UNFI Q3 Net Sales Up 12.8%

For its third quarter of fiscal 2013, United Natural Foods Inc. (UNFI) has posted a net sales increase of 12.8 percent, or $178.2 million, to $1.57 billion, compared with $1.39 billion in the year-ago period. Operating income grew 13.8 percent to $55.4 million, excluding $1.5 million in expenses related to a labor action at the company’s Auburn, Wash., facility, or 10.7 percent to $53.9 million on a GAAP basis, verses $48.6 million last year, and net sales rose 8.9 percent to $31.6 million, from $29.0 million in the year-ago period.

The “increased top- and bottom-line results in the third quarter of fiscal 2013 [underscore] the continued demand for our products and services,” noted Steven Spinner, president and CEO of Providence, R.I.-based UNFI. “In the quarter, our team focused on driving further operational excellence through the execution of our initiatives to increase leverage of UNFI’s cost structure.”

Gross margin was 16.8 percent for the third quarter of fiscal 2013, a seven-basis-point rise from the second quarter of fiscal 2013 but an 83-basis point decline from the year-ago period. According to UNFI, gross margin for the third quarter of fiscal 2013 was mainly affected by the ongoing shift in customer mix to the conventional supermarket and supernatural channels, and an increase in inbound freight expenses.

Total operating expenses were 13.4 percent as a percentage of net sales for the third quarter of fiscal 2013, a decrease of 76 basis points from last year. UNFI attributed this improvement to its continuing initiatives to boost productivity and lower operating expenses throughout the organization, although they were partially offset by the operating expenses related to the Auburn labor action. Total operating expenses grew $13.2 million, or 6.8 percent, to $209.1 million in the third quarter of fiscal 2013, compared with $195.9 million last year, which the company said was primarily due to higher sales volume.

Operating income as a percentage of net sales for the third quarter of fiscal 2013 dropped six basis points to 3.4 percent, compared with the third quarter of fiscal 2012. Net income for the third quarter of fiscal 2013 increased $2.6 million, or 8.9 percent, to $31.6 million, or 64 cents per diluted share, from $29.0 million, or 59 cents per diluted share, for the year-ago period. Adjusted for the Auburn labor action costs, operating income as a percentage of net sales grew by four basis points to 3.5 percent versus to the third quarter of fiscal 2012.

For the nine months ended April 27, net sales came to $4.4 billion, a 13.6 percent increase compared with the year-ago period. Gross margin for the period was 16.7 percent, an 84-basis-point decrease compared with last year. UNFI attributed the decline in gross margin to higher inbound freight costs throughout the first nine months of fiscal 2013 as well as the company’s focus on maintaining higher service levels despite more supplier out-of-stocks. Additional factors contributing to UNFI’s lower gross margin in the first nine months of fiscal 2013 were the continued shift in customer mix toward the supernatural and conventional supermarket channels, and customers at conventional supermarkets who are migrating to limited-service programs, according to the company.

Total operating expenses for the nine months ended April 27, were 13.8 percent of net sales or 89 basis points lower than last year. Total operating expenses went up $38.6 million, or 6.7 percent, to $611.2 million, versus $572.6 million for the year-ago period. Total operating expenses for the nine months ended April 27 included about $6.1 million in expenses related to the Auburn labor action. Excluding these expenses, operating expenses were $605.1 million, a 103-basis-point decrease as a percentage of net sales, compared with last year.

Total operating expenses for the nine months ended April 27 further included about $1.6 million related to the termination of a licensing agreement and the write-off of the associated intangible asset. Total operating expenses for the year-ago period included $5.3 million for the restructuring and divestiture of the UNFI’s conventional nonfood and general merchandise lines of business, and $1.7 million for the onboarding of a national customer.

Operating income as a percentage of net sales was 2.9 percent for the nine months ended April 27, a five-basis-point increase from the same period last year. Excluding the $1.6 million in expenses related to the write-off of an intangible asset in the nine months ended April 27, and the $6.9 million for the restructuring of the company’s conventional nonfood and general merchandise lines of business and the onboarding of a new national customer in the nine months ended April 28, 2012, operating expenses as a percentage of net sales were 13.8 percent for the first nine months of fiscal 2013, a decline of 74 basis points, versus 14.5 percent for the year-ago period.

Net income for the nine months ended April 27 rose $9.6 million, or 14.5 percent, to $75.8 million, or $1.53 per diluted share, from $66.2 million, or $1.35 per diluted share, last year.

“As we begin the final quarter of fiscal 2013, we are opening two new distribution facilities,” said Spinner. “Our Albert’s Organics division recently completed a successful relocation to a new, larger facility in New Jersey that nearly doubled their existing warehouse space, positioning the division to further capitalize on the demand for organic produce and perishables. In June, we expect to consolidate our four existing locations in Aurora, Colo., into a single new 500,000-square-foot broadline facility in Aurora.”

UNFI carries and distributes more than 65,000 products to more than 27,000 customer locations throughout the United States and Canada. The company serves a wide variety of retail formats, including conventional supermarket chains, natural product superstores, independent retail operators and the foodservice channel.