Reaffirms Full-Year Guidance

United Natural Foods, Inc. (NYSE: UNFI) (the “Company” or “UNFI”) today reported financial results for the first quarter of fiscal 2023 (13 weeks) ended October 29, 2022.

First Quarter Fiscal 2023 Highlights (comparisons to first quarter fiscal 2022)

• Net sales increased 7.6% to $7.5 billion, primarily driven by inflation and new business
• Gross profit increased $54 million, or 5.2%, to nearly $1.1 billion; prior to LIFO, gross profit increased 6.1%
• Net income decreased 13.2% to $66 million; Earnings per diluted share (EPS) decreased 14.4% to $1.07
• Adjusted EBITDA increased 3.5% to $207 million
• Adjusted EPS increased 2.7% to $1.13
• Entered into commercial agreement to implement an industry-leading warehouse automation system
• Subsequent to quarter end, reduced net debt by $253 million with initial proceeds from A/R monetization

“Our performance this quarter reflects continued execution of our strategy in a dynamic operating environment as we improved fill rates and operating performance and saw more customers buying more categories from us than ever before,” said Sandy Douglas, UNFI’s Chief Executive Officer. “We are leveraging our scale, diversification, and capabilities to enhance connectivity between customers and suppliers, finding unique ways to create more value for both. We continued to invest in people and technology as part of our commitment to becoming a more effective, more efficient, and more disciplined business, well-positioned to capture a growing share of our $140 billion core addressable market and create even more value for shareholders.”

Mr. Douglas concluded, “Looking ahead, our customer pipeline is robust, with new customer acquisition and expansion from existing customers expected in the second half of the year. We have enduring confidence in the opportunities before us and in our ability to capture them. We remain energized and focused on meeting the needs of our customers during the important holiday selling season, while delivering our fiscal 2023 guidance.”

First Quarter Fiscal 2023 Summary

Net sales increased 7.6% in the first quarter of fiscal 2023 compared to the same period last year, primarily driven by inflation and new business. This new business resulted from selling new or expanded categories to existing customers and adding new customers from our robust pipeline. These increases were partially offset by an expected decrease in unit volume consistent with the overall industry.

Gross profit in the first quarter of fiscal 2023 increased $54 million, or 5.2%, compared to the first quarter of fiscal 2022. Excluding the non-cash LIFO charge in both periods, gross profit increased $64 million, or 6.1%. The gross profit rate in the first quarter of fiscal 2023 was 14.6% of net sales and included a $21 million LIFO charge. Excluding this non-cash charge, gross profit rate was 14.8% of net sales. Gross profit rate in the first quarter of fiscal 2022 was 14.9% of net sales and included an $11 million LIFO charge. Excluding this non-cash charge, gross profit rate in the first quarter of fiscal 2022 was 15.0% of net sales. The decrease in gross profit rate, excluding the LIFO charge, was driven by changes in customer mix as we continued to grow sales with larger customers.

Operating expenses in the first quarter of fiscal 2023 were $1,000 million, or 13.3% of net sales, compared to $932 million, or 13.3% of net sales, in the first quarter of fiscal 2022. Operating expenses in the quarter were primarily driven by continued investments in servicing our customers, which led to higher transportation and distribution center labor costs in the first quarter of fiscal 2023, and higher occupancy costs. These were partially offset by leveraging fixed expenses across higher sales. Operating expenses as a percent of net sales improved sequentially from the fourth quarter of fiscal 2022 to the first quarter of fiscal 2023.

Interest expense, net for the first quarter of fiscal 2023 was $35 million compared to $40 million for the first quarter of fiscal 2022. The decrease in interest expense, net was primarily driven by lower outstanding debt balances.

Effective tax rate for the first quarter of fiscal 2023 was 6.9% compared to a benefit of 1.3% on pre-tax income for the first quarter of fiscal 2022. The change was driven mainly by the reduction of tax benefits related to the vesting of employee stock awards during the first quarter of fiscal 2023.

Net income for the first quarter of fiscal 2023 was $66 million. Net income for the first quarter of fiscal 2022 was $76 million.

