Despite Lower Income, UNFI Continues 'Strong' Sales Growth in Q4

DAYVILLE, Conn. -- United Natural Foods, Inc. (UNFI) Friday reported net income of $13.1 million, or 31 cents per diluted share, for the fourth quarter of fiscal 2007 ended July 28, 2007, a rise of 3.5 percent from net income of $12.7 million, or 30 cents per diluted share in the year-ago period. The distributor posted fourth-quarter net sales of $706.8 million, an increase of $87.0 million, or 14.0 percent, from the $619.8 million of net sales recorded last year.

In the fourth quarter of fiscal 2007, several items negatively affected UNFI's operating expenses and net income, including $0.9 million in labor and other startup expenses related to the company's new distribution facilities in Sarasota, Fla. and Ridgefield, Wash., which are slated to open in September and December 2007, respectively. Higher health insurance expenses of $0.6 million and an increase in fuel costs of $0.9 million also contributed to the rise in operating expenses as a percentage of net sales vs. the third quarter of fiscal 2007.

Net sales for fiscal 2007 were $2.75 billion, a rise of 13.2 percent, or $320.7 million, over the $2.43 billion of net sales in fiscal 2006. Net income for the fiscal year grew $6.9 million, or 15.9 percent, to $50.2 million, or $1.17 per diluted share, from $43.3 million, or $1.02 per diluted share, last year.

Operating expenses during fiscal 2007 were adversely affected by about $2.2 million of losses related to the company's two Auburn, Calif. facilities, $0.7 million in fees and abandoned leasehold improvements, and $0.9 million in labor and other startup expenses connected with the Sarasota and Ridgefield DCs.

"Our sales growth in the 2007 fourth quarter remained strong and consistent with our forecast of 13 percent to 15 percent growth," said UNFI president and c.e.o. Michael Funk in a statement. "Our gross margins rebounded nicely during the quarter....However, during the fourth quarter we incurred startup operating costs associated with our new facilities in Florida and the Portland, Ore. area which will continue into the first quarter of fiscal 2008. Nonetheless, the transportation savings and operational efficiencies generated from these investments should benefit us during the second half of fiscal 2008 and into the future."

Funk added that UNFI's fiscal 2008 plan was expected to "deliver shareholders a 19 percent to 24 percent increase in earnings and top-line growth between 11 percent and 14 percent."

During a conference call on Friday, Funk noted that although UNFI was still waiting for Whole Foods to complete its analysis regarding closures of Wild Oats stores in the wake of Whole Foods' acquisition of Wild Oats, the distributor expected a certain amount of such closures, but anticipated only a minor impact on sales, since it believed customers would then shop at other stores serviced by the company. Funk further said that UNFI was retaining the Henry's Farmers Market business, although the Wild Oats banner is now being sold to Smart & Final.

Additionally, according to Funk, UNFI plans to open new facilities in the Mid-Atlantic, Southern California, and Texas over the next 18 months, and the company is gearing up to expand its sales in the supermarket and foodservice channels by upping its offering of branded products and services.

UNFI carries and distributes over 40,000 products to more than 18,000 customers across the United States. The company serves a wide variety of retail formats, among them conventional supermarket chains, natural product superstores, independent retail operators, and the foodservice channel.
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