United Natural Foods Inc. (Nasdaq: UNFI) reported financial results for the fiscal quarter and fiscal year ended Aug. 3, 2013.

Fourth quarter fiscal 2013 highlights

Fiscal year 2013 highlights

“UNFI crossed the $6 billion annual net sales mark, and most importantly demonstrated real progress across all of our core strategies resulting in over 18 percent net income growth compared to the prior year,” said Steven Spinner, President and Chief Executive Officer.

Net sales for the fourth quarter of fiscal 2013 increased 22.2 percent to $1.64 billion from $1.34 billion in fiscal 2012. Adjusted for net sales in the 53rd week of fiscal 2013 of $118.7 million, net sales increased 13.4 percent over fiscal 2012.

Gross margin was 17.3 percent for the fourth quarter of fiscal 2013, a 53 basis point increase from the third quarter of fiscal 2013 and an 11 basis point increase from gross margin of 17.2 percent for the fourth quarter of fiscal 2012. Gross margin for the fourth quarter of fiscal 2013 increased due to improvements in purchasing and logistics efficiencies, partially offset by a continued shift in the Company’s customer mix to lower margin conventional supermarkets.

Total operating expenses were 13.9 percent as a percentage of net sales for the fourth quarter of fiscal 2013, an 11 basis point decrease compared with the fourth quarter of fiscal 2012. This improvement was driven by the Company’s ongoing initiatives to enhance productivity and reduce operating expenses throughout the organization. Total operating expenses increased $40.1 million or 21.3 percent, to $228.4 million in the fourth quarter of fiscal 2013 as compared to $188.3 million in the fourth quarter of fiscal 2012, primarily due to higher sales volume.

Operating income as a percentage of net sales for the fourth quarter of fiscal 2013 increased 22 basis points to 3.4 percent compared to 3.2 percent for the fourth quarter of fiscal 2012. Net income for the fourth quarter of fiscal 2013 increased $6.9 million, or 27.6 percent, to $32.1 million, or $0.65 per diluted share, from $25.1 million, or $0.51 per diluted share, for the fourth quarter of fiscal 2012.

Fiscal year 2013 summary
Net sales for fiscal 2013 totaled $6.06 billion, a 15.8 percent increase compared to fiscal 2012. The additional week in fiscal 2013 contributed approximately $118.7 million, or 2.2 percent, to the Company’s overall fiscal 2013 net sales growth. Excluding the 53rd week, net sales increased 13.6 percent over fiscal 2012.

Gross margin for the period was 16.9 percent, a 59 basis point decrease versus the prior fiscal year. The decline in gross margin was attributed to increased inbound freight costs throughout fiscal 2013 as well as the Company’s focus on maintaining higher service levels despite greater supplier out of stocks. The continued shift in customer mix towards the supernatural and conventional supermarket channels, and to customers within the conventional supermarket channel who are migrating to limited service programs, also negatively impacted gross margin in fiscal 2013 compared to fiscal 2012. This decrease was partially offset by technology initiatives in the second half of fiscal 2013 which provided tools for the Company to maximize purchase incentives while also more effectively managing inventory levels to keep pace with demand.

Total operating expenses for fiscal 2013 were 13.8 percent of net sales, which was 69 basis points lower than in fiscal 2012. Total operating expenses increased $78.7 million, or 10.3 percent, to $839.6 million, compared to $760.8 million for fiscal 2012. 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. Total operating expenses for fiscal 2012 included $5.1 million in expenses related to the restructuring and divestiture of the Company’s conventional non-foods and general merchandise lines of business and $1.6 million in expenses related to the onboarding of a national customer. Excluding the $1.6 million of expenses related to the write-off of an intangible asset in fiscal 2013 and the $6.7 million of expenses related to the restructuring of the Company’s conventional non-foods and general merchandise lines of business and the onboarding of a new national customer in fiscal 2012, operating expenses as a percentage of net sales were 13.8 percent for fiscal 2013, a decrease of 58 basis points compared to fiscal 2012. Operating income as a percentage of net sales was 3.1 percent for fiscal 2013, an increase of 10 basis points over fiscal 2012.

Net income for fiscal 2013 increased $16.5 million, or 18.1 percent, to $107.9 million, or $2.18 per diluted share, from $91.3 million, or $1.86 per diluted share, for fiscal 2012. Excluding $6.5 million of expenses related to the write-off of an intangible asset and the settlement of a multi-state unclaimed property audit in fiscal 2013 and $6.7 million of expenses related to the restructuring of the Company’s conventional non-foods and general merchandise lines of business and the onboarding of a new national customer in fiscal 2012, earnings per diluted share increased 13.4 percent to $2.20 for fiscal 2013, from $1.94 for fiscal 2012.

“Continued expansion of our distribution network, technology improvements and coming together as one company will be important strategies for continuing to deliver long term growth. We also remain extremely committed to our culture of giving and reducing our carbon footprint,” concluded Mr. Spinner.

Introduction of fiscal 2014 guidance
UNFI provided its financial outlook for fiscal 2014, ending August 2, 2014, which is a 52-week fiscal year compared with the 53-week fiscal 2013. For fiscal 2014, the Company expects net sales in the range of approximately $6.65 to $6.78 billion, an increase of approximately 9.7 percent to 11.8 percent over fiscal 2013. Adjusting for the 53rd week in fiscal 2013, sales growth for fiscal 2014 is in the range of approximately 11.8 percent to 14.0 percent. The Company estimates GAAP earnings per diluted share for fiscal 2014 in the range of approximately $2.40 to $2.50 per share, an increase of approximately 10.1 percent to 14.7 percent over fiscal 2013 GAAP earnings per diluted share of $2.18.