United Natural Foods, Inc. Announces Second Quarter Fiscal 2014 Results Q2 Fiscal 2014 Net Income Increased 23.6% Year Over Year to $28.0 Million Business Wire PROVIDENCE, R.I. -- March 10, 2014 United Natural Foods, Inc. (Nasdaq: UNFI) (the "Company") today reported financial results for the second quarter of fiscal 2014 ended February1, 2014. Second Quarter Fiscal 2014 Highlights *Net sales increased 13.9%, or $200.3 million, to $1.65 billion for the second quarter of fiscal 2014 compared to $1.45 billion for the same period last fiscal year *Diluted EPS was $0.56 for the second quarter of fiscal 2014, an increase of 21.7% from $0.46 for the same period last fiscal year *Operating margin was 3.0% of net sales for the second quarter of fiscal 2014, an increase of 27 basis points from the same period last fiscal year *Independent channel net sales growth accelerated to 11.6% “Our independent channel grew over 11% during the quarter driven by continued innovation in products and services supported by UNFI's extensive product offering,” commented Steven Spinner, President and Chief Executive Officer. “Continued demand for our products further demonstrates that the trend towards natural and organic consumption continues to gain momentum.” Net sales for the second quarter of fiscal 2014 increased 13.9% to $1.65 billion from $1.45 billion in the second quarter of fiscal 2013. Gross margin was 16.3% for the second quarter of fiscal 2014 compared to 16.7% for the second quarter of fiscal 2013. Gross margin for the second quarter of fiscal 2014 was negatively impacted by severe weather, the foreign exchange impact from the declining value of the Canadian dollar on the Company's Canadian business and the ongoing shift in the Company’s sales mix. Total operating expenses were 13.3% as a percentage of net sales for the second quarter of fiscal 2014, a decrease of 70 basis points compared with the same period last fiscal year. This improvement in expenses was driven by the continued shift in the sales mix to supernatural, supermarket and multi-unit independent customers, positive trends in the Company’s self-insurance accruals compared to the prior year and lapping of the prior year labor action costs. Total operating expenses for the second quarter of fiscal 2013 included $3.6 million of expenses related to the labor action at the Company's Auburn, Washington facility. Excluding the Auburn, Washington labor action costs in the second quarter of fiscal 2013, operating expenses were 13.8% of net sales. Operating income increased 25.3%, or $9.9 million, to $48.8 million for the second quarter of fiscal 2014 compared to $39.0 million for the second quarter of fiscal 2013. Operating income as a percentage of net sales for the second quarter of fiscal 2014 increased 27 basis points to 3.0% compared to the same period last fiscal year. Net income for the second quarter of fiscal 2014 increased $5.3 million, or 23.6%, to $28.0 million, or $0.56 per diluted share, from $22.6 million, or $0.46 per diluted share, for the second quarter of fiscal 2013. The second quarter of fiscal 2013 included the negative impact of approximately $0.04 per diluted share related to the Auburn, Washington labor action. 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 three months ended January 26, 2013: Three months ended January 26, 2013 (in millions) Pretax % of Sales Total operating expenses $ 202.7 14.0 % Labor action costs 3.6 0.2 % Total operating expenses, excluding labor action $ 199.1 13.8 % costs First Half Fiscal 2014 Summary Net sales for the first half of fiscal 2014 totaled $3.25 billion, a 13.7% increase over the comparable prior fiscal year period. Gross margin was 12 basis points lower than the comparable prior fiscal year period, at 16.6% of net sales for the six months ended February 1, 2014. Gross margin in the first half of fiscal 2014 was negatively impacted by severe weather and foreign exchange for the Company's Canadian business and the continued shift in sales growth towards supernatural, national supermarket and multi-unit independent customers. These challenges were partially offset by improved execution by the Company’s supply chain group, specifically