United Natural Foods Inc 10-Q for FY2024 Q1
United Natural Foods Inc (UNFI)
10-Q
2023-12-06
For: 2023-10-28
View Original
Added on
April 08, 2026
About this 10-Q
United Natural Foods Inc filed this 10-Q on December 6, 2023, covering the quarter ended October 28, 2023 (FY2024 Q1).
Headline figures
Quarter ended October 28, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $7.55B
- up 0.3% from $7.53B a year earlier
- Net loss
- $39M
- compared with net income of $66M a year earlier
- Diluted EPS
- -$0.67
- compared with $1.07 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended October 28, 2023
or
For the transition period from to
Commission File Number: 001-15723
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) (Zip Code) | ||||||||
Registrant’s telephone number, including area code: (401 ) 528-8634
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of December 1, 2023 there were 59,407,969 shares of the registrant’s common stock, $0.01 par value per share, outstanding.
TABLE OF CONTENTS
Part I. | Financial Information | |||||||
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities | ||||||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions, except for par values)
| October 28, 2023 | July 29, 2023 | |||||||||||||
| ASSETS | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Accounts receivable, net | ||||||||||||||
| Inventories, net | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Property and equipment, net | ||||||||||||||
| Operating lease assets | ||||||||||||||
| Goodwill | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Other long-term assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued expenses and other current liabilities | ||||||||||||||
| Accrued compensation and benefits | ||||||||||||||
| Current portion of operating lease liabilities | ||||||||||||||
| Current portion of long-term debt and finance lease liabilities | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term debt | ||||||||||||||
| Long-term operating lease liabilities | ||||||||||||||
| Long-term finance lease liabilities | ||||||||||||||
| Pension and other postretirement benefit obligations | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
Preferred stock, $ | ||||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Treasury stock at cost | ( | ( | ||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Retained earnings | ||||||||||||||
| Total United Natural Foods, Inc. stockholders’ equity | ||||||||||||||
| Noncontrolling interests | ||||||||||||||
| Total stockholders’ equity | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in millions, except for per share data)
| 13-Week Period Ended | ||||||||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | |||||||||||||||||||||||||
| Net sales | $ | $ | ||||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Restructuring, acquisition and integration related expenses | ||||||||||||||||||||||||||
| Loss (gain) on sale of assets and other asset charges | ( | |||||||||||||||||||||||||
| Operating (loss) income | ( | |||||||||||||||||||||||||
| Net periodic benefit income, excluding service cost | ( | ( | ||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||
| Other income, net | ( | |||||||||||||||||||||||||
| (Loss) income before income taxes | ( | |||||||||||||||||||||||||
| (Benefit) provision for income taxes | ( | |||||||||||||||||||||||||
| Net (loss) income including noncontrolling interests | ( | |||||||||||||||||||||||||
| Less net income attributable to noncontrolling interests | ( | |||||||||||||||||||||||||
| Net (loss) income attributable to United Natural Foods, Inc. | $ | ( | $ | |||||||||||||||||||||||
Basic (loss) earnings per share | $ | ( | $ | |||||||||||||||||||||||
Diluted (loss) earnings per share | $ | ( | $ | |||||||||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (unaudited)
(in millions)
| 13-Week Period Ended | ||||||||||||||||||||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | |||||||||||||||||||||||||||||||||||||
| Net (loss) income including noncontrolling interests | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||||||||||||||||||||||||
Recognition of interest rate swap cash flow hedges, net of tax(1) | ( | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ||||||||||||||||||||||||||||||||||||
| Recognition of other cash flow derivatives, net of tax | ||||||||||||||||||||||||||||||||||||||
| Total other comprehensive (loss) income | ( | |||||||||||||||||||||||||||||||||||||
| Less comprehensive income attributable to noncontrolling interests | ( | |||||||||||||||||||||||||||||||||||||
| Total comprehensive (loss) income attributable to United Natural Foods, Inc. | $ | ( | $ | |||||||||||||||||||||||||||||||||||
(1)Amounts are net of tax (benefit) expense of $(1 ) million and $6 million for the first quarters of fiscal 2024 and 2023, respectively.
See accompanying Notes to Condensed Consolidated Financial Statements.
5
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
For the 13-week periods ended October 28, 2023 and October 29, 2022
(in millions)
| Common Stock | Treasury Stock | Additional Paid-in Capital | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | Total United Natural Foods, Inc. Stockholders’ Equity | Noncontrolling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at July 29, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock vestings | — | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at October 28, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at July 30, 2022 | $ | $ | ( | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock vestings | — | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | ( | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at October 29, 2022 | $ | $ | ( | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
6
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| 13-Week Period Ended | ||||||||||||||
| (in millions) | October 28, 2023 | October 29, 2022 | ||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||
| Net (loss) income including noncontrolling interests | $ | ( | $ | |||||||||||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Share-based compensation | ||||||||||||||
| Gain on sale of long-lived assets | ( | ( | ||||||||||||
| Long-lived asset impairment charges | ||||||||||||||
| Net pension and other postretirement benefit income | ( | ( | ||||||||||||
| Deferred income tax expense | ||||||||||||||
| LIFO charge | ||||||||||||||
| Non-cash interest expense and other adjustments | ||||||||||||||
| Changes in operating assets and liabilities | ( | ( | ||||||||||||
Net cash used in operating activities | ( | ( | ||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||
| Payments for capital expenditures | ( | ( | ||||||||||||
| Proceeds from dispositions of assets | ||||||||||||||
| Payments for investments | ( | ( | ||||||||||||
Net cash used in investing activities | ( | ( | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||
| Proceeds from borrowings under revolving credit line | ||||||||||||||
| Repayments of borrowings under revolving credit line | ( | ( | ||||||||||||
| Repayments of long-term debt and finance leases | ( | ( | ||||||||||||
| Repurchases of common stock | ( | |||||||||||||
| Payments of employee restricted stock tax withholdings | ( | ( | ||||||||||||
| Distributions to noncontrolling interests | ( | ( | ||||||||||||
| Repayments of other loans | ( | |||||||||||||
| Other | ( | |||||||||||||
Net cash provided by financing activities | ||||||||||||||
| EFFECT OF EXCHANGE RATE ON CASH | ( | |||||||||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | ( | |||||||||||||
| Cash and cash equivalents, at beginning of period | ||||||||||||||
| Cash and cash equivalents, at end of period | $ | $ | ||||||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||||
| Cash paid for interest | $ | $ | ||||||||||||
| Cash (refunds) for federal, state, and foreign income taxes, net | $ | ( | $ | ( | ||||||||||
| Leased assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||||||||
| Additions of property and equipment included in Accounts payable | $ | $ | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
7
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
United Natural Foods, Inc. and its subsidiaries (the “Company” or “UNFI”) is a leading distributor of natural, organic, specialty, produce and conventional grocery and non-food products, and provider of support services to retailers. The Company sells its products primarily throughout the United States and Canada.
Fiscal Year
The Company’s fiscal years end on the Saturday closest to July 31 and contain either 52 or 53 weeks. Fiscal 2024 will contain 53 weeks with the fourth quarter of fiscal 2024 containing 14 weeks. References to the first quarter of fiscal 2024 and 2023 relate to the 13-week fiscal quarters ended October 28, 2023 and October 29, 2022, respectively.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Within the Condensed Consolidated Financial Statements certain immaterial amounts have been reclassified to conform with current period presentation. These reclassifications had no impact on reported net income, cash flows, or total assets and liabilities.
Cash and Cash Equivalents
8
Inventories, Net
NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Pronouncements
In June 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments in this update also require additional disclosures for equity securities subject to contractual sale restrictions. The Company is required to adopt the amendments in this update in the first quarter of fiscal 2025. The Company is in the process of reviewing the provisions of the amendments in this update but does not expect the adoption to have a material impact on the Company’s consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss, and the title and position of the entity’s CODM. The amendments in this update also expand the interim segment disclosure requirements. The Company is required to adopt the amendments in this update in fiscal 2025, and the interim disclosure requirements will be effective for the Company in the first quarter of fiscal 2026. Early adoption is permitted. The amendments in this update are required to be applied on a retrospective basis. The Company is currently reviewing the provisions of the amendments in this update and evaluating their impact on the Company's consolidated financial statements.
NOTE 3—REVENUE RECOGNITION
Disaggregation of Revenues
The Company records revenue to five customer channels within Net sales, which are described below:
•Chains, which consists of customer accounts that typically have more than 10 operating stores and excludes stores included within the Supernatural and Other channels defined below;
•Independent retailers, which includes smaller size accounts including single store and multiple store locations, and group purchasing entities that are not classified within Chains above or Other defined below;
•Supernatural, which consists of chain accounts that are national in scope and carry primarily natural products, and currently consists solely of one customer;
•Retail, which reflects the Company’s Retail segment, including Cub® Foods and Shoppers® stores; and
•Other, which includes international customers outside of Canada, foodservice, eCommerce, conventional military business and other sales.
9
The following tables detail the Company’s Net sales for the periods presented by customer channel for each of its segments. The Company does not record its revenues within its Wholesale reportable segment for financial reporting purposes by product group, and it is therefore impracticable for it to report them accordingly.
| Net Sales for the 13-Week Period Ended | ||||||||||||||||||||||||||||||||
| (in millions) | October 28, 2023 | |||||||||||||||||||||||||||||||
| Customer Channel | Wholesale | Retail | Other | Eliminations(1) | Consolidated | |||||||||||||||||||||||||||
| Chains | $ | $ | $ | $ | — | $ | ||||||||||||||||||||||||||
| Independent retailers | — | |||||||||||||||||||||||||||||||
| Supernatural | — | |||||||||||||||||||||||||||||||
| Retail | — | |||||||||||||||||||||||||||||||
| Other | — | |||||||||||||||||||||||||||||||
| Eliminations | — | — | — | ( | ( | |||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Net Sales for the 13-Week Period Ended | ||||||||||||||||||||||||||||||||
| (in millions) | October 29, 2022 | |||||||||||||||||||||||||||||||
| Customer Channel | Wholesale | Retail | Other | Eliminations(1) | Consolidated | |||||||||||||||||||||||||||
| Chains | $ | $ | $ | $ | — | $ | ||||||||||||||||||||||||||
| Independent retailers | — | |||||||||||||||||||||||||||||||
| Supernatural | — | |||||||||||||||||||||||||||||||
| Retail | — | |||||||||||||||||||||||||||||||
| Other | — | |||||||||||||||||||||||||||||||
| Eliminations | — | — | — | ( | ( | |||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
(1)Eliminations primarily includes the net sales elimination of Wholesale to Retail sales and the elimination of sales from segments included within Other to Wholesale.
