What happened
Shares of United Natural Foods (UNFI -0.86%) tumbled 16.4% through 12:15 p.m. ET on Wednesday after the grocery wholesaler and retailer missed badly on third-quarter earnings -- and followed up that miss with an earnings warning.
Heading into its fiscal Q3, analysts had forecast that United Natural Foods would earn $0.68 per share in adjusted income on sales of $7.5 billion. United Natural actually came within a whisker of hitting that sales target, but earnings whiffed entirely, coming in at only $0.54 per share.
So what
Bad as that already sounds, it gets worse.
Sales grew less than 4% year over year. And United Natural Foods' $0.54 per share in profits were, as noted above, only adjusted earnings, meaning they were non-GAAP. When calculated according to generally accepted accounting principles (GAAP), United Natural actually earned only $0.12 per share -- down 90% year over year.
CEO Sandy Douglas blamed the lousy earnings on "a greater than expected decline in gross margins ... a challenging operating and macroeconomic backdrop ... as well as higher shrink." Meaning United Natural both earned less on the products it sold and also lost a material number of potential sales to customers simply stealing its wares. (That's the "shrink" part.)
Now what
It's hard to say for sure which factor had the greater impact on results, although it's perhaps instructive that "shrink" was only mentioned twice in the press release. Whatever the primary cause, it does seem that business has gotten bad enough to affect United Natural's outlook going forward.
Turning to guidance, management said sales this year will still probably wind up in the same $30.1 billion to $30.5 billion range that it had previously forecast. Profit on those sales, however, will fall well below previous predictions, coming in somewhere between only $0.20 and $0.70 per share -- less than one-quarter of the company's last guidance range, when taken at the midpoint. (Adjusted earnings will also be below prior forecasts, ranging from $1.80 to $2.30 per share.)
When you consider that analysts had been telling investors to expect United Natural to earn between $3.05 and $3.90 per share (presumably adjusted), that's still a huge disappointment. And when you consider that all of this means that United Natural Foods stock -- a grocery stock, let's remember -- is now selling for 51 times expected earnings this year, well, it's entirely understandable why investors are reluctant to pay that high price today and are selling the stock instead.
