-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KAKHd2wiFr5rM8M/sy7wkcbQ7+5mQxYhKLpDcf7Tu2s7snMIatM0KxXdckTZuIHp quVfW6kFEq9h56MejaKuow== 0001171520-06-000461.txt : 20061122 0001171520-06-000461.hdr.sgml : 20061122 20061122154402 ACCESSION NUMBER: 0001171520-06-000461 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20061116 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20061122 DATE AS OF CHANGE: 20061122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED NATURAL FOODS INC CENTRAL INDEX KEY: 0001020859 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 050376157 STATE OF INCORPORATION: DE FISCAL YEAR END: 0729 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15723 FILM NUMBER: 061236458 BUSINESS ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 BUSINESS PHONE: 8607792800 MAIL ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 8-K 1 eps2303.txt UNITED NATURAL FOODS, INC. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): November 16, 2006 UNITED NATURAL FOODS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 000-21531 05-0376157 (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 260 Lake Road Dayville, CT 06241 (Address of Principal Executive Offices) (Zip Code) (860) 779-2800 (Registrant's Telephone Number, Including Area Code) Not Applicable (Former Name or Former Address, if Changed Since Last Report) ================================================================================ Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 1.01. Entry into a Material Definitive Agreement. On November 16, 2006, United Natural Foods, Inc. (the "Company") entered into an amendment (the "Amendment") to its Primary Distribution Agreement with Whole Foods Market Distribution, Inc. ("Whole Foods Market"), a wholly owned subsidiary of Whole Foods Market, Inc. Under the Amendment, the Company will become the primary wholesale natural grocery distributor to Whole Foods Market, Inc.'s Southern Pacific region, which includes Southern California, Arizona, Southern Nevada and Hawaii. The Amendment is effective as of November 16, 2006, and the Company expects to transition this new business during January 2007. A copy of the press release announcing the entry into the Amendment is attached as Exhibit 99.1 hereto, and the first two sentences of the fourth paragraph thereof are incorporated by reference herein. Item 2.02. Results of Operations and Financial Condition. The following information is being furnished under Item 2.02-Results of Operations and Financial Condition. This information, including the portions of the exhibit attached hereto not expressly incorporated herein under Item 1.01 of this Current Report on Form 8-K, shall not be deemed "filed" for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information under this Item 2.02 of this Current Report on Form 8-K shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or under the Exchange Act, regardless of any general incorporation language in such filing. On November 21, 2006, the Company issued a press release to report its financial results for the quarter ended October 28, 2006. The press release is furnished as Exhibit 99.1 hereto. On November 21, 2006, the Company conducted a conference call and audio webcast to review its financial results for the quarter ended October 28, 2006, market trends and the Company's future outlook. A copy of the transcript of such conference call and audio webcast is furnished as Exhibit 99.2 hereto. Item 9.01. Financial Statements and Exhibits (a) Financial Statements of Businesses Acquired: Not Applicable (b) Pro Forma Financial Information: Not Applicable (c) Exhibits. Exhibit No. Description ----------- ----------- 99.1 Press Release, dated November 21, 2006: United Natural Foods Announces Diluted EPS of $0.29 and Record Revenue of $646 Million for the First Quarter of Fiscal 2007. 99.2 Transcript of Management's Prepared Remarks on the November 21, 2006 United Natural Foods Earnings Conference Call. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. UNITED NATURAL FOODS, INC. By: /s/ Mark E. Shamber ------------------------ Mark E. Shamber Vice President and Chief Financial Officer Date: November 22, 2006 EX-99.1 2 ex99-1.txt EARNINGS RELEASE Exhibit 99.1 [LETTERHEAD OF UNITED NATURAL FOODS, INC.] IMMEDIATE RELEASE November 21, 2006 UNITED NATURAL FOODS ANNOUNCES DILUTED EPS OF $0.29 AND RECORD REVENUE OF $646 MILLION FOR THE FIRST QUARTER OF FISCAL 2007 Reports 12.3% increase in comparable net sales over prior year Dayville, Connecticut - November 21, 2006 -- United Natural Foods, Inc. (Nasdaq: UNFI) (the "Company") today reported net sales for the first quarter of fiscal 2007, ended October 28, 2006, of $646.4 million, an increase of $70.8 million, or 12.3%, from the $575.6 million recorded in the first quarter of fiscal 2006. The Company reported net income of $12.4 million, or $0.29 per diluted share, for the first quarter of fiscal 2007. Net income for the first quarter of fiscal 2006, excluding special items, was $10.3 million, or $0.24 per diluted share. Net income for the first quarter of fiscal 2006, including special items, was $7.7 million, or $0.18 per diluted share. There were no special items for the first quarter of fiscal 2007. In the quarter ended October 28, 2006, the Company recorded share-based compensation expense of $1.0 million in accordance with Statement of Financial Accounting Standard No. 123R, Share-Based Payment. Operating expenses during the quarter were negatively impacted by an operating loss of $0.6 million related to its Greenwood, Indiana location of the Company's Albert's Organics division. As a result, the Company closed this facility and began serving this market from the Albert's Organics' Minneapolis, Minnesota facility, effective October 31, 2006. In addition, the Company is pleased to announce that Whole Foods Market Distribution, Inc. (Nasdaq: WFMI) has recently signed an amendment to the seven-year primary distribution agreement announced in October 2006 between the Company and Whole Foods Market Distribution, Inc. Under the amendment, the Company has been named the primary wholesale natural grocery distributor to the Southern Pacific region of Whole Foods Market, Inc. ("Whole Foods Market"), which includes Southern California, Arizona and Southern Nevada. The Company expects to transition this new business during January 2007. When the new Whole Foods Market business is combined with other business gained during the 2007 first quarter, the Company expects to generate incremental revenues of approximately $47.0 to $52.0 million during fiscal 2007, and approximately $95.0 to $105.0 million on an annualized basis. "We are quite pleased with our results for the first quarter, and have confidence in our ability to continue to execute our sales and operating strategies throughout the rest of fiscal 2007" said Michael Funk, Chief Executive Officer. "Sales growth in our supermarket channel continues to be quite strong. Coupled with our expanded Whole Foods relationship in the Southern Pacific region of the United States and a strong pipeline of new Whole Foods stores expected to open in the near future, we expect to realize continued sales momentum in this business channel." Mr. Funk added, "Over the next twelve to twenty-one months, we look forward to further building out our infrastructure by opening new facilities in the Pacific Northwest, Florida and Texas markets, which we originally announced back in August. These new facilities will significantly reduce our annual miles traveled in those regions. In addition, we plan to continue to move forward with our installation of warehouse technologies in our existing facilities. Combined with our commitment to increase sales of our branded products to 5% of revenues by the end of fiscal 2008, we remain optimistic regarding our future growth prospects." For the first quarter of fiscal 2006, ended October 29, 2005, share-based compensation negatively impacted earnings by $2.5 million including special items, or $1.5 million excluding special items. Special items in the first quarter of fiscal 2006 consisted of incremental and redundant costs incurred during the transition from our former warehouses and outside storage facility in Auburn, California into our new larger facility in Rocklin, California, certain incremental costs associated with the opening of our new Greenwood, Indiana facility and non-recurring cash and non-cash expenses incurred in accordance with the employment transition agreement we entered into during the quarter with our former President and Chief Executive Officer. The following table details the amounts and effect of special items and a reconciliation of net income and per share amounts, excluding special items (non-GAAP basis), to net income and per share amounts, including special items (GAAP basis), for the first quarter of fiscal 2006:
- ------------------------------------------------------------------------------------------------ Quarter Ended October 29, 2005 Pretax Per diluted (in thousands, except per share data) Income Net of Tax share ------ ---------- ----- Income, excluding special items: $16,646 $10,320 $0.24* Special items - (Expense) Employment transition agreement costs (included in operating expenses) (3,512) (2,177) (0.05) Rocklin, CA facility relocation costs (included in operating expenses) (672) (416) (0.01) Greenwood, IN facility openings costs (included in operating expenses) (92) (57) (0.00) - ------------------------------------------------------------------------------------------------ Income, including special items: $12,371* $7,670 $0.18 ================================================================================================ * Total reflects rounding.
