What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-03-10 compared with 2020-12-09 · 245 added, 202 removed, 309 unchanged (59% of the section changed)

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Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to:

• the impact and duration of the COVID-19 outbreak;

• the impact and duration of the COVID-19 pandemic;

• our dependence on principal customers;

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Item 1A Risk Factors” of our Annual Report on Form 10-K for the year ended August 1, 2020 as well as any other cautionary language in this Quarterly Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.

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EXECUTIVE OVERVIEW

Business Overview

As a leading distributor of natural, organic, specialty, produce, and conventional grocery and non-food products, and provider of retailer services in the United States and Canada, we believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America.

As a leading distributor of natural, organic, specialty, produce and conventional grocery and non-food products, and provider of support services to retailers in the United States and Canada, we believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America.

We offer more than 275,000 products consisting of national, regional and private label brands grouped into six product categories:

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Growth Drivers

A key component of our business and growth strategy has been to acquire wholesalers differentiated by product offerings, service offerings and market area.

In fiscal 2019, the acquisition of Supervalu accelerated our “build out the store” strategy, diversified our customer base, enabled cross-selling opportunities, expanded our market reach and scale, enhanced our technology, capacity and systems, and is expected to continue to deliver significant synergies and accelerate potential growth.

We believe the Supervalu acquisition allowed us to better serve our wholesale customers’ needs and compete in the current environment by providing additional warehouse and transportation capacity, and enabled us to provide a broader array of products to our customers.

A key component of our business and growth strategy has been to acquire distribution companies differentiated by product offerings, service offerings and market area.

We believe the Supervalu acquisition allows us to better serve our wholesale customers’ needs and compete in the current environment by providing additional warehouse and transportation capacity, which enabled us to provide a broader array of products to our customers.

As one of the largest wholesale grocery distributors in North America, and in light of the continued expansion of our distribution network and “build out the store” strategy, we believe we are well positioned to leverage our infrastructure in the current economic and social environment to continue to serve our customers and the communities in which we operate, and are actively pursuing new customers.

We believe our significant scale and footprint will generate long-term shareholder value by positioning us to continue to grow sales of natural, organic, specialty, produce and conventional grocery and non-food products, including our Private Brands.

We also believe we have an opportunity to sell additional services to our customers to help them more efficiently operate their business while leveraging the infrastructure investments we’ve made.

Services often sold to our customers include coupon processing, consumer marketing, retail technology and payments and consumer services.

We have realized and expect to continue to realize significant cost and revenue synergies from the acquisition of Supervalu by leveraging the scale and resources of the combined company, cross-selling to our customers, integrating our merchandising offerings into existing warehouses, optimizing our network footprint to lower our cost structure and eliminating redundant administrative costs.

We also believe we have an opportunity to sell additional services to our customers to help them more efficiently operate their business while leveraging the infrastructure investments we have made.

Services we sell to our customers include coupon processing, consumer marketing, retail technology and payments and consumer services.

We have realized significant cost and revenue synergies from the acquisition of Supervalu by leveraging the scale and resources of the combined company, cross-selling to our customers, integrating our merchandising offerings into existing warehouses, optimizing our network footprint to lower our cost structure and eliminating redundant administrative costs.

We expect to realize additional cost and revenue synergies in the future.

We expect the benefits of our significant scale, product and service offerings and nationwide footprint to attract new customers, such as Key Food Stores co-operative, Inc.

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We have been the primary distributor to Whole Foods Market for more than 20 years.

We continue to serve as the primary distributor to Whole Foods Market in all of its regions in the United States pursuant to a distribution agreement that expires on September 28, 2025.

We continue to serve as the primary distributor to Whole Foods Market in all of its regions in the United States pursuant to an amended distribution agreement.

On March 3, 2021, we entered into an amendment to our distribution agreement dated October 30, 2015.

The Amendment extended the term of the distribution agreement from September 28, 2025 to September 27, 2027.

We currently operate 71 Retail grocery stores acquired in the Supervalu acquisition.

We intend to maximize the value of these assets while, over time, thoughtfully and economically divesting these stores.

