United Natural Foods, Inc. Announces Third Quarter Fiscal 2013 Results

United Natural Foods, Inc. Announces Third Quarter Fiscal 2013 Results

Q3 Fiscal 2013 Net Sales Increased 12.8% Year-over-Year to $1.57 Billion


PROVIDENCE, R.I.--(BUSINESS WIRE)-- United Natural Foods, Inc. (NAS: UNFI) (the "Company") today reported financial results for the third fiscal quarter ended April 27, 2013.

Third Quarter Fiscal 2013 Highlights

  • Net sales increased 12.8%, or $178.2 million to $1.57 billion compared to $1.39 billion in the same period last fiscal year
  • Operating income increased 13.8% to $55.4 million, excluding the $1.5 million in expenses related to the Auburn labor action, or 10.7% to $53.9 million on a GAAP basis, compared to $48.6 million in the same period last fiscal year
  • Net income increased 8.9% to $31.6 million compared to $29.0 million in the same period last fiscal year

"We are pleased to report increased top and bottom line results in the third quarter of fiscal 2013, underscoring the continued demand for our products and services," said Steven Spinner, President and Chief Executive Officer. "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% for the third quarter of fiscal 2013, a 7 basis point increase from the second quarter of fiscal 2013 and an 83 basis point decline from gross margin of 17.6% for the third quarter of fiscal 2012. Gross margin for the third quarter of fiscal 2013 was impacted primarily by the continued shift in customer mix to the conventional supermarket and supernatural channels and an increase in inbound freight expenses.

Total operating expenses were 13.4% as a percentage of net sales for the third quarter of fiscal 2013, a decrease of 76 basis points compared with the third quarter of fiscal 2012. This improvement was driven by the Company's ongoing initiatives to enhance productivity and reduce operating expenses throughout the organization, which were partially offset by $1.5 million in operating expenses related to the labor action at the Company's Auburn, Washington facility. Total operating expenses increased $13.2 million or 6.8%, to $209.1 million in the third quarter of fiscal 2013 as compared to $195.9 million in the third quarter of fiscal 2012, primarily due to higher sales volume.

Operating income as a percentage of net sales for the third quarter of fiscal 2013 decreased 6 basis points to 3.4% compared to the third quarter of fiscal 2012. Net income for the third quarter of fiscal 2013 increased $2.6 million, or 8.9%, to $31.6 million, or $0.64 per diluted share, from $29.0 million, or $0.59 per diluted share, for the third quarter of fiscal 2012. Adjusted for the Auburn labor action costs, operating income as a percentage of net sales increased by 4 basis points to 3.5% compared to the third quarter of fiscal 2012.

The following table details the amounts and effect of the labor action costs related to the Company's Auburn, Washington facility described above and the reconciliation of total operating income including the labor action costs (GAAP basis), to total operating income excluding the labor action costs (non-GAAP basis) for the three months ended April 27, 2013:

  
Three months ended
April 27, 2013
(in millions)Pretax % of Sales
 
Operating income$53.93.44%
Labor action costs1.5 0.10%
Operating income, excluding labor action costs$55.4 3.54%
 

Fiscal 2013 Year to Date Summary

Net sales for the nine months ended April 27, 2013 totaled $4.4 billion, a 13.6% increase compared to the same period last fiscal year. Gross margin for the period was 16.7%, an 84 basis point decrease versus the comparable prior year period. The decline in gross margin was attributed to increased inbound freight costs throughout the first nine months of fiscal 2013 as well as the Company's focus on maintaining higher service levels despite greater supplier out of stocks. The continued shift in customer mix towards the supernatural and conventional supermarket channels, and to customers within the conventional supermarket channel who are migrating to limited service programs, also continued to negatively impact gross margin compared to the first nine months of fiscal 2012.

Total operating expenses for the nine months ended April 27, 2013 were 13.8% of net sales or 89 basis points lower than the comparable prior fiscal year period. Total operating expenses increased $38.6 million, or 6.7%, to $611.2 million, compared to $572.6 million for the nine months ended April 28, 2012. Total operating expenses for the nine months ended April 27, 2013 included approximately $6.1 million in expenses related to the labor action at the Company's Auburn, Washington facility. Excluding these expenses, operating expenses were $605.1 million, a 103 basis point decline as a percentage of net sales versus the same period last fiscal year. Total operating expenses for the nine months ended April 27, 2013 also included expenses of approximately $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 nine months ended April 28, 2012 included $5.3 million in expenses related to the restructuring and divestiture of the Company's conventional non-foods and general merchandise lines of business and $1.7 million in expenses related to the onboarding of a national customer.

