United Natural Foods, Inc.
Q4 2008 Earnings Call Transcript

Published: 3 Sep 2008

[Operator:]

Welcome to the United Natural Foods fourth quarter 2008 conference call. (Operator Instructions) I would now like to turn the conference over to Marilyn Meek of Financial Relations Board.

[Marilyn Meek:]

By now you should have all received a copy of this morning’s press release. If anyone still needs a copy, please contact Janet Jasmine 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 morning from management is Michael Funk, President and Chief Executive Officer; and Mark Shamber, Chief Financial Officer. We will begin with some opening comments from management, and then we will open the line for questions. As a reminder, this call is also being webcast today and 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.

[Michael Funk:]

Joining me on the call this morning is Mark Shamber, our Chief Financial Officer. Earnings per share for the quarter were $0.30 or $12.8 million compared to earnings of $13.1 million a year ago. Our recently acquired Millbrook Specialty Foods Division was dilutive to our results by $0.07 or $2.9 million. Excluding Millbrook, earnings would’ve been $0.37 or $15.7 million compared to Q4 a year ago when we earned $0.31 per share. In addition, when we add to this, the incremental nonrecurring impact of start-up costs with our Southern California and York, Pennsylvania, facilities, it results in an additional pickup of 17 basis points or approximately $0.03 per share. As a reminder, our fourth quarter was a 14-week quarter and sales for Q4 were a record $911.9 million, a 29% increase over the fourth quarter sales a year ago of $706.8 million. If we exclude the extra week in the quarter in sales of Millbrook, our sales growth was 11.9%. When we look back at 2008, we saw an incremental improvement in year-over-year percentage sales increases per every quarter, even with a sluggish economy and sales to our super natural channel coming in below expectations. Our sales growth by channels, our numbers are as follows

[Mark Shamber:]

