United Natural Foods (UNFI) 5 Jun 242024 Q3 Earnings call transcript

Hello. My name is Ellie, and I will be your operator for today. I would like to welcome everyone to UNFI Fiscal 2024 Third Quarter Earnings Call. [Operator Instructions] It is now my pleasure to turn today's meeting over to Steve Bloomquist, Vice President, Investor Relations. Steve, please go ahead.

thank XXXX joining Earnings and Third on everyone, Fiscal Quarter Conference morning, you us for UNFI's Good Call. morning. By a now, this copy received of the you earnings release should have issued management press will the The section company's Events on the at of earnings tab. and presentation, Investors speak are available release to under unfi.com the website which We've key financial a disclosure in file supplemental included information. also Microsoft with Excel

Sandy Executive today's and questions. Officer; are we'll our Matteo Officer. and Chief Tarditi, for Sandy which call me a Chief Joining provide President Matteo our Financial after business and will Douglas, update, your take

Before statements. involve to may filings. results made contain in begin, materially risks risks These significant and include in everyone call by These differ from statements. the that estimates forward-looking statements and company's SEC uncertainties. we comments and I'd discussed earnings like release forward-looking plans, forward-looking Actual are today's might management the discussed may that during results expectations, remind projections these

to during comparable GAAP And financial in reconciliations of most the I'd our to the today's to and measures. measures Definitions earnings out are non-GAAP release refer will like our financial included certain lastly, end management and call, point press presentation. that

of you the presentation to ask Slide X turn over to I I'd turn to as our call Sandy.

and to We've our maturity XXXX profitability. the XXXX. all important Thanks, reset and and plan, XXXX morning. We our our extending through Steve, loan relationship we our to results us efficiency joining with progressed initiatives you Foods including to and term of also fiscal Whole taken operational actions our delivered near-term in thank this for strengthen with another line quarter on foundation, of extending

which an new financial also nearing is strategic in that fiscal and review plan Board important management-led ongoing begin will our Our XXXX. multiyear is milestone,

engagement our structure further guidance plan short- Board's to and process, we and improve long-term the to continue review oversight from we this capital and opportunities the and ensure have benefited evaluate strong shareholder and returns. will the as during We implement drive

informs will our drivers financial expect success, reallocation the services portfolio, fiscal balance an new also we overall of I view our in Today, a a I of discuss and our a remargin sheet include expansion resource significant starting and to customer the leverage and our will our and to will cash will reduction strategy we a enhance increase our free supplier including prioritization go-forward industry, how the which generate result. disciplined as of incrementally in high-margin preview our some drive it plan, multiyear of of which the believe in business flow, strengthening XXXX. and improvements

consumers. industry-leading refreshed perspective and and environment, years Given innovative which offering, is diversified applied X from suppliers a we dynamics last which when have to impacting UNFI service business unique different today's evolving to food expansive product strategy. ago, markedly our retailers, our and analyze our a and perspective the long-term base, customer from position evaluate this its against with We've operating

to help how to increasingly differentiate share. an offers assortment compelling mass and a and unique deliver many product support them retailers compete and analysis price to we discount are large by points sensitive and remain and providing to Our gaining where a relevant experience consumers can consumer service environment retailers in

volumes. today totals over single-digit operators. long by at conventional, specialty, ethnic and rate Our and of resilient segment analysis of potential the sales is that of our billion has be low is expected and a over current $XX and a natural many will the likely there includes term customer that to led base specialty and identified It industry grow natural

and customers focused existing growth. important retailers on brand and large to are Importantly, we in these segment, building our suppliers increasingly profitable this believe will the majority of be

the of given has interactions the we importance services we and can professional generate customer and work compelling and strategic mutually greater about economics. digital Our how offer us conviction

have advantages our discussed competitive retailers As compete. scale, we've utilize and through suppliers to and develop help prior on working the been calls, we've relationships, our business that to data new we initiatives insights

we've Swiftly. that will We with insights UNFI across and launched consumer our covers for this modern of unique customer Network than Media with in marketing XX% retail democratize more XX,XXX our recently, customers help locations the over our Most companies U.S. population. partnership initiative products and media provide capabilities diverse from believe network data services

and provide in develop other to services to expect capital-light invest We partner the future. or

also fiscal starting revamped advance results be go-to-market our to additive the expect and We to to have continued next year. in suppliers our this commercial program for

Slide to Turning X.

