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United Natural Foods Announces 16% Increase in Net Revenue and $0.35 In Earnings Per Share, a 25% Increase for the Second Quarter of Fiscal 2004

March 02, 2004

Reports Record Sales of $393 Million in the Second Quarter of Fiscal 2004

DAYVILLE, Conn., March 2 /PRNewswire-FirstCall/ -- United Natural Foods, Inc. (Nasdaq: UNFI) today reported net income of $7.0 million for the second quarter of fiscal 2004, ended January 31, 2004, or $0.35 per share on a diluted basis, including special items. Net income for the second quarter of fiscal 2004, excluding special items was $7.1 million, or $0.35 per share on a diluted basis.

Net sales for the second quarter of fiscal 2004 were $393.2 million, an increase of $54.8 million, or 16.2%, from the $338.4 million recorded in the second quarter of fiscal 2003. This increase included growth in the independent, conventional mass market and supernatural channels of 17%, 17% and 15%, respectively. These increases include a full quarter of sales in fiscal 2004 and 2003 from Blooming Prairie, which was acquired on October 11, 2002, and a full quarter of sales in fiscal 2004 and one month of sales in fiscal 2003 from Northeast Cooperative, which was acquired on December 31, 2002.

Net income for the second quarter of fiscal 2004, excluding the effect of special items, increased 31.8% to $7.1 million, or $0.35 per diluted share, compared to $5.4 million, or $0.28 per diluted share, excluding special items, for the quarter ended January 31, 2003. The special items for the second quarter of fiscal 2004 consisted of a non-cash income item related to the change in fair value of interest rate swaps and the related option agreements. As previously reported, these interest rate swaps, which are "ineffective" swaps, have been assigned and will no longer be included as a special item. In addition, certain equipment rental and labor costs were recorded in the second quarter of fiscal 2004 for start-up and transition costs associated with implementing the Company's primary distribution relationship with Wild Oats Market, Inc. In the second quarter of 2003, a special non-cash income was recorded related to the non cash change in fair value of interest rate swaps and the related option agreements and certain costs relating to the expansion of the Chesterfield facility. Net income for the second quarter of fiscal 2004, including the effect of special items, increased 27.9% to $7.0 million, or $0.35 per diluted share, for the second quarter of fiscal 2004 compared to $5.5 million, or $0.28 per diluted share, for the quarter ended January 31, 2003.

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

     Quarter Ended January 31, 2004
     (in thousands, except per         Pretax                   Per diluted
      share data)                      Income      Net of Tax       share

    Income, excluding special items:  $11,695          $7,134        $0.35

    Special items - Income/(Expense)
    Related to the transition
     to the primary distributorship
     for Wild Oats Market, Inc.          (551)           (336)       (0.01)
    Interest rate swap and related
     agreements (change in fair
     value of financial instruments)      400             244         0.01

    Income, including special items:  $11,544          $7,042        $0.35



    Quarter Ended January 31, 2003
    (in thousands, except per          Pretax                   Per diluted
     share data)                       Income      Net of Tax       share

    Income, excluding special items:   $9,024          $5,414        $0.28

    Special items - Income/(Expense)
    Interest rate swap and
     related agreements (change in
     fair value of financial
     instruments)                         226             136         0.00
    Costs related to the Chesterfield
     expansion                            (70)            (42)       (0.00)

    Income, including special items:   $9,180          $5,508        $0.28

The non-cash items from the change in fair value on interest rate swap agreements were caused by favorable and unfavorable changes in interest rate yield curves during the quarters ended January 31, 2004 and 2003, respectively. The costs related to the expansion of the Chesterfield facility were primarily labor related.

As previously reported, on December 29, 2003, the Company assigned and transferred all of its obligations of its two "ineffective" interest rate swaps to a third party at a cost of $5.4 million plus accrued interest. As a result of this assignment, these "ineffective" swaps will no longer be included as a special item for future fiscal periods. These "ineffective" swaps were included as a special item for the second quarter of fiscal 2004.

