United Natural Foods Announces a 28% Increase in Net Sales, a 32% Increase in Net Income, Excluding Special Items, and a 31% Increase in Net Income, Including Special Items

March 1, 2005
Reports Record Sales of $504.7 Million in the Second Quarter of Fiscal 2005

DAYVILLE, Conn., March 1, 2005 /PRNewswire-FirstCall via COMTEX/ -- United Natural Foods, Inc. (Nasdaq: UNFI) today reported net income of $9.4 million for the second quarter of fiscal 2005, ended January 31, 2005, or $0.23 per share on a diluted basis, excluding special items. Net income for the second quarter of fiscal 2005, including special items was $9.2 million, or $0.22 per share on a diluted basis. The recent acquisition of Select Nutrition Distributors (SND) had a negative impact on diluted earnings per share in the current quarter of $0.004. We expected dilution from SND as stated in our press release dated December 21, 2004. In addition higher fuel costs negatively impacted diluted earnings per share during the quarter by $0.01 relative to expected cost levels, and $0.02 compared to actual costs in the second quarter of fiscal 2004.

Net sales for the second quarter of fiscal 2005 were $504.7 million, an increase of $111.5 million, or 28.3%, from the $393.2 million recorded in the second quarter of fiscal 2004. On a comparable growth analysis, subtracting SND and Wild Oats Markets, Inc., wholesale revenue growth was 14.5% for the current quarter compared to last year.

Net income for the second quarter of fiscal 2005, excluding the effect of special items, increased 32.3% to $9.4 million, or $0.23 per diluted share, compared to $7.1 million, or $0.18 per diluted share, excluding special items, for the quarter ended January 31, 2004. The special items for the second quarter of fiscal 2005 included certain labor costs associated with the closing of the Mounds View, MN facility. This closing was completed in the second quarter of fiscal 2005. Net income for the second quarter of fiscal 2005, including the effect of special items, increased 31.0% to $9.2 million, or $0.22 per diluted share, compared to $7.0 million, or $0.17 per diluted share, for the quarter ended January 31, 2004.

The following table details the amounts and effects of this special item:

    Quarter Ended January 31, 2005         Pretax                  Per diluted
    (in thousands, except per share data)  Income     Net of Tax     share

    Income, excluding special items:      $15,474        $9,439       $0.23

    Special items - Income/(Expense)
    Related to the closing of the
    Mounds View, Minnesota facility
    (included in operating expenses)         (353)         (215)      (0.01)

    Income, including special items:      $15,121        $9,224       $0.22

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.

The following table details the amounts and effects of the special items for quarter ending January 31, 2004:

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

    Income, excluding special items:      $11,695        $7,134       $0.18

    Special items - Income/(Expense)
    Related to the transition to the
    primary distributorship for Wild Oats
    Market, Inc. (included in operating
    expenses)                                (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       $0.17*

     * Totals reflect rounding

All non-GAAP numbers have been adjusted to exclude special charges. A reconciliation of specific adjustments to GAAP results for the quarters ended January 31, 2005, and January 31, 2004, is included in the financial tables shown above. A description of the Company's use of non-GAAP information is provided under "Non-GAAP Results" below.

The non-cash item from the change in fair value on interest rate swap agreements was caused by favorable changes in interest rate yield curves during the quarter ended January 31, 2004. 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 was 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

Steven Townsend, Chief Executive Officer, said, "We are pleased with our current continued strong performance highlighted by our success in 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, marketing and operational 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. Looking ahead, we remain committed to meeting the needs of all our customers while consistently providing high service levels across our entire distribution network."

Conference Call

Management will conduct a conference call and audio webcast at 11:00 a.m. EST on March 1, 2005 to review the Company's quarterly results, market trends and future outlook. The conference call dial-in number is (303) 262-2125. The audio webcast will be available, on a listen only basis, via the Internet at http://www.fulldisclosure.com or at the Investor Relations section of the Company's website, http://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 43,000 products to more than 21,000 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 http://www.unfi.com.

For more information on United Natural Foods, Inc., visit the Company's website at http://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 10, 2004, 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.
                CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                    (In thousands, except per share data)

                                      Three months ended    Six months ended
                                         January 31,           January 31,
                                       2005       2004       2005       2004

    Net sales                      $504,710   $393,248   $982,252   $774,631

    Cost of sales                   409,385    314,463    794,484    619,673

        Gross profit                 95,325     78,785    187,768    154,958

    Operating expenses               78,577     65,386    153,173    128,318

    Restructuring charge                  -          -        170          -

    Amortization of intangibles         172        234        314        466

        Total operating expenses     78,749     65,620    153,657    128,784

        Operating income             16,576     13,165     34,111     26,174

    Other expense (income):
      Interest expense                1,577      2,133      3,010      4,454
      Change in fair value of
       financial instruments              -       (400)         -       (704)
      Other, net                       (122)      (112)      (223)      (230)

