UNFI posts Q1 sales gains, but profits decline 13.2%

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United Natural Foods Inc. said inflation and new wholesale customers helped drive dollar sales gains in the first quarter, even though unit sales declined, and profits were squeezed.

Sales were up 7.6% for the period, which ended Oct. 29, compared with the year-ago first quarter. Net income, however, fell 13.2%, to $66 million, as the company’s gross profit rate declined to 14.6% of sales, including a $21 million inventory charge, compared with 14.9% a year ago.

Gross profits were pressured in part by a shift in product sales mix to larger customers, the company said.

In addition, unit volume was down about 3% in the quarter.

“The minus 3% is obviously the consumers reacting to significantly high prices, and that's happening across the market,” said Sandy Douglas, CEO of Providence, R.I.-based UNFI, in a conference call with analysts.

Douglas highlighted opportunities in private labels and in the company’s services business, which provides support for retailers. Private brand sales growth outpaced total industry growth in the quarter, he said.

“We've added some brand and commercial talent to the private brands group, and we have made it a significant priority to make that program significantly more competitive and to sustain that kind of outperforming growth rate,” Douglas said.

The services business, meanwhile, generated “double-digit adjusted EBITDA growth,” he said.

Sales in the company’s retail stores, which include the Cub Foods and Shoppers Food & Pharmacy banners, were up about 2% in the quarter, mostly driven by higher pricing, said John Howard, chief financial officer.

Adjusted retail EBITDA was down about $2 million, compared to last year’s first quarter, which Howard attributed to an incremental health and welfare payment and start-up costs for three new Shoppers stores that UNFI acquired and reopened.

The company confirmed its financial outlook for the full fiscal year, which includes net sales of $29.8 billion to $30.4 billion, adjusted EBITDA of $850 million to$880 million, and adjusted earnings per share of $4.85 to $5.15 per share.

In other information during the call, UNFI said it was making progress on merchandising initiatives and automation in its warehouses.

The company realigned some of its top merchandising personnel to bring them closer to its regional merchandising organization, which Douglas said makes the organization “much more seamless” and improves the ability for suppliers to react to local opportunities.

Regarding warehouse automation, he said UNFI will begin implementation during the current fiscal year, and then roll it out during the next few years, assuming its returns on the investment are realized.

Douglas also said the company is nearing completion of its largest rooftop solar array at its Howell, N.J. distribution center, which is expected to go live by the end of this year.