United Natural Foods reported financial results for the third fiscal quarter ended April 30, 2016.
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Net sales increased 0.8% to $2.13 billion compared to $2.11 billion for the same period last fiscal year. Adjusted net sales increased 6.1% compared to the same period last fiscal year, excluding the year-over-year impact of the previously disclosed termination of a customer distribution contract.
Gross margin increased to 15.1% compared to 14.5% in the second quarter of fiscal 2016. Net income of $38.3 million, or $0.76 per diluted share.
Net sales for the third quarter of fiscal 2016 increased 0.8%, or $17.5 million, to $2.13 billion from $2.11 billion in the third quarter of fiscal 2015. Adjusted net sales for the quarter increased 6.1% compared to the same period last fiscal year, excluding the year-over-year impact of the previously disclosed termination of a customer distribution contract.
The net sales contribution from the acquisitions of Global Organic/Specialty Source and Nor-Cal Produce was approximately $18.1 million, or 0.9% of net sales, for the third quarter of fiscal 2016.
Gross margin decreased 29 basis points to 15.1% for the third quarter of fiscal 2016 compared to 15.4% for the same period last year. The decrease in gross margin was primarily due to competitive pricing pressures, a reduction in fuel surcharges, moderated supplier promotional activity, and a shift in the mix of sales towards lower margin categories.
Gross margin for the third quarter of fiscal 2016 increased approximately 59 basis points compared to 14.5% in the second quarter of fiscal 2016. This increase was primarily driven by a sequential improvement in supplier promotional activity and the favorable impact of foreign exchange for United Natural Foods'’s Canadian business.
Total operating expenses were 12.0% as a percentage of net sales for the third quarter of fiscal 2016, a decrease of 12 basis points compared to the same period last fiscal year. Total operating expenses decreased $0.5 million to $256.4 million for the third quarter of fiscal 2016 compared to $256.9 million in the third quarter of fiscal 2015.
Total operating expenses for the third quarter of fiscal 2016 included approximately $0.9 million of acquisition related costs and $1.2 million of startup costs related to United Natural Foods''s Gilroy, California facility.
Total operating expenses for the third quarter of fiscal 2015 included startup costs of approximately $0.5 million related to United Natural Foods''s Hudson Valley, New York and Prescott, Wisconsin facilities offset by a $0.6 million energy grant received as a result of incorporating eligible energy saving designs into United Natural Foods''s Hudson Valley, New York facility.
Operating income as a percentage of net sales was 3.1% for the third quarter of fiscal 2016, a decrease of 16 basis points compared to the same period last year and an increase of 106 basis points from 2.0% in the second quarter of fiscal 2016. Operating income decreased $3.0 million to $66.0 million for the third quarter of fiscal 2016 compared to $69.0 million for the third quarter of fiscal 2015.
Net income for the third quarter of fiscal 2016 decreased $3.5 million to $38.3 million, or $0.76 per diluted share, from $41.8 million, or $0.83 per diluted share, for the third quarter of fiscal 2015.
Net income for the third quarter of fiscal 2015 included a gain of $4.2 million associated with a transfer of land at United Natural Foods''s Prescott, Wisconsin facility.
Operating cash flow and capital expenditures for the third quarter of fiscal 2016 were $81.0 million and $8.6 million, respectively, resulting in free cash flow of $72.4 million. ■