United Natural Foods Q4 Earnings Call Transcript

123jump.com Staff
17 Sep, 2010
New York City

The natural, organic, and specialty foods distributor quarterly sales rose 15.8% to $988.5 million. Net quarterly income grew 14% to $17.6 million. Earnings per share rose to 40 cents versus 36 cents per share in the prior year and fiscal 2011 earnings estimated between $1.74 and $1.83 per share.

United Natural Foods, Inc. ((UNFI))
Q4 2010 Earnings Call Transcript
September 8, 2010 10:00 a.m. ET

Executives

Scott Eckstein – Investor Relations
Steve L. Spinner – President and Chief Executive Officer
Mark E. Shamber – Senior Vice President and Chief Financial Officer

Analysts

Edward Aaron – RBC Capital Markets
Scott Mushkin – Jefferies & Company
Gregory Badishkanian – Citigroup
Andrew Wolf – BB&T Capital Markets
Meredith Adler – Barclays Capital
Eric Larson – Soleil Securities
Robert Cummins – Wellington Shields & Company
Gary Giblen – Quint, Miller & Company

Presentation

Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the United Natural Foods'' Fourth Quarter 2010 Conference Call. During today''s presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions. If you have a question, please press the star followed by the one on your touchtone phone. If you’d like to withdraw your question, please press the star followed by the two. If you’re using speaker equipment, please lift the handset before making your selection. This conference is being recorded today, Wednesday, September 8, 2010. I would now like to turn the conference over to Scott Eckstein with FRB. Please go ahead, sir.

Scott Eckstein

Thank you, Operator and good morning, everyone. By now, you should have all received a copy of this morning''s press release. If anyone still needs a copy, please contact Joe Calabrese in our New York office at 212-827-3772 and we will send you a copy immediately following this morning''s conference call.

With us this morning from management is Steve Spinner, President and Chief Executive Officer and Mark Shamber, Chief Financial Officer. We will begin this morning with opening comments from management and then we will open the line for questions.

As a reminder, this call is also being webcast today and can be accessed over 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 would like to turn the call over to Steve Spinner. Steve, please go ahead.

Steven L. Spinner

Thanks, Scott. Good morning and thanks for joining us today. UNFI enjoyed strong demand for our products and services throughout the fourth quarter and most of fiscal 2010. Sales sequentially improved throughout the year and UNFI''s results reflect our long-term commitment to growing marketshare and delivering operational excellence as one company.

This morning, UNFI announced diluted earnings per share of $1.57 for fiscal 2010, a 14% increase over the prior year and $0.40 for the fourth quarter, an 11% increase over prior year.

For the year, UNFI enjoyed strong execution against its objective of growing marketshare in all primary distribution channels. Sales grew 8.7% for the year and 15.8% for the quarter, highlighting industry growth, new customer wins and the asset acquisition of UNFI Canada from SunOpta.

For the fiscal year, our supernatural channel had growth of 15%. Supermarkets grew 11% and the independents grew 4%. And for the fourth quarter, supernaturals grew 21.8%, supermarkets grew 25% and independents 9.5%, all reflecting our continued confidence in UNFI''s strategy for growth.

During the year, the company successfully began integration of the specialty products across the country and now competes nationally in the combined organic, natural and specialty customer group. Also, UNFI extended its relationship with Whole Foods for an additional seven years and agreed to begin primary service to the Whole Foods Southwest market from our new distribution center in Lancaster, Texas.

Additionally, UNFI agreed to take over Whole Foods'' distribution center in Denver and we expect to begin primary service to this market in October. Consumers have demonstrated their commitment to organic products as evidenced by our upward sales trend. Sales across most categories of products, including specialty and non-foods, are sequentially improving.

Revenue growth should continue through UNFI''s fiscal 2011, enabling the company to continue investment in its national supply chain platform and operational excellence initiatives. 2010 was not without challenges. In order to support UNFI''s long-term growth strategies, operating expenses as a percentage of sales increased by 25 basis points in the fourth quarter versus prior year.

The increase in expenses was driven primarily by approximately $4.9 million in costs, associated with closing a retail store in Key West, Florida, which operated as part of UNFI''s national retail group, professional fees relating to the acquisition and closing of UNFI Canada, unusually large increases in workers'' compensation insurance and startup costs associated with the company''s new Lancaster, Texas distribution center and completion of all announced customer onboarding.

Additionally, during fiscal 2010, we made several important changes, which will serve us well over the next several years and the cost of these changes is reflected in our fiscal 2010 expenses. We restructured our Blue Marble brand division, enabling the division to grow with a more limited number of brands. And we built a new team to execute this strategy.

We had previously disclosed executive severance associated with building UNFI''s executive team. And again, we had new customer wins during the year, exceeding $100 million in new sales. Onboarding costs for these contracts is reflected in our fiscal 2010 results.

For the fiscal year, operating expenses improved 45 basis points versus the prior year. During fiscal 2011, expenses as a percentage of revenue should moderate, driven primarily by the implementation of UNFI''s new supply chain technology platform and the additional sales volume.

