United Natural Foods Announces 9% Increase in First Quarter Net Income Excluding Special Items

December 4, 2002

Earns $0.28 excluding special items Reports 10.9% sales gain to record $311 million in First Quarter Of Fiscal 2003

DAYVILLE, Conn., Dec. 4 /PRNewswire-FirstCall/ -- United Natural Foods, Inc. (Nasdaq: UNFI) today reported net income of $5.4 million for the first quarter of fiscal 2003, or $0.28 per share on a diluted basis, excluding special items, at the upper end of guidance previously provided by the Company.

Net sales for the first quarter of fiscal 2003 were $311.0 million, an increase of 10.9% from the $280.3 million recorded in the first quarter of fiscal 2002. The increase was primarily due to growth in the independent and mass market distribution channels of approximately 11.8% and 21.4%, respectively. The supernatural distribution channel increased approximately 5.5%. These increases all include sales from the Blooming Prairie division, acquired on October 11, 2002, and Boulder Fruit Express, acquired on November 7, 2001. Sales growth for the quarter, excluding the effect of acquisitions, was 6.5%. Sales growth was also impacted by the transition of the Company's second-largest customer to a new primary distributor. Sales growth excluding acquisitions and the impact of this transition was 16.5%.

Net income for the first quarter of fiscal 2003, excluding the effect of special items, increased 9.0% to $5.4 million, or $0.28 per diluted share, compared to $4.9 million, or $0.26 per diluted share, excluding special items, for the quarter ended October 31, 2001. The special items for the quarter ended October 31, 2002, consisted of a non-cash charge related to the change in fair value of interest rate swaps and related option agreements and certain costs relating to the transition of the Company's second largest customer to a new primary distributor. A special non-cash charge was recorded in the first quarter of fiscal 2002 related to the change in fair value of interest rate swaps and related option agreements. Net income including special items increased 53.1 % to $4.0 million, or $0.21 per diluted share, for the first quarter of 2003 compared to $2.6 million, or $0.14 per diluted share, in the prior year period.

 
    The following table details the amounts and effects of these items:

    Quarter Ended October 31, 2002
    (in thousands, except per share data)   Pretax    Net of Tax

Per diluted


                                            Income                   share

    Income, excluding special items:        $8,920      $5,352      $0.28

    Less: special items
    Interest rate swap agreements
     (change in value of financial
      instruments)                           1,706       1,023       0.05
    Costs related to loss of major customer
     (included in operating expenses)          574         345       0.02

    Income, including special items:        $6,640      $3,984      $0.21


    Quarter Ended October 31, 2001
    (in thousands, except per share data)  Pretax    Net of Tax  Per diluted
                                            Income                   share

    Income, excluding special items:        $8,180      $4,908      $0.26

    Less: special items
    Interest rate swap agreement (change in
     value of financial instruments)         3,787       2,272       0.12
    Costs related to relocating distribution
     center (included in operating expenses)    57          34          -

    Income, including special items:        $4,336      $2,602      $0.14

The non-cash charge from the change in fair value on interest rate swap agreements was caused by unfavorable changes in yield curves during the quarters ended October 31, 2002 and 2001, respectively. The costs related to the transition of the Company's second largest customer to a new primary distributor consisted primarily of severance and expenses related to the transfer of private label inventory.

Comments from Management

Commenting on the first quarter results, Michael Funk, Chief Executive Officer, said, "This is an excellent start to our new fiscal year, continuing on track with executing our business plan and growth objectives. During the quarter we achieved year-over-year double-digit sales growth and a 9% increase in net income. This growth was driven by a strong performance in sales to independent and mass market customers, which increased 11.8% and 21.4%, respectively. Regarding supernatural customers, sales increased 5.5% when compared to the same period last year. Growth in the supernatural channel was 33.8% excluding acquisitions and the effects of the transition of our second largest customer to a new primary distributor. The continued strong demand for our products and programs demonstrates that we are meeting the needs of our customers and we intend to be their leading natural products resource for the long-term."

Mr. Funk added, "Operationally, we continue to pursue internal and external growth strategies focused on expanding our customer base, increasing market share and extending our presence in both existing operating areas and new, under-penetrated markets. Consistent with this strategy we completed the acquisition of Blooming Prairie Cooperative, the largest volume distributor of natural foods in the Midwest and also entered into an agreement to merge with Northeast Cooperatives, a natural foods distributor in the Northeast and Midwest."

The Company believes sales growth for the quarter ending January 31, 2003, will be in the 9 - 12% range, including growth in the mid-teens for the business excluding acquisitions and the effects of the transition of its second largest customer to a new primary distributor. The earnings per diluted share outlook for the quarter ending January 31, 2003 and the fiscal year ending July 31, 2003 is $0.26 - $0.28 and $1.18 - $1.20, respectively, consistent with prior guidance.

Conference Call

Management will conduct a conference call and audio webcast at 11:00 a.m. ET on December 4, 2002 to review the Company's quarterly results, market trends and future outlook. The conference call dial-in number is 703-871-3599. The audio webcast will be available, on a listen only basis, via the Internet at www.viavid.com or at the Investor Relations section of the Company's website, www.unfi.com . Please allow extra time for the webcast to visit the site and download any software required 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 over 30,000 products to more than 10,000 customers nationwide. The Company serves a wide variety of retail formats including conventional supermarket chains, natural product superstores and independent retail operators.

For more information on United Natural Foods, Inc., visit the Company's web-site at www.unfi.com .

