DocumentMarch 8, 2023
UNITED NATURAL FOODS, INC. REPORTS
SECOND QUARTER FISCAL 2023 RESULTS
Providence, Rhode Island - March 8, 2023 -- United Natural Foods, Inc. (NYSE: UNFI) (the “Company” or “UNFI”) today reported financial results for the second quarter of fiscal 2023 (13 weeks) ended January 28, 2023.
Second Quarter Fiscal 2023 Highlights (comparisons to second quarter fiscal 2022)
•Net sales increased 5.4% to $7.8 billion, primarily driven by inflation and new business
•Gross profit decreased $6 million, or 0.6%, to nearly $1.1 billion; prior to LIFO charge, gross profit rose 0.4%
•Net income decreased 71.2% to $19 million; Earnings per diluted share (EPS) decreased 71.3% to $0.31
•Adjusted EBITDA decreased 17.7% to $181 million
•Adjusted EPS decreased 42.6% to $0.78
•Reduced net debt by $427 million sequentially, including the benefits from Accounts Receivable monetization
•Raising FY2023 sales outlook, reiterating capital expenditure outlook and lowering profitability outlook
•Continuing transformation agenda to improve operational execution and profitability
“Our second quarter sales grew over 5% compared to the prior year as more customers bought more categories, private brands, and professional services driving sales to over $7.8 billion,” said Sandy Douglas, UNFI’s Chief Executive Officer. “While I’m pleased with our continued sales growth, profitability in the quarter was lower than recent levels and our plan. Profits were challenged as we did not repeat the significant level of procurement gains from rapidly accelerating inflation and inventory gains, due to supply chain volatility, that we experienced in the second quarter of last year. As a result of these challenges, we are reducing our profitability expectations for fiscal 2023 and withdrawing our fiscal 2024 targets.”
Mr. Douglas continued, “Our customer-focused growth strategy is continuing to resonate with our large and diversified customer base. We see significant opportunity to couple this continued revenue growth with a more efficient and profitable platform and structurally higher margins as we work to earn a higher share of our $140 billion core addressable market.”
“Our improvement efforts are already well underway. We’ve assembled a highly skilled and motivated management team that is developing a multifaceted transformation plan to continue to drive improvements in our customer and supplier experience, and address legacy integration and capability gaps in our digital and physical infrastructure. We look forward to sharing our transformation agenda and how we expect it to generate sustained improvements to shareholder returns,” Mr. Douglas concluded.
| | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended | | Percent Change | | |
| ($ in millions, except for per share data) | January 28, 2023 | | January 29, 2022 | | | |
| Net sales | $ | 7,816 | | | $ | 7,416 | | | 5.4 | % | | |
Chains | $ | 3,322 | | | $ | 3,243 | | | 2.4 | % | | |
| Independent retailers | $ | 1,980 | | | $ | 1,905 | | | 3.9 | % | | |
| Supernatural | $ | 1,659 | | | $ | 1,453 | | | 14.2 | % | | |
| Retail | $ | 660 | | | $ | 643 | | | 2.6 | % | | |
| Other | $ | 609 | | | $ | 581 | | | 4.8 | % | | |
| Eliminations | $ | (414) | | | $ | (409) | | | 1.2 | % | | |
| Net income | $ | 19 | | | $ | 66 | | | (71.2) | % | | |
Adjusted EBITDA(1) | $ | 181 | | | $ | 220 | | | (17.7) | % | | |
| EPS | $ | 0.31 | | | $ | 1.08 | | | (71.3) | % | | |
Adjusted EPS(1) | $ | 0.78 | | | $ | 1.36 | | | (42.6) | % | | |
(1)During fiscal 2022, the Company revised its definition of Adjusted EBITDA and Adjusted EPS to exclude the impact of the non-cash LIFO charge or benefit. The Company believes that this change provides a better indicator of its underlying operating performance and permits better comparability between periods. Prior-year periods have been recast to reflect the new definition. Please refer to the tables in this press release for a reconciliation of these non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with U.S. GAAP and for a reconciliation of previously reported Adjusted EBITDA and Adjusted EPS to their revised presentation under the new definitions.
Second Quarter Fiscal 2023 Summary
Net sales increased 5.4% in the second quarter of fiscal 2023 compared to the same period last year, primarily driven by inflation and new business. This new business resulted from selling new or expanded categories to existing customers and adding new customers from our robust pipeline. These increases were partially offset by a decrease in units sold.
