Short sellers active amongst online grocers
A decade after being considered a victim of the dotcom bubble, the concept of online grocery is more readily accepted and the industry is maturing, reports the FT. Estimates from the US National Grocers Association (NGA) show that the industry accounts for less than 2% of the food market, leaving scope for growth and competition. We look at investor sentiment towards companies offering this service including; Ocado (LON:OCDO), Wm. Morrisons (LON:MRW), Wal-Mart Stores Inc (NYSE:WMT), Fresh Market Inc (NYSE:WMT), Whole Foods Market Inc (NASDAQ:WFM) and Safeway (NYSE:SWY).
In the UK, the progress of Ocado has been closely tracked since it became the first publically listed online grocer last August. Earlier this month, the company attributed a slowdown in sales over to “capacity constraints” and has commenced construction of its second distribution centre. A favourite with short sellers immediately following the float, the amount of stock on loan has increased over the past month from 5.5% to 7% of total shares, in response to the sales announcement which prompted the shares to tumble more than 8%.
The UK’s fourth largest supermarket, Wm. Morrisons Supermarkets Plc does not currently offer online supermarket services. However, in a bid to enter the cyber grocery space and expand in the US, it has acquired a 10% stake in FreshDirect, which has expanded its online grocery business through New York, New Jersey and Connecticut over the last decade. Morrisons is a thinly traded stock in securities lending. However, short interest has built up to 2% of the total shares outstanding on loan since March. Although, a large proportion of this is likely to be due to dividend arbitrage, there appears to be a component of directional short selling.
The world’s largest grocer, Wal-Mart has been piloting the move online and its U.K. division, Asda already has a thriving online grocery operation. Given the large market capitalisation of this company, short interest is generally low. However, it has trebled to 0.6% of the total shares since February when the share price also began to rally. In an interesting development, e-commerce expert Amazon also conducted a pilot to expand into the online grocery market and leverage its impressive distribution capabilities. Short interest in Amazon is low.
In the US, Whole Food Markets Inc and Safeway Inc also offer online grocery shopping. Whole Food Markets has been subject to positive investor sentiment and has seen short interest reduce from 10% to 2% of total shares outstanding on loan since the start of the year. Conversely, Investors are bearish towards Safeway, which has seen short interest double to 10% of the total shares outstanding on loan since mid-March, despite the share price having recently reached new annual highs.
Fresh Market, Inc operates both brick-and mortar stores and also online. Its share price has held steady ahead of its first quarter earnings due this week, whilst short interest had decreased by a third since March to 0.5% of total shares, representing a quarter of the lendable supply out on loan.
