Why Roundy's Shares Dropped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shareholders of grocery store operator Roundy's (NYSE: RNDY  ) are in desperate need of a cleanup in aisle four following the company's first-quarter earnings report, which had shares down as much as 20% earlier in the trading day.

So what: Apparently, someone forgot to double-bag the results. For the quarter, Roundy's reported a 2.4% decline in sales to 938.2 million as same-store sales fell 2.1%. The company actually cited the Green Bay Packers' early playoff exit as part of the reason its results were weak. Profits came in at $0.06 versus $0.29 in the year earlier and are lower because of an $8.4 million debt repayment. The big news, however, was Roundy's forecast that sales would increase 2.5% to 3.5% but that same-store sales would continue to decline by 0.5% to 1.5%. Increased competition and a weak spending environment appear to be the primary culprits hurting its existing stores.

Now what: Grocery stores are a low-margin business and there isn't much room, or forgiveness, in investors' hearts for blaming weakness on the Green Bay Packers. Traditional grocers are having a rough go of things as consumers are either trading down to dollar stores like Family Dollar (NYSE: FDO  ) , which reported a 4.5% rise in comparable-store sales in late March thanks to increased traffic, or trading up to organic food chains like Whole Foods Market (NYSE: WFM  ) , which just recently reported a nearly 14% rise in revenue. Until Roundy's can address its high debt situation and get its existing stores growing again, I don't have any interest in the stock, even after today's large drop.

Craving more input? Start by adding Roundy's to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Whole Foods Market. Motley Fool newsletter services have recommended buying shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 11, 2012, at 1:02 PM, djlresearch wrote:

    The same store sales drop is actually much worse because we had 3-4% inflation. So same store sales really dropped about 6%.

    Now we have Walmart opening 20-25 stores in the next 3 years in SE Wisconsin. If you think the Packers had an affect, wait until you get a load of 25 Walmarts. Meijer has announced several new supercenters. Hy-Vee and Woodmans are opening at least 2 stores each. The competitors are expected to flood the market with new stores and we should see same store sales dropping about 7% a year, here, now, and forever. Simply because there is no way Roundys can magically invent a new way to sell groceries.

  • Report this Comment On May 11, 2012, at 4:50 PM, dietz1 wrote:

    I watched Cramer a few weeks ago and he was touting this one because of a big dividend. I can't find any info on a dividend (using Yahoo). Does anyone know about this big payout?

  • Report this Comment On May 11, 2012, at 5:58 PM, Zaegs wrote:

    Hi Dietz1, they announced that they were going to start paying out a $0.23 dividend quarterly, which would give the stock a huge yield. However, I don't think the dividend makes any sense when they have so much debt to pay off and they supposedly want to open new stores. I don't trust this stock at all.

  • Report this Comment On May 11, 2012, at 7:47 PM, BobMisanidiot wrote:

    Sure you want the scoop about the dividend. Willis Stein borrowed 100's of millions against the company to pay themselves a huge dividend not once but twice. That is how the company got so far in debt. They then tried to sell the company several times but were unsuccessful. So as a last resort for WS to get out from underneath the Galloping Gurdy of retail they decided to IPO it and sell there shares hand over fist. Look it up if you don't believe me! They are by far the worst run retailer out there. Any one doing just an ounce of research could figure this out. There management team did a wonderful job for Willis Stein but for actually making money the correct way in retail it is a laughing stock. Ask Festival Foods they know they can go into any market and kick the crap out of any Pick & Save, Copps they are just a small time player and its only a matter of time before the big boys figure this out and the Mariano ship sinks. My advice Short the heck out of this because if someone does not buy it out with in a couple of years or so it will be on the pink sheets. They blamed decrease in Same store sales on the Packers play-offs LMAO what a joke!

  • Report this Comment On May 15, 2012, at 11:02 AM, jcern wrote:

    Marianos plans to open 30 new stores in Chicagoland over the next 3 - 4 years. Stores will average $2.5 million in EBITDA per store. 30 X 2,500,000 x 5x multiple = $375,000,000 in incremental enterprise value / market cap (look at current market cap). That means all existing stores go away and you trade at a slight discount to today. A lot of room for error. If you live in Chicagoland area, you would understand the cult like following and outperformance this concept already has. Look at the 2% overall sales increase in the stock this year with 5 new Marianos stores compared to guidance of minus 1 percent on average for all other 150+ same stores and you start to understand. I will take the 8.5% dividend in the mean time.

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