Shares of United Natural Foods Inc. (NYSE: UNFI) have jumped 187% over the past three months and 77% since the beginning of the year. The company delivered strong results for the third quarter of 2020, with net sales increasing 12% to $6.6 billion and adjusted EPS rising 130% to $1.40.
The quarterly results benefited from a significant shift to dining at home as well as heavy purchases of essential items due to the COVID-19 pandemic. On its quarterly conference call, the company stated that the potential shift to dining at home is estimated to reach approx. $100 billion this calendar year. The pantry loading by customers drove double-digit sales growth during the third quarter and this momentum has continued into the fourth quarter as well.
Looking ahead, United expects the positive trends to continue in the coming months as people continue to eat at home due to safety concerns. Despite restaurants being open, it is likely people might hesitate to dine out the way they did before the pandemic.
The company cited a survey by Piper Sandler that stated that around two-thirds of respondents plan to cook more at home, with an average of more than four additional meals per week, even after the pandemic subsides.
United also expects to benefit from the ongoing work-from-home trend as this again leads to people choosing to eat at home as opposed to dining out as there is less reason for them to leave the comfort and safety of their homes.
The company believes there will be a recessionary environment for 12-24 months and stated that it has done well in such times as again due to financial reasons, people will choose to dine at home instead of eating out. In general, the company expects to see healthy demand and forecasts 2021 to be better than 2020.
“We expect elevated consumer demand for our wide variety of natural, conventional and fresh perimeter products, along with our ongoing synergy and integration initiatives, to result in a strong finish to the fiscal year.” – Steven L. Spinner, Chairman and CEO
COVID-19 impact
During the third quarter, sales growth was driven by higher sales volume due to a rise in food-at-home expenses caused by the economic impact of the coronavirus outbreak. The company took a hit to its gross margins due to a shift towards lower margin products and lower vendor promotions. This was partly offset by lower levels of inventory shrink.
United incurred higher expenses related to health and safety measures associated with the pandemic and these are expected to go down as the health crisis abates. These expenses amounted to around $20 million in the period.
Divestitures and reporting changes
United had previously entered into agreements to sell 13 Shoppers stores and close six additional stores. During the third quarter, the company closed on the sale of 12 of these Shoppers stores. United currently does not expect to divest the Cub Foods business and the majority of the remaining Shoppers locations within a year. These locations will be moved to continuing operations from the fourth quarter of 2020.
From the fourth quarter, the company will not report the wholesale sales to Cub and certain Shoppers stores and will instead report the retail sales from these stores. This change is estimated to lead to an increase in total annual sales for fiscal 2020 of approx. $1.2 billion.
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