United Natural Foods, Inc. Reports Third Quarter Fiscal 2024 Results

United Natural Foods, Inc. (NYSE:UNFI) (the "Company" or "UNFI") today reported financial results for the third quarter of fiscal 2024 (13 weeks) ended April 27, 2024.

Third Quarter Fiscal 2024 Performance (comparisons to third quarter fiscal 2023)

• Net sales decreased 0.1% to $7.5 billion
• Net loss of $21 million; Loss per diluted share (EPS) of $(0.34)
• Adjusted EBITDA decreased 18.2% to $130 million
• Adjusted EPS decreased to $0.10

Recent Financial and Operational Summary

• Continuing to reset profitability and strengthen foundation while revamping long-term strategy
  • Drove sequentially improving financial performance, including gradually improving volumes and the third sequential quarter of accelerating adjusted EBITDA, primarily due to disciplined expense management, including supply chain efficiencies
  • Extended term loan maturity to May 2031
  • Financial review progressing, multi-year strategic plan starting in fiscal 2025 being finalized; expect continued strengthening of operational and financial performance and capital structure
• Revising fiscal 2024 outlook:
  • Charges related to cost reduction actions driving lower expected ranges for net income and EPS
  • Raising adjusted EBITDA and adjusted EPS midpoints; reducing capital and cloud implementation expenditures

"We delivered another quarter in-line with our fiscal 2024 plan and our third consecutive quarter of improving profitability driven by continued progress on near-term operational and efficiency initiatives. This progress includes significant cost reduction actions and supply chain efficiencies, and we see opportunity to drive further improvement across these areas," said Sandy Douglas, UNFI's Chief Executive Officer.

"Our ongoing board- and management-led financial review is also nearing an important milestone, which is our new multi-year strategic plan that will begin in fiscal 2025. We are beginning to see tangible benefits to our financial performance stemming from this process and are focused on driving short- and long-term improvement by optimizing controllable variables in our new plan. We expect our updated strategy to generate free cash flow approaching $100 million in fiscal 2025 and stable and dependable profit and cash flow growth, with improving returns on capital and declining net leverage on a multi-year basis."

Third Quarter Fiscal 2024 Summary

Net sales decreased 0.1% in the third quarter of fiscal 2024 compared to the same period in the prior year, primarily driven by a decline in unit volumes, which was largely offset by inflation and new business with existing customers.

Gross profit in the third quarter of fiscal 2024 was $1.0 billion, an increase of $20 million, or 2.0%, compared to the third quarter of fiscal 2023. The gross profit rate in the third quarter of fiscal 2024 was 13.6% of net sales and included a $6 million LIFO charge. Excluding this non-cash charge, gross profit rate was 13.7% of net sales. Gross profit rate in the third quarter of fiscal 2023 was 13.3% of net sales and included a $33 million LIFO charge. Excluding this non-cash charge, gross profit rate in the third quarter of fiscal 2023 was 13.8% of net sales. The decrease in gross profit rate, excluding the LIFO charge, was driven by lower levels of procurement gains resulting from decelerating inflation and a lower retail gross profit rate, which were nearly offset by the benefit of lower shrink expense.

Operating expenses in the third quarter of fiscal 2024 were $992 million, or 13.2% of net sales, compared to $967 million, or 12.9% of net sales, in the third quarter of fiscal 2023. Operating expenses increased by $25 million, primarily driven by a $33 million increase in incentive compensation due to $13 million in expense in the third quarter of fiscal 2024, compared to a $20 million benefit in the third quarter of fiscal 2023 resulting from the reversal of previously accrued incentive compensation expense driven by underperformance in fiscal 2023. This increase was partially offset by lower transportation costs and other operational supply chain efficiencies.

Interest expense, net for the third quarter of fiscal 2024 was $37 million compared to $35 million for the third quarter of fiscal 2023. The increase in interest expense, net was primarily driven by higher average interest rates.

Effective tax rate for the third quarter of fiscal 2024 was a benefit of 23.1% on pre-tax loss compared to a benefit of 14.3% on pre-tax income for the third quarter of fiscal 2023. The change from the third quarter of fiscal 2023 is primarily driven by the impact of a partnership investment entered into in the third quarter of fiscal 2023, and the reduction in pre-tax income during the third quarter of fiscal 2023.

Net loss for the third quarter of fiscal 2024 was $21 million. Net income for the third quarter of fiscal 2023 was $7 million.

