United Natural Foods(UNFI) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 fiscal 2026, total sales were nearly $8 billion, a decline of 2.6% year-over-year, impacted by nearly 500 basis points from optimization actions [12][20] - Adjusted EBITDA grew by 23% to $179 million, with an adjusted EPS of $0.62, significantly up from $0.22 in the previous year [16][20] - Free cash flow increased by $50 million to $243 million, contributing to a reduction in net debt to its lowest level since fiscal 2018, with a net leverage ratio of 2.7 times [18][19] Business Line Data and Key Metrics Changes - Natural product sales grew by 7%, outperforming the market, while conventional product sales declined by 12%, primarily due to network optimization [13][14] - Retail sales fell by 8%, largely due to strategic store closures, although same-store sales improved sequentially by 100 basis points [14] Market Data and Key Metrics Changes - The overall business outperformed the market, aligning with the target addressable market's estimated low double- to single-digit growth rate [9][13] - The company is targeting a $90 billion addressable market, focusing on grocers that emphasize differentiation for sustained long-term growth [10] Company Strategy and Development Direction - The company is advancing a value creation strategy aimed at achieving profitable growth with customers and suppliers, focusing on supply chain enhancements, private brands, and technology [4][10] - The implementation of an AI-powered supply chain planning platform, Relex, is expected to improve customer service and inventory management [5][6] Management's Comments on Operating Environment and Future Outlook - Management remains confident in delivering low single-digit average sales growth for fiscal 2026 through fiscal 2028, with expectations for growth returning in fiscal 2027 [10][22] - The company is monitoring the impact of SNAP changes on consumer behavior but believes the effects are manageable and embedded in their outlook [50] Other Important Information - The company repurchased nearly 750,000 shares for approximately $25 million, reflecting confidence in long-term value creation [19] - The updated full-year outlook includes a sales range of $31 billion to $31.4 billion, a reduction from previous expectations, while Adjusted EBITDA and Adjusted EPS expectations have been increased [20][22] Q&A Session Summary Question: Impact of network optimization on conventional sales - The 500 basis points headwind from optimization was more significant than anticipated, primarily due to the exit from the Allentown facility [26][27] Question: Underlying business trends in conventional sales - Excluding optimization impacts, the underlying business showed low single-digit growth, driven by inflation and volume trends [30][31] Question: Pipeline composition for growth - The majority of the pipeline consists of incremental categories with existing customers, reflecting healthy relationships and growth opportunities [35][36] Question: Future of private brand execution - The private brands portfolio is expected to grow faster than the total business, with a focus on innovation and differentiation [94][96] Question: Management of rising diesel costs - The company has tools to manage fuel costs, including hedges and contractual protections, making the situation manageable [92][93]