UNFI: Less Volatility in Q1

A moderation of price inflation and greater consistency in weekly sales has given wholesaler United Natural Foods here confidence that it has seen and survived the worst of the economic downturn. We're beginning to feel more comfortable and more optimistic that we have seen the bottom of the decline and things are beginning to improve, Steve Spinner, president and chief executive

PROVIDENCE, R.I. — A moderation of price inflation and greater consistency in weekly sales has given wholesaler United Natural Foods here confidence that it has seen — and survived — the worst of the economic downturn.

“We're beginning to feel more comfortable and more optimistic that we have seen the bottom of the decline and things are beginning to improve,” Steve Spinner, president and chief executive officer of UNFI, told analysts in a conference call discussing first-quarter results. Spinner said United Natural is expecting to post sales gains of 2.5% to 5% for the 2010 fiscal year after a first-quarter revenue gain of 2.4%.

Spinner said sales during the quarter, which ended Oct. 31, were considerably less volatile than previous quarters, with consistent positive trends. He also said that product price inflation had moderated to historic levels — about 2.1% for the quarter vs. 6% to 8% inflation a year ago. This also suggested more stability in the business.

A year's perspective on the economic downturn revealed that natural and organic products — and their adherents — weathered the recession fairly well, while sales of specialty products were affected and have yet to recover, Spinner said.

“I think specialty growth is still lagging organic growth,” he said. “Interestingly, what we found over the last year is that the core products really didn't have its significant falloff. Where we did see significant falloff was on the periphery — organic pet food and paper products for instance — but the core organic products didn't fall off considerably. Specialty did.”

Andrew Wolf, an analyst for BB&T Capital Markets, Richmond, Va., said UNFI's results showed a sturdiness about the organic shopper.

“Natural and organic didn't get dinged as bad as some other categories during the recession, and that goes back to the natural/organic customer who has stuck to the product,” Wold told SN. “Demographically, they tend to be more affluent and educated, and psychographically, they're true believers.”

While specialty sales continued to struggle, United's expansion into the field is yielding new opportunities, Spinner said. The company secured several new conventional supermarket customers during the quarter, but did not identify them and said it could not accurately gauge their effect on business until those accounts start up in coming quarters. “We haven't shipped a case yet,” he said.

For the quarter United reported net income of $15.5 million on sales of $884.8 million. Net income increased 17.2% and was in line with analysts' estimates. Gross margin of 18.6% was down by 80 basis points from the same period last year, due to a combination of lower fuel prices and resultant surcharge reductions, and a change in the sales mix toward less profitable items.

Spinner said the company's new warehouse in Lancaster, Texas, would open in August.