However, we no longer expect to divest Retail within one year and, as a result, beginning in the fourth quarter of fiscal 2020, prior period information in our Condensed Consolidated Financial Statements included in this Quarterly Report has been revised to reclassify Retail from discontinued operations to continuing operations from information previously presented in its Quarterly Reports.

This change in financial statement presentation resulted in the inclusion of Retail’s results of operations, financial position, cash flows and related disclosures within continuing operations.

Prior periods presented in the Condensed Consolidated Financial Statements have been conformed to the current period presentation, resulting in Retail being presented in continuing operations for all periods.

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Other Factors Affecting our Business

Trends and Other Factors Affecting our Business

Our results are impacted by macroeconomic and demographic trends, and changes in the food distribution market structure.

Changes in trends in consumer behavior could impact our results.

Over the past several decades, total food expenditures on a constant dollar basis within the United States has continued to increase in total, and the focus in recent decades on natural, organic and specialty foods has benefited the Company;

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This trend paused during the 2008 recession, and then continued to increase.

In fiscal 2020, the COVID-19 pandemic caused a significant increase in food-at-home expenditures as a percentage of total food expenditures.

In fiscal 2020, the COVID-19 pandemic, which we refer to as the pandemic, caused a significant increase in food-at-home expenditures as a percentage of total food expenditures.

We experienced year-over-year increases in sales and gross profit due to higher Wholesale customer purchases.

We expect that food-at-home expenditures as a percentage of total food expenditures will remain higher than recent years until consumer behaviors return to pre-pandemic patterns.

We believe that changes in work being done outside of the traditional office setting will contribute to more food being consumed at home.

Many large corporations have announced long-term or permanent changes that allow their workforce to work from home.

In addition, the elevated levels of unemployment and underemployment due to the pandemic are expected to persist for some time and even after the near-term impact of COVID-19 has passed.

In addition, the elevated levels of unemployment and underemployment due to the pandemic are expected to persist for some time and even after the near-term impact of the pandemic has passed.

In general, economic recessions usually result in higher food-at-home expenditures, which would be expected to continue to benefit our customers and result in higher sales.

The COVID-19 pandemic also drove significant growth in e-commerce utilization by grocery consumers, and we expect that trend to continue.

We expect to benefit from this trend through the growth of our traditional eCommerce customers, our EasyOptions, a business-verified buyer’s site for retailers, which directly services non-traditional customers, such as bakeries or yoga studios, and through customers adopting our turnkey e-commerce platform.

The pandemic also drove significant growth in eCommerce utilization by grocery consumers, and we expect that trend to continue.

Beginning in the third quarter of fiscal 2020, in response to the outbreak of the pandemic, we took actions to respond to the pandemic, support our associates’ safety and well-being and maximize our logistics network to serve the communities we supply.

Our business model allows us to leverage sales increases, and provides growth in operating earnings margin.

We have been able to leverage the fixed and variable costs of our supply chain network and administrative expenses.

We have incurred incremental costs related to the pandemic, including additional costs for safety protocols and procedures at our distribution centers and retail stores.

Despite incremental labor and operating costs, additional volume experienced by our distribution network and retail stores drove higher leverage on fixed facility costs, semi-variable costs and general and administrative expenses.

We expect to continue to benefit from elevated sales and margin buying activity as compared to historical periods prior to the pandemic while food-at-home expenditures as a percentage of total food expenditures remains higher than recent historical periods, and higher on a year-over-year basis.

Trends in increased sales and gross margin benefits have lessened since the initial onset of the pandemic.

The ultimate impact on our results is dependent upon the severity and duration of the pandemic and any economic downturn, food-at-home purchasing levels and actions taken by governmental authorities and other third parties in response to the pandemic, each of which is uncertain and rapidly changing.

Any of these disruptions could adversely impact our business and results of operations.

Considerable uncertainty remains regarding the future impact of the pandemic on our business, which is discussed further in Part I.

Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended August 1, 2020.

We are also impacted by changes in food distribution trends affecting our Wholesale customers, such as direct store deliveries and other methods of distribution.

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The magnitude of these risks increases as the size of our Wholesale customers increases.

COVID-19 Impact

Beginning in the third quarter of fiscal 2020, we took actions to respond to the pandemic, support our associates’ safety and well-being and maximize our logistics network to serve the communities we supply.

