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UNFI reports record net sales in third quarter

Natural foods distributor UNFI sees net sales increase 11.8 percent over same quarter in fiscal 2017.

Third-quarter net sales reached a record $2.65 billion, up from $2.37 billion for the same quarter a year ago, United Natural Foods Inc. officials reported Wednesday.   

“These results demonstrate that demand for better-for-you products and UNFI services continues to be strong,” Steven Spinner, UNFI’s CEO and chairman, said during the quarterly earnings call.

In what UNFI calls the supernatural channel—referring to Whole Foods Market—sales increased the most, 24.3 percent. Those sales account for 37.5 percent of the distributor’s net sales. Shortly before Amazon bought the brick-and-mortar chain, the distributor secured an extension of that contract until 2025.

The distributor also reported increased sales in other channels:

  • Independent: 6.1 percent growth; 25.1 percent of sales.
  • Foodservice: 4.6 percent growth; percentage of sales not reported.
  • Supermarket: 3.7 percent growth; 27.1 percent of sales.
  • E-commerce: 2.3 percent growth; percentage of sales not reported.

“UNFI continues to be an important connector between manufacturers, brick-and-mortar retailers as well as e-commerce customers,” Spinner stated in a released statement.

The distributor also reported that its operating income grew 26.5 percent to nearly $82.2 million, and net income was $51.9 million, a 41.8 percent increase.

Total operating expenses also rose compared to the third quarter of fiscal 2018: $325.9 million or 12.3 percent of net sales, including restructuring charges of about $200,000. Last year, total operating expenses were $301.4 million but 12.7 percent of net sales.

Because of increased consumer demand for clean ingredients, fresh foods, private-label products—and their changing habits in how and where they shop—UNFI has begun carrying more inventory to more quickly respond to its customers’ needs.

In addition, the company has seen employment costs rise, as employees worked overtime and temporary workers were hired to meet increasing demand, Chief Financial Officer Mike Zechmeister said during Wednesday’s call. Diesel prices have continued to increase as well, he said.

During the third quarter, gross margin fell 5 basis points, mostly because lower-margin customers experienced more sales growth than high-margin customers.

A change in how UNFI calculates its accrual for inventory purposes resulted in a positive calculation of $20.9 million, which offset some of the decrease in the company’s reported gross margin. In response to several questions during the call, Zechmeister explained that, based on historical data, the company realized it could resolve inventory received with vendors’ invoices more quickly than it previous has.

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