Net sales for the fourth quarter of 2008 which consisted of 14 weeks were $911.9 million. This represented an increase of $205 million or approximately 29% over fiscal 2007 fourth quarter revenues of $706.8 million. In fiscal 2008, our fourth quarter consisted of 14 weeks rather than the usual 13 weeks as fiscal 2008 was a 53-week fiscal year. On a comparable number of weeks bases, net sales for the fourth quarter increased by 20.6% over the prior year and 11.9%, excluding the impact of the Millbrook acquisition. For the fiscal year ended August 2008, net sales increased by $611.6 million, or 22.2%, to $3,366 million compared to fiscal 2007 net sales of $2,754 million. Excluding Millbrook and adjusting for the 53rd week, fiscal 2008 sales increased by 12.4% over fiscal 2007. Gross margin for the quarter finished at 19.5% compared to 18.7% for the fourth quarter of ’07. This represents an 83 basis point improvement over the prior year and an 81 basis point improvement over the proceeding quarter. During the quarter, we continue to make progress in improving gross margin within our specialty division, which has been focus since the acquisition. We also benefited from higher fuel surcharge revenues and improved purchasing, as Michael mentioned earlier. As a reminder, the offset for our fuel surcharges, our outbound fuel costs, which are reflected within operating expenses on our income statement. Gross margin for fiscal 2008 came in at 18.8% compared to 18.5% for the prior year, which represents an improvement of 33 basis points over fiscal 2007, primarily due to the areas just discussed. Operating expenses for the fourth quarter were 16.9% of sales compared to 15.3% for the same period last year, a 150 basis point increase. During the quarter, we incurred $2.7 million or approximately 30 basis points in nonrecurring expenses and startup costs associated with our new facilities in Moreno Valley, California, and York, Pennsylvania. The incremental cost of fuel for the quarter had a negative impact of $2.4 million in operating expenses in comparison to the third quarter of fiscal 2008 as fuel represented a 137 basis points of net sales in the fourth quarter, an increase of 26 basis points over the third quarter and an increase of 33 basis points over the prior year after adjusting for fiscal 2007’s unfavorable fuel hedge. Fuel costs continue to be a challenge in the fourth quarter, reaching a national average price of $4.60 a galloon using the Department of Energy’s weekly prices, an increase of approximately 63% over the prior year average for the fourth quarter of $2.83 a gallon. Share-base comp during the quarter was approximately $1.2 million, or 13 basis points, compared to $1 million, or 15 basis points, in the prior year. Operating income for the quarter was 2.6% on a GAAP basis, a 75 basis point decline over the prior year’s fourth quarter operating income of 3.4%. Adjusting for the cost associated with Moreno Valley and York, operating income would’ve been 2.9% for the quarter, a 58-basis point decline over the prior year operating income of 3.5% after adjusting the prior year for $921,000 in costs associated with Sarasota and Richfield facilities in fiscal 2007. Our effective tax rate for the quarter and fiscal year ended August 2, 2008, was 37.2% compared to 39% for the fourth quarter and fiscal year 2007. Net income for the fourth quarter decreased by 2.3% to $12.8 million compared to the $13.1 million earned in the fourth quarter ended July 28, 2007. Diluted earnings per share decreased to $0.30, a $0.01 decrease over prior year diluted EPS of $0.31. As I mentioned in discussing operating expenses, net income in the quarter was negatively impacted by $2.7 million of labor costs and related start-up expenses associated with our new facilities by approximately $0.04 diluted EPS. Fiscal 2008 net income decreased by 3.3% to $48.5 million or $1.13 per diluted share compared to $50.2 million or $1.17 per diluted share for fiscal 2007. Operating expenses for the full year were 16.1% of sales compared to 15.1% for the same period last year, reflecting an increase of 98 basis points year-over-year. For fiscal 2008, fuel costs increased by 15 basis points to 113 basis points for fiscal 2008 compared to the prior year of 98 basis points after adjusting out the prior year fuel hedge. This increase in fuel is reflective of the savings that we achieved in opening new facilities in Sarasota, Florida, and Richfield, Washington, during the first half of fiscal 2008 and would’ve been much greater had the Company not opened these facilities. Operating income was 2.75% for the year compared to 3.39% for fiscal 2007, a decline of 64 basis points. After excluding the impact of start-up costs associated with the new facilities, operating income for 2008 was 2.9% compared to fiscal 2007 of 3.5% for a year-over-year decline of 60 basis points. Cash generated by operations for the fiscal year was $9.2 million compared to $35.5 million in the prior year, with most of this being an investment in inventory. Our inventory was at 53 days for the fourth quarter, above the high end of our target range of 47 to 50 days and a four-day increase over the fourth quarter of fiscal 2007. This increase was driven in part by building up inventory levels at our Moreno Valley, California, facility in anticipation of a September opening combined with our efforts during the year at our specialty division. DSO for the fourth quarter was at 20 days, again favorable to our target range of 22 to 25 days and a one-day improvement over the fourth quarter of the prior year. . Capital expenditures were $51.1 million for fiscal 2008, equating to approximately 1.52% of revenues for the fiscal year. As discussed in our press release, our fiscal 2009 capital expenditures guidance is $57 to $62 million. Included in our fiscal 2009 capex guidance, our cost associated with completing the Moreno Valley and York, Pennsylvania, facilities. We will begin operating out of the Moreno Valley facility this coming weekend and the York facility should commence operations toward the end of our second fiscal quarter in January 2009. In addition, our 2009 capex guidance includes costs associated with opening a new distribution facility in Texas no earlier than the fourth quarter of fiscal 2009. The company’s outstanding commitments under our amended and restated credit facility as of August 2nd were approximately $306 million with an available liquidity of $90 million, including cash, cash equivalents. The press release this morning also announced our full year revenue earnings per share and capex guidance for fiscal 2009. For the fiscal year ending August 1, 2009, revenues are expected to increase approximately 10% to 12% from fiscal 2008 on a comparable basis to a range of $3.63 to $3.70 billion. Fiscal year 2009 earnings per diluted share are expected to be in the range of $1.30 to $1.38 per share, an increase of 15% to 22% over fiscal 2008. Our fiscal 2009 earnings guidance includes approximately $7.4 million or approximately $0.10 per diluted share in labor costs and related start-up expenses associated with opening the Moreno Valley, California, and York, Pennsylvania, facilities during the first half of fiscal 2009 as well as the opening of an additional facility in Texas during the fourth quarter of fiscal 2009. For fiscal 2009, we expect our effective tax rate to be in the range of 39.6% to 40% compared to our tax rate of 37.2% for fiscal 2008 where we benefited from federal tax credits associated with our solar power projects in both Rocklin, California, and Dayville, Connecticut. That concludes my prepared remark; and at this time, we’ll turn the call over to the operator to facilitate the question-and-answer session.

[Operator:]

(Operator Instructions) Our first question is from Simeon Gutman with Goldman Sachs.

[Simeon Gutman:]

On the industry growth, I mean the independents clearly seem to be holding up pretty well, can you talk about unit growth versus inflation and obviously if the overall number’s okay. I’m just curious what the balance between both of those are.

[Michael Funk:]

Well, Simeon, that’s a question that’s sometimes difficult to answer. Certainly with the cost inflation number being in that 5.6% range that mentioned and the historical number being more in the 2.5% to 2.7% range, you could factor in 3% of additional sales growth due to pure cost inflation. However, we do see more additional cost inflation in areas in the perimeter of a lot of the stores in which we don’t necessarily participate in as our business is more center store, the grocery’s frozen sections and refrigerated section. So certainly I think our independents are benefiting a point or two from the cost inflation, but clearly we think there’s additional strength reflected in those numbers.

[Simeon Gutman:]

Then on Millbrook, I take it that the $0.03 of the credits and severance, that I take it was unexpected. Then related to Millbrook, what needs to happen from here? I mean it’s been in the business for about nine months. I think… Maybe [inaudible] for $0.03, it looked like it might’ve improved a little bit. Is sales ramping up, or are there still a lot more on the synergy side that has to occur?

[Michael Funk:]

We believe that the $0.03 was clearly nonrecurring and was not expected and when we break down the last three quarters with Millbrook that we’ve owned the company, the first quarter we owned it was $0.08 dilutive and then we went to $0.06, and this quarter we really look at the actual performance being $0.04. So we see ourselves making incremental improvement that we expect to continue into 2009. What needs to happen really is a host of initiatives that are underway. Integration with UNFI in terms of the sales departments and back office functions, improved purchasing efficiencies to continue to drive gross margin. Business developments initiatives that are underway that we expect to add at sales volume and a number of things such as that. So we continue to feel like we’re making progress there and clearly we believe we have the customer’s confidence in the service levels that we mentioned before.

[Simeon Gutman:]

At the top line, the reason I think that the second quarter, I think the top line growth is a little bit under your expectation. Is that a reflection of the specialty category growing a little slower or are competitors just trying to take advantage of the integration period that you’re going through?

[Michael Funk:]

Yes, I think we’ve had some sales erosion that was built in. We feel primarily from prior service levels being poor before we took over the company and there was some sales erosion that we had more or less anticipated. But again, we look at the business being stabilized now and having the confidence of our customer-base going forward.

[Simeon Gutman:]

The last one, if I could, and I’ll just ask it in two parts, 1) let’s say next six months, what is the magnitude and/or number of price… Or is the number of magnitude of price increases coming from suppliers greater than they were in the past six months? Then the second question I guess maybe for Mark, I don’t know if you mentioned it, the gross margin ex the fuel surcharges, how did that perform?

[Michael Funk:]

Well, I’ll take the first part. We don’t have any way of actually knowing what our vendors’ price increases are going to be over the next six months, but from talking to a number of manufacturers, it seems that there’s still a significant amount of increases that need to be reflected of the commodity price increases that have been going on in this past year. So we do expect this inflation number to continue over the, certainly the first half of the year, of ’09.

[Mark Shamber:]

Simeon, on the second part of the question, we’ve never really broken out the fuel surcharges, and I don’t think we’re going to start now. I mean it helps to offset a majority of the incremental fuel costs but it’s such a small number in the overall that we really don’t want to start getting in system where we’re trying to track what we did for our fuel surcharge revenue quarter-to-quarter.

[Simeon Gutman:]

No problem. I’m just trying to gauge the ability of I guess pass-through of price given that’s there inflation and it’s just… I guess particularly through independents, just how the core gross margin's performing irrespect and maybe you can just give us a sense directionally.

[Mark Shamber:]

Well, I mean I think the core gross margin ex the surcharge revenue and ex-Millbrook has held up relatively well. We struggled a bit with the rising fuel costs and trying to remain current from an inbound freight standpoint and I think that seeing fuel costs level off a bit and start to come back, we’ve managed to get to a position where we feel that we’re almost caught up in that sense, so I think that that was hurting the gross margin for a period of time. But I think at this point, we’ve managed to stabilize that aspect of it. The overall core gross margin has held up relatively well. We’ve managed to stay current with price increases that our suppliers have pushed through by virtue of getting roughly 60 days on average notice before the come in effect.

[Operator:]

Our next question is from Greg Badishkanian with Citigroup.

[Gregory Badishkanian:]

A few questions, first one is maybe just talk a little bit about segments, product segments that did particularly well and maybe feedback that you’re getting from retailers on why those are doing well.

[Michael Funk:]

There hasn’t been any major change I would say in our sales by category. Certainly the grocery area is our largest category and growing very well. The frozen and refrigerated categories have had historically higher growth and continue to do well for us. Obviously there’s other subcategories that are doing better than others. But I think in general, people are more price conscious and they’re looking for some more value, these days it tends to be driving some products that have more traction to consumers on the value side. So for us it’s swapping some sales for certain items for others, but the really surprising thing through this economy I think for us is the stability of the sales overall. I mean it seems like the consumers that are our core shoppers are just continuing to purchase the products that they have for the most part.

[Gregory Badishkanian:]

Was there any deviation in terms of sales trends that you saw in August from last quarter?

[Michael Funk:]

No, I’d say overall we’re seeing stable sales trends.

[Gregory Badishkanian:]

Also, food service did pretty nicely. What’s kind of driving that and also the margins on that business, are they about the same as the other channels overall?

[Michael Funk:]

I would say our margins in that sector tend to be a little higher certainly. The order per delivery tends to be a little smaller, so there’s a higher gross margin impact. But our business still is growing in that area, even though it’s a small part of the overall business. Colleges and universities certainly are one are that we’ve seen growth, and we look for that to continue throughout the next coming year. We’re putting more resources on that and trying to capitalize on the demand in that sector.

[Gregory Badishkanian:]

I’m just trying to work out the numbers for 2009, in terms of organic growth, what is that come out to be roughly because I think you do have some of the Millbrook that doesn’t lap till, if I’m not mistaken, till I think second quarter ’09.

[Mark Shamber:]

I would say that it’s probably anywhere from maybe 9.5% to 11.5%. I mean it is a range to determine where we’re gong to for the second half of the year, so I mean there’s a bit of it in there for the first quarter, but in the full year number, it probably has a percentage, roughly 1%, a half percent to a percent.

[Operator:]

Our next question is from Andrew Wolf with BB&T Capital Markets.

[Andrew Wolf:]

On Millbrook, on the $0.06 of dilution or thereabouts that you guided to, if sales… I guess I want to get to is that predicted somewhat on a sales lift or is it more or is it entirely predicated on just executing the cost savings in the other programs you’re trying to execute?

[Michael Funk:]

I would say it’s more predicated on the latter. Certainly, we’re not necessarily relying on sales lift to bring us into profitability, but obviously new business development initiatives will help us achieve that quicker. But really as we look at ’09 forecast, it’s primarily built around reduction of expenses as well as improved gross margin.

[Andrew Wolf:]

Michael, just in terms of with Rick Antonelli leaving and his reports being taken up by you and others and so on, what’s your general, could you just update on us a) management at Millbrook, where I think you’ve had some changes, and just your sense of how you fell about management at the company and at actually replacing Rick?

[Michael Funk:]

Well obviously we will be bringing in other management resources to replace Rick. That’s something we’ll be addressing later on. But we feel like we have strong management in all of our key divisions and regions. We’ve had stable management there for some time and certainly feel that’s part of solid core business performance. The person that’s been leading the specialty division, Casey Van Rysdam has been with us now for several quarters and we feel very confident in his abilities to lead the turnaround there in Millbrook. We feel very comfortable. It doesn’t feel like there’s a real big gap in our management team right now, but we do look to add resources later on.

[Andrew Wolf:]

Lastly, kind of in housekeeping, if I did math right, you might’ve mentioned this, but in any case I missed it in that case, but, Mark, on the fourth quarter, the DNA, my number’s around $7 million, $6.9, up a lot sequentially. Was part of the writing credits in there or was there some accelerated DNA or is that the new…

[Mark Shamber:]

Well, Andy, what that actually related to was finalizing, or not finalizing, but getting closer to finalized purchase accounting related to the Millbrook acquisition and so with that we had finished some of the intangibles, identifying some of the intangibles that were associated with the transaction that we needed to record the amortization on. So we had put some preliminary numbers up when we had done the acquisition and we ha gotten evaluation report that we needed to do a bit of catch-up amortization in the fourth quarter related to those intangibles.

[Andrew Wolf:]

Can you give us a range or some guidance on the DNA you expect in ’09?

[Mark Shamber:]

I can perhaps follow-up after the call only because that number is still preliminary. But I would say that the run rate that we had in the fourth quarter… Well, you said it was 6.9, I think was the number you came up with, I would say that the run rate had been around $5 to $5l.5 million. I think that with the additional amortization that we’re going to have going in that it’s probably closer to $6 million for next year but that will depend somewhat on the timing of when we open York. But I would say that $5.75 to $6.25 would be a good starting point for the first half of the year.

[Operator:]

Our next question is from Brent Jolin with RBC Capital Markets.

[Brent Jolin:]

A couple questions for you guys

[Michael Funk:]

Well there’s a number of factors, as we mentioned. Millbrook’s margin has improved and is in general a higher gross margin business so that’s influencing the number. Our fuel surcharges that we’re collecting go into that number as well. The cost inflation environment is such that if execute, if our purchasing departments execute and we purchase product and get product in a timely fashion, there should be positive influences on our gross margin. So I think all those factors. Customer channel mix certainly does play a role as well and we would say higher independent sales do influence the gross margin as well.

[Brent Jolin:]

How do you think we should think about gross margin ’09?

[Mark Shamber:]

I think there’s a challenge there on our part as well, Brent. As long as there continues to be the high fuel costs, we’ll get some lift from the gross margin that’ll be offset in the operating expenses; and if fuel prices continue the downward trend that we’ve seen sort of since the fiscal year end, I think that, again, the fuel surcharges may take a step back at some point if those prices hold lower. I think that you could probably model in that it’s anywhere, again, with fuel roughly where it is now, it could be anywhere from 19.3 to 19.6 and I’d reserve the right to adjust it depending where fuel prices go.

[Brent Jolin:]

Can you quantify the impact of the extra week on margins and SG&A in the quarter?

[Mark Shamber:]

Well there’s no impact… I mean really there’s no impact from an SG&A or a margin standpoint. To the extent there were extra days in the quarter, we would accrue for any of the expenses that would be associated with that.

[Brent Jolin:]

Lastly, what are your expectations for these sort of duplicative labor and start-up costs in 2009?

[Mark Shamber:]

Well, we expect that the full year will be approximately $0.10, as we’ve laid out. I would say that probably the first half of the year probably has closer to... The first two quarters it’s always been timing-wise as to when the facilities actually come on line there some variability there. Last year we had thought the full year number would be $0.07 and it ended up being $0.09 as we discussed this morning because of the timing of when Sarasota opened in the first quarter of last year and then some timing related to Moreno Valley this year. So if I had to estimate right now, I’d say that this probably approximately $0.03 in the first quarter and $0.03 to $0.04 in the second quarter, and then maybe a $0.01 in the third and $0.02 in the fourth. But again, that can certainly change depending on the timing of when we decide to open up a facility.