The Company serves customers in the United States and Canada, as well as customers located in other countries. However, all of the Company’s revenue is earned in the United States and Canada, and international distribution occurs through freight-forwarders. The Company does not have any performance obligations on international shipments subsequent to delivery to the domestic port.
Accounts and Notes Receivable Balances
Accounts and notes receivable are as follows:
| (in millions) | October 28, 2023 | July 29, 2023 | ||||||||||||
| Customer accounts receivable | $ | $ | ||||||||||||
| Allowance for uncollectible receivables | ( | ( | ||||||||||||
| Other receivables, net | ||||||||||||||
| Accounts receivable, net | $ | $ | ||||||||||||
Notes receivable, net, included within Prepaid expenses and other current assets | $ | $ | ||||||||||||
Long-term notes receivable, net, included within Other long-term assets | $ | $ | ||||||||||||
10
During the prior year, the Company entered into an agreement to sell, on a revolving basis, certain customer accounts receivable to a third-party financial institution. Accounts receivable that the Company is servicing on behalf of the financial institution, which would have otherwise been outstanding as of October 28, 2023 and July 29, 2023, was approximately $326 million and $310 million, respectively. Net proceeds received are included within cash from operating activities in the Condensed Consolidated Statements of Cash Flows in the period of sale. The loss on sale of receivables was $5 million during the first quarter of fiscal 2024, and is recorded within Loss (gain) on sale of assets and other asset charges in the Condensed Consolidated Statements of Operations.
NOTE 4—PROPERTY AND EQUIPMENT, NET
In the first quarter of fiscal 2024, the Company determined that it was more likely than not that it would dispose of one of its corporate-owned office locations before the end of its previously estimated useful life. As a result, the Company conducted an impairment review and recorded a $21 million non-cash asset impairment charge in the first quarter of fiscal 2024. The fair value utilized in the Company’s impairment review was determined based on the market approach. The impairment charge is recorded within Loss (gain) on sale of assets and other asset charges in the Condensed Consolidated Statements of Operations. There were no asset impairment charges recorded in the first quarter of fiscal 2023.
NOTE 5—GOODWILL AND INTANGIBLE ASSETS, NET
Changes in the carrying value of Goodwill by reportable segment that have goodwill consisted of the following:
| (in millions) | Wholesale | Other | Total | ||||||||||||||
Goodwill as of July 29, 2023 | $ | (1) | $ | (2) | $ | ||||||||||||
| Change in foreign exchange rates | ( | ( | |||||||||||||||
Goodwill as of October 28, 2023 | $ | (1) | $ | (2) | $ | ||||||||||||
(1)Wholesale amounts are net of accumulated goodwill impairment charges of $717
(2)Other amounts are net of accumulated goodwill impairment charges of $10
Identifiable intangible assets, net consisted of the following:
| October 28, 2023 | July 29, 2023 | ||||||||||||||||||||||||||||||||||
| (in millions) | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||||||||||||||
| Amortizing intangible assets: | |||||||||||||||||||||||||||||||||||
| Customer relationships | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Pharmacy prescription files | |||||||||||||||||||||||||||||||||||
| Operating lease intangibles | |||||||||||||||||||||||||||||||||||
| Trademarks and tradenames | |||||||||||||||||||||||||||||||||||
| Total amortizing intangible assets | |||||||||||||||||||||||||||||||||||
| Indefinite lived intangible assets: | |||||||||||||||||||||||||||||||||||
| Trademarks and tradenames | — | — | |||||||||||||||||||||||||||||||||
| Intangibles assets, net | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
11
Amortization expense was $18 The estimated future amortization expense for each of the next five fiscal years and thereafter on amortizing intangible assets existing as of October 28, 2023 is as shown below:
| Fiscal Year: | (in millions) | ||||
| Remaining fiscal 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| $ | |||||
NOTE 6—FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
Recurring Fair Value Measurements
The following tables provide the fair value hierarchy for financial assets and liabilities measured on a recurring basis:
| Condensed Consolidated Balance Sheets Location | Fair Value at October 28, 2023 | |||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Fuel derivatives designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Foreign currency derivatives designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Interest rate swaps designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Interest rate swaps designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Condensed Consolidated Balance Sheets Location | Fair Value at July 29, 2023 | |||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Interest rate swaps designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Interest rate swaps designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Fuel derivatives designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
Interest Rate Swap Contracts
The fair values of interest rate swap contracts are measured using Level 2 inputs. The interest rate swap contracts are valued using an income approach interest rate swap valuation model incorporating observable market inputs including interest rates, SOFR swap rates and credit default swap rates. As of October 28, 2023, a 100-basis point increase in forward SOFR interest rates would increase the fair value of the interest rate swaps by approximately $6 million; a 100-basis point decrease in forward SOFR interest rates would decrease the fair value of the interest rate swaps by approximately $6 million. Refer to Note 7—Derivatives for further information on interest rate swap contracts.
12
Fair Value Estimates
For certain of the Company’s financial instruments including cash and cash equivalents, receivables, accounts payable, accrued vacation, compensation and benefits, and other current assets and liabilities the fair values approximate carrying amounts due to their short maturities. The fair value of notes receivable is estimated by using a discounted cash flow approach prior to consideration for uncollectible amounts and is calculated by applying a market rate for similar instruments using Level 3 inputs. The fair value of debt is estimated based on market quotes, where available, or market values for similar instruments, using Level 2 and 3 inputs. In the table below, the carrying value of the Company’s long-term debt is net of original issue discounts and debt issuance costs.
| October 28, 2023 | July 29, 2023 | |||||||||||||||||||||||||
| (in millions) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||
| Notes receivable, including current portion | $ | $ | $ | $ | ||||||||||||||||||||||
| Long-term debt, including current portion | $ | $ | $ | $ | ||||||||||||||||||||||
NOTE 7—DERIVATIVES
Management of Interest Rate Risk
The Company enters into interest rate swap contracts from time to time to mitigate its exposure to changes in market interest rates as part of its overall strategy to manage its debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company’s interest rate swap contracts are designated as cash flow hedges as of October 28, 2023. Interest rate swap contracts are reflected at their fair values in the Condensed Consolidated Balance Sheets. Refer to Note 6—Fair Value Measurements of Financial Instruments for further information on the fair value of interest rate swap contracts.
Details of active swap contracts as of October 28, 2023, which are all pay fixed and receive floating, are as follows:
| Effective Date | Swap Maturity | Notional Value (in millions) | Pay Fixed Rate | Receive Floating Rate | Floating Rate Reset Terms | |||||||||||||||||||||||||||
| October 26, 2018 | October 31, 2023 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| January 11, 2019 | March 28, 2024 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| January 23, 2019 | March 28, 2024 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| November 30, 2018 | October 31, 2024 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| January 11, 2019 | October 31, 2024 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| January 24, 2019 | October 31, 2024 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| October 26, 2018 | October 22, 2025 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| November 16, 2018 | October 22, 2025 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| November 16, 2018 | October 22, 2025 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| January 24, 2019 | October 22, 2025 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||
The Company performs an initial quantitative assessment of hedge effectiveness using the “Hypothetical Derivative Method” in the period in which the hedging transaction is entered. Under this method, the Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. In future reporting periods, the Company performs a qualitative analysis for quarterly prospective and retrospective assessments of hedge effectiveness. The Company also monitors the risk of counterparty default on an ongoing basis and noted that the counterparties are reputable financial institutions. The entire change in the fair value of the derivative is initially reported in Other comprehensive income (outside of earnings) in the Condensed Consolidated Statements of Comprehensive (Loss) Income and subsequently reclassified to earnings in Interest expense, net in the Condensed Consolidated Statements of Operations when the hedged transactions affect earnings.
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The location and amount of gains or losses recognized in the Condensed Consolidated Statements of Operations for interest rate swap contracts for each of the periods, presented on a pre-tax basis, are as follows:
| 13-Week Period Ended | ||||||||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | |||||||||||||||||||||||||
| (in millions) | Interest expense, net | |||||||||||||||||||||||||
Total amounts of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded | $ | $ | ||||||||||||||||||||||||
| Gain on cash flow hedging relationships: | ||||||||||||||||||||||||||
| Gain reclassified from comprehensive income into earnings | $ | $ | ||||||||||||||||||||||||
NOTE 8—LONG-TERM DEBT
The Company’s long-term debt consisted of the following:
| (in millions) | Average Interest Rate at October 28, 2023 | Fiscal Maturity Year | October 28, 2023 | July 29, 2023 | |||||||||||||||||||
| Term Loan Facility | 2026 | $ | $ | ||||||||||||||||||||
| ABL Credit Facility | 2027 | ||||||||||||||||||||||
| Senior Notes | 2029 | ||||||||||||||||||||||
| Other secured loans | 2025 | ||||||||||||||||||||||
| Debt issuance costs, net | ( | ( | |||||||||||||||||||||
| Original issue discount on debt | ( | ( | |||||||||||||||||||||
| Long-term debt, including current portion | |||||||||||||||||||||||
| Less: current portion of long-term debt | ( | ( | |||||||||||||||||||||
| Long-term debt | $ | $ | |||||||||||||||||||||
Senior Notes
On October 22, 2020, the Company issued $500 million of unsecured 6.750 % senior notes due October 15, 2028 (the “Senior Notes”). The Senior Notes, which are presented net of debt issuance costs of $6 million as of October 28, 2023 in the Condensed Consolidated Balance Sheets, are guaranteed by each of the Company’s subsidiaries that are borrowers under or that guarantee the ABL Credit Facility or the Term Loan Facility (defined below).
ABL Credit Facility
The revolving credit agreement dated as of June 3, 2022 (the “ABL Loan Agreement”), by and among the Company (the “U.S. Borrower”) and UNFI Canada (the “Canadian Borrower” and, together with the U.S. Borrower, the “Borrowers”), and the financial institutions that are parties thereto as lenders (collectively, the “ABL Lenders”), Wells Fargo Bank, N.A. as administrative agent for the ABL Lenders, and the other parties thereto, provides for a secured asset-based revolving credit facility (the “ABL Credit Facility”), of which up to $2,600 million is available to the Borrowers, including a U.S. Dollar equivalent of $100 million sublimit for borrowings in Canadian dollars. Under the ABL Loan Agreement, the Borrowers may, at their option, increase the aggregate amount of the ABL Credit Facility in an amount of up to $750 million without the consent of any ABL Lenders not participating in such increase, subject to certain customary conditions and applicable lenders committing to provide the increase in funding. There is no assurance that additional funding would be available.