In fiscal 2020, and continuing into fiscal 2021, we experienced a year-over-year increase in sales and gross profit due to higher Wholesale customer purchases driven by higher food-at-home expenditures, as a result of the economic and social responses to the COVID-19 pandemic.

We have been able to leverage fixed operating and administrative expenses, which were partially offset by incremental costs related to COVID-19, including additional costs for safety protocols and procedures at our distribution centers and retail stores.

Our business model allows us to leverage sales increases, and provided growth in operating earnings margin, as we leveraged the fixed and variable costs of our supply chain network and administrative expenses.

We expect to continue to benefit from sales and margin growth as compared to historical periods while food-at-home expenditures as a percentage of total food expenditures remains higher than recent historical precedent, and higher on a year-over-year basis.

Trends in increased sales and gross margin benefits have lessened since the initial onset of the COVID-19 pandemic.

In addition, as discussed below in the section “Impact of Inflation or Deflation” and above in the section “Other Factors Affecting our Business,” we could also be affected by changes in product mix and product category inflation changes, especially if customers change their purchasing habits as a result of sustained downturns in the U.S.

and Canadian economies.

The ultimate impact on our results is dependent upon the severity and duration of the COVID-19 pandemic and any economic downturn, food-at-home purchasing levels and actions taken by governmental authorities and other third parties in response to the pandemic, each of which is uncertain and rapidly changing.

Any of these disruptions could adversely impact our business and results of operations.

Considerable uncertainty remains regarding the future impact of the COVID-19 pandemic on our business, which is discussed further in Part I.

Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended August 1, 2020.

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Distribution Center Network

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We expanded the Ridgefield, WA distribution center to enhance customer product offerings, create more efficient inventory management, streamline operations and incorporate greater technology to deliver a better customer experience.

The Ridgefield distribution center will deploy a warehouse automation solution that supports our slow-moving SKU portfolio.

The operational start-up of the Centralia, WA distribution center began in the fourth quarter of fiscal 2019 and was completed in the fourth quarter of fiscal 2020.

We ceased operations in our Tacoma, WA, Auburn, WA, Auburn, CA and Milwaukie, OR (Portland) distribution centers and have transitioned to supplying customers served by these locations to our Centralia, WA, Ridgefield, WA and Gilroy, CA distribution centers.

We are now supplying customers served by former Pacific Northwest locations from our Centralia, WA, Ridgefield, WA and Gilroy, CA distribution centers.

In order to maintain service levels of these higher volume Pacific Northwest distribution centers, we incurred incremental operating costs in the first quarter of fiscal 2021 that we believe temporarily reduced the realization of synergy benefits from this network consolidation.

To support our continued growth on the East coast, we entered into a new lease agreement that has not yet commenced for an approximately 1.3 million square foot facility that is currently under construction.

We expect to recognize a lease liability for this distribution center when we begin making our tenant improvements in fiscal 2021.

We expect to begin distribution out of this facility in the second half of calendar 2021.

To support our continued growth on the East coast, we entered into a new lease agreement for approximately 1.3 million square foot facility.

The lease agreement commenced in the third quarter of fiscal 2021 when we took control of the facility to make our tenant improvements.

We expect to recognize an operating lease asset and an operating lease liability for this distribution center in the third quarter of fiscal 2021 and expect to begin distribution out of this facility in the second half of calendar 2021.

To support our continued growth within southern California, we began operating a newly leased facility with approximately 1.2 million square feet upon completion of its construction in the fourth quarter of fiscal 2020.

This facility provides significant capacity to service our customers in this market.

On February 24, 2020, we executed a purchase option to acquire the real property of this distribution center, agreeing to pay approximately $151.9 million for the facility, subject to finalization.

On February 24, 2020, we executed a purchase option with a delayed purchase provision to acquire the real property of this distribution center, agreeing to pay approximately $151.9 million for the facility, subject to finalization.

We expect to engage a real estate partner to monetize the real property of this location, including through a sale-leaseback transaction that would ultimately reduce rents paid for this property compared to current levels, which we expect would occur on or before June 2022.