with respect to inbound logistics and procurement. At 13.6% of net sales, total operating expenses for the six months ended February 1, 2014 were 46 basis points lower than the comparable prior fiscal year period. Total operating expenses increased $40.4 million, or 10.0%, to $442.5 million from $402.1 million for the six months ended January 26, 2013. Total operating expenses in the first half of fiscal 2013 included approximately $4.6 million of expenses related to the labor action at the Company's Auburn, Washington facility. Excluding these incremental expenses, operating expenses were $397.5 million or 13.9% of net sales. 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 ended January 26, 2013: Six months ended January 26, 2013 (in millions) Pretax % of Sales Total operating expenses $ 402.1 14.1 % Labor action costs 4.6 0.2 % Total operating expenses, excluding labor action $ 397.5 13.9 % costs Net income for the first half of fiscal 2014 increased $11.6 million, or 26.2%, to $55.7 million, or $1.12 per diluted share, from $44.2 million, or $0.89 per diluted share for the first half of fiscal 2013. “Later this quarter we will finish construction of our Sturtevant, Wisconsin facility which will serve as our exciting new hub serving the greater Chicago market,” concluded Mr. Spinner. Updated Fiscal 2014 Guidance Based on UNFI's performance to date and the current outlook for the remainder of fiscal 2014, UNFI is narrowing and updating its previous guidance for fiscal 2014, which was affirmed on December 3, 2013. For fiscal 2014, ending August 2, 2014, which is a 52-week fiscal year compared with the 53-week fiscal 2013, the Company expects net sales in the range of approximately $6.70 to $6.78 billion, an increase of approximately 10.5% to 11.8% over fiscal 2013. Adjusting for $118.7 million of net sales for the 53rd week in fiscal 2013, net sales growth for fiscal 2014 is expected to be in the range of approximately 12.7% to 14.0%. The Company estimates GAAP earnings per diluted share for fiscal 2014 in the range of approximately $2.45 to $2.51 per share, an increase of approximately 12.4% to 15.1% over fiscal 2013 GAAP earnings per diluted share of $2.18. Conference Call & Webcast The Company's second quarter 2014 conference call and audio webcast will be held today, Monday, March10, 2014 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 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 31,000 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 as one of its "Most Admired Companies" and in 2012 as one of its "Most Admired American 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 October 1, 2013, its quarterly report on Form 10-Q filed with the SEC on December 11, 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 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 excluding expenses related to the labor action at the Company’s Auburn, Washington facility and estimated net sales growth adjusting for the 53rd week in fiscal 2013. The reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are presented within the tables or text of this press release. 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 for the applicable periods 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 2014 fiscal year and to internally prepared projections. UNITED NATURAL FOODS,INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (In thousands, except per share data amounts) Three months ended Six months ended February 1, January 26, February 1, January 26, 2014 2013 2014 2013 Net sales $ 1,646,041 $ 1,445,703 $ 3,248,052 $ 2,855,740 Cost of sales 1,377,874 1,204,030 2,708,709 2,378,114 Gross profit 268,167 241,673 539,343 477,626 Operating 219,322 202,693 442,472 400,451 expenses Restructuring and asset — — — 1,629 impairment expenses Total operating 219,322 202,693 442,472 402,080 expenses Operating 48,845 38,980 96,871 75,546 income Other expense (income): Interest 1,782 1,373 3,636 2,351 expense Interest (125 ) (168 ) (245 ) (341 ) income Other, net 602 201 621 4,982 Total other 2,259 1,406 4,012 6,992 expense, net Income before 46,586 37,574 92,859 68,554 income taxes Provision for 18,635 14,954 37,144 24,398 income taxes