The Borrowers’ obligations under the ABL Credit Facility are guaranteed by most of the Company’s wholly-owned subsidiaries (collectively, the “Guarantors”), subject to customary exceptions and limitations. The Borrowers’ obligations under the ABL Credit Facility and the Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on certain accounts receivable, inventory and certain other assets arising therefrom or related thereto of the Borrowers and Guarantors (including substantially all of their deposit accounts, collectively, the “ABL Assets”) and (ii) a second-priority lien on all of the Borrowers’ and Guarantors’ assets that do not constitute ABL Assets, in each case, subject to customary exceptions and limitations.
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Availability under the ABL Credit Facility is subject to a borrowing base (the “Borrowing Base”), which is based on 90 % of eligible accounts receivable, plus 90 % of eligible credit card receivables, plus 90 % to 92.5 % of the net orderly liquidation value of eligible inventory, plus 90 % of eligible pharmacy receivables, plus certain availability related to pharmacy prescription files, after adjusting for customary reserves, but at no time shall exceed the lesser of the aggregate commitments under the ABL Credit Facility (currently $2,600 million) or the Borrowing Base.
The assets included in the Condensed Consolidated Balance Sheets securing the outstanding obligations under the ABL Credit Facility on a first-priority basis were as follows:
| (in millions) | October 28, 2023 | July 29, 2023 | |||||||||
| Certain inventory assets included in Inventories, net | $ | $ | |||||||||
| Certain receivables included in Accounts receivable, net | |||||||||||
| Pharmacy prescription files included in Intangible assets, net | |||||||||||
| Total | $ | $ | |||||||||
As of October 28, 2023, the Borrowers’ Borrowing Base was $2,550 million, reflecting the advance rates described above and $101 million of reserves, which is below the $2,600 million limit of availability. This resulted in total availability of $2,550 million for loans and letters of credit under the ABL Credit Facility. The Company’s unused credit under the ABL Credit Facility was as follows:
| (in millions) | October 28, 2023 | ||||
| Total availability for ABL loans and letters of credit | $ | ||||
| ABL loans outstanding | ( | ||||
| Letters of credit outstanding | ( | ||||
| Unused credit | $ | ||||
The applicable interest rates, unutilized commitment fees and letter of credit fees under the ABL Credit Facility are variable and are dependent upon the prior fiscal quarter’s daily Average Availability (as defined in the ABL Loan Agreement), and were as follows:
| Range of Facility Rates and Fees (per annum) | October 28, 2023 | |||||||
| Borrowers’ applicable margin for base rate loans | % | |||||||
Borrowers’ applicable margin for SOFR and BA loans(1) | % | |||||||
| Unutilized commitment fees | % | |||||||
| Letter of credit fees | % | |||||||
(1) The U.S. Borrower utilizes SOFR-based loans and the Canadian Borrower utilizes bankers’ acceptance rate-based loans.
Term Loan Facility
The term loan agreement dated as of October 22, 2018 (as amended, the “Term Loan Agreement”), by and among the Company and SUPERVALU INC. (“Supervalu” and, collectively with the Company, the “Term Borrowers”), the financial institutions that are parties thereto as lenders (collectively, the “Term Lenders”), Credit Suisse, as administrative agent for the Term Lenders, and the other parties thereto, provides for a $1,800 million senior secured first lien term loan (the “Term Loan Facility”). The net proceeds from the Term Loan Facility were used to finance the Supervalu acquisition and related transaction costs. Any amounts then outstanding will be payable in full on October 22, 2025.
The obligations under the Term Loan Facility are guaranteed by the Guarantors, subject to customary exceptions and limitations. The Term Borrowers’ obligations under the Term Loan Facility and the Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on substantially all of the Term Borrowers’ and the Guarantors’ assets other than the ABL Assets and (ii) a second-priority lien on substantially all of the Term Borrowers’ and the Guarantors’ ABL Assets, in each case, subject to customary exceptions and limitations, including an exception for owned real property with net book values of less than $10 million. As of October 28, 2023 and July 29, 2023, there was $612 million and $617 million, respectively, of owned real property pledged as collateral that was included in Property and equipment, net in the Condensed Consolidated Balance Sheets.
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The Company must prepay loans outstanding under the Term Loan Facility no later than 130 days after the fiscal year end in an aggregate principal amount equal to a specified percentage (which percentage ranges from 0 to 75 percent depending on the Consolidated First Lien Net Leverage Ratio as of the last day of such fiscal year) of Excess Cash Flow (as defined in the Term Loan Agreement), minus certain types of voluntary prepayments of indebtedness made during such fiscal year. The potential amount of prepayment from Excess Cash Flow in fiscal 2024 that may be required in fiscal 2025 is not reasonably estimable as
of October 28, 2023.
As of October 28, 2023, the Company had borrowings of $670 million outstanding under the Term Loan Facility, which are presented in the Condensed Consolidated Balance Sheets net of debt issuance costs of $7 million and an original issue discount on debt of $6 million. As of October 28, 2023, no amount of the Term Loan Facility was classified as current.
As of October 28, 2023, the borrowings under the Term Loan Facility bear interest at rates that, at the Term Borrowers’ option, can be either: (i) a base rate plus a margin of 2.25 % or (ii) a SOFR rate plus a margin of 3.25 %, provided that the SOFR rate shall never be less than 0.0 %.
NOTE 9—COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in Accumulated other comprehensive loss by component, net of tax, for the first quarter of fiscal 2024 were as follows:
| (in millions) | Other Cash Flow Derivatives | Benefit Plans | Foreign Currency Translation | Swap Agreements | Total | |||||||||||||||||||||||||||
| Accumulated other comprehensive (loss) income at July 29, 2023 | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ||||||||||||||||||||||||||||||
| Amortization of cash flow hedges | ( | ( | ||||||||||||||||||||||||||||||
| Net current period Other comprehensive income (loss) | ( | ( | ( | |||||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) at October 28, 2023 | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
Changes in Accumulated other comprehensive loss by component, net of tax, for the first quarter of fiscal 2023 were as follows:
| (in millions) | Other Cash Flow Derivatives | Benefit Plans | Foreign Currency Translation | Swap Agreements | Total | |||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) at July 30, 2022 | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | ( | ( | ||||||||||||||||||||||||||||||
| Amortization of cash flow hedges | ||||||||||||||||||||||||||||||||
| Net current period Other comprehensive (loss) income | ( | |||||||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) at October 29, 2022 | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
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Items reclassified out of Accumulated other comprehensive loss had the following impact on the Condensed Consolidated Statements of Operations:
| 13-Week Period Ended | Affected Line Item on the Condensed Consolidated Statements of Operations | |||||||||||||||||||||||||||||||
| (in millions) | October 28, 2023 | October 29, 2022 | ||||||||||||||||||||||||||||||
| Swap agreements: | ||||||||||||||||||||||||||||||||
| Reclassification of cash flow hedges | $ | ( | $ | Interest expense, net | ||||||||||||||||||||||||||||
| Income tax expense (benefit) | (Benefit) provision for income taxes | |||||||||||||||||||||||||||||||
| Total reclassifications, net of tax | $ | ( | $ | |||||||||||||||||||||||||||||
| Other cash flow hedges: | ||||||||||||||||||||||||||||||||
| Reclassification of cash flow hedge | $ | $ | Cost of sales | |||||||||||||||||||||||||||||
| Income tax expense (benefit) | (Benefit) provision for income taxes | |||||||||||||||||||||||||||||||
| Total reclassifications, net of tax | $ | $ | ||||||||||||||||||||||||||||||
As of October 28, 2023, the Company expects to reclassify $15 million related to unrealized derivative gains out of Accumulated other comprehensive loss and primarily into Interest expense, net during the following twelve-month period.
NOTE 10—SHARE-BASED AWARDS
NOTE 11—BENEFIT PLANS
Net periodic benefit (income) cost and contributions to defined benefit pension and other postretirement benefit plans consisted of the following:
| 13-Week Period Ended | |||||||||||||||||||||||
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||
| (in millions) | October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | |||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Net periodic benefit income | $ | ( | $ | ( | $ | $ | |||||||||||||||||
| Contributions to benefit plans | $ | $ | $ | $ | |||||||||||||||||||
Contributions
No minimum pension contributions are required to be made to the SUPERVALU INC. Retirement Plan under the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”) in fiscal 2024. The Company expects to contribute approximately $1 million to its other defined benefit pension plans and $1 million to its postretirement benefit plans in fiscal 2024.
Multiemployer Pension Plans
The Company contributed $13 million and $11 million in the first quarters of fiscal 2024 and 2023, respectively, to multiemployer pension plans, which contributions are included within Operating expenses.
17
NOTE 12—INCOME TAXES
The effective tax rate for the first quarter of fiscal 2024 was a benefit rate of 18.8 % on pre-tax loss compared to an expense rate of 6.9 % on pre-tax income for the first quarter of fiscal 2023. The change from the first quarter of fiscal 2023 is primarily driven by the reduction of discrete tax benefits related to employee stock award vestings in the first quarter of fiscal 2024. In addition, the first quarter of fiscal 2023 included a tax benefit from the release of reserves for unrecognized tax positions that did not recur in the first quarter of fiscal 2024. The primary driver for the variation between the Company’s statutory tax rate and its effective tax rate for the first quarters of fiscal 2024 and fiscal 2023 were discrete tax detriments and benefits, respectively, resulting from share award vestings.
NOTE 13—EARNINGS PER SHARE
The following is a reconciliation of the basic and diluted number of shares used in computing earnings per share:
| 13-Week Period Ended | ||||||||||||||||||||||||||
| (in millions, except per share data) | October 28, 2023 | October 29, 2022 | ||||||||||||||||||||||||
| Basic weighted average shares outstanding | ||||||||||||||||||||||||||
Net effect of dilutive stock awards based upon the treasury stock method | ||||||||||||||||||||||||||
| Diluted weighted average shares outstanding | ||||||||||||||||||||||||||
Basic (loss) earnings per share(1) | $ | ( | $ | |||||||||||||||||||||||
Diluted (loss) earnings per share(1) | $ | ( | $ | |||||||||||||||||||||||
| Anti-dilutive share-based awards excluded from the calculation of diluted (loss) earnings per share | ||||||||||||||||||||||||||
(1)(Loss) earnings per share amounts are calculated using actual unrounded figures.
