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

Q2 FISCAL 2013 NET SALES INCREASED 12.3% YEAR OVER YEAR TO $1.45 BILLION

26 Feb, 2013, 07:30 ET from United Natural Foods, Inc.

PROVIDENCE, R.I., Feb. 26, 2013 /PRNewswire/ -- 

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. 

The following table details the amounts and effect of the labor action costs related to our Auburn, Washington facility described above and the reconciliation of total operating expenses and operating income, in each case including the labor action costs (GAAP basis), to total operating expenses and operating income, excluding the labor action costs (non-GAAP basis) for the three months January 26, 2013 compared to the prior year quarter:

Three months ended

January 26, 2013

January 28, 2012

(in millions)

Pretax

% of Sales

Pretax

% of Sales

Gross profit

$

241.7

16.72%

$

223.1

17.34%

Total operating expenses

202.7

14.02%

185.6

14.42%

Labor action costs

3.6

0.25%

Total operating expenses, excluding labor

action costs

199.1

13.77%

185.6

14.42%

Operating income, excluding labor action costs

$

42.6

2.95%

$

37.5

2.91%

*

* Total reflects rounding

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.

The following table details the amounts and effect of the labor action costs related to our 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 six months January 26, 2013:

Six months ended

January 26, 2013

(in millions)

Pretax

% of Sales

Total operating expenses

$

402.1

14.08%

Labor action costs

4.6

0.16%

Total operating expenses, excluding labor action costs

$

397.5

13.92%

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.

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, 2013

Low 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:

$

169,752

$

104,891

$

2.12

$

175,002

$

108,051

$

2.18

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)

1,629

981

0.02

1,629

981

0.02

Expense incurred in connection with

agreement to settle multi-state unclaimed

property audit

(included in other, net expenses)

4,900

2,950

0.06

4,900

2,950

0.06

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:

$

176,281

$

106,147

$

2.15

$

181,531

$

109,307

$

2.21

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.

For more information on United Natural Foods, Inc., visit the Company's website at www.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 report on Form 10-Q filed with the SEC on December 6, 2012, 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 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 expenses 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 three and six months ended January 26, 2013 and January 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 three and six months ended January 26, 2013 and January 28, 2012 excluding these expenses 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 ended

Six months ended

January 26,

2013

January 28,

2012

January 26,

2013

January 28,

2012

Net sales

$

1,445,703

$

1,286,910

$

2,855,740

$

2,504,338

Cost of sales

1,204,030

1,063,763

2,378,114

2,064,078

Gross profit

241,673

223,147

477,626

440,260

Operating expenses

202,693

185,760

400,451

371,473

Restructuring and asset impairment expenses

(recoveries)

(126)

1,629

5,219

Total operating expenses

202,693

185,634

402,080

376,692

Operating income

38,980

37,513

75,546

63,568

Other expense (income):

Interest expense

1,373

1,382

2,351

2,455

Interest income

(168)

(219)

(341)

(389)

Other, net

201

27

4,982

168

Total other expense, net

1,406

1,190

6,992

2,234

Income before income taxes

37,574

36,323

68,554

61,334

Provision for income taxes

14,954

14,312

24,398

24,166

Net income

$

22,620

$

22,011

$

44,156

$

37,168

Basic per share data:

Net income

$

0.46

$

0.45

$

0.90

$

0.76

Weighted average basic shares of common

stock

49,289

48,774

49,174

48,665

Diluted per share data:

Net income

$

0.46

$

0.45

$

0.89

$

0.76

Weighted average diluted shares of common

stock

49,528

49,019

49,475

48,933

 

 

UNITED NATURAL FOODS, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share data)

January 26, 2013

July 28, 2012

ASSETS

Current assets:

Cash and cash equivalents

$

8,085

$

16,122

Accounts receivable, net

358,173

305,177

Inventories

674,046

578,555

Prepaid expenses and other current assets

30,726

21,654

Deferred income taxes

25,353

25,353

Total current assets

1,096,383

946,861

Property and equipment, net

302,368

278,455

Other assets:

Goodwill

203,906

193,741

Intangible assets, net

51,981

52,496

Other

25,468

22,393

Total assets

$

1,680,106

$

1,493,946

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

285,943

$

242,179

Accrued expenses and other current liabilities

125,027

91,632

Current portion of long-term debt

357

350

Total current liabilities

411,327

334,161

Notes payable

173,947

115,000

Long-term debt, excluding current portion

849

635

Deferred income taxes

36,260

36,260

Other long-term liabilities

29,068

29,174

Total liabilities

651,451

515,230

Stockholders' equity:

Preferred stock, $0.01 par value, authorized 5,000 shares;

none issued or outstanding

Common stock, $0.01 par value, authorized 100,000 shares;

49,295 issued and outstanding shares at January 26, 2013;

49,011 issued and outstanding shares at July 28, 2012

493

490

Additional paid-in capital

370,634

364,598

Unallocated shares of Employee Stock Ownership Plan

(71)

(89)

Accumulated other comprehensive income

1,622

1,896

Retained earnings

655,977

611,821

Total stockholders' equity

1,028,655

978,716

Total liabilities and stockholders' equity

$

1,680,106

$

1,493,946

 

 

UNITED NATURAL FOODS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

Six months ended

January 26, 2013

January 28, 2012

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

44,156

$

37,168

Adjustments to reconcile net income to net cash used in

operating activities:

     Depreciation and amortization

20,944

19,190

     Share-based compensation

7,889

6,433

     Gain on disposals of property and equipment

(20)

(306)

     Excess tax benefits from share-based payment arrangements

(30)

(441)

     Impairment of intangible asset

1,629

     Unrealized loss on foreign exchange

(63)