The Company entered into interest rate swap agreements in October 1998, August 2001 and April 2003. The October 1998 and August 2001 agreements are "ineffective" hedges. Applicable accounting treatment requires that the Company record the changes in fair value of the October 1998 and August 2001 agreements in its consolidated statement of income, rather than within "other comprehensive income" in its statement of stockholders' equity. The changes in fair value are dependent upon the forward looking yield curves for each swap. The April 2003 agreement is an "effective" hedge and therefore does not require this treatment. The Company believes that its October 1998 and August 2001 agreements are special items that are excludable as non-recurring items. First, the Company only intends to enter into "effective" hedges going forward. This stated intention began with the April 2003 agreement. Second, the Company believes that the October 1998 and August 2001 agreements may distort and confuse investors if the change in fair value cannot be treated as a special charge because their inclusion directly impacts the Company's reported earnings per share. A change in fair value, whether positive or negative, can significantly increase or decrease the Company's reported earnings per share. For example, the Company recorded a positive change in fair value for the second quarter of fiscal 2004 that increased its earnings per share by $0.01. If the Company were prohibited from excluding this item as a special charge, it would artificially inflate its reported earnings per share and thereby mislead investors as to its financial condition.

Comments from Management

Commenting on the second quarter results, Steven Townsend, Chief Executive Officer, said, "We achieved another strong quarterly performance, driven by successful implementation of strategies focused on meeting the growing consumer demand for natural and organic foods. During the quarter we realized solid increases in net sales, net income and earnings per share, all indications that our sales and marketing strategies are on target. We remain focused on serving a broad customer base and are pleased to achieve strong year over year sales growth rates to independents, conventional mass market and supernaturals of 17%, 17% and 15% respectively. Looking ahead, we remain committed to meeting the needs of our customers and consistently providing high service levels across our entire distribution network."

Mr. Townsend added, "Further validating our business model, we were pleased to re-establish our primary distribution relationship with Wild Oats Market, Inc. We remain on target to assume primary distribution to Wild Oats Market, Inc. natural food stores by April 1, 2004."

Conference Call

Management will conduct a conference call and audio webcast at 11:00 a.m. ET on March 2, 2004 to review the Company's quarterly results, market trends and future outlook. The conference call dial-in number is 303-262-2130 or 800-218-0204. The audio webcast will be available, on a listen only basis, via the Internet at www.fulldisclosure.com or at the Investor Relations section of the Company's website, www.unfi.com . Please allow extra time to 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 32,000 products to more than 14,000 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. 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 .

"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 quarterly report on Form 10-Q filed with the Commission on December 12, 2003, 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 a GAAP basis, the Company uses non-GAAP additional measures of operating results, net earnings 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 generally accepted accounting principles in the United States of America. A comparison and reconciliation from non-GAAP to GAAP results is included in the tables within this release.

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

                               QUARTERS ENDED            SIX MONTHS ENDED
                                 JANUARY 31,                JANUARY 31,
    (In thousands, except     2004         2003         2004         2003
     per share data)

    Net sales             $393,248     $338,447     $774,631     $649,440

    Cost of sales          314,463      269,598      619,673      517,166

      Gross profit          78,785       68,849      154,958      132,274

    Operating expenses      65,386       57,940      128,318      111,372

    Amortization of
     intangibles               234           66          466          104

      Total operating
       expenses             65,620       58,006      128,784      111,476

      Operating income      13,165       10,843       26,174       20,798

    Other expense (income):
      Interest expense       2,133        2,072        4,454        3,919
      Change in fair value of
       financial instruments  (400)        (226)        (704)       1,479
      Other, net              (112)        (183)        (230)        (420)

        Total other expense  1,621        1,663        3,520        4,978

        Income before
         income taxes       11,544        9,180       22,654       15,820

    Income taxes             4,502        3,672        8,835        6,328

      Net income            $7,042       $5,508      $13,819       $9,492

    Per share data (basic):

      Net income             $0.36        $0.29        $0.71        $0.50

    Weighted average basic
     shares of common stock 19,598       19,119       19,562       19,113

    Per share data (diluted):

      Net income             $0.35        $0.28        $0.68        $0.49

    Weighted average diluted
     shares of common
     stock                  20,375       19,526       20,282       19,471


                 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS

    (In thousands)                                JANUARY 31,       JULY 31,
                                                      2004           2003
                                                  (UNAUDITED)    (UNAUDITED)
    ASSETS
    Current assets:
      Cash                                            $8,860         $3,645
      Accounts receivable, net                        99,652         90,111
      Notes receivable, trade, net                       736            585
      Inventories                                    175,555        158,263
      Prepaid expenses                                 6,499          5,706
      Deferred income taxes                            6,004          6,455
      Refundable income taxes                          1,890            704
        Total current assets                         299,196        265,469

