United Natural Foods Inc 10-Q for FY2025 Q1
United Natural Foods Inc (UNFI)
10-Q
2024-12-10
For: 2024-11-02
View Original
Added on
April 08, 2026
About this 10-Q
United Natural Foods Inc filed this 10-Q on December 10, 2024, covering the quarter ended November 2, 2024 (FY2025 Q1).
Headline figures
Quarter ended November 2, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $7.87B
- up 4.2% from $7.55B a year earlier
- Net loss
- $21M
- compared with a net loss of $39M a year earlier
- Diluted EPS
- -$0.35
- compared with -$0.67 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended November 2, 2024
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 5, 2024 there were 59,919,098 shares of the registrant’s common stock, $0.01 par value per share, outstanding.
TABLE OF CONTENTS
Part I. | Financial Information | |||||||
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)
| November 2, 2024 | August 3, 2024 | |||||||||||||
| 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 | ||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | |||||||||||||||||||||||||
| Net sales | $ | $ | ||||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Restructuring, acquisition and integration related expenses | ||||||||||||||||||||||||||
| Loss on sale of assets and other asset charges | ||||||||||||||||||||||||||
| Operating income (loss) | ( | |||||||||||||||||||||||||
| Net periodic benefit income, excluding service cost | ( | ( | ||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||
| Other income, net | ( | |||||||||||||||||||||||||
| Loss before income taxes | ( | ( | ||||||||||||||||||||||||
| Benefit for income taxes | ( | ( | ||||||||||||||||||||||||
| Net loss including noncontrolling interests | ( | ( | ||||||||||||||||||||||||
| Less net income attributable to noncontrolling interests | ( | |||||||||||||||||||||||||
| Net loss attributable to United Natural Foods, Inc. | $ | ( | $ | ( | ||||||||||||||||||||||
Basic loss per share | $ | ( | $ | ( | ||||||||||||||||||||||
Diluted loss 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 (unaudited)
(in millions)
| 13-Week Period Ended | ||||||||||||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | |||||||||||||||||||||||||||||||||||||
| Net loss including noncontrolling interests | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||
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 income (loss) | ( | |||||||||||||||||||||||||||||||||||||
| Less comprehensive income attributable to noncontrolling interests | ( | |||||||||||||||||||||||||||||||||||||
Total comprehensive loss attributable to United Natural Foods, Inc. | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||
(1)Amounts are net of tax expense (benefit) of $1 million and $(1 ) million for the first quarters of fiscal 2025 and 2024, 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 November 2, 2024 and October 28, 2023
(in millions)
| Common Stock | Treasury Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total United Natural Foods, Inc. Stockholders’ Equity | Noncontrolling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at August 3, 2024 | $ | $ | ( | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock vestings | — | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at November 2, 2024 | $ | $ | ( | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | ( | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
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) | November 2, 2024 | October 28, 2023 | ||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||
| Net loss including noncontrolling interests | $ | ( | $ | ( | ||||||||||
Adjustments to reconcile loss to net cash used in operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Share-based compensation | ||||||||||||||
| Gain on sale of assets | ( | ( | ||||||||||||
| Long-lived asset impairment charges | ||||||||||||||
| Net pension and other postretirement benefit income | ( | ( | ||||||||||||
| LIFO charge | ||||||||||||||
| Provision for losses on receivables | ||||||||||||||
| Non-cash interest expense and other adjustments | ||||||||||||||
| Changes in operating assets and liabilities | ||||||||||||||
| Accounts and notes receivable | ( | ( | ||||||||||||
| Inventories | ( | ( | ||||||||||||
Prepaid expenses and other assets | ( | |||||||||||||
| Accounts payable | ||||||||||||||
| Accrued expenses and other 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 | ( | ( | ||||||||||||
| Payments of employee restricted stock tax withholdings | ( | ( | ||||||||||||
| Distributions to noncontrolling interests | ( | ( | ||||||||||||
| 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 | $ | $ | ||||||||||||
| Leased assets obtained in exchange for new finance 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. References to the first quarter of fiscal 2025 and 2024 relate to the 13-week fiscal quarters ended November 2, 2024 and October 28, 2023, 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 loss, net cash flows, or total assets and liabilities.
Cash and Cash Equivalents
8
Inventories, Net
NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS
Recently Adopted 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 adopted this standard in the first quarter of fiscal 2025. The adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
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 provisions of the amendments in this update will not have an impact on the Company’s financial position, results of operations or cash flows. The Company continues to evaluate the impact of enhanced disclosure requirements on the notes to the consolidated financial statements and expects to provide expanded segment disclosures under the new guidance.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires disclosure of specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold. The amendments also require disclosure on an annual basis of income taxes paid disaggregated by federal, state and foreign taxes as well as the amount of income taxes paid by individual jurisdiction. In addition, the amendments require disclosures of disaggregated pretax income and income tax expense and remove the requirement to disclose certain items that are no longer considered cost beneficial or relevant. The Company is required to adopt the amendments in this update in fiscal 2026. Early adoption is permitted. The amendments in this update should be applied on a prospective basis, but can also be applied retrospectively. The Company is currently reviewing the provisions of the amendments in this update and evaluating their impact on the Company’s consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 requires disclosure on an annual and interim basis, in the notes to the financial statements, of disaggregated information about specific categories underlying certain income statement expense line items. The Company is required to adopt the amendments in this update in fiscal 2028, and the interim disclosure requirements will be effective for the Company in the first quarter of fiscal 2029. Early adoption is permitted. The amendments in this update should be applied on a prospective basis, but can also be applied retrospectively. The Company is currently reviewing the provisions of the amendments in this update and evaluating their impact on the Company’s consolidated financial statements.