     Provision for doubtful accounts

1,497

1,832

Changes in assets and liabilities, net of acquisitions:

     Accounts receivable

(51,057)

(67,522)

     Inventories

(94,621)

(79,545)

     Prepaid expenses and other assets

(11,762)

3,278

     Accounts payable

32,140

14,203

     Accrued expenses and other current liabilities

714

7,905

Net cash used in operating activities

(48,584)

(57,805)

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(20,026)

(12,922)

Purchases of acquired businesses, net of cash acquired

(9,266)

(2,450)

Proceeds from disposals of property and equipment

2,342

325

Net cash used in investing activities

(26,950)

(15,047)

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of long-term debt

(400)

(2,522)

Net borrowings under notes payable

59,098

75,000

Increase in bank overdraft

10,504

8,851

Proceeds from exercise of stock options

1,455

2,508

Payment of employee restricted stock tax withholdings

(3,335)

(1,392)

Excess tax benefits from share-based payment arrangements

30

441

Capitalized debt issuance costs

(12)

Net cash provided by financing activities

67,340

82,886

EFFECT OF EXCHANGE RATE CHANGES ON CASH

157

(165)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(8,037)

9,869

Cash and cash equivalents at beginning of period

16,122

16,867

Cash and cash equivalents at end of period

$

8,085

$

26,736

Supplemental disclosures of cash flow information:

Cash paid during the period for:

     Interest, net of amounts capitalized

$

2,195

$

2,423

Income taxes, net of refunds

$

32,315

$

18,023

 

 

 

UNITED NATURAL FOODS, INC.

CONSOLIDATED STATEMENTS OF INCOME WITH ADJUSTMENTS

Reconciliation of GAAP Results to Non-GAAP Presentation (Unaudited)

(In thousands, except per share data)

Six months ended January 26, 2013

GAAP

Adjustments

Adjusted

Net sales

$

2,855,740

100.00%

$

$

2,855,740

100.00%

Cost of sales

2,378,114

83.27%

2,378,114

83.27%

Gross profit

477,626

16.73%

477,626

16.73%

Operating expenses

400,451

14.02%

400,451

14.02%

Restructuring and asset impairment

expenses

1,629

0.06%

(1,629)

(a)

Total operating expenses

402,080

14.08%

(1,629)

400,451

14.02%

Operating income

75,546

2.65%

1,629

77,175

2.70%

*

Other expense (income):

Interest expense

2,351

0.08%

2,351

0.08%

Interest income

(341)

(0.01)%

(341)

(0.01)%

Other, net

4,982

0.17%

(4,900)

(b)

82

Total other expense (income), net

6,992

0.24%

(4,900)

2,092

0.07%

Income before income taxes

68,554

2.40%

*

6,529

75,083

2.63%

Provision for income taxes

24,398

0.85%

5,274

(c)

29,672

1.04%

Net income

$

44,156

1.55%

$

1,255

$

45,411

1.59%

Basic per share data:

Net income

$

0.90

$

0.03

$

0.92

*

Weighted average basic shares of common stock outstanding

49,174

49,174

Diluted per share data:

Net income

$

0.89

$

0.03

$

0.92

Weighted average diluted shares of

common stock outstanding

49,475

49,475

* Total reflects rounding

(a) Represents expense incurred as a result of the termination of a long-term licensing agreement and the

write-off of the associated intangible asset.

(b) Represents expense incurred in connection with agreement to settle multi-state unclaimed property

audit.

(c) Represents the additional tax expense related to adjustment for the expenses above, as well as a

discrete tax benefit of $2.7 million primarily related to the reversal of reserves for uncertain tax positions.

 

 

 

UNITED NATURAL FOODS, INC.

CONSOLIDATED STATEMENTS OF INCOME WITH ADJUSTMENTS

Reconciliation of GAAP Results to Non-GAAP Presentation (Unaudited)

(In thousands, except per share data)

Six months ended January 28, 2012

GAAP

Adjustments

Adjusted

Net sales

$

2,504,338

100.00%

$

$

2,504,338

100.00%

Cost of sales

2,064,078

82.42%

2,064,078

82.42%%

Gross profit

440,260

17.58%

440,260

17.58%

Operating expenses

371,473

14.83%

(1,618)

(a)

369,855

14.77%

Restructuring and asset impairment

expenses

5,219

0.21%

(5,219)

(b)

Total operating expenses

376,692

15.04%

(6,837)

369,855

14.77%

Operating income

63,568

2.54%

6,837

70,405

2.81%

Other expense (income):

Interest expense

2,455

0.10%

2,455

0.10%

Interest income

(389)

(0.02)%

(389)

(0.02)%

Other, net

168

0.01%

168

0.01%

Total other expense, net

2,234

0.09%

2,234

0.09%

Income before income taxes

61,334

2.45

6,837

68,171

2.72%

Provision for income taxes

24,166

0.96%

2,693

(c)

26,859

1.07%

Net income

$

37,168

1.48%

*

$

4,144

$

41,312

1.65%

Basic per share data:

Net income

$

0.76

$

0.09

$

0.85

Weighted average basic shares of common stock outstanding

48,665

48,665

Diluted per share data:

Net income

$

0.76

$

0.08

$

0.84

Weighted average diluted shares of

common stock outstanding

48,933

48,933

* Total reflects rounding

(a) Represents expense incurred in connection with the onboarding of a new national customer.

(b) Represents expense incurred in connection with the restructuring and divestiture of the Company's

conventional non-foods and general merchandise lines of business.

(c) Represents the additional tax expense related to adjustment for the expenses above.

 

 

SOURCE United Natural Foods, Inc.



RELATED LINKS

http://www.unfi.com