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Distribution Center Sales

Subsequent to the end of the first quarter of fiscal 2021, we received $35.1 million from the collection of a short-term note receivable, representing the remaining proceeds related to the fiscal 2020 sale of a distribution center.

In the second quarter of fiscal 2021, we received $35.1 million from the collection of a short-term note receivable, representing the remaining proceeds related to the fiscal 2020 sale of a distribution center.

As we consolidate our distribution network, we may sell additional owned facilities or exit leased facilities.

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These steps and others are intended to promote operational efficiencies and improve operating expenses as a percentage of net sales.

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Divestiture of Retail Operations

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The Wholesale segment’s net sales to discontinued operations retail stores are eliminated within the Wholesale segment.

Our strategy remains unchanged and we expect to divest all of our Retail operation in the future.

Our strategy remains unchanged and we expect to divest all of our Retail operations in the future.

As part of that process we plan to maximize value as part of the divestiture process, including limiting liabilities and stranded costs associated with these divestitures.

We expect to obtain ongoing supply relationships with the purchasers of some of these retail operations, but some reductions in supply volume may result from the divestiture of certain of these retail operations.

Actions associated with retail divestitures and adjustments to our core cost structure for our wholesale food distribution business are expected to result in headcount reductions and other costs and charges.

Actions associated with retail divestitures and potential resulting adjustments to our core cost structure for our wholesale food distribution business, are expected to generate headcount reductions and other costs and charges.

These costs and charges, which may be material, include multiemployer plan charges, severance costs, store closure charges, and related costs.

A withdrawal from a multiemployer pension plan may result in an obligation to make material payments over an extended period of time.

The extent of these costs and charges will be determined based on outcomes achieved under the divestiture process.

A withdrawal from a multiemployer pension plan may result in an obligation to make material payments over an extended period of time, or one-time lump sum payments on a net present value basis.

In addition, we are evaluating various options to address our off-balance sheet liability under certain of our multiemployer pension plans, irrespective of the retail divestiture process, which actions may result in significant costs or charges.

The extent of these costs and charges will be determined based on outcomes achieved under the process undertaken to minimize or eliminate the liability for the respective multiemployer pension plan.

At this time, however, we are unable to make an estimate with reasonable certainty of the amount or type of costs and charges expected to be incurred in connection with the foregoing actions.

Our discontinued operations as of the end of the first quarter of fiscal 2021 include five Shoppers stores, and for historical periods, results of discontinued operations include the Hornbacher’s and Shop ‘n Save and Shop ‘n Save East retail banners, which were divested in fiscal 2019, and Shoppers stores that were sold or closed in fiscal 2020.

Our discontinued operations as of the end of the second quarter of fiscal 2021 include four Shoppers stores, and for historical periods, results of discontinued operations include the Hornbacher’s and Shop ‘n Save and Shop ‘n Save East retail banners, which were divested in fiscal 2019, and Shoppers stores that were sold or closed in fiscal 2020 and fiscal 2021.

In addition, cash flows from discontinued operations include real estate sales related to those historical retail operations.

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During fiscal 2021, we expect to earn less than $20 million under this agreement.

We expect that services provided under the Services Agreement will wind down at or near the end of the initial term.

We expect that services provided under the Services Agreement will wind down at or near the end of the initial term in December 2021.

At that time, we would lose the revenue associated with this agreement, and if we are not able to eliminate fixed or variable costs associated with servicing this agreement concurrent with the decline in revenue, we would incur a decrease in operating profit.

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Impact of Inflation or Deflation

We monitor product cost inflation and deflation and evaluate whether to absorb cost increases or decreases, or pass on pricing changes to our customers.

We experienced a mix of inflation and deflation across product categories during the first quarter of fiscal 2021.

In the aggregate across all of our legacy businesses and taking into account the mix of products, management estimates our businesses experienced cost inflation of less than one percent in the first quarter of fiscal 2021.

We experienced a mix of inflation and deflation across product categories during the second quarter of fiscal 2021.

Cost inflation and deflation estimates are based on individual like items sold during the periods being compared.