Gross margin for the quarter fell 44 basis points versus the prior year quarter; however, margin improved sequentially by four basis points against the third quarter 2010. Gross margin is affected by changes in customer mix and moderated inflation.

Lower gross margin supernatural and supermarket customer growth will continue to outpace the higher gross margin independent sales. And there will be a timing lag between the onboarding of new lower gross margin business and the expense efficiencies gained through this added volume.

UNFI''s opportunity will be to reduce expenses at a rate that exceeds the decline in the gross margin attributed to higher growth supermarket and supernatural customer segments. I am confident that the company will attain its three-year objective of 10 to 15 basis points per year improvement in operating margin.

During the quarter, inflation continued to be nominal at 0.5%. In 2010, UNFI generated $68 million in cash from operations and $13 million in free cash as we increased our CapEx spend in the fourth quarter to support our strategic initiatives.

On the balance sheet, all of our key metrics remained strong for the quarter and for the year. Leverage at the year-end was 2.1 times on a trailing 12-month basis compared to 1.9 times at the end of fiscal 2009. And this increase was driven primarily by the acquisition of UNFI Canada in June.

CapEx for the year was $55.1 million and 1.5% of revenue. Significant investments during 2010 were made in conjunction with the buildout of our Lancaster, Texas distribution center, supply chain technology and the completion of a hydrogen fuel cell technology project at our Sarasota, Florida facility.

Looking forward, we expect sales of approximately $4.35 billion to $4.45 billion in fiscal 2011, an increase of 15.8% to 18.4% and this will be the first time the company crosses the $4 billion mark. And while an important milestone for UNFI, it is important to note that our primary focus will continue to be on integrating new volume growth in order to achieve long-term improvements in operating margin and dollars.

Fiscal 2011 diluted earnings per share are expected to be in the range of $1.74 to $1.83, an increase of 10.6% to 16.3% over fiscal 2010. Capital expenditures are expected to be in the range of approximately $42 million to $45 million.

With the completion of Texas, we believe our national distribution center platform is fully built. During 2011, the primary component of our CapEx spend will be the continued implementation of UNFI''s national supply chain initiative.

As I look back over the last two years, UNFI has demonstrated great flexibility in migrating through difficult economic conditions. We have achieved record sales and earnings. And we have never wavered in our commitment to sustainability. Yet we don''t ever rest on our laurels, for all of us at UNFI, the future is bright and driven primarily by continued advances in technology, productivity and the development of our future leaders.

I''ll now turn the call over to Mark Shamber, UNFI''s Senior Vice President and Chief Financial Officer.

Mark E. Shamber

Thanks, Steve and good morning to everyone listening in on the call. Our net sales for the fourth quarter of fiscal 2010 were $988.5 million, which represents an increase of $135 million or 15.8% over fiscal 2009''s fourth quarter revenues of $853.5 million. Excluding $22.1 million related to the impact of our Canadian acquisition in June, net sales increased by 13.2% or approximately $113 million to $966.4 million.

For the fiscal year ended July 31, 2010, net sales increased by over $300 million or 8.7% to a record level of $3.757 billion compared to fiscal 2009 net sales of $3.455 billion. Excluding the acquisition, full year net sales increased by 8.1% or $280 million. Gross margin for the quarter finished at 18.5% compared to 19% for the fourth quarter of fiscal 2009. This represented a 44 basis point decline over the prior year and is a modest improvement of four basis points over our gross margin in the third quarter.

Consistent with what we have said in the last three quarters, our gross margin in the fourth quarter was lower on a year-over-year basis, primarily due to the continued shift in the growth mix of business towards supernaturals and conventional supermarkets combined with significantly lower year-over-year inflation.

As Steve mentioned, inflation in the fourth quarter of fiscal 2010 was approximately 0.5%, down from inflation of approximately 4.4% in the fourth quarter of fiscal 2009.

Gross margin for fiscal 2010 was 18.5% compared to 19.1% in the prior year, a decline of 57 basis points and was driven by the two factors I just mentioned, along with higher fuel surcharge revenues in the first half of fiscal 2009. Operating expenses for the fourth quarter were 15.9% of sales compared to 15.6% for the same period last year, a 25 basis point increase in operating expenses.

As discussed in the press release, there were a number of one-time items during the quarter that led to these higher-than-expected expenses. During the quarter, we incurred $1.3 million or approximately 13 basis points in expenses associated with the buyout of the lease and the closing of our retail store in Key West, Florida, of which approximately $150,000 related to product loss.

In addition, as we had previously announced, we incurred approximately $1 million in professional service fees during the quarter related to the acquisition of UNFI Canada, which we acquired in June. Also, our startup costs associated with our new Lancaster, Texas facility amounted to $1 million during the quarter as we began staffing the warehouse and receiving product in anticipation of getting shipments in late September.

Our workers'' compensations costs were also up approximately $1.6 million due to high claims in both our Albert''s Organics and UNFI''s specialty divisions.

In Q4, we recorded share-based comp expense of $1.5 million or 16 basis points, compared to expense of $0.9 million or 11 basis points in the prior year. Share-based comp was $8.1 million or 21 basis points in fiscal 2010 compared to $5.5 million, or 16 basis points in the prior year.

