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UNFI breaks expectations in first quarter

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Consumer excitement for better-for-you foods boosted sales beyond expectations for UNFI. Here is how the numbers added up in the company's first fiscal quarter.

UNFI’s fiscal year is off to a successful start that even surprised the natural foods distributor as it reported its first-quarter earnings.

Net sales increased 7.9 percent, racing past the initial 2018 guidance of 3.8 percent to 5.8 percent growth.

“There’s a lot of consumer attention for the kind of products we sell, and I think the attention in the space has really picked up and that’s translated into higher volumes,” said UNFI Chairman and CEO Steven L. Spinner.

The company has seen sales lift across all channels and retailer sizes, he said, even though larger retailers are growing natural products sales faster than the smaller outlets. That growth, though, is not at the expense of independents, leaders noted.

Sales to UNFI’s top 24 customers, excluding No. 1, grew 10 percent.

By channel, sales growth compared with the first quarter of 2017 broke down like this:

  • Supernatural: 14.3 percent, 34.7 percent of sales of total UNFI sales.
  • Supermarket: 4.7 percent, 28.6 percent of sales.
  • Independent: 6.6 percent, 26 percent of sales.
  • Foodservice: 1.2 percent, percentage of sales not quoted.
  • Ecommerce: 32.1 percent, percentage of sales not quoted.

What’s driving excitement? Spinner said natural products are more desirable, pricing has become more competitive as the gap between conventional and better-for-you products closes, and the industry has experienced long periods of limited inflation.

The company reported these first-quarter fiscal 2018 highlights:

  • Net sales increased 7.9 percent to $2.46 billion compared to $2.28 billion for the same period last fiscal year.
  • Gross margin for the quarter was 14.94 percent, a 38 basis point decrease over last year’s first quarter. The decrease was primarily because of a shift in customer mix where sales growth with lower margin customers outpaced growth with other customers.
  • Total operating expenses increased $16.4 million to $312.1 million for the first quarter of fiscal 2018, compared to $295.7 million in the first quarter of fiscal 2017. Total operating expenses were 12.7 percent of net sales for the first quarter of fiscal 2018, a decrease of 28 basis points compared to the same period last fiscal year.
  • Earnings per diluted common share was 60 cents, compared to 58 cents for the same period last year.

The company also released revised 2018 guidance. UNFI now estimates:

  • Net sales in the range of approximately $9.84 billion to $10 billion, an increase of 6.2 percent to 7.8 percent over fiscal 2017 net sales, compared to the previous estimate of $9.63 billion to $9.81 billion.
  • Earnings per diluted share for fiscal 2018 in the range of approximately $2.72 to $2.80, an increase of approximately 6.3 percent to 9.4 percent over fiscal 2017 earnings per diluted share of $2.56, compared to the previous estimate of $2.67 to $2.77.
  • A fiscal 2018 tax rate to be in the range of 40 percent to 40.3 percent, compared to previous guidance of 40.3 percent to 40.7 percent.
  • Capital expenditures as a percentage of net sales and free cash flow are unchanged from the company’s previous guidance.
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