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United Natural Foods A Unique Grocery Store Play
United Natural Foods (Nasdaq:UNFI) started off the first quarter of its fiscal year on a very positive note as sales and earnings grew in the double digits. The stock multiple isn't in the discount aisle, but is quite a bit lower than its primary customer and is still reasonable considering the products its distributes should be among the fastest growing in the food industry.
IN PICTURES: 10 Ways To Cut Your Food Costs
First Quarter Review
Reported net sales jumped 19% to $1.05 billion, but included a Canadian acquisition and distribution assets from Whole Foods Market (Nasdaq:WFMI). United Natural remains Whole Food's primary distributor in the Rockies and Southwest regions. On an organic basis, net sales rose a still-robust 12.3%. In addition to Whole Foods, conventional supermarkets, including Kroger (NYSE:KR) and mass market chains such as Costco (Nasdaq:COST) and Target (NYSE:TGT), make up a substantial portion of sales.
Gross margins fell slightly, dropping 33 basis points to 18.3% of sales on some challenges in opening a new distribution center in Texas and a shift to some lower margin products. However, operating expenses fell as a percent of sales. The overall result was a 9.1% increase in operating income to $29.7 million. Slower growth in other expenses and taxes helped push net income ahead by 12% to $17.4 million, or 39 cents per diluted share.
Outlook
For the full year, management said to expect sales growth between 15.8% and 18.4% for total sales in a range of $4.35 billion and $4.45 billion. It projects earnings between $1.62 and $1.71 per diluted share for year-over-year growth between 3.2% and 8.9%.
Bottom Line
United Natural Foods represents an interesting play on overall grocery store growth and a secular trend toward "natural, organic and specialty foods," which is what the company specializes in. It distributes in excess of 60,000 products to more than 23,000 customers, though the above chains represent the bulk of sales.
In absolute term, the valuation is lofty at a forward P/E of 21, if the company hits the high end of its guidance. This is much higher than Kroger, which trades at under 12 times forward earnings, but quite a bit lower than Whole Foods that has a forward P/E of 25.5. Serving a large customer base also adds some diversification and adds exposure to a segment of the food industry that should continue to grow faster than the industry as a whole. (For a related reading, see Evaluating Grocery Store Stocks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 10 Ways To Cut Your Food Costs
First Quarter Review
Reported net sales jumped 19% to $1.05 billion, but included a Canadian acquisition and distribution assets from Whole Foods Market (Nasdaq:WFMI). United Natural remains Whole Food's primary distributor in the Rockies and Southwest regions. On an organic basis, net sales rose a still-robust 12.3%. In addition to Whole Foods, conventional supermarkets, including Kroger (NYSE:KR) and mass market chains such as Costco (Nasdaq:COST) and Target (NYSE:TGT), make up a substantial portion of sales.
Gross margins fell slightly, dropping 33 basis points to 18.3% of sales on some challenges in opening a new distribution center in Texas and a shift to some lower margin products. However, operating expenses fell as a percent of sales. The overall result was a 9.1% increase in operating income to $29.7 million. Slower growth in other expenses and taxes helped push net income ahead by 12% to $17.4 million, or 39 cents per diluted share.
For the full year, management said to expect sales growth between 15.8% and 18.4% for total sales in a range of $4.35 billion and $4.45 billion. It projects earnings between $1.62 and $1.71 per diluted share for year-over-year growth between 3.2% and 8.9%.
Bottom Line
United Natural Foods represents an interesting play on overall grocery store growth and a secular trend toward "natural, organic and specialty foods," which is what the company specializes in. It distributes in excess of 60,000 products to more than 23,000 customers, though the above chains represent the bulk of sales.
In absolute term, the valuation is lofty at a forward P/E of 21, if the company hits the high end of its guidance. This is much higher than Kroger, which trades at under 12 times forward earnings, but quite a bit lower than Whole Foods that has a forward P/E of 25.5. Serving a large customer base also adds some diversification and adds exposure to a segment of the food industry that should continue to grow faster than the industry as a whole. (For a related reading, see Evaluating Grocery Store Stocks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
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