UNITED NATURAL FOODS INC Q1 FY2025 earnings call

• Delivered solid start to fiscal 2025 with over 4% revenue growth, driven by positive volume growth in wholesale and improving adjusted EBITDA and free cashflow.
• Focused on strengthening service levels, simplicity, and transparency for customers and suppliers, while increasing efficiency.
• Rolled out revamped go-to-market program for suppliers to streamline their experience and help them grow.
• Implemented lean principles, including decentralizing procurement and piloting lean daily management in distribution centers, leading to improvements in fulfillment quality, on-time delivery, and labor productivity.
• Closed Billings, Bismarck, and Fort Wayne distribution centers, transferring volume to nearby facilities and marketing real estate, with plans to evaluate other optimization opportunities.
• Increased net sales per employee by over 6% compared to prior period, improving profitability and free cashflow.

Wholesale sales for the first quarter were $7.9 billion, 4.2% higher than the prior year's first quarter. Wholesale volumes were up nearly 2%. Retail sales fell 3% year-over-year. The gross margin rate, excluding LIFO, was 13.3% of net sales in the first quarter, down about 40 basis points compared to the prior year, driven by both wholesale and retail segments. Wholesale margin rate declined approximately 40 basis points due to changes in business mix, lower procurement gains, and strategic investments, partially offset by innovation and efficiency efforts. Retail gross margins were also lower, affected by promotional investments to drive traffic.

• Raised full-year net sales range to $30.6 billion to $31 billion, a 1.3% midpoint increase compared to fiscal 2024 (adjusting for 53rd week).
• Adjusted EBITDA range raised to $530 million to $580 million, a 9% increase at midpoint compared to prior year.
• Adjusted EPS expected to fall within $0.40 to $0.80 per share compared to $0.14 last year.
• Full-year free cashflow now expected to be more than $100 million, a significant improvement from prior outlook.

Q: John Heinbockel from Guggenheim Partners asked about decentralized procurement and compensation balancing inventory management with scale and aligning compensation with outcomes.

A: Sandy Douglas responded that decentralizing procurement brings decision-making closer to stores for better customer service and they're refining compensation models to align with desired outcomes. Matteo Tarditi added that lean daily management initiatives are in early stages with room to ramp up.

Q: Leah Jordan from Goldman Sachs asked about sales guide deceleration and new business gains.

A: Matteo Tarditi said sales guide deceleration balances natural customer strength, modest conventional volume declines, and DC optimization. Sandy Douglas mentioned new business gains in multicultural and natural organic categories.

Q: Andrew Wolf from C.L. King asked about gross margin contraction and lean processes' impact on operating expenses.

A: Matteo Tarditi explained gross margin drivers and Sandy Douglas noted retail is in a rebuild phase with investments in price competitiveness. Sandy and Matteo discussed lean processes' role in long-term efficiency gains.

Q: Ben Wood from BMO Capital Markets asked about services growth and natural organic adoption.

A: Sandy Douglas said services outgrow the company, with natural organic growth mid-single to mid-double digits. She noted consumer trend towards healthier products and retailers' focus on differentiated offers.

Q: Alex Slagle from Jefferies asked about supplier programs and natural organic growth.

A: Sandy Douglas provided examples of successful supplier programs and mentioned natural organic growth in private brands. She noted consumer interest in healthier products drives adoption.

Q: Chuck Cerankosky from Northcoast Research asked about new customers and conventional volume.

A: Sandy Douglas said new business is mostly extending relationships with existing customers, with natural organic/specialty products being a key opportunity. She discussed challenges in conventional retail facing discounter competition.

Q: Scott Mushkin from R5 Capital asked about facility closures and retail divestment.

A: Sandy Douglas and Matteo Tarditi discussed closed facilities being legacy SuperValu warehouses, plans to market real estate, and that retail divestment is on the table if it creates value for stakeholders.

Q: Mathew Rothway from UBS asked about cost efficiencies.

A: Matteo Tarditi said the three-year plan includes $150M in cost efficiencies, with progress seen in Q1 through lean principles, decentralized organization, and employee reduction.