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United Natural Foods Inc. (UNFI) posted net sales for its second quarter of fiscal 2013 ended Jan. 26 of $1.45 billion, an increase of 12.3 percent, or $158.8 million, from the $1.29 billion reported in the year-ago period.
“We were extremely focused on bringing resolution to our labor dispute in Auburn, Wash., during the second quarter,” said Steven Spinner, president and CEO of Providence, R.I.-based UNFI. “By working together, we were able to reach a fair and equitable agreement. Our associates are back to work, and the facility is back at full capacity. We continue to move forward together as a company, and our results demonstrate our sustained sales growth, expense control and execution.”
Gross margin was 16.7 percent for the second quarter of fiscal 2013, unchanged from the first quarter of the fiscal year and representing a 62 basis-point plunge from gross margin of 17.3 percent for the second quarter of fiscal 2012. This change was due to the ongoing shift in customer mix to the conventional supermarket and supernatural channels, according to UNFI.
Total operating expenses were 14 percent as a percentage of net sales for the second quarter of fiscal 2013, a decline of 40 basis points from the year-ago period. The wholesaler attributed the improvement to its ongoing initiatives to boost productivity and lower operating expenses throughout the organization, although these efforts were partly offset by $3.6 million in operating expenses related to the labor action at the company’s Auburn facility. Excluding the Auburn labor action costs, operating expenses for the second quarter of fiscal 2013 were 13.8 percent of net sales, a 65 basis-point decrease compared from the year-ago period, when operating expenses were 14.4 percent of net sales.
Operating income for the second quarter of fiscal 2013 as a percentage of net sales fell 21 basis points to 2.7 percent versus last year. Adjusting for the additional costs related to the Auburn labor action, operating income for the second quarter of fiscal 2013 was 2.9 percent of net sales, a 4 basis-point rise compared with the year-ago period. Net income for the second quarter of fiscal 2013 grew $0.6 million, or 2.8 percent, to $22.6 million, or 46 cents per diluted share, including the adverse effect of 4 cents per diluted share related to the Auburn labor action, from $22 million, or 45 cents per diluted share, last year.
Net sales for the first half of fiscal 2013 came to $2.9 billion, a 14 rise over the year-ago period. Gross margin was 85 basis points lower last year, at 16.7 percent of net sales for the six months ended Jan. 26. UNFI said the gross margin decline was because of higher inbound freight costs throughout the first half of fiscal 2013, as well as the company’s focus in the first quarter of fiscal 2013 on maintaining higher service levels despite more supplier out-of-stocks. The continued shift in customer mix toward the supernatural and conventional supermarket channels, and to customers within the conventional supermarket channel who are migrating to limited-service programs also continued to negatively affect gross margin compared with the year-ago period, according to UNFI.
At 14.1 percent of net sales, total operating expenses for the six months ended Jan. 26 were 96 basis points lower than those of the year-ago period. Total operating expenses rose $25.4 million, or 6.7 percent, to $402.1 million, versus those of last year, which were $376.7 million. Total operating expenses for the first half of fiscal 2013 also included about $4.6 million in expenses related to the Auburn labor action. Excluding these expenses, operating expenses were $397.5 million, or 112 basis points as a percentage of net sales below those of the year-ago period.
Total operating expenses for the first half of fiscal 2013 also included expenses of about $1.6 million related to the termination of a licensing agreement and the write-off of the associated intangible asset. Total operating expenses for the first half of fiscal 2012 included $5.2 million in expenses related to the restructuring and divestiture of UNFI’s conventional nonfood and general merchandise lines of business, and $1.6 million in expenses related to the onboarding of a new national customer.
Operating income as a percentage of net sales was 2.6 percent for the first half of fiscal 2013, compared with 2.5 percent last year. Excluding the aforementioned expenses of $1.6 million and $6.8 million, operating expenses as a percentage of net sales were 14 percent for the first half of fiscal 2013, a decline of 75 basis points from the 14.8 percent logged in the year-ago period.
Net income for the first half of fiscal 2013 went up $7 million, or 18.8 percent, to $44.2 million, or 89 cents per diluted share, from $37.2 million, or 76 cents per diluted share, last year.
“UNFI continued its drive towards increasing operational excellence during the second quarter of fiscal 2013, realizing higher sales while managing our cost structure despite the quarter’s labor-related expenses,” noted Spinner. “Our sustained top-line growth reflects strong consumer demand being fueled by more people maintaining healthier lifestyles. We expect this trend to continue for the foreseeable future and will continue with our mission to supply natural and organic products that meet their growing needs.”
In other company news, Denise M. Clark was appointed to its board as an independent director, bringing to the post more than two decades of information technology know-how, including experience in the delivery of enterprise resource planning (ERP), digital platforms and innovative business transformation initiatives. She has also led change and governance programs that drive business value and success. Her appointment has increased the total number of UNFI directors to nine, including seven independent directors.
Clark has been SVP and global CIO for The Estee Lauder Cos. Inc. since November 2012. Before assuming that role, she was SVP and CIO for Hasbro Inc. from October 2007 to November 2012. Earlier, at Mattel Inc., she was global chief technology officer and later CIO for the Fisher Price brand between January 2000 and February 2007. Her previous experience includes two other consumer goods companies, Warner Music Group, formerly a division of Time Warner Inc., and Apple Inc.
UNFI carries and distributes more than 65,000 products to more than 27,000 customer locations in the United States and Canada. The company serves a wide variety of retail formats, among them conventional supermarket chains, natural product superstores, independent retail operators and the foodservice channel.