Net loss per diluted share (EPS) was $(0.34) for the third quarter of fiscal 2024 compared to net income per diluted share of $0.12 for the third quarter of fiscal 2023. Adjusted EPS was $0.10 for the third quarter of fiscal 2024 compared to $0.54 in the third quarter of fiscal 2023.

Adjusted EBITDA for the third quarter of fiscal 2024 was $130 million compared to $159 million for the third quarter of fiscal 2023, including $33 million in higher incentive compensation.

Capital Allocation and Financing Overview

• Free Cash Flow – During the third quarter of fiscal 2024, free cash flow was $49 million compared to $65 million in the third quarter of fiscal 2023. Free Cash Flow for the third quarter of fiscal 2024 reflects net cash provided by operating activities of $125 million less payments for capital expenditures of $76 million.
• Leverage – Total outstanding debt, net of cash, was $2.13 billion at the end of the third quarter of fiscal 2024, reflecting a decrease of $30 million compared to the end of the second quarter of fiscal 2024. The net debt to Adjusted EBITDA leverage ratio was 4.6x as of April 27, 2024.
• Liquidity – As of April 27, 2024, total liquidity was approximately $1.26 billion, consisting of approximately $39 million in cash plus the unused capacity of approximately $1.23 billion under the Company's asset-based lending facility.

Fiscal 2024 Outlook ⁽¹⁾

The Company is updating its full-year outlook which lowers its expectations for net income and EPS primarily due to charges related to cost reduction actions. Adjusted EBITDA and Adjusted EPS, which exclude these amounts, are expected to be higher than the previously provided outlook:

Conference Call and Webcast

The Company's third quarter fiscal 2024 conference call and audio webcast will be held today, Wednesday, June 5, 2024 at 8:30 a.m. ET. A webcast of the conference call (and supplemental materials) will be available to the public, on a listen only basis, via the internet at the Investors section of the Company's website www.unfi.com. The call can also be accessed at (888) 660 - 6768 (conference ID 1099581). An online archive of the webcast (and supplemental materials) will be available for 120 days.

About United Natural Foods

UNFI is North America's premier grocery wholesaler delivering the widest variety of fresh, branded, and owned brand products to more than 30,000 locations throughout North America, including natural product superstores, independent retailers, conventional supermarket chains, eCommerce providers, and foodservice customers. UNFI also provides a broad range of value-added services and segmented marketing expertise, including proprietary technology, data, market insights, and shelf management to help customers and suppliers build their businesses and brands. As the largest full-service grocery partner in North America, UNFI is committed to building a food system that is better for all and is uniquely positioned to deliver great food, more choices, and fresh thinking to customers. To learn more about how UNFI is delivering value for its stakeholders, visit www.unfi.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding the Company's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. The risks and uncertainties which could impact these statements are described in the Company's filings under the Securities Exchange Act of 1934, as amended, including its annual report on Form 10-K for the year ended July 29, 2023 filed with the Securities and Exchange Commission (the "SEC") on September 26, 2023 and other filings the Company makes with the SEC, and include, but are not limited to, our dependence on principal customers; the relatively low margins of our business, which are sensitive to inflationary and deflationary pressures and intense competition, including as a result of the continuing consolidation of retailers and the growth of consumer choices for grocery and consumable purchases; our ability to realize the anticipated benefits of our transformation initiatives; changes in relationships with our suppliers; our ability to operate, and rely on third parties to operate, reliable and secure technology systems; labor and other workforce shortages and challenges; the addition or loss of significant customers or material changes to our relationships with these customers; our ability to realize anticipated benefits of our acquisitions; our ability to continue to grow sales, including of our higher margin natural and organic foods and non-food products, and to manage that growth; our ability to maintain sufficient volume in our wholesale segment to support our operating infrastructure; the impact and duration of any pandemics or disease outbreaks; our ability to access additional capital; increases in healthcare, pension and other costs under our and multiemployer benefit plans; the potential for additional asset impairment charges; our sensitivity to general economic conditions including inflation, changes in disposable income levels and consumer purchasing habits; our ability to timely and successfully deploy our warehouse management system throughout our distribution centers and our transportation management system across the Company and to achieve efficiencies and cost savings from these efforts; the potential for disruptions in our supply chain or our distribution capabilities from circumstances beyond our control, including due to lack of long-term contracts, severe weather, labor shortages or work stoppages or otherwise; moderated supplier promotional activity, including decreased forward buying opportunities; union-organizing activities that could cause labor relations difficulties and increased costs; our ability to maintain food quality and safety; and volatility in fuel costs. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. The Company is not undertaking to update any information in the foregoing reports until the effective date of its future reports required by applicable laws. Any estimates of future results of operations are based on a number of assumptions, many of which are outside the Company's control and should not be construed in any manner as a guarantee that such results will in fact occur. These estimates are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced estimates, but it is not obligated to do so.

