Why Roundy's (RNDY) Stock Is Down Today

NEW YORK (TheStreet) -- Roundy's (RNDY) was falling -23.5% to $4.94 Thursday after missing analysts' estimates for earnings in the first quarter.

For the first quarter the grocery store operator reported earnings of 1 cent a share, missing the Capital IQ Consensus Estimate of 3 cents a share by 2 cents. Revenue grew 1.7% from the year-ago quarter to $1 billion. Analysts expected revenue of $1.01 billion for the quarter.

"During the first quarter of 2014, we continued to see softness in our core markets," chairman, president, and CEO Robert A. Mariano said in a press release. "Competitive pressure, weak economic growth and weather related issues affected our core markets in the quarter. Despite difficult same-store sales comparisons in the first quarter, we remain steadfast with our Milwaukee market renewal initiatives as we continue to implement strategic changes in select core markets."

Roundy's also announced that it entered an agreement to sell 18 of its Rainbow stores for $65 million. The deal is expected to close in the third quarter. The company is looking for additional buyers for the remaining nine Rainbow locations.

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TheStreet Ratings team rates ROUNDY'S INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate ROUNDY'S INC (RNDY) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, weak operating cash flow, generally disappointing historical performance in the stock itself and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is very high at 3.28 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.36, which clearly demonstrates the inability to cover short-term cash needs.
  • Net operating cash flow has decreased to $41.08 million or 28.37% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • In its most recent trading session, RNDY has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The gross profit margin for ROUNDY'S INC is currently lower than what is desirable, coming in at 28.60%. Regardless of RNDY's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.86% trails the industry average.
  • ROUNDY'S INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, ROUNDY'S INC turned its bottom line around by earning $0.76 versus -$1.54 in the prior year. For the next year, the market is expecting a contraction of 53.9% in earnings ($0.35 versus $0.76).
  • You can view the full analysis from the report here: RNDY Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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