Our fuel costs for the quarter were approximately 68 basis points, which is a decrease of nine basis points compared to the prior year''s fourth quarter and is a one basis point increase over the third quarter. For fiscal 2010, our fuel costs decreased by 14 basis points to 68 basis points compared to the prior year of 82 basis points. Operating expenses for the full year were 15.5% of sales compared to 15.9% for fiscal 2009, an improvement of 44 basis points.

Operating income for the quarter came in at 2.7%, a 69 basis point decline over the prior year''s fourth quarter operating income of 3.4%. Operating income was 3.1% for the year compared to 3.2% for fiscal 2009, a decrease of approximately 12 basis points.

Adjusting for the items discussed in the press release, fiscal 2010''s fourth-quarter operating income -- I''m sorry -- fiscal 2010''s operating income would have been 3.2%.

Interest expense in the quarter of $1.4 million was down approximately 5% sequentially and was more than 10% lower on a year-over-year basis. The year-over-year decrease was due to lower average debt levels during the quarter. However, our borrowings increased midway through the quarter as a result of closing our Canadian acquisition.

Our effective tax rate for the quarter was just under 36%, bringing our year-to-date effective tax rate to 39%. During the quarter, our tax rate benefited from our recently installed hydrogen power project at our Sarasota, Florida facility.

For fiscal 2011, we currently expect our effective tax rate to be in the range of 39% to 40% reflecting the impact of our new Canadian operations. In the fourth quarter of fiscal 2010, net income increased by 13.5% to $17.6 million compared to the $15.5 million earned in the prior year.

Diluted earnings per share increased to $0.40 by $0.04 or an 11.8% increase over prior-year diluted EPS of $0.36. Fiscal 2010 net income increased by 15.4% to $68.3 million or $1.57 per diluted share compared to $59.2 million or $1.38 per diluted share in fiscal 2009.

The company''s outstanding commitments under its amended and restated credit facility as of July 31, 2010 were approximately $262.6 million with available liquidity of $147 million, including cash and cash equivalents. Cash generated by operations for fiscal 2010 was $68.3 million compared to $108.3 million the prior year or a decrease of $40 million.

For the year, we generated a little more than $13 million in free cash flow as we increased some of our capital expenditure investments in the fourth quarter. As Steve mentioned, at the end of the quarter, our leverage had improved to approximately 2.1 times on a trailing 12-month basis compared to 1.9 times at the end of fiscal 2009 and 3.1 times at the end of fiscal 2008.

Inventory was at 50 days on hand for the fourth quarter at the high end of our target range of 47 to 50 days and a two-day increase over the fourth quarter of fiscal 2009. This increase was driven in part by the inventory build at our new Lancaster, Texas facility, which began receiving product in July.

DSO for the fourth quarter was at 20 days favorable to our target range and a one-day increase over the fourth quarter of the prior year. The press release issued this morning also announced our net sales, earnings per share and CapEx guidance for fiscal 2011.

For fiscal 2011, as Steve mentioned, we expect net sales to increase by approximately 15.8% to 18.4% to a range of $4.35 billion to $4.45 billion. Earnings per diluted share are expected to be in the range of $1.74 to $1.83 per share for fiscal 2011, an increase of 10.6% to 16.3% over fiscal 2010.

In our fiscal 2011 capital expenditures guidance, it is $42 million to $45 million or approximately 1% of revenues. That concludes our prepared remarks.

And at this time, I will turn the call back over to the moderator to facilitate the Q&A session.

Question-and-Answer Session

Operator

Thank you, sir. We will now began the question-and-answer session. As a reminder, if you have a question, please press the star followed by the one on your touchtone phone. If you’d like to withdraw your question, please press the star followed by the two. And if you’re using speaker equipment, you will need to lift your handset before making your selection. Our first question comes from the line of Ed Aaron with RBC Capital Markets. Go ahead please.

Edward Aaron – RBC Capital Markets

Thanks. Good morning, guys.

Steven L. Spinner

Good morning.

Edward Aaron – RBC Capital Markets

Just wanted to sort of go back and ask about leverage opportunity in the business going forward. You talked about the 10 to 15 basis points of potential margin expansion in the year and I understand that some of the one-off items that weighed on margins in fiscal 2010. But guidance for 2011 implies a similar operating margin as what you had in fiscal 2009, which is when you first outlined that three-year objective. It sounds like still think you are on track to hit that three-year mark. Wouldn''t that imply a pretty significant margin expansion, I guess, in 2012 or am I missing something there?

Steven L. Spinner

Directionally, I think you''re going the right place. I am not sure I want to start talking about 2012 yet. But, yeah, I mean our biggest opportunity and you hit it on the head, Ed, is to take all of this additional volume that we have taken on and worked so hard to take on and make sure that we onboard it as efficiently as we possibly can, which I think we have a pretty good track record of doing.

And then at the same time, use some of the new technology on our national supply chain initiative. The first DC opens with Texas and then it rolls out pretty quickly thereafter. And certainly, as long as everything goes against our internal plans, I feel pretty good about our three-year objectives. So I think there is enough happening behind us that is going to push us there and the volume makes it easier.