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Business Performance Assessment and Composition of Condensed Consolidated Statements of Operations

Our net sales consist primarily of sales of natural, organic, specialty, produce and conventional grocery and non-food products, and support services to retailers, adjusted for customer volume discounts, vendor incentives when applicable, returns and allowances, and professional services revenue.

Our net sales consist primarily of sales of natural, organic, specialty, produce and conventional grocery and non-food products, and provider of support services to retailers, adjusted for customer volume discounts, vendor incentives when applicable, returns and allowances, and professional services revenue.

Net sales also include amounts charged by us to customers for shipping and handling and fuel surcharges.

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Net periodic benefit income, excluding service cost reflects the recognition of expected returns on benefit plan assets in excess of interest costs.

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Adjusted EBITDA

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We believe Adjusted EBITDA is reflective of factors that affect our underlying operating performance and facilitate operating performance comparisons of our business on a consistent basis over time.

Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool.

Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an

analytical tool.

Certain adjustments to our GAAP financial measures reflected below exclude items that may be considered recurring in nature and may be reflected in our financial results for the foreseeable future.

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There are significant limitations to using Adjusted EBITDA as a financial measure including, but not limited to, it not reflecting the cost of cash expenditures for capital assets or certain other contractual commitments, finance lease obligation and debt service expenses, income taxes, and any impacts from changes in working capital.

We define Adjusted EBITDA as a consolidated measure inclusive of continuing and discontinued operations results, which we reconcile by adding Net (loss) income from continuing operations, plus Total other expense, net and (Benefit) provision for income taxes, plus Depreciation and amortization calculated in accordance with GAAP, plus non-GAAP adjustments for Share-based compensation, Restructuring, acquisition and integration related expenses, Goodwill and asset impairment charges, Loss (gain) on sale of assets, certain legal charges and gains, certain other non-cash charges or items, as determined by management, plus Adjusted EBITDA of discontinued operations calculated in manner consistent with the results of continuing operations, outlined above.

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We define Adjusted EBITDA as a consolidated measure inclusive of continuing and discontinued operations results, which we reconcile by adding Net income (loss) from continuing operations, less net income attributable to noncontrolling interests, plus Total other expense, net and (Benefit) provision for income taxes, plus Depreciation and amortization calculated in accordance with GAAP, plus non-GAAP adjustments for Share-based compensation, Restructuring, acquisition and integration related expenses, Goodwill and asset impairment charges, Loss (gain) on sale of assets, certain legal charges and gains, certain other non-cash charges or items, as determined by management, plus Adjusted EBITDA of discontinued operations calculated in a manner consistent with the results of continuing operations, outlined above.

Assessment of Our Business Results

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We have revised the following table for the presentation of Retail within continuing operations discussed in Note 1—Significant Accounting Policies in Part II, Item 8 of the Annual Report on Form 10-K.

13-Week Period Ended

(in thousands) October 31, 2020 November 2, 2019 Change

13-Week Period Ended 26-Week Period Ended

(in thousands) January 30, 2021 February 1, 2020 Change January 30, 2021 February 1, 2020 Change

Net sales $ 6,888,133 $ 6,431,382 $ 456,751 $ 13,560,740 $ 12,727,994 $ 832,746

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Restructuring, acquisition and integration related expenses 17,783 36,522 (18,739) 34,211 51,194 (16,983)

Gain on sale of assets (230) (90) (140)

Loss on sale of assets 399 524 (125) 169 434 (265)

Operating income (loss) 105,297 17,547 87,750 154,636 (398,917) 553,553

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Net periodic benefit income, excluding service cost (17,127) (3,277) (13,850) (34,160) (14,661) (19,499)

(17,033) (11,384) (5,649)

Interest expense, net 50,944 48,836 2,108 120,077 98,545 21,532

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Total other expense, net 32,143 44,339 (12,196) 83,445 82,264 1,181

Loss from continuing operations before income taxes (1,963) (454,389) 452,426

Benefit for income taxes (991) (66,955) 65,964

Net loss from continuing operations (972) (387,434) 386,462

Income from discontinued operations, net of tax 1,296 4,026 (2,730)

Income (loss) from continuing operations before income taxes 73,154 (26,792) 99,946 71,191 (481,181) 552,372

Provision (benefit) for income taxes 16,392 (12,808) 29,200 15,401 (79,763) 95,164

Net income (loss) from continuing operations 56,762 (13,984) 70,746 55,790 (401,418) 457,208

Income (loss) from discontinued operations, net of tax 3,803 (16,076) 19,879 5,099 (12,050) 17,149

Net income (loss) including noncontrolling interests 60,565 (30,060) 90,625 60,889 (413,468) 474,357

Less net income attributable to noncontrolling interests (1,605) (650) (955) (2,972) (1,169) (1,803)

Net loss attributable to United Natural Foods, Inc.