Net income $ 27,951 $ 22,620 $ 55,715 $ 44,156 Basic per share data: Net income $ 0.56 $ 0.46 $ 1.13 $ 0.90 Weighted average basic shares of 49,615 49,289 49,490 49,174 common stock outstanding Diluted per share data: Net income $ 0.56 $ 0.46 $ 1.12 $ 0.89 Weighted average diluted shares 49,873 49,528 49,766 49,475 of common stock outstanding UNITED NATURAL FOODS,INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (In thousands, except per share amounts) February 1, August 3, 2014 2013 ASSETS Current assets: Cash and cash equivalents $ 14,575 $ 11,111 Accounts receivable, net 406,943 339,590 Inventories 764,694 702,161 Prepaid expenses and other current assets 56,851 38,534 Deferred income taxes 23,822 23,822 Total current assets 1,266,885 1,115,218 Property & equipment, net 394,147 338,594 Goodwill & intangible assets, net 265,588 251,414 Other assets 24,361 24,682 Total assets $ 1,950,981 $ 1,729,908 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 334,867 $ 283,851 Accrued expenses and other current liabilities 113,058 113,397 Current portion of long-term debt 1,202 1,019 Total current liabilities 449,127 398,267 Notes payable 240,180 130,594 Long-term debt, excluding current portion 33,128 33,091 Deferred income taxes 41,474 41,474 Other long-term liabilities 27,878 27,336 Total liabilities 791,787 630,762 Commitments and contingencies — — 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; 49,623 issued and outstanding 496 493 shares at February 1, 2014; 49,330 issued and outstanding shares at August 3, 2013 Additional paid-in capital 390,056 380,109 Unallocated shares of Employee Stock Ownership (39 ) (39 ) Plan Accumulated other comprehensive loss (6,709 ) (1,092 ) Retained earnings 775,390 719,675 Total stockholders’ equity 1,159,194 1,099,146 Total liabilities and stockholders’ equity $ 1,950,981 $ 1,729,908 UNITED NATURAL FOODS,INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands) Six months ended February 1, January 26, 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 55,715 $ 44,156 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 22,998 20,944 Share-based compensation 9,507 7,889 Loss (gain) on disposals of property and equipment 46 (20 ) Excess tax benefits from share-based payment (2,321 ) (30 ) arrangements Impairment of intangible asset — 1,629 Provision for doubtful accounts 1,601 1,497 Non-cash interest expense 1,050 — Changes in assets and liabilities, net of acquired businesses: Accounts receivable (66,988 ) (51,057 ) Inventories (60,139 ) (94,621 ) Prepaid expenses and other assets (15,953 ) (11,762 ) Accounts payable 19,022 32,140 Accrued expenses and other liabilities (363 ) 651 Net cash used in operating activities (35,825 ) (48,584 ) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (76,320 ) (20,026 ) Purchases of acquired businesses, net of cash (23,005 ) (9,266 ) acquired Proceeds from disposals of property and equipment 102 2,342 Net cash used in investing activities (99,223 ) (26,950 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (396 ) (400 ) Proceeds from borrowings under revolving credit 347,474 361,906 line Repayments of borrowings under revolving credit (237,284 ) (302,808 ) line Increase in bank overdraft 28,378 10,504 Proceeds from exercise of stock options 1,692 1,455 Payment of employee restricted stock tax (3,570 ) (3,335 ) withholdings Excess tax benefits from share-based payment 2,321 30 arrangements Capitalized debt issuance costs — (12 ) Net cash provided by financing activities 138,615 67,340 EFFECT OF EXCHANGE RATE CHANGES ON CASH (103 ) 157 NET INCREASE (DECREASE) IN CASH AND CASH 3,464 (8,037 ) EQUIVALENTS Cash and cash equivalents at beginning of period 11,111 16,122 Cash and cash equivalents at end of period $ 14,575 $ 8,085 Supplemental disclosures of cash flow information: Cash paid for interest $ 2,925 $ 2,195 Cash paid for federal and state income taxes, net $ 42,072 $ 32,315 of refunds Contact: United Natural Foods, Inc. Mark Shamber Chief Financial Officer (401) 528-8634 or ICR Katie Turner General Information (646) 277-1228
United Natural Foods, Inc. Announces Second Quarter Fiscal 2014 Results
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