Net income per diluted share (EPS) was $1.07 for the first quarter of fiscal 2023 compared to net income per diluted share of $1.25 for the first quarter of fiscal 2022. Adjusted EPS was $1.13 for the first quarter of fiscal 2023 compared to $1.10 in the first quarter of fiscal 2022.

Adjusted EBITDA for the first quarter of fiscal 2023 was $207 million compared to $200 million for the first quarter of fiscal 2022.

Capital Allocation and Financing Overview

• Free Cash Flow – During the first quarter of 2023, free cash flow was $(329) million, compared to $(137) million in the first quarter of fiscal 2022. The results for the first quarter of fiscal 2023 reflect net cash used in operating activities of $262 million, driven by expected seasonally higher levels of working capital and the impact of inflation, and payments for capital expenditures of $67 million.
• Leverage – The net debt to adjusted EBITDA leverage ratio was 3.0x as of October 29, 2022. Total outstanding debt, net of cash, increased by $378 million during the first quarter of fiscal 2023 to $2.49 billion primarily driven by investments in working capital.
• Liquidity – As of October 29, 2022, total liquidity was approximately $1.3 billion, consisting of approximately $39 million in cash, plus the ability to borrow an aggregate of approximately $1.25 billion under the Company’s asset-based lending facility.
• Repurchase program – During the first quarter of fiscal 2023, the Company repurchased approximately 339,000 shares at an average price of $35.85 for an aggregate cost of approximately $12 million, including fees and commissions.
• Accounts Receivable monetization - Early in the second quarter of fiscal 2023, the Company entered into a monetization program with an initial sale of qualified accounts receivable of approximately $253 million. Proceeds have been used to pay down debt.

Fiscal 2023 Outlook ⁽¹⁾

The Company is reaffirming its full-year outlook for fiscal 2023.

Conference Call and Webcast

The Company’s first quarter fiscal 2023 conference call and audio webcast will be held today, Wednesday, December 7, 2022 at 8:30 a.m. ET. A webcast of the conference call (and supplemental materials) will be available to the public, on a listen only basis, via the internet at the Investors section of the Company’s website www.unfi.com. The call can also be accessed at (888) 660 - 6768 (conference ID 1099581). An online archive of the webcast (and supplemental materials) will be available for 120 days.

About United Natural Foods

UNFI is North America's premier grocery wholesaler delivering the widest variety of fresh, branded, and owned brand products to more than 30,000 locations throughout North America, including natural product superstores, independent retailers, conventional supermarket chains, ecommerce providers, and foodservice customers. UNFI also provides a broad range of value-added services and segmented marketing expertise, including proprietary technology, data, market insights, and shelf management to help customers and suppliers build their businesses and brands. As the largest full-service grocery partner in North America, UNFI is committed to building a food system that is better for all and is uniquely positioned to deliver great food, more choices, and fresh thinking to customers. To learn more about how UNFI is Fueling the Future of Food, visit www.unfi.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding the Company’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. The risks and uncertainties which could impact these statements are described in the Company’s filings under the Securities Exchange Act of 1934, as amended, including its annual report on Form 10-K for the year ended July 30, 2022 filed with the Securities and Exchange Commission (the “SEC”) on September 27, 2022 and other filings the Company makes with the SEC, and include, but are not limited to, our dependence on principal customers; the relatively low margins of our business, which are sensitive to inflationary and deflationary pressures; the impact and duration of any pandemics or disease outbreaks; our ability to operate, and rely on third parties to operate, reliable and secure technology systems; labor and other workforce shortages and challenges; our ability to realize anticipated benefits of our strategic initiatives, including any acquisitions; the addition or loss of significant customers or material changes to our relationships with these customers; our sensitivity to general economic conditions including inflation, changes in disposable income levels and consumer spending trends; our ability to continue to grow sales, including of our higher margin natural and organic foods and non-food products, and to manage that growth; increased competition in our industry, including as a result of continuing consolidation of retailers and the growth of chains, direct distribution by large retailers and the growth of online distributors; our ability to timely and successfully deploy our warehouse management system throughout our distribution centers and our transportation management system across the Company and to achieve efficiencies and cost savings from these efforts; the potential for disruptions in our supply chain or our distribution capabilities from circumstances beyond our control, including due to lack of long-term contracts, severe weather, labor shortage or work stoppages or otherwise; moderated supplier promotional activity, including decreased forward buying opportunities; union-organizing activities that could cause labor relations difficulties and increased costs; the potential for additional asset impairment charges; our ability to maintain food quality and safety; volatility in fuel costs; volatility in foreign exchange rates; and our ability to identify and successfully complete asset or business acquisitions. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. The Company is not undertaking to update any information in the foregoing reports until the effective date of its future reports required by applicable laws. Any estimates of future results of operations are based on a number of assumptions, many of which are outside the Company’s control and should not be construed in any manner as a guarantee that such results will in fact occur. These estimates are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced estimates, but it is not obligated to do so.

