United Natural Foods reports fiscal Q2 net earnings of US$22.6M, up 3% from year-ago period as revenue rises 12% to US$1.45B

Nevin Barich

PROVIDENCE, Rhode Island , February 26, 2013 (press release) – Highlights

Net income in the second quarter of fiscal 2013 increased 2.8% over the prior year comparable quarter to $22.6 million

Diluted EPS was $0.46 for the second quarter of fiscal 2013, an increase of 2.2% compared with diluted EPS of $0.45 for the second quarter of fiscal 2012

Impact of the Auburn, Washington labor action during the second quarter of fiscal 2013 was additional pre-tax operating expenses of $3.6 million, or $0.04 per diluted share

Operating margin was 2.7% of net sales for the second quarter of fiscal 2013. Adjusted for the effect of the Auburn, Washington labor action, operating margin was 2.9% of net sales, an increase of 4 basis points compared with the second quarter of fiscal 2012

United Natural Foods, Inc. (NASDAQ:UNFI) (the “Company”) today reported net sales for the second quarter of fiscal 2013 ended January 26, 2013 of $1.45 billion, an increase of 12.3%, or $158.8 million, over $1.29 billion in net sales recorded in the second quarter of fiscal 2012.

“We were extremely focused on bringing resolution to our labor dispute in Auburn, Washington during the second quarter. By working together, we were able to reach a fair and equitable agreement. Our associates are back to work and the facility is back at full capacity,” said Steven Spinner, UNFI’s President and Chief Executive Officer. “We continue to move forward together as a Company and our results demonstrate our sustained sales growth, expense control and execution.”

Gross margin was 16.7% for the second quarter of fiscal 2013, unchanged from the first quarter of fiscal 2013 and representing a 62 basis point decline from gross margin of 17.3% for the second quarter of fiscal 2012. Gross margin for the second quarter of fiscal 2013 was impacted by the continued shift in customer mix to the conventional supermarket and supernatural channels.

Total operating expenses were 14.0% as a percentage of net sales for the second quarter of fiscal 2013, a decrease of 40 basis points compared with the second 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 $3.6 million in operating expenses related to the labor action at the Company’s Auburn, Washington facility. Excluding the Auburn, Washington labor action costs, operating expenses for the second quarter of fiscal 2013 were 13.8% of net sales, a decrease of 65 basis points compared with the second quarter of fiscal 2012, which were 14.4% of net sales.

Operating income for the second quarter of fiscal 2013 as a percentage of net sales decreased 21 basis points to 2.7% compared to the second quarter of fiscal 2012. Adjusting for the additional costs related to the labor action in Auburn, Washington, operating income for the second quarter of fiscal 2013 was 2.9% of net sales, an increase of 4 basis points compared to the second quarter of fiscal 2012. Net income for the second quarter of fiscal 2013 increased by $0.6 million, or 2.8%, to $22.6 million, or $0.46 per diluted share including the negative impact of $0.04 per diluted share related to the Auburn, Washington labor action, from $22.0 million, or $0.45 per diluted share, for the second quarter of fiscal 2012.

First Half Fiscal 2013 Summary

Net sales for the first half of fiscal 2013 totaled $2.9 billion, a 14.0% increase over the comparable prior fiscal year period. Gross margin was 85 basis points lower than the comparable prior year period, at 16.7% of net sales for the six months ended January 26, 2013. The decline in gross margin was attributed to increased inbound freight costs throughout the first half of fiscal 2013 as well as the Company’s focus in the first quarter of fiscal 2013 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 comparable prior year period.

At 14.1% of net sales, total operating expenses for the six months ended January 26, 2013 were 96 basis points lower than the comparable prior fiscal year period. Total operating expenses increased by $25.4 million, or 6.7%, to $402.1 million, compared with the six months ended January 28, 2012, which had operating expenses of $376.7 million. Total operating expenses for the first half of fiscal 2013 also included approximately $4.6 million in expenses related to the labor action at the Company’s Auburn, Washington facility. Excluding these incremental expenses, operating expenses were $397.5 million, which was 112 basis points as a percentage of net sales below the prior year’s comparable period. Total operating expenses for the first half of fiscal 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 first half of fiscal 2012 included $5.2 million in expenses related to the restructuring and divestiture of the Company’s conventional non-foods and general merchandise lines of business and $1.6 million in expenses related to the onboarding of a new national customer.

Operating income as a percentage of net sales was 2.6% for the first half of fiscal 2013 compared with 2.5% for the same period in fiscal 2012. Excluding $1.6 million related to the termination of a licensing agreement and the write-off of the associated intangible asset in the first half of fiscal 2013 and $6.8 million related to restructuring the Company’s lines of business and the onboarding of a new national customer in the first half of fiscal 2012, operating expenses as a percentage of net sales were 14.0% for the first half of fiscal 2013, a decrease of 75 basis points compared to 14.8% for the first half of fiscal 2012.

Net income for the first half of fiscal 2013 increased by $7.0 million, or 18.8%, to $44.2 million, or $0.89 per diluted share, from $37.2 million, or $0.76 per diluted share, for the first half of fiscal 2012.

“UNFI continued its drive towards increasing operational excellence during the second quarter of fiscal 2013, realizing higher sales while managing our cost structure despite the quarter’s labor related expenses,” added Mr. Spinner. “Our sustained top-line growth reflects strong consumer demand being fueled by more people maintaining healthier lifestyles. We expect this trend to continue for the foreseeable future and will continue with our mission to supply natural and organic products that meet their growing needs.”

Updated Fiscal 2013 Guidance

Based on UNFI’s fiscal 2013 performance to date and the current outlook for the remainder of the fiscal year, the Company is narrowing and lowering its GAAP earnings per diluted share guidance for fiscal 2013 to range from approximately $2.12 to $2.18, an increase of approximately 14.0% to 17.2% over fiscal 2012 GAAP diluted earnings per share of $1.86. UNFI previously provided, on September 11, 2012, GAAP earnings guidance of approximately $2.14 to $2.24 per diluted share. The Company expects to incur approximately $0.6 million to $1.0 million in additional expenses related to the Auburn, Washington labor issue in the third quarter of fiscal 2013. 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”), UNFI expects diluted earnings per share for fiscal 2013 in the range of approximately $2.15 to $2.21 per share, which represents an increase of approximately 10.8% to 13.9% over 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.

Conference Call & Webcast

The Company’s second quarter fiscal 2013 conference call and audio webcast will be held at 10:00 a.m. EST on February 26, 2013. 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.

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