United Natural Foods(UNFI) - 2021 Q2 - Quarterly Report

Part I. Financial Information Financial Statements The company reported a significant financial turnaround in Q2 FY2021, with net sales increasing 7.1% to $6.89 billion and net income of $59.0 million Condensed Consolidated Balance Sheets (unaudited) Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Item | January 30, 2021 | August 1, 2020 | | :--- | :--- | :--- | | Total Current Assets | $3,648,691 | $3,704,917 | | Total Assets | $7,490,140 | $7,586,972 | | Total Current Liabilities | $2,293,638 | $2,370,074 | | Total Liabilities | $6,261,074 | $6,444,714 | | Total Stockholders' Equity | $1,229,066 | $1,142,258 | Condensed Consolidated Statements of Operations (unaudited) Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | 13-Week Period Ended Jan 30, 2021 | 13-Week Period Ended Feb 1, 2020 | | :--- | :--- | :--- | | Net Sales | $6,888,133 | $6,431,382 | | Gross Profit | $990,359 | $917,325 | | Operating Income (Loss) | $105,297 | $17,547 | | Net Income (Loss) attributable to UNFI | $58,960 | $(30,710) | | Diluted Earnings (Loss) per Share | $1.00 | $(0.57) | Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) - Total comprehensive income attributable to UNFI for the 13-week period ended January 30, 2021, was $71.2 million, a significant improvement from a comprehensive loss of $27.4 million in the prior-year period[13] Condensed Consolidated Statements of Stockholders' Equity (unaudited) - Total stockholders' equity increased from $1.14 billion at August 1, 2020, to $1.23 billion at January 30, 2021, primarily driven by net income of $57.9 million for the 26-week period[19] Condensed Consolidated Statements of Cash Flows (unaudited) Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity (26-Week Period Ended) | January 30, 2021 | February 1, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $206,999 | $39,082 | | Net cash used in investing activities | $(50,238) | $(57,685) | | Net cash (used in) provided by financing activities | $(163,492) | $15,649 | | Net decrease in cash and cash equivalents | $(6,466) | $(2,935) | Notes to Condensed Consolidated Financial Statements (unaudited) Net Sales by Customer Channel (in millions) | Customer Channel | 13-Week Period Ended Jan 30, 2021 | 13-Week Period Ended Feb 1, 2020 | | :--- | :--- | :--- | | Chains | $3,097 | $2,909 | | Independent retailers | $1,701 | $1,561 | | Supernatural | $1,298 | $1,211 | | Retail | $621 | $539 | | Other | $568 | $566 | - In Q1 FY2020, the company recorded a goodwill impairment charge of $421.5 million related to its U.S. Wholesale reporting unit, with no such charges in the current fiscal period[46] - The company undertook significant refinancing activities in Q1 2021, issuing $500.0 million of new senior unsecured notes and repaying $500.0 million of its Term Loan Facility, thereby extending debt maturity[67][68] Segment Adjusted EBITDA (in thousands) | Segment | 13-Week Period Ended Jan 30, 2021 | 13-Week Period Ended Feb 1, 2020 | | :--- | :--- | :--- | | Wholesale | $186,768 | $102,454 | | Retail | $25,330 | $11,428 | | Other | $(7,845) | $14,425 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q2 FY2021 performance to increased food-at-home consumption, driving 7.1% YoY net sales growth and a $75.2 million increase in Adjusted EBITDA Executive Overview - The COVID-19 pandemic significantly increased food-at-home expenditures, boosting sales and gross profit, a trend expected to persist beyond the immediate impact[140] - The 2019 Supervalu acquisition is a key growth driver, accelerating the company's strategy, diversifying its customer base, and expected to continue delivering synergies[134] - A new 10-year primary grocery wholesaler agreement with Key Food Stores is expected to generate approximately $10 billion in sales over its term[136] - The company plans to divest its 71 retail grocery stores to focus on its core wholesale business, though the divestiture is no longer expected within one year[138] Results of Operations Net Sales Growth by Channel (Q2 FY2021 vs Q2 FY2020) | Customer Channel | Net Sales Increase ($M) | % Increase | | :--- | :--- | :--- | | Chains | $188 | 6% | | Independent retailers | $140 | 9% | | Supernatural | $87 | 7% | | Retail | $82 | 15% | - Gross profit for Q2 FY2021 increased by $73.0 million (8.0%) to $990.4 million, with the gross profit rate improving by 12 basis points to 14.38% due to lower retail promotional spending[192] - Operating expenses as a percentage of net sales decreased to 12.59% from 13.41%, primarily due to fixed cost leverage over higher sales and the non-recurrence of a $28.9 million prior-year bad debt expense[194] - Net income attributable to UNFI was $59.0 million ($1.00 per diluted share) for Q2 FY2021, a significant turnaround from a net loss of $30.7 million ($0.57 loss per diluted share) in Q2 FY2020[211] Liquidity and Capital Resources - Total liquidity as of January 30, 2021, was $1.16 billion, consisting of $1.12 billion in unused ABL Credit Facility credit and $40.5 million in cash and cash equivalents[215] - Total debt decreased by $110.4 million to $2.39 billion since the beginning of the fiscal year, driven by strong operating cash flows and debt prepayments[215] Cash Flow Summary (26-Week Period Ended) | Cash Flow Activity | Jan 30, 2021 ($M) | Feb 1, 2020 ($M) | | :--- | :--- | :--- | | Net cash from operating activities | $205.7 | $34.7 | | Net cash used in investing activities | $(51.7) | $(80.3) | | Net cash used in financing activities | $(163.5) | $15.6 | Segment Results of Operations - Wholesale segment's Adjusted EBITDA increased 82.3% in Q2 FY2021, driven by leveraged sales growth and significantly lower bad debt expense compared to the prior year[240] - Retail segment's Adjusted EBITDA increased 121.6% in Q2 FY2021, benefiting from a 15.3% increase in identical store sales and a 76 basis point improvement in gross profit rate due to lower promotional activity[241] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks stem from interest rate fluctuations on borrowings and derivatives, and changes in diesel fuel prices, with no material changes reported - The company identifies its primary market risks as fluctuations in interest rates on debt and derivatives, and price increases in diesel fuel[252] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of January 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[253] - No material changes in internal control over financial reporting occurred during the quarter[254] Part II. Other Information Legal Proceedings The company is involved in routine litigation, notably settling a hazardous waste investigation in California for an immaterial payment - In Q2 FY2021, the company settled a hazardous waste investigation in California for an immaterial amount, with a final judgment entered on December 10, 2020[256] Risk Factors No material changes to the company's risk factors were reported from those disclosed in its most recent Annual Report on Form 10-K - The company reported no material changes to its risk factors from its most recent Annual Report on Form 10-K[257] Unregistered Sales of Equity Securities and Use of Proceeds The company has $175.8 million remaining authorized under its share repurchase program as of January 30, 2021, with no repurchases made during Q2 FY2021 - As of January 30, 2021, approximately $175.8 million remained available for repurchase under the company's authorized share repurchase program, with no shares repurchased during the quarter[260] Other Information The company extended CEO Steven L. Spinner's employment through October 31, 2021, to facilitate a smooth transition, and entered a retention agreement with President Christopher Testa - On March 9, 2021, the company amended CEO Steven Spinner's employment agreement, extending his service period to no later than October 31, 2021, to facilitate the ongoing CEO search[261][262][263] - On March 8, 2021, the company entered into a retention agreement with President Christopher Testa, providing a payment of $675,000 if he remains with the company through February 1, 2022[266] Exhibits This section lists all exhibits filed with the Form 10-Q, including amendments to credit agreements, employment contracts, and Sarbanes-Oxley Act certifications