UNFI Reports Mixed Q3 Results Amid Business Transformation Efforts

Health and specialty food distributor United Natural Foods Inc. (UNFI) posted a 0.1% decrease in net sales to $7.5 billion during Q3 2024 in an earnings release this morning amid the company’s ongoing business transformation efforts.

“We delivered another quarter in line with our fiscal 2024 plan and our third consecutive quarter of improving profitability driven by continued progress on near-term operational and efficiency initiatives,” said Sandy Douglas, UNFI CEO, in a prepared statement. “This progress includes significant cost reduction actions and supply chain efficiencies.”

The Providence, R.I.-based distributor’s gross profit accounted for 13.6% of net sales and increased by $20 million, or 2%, to $1 billion. Adjusted earnings per share (EPS) was $0.10, versus $0.54 in the prior-year period. Meanwhile, adjusted EBITDA was down 18.2% compared to Q3 2023, coming in at $130 million.

Business transformation costs totaled $11 million in the quarter, compared to $7 million in Q3 2023. Overall operating expenses in Q3 were $992 million, or 13.2% of net sales, versus $967 million, or 12.9% of net sales, in the prior-year period.

According to Douglas, UNFI’s strategic planning helped the company achieve $150 million in run rate improvement this year.

Last month, UNFI announced the rollout of its new UNFI Media Network (UMN) platform designed to help retailers and brands market more directly to customers. The platform is powered by Swiftly, a retail tech solutions provider.

In the announcement, the distributor said UMN’s goal is to help retailers connect more meaningfully and personally with their customers while providing opportunities to showcase their suppliers and build brand equity.

“We believe this initiative will democratize modern media marketing capabilities for our retail customers and provide consumer products companies with unique data insights from across our network that services more than 30,000 diverse customer locations,” Douglas told investors during today’s earnings call.

Additionally, the distributor on May 1 implemented a new supplier policy, called Simplified Supplier Approach (SSA), that is intended to streamline business by consolidating client’s fees into one flat rate. The policy is provided for a rate of 2.5% of purchases, which UNFI called “well below the value of benefits delivered.”

The new approach has been met with a mixture of reactions from brands and companies, though reception has trended negative.

In a LinkedIn post written several days after the policy went into effect, a former UNFI supplier relationship manager said, “One question I always ask myself with UNFI is [if] the stock price or results were doing better would this be happening right now? The pressure for results with a public company can drive so many decisions that may otherwise not be happening during ‘good times.’”

Looking ahead, UNFI has lowered its FY 2024 projections for net income and EPS primarily due to charges related to cost reduction actions. Adjusted EBITDA and adjusted EPS, which exclude these amounts, are expected to be higher than the previously provided outlook.

As part of the company’s organizational structure simplification efforts, UNFI will eliminate the COO role, as reported by Street Insider. As a result, Erin Horvath will no longer serve in that position, effective June 14, and will depart the company.

The company’s multi-year strategic plan, slated to launch fully in FY 2025, will focus on key areas: intensified network optimization, reduced capital intensity, cost optimization and increased working capital efficiency. Fiscal 2025 capital investments are expected to be approximately $70 million, significantly lower than the revised fiscal 2024 outlook of $370 million.

“We are beginning to see tangible benefits to our financial performance stemming from our [multi-year strategic plan] and are focused on driving short- and long-term improvement by optimizing controllable variables in our new plan,” said Douglas, adding that the updated strategy is expected to generate free cash flow approaching $100 million in FY 2025.