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UNFI Experiences Growth Pains in Q4

“We’re growing. We grew almost 21% last year and 16% this year.” — Steven Spinner, CEO, UNFI

PROVIDENCE, R.I. — Keeping up with the rapid growth of the natural and organic food market is proving strenuous for United Natural Foods Inc.

The distributor last week said hiccups while launching a new transportation management system contributed to a reduction in gross margins during the fiscal fourth quarter. And while officials were confident that problem was already behind UNFI, the company last week was facing a potential strike from warehouse employees in Washington while it prepared to begin building the first of four new distribution facilities to keep up with the growth in its sector. Costs associated with these issues were baked into financial guidance for the new fiscal year indicating sales would be stronger — but earnings not as robust — as previously expected.

UNFI stock was down by more than 8% following the announcement last week.

Steven Spinner“We’re growing. We grew almost 21% last year and 16% this year,” Steven Spinner, chief executive officer, said during a conference call with analysts discussing financial results last week. “There is a certain level of growth where you need to expand to keep pace. We don’t want to find ourselves in a situation like we did in 2005 and 2006, where we were [building] two or three facilities a year because we didn’t keep pace with the growth. … We are going to have to make sure that we have the capacity … to meet the increased demand.”

To that end UNFI last week announced it would consolidate four existing Denver-based distribution facilities into a new 535,000-square-foot facility in Aurora, Colo. The new facility is expected to commence operations in the summer of 2013. Spinner said he expected to announce additional new facilities in the Northeast, Midwest and Northern California within the next year.

Q3 report: UNFI Posts Profit Gains, Eyes 2012 Sales Growth

Spinner said the company would incur duplicate rent payments and other costs while the new Denver facility is being built that would result in $5 million to $5.5 million in charges during the new fiscal year.

UNFI  also cited the possibility of a work stoppage at its Auburn, Wash., facility, where drivers and warehouse workers rejected a “last, best and final” contract offer and authorized its union to call a strike. UNFI and Teamsters Local 117 have agreed to try to resolve their differences before a federal mediator, Spinner said last week.

“We’re prepared to service the customers in any way we have to, in any circumstance that comes our way,” Spinner said.

Union Cites Compensation Gap

The union, which represents 168 workers at the facility, said UNFI has refused to bargain about a large compensation gap between the company and its local competitors. “Despite soaring profits, UNFI compensates its employees at a rate of 25% less than the compensation provided by other major unionized grocery distributors in the Puget Sound area,” the local said in a statement.

2012 Power 50: No. 20 Steven Spinner

For the fourth quarter, which ended July 28, UNFI said sales increased by 16% to $1.3 billion while net income of $25.1 million improved by 46.4%. Gross margin as a percent of sales was down by 1.5%.

For the fiscal year, sales increased 15.6% to $5.2 billion while net income of $91.3 million was up 19.1%.

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