Providence, RI — United Natural Foods, Inc. reported record-setting net sales, and raised its guidance for fiscal 2018 during its second quarter financial results conference call.
The organic, natural and specialty food distributor’s net sales were $2.53 billion, representing growth of 10.6% or approximately $242 million over the second quarter of last year, a record for the company for quarterly net sales.
Earnings per diluted common share increased $0.49 to $0.99 from $0.50 for the same period last fiscal year; and adjusted earnings per diluted common share was $0.71, excluding a provisional one-time benefit related to U.S. tax reform and restructuring and impairment charges
Q2 operating income was $40.2 million, a decrease of $6.1 million from $46.3 million in Q2 last year. Excluding restructuring and impairment expenses adjusted operating income was $51.4 million and increase of $5.2 million or 11.2% compared to Q2 last fiscal year.
“Our business performed well during the quarter, and I’m proud of both our results and our people. While the retail landscape continues to change, I believe UNFI is well positioned to win. Consumer interest in ‘better for you’ products has never been greater than it is today, and UNFI is an important connector between manufacturers, brick and mortar retailers and e-commerce customers. Our outlook for the remainder of fiscal 2018 remains strong,” said Steven L. Spinner, chairman and CEO.
Several categories of products continued to grow significantly at UNFI. Single-service beverage, salty snacks, spices and grains, nutritional bars, yogurt and protein and meal replacement powders all had substantial growth. The company also saw a very strong growth across wellness categories: digestive health growing 70%, vitamins growing 74% and personal care growing 34% in the quarter when compared to the second quarter of 2017. And the company’s private label, UNFI’s Woodstock Farms custom snacks — a large national provider of packaged bulk snacks — was also doing well.
CNBC recently reported that after acquiring Whole Foods, Amazon took on an additional $22 billion in contractually obligated future purchases. The balance, which also showed up in Whole Foods’ filings for the first time in November, is almost entirely tied to the grocery chain’s prior contract with UNFI, its largest supplier, based on CNBC estimates and prior filings. About one-third of UNFI’s revenue comes from Whole Foods. UNFI had a contract with Whole Foods through 2025 before the Amazon acquisition.
“The newly public $22 billion figure simply quantifies what would likely be Amazon Whole Foods’ purchases during the term of the agreement, including a growth factor for Whole Foods,” says Jay Jacobowitz, president and founder of Retail Insights. “Using an eight-year term (2018-2025), that is slightly more than $3 billion per year, or about a third of UNFI’s total revenues, or slightly less than Whole Foods’ current share of UNFI’s business, so this is not a greater commitment than already exists.
“It is, however, a deeper commitment than Amazon apparently likes to make with vendors; preferring shorter terms and lesser values. But, it came with the acquisition, so we can’t say that Amazon is demonstrating its new and deep commitment to Whole Foods or brick-and-mortar retail.
“Let’s just say, if (Jeff) Bezos tires of supporting analog retail and sheds Whole Foods before 2025, any new acquirer would have to honor the wholesale purchase agreement, worth roughly the same amount to UNFI.
“I will say that, as I predicted, Amazon won’t easily be able to replace UNFI because Whole Foods is more closely tied to UNFI due to the complexity of shipping perishables, and the near-daily truckload deliveries to hundreds of stores. That is a lot of infrastructure and institutional know-how UNFI has that Amazon, with its mostly non-perishable, hard goods and non-foods shipping infrastructure doesn’t.”
As Whole Foods Magazine reported in October, the company has been charging some local suppliers higher fees, and vendors that sell mostly shelf-stable, non-perishable vitamins, supplements, and personal care items directly to Whole Foods got word that, by March, 2018, they must instead go through UNFI. Many suppliers are unhappy with these changes, and say that new fees for shelving, shipping and in-store product placements are hurting their business, according to a report from Business Insider.