9
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.
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) | November 2, 2024 | |||||||||||||||||||||||||||||||
| 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 28, 2023 | |||||||||||||||||||||||||||||||
| 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.
10
Accounts and Notes Receivable Balances
Accounts and notes receivable are as follows:
| (in millions) | November 2, 2024 | August 3, 2024 | ||||||||||||
| 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 | $ | $ | ||||||||||||
In fiscal 2023, 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 November 2, 2024 and August 3, 2024, was approximately $277 million and $322 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 and $5 million for the first quarters of fiscal 2025 and 2024, respectively, and is recorded within Loss on sale of assets and other asset charges in the Condensed Consolidated Statements of Operations.
NOTE 4—RESTRUCTURING, ACQUISITION AND INTEGRATION RELATED EXPENSES
Restructuring, acquisition and integration related expenses were as follows:
| 13-Week Period Ended | |||||||||||||||||||||||
| (in millions) | November 2, 2024 | October 28, 2023 | |||||||||||||||||||||
| Restructuring and integration costs | $ | $ | |||||||||||||||||||||
| Closed property charges and costs, net | |||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
Restructuring and Integration Costs
Restructuring and integration costs for the first quarters of fiscal 2025 and 2024 primarily relate to costs associated with certain employee severance and other employee separation costs.
Restructuring liabilities related to severance and other employee separation costs were $22 million and $16 million as of November 2, 2024 and August 3, 2024, respectively, and are included in Accrued expenses and other current liabilities and Accrued compensation and benefits in the Condensed Consolidated Balance Sheets. Changes in the liability for the first quarter of fiscal 2025 included $10 million attributable to restructuring and severance-related charges offset by $4 million attributable to cash settlements from the prior period balance.
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 August 3, 2024 | $ | (1) | $ | (2) | $ | ||||||||||||
| Change in foreign exchange rates | |||||||||||||||||
Goodwill as of November 2, 2024 | $ | (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
11
Identifiable intangible assets, net consisted of the following:
| November 2, 2024 | August 3, 2024 | ||||||||||||||||||||||||||||||||||
| (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 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Amortization expense was $18 million for the first quarters of fiscal 2025 and 2024. The estimated future amortization expense for each of the next five fiscal years and thereafter on amortizing intangible assets existing as of November 2, 2024 is as shown below:
| Fiscal Year: | (in millions) | ||||
| Remaining fiscal 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 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 November 2, 2024 | |||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Interest rate swaps designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Foreign currency derivatives designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Fuel derivatives designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Interest rate swaps designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
12
| Condensed Consolidated Balance Sheets Location | Fair Value at August 3, 2024 | |||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Interest rate swaps designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Foreign currency derivatives designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Fuel derivatives designated as hedging instruments | $ | $ | $ | |||||||||||||||||||||||
| Interest rate swaps 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, Secured Overnight Financing Rate (“SOFR”) swap rates and credit default swap rates. As of November 2, 2024, a 100-basis point increase in forward SOFR interest rates would increase the fair value of the interest rate swaps by approximately $14 million; a 100-basis point decrease in forward SOFR interest rates would decrease the fair value of the interest rate swaps by approximately $14 million. Refer to Note 7—Derivatives for further information on interest rate swap contracts.
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.
| November 2, 2024 | August 3, 2024 | |||||||||||||||||||||||||
| (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 November 2, 2024. 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.
13
Details of active swap contracts as of November 2, 2024, 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 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 | ||||||||||||||||||||||||||||
| December 29, 2023 | June 3, 2027 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| December 29, 2023 | June 3, 2027 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| June 25, 2024 | June 30, 2028 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| June 25, 2024 | June 30, 2028 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| October 31, 2024 | October 30, 2026 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| October 31, 2024 | October 30, 2026 | % | One-Month Term SOFR | Monthly | ||||||||||||||||||||||||||||
| October 31, 2024 | October 30, 2026 | % | 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 loss (outside of earnings) in the Condensed Consolidated Statements of Comprehensive Loss and subsequently reclassified to earnings in Interest expense, net in the Condensed Consolidated Statements of Operations when the hedged transactions affect earnings.
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 | ||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | |||||||||||||||||||||||||
| (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 loss into earnings | $ | $ | ||||||||||||||||||||||||
14
NOTE 8—LONG-TERM DEBT
The Company’s long-term debt consisted of the following:
| (in millions) | Average Interest Rate at November 2, 2024 | Fiscal Maturity Year | November 2, 2024 | August 3, 2024 | |||||||||||||||||||
Term Loan Facility (1) | 2031 | $ | $ | ||||||||||||||||||||
ABL Credit Facility (2) | 2027 | ||||||||||||||||||||||
Senior Notes (3) | 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 | $ | $ | |||||||||||||||||||||
(1) Face value before debt issuance costs of $6 million and $6 million, respectively, and an original issue discount on debt of $9 million and $10 million, respectively.
