United Natural Foods (UNFI) fiscal Q1 return to volume growth was driven by a "strong performance" in its natural, organic, and specialty categories, as well as new customer wins, UBS Securities said in a note on Wednesday.
"We believe this is promising as it comes at a time when the company is also optimizing its customer portfolio and letting go of some non-profitable customers," the firm added.
UBS said that the company's supernatural segment comprising Whole Foods saw robust demand, consistent with broader trends in the natural and organic market. Meanwhile, the Chains segment revenue grew due to an increasing consumer trend toward healthy eating.
Despite these gains, UBS noted challenges in United Natural's independent and retail segments where customers increasingly opt for lower-cost options such as mass merchants and discount retailers.
The company's gross margin pressure, partly due to its customer and product mix and promotional investments in retail, is expected to continue. However, efficiency gains and shrink improvements offer some mitigation, according to the note.
UBS raised its price target on United Natural's stock to $31 from $21 with a neutral rating.
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