        Total other expense           1,455      1,621      2,787      3,520

        Income before income taxes   15,121     11,544     31,324     22,654

    Income taxes                      5,897      4,502     12,216      8,835

        Net income                   $9,244     $7,042    $19,108    $13,819

    Per share data (basic):

        Net income                    $0.23      $0.18      $0.47      $0.35

    Weighted average basic shares
      of common stock                40,400     39,196     40,261     39,124

    Per share data (diluted):

        Net income                    $0.22      $0.17      $0.46      $0.34

    Weighted average diluted shares
     of common stock                 41,495     40,750     41,369     40,563


                          UNITED NATURAL FOODS, INC.
                   CONSOLIDATED BALANCE SHEETS (Unaudited)
                                (In thousands)

                                                    January 31,     July 31,
                                                        2005           2004
    ASSETS
    Current assets:
     Cash                                             $4,198        $13,633
     Accounts receivable, net                        139,990        106,178
     Notes receivable, trade, net                        766            772
     Inventories                                     214,738        196,171
     Prepaid expenses                                  9,524          7,007
     Deferred income taxes                             8,061          7,610
      Total current assets                           377,277        331,371

    Property & equipment, net                        117,747        114,140

    Other assets:
     Goodwill                                         67,240         57,242
     Notes receivable, trade, net                      1,960          1,601
     Intangible assets, net                              373            154
     Other                                             5,665          4,259

      Total assets                                  $570,262       $508,767

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
     Accounts payable                                $91,500        $80,875
     Notes payable - line of credit                  129,826        107,004
     Accrued expenses and other current liabilities   30,791         29,501
     Current portion of long-term debt                 6,078          4,766
      Total current liabilities                      258,195        222,146

    Long-term debt, excluding current portion         38,317         43,978
    Deferred income taxes                              8,127          7,730
    Other long-term liabilities                          490            137
      Total liabilities                              305,129        273,991

    Commitments and contingencies

    Stockholders' equity:
     Preferred stock, $0.01 par value,
      authorized 5,000 shares at January 31,
      2005 and July 31, 2004, respectively;
      none issued and outstanding                          -              -
    Common stock, $0.01 par value,
     authorized 50,000 shares; issued and outstanding
     40,792 and 40,118 at January 31, 2005
     and July 31, 2004, respectively                     408            401
    Additional paid-in capital                       112,365        101,118
    Unallocated shares of ESOP                        (1,686)        (1,768)
    Accumulated other comprehensive income               153            240
    Retained earnings                                153,893        134,785
      Total stockholders' equity                     265,133        234,776

    Total liabilities and stockholders' equity      $570,262       $508,767


                          UNITED NATURAL FOODS, INC.
              CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                (In thousands)

                                                        Six months ended
                                                           January 31,
                                                        2005           2004

    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                       $19,108        $13,819
    Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
      Depreciation and amortization                    6,438          5,531
      Change in fair value of financial instruments        -           (704)
      Gains on disposals of property & equipment         (12)           (22)
      Provision for doubtful accounts                    998          1,320
    Changes in assets and liabilities,
     net of acquired companies:
      Accounts receivable                            (31,408)       (10,861)
      Inventory                                      (14,359)       (17,185)
      Prepaid expenses and other assets               (4,010)        (1,743)
      Notes receivable, trade                           (353)        (1,722)
      Accounts payable                                 5,756         11,943
      Accrued expenses and other current liabilities    (181)        (1,838)
      Financial instruments                                -         (5,400)
      Tax effect of stock options                      5,193            921
      Net cash used in operating activities          (12,830)        (5,941)

    CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                              (9,039)        (9,335)
    Purchases of acquired businesses,
     net of cash acquired                             (6,168)            (6)
    Proceeds from disposals of property and equipment    114            141
      Net cash used in investing activities          (15,093)        (9,200)

    CASH FLOWS FROM FINANCING ACTIVITIES:
    Net borrowings under note payable                 17,101         10,328
    Proceeds from exercise of stock options            6,061          2,759
    Repayments on long-term debt                      (4,349)        (2,098)
    Principal payments of capital lease obligations     (325)          (537)
    Proceeds from issuance of long-term debt               -          9,904
      Net cash provided by financing activities       18,488         20,356

    NET (DECREASE) INCREASE IN CASH                   (9,435)         5,215
    Cash at beginning of period                       13,633          3,645
    Cash at end of period                             $4,198         $8,860

    Supplemental disclosures of cash flow information:
    Cash paid during the period for:
      Interest                                        $3,067         $4,354

      Income taxes, net of refunds                    $6,062         $9,079

SOURCE United Natural Foods, Inc.

Rick Puckett, Chief Financial Officer of United Natural Foods, Inc., +1-860-779-2800 General Information: Joseph Calabrese of Financial Relations Board, +1-212-445-8434, for United Natural Foods, Inc.

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