UNITED NATURAL FOODS INC 10-Q

Item 1A. Risk Factors Except as described below, there have been no material changes to our risk factors contained in Part I, Item 1A. Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended August 3, 2019 . Pandemics or disease outbreaks, such as the COVID-19 pandemic, may disrupt our business, including among other things, increasing our costs, impacting our supply chain, and driving change in customer and consumer demand for our products, and could have a material adverse impact on our business. The outbreak of COVID-19 in the United States and Canada has had sudden and significant impacts on our industry, including increased demand for the products we distribute as consumers began pantry loading and food-at-home increased due to social distancing and stay-at-home orders. This increased wholesale customer and end-consumer demand may decrease relative to current levels if and when the need for social distancing and stay-at-home mandates decreases, and we are unable to predict the nature and timing of when that impact may occur. These measures have also had an adverse impact on the economies of North America. The ultimate impact of COVID-19 on our business and the economy, and the duration thereof, is uncertain. 61 Table of contents Our business may be negatively impacted as a result of the COVID-19 outbreak. For example, we have incurred, and expect to continue to incur, increased costs, including: labor costs resulting from the payment of temporary state of emergency bonuses that we implemented in March 2020, overtime, paid sick leave, or leaves of absence; costs associated with safety measures throughout our facilities, including enhanced sanitation, social distancing practices, such as partitions, decals, pre-shift temperature screenings, and the provision of personal protective equipment to our associates; and other operating costs due to short-term significant increases in demand spikes. If there were a rapid reduction in demand for the products we distribute, and we were unable to sufficiently reduce these costs, our results may be negatively impacted. We have experienced higher than usual levels of out-of-stocks leading to reduced fill rates, which may result in higher costs, fees, or penalties. We have experienced temporary facility closures due to outbreaks, and we may experience future facility closures due to additional outbreaks, reduced workforce or government mandates. Changes in consumer purchasing habits, including potential reduced sales to our wholesale customer in the future due to previous pantry-loading activities that occurred in the third fiscal quarter of 2020 may negatively impact our results. In addition, our business could be negatively impacted by reduced workforces due to illness or other restrictions related to COVID-19; a shortage of qualified labor to support meeting increased demand; any failure of third parties on which we rely, including our suppliers, contract manufacturers, contractors and external business partners to meet their obligations to us, or significant disruptions in their ability to do so; or diversion of management’s attention, including if any key employee becomes ill, and resources primarily focused on reducing operating expenses may be redirected. We cannot predict the duration of the impact of COVID-19 or any related policies, such as stay-at-home orders or business or school closures. In the near term, we expect our inventory and sales levels to stabilize to higher than pre-COVID levels, and we expect to utilize cash flow to pay down accounts payable, which would result in higher levels of inventory and accounts receivable than prior to the pandemic. If there were a rapid reduction in demand for the products we distribute, our results and cash flows may be negatively impacted if we are unable to monetize working capital. Any of the foregoing factors, or other effects of the coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our sales and damage the Company’s financial condition, results of operations, cash flows and its liquidity position, possibly to a significant degree. Our efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control. The ultimate impact of the COVID-19 pandemic on our business will depend on many factors, including, among others, the duration of social distancing and stay-at-home mandates and whether additional waves of COVID-19 will affect the United States and Canada, our ability and the ability of our suppliers to continue to operate manufacturing facilities and maintain the supply chain without material disruption, and the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating and purchasing habits. We cannot predict the duration or scope of the disruption. Therefore, the ultimate financial impact cannot be reasonably estimated at this time.