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    Even in Weak Economy, UNFI Grows Q4 Comps

    The company's recently acquired Millbrook division delivered lower-than-expected sales, but growth in independent accounts and branded divisions' sales were bright spots.

    Natural food wholesaler United Natural Foods, Inc. (UNFI) yesterday posted fiscal 2008 net sales for the fourth quarter of fiscal 2008 ended Aug. 2, of $911.9 million, a rise of $205.1 million, or 29.0 percent, from the $706.8 million reported in the year-ago period. Excluding the effect of the company's November 2007 acquisition of Millbrook Distribution Services, Inc., net sales grew by about $143.2 million, or 20.3 percent, to $850.0 million. Comparable sales, excluding the Millbrook acquisition and the 14th week included in the quarter, rose 11.9 percent.

    "We delivered our fourth consecutive quarterly increase in comparable sales, matching the high end of our forecasted range of 10 percent to 12 percent, despite a weak economy and slower then expected growth in the supernatural channel," said UNFI president and c.e.o. Michael Funk.

    The wholesaler's net income was $12.8 million, or 30 cents per share, for the quarter, which was relatively flat compared with the $13.1 million, or 31 cents, reported last year. Millbrook, which the company acquired in the second quarter of fiscal 2008, negatively affected net income by about $2.9 million. Excluding the Millbrook effect, net income for the quarter would have been $15.7 million.

    "While Millbrook's performance to the customer continues to improve with optimum fulfillment and field service levels, sales were under our expectations for the quarter," admitted Funk during a conference call yesterday. "We do believe management has positioned Millbrook to build sales in 2009, both from gaining new customers as well as building sales with existing accounts. A number of new business initiatives are in place and moving forward. While our expectations for new accounts being added during the remainder of calendar 2008 are conservative due to avoiding disruptions during the retailers' busy holiday period, we do believe that we'll add new accounts for combined Millbrook and UNFI activity in 2009."

    Funk added that UNFI has accelerated its integration of Millbrook, including the improvement of the latter's service levels, field sales performance, and operations, which should also lead to better results in 2009.

    He further noted that UNFI's Blue Marble branded division grew at a rate of 37 percent for the quarter, driven by some recently completed acquisitions, with 25 percent growth in branded divisions expected next year.

    Operating expenses for the quarter were 16.9 percent of net sales, or $154.0 million, an increase of $45.8 million, or 42.3 percent, over operating expenses of $108.2 million, or 15.3 percent of net sales, in the year-ago period. Items that adversely affected the company's operating expenses and net income in the fourth quarter of fiscal 2008 included $2.7 million in labor and other duplicate expenses related to the UNFI's relocation from a facility in Fontana, Calif. to a new one in Moreno Valley, Calif., which is slated to open this weekend; a new facility in York, Pa.; and an increase in fuel costs of $4.0 million, excluding fuel costs specific to Millbrook.

    "In Q4, we saw our top 100 largest independent accounts grow by 14.39 percent on a same-store year-over-year basis," said Funk during the conference call. "The significant increase in our independent sales suggests consumers are changing shopping patterns that are more influenced by fuel consumption than ever before. Local independents seemed to be attracting new business, perhaps at the expense of other stores, which require additional miles for shoppers to drive to."

    Net sales for fiscal 2008 came to a record $3.37 billion, a rise of 22.2 percent, or $611.6 million, from the $2.75 billion of net sales posted in fiscal 2007. Net income for fiscal 2008 declined $1.7 million, or 3.3 percent, to $48.5 million, or $1.13 per diluted share, from $50.2 million, or $1.17 per diluted share, for fiscal 2007.

    Fiscal year 2008 operating expenses were 16.1 percent of net sales, or $541.4 million, a leap of $125.3 million, or 30.1 percent, from operating expenses of $416.1 million, or 15.1 percent of net sales, for fiscal 2007.

    According to Funk, the company will enter 2009 "with strong core businesses that will support our growth initiatives and current expectations for top-line growth between 10 percent to 12 percent, and a 15 percent to 22 percent increase in earnings to our shareholders."

    UNFI carries and distributes over 60,000 products to more than 17,000 customers nationwide. The company serves such retail formats as conventional supermarket chains, natural product superstores, independent retail operators, and the foodservice channel.

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