    Property & equipment, net                        105,195        101,238

    Other assets:
      Goodwill                                        57,202         57,400
      Notes receivable, trade, net                     2,832          1,261
      Intangible assets, net                             742          1,014
      Other, net                                       3,272          3,717

        Total assets                                $468,439       $430,099

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
      Notes payable - line of credit                $106,498        $96,170
      Accounts payable                                79,130         67,187
      Accrued expenses and other current liabilities  24,007         26,347
      Current portion of long-term debt                4,739          4,459
      Current portion of obligations under
       capital leases                                    809            903
      Financial instruments                              192          6,104
      Income taxes payable                                 -              -
        Total current liabilities                    215,375        201,170

    Long-term debt, excluding current portion         46,129         38,507
    Obligations under capital leases, excluding
     current portion                                     169            612
    Deferred income taxes                              2,247          2,247
        Total liabilities                            263,920        242,536

    Commitments and contingencies

    Stockholders' equity:
      Preferred stock, $0.01 par value,
       authorized 20,000 and 5,000 shares at
       January 31, 2004 and July 31, 2003,
       respectively; none issued and outstanding
      Common stock, $0.01 par value, authorized
       50,000 shares; issued and outstanding 19,674
       and 19,510 at January 31, 2004 and
       July 31, 2003, respectively                       197            195
      Additional paid-in capital                      89,746         86,068
      Unallocated shares of ESOP                      (1,850)        (1,931)
      Accumulated other comprehensive income            (192)           432
      Retained earnings                              116,618        102,799
        Total stockholders' equity                   204,519        187,563

    Total liabilities and stockholders' equity      $468,439       $430,099


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

                                                        SIX MONTHS ENDED
                                                            JANUARY 31,
    (In thousands)                                      2004           2003
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                       $13,819         $9,492
      Adjustments to reconcile net income to net cash
       provided by operating activities:
         Depreciation and amortization                 5,531          5,051
         Change in fair value of financial instruments  (704)         1,479
         Gains on disposals of property & equipment      (22)            (6)
         Provision for doubtful accounts               1,320          1,699
         Changes in assets and liabilities, net of
          acquired companies:
         Accounts receivable                         (10,861)         5,242
         Inventory                                   (17,185)         2,934
         Prepaid expenses and other assets            (1,743)        (3,177)
         Notes receivable, trade                      (1,722)        (1,467)
         Accounts payable                             11,943          2,658
         Accrued expenses                             (1,838)         1,331
         Financial instruments                        (5,400)             -
         Tax effect of stock options                     921            107
           Net cash (used in) provided by operating
            activities                                (5,941)        25,343

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of acquired businesses, net of
       cash acquired                                      (6)       (43,724)
      Proceeds from disposals of property and
       equipment                                         141             47
      Capital expenditures                            (9,335)       (11,221)
        Net cash used in investing activities         (9,200)       (54,898)

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Net borrowings under note payable               10,328         31,392
      Proceeds from issuance of long-term debt         9,904              -
      Repayments on long-term debt                    (2,098)          (854)
      Principal payments of capital lease obligations   (537)          (657)
      Proceeds from exercise of stock options          2,759            317
        Net cash provided by financing activities     20,356         30,198


    NET INCREASE IN CASH                               5,215            643
    Cash at beginning of period                        3,645         11,184
    Cash at end of period                             $8,860        $11,827

    Supplemental disclosures of cash flow information:
      Cash paid during the period for:
        Interest                                      $4,354         $3,798

        Income taxes, net of refunds                  $9,079         $6,421
SOURCE  United Natural Foods, Inc.
    -0-                             03/02/2004
    /CONTACT:  Rick Puckett, Chief Financial Officer of United Natural Foods,
Inc., +1-860-779-2800; or General, Joseph Calabrese, +1-212-445-8434, or
Analysts, Vanessa Schwartz, +1-212-445-8433, both of Financial Relations
Board/
    /Web site:  http://www.unfi.com /
    (UNFI)

CO:  United Natural Foods, Inc.
ST:  Connecticut
IN:  FOD
SU:  ERN CCA

AB-AM 
-- CGTU008 --
2957 03/02/2004 08:28 EST http://www.prnewswire.com
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