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UNFI sees second quarter sales grow despite deflation

Organic center-of-the-store sales increased 5 percent in the second quarter of fiscal 2017.

United Natural Foods Inc., saw net sales increase 11.6 percent in the second quarter of fiscal 2017 compared to the same quarter of 2016, the company announced Wednesday.

Organic sales, not including produce or fresh foods, grew 5 percent. The second quarter ended Jan. 28.

Growth came despite the current challenges surrounding retail sales. "We and our retail partners continue to operate in a highly competitive and deflationary environment," Chairman and CEO Steven Spinner said during the quarterly earnings call. Deflation was worse in the second quarter than in the first, he said.

"I have a high degree of confidence that it’s not going to be forever. It will turn," Spinner said.

Overall, the company saw deflation of 0.3 percent, compared with 2.15 percent inflation in the second quarter of 2016. The greatest deflation came in produce, proteins and cheese, said CFO Michael Zechmeister.

UNFI’s second quarter results included:

  • Net sales of $2.29 billion.
  • A gross margin increase of 56 basis points to 15.09 percent compared to last year.
  • Net income of $25.5 million, a 12.3 percent increase from the previous fiscal year.
  • Cash flow from operations of $104.2 million, down from $119.1 million in the second quarter of fiscal 2016.
  • Capital expenditures of $13.5 million, up from $12.9 million a year ago.

Spinner said the company’s growth was due to its acquisitions, strategic initiatives and investments, and e-commerce moves.

The company’s Build Out the Store strategy, which allows retailers to purchase a variety of products and services from UNFI, "remains the forefront of our strategic road strategy and it is taking shape as we move toward 2018," the CEO said.

He also touted the UNFI Next program. "It’s a great opportunity for UNFI to work with newer brands and support them as they grow," Spinner said.

Zechmeister noted that the company’s investment in refrigerated distribution centers and transportation is paying off, as sales of perishables are increasing more quickly than center store—packaged goods—sales.

"Now, we are in a terrific position to sell more to our existing customers, which is the most efficient way and the most profitable way for us to grow," Zechmeister said.

By channel, sales increased 3.5 percent in supernaturals, 26.2 percent in supermarkets, 9.6 percent in independent, 5.1 percent in foodservice and 15.4 percent in e-commerce.

Supernaturals sales made up 34.2 percent of UNFI’s net sales, while supermarkets had 29.1 percent and independent stores 26.4 percent, Zechmeister said.

Looking ahead, the company will incur restructuring charges of $3.5 million to $4 million in the second half of 2017 as it implements a restructuring plan. UNFI will eliminate or move approximately 265 positions this year, a move designed to make the company more efficient and improve customer service, Spinner said.

For the first half of fiscal 2017, net sales reached $4.56 billion, a 10.7 percent increase over the first half of 2016.

Other year-to-date results included:

  • Adjusted net sales rose 12.2 percent from 2016.
  • Gross margin increased 38 basis points to 15.21 percent, compared with 14.83 percent in the first two quarters of 2016.
  • Net income of $54.7 million—an increase of $1.9 million or 3.6 percent from 2016.
  • Total operating expenses increased to $594.4 million, up $78.5 million from 2016’s costs. This year’s expenses were 51 basis points higher than last year’s.
  • Cash flow from operations of $96.9 million, down from $124.6 million in the first half of 2016.
  • Capital expenditures of $22.7 million, up from $20.5 million at this time in 2016.
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