PROVIDENCE, R.I.--(BUSINESS WIRE)--United Natural Foods, Inc. today reported financial results for the second fiscal quarter and six months ended January 30, 2016. The Company also announced today that it has acquired certain assets of Global Organic/Specialty Source, Inc. and certain of its related affiliates (collectively “Global Organic”).
Second Quarter Fiscal 2016 Highlights
- Net sales increased 1.5% to $2.05 billion compared to $2.02 billion for the same period last fiscal year.
- Adjusted net sales increased 6.5% compared to the same period last fiscal year, excluding the year-over-year impact of the previously disclosed termination of a customer distribution contract and, for the second quarter of fiscal 2015, the previously disclosed non-recurring reduction in net sales.
- Diluted EPS was $0.45 compared to $0.55 for the same period last fiscal year.
- Adjusted diluted EPS was $0.49, excluding $2.0 million of severance and other transition costs related to a previously announced restructuring plan and approximately $1.0 million of acquisition related costs.
- Free cash flow generation of $106.2 million, the largest free cash flow quarter in Company history.
“We are intently focused on managing our business in a rapidly changing environment. We will make strategic investments to improve our sales growth rate and customer experience through the back half of this fiscal year and into fiscal 2017,” said Steven Spinner, President & CEO. “We are working to build new distribution opportunities and expand our relationships with current customers. Our announcement today of the acquisition of certain assets of Global Organic further demonstrates our strategic focus on increasing UNFI’s product offering into the perishable perimeter. We believe our infrastructure, supply chain and logistics network are uniquely positioned to add meaningful value to customers in an evolving food retail environment.”
Net sales for the second quarter of fiscal 2016 increased 1.5%, or $31.2 million, to $2.05 billion from $2.02 billion in the second quarter of fiscal 2015. Excluding the year-over-year impact of the termination of a customer distribution contract and the impact of the second quarter fiscal 2015 non-recurring reduction in net sales, adjusted net sales increased 6.5% compared to the second quarter of fiscal 2015. Gross margin decreased 31 basis points to 14.5% for the second quarter of fiscal 2016 compared to 14.8% for the same period last year. The decrease in gross margin was primarily due to competitive pricing pressures, moderated supplier promotional activity, a shift in the mix of sales towards lower margin sales channels, the unfavorable impact of foreign exchange for the Company's Canadian business, and a reduction in fuel surcharges.
Total operating expenses were 12.5% as a percentage of net sales for the second quarter of fiscal 2016, an increase of 11 basis points compared to the same period last fiscal year. Total operating expenses increased $6.1 million to $255.8 million for the second quarter of fiscal 2016 compared to $249.7 million in the second quarter of fiscal 2015. Total operating expenses for the second quarter of fiscal 2016 included $2.0 million of severance and other transition costs related to the previously announced restructuring plan and approximately $1.0 million of acquisition related costs. Total operating expenses for the second quarter of fiscal 2015 included approximately $0.6 million of costs related to the startup of the Company's Hudson Valley, New York and Auburn, California facilities and a $0.2 million restructuring charge due to the closure of the Company's Aux Mille facility located in Quebec, Canada.
Operating income decreased $7.8 million to $41.7 million for the second quarter of fiscal 2016 compared to $49.5 million for the second quarter of fiscal 2015. As a percentage of net sales, operating income for the second quarter of fiscal 2016 decreased 41 basis points to 2.0% compared to the same period last fiscal year.
Net income for the second quarter of fiscal 2016 decreased $5.2 million to $22.7 million, or $0.45 per diluted share, from $27.8 million, or $0.55 per diluted share, for the second quarter of fiscal 2015. Excluding $2.0 million of restructuring costs and approximately $1.0 million of acquisition related costs in the second quarter of fiscal 2016, adjusted net income decreased $8.1 million to $24.5 million, or $0.49 per diluted share, compared to adjusted net income of $32.5 million, or $0.65 per diluted share, in the second quarter of fiscal 2015, which excludes the impact of the non-recurring reduction in net sales.
Operating cash flow and capital expenditures for the second quarter of fiscal 2016 were $119.1 million and $12.9 million, respectively, resulting in free cash flow of $106.2 million, the largest free cash flow quarter in Company history.
Fiscal 2016 Year to Date Summary
Net sales for the six months ended January 30, 2016 totaled $4.12 billion, a 2.9% increase over the comparable prior fiscal year period. Excluding the year-over-year impact of the termination of a customer distribution contract and the impact of the second quarter fiscal 2015 non-recurring reduction in net sales, adjusted net sales increased 6.7% compared to the six months ended January 31, 2015.
Gross margin decreased 59 basis points to 14.8% compared to the six months ended January 31, 2015. This decrease was primarily due to the same factors noted above for the second quarter of fiscal 2016 and consistent with the first quarter of fiscal 2016.
At 12.5% of net sales, total operating expenses for the six months ended January 30, 2016 were 22 basis points lower than the comparable prior fiscal year period. Total operating expenses increased $5.5 million, or 1.1%, to $515.8 million from $510.3 million for the six months ended January 31, 2015. The six months ended January 30, 2016 included $4.8 million of severance and other transition costs related to the previously announced restructuring plan and $1.8 million of bad debt expense related to outstanding receivables for a customer who declared bankruptcy in the first quarter of fiscal 2016.
Operating income for the six months ended January 30, 2016 decreased 11.4%, or $12.3 million, to $95.6 million from $107.9 million for the six months ended January 31, 2015. Operating income as a percentage of net sales decreased 37 basis points to 2.3% compared to the same period last fiscal year.
Net income for the six months ended January 30, 2016 decreased $8.1 million, or 13.3%, to $52.8 million, or $1.05 per diluted share, from $60.9 million, or $1.21 per diluted share for the six months ended January 31, 2015. Excluding $4.8 million of severance and other transition costs and approximately $1.0 million of acquisition related costs in the six months ended January 30, 2016, adjusted net income decreased $9.3 million, to $56.3 million, or $1.12 per diluted share, compared to adjusted net income of $65.6 million, or $1.31 per diluted share, in the same period in fiscal 2015, which excludes the impact of the previously disclosed non-recurring reduction in net sales.
Adjusted net sales, adjusted net income, adjusted earnings per diluted share and free cash flow are non-GAAP financial measures. Please refer to the tables in this press release for a reconciliation of all non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP.
Acquisition of Global Organic/Specialty Source, Inc.
The Company today announced that through its wholly owned subsidiary Albert's Organics, Inc. ("Albert's"), it had acquired certain assets of Global Organic. Founded in 1999, Global Organic is a premier distributor of organic fruits, vegetables, juices, milk, eggs, nuts, and coffee in the Southeast, with primary operations located within the same facility as UNFI in Sarasota, Florida. Global Organic's operations will be combined with the Company's existing Albert's business in the Southeast. Full report.
