A mixed Q1 for UNFI
United Natural Foods Inc. (UNFI) reported a mixed fiscal 2019 first quarter as it tries to integrate SuperValu into its operations.
During the first quarter ended Oct. 27, UNFI grew overall net sales 7.6 percent compared with a year-ago period, excluding about $224 million net sales from SuperValu. UNFI’s results included six days of SuperValu’s operating results. UNFI acquired SuperValu in October.
Net loss for the first quarter of fiscal 2019 was $19.3 million, including $2.1 million of income related to discontinued operations, among them SuperValu’s remaining retail banners, compared with $30.5 million for the first quarter of fiscal 2018.
"While we are clearly disappointed by the near-term results of SuperValu," Steve Spinner, chairman and CEO, said in a call with analysts, "we started this process with a viewpoint that in order to build the business for the future and to create considerable value for our constituents, UNFI would serve its shareholders over the long term by becoming the premier wholesaler of products and services throughout North America."
Spinner said the company is facing several near-term issues, including the macroeconomic environment of retail, which he said "continues to be challenging [with] more and more retailers competing for their share of the consumers' dollar. Products are now available in more and more outlets, including online. We expect the scale, the product offering and the services of a combined UNFI to offset this trend as we start to realize the benefits of the combination."
Gross margin for UNFI’s first quarter of fiscal 2019 was 14.38 percent of net sales, including a $1.8 million, or 0.06 percent of net sales, inventory fair value adjustment charge related to the SuperValu acquisition. When adjusted for this charge, gross margin in the first quarter of fiscal 2019 was 14.44 percent of net sales, versus 14.94 percent last year. UNFI attributed the decline to a shift in customer mix, including the growth of the supernatural channel, and higher inbound freight expense, partly offset by increased levels of vendor support and greater fuel surcharge income.
Operating loss was $18.8 million in the first quarter of fiscal 2019 and included restructuring, acquisition, and integration related expenses of $68 million and a $1.8 million inventory fair value adjustment charge associated with the purchase of SuperValu. When adjusted for these items, operating income was $51 million, or 1.78 percent of net sales, compared with $55.1 million, or 2.24 percent of net sales, in the year-ago period. This decrease was driven by lower gross margins, as a percent of net sales and higher labor costs, according to the company.
UNFI is the largest publicly traded grocery distributor in America with expected annual sales of over $21 billion.