United Natural Foods(UNFI) - 2022 Q1 - Quarterly Report

Part I. Financial Information Financial Statements Presents the company's unaudited condensed consolidated financial statements for the quarter ended October 30, 2021 Condensed Consolidated Balance Sheets Total assets grew to $8.0 billion, driven by increases in inventories and accounts receivable Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Oct 30, 2021 | July 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $46 | $41 | | Inventories, net | $2,537 | $2,247 | | Total current assets | $4,019 | $3,550 | | Total assets | $7,999 | $7,525 | | Liabilities & Equity | | | | Accounts payable | $1,896 | $1,644 | | Total current liabilities | $2,691 | $2,487 | | Long-term debt | $2,376 | $2,175 | | Total liabilities | $6,412 | $6,011 | | Total stockholders' equity | $1,587 | $1,514 | Condensed Consolidated Statements of Operations Reports a 4.7% increase in net sales to $7.0 billion and a significant rise in net income to $76 million Condensed Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | 13-Week Period Ended Oct 30, 2021 | 13-Week Period Ended Oct 31, 2020 | | :--- | :--- | :--- | | Net sales | $6,997 | $6,684 | | Gross profit | $1,042 | $970 | | Operating income | $107 | $50 | | Net income (loss) attributable to UNFI | $76 | $(1) | | Diluted earnings (loss) per share | $1.25 | $(0.02) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $81 million, with financing activities providing $167 million in cash Condensed Consolidated Statements of Cash Flows Highlights (in millions) | Cash Flow Activity | 13-Week Period Ended Oct 30, 2021 | 13-Week Period Ended Oct 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(81) | $(58) | | Net cash used in investing activities | $(81) | $(35) | | Net cash provided by financing activities | $167 | $95 | | Net increase in cash and cash equivalents | $5 | $2 | | Cash and cash equivalents, at end of period | $46 | $49 | Notes to Condensed Consolidated Financial Statements Details revenue by channel, debt facilities, segment performance, and opioid litigation contingencies Net Sales by Customer Channel (Q1 2022 vs Q1 2021, in millions) | Customer Channel | Q1 2022 Net Sales | Q1 2021 Net Sales | | :--- | :--- | :--- | | Chains | $3,082 | $3,027 | | Independent retailers | $1,750 | $1,672 | | Supernatural | $1,378 | $1,214 | | Retail | $602 | $606 | | Other | $580 | $581 | Long-Term Debt Composition (as of Oct 30, 2021, in millions) | Facility | Amount | | :--- | :--- | | Term Loan Facility | $994 | | ABL Credit Facility | $910 | | Senior Notes | $500 | | Other secured loans | $34 | | Total Long-term debt, including current portion | $2,390 | Segment Performance (Q1 2022 vs Q1 2021, in millions) | Segment | Q1 2022 Net Sales | Q1 2022 Adj. EBITDA | Q1 2021 Net Sales | Q1 2021 Adj. EBITDA | | :--- | :--- | :--- | :--- | :--- | | Wholesale | $6,734 | $164 | $6,438 | $123 | | Retail | $602 | $22 | $606 | $25 | - The company is a defendant in approximately 43 lawsuits related to the national opioid epidemic, consolidated as Multi-District Litigation (MDL)[88] - UNFI is being defended and indemnified by New Albertson's in a majority of these cases and believes the claims are without merit[88] Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses Q1 2022 financial results, strategic initiatives, operational challenges, and the company's liquidity position Executive Overview Outlines the 'Fuel the Future' strategy, key customer agreements, and the focus on debt reduction - The company introduced its 'Fuel the Future' strategy to strengthen customers, improve the supply chain, and inspire food solutions[100] - A key growth driver is a new 10-year supply agreement with Key Food Stores, with expected sales of approximately $10 billion over the term[104] - The company continues to serve as the primary distributor to Whole Foods Market under an agreement that expires in September 2027[105] Results of Operations Net sales grew 4.7% to $7.0 billion, driven by inflation, new business, and strong performance in the Supernatural channel Net Sales by Customer Channel (Q1 2022 vs Q1 2021, in millions) | Customer Channel | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Chains | $3,082 | $3,027 | 1.8% | | Independent retailers | $1,750 | $1,672 | 4.7% | | Supernatural | $1,378 | $1,214 | 13.5% | | Retail | $602 | $606 | (0.7)% | | Total net sales | $6,997 | $6,684 | 4.7% | - Gross profit rate increased to 14.89% in Q1 2022 from 14.51% in Q1 2021, driven by improvements in the Wholesale segment margin, inflation, and the ValuePath initiative[139] - Operating expenses decreased as a percentage of net sales to 13.32% from 13.52% due to leveraging fixed costs, despite higher transportation expenses and investments in labor[140] Liquidity and Capital Resources Total liquidity stood at $1.11 billion, with fiscal 2022 capital spending projected at approximately $300 million - Total liquidity was $1,112 million as of October 30, 2021, comprising $1,066 million in unused credit and $46 million in cash[153] - Subsequent to the quarter end, the company made a $150 million voluntary prepayment on its Term Loan Facility and amended the loan to reduce the interest rate margin by 25 basis points[66][153] - Fiscal 2022 capital spending is expected to be approximately $300 million, focused on network optimization, technology, and the new Allentown, PA distribution center[163] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks stem from interest rate fluctuations and diesel fuel price increases - Primary market risks are from fluctuations in interest rates on borrowings and diesel fuel prices[176] - As of October 30, 2021, the company had interest rate swap contracts on an aggregate of $1,232 million of floating-rate notional debt to hedge against LIBOR changes[161] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[177] - No material changes occurred during the first quarter of fiscal 2022 that are reasonably likely to materially affect the company's internal control over financial reporting[178] Part II. Other Information Legal Proceedings No material legal proceedings are reported beyond the opioid-related lawsuits disclosed in the financial notes - The company states there are no pending material legal proceedings to which it is a party, other than those detailed in Note 15 of the financial statements[179] Risk Factors No material changes to the company's risk factors were reported for the period - No material changes to the risk factors from the Annual Report were reported[180] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares in Q1 2022, with $176 million remaining under its repurchase authorization - As of October 30, 2021, $176 million remained available under the company's share repurchase program[183] - No shares were repurchased under the program in Q1 2022; however, 721,820 shares were surrendered by employees to cover taxes related to vested restricted stock[182][183] Exhibits Lists filed exhibits, including a Term Loan Agreement amendment and required CEO/CFO certifications - Key exhibits filed include an amendment to the Term Loan Agreement and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act[184]