Edward Aaron – RBC Capital Markets

Is there a reason why you might not get more leverage than you are guiding to in fiscal ''11 when you consider some of the one-off expenses that were absorbed in 2010?

Steven L. Spinner

Yeah. I think that management has a general conservative view of guidance. I think that we now have a pretty good track record, eight plus quarters. And I think that is something that is very important to us to make sure that we are guiding conservatively, that we are setting objectives that are a reasonable stretch, but reasonable.

So I think it is just a matter of our own view of what is attainable and again, I would much rather be in a position to under commit and over deliver versus the opposite.

Edward Aaron – RBC Capital Markets

Fair enough and just one last one for me. I thought it was interesting that you mentioned that you saw marketshare gains in all your channels because we don''t really tend to see much real-time data on the independent channel. Just curious to get a sense of what you would peg as the channel growth rate for that part of the business just from an industry perspective right now?

Steven L. Spinner

Well, our fourth-quarter independent had them growing by 9.5 and the comp excluding the acquisition was about 6.6. So the independents are doing well and I think, in a previous call, we may have talked about that there is a lag, a little bit of a lag between when the independent growth fell off a little bit to when we kind of thought it would pick back up but we are seeing nice growth out of the independent channel. They have a tendency to be the source of a lot of innovation in the industry. So again, we are confident that that channel is going to continue to grow. We’ve seen our comp growth increase, but we have also seen some new customer growth in that segment as well.

Edward Aaron – RBC Capital Markets

Thanks for taking the questions.

Operator

Thank you. And our next question comes from the line of Scott Mushkin with Jefferies & Company. Go ahead, please.

Scott Mushkin – Jefferies & Company

Hey, guys. Thanks for taking my questions. I wanted to first make sure I heard you on the growth in the segments. Was it 21.8 in the supernaturals and 25 in the supermarkets?

Mark E. Shamber

Yeah. That''s correct, Scott, for the fourth quarter.

Scott Mushkin – Jefferies & Company

I guess I am just trying to understand the 25% on the supers and the 21.8%. Does that include the acquisition and what is it ex-acquisition?

Mark E. Shamber

It includes -- I mean, it was -- we tried not to throw too many numbers out in the prepared comments. But it does include the acquisition and then excluding the acquisition, the supernaturals would have grown at 21.4%. The conventional supermarkets would have grown at 19.2% and as I just mentioned in sort of answering the question from Ed, the independents were at 6.6%, excluding the acquisition.

Scott Mushkin – Jefferies & Company

And I know -- I think Steve said -- thanks for that data -- I know Steve said that he felt like sales are continuing to improve sequentially. I guess the number that sticks out is a pretty surprising number. The one for the supermarket channel, which all indications are that it is continuing to struggle. Are you seeing organic growth there or is that just all contract wins?

Mark E. Shamber

No, I mean -- so what I would say is -- I don''t have the exact number in front of me, but I did check it at the end of the quarter. And I would say that their comp growth is pretty close to the independents. It could be 20 to 30 basis points higher or lower. But if you back out what we have seen for marketshare gains, we are probably somewhere between 6% and 7% for the conventional supermarkets as well.

Steven L. Spinner

And Scott, one thing I would add is keep in mind that UNFI''s core product category is center of the store. So we are not reliant upon the perimeter and so we have seen kind of the core basic organic grocery items and specialty items continue to improve.
Scott Mushkin – Jefferies & Company

That''s interesting. I guess my next question -- I appreciate the color -- is that I know some of your current customers are somewhat of the stronger customers in the traditional supermarket space. There are also some contracts up next year and I was wondering if you could give us any thoughts on -- I think Safeway is up next year, I think EGB [ph] is up next year and I don''t know if you want to comment, you probably don''t, on the specific contracts. But I was wondering if you could kind give us an idea of what revenue you thought was -- or what size of the whole group is out next year and what the opportunity looks on the revenue side next year?

Steven L. Spinner

Obviously, we are not going to comment about any customer contracts that may or may not be up. We worked hard this year to increase our marketshare and I think we were very successful at that. I think we demonstrated to the industry that we had the capacity to be a terrific option for natural, organic and specialty as evidenced by a couple of the big customer wins that we have had this year.

So UNFI will be an active participant in any of the new customer bids that may or may not become available over the next couple years. We do have a pretty rigid model, internal model that we use to evaluate new business. So not everyone is going to be a perfect fit for us, but we certainly will be out talking to everybody.

Scott Mushkin – Jefferies & Company

And does your revenues guidance assume any wins or does it not assume any wins?

Mark E. Shamber

It does not assume any wins other than ones we have already talked about.

Scott Mushkin – Jefferies & Company

All right. I have actually one more question, but I am going to get back in the queue because I am sure a lot of people want to ask questions. Thanks for taking my questions.

Operator

Thank you. Our next question comes from the line of Greg Badishkanian with Citi. Go ahead, please.

Gregory Badishkanian – Citigroup

Great. Thanks. Nice job in the quarter. Good momentum on the sales. And my first question is just maybe a little color on how that has progressed in August. Any major deviations from kind of the trend we saw during the fourth quarter?

Steven L. Spinner

No, hey, Greg. No, I think that we still are seeing sales sequentially improve, which is terrific.

