On Thursday morning, United Natural Foods (UNFI) , wholesaler of natural and organic groceries, and perishables across North America, reported the firm's fiscal third quarter financial performance. UNFI is a main supplier if not the main supplier to Amazon's (AMZN) Whole Foods grocery market chain. For the period ended May 1, 2021, United Natural posted net income of $48.6 million (down from $88.1 million a year earlier), leading to GAAP EPS of $0.80. This missed expectations by a penny. After adjustments that appear to be more about impacts related to taxes, changes in tax laws, and tax loss carrybacks related to the CARES Act than anything else, the form printed non-GAAP EPS of $0.94 which beat expectations.
Sales amounted to $6.62 billion, which not only fell short of expectations, but shows year over year contraction of 5.9%. The good news, because you look like you need some, is that on a two year stack (pre-pandemic) this revenue generation is actually 6.7% higher. Looking behind the numbers... adjusted EBITDA fell 19.2% to $179 million, while gross margin fell to 14.6% of net sales down from 14.94%. Just as interestingly, operating expenses ran at 13.09% of sales up from 12.96%.
Breaking out revenue by unit, Chains dropped 5.6% to $2.95 billion, up 5.4% over two years. Independent Retailers saw a decrease of 11.4% to $1.6 billion, up 3.8% on a two year stack. Supernatural squeezed out a 0.6% year over year increase to $1.29 billion, which was also up 16.6% over two years. Retail experienced a 9.3% drop to $578 million, up 14.9% over a two year window.
The firm expects full year (remember the current quarter is UNFI's fiscal fourth) sales to land in a range spanning from $27 billion to $27.8 billion. Wall Street is at $27.3 billion on this, which you might think not so bad, but CFO John Howard added, "Due to the extended timing of onboarding new business wins, we now expect to finish at the low end of the current range for net sales." Howard did also let us know that FY 2021 is going to be a second consecutive record year for the firm. The firm also sees GAAP EPS in between $2.15 and $2.65, and adjusted EPS at $3.05 to $3.55. Is it just me, or does a $0.50 range seem a bit excessive for a full year projection this far into a fourth quarter? Anyway, Wall Street had been around $3.42 on adjusted earnings.
I don't see anything that scares the heck out of me. Cash is a little light, and total debt is heavier than I generally like, but current assets supported by net inventories easily dwarf current liabilities where accounts payable is the largest entry. The current ratio is well above one. Obviously placing such weight on inventories, especially many perishable inventories, doing a quick ratio would not be reasonable.
Readers will note that UNFI has crashed through both the 21 day EMA and 50 day SMA this morning. The name is not technically broken. I repeat... UNFI IS NOT TECHNICALLY BROKEN. Not yet anyway. What I see is a last sale of $32.43 that leaves a basing period of consolidation that began back in March intact. Not only that, we have a gap down opening, and you know how I feel about gaps. They usually (not always, c'mon, man) fill.
I am thinking that I may buy some of this today, if support for this base still stands once this piece hits publication. Obviously, I cannot front-run my own article, so I must wait. If that spot breaks by that time, I will take a walk so to speak. Just thinking out loud here... a trader can still get paid $1.55 right now for a July 16th $30 UNFI put. Food for thought.