UNFI: ‘Lean Management,’ Efficiencies Fuel Q1 Gains
United Natural Foods Inc. (UNFI) reported a net loss of $21 million despite increasing sales 4.2% year-over-year in its first-quarter earnings.
The food and beverage distributor’s net sales in the quarter were $7.9 billion with adjusted EBITDA increasing 14.5% to $134 million. Wholesale volume was up 1.8% in the quarter, compared to down 3.6% in Q1 2024.
On the back of the “positive” earnings this morning, CEO Sandy Douglas reported the company is “confident in its strategy” and has raised its outlook for FY2025 across all metrics except capital spending.
UNFI is forecasting sales of $30.6 billion to $31 billion (previously $30.3 billion to $30.8 billion). The guidance for adjusted EBITDA increased 9% to $580 million from its prior expectation to $530 million.
Company leadership spoke during the conference call about its three-year “lean management” framework as the distributor is optimizing and decentralizing its procurement from a single team to a distribution center-based operation, which allows for more focused demand forecasting.
UNFI is also repaying debt and driving efficiency by closing some of its distribution centers. Announced in the last quarter earnings call, UNFI closed conventional warehouses in Billings, Mont., and Bismarck, N.D., and redistributed its volume to nearby facilities. The company is taking the same approach with an Indiana distribution center and reallocating its volume to Illinois and Pennsylvania. There are similar plans in Fort Worth, Texas, as well.
“One driver of our shrink improvement this quarter was our work around eliminating waste,” said Mateo Tarditi, president and CFO, in prepared remarks. “Corrections have led to lower operating expense, increased capacity and more efficient workloads, as well as reduced spoilage.”
Tarditi reported inventory management process changes within distribution centers have driven an 11% improvement in fulfillment quality, a 5% gain in on-time delivery and better warehouse labor productivity.
Referencing the distributor’s Simplified Supplier Approach (SSA) program, Douglas said it has been “broadly adopted” by smaller suppliers with UNFI learning a lot to make the tools even more effective for brands.
“The benefit to UNFI is we make slightly higher fees on the bigger suppliers, approximately the same on the medium, and we still keep fees low [for smaller suppliers],” he said. “It’s one fee, not 15 to 20, so it allows suppliers to be able to plan and execute.”
Long term, UNFI expects that its natural channel distribution growth will outpace conventional with a $90 billion addressable wholesale market. Despite that opportunity, UNFI total sales are expected to be roughly flat between FY2025 and FY2027 as the company continues to optimize its network.
Forecasting how natural channel brands and retailers will do in the short-term macroeconomic environment is difficult because inflation is still impacting how consumers are shopping, said Douglas.
“The more centrally positioned retailers need a strategy that’s sharper and more differentiated, at least as it compares to the big discounters,” he said. “Right now, the discounters have a fairly substantial price advantage, and they’re gaining share. There’s a whole lot of work being done by the industry to find points of difference and to execute well, to improve the value proposition.”