The following table details the amounts and effect of the labor action costs related to the Company's Auburn, Washington facility described above and the reconciliation of total operating expenses including the labor action costs (GAAP basis), to total operating expenses excluding the labor action costs (non-GAAP basis) for the nine months ended April 27, 2013:

  
Nine months ended
April 27, 2013
(in millions)Pretax % of Sales
 
Total operating expenses$611.213.82%
Labor action costs(6.1)(0.14)%
Total operating expenses, excluding labor action costs$605.1 13.68%
 

Operating income as a percentage of net sales was 2.9% for the nine months ended April 27, 2013, an increase of 5 basis points over the same period in fiscal 2012. Excluding the $1.6 million of expenses related to the write-off of an intangible asset in the nine months ended April 27, 2013 and the $6.9 million of expenses related to the restructuring of the Company's conventional non-foods 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% for the first nine months of fiscal 2013, a decrease of 74 basis points compared to 14.5% for the same period in fiscal 2012.

Net income for the nine months ended April 27, 2013 increased $9.6 million, or 14.5%, to $75.8 million, or $1.53 per diluted share, from $66.2 million, or $1.35 per diluted share, for the nine months ended April 28, 2012.

"As we begin the final quarter of fiscal 2013, we are opening two new distribution facilities," added Mr. 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, Colorado into a single, new 500,000 square foot broadline facility in Aurora, Colorado."

Updated Fiscal 2013 Guidance

Based on UNFI's fiscal 2013 performance to date and the current outlook for the remainder of the 2013 fiscal year, the Company is raising its net sales guidance for the fiscal year ending August 3, 2013, to a range of $6.03 billion to $6.06 billion, which represents a 15.2% to 15.7% increase in total net sales over fiscal 2012. On September 11, 2012, the Company previously provided fiscal 2013 net sales guidance of a range of $5.88 billion to $5.98 billion, an increase of approximately 12.3% to 14.2% over fiscal 2012. The Company's fiscal 2013 is a 53 week fiscal year, with the additional week occurring in the fourth quarter of fiscal 2013. The Company expects that the additional week in fiscal 2013 will contribute approximately 2.2% to 2.3% to the Company's overall anticipated fiscal 2013 net sales growth.

The Company is also narrowing its GAAP earnings per diluted share guidance for fiscal 2013 to a range of approximately $2.12 to $2.14, an increase of approximately 14.0% to 15.1% compared to fiscal 2012 GAAP diluted earnings per share of $1.86. Excluding the impact of the $1.6 million write-off of the intangible asset, the $4.9 million unclaimed property settlement and the discrete tax benefit of $2.7 million primarily related to the reversal of reserves for uncertain tax positions (collectively, the "special items"), the Company expects diluted earnings per share for fiscal 2013 in the range of $2.15 to $2.17 per share, an increase of approximately 10.8% to 11.9% versus fiscal 2012 diluted earnings per share of $1.94 excluding the expenses associated with the restructuring and divestiture of the Company's conventional non-foods and general merchandise lines of business and the expenses related to the onboarding of a national customer. The Company previously provided GAAP earnings guidance of $2.12 to $2.18 per diluted share on February 26, 2013.

The following table details the amounts and effect of the special items and the reconciliation of net income and diluted earnings per share guidance, excluding the special items (non-GAAP basis), to net income guidance, including the special items (GAAP basis) for the fiscal year ending August 3, 2013:

   
Year Ended August 3, 2013Low Range High Range
(in thousands, except per share data)

Pretax Income

 

Net of Tax

 

Per
diluted share

Pretax Income

 

Net of Tax

 

Per
diluted share

 
Income, including special items:$168,559$104,891$2.12$170,803$106,010$2.14
 
Special items:

Expenses incurred as a result of the termination of a long-term licensing agreement and the write-off of the associated intangible asset (included in total operating expenses)

1,6299810.021,6299810.02

Expense incurred in connection with agreement to settle multi-state unclaimed property audit (included in other, net expenses)

4,9002,9500.064,9002,9500.06

Discrete tax benefit primarily related to the reversal of reserves for uncertain tax positions

(2,675)(0.05)(2,675)(0.05)
              
Income, excluding special items:  $175,088  $106,147  $2.15  $177,332  $107,266  $2.17 
 
 

Conference Call & Webcast

The Company's third quarter fiscal 2013 conference call and audio webcast will be held today, Tuesday May 28, 2013 at 4:30 p.m. EDT. The audio webcast of the conference call will be available to the public, on a listen-only basis, via the Internet at www.earnings.com or at the Investors section of the Company's website at www.unfi.com. The online archive of the webcast will be available on the Company's website for 30 days.

