Halfway through the fourth quarter, United Natural Foods Inc. issued on Wednesday its updated guidance for fiscal 2020 and offered a glimpse of what 2021 might bring.
The company withdrew its fiscal outlook on May 12 in light of the coronavirus-related sales spike in March. When presented in October, UNFI expected 2020's net sales to total $23.5 billion-$24.3 billion and net income to total $19 million-$48 million. Earnings per diluted share was predicted to be $0.35-$0.89, and adjusted EBITDA was $560 million-$600 million.
In the updated comparable outlook, the company expects net sales to be between $25.3 billion and $25.4 billion. However, UNFI is moving earnings and expenses from Cub Foods and Shoppers Food Warehouse—two retail operations it picked up when it acquired Supervalu in 2018—to continuing operations from discontinued operations. UNFI has decided to hold off on selling those stores for at least two years, until the mergers and acquisitions market improves.
Consequently, with the retail sales included, UNFI projects net sales for this fiscal year to total between $26.4 billion and $26.6 billion. The company also expects to see:
- Net loss of $317 million-$305 million.
- Loss per share of $5.85-$5.65; adjusted earnings per share of $2.30-$2.50.
- Adjusted EBITDA of $655 million-$670 million.
"We're looking to finish this fiscal year strong, as reflected in our updated guidance," Spinner said. As the recession continues and unemployment remains high, consumers will continue to eat at home and look for bargains at the grocery store, he said. "This will be reflected in strong 2021 at UNFI, which will show incremental growth over a very strong 2020."
The COVID-19 pandemic gave UNFI the opportunity to show its capabilities, he said.
"UNFI has not changed, but the customer perception of us has," Spinner said. The pandemic allowed the distributor to "showcase the value of our people, our scale and our product diversity." Instead of defending UNFI's acquisition of Supervalu, the company has been able to take advantage of its benefits and show them off, he added.
Although UNFI plans to hold on to Cub Foods and Shoppers Food Warehouse, it will start separating the retail business from the distribution business. Thus, Cub (including Shoppers) will operate as a free-standing entity, Spinner said. So far, UNFI has been sharing resources, including employees, with Cub.
"This should accelerate the diligence period and allow for a more streamlined process when we market these banners for sale," Spinner said.
Synergy, pandemic shopping boost Q3 results
The sales and income results UNFI released in mid-May did not change in Wednesday's financial report:
- Net sales increased 12%, to about $6.67 billion from $5.96 billion for Q3 2019.
- Net income rose to about $88 million from $57 million a year ago, an increase of about 54%.
- Adjusted EBITDA was about $222 million, a 32% increase from $168 million in the third quarter of 2019.
- Earnings per diluted share are estimated to be $1.60 compared with $1.12 last year, a 43% increase.
- Adjusted earnings per diluted share are estimated at about $1.40, up 130% from $0.61 in 2019.
However, the company released additional information Wednesday.
Offering natural products to conventional outlets and vice-versa is starting to generate sales.
"We are on track for $175 million in cross-selling revenue this year as our customers continue to recognize the benefits of consolidating purchases with UNFI and our industry-leading 250,000-item SKU count," Skinner said. The distributor is redesigning its ordering system so customers have an easier time buying across the two categories.
UNFI's Brands+ business—private label products the distributor handles for retailers—saw sales increase 26% from a year ago. The company offers more than 5,000 private-label products in 200 categories, according to its website.
Spinner cited data from market-research company Nielsen that show "March and April growth rates for UNFI's private brands has been consistently higher than other retailer-owned private brands across the U.S."
The company paid another $302 million of its debt during Q3. Debt and finance leases totaled $2.8 billion at the end of Q3, compared with $3.3 billion a year ago.
"Our synergies and our initiatives also contributed to our strong results this quarter," increasing Adjusted EBITDA 32%," Spinner said.
By channel, net sales generally increased over last year:
- Supermarkets—$4.27 billion, up 15.3%.
- Supernatural (Whole Foods Market)—$1.28 billion, up 16.1%.
- Independents—$684 million, down 3.3%.
- Other—$438 million, down 3.3%.
UNFI made some adjustments to its categories during the year. In the first quarter, it moved a customer into the supermarket category; in the second quarter, it moved military sales to other from independents.
Bankruptcy filings by three independent grocery chains—Fairway, Earth Fare and Lucky's—triggered a 900 basis point decline, which is included in the results. Nevertheless, sales in the independent channel accounted for 10% of UNFI's total net sales, Chief Financial Officer John Howard pointed out.
UNFI pursues racial equality
Spinner started the call with a statement supporting the Black Lives Matter demonstrations during the past two weeks. Cub Foods is headquartered in Minneapolis, Minnesota, where bystanders recorded police officers holding down resident George Floyd.
One officer kneeled on Floyd's neck for nearly 9 minutes until Floyd became unresponsive. He was pronounced dead at a local hospital.
"We believe Black Lives Matter," Spinner said. "The loss of life, any life, is upsetting. When it's preventable, it's even more difficult to accept." The incident spotlights the harsh realities of discrimination against blacks and racial injustice.
He also acknowledged that UNFI is not without its failings in treating black and other minority associates fairly.
"We can and must and will do more," he said.
To confront the problems, the company is meeting with associates to listen and learn from them, to give them a chance to be heard and to share ideas. Several such meetings have been conducted during the past week and more are planned, he said.
"Feedback from these sessions will inform many of the actions we take," Spinner said. On the surface, doing the right thing is simple, he said: "Treat others the way they want to be treated with respect, decency and fairness.
"But we know it's not that simple." He went on to explain that UNFI will focus more resources on diversity efforts and create new initiatives to promote recruiting, hiring training and retention efforts.
"We're creating specific, measurable metrics for each of these efforts to hold ourselves accountable. We're also going to get to know each other better; this will be at the core of what we do," he continued.
"We're going to do our part; we're going to make change happen."