NOTE 14—BUSINESS SEGMENTS
The Company has two reportable segments: Wholesale and Retail. These reportable segments are two distinct businesses, each with a different customer base, marketing strategy and management structure. The Company organizes and operates the Wholesale reportable segment through three U.S geographic regions: East, Central and West, and Canada Wholesale, which is operated separately from the U.S. Wholesale business. The U.S. Wholesale and Canada Wholesale operating segments have similar products and services, customer channels, distribution methods and economic characteristics, and therefore have been aggregated into a single reportable segment. Reportable segments are reviewed on an annual basis, or more frequently if events or circumstances indicate a change in reportable segments has occurred.
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The following table provides information by reportable segment, including Net sales, Adjusted EBITDA, with a reconciliation to (Loss) income before income taxes, depreciation and amortization, and payments for capital expenditures:
| 13-Week Period Ended | ||||||||||||||||||||||||||
| (in millions) | October 28, 2023 | October 29, 2022 | ||||||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||||
Wholesale(1) | $ | $ | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Eliminations | ( | ( | ||||||||||||||||||||||||
| Total Net sales | $ | $ | ||||||||||||||||||||||||
| Adjusted EBITDA: | ||||||||||||||||||||||||||
| Wholesale | $ | $ | ||||||||||||||||||||||||
| Retail | ( | |||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Eliminations | ( | ( | ||||||||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | ||||||||||||||||||||||||||
| Net periodic benefit income, excluding service cost | ||||||||||||||||||||||||||
| Interest expense, net | ( | ( | ||||||||||||||||||||||||
| Other income, net | ||||||||||||||||||||||||||
| Depreciation and amortization | ( | ( | ||||||||||||||||||||||||
| Share-based compensation | ( | ( | ||||||||||||||||||||||||
| LIFO charge | ( | ( | ||||||||||||||||||||||||
| Restructuring, acquisition and integration related expenses | ( | ( | ||||||||||||||||||||||||
| (Loss) gain on sale of assets and other asset charges | ( | |||||||||||||||||||||||||
Business transformation costs | ( | ( | ||||||||||||||||||||||||
| Other adjustments | ( | |||||||||||||||||||||||||
(Loss) income before income taxes | $ | ( | $ | |||||||||||||||||||||||
| Depreciation and amortization: | ||||||||||||||||||||||||||
| Wholesale | $ | $ | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total depreciation and amortization | $ | $ | ||||||||||||||||||||||||
| Payments for capital expenditures: | ||||||||||||||||||||||||||
| Wholesale | $ | $ | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||||
| Total capital expenditures | $ | $ | ||||||||||||||||||||||||
(1)As presented in Note 3—Revenue Recognition, the Company recorded $321 million and $334 million for the first quarters of fiscal 2024 and 2023, respectively, within Net sales in its Wholesale reportable segment attributable to Wholesale to Retail sales that have been eliminated upon consolidation.
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Total assets by reportable segment were as follows:
| (in millions) | October 28, 2023 | July 29, 2023 | ||||||||||||
| Assets: | ||||||||||||||
| Wholesale | $ | $ | ||||||||||||
| Retail | ||||||||||||||
| Other | ||||||||||||||
| Eliminations | ( | ( | ||||||||||||
| Total assets | $ | $ | ||||||||||||
NOTE 15—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Guarantees and Contingent Liabilities
The Company has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of October 28, 2023. These guarantees were generally made to support the business growth of wholesale customers. The guarantees are generally for the entire terms of the leases, fixture financing loans or other debt obligations with remaining terms that range from less than one year to seven years , with a weighted average remaining term of approximately four years . For each guarantee issued, if the wholesale customer or other third-party defaults on a payment, the Company would be required to make payments under its guarantee. Generally, the guarantees are secured by indemnification agreements or personal guarantees. The Company reviews performance risk related to its guarantee obligations based on internal measures of credit performance. As of October 28, 2023, the maximum amount of undiscounted payments the Company would be required to make in the event of default of all guarantees was $14 million ($11 million on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, as of October 28, 2023, a total estimated loss of $1 million is recorded in the Condensed Consolidated Balance Sheets.
The Company is a party to a variety of contractual agreements under which it may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. These agreements primarily relate to the Company’s commercial contracts, service agreements, contracts entered into for the purchase and sale of stock or assets, operating leases and other real estate contracts, financial agreements, agreements to provide services to the Company and agreements to indemnify officers, directors and employees in the performance of their work. While the Company’s aggregate indemnification obligations could result in a material liability, the Company is not aware of any matters that are expected to result in a material liability. No amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations as the fair value has been determined to be de minimis.
In connection with Supervalu’s sale of New Albertson’s, Inc. (“NAI”) on March 21, 2013, the Company remains contingently liable with respect to certain self-insurance commitments and other guarantees as a result of parental guarantees issued by Supervalu with respect to the obligations of NAI that were incurred while NAI was Supervalu’s subsidiary. Based on the expected settlement of the self-insurance claims that underlie the Company’s commitments, the Company believes that such contingent liabilities will continue to decline. Subsequent to the sale of NAI, NAI collateralized most of these obligations with letters of credit and surety bonds to numerous state governmental authorities. Because NAI remains a primary obligor on these self-insurance and other obligations and has collateralized most of the self-insurance obligations for which the Company remains contingently liable, the Company believes that the likelihood that it will be required to assume a material amount of these obligations is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these guarantees, as the fair value has been determined to be de minimis.
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Agreements with Save-A-Lot and Onex
The Agreement and Plan of Merger pursuant to which Supervalu sold the Save-A-Lot business in 2016 (the “SAL Merger Agreement”) contains customary indemnification obligations of each party with respect to breaches of their respective representations, warranties and covenants, and certain other specified matters, on the terms and subject to the limitations set forth in the SAL Merger Agreement. Similarly, Supervalu entered into a Separation Agreement (the “Separation Agreement”) with Moran Foods, LLC d/b/a Save-A-Lot (“Moran Foods”), which contains indemnification obligations and covenants related to the separation of the assets and liabilities of the Save-A-Lot business from the Company. The Company also entered into a Services Agreement with Moran Foods (the “Services Agreement”), pursuant to which the Company provided Save-A-Lot with various technical, human resources, finance and other operational services. The Company primarily ceased providing services under the Services Agreement in fiscal 2022. The Services Agreement generally requires each party to indemnify the other party against third-party claims arising out of the performance of or the provision or receipt of services under the Services Agreement. While the Company’s aggregate indemnification obligations to Save-A-Lot and Onex, the purchaser of Save-A-Lot, could result in a material liability, the Company is not aware of any matters that are expected to result in a material liability. The Company has recorded the de minimis fair value of the guarantee in the Condensed Consolidated Balance Sheets within Other long-term liabilities.
Other Contractual Commitments
In the ordinary course of business, the Company enters into supply contracts to purchase products for resale and service contracts for fixed asset and information technology systems. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of October 28, 2023, the Company had approximately $606 million of non-cancelable future purchase obligations, most of which will be paid and utilized in the ordinary course within one year.
As of October 28, 2023, the Company had commitments of $778 million for future undiscounted minimum lease payments on leases signed but not yet commenced with terms of up to 21 years from commencement date.
Legal Proceedings
The Company is one of dozens of companies that have been named in various lawsuits alleging that drug manufacturers, retailers and distributors contributed to the national opioid epidemic. Currently, UNFI, primarily through its subsidiary, Advantage Logistics, is named in approximately 43 suits pending in the United States District Court for the Northern District of Ohio where thousands of cases have been consolidated as Multi-District Litigation (“MDL”). In accordance with the Stock Purchase Agreement dated January 10, 2013, between New Albertson’s Inc. (“New Albertson’s”) and the Company (the “Stock Purchase Agreement”), New Albertson’s is defending and indemnifying UNFI in a majority of the cases under a reservation of rights as those cases relate to New Albertson’s pharmacies. In one of the MDL cases, MDL No. 2804 filed by The Blackfeet Tribe of the Blackfeet Indian Reservation, all defendants were ordered to Answer the Complaint, which UNFI did on July 26, 2019. To date, no discovery has been conducted against UNFI in any of the actions. On October 7, 2022, the MDL Court issued an order directing the Company and numerous other “non-litigating” defendants to submit by November 1, 2022, a list of opioid cases where the Company is named and opioid dispensing and distribution data. The Company produced the data in compliance with the order. On March 8, 2023, the Company received a subpoena from the Consumer Protection Division of the Maryland Attorney General’s Office seeking records related to the distribution and dispensing of opioids. On May 19, 2023, the Company provided an initial production in response to the subpoena and is in the process of gathering additional responsive documents. The Company believes these claims are without merit and intends to vigorously defend this matter.
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On January 21, 2021, various health plans filed a complaint in Minnesota state court against the Company, Albertson’s Companies, LLC (“Albertson’s”) and Safeway, Inc. alleging the defendants committed fraud by improperly reporting inflated prices for prescription drugs for members of health plans. The Plaintiffs assert six causes of action against the defendants: common law fraud, fraudulent nondisclosure, negligent misrepresentation, unjust enrichment, violation of the Minnesota Uniform Deceptive Trade Practices Act and violation of the Minnesota Prevention of Consumer Fraud Act. The plaintiffs allege that between 2006 and 2016, Supervalu overcharged the health plans by not providing the health plans, as part of usual and customary prices, the benefit of discounts given to customers purchasing prescription medication who requested that Supervalu match competitor prices. Plaintiffs seek an unspecified amount of damages. Similar to the above case, for the majority of the relevant period Supervalu and Albertson’s operated as a combined company. In March 2013, Supervalu divested Albertson’s and pursuant to the Stock Purchase Agreement, Albertson’s is responsible for any claims regarding its pharmacies. On February 19, 2021, Albertson’s and Safeway removed the case to Minnesota Federal District Court, and on March 22, 2021, plaintiffs filed a motion to remand to state court. On February 26, 2021, defendants filed a motion to dismiss. The hearing on the remand motion and motions to dismiss occurred on May 20, 2021. On September 21, 2021, the Federal District Court remanded the case to Minnesota state court and did not rule on the motion to dismiss, which was refiled in state court. On February 1, 2022, the state court denied the motion to dismiss. On November 27, 2023, the court held a scheduling conference and will enter a scheduling order setting various discovery and expert deadlines. The Company anticipates the trial date will be set for July 21, 2025. The Company believes these claims are without merit and is vigorously defending this matter.
