Why United Natural Foods Shares Are Plummeting Today

United Natural Foods, Inc. UNFI reported third-quarter FY23 sales growth of 3.7% year-over-year to $7.501 billion, missing the consensus of $7.51 billion.

Gross profit declined 1.2% to $1 billion, and the margin contracted by 65 bps to 13.3%. Operating margin was 0.44%, and operating income for the quarter fell 73.2% to $33 million.

Adjusted EBITDA was $159 million, down 18.9% Y/Y, and the margin contracted by 60 bps to 2.12%. Adjusted EPS of $0.54 (-50.9% Y/Y) missed the consensus of $0.68.

Free cash flow was $65 million, compared to $(126) million in 3Q22. The net debt to adjusted EBITDA leverage ratio was 2.7x as of April 29, 2023. Total liquidity was ~$1.62 billion, consisting of $38 million in cash.

During the quarter, UNFI repurchased ~368,000 shares at an average price of $35.06 for an aggregate cost of $12 million.

"Our profitability was impacted 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 and higher shrinkage. Because of this pressure, we are reducing the fiscal 2023 outlook for adjusted EBITDA and adjusted earnings per share,” commented UNFI CEO Sandy Douglas.

FY23 Outlook: UNFI continues to see sales of $30.1 billion - $30.5 billion, against the consensus of $30.35 billion.

The company lowered its FY23 profitability outlook: It now expects FY23 adjusted EPS of $1.80 - $2.30 (prior view $3.05 - $3.90) versus the consensus of $3.32. The company sees Adjusted EBITDA of $610 million - $650 million (prior view $715 million - $785 million).

Price Action: UNFI shares are trading lower by 29.82% at $19.35 premarket on Wednesday.