Net income (loss) attributable to United Natural Foods, Inc.

$ 58,960 $ (30,710) $ 89,670 $ 57,917 $ (414,637) $ 472,554

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$ 206,295 $ 131,110 $ 75,185 $ 365,252 $ 252,804 $ 112,448

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The following table reconciles Adjusted EBITDA to Net loss from continuing operations and to Income from discontinued operations, net of tax.

13-Week Period Ended

(in thousands) October 31, 2020 November 2, 2019

Net loss from continuing operations $ (972) $ (387,434)

Adjustments to continuing operations net loss:

The following table reconciles Adjusted EBITDA to Net income (loss) from continuing operations and to Income (loss) from discontinued operations, net of tax.

13-Week Period Ended 26-Week Period Ended

(in thousands) January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020

Net income (loss) from continuing operations $ 56,762 $ (13,984) $ 55,790 $ (401,418)

Adjustments to continuing operations net income (loss):

Less net income attributable to noncontrolling interests (1,605) (650) (2,972) (1,169)

Total other expense, net 32,143 44,339 83,445 82,264

Benefit for income taxes (991) (66,955)

Provision (benefit) for income taxes 16,392 (12,808) 15,401 (79,763)

Depreciation and amortization 66,534 69,219 143,723 144,360

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Goodwill and asset impairment charges (1)

— — — 425,405

Restructuring, acquisition and integration related expenses (2)

17,783 36,522 34,211 51,194

Gain on sale of assets (230) (90)

Loss on sale of assets 399 524 169 434

Note receivable charges (3)

Legal reserve charge (4)

Legal (settlement income) reserve charge (4)

— (654) — 1,196

Other retail expense (5)

1,394 — 3,003 —

Adjusted EBITDA of continuing operations 202,475 127,642 359,592 244,078

Adjusted EBITDA of discontinued operations (6)

3,820 3,468 5,660 8,726

Adjusted EBITDA $ 206,295 $ 131,110 $ 365,252 $ 252,804

Income from discontinued operations, net of tax $ 1,296 $ 4,026

Income (loss) from discontinued operations, net of tax $ 3,803 $ (16,076) $ 5,099 $ (12,050)

Adjustments to discontinued operations net income:

Total other expense, net — (3) — (64)

Provision for income taxes 526 1,293

Benefit for income taxes (898) (4,635) (372) (3,342)

Restructuring, store closure and other charges, net

915 24,182 933 24,182

Adjusted EBITDA of discontinued operations

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In addition, this charge includes a goodwill finalization charge attributable to the Supervalu acquisition and an asset impairment charge.

(2) Fiscal 2021 primarily reflects costs associated with advisory and transformational activities as we position our business for further value-creation post-acquisition.

Fiscal 2020 primarily reflects closed property reserve charges and administrative and operational restructuring costs.

(2) Fiscal 2021 primarily reflects costs associated with advisory and transformational activities as we position our business for further value-creation post Supervalu acquisition.

Fiscal 2020 primarily reflects integration charges, closed property reserve charges and administrative and operational restructuring costs.

Refer to Note 4—Restructuring, Acquisition and Integration Related Expenses in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

(3) Reflects reserves and charges for notes receivable issued by the Supervalu business prior to its acquisition to finance the purchase of stores by its customers.

(4) Reflects a charge to settle a legal proceeding.

(4) Reflects a charge to settle a legal proceeding, net of income received to settle a separate legal proceeding.

(5) Reflects expenses associated with event-specific damages to certain retail stores.

(6) We believe the inclusion of discontinued operations results within Adjusted EBITDA provides investors a meaningful measure of total performance.