Gross profit in the second quarter of fiscal 2023 was $1.1 billion, a decrease of $6 million, or 0.6%, compared to the second quarter of fiscal 2022. Excluding the non-cash LIFO charge in both periods, gross profit increased $4 million, or 0.4%. The gross profit rate in the second quarter of fiscal 2023 was 13.7% of net sales and included a $29 million LIFO charge. Excluding this non-cash charge, gross profit rate was 14.0% of net sales. Gross profit rate in the second quarter of fiscal 2022 was 14.5% of net sales and included a $19 million LIFO charge. Excluding this non-cash charge, gross profit rate in the second quarter of fiscal 2022 was 14.8% of net sales. The decrease in gross profit rate, excluding the LIFO charge, was primarily driven by lower current period procurement gains due to the decelerating rate of inflation and lower inventory gains.
Operating expenses in the second quarter of fiscal 2023 were $1,002 million, or 12.8% of net sales. Operating expenses in the second quarter of fiscal 2022 were $944 million, and included an $8 million benefit related to an adjustment to a previous multiemployer pension plan withdrawal charge estimate. When excluding this item, operating expenses as a percentage of net sales was 12.8% of net sales. Operating expenses as a percent of net sales improved 50 basis points sequentially from the first quarter of fiscal 2023 when operating expenses were 13.3% of net sales.
Interest expense, net for the second quarter of fiscal 2023 was $39 million compared to $44 million for the second quarter of fiscal 2022. The decrease in interest expense, net was due to lower average debt balances and finance leases, partially offset by higher interest rates. The second quarter of fiscal 2023 and 2022 included approximately $3 million and $5 million, respectively, in non-cash charges primarily related to the acceleration of unamortized debt issuance costs and original issue discounts resulting from debt prepayments.
Effective tax rate for the second quarter of fiscal 2023 was 29.0% compared to 26.9% for the second quarter of fiscal 2022.
Net income for the second quarter of fiscal 2023 was $19 million. Net income for the second quarter of fiscal 2022 was $66 million.
Net income per diluted share (EPS) was $0.31 for the second quarter of fiscal 2023 compared to net income per diluted share of $1.08 for the second quarter of fiscal 2022. Adjusted EPS was $0.78 for the second quarter of fiscal 2023 compared to $1.36 in the second quarter of fiscal 2022.
Adjusted EBITDA for the second quarter of fiscal 2023 was $181 million compared to $220 million for the second quarter of fiscal 2022.
Capital Allocation and Financing Overview
•Free Cash Flow – During the second quarter of 2023, free cash flow was $448 million, compared to $74 million in the second quarter of fiscal 2022. The results for the second quarter of fiscal 2023 reflect net cash provided by operating activities of $532 million, primarily driven by the monetization of certain qualified accounts receivables as described below and cash generated from working capital, partially offset by payments for capital expenditures of $84 million.
•Leverage – The net debt to adjusted EBITDA leverage ratio was 2.6x as of January 28, 2023. Total outstanding debt, net of cash, ended the quarter at $2.07 billion, reflecting a decrease of $427 million in the second quarter of fiscal 2023 (compared to the end of the first quarter of fiscal 2023) primarily driven by cash provided by operations in the second quarter of fiscal 2023.
•Liquidity – As of January 28, 2023, total liquidity was approximately $1.57 billion, consisting of approximately $40 million in cash, plus the ability to borrow an aggregate of approximately $1.53 billion under the Company’s asset-based lending facility.
•Repurchase program – During the second quarter of fiscal 2023, the Company repurchased approximately 390,000 shares at an average price of $41.36 for an aggregate cost of approximately $17 million, including fees and commissions.
•Accounts Receivable monetization - Early in the second quarter of fiscal 2023, the Company entered into a monetization program for the sale of certain accounts receivable which generated net cash proceeds of approximately $282 million. Proceeds have been used to pay down debt.
Fiscal 2023 Outlook (1)
The Company has withdrawn its long-term fiscal year 2024 financial targets and updated its full year outlook to the following:
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ending July 29, 2023 | Previous Full Year Outlook | | Updated Full Year Outlook | | % Change Over FY22 at Midpoint |
Net sales ($ in billions) | $29.8 - $30.4 | | $30.1 - $30.5 | | 5% |
Net income ($ in millions) | $247 - $266 | | $90 - $142 | | (53)% |
EPS (2) | $3.95 - $4.25 | | $1.50 - $2.35 | | (53)% |
Adjusted EPS (2)(3)(4) | $4.85 - $5.15 | | $3.05 - $3.90 | | (28)% |
Adjusted EBITDA (4) ($ in millions) | $850 - $880 | | $715 - $785 | | (10)% |
Capital expenditures ($ in millions) | ~ $350 | | ~ $350 | | 39% |
(1)The outlook provided above is for fiscal 2023 only and replaces and supersedes any and all guidance provided prior to the date hereof covering fiscal 2023. This outlook is forward-looking, is based on management's current estimates and expectations and is subject to a number of risks, including many that are outside of management's control. See cautionary Safe Harbor Statement below.
