and frozen food to accommodate lower-income consumers. The company said the Detroit store was off to a tremendous start, sales were at least double what it expected and that it plans to take its strategy to New Orleans and potentially other cities like that. You don’t see the high-end grocers in markets like that, WFM might be looking to expand to areas like that to take advantage of lower store rent costs and to get ahead of new competitors entering the market. 

The high margin natural and organic-food sellers have been hot stocks, but the sector is getting more competitive for WFM with the emergence of companies like Fairway Group Holdings Corp (NASDAQ:FWM) and Sprouts Farmers Market Inc (NASDAQ:SFM) who saw its IPO shares soar 122% recently. Stock Traders Daily has WFM neutral long-term, after breaking above resistance and making a new 52wk high, the stock is now back below resistance.

Whole Foods is not the only healthy grocery store around anymore and expansion into cities like Detroit and New Orleans with more of a value approach, could lower margins and damage the brands credibility with its core customers.  If Wal-Mart’s view of a more cautious consumer is correct and we start to see it impact the high-end consumer as well, that could significantly impact stocks of companies like WFM.  The Stock Traders Daily report shows a few weeks ago the stock broke out beyond our stated resistance level, resistance was converted to support, but support was broken and as a result we could see the stock fall all the way down to long-term support. 

Support and Resistance Plot Chart for

Real Time Updates for Repeat Institutional Readers:

Factset: Request User/Pass

Bloomberg, Reuters, Refinitiv, Zacks, or IB users: Access Here.