PROVIDENCE, R.I. — United Natural Foods plans for gains in efficiency to trump a less-profitable — but fast-growing — sales mix in its new fiscal year.
In financial results announced last week, the distributor said that moderating inflation and an increasing mix of sales to larger customers contributed to a decline in gross margin for the fourth quarter and 2010 fiscal year that ended July 31. While those trends are expected to continue in 2011, a new national supply-chain platform is expected to begin to reduce expenses at a faster rate, according to Steven Spinner, president and chief executive officer.
“Lower gross margin supernatural and supermarket customer growth will continue to outpace high gross margin independent sales,” Spinner told analysts in a conference call. “Our opportunity will be to reduce expenses at a rate that exceeds the decline in the gross margin attributed to higher growth supermarket and supernatural customer segments. And I'm confident the company will attain its three-year objective of 10 to 15 basis points per year in operating margin.”
Gross margin as a percent of sales declined by 44 basis points in the fourth quarter to 18.5%. Annual margin of 18.5% was down by 60 basis points as compared with fiscal 2009.
Much of the margin pressure has come from increases in sales from supermarkets buying in larger quantities and in more categories, Spinner noted. For the year, sales to supermarkets grew by 11.7% compared with a 4.2% sales gain from independent customers. UNFI's “supernatural” category, led by Whole Foods Market, saw an annual sales gain of 15.2%.
The productivity improvements are set to kick off shortly when UNFI's new distribution center in Lancaster, Texas, ramps up, Spinner said. The facility will be the first in the company to use new technology systems designed to improve productivity when it goes live later this month, Spinner said. He expects four distribution centers will be running the new systems this fiscal year.
“Our biggest opportunity is to take all this additional volume we've worked so hard to take on and make sure we on-board it as efficiently as we possibly can, which we have a good track record of doing. If everything goes against our internal plans, I feel pretty good about our three-year objectives,” Spinner said.
Sales of $989 million in the fourth quarter increased by 15.8% over the same period last year and by 13.2% excluding acquisitions, the company said. Net income of $17.6 million increased 13.5%.
For the fiscal year, UNFI posted net earnings of $68.3 million, a 15.4% increase, on a sales gain of 8.7% to $3.8 billion.