What happened

It was a rough week for United Natural Foods (UNFI -0.54%) as shares of the organic grocery wholesaler tumbled after it posted disappointing bottom-line results in its fiscal third-quarter earnings report and slashed its full-year guidance.

The company cited macroeconomic challenges, including lower inflationary benefits related to procurement gains, meaning the spread between what it pays suppliers and charges retailers narrowed. It also noted higher shrink, meaning loss of inventory through theft or damage.

That was enough to send investors heading for the exits, as the stock was down 25.3% for the week through Friday at 1:03 p.m. ET, according to data from S&P Global Market Intelligence.

So what

United Natural Foods, which sells organic products to Amazon's Whole Foods and other customers, reported top-line results that were in line with expectations. 

Revenue increased 3.7% to $7.51 billion, matching estimates. Inflation and new business was the reason for the revenue growth, as the company continues to add new customers and expand relationships with existing customers.

However, the real challenges came on the cost side of the income statement, as the abovementioned factors led gross margin excluding LIFO charges to fall from 15% in the quarter a year ago to 13.8%. Operating expenses were essentially flat, declining from $969 million in the quarter a year ago to $967 million. However, the lower gross margin weighed on the bottom line, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) declining 19% to $159 million, and adjusted EPS fell by roughly half to $0.54, worse than estimates at $0.68.

Despite the profit headwinds, CEO Sandy Douglas was optimistic about the growth of the business, saying, "Our third-quarter results continue to demonstrate the strength of our customer value proposition, as sales and product penetration increased despite significant industry headwinds."

Now what

Looking ahead, UNFI cut its bottom-line guidance for the fiscal year due to the profit headwinds, saying it now expects adjusted EPS of $1.80 to $2.30, down from a prior range of $3.05 to $3.90. It maintained its revenue guidance of $30.1 billion to $30.5 billion.

UNFI is still relatively cheap based on that guidance, trading at a forward P/E of 10 now, but the stock has long been volatile and range-bound as it competes in a competitive industry and is subject to macroeconomic forces. At this point, there doesn't seem to be a compelling reason to own the grocery stock.