UNFI Posts Lower-Than-Expected Q3 Net Sales

United Natural Foods Inc. (UNFI) reported for the third quarter of its fiscal 2017 ended April 29 a net sales increase of 11.1 percent, or $237.5 million, to $2.37 billion, from $2.13 billion in the year-ago period; a gross margin increase of 34 basis points to 15.46 percent from the same period last fiscal year; and earnings per diluted common share of 72 cents, a 5.2 percent drop from last year, and adjusted earnings per diluted common share of 77 cents, flat compared with Q3 of fiscal 2016.

Additionally, net income for Q3 of fiscal 2017 declined $1.7 million, or 4.4 percent, to $36.6 million, from $38.3 million for the year-ago period, and the company completed the integration of Haddon House Food Products into its distribution business during the quarter.

UNFI admitted that its net sales were lower than expected, spurred by broad-based food retail softness, the rationalization of business in conjunction with margin enhancement initiatives and a lack of inflation. Net sales were positively affected, however, by the acquisitions of Haddon House, Global Organic/Specialty Source Inc., Nor-Cal Produce Inc. and Gourmet Guru Inc.

The improvement in gross margin was driven by acquisitions and margin improvement initiatives, partly offset by a lack of inflation and competitive pricing pressure.

“I am pleased with our team’s ability to execute and manage our business well through a deflationary and challenging retail environment,” noted UNFI Chairman and CEO Steven L. Spinner. “Over the past few months, we have worked diligently and made progress against our strategic initiatives, such as driving greater efficiencies across our internal operations, integrating our acquisitions and having our united sales team sell across all of UNFI’s brands.”

Year to date, net sales for the 39-week period ended April 29 came to $6.9 billion, a 10.8 percent increase over the comparable prior fiscal year period. Adjusted net sales for the period rose 11.9 percent versus last year, which the company attributed to the acquisitions noted above.

Gross margin for the first 39-week period grew 36 basis points to 15.29 percent, compared to 14.93 percent for the year-ago period, which UNFI said was because of the favorable impact of its acquisitions and margin improvement initiatives, partly offset by a lack of inflation and competitive pricing pressure.

Net income for the period edged up $0.2 million, or 0.2 percent, to $91.3 million, or $1.80 per diluted share, from $91.1 million, or $1.81 per diluted common share last year, while adjusted earnings per diluted share came to $1.85, a 2.1 percent drop from $1.89 in the same period last year.

As an extension to the restructuring plan it revealed in March UNFI said it expected to incur further restructuring charges of between $3.0 million and $4.0 million, before taxes, during the fourth quarter of fiscal 2017, primarily related to severance and other employee separation costs driven by its recently completed integration activities in connection with several acquired businesses.

The company also revised its fiscal 2017 guidance, saying that it expects net sales in the range of approximately $9.29 billion to $9.34 billion, an increase of about 9.7 percent to 10.3 percent over fiscal 2016, compared with its previous guidance of $9.38 billion to $9.46 billion.

Celebrating its 40-year anniversary this year, Providence, R.I.-based UNFI carries and distributes more than 100,000 products to 43,000-plus customer locations throughout the United States and Canada. United Natural Foods serves a wide variety of sales channels, including conventional supermarket chains, natural product superstores, independent retailers, ecommerce and foodservice.

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