UNFI net sales up 14.3% in FY2014

United Natural Foods Inc. (Nasdaq: UNFI) reported financial results for the fiscal quarter and fiscal year ended Aug. 2, 2014.

Fiscal year 2014 highlights:

Fourth quarter fiscal 2014 highlights:

"During fiscal 2014 UNFI continued to enhance its product offering through the acquisition of Tony's Fine Foods while building out capacity and infrastructure. These initiatives will serve us well as consumers and retailers continue to demand our natural, organic, ethnic and specialty SKUs," said Steven Spinner, president and chief executive officer.

Net sales for the fourth quarter of fiscal 2014 increased 7.4 percent to $1.76 billion from $1.64 billion in the fourth quarter of fiscal 2013. Excluding approximately $118.7 million of net sales in the 53rd week of fiscal 2013, net sales increased 15.8 percent over the fourth quarter of fiscal 2013. The fourth quarter of fiscal 2014 included incremental net sales of approximately $64.0 million resulting from the Company's acquisition of Tony's Fine Foods in the fourth quarter of fiscal 2014 and Trudeau Foods in the first quarter of fiscal 2014.

Gross margin was 16.4 percent for the fourth quarter of fiscal 2014, a 29 basis point decrease from the third quarter of fiscal 2014 and an 88 basis point decrease from gross margin of 17.3 percent for the fourth quarter of fiscal 2013. Gross margin for the fourth quarter of fiscal 2014 was negatively impacted by foreign exchange from the declining value of the Canadian dollar on the Company's business coupled with product and customer mix and the addition of Tony's in July 2014.

Total operating expenses were 13.5 percent of net sales for the fourth quarter of fiscal 2014, a 36 basis point decrease compared to the fourth quarter of fiscal 2013. Total operating expenses increased $10.5 million or 4.6 percent, to $238.9 million in the fourth quarter of fiscal 2014 as compared to $228.4 million in the fourth quarter of fiscal 2013. Total operating expenses for the fourth quarter of fiscal 2014 included approximately $0.9 million of additional merger costs related to the acquisition of Tony's, approximately $0.6 million of non-recurring costs associated with the start-up of the Hudson Valley, New York facility and approximately $0.5 million of non-recurring costs related to the start-up of the Company's Racine, Wisconsin facility.

Operating income as a percentage of net sales for the fourth quarter of fiscal 2014 decreased 51 basis points to 2.9 percent compared to 3.4 percent for the fourth quarter of fiscal 2013. Net income for the fourth quarter of fiscal 2014 increased $1.3 million, or 4.0 percent, to $33.4 million, or $0.67 per diluted share, from $32.1 million, or $0.65 per diluted share, for the fourth quarter of fiscal 2013. Net income for the fourth quarter of fiscal 2014 includes a gain of $4.8 million associated with a non-cash transfer of land at the Company's Racine, Wisconsin facility.

Fiscal year 2014 summary
Net sales for fiscal 2014 totaled $6.79 billion, a 12.0 percent increase compared to fiscal 2013. Excluding approximately $118.7 million of net sales from the additional week in fiscal 2013, net sales increased 14.3 percent over fiscal 2013.

Gross margin for the period was 16.6 percent, a 30 basis point decrease versus the prior fiscal year. The decline in gross margin was attributed to a combination of severe weather in the second quarter, the foreign exchange impact of weakness in the Canadian dollar on the Company's Canadian business and the continued shift in sales growth towards supernatural, national supermarket and multi-unit independent customers. These challenges were partially offset by improved execution by the Company’s supply chain group, specifically with respect to procurement and inbound logistics.

Total operating expenses for fiscal 2014 were 13.5 percent of net sales, which was 35 basis points lower than in fiscal 2013. Total operating expenses increased $77.3 million, or 9.2 percent, to $916.9 million, compared to $839.6 million for fiscal 2013. Total operating expenses for fiscal 2014 included non-recurring costs of approximately $1.4 million related to the start-up of the Company's Racine, Wisconsin facility, $0.8 million related to the start-up of the Company's Hudson Valley, New York facility and $1.5 million of costs related to the acquisition of Tony's. Total operating expenses for fiscal 2013 included approximately $6.3 million in expenses related to the labor action at the Company's Auburn, Washington facility and $1.6 million related to the termination of a licensing agreement and the write-off of the associated intangible asset.

Operating income for fiscal 2014 was $210.8 million, an increase of 13.6 percent from $185.5 million in fiscal 2013. Operating income as a percentage of net sales was 3.1 percent for fiscal 2014 and fiscal 2013.

Net income for fiscal 2014 increased $17.6 million, or 16.3 percent, to $125.5 million, or $2.52 per diluted share, from $107.9 million, or $2.18 per diluted share, for fiscal 2013. Net income for fiscal 2014 includes a gain of $4.8 million associated with a non-cash transfer of land at the Company's Racine, Wisconsin facility.

"Fiscal 2014 was a record year for UNFI from both a sales and earnings per share growth perspective, with earnings per share increasing by approximately 16 percent," commented Mr. Spinner. "As we look forward to fiscal 2015, we believe we are well-positioned to capitalize on new business opportunities and to continue to pursue additional merger and acquisition opportunities aligned with our strategy and our investment in new capacity," concluded Mr. Spinner.

Introduction of fiscal 2015 guidance
UNFI provided its financial outlook for fiscal 2015, ending Aug. 1, 2015. The Company expects net sales in the range of approximately $8.13 to $8.38 billion, an increase of approximately 19.7 percent to 23.7 percent over fiscal 2014. The Company estimates GAAP earnings per diluted share for fiscal 2015 in the range of approximately $2.88 to $3.01 per share, an increase of approximately 14.3 percent to 19.4 percent over fiscal 2014 GAAP earnings per diluted share of $2.52. Also, capital expenditures in fiscal 2015, net of the planned sale leaseback of the Company's new Twin Cities-area distribution facility in Prescott, Wisconsin, are expected to be approximately $130 to $140 million, or approximately 1.6 percent to 1.7 percent of estimated fiscal 2015 net sales. Finally, the Company expects its fiscal 2015 tax rate to be in the range of 39.25 percent to 39.75 percent.