Gregory Badishkanian – Citigroup

Yeah. Nice. And how much of that would you say is just your gaining marketshare versus the industry and I know it''s tough to figure that out?

Steven L. Spinner

Yeah. I mean, that''s a tough number. I think that our comp growth is growing, but it does get clouded somewhat by the increases in new customers as well as the increases in additional product SKUs from existing customers. So it''s very hard to get that granular.

Gregory Badishkanian – Citigroup

You gave a little bit of color on sort of categories, but the sort of specialty business, maybe the core growth there versus organic natural, is it really kind of the natural organic that is where you’d see more of the improvements coming from?

Steven L. Spinner

I am not sure I know the answer to that. Specialty was certainly hurt more, Greg, going into the recession. But I think that as we started to see things rebound, I don''t know that there is a measurable difference between where the natural and organic products are coming out versus the specialty side of the business.

Certainly, the holiday season is much stronger for specialty and they have a bit more seasonality than the natural and organic side does. But as we have integrated the numbers, I don''t think that specialty is necessarily positively or negatively impacting the overall comp that much. I think it is pretty much in line with the rest of our core business.

Mark E. Shamber

I mean I think the other way I would kind of answer it is we have had a tremendous amount of success as we have added specialty to our distribution centers across the country. Today, other than the East Coast, the bulk of our specialty in the West, for example, is what we would call clean, which is no artificial sweeteners, no high fructose corn syrup, et cetera and there has been incredible demand for those products through existing customers on the organic space.

So again, I think we are generally optimistic that the category is growing in a similar way that the organic SKU counts are.

Gregory Badishkanian – Citigroup

Great. And then just finally any sort of big opportunities or any kind of negatives that you are seeing from SunOpta''s Canadian distribution business that maybe you did not anticipate?

Steven L. Spinner

No, actually, I think we did a pretty good job of due diligence up there. We have some of our UNFI seasoned executives up in Canada assisting with the integration and the leadership of our growth there. It is a different industry somewhat up there. So we are learning. But I mean, generally speaking, I still feel good about the fact that -- I think some of you have heard me talk about this 1/10th rule, that Canada is about 1/10th the U.S. across a lot of different metrics and we certainly view it that way.

And if UNFI is a $4 billion plus company, then we certainly see Canada as a $400 million potential for us. And as you recall, we made the acquisition, they were doing about 185 million Canadian. So lots of opportunity. We''re getting to know each other and more to come.

Gregory Badishkanian – Citigroup

Okay. Great. And good to hear about the solid sales momentum. I appreciate that.

Steven L. Spinner

Thank you.

Operator

Thank you. And our next question comes from the line of Andrew Wolf with BB&T Capital Markets. Go ahead, please.

Andrew Wolf – BB&T Capital Markets

Thank you. Good morning and congratulations on a good year. On Canada, I assume it was not -- well, could you comment on whether it was accretive or dilutive to earnings and to the operating margin?

Mark E. Shamber

Well, I mean just with the acquisition costs alone, Andy, it was -- I mean it turned any accretion that they would have had into dilution with that $1 million.

Andrew Wolf – BB&T Capital Markets

Okay. I meant -- yes, I should -- how about excluding that? Did it make money?

Mark E. Shamber

I mean, they made money. They were dilutive to the margin during the quarter. So they were profitable, but they were a little bit below where we had forecasted them to be from an operating margin standpoint. I think some of the transition and where -- we feel pretty good about the cutoff that we got. But they were probably a little bit behind where we thought from a forecast standpoint.

Andrew Wolf – BB&T Capital Markets

Okay. And on Lancaster, is it -- is it -- could you give us an update on the systems, how they are rolling -- how they are running? And sort of a quick update -- I know this may not be the forum, but maybe a thumbnail update on the rollout for the year.

Steven L. Spinner

Sure. So Lancaster is fully integrated into our Western business system. It is going to be the first distribution center that goes live on our national supply chain platform. It is up and running. The warehouse is full of product and we are testing and expect to go live in another two weeks. So pretty excited about where we are in Lancaster. Once we get that up and running, we will start to roll out the technology throughout the rest of the UNFI core distribution centers through 2012.

Andrew Wolf – BB&T Capital Markets

So when will you know how -- when will you sort of have a feel how well the systems are operating and if they are hitting their marks and so on?

Steven L. Spinner

Well, I mean I think we have a general feel today. We actually have the labor management component rolled out to, I believe, three or four distribution centers now. And we have seen some nice increase in productivity as a result of that technology. And then when we come in with the balance of the system, it is probably three, four months before we get it fully utilized to be able to see whether or not we are getting the gains that we anticipate.

So I am not sure that we will get a lot of benefit in 2011 because we will probably only have -- I forget the exact number, but it is probably four DCs or so fully onboard with the system in our fiscal 2011. But we should have a lot of benefit in 2012.

Andrew Wolf – BB&T Capital Markets

Okay. Got you. And then I think, Steve, you mentioned that the year captured all the onboarding costs from new customers. Was that a significant or meaningful number in the fourth quarter?