(2) Face value before debt issuance costs of $7 million and $7 million, respectively.
(3) Face value before debt issuance costs of $5 million and $5 million, respectively.
Term Loan Facility
The term loan agreement dated as of October 22, 2018 (as amended, the “Term Loan Agreement”) provides for a $500 million senior secured first lien term loan (the “Term Loan Facility”), which is scheduled to mature on May 1, 2031, with a springing maturity of 91 days prior to the maturity of the Senior Notes (defined below), in the event that at least $100 million in principal amount outstanding of such Senior Notes remains outstanding on such date.
The obligations under the Term Loan Facility are guaranteed by most of the Company’s wholly owned subsidiaries (collectively, the “Guarantors”), subject to customary exceptions and limitations. The Term Loan Facility is secured by (i) a first-priority lien on substantially all assets other than the ABL Assets (defined below) and (ii) a second-priority lien on substantially all of the ABL Assets, in each case, subject to customary exceptions and limitations, including an exception for owned real property (other than distribution centers) with net book values of less than or equal to $10 million. As of November 2, 2024 and August 3, 2024, there was $676 million and $686 million, respectively, of owned real property pledged as collateral that was included in Property and equipment, net in the Condensed Consolidated Balance Sheets.
As of November 2, 2024, 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 3.75 % or (ii) a SOFR rate plus a margin of 4.75 %, provided that the SOFR rate shall never be less than 0.0 %.
ABL Credit Facility
The revolving credit agreement dated as of June 3, 2022, (as amended, the “ABL Loan Agreement”) provides for a secured asset-based revolving credit facility (the “ABL Credit Facility”) with an aggregate principal amount available of up to $2,730 million, including Revolver Loans (as defined in the ABL Loan Agreement) of up to $2,600 million and a First In, Last Out (“FILO”) tranche of incremental ABL loans of $130 million (the “ABL FILO Loan”). The ABL Credit Facility is scheduled to mature on June 3, 2027.
15
Revolver Loans and ABL FILO Loans under the ABL Credit Facility bear interest at rates that, at the Company’s option, can be either at a base rate or Term SOFR plus an applicable margin. The applicable margins 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) | November 2, 2024 | |||||||
| Applicable margin for revolver base rate loans | % | |||||||
Applicable margin for revolver SOFR and BA loans(1) | % | |||||||
| Applicable margin for FILO base rate loans | % | |||||||
| Applicable margin for FILO SOFR loans | % | |||||||
| Unutilized commitment fees | % | |||||||
| Letter of credit fees | % | |||||||
(1) The Company utilizes SOFR-based loans and UNFI Canada utilizes bankers’ acceptance rate-based loans.
The ABL Credit Facility is guaranteed by the Guarantors, subject to customary exceptions and limitations. The ABL Credit Facility is secured by (i) a first-priority lien on certain accounts receivable, inventory and certain other assets (collectively, the “ABL Assets”) and (ii) a second-priority lien on all other assets that do not constitute ABL Assets, in each case, subject to customary exceptions and limitations.
Availability under the ABL Credit Facility is subject to a borrowing base consisting of specified percentages of the value of eligible accounts receivable, credit card receivables, inventory, pharmacy receivables and pharmacy prescription files, after adjusting for customary reserves, but at no time shall exceed the aggregate commitments plus the outstanding ABL FILO Loans under the ABL Credit Facility (currently $2,730 million).
As of November 2, 2024, the borrowing base was $2,589 million, reflecting the advance rates described above and $110 million of reserves, which is below the $2,730 million limit of availability. This resulted in total availability of $2,589 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) | November 2, 2024 | ||||
| Total availability for ABL loans and letters of credit | $ | ||||
| ABL loans outstanding | |||||
| Letters of credit outstanding | |||||
| Unused credit | $ | ||||
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 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.
NOTE 9—COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in Accumulated other comprehensive loss by component, net of tax, for the first quarter of fiscal 2025 were as follows:
| (in millions) | Other Cash Flow Derivatives | Benefit Plans | Foreign Currency Translation | Swap Agreements | Total | |||||||||||||||||||||||||||
| Accumulated other comprehensive loss at August 3, 2024 | $ | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| Other comprehensive income before reclassifications | — | |||||||||||||||||||||||||||||||
| Amortization of cash flow hedges | ( | — | — | ( | ( | |||||||||||||||||||||||||||
| Net current period Other comprehensive income | ||||||||||||||||||||||||||||||||
| Accumulated other comprehensive (loss) income at November 2, 2024 | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
16
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 | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
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) | November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||||
| Swap agreements: | ||||||||||||||||||||||||||||||||
| Reclassification of cash flow hedges | $ | ( | $ | ( | Interest expense, net | |||||||||||||||||||||||||||
| Income tax expense | Benefit for income taxes | |||||||||||||||||||||||||||||||
| Total reclassifications, net of tax | $ | ( | $ | ( | ||||||||||||||||||||||||||||
| Other cash flow hedges: | ||||||||||||||||||||||||||||||||
| Reclassification of cash flow hedge | $ | ( | $ | Cost of sales | ||||||||||||||||||||||||||||
| Income tax expense | Benefit for income taxes | |||||||||||||||||||||||||||||||
| Total reclassifications, net of tax | $ | ( | $ | |||||||||||||||||||||||||||||
As of November 2, 2024, the Company expects to reclassify $5 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—BENEFIT PLANS
Net periodic benefit (income) costs for defined benefit pension plans consisted of the following:
| 13-Week Period Ended | |||||||||||||||||||||||
| (in millions) | November 2, 2024 | October 28, 2023 | |||||||||||||||||||||
| Interest cost | $ | $ | |||||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Net periodic benefit income | $ | ( | $ | ( | |||||||||||||||||||
Other postretirement benefits costs were de minimis for the first quarters of fiscal 2025 and 2024.
