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United Natural Foods Inc. Reports Operating Results (10-Q)

December 08, 2011 | About:
10qk

10qk

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United Natural Foods Inc. (UNFI) filed Quarterly Report for the period ended 2011-10-29.

United Natural Foods Inc. has a market cap of $1.8 billion; its shares were traded at around $37.04 with a P/E ratio of 21.8 and P/S ratio of 0.4. United Natural Foods Inc. had an annual average earning growth of 11.4% over the past 10 years. GuruFocus rated United Natural Foods Inc. the business predictability rank of 3.5-star.

Highlight of Business Operations:

Our net sales for the three months ended October 29, 2011 increased approximately 15.6%, or $164.5 million, to $1,217.4 million from $1,053.0 million for the three months ended October 30, 2010. This increase was primarily due to organic growth (sales growth excluding the impact of acquisitions) in our wholesale division from our supernatural chain customer as well as increased sales within our conventional supermarket channel. Our organic growth is due to the continued growth of the natural and organic products industry in general, increased market share as a result of our focus on service and value added services and broader selection of products, including specialty foods. In addition to net sales growth attributable to our organic growth, we also benefited from the inclusion of $25.4 million in incremental net sales for the three months ended October 29, 2011 compared to the three months ended October 30, 2010 resulting from expanded distribution to Whole Foods Market following the acquisition of Whole Foods Markets Southwest and Rocky Mountain distribution business during the first quarter of fiscal 2011. Net sales also benefited from food price inflation of approximately 3.9% that we experienced in the quarter ended October 29, 2011 compared to price levels in the prior year quarter.

Our gross profit increased approximately 12.9%, or $24.8 million, to $217.1 million for the three months ended October 29, 2011, from $192.3 million for the three months ended October 30, 2010. Our gross profit as a percentage of net sales was 17.8% for the three months ended October 29, 2011 and 18.3% for the three months ended October 30, 2010. The change in gross profit as a percentage of net sales is primarily due to the change in the mix of net sales by channel that began during the second fiscal quarter of 2010, as well as $1.0 million of inventory write-offs for products in certain categories related to improper storage and the impact of our decision to move inbound freight at our own cost to ensure high levels of service as our customers prepared for the holidays.

Our total operating expenses increased approximately 17.4%, or $28.4 million, to $191.1 million for the three months ended October 29, 2011, from $162.7 million for the three months ended October 30, 2010. The increase in total operating expenses for the three months ended October 29, 2011 was primarily due to higher sales volume, as well as approximately $5.3 million in severance and other costs related to the previously announced divestiture of our conventional non-food and general merchandise lines of business and approximately $1.6 million in start-up expenses incurred in connection with onboarding our newest national customer. In

Operating income decreased approximately 12.1%, or $3.6 million, to $26.1 million for the three months ended October 29, 2011, from $29.7 million for the three months ended October 30, 2010. As a percentage of net sales, operating income was 2.1% for the three months ended October 29, 2011 compared to 2.8% for the three months ended October 30, 2010. The decrease in operating income is primarily attributable to the divestiture expenses and onboarding expenses discussed above, as well as increased share-based compensation expense together with the decrease in gross profit as a percentage of net sales, which has not yet been fully offset by expected lower operating expenses as we continue to implement our national warehouse management and procurement system.

Net cash used in operations was $93.5 million for the three months ended October 29, 2011, an increase of $60.6 million from the $32.9 million used in operations for the three months ended October 30, 2010. The primary reasons for the increase of net cash used in operations for the three months ended October 29, 2011 were an increase in inventories of $135.4 million due to our sales growth during the year, inventory build-up for the holiday season and our new national customer, and an increase in accounts receivable of $54.1 million, partially offset by an increase in accounts payable of $52.5 million and net income of $15.2 million. Net cash used in operations for the three months ended October 30, 2010 was primarily the result of an increase in inventories of $90.1 million and an increase in accounts receivable of $36.8 million, partially offset by an increase in accounts payable of $50.6 million and net income of $17.4 million. Days in inventory increased to 53 days at October 29, 2011 compared to 51 days at July 30, 2011, as part of the normal inventory build that occurs each year leading up to the holidays as well as initial purchases to support our newest national customer. Days sales outstanding remained at 22 days at October 29, 2011, the same level as of July 30, 2011. Working capital increased by $24.7 million, or 6.5%, to $405.7 million at October 29, 2011, compared to working capital of $381.1 million at July 30, 2011.

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