spending; supplier to refinements are reducing to variables to addition our remargin important controllable These future. on flow and in reducing taking In to a continue capital increase our of leads the direction for cash intensifying X view position the strategies, in and optimizing better structure; we materially business represent cost optimization; and working our capital our generation updated our strategic in business position. our focused and annual actions expanding shift customer areas: our network to our net actions key

a efficiencies beyond footprint streamline we've drive see actioned. and meaningful opportunity what capital already We to our chain supply

opportunity As do benefits, we've on discussed previously, optimization realizing even we've focused but so. we see been larger now to an network

details. on the free ongoing asset our base, returns fixed reduce expenditure we We DC options improved these in are flow prioritizing capital invested to cash our But and capital. expect requirements still and meaningfully network scoping resulting will and changes and higher

for compared maintenance to opportunity $XXX fiscal technology of currently and CapEx $XXX worked substantial spend continues prioritize spend plan. benefits $XX of fiscal capital updated also outlook our larger this and investment anticipate year. the reduce to This see capital beyond We've reduction a needs million enablement network prioritize and reevaluate we million million level We and our reduced to to approximately in targeted XXXX, enhancements. optimization from to plan network

the strategically ability in us our Importantly, we business help sheet and to parts reallocate services. our to believe invest of broader this will while resources as such balance and higher-margin enhancing strengthen business

our the that understand can of better we and without improvements we potential realize. the efficiencies to business, capital expense worked operating incremental long-term can make the expenditures full we've Additionally,

initial already last we've the removed on expense strategy. work the a that includes as done have prioritizing we've resources, structure improve year This supplier-facing approach years, the million build last our expect We believe opportunity corporate to next and with work similar customer our and year. over magnitude to we efficiencies unified the the few $XXX over additional updated an to strategic approaching our consistent recognize over more better and expense to a as well optimization our to taking

financial pandemic that and desire years, in for where been have metrics to of can customers we challenges recent improving commercial another suppliers. free drive our cash the management area product believe is and improve to availability the flow due capital We our experience due our stronger pressured partially customers and to will complexity. we believe trajectory and partially this for ensure business Working by our the

capital cash thoroughly our to lowering of flows and scrutinized while reducing hand sales is days by We've there outstanding believe opportunity inventory working days to pay. and days on processes improve a sizable optimizing

able our We customer expect experience. be to this without accomplish impacting to

actions from drive take to beginning benefits are opportunities. these We to

and actioned. discussed reductions operational as rapidly a near-term previously taking we in We million we annualized achieving fundamental $XXX as that efficiencies achieving this broader well the improvement similar tackling are to did we've in supply approach the chain

performance sales basis financial tangible fiscal to lower points costs made the in reductions which benefits as shrink, to transportation review see financial of rate process. this XX is we in In and summary, our significant which about includes than are percent we've stemming and progress XXXX. a This at exited our beginning from

sheet. drivers customer of increase Our we believe reallocate free our including and of new resources a significant the and portfolio, high-margin our in in of cash re-margining to a flow, supplier will business, in a services success, the strategy strengthening overall our reduction and our will an prioritize leverage expansion enhance result of our which balance

sustainable expect shareholders. these for significant our actions to will We and lead returns

We're using is our work the to now. process, underway our XXXX inform fiscal which of budgeting findings

over our out generate approaching after setting our will expect flow free and outlook million we plan that profit more One stable XXXX we to use to to multiyear fiscal We on year, on detail and leverage $XXX fiscal further cash net is growth, call improving complete strategic net returns next the funds several target reduce we process. plan dependable flow reducing focused debt. provide generate strategy. with our And cash expect and next these and and capital to years,

turns While we've previously controllable by of or we're increase strategic working X.X to still and levers less, we've plan fiscal historical a a generated path spectrum multiyear year-end see higher our the XXXX. to finalize to net levels ROIC based to leverage full we to reduce identified, on

and returns. cash financial directly highly for accountable rapidly Our is net leadership team flow, and shareholder and leverage improving profitability, free motivated

details to QX our during over look to now on forward results. our the Matteo I'll progress updating more turn our to call on you QX and We call, provide

With you earnings and forward to Sandy, Thank investment and to be community. building lean strategy career results, just businesses efficient sheet the cash valuable that, and my update. this turnarounds. our you, join I'm and to President for confident here I'm pleased new UNFI, good Prior and implement described. experience QX dive my joining everyone. balance morning, be spent relationships call at I to GE, Sandy building first and of we the look UNFI excited as CFO executing UNFI. let's into with flow will as I'm

