Raises Full-Year Outlook

United Natural Foods, Inc. (NYSE: UNFI) (the “Company” or “UNFI”) today reported financial results for the third quarter of fiscal 2022 (13 weeks) ended April 30, 2022.

Third Quarter Fiscal 2022 Highlights (comparisons to third quarter fiscal 2021)

• Net sales of $7.2 billion, an increase of 9.2%
• Net income of $67 million, an increase of 39.6%
• Earnings per diluted share (EPS) of $1.10, an increase of 37.5%
• Revises definitions of Adjusted EBITDA and Adjusted EPS to exclude the non-cash LIFO charge or benefit
  • Adjusted EBITDA of $196 million, an increase of 5.9%
  • Adjusted EPS of $1.10, an increase of 10.0%
• Updates full-year outlook for Net sales, Net income, EPS, Adjusted EBITDA and Adjusted EPS
• Refinances and upsizes revolving credit facility by $500 million with June 2027 maturity date

“Our third quarter performance further demonstrates UNFI’s agility and its focus on servicing customers despite a challenging operating environment. It’s apparent that our Fuel the Future strategy is working and beginning to benefit our customers,” said UNFI Chief Executive Officer, Sandy Douglas. “As we look towards a successful end to our fiscal year, we continue to make progress in simplifying our business and focusing resources on the most important areas that create value for our customers, suppliers, and shareholders.”

Third Quarter Fiscal 2022 Summary

Net sales increased 9.2% in the third quarter of fiscal 2022 compared to the same period last year, primarily driven by inflation and new business from both existing and new customers, including the benefit of cross selling, partially offset by supply chain challenges and modest market contraction.

Gross margin rate in the third quarter of fiscal 2022 was 14.0% of net sales and included a $72 million, or 1.0% of net sales, LIFO charge. Excluding this non-cash charge, gross margin rate was 15.0% of net sales. Gross margin rate in the third quarter of fiscal 2021 was 14.6% of net sales and included a $5 million, or 0.1% of net sales, LIFO charge. Excluding this non-cash charge, gross margin rate in the third quarter of fiscal 2021 was 14.7% of net sales. The increase in gross margin rate, excluding the LIFO charge, was driven by improvements in the Wholesale segment margin rate, including the impact of inflation and the Company’s ValuePath initiative, partially offset by changes in customer mix.

Operating expenses in the third quarter of fiscal 2022 were $969 million, or 13.4% of net sales, compared to $868 million, or 13.1% of net sales, in the third quarter of fiscal 2021. The increase in operating expenses as a percent of net sales resulted from continued investments in servicing our customers, which led to higher transportation and distribution center labor costs in this year’s third quarter, and occupancy-related inflation, which were partially offset by leveraging fixed costs and benefits of the Company's ValuePath initiative.

Interest expense, net for the third quarter of fiscal 2022 was $37 million compared to $44 million for the third quarter of fiscal 2021. The decrease in interest expense, net was driven by lower outstanding debt balances and lower average interest rates.

Effective tax rate for the third quarter of fiscal 2022 was 29.9% compared to 24.2% for the third quarter of fiscal 2021. The change in the effective tax rate was primarily driven by limitations on the deductibility of certain share-based compensation expenses in the third quarter of fiscal 2022 and a discrete benefit for the vesting of employee stock awards in the third quarter of fiscal 2021 that was not material to the effective tax rate in the third quarter of fiscal 2022.

Net income for the third quarter of fiscal 2022 was $67 million, which included an $88 million pre-tax gain on sale of assets of related to a distribution center, a $72 million pre-tax LIFO charge, and $8 million of pre-tax restructuring, acquisition and integration related expenses. Net income for the third quarter of fiscal 2021 was $48 million, which included $10 million of pre-tax restructuring, acquisition and integration related expenses and a $5 million pre-tax LIFO charge.

Net income per diluted share (EPS) was $1.10 for the third quarter of fiscal 2022 compared to net income per diluted share of $0.80 for the third quarter of fiscal 2021. Adjusted EPS was $1.10 for the third quarter of fiscal 2022 compared to $1.00 in the third quarter of fiscal 2021.

Adjusted EBITDA for the third quarter of fiscal 2022 was $196 million compared to $185 million for the third quarter of fiscal 2021. The increase primarily reflects the items discussed above under gross margin rate and operating expenses.

Total outstanding debt, net of cash, ended the quarter at $2.38 billion, reflecting a decrease of $34 million in the third quarter of fiscal 2022 (compared to the end of the second quarter of fiscal 2022). The net debt to Adjusted EBITDA leverage ratio was 2.9x at the end of the third quarter of fiscal 2022. Subsequent to the end of the third quarter, the Company entered into a new $2.6 billion secured asset-based revolving credit facility maturing in 2027 which replaced its prior $2.1 billion credit facility scheduled to mature in 2023. This transaction enhances UNFI’s ability to invest for future growth by bolstering an already abundant liquidity position and extending its debt maturity profile.

Fiscal 2022 Outlook ⁽¹⁾

The Company is providing the following updated full-year outlook for fiscal 2022. The Company has revised its definitions of Adjusted EPS and Adjusted EBITDA to exclude the impact of the non-cash LIFO charge or benefit to better enable investors to assess Company’s operating performance and is providing its updated outlook on that basis. The Company is also updating guidance to reflect increased operating performance expectations. The updated net income and EPS ranges also include an increased LIFO charge and the gain on sale and leaseback of a distribution center. The first column presents the guidance provided on September 28, 2021; the second column presents that initial guidance had the adjustment for LIFO been made at that time; and the third column presents the updated and increased guidance.

Conference Call and Webcast

The Company’s third quarter fiscal 2022 conference call and audio webcast will be held today, Tuesday, June 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 food service 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 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on September 28, 2021 and other filings the Company makes with the SEC, and include, but are not limited to, the impact and duration of the COVID-19 pandemic; labor and other workforce shortages and challenges; our dependence on principal customers; the addition or loss of significant customers or material changes to our relationships with these customers; our sensitivity to general economic conditions including changes in disposable income levels and consumer spending trends; the relatively low margins of our business, which are sensitive to inflationary and deflationary pressures; our ability to realize anticipated benefits of our acquisitions and strategic initiatives, including our acquisition of Supervalu; 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; 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 as a result of increased distribution of natural, organic and specialty products and direct distribution of those products by large retailers and online distributors; increased competition in our industry, including as a result of continuing consolidation of retailers and the growth of chains; union-organizing activities that could cause labor relations difficulties and increased costs; our ability to operate, and rely on third parties to operate reliable and secure technology systems; moderated supplier promotional activity, including decreased forward buying opportunities; the potential for disruptions in our supply chain or our distribution capabilities by circumstances beyond our control, including a health epidemic; the potential for additional asset impairment charges; the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise; 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, discontinued operations store closures and other charges, net, 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 inclusive of continuing and discontinued operations results which the Company reconciles by adding Net income (loss) from continuing operations, 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, net, plus Provision (benefit) for income taxes and Depreciation and amortization all calculated in accordance with GAAP, plus adjustments for Share-based compensation, LIFO charge or benefit, Restructuring, acquisition and integration related expenses, Goodwill impairment charges and benefits, (Gain) loss on sale of assets, certain legal charges and gains, certain other non-cash charges or other items, as determined by management, plus Adjusted EBITDA of discontinued operations calculated, in a manner consistent with the results of continuing operations, outlined above. 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 2022 fiscal year to the comparable periods in the 2021 fiscal year and to internally prepared projections. These non-GAAP financial measures may differ from similarly titled measures of other companies.

FISCAL 2022 GUIDANCE

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