(2)Earnings per share amounts as presented include rounding.
(3)The Company uses an adjusted effective tax rate in calculating Adjusted EPS. The adjusted effective tax rate is calculated based on adjusted net income before tax. It also excludes the potential impact of changes to uncertain tax positions, valuation allowances, stock compensation accounting (ASU 2016-09) and discrete GAAP tax items which could impact the comparability of the operational effective tax rate. The Company believes using this adjusted effective tax rate provides better consistency across the interim reporting periods since each of these discrete items can cause volatility in the GAAP tax rate that is not indicative of the underlying ongoing operations of the Company. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company’s effective tax rate on ongoing operations.
(4)Please refer to the tables in this press release for a reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.
Conference Call and Webcast
The Company’s second quarter fiscal 2023 conference call and audio webcast will be held today, Wednesday, March 8, 2023 at 8:30 a.m. ET. A webcast of the conference call (and supplemental materials) will be available to the public, on a listen only basis, via the internet at the Investors section of the Company’s website www.unfi.com. The call can also be accessed at (888) 660 - 6768 (conference ID 1099581). An online archive of the webcast (and supplemental materials) will be available for 120 days.
About United Natural Foods
UNFI is North America’s premier grocery wholesaler delivering the widest variety of fresh, branded, and owned brand products to more than 30,000 locations throughout North America, including natural product superstores, independent retailers, conventional supermarket chains, ecommerce providers, and foodservice customers. UNFI also provides a broad range of value-added services and segmented marketing expertise, including proprietary technology, data, market insights, and shelf management to help customers and suppliers build their businesses and brands. As the largest full-service grocery partner in North America, UNFI is committed to building a food system that is better for all and is uniquely positioned to deliver great food, more choices, and fresh thinking to customers. To learn more about how UNFI is Fueling the Future of Food, visit www.unfi.com.
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| INVESTOR CONTACTS: | | |
| Steve Bloomquist | | |
| Vice President, Investor Relations | | |
| 952-828-4144 sbloomquist@unfi.com | | |
| | | |
| Kristyn Farahmand | | |
| Senior Vice President, Investor Relations and Transformation Finance | | |
| 401-213-2160 kristyn.farahmand@unfi.com | | |
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding the Company’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. The risks and uncertainties which could impact these statements are described in the Company’s filings under the Securities Exchange Act of 1934, as amended, including its annual report on Form 10-K for the year ended July 30, 2022 filed with the Securities and Exchange Commission (the “SEC”) on September 27, 2022 and other filings the Company makes with the SEC, and include, but are not limited to, our dependence on principal customers; the relatively low margins of our business, which are sensitive to inflationary and deflationary pressures; our ability to operate, and rely on third parties to operate, reliable and secure technology systems; our ability to realize anticipated benefits of our strategic initiatives, including any acquisitions; labor and other workforce shortages and challenges; the addition or loss of significant customers or material changes to our relationships with these customers; our sensitivity to general economic conditions including inflation, changes in disposable income levels and consumer spending trends; the impact and duration of any pandemics or disease outbreaks; our ability to continue to grow sales, including of our higher margin natural and organic foods and non-food products, and to manage that growth; increased competition in our industry, including as a result of continuing consolidation of retailers and the growth of chains, direct distribution by large retailers and the growth of online distributors; 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 shortage 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; the potential for additional asset impairment charges; our ability to maintain food quality and safety; volatility in fuel costs; volatility in foreign exchange rates; and our ability to identify and successfully complete asset or business acquisitions. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. The Company is not undertaking to update any information in the foregoing reports until the effective date of its future reports required by applicable laws. Any estimates of future results of operations are based on a number of assumptions, many of which are outside the Company’s control and should not be construed in any manner as a guarantee that such results will in fact occur. These estimates are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced estimates, but it is not obligated to do so.
