United Natural Foods, Inc. Reports Third Quarter Fiscal 2020 Results - 10.06.20 - News

PROVIDENCE, R.I., June 10, 2020

Third Quarter Fiscal 2020 Highlights

Net Sales increased 12% to $6.67 billion compared to $5.96 billion in last year's fiscal third quarter
Net income increased 54% to $88 million; Adjusted EBITDA increased 32% to $222 million
Earnings per diluted share (EPS) of $1.60; Adjusted EPS increased 130% to $1.40
Net debt reduced by $302 million compared to the second quarter of fiscal 2020
Updates fiscal 2020 guidance, which includes the impact of Retail included in Continuing Operations

"UNFI's ability to successfully manage the strong increase in customer demand driven by the COVID-19 pandemic is a testament to the dedication of our associates, our strong industry position, and the critical role we play in the North American food supply chain," said Steven L. Spinner, Chairman and Chief Executive Officer. "We expect elevated consumer demand for our wide variety of natural, conventional and fresh perimeter products, along with our ongoing synergy and integration initiatives, to result in a strong finish to the fiscal year. I am so proud of our team of front line associates who continue to amaze us with their commitment to excellence. Our first priority will continue to be their safety."

13-Week Period Ended

($ in millions, except per share data)

May 2,
2020

April 27,
2019

ARIVA.DE Börsen-Geflüster

Kurse

United Natural Foods

8,82 $

0,00%

% Change

Net Sales

$

6,668

$

5,963

11.8

%

Supermarkets channel⁽¹⁾

$

4,267

$

3,701

15.3

%

Supernatural channel

$

1,279

$

1,102

16.1

%

Independents channel⁽¹⁾

$

684

$

707

(3.3)

%

Other channel⁽¹⁾

$

438

$

453

(3.3)

%

Net Income

$

88

$

57

54.4

%

Adjusted EBITDA⁽²⁾

$

222

$

168

32.1

%

Earnings Per Diluted Share (EPS)

$

1.60

$

1.12

42.9

%

Adjusted Earnings Per Diluted Share (EPS)⁽²⁾

$

1.40

$

0.61

129.5

%


(1)	During the first quarter of fiscal 2020, the presentation of net sales by customer channel was adjusted to reflect reclassification of customer types resulting from management's determination that a customer serviced by both legacy Supervalu and UNFI should be classified as a Supermarket customer given that customer's operations. During the second quarter of fiscal 2020, the presentation of net sales by customer channel was adjusted to reflect conventional military sales within Other instead of Independents based on management's determination to better reflect the focus of its ongoing business and the definition of customer channels above. There was no impact to the Condensed Consolidated Statements of Operations as a result of the reclassification of customer types. As a result of these adjustments, net sales to the Company's Supermarkets channel for the third quarter of fiscal 2019 increased approximately $26 million, compared to the previously reported amounts, while net sales to the Other channel for the third quarter of fiscal 2019 increased $96 million, compared to previously reported amounts. Net sales to the Company's Independents channel for the third quarter of fiscal 2019 decreased $122 million, compared to the previously reported amounts. The change in independent channel sales includes a 900 basis point decline associated with customer bankruptcies in the second quarter.
(2)	Please refer to the tables in this press release for a reconciliation of these non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with U.S. GAAP.

Third Quarter Fiscal 2020 Summary

Net sales from continuing operations benefited from strong customer demand driven by responses to COVID-19, including the benefits from cross selling, partially offset by the impact from customer bankruptcies that occurred in the second quarter.

Gross margin rate for the third quarter of fiscal 2020 was 12.85% of net sales compared to 13.22% of net sales for the third quarter of fiscal 2019. The decrease in gross margin rate was primarily driven by a mix shift toward lower margin conventional products and lower levels of vendor funding, partially offset by lower levels of inventory shrink.

