Whole Foods to Shorts: "Drop Dead"

The Austin, Texas Whole Foods Flagship Store

I was in a Whole Foods store on Super Bowl Sunday earlier this month stocking up on microbrews (Dogfish Head Ale) and gourmet potato chips (North Fork).  The place was packed, which was weird because half the other stores in the shopping center had “going out of business signs” in the windows.

I didn’t think much of how crowded the store was, but last week, the anecdotal evidence became empirical evidence as Whole Foods Market, Inc. (WFMI) not only beat their earnings estimate, they were also able to give analysts better than expected guidance for 2009.

The stock absolutely exploded from around 9 to over 13 by the next afternoon.  This represented a 40% plus gain in a market where every single stock goes down every single day without exception.

Aside from WFMI being the sole bright spot on my trading screen this week, it’s move was notable for another reason…the fact that it shouldn’t have been possible!  There were 16 and a half million shares short on WFMI according to the most recent data, roughly 12% of the float was betting against the company.  The short story just made too much sense; virtually every single retailer in the US is hurting right now with the consumer basically down for the count, so how can an overpriced chain of high end supermarkets possibly come in with decent quarterly numbers?

Well, shorty got creamed last Thursday, and even though I wasn’t on either side of the trade, it was pretty cool to see that this can still happen and that stocks actually have the ability to go up every once in a while.  The fact that it was Whole Foods, a perennial target of the shorts, that represented, well that’s irony for ya.

I would guess that three things happened here to produce the unexpected pop.  First, the short figures that are published are probably low as bears have gotten extremely more confident and aggressive recently.  Second, you could make the case that consensus numbers from The Street had come down so low, that WFMI could basically bunny-hop over them without much trouble.

The third factor to me is the most interesting because it reawakens the part of me that’s been dead and buried as a trader and investor over the last year…this would be the fact that there is still room in this market for doing your homework.  It is still possible to catch a stock that can outperform if you’re armed with the right information and timing.  Yes, the consumer has stopped eating out in restaurants but they haven’t all resigned themselves to canned peas and generic groceries just yet.  Most Whole Foods stores are built in cosmopolitan areas, and even though the upper and middle class are extremely hard-hit in this recession, they still haven’t waved their surrender flags just yet.  So, if they’ve been forced to eat meals at home, they’ve determined that these meals will still be interesting and contain the best of ingredients and gourmets touches.

As a manifestation of this trend, I present to you, ladies and gents, the Whole Foods earnings beat!

Since acquiring chief rival Wild Oats, Whole Foods essentially has this shopping experience on lock down with a borderline monopoly in many urban centers.

Congrats to you and your shareholders, WFMI.  Nice to see that good news is still possible.

This post is making me hungry, TTYL.

Full Disclosure:  I currently have no positions in Whole Foods (WFMI) in either personal or client accounts