United Natural Foods(UNFI) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales grew by 3.7% in Q3 2023, totaling over $7.5 billion, reflecting continued customer demand and moderating inflation [22][24] - Adjusted EBITDA for Q3 totaled $159 million, down from $196 million in the previous year, primarily due to a decline in gross profit rate [24][27] - GAAP EPS for Q3 was $0.12, including a $0.55 pretax LIFO charge, while adjusted EPS was $0.54, down from $1.10 in the previous year [27] Business Line Data and Key Metrics Changes - Wholesale sales grew by 4%, including inflation, net of elasticity of about 8% [22] - Supernatural channel sales grew the most at 12%, driven by new customer volume and increased item penetration [23] - Retail sales declined slightly due to lower customer counts and reduced items per transaction, offset by higher average unit retail [23] Market Data and Key Metrics Changes - Inflation for UNFI in Q3 was 8.2%, down from 10% in Q2, indicating a deceleration of inflation [52] - The company experienced a shift in consumer behavior towards smaller basket sizes and more value-oriented items [9][10] Company Strategy and Development Direction - The company aims to improve profitability through a detailed plan that includes SKU rationalization, administrative structure efficiencies, and commercial contract reviews [12][14] - A focus on enhancing supply chain performance and efficiency, collaborating with suppliers and customers, and upgrading digital experiences is emphasized [16][19] - The management is committed to turning around the retail segment, particularly the Cub brand, which remains a market leader in its region [40] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment in recent results but remains optimistic about future growth and profitability improvements [8][20] - The company is facing challenges from a volatile macroeconomic environment, including inflation and competition from mass merchants [10][29] - Management believes that the actions being taken will create long-term value for shareholders despite recent volatility [30] Other Important Information - The company plans to implement actions expected to add over $100 million in annualized operating margin benefits [12] - The total outstanding net debt decreased to just over $2 billion, the lowest level since the SUPERVALU acquisition [27] Q&A Session Summary Question: Challenges with procurement gains in Q3 - Management noted softness in forward buy opportunities and the magnitude of those opportunities, contributing to guidance adjustments for the rest of the year [31] Question: Impact of $100 million in near-term cost-outs - Management indicated that the $100 million in cost actions would primarily impact fiscal 2024 with minimal effect on fiscal 2023 [32] Question: Vendor promotions tracking - Promotions remain below pre-pandemic levels, and management anticipates this trend to continue into Q4 [34][35] Question: Capital allocation priorities - Management emphasized the importance of balancing investments in growth and transformation with debt reduction [36][37] Question: Retail performance and strategy - Management acknowledged weak retail performance but is implementing a strong plan to revitalize the Cub brand [39][40] Question: Changes in shrink issues - Management identified multiple factors contributing to increased shrink, including theft and operational challenges, and is focused on addressing these issues [60][61] Question: Consumer behavior trends - Management observed a gradual shift towards value-oriented purchasing and smaller basket sizes, which has been increasing over time [63] Question: Renegotiating contracts with customers and suppliers - Management highlighted the opportunity to review thousands of contracts for profitability and compliance, estimating a potential $100 million benefit [67][69]