UNFI is currently subject to a qui tam action alleging violations of the False Claims Act (“FCA”). In United States ex rel. Schutte and Yarberry v. Supervalu, New Albertson’s, Inc., et al, which is pending in the U.S. District Court for the Central District of Illinois, the relators allege that defendants overcharged government healthcare programs by not providing the government, as a part of usual and customary prices, the benefit of discounts given to customers purchasing prescription medication who requested that defendants match competitor prices. The complaint was originally filed under seal and amended on November 30, 2015. The government previously investigated the relators’ allegations and declined to intervene. Violations of the FCA are subject to treble damages and penalties of up to a specified dollar amount per false claim. The relators elected to pursue the case on their own and have alleged FCA damages against Supervalu and New Albertson’s in excess of $100 million, not including trebling and statutory penalties. For the majority of the relevant period Supervalu and New Albertson’s operated as a combined company. In March 2013, Supervalu divested New Albertson’s (and related assets) pursuant to the Stock Purchase Agreement. Based on the claims that are currently pending and the Stock Purchase Agreement, Supervalu’s share of a potential award (at the currently claimed value by the relators) would be approximately $24 million, not including trebling and statutory penalties. Both sides moved for summary judgment. On August 5, 2019, the Court granted one of the relators’ summary judgment motions finding that the defendants’ lower matched prices are the usual and customary prices and that Medicare Part D and Medicaid were entitled to those prices. On July 2, 2020, the Court granted the defendants’ summary judgment motion and denied the relators’ motion, dismissing the case. On July 9, 2020, the relators filed a notice of appeal with the Seventh Circuit Court of Appeals. On August 12, 2021, the Seventh Circuit affirmed the District Court’s decision granting summary judgment in defendants’ favor. On September 23, 2021, the relators filed a petition for rehearing. On December 3, 2021, the Seventh Circuit denied the petition for rehearing. On April 1, 2022, the relators filed a petition for a writ of certiorari with the United States Supreme Court which was granted on January 13, 2023. Oral argument took place in the Supreme Court on April 18, 2023. On June 1, 2023, the Supreme Court reversed and vacated the lower court’s judgment and remanded the case to the Seventh Circuit for further proceedings. On July 27, 2023, the Seventh Circuit vacated the summary judgment order and remanded the case to the District Court. On August 22, 2023, the District Court set the trial date for April 29, 2024. On October 11, 2023, each of the Company and the relators filed a motion for summary judgment. Responses to the motions were filed on October 21, 2023, and replies are due December 15, 2023.
From time to time, the Company receives notice of claims or potential claims or becomes involved in litigation, alternative dispute resolution, such as arbitration, or other legal and regulatory proceedings that arise in the ordinary course of its business, including investigations and claims regarding employment law, including wage and hour (including class actions); pension plans; labor union disputes, including unfair labor practices, such as claims for back-pay in the context of labor contract negotiations and other matters; supplier, customer and service provider contract terms and claims, including matters related to supplier or customer insolvency or general inability to pay obligations as they become due; product liability claims, including those where the supplier may be insolvent and customers or consumers are seeking recovery against the Company; real estate and environmental matters, including claims in connection with its ownership and lease of a substantial amount of real property, both retail and warehouse properties; and antitrust. Other than as described above, there are no pending material legal proceedings to which the Company is a party or to which its property is subject.
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Predicting the outcomes of claims and litigation and estimating related costs and exposures involves substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. Management regularly monitors the Company’s exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and estimates with respect to related costs and exposures. As of October 28, 2023, no material accrued obligations, individually or in the aggregate, have been recorded for these legal proceedings.
Although management believes it has made appropriate assessments of potential and contingent loss in each of these cases based on current facts and circumstances, and application of prevailing legal principles, there can be no assurance that material differences in actual outcomes from management’s current assessments, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates will not occur. The occurrence of any of the foregoing could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act, that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “should,” “will” and “would,” or similar words. Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions or state other “forward-looking” information.
Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect. These statements are based on our management’s beliefs and assumptions, which are based on currently available information. These assumptions could prove inaccurate. You are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but 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;
You should carefully review the risks described under “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended July 29, 2023 (the “Annual Report”), as well as any other cautionary language in this Quarterly Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.
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EXECUTIVE OVERVIEW
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Cautionary Note Regarding Forward-Looking Statements,” and the information in the Annual Report.
Business Overview
UNFI is a leading distributor of grocery and non-food products, and support services provider to retailers in the United States and Canada. We believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America. Our diversified customer base includes over 30,000 customer locations ranging from some of the largest grocers in the country to smaller independents as well. We offer approximately 250,000 products consisting of national, regional and private label brands grouped into the following main product categories: grocery and general merchandise; perishables; frozen foods; wellness and personal care items; and bulk and foodservice products. We believe we are North America’s premier grocery wholesaler with 54 distribution centers and warehouses representing approximately 30 million square feet of warehouse space. We are a coast-to-coast distributor with customers in all 50 states as well as all ten provinces in Canada, making us a desirable partner for retailers and consumer product manufacturers. We believe our total product assortment and service offerings are unmatched by our wholesale competitors. We plan to continue to pursue new business opportunities with independent retailers that operate diverse formats, regional and national chains, as well as international customers with wide-ranging needs. Our business is classified into two reportable segments: Wholesale and Retail; and also includes a manufacturing division and a branded product line division.
We are focused on executing our transformation strategy, which we believe will position us for long-term profitable growth. Our enterprise-wide business transformation strategy consists of four areas: network automation and optimization; commercial value creation; digital offering enhancement and infrastructure unification and modernization. To enable this business transformation, we have engaged consultants and recruited leadership with transformation experience to upgrade and modernize our technology and platforms to better serve our customers.
We are also implementing near-term initiatives to help improve profitability while we execute our longer-term strategy. These include actioning administrative structure efficiencies, reprioritizing our selling and administrative spending, optimizing our stock-keeping unit (“SKU”) assortment as well as reviewing commercial contracts in collaboration with our customers and suppliers.
We expect to continue to use available capital to re-invest in our business and we remain committed to improving our financial leverage and reducing outstanding debt over the long term.
We believe we can enhance our profitability and accelerate our growth through our transformation efforts, which we expect will improve our cost structure, increase sales of products and services, and position us to provide tailored, data-driven solutions to help our customers run their businesses more efficiently and contribute to customer acquisitions. We believe the key drivers for value creation will be improved efficiency through the automation and optimization of our supply chain, as well as new customer growth associated with the benefits of our significant scale, product and service offerings and nationwide footprint.
Trends and Other Factors Affecting our Business
Our results are impacted by macroeconomic and demographic trends, changes in the food distribution market structure and changes in consumer behavior. We believe food-at-home expenditures as a percentage of total food expenditures are subject to these trends, including changes in consumer behaviors in response to social and economic trends, such as levels of disposable income and the health of the economy in which our customers and our stores operate.
The U.S. economy has experienced economic volatility in recent years, which has had, and we expect may continue to have, an impact on consumer confidence. Consumer spending may continue to be impacted by levels of discretionary income and consumers trading down to a less expensive mix of products for grocery items or buying fewer items. In addition, inflation continues to affect our business, and fluctuating commodity and labor input costs may continue to impact the prices of products we procure from manufacturers. We believe our product mix, which ranges from high-quality natural and organic products to national and local conventional brands, including cost conscious private label brands, positions us to serve a broad cross section of North American retailers and end customers, and may lessen the impact of any further shifts in consumer and industry trends in grocery product mix.
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We are also impacted by changes in food distribution trends affecting our Wholesale customers, such as direct store deliveries and other methods of distribution. Our Wholesale customers manage their businesses independently and operate in a competitive environment.
Wholesale Distribution Center Network
We evaluate our distribution center network to optimize performance and expect to incur incremental expenses related to any future network realignment, expansion or improvements, including initiatives under the network automation and optimization pillar of our transformation agenda. We are working to both minimize these potential future costs and obtain new business to further improve the efficiency of our transforming distribution network.
Retail Operations
We currently operate 79 retail grocery stores, including 54 Cub Foods corporate stores and 25 Shoppers Food Warehouse stores. In addition, we supply another 26 Cub Foods stores operated by our Wholesale customers through franchise and equity ownership arrangements. We operate 81 pharmacies primarily within the stores we operate and the stores of our franchisees. In addition, we operate 25 “Cub Wine and Spirit” and “Cub Liquor” stores.
We plan to continue to invest in our Retail segment in areas such as customer-facing merchandising initiatives, physical facilities, technology and operational tools. Cub Foods and Shoppers Food Warehouse anticipate continued investment in improving the customer and associate experience through express remodels focused on customer facing elements.
Impact of Product Cost Inflation
We experienced a mix of inflation across product categories during the first quarter of fiscal 2024. In the aggregate across our businesses, including the mix of products, management estimates our businesses experienced product cost inflation of approximately three percent in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023. Cost inflation estimates are based on individual like items sold during the periods being compared. Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation on Net sales and Gross profit. Absent any changes in units sold or the mix of units sold, inflation generally has the effect of increasing sales. Under the last-in, first out (“LIFO”) method of inventory accounting, product cost increases are recognized within Cost of sales based on expected year-end inventory quantities and costs, which generally has the effect of decreasing Gross profit and the carrying value of inventory during periods of inflation.
Our pricing to our customers is determined at the time of sale primarily based on the then prevailing vendor listed base cost, and includes discounts we offer to our customers. Generally, in an inflationary environment as a wholesaler, rising vendor costs result in higher Net sales driven by higher vendor prices when other variables such as quantities sold and vendor promotions are constant. In the first quarter of fiscal 2024, we experienced fewer and less significant vendor product cost increases as compared to the first quarter of fiscal 2023. These decreases negatively impacted our gross profit rate when comparing the first quarter of fiscal 2024 to the first quarter of fiscal 2023.
Composition of Condensed Consolidated Statements of Operations and Business Performance Assessment
Net Sales
Our Net sales consist primarily of product sales of natural, organic, specialty, produce, and conventional grocery and non-food products, adjusted for customer volume discounts, vendor incentives when applicable, returns and allowances, and professional services revenue. Net sales also include amounts charged by us to customers for shipping and handling and fuel surcharges.