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RESULTS OF OPERATIONS

Our net sales by customer channel was as follows (in millions):

Net Sales for the 13-Week Period Ended Increase (Decrease)

Our net sales by customer channel was as follows (in millions except percentages):

Net Sales for the 13-Week Period Ended

Increase (Decrease) Net Sales for the 26-Week Period Ended

Increase (Decrease)

Customer Channel (1)

Net Sales November 2,

Net Sales $ %

2021 February 1,

2020 $ % January 30,

2021 February 1,

Chains $ 3,097 $ 2,909 $ 188 6 % $ 6,117 $ 5,784 $ 333 6 %

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(1) Refer to Note 3—Revenue Recognition in Part 1, Item 1 of this Quarterly Report on Form 10-Q for our channel definitions and for information regarding the recast of sales by customer channel to align with the current period presentation.

Our net sales for the first quarter of fiscal 2021 increased approximately 6.0% from the first quarter of fiscal 2020.

The increase in net sales was primarily driven by strong customer demand in response to the COVID-19 pandemic a s well as the benefits from cross selling, which was partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Chains net sales increased primarily due to growth in sales to existing customers, including demand for center store and natural products driven by customers’ response to the COVID-19 pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Independent retailers net sales increased primarily due to growth in sales to existing customers, including demand for center store and natural products driven by customers response to the COVID-19 pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Supernatural net sales increased primarily due to increased sales related to the COVID-19 pandemic, growth in existing and new product categories, and increased sales to existing and new stores, partially offset by the impact of categories that have been adversely impacted by COVID, such as bulk and ingredients used for prepared foods .

Second Quarter

Our net sales for the second quarter of fiscal 2021 increased approximately 7.1% from the second quarter of fiscal 2020.

The increase in net sales was primarily driven by strong customer demand in response to the pandemic a s well as the benefits from cross selling, which was partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Chains net sales increased primarily due to growth in sales to existing customers, including demand for center store and natural products driven by customers’ response to the pandemic, partially offset by lower sales from customers and stores lost prior to the pandemic.

Independent retailers net sales increased primarily due to growth in sales to existing customers, including demand for center store and natural products driven by customers response to the pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Supernatural net sales increased primarily due to increased sales related to the pandemic, growth in existing and new product categories, and increased sales to existing and new stores, partially offset by the impact of categories that have been adversely impacted by the pandemic, such as bulk and ingredients used for prepared foods .

Net sales within our supernatural channel do not include net sales to Amazon.com, Inc.

in either the current period or the prior period, as these net sales are reported in our other ch annel.

Retail’s net sales increased primarily due to a 15.7% increase in identical store sales from higher average basket sizes related to the COVID-19 pandemic.

Retail’s net sales increased primarily due to a 15.3% increase in identical store sales from higher average basket sizes related to the pandemic.

Retail identical store sales are defined as net product sales from stores operating since the beginning of the prior-year period, including store expansions and excluding fuel costs and announced planned store dispositions.

Identical store sales is a common metric used to understand the sales performance of retail stores as it removes the impact of new and closed stores.

The increase in Retail sales included the benefit of an approximately 200 percent increase in eCommerce sales at Cub Foods.

Other net sales decreased primarily due to a 41% (or $48 million) decline in sales to food service customers resulting from the lower purchases due to the COVID-19 pandemic, which were partially offset by higher e-commerce sales.

We also expect sales to our food service customers in the second quarter of fiscal 2021 to decrease as compared to fiscal 2020 as a result of the COVID-19 pandemic.

Table of C ontents

The increase in Retail sales included the benefit of a 187% increase in eCommerce sales at Cub Foods.

Other net sales increased primarily due to higher eCommerce sales, which were primarily offset by a 41% (or $42 million) decline in sales to food service customers resulting from the lower purchases due to the pandemic.

Our net sales for fiscal 2021 year-to-date increased approximately 6.5% from fiscal 2020 year-to-date.

Independent retailers net sales increased primarily due to growth in sales to existing customers, including demand for center store and natural products driven by customers response to the pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Retail’s net sales increased primarily due to a 15.5% increase in identical store sales from higher average basket sizes related to the pandemic.

