United Natural Foods, the primary distributor to high-end grocery chain Whole Foods Market, spooked investors by disclosing sales and profit targets that badly missed Wall Street’s expectations.
The company, which serves as the primary food distributor to Whole Foods (WFM), on Monday outlined that preliminary fiscal second-quarter net sales would total around $2.04 billion, an increase of just 1.5% from the prior-year period. Adjusted profit for the quarter was expected between 47 cents to 49 cents.
Analysts had projected $2.07 billion in sales on a 61-cent profit. Final results for the quarter will be released on March 7.
The troubles at United Natural Foods (UNFI) comes at a tough and competitive time for the grocery store industry, in particular for the natural and organic food purveyors that are being challenged by offerings at big box retailers like Walmart (WMT). Whole Foods has faced sales challenges and that has had an impact on United Natural Foods’ business, as that supermarket chain is the distributor’s largest customer.
Smaller rival Sprouts Farmers Market (SFM), also a United Natural Foods client, has also faced woes as it and other smaller grocery store peers like Fairway (FWM) struggle to compete in an industry that traditionally commands razor-thin margins and high competition. With more chains moving to sell natural and organic foods, it makes it harder for specialty stores that used to command a price premium to compete.
Separately on Monday, United Natural Foods said it agreed to pay $217.5 million in cash to acquire Haddon House Food Products, a smaller distributor of natural and organic foods sold across the eastern states. United Natural Foods CEO Steven Spinner said he expected Haddon House’s products would play “an important role in our ongoing strategy to build out UNFI’s gourmet and ethnic product categories across the country.”