DAYVILLE, Conn. — The addition of the Whole Foods Market distribution account in Southern California proved to be a distraction for United Natural Foods, officials from the wholesaler, based here, said last week in a conference call while discussing results for United's third fiscal quarter.
“In our Western region, it was all hands on deck to make it happen in a short period of time, and we lost some focus on the basic things that we do normally well day in and day out,” said Michael Funk, president and chief executive officer, United.
The company reported net income for the quarter, which ended April 28, of $13.7 million, or 32 cents per share, up 11.4% from year-ago levels but short of analysts' expectations.
The company attributed some of the shortfall to losses from poor execution of buying strategies, as well as to inventory losses. Those issues each cost the company about $1.9 million for the quarter, the company said.
“They had 5-1/2 cents' [per share] worth of problems that will not be repeating, so if you give them credit for that, it was not too bad a quarter,” said Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va.
Wolf said he was encouraged by United's assertion during the call that the anticipated merger between its two largest customers, Whole Foods and Wild Oats Markets, may not have a material impact on United's earnings, although Funk did say that it was too early to reach a firm conclusion on that matter. Investors previously had been concerned that the combination of the two “super-natural” chains would result in weaker distribution terms for United.
The distributor said gross margin as a percentage of sales was 17.7% for the quarter, down from 18.9% a year ago. In addition to the buying issues and the inventory losses, margins were also impacted by new customer agreements — including the Whole Foods business in Southern California — and delays in the completion of certain acquisitions of emerging brands. The acquisitions would have contributed to the company's United Natural Brands division.
Revenues for the quarter were up 15%, to $732.5 million, compared with the year-ago third quarter. Sales to Whole Foods and Wild Oats rose 20.5%, sales to traditional supermarkets grew by 23%, and sales to the independent channel were up 8.3%. Food-service sales grew at “just under” 20%, the company said.
Through three quarters, net income was up 21%, to $37 million, on a revenue increase of 12.9%, to $2.05 billion.