United Natural Foods(UNFI) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue increased by over 5% year-over-year, reaching $7.8 billion, marking the highest sales quarter in the company's history [4][14] - Adjusted EBITDA totaled $181 million, down from $220 million in the previous year, primarily due to a lower gross profit rate [16][19] - Adjusted EPS was $0.78, compared to $1.36 in the same quarter last year, reflecting the adjusted EBITDA shortfall [19] Business Line Data and Key Metrics Changes - Wholesale sales grew by 5.4%, driven by new customers and increased category penetration, despite a decline in unit volumes [14][15] - Retail sales grew by 2.6%, showing improvement from the previous quarter, but faced challenges due to last year's Omicron impact and weather events [15] Market Data and Key Metrics Changes - Inflation impact on the overall company was just below 11% for Q2 2023, consistent with the previous year's inflation rate [38] - Unit volumes were down mid-single digits, aligning with industry trends, driven by hyperinflation and price elasticity [34] Company Strategy and Development Direction - The company is focused on a transformation agenda aimed at improving efficiency and profitability through enhanced digital and physical infrastructure [8][10] - The strategy includes network automation, commercial value creation, digital offering enhancement, and infrastructure modernization [9][10] - The company aims to combine strong demand within its $140 billion core addressable market with a more efficient cost structure [12] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging quarter but expressed optimism about the company's long-term growth potential and customer value proposition [4][13] - The company expects similar profitability trends for the remainder of the year, with a revised adjusted EBITDA outlook of $715 million to $785 million [21][23] - Management emphasized the need for improved visibility into procurement and inventory management to better navigate future challenges [6][46] Other Important Information - The company repurchased approximately 390,000 shares at an average price of $41.36 during the quarter [20] - Total outstanding net debt decreased to just under $2.1 billion, reflecting strong free cash flow generation [20] Q&A Session Summary Question: Can you provide further detail into the state of the new business pipeline? - Management noted significant interest in their services and indicated that the new business pipeline is larger than in recent history, with a major initiative planned for the fourth quarter [25] Question: How do you think about the secular growth algo after withdrawing the 2024 targets? - Management stated that they will provide guidance for 2024 at the end of the fiscal year, emphasizing confidence in the company's positioning and strong pipeline [26] Question: How are you thinking about the compares over the next few quarters? - Management did not provide specific quarterly guidance but indicated that the current thinking is reasonable regarding the impacts [27] Question: Did you see any major shifts in the trajectory of your specialized services businesses? - Management confirmed continued strong growth in specialized services and private label operations, with double-digit growth reported [28] Question: Can you provide more detail on unit volumes and how they trended in the quarter? - Management reported mid-single digit declines in unit volumes, consistent with industry trends, but expects inflation to moderate and units to improve slightly [34][35] Question: Are you seeing any evidence of increased vendor promotions? - Management confirmed a slight uptick in vendor promotions, which they expect to continue, although still below pre-COVID levels [37] Question: Can you clarify the inflation impact and forward buy opportunities? - Management explained that while year-over-year inflation remains high, the number of price increases has decreased significantly, impacting forward buy opportunities [49][50] Question: Are natural and organic customers performing better than traditional grocers? - Management indicated that performance varies across customer types, with some natural customers doing well while others face challenges [47]