Steven L. Spinner

I don''t think so. I think most of the onboarding costs we had in prior quarter, second and third quarter. When you look at it in total, it was a relatively large number only because we brought on such a large number of new customer locations so quickly.

Andrew Wolf – BB&T Capital Markets

And with integrating and having an acquisition in Canada and integrated bringing on a huge chunk of business with Whole Foods, a large chunk, what is your feeling this year in terms of bandwidth and/or timing for other -- for bringing on new customers? Are you ready to go now or do you want to make sure Canada and Whole Foods Southwest…?

Steven L. Spinner

We have had the good fortune of attracting some very senior talented leadership to the company and that has been just a great addition. So we certainly have the bandwidth. I think most of our time right now is spent -- is being spent on getting ready for Texas, Denver and oversight over Canada.

As I said earlier, we have several of our U.S. leadership folks up in Canada assisting with that integration. And we obviously have all hands on deck in Texas and Denver. So ideally, we would love to integrate the business that we have, see how it goes. However, as you know, it doesn''t always work that way. You get one opportunity to look at new business and in certain parts of the country, we have lots of bandwidth in order to do that.

Andrew Wolf – BB&T Capital Markets

Yes. Just one last question on the CapEx guidance. Some folks saw it as a little bit heavy given that, as you have said, the national infrastructure is kind of done. Could you comment on where that spending is going to be concentrated?

Steven L. Spinner

Sure.

Andrew Wolf – BB&T Capital Markets

Are some of the acquired assets needing some additional CapEx in order to be a reasonable run rate beyond ''11?

Mark E. Shamber

Kind of the three-year guidance that we have provided is 1% of revenue. It came in higher than that in this fiscal year because we made some very conscious decisions to, one, invest in the sustainability project in Florida, hydrogen fuel cells; two, to finish out Texas; and three, to begin the investment of our national supply chain. And that is what drove up the CapEx in the 2010 fiscal.

In 2011, the bulk of the spend will be in rolling out the national technology platform. We have to gear up for two teams in both regions. There is some equipment requirements. And so that is really where the bulk of the spend is. Again, as I look out, I am not sure that there will be a year, at least from where I sit today, where we should have more than 1% of revenue.

Andrew Wolf – BB&T Capital Markets

Thank you very much.

Operator

Thank you. And our next question comes from the line of Meredith Adler with Barclays Capital. Go ahead, please.

Meredith Adler – Barclays Capital

Thanks very much. A couple of questions. First, it''s sort of a housekeeping one. You talked about workers'' comp being higher in the fourth quarter. Was that, would you call, a true-up because you had maybe under-reserved earlier in the year or would you say all of that cost actually belongs in the fourth quarter?

Mark E. Shamber

I would say that the majority of that cost belongs in the fourth quarter. There basically were some events that happened right at the end of the third quarter, Meredith. And so we did take some of the expense in the third quarter but we wanted to give some of the claims a little time to mature to see if they were a bit more in line with where we thought and the costs really just kept coming on in the fourth quarter. So it was spread pretty evenly across the fourth quarter, but it really wasn''t much of a true-up in that sense.

Meredith Adler – Barclays Capital

Okay. And then I have a question -- I want to go back to what Steve was answering in the last question. And I guess I ended up being a little bit confused. I''m going to paraphrase it that, if you had your (inaudible) you would integrate the existing business you have now, but you''re always going to look at opportunities when they come up and there are some parts of the country that have more bandwidth than others. That is where I am confused.

Mark E. Shamber

Sure. Obviously, we have got our hands full in getting Texas up and running, integrating Denver that we picked up from Whole Foods as well as managing Canada. So obviously, there is a lot of work going on in those regions but we do have a lot of capacity in markets in the West, some in the East that have not been the beneficiary of a lot of the additional new business. So there is a lot of bandwidth in those locations remaining. So what I was trying to communicate. And I guess I didn''t do a very good job of it, is basically that, if I had my choice, I would say let''s settle in with what we have for a little while, let''s get it fully integrated. Let''s make sure we can get it as efficiently as we possibly can. But we are certainly ready to take on our new customer if the timing was such that we had to do it sooner rather than later. Does that make sense?

Meredith Adler – Barclays Capital

Yes. But I''ll ask it in a different way. You are actually actively -- your salesforce is actively looking for new business or are they kind of holding back a little bit?

Meredith Adler – Barclays Capital

No, no, no. Absolutely 100% out looking for business. That is a machine that will never stop.

Meredith Adler – Barclays Capital

And I was wondering if you could just talk about -- one of the changes I think you made this past year was to start selling UNFI with all of the different components of it, not just specialty and natural organic, but also perishables. And I think some other businesses all as one with each salesperson being knowledgeable about everything. Can you talk about -- am I right and how is that going?

Steven L. Spinner

Yeah. I mean I think that has been -- the idea started based on some customers who asked that they have one point of contact with UNFI so that if they were looking for supplements from Select Nutrition, organic produce from Albert''s, distribution from UNFI, they had one point of contact. What we actually found was the bulk of the customers actually wanted to do business with the separate entities mostly because the level of service requirement was so different.

