United Natural Foods Q2 Net Sales Hit Record $2B
United Natural Foods Inc.’s (UNFI) fiscal year 2015 Q2 sales of $2.02 billion were a record for the company and an increase of 22.5 percent from the same period last year. Providence, R.l.-based UNFI acquired Tony’s Fine Foods in Q4 2014, and Tony’s contributed about $232 million to the quarter’s sales.
“In the second quarter fiscal 2015 UNFI surpassed $2 billion in quarterly net sales for the first time in its history, continuing to demonstrate strong demand for our products and services,” said Steven Spinner, president and CEO. “We also faced several challenges during the quarter highlighted by weakness in the Canadian dollar and a non-recurring reduction to net sales associated with a contractual obligation to a customer that we identified and brought to their attention. Despite these challenges we delivered on an adjusted basis operating income growth of over 17 percent during the quarter and 21 percent year to date.”
Operating income for the quarter was up 1.3 percent to $49.5 million while net income decreased 0.4 percent to $27.8 million. Total operating expenses were 12.4 percent of net sales and increased nearly 14 percent to $249.7 million. Much of the increase was attributed to additional costs associated with higher sales volume as well as restructuring costs due to facility closings and startup.
“During the quarter we continued to improve our business through increasing capacity and network optimization. Specifically, we opened two new distribution centers and closed an underperforming location in Quebec Canada, merging it into our Montreal facility. We’ve made long-term strategic decisions to ensure that our growth rate continues despite the short-term cost,” Spinner added.
Fiscal 2015 Year to Date
Net sales for the six months ended Jan. 31, 2015 totaled $4.01 billion, a 23.4 percent increase over the comparable prior year. Gross margin decreased 119 basis points to 15.4 percent compared to the six months ended Feb. 1, 2014. This decrease was primarily due to the dilution from Tony's net sales, a shift in mix of sales, unfavorable foreign exchange for the company's Canadian business, and the non-recurring item noted above.
At 12.7 percent of net sales, total operating expenses for the six months ended Jan. 31, 2015 were 89 basis points lower than the comparable prior fiscal year period. Total operating expenses increased $67.8 million, or 15.3 percent, to $510.3 million from $442.5 million for the six months ended Feb. 1, 2014. The six months ended Jan. 31, 2015 included startup costs of approximately $1.8 million related to the company's Hudson Valley, N.Y., and Auburn, Calif., facilities; $0.6 million associated with the write-off of an intangible asset related to the company's Canadian division, which was acquired in June 2010; a $0.2 million restructuring charge related to the closure of the company's Aux Mille facility located in Quebec, Canada; and approximately $0.3 million in costs related to UNFI’s acquisition of Tony's.
Operating income for the six months ended Jan. 31, 2015 increased 11.4 percent, or $11 million, to $107.9 million from $96.9 million for the six months ended Feb. 1, 2014. Operating income as a percentage of net sales decreased 29 basis points to 2.7 percent compared to the same period last fiscal year. Adjusted operating income increased $20.4 million, or 21 percent, to $117.2 million for the six months ended Jan. 31, 2015, excluding the reduction in net sales noted above.
Net income for the six months ended Jan. 31, 2015 increased $5.2 million, or 9.3 percent, to $60.9 million, or $1.21 per diluted share, from $55.7 million, or $1.12 per diluted share for the six months ended Feb. 1, 2014. Adjusted net income for the six months ended Jan. 31, 2015 increased $10.8 million, or 19.4 percent, to $66.5 million, or $0.21 per diluted share, to $1.33 per diluted share excluding the reduction in net sales noted above.
Updated Fiscal 2015 Guidance
Based on UNFI's performance to date and the current outlook for the remainder of fiscal 2015, UNFI is updating its previous guidance provided on Sept. 17, 2014, to reflect the continued negative impact of the decline in the Canadian dollar on the company's results and the impact of the $7.7 million reduction in net sales recorded in Q2 2015. For fiscal 2015, ending Aug. 1, 2015, the company expects net sales in the range of approximately $8.19 to $8.29 billion, an increase of about 20.5 percent to 22 percent over fiscal 2014. UNFI estimates GAAP earnings per diluted share for 2015 in the range of approximately $2.81 to $2.90 per share, an increase of approximately 11.5 percent to 15.1 percent over fiscal 2014 GAAP earnings per diluted share of $2.52. Adjusted for the impact of the $7.7 million reduction in net sales, adjusted earnings per diluted share for fiscal 2015 is expected to be in the range of $2.90 to $2.99, an increase of approximately 15.1 percent to 18.7 percent over fiscal 2014 GAAP earnings per diluted share of $2.52.