About United Natural Foods

United Natural Foods, Inc. (http://www.unfi.com) 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 food service channel. United Natural Foods, Inc. was ranked by Fortune in 2006 - 2010 and 2012 as one of its "Most Admired Companies," winner of the Supermarket News 2008 Sustainability Excellence Award, recognized by the Nutrition Business Journal for its 2009 Environment and Sustainability Award and chosen by Food Logistics Magazine as one of its 2012 Top 20 Green Providers.

For more information on United Natural Foods, Inc., visit the Company's website atwww.unfi.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding the Company's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. The risks and uncertainties which could impact these statements are described in the Company's filings under the Securities Exchange Act of 1934, as amended, including its annual report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on September 26, 2012, its quarterly reports on Form 10-Q filed with the SEC on December 6, 2012 and March 6, 2013, and other filings the Company makes with the SEC, and include, but are not limited to, the Company's dependence on principal customers; the Company's sensitivity to general economic conditions, including the current economic environment, changes in disposable income levels and consumer spending trends; the Company's ability to reduce its expenses in amounts sufficient to offset its increased focus on sales to conventional supermarkets and the resulting lower gross margins on the sales; the Company's reliance on the continued growth in sales of natural and organic foods and non-food products in comparison to conventional products; the Company's ability to timely and successfully deploy its new warehouse management system throughout its distribution centers; increased fuel costs; the Company's sensitivity to inflationary and deflationary pressures; the relatively low margins and economic sensitivity of the Company's business; the potential for disruptions in the Company's supply chain by circumstances beyond its control; the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise; the ability to identify and successfully complete acquisitions of other natural, organic and specialty food and non-food products distributors; and management's allocation of capital and the timing of capital expenditures.Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. The Company is not undertaking to update any information in the foregoing reports until the effective date of its future reports required by applicable laws. Any projections of future results of operations are based on a number of assumptions, many of which are outside the Company's control and should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced projections, but it is not obligated to do so.

Non-GAAP Financial Measures:To supplement its financial statements presented on a generally accepted accounting principles ("GAAP") basis, the Company has included in this press release non-GAAP financial measures (including operating expenses,operating income, net income and earnings per diluted share) in each case excluding certain unusual items as described in more detail within this press release.The reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are presented in the tables appearing below labeled "Consolidated Statements of Income with Adjustments" for the nine months ended April 27, 2013 and April 28, 2012.The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. The Company believes that presenting its operating expenses, operating income, net income and earnings per diluted share for the nine months ended April 27, 2013 and April 28, 2012 excluding these items facilitates making period-to-period comparisons and is a meaningful indication of its operating performance. The Company's management utilizes this non-GAAP financial information to compare the Company's operating performance during the 2013 fiscal year versus the comparable periods in the 2012 fiscal year and to internally prepared projections.

   
 

UNITED NATURAL FOODS, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands, except per share data)

 
 
Three months endedNine months ended
April 27,
2013
 April 28,
2012
April 27,
2013
 April 28,
2012
 
Net sales$1,566,217$1,388,023$4,421,957$3,892,361
Cost of sales1,303,220 1,143,492 3,681,334 3,207,570 
Gross profit262,997244,531740,623684,791
 
Operating expenses209,140195,856609,591567,330
Restructuring and asset impairment expenses  37  1,629  5,255 
Total operating expenses209,140  195,893  611,220  572,585 
 
Operating income53,857 48,638 129,403 112,206 
 
Other expense (income):
Interest expense1,5911,1113,9423,566
Interest income(133)(176)(474)(565)
Other, net121 (205)5,103 (37)
Total other expense, net1,579 730 8,571 2,964 
 
Income before income taxes52,27847,908120,832109,242
Provision for income taxes20,657 18,876 45,055 43,042 
Net income$31,621 $29,032 $75,777 $66,200 
 

Basic per share data:

Net income$0.64 $0.59 $1.54 $1.36 
 
Weighted average basic shares of common stock49,303 48,848 49,200 48,717 
 

Diluted per share data:

Net income$0.64 $0.59 $1.53 $1.35 
 
Weighted average diluted shares of common stock49,567 49,207 49,483 49,017 
 
 
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UNITED NATURAL FOODS, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share data)

 
 
April 27,
2013
July 28,
2012

ASSETS

Current assets:
Cash and cash equivalents$13,876$16,122
Accounts receivable, net364,411305,177
Inventories722,675578,555
Prepaid expenses and other current assets33,53221,654
Deferred income taxes

25,353

 25,353 
Total current assets1,159,847946,861
 
Property and equipment, net311,575278,455
 
Other assets: