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Here's Why United Natural (UNFI) Should be Dumped Right Now

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United Natural Foods, Inc. (UNFI - Free Report) has been struggling with a tough retail environment, laden with stiff competition and an aggressive promotional environment. Such factors have been denting the company’s top line. We note that sales have been lagging the Zacks Consensus Estimate for 10 straight quarters now. 

With these aspects in mind, let’s now have a look into factors which have been impacting the company’s performance.

Grocery Market Headwinds Impacting Performance

The grocery industry is currently facing a tough time. The industry has been grappling with challenges like stiff competition, tight margins and aggressive promotional environment. Traditional grocery companies are facing competition from rival companies, which are strengthening their franchises and are offering alternative outlets for food and other staples. Customers are also becoming more inclined toward private label products as they are low-cost alternatives to national brands, which are hurting the food companies.

Such industry-wide headwinds are also expected to dent the company’s top line and margins, going ahead. The company’s gross margins have also remained challenged owing to stiff competition both in retail and wholesale.

The ongoing industry challenges have also taken a toll upon the company’s share price performance. Over the past six months, shares of the company have plunged 23.7%, wider than the industry’s decline of 8.5%.

Will Initiatives Spark a Turnaround?

United Natural is focusing on acquisitions in order to expand presence in key urban markets as well as develop new organic brands, backed by increased resource strength and operating scale. The recent acquisitions of Haddon House and Gourmet Guru have aided the company to improve sales. Further, the company has also been working toward improving its operational efficiencies through its restructuring plan that was announced in the second quarter of fiscal 2017.

While United Natural is benefiting from its acquisitions and restructuring initiatives, the same have not been able to completely offset the disadvantages arising out of the difficult grocery environment, leading to a soft sales trend.  Owing to such headwinds, management lowered its sales guidance and expects the same in the range of $9.29-$9.34 billion for fiscal 2017, which is lower than the earlier projection of $9.38-$9.46 billion.

Given the greater disadvantages associated with the company, it currently carries a Zacks Rank # 4 (Sell) and is therefore not a favorable pick for investors.

Do Consumer Staples Stocks Interest You? Check These

Investors may also consider better-ranked stocks such as Constellation Brands, Inc. (STZ - Free Report) , Nu Skin Enterprises, Inc. (NUS - Free Report) and Ingredion Incorporated (INGR - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Constellation Brands delivered an average positive earnings surprise of 11.7% in the trailing four quarters. It has a long-term earnings growth rate of 18.2%.

Nu Skin delivered an average positive earnings surprise of 10.8% in the trailing four quarters. It has a long-term earnings growth rate of 8.7%.

Ingredion Incorporated delivered an average positive earnings surprise of 5.1% in the trailing four quarters. It has a long-term earnings growth rate of 11%.

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