[Brent Jolin:]

Actually one last question, I guess for Michael, what do you view as the reasons why you still have lost a couple of customers on Millbrook and kind of what do you view as the driving factors towards winning new business there?

[Michael Funk:]

Well when we took over Millbrook, there had been a period of very poor service to the customer and most of the business in the supermarket channel is on a contract basis, generally two-year periods or so. So when some of those contracts came up shortly after we took over, there was a built up negative impression of Millbrook by some customers and most of the sales erosion is related to that dynamic. We, again, have been working hard over the last six months to improve the service levels, improve the performance of field sales and of operations and we believe we’ve elevated the impression of the company in a tremendous way to the current customer base so that we feel today we’re well positioned to be able to build new business into ’09.

[Operator:]

Our next question is from Scott Van Winkle with Cannacord Adams.

[Scott Van Winkle:]

First, on the Millbrook, Michael, you mentioned obviously sales attrition. I’m coming up with $60 million of revenue for the quarter, does that sound about right?

[Michael Funk:]

Well, we’re not breaking out that number I know specifically. Obviously as we go down the road, Scott, the initiatives that we’re having with our integrated approach to the business will have some of the sales beginning to flow through UNFI as a whole and so it’ll be more and more challenging to break out those numbers. But there was… I don’t have the number off the top, Mark. I don’t know if you do.

[Mark Shamber:]

I would say it’s in the range, Scott. I mean there is some seasonality going into I guess now for us it’s our first and second quarter are some of the stronger quarters and then they get a little bit of a lift in the third quarter from a kosher standpoint with Passover. So the fourth quarter is the low point of the year from a sales standpoint because there aren’t any real holidays going on that help drive some of the sales there. So I don’t know that that’s exactly the number, but I mean it’s probably within $5 million.

[Scott Van Winkle:]

On the branded side, you mentioned 25% growth next year without any incremental acquisitions, is there something different being done there or are you starting to see any benefit of kind of having organized that business into probably a little bit of weight now and has a little more impact in the overall market.

[Michael Funk:]

Yes, the infrastructure, we spent a lot of resources this past year I think building the infrastructure of that organization to support a larger business, and we continue to believe that it will be one of the fastest growing areas of our Company. We’ve said along that we feel like it contributes very positively to our gross margin as well as a number of strategic advantages. So we’re going to continue to look for the accretive smaller acquisitions that we can add on to this portfolio, and I would hope that that 25% number is more of just a baseline. As I said earlier, it doesn’t really include the benefit of new acquisitions.

[Scott Van Winkle:]

Back on Millbrook, the I think 184 headcount reduction, were all of those non-warehouse employees and non-distribution employees?

[Michael Funk:]

I would say that there was a variety of positions. I don’t have the breakdown, but there was I would say a combination of - - a variety of departments in which those reductions were made.

[Scott Van Winkle:]

Mark, I think you mentioned the Texas facility by the fourth quarter, if you mentioned this, I apologize, I didn’t catch it, is that a new facility? Any plans to use that Arkansas facility for Millbrook?

[Mark Shamber:]

The Texas facility would be a new facility. I think that we’ve taken some look at being able to use Arkansas but there is an aspect where it’s approximately a seven-hour drive still to a majority of our customers. So while there is some benefit compared to currently serving that business out of the Colorado market, I think that we feel that there’s, particularly with fuel costs where they are, that it supports moving to a Texas facility.

[Scott Van Winkle:]

Just the last question on the timing, you mentioned to the last question, timing of the impact from the start-up costs at the new facilities throughout the year on a quarterly basis. Should we assume kind of the same as historically was the case where it takes a couple of quarters to get those new facilities up to kind of a normal margin and as a result maybe the back half starts to benefit, maybe Q4 benefits a little bit from the California/Pennsylvania facilities?