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 2025. 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 2025. Contributions for the first quarters of fiscal 2025 and 2024 were de minimis.
17
Multiemployer Pension Plans
The Company contributed $13
NOTE 11—INCOME TAXES
The effective tax rate for the first quarter of fiscal 2025 was a benefit rate of 16.7 % on pre-tax loss compared to a benefit rate of 18.8 % on pre-tax loss for the first quarter of fiscal 2024. The change from the first quarter of fiscal 2024 is primarily driven by an increase in state net operating loss valuation allowances for the first quarter of fiscal 2025. The primary drivers for the variation between the Company’s statutory tax rate and its effective tax rate were state net operating loss valuation allowances for the first quarter of fiscal 2025, and discrete tax detriments resulting from share award vestings for the first quarters of fiscal 2025 and fiscal 2024.
NOTE 12—LOSS PER SHARE
The following is a reconciliation of the basic and diluted number of shares used in computing loss per share:
| 13-Week Period Ended | ||||||||||||||||||||||||||
| (in millions, except per share data) | November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||
| Basic weighted average shares outstanding | ||||||||||||||||||||||||||
Net effect of dilutive stock awards based upon the treasury stock method | ||||||||||||||||||||||||||
| Diluted weighted average shares outstanding | ||||||||||||||||||||||||||
Basic loss per share(1) | $ | ( | $ | ( | ||||||||||||||||||||||
Diluted loss per share(1) | $ | ( | $ | ( | ||||||||||||||||||||||
Anti-dilutive share-based awards excluded from the calculation of diluted loss per share | ||||||||||||||||||||||||||
(1)Loss per share amounts are calculated using actual unrounded figures.
NOTE 13—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.
18
The following table provides information by reportable segment, including Net sales, Adjusted EBITDA, with a reconciliation to Loss before income taxes, depreciation and amortization, and payments for capital expenditures:
| 13-Week Period Ended | ||||||||||||||||||||||||||
| (in millions) | November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||
| 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 on sale of assets and other asset charges | ( | ( | ||||||||||||||||||||||||
Business transformation costs | ( | ( | ||||||||||||||||||||||||
| Other adjustments | ( | |||||||||||||||||||||||||
Loss 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 $301 million and $321 million for the first quarters of fiscal 2025 and 2024, respectively, within Net sales in its Wholesale reportable segment attributable to Wholesale to Retail sales that have been eliminated upon consolidation.
19
Total assets by reportable segment were as follows:
| (in millions) | November 2, 2024 | August 3, 2024 | ||||||||||||
| Assets: | ||||||||||||||
| Wholesale | $ | $ | ||||||||||||
| Retail | ||||||||||||||
| Other | ||||||||||||||
| Eliminations | ( | ( | ||||||||||||
| Total assets | $ | $ | ||||||||||||
NOTE 14—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 November 2, 2024. 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 eleven years , with a weighted average remaining term of approximately five 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 November 2, 2024, the maximum amount of undiscounted payments the Company would be required to make in the event of default of all guarantees was $11 million ($9 million on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, as of November 2, 2024, a total estimated loss of less than $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. The Company has recorded the de minimis fair value of these guarantees and contingent obligations, when applicable, in the Condensed Consolidated Balance Sheets.
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 November 2, 2024, the Company had approximately $512 million of non-cancelable future purchase obligations, most of which will be paid and utilized in the ordinary course within one year.
As of November 2, 2024, the Company had commitments of $49 million for future undiscounted minimum lease payments on leases signed but not yet commenced with terms of up to 21 years from commencement date. A lease agreement for a distribution center in Sarasota, Florida commenced in the first quarter of fiscal 2025 resulting in the recognition of a $118
20
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”), the Company believes that New Albertson’s has an obligation to defend and indemnify UNFI in a majority of the cases. New Albertson’s originally agreed to do so under a reservation of rights, however, New Albertson’s is disputing its obligation to do so. 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 waiting for further direction from the Maryland Attorney General on additional documents requested. At an April 24, 2024 status conference, the MDL Court directed that the plaintiffs and non-litigating defendants, which includes the Company, determine whether the cases will be dismissed, litigated or mediated. At the status conference on June 10, 2024, the Company indicated it is open to exploring mediation. The Company believes these claims are without merit and intends to vigorously defend this matter.
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 thereafter entered a scheduling order setting various discovery and expert deadlines. The trial date is set for March 9, 2026. The Company believes these claims are without merit and is vigorously defending this matter.
