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United Natural Foods Inc. (UNFI) reported an 18.7 percent net sales increase to $2.11 billion for the third quarter of fiscal 2015 ended May 2, 2015, compared with $1.78 billion for the year-ago period, while operating income grew 10.2 percent to $69.0 million, versus $62.6 million last year, and diluted EPS was 83 cents, a 13.7 percent rise from the 73 cents logged for the same period last fiscal year.
"While comparable-sales growth moderated in the quarter, we believe that this is a short-term trend," said Steven Spinner, president and CEO of Providence, R.I.-based UNFI. "Demand for organic, gourmet and ethnic products continues to increase, and we have seen sales growth accelerate modestly in the first few weeks of our fourth quarter."
The third quarter of fiscal 2015 included net sales of about $213.7 million from the company's acquisition of Tony's Fine Foods in the fourth quarter of fiscal 2014. Gross margin fell 132 basis points to 15.4 percent for the third quarter of fiscal 2015, compared with 16.7 percent for the same period last year. UNFI attributed this decrease primarily to the dilution from Tony's net sales, the unfavorable foreign exchange rate for the company's Canadian business, lower fuel surcharges, and a shift in sales mix.
Total operating expenses were 12.2 percent as a percentage of net sales for the third quarter of fiscal 2015, a drop of 107 basis points compared with the year-ago period. Total operating expenses grew $21.4 million, or 9.1 percent, to $256.9 million for the third quarter of fiscal 2015, versus $235.5 million last year, which the company explained was primarily because of additional costs required to service higher sales volume. Total operating expenses for the third quarter of fiscal 2015 included startup costs of about $0.5 million related to UNFI's Hudson Valley, N.Y., and Prescott, Wis., facilities, offset by a $0.6 million energy grant for incorporating energy-saving designs into the Hudson Valley site.
"Our acquisition of Tony's Fine Foods, which expanded our presence in fresh foods, has exceeded our expectations as consumer interests continue to shift towards the perimeter of the store," continued Spinner. “In combination with our Albert's Organics business, UNFI is well positioned to capitalize on the consumers' demands for fresh products. Additionally, UNFI’s investment in refrigerated infrastructure will serve as a catalyst towards increased growth and market share as the platform moves across the country."
Net sales for the nine months ended May 2, 2015 came to $6.12 billion, a 21.7 percent increase from the comparable prior fiscal-year period. According to UNFI, fiscal 2015 net sales included about $661.1 million from the Tony's acquisition. Gross margin fell 123 basis points to 15.4 percent compared to the year-ago period, which the company said was primarily due to the dilution from Tony's net sales, a shift in mix of sales, unfavorable foreign exchange for the Canadian business, and the reduction in net sales related to an incorrect calculation of contractual obligations to a customer.
At 12.5 percent of net sales, total operating expenses for the nine months ended May 2, 2015 were 95 basis points lower as a percentage of sales than last year. Total operating expenses grew $89.3 million, or 13.2 percent, to $767.2 million from $678.0 million for the prior-year period. Operating income for the nine months ended May 2, 2015 rose 10.9 percent, or $17.4 million, to $176.9 million from $159.5 million for the nine months ended May 3, 2014, while operating income as a percentage of net sales decreased 28 basis points to 2.9 percent versus the same period last fiscal year. Net income for the nine months ended May 2, 2015 grew $10.5 million, or 11.4 percent, to $102.6 million, or $2.04 per diluted share, from $92.1 million, or $1.85 per diluted share for the nine months ended May 3, 2014.
UNFI carries and distributes more than 80,000 products to 40,000-plus customer locations throughout the United States and Canada. The company serves a wide variety of retail formats, including conventional supermarket chains, natural product superstores, independent retail operators and the foodservice channel.