Slide to Please turn X.

year's $X.X volume third is the started QX. improving roughly Overall, sequentially at has wholesale Our This sales billion, during fourth improve and last into quarter. which basis XXX in than nearly to we saw inflation. came declining points resulted quarter. in performance volumes favorable in but continued to trend by the less flat decelerating compared Unit volumes muted which quarter,

product decline continue from inflation fourth to we quarter. modestly inflation to QX expect and to move we approximately our anticipated, gradually As slowed the X%, as through rate

Our in business as continued see many to markets pressure consumers line sensitive. price our remain top retail highly retail

Minneapolis new working our CEO, take is by our the of [indiscernible] retail led accelerate performance team, Cub our actions the to leader. Our franchisees to Cub brand, market with

We rapidly will which are changes also believe expect improve comparisons. benefits, government in retail cycling help we we

Moving XX. Slide to

profitability the review drivers in Let's quarter.

over rate, prior quarter margin year period. and to basis gross compared the about points improved was XX Our excluding sequentially second LIFO, flat the

the store units XX challenging our basis wholesale segments, than operational points while environment the increase basis points, Within and reflecting transaction. about declined gross rate more per our partially XXX to increased margin retail and traffic efforts gross margin rate our

is includes roughly margin which the of as a at pre-COVID continued percent of improvement, XX wholesale basis shrink benefit points approaching improving now Our levels sales.

believe lower, and quarter, suppliers. even last we that highlighted on impact opportunity there drive to further profitability or we is which customers our no improves this As had

$XX million last year. to compared Adjusted EBITDA declined

included incentive due compensation incentive targets. benefit, to million However, this results quarter $XX our compensation included last underperformance to reversal resulting financial million expense year, to of the compared $XX a in where from relative

year-over-year, which can on points impact, our this our managing by basis continued performance expense operating what reflects focus control. rate we Excluding we improved XX by driving

We help we G&A have focused these and our to execute expected GDP conducted yield particularly as fully The to further to fiscal are as actions. in the plan. benefits drive savings rationalization prepare more new strategic savings increase organization our corporate annualize significant on XXXX we and

highlighted, build meaningful also through few we further years. We'll customer as dynamic as efforts our detail new next work part the reducing a and have supplier-facing Sandy is to a we of efforts. create over additional As this We organization. expect these on cost structural these opportunity on to strategy more by our there believe

cost the third near-term excluding savings million, both efforts. chain would of efficiency by adjusted and compensation including shrink reflects years, supply benefits the of in our $X EBITDA summary, initiatives incentive which management increased our have In improvements, quarter

Looking XX. at Slide

generated the to cash reduce the free quarter, about us during million $XX million $XX quarter. flow, net enabling we of by debt During

first solidify XXXX. by actions structure capital took our our term in the strategic by extending long-term also secured amending to years week to fourth loan of quarter We X.X and the

flexibility We term prepayment a an value is majority without structure of our continue loan is our to penalty. The part we provides loan of this prepayable debt us. as capital believe outstanding that secured important the

believe will free flow As Sandy financial identified is we significant levers remarks, cash review, in return controllable the and important fiscal have and detailed starting his an next further enable debt and these generate year. that us focus debt flow to to of reducing meaningful net improving cash repay we free

hand implementing quickly levels, We undertaking plans to increase structure free are management working we optimize are in We capital bolster through a opportunity reduction to inventory work the term, expense. interest sizable experience. and without to actions of longer-term cash EBITDA, believe and discipline already to to there flow on help generation short lower customer cash the drive is while execute days daily CapEx the impacting

flow our commercial inefficiencies our back logistics a structurally meaningful XXXX from part be call the we We network XQ is have free processes our and help assembled expected fiscal an us will spans in it prevent improve meet group us and update our earnings to unlock and cross-functional team to operations, work business. have in cash cash into of creeping helping that on This a September. to goals finance, this

Turning to Slide XX.