21
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 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. On February 16, 2024, the defendants filed a motion to reconsider the Court’s August 5, 2019 partial grant of summary judgment to the relators and to continue the trial date. On February 27, 2024, the Court granted the defendants’ motion for a trial date continuance and vacated the April 29, 2024 trial date. On April 26, 2024, the Court denied the defendants’ motion to reconsider the partial grant of summary judgment. On May 20, 2024, the District Court heard oral argument on the pending motions for summary judgment and on September 30, 2024, the Court denied both parties’ motions for summary judgment on scienter and granted relators’ motion for summary judgment on materiality. The trial is now scheduled to begin February 10, 2025.
The Company, J. Alexander Miller Douglas, John Howard and Chris Testa are named in a putative securities class action that was originally filed on March 29, 2023. In Dan Sills, et al. v. United Natural Foods, Inc., et al., pending in the U.S. District Court for the Southern District of New York, the plaintiffs allege that defendants violated federal securities laws by making materially false and/or misleading statements and failing to disclose material facts about UNFI’s business, operations and prospects. The defendants filed a Motion to Dismiss on December 21, 2023, and on September 13, 2024, the court issued an opinion granting in part and denying in part the motion. On October 28, 2024, the Company answered the complaint denying the allegations. The Company intends to vigorously defend this matter.
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.
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 November 2, 2024, 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.
22
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 strategic 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 strategic transactions;
•our ability to continue to grow sales, including of our higher margin natural and organic foods and non-food products;
•our ability to maintain sufficient volume in our wholesale distribution and services businesses to support our operating infrastructure;
•our ability to access additional capital;
•increases in healthcare, pension and other costs under our single employer benefit plan 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 August 3, 2024 (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.
23
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 53 distribution centers and warehouses representing approximately 31 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 have introduced and are executing against a new strategy and three-year financial objectives that seek to add value to our customers and suppliers through our portfolio of products, services, programs and insights while improving our efficiency and cash flow. To accomplish the latter, we are focused on controllable variables in four key areas: intensifying and expanding our network optimization; reducing annual capital spending; optimizing our cost structure; and reducing our net working capital position.
We expect to continue to use available capital to re-invest in our business and are committed to improving our free cash flow and financial leverage while reducing outstanding debt.
We believe we can optimize our performance and profitability through our improvement 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.
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 and behavior. 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.
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.
24
Wholesale Distribution Network Optimization
We are working to optimize our distribution center network to better and more efficiently service customers and suppliers. In the first quarter of fiscal 2025, we consolidated the volume of two distribution centers into other facilities in the Central region. Subsequent to the first quarter of fiscal 2025, we announced the closure of a third distribution center in the Central region. We expect to achieve cost savings as a result of these efforts through eliminating inefficiencies, including incurring lower operating and shrink expenses. These actions are also expected to improve the product assortment and overall customer experience.
In the first quarter of fiscal 2025, we began operating a new distribution center in Manchester, Pennsylvania, which has approximately 1.3 million square feet, optimizes volume from other nearby distribution centers in the East region and primarily distributes natural products. This distribution center is expected to be automated later in fiscal 2025. Also in the first quarter of fiscal 2025, we began the development of a new distribution center in Sarasota, Florida, which has approximately 1.0 million square feet. We recognized a $118 million right-of-use asset and operating lease liability for this distribution center in the first quarter of fiscal 2025.
We plan to continue to evaluate our distribution center network to further optimize performance and expect to incur incremental expenses related to any future network realignment, expansion or improvements, including network optimization and automation initiatives. We are working to both minimize future costs and obtain new business to further improve the efficiency of our distribution network.
Retail Operations
We currently operate 76 retail grocery stores, including 54 Cub Foods corporate stores and 22 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 24 “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 Changes
We experienced a mix of inflation and deflation across product categories during the first quarter of fiscal 2025. In the aggregate across our businesses, including the mix of products, management estimates our businesses experienced product cost inflation of approximately one percent in the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024. Cost inflation and deflation 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 and deflation 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 2025, we experienced fewer and less significant vendor product cost increases as compared to the first quarter of fiscal 2024. These decreases negatively impacted our gross profit rate when comparing the first quarter of fiscal 2025 to the first quarter of fiscal 2024.
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.
25
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, transportation or promotion of the suppliers’ products.
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 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 on Sale of Assets and Other Asset Charges
Loss 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 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.
26
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.
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.
