Natural Sales 'Volatile': Spinner

MARK HAMSTRA

DAYVILLE, Conn. — Sales of natural and organic products have been “volatile” during the past few months, the chief executive officer of United Natural Foods told SN last week.

In an interview following the release of second-quarter earnings, Steven Spinner, CEO of the natural, organic and specialty products distributor, said that many consumers seem to have become far more selective in those categories.

“Eighteen months ago things were pretty predictable — product movement was pretty predictable,” he told SN. “Now we see changes in the top-line revenue growth week to week, which I think is unprecedented.”

He said consumers are migrating to bulk products, and away from “items consumers think they can live without,” such as organic pet food and bottled water.

“Some of the more expensive items have seen some fairly significant declines,” he said.

Items in the specialty category have been affected to a greater degree by the economic slowdown than natural and organic lines, Spinner noted. “[Specialty] tends to be a little more expensive, and people can live without it.”

By contrast, the recession appears not to have impacted sale levels on many core natural and organic items, including organic dairy products, yogurt and kefir.

“The beauty of our industry is that people who have made a lifestyle decision toward natural and organic are sticking with it,” he said. “Many of the hardcore lifestyle-type products we haven't seen any decline on — we are still rocking along.”

Sales of organic produce have weakened, however, although Spinner said that soft demand for those products could drive prices down and reignite sales.

“We think people are saying, ‘I don't need to spend a little more money to buy an organic apple,’ but coincidentally, the prices are plummeting on organic produce, so we think we have an opportunity to get some of that [volume] back,” he explained.

During the conference call with analysts discussing second-quarter results, Spinner noted that the company had begun operating its new 650,000-square-foot distribution center in York, Pa., and plans to integrate specialty products from its 2007 acquisition of Millbrook Distribution Services by April.

The company reported that second-quarter net income rose 50%, which it attributed to benefits from the integration of the Millbrook business, lower fuel costs and better expense control. Net income totaled $13.6 million, vs. $9.1 million in the year-ago period. Sales for the quarter were up 2%, to $847.6 million.

Investors sent the shares up 20% on the report.

United Natural moderated its outlook, however, revising sales guidance for the fiscal year ending Aug. 1 to a range of $3.45 billion to $3.5 billion, down from $3.63 billion to $3.7 billion.

“Despite lower-than-forecast sales growth, earnings were in line with our estimate,” said Andrew Wolf, a Richmond, Va.-based analyst with BB&T Capital Markets. “In our view, this demonstrated the resiliency of [United Natural's] high variable cost distribution model and management's sharp execution during the period.”