Cost of Sales and Gross Profit
The principal components of our Cost of sales include the amounts paid to suppliers for product sold, plus transportation costs necessary to bring the product to, or move product between, our distribution centers and retail stores, partially offset by consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products.
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Operating Expenses
Operating expenses include distribution expenses of warehousing, delivery, purchasing, receiving, selecting, and outbound transportation expenses, and selling and administrative expenses. These expenses include salaries and wages, employee benefits, occupancy, insurance, depreciation and amortization expense and share-based compensation expense.
Restructuring, Acquisition and Integration Related Expenses
Restructuring, acquisition and integration related expenses reflect expenses resulting from restructuring activities, including severance costs, facility closure asset impairment charges and costs, share-based compensation acceleration charges and acquisition and integration related expenses. Integration related expenses include certain professional consulting expenses and incremental expenses related to combining facilities required to optimize our distribution network as a result of acquisitions.
Loss (Gain) on Sale of Assets and Other Asset Charges
Loss (gain) on sale of assets and other asset charges primarily includes losses (gains) on sales of assets, losses on sales of financial assets, and asset impairments.
Net Periodic Benefit Income, Excluding Service Cost
Net periodic benefit income, excluding service cost reflects the recognition of expected returns on benefit plan assets and interest costs on plan liabilities.
Interest Expense, Net
Interest expense, net includes primarily interest expense on long-term debt, net of capitalized interest, loss on debt extinguishment, interest expense on finance lease obligations, amortization of financing costs and discounts, and interest income.
Adjusted EBITDA
Our Condensed Consolidated Financial Statements are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”). In addition to the GAAP results, we consider certain non-GAAP financial measures to assess the performance of our business and understand underlying operating performance and core business trends, which we use to facilitate operating performance comparisons of our business on a consistent basis over time. Adjusted EBITDA is provided as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to, any financial measure of performance prepared and presented in accordance with GAAP. Adjusted EBITDA excludes certain items because they are non-cash items or items that do not reflect management’s assessment of ongoing business performance.
We believe Adjusted EBITDA is useful to investors and financial institutions because it provides additional information regarding factors and trends affecting our business, which are used in the business planning process to understand expected operating performance, to evaluate results against those expectations, and because of its importance as a measure of underlying operating performance, as the primary compensation performance measure under certain compensation programs and plans. We believe Adjusted EBITDA is reflective of factors that affect our underlying operating performance and facilitate operating performance comparisons of our business on a consistent basis over time. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Certain adjustments to our GAAP financial measures reflected below exclude items that may be considered recurring in nature and may be reflected in our financial results for the foreseeable future. These measurements and items may be different from non-GAAP financial measures used by other companies. Adjusted EBITDA should be reviewed in conjunction with our results reported in accordance with GAAP in this Quarterly Report on Form 10-Q.
There are significant limitations to using Adjusted EBITDA as a financial measure including, but not limited to, it not reflecting the cost of cash expenditures for capital assets or certain other contractual commitments, finance lease obligation and debt service expenses, income taxes and any impacts from changes in working capital.
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We define Adjusted EBITDA as a consolidated measure which we reconcile 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 from prior periods reflect changes to line item references in our Consolidated Financial Statements, which do not impact the calculation of Adjusted EBITDA.
Assessment of Our Business Results
The following table sets forth a summary of our results of operations and Adjusted EBITDA for the periods indicated.
| 13-Week Period Ended | |||||||||||||||||||||||||||||||||||
| (in millions) | October 28, 2023 | October 29, 2022 | Change | ||||||||||||||||||||||||||||||||
| Net sales | $ | 7,552 | $ | 7,532 | $ | 20 | |||||||||||||||||||||||||||||
| Cost of sales | 6,522 | 6,436 | 86 | ||||||||||||||||||||||||||||||||
| Gross profit | 1,030 | 1,096 | (66) | ||||||||||||||||||||||||||||||||
| Operating expenses | 1,023 | 1,000 | 23 | ||||||||||||||||||||||||||||||||
| Restructuring, acquisition and integration related expenses | 4 | 2 | 2 | ||||||||||||||||||||||||||||||||
| Loss (gain) on sale of assets and other asset charges | 19 | (5) | 24 | ||||||||||||||||||||||||||||||||
| Operating (loss) income | (16) | 99 | (115) | ||||||||||||||||||||||||||||||||
| Net periodic benefit income, excluding service cost | (3) | (7) | 4 | ||||||||||||||||||||||||||||||||
| Interest expense, net | 35 | 35 | — | ||||||||||||||||||||||||||||||||
| Other income, net | — | (1) | 1 | ||||||||||||||||||||||||||||||||
| (Loss) income before income taxes | (48) | 72 | (120) | ||||||||||||||||||||||||||||||||
| (Benefit) provision for income taxes | (9) | 5 | (14) | ||||||||||||||||||||||||||||||||
| Net (loss) income including noncontrolling interests | (39) | 67 | (106) | ||||||||||||||||||||||||||||||||
| Less net income attributable to noncontrolling interests | — | (1) | 1 | ||||||||||||||||||||||||||||||||
| Net (loss) income attributable to United Natural Foods, Inc. | $ | (39) | $ | 66 | $ | (105) | |||||||||||||||||||||||||||||
Adjusted EBITDA | $ | 117 | $ | 207 | $ | (90) | |||||||||||||||||||||||||||||
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The following table reconciles Net (loss) income including noncontrolling interests to Adjusted EBITDA:
| 13-Week Period Ended | |||||||||||||||||||||||
| (in millions) | October 28, 2023 | October 29, 2022 | |||||||||||||||||||||
| Net (loss) income including noncontrolling interests | $ | (39) | $ | 67 | |||||||||||||||||||
| Adjustments to net (loss) income including noncontrolling interests: | |||||||||||||||||||||||
| Less net income attributable to noncontrolling interests | — | (1) | |||||||||||||||||||||
Net periodic benefit income, excluding service cost | (3) | (7) | |||||||||||||||||||||
| Interest expense, net | 35 | 35 | |||||||||||||||||||||
| Other income, net | — | (1) | |||||||||||||||||||||
| (Benefit) provision for income taxes | (9) | 5 | |||||||||||||||||||||
| Depreciation and amortization | 78 | 74 | |||||||||||||||||||||
| Share-based compensation | 6 | 12 | |||||||||||||||||||||
| LIFO charge | 7 | 21 | |||||||||||||||||||||
Restructuring, acquisition and integration related expenses | 4 | 2 | |||||||||||||||||||||
Loss (gain) on sale of assets and other asset charges (1) | 19 | (5) | |||||||||||||||||||||
Business transformation costs (2) | 15 | 5 | |||||||||||||||||||||
Other adjustments (3) | 4 | — | |||||||||||||||||||||
| Adjusted EBITDA | $ | 117 | $ | 207 | |||||||||||||||||||
(1)The first quarter of fiscal 2024 includes a $21 million non-cash asset impairment charge related to one of our corporate-owned office locations.
(2)Reflects costs associated with business transformation initiatives, primarily including third-party consulting costs and licensing costs, which are included within Operating expenses in the Condensed Consolidated Statements of Operations.
(3)Primarily reflects third-party professional service fees related to shareholder negotiations.
RESULTS OF OPERATIONS
Net Sales
Our Net sales by customer channel was as follows (in millions except percentages):
13-Week Period Ended | Increase (Decrease) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Customer Channel(1) | October 28, 2023 | October 29, 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Chains | $ | 3,184 | $ | 3,224 | $ | (40) | (1.2) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Independent retailers | 1,899 | 1,947 | (48) | (2.5) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supernatural | 1,612 | 1,513 | 99 | 6.5 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail | 606 | 613 | (7) | (1.1) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 646 | 635 | 11 | 1.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Eliminations | (395) | (400) | 5 | (1.3) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net sales | $ | 7,552 | $ | 7,532 | $ | 20 | 0.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1)Refer to Note 3—Revenue Recognition in Part 1, Item 1 of this Quarterly Report on Form 10-Q for our channel definitions and additional information.
Our Net sales for the first quarter of fiscal 2024 increased approximately 0.3% from the first quarter of fiscal 2023. The increase in Net sales was primarily driven by inflation and new business with existing customers, primarily resulting from growth in our Supernatural channel. These increases were largely offset by a decrease in units sold.
Retail Net sales decreased primarily due to a 3.2% decrease in identical store sales from lower volume.
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Cost of Sales and Gross Profit
Our gross profit decreased $66 million, or 6.0%, to $1,030 million for the first quarter of fiscal 2024, from $1,096 million for the first quarter of fiscal 2023. Our gross profit as a percentage of Net sales decreased to 13.6% for the first quarter of fiscal 2024 compared to 14.6% for the first quarter of fiscal 2023. The LIFO charge was $7 million and $21 million in the first quarter of fiscal 2024 and 2023, respectively. Excluding the non-cash LIFO charge, gross profit rate was 13.7% of Net sales and 14.8% of Net sales for the first quarter of fiscal 2024 and 2023, respectively. The decrease in gross profit rate, excluding the LIFO charge, was primarily driven by lower levels of procurement gains resulting from decelerating inflation.
Operating Expenses
Operating expenses increased $23 million, or 2.3%, to $1,023 million, or 13.5% of Net sales, for the first quarter of fiscal 2024 compared to $1,000 million, or 13.3% of Net sales, for the first quarter of fiscal 2023. The increase in Operating expenses as a percentage of Net sales was primarily driven by investments in our transformation initiatives, partially offset by lower transportation and distribution center labor costs due to increased operational efficiencies across our supply chain and a decrease in volume.
Loss (Gain) on Sale of Assets and Other Asset Charges
Loss on sale of assets and other asset charges was $19 million in the first quarter of fiscal 2024, compared to a gain on sale of assets of $5 million for the first quarter of fiscal 2023. The first quarter of fiscal 2024 primarily includes a $21 million asset impairment charge related to one of our corporate-owned office locations. There were no asset impairment charges in the first quarter of fiscal 2023.
Operating (Loss) Income
Reflecting the factors described above, Operating loss increased $115 million to $16 million for the first quarter of fiscal 2024, compared to operating income of $99 million for the first quarter of fiscal 2023. The increase in operating loss was primarily driven by a decrease in Gross profit, a loss on sale of assets and other asset charges in the first quarter of fiscal 2024 compared to a gain in the first quarter of fiscal 2023, and an increase in Operating expenses, each as described above.