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) | November 2, 2024 | October 28, 2023 | Change | ||||||||||||||||||||||||||||||||
| Net sales | $ | 7,871 | $ | 7,552 | $ | 319 | |||||||||||||||||||||||||||||
| Cost of sales | 6,833 | 6,522 | 311 | ||||||||||||||||||||||||||||||||
| Gross profit | 1,038 | 1,030 | 8 | ||||||||||||||||||||||||||||||||
| Operating expenses | 1,015 | 1,023 | (8) | ||||||||||||||||||||||||||||||||
| Restructuring, acquisition and integration related expenses | 12 | 4 | 8 | ||||||||||||||||||||||||||||||||
| Loss on sale of assets and other asset charges | 6 | 19 | (13) | ||||||||||||||||||||||||||||||||
| Operating income (loss) | 5 | (16) | 21 | ||||||||||||||||||||||||||||||||
| Net periodic benefit income, excluding service cost | (5) | (3) | (2) | ||||||||||||||||||||||||||||||||
| Interest expense, net | 36 | 35 | 1 | ||||||||||||||||||||||||||||||||
| Other income, net | (2) | — | (2) | ||||||||||||||||||||||||||||||||
| Loss before income taxes | (24) | (48) | 24 | ||||||||||||||||||||||||||||||||
| Benefit for income taxes | (4) | (9) | 5 | ||||||||||||||||||||||||||||||||
| Net loss including noncontrolling interests | (20) | (39) | 19 | ||||||||||||||||||||||||||||||||
| Less net income attributable to noncontrolling interests | (1) | — | (1) | ||||||||||||||||||||||||||||||||
| Net loss attributable to United Natural Foods, Inc. | $ | (21) | $ | (39) | $ | 18 | |||||||||||||||||||||||||||||
Adjusted EBITDA | $ | 134 | $ | 117 | $ | 17 | |||||||||||||||||||||||||||||
27
The following table reconciles Net loss including noncontrolling interests to Adjusted EBITDA:
| 13-Week Period Ended | |||||||||||||||||||||||
| (in millions) | November 2, 2024 | October 28, 2023 | |||||||||||||||||||||
| Net loss including noncontrolling interests | $ | (20) | $ | (39) | |||||||||||||||||||
Adjustments to net loss including noncontrolling interests: | |||||||||||||||||||||||
| Less net income attributable to noncontrolling interests | (1) | — | |||||||||||||||||||||
Net periodic benefit income, excluding service cost | (5) | (3) | |||||||||||||||||||||
| Interest expense, net | 36 | 35 | |||||||||||||||||||||
| Other income, net | (2) | — | |||||||||||||||||||||
| Benefit for income taxes | (4) | (9) | |||||||||||||||||||||
| Depreciation and amortization | 80 | 78 | |||||||||||||||||||||
| Share-based compensation | 7 | 6 | |||||||||||||||||||||
| LIFO charge | 7 | 7 | |||||||||||||||||||||
Restructuring, acquisition and integration related expenses | 12 | 4 | |||||||||||||||||||||
Loss on sale of assets and other asset charges (1) | 6 | 19 | |||||||||||||||||||||
Business transformation costs (2) | 18 | 15 | |||||||||||||||||||||
Other adjustments (3) | — | 4 | |||||||||||||||||||||
| Adjusted EBITDA | $ | 134 | $ | 117 | |||||||||||||||||||
(1)The first quarter of fiscal 2024 primarily 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)The first quarter of fiscal 2024 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) | November 2, 2024 | October 28, 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Chains | $ | 3,294 | $ | 3,184 | $ | 110 | 3.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Independent retailers | 1,853 | 1,899 | (46) | (2.4) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supernatural | 1,835 | 1,612 | 223 | 13.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail | 586 | 606 | (20) | (3.3) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 666 | 646 | 20 | 3.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Eliminations | (363) | (395) | 32 | (8.1) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net sales | $ | 7,871 | $ | 7,552 | $ | 319 | 4.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(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 2025 increased approximately 4.2% from the first quarter of fiscal 2024. The increase in Net sales was primarily driven by an increase in unit volumes, including new business with existing and new customers, as well as inflation.
Retail Net sales decreased primarily due to a 1.4% decrease in identical store sales from lower volume, and store closures.
28
Cost of Sales and Gross Profit
Our Gross profit increased $8 million, or 0.8%, to $1,038 million for the first quarter of fiscal 2025, from $1,030 million for the first quarter of fiscal 2024. Our Gross profit as a percentage of Net sales decreased to 13.2% for the first quarter of fiscal 2025 compared to 13.6% for the first quarter of fiscal 2024. The LIFO charge was $7 million in each of the first quarters of fiscal 2025 and 2024. Excluding the non-cash LIFO charge, gross profit rate was 13.3% of Net sales and 13.7% of Net sales for the first quarter of fiscal 2025 and 2024, respectively. The decrease in gross profit rate, excluding the LIFO charge, was primarily driven by lower product margin rates and customer and product mix, which were partially offset through supplier programs and the benefit of lower shrink expense.
Operating Expenses
Operating expenses decreased $8 million, or 0.8%, to $1,015 million, or 12.9% of Net sales, for the first quarter of fiscal 2025 compared to $1,023 million, or 13.5% of Net sales, for the first quarter of fiscal 2024. The decrease in Operating expenses as a percentage of Net sales was primarily driven by benefits from cost saving initiatives and the leveraging impact of higher sales.
Restructuring, Acquisition and Integration Related Expenses
Restructuring, acquisition and integration related expenses were $12 million for the first quarter of fiscal 2025, compared to $4 million for the first quarter of fiscal 2024. The increase was primarily driven by higher costs associated with certain employee severance and other employee separation costs in the first quarter of fiscal 2025.
Loss on Sale of Assets and Other Asset Charges
Loss on sale of assets and other asset charges decreased $13 million to $6 million for the first quarter of fiscal 2025, from $19 million for the first quarter of fiscal 2024. The first quarter of fiscal 2024 primarily included a $21 million asset impairment charge related to one of our corporate-owned office locations, while there were no asset impairment charges in the first quarter of fiscal 2025.
Operating Income (Loss)
Reflecting the factors described above, Operating income increased $21 million to $5 million for the first quarter of fiscal 2025, compared to Operating loss of $16 million for the first quarter of fiscal 2024. The increase in Operating income was primarily driven by a decrease in Loss on sale of asset and other asset charges and Operating expenses and an increase in Gross profit, partially offset by an increase in Restructuring, acquisition and integration related expenses in the first quarter of fiscal 2025, each as described above.