The increase in Retail sales included the benefit of a 191% increase in eCommerce sales at Cub Foods.

Other net sales decreased primarily due to a 41% (or $90 million) decline in sales to food service customers resulting from the lower purchases due to the pandemic, which were partially offset by higher eCommerce sales.

Cost of Sales and Gross Profit

Our gross profit increased $59.3 million, or 6.5%, to $966.5 million for the first quarter of fiscal 2021, from $907.2 million for the first quarter of fiscal 2020.

Our gross profit as a percentage of net sales increased to 14.48% for the first quarter of fiscal 2021 compared to 14.41% for the first quarter of fiscal 2020.

Our gross profit increased $73.0 million, or 8.0%, to $990.4 million for the second quarter of fiscal 2021, from $917.3 million for the second quarter of fiscal 2020.

Our gross profit as a percentage of net sales increased to 14.38% for the second quarter of fiscal 2021 compared to 14.26% for the second quarter of fiscal 2020.

The increase in gross profit dollar growth was primarily driven by higher Wholesale and Retail sales volume.

The 7 basis point increase in gross profit rate was driven by an increase from Retail, which contributed approximately 17 basis points to the growth in the consolidated gross margin rate as a result of lower promotional spending and the Retail segment representing a greater percentage of total net sales.

Wholesale and the remaining business reduced the growth in the consolidated gross margin rate by approximately 10 basis points driven by lower levels of supplier-related income.

The 12 basis point increase in gross profit rate was driven by an increase from Retail, which contributed approximately 0.13% to the growth in the consolidated gross margin rate as a result of lower Retail promotional spending and the Retail segment representing a greater percentage of total net sales.

Wholesale and the remaining business’s gross margin rate was approximately flat and included the benefits of lower shrink offset by lower levels of supplier-related income.

Included in gross margin for the second quarter of fiscal 2020 was inventory shrink expense of approximately $4.2 million, or 0.07% of net sales, associated with customer bankruptcies.

Our gross profit increased $132.3 million, or 7.3%, to $1,956.9 million for fiscal 2021 year-to-date, from $1,824.5 million for fiscal 2020 year-to-date.

Our gross profit as a percentage of net sales increased to 14.43% for fiscal 2021 year-to-date compared to 14.33% for fiscal 2020 year-to-date.

The increase in gross profit dollar growth for fiscal 2021 year-to-date when compared to fiscal 2020 year-to-date was primarily driven by higher Wholesale and Retail sales volume.

The increase in gross profit rate was driven by a mix increase from Retail resulting from lower promotional spending, and the Retail segment representing a greater percentage of total net sales.

In addition, gross profit included lower levels of supplier-related income, partially offset by the benefits of lower shrink.

Operating Expenses

Operating expenses increased $17.3 million, or 2.0%, to $901.0 million, or 13.50% of net sales, for the first quarter of fiscal 2021 compared to $883.7 million, or 14.03% of net sales, for the first quarter of fiscal 2020.

Operating expenses in the first quarter of fiscal 2020 included $18.0 million of charges and expenses, primarily related to customer notes receivable and surplus property depreciation.

The remaining decrease in operating expenses as a percent of net sales was driven by lower administrative costs and leveraging fixed operating expenses over higher net sales, which was partially offset by higher operating costs related to starting up three distribution centers.

Total operating expenses also included share-based compensation expense of $14.1 million and $3.9 million for the first quarter of fiscal 2021 and 2020, respectively.

Operating expenses increased $4.1 million, or 0.5%, to $866.9 million, or 12.59% of net sales, for the second quarter of fiscal 2021 compared to $862.7 million, or 13.41% of net sales, for the second quarter of fiscal 2020.

Operating expenses in the second quarter of fiscal 2020 included $28.9 million of bad debt expense associated with customer bankruptcies.

The remaining decrease in operating expenses as a percent of net sales resulted from leveraging fixed operating expenses over higher net sales and lower benefit costs.

Total operating expenses also included share-based compensation expense of $12.7 million and $5.1 million for the second quarters of fiscal 2021 and 2020, respectively.

Operating expenses increased $21.4 million, or 1.2%, to $1,767.8 million, or 13.04% of net sales, for fