United Natural Foods, Inc. (HMC) reported results for the first of fiscal 2010 with earnings of 36 cents per share. Earnings were in-line with the Zacks Consensus Estimate and were up 16.1% year-over-year.

Net sales for the quarter increased 2.4% year-over-year to $885 million, due to an ease in inflationary pressure. Furthermore, sales to the super natural channel increased by 7.4%, while the supermarket channel experienced growth of 4.3%, which was partially offset by decline in Independent sales channel of 1.6% and decline in food service by approximately 4.1% over the prior year.

Gross margins for the quarter contracted 80 basis points (bps) to 18.6% versus 19.4% in the comparable prior-year quarter. The decline was due to a combination of lower fuel surcharge revenues and a change in the mix of sales. In addition, the company also had some issues within the manufacturing division which negatively impacted gross margins as well.

The operating margin for the quarter expanded 39 bps to 2.9% from 2.5% in the prior-year period. The expansion was driven by lower fuel costs which had a positive impact of 41 bps.

Recently in Nov. 2009, the company announced its plans to lease a new distribution center in Lancaster, Texas.

Capital expenditures for the quarter were $9.7 million, while interest expense was down by 60% year-over-year, due to lower debt levels and lower interest rates during the quarter.

Based on the performance of the first quarter, the company provided guidance for full fiscal 2010. For fiscal 2010, the company expects revenues to increase by approximately 2.5% to 5.0%, to a range of $3.54 billion to $3.63 billion.

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