Interest Expense, Net
| 13-Week Period Ended | |||||||||||||||||||||||||||||
| (in millions) | November 2, 2024 | October 28, 2023 | |||||||||||||||||||||||||||
| Interest expense on long-term debt, net of capitalized interest | $ | 35 | $ | 33 | |||||||||||||||||||||||||
| Interest expense on finance lease obligations | — | 1 | |||||||||||||||||||||||||||
| Amortization of financing costs and discounts | 2 | 2 | |||||||||||||||||||||||||||
| Interest income | (1) | (1) | |||||||||||||||||||||||||||
| Interest expense, net | $ | 36 | $ | 35 | |||||||||||||||||||||||||
The increase in interest expense, net, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily driven by higher average interest rates.
Benefit for Income Taxes
The effective tax rate for the first quarter of fiscal 2025 was a benefit rate of 16.7% on pre-tax loss compared to a benefit rate of 18.8% on pre-tax loss for the first quarter of fiscal 2024. The change from the first quarter of fiscal 2024 is primarily driven by an increase in state net operating loss valuation allowances for the first quarter of fiscal 2025.
29
Net Loss Attributable to United Natural Foods, Inc.
Reflecting the factors described in more detail above, Net loss attributable to United Natural Foods, Inc. was $21 million, or $0.35 per diluted common share, for the first quarter of fiscal 2025, compared to Net loss attributable to United Natural Foods, Inc. of $39 million, or $0.67 per diluted common share, for the first quarter of fiscal 2024.
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 13—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) | November 2, 2024 | October 28, 2023 | Change | |||||||||||||||||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||||||||||||||||
| Wholesale | $ | 7,590 | $ | 7,281 | $ | 309 | ||||||||||||||||||||||||||||||||
| Retail | 586 | 606 | (20) | |||||||||||||||||||||||||||||||||||
| Other | 58 | 60 | (2) | |||||||||||||||||||||||||||||||||||
| Eliminations | (363) | (395) | 32 | |||||||||||||||||||||||||||||||||||
| Total Net sales | $ | 7,871 | $ | 7,552 | $ | 319 | ||||||||||||||||||||||||||||||||
| Adjusted EBITDA: | ||||||||||||||||||||||||||||||||||||||
| Wholesale | $ | 131 | $ | 117 | $ | 14 | ||||||||||||||||||||||||||||||||
| Retail | — | (1) | 1 | |||||||||||||||||||||||||||||||||||
| Other | 1 | 3 | (2) | |||||||||||||||||||||||||||||||||||
| Eliminations | 2 | (2) | 4 | |||||||||||||||||||||||||||||||||||
| Total Adjusted EBITDA | $ | 134 | $ | 117 | $ | 17 | ||||||||||||||||||||||||||||||||
Net Sales
Wholesale’s Net sales increased in the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024 primarily due to an increase in unit volumes, including new business with existing and new customers, as well as inflation, as discussed in Results of Operations - Net Sales section above.
Retail’s Net sales decreased in the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024 primarily due to a 1.4% decrease in identical store sales from lower volume, and store closures.
Lower eliminations of Net sales in the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024 were primarily due to a decrease in Wholesale to Retail sales, which are eliminated upon consolidation.
Adjusted EBITDA
Wholesale’s Adjusted EBITDA increased 12.0% for the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024. The increase was driven by gross profit growth excluding the LIFO charge and a decrease in operating expenses. Wholesale’s Gross profit excluding the LIFO charge for the first quarter of fiscal 2025 increased $10 million and gross profit rate decreased approximately 36 basis points driven primarily by lower product margin rates and customer and product mix, which were partially offset through supplier programs and the benefit of lower shrink expense. Wholesale’s Operating expense decreased $4 million, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 13—Business Segments. Wholesale’s operating expense rate decreased 48 basis points primarily due to benefits from cost saving initiatives and the leveraging impact of higher sales. Wholesale’s depreciation and amortization expense increased $3 million in the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024.
30
Retail’s Adjusted EBITDA increased $1 million for the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024. The increase was driven primarily by lower operating expenses from operating efficiencies, which were largely offset by a decline in gross profit primarily due to lower sales volume. Retail’s Adjusted EBITDA excludes depreciation and amortization, share-based compensation, LIFO charge and other adjustments as outlined in Note 13—Business Segments. Retail’s depreciation and amortization expense increased $1 million compared to the first quarter of fiscal 2024.
LIQUIDITY AND CAPITAL RESOURCES
Highlights
•Total liquidity as of November 2, 2024 was $1,174 million and consisted of the following:
◦$1,137 million of unused credit under our asset-based revolving credit facility (the “ABL Credit Facility”), which decreased $98 million from $1,235 million as of August 3, 2024, primarily due to increased cash utilized to fund seasonal working capital increases; and
◦$37 million of cash and cash equivalents, which decreased $3 million from $40 million as of August 3, 2024.
•Total debt increased $162 million to $2,247 million as of November 2, 2024 from $2,085 million as of August 3, 2024, primarily related to additional net borrowings under the ABL Credit Facility to fund seasonal working capital increases and payments for capital expenditures.