All non-GAAP numbers have been adjusted to exclude special items. A reconciliation of specific adjustments to GAAP results for the quarter ended October 29, 2005 is included in the financial table shown above. A description of the Company's use of non-GAAP information is provided under "Non-GAAP Results" below. Conference Call Management will conduct a conference call and audio webcast at 11:00 a.m. EST on November 21, 2006 to review the Company's quarterly results, market trends and future outlook. The conference call dial-in number is (303) 205-0033. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the Internet at www.earnings.com or at the Investor Relations section of the Company's website at www.unfi.com. Please allow extra time prior to the call to visit the site and download the necessary software to listen to the Internet broadcast. The online archive of the webcast will be available for 30 days. About United Natural Foods United Natural Foods, Inc. carries and distributes more than 40,000 products to more than 18,000 customers nationwide. The Company serves a wide variety of retail formats including conventional supermarket chains, natural product superstores, independent retail operators and the food service channel. United Natural Foods, Inc. was ranked by Forbes in 2005 as one of the "Best Managed Companies in America," ranked by Fortune in 2006 as one of its "Most Admired Companies," and ranked by Business Ethics as one of its "100 Best Corporate Citizens for 2006." For more information on United Natural Foods, Inc., visit the Company's website at www.unfi.com. Financial Tables Follow For more information on United Natural Foods, Inc., visit the Company's website at www.unfi.com. AT THE COMPANY: FINANCIAL RELATIONS BOARD - -------------------------------------------------------------------------------- Mark Shamber Joseph Calabrese Chief Financial Officer General Information (860) 779-2800 (212) 827-3772 "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding the Company's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, including but not limited to general business conditions, the impact of competition and our dependence on principal customers, see "Risk Factors" in the Company's annual report on Form 10-K filed with the Commission on October 11, 2006, and its other filings under the Securities Exchange Act of 1934, as amended. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. The Company is not undertaking to update any information in the foregoing reports until the effective date of its future reports required by applicable laws. Any projections of future results of operations should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced projections, but it is not obligated to do so. Non-GAAP Results: To supplement its financial statements presented on U.S. generally accepted accounting principles ("GAAP") basis, the Company uses non-GAAP additional measures of operating results, net income and earnings per share adjusted to exclude special charges. The Company believes that the use of these additional measures is appropriate to enhance an overall understanding of its past financial performance and also its prospects for the future as these special charges are not expected to be part of the Company's ongoing business. The adjustments to the Company's GAAP results are made with the intent of providing both management and investors with a more complete understanding of the underlying operational results and trends and its marketplace performance. For example, these adjusted non-GAAP results are among the primary indicators management uses as a basis for its planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net earnings or diluted earnings per share prepared in accordance with GAAP. A comparison and reconciliation from non-GAAP to GAAP results is included in the tables within this release. UNITED NATURAL FOODS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) Quarter ended -------------------------- October 28, October 29, 2006 2005 ----------- ----------- Net sales $ 646,433 $ 575,641 Cost of sales 522,861 465,374 ----------- ----------- Gross profit 123,572 110,267 ----------- ----------- Operating expenses 100,281 95,513 Amortization of intangibles 151 145 ----------- ----------- Total operating expenses 100,432 95,658 ----------- ----------- Operating income 23,140 14,609 ----------- ----------- Other expense (income): Interest expense 2,911 2,367 Interest income (114) (68) Other, net (28) (61) ----------- ----------- Total other expense 2,769 2,238 ----------- ----------- Income before income taxes 20,371 12,371 Provision for income taxes 7,945 4,701 ----------- ----------- Net income $ 12,426 $ 7,670 =========== =========== Per share data - basic: Net income $ 0.29 $ 0.19 =========== =========== Weighted average basic shares of common stock 42,147 41,334 =========== =========== Per share data - diluted: Net income $ 0.29 $ 0.18 =========== =========== Weighted average diluted shares of common stock 42,599 42,150 =========== =========== UNITED NATURAL FOODS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
