UNFI - United Natural Foods plunges 20% after profit guidance is slashed

2023-06-07 07:25:52 ET

United Natural Foods ( NYSE: UNFI ) fell sharply after reporting a narrower FQ3 profit than was anticipated by analysts and setting EPS guidance far below expectations.

Management said profitability was impacted during the quarter by a greater than expected decline in gross margins reflecting a challenging operating and macroeconomic backdrop, which contributed to lower inflationary benefits primarily related to reduced procurement gains, as well as higher shrink.

The company reported sales increased 3.7% in the quarter compared to last year, primarily driven by inflation and new business. The new business resulted from selling new or expanded categories to existing customers and adding new customers from what was said to be a robust pipeline. Those increases were partially offset by a decrease in units sold.

Gross profit rate during the quarter was 14.0% of sales and included a $72M LIFO charge. Excluding the non-cash charge, gross profit rate in the quarter was 15.0% of sales. The decrease in gross profit rate from a year ago was primarily driven by the volatile macroeconomic environment, which led to lower inflationary benefits and reduced procurement gains. Gross profit also reflects higher levels of shrink and costs related to operational improvements.

Net income dropped to $7M from $67M a year ago. Adjusted EBITDA dropped to $159M from $196M.

During Q3, free cash flow was $65M vs. -$126M a year ago. At the end of the quarter, total liquidity was approximately $1.62B, consisting of approximately $38M in cash, plus the unused capacity of approximately $1.58B under the company’s asset-based lending facility.

Looking ahead, UNFI sees full-year revenue of $30.1B to $30.5B vs. $30.3B. EPS of $1.80 to $2.30 is seen vs. $3.05 to $3.90 prior range and $3.31 consensus.

Shares of United Natural Foods ( UNFI ) plunged 19.77% in premarket trading to $22.12.

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