Non-GAAP Financial Measures: To supplement the financial information presented on a U.S. generally accepted accounting principles (“GAAP”) basis, the Company has included in this press release the non-GAAP financial measures Adjusted EBITDA, adjusted earnings per diluted common share (“Adjusted EPS”), adjusted effective tax rate, free cash flow and net debt to Adjusted EBITDA leverage ratio. Adjusted EPS is a consolidated measure, which the Company reconciles by adding Net income attributable to UNFI plus the LIFO charge or benefit, Goodwill impairment benefits and charges, Restructuring, acquisition, and integration related expenses, gains and losses on sales of assets, certain legal charges and gains, surplus property depreciation and interest expense, losses on debt extinguishment, the impact of diluted shares when GAAP earnings is presented as a loss and non-GAAP earnings represent income, and the tax impact of adjustments and the adjusted effective tax rate, which tax impact is calculated using the adjusted effective tax rate, and certain other non-cash charges or items, as determined by management. The non-GAAP adjusted effective tax rate excludes the potential impact of changes to various uncertain tax positions and valuation allowances, as well as stock compensation accounting (ASU 2016-09). The non-GAAP Adjusted EBITDA measure is a consolidated measure which the Company reconciles by adding Net income (loss) 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 Provision (benefit) 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, (Gain) loss on sale of assets, certain legal charges and gains, and certain other non-cash charges or other items, as determined by management. The non-GAAP free cash flow measure is defined as net cash provided by operating activities less payments for capital expenditures. The non-GAAP net debt to Adjusted EBITDA leverage ratio is defined as the total carrying value of the Company’s outstanding short- and long-term debt and finance lease liabilities less net cash and cash equivalents, the sum of which is divided by the trailing four quarters Adjusted EBITDA.
The reconciliation of these non-GAAP financial measures to their comparable GAAP financial measures and the calculation of net debt to Adjusted EBITDA leverage are presented in the tables appearing below. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. The Company believes that presenting the non-GAAP financial measures Adjusted EBITDA and Adjusted EPS aids in making period-to-period comparisons, assessing the performance of our business and understanding the underlying operating performance and core business trends by excluding certain adjustments not expected to recur in the normal course of business or that are not meaningful indicators of actual and estimated operating performance. The inclusion of free cash flow assists investors in understanding the cash generating ability of the Company separate from cash generated by the sale of assets. Net debt to Adjusted EBITDA leverage ratio is a commonly used metric that assists investors in understanding and evaluating the Company’s capital structure and changes to its capital structure over time. The Company currently expects to continue to exclude the items listed above from non-GAAP financial measures. Management utilizes and plans to utilize these non-GAAP financial measures to compare the Company’s operating performance during the 2023 fiscal year to the comparable periods in the 2022 fiscal year and to internally prepared projections. These non-GAAP financial measures may differ from similarly titled measures of other companies.
UNITED NATURAL FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in millions, except for per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 13-Week Period Ended | | 26-Week Period Ended |
| | | January 28,
2023 | | January 29,
2022 | | January 28,
2023 | | January 29,
2022 |
| Net sales | | $ | 7,816 | | | $ | 7,416 | | | $ | 15,348 | | | $ | 14,413 | |
| Cost of sales | | 6,747 | | | 6,341 | | | 13,183 | | | 12,296 | |
| Gross profit | | 1,069 | | | 1,075 | | | 2,165 | | | 2,117 | |
| Operating expenses | | 1,002 | | | 944 | | | 2,002 | | | 1,876 | |
| Restructuring, acquisition and integration related expenses | | 3 | | | 5 | | | 5 | | | 8 | |
| Loss (gain) on sale of assets | | 1 | | | 1 | | | (4) | | | 1 | |
| Operating income | | 63 | | | 125 | | | 162 | | | 232 | |
| Net periodic benefit income, excluding service cost | | (7) | | | (10) | | | (14) | | | (20) | |
| Interest expense, net | | 39 | | | 44 | | | 74 | | | 84 | |
| Other income, net | | — | | | (2) | | | (1) | | | (1) | |
| Income before income taxes | | 31 | | | 93 | | | 103 | | | 169 | |
| Provision for income taxes | | 9 | | | 25 | | | 14 | | | 24 | |
| Net income including noncontrolling interests | | 22 | | | 68 | | | 89 | | | 145 | |
| Less net income attributable to noncontrolling interests | | (3) | | | (2) | | | (4) | | | (3) | |
| Net income attributable to United Natural Foods, Inc. | | $ | 19 | | | $ | 66 | | | $ | 85 | | | $ | 142 | |
| | | | | | | | |
Basic earnings per share | | $ | 0.32 | | | $ | 1.13 | | | $ | 1.43 | | | $ | 2.47 | |
Diluted earnings per share | | $ | 0.31 | | | $ | 1.08 | | | $ | 1.38 | | | $ | 2.33 | |
| | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | |
| Basic | | 59.8 | | | 58.3 | | | 59.3 | | | 57.6 | |