October 28, July 29, 2006 2006 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 8,416 $ 20,054 Accounts receivable, net 164,476 147,686 Notes receivable, trade, net 1,251 1,254 Inventories 300,214 257,259 Prepaid expenses and other current assets 14,856 12,596 Deferred income taxes 10,911 10,911 ----------- ----------- Total current assets 500,124 449,760 Property & equipment, net 163,579 163,247 Other assets: Goodwill 78,044 78,016 Notes receivable, trade, net 2,499 2,760 Intangible assets, net 214 251 Other 9,615 6,561 ----------- ----------- Total assets $ 754,075 $ 700,595 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 138,691 $ 102,146 Notes payable 118,001 125,005 Accrued expenses and other current liabilities 36,236 34,245 Current portion of long-term debt 5,675 5,433 ----------- ----------- Total current liabilities 298,603 266,829 Long-term debt, excluding current portion 68,083 59,716 Deferred income taxes 8,586 9,693 Other long-term liabilities 658 883 ----------- ----------- Total liabilities 375,930 337,121 ----------- ----------- Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value, authorized 5,000 shares at October 28, 2006 and July 29, 2006; none issued and outstanding -- -- Common stock, $0.01 par value, authorized 50,000 shares; 42,628 issued and 42,399 outstanding shares at October 28, 2006; 42,477 issued and 42,248 outstanding shares at July 29, 2006 426 425 Additional paid-in capital 153,819 149,840 Unallocated shares of Employee Stock Ownership Plan (1,339) (1,380) Treasury stock (6,092) (6,092) Accumulated other comprehensive (loss) income (729) 1,047 Retained earnings 232,060 219,634 ----------- ----------- Total stockholders' equity 378,145 363,474 ----------- ----------- Total liabilities and stockholders' equity $ 754,075 $ 700,595 =========== ===========
UNITED NATURAL FOODS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Quarter ended -------------------------- October 28, October 29, 2006 2005 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,426 $ 7,670 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 4,555 3,754 Loss (gain) on disposals of property & equipment 5 (9) Provision for doubtful accounts 660 369 Share-based compensation 954 2,535 Changes in assets and liabilities, net of acquisitions: Accounts receivable (17,450) (17,510) Inventories (42,955) (34,749) Prepaid expenses and other assets (6,585) (625) Notes receivable, trade 264 (246) Accounts payable 30,729 30,871 Accrued expenses and other current liabilities (3,914) 2,189 Income taxes payable 4,064 -- ----------- ----------- Net cash used in operating activities (17,247) (5,751) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,760) (7,683) Payments for acquisitions, net of cash acquired (28) (517) Proceeds from disposals of property and equipment 19 21 ----------- ----------- Net cash used in investing activities (4,769) (8,179) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 10,000 -- Net (repayments) borrowings under note payable (7,004) 15,401 Increase (decrease) in bank overdraft 5,816 (5,898) Proceeds from exercise of stock options 2,152 1,713 Tax effect of stock options 874 1,284 Repayments on long-term debt (1,458) (1,131) Principal payments of capital lease obligations (2) (148) ----------- ----------- Net cash provided by financing activities 10,378 11,221 ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (11,638) (2,709) Cash and cash equivalents at beginning of period 20,054 12,615 ----------- ----------- Cash and cash equivalents at end of period $ 8,416 $ 9,906 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ 2,996 $ 2,561 =========== =========== Income taxes, net of refunds $ 2,639 $ 4,470 =========== ===========
EX-99.2 3 ex99-2.txt CONFERENCE CALL TRANSCRIPT UNITED NATURAL FOODS, #11076482 First Quarter 2007 Conference November 21, 2006, 11:00 a.m. ET Operator Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the United Natural Foods' first quarter 2007 conference call. At this time all participant lines have been placed in a listen-only mode. Following today's presentation instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero and a conference coordinator will assist you. As a reminder, this conference is being recorded Tuesday, November 21, 2006. At this time I'd like to turn the presentation over to Julie Tu with the Financial Relations Board. Please go ahead, ma'am. J. Tu Thank you and good morning, everyone. By now you should have all received a copy of this morning's press release. If anyone still needs a copy, please call Janet Jazmin in our New York office at 212-827-3777 and we'll send you a copy immediately following this morning's conference call. With us this today this morning from management are Michael Funk, President and Chief Executive Officer, and Mark Shamber, Chief Financial Officer. We'll begin with some opening comments from management and then we will open up the lines for questions. As a reminder, this call is also being webcast today and can be accessed on the internet at www.unfi.com. Before we begin, as usual we would like to remind everyone about the cautionary language regarding forward-looking statements contained in the press release. That same language applies to comments made on this morning's conference call. With that, I'd like to turn the call over to Michael Funk. Please go ahead, Michael. M. Funk Thank you, Julie. Thank you and welcome to our first quarter conference call. Joining me on the call today is Mark Shamber, our Chief Financial Officer. Our first quarter sales were $646.4 million, a 12.3% increase over the first quarter a year ago. We were comping over a very strong quarter a year ago which had come in at 17.27% growth, giving us a two year comp growth of nearly 30%. - -------------------------------------------------------------------------------- UNITED NATURAL FOODS Page 1 Our sales by channel