Interest Expense, Net
| 13-Week Period Ended | |||||||||||||||||||||||||||||
| (in millions) | October 28, 2023 | October 29, 2022 | |||||||||||||||||||||||||||
| Interest expense on long-term debt, net of capitalized interest | $ | 33 | $ | 32 | |||||||||||||||||||||||||
| Interest expense on finance lease obligations | 1 | 1 | |||||||||||||||||||||||||||
| Amortization of financing costs and discounts | 2 | 2 | |||||||||||||||||||||||||||
| Interest income | (1) | — | |||||||||||||||||||||||||||
| Interest expense, net | $ | 35 | $ | 35 | |||||||||||||||||||||||||
Interest expense, net, in the first quarter of fiscal 2024 was unchanged from the first quarter of fiscal 2023 as higher average interest rates were offset by lower outstanding debt balances and higher interest income.
(Benefit) Provision for Income Taxes
The effective tax rate for the first quarter of fiscal 2024 was a benefit rate of 18.8% on pre-tax loss compared to an expense rate of 6.9% on pre-tax income for the first quarter of fiscal 2023. The change from the first quarter of fiscal 2023 is primarily driven by the reduction of discrete tax benefits related to employee stock award vestings in the first quarter of fiscal 2024. In addition, the first quarter of fiscal 2023 included a tax benefit from the release of reserves for unrecognized tax positions that did not recur in the first quarter of fiscal 2024.
Net (Loss) Income Attributable to United Natural Foods, Inc.
Reflecting the factors described in more detail above, Net loss attributable to United Natural Foods, Inc. was $39 million, or $0.67 per diluted common share, for the first quarter of fiscal 2024, compared to Net income attributable to United Natural Foods, Inc. of $66 million, or $1.07 per diluted common share, for the first quarter of fiscal 2023.
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Segment Results of Operations
In evaluating financial performance in each business segment, management primarily uses Net sales and Adjusted EBITDA of its business segments as discussed and reconciled within Note 14—Business Segments within Part I, Item 1 of this Quarterly Report on Form 10-Q and the above table within the Executive Overview section. The following tables set forth Net sales and Adjusted EBITDA by segment for the periods indicated.
| 13-Week Period Ended | ||||||||||||||||||||||||||||||||||||||
| (in millions) | October 28, 2023 | October 29, 2022 | Change | |||||||||||||||||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||||||||||||||||
| Wholesale | $ | 7,281 | $ | 7,259 | $ | 22 | ||||||||||||||||||||||||||||||||
| Retail | 606 | 613 | (7) | |||||||||||||||||||||||||||||||||||
| Other | 60 | 60 | — | |||||||||||||||||||||||||||||||||||
| Eliminations | (395) | (400) | 5 | |||||||||||||||||||||||||||||||||||
| Total Net sales | $ | 7,552 | $ | 7,532 | $ | 20 | ||||||||||||||||||||||||||||||||
| Adjusted EBITDA: | ||||||||||||||||||||||||||||||||||||||
| Wholesale | $ | 117 | $ | 171 | $ | (54) | ||||||||||||||||||||||||||||||||
| Retail | (1) | 20 | (21) | |||||||||||||||||||||||||||||||||||
| Other | 3 | 19 | (16) | |||||||||||||||||||||||||||||||||||
| Eliminations | (2) | (3) | 1 | |||||||||||||||||||||||||||||||||||
| Total Adjusted EBITDA | $ | 117 | $ | 207 | $ | (90) | ||||||||||||||||||||||||||||||||
Net Sales
Wholesale’s Net sales increased in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 primarily due to inflation and growth in the Supernatural channel, partially offset by a decrease in units sold and declines in the Independent retailers and Chains channels, as discussed in Results of Operations - Net Sales section above.
Retail’s Net sales decreased in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 primarily due to a 3.2% decrease in identical store sales from lower volume.
The decrease in eliminations Net sales in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 was primarily due to a decrease in Wholesale to Retail sales, which are eliminated upon consolidation.
Adjusted EBITDA
Wholesale’s Adjusted EBITDA decreased 31.6% for the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023. The decrease was driven by a decline in gross profit excluding the LIFO charge, partially offset by a decrease in operating expenses. Wholesale’s Gross profit excluding the LIFO charge for the first quarter of fiscal 2024 decreased $62 million and gross profit rate decreased approximately 89 basis points driven by lower levels of procurement gains resulting from decelerating inflation. Wholesale’s Operating expense decreased $8 million, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 14—Business Segments. Wholesale’s operating expense rate decreased 14 basis points primarily driven by lower transportation and distribution center labor costs due to a decrease in volume and increased operational efficiencies across our supply chain. Wholesale’s depreciation and amortization expense increased $3 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023.
Retail’s Adjusted EBITDA decreased 105.0% for the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023. The decrease was driven by a decline in gross profit, and higher operating expenses primarily due to increased costs associated with new stores. Retail’s Adjusted EBITDA excludes depreciation and amortization, share-based compensation, LIFO charge and other adjustments as outlined in Note 14—Business Segments. Retail’s depreciation and amortization expense was flat to the first quarter of fiscal 2023.
Other Adjusted EBITDA decreased $16 million in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023 primarily due to an increase in operating expenses.
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LIQUIDITY AND CAPITAL RESOURCES
Highlights
•Total liquidity as of October 28, 2023 was $1,285 million and consisted of the following:
◦Unused credit under our $2,600 million asset-based revolving credit facility (the “ABL Credit Facility”) was $1,248 million as of October 28, 2023, which decreased $232 million from $1,480 million as of July 29, 2023, primarily due to increased cash utilized to fund seasonal working capital increases.
◦Cash and cash equivalents was $37 million as of October 28, 2023, which was unchanged from July 29, 2023.
•Our total debt increased $338 million to $2,301 million as of October 28, 2023 from $1,963 million as of July 29, 2023, primarily related to additional borrowings under the ABL Credit Facility to fund seasonal working capital increases.
•Working capital increased $322 million to $1,380 million as of October 28, 2023 from $1,058 million as of July 29, 2023, primarily due to seasonal increases in inventory and accounts receivable levels, partially offset by an increase in accounts payable related to inventories.
Sources and Uses of Cash
We expect to continue to replenish operating assets and pay down debt obligations with internally generated funds. A significant reduction in operating earnings or the incurrence of operating losses could have a negative impact on our operating cash flow, which may limit our ability to pay down our outstanding indebtedness as planned. Our credit facilities are secured by a substantial portion of our total assets. We expect to be able to fund debt maturities and finance lease liabilities through fiscal 2024 with internally generated funds and borrowings under the ABL Credit Facility.
Our primary sources of liquidity are from internally generated funds and from borrowing capacity under the ABL Credit Facility. We believe our short-term and long-term financing abilities are adequate as a supplement to internally generated cash flows to satisfy debt obligations and fund capital expenditures as opportunities arise. Our continued access to short-term and long-term financing through credit markets depends on numerous factors, including the condition of the credit markets and our results of operations, cash flows, financial position and credit ratings.
Primary uses of cash include debt service, capital expenditures, working capital maintenance, investments in cloud technologies and income tax payments. We typically finance working capital needs with cash provided from operating activities and short-term borrowings. Inventories are managed primarily through demand forecasting and replenishing depleted inventories.
We currently do not pay a dividend on our common stock. In addition, we are limited in the aggregate amount of dividends that we may pay under the terms of our Term Loan Facility, ABL Credit Facility and our $500 million of unsecured 6.750% senior notes due October 15, 2028 (the “Senior Notes”). Subject to certain limitations contained in our debt agreements and as market conditions warrant, we may from time to time refinance indebtedness that we have incurred, including through the incurrence or repayment of loans under existing or new credit facilities or the issuance or repayment of debt securities. Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to be used to make additional Term Loan Facility payments or to be reinvested in the business.
Long-Term Debt
During the first quarter of fiscal 2024, we borrowed a net $340 million under the ABL Credit Facility. Refer to Note 8—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements and additional information.
Our Term Loan Agreement and Senior Notes do not include any financial maintenance covenants. Our ABL Loan Agreement subjects us to a fixed charge coverage ratio of at least 1.0 to 1.0 calculated at the end of each of our fiscal quarters on a rolling four quarter basis, if the adjusted aggregate availability is ever less than the greater of (i) $210 million and (ii) 10% of the aggregate borrowing base. We have not been subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement, including through the filing date of this Quarterly Report on Form 10-Q. The Term Loan Agreement, Senior Notes and ABL Loan Agreement contain certain operational and informational covenants customary for debt securities of these types that limit our and our restricted subsidiaries’ ability to, among other things, incur debt, declare or pay dividends or make other distributions to our stockholders, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of our and our subsidiaries’ assets on a consolidated basis. We were in compliance with all such covenants for all periods presented. If we fail to comply with any of these covenants, we may be in default under the applicable debt agreement, and all amounts due thereunder may become immediately due and payable.
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Derivatives and Hedging Activity
We enter into interest rate swap contracts from time to time to mitigate our exposure to changes in market interest rates as part of our strategy to manage our debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures.
As of October 28, 2023, we had an aggregate of $750 million of floating rate notional debt subject to active interest rate swap contracts, which effectively fix the SOFR component of our floating interest payments through pay fixed and receive floating interest rate swap agreements. These fixed rates range from 2.360% to 2.875%, with maturities between October 2023 and October 2025. The fair values of these interest rate derivatives represent a total net asset of $19 million as of October 28, 2023, and are subject to volatility based on changes in market interest rates.
From time-to-time, we enter into fixed price fuel supply agreements and foreign currency hedges. As of October 28, 2023, we had fixed price fuel contracts and foreign currency forward agreements outstanding. Gains and losses and the outstanding assets and liabilities from these arrangements are insignificant.
Payments for Capital Expenditures
Our capital expenditures increased $7 million in the first quarter of fiscal 2024 to $74 million compared to $67 million for the first quarter of fiscal 2023, primarily due to automation investments in our supply chain. Our capital spending for the first quarter of fiscal 2024 and 2023 principally included information technology and supply chain expenditures, including maintenance expenditures and investments in growth initiatives. Fiscal 2024 capital spending is expected to be approximately $400 million and include projects that automate, optimize and expand our distribution network, as well as our technology platform investments. We expect to finance fiscal 2024 capital expenditures requirements with cash generated from operations and borrowings under our ABL Credit Facility. Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility and cash from operations.
