United Natural Foods’ (UNFI) market value has been nearly halved in the past year. The management recently announced a realignment of regional offices aimed at increasing efficiency and profitability. Although the company is projected to return back to profitability in fiscal year 2024, earnings are expected to remain below fiscal year 2022 levels.
Important Points
1. United Natural Foods’ market value has dropped significantly this year. Its value was almost cut in half. A poor quarterly report, a plunge in profit, and a bleak short-term outlook are all blamed for this.
2. The management has announced a plan to realign regionally in order to improve efficiency and profitability. The plan involves consolidating operations from four to three groups, and eliminating excessive administrative overhead to accelerate decision-making.
3. The company should return to profitability during the fiscal year 2024. The projected earnings will remain below the fiscal 2022 level, suggesting a longer turnaround. United Natural Foods is facing challenges from inflation, reduced volume of sales, and shrinkage as a result of theft.
United Natural Foods Inc. has had a difficult year as its value has almost been halved. Recently, the company announced a plan to realign its regional operations in order to increase efficiency and profitability. United Natural will return to profitability by fiscal 2024 but earnings are expected to be significantly lower than those of fiscal 2022.
United Natural is behind the curve in terms of recovery for U.S. distributors. Natural grocery wholesaler United Natural’s stock dropped to its lowest level in two and a half years after its April quarter report was disappointing. The company saw a 51% decline in profit and had a grim outlook for the future. Its market value was cut in half by the end of this year. Comparatively, U.S. Foods (and Anderson’s) have seen their stock prices rise by more than 20% in the past year.
United Natural has announced a plan to realign regionally in order to combat these challenges. The company wants to improve its efficiency and profitability through the consolidation of four operating groups down to three. The company’s restructuring plan is similar to the one implemented by industry leader Sysco in 2019. This resulted consistently in profit growth. Even though such changes can have positive outcomes, it usually takes years for them to be noticeable. United Natural is seen as an inexpensive and low-risk turnaround option, with its stock trading at 65% of its peak post-COVID and the market’s sentiment being low.
United Natural Foods faces a number of challenges, including a lack of profit. The company has drastically reduced its full-year guidance for EPS, and now expects to post a loss in the fourth. Sales are up in many channels but units sold are down. This is due to inflation. The only way to explain the growth of this industry is by increasing prices. Also, consumers buy less specialty, natural and organic foods and opt for cheaper national and store-brands. The company also faces shrinkage issues, which can lead to sales being lost as customers steal United Natural’s groceries. The company’s financial performance is affected by this problem, which likely leads to an increase in spending on enforcement and mitigating efforts.
These problems are likely to continue, as the Federal Reserve tries to combat widespread consumer inflation while individuals commit theft. United Natural will return to profitability during fiscal 2024 but the earnings are projected to be below fiscal 2022. This could mean that the stock price may not fully recover before 2025.
Investors who are confident in the future of the economy and the success the company’s restructuring plans may consider United Natural Foods a stock with a high value. The price-to earnings (P/E ratio) for fiscal 2024, is approximately 8x. This represents a 50% discount to Sysco’s and a 25% reduction to United Natural Foods’ five-year average. SpartanNash is trading at a higher P/E than other small-cap competitors like Anderson’s and Chefs’ Warehouse. Wall Street, however, is cautious and prefers waiting for signs of improvement before recommending United Natural. Eight firms actively covering the stock rate it currently as a Hold.
Analysts’ opinions may shift if United Natural Foods executes Sysco’s playbook successfully and achieves higher-than-expected results. This could lead multiple expansions, and a more positive outlook for the business. Investors need to keep an eye out for analyst recommendations and company performance before making any major decisions.
