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Specialty foods distributor, United Natural Foods, Inc. (UNFI - Analyst Report) delivered second-quarter fiscal 2013 adjusted earnings (excluding one-time labor expenses) of 50 cents per share, which were in-line with the Zacks Consensus Estimate. Earnings increased 11.1% year on year from 45 cents. The upside was driven by top-line growth and improved operational efficiency.

Revenue and Margin Details

Net sales for the quarter increased 12.3% year over year to $1.45 billion compared with $1.29 billion in the prior-year quarter. Net sales lagged the Zacks Consensus Estimate of $1.46 billion. The results were driven by continuous increase in demand for the company’s organic and natural food products.

Gross profit increased 8.3% to $241.7 million while gross margin plummeted 62 basis points to 16.7% from the year-ago period, primarily due to logistics inefficiencies. The company has been facing a decline in gross margins over the past several quarters due to the shift in customer mix to lower-margin conventional supermarkets.

However, adjusted operating profit (excluding one-time expense) jumped 13.6% to $42.6 million whereas adjusted operating margin increased 4 basis points to 2.9% in the reported quarter. The upside was the result of productivity initiatives taken up by the company and reduced operating expense as a percentage of sales.

Guidance

Based on its decent first half of fiscal 2013 performance and continued demand for organic products, United Natural expects adjusted earnings in the range of approximately $2.15 to $2.21 per share, which represents an increase of approximately 10.8% to 13.9% over fiscal 2012 adjusted earnings of $1.94 per share.

Going ahead, United Natural looks for further opportunities to enhance its position within the natural and organic industry in the U.S. and Canada and to increase its market share in the specialty products industry.

Moreover, United Natural’s strategic plan including the rollout of a national warehouse management and procurement system upgrade is expected to reduce operating expenses to offset lower gross margins in the upcoming quarters.

United Natural currently holds a Zacks Rank #4 (Sell). Other retail/wholesale stocks worth considering are Green Mountain Coffee Roasters, Inc (GMCR - Analyst Report), Natural Grocers By Vitamin Cotta (NGVC - Snapshot Report) and The TJX Companies Inc (TJX - Analyst Report), where Green Mountain holds a Zacks Rank #1 (Strong Buy), while Natural Grocers and TJX are holding a Zacks Rank #2 (Buy).

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