United Natural Foods(UNFI) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Fourth quarter sales reached $8.2 billion, benefiting from an extra week in the quarter, with a comparable 13-week basis growth of approximately 2.1% [19] - Adjusted EBITDA for the fourth quarter was$ 143 million, compared to $93 million in the previous year, marking the fourth consecutive quarter of sequentially higher profitability [24] - Free cash flow in Q4 was$ 71 million, enabling a reduction in net debt to under $2.1 billion and net leverage to 4.0 turns, a decline of 0.6 turns from Q3 [25] Business Line Data and Key Metrics Changes - Wholesale volumes improved, ending the year up 2%, primarily driven by the natural side of the business, while conventional volumes improved at a slower pace [20] - Retail sales saw a decline of slightly more than 4% compared to the prior year, attributed to lower same-store sales [21] - Gross margin rate, excluding LIFO, was 13.5% in Q4, with both wholesale and retail gross margin rates up compared to last year [22] Market Data and Key Metrics Changes - The natural and organic product segment grew around 5% in Q4 on a comparable 13-week basis compared to the prior year, with expectations for continued growth [5] - The market segment identified by the company totals over$ 90 billion in wholesale sales, expected to grow at a low single-digit rate over the long term [5] Company Strategy and Development Direction - The company is focused on a new strategy that emphasizes adding value through a differentiated portfolio of products and services, targeting a resilient market segment [6][7] - Plans include optimizing the distribution center network to lower costs and improve efficiency, with a capital investment reduction expected in fiscal 2025 [12][29] - The company aims for annual adjusted EBITDA growth in the high single-digit range over the next three years, with a target to reduce net leverage to 2.5 turns or less by fiscal year-end 2027 [15][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver and deleverage, focusing on helping customers succeed while managing costs tightly [52] - The outlook for fiscal 2025 includes expected sales in the range of $30.3 billion to$ 30.8 billion, with adjusted EBITDA projected to increase by 8% at the midpoint [28][29] - Management noted that while inflation remains a concern, they are focused on controlling internal factors to drive profitability [52] Other Important Information - The company has streamlined its organizational structure, reducing management layers to enhance decision-making speed [17] - A new fee structure for suppliers aims to simplify operations and improve collaboration, with early feedback indicating positive reception [49] Q&A Session Summary Question: Role of conventional in the portfolio - Management indicated that while natural products are a focus, conventional products still play a significant role in the overall strategy, with efforts to optimize the supply chain for efficiency [32] Question: Labor productivity and wage rate inflation - Management aims to offset wage rate inflation through productivity improvements and lean practices, focusing on increasing throughput in distribution centers [33] Question: Gross margin outlook for 2025 - Management expects a balance between benefits from shrink initiatives and pressures from customer mix, with vendor promotions not returning to pre-pandemic levels [36] Question: Retail segment demand trends - The retail business, particularly the Cub brand, is undergoing strategic improvements to enhance performance amidst competitive pressures [38] Question: Network optimization strategy - The strategy focuses on modernizing the distribution network to improve efficiency and customer service, with closures of legacy centers planned [48]