So what we do is we recognize the fact that it is one company. So the UNFI core distribution salesforce works directly with the divisions but the divisions themselves do actually continue to call on the customers. And again, that is driven by the difference in the product SKUs more than it is our desire to have one person cover all of it.

Meredith Adler – Barclays Capital

Okay. And then I guess my final question would be when you look back on this past year, weren’t there any expense surprises, putting maybe putting workers'' comp aside, any expense surprises or anything about improvements in efficiency and productivity that you had expected to happen and didn''t?

Steven L. Spinner

No. We didn''t have any surprises from a productivity perspective. Closing a retail store I think was the right thing to do strategically. I am not sure that we forecasted two years ago that we were going to do that. Acquiring Canada, again, that would have been difficult to forecast.

I think that one of our divisions we restructured, built a new team and had some costs associated with doing that. I think we thought a couple years ago that we were probably going to need to do it. Did we forecast that we were going to need to do it? No but again, for the long term, absolutely the right decision. So in answer to your question, from a productivity standpoint, no surprises, from just a nonrecurring expense perspective, yeah, a couple.

Meredith Adler – Barclays Capital

Just one more question. On the Florida fuel project, is that something you like enough to do elsewhere?

Steven L. Spinner

Yes and no. I mean, right now, we are evaluating the technology. It is still relatively new. It has been used for a while in dry warehouses, but we are actually using the hydrogen technology in the freezer. So we are going to have to monitor that for a little bit but if it works, it is very possible that we could roll it out into other DCs.

Meredith Adler – Barclays Capital

Okay. Great. Thank you.

Operator

Thank you. And our next question comes from the line of Eric Larson with Soleil Securities. Go ahead, please.

Eric Larson – Soleil Securities

Yeah. Good morning, everyone. A lot of my questions have been answered. Nice year and good momentum. Just some clarity on your new customers, it''s $100 million of new customer wins that you had last year, but I don''t think all that $100 million was in last year''s sales. I guess I am -- and maybe you have already highlighted this, but about how much of that $100 million landed in F''10 and how much do you expect to kind of land in F''11 via your guidance?

Mark E. Shamber

Yeah, I mean, what I would say, Eric, is that we started really towards the end of Q2 for about half of it and then we started the other half of it in Q4. So if I had to estimate for the full year what portion is in there, it''s maybe anywhere from 35% to 40%. So 55 or 60 to 65% of it will be coming onboard for the first time in fiscal ''11.

Eric Larson – Soleil Securities

Okay. Thanks. And again, I think you said -- I think this you did say. Your current guidance only includes the current wins that you have already signed contracts with, is that correct?

Mark E. Shamber

Right. I would say the only thing that is perspective in there is that the Whole Foods transaction, which we previously announced, but have not yet closed on, the expectation of those sales are in the guidance, as well as the impact on earnings. That is the only thing that is not closed or already shipping that is in the guidance.

Eric Larson – Soleil Securities

Okay. And this is maybe more of a strategic question. With those new customer wins, as you get those onboard and you get the front-end expenses out, is your margin utilization in that piece of the business going to be a little quicker just because you don''t have as high a selling expense directly into that channel?

Mark E. Shamber

I''m not sure I understand that question.

Eric Larson – Soleil Securities

Will you be able to realize your -- a more normalized margin in those new supermarket sales quicker than you would in, let''s say, your acquisition sales?

Steven L. Spinner

I would say the answer is yes. Certainly, we understand that channel very well. We understand the expenses associated with bringing it onboard and then we fully understand the requirement to take the expenses out of it once it is onboard.

Eric Larson – Soleil Securities

Okay.

Steven L. Spinner

That is a much more simple model than an acquisition model.

Eric Larson – Soleil Securities

Okay. And then just a final question related to that whole thing. Have you already incurred most of the front-end expense for that additional $100 million of customers?

Steven L. Spinner

Yeah.

Mark E. Shamber

Yes.

Eric Larson – Soleil Securities

Okay. Thank you.

Operator

Thank you. And our next question comes from the line of Bob Cummins with Wellington Shields & Company.

Robert Cummins – Wellington Shields & Company

Good morning, everybody. Steve, congratulations on your continued success. I want to also congratulate you for the performance of your stock. I don''t have very many stocks that are close to their high here this year. So nice to see investors recognize the attractions of your company. I just wanted to follow up on the acquisition strategy. Was the Canadian acquisition once-in-a-lifetime opportunity or are there other businesses in Canada that you might acquire to expand further? And what about in the United States, do you have an acquisition orientation in the United States as well?

Steven L. Spinner

Yeah. I mean I think that we do. As I said earlier, Bob, there is still plenty of room for growth for us in Canada, just looking at the difference between 185 million and 400 million plus. And certainly one of the ways to do that is through acquisitions. So that is certainly a possibility.

And I think the same thing is true for the U.S. I think most of what we would look at in the U.S. would be related to SKU expansion. So acquiring an expertise in a specific product category, whether it be specialty or dairy, is certainly something that we would look at.

Robert Cummins – Wellington Shields & Company

Okay. Very good. Well, keep up the good work.

Steven L. Spinner

Thanks.

Operator

Thank you. Our next question comes from the line of Gary Giblen with Quint, Miller & Company. Go ahead, please.

