Andrew Wolf (BB&T Capital Markets): Millbrook looked like the sales were sequentially better. Is that real growth or more seasonal?
Michael Funk: That’s more seasonal. Overall Millbrook’s sales results were slightly under our internal forecast but nothing material.
Andrew Wolf (BB&T Capital Markets): Can you comment how the core business was doing intra-quarter and quarter to date?
Michael Funk: The quarter as well as the period after the quarter was very consistent. We haven’t seen any noticeable changes in sales either total or by our channels.
Andrew Wolf (BB&T Capital Markets): Can you comment on progress with regards to strategic rationale behind Millbrook?
Michael Funk: We certainly hope so. We’ve been working on getting an integrated sales approach to our supermarket customers in which we can sell them the full breadth of our product assortment and bring them the expertise for not only the natural and organic side of the business but the specialty ethnic business. We’ve got a lot of interest from lots of supermarket chains looking at this and we expect to make inroads over the coming year on some new business opportunities as well as expanding some of the specialty offerings to our existing customer base within our natural channel as well.
Andrew Wolf (BB&T Capital Markets): Have you had any progress with the latter yet in terms of getting any further penetration with the existing customers or now that Millbrook is stabilized, you can now focus more intently in that area?
Michael Funk: It’s now a place we’re focusing on and a big part of it is getting our capacity set up so that we can handle the extra SKU counts. Our two facilities that are under development are going to assist us in that to a great degree. Getting the infrastructure right sized so that we can attack that market with the full assortment of products is what we’ve been working on.
Andrew Wolf (BB&T Capital Markets): When you talk about the new facilities, Millbrook didn’t have facilities in the West Coast. Were you therefore talking about expanding this to national business and doing a national account once the LA facility is up?
Michael Funk: We’ve added the capacity in the Northwest and now in Southern California and this will certainly help us be able to offer the full breadth of products to the Western region as well as to the Eastern region. Our plans certainly are to look for opportunities for national business. We’re not limited this to one region of the country.
Eling Conception (Citigroup): Are there any product segments that are doing particularly well regarding the internally generated sales?
Michael Funk: There are no major changes in product category sales that we would call out. The perishables, refrigerated and frozen items have continued to do well for us as well as specific items, functional foods and gluten free products. There are definitely specific areas in grocery that are showing more exceptional growth. In general, the perishables and the frozen continued to grow at a faster rate than our grocery products overall.
Eling Conception (Citigroup): Do you have any guidance on what you expect organic sales growth to be in the fourth quarter?
Michael Funk: We would look to see our current trends maintained through Q4. We’re not seeing any evidence of any change. We’ve anniversaried all of the more non-recurring things like the Whole Food SoPac business. We would therefore look for the current trends to continue into Q4.
Eling Conception (Citigroup): With Millbrook, how large do you think that opportunity is in regards to gaining new business with supermarkets?
Michael Funk: We would like to believe it’s a very significant opportunity in the long term. Supermarkets are currently 21% of our business. As we look down the road several years, supermarkets can become a much bigger percentage of our business, perhaps as much as 30%. We therefore truly believe that it’s one of the biggest opportunities where we have to gain new sales and new customers.
Regina Russell (J.P. Morgan): There has been improvement in the Millbrook business this quarter. Is the majority of this improvement being driven by the purchase synergies and what progress has been made on that front?
Michael Funk: I would describe most of our improvements to date being on restoring gross margin. That has to do with purchasing synergies, taking advantage of more inbound freight synergies and doing more forward buying. The opportunities that we’re focused on now are more on the expense reduction. We have a number of initiatives that we see reducing expenses over the next three or four months that we think will have a material impact. That’s the focus now although we still believe there are still opportunities to continue to improve gross margin as well.
Regina Russell (J.P. Morgan): To recognize the total quality of what you can accomplish in terms of expenses, are we looking at maybe nine to 12 additional months from there?
Michael Funk: We certainly see the integration of Millbrook into UNFI as a longer term project that will enhance our ability to make Millbrook a very accretive operation for us. Certainly some of those things are longer term and will occur over the next year to two years. That will see another level of pickup and make the deal very accretive as opposed to the short term goals of getting it neutral to earnings. In the next quarter, we’ll update you on our 2009 goals as far as Millbrook goes and the rest of the company. However, we believe we are going to be able to incrementally improve the operation over the next two years.
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