Operating expenses in the third quarter of fiscal 2020 were $774.4 million, or 11.61% of net sales, compared to $737.7 million, or 12.37% of net sales, for the third quarter of fiscal 2019. The decrease in operating expenses as a percent of net sales was driven by leveraging fixed operating and administrative expenses and the benefit of synergy and integration efforts, partially offset by incremental costs related to COVID-19, including the impact of temporary pandemic-related incentives, additional labor support and additional costs for safety protocols and procedures at the Company's distribution centers.

Restructuring, acquisition and integration related expenses in the third quarter of fiscal 2020 were $10.4 million, including closed property reserve charges and costs, compared to $19.4 million in the third quarter of fiscal 2019.

Operating income in the third quarter of fiscal 2020 was $71.7 million and included $10.4 million of restructuring, acquisition and integration related expenses. When excluding the restructuring, acquisition and integration expenses, operating income in the third quarter of fiscal 2020 was $82.2 million, or 1.23% of net sales. Operating income in the third quarter of fiscal 2019 was $69.7 million and included a favorable goodwill impairment adjustment of $38.3 million, and restructuring, acquisition, and integration related expenses of $19.4 million. When excluding these items, operating income for the third quarter of fiscal 2019 was $50.9 million, or 0.85% of net sales. The remaining increase in operating income, as a percent of net sales, was driven by higher net sales and a lower operating expense rate partially offset by a lower gross margin rate.

Interest expense, net for the third quarter of fiscal 2020 was $47.1 million. Interest expense, net for the third quarter of fiscal 2019 was $54.9 million. 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 third quarter of fiscal 2020 was a benefit of 38.7% compared to a benefit of 32.4% for the third quarter of fiscal 2019. The third 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 an estimated tax benefit resulting from the Coronavirus Aid, Relief, and Economic Security (CARES) Act which allows net operating losses to be carried back into tax years with higher statutory rates.

Net income for the third quarter of fiscal 2020 was $88.1 million compared to $57.1 million for the third quarter of fiscal 2019.

Net income per diluted share (EPS) was $1.60 for the third quarter of fiscal 2020 compared to $1.12 for the third quarter of fiscal 2019. Adjusted EPS was $1.40 for the third quarter of fiscal 2020 compared to adjusted EPS of $0.61 in the third quarter of fiscal 2019, reflecting the benefits of higher net sales and the leveraging of fixed costs which were partially offset by a lower gross margin rate and incremental costs related to COVID-19.

Adjusted EBITDA for the third quarter of fiscal 2020 was $222.2 million compared to $168.2 million for the third quarter of fiscal 2019 reflecting the benefits of higher net sales and the leveraging of fixed costs, as well as the benefit of integration synergies, which were partially offset by a lower gross margin rate and incremental costs related to COVID-19.

Total Outstanding Debt, net of cash, decreased $302 million in the third quarter of fiscal 2020 (compared to the second quarter of fiscal 2020) driven by net cash provided by operations, including the benefit of lower levels of working capital, partially offset by the addition of an approximately $94 million finance lease associated with a purchase option exercised for a distribution center.

Fiscal 2020 Outlook ⁽¹⁾

On May 12, 2020 UNFI withdrew its previous fiscal 2020 full year guidance based on the strength of its fiscal 2020 year-to-date financial performance. The following table presents the Company's updated outlook for fiscal 2020. The Company now expects to continue to operate its Cub Foods banner and certain of its Shoppers Food Warehouse stores for up to 24 months. Accordingly, the Company is also presenting its guidance reflecting the impact of moving Cub Foods and certain Shoppers Food Warehouse stores into continuing operations, consistent with how it expects to report its fourth quarter and full-year 2020 results. The outlook for Net Loss and Loss Per Share includes the $425 million pre-tax, or $7.95 per share, non-cash Goodwill and asset impairment charges incurred in the first quarter.

Fiscal Year Ending August 1, 2020⁽¹⁾

Previous Full Year
Outlook

Full Year 2020
Outlook (Retail in
Discontinued
Operations)

Impact of Moving
Majority of Retail
to Continuing
Operations

Full Year 2020
Outlook (Retail in
Continuing
Operations)

Net Sales ($ in billions)

$23.5 -$24.3

$25.2 -$25.4

$1.2

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