numbers continue to show the strength of all our channels. The independent channel grew at 12% and the supermarket channel continued to be very strong at 24%. Our supernatural channel grew at 9.5% and food service continued to show tremendous growth opportunities with a growth rate of nearly 60%. While the quarter came in at the lower end of our 11% to 15% guidance for the year, several factors should drive the numbers up as we go into the latter part of our fiscal '07. New store openings from Whole Foods Markets, our largest customer, estimated to be 18 to 20, will push our supernatural sales back up. Wild Oats announced closure of some 8 stores recently which will impact us negatively about $7 million in annual sales. However, recently four new Oats stores were opened in the quarter, mitigating this loss to a great extent. We're also pleased to announce the addition of Whole Foods Southern Pacific region which has been added as part of our 7 year supplier agreement recently signed with Whole Foods Markets. This business will transition to us next January as well as new business in the northern California and Pacific Northwest regions. The estimates on the new business is between $95 and $105 million on an annual basis and roughly $47 to $52 million in additional business for the remaining part of '07. As a percentage of our total business, supernaturals was 34.7%; supermarkets were 15.8%; independents were 45.1%; food service was 2.2%. Whole Foods' percentage of our total business was 25.5% and Wild Oats was 9.2%. Operations once again reported consistent performance. Fulfillment rates were 97.67% excluding manufacturer out-of-stocks and on-time deliveries were at 98.12%. Expenses for the quarter were 15.5% of sales, an improvement of 30 basis points from the year before even though fuel costs were 10 basis points higher this quarter than a year ago. Our Albert's Organics produce operation, located in our Greenwood, Indiana facility, continued to under-perform for the quarter, impacting our operating margins by 8 basis points. A decision was made November 1 to close down the Albert's Organics produce operation out of Indiana and transfer the sales to our Minneapolis facility. We will expect no further negative impact on the Indiana produce business. We continue to drive our long term initiatives to expand our operating margin. - -------------------------------------------------------------------------------- UNITED NATURAL FOODS Page 2 On our expansion of technology into our warehouses, we've finished one Pick to Light installation during the quarter and we anticipate another facility to have this technology installed roughly by February '07. Our plan is to have all facilities installed with new technology in the next 30 months which will help us greatly improve productivity and lower operating costs. We are committed to a new facility just north of Portland, Oregon that should be completed by late summer of 2007. When completed, this facility will handle business in the state of Oregon and outlying areas, relieving our Seattle facility which has been operating at over capacity for some time. In addition, we expect to have a site in Florida very soon which we are targeting for a fall 2007 opening. As previously announced, we are also planning a facility in Texas in the next 18 months as well. These new locations will reduce our transportation expenses by reducing the miles our fleet has to travel as well as open up new sales potential in those states. Our United Natural Brands division grew at a rate of 29% for the quarter even with very little new products being introduced. At approximately 3.5% of our business, our goal remains to build this division to 5% of total company revenues by the end of fiscal '08. We're looking at a number of small branded acquisition opportunities with emerging companies that will help us continue to drive the growth of our branded products division. We expect to conclude some of these during the next few quarters. Net income for the quarter was $12.4 million or $0.29 per share, over 20% above last year's $10.3 million or $0.24 a share. Our earnings per share guidance continues to be in the range of $1.25 to $1.30 per share for the year. We will revisit our top line and our earnings guidance after the transition of the Whole Foods Southern Pacific business in January. Our Select Nutrition division posted solid performance for Q1 and it completed the implementation of transferring shipments for Western customers to our Rockland, California warehouse during the quarter. When looking at this division a year ago when it posted a loss of $470,000, this has been a major accomplishment. Tom Dziki, who was the president of this division up until recently deserves the bulk of the recognition for the turnaround. We expect Select to continue to improve under the leadership Tom Grillea, our current president of the division. Now for some further details on our financial numbers, I'd like to turn the call over to Mark Shamber, our Chief Financial Officer. Mark? - -------------------------------------------------------------------------------- UNITED NATURAL FOODS Page 3 M. Shamber Thanks, Michael, and I'd like to extend a welcome and good morning to everyone who is listening in on the call and the webcast. For the first quarter of fiscal 2007, net sales were $646.4 million, an increase of $70.8 million over last year's first quarter of $575.6 million resulting in a comp growth rate for the quarter of 12.3%. As Michael