Cash Flow Information
The following summarizes our Condensed Consolidated Statements of Cash Flows:
| 13-Week Period Ended | |||||||||||||||||
| (in millions) | October 28, 2023 | October 29, 2022 | Change | ||||||||||||||
Net cash used in operating activities | $ | (254) | $ | (262) | $ | 8 | |||||||||||
Net cash used in investing activities | (72) | (61) | (11) | ||||||||||||||
Net cash provided by financing activities | 326 | 319 | 7 | ||||||||||||||
| Effect of exchange rate on cash | — | (1) | 1 | ||||||||||||||
| Net decrease in cash and cash equivalents | — | (5) | 5 | ||||||||||||||
| Cash and cash equivalents, at beginning of period | 37 | 44 | (7) | ||||||||||||||
| Cash and cash equivalents, at end of period | $ | 37 | $ | 39 | $ | (2) | |||||||||||
The decrease in Net cash used in operating activities in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 was primarily due to lower levels of cash utilized in net working capital, partially offset by lower cash generated from net income in the first quarter of fiscal 2024.
The increase in net cash used in investing activities in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 was primarily due to an increase in payments for capital expenditures in the first quarter of fiscal 2024.
The increase in net cash provided by financing activities in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 was primarily due to a decrease in cash utilized for employee restricted stock tax withholdings and repurchasing common stock, partially offset by a net decrease in proceeds from borrowings under the revolving credit line.
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Other Obligations and Commitments
Our principal contractual obligations and commitments consist of obligations under our long-term debt, interest on long-term debt, operating and finance leases, purchase obligations, self-insurance liabilities and multiemployer plan withdrawal liabilities.
Except as otherwise disclosed in Note 15—Commitments, Contingencies and Off-Balance Sheet Arrangements and Note 8—Long-Term Debt, there have been no material changes in our contractual obligations since the end of fiscal 2023. Refer to Item 7 of the Annual Report for additional information regarding our contractual obligations.
Pension and Other Postretirement Benefit Obligations
In fiscal 2024, no minimum pension contributions are required to be made under the SUPERVALU INC. Retirement Plan under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). An insignificant amount of contributions are expected to be made to defined benefit pension plans and postretirement benefit plans in fiscal 2024. We fund our defined benefit pension plan based on the minimum contribution required under ERISA, the Pension Protection Act of 2006 and other applicable laws and additional contributions made at our discretion. We may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable. We assess the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums or in order to achieve exemption from participant notices of underfunding.
Off-Balance Sheet Multiemployer Pension Arrangements
We contribute to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. These multiemployer plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Plan trustees typically are responsible for determining the level of benefits to be provided to participants as well as the investment of the assets and plan administration. Trustees are appointed in equal number by employers and unions that are parties to the relevant collective bargaining agreements. Based on the assessment of the most recent information available from the multiemployer plans, we believe that most of the plans to which we contribute are underfunded. We are only one of a number of employers contributing to these plans and the underfunding is not a direct obligation or liability to us.
Our contributions can fluctuate from year to year due to store closures, employer participation within the respective plans and reductions in headcount. Our contributions to these plans could increase in the near term. However, the amount of any increase or decrease in contributions will depend on a variety of factors, including the results of our collective bargaining efforts, investment returns on the assets held in the plans, actions taken by the trustees who manage the plans and requirements under the Pension Protection Act of 2006, the Multiemployer Pension Reform Act and Section 412(e) of the Internal Revenue Code. Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, we could trigger a partial or complete withdrawal that could require us to record a withdrawal liability obligation and make withdrawal liability payments to the fund. Expense is recognized in connection with these plans as contributions are funded, in accordance with GAAP. We made contributions to these plans, and recognized expense of $48 million in fiscal 2023. In fiscal 2024, we expect to contribute approximately $50 million to multiemployer plans, subject to the outcome of collective bargaining and capital market conditions. We expect required cash payments to fund multiemployer pension plans from which we have withdrawn to be insignificant in any one fiscal year, which would exclude any payments that may be agreed to on a lump sum basis to satisfy existing withdrawal liabilities. Any future withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP. Any triggered withdrawal obligation could result in a material charge and payment obligations that would be required to be made over an extended period of time.
We also make contributions to multiemployer health and welfare plans in amounts set forth in the related collective bargaining agreements. A small minority of collective bargaining agreements contain reserve requirements that may trigger unanticipated contributions resulting in increased healthcare expenses. If these healthcare provisions cannot be renegotiated in a manner that reduces the prospective healthcare cost as we intend, our Operating expenses could increase in the future.
Refer to Note 13—Benefit Plans in Part II, Item 8 of the Annual Report for additional information regarding the plans in which we participate.
34
Share Repurchases
In September 2022, our Board of Directors authorized a repurchase program for up to $200 million of our common stock over a term of four years (the “2022 Repurchase Program”). We did not repurchase any shares of our common stock in the first quarter of fiscal 2024. As of October 28, 2023, we had $138 million remaining authorized under the 2022 Repurchase Program.
We will manage the timing of any repurchases of our common stock in response to market conditions and other relevant factors, including any limitations on our ability to make repurchases under the terms of our ABL Credit Facility, Term Loan Facility and Senior Notes. We may implement the 2022 Repurchase Program pursuant to a plan or plans meeting the conditions of Rule 10b5-1 under the Exchange Act.
Critical Accounting Estimates
There were no material changes to our critical accounting estimates during the period covered by this Quarterly Report on Form 10-Q. Refer to the description of critical accounting estimates included in Item 7 of our Annual Report.
Seasonality
Overall product sales are fairly balanced throughout the year, although demand for certain products of a seasonal nature may be influenced by holidays, changes in seasons or other annual events. Our working capital needs are generally greater during the months of and leading up to high sales periods, such as the buildup in inventory leading to the calendar year-end holidays. Our inventory, accounts payable and accounts receivable levels may be impacted by macroeconomic impacts and changes in food-at-home purchasing rates. These effects can result in normal operating fluctuations in working capital balances, which in turn can result in changes to cash flow from operations that are not necessarily indicative of long-term operating trends.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk results primarily from fluctuations in interest rates on our borrowings and our interest rate swap agreements, and price increases in diesel fuel. Except as described in Note 7—Derivatives and Note 8—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q, which are incorporated herein, there have been no other material changes to our exposure to market risks from those disclosed in our Annual Report.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.
(b) Changes in internal controls. There has been no change in our internal control over financial reporting that occurred during the first quarter of fiscal 2024 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in routine litigation or other legal proceedings that arise in the ordinary course of our business, including investigations and claims regarding employment law including wage and hour, pension plans, unfair labor practices, labor union disputes, supplier, customer and service provider contract terms, product liability, real estate and antitrust. Other than as set forth in Note 15—Commitments, Contingencies and Off-Balance Sheet Arrangements in Part I, Item I of this Quarterly Report on Form 10-Q, which is incorporated herein, there are no pending material legal proceedings to which we are a party or to which our property is subject.
Item 1A. Risk Factors
There have been no material changes to our risk factors contained in Part I, Item 1A. Risk Factors, of our Annual Report.
35
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
On September 21, 2022, our Board of Directors authorized the 2022 Repurchase Program for up to $200 million of our common stock over a term of four years. Under the 2022 Repurchase Program, we have repurchased approximately 1,888,000 shares of our common stock for a total cost of $62 million. We did not repurchase any shares of our common stock in the first quarter of fiscal 2024. As of October 28, 2023, we had $138 million remaining authorized under the 2022 Repurchase Program.
Any repurchases are intended to be made in accordance with applicable securities laws from time to time in the open market, through privately negotiated transactions or otherwise. With respect to open market purchases, we may use a plan or plans meeting the conditions of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which allows us to repurchase shares during periods when we otherwise might be prevented from doing so under insider trading laws or because of self-imposed blackout periods. We manage the timing of any repurchases in response to market conditions and other relevant factors, including any limitations on our ability to make repurchases under the terms of our ABL Credit Facility, Term Loan Facility and Senior Notes.
Dividends. We are limited in the aggregate amount of dividends that we may pay under the terms of our Term Loan Facility, ABL Credit Facility and Senior Notes.
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Item 6. Exhibits
| Exhibit No. | Description | ||||
| 2.1 | |||||
| 2.2 | |||||
| 3.1 | |||||
| 3.2 | |||||
| 10.1** | |||||
| 10.2** | |||||
| 10.3** | |||||
| 10.4** | |||||
| 10.5** | |||||
| 10.6** | |||||
| 10.7** | |||||
| 10.8 | |||||
| 31.1* | |||||
| 31.2* | |||||
| 32.1* | |||||
| 32.2* | |||||
| 101* | The following materials from the United Natural Foods, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 28, 2023, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements. | ||||
| 104 | The cover page from our Quarterly Report on Form 10-Q for the first quarter of fiscal 2024, filed with the SEC on December 6, 2023, formatted in Inline XBRL (included as Exhibit 101). | ||||
______________________________________________
* Filed herewith.
** Denotes a management contract or compensatory plan or arrangement.
* * *
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| UNITED NATURAL FOODS, INC. | |||||
| /s/ JOHN W. HOWARD | |||||
| John W. Howard | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer and duly authorized officer) | |||||
Dated: December 6, 2023
38
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, J. Alexander Miller Douglas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United Natural Foods, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
December 6, 2023
| /s/ J. ALEXANDER MILLER DOUGLAS | |||||
| J. Alexander Miller Douglas Chief Executive Officer | |||||
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, John W. Howard, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United Natural Foods, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
December 6, 2023
| /s/ John W. Howard | |||||
| John W. Howard | |||||
| Chief Financial Officer | |||||
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, in his capacity as the Chief Executive Officer of United Natural Foods, Inc., a Delaware corporation (the “Company”), hereby certifies that the Quarterly Report of the Company on Form 10-Q for the quarterly period ended October 28, 2023, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects, the financial condition and results of operations of the Company.
| /s/ J. ALEXANDER MILLER DOUGLAS | |||||
| J. Alexander Miller Douglas Chief Executive Officer | |||||
| December 6, 2023 | |||||
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, in his capacity as the Chief Financial Officer of United Natural Foods, Inc., a Delaware corporation (the “Company”), hereby certifies that the Quarterly Report of the Company on Form 10-Q for the quarterly period ended October 28, 2023, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects, the financial condition and results of operations of the Company.
| /s/ John W. Howard | |||||
| John W. Howard | |||||
| Chief Financial Officer | |||||
| December 6, 2023 | |||||