The Most (Dangerously) Shorted Grocery Store Stocks: SVU, SWY, TEA & RNDY

On Monday, troubled SUPERVALU (NYSE: SVU), the most shorted grocery store stock, was surging on speculation it would be bought out but its worth nothing that it along with Safeway Inc (NYSE: SWY) plus two grocery store stocks that most investors have never heard of, Teavana Holdings (NYSE: TEA) and Roundy's (NYSE: RNDY), are the most shorted grocery store stocks. Specifically and according to HighShortInterest.com, SUPERVALU has short interest of 40.28%, Safeway Inc has short interest of 31.08%, Teavana Holdings (TEA) has short interest of 23.82% and Roundy's (RNDY) has short interest of 22.73%. However and on Monday, SUPERVALU surged 44.75% to $3.17 for a market cap of $676.84 million amidst reports that Cerberus Capital Management is seeking $4 billion to $5 billion in debt financing from banks and is looking at investing equity of $800 million to $900 million into the company. However and even with the surge, SUPERVALU is still down 61% since the start of the even after cratering in July and its down 91.5% over the past five years. 

That means long-term investors are still in pain along with at least a few of the shorts given Monday’s surge – something investors and shorts need to keep in mind when considering Safeway Inc, Teavana Holdings and Roundy's. Hence, here is a quick look at these three heavily shorted grocery store stocks:

Safeway (NYSE: SWY): All Eyes on Fourth Quarter Earnings

Safeway is a food and drug retailer in North America that had 1,678 stores at the end of last year with its US retail operations located principally in California, Hawaii, Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area and the Mid-Atlantic region while its Canadian retail operations are located primarily in British Columbia, Alberta and Manitoba/Saskatchewan. Safeway sports a forward dividend $0.70 for a dividend yield of 4.30% but investors need to remember that the first casualty after SUPERVALU imploded last summer was its dividend. Likewise and when it reported earnings earlier this month, it reported its fifth straight quarter of shrinking margins while net income fell from $130.3 million to $108 million (revenue only declined 0.2% to $10.05 billion). However Safeway is launching a shopper loyalty program in an effort to reverse volume declines due to the weak economy but investors and shorts alike will need to wait until forth quarter earnings are reported for any signs of a turnaround. On Monday, Safeway rose 1.16% to $16.54 (SWY has a 52 week trading range of $14.73 to $23.16 a share) for a market cap of $3.96 billion but the stock is down 21.4% since the start of the year and down 47.5% over the past five years.

Teavana Holdings (NYSE: TEA) Is Way Off From Its 2011 IPO Price

Teavana Holdings is a specialty retailer of loose-leaf teas, authentic artisanal teawares and other tea-related merchandise with over 200 Teavana locations throughout the US and Mexico. Hence, its not exactly a “grocery” store but it’s the type of specialty high priced retail outfit that the Whole Foods Market (NASDAQ: WFM) crowd would frequent – perhaps after they have picked up their gluten free wheat germ. Last September, Teavana Holdings reported a 38% revenue increase to $43.1 million along with a net loss of $146,000 verses net income of $1 million due mainly to its Teaopia acquisition. However, the shorts appear to have noticed gross margin pressure and the fact that repeat customers tend to go for the beverage – a low contributor to revenue. On Monday, Teavana Holding fell 5.4% to $11.70 (TEA has a 52 week trading range of $10.75 to $26.03 a share) for a market cap of $451.54 million plus the stock is down 37.7% since the start of the year and down 58.5% since the middle of last year. That’s when Teavana Holdings raised nearly $121.4 million in an IPO priced at $17 that rose 64% to $27.80 on its first day of trading but as you can see, the stock is down about two-thirds since then. With short interest of 23.82%, many shorts are betting its only a matter of time before Teavana Holdings trips up.

Roundy's (NYSE: RNDY) Has a 15.9% Dividend Yield and a Completely Different Strategy Than Competitors

Roundy's is a retail grocery company founded in 1872 and headquartered in Milwaukee, Wisconsin, that operates 159 retail grocery stores and 97 pharmacies under the Pick ’n Save, Rainbow, Copps, Metro Market and Mariano’s Fresh Market retail banners in Wisconsin, Minnesota and Illinois. On Monday, Roundy's fell 1.04% to $5.72 (RNDY has a 52 week trading range of $5.63 to $12.50 a share) for a market cap of $261.16 million but the stock is still down from its IPO price of $8.50 a share last February. However, Roundy's is different from other supermarket chains that seek a national footprint as its concentrating on dominating its hometown (where it has more than a 50% market share) and nearby markets where it can focus on having a better understanding of its local customers (whereas national chains don’t understand them). On the other hand and at first glance, Roundy's forward dividend of $0.92 for a dividend yield of 15.90% would be a cause for concern but the payout ratio is just 19.00% according to Yahoo! Finance. It should be noted that S&P lowered Roundy's credit rating from 'B+' to 'B' with a stable outlook after weaker-than-expected operating trends during the second quarter because of increased price competition and more effective marketing programs from competitors. Roundy's will next report earnings on November 8th, which will be worth watching. Otherwise, Roundy's does look interesting but since I don’t live in region it operates in – I would still rather be cautious about investing.

The Bottom Line. Suddenly surging grocery store stock SUPERVALU (SVU) should make the shorts cautious about also shorting Safeway Inc (SWY), Teavana Holdings (TEA) or Roundy's (RNDY) as the same thing could happen but that does not mean that investors should run out and get into grocery store stocks before the economy improves.