Product Shortages Impact UNFI

PROVIDENCE, R.I. — Reduced inflation and some unexpected product shortages pressured sales growth at United Natural Foods Inc. in the first fiscal quarter, but net income still grew by 42% over year-ago results.

Sales at the natural, organic and specialty product wholesaler totaled $1.41 billion, up 15.8% over year-ago levels. Net income totaled $21.5 million in the quarter, which ended Oct. 27.

Steve Spinner

In a conference call with analysts, Steven Spinner, president and chief executive officer, UNFI, said that supplier out-of-stocks — caused primarily by ingredient shortages and high demand for the holiday season — impacted both sales and gross margins for the quarter. The impact on the top line was “approximately $25 million greater” than in the first quarter of a year ago, he said. “This translated into approximately $4.2 million of loss margin during the quarter.

“While difficult to manage, we're confident that the higher outs will subside and return to a more normalized rate over the next several months,” he added.

The out-of-stocks were also one of a handful of factors impacting gross margins, which totaled 16.7% of sales in the first quarter, down 110 basis points from year-ago results. The company also attributed the reduction in gross margin in part to the implementation of a new transportation management system technology.

Read more: UNFI Experiences Growth Pains in Q4

Scott Van Winkle, a Boston-based analyst with Canaccord Genuity, said he expects trends to improve in the second quarter, although he said “several potential headwinds remain,” including an ongoing labor dispute in UNFI’s Auburn, Wash., distribution center, and up to $500,000 in expenses related to Hurricane Sandy.

However, he added, “With good service, growing market share and the broadest product assortment in natural/organic foods, the company is in a strong position to continue to pace the growth of the industry.”

Spinner also noted that sales growth could be expected to moderate for the remainder of the company’s fiscal year due to the lapping of UNFI’s addition of Safeway as a customer last October. Sales growth will slow by about 3% to 4%, he said.

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