United Natural Foods Q2 Net Sales Up by Double Digits

Grocery wholesaler United Natural Foods reported a strong second quarter of fiscal 2018, which ended Jan. 27, upping its guidance for the year.

United Natural Foods Inc.’s (UNFI) net sales for its Q2 of fiscal 2018 ended Jan. 27 increased 10.6 percent to $2.53 billion, compared with $2.29 billion for the same period last fiscal year. The company’s net income for Q2 grew $25 million, or 98.1 percent, to $50.5 million, or 99 cents per diluted common share, from $25.5 million, or 50 cents per diluted common share, for the second quarter of fiscal 2017, while adjusted earnings per diluted common share were 71 cents, excluding a provisional one-time benefit related to U.S. tax reform and restructuring and impairment charges.

The company’s Q2 adjusted EBITDA was $73.3 million, an 8.5 percent rise from $67.5 million last year.

“Our business performed well during the quarter, and I’m proud of both our results and our people,” said Steven L. Spinner, chairman and CEO of the Providence, R.I.-based wholesaler. “While the retail landscape continues to change, I believe UNFI is well positioned to win. Consumer interest in better-for-you products has never been greater than it is today, and UNFI is an important connector between manufacturers, brick-and-mortar retailers, and ecommerce customers. Our outlook for the remainder of fiscal 2018 remains strong.”

Gross margin for the quarter was 14.70 percent, however, a 39-basis-point decline from the year-ago period. UNFI attributed the decrease mainly to a shift in customer mix in which sales growth with lower-margin customers outpaced growth with other customers, coupled with a rise in inbound freight costs.

In common with other grocery industry companies, UNFI expects that the Tax Cuts and Jobs Act, enacted in December 2017, will have a positive effect on both its reported and adjusted effective rates in fiscal 2018. In Q2, for example, the company logged a provisional one-time noncash net tax benefit of $21.9 million, as well as a cash and earnings benefit of $7.3 million, contributing about 14 cents per diluted common share, thanks to the passage of the legislation. Excluding the provisional one-time net tax benefit, UNFI’s adjusted effective tax rate fell to 21.6 percent for Q2 of fiscal 2018.

Fiscal 2018 Year to Date

The company’s net sales for the 26-week period ended Jan. 27 came to $4.99 billion, a 9.2 percent rise over the comparable prior fiscal year period. Net income grew $26.3 million, or 48.1 percent, to $81 million, or $1.59 per diluted common share, from $54.7 million, or $1.08 per diluted common share for the year-ago period. Excluding the restructuring and impairment charges and the provisional one-time tax benefit resulting from the passage of the Tax Act, adjusted earnings per diluted common share totaled $1.31, an increase of 23 cents, or 21.3 percent, from last fiscal year.

Adjusted EBITDA for the first 26 weeks of fiscal 2018 came to $150.8 million, a 6.1 percent from the $142.1 million reported in the same period last fiscal year.

Gross margin dropped 39 basis points to 14.82 percent from 15.21 percent last fiscal year, for the same reasons that UNFI gave for the quarterly gross margin decline.

Based on its performance to date, the impact of tax reform and the outlook for the rest of fiscal 2018, UNFI has raised its guidance previously provided last December. For fiscal 2018, ending July 28, 2018, the company now estimates net sales in the range of about $10.01 billion to $10.16 billion, an 8 percent to 9.5 percent over fiscal 2017 net sales, compared to the previous estimate of $9.84 billion to $10 billion. As for earnings per diluted common share for fiscal 2018, UNFI now estimates a range of about $3.27 to $3.35, an approximately 27.7 percent to 30.9 percent rise over fiscal 2017 earnings per diluted common share of $2.56, versus the previous estimate of $2.72 to $2.80.

UNFI carries and distributes 110,000-plus products to more than 43,000 customer locations across the United States and Canada. The company serves a wide variety of sales channels, including conventional supermarket chains, natural product superstores, independent retailers, ecommerce and food service.