Let's review outlook. XXXX revised fiscal our

focused outlook to and which performance. be the improving of our for with operational We ranges, raising and on our closing the EPS adjusted continue XQ, EPS. midpoint out guidance income adjusted our expectations ranges the reduction net Based and related charges reflecting year maintaining on are cost slightly EBITDA we for for sales, actions, and the to lowered financial

up the the our $XXX the $XXX year We now from our outlook, outlook. midpoint in for of expect at adjusted midpoint million which EBITDA million of is updated prior

across variables. to look performance and for priorities. investments cloud the also allocation optimize for $XXX from We're by million. approximately capital execution controllable year around for partially more outlook driving to This reflects continue $XXX focused our We will to capital million strategic our our reducing opportunities

Moving I'm shareholders. joining XX. my efficiency, I can to such our significant believe for of creation pivotal is a and improving of a the There pleased optimistic value Slide about experience. future and opportunity time. from we the to company vital returns UNFI our I'm prior at generate part is which processes be

stakeholders to community. for these dialogue so our our all forward investor resilient relationships can associates. value with motivated tackle create and I look customers, company to suppliers and a with energized that shareholders, developing I'm we challenges financially and our

as your will to feedback we We execute value strategy. creation work our updated seek

questions. that, for With the open operator, line please

Instructions] first comes Sachs. question Leah from [Operator Goldman Our from Jordan

what What term run to seeing cash achievable for ]. [ make outlook the provide take that, think On the then reaction then 'XX? CapEx about outlook? just And some million year? next if that $XXX your rate, working longer is on more does you highlighted. or the improvements Why the could And support multiyear And it now? in long-term on we detail near you beyond fiscal it flow capital sense is could free the should how

question. for the It's Thanks Matteo here.

talk working free me how thinking and a let we're question. about bit little then a next flow year the bit talk for cash So capital little about about

flow about X Sandy million So positive mentioned flow XXXX. free cash the free for $XXX flow can elements. -- cash free positive of you cash think And in

more XXXX. and million to We're going work We're going we're EBITDA, we CapEx from as to discuss improve reduce going year the you to to to full give details $XXX $XXX million.

a a So have tailwind then on $XX we pick million going up that. And on, of actions capital. number working on we

the So that again, levels. that we of number and and years. an look fixing including inventory. the doing systems we specifically, built say, levels relatively it inventory into, about structurally sustain then at to lead and to the I last flow, and I times, customers we're on would saw We levels like hand reduce that more and on to the what to the to on pre-COVID a the tools all compare on days pool work, Put the opportunity support first inventory post-COVID talk would hand. quickly that improvement in few the of going step identify debt inefficiencies

the delivery, expect So to the some to make to and that cost But time, safety, fixes, this we customers. improvement quickly we take level of on time then order with sure relatively going structural our probably compromise it take want inventory. is on the quality, not in

came And follow-up, agreement? for. given to see it than there. about? profitability updates longer how talk Can Great ask and Great. from the should typical we term you to volume the you And guys Foods here? that Any extension about compare for wanted how about that your renegotiate But commitments just my prior around I just Whole to contract. was or

obviously, The it's Leah, specific it, than, we comment Sandy. way on the describe is obviously, I other customer don't situations renewal would sizable.

each extremely describe relationship the Whole issued we I And so agreement way that. stronger some it, if can healthy to think find want it. opportunity The on set ]. saw think I other an strategic you XX-Q we does the obviously built there. it and an would reactions win-win. Foods exhibit and and And is an both And in X-K this you on I But we've review the got even [ to that's commitment make to

from question comes Carden Our from Mark UBS. next

Sachin the is are Or challenging your is, with on more Verma independents cautious for My This Mark in given of being behalf question they much seeing of an still Carden. services uptick are for spend? you their macro? value-add demand

Yes.

I stronger and opportunities money. for think, save to retailers looking because need grow for we're frankly, what to are them opportunities seeing is

receiving. say and proposition drive value they strategic but similarly, would away. than that's our And the services pro capital-light, of anything, customers they're I customer perspective, our creates so is a demand it key, rather right From whole economics value that is premise so if also growing The helps economics. is drive and

it a for a it's So benefit and pretty both. win-win, quick has

And to my is, how your expectations? promotional trending activity relative follow-up is

increase. to They're but reporting. consistent what that's see levels of are below see a to and expect or based slightly what do in continue Promotions terms on gradually little retailers to increase bit we large we some them and increase them and depth, with of continue the continue we that, to industry-wide, frequency pre-pandemic

next from Instructions] Eli from Our Capital BMO [ Lach question [Operator comes ] Markets.

last just could the was months, I through X year. million capital a line item line the past the wondering XX working item, minute spend you if $XXX going from the versus

give that you would intrinsics be some us there, helpful. Just the could of

Yes.