Non-GAAP Financial Measures: To supplement the financial information presented on a U.S. generally accepted accounting principles (“GAAP”) basis, the Company has included in this press release the non-GAAP financial measures Adjusted EBITDA, adjusted earnings per diluted common share (“Adjusted EPS”), adjusted effective tax rate, free cash flow and net debt to Adjusted EBITDA leverage ratio. Adjusted EPS is a consolidated measure, which the Company reconciles by adding Net income attributable to UNFI plus the LIFO charge or benefit, Goodwill impairment benefits and charges, Restructuring, acquisition, and integration related expenses, gains and losses on sales of assets, certain legal charges and gains, surplus property depreciation and interest expense, losses on debt extinguishment, the impact of diluted shares when GAAP earnings is presented as a loss and non-GAAP earnings represent income, and the tax impact of adjustments and the adjusted effective tax rate, which tax impact is calculated using the adjusted effective tax rate, and certain other non-cash charges or items, as determined by management. The non-GAAP adjusted effective tax rate excludes the potential impact of changes to various uncertain tax positions and valuation allowances, as well as stock compensation accounting (ASU 2016-09). The non-GAAP Adjusted EBITDA measure is a consolidated measure which the Company reconciles by adding Net income (loss) including noncontrolling interests, less Net income attributable to noncontrolling interests, plus non-operating income and expenses, including Net periodic benefit income, excluding service cost, Interest expense, net and Other (income) expense, net, plus Provision (benefit) for income taxes and Depreciation and amortization all calculated in accordance with GAAP, plus adjustments for Share-based compensation, non-cash LIFO charge or benefit, Restructuring, acquisition and integration related expenses, Goodwill impairment charges, (Gain) loss on sale of assets, certain legal charges and gains, and certain other non-cash charges or other items, as determined by management. The changes to the definition of Adjusted EBITDA from prior periods reflect changes to line item references in our Condensed Consolidated Financial Statements, which do not impact the calculation of Adjusted EBITDA. The non-GAAP free cash flow measure is defined as net cash provided by operating activities less payments for capital expenditures. The non-GAAP net debt to Adjusted EBITDA leverage ratio is defined as the total carrying value of the Company’s outstanding short- and long-term debt and finance lease liabilities less net cash and cash equivalents, the sum of which is divided by Adjusted EBITDA.

The reconciliation of these non-GAAP financial measures to their comparable GAAP financial measures and the calculation of net debt to Adjusted EBITDA leverage are presented in the tables appearing below. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. The Company believes that presenting the non-GAAP financial measures Adjusted EBITDA and Adjusted EPS aids in making period-to-period comparisons, assessing the performance of our business and understanding the underlying operating performance and core business trends by excluding certain adjustments not expected to recur in the normal course of business or that are not meaningful indicators of actual and estimated operating performance. The inclusion of free cash flow assists investors in understanding the cash generating ability of the Company separate from cash generated by the sale of assets. Net debt to Adjusted EBITDA leverage ratio is a commonly used metric that assists investors in understanding and evaluating the Company’s capital structure and changes to its capital structure over time. The Company currently expects to continue to exclude the items listed above from non-GAAP financial measures. Management utilizes and plans to utilize these non-GAAP financial measures to compare the Company’s operating performance during the 2023 fiscal year to the comparable periods in the 2022 fiscal year and to internally prepared projections. These non-GAAP financial measures may differ from similarly titled measures of other companies.

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