| Diluted | | 61.0 | | | 61.0 | | | 61.3 | | | 61.0 | |
UNITED NATURAL FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions, except for par values)
| | | | | | | | | | | | | | |
| | January 28,
2023 | | July 30,
2022 |
| ASSETS | | | | |
| Cash and cash equivalents | | $ | 40 | | | $ | 44 | |
| Accounts receivable, net | | 992 | | | 1,214 | |
| Inventories, net | | 2,512 | | | 2,355 | |
| Prepaid expenses and other current assets | | 197 | | | 184 | |
| Total current assets | | 3,741 | | | 3,797 | |
| Property and equipment, net | | 1,719 | | | 1,690 | |
| Operating lease assets | | 1,218 | | | 1,176 | |
| Goodwill | | 20 | | | 20 | |
| Intangible assets, net | | 783 | | | 819 | |
| | | | |
| Other long-term assets | | 154 | | | 126 | |
| Total assets | | $ | 7,635 | | | $ | 7,628 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
| Accounts payable | | $ | 1,797 | | | $ | 1,742 | |
| Accrued expenses and other current liabilities | | 249 | | | 260 | |
| Accrued compensation and benefits | | 166 | | | 232 | |
| Current portion of operating lease liabilities | | 161 | | | 156 | |
| Current portion of long-term debt and finance lease liabilities | | 23 | | | 27 | |
| Total current liabilities | | 2,396 | | | 2,417 | |
| Long-term debt | | 2,065 | | | 2,109 | |
| Long-term operating lease liabilities | | 1,107 | | | 1,067 | |
| Long-term finance lease liabilities | | 18 | | | 23 | |
| Pension and other postretirement benefit obligations | | 18 | | | 18 | |
| Deferred income taxes | | 14 | | | 8 | |
| Other long-term liabilities | | 172 | | | 194 | |
| Total liabilities | | 5,790 | | | 5,836 | |
| | | | |
| Stockholders’ equity: | | | | |
Preferred stock, $0.01 par value, authorized 5.0 shares; none issued or outstanding | | — | | | — | |
Common stock, $0.01 par value, authorized 100.0 shares; 60.9 shares issued and 59.6 shares outstanding at January 28, 2023; 58.9 shares issued and 58.3 shares outstanding at July 30, 2022 | | 1 | | | 1 | |
| Additional paid-in capital | | 592 | | | 608 | |
| Treasury stock at cost | | (53) | | | (24) | |
| Accumulated other comprehensive loss | | (9) | | | (20) | |
| Retained earnings | | 1,311 | | | 1,226 | |
| Total United Natural Foods, Inc. stockholders’ equity | | 1,842 | | | 1,791 | |
| Noncontrolling interests | | 3 | | | 1 | |
| Total stockholders’ equity | | 1,845 | | | 1,792 | |
| Total liabilities and stockholders’ equity | | $ | 7,635 | | | $ | 7,628 | |
UNITED NATURAL FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | | | | | | | | | | | | | | |
| | | 26-Week Period Ended |
| (in millions) | | January 28,
2023 | | January 29,
2022 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
| Net income including noncontrolling interests | | $ | 89 | | | $ | 145 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Depreciation and amortization | | 147 | | | 138 | |
| Share-based compensation | | 23 | | | 23 | |
| (Gain) loss on sale of property and equipment | | (9) | | | 1 | |
| Closed property and other restructuring charges | | — | | | 1 | |
| Net pension and other postretirement benefit income | | (14) | | | (20) | |
| Deferred income tax expense | | 1 | | | — | |
| LIFO charge | | 50 | | | 30 | |
| Provision for losses on receivables | | (3) | | | 1 | |
| Non-cash interest expense and other adjustments | | 8 | | | 15 | |
| Changes in operating assets and liabilities | | (22) | | | (291) | |
Net cash provided by operating activities | | 270 | | | 43 | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | |
| Payments for capital expenditures | | (151) | | | (106) | |
| Proceeds from dispositions of assets | | 12 | | | 3 | |
| Payments for investments | | (4) | | | (26) | |
Net cash used in investing activities | | (143) | | | (129) | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
| | | | |
| Proceeds from borrowings under revolving credit line | | 1,944 | | | 2,521 | |
| | | | |
| Repayments of borrowings under revolving credit line | | (1,861) | | | (2,232) | |
| Repayments of long-term debt and finance leases | | (143) | | | (168) | |
| Repurchases of common stock | | (29) | | | — | |
| Proceeds from the issuance of common stock and exercise of stock options | | — | | | 9 | |
| Payments of employee restricted stock tax withholdings | | (39) | | | (35) | |
| Payments for debt issuance costs | | — | | | (1) | |
| Distributions to noncontrolling interests | | (2) | | | (3) | |
| Repayments of other loans | | (1) | | | — | |
| | | | |
| | | | |
Net cash (used in) provided by financing activities | | (131) | | | 91 | |
| EFFECT OF EXCHANGE RATE ON CASH | | — | | | — | |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | | (4) | | | 5 | |
| Cash and cash equivalents, at beginning of period | | 44 | | | 40 | |
| Cash and cash equivalents, at end of period | | $ | 40 | | | $ | 45 | |
| Supplemental disclosures of cash flow information: | | | | |
| Cash paid for interest | | $ | 65 | | | $ | 67 | |
| Cash payments for federal, state, and foreign income taxes, net | | $ | 3 | | | $ | — | |
| Leased assets obtained in exchange for new operating lease liabilities | | $ | 133 | | | $ | 123 | |
| Leased assets obtained in exchange for new finance lease liabilities | | $ | — | | | $ | 1 | |
| Additions of property and equipment included in Accounts payable | | $ | 31 | | | $ | 16 | |
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION (unaudited)
UNITED NATURAL FOODS, INC.
Reconciliation of Net income including noncontrolling interests to Adjusted EBITDA (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended | | 26-Week Period Ended |
| (in millions) | January 28, 2023 | | January 29, 2022 | | January 28, 2023 | | January 29, 2022 |
| Net income including noncontrolling interests | $ | 22 | | | $ | 68 | | | $ | 89 | | | $ | 145 | |
| Adjustments to net income including noncontrolling interests: | | | | | | | |
| Less net income attributable to noncontrolling interests | (3) | | | (2) | | | (4) | | | (3) | |
| Net periodic benefit income, excluding service cost | (7) | | | (10) | | | (14) | | | (20) | |
| Interest expense, net | 39 | | | 44 | | | 74 | | | 84 | |
| Other income, net | — | | | (2) | | | (1) | | | (1) | |
| Provision for income taxes | 9 | | | 25 | | | 14 | | | 24 | |
| Depreciation and amortization | 73 | | | 69 | | | 147 | | | 138 | |
| Share-based compensation | 11 | | | 12 | | | 23 | | | 23 | |
LIFO charge(1) | 29 | | | 19 | | | 50 | | | 30 | |
Restructuring, acquisition and integration related expenses | 3 | | | 5 | | | 5 | | | 8 | |
Loss (gain) on sale of assets | 1 | | | 1 | | | (4) | | | 1 | |
Multiemployer pension plan withdrawal benefit(2) | — | | | (8) | | | — | | | (8) | |
Other retail benefit(3) | — | | | (1) | | | — | | | (1) | |
Business transformation costs(4) | 4 | | | — | | | 9 | | | — | |
| Adjusted EBITDA | $ | 181 | | | $ | 220 | | | $ | 388 | | | $ | 420 | |
(1)During fiscal 2022, the Company revised its definition of Adjusted EBITDA to exclude the impact of the non-cash LIFO charge or benefit. The following illustrates the impact of the revised definition on previously reported periods to show the effect of this change:
| | | | | | | | | | | | | | |
| | 13-Week Period Ended | | 26-Week Period Ended |
| (in millions) | | January 29, 2022 | | January 29, 2022 |
| Adjusted EBITDA (previously reported definition) | | $ | 201 | | | $ | 390 | |
| LIFO charge | | 19 | | | 30 | |
| Adjusted EBITDA (current definition) | | $ | 220 | | | $ | 420 | |
(2)Reflects an adjustment to multiemployer pension plan withdrawal charge estimates.
(3)Reflects an insurance recovery associated with event-specific damages to certain retail stores and store closure costs.
(4)Reflects third-party professional consulting costs for business transformation initiatives, including network automation and optimization, commercial value creation, digital offering enhancement and infrastructure unification and modernization.
Reconciliation of Net income attributable to United Natural Foods, Inc. to Adjusted net income and Adjusted EPS (unaudited)
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| | 13-Week Period Ended | | 26-Week Period Ended |
| (in millions, except per share amounts) | | January 28, 2023 | | January 29, 2022 | | January 28, 2023 | | January 29, 2022 |
| Net income attributable to United Natural Foods, Inc. | | $ | 19 | | | $ | 66 | | | $ | 85 | | | $ | 142 | |
| Restructuring, acquisition and integration related expenses | | 3 | | | 5 | | | 5 | | | 8 | |
(Gain) loss on sale of assets other than losses on sales of receivables (1) | | (4) | | | 1 | | | (9) | | | 1 | |
| LIFO charge | | 29 | | | 19 | | | 50 | | | 30 | |
Surplus property depreciation and interest expense(2) | | — | | | 1 | | | 1 | | | 2 | |
| Multiemployer pension plan withdrawal benefit | | — | | | (8) | | | — | | | (8) | |
| Loss on debt extinguishment | | 3 | | | 5 | | | 3 | | | 5 | |
Other retail benefit(3) | | — | | | (1) | | | — | | | (1) | |
Business transformation costs(4) | | 4 | | | — | | | 9 | | | — | |
Tax impact of adjustments and adjusted effective tax rate(5) | | (7) | | | (5) | | | (27) | | | (29) | |
| Adjusted net income | | $ | 47 | | | $ | 83 | | | $ | 117 | | | $ | 150 | |
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| Diluted weighted average shares outstanding | | 61.0 | | | 61.0 | | | 61.3 | | | 61.0 | |
Adjusted EPS(6)(7) | | $ | 0.78 | | | $ | 1.36 | | | $ | 1.92 | | | $ | 2.47 | |
(1)Gain on sale of assets, as reflected here, does not include losses on sales of receivables under the accounts receivable monetization program, which are included in Loss (gain) on sale of assets on the Condensed Consolidated Statements of Operations and are not adjusted from Adjusted EPS.