•Working capital increased $176 million to $1,213 million as of November 2, 2024 from $1,037 million as of August 3, 2024, 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 2025 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 senior secured first lien term loan (the “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 2025, we borrowed a net $163 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.
31
Our term loan agreement dated as of October 22, 2018, (as amended, the “Term Loan Agreement”) and Senior Notes do not include any financial maintenance covenants. Our revolving credit agreement dated as of June 3, 2022, (as amended, the “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) $220 million, or $210 million if no ABL FILO Loans are then outstanding at such time, 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. The potential amount of prepayment under the Term Loan Facility from Excess Cash Flow (as defined in the Term Loan Agreement) in fiscal 2025 that may be required in fiscal 2026 is not reasonably estimable as of November 2, 2024.
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 November 2, 2024, 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 2.475% to 4.130%, with maturities between October 2025 and June 2028. The fair values of these interest rate derivatives represent a total net asset of $4 million as of November 2, 2024, 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 November 2, 2024, 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 and Cloud Technology Implementation Expenditures
Our capital expenditures for the first quarter of fiscal 2025 were $49 million compared to $74 million for the first quarter of fiscal 2024, a decrease of $25 million. Our capital spending for the first quarter of fiscal 2025 and 2024 principally included supply chain and information technology expenditures, including investments in growth initiatives and maintenance expenditures. Cloud technology implementation expenditures, which are included in operating activities in the Condensed Consolidated Statements of Cash Flows, were $4 million for the first quarter of fiscal 2025 compared to $9 million for the first quarter of fiscal 2024.
Fiscal 2025 capital and cloud implementation spending is expected to be approximately $300 million and include projects that automate, optimize and expand our distribution network, as well as our technology platform investments. The components of capital and cloud implementation expenditures for fiscal 2025 will be primarily dependent on the nature of certain contracts to be executed. We expect to finance fiscal 2025 capital and cloud implementation 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.
32
Cash Flow Information
The following summarizes our Condensed Consolidated Statements of Cash Flows:
| 13-Week Period Ended | |||||||||||||||||
| (in millions) | November 2, 2024 | October 28, 2023 | Change | ||||||||||||||
Net cash used in operating activities | $ | (110) | $ | (254) | $ | 144 | |||||||||||
Net cash used in investing activities | (47) | (72) | 25 | ||||||||||||||
Net cash provided by financing activities | 154 | 326 | (172) | ||||||||||||||
| Net decrease in cash and cash equivalents | (3) | — | (3) | ||||||||||||||
| Cash and cash equivalents, at beginning of period | 40 | 37 | 3 | ||||||||||||||
| Cash and cash equivalents, at end of period | $ | 37 | $ | 37 | $ | — | |||||||||||
The decrease in net cash used in operating activities in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily due to lower levels of cash utilized in net working capital, including lower inventory levels compared to the first quarter of fiscal 2024. This decrease was partially offset by payments related to accrued incentive compensation in the first quarter of fiscal 2025.
The decrease in net cash used in investing activities in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily due to lower payments for capital expenditures in the first quarter of fiscal 2025.
The decrease in net cash provided by financing activities in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily due to a decrease in net proceeds from borrowings under the ABL Credit Facility resulting from decreases in net cash used in operating activities and decreases in net cash used in investing activities, as described above.
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 14—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 2024. Refer to Item 7 of the Annual Report for additional information regarding our contractual obligations.
Pension and Other Postretirement Benefit Obligations
In fiscal 2025, 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”). An insignificant amount of contributions are expected to be made to other defined benefit pension plans and postretirement benefit plans in fiscal 2025. We fund our tax-qualified 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.
33
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 $47 million in fiscal 2024. In fiscal 2025, we expect to contribute approximately $51 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.
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 2025. As of November 2, 2024, 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.
34
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 2025 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 14—Commitments, Contingencies and Off-Balance Sheet Arrangements in Part I, Item 1 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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. We did not repurchase any shares of our common stock in the first quarter of fiscal 2025. As of November 2, 2024, 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.
35
Item 6. Exhibits
| Exhibit No. | Description | ||||
| 2.1 | |||||
| 2.2 | |||||
| 3.1 | |||||
| 3.2 | |||||
| 10.1** | |||||
| 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 November 2, 2024, 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, (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 2025, filed with the SEC on December 10, 2024, formatted in Inline XBRL (included as Exhibit 101). | ||||
______________________________________________
* Filed herewith.
** Denotes a management contract or compensatory plan or arrangement.
* * *
36
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/ GIORGIO MATTEO TARDITI | |||||
| Giorgio Matteo Tarditi | |||||
| President and Chief Financial Officer | |||||
| (Principal Financial Officer and duly authorized officer) | |||||
Dated: December 10, 2024
37
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 10, 2024
| /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, Giorgio Matteo Tarditi, 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 10, 2024
| /s/ Giorgio Matteo Tarditi | |||||
| Giorgio Matteo Tarditi | |||||
| President and 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 November 2, 2024, 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 10, 2024 | |||||
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, in his capacity as the President and 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 November 2, 2024, 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/ Giorgio Matteo Tarditi | |||||
| Giorgio Matteo Tarditi | |||||
| President and Chief Financial Officer | |||||
| December 10, 2024 | |||||