Gary Giblen – Quint, Miller & Company

Hi, good morning. First, to clarify on the response to Meredith''s question, is the unemployment, the workers'' comp cost, rather, something that was a blip or is there anything more systematic or structural that would cause higher per capita workers'' comp costs going forward?

Mark E. Shamber

I would say that it was a blip or a one-time event, but I mean workers'' comp, Gary, you could have a series of instances where you are higher and where you are lower over time. This just happened to be a quarter where our claims were that much higher than what we typically expected. And it was all concentrated within one region. So I would expect it''d go back to the normal run rate. You obviously factor into your guidance and your budget every year that you are going to have a number of claims. This was just much higher than what we normally see.

Steven L. Spinner

And the bulk of it did relate specifically to an acquisition we made several years ago.

Gary Giblen – Quint, Miller & Company

Okay. That helps. And then are you seeing any competitive response or competitive changes from Kayee [ph] in buying, your former competitor, there as you seem to be getting customer wins? I mean is there any change in there in the way that they are running the company?

Steven L. Spinner

Yeah. I would tell you that most of our business wins are more a result of our having the capacity to assimilate the specialty category, number one. Two, I think that most of the customers that are existing, a lot of the customers that we have brought on have seen the level of execution, have seen the level of expertise that we have in category management across specialty, natural and organic. And I think that has been the primary driver in them making the decision to switch. We haven''t seen a whole lot of differences in the market as it specifically relates to the Kayee change but we have got a very active salesforce. And they are very motivated to expand our current relations and take on new ones.

Gary Giblen – Quint, Miller & Company

Okay. Well, that sounds pretty promising. So thank you and good luck.

Steven L. Spinner

Thanks.

Operator

Thank you. And our next question is a followup from Scott Mushkin. Go ahead please.

Scott Mushkin – Jefferies & Company

Thanks, guys. I know the call is getting a little long, but I just wanted to maybe take on some of what Meredith and Andy were asking, maybe in a different light. If you had to prioritize, Steve, as you look at the company and you''ve obviously done a really good job as you have taken over the company. And the technology rollout versus really big meaty contracts that are out there. I mean I know you -- if you have your druthers and they only come up once in awhile. But if you were kind of looking at what is more important to you and UNFI at this juncture, would it be really driving the technology rollout to gain the efficiencies or is it supercharging that revenue growth?

Steven L. Spinner

I am not sure it is a fair question because you have got to do both. I don''t think we are ever going to be in a position where we could say, hey, we would love to stop selling and distributing products so that we can put in a new technology platform. The revenue growth is what drives the need for the technology. So we can''t have the technology without the revenue and so we have got to do a good job of both.

Scott Mushkin – Jefferies & Company

And do you think you have the capacity now to take on one of these big -- one of the big three or four supermarket chains right now? Can you actually handle that with the systems you have in your business model?

Steven L. Spinner

Without a doubt, without a doubt. If you go back -- the reason for the technology platform is because we step up the growth over the long term was going to come from the supermarket channel. I mean that is where we knew it was going to come. And we knew that that would be a lower margin strategy and therefore, we would need the technology to drive the efficiency productivity in the DCs that would allow us to rapidly expand our revenue growth but not lose anything on the operating margin line. And so the technology really serves as an enabler for us to go ahead and bring on these hundreds of millions of dollars in the supermarket channel.

Scott Mushkin – Jefferies & Company

Great. That''s a great clarification. Thanks for taking my follow-up.

Operator

Thank you. And our next -- I''m sorry, ladies and gentlemen, once again, if you would like to ask a question, please press star one. And our next question comes from the line of Ed Aaron as a followup. Go ahead, please.

Edward Aaron – RBC Capital Markets

Thank you. Just a couple of quick followups and I apologize if I just missed these. But could you give tax rate guidance for 2011? And then secondly on the supply chain CapEx, is that something that you would expect to really persist beyond this next year?

Steven L. Spinner

Well, answer to the first question, Ed, yeah, the guidance is in the range of 39% to 40% for fiscal 2011. So we finished 2010 at an overall run rate of 39% and fiscal ''11 should be between 39% and 40%. With respect to the supply chain, I think that we have -- fiscal ''11 is another year of relatively heavy investment from that standpoint. There will still be some investment in fiscal 2012 but I would say by the time we finish fiscal 2011, we probably got anywhere between 75% and 90% of the investment associated with the supply chain spent at that point.

Edward Aaron – RBC Capital Markets

Thank you.

Operator

Ladies and gentlemen, that does conclude our Q&A session. I would like to turn the conference back over to management for any closing statements.

Steven L. Spinner

Again, thanks for joining us this morning and please be on the lookout for UNFI''s next analyst investor day coming up in February. I look forward to touring you all through our late newest facility in Lancaster, Texas, utilizing UNFI''s new national supply chain and warehouse management system. Thanks again and have a great day.

Operator

Ladies and gentlemen, this concludes the United Natural fourth quarter 2010 conference call. If you would like to listen to a replay of today''s conference, please dial 800-406-7325 or 303-590-3030 with the passcode 4351706. ACT [ph] would like to thank you for your participation and you may now disconnect.