Question-and-Answer Session
Operator
(Operator Instructions) Our first question is from Simeon Gutman with Goldman Sachs.
Simeon Gutman – Goldman Sachs Research
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 – Goldman Sachs Research
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.
- To read the full transcript on Seeking Alpha, click here »
