PROVIDENCE, R.I. — United Natural Foods Inc. here last week said sales and profits increased in double digits in its fiscal third quarter, and the company increased its revenue outlook for the year as well.
Analysts said that despite the pressures on margins from its expansion into a more diverse product line, UNFI appears to be increasing its efficiencies to compensate.
“We have noted in the past the difficulty the company has had historically in improving EBIT margins, even though revenue growth has consistently outperformed,” said Scott Mushkin, an analyst with Jefferies & Co. “It appears, we believe, that the opportunity to break from the past is perhaps the best we can recall, driven by the current management team’s focus on making UNFI a much more efficient company.”
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Efficiencies, he said, include better labor scheduling, higher warehouse volumes, improved warehouse systems and a revamped warehouse management structure.
“Our research suggests that these programs, as we look out over the next 36-48 months, have the potential to elevate EBIT margins over the 3.5% level,” Mushkin said.
Operating income in the third quarter, which ended April 28, totaled $48.6 million, or about 3.5% of UNFI’s $1.4 billion in sales. Net income was $29 million, up about 20% over year-ago levels, on sales gains of 15.3%.
The company, which has expanded volumes through increased distribution to traditional supermarkets, said organic produce was its biggest gainer for the quarter, with 30% growth vs. a year ago. It was followed by frozen foods — mostly poultry, seafood, and fruits and vegetables — and dairy, with yogurt up 20% and milk up 12%.
Through three quarters, UNFI said net income rose 11.2%, to $66.2 million, on a 15.5% increase in sales.
UNFI also said it is preparing to begin construction on two new distribution centers, one in Denver and the other in New England. The Denver facility would replace three existing buildings, while the New England warehouse — for which an exact location has not yet been finalized — would relieve pressure on two existing, landlocked distribution centers.
The company boosted its sales guidance for the full fiscal year, which ends July 28, projecting sales of $5.18 billion to $5.22 billion, vs. previous guidance of $5.11 billion to $5.17 billion.
Inflation increased to 4.4% during the third quarter, the company said.
“While significantly higher than the prior year's comparable quarter, inflation did begin to moderate in March and continued through April,” Steven Spinner (right), president and chief executive officer, UNFI, said in a conference call with analysts. “Current trends reflect inflation continuing to moderate to between 3.5% and 4% for the next several quarters.”
