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Competitive edge will boost UNFI going forward, says CEO

Sales pass $21 billion for fiscal year, with Supervalu deal still having impact

United Natural Foods Inc. reported Tuesday that its net sales totaled $6.4 billion for the fourth quarter of 2019 and $21.39 billion for the fiscal year.

Net income for the quarter was $18.9 million, compared with $32.8 million for the fourth quarter of 2018. This year’s fourth quarter, which ended Aug. 3, was 14 weeks long, while in 2018, the quarter was 13 weeks.

For the year, UNFI saw a net loss of $285 million, a considerable fall from the $165.7 million it reported as income in fiscal 2018.

“Better-for-you products drive who we are and where we will grow,” said Steven Spinner, chairman and CEO, during Tuesday afternoon’s earnings call. It’s been nearly a year since UNFI, a distributor of natural foods, closed on the purchase of Supervalu, a distributor of conventional groceries as well as the owner of several retail chains.

“I want to reinforce that we are very confident in how UNFI is positioned today and what we are building for the future,” Spinner said during the call. “When we look across the industry, we believe [that UNFI’s advantages] could not be easily replicated.” As he continued, he enumerated those advantages:

  • Sixty distribution centers, serving all 50 states and part of Canada.
  • Access to 250,000 SKUs to offer a variety of products to customers.
  • A suite of services to help UNFI customers run or expand their operations, including click-and-collect or ship-to-home.
  • Scale that allows UNFI to be first to market, to offer private-label products and more than 4,000 items exclusive to UNFI.

“Over time, we believe these competitive advantages will increasingly set UNFI apart and underpin the results that we intend to deliver,” Spinner continued.

“Natural products continue to grow in both natural and conventional formats, while conventional products are contributing to growth in natural outlets,” Spinner said.  

The company also understands concerns that e-commerce will affect traditional retail. Critics don’t realize how UNFI’s largest customers can adapt to the changing retail landscape, he noted. UNFI’s sales to its 25 biggest customers increased 5.4% in the fourth quarter, based on a 13-week quarter, he said. Even without UNFI’s biggest customer — Whole Foods Market — sales to the top 24 customers rose 3.2% during the same comparable period.

The company detailed how the addition of Supervalu affected Q4 financial results, both positively and negatively:

  • Because Supervalu’s products carry a lower gross profit, gross margin at UNFI fell to 12.83% of net sales from 14.5% in Q4 2018.
  • Operating expenses as a percentage of net sales fell slightly to 12.13% in Q4, compared to 12.21% a year ago. Some of the reduction came from cost synergies.
  • Operating income for Q4 was $66.3 million including adjustments or $45.4 million before adjustments. In Q4 2018, adjusted operating income was $49.8 million and $59.4 million before adjustments.
  • As a percentage of net sales, operating income before adjustments was 0.7% of net sales in 2019 and 2.3% of net sales in 2018.

Fiscal year 2019 a new start

“This past fiscal year has been a transformational one for us as we began realizing some of the key benefits and competitive advantages from the Supervalu acquisition that will be the foundation of our long-term success,” Spinner said.

“As we begin the new fiscal year, I see tremendous focus and enthusiasm across the organization as we execute our strategy,” he continued. “This passion will be a tailwind as we drive to accelerate cross-selling efforts, realize new cost efficiencies, aggressively pay down debt and deliver results in the quarters to come.”

Because the purchase of Supervalu was completed at the end of the first quarter 2019, the year’s sales, earnings and profits aren’t comparable to those from 2018.

For fiscal 2019, UNFI reported:

  • Net sales of $21.39 billion.
  • Gross profit of $2.79 billion.
  • Operating expenses of $2.63 billion.
  • An operating loss of $291 million.
  • A net loss of $284.9 million.

CFO John Howard said the company expects fiscal 2020 sales to fall in the range of $23.5 billion to $25 billion.

This piece originally appeared on New Hope Network, a Supermarket News sister website.

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