of comments here. So a couple

benefit work a on continue last in And program, third we we to that, If monetization basis, a broadly against But do entered created XXXX. the inventory. in you unpack it, so flat in a quarter. bear XXXX if versus which year, is you year-to-date mind, on

third execute we in as going XXXX. XQ quarter, some to we're more early in signs see our and have, We of and again, action plans the improvement

question next comes Partners. Our Heinbockel John from and Guggenheim from

Mark This for is [ John Willy ] Heinbockel.

gotten for $XXX be where opportunity the And size maybe coming reductions. cost us? Automation. Or for opportunity productivity might through of with So Centralia you follow-up this there that I version? lead from? the of any that you pick way also million apart you modified round. facilities -- Is mentioned maybe a mentioned then had And What's there can results partial the the second scope the from quick on new the in existing

million that opportunity planning $XXX our next on strategic achieve the the a cost the similar way we is in the sized-opportunity sources rate And detailed that a underneath we achieved element we Sure. improvement future year. will as the communicated communicate over finalize we way we describe The targets. could was this of there's we series that years. few run in And that, more that saw

capital, From a efficiency. about said that and online. to Centralia we've relative it's obviously more What about experience. is publicly healthy that perspective, and increases to cost come get of we Centralia the customer our the will efficient of it also quality is it growth are returns It makes drives significantly

Andrew Next question CL from from Wolf comes Instructions] [Operator King.

question of What role you're obviously. an generate term, about flow? going automation is trying Foods As of where Natural versus thinking the and open-ended cash of for about sort sort long CapEx free automation and general to to United be

our efficiency. our returns. we completely industry. think product network ways to to is I service footprint, brought look is perspective customer way to for improvement we technology use about from us And rightsize line the in as financial spanning a improve Andy, and linked the and implement and we drive network So widest And optimization the largest technology and network automation and

a management. to our new component is nearly execute a projects the disciplined over highly about way a that unto Automation implemented And of we've approach not successfully as in-depth come it's to of with an learned project end successfully or to is last Centralia in is And as lot online. it couple -- strategy. we've years about it that itself, just our

Casella JPMorgan. from next Instructions] question Our [Operator comes Carla from

showed million $XXX the million term $XXX facility FILO as In and the loan ABL. to the you a slide, sub

forma against count million availability where your going on $XXX can say the availability ABL is And does today? pro you forward? the So

Yes.

So it's question. Thanks for Matteo. the

availability ABL the $XXX So liquidity now right about is billion. $X.X counts and million our in the

After quarter end?

That is correct.

consider you're multiyear And Or your the debt? have Awesome. selling rates changes closing terms network at Does you of then would consolidating are facilities? in slide, Okay. sense in asset where or there mentioned you that base. plan reduce reduce DC sale cap you leasebacks looking potentially to mean And to fixed any today? or

is This Thanks. Sandy. Yes.

As our have, of network distribution part assessing best far, for the most service our I the can set, options network. configuration of intensified our by expansive how and DCs effective mentioned, profitably customers. as most we're customer work, our efficient Among we we optimization and

And and better advantage so we within obviously, see of scale opportunities business specifics to to come. the economies take more of

the and more some of any just And more us, of how the your where -- the if to us give it you're businesses? of differ, channels it you between give -- helps you're versus Great. can margin terms one sense Okay. offering color if another. margin services you different maybe in the on And may

our as significantly highest will the way faster continue have to than is by their profitability. services years far, our been accelerate and they think growing that The a company. to not reported were We about issued our currently forward segment. of grow growth, a services the opportunity they which going of details But couple to component, and around we Sure. XX% They're was XX% see segment. total to there, margin ago, about

closing of over We for question-and-answer I'd remarks. end Sandy have hand reached the to session. back Douglas to our now like

operator. you, Thank

this will suppliers significant customers, that sustainable our multi-year long-term We with our declining and plan and and strategy profit capital value and we to to plan create and you net growth, new for cash our finalized implement being deliver and leverage. and the and flow we're shared we'll returns stable improving motivated be to Our is shareholders. levers pulling improve performance, short- this dependable on believe

move help skills, creation to have team us believe the chapter. into our we the to that excited and I'm value as he and and process focus Matteo will excellence UNFI next on immensely experience brings on

continued and you For your business together. the our suppliers, partnership and do thank we for we customers

thanks that and for customers our in listening our associates today, each you the continue to thank for do of For place And business, us. UNFI for you the our trust for other. we you our each to everything shareholders, our you communities

for business. morning. progress improving to drive forward this our we Thanks us look updating again you to joining I as continue

for have Thank We joining call. day. hope you wonderful a today's you

You may now disconnect.