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Roundy's (NYSE:RNDY) delivered disappointing second quarter results on August 6 as same-store sales and profit margins fell. Management also provided weak full year guidance, prompting a flurry of negative estimates revisions from analysts. This sent the stock to a Zacks Rank #5 (Strong Sell).

Roundy's operates 148 grocery stores and 97 pharmacies under the Pick 'n Save, Copps, Metro Market and Mariano's retail banners in Wisconsin and Illinois. The company was founded in Milwaukee in 1872.

Second Quarter Results

Roundy's reported its second quarter results after the bell on August 6. Adjusted earnings per share came in at -$0.06, which was well below the Zacks Consensus Estimate of +$0.09. It was also significantly below the +$0.30 it earned in the same quarter last year.

Net sales from continuing operations rose 12% to $971.9 million, but this was driven by new store additions. Same-store sales actually fell -2.2%.

The gross profit margin contracted from 26.8% to 26.4% due to increased shrink. Meanwhile, operating and administrative expenses increased from 23.5% to 25.6% of net sales due in part to negative operating leverage and increased start-up labor costs and higher occupancy costs in new or acquired Illinois stores.

Estimates Plummeting

Looking ahead to the rest of fiscal 2014, management provided weak guidance. The company expects same-store sales growth of -2.75% to -3.5% and adjusted loss per share between -$0.04 and -$0.16 for fiscal 2014. This was well below the Zacks Consensus Estimate calling for EPS of +$0.22. As you might expect, analysts revised their estimates significantly lower for both this year and next year.

This sent the stock to a Zacks Rank #5 (Strong Sell).

The 2014 Zacks Consensus Estimate is now -$0.11. And the 2015 consensus has fallen from $0.42 to $0.21 over the same period.

Valuation

Shares of Roundy's are down around -25% since the Q2 report. But the valuation picture still doesn't look attractive. The stock trades at 39x 12-month forward earnings and 18x the 2015 consensus.

The company's tangible book value is negative too as it has a substantial amount of goodwill and debt on its balance sheet.

The Bottom Line

With negative same-store sales, falling profit margins, weak earnings momentum and pricey valuation, investors should consider avoiding Roundy's until it starts to show signs of a turnaround.

Disclosure: None

Source: Zacks' Bear Of The Day: Roundy's