Why Roundy's Shares Dropped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shareholders of grocery store operator Roundy's (NYS: RNDY) are in desperate need of a cleanup in aisle four following the company's first-quarter earnings report, which had shares down as much as 20% earlier in the trading day.
So what: Apparently, someone forgot to double-bag the results. For the quarter, Roundy's reported a 2.4% decline in sales to 938.2 million as same-store sales fell 2.1%. The company actually cited the Green Bay Packers' early playoff exit as part of the reason its results were weak. Profits came in at $0.06 versus $0.29 in the year earlier and are lower because of an $8.4 million debt repayment. The big news, however, was Roundy's forecast that sales would increase 2.5% to 3.5% but that same-store sales would continue to decline by 0.5% to 1.5%. Increased competition and a weak spending environment appear to be the primary culprits hurting its existing stores.
Now what: Grocery stores are a low-margin business and there isn't much room, or forgiveness, in investors' hearts for blaming weakness on the Green Bay Packers. Traditional grocers are having a rough go of things as consumers are either trading down to dollar stores like Family Dollar (NYS: FDO) , which reported a 4.5% rise in comparable-store sales in late March thanks to increased traffic, or trading up to organic food chains like Whole Foods Market (NYS: WFM) , which just recently reported a nearly 14% rise in revenue. Until Roundy's can address its high debt situation and get its existing stores growing again, I don't have any interest in the stock, even after today's large drop.
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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Whole Foods Market. Motley Fool newsletter services have recommended buying shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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