(2)Reflects surplus, non-operating property depreciation and interest expense.
(3)Reflects an insurance recovery associated with event-specific damages to certain retail stores and store closure costs.
(4)Reflects third-party professional consulting costs for business transformation initiatives, including network automation and optimization, commercial value creation, digital offering enhancement and infrastructure unification and modernization.
(5)Represents the tax effect of the pre-tax adjustments using an adjusted effective tax rate. The adjusted effective tax rate is calculated based on adjusted net income before tax, and its impact reflects the exclusion of changes to uncertain tax positions, valuation allowances, tax impacts related to the exercise of share-based compensation awards and discrete GAAP tax items which could impact the comparability of the operational effective tax rate. The reconciliation of the adjusted effective tax rate used in calculating Adjusted EPS is provided in the table below. The Company believes using this adjusted effective tax rate provides better consistency across the interim reporting periods since each of these discrete items can cause volatility in the GAAP tax rate that is not indicative of the underlying ongoing operations of the Company. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company’s effective tax rate on ongoing operations.
(6)Earnings per share amounts are calculated using actual unrounded figures.
(7)During the third quarter of fiscal 2022, the Company revised its definition of Adjusted EPS to exclude the impact of the non-cash LIFO charge. The following illustrates the impact of the revised definition on previously reported periods to show the effect of this change:
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| | 13-Week Period Ended | | 26-Week Period Ended |
| | January 29, 2022 | | January 29, 2022 |
| Adjusted EPS (previously reported definition) | | $ | 1.13 | | | $ | 2.10 | |
| LIFO charge | | 0.31 | | | 0.49 | |
| Tax impact of adjustment | | (0.08) | | | (0.12) | |
| Adjusted EPS (current definition) | | $ | 1.36 | | | $ | 2.47 | |
Calculation of net debt to Adjusted EBITDA leverage ratio (unaudited)
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| (in millions, except ratios) | January 28, 2023 |
| Current portion of long-term debt and finance lease liabilities | $ | 23 | |
| Long-term debt | 2,065 | |
| Long-term finance lease liabilities | 18 | |
| Less: Cash and cash equivalents | (40) | |
| Net carrying value of debt and finance lease liabilities | 2,066 | |
Adjusted EBITDA(1) | $ | 797 | |
Adjusted EBITDA leverage ratio(2) | 2.6x |
(1)Adjusted EBITDA for purposes of this calculation reflects the summation of the trailing four quarters ended January 28, 2023. Refer to the following table for the reconciliation of Adjusted EBITDA trailing four quarters, which is calculated under the revised definition discussed above.
(2)During fiscal 2022, the Company revised its definition of Adjusted EBITDA, to exclude the impact of the non-cash LIFO charge.
Reconciliation of trailing four quarters Net income including noncontrolling interests to Adjusted EBITDA (unaudited)
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| (in millions) | | | | | | | | | | | | | | | | 52-Week Period Ended January 28, 2023 |
| Net income including noncontrolling interests | | | | | | | | | | | | | | | | $ | 198 | |
| Adjustments to net income including noncontrolling interests: | | | | | | | | | | | | | | | | |
| Less net income attributable to noncontrolling interests | | | | | | | | | | | | | | | | (7) | |
| Net periodic benefit income, excluding service cost | | | | | | | | | | | | | | | | (34) | |
| Interest expense, net | | | | | | | | | | | | | | | | 145 | |
| Other income, net | | | | | | | | | | | | | | | | (2) | |
| Provision for income taxes | | | | | | | | | | | | | | | | 46 | |
| Depreciation and amortization | | | | | | | | | | | | | | | | 294 | |
| Share-based compensation | | | | | | | | | | | | | | | | 43 | |
| LIFO charge | | | | | | | | | | | | | | | | 178 | |
| Restructuring, acquisition and integration related expenses | | | | | | | | | | | | | | | | 18 | |
| Gain on sale of assets | | | | | | | | | | | | | | | | (92) | |
| Multiemployer pension plan withdrawal charges | | | | | | | | | | | | | | | | — | |
| Other retail expense | | | | | | | | | | | | | | | | 1 | |
Business transformation costs | | | | | | | | | | | | | | | | 9 | |
Adjusted EBITDA(1) | | | | | | | | | | | | | | | | $ | 797 | |
(1)Adjusted EBITDA for purposes of this calculation reflects the summation of the trailing four quarters ended January 28, 2023.