mentioned, strong growth in our supermarket and food service channels contributed to this growth. The company reported net income of $12.4 million or $0.29 per diluted share for the first quarter of fiscal 2007, an improvement of $2.1 million or 20.4% over the first quarter of fiscal 2006 excluding special items of $10.3 million or $0.24 per diluted share. GAAP net income for the first quarter of fiscal 2007 was $7.7 million or $0.18 per diluted share. Gross margin for the quarter was 19.1% which is down 9 basis points from the previous quarter and 4 basis points from the first quarter of fiscal 2006 which were both at approximately 19.2%. The year-over-year gross margin decline was due primarily to low gross margin at our Albert's Organics location in Greenwood, Indiana. Operating expenses for the quarter were 15.5% of sales compared to 15.9% for the same period last year. Operating income was 3.6% for the quarter compared to 3.3% for the prior year excluding special items. This reflects a 30 basis point improvement over the prior year and is effectively consistent with the operating margin achieved in the fourth quarter of fiscal 2006. As Michael mentioned, our Select Nutrition Division continued to build on its momentum from the prior quarter and appears to be on its way towards achieving operating results consistent with our other divisions. During the quarter, our Albert's Organics Greenwood, Indiana facility continued to be dilutive, negatively impacting operating results by approximately 8 to 9 basis points. Based on the slower than anticipated improvement in results, we elected to close this facility and we began serving this market from Albert's Organics' Minneapolis, Minnesota facility effective October 31. We recorded share based compensation expense of $954,000 during the quarter, or 15 basis points compared to $1,514,000 or 26 basis points in the prior year excluding special items. - -------------------------------------------------------------------------------- UNITED NATURAL FOODS Page 4 Incremental costs of fuel for the quarter had a negative impact of 10 basis points on operating expenses over the prior year. Excluding the share based compensation expense and worse than anticipated dilution from our Albert's location in Greenwood, our operating income for the quarter would have been 3.82%, an improvement of approximately 12 basis points over the prior year. Our effective tax rate for the quarter ended October 28 was 39%. The increase in the rate for fiscal 2007 is due primarily to following FAS-123R share based compensation and the rules governing the recognition of incentive stock option expenses in the income statement as certain incentive stock option expenses are not deductible for tax purposes. At this time we believe our tax rate will remain at approximately 39% for fiscal 2007. However, our effective income tax rate will continue to be affected by the tax impact related to incentive stock options and the timing of tax benefits related to disqualifying dispositions and therefore may fluctuate from quarter-to-quarter. There were no special items in the first quarter of fiscal 2007 ended October 28 and in the first quarter of fiscal 2006, we had special items consisting of relocation and opening costs related to our Rockland, California and Greenwood, Indiana facilities and certain costs associated with the employment transition agreement with the company's former president and chief executive officer. These costs and the related GAAP to non-GAAP reconciliation are detailed in the press release that we issued this morning. Our inventory was at 48 days for the first quarter which was within our target range of 47 to 50 days and is an improvement of more than one day from the prior year. DSO for the first quarter was at 22 days, again favorable to our target of 25 to 27 days and a slight improvement over the prior year number. Capital expenditures for the first quarter were $4.8 million, well below our target spending of approximately 1.75% of revenues. We would expect that our capital expenditures will continue to rise during the remainder of the year as we begin to incur costs associated our planned new facilities in the Pacific Northwest, Florida and Texas. Our full year fiscal cap ex guidance remains at the $40 to $45 million level as previously announced. At $2.9 million, interest expense was higher on a year-over-year basis due to rising interest rates over the last year partially offset by lower debt levels during the quarter. Compared to the prior quarter, interest rate expense was effectively flat with an increase of $11,000 from the fourth quarter of fiscal 2006. - -------------------------------------------------------------------------------- UNITED NATURAL FOODS Page 5 The company's outstanding commitments under our amended and restated credit facility as of October 28, 2006 were approximately $129.5 million with available liquidity of $128.9 million including cash and cash equivalents. Our return on total capital was 19.5% and our return on equity was 12.7% both for the trailing 12 months. Both our return on total capital and our return on equity were negatively impacted due to share based compensation expense by 121 basis points and 73 basis points, respectively. At this time we'll turn the call back over to the moderator to facilitate questions. - -------------------------------------------------------------------------------- UNITED NATURAL FOODS Page 6 -----END PRIVACY-ENHANCED MESSAGE-----