National Wholesalers

United Natural Foods Inc. Reports Q2 Fiscal 2020 Results

UNFI

United Natural Foods Inc. (UNFI) has reported financial results for the second quarter of fiscal 2020 (13 weeks) ended Feb. 1.

“UNFI continues to evolve as the industry leader providing retailers with today’s most sought-after products,” said Steven L. Spinner, chairman and CEO.  “Despite considerable industry headwinds, I’m encouraged by our underlying performance and the momentum that is building within our business.  Prior to charges associated with the three customer bankruptcies that impacted the quarter, we grew Adjusted EBITDA by low double digits, and we remain optimistic as we move into the second half of our fiscal year and confident in UNFI’s long-term growth prospects.”

 

Second quarter highlights

  • Net sales of $6.14 billion compared to $6.15 billion in last year’s fiscal second quarter;
  • Total outstanding net debt reduced by $149 million compared to the first quarter of fiscal 2020;
  • Gross margin rate increased compared to last year’s fiscal second quarter; and
  • Second quarter GAAP and adjusted results include charges of $0.44 per diluted share associated with three customer bankruptcies.

 

Summary

Net sales from continuing operations benefited from continued growth in the Supernatural channel, which was offset by sales declines in other customer channels.

Gross margin for the second quarter of fiscal 2020 was 12.63 percent of net sales compared to 12.39 percent of net sales for the second quarter of fiscal 2019, which included an $8.6 million, or 0.14 percent of net sales, inventory fair value adjustment related to the Supervalu acquisition. When excluding this charge, gross margin in the second quarter of fiscal 2019 was 12.53 percent of net sales. The increase in gross margin rate was primarily driven by lower inbound freight expense. Included in gross margin for the second quarter of fiscal 2020 was inventory shrink expense of approximately $4.2 million, or 0.07 percent of net sales, associated with customer bankruptcies.

Operating expenses in the second quarter of fiscal 2020 were $750.8 million, or 12.23 percent of net sales, compared to $751.9 million, also 12.23 percent of net sales, for the second quarter of fiscal 2019.  Operating expenses in the second quarter of fiscal 2020 and fiscal 2019, as a percent of net sales, were approximately equal as cost savings in the second quarter of fiscal 2020 were offset by approximately $28.9 million, or 0.47 percent of net sales, of bad debt expense associated with customer bankruptcies.

Restructuring, acquisition and integration related expenses in the second quarter of fiscal 2020 were $29.7 million, including costs and charges related to the disposal of existing retail and surplus real estate, distribution network consolidation, and employee-related costs, compared to $47.1 million in the second quarter of fiscal 2019.

Operating (loss) income in the second quarter of fiscal 2020 was $(5.1) million and included expense of $33.1 million associated with customer bankruptcies and $29.7 million of restructuring, acquisition and integration related expenses. When excluding the restructuring, acquisition and integration expenses, operating income in the second quarter of fiscal 2020 was $24.6 million, or 0.40 percent of net sales. Operating loss in the second quarter of fiscal 2019 was $(408.1) million and included a goodwill impairment charge of $370.9 million, restructuring, acquisition and integration related expenses of $47.1 million, and a fair value inventory adjustment charge associated with the purchase of Supervalu of $8.6 million. When excluding these items, operating income for the second quarter of fiscal 2019 was $18.5 million, or 0.30 percent of net sales.  The increase in adjusted operating income, as a percent of net sales, was driven by higher gross margins.

Interest expense, net for the second quarter of fiscal 2020 was $48.6 million. Interest expense, net for the second quarter of fiscal 2019 was $58.7 million and included expense of $2.5 million related to interest on the then-outstanding Supervalu senior notes and $1.0 million of unamortized debt issuance costs for certain term loan prepayments made in the second quarter of fiscal 2019 with asset sale proceeds. When excluding these amounts, interest expense, net was $55.2 million in the second quarter of fiscal 2019. The decrease in interest expense, net was driven by lower amounts of outstanding debt and lower average interest rates.

Effective tax rate for continuing operations for the second quarter of fiscal 2020 was a benefit of 35.5 percent compared to a benefit of 20.2 percent for the second quarter of fiscal 2019. The second quarter effective tax rate for both fiscal years reflects a tax benefit based on consolidated pre-tax loss from continuing operations. The change in the effective tax rate for the quarter was primarily driven by a tax benefit on the goodwill impairment charge in the second quarter of fiscal 2019 which did not recur in the second quarter of fiscal 2020.

Net loss for the second quarter of fiscal 2020 was $(30.7) million compared to $(341.7) million for the second quarter of fiscal 2019. The second quarter of fiscal 2019 included a $370.9 million pre-tax goodwill impairment charge as well as $17.4 million in additional restructuring, acquisition and integration related expenses compared to the second quarter of fiscal 2020.

Net (loss) income per diluted share (EPS) was $(0.57) for the second quarter of fiscal 2020 compared to $(6.72) for the second quarter of fiscal 2019.  Adjusted EPS was $0.32 for the second quarter of fiscal 2020 compared to adjusted EPS of $0.44 in the second quarter of fiscal 2019, reflecting customer bankruptcy charges and lower net income from discontinued operations in the second quarter of fiscal 2020. The income tax rate used for adjusted EPS represents a forecasted rate for the full year. Beginning in fiscal 2020, in calculating adjusted EPS, the company uses an adjusted effective tax rate.

Adjusted EBITDA for the second quarter of fiscal 2020 was $131.1 million compared to $142.6 million for the second quarter of fiscal 2019.  Adjusted EBITDA for the second quarter of fiscal 2020 included expense of $33.1 million associated with customer bankruptcies.

Total outstanding debt, net of cash, decreased $149 million in the second quarter of fiscal 2020 (compared to the first quarter of fiscal 2020) driven by an expected decrease in net working capital following the holiday selling period.

UNFI is a food wholesaler delivering the widest variety of products to customer locations throughout North America including natural product superstores, independent retailers, conventional supermarket chains, e-commerce retailers and food service customers. Combined with Supervalu, UNFI is the largest publicly-traded grocery distributor in America.

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