Losses Add Up at UNFI in Q1, While Sales Edge Higher

Natural and organic wholesaler/distributor continues transformation effort

12/6/2023

UNFI's financial snapshot reveals its work to recoup profits in the new fiscal year.

The road to profitability at United Natural Foods, Inc. (UNFI) has been bumpy over the past year, and UNFI concluded its first fiscal 2024 quarter with a balance of losses and an uptick in net sales. The natural and organic wholesaler and distributor reported a 0.3% rise in net sales to hit $7.6 billion for the quarter ending Oct. 28 and a net loss of $39 million during the same time period.

Lower inflation rates tamped down sales rates, which decreased at chain and independent retailer customers but grew at “supernatural” stores. At the same time, UNFI’s ongoing transformation initiative and investments impacted profitability, as adjusted EBITDA fell 43.5% on a year-over-year (YoY) basis to $117 million and adjusted earnings per share (EPS) dropped 103.5% compared to the first quarter of 2023. Gross profits sunk by $66 million versus last year, coming in at $1.0 billion.

Looking ahead, UNFI affirmed its FY2024 outlook for the key financial metrics of net sales, adjusted EBITDA and capital. The business also reported that it is making headway on its transformation goals by revamping processes and management routines and completing planned distribution center consolidations and improvements.

UNFI went through some leadership changes during the first quarter as well. Following the exit of President Christopher Testa in October, CEO Sandy Douglas added that title and those responsibilities to his role at the company. In addition, UNFI welcomed new directors, a new CIO and a retail CEO during the opening fiscal quarter.

Douglas commented on the state of the company as the second quarter is underway. “Our performance this quarter exceeded our expectations as we drove improved operational execution, which helped deliver savings from our near-term value creation initiatives earlier in the year than previously expected. These savings partially offset the anticipated decline in procurement gains resulting from lower levels of inflation,” he explained.

The unchanged outlook for the rest of the fiscal year is a sign of collective efforts, he added. “As we work to restore profitability in the near-term, we also continue to make progress on our multi-year transformation agenda designed to enhance shareholder value by structurally improving our capabilities, efficiency and profitability while meaningfully enhancing the customer and supplier experience. Given our leadership position and the tremendous long-term value creation opportunity we see for our customers, suppliers and our shareholders, we refuse to be incremental in our approach,” he said. “We remain focused on sustaining operating and transformation momentum as we service our customers throughout the busy holiday season and will continue to drive operational improvement as quickly as possible.”

In an earnings webcast, Douglas answered a question about the strength of independent retailers as customers in today’s competitive cross-channel environment. “You can’t really generalize about independents. There are some incredibly strong and vibrant ones, and some that are struggling. It’s our job to help them succeed, and we have a lot of programs designed to provide independents with a great own brand program at multiple price points and services to help them save money and compete better,” he remarked.

Providence, R.I.-based UNFI delivers a wide variety of products to more than 30,000 customer locations throughout North America, including natural product superstores, independent retailers, conventional supermarket chains, e-commerce retailers and foodservice customers. The largest publicly traded grocery distributor in America, the company is No. 20 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America.