While many grocery firms are reeling under stiff competition posed by industry biggies as well as shifting consumer preferences, companies like United Natural Foods, Inc. UNFI have been putting up a strong fight and thriving well. The company’s well-planned initiatives and rising demand for natural and organic products have been fueling growth in its sales channels.
Well-Planned Strategies & Surging Demand Aid Performance
United Natural boasts an impressive earnings surprise history, which was retained in the second quarter of fiscal 2018. Both the top and bottom lines improved year over year and surpassed estimates. While earnings marked its fourth straight beat, revenues topped estimates for the second period in a row. Well, the impressive results can be attributed to the company’s consistent focus on growth initiatives and surging demand across all segments.
United Natural is committed toward achieving core strategic targets for 2018, some of which also drove second-quarter fiscal 2018 results. These include plans to enhance customer base, expand the company’s broadline distribution channel, improve gross margin and retain focus on mergers and buyouts. The company expects consistent demand growth for its better-for-you products. Further, the company strives to develop effective sourcing processes and supply chain networks so as to better align supplies with demand and thereby meet consumers needs much more efficiently.
Growth in E-commerce
United Natural focuses on enhancing presence in the e-commerce space, mainly through investments in technology and infrastructure. To this end, the company extended its online operations to its fourth fulfillment center. This enables United Natural to offer a wide array of online services and cater to the requirements of the company’s brick-and-mortar stores. Driven by these efforts, the company’s e-commerce sales jumped almost 28.9% in the second quarter, positively impacting the top-line results of the food services segment, which improved 6%.
The growing dependency on technology and advancements in the digital space caused many grocery biggies such as Walmart WMT and Target TGT to expand omni-channel offerings. With sophisticated distribution networks and fulfillment centers, United Natural’s growth in the omni-channel arena is quite remarkable and places it well when it comes to competing with big box retailers and more particularly with Amazon AMZN.
Efforts to Widen Portfolio
Buyouts have played an important role to widen United Natural’s distribution network as well as customer base and boost long-term growth. In this regard, the acquisitions of Haddon House and Gourmet Guru during 2016 have proved lucrative, as they have strengthened the company’s resource base and helped achieve greater operating scale. Other notable buyouts include Nor-Cal Produce, Inc, Tony’s Fine Foods and Trudeau Distributing Company. Further, we expect United Natural to continue gaining from such strategic takeovers.
Bright Outlook Instills Optimism
With broad-based improvements and rising demand for organic and specialty food products, management is confident about sustaining the stellar performance in the forthcoming periods. That said, management raised its previously issued sales and earnings view for fiscal 2018. United Natural projects net sales in the range of $10.01-$10.16 billion, depicting growth of 8-9.5% from fiscal 2017 sales figure. Management also envisions earnings for fiscal 2018 in the range of $3.06-$3.14 per share, depicting an increase of 19.5-22.7% from the prior-year quarter’s figure. Management anticipates significant gains from reduced tax rates during fiscal 2018.
Marching with such positives rolled up in its sleeve, United Natural is expected to continue as a prominent player in the organic and specialty food space. While the company gained just 1.3% in the past six months, it performed better than the industry that declined 5.8%. Further, considering United Natural Foods’ well-woven strategic goals for 2018, we are hopeful that this Zacks Rank #1 (Strong Buy) company will move higher in the charts. You can see the complete list of today’s Zacks #1 Rank stocks here.
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