United Natural Foods, Inc. Q1 FY2026 earnings call

• Network optimization efforts, especially at Allentown, proceeded ahead of schedule, focusing on improving service levels and long-term profitability.
• Merchandising capabilities revamped and strengthened, with a new leader for private brands to help retailers differentiate. Lean management kaizen workshops addressed supplier concerns like time to shelf, streamlining new item setup processes.
• Deployed supply chain technology RELEX across about half of the distribution network, with the second half expected to be completed by fiscal year end, helping with demand prediction and reducing out of stocks. Scaled lean daily management across 34 distribution centers, seeing improvements in safety, quality, delivery, and cost.
• Optimized network by streamlining footprint and strategically investing for growth, ramping operations at the new automated natural product distribution center in Sarasota, Florida.

First quarter net sales were $7.8 billion, roughly flat to last year. The natural products segment grew 11%, while the conventional product segment declined about 12%. Adjusted EBITDA growth in the first quarter was driven by improving execution, effectiveness, and efficiency across the business. Free cash flow improved by over $100 million compared to last year's first quarter. The natural segment's growth was driven by strong unit growth outperforming the market, including new business projects and strong retail execution. Conventional sales declined primarily due to the accretive transition out of the Allentown distribution center.

• Affirms full year outlook with sales of $31.6 billion to $32 billion, adjusted EBITDA of $630 million to $700 million, adjusted EPS of $1.50 to $2.30 per share, capital spending of $250 million, and free cash flow of approximately $300 million.
• Target to reduce net leverage ratio to below 2.5 times by the end of the fiscal year, having already seen net leverage decrease by one turn compared to prior year.
• Expect capital investments to accelerate as the year progresses based on project schedule.

Q: John Heinbockel from Guggenheim asked about natural growth drop size and fill rates.

A: Sandy Douglas responded that drop sizes have been positive with strong growth to EBITDA, fill rates have been solid with sequential improvement due to technology and lean daily management implementation.

Q: John Park from Wells Fargo asked about gross margin sustainability and network optimization impact.

A: Matteo Tarditi said gross margin rate ex Life was up, driven by natural growth, supplier funds, and shrink, with a normalized EBITDA run rate expected to be sustained.

Q: Mark Carden from UBS asked about conventional sales impact of optimization and consumer health.

A: Sandy Douglas said conventional weakness was mostly from network optimization, with consumer stress and discount positioning impacting, but retailers innovating to compete.

Q: Kelly Bania from BMO Capital Markets asked about procurement gains, conventional top line, and natural growth breadth.

A: Matteo Tarditi said no procurement gains modeled in outlook, Sandy Douglas discussed conventional pressure and natural growth as retailer-specific with strong pipeline and disciplined underwriting.

Q: Chuck Cerankosky from Northcoast Research asked about margin improvement and shrink.

A: Matteo Tarditi said margin expansion expected, with focus on reducing shrink through lean daily management and inventory waste elimination.

Q: Leah Jordan from Goldman Sachs asked about new business pipeline and private label strategy.

A: Sandy Douglas defined projects vs pipeline, said pipelines are strong with disciplined underwriting, and private label has new leadership with opportunity across tiers.

Q: Scott Mushkin from R5 Capital asked about natural sales acceleration and conventional competitive impact.

A: Sandy Douglas said natural growth tied to customer performance and disciplined underwriting, conventional competitive environment has winners through differentiated strategies.

Q: Peter Saleh from BTIG asked about capital allocation and leverage.

A: Matteo Tarditi said capital allocation focused on deleveraging, with free cash flow improving and plan to reduce net leverage to below 2.5 times by year end