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding United Natural's business which 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 28, 2002, 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. United Natural is not undertaking to update any information in the foregoing reports until the effective date of its future reports required by applicable laws.


                 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (UNAUDITED)

                                                         QUARTER ENDED
                                                          OCTOBER 31,
    (In thousands, except per share data)             2002           2001

    Net sales                                       $310,993       $280,315

    Cost of sales                                    250,157        225,314

        Gross profit                                  60,836         55,001

    Operating expenses                                50,843         45,024

    Amortization of intangibles                           38             64

        Total operating expenses                      50,881         45,088

        Operating income                               9,955          9,913

    Other expense (income):
      Interest expense                                 1,847          1,746
      Change in fair value of financial instruments    1,706          3,787
      Other, net                                        (238)            44

        Total other expense                            3,315          5,577

        Income before income taxes                     6,640          4,336

    Income taxes                                       2,656          1,734

        Net income                                    $3,984         $2,602



Per share data (basic):

Net income $0.21 $0.14 Weighted average basic shares of common stock 19,106 18,665

Per share data (diluted):

        Net income                                     $0.20          $0.14

    Weighted average diluted shares of common stock   19,434         19,060


                 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS


    (In thousands)                                 OCTOBER 31,     JULY 31,
                                                       2002          2002
                                                   (UNAUDITED)     (AUDITED)
    ASSETS
    Current assets:
      Cash                                            $4,399        $11,184
      Accounts receivable, net                        86,418         84,303
      Notes receivable, trade                            474            513
      Inventories                                    150,386        131,932
      Prepaid expenses                                 6,144          4,493
      Deferred income taxes                            4,612          4,612
      Refundable income taxes                              -             58
        Total current assets                         252,433        237,095

    Property & equipment, net                         92,415         82,702

    Other assets:
      Notes receivable, trade, net                     1,365            956
      Goodwill, net                                   45,049         31,399
      Covenants not to compete, net                      221            248
      Deferred taxes                                     800            800
      Other, net                                       1,453          1,257

        Total assets                                $393,736       $354,457

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
      Notes payable - line of credit                $118,186       $106,109
      Current installments of long-term debt           1,593          1,658
      Current installment of obligations under
       capital leases                                    783          1,037
      Accounts payable                                67,566         52,789
      Accrued expenses                                20,105         18,185
      Financial instruments                            7,326          5,620
      Income taxes payable                             1,838              -
        Total current liabilities                    217,397        185,398

    Long-term debt, excluding current installments    10,867          7,677
    Obligations under capital leases, excluding
     current installments                                936            995
    Deferred revenue                                     120              -
        Total liabilities                            229,320        194,070

    Stockholders' equity:
    Preferred stock, $.01 par value, authorized 5,000
     shares; none issued and outstanding
    Common stock, $.01 par value, authorized 50,000
     shares; issued and outstanding 19,110 at
     October 31, 2002; issued and outstanding 19,106
     at July 31, 2002                                    191            191
      Additional paid-in capital                      79,716         79,711
      Unallocated shares of ESOP                      (2,054)        (2,094)
      Retained earnings                               86,563         82,579
        Total stockholders' equity                   164,416        160,387

        Total liabilities and stockholders' equity  $393,736       $354,457


                 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)

                                                         QUARTER ENDED
                                                           OCTOBER 31,
    (In thousands)                                    2002             2001

    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                        $3,984         $2,602
      Adjustments to reconcile net income to net
       cash provided by operating activities:
      Depreciation and amortization                    2,370          1,814
      Change in fair value of financial instruments    1,706          3,787
      Gain (loss) on disposals of property & equipment     9             (3)
      Deferred income tax benefit                          -           (287)
      Provision for doubtful accounts                  1,060            513
      Changes in assets and liabilities, net of
       acquired companies:
      Accounts receivable                               (227)        (9,487)
      Inventory                                       (4,111)       (14,208)
      Prepaid expenses                                (1,404)          (643)
      Refundable income taxes                             57            366
      Other assets                                       758           (727)
      Notes receivable, trade                             95            141
      Accounts payable                                 9,304         19,532
      Accrued expenses                                   750          6,038
      Income taxes payable                             1,805          2,006
        Net cash provided by operating activities     16,156         11,444

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of acquired businesses, net of
       cash acquired                                 (29,960)             -
      Proceeds from disposals of property and
       equipment                                          33             16
      Capital expenditures                            (4,313)        (4,360)
        Net cash used in investing activities        (34,240)        (4,344)

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Net borrowings under note payable               12,077         12,184
      Repayments on long-term debt                      (470)       (20,188)
      Principal payments of capital lease obligations   (312)          (299)
      Proceeds from exercise of stock options              4            119

        Net cash provided by (used in) financing
         activities                                   11,299         (8,184)

    NET DECREASE IN CASH                              (6,785)        (1,084)
    Cash at beginning of period                       11,184          6,393
    Cash at end of period                             $4,399         $5,309

    Supplemental disclosures of cash flow information:
      Cash paid during the period for:
        Interest                                      $1,823         $1,629
        Income taxes, net of refunds                    $819           $196

In 2002 and 2001 the Company incurred $0 and $628, respectively, of capital lease obligations.

SOURCE United Natural Foods, Inc.

-0- 12/04/2002

/CONTACT: Todd Weintraub, Chief Financial Officer, of United Natural Foods, +1-860-779-2800; General Information, Joseph Calabrese, +1-212-445-8434, or Analyst Information, Vanessa Schwartz, +1-212-445-8433, both of FRB Weber Shandwick/