Zacks Industry Outlook Highlights: Whole Foods Market, SuperValu, Sprouts Farmers Market, United Natural Foods And Unilever

For Immediate Release

Chicago, IL – May 17, 2017 – Today, Zacks Equity Research discusses the Industry: Consumer Staples, Part 3, including Whole Foods Market (NASDAQ:WFM), Inc. (NASDAQ: WFM – Free Report ), SuperValu, Inc. (NYSE: SVU – Free Report ), Sprouts Farmers Market (NASDAQ: SFM – Free Report ), United Natural Foods, Inc. (NASDAQ: UNFI – Free Report ) and Unilever (LON:ULVR) plc (NYSE: UL – Free Report ).

Industry: Consumer Staples, Part 3

Link: https://www.zacks.com/commentary/114141/can-consumer-staples-overcome-headwinds

Despite rising consumer spending and moderate improvement in U.S. economic growth, the consumer staples sector doesn’t seem to be the perfect choice for investors right now; it is viewed as more attractive when macro-economic environment remains sluggish. The bullish growth in 2017 will also invite another Fed rate hike. Higher U.S. interest rates will likely lead to a stronger dollar, which would hurt overseas profits and create an unfavorable environment for emerging economies.

Other headwinds like potential price wars, a competitive environment and slowdown in international markets may also hinder growth. Also, investors remain skeptical whether policies promised by the Trump administration will take shape.

We note that in spite of benefiting from lower fuel prices and higher wages, consumers are reluctant to spend more. The Consumers’ outlook for the labor market was also less favorable in April.

Hence, investors should carefully select stocks for their portfolio as certain headwinds are likely to prevail in the coming months.

WEAKNESSES

Pressurized Margins

The grocery/supermarket business has been grappling with food deflation, stiff competition, aggressive promotional environment, and waning store traffic over the past few quarters. These headwinds have severely impacted major food grocers like Whole Foods Market, Inc. (NASDAQ: WFM – Free Report ), SuperValu, Inc. (NYSE: SVU – Free Report ), Sprouts Farmers Market (NASDAQ: SFM – Free Report ) and United Natural Foods, Inc. (NASDAQ: UNFI – Free Report ). An oversupply in some types of food – particularly meat, poultry and dairy –dragged prices lower and compelled grocery stores to do more aggressive promotions.

Meanwhile, we note that the trend is finally beginning to shift toward inflation. Meat prices are abating and dairy prices have started to rise. This is expected to result in an increase in commodity prices, thereby putting pressure on margins. Also, price wars between companies may erode profits and margins in the near term.

Slowdown in Emerging Markets

The majority of the global population lives in emerging economies. Due to a slowdown in income and consumption growth, affordability is low. Though there remains a huge opportunity for sales growth in these markets, currently the state of affairs remains volatile.

Aside from China, which is struggling the past few quarters, developing countries like Brazil and Mexico are facing economic slowdowns. The Middle East, Russia and Ukraine are witnessing continued political and civil unrest, resulting in challenging operating conditions. Some developed markets are also facing weakness due to sluggish consumer demand.

For example, consumer product company Unilever plc (NYSE: UL – Free Report ) still sees declining volumes in Brazil, while performance has improved in China and India. The company is also witnessing weakness in the developed markets with little sign of recovery in North America or Europe. Moreover, it remains cautious as consumer demand continues to be weak.

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