United Natural Foods Earnings Call Insights: Gross Margins and Guidance

United Natural Foods (NASDAQ:UNFI) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Gross Margins

Edward Aaron – RBC Capital Markets: I guess you’ve had few things kind of go against you so far this year, just between the stock outs, the TMS issue and then some expenses maybe with Sandy. It sounds like it’s going to normalize, but you have a little bit of hole to dig out of particular around the gross margin. So I just was curious to know if there are any sort of incremental offsets on the positive side that keep you confident in your full year ranges?

Steven L. Spinner – President and CEO: Yeah, I mean, that we continue to see nice improvement in our productivity and our expense control around the country and that was evident in this quarter, in particular, and I think we’ll continue to see that. The top line sales for sure is terrific positive that we certainly think is going to continue throughout the year and that will really help us. So, I think those are two primary drivers that I can think of. It’s a terrific time to be in the industry, yes, we had higher degree of supplier out of stocks that we didn’t anticipate but it’s a pretty high class problem to have.

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Edward Aaron – RBC Capital Markets: Then just to follow-up on kind of the recent normalization. So is that to say that, none of these issues will be material to the gross margin in the second quarter?

Steven L. Spinner – President and CEO: When we looked at the gross margin trends which started in the last period of last fiscal year and into the first two periods of this quarter. That’s where we saw the majority of the decline. When we look at P3 of our first quarter, a lot of those margin components normalized to more historical level. So, we have a fair amount of confidence that those issues that we mentioned in the call are behind us.

Edward Aaron – RBC Capital Markets: Then just one last clarification question. If I look at the sequential increase in your balance sheet inventories, it was actually higher than usual this quarter which is little bit surprising given that there were some tight supply issues. How do those things go hand-in-hand?

Steven L. Spinner – President and CEO: Well, I mean, I think that the sales as we mentioned, Ed, the sales coming out of Q4 and into Q1, we saw an acceleration and so – I presume you’re talking from just a straight dollars standpoint?

Edward Aaron – RBC Capital Markets: Yeah, I’m just looking at like the percentage inventory growth from Q4 to Q1 this year versus prior years; it was kind of on the higher end of the range of what we typically see.

Mark E. Shamber – SVP, CFO and Treasurer: Yeah, I mean, so it was a factor of the sales and I think as I mentioned in my comments, we were at 49 days versus being a 52 days last year and a portion of that, last year might have been – we could certainly attribute to the new national customer we had taken on, but certainly we would have probably been happier being a 50 or 51 days of inventory at the end of the quarter, which would have been another $20 million or $25 million higher. So it really is just a reflection of where the sales are running at and trying to get to that level. I mean if you think of it from the standpoint, I’m not sure where you calc is coming up percentagewise, but if you were to think that it should be lower, that might have put us, let’s say, 48 days or 47 days of inventory, which would be relatively tight historically for us going into the holidays. So I understand what you’re saying, but just by virtue of the strength of the sales, even though the jump might have been higher from Q4 to Q1, the sales dictated that we have that higher inventory level and then again we could have used more of it than available.