"With 2017 US stock market bears in a world of hurt again today (fresh all-time highs), we're seeing some of 2017's losers bounce to lower-highs on decelerating volume," writes Hedgeye CEO Keith McCullough. "One of those losers is United Natural Foods (UNFI) which remains on Howard Penney's Best Ideas Institutional SELL List."
Below is an excerpt from a recent institutional research note written by Penney on UNFI:
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"Looking back at UNFI's recent results, we will skip over the pleasantries and get straight down to why UNFI is still a best idea short for us. UNFI continues to harp on the benefit of “new unit openings” as a key driver of growth, while we continue to see slowing new unit growth and closures from critical customers such as Whole Foods (WFM), which makes up 33.7% of their sales. We have been very complimentary of what WFM is doing to improve their future prospects; slow unit growth further, close underperforming stores and category management to get their SKU count and pricing right. In the future there will be a time where the downside of the WFM’s business for UNFI has hit rock bottom, but where that bottom is has not been fully appreciated by the markets at this time. WFM isn’t alone; as KR and SFM (both UNFI customers) among others are also reducing unit growth expectations. Jana’s involvement in WFM also raises some particular risks to the WFM-UNFI agreement. We do not subscribe to the thought that WFM would completely exit their agreement with UNFI, they don’t have the infrastructure to do so, but there could be opportunity for cost savings which would eat into UNFI’s margin." |
Click here to read Penney's original Investing Ideas stock report on the company.