Non-GAAP Financial Measures: To supplement the financial information presented on a U.S. generally accepted accounting principles ("GAAP") basis, the Company has included in this press release the non-GAAP financial measures Adjusted EBITDA, adjusted earnings per diluted common share ("Adjusted EPS"), adjusted effective tax rate, free cash flow, net debt to Adjusted EBITDA leverage ratio and capital and cloud implementation expenditures. Adjusted EPS is a consolidated measure, which the Company reconciles by adding Net income attributable to UNFI plus the LIFO charge or benefit, Goodwill impairment benefits and charges, Restructuring, acquisition, and integration related expenses, gains and losses on sales of assets, certain legal charges and gains, surplus property depreciation and interest expense, losses on debt extinguishment, the impact of diluted shares when GAAP earnings is presented as a loss and non-GAAP earnings represent income, and the tax impact of adjustments and the adjusted effective tax rate, which tax impact is calculated using the adjusted effective tax rate, and certain other non-cash charges or items, as determined by management. The non-GAAP adjusted effective tax rate excludes the potential impact of changes to various uncertain tax positions and valuation allowances, as well as tax impacts related to the vesting of share-based compensation awards. The non-GAAP Adjusted EBITDA measure is a consolidated measure which the Company reconciles by adding Net (loss) income including noncontrolling interests, less Net income attributable to noncontrolling interests, plus Non-operating income and expenses, including Net periodic benefit income, excluding service cost, Interest expense, net and Other (income) expense, net, plus (Benefit) provision for income taxes and Depreciation and amortization all calculated in accordance with GAAP, plus adjustments for Share-based compensation, non-cash LIFO charge or benefit, Restructuring, acquisition and integration related expenses, Goodwill impairment charges, Loss (gain) on sale of assets and other asset charges, certain legal charges and gains, and certain other non-cash charges or other items, as determined by management. The changes to the definition of Adjusted EBITDA in the fourth quarter of fiscal 2023 from prior periods reflect changes to line item references in our Consolidated Financial Statements, which do not impact the calculation of Adjusted EBITDA. The non-GAAP free cash flow measure is defined as net cash (used in) provided by operating activities less payments for capital expenditures. The non-GAAP net debt to Adjusted EBITDA leverage ratio is defined as the total carrying value of the Company's outstanding short- and long-term debt and finance lease liabilities less net cash and cash equivalents, the sum of which is divided by the trailing four quarters Adjusted EBITDA. The non-GAAP capital and cloud implementation expenditures measure is defined as the sum of payments for capital expenditures and cloud technology implementation expenditures.

The reconciliation of these non-GAAP financial measures to their comparable GAAP financial measures and the calculation of net debt to Adjusted EBITDA leverage are presented in the tables appearing below. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. The Company believes that presenting the non-GAAP financial measures Adjusted EBITDA and Adjusted EPS aids in making period-to-period comparisons, assessing the performance of the Company's business and understanding the underlying operating performance and core business trends by excluding certain adjustments not expected to recur in the normal course of business or that are not meaningful indicators of actual and estimated operating performance. The inclusion of free cash flow assists investors in understanding the cash generating ability of the Company separate from cash generated by the sale of assets. Net debt to Adjusted EBITDA leverage ratio is a commonly used metric that assists investors in understanding and evaluating the Company's capital structure and changes to its capital structure over time. The Company believes that providing non-GAAP capital and cloud implementation expenditures provides investors with better visibility into the Company's total investment expenditures. The components of capital and cloud implementation expenditures for fiscal 2024 will be primarily dependent on the nature of certain contracts to be executed. The Company currently expects to continue to exclude the items listed above from non-GAAP financial measures. Management utilizes and plans to utilize these non-GAAP financial measures to compare the Company's operating performance during the 2024 fiscal year to the comparable periods in the 2023 fiscal year and to internally prepared projections. These non-GAAP financial measures may differ from similarly titled measures of other companies.

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