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Reconciliation of Net cash provided by operating activities to Free cash flow (unaudited) | | |
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| 13-Week Period Ended | | 26-Week Period Ended | | |
| (in millions) | January 28, 2023 | | January 29, 2022 | | January 28, 2023 | | January 29, 2022 | | |
Net cash provided by operating activities | $ | 532 | | | 124 | | $ | 270 | | | $ | 43 | | | |
| Payments for capital expenditures | (84) | | | (50) | | | (151) | | | (106) | | | |
| Free cash flow | $ | 448 | | | $ | 74 | | | $ | 119 | | | $ | (63) | | | |
FISCAL 2023 GUIDANCE
Reconciliation of 2023 guidance for estimated Net income attributable to United Natural Foods, Inc. to Adjusted net income and estimated Adjusted EPS (unaudited)
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| | Fiscal Year Ending July 29, 2023 | |
| (in millions, except per share amounts) | | Low Range | | Estimate | | High Range | |
| Net income attributable to United Natural Foods, Inc. | | $ | 90 | | | | | $ | 142 | | |
| Restructuring, acquisition and integration related expenses | | | | 10 | | | | |
| LIFO charge | | | | 100 | | | | |
| Business transformation costs | | | | 20 | | | | |
Tax impact of adjustments and adjusted effective tax rate(1) | | | | (35) | | | | |
| Adjusted net income | | $ | 185 | | | | | $ | 237 | | |
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| Diluted weighted average shares outstanding | | 61 | | | | | 61 | | |
Adjusted EPS(2) | | $ | 3.05 | | | | | $ | 3.90 | | |
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(1)The estimated adjusted effective tax rate excludes the potential impact of changes in uncertain tax positions, tax impacts related to ASU 2016-09 regarding stock compensation and valuation allowances. Refer to the reconciliation for adjusted effective tax rate
(2)Adjusted EPS amounts as presented include rounding.
Reconciliation of 2023 guidance for Net income attributable to United Natural Foods, Inc. to Adjusted EBITDA (unaudited)
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| | Fiscal Year Ending July 29, 2023 |
| (in millions) | | Low Range | | Estimate | | High Range |
| Net income attributable to United Natural Foods, Inc. | | $ | 90 | | | | | $ | 142 | |
| Provision for income taxes | | 32 | | | | | 50 | |
| LIFO charge | | | | 100 | | | |
| Interest expense, net | | | | 140 | | | |
| Other expense, net | | | | 11 | | | |
| Depreciation and amortization | | | | 297 | | | |
| Share-based compensation | | | | 44 | | | |
| Net periodic benefit income, excluding service costs | | | | (29) | | | |
| Business transformation costs | | | | 20 | | | |
Restructuring, acquisition and integration related expenses | | | | 10 | | | |
| Adjusted EBITDA | | $ | 715 | | | | | $ | 785 | |
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Reconciliation of estimated 2023 and actual 2022 U.S. GAAP effective tax rate to adjusted effective tax rate (unaudited)
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| | Estimated Fiscal 2023 | | Actual Fiscal 2022 |
| U.S. GAAP effective tax rate | | 21 | % | | 18 | % |
Discrete quarterly recognition of GAAP items(1) | | 6 | % | | 8 | % |
Changes in valuation allowances(2) | | (1) | % | | — | % |
Adjusted effective tax rate(3) | | 26 | % | | 26 | % |
Note: As part of the year-end reconciliation, we update the reconciliation of the GAAP effective tax rate for actual results.
(1)Reflects changes in tax laws excluding the CARES Act, uncertain tax positions, the tax impacts related to the exercise of share-based compensation awards and any prior-year deferred tax or payable adjustments. This includes prior-year Internal Revenue Service or other tax jurisdiction audit adjustments.
(2)Reflects changes in valuation allowances related to changes in judgment regarding the realizability of deferred tax assets or current year operations.
(3)The Company establishes an estimated adjusted effective tax rate at the beginning of the fiscal year based on the best available information. The Company re-evaluates its estimated adjusted effective tax rate as appropriate throughout the year and adjusts for any material changes. The actual adjusted effective tax rate at the end of the fiscal year is based on actual results and accordingly may differ from the estimated adjusted effective tax rate used during the year.