[Michael Funk:]

The issue with the two facilities are in the front part of the year, Pennsylvania and Southern Cal. The ramp-up time should be generally less. While it always takes some time to develop efficiencies in a new building, one of the other key drivers is the workforce. In both those cases, we’re retaining primarily our entire workforce so that the labor training time is of course we don’t have to wait for the new labor to get trained up to speed since these are both relocations in the general area of the existing facilities unlike when we did Sarasota, Florida, or Richfield, Washington, last year where they were new facilities with all new labor.

[Operator:]

Our next question is from Gary Giblen with Goldsmith and Harris.

[Gary Giblen:]

Just wondering, I mean given that Moreno Valley has roughly $0.03 of start-up costs and Millbrook has issues which hopefully we’ll be getting better during the year, but is the first quarter of ’09 estimate out there for October, the $0.30 to $0.33 at all feasible? I know you don’t give quarterly guidance, but it would probably be a good public service to indicate whether the $0.30 to $0.33 is a reasonable range or not.

[Mark Shamber:]

Well, Gary, I think you just said it, we don’t give quarterly guidance, but we just did $0.30 this past quarter; and we believe that we’ve got some positive momentum going forward. I mean I’m not going to try and give a range to narrow it down, but certainly if we did $0.30 this past quarter and we feel that there’s some dilution from Millbrook that should be able to continue to make progress on, we would like to think that we’d do better in the first quarter. But I don’t think we’re going to comment specifically on the range that’s out there.

[Gary Giblen:]

Have you contemplated the payroll and other cost reductions at Millbrook, not the buying improvements but the SG&A operating expense of improvements when you bought it or did you find some excess that could be cut and how is that consistent with aggressively growing their sales which have been stalled out?

[Michael Funk:]

Well, it’s been a process of looking for areas that we can reduce expenses. In some cases the infrastructure that was there was much larger than what was needed to support the current sales base, so we continue to look for areas that we could carve out and reduce. Again, as integration efforts ramp up, there should be more expenses that we find that we can take out. So we’re reacting to the business as it develops. While we knew we would be reducing staff, we had this July reduction that was really in response to the current sales base and knowing that we had the ability to cut the expenses without risking any service to the customers.

[Gary Giblen:]

Finally, apart from accounts moving out and hopefully not moving into Millbrook, how would you describe the health of the specialty gourmet business given that there are some [inaudible] points out there that indicate weakness in luxury spending in general or you look at Safeway or Starbucks as examples of food, upscale food not doing well, although there’s always company-specific issues. In other words, is the specialty natural going to be doing nearly as well as an industry as your independent naturals are doing than the organic and natural side?

[Michael Funk:]

Well, I mean I think our sales on our core business on the natural and organic speak for themselves. Certainly the trends we’re seeing, as I said on the remarks, we saw incremental increases with each quarter over the last four quarters in terms of sales growth. I think overall the specialty category is growing slightly less than the core natural business, but certainly we see continued growth there as well. I think our customers are generally benefiting from this current environment. Not all customers are out there, but our core customers certainly seem to be doing just fine.

[Operator:]

Our next question is from Meredith Adler with Lehman Brothers.

[Meredith Adler:]

I was wondering, you got a question about the impact of the extra week on gross margin and SG&A, but I was wondering if it had any benefit, net benefit to earnings per share in the quarter.

[Mark Shamber:]

I would say it certainly did. I mean when we had forecasted and given realized guidance at the midpoint of the year, we had factored that in from our standpoint. So if you said it was a 14-week quarter and we did roughly $0.30, I mean it probably had a benefit of a little more than $0.02 for the quarter.

[Meredith Adler:]

Then just as I get up to speed on your business, does Millbrook service natural food stores, independent natural food stores as well as supermarkets?

[Michael Funk:]

No primarily it’s supermarket accounts.

[Operator:]

There are no further questions at this time.

[Michael Funk:]

Thank you. Well thank you again for attending our fourth quarter conference call today. We appreciate your support and interest in UNFI and we’ll look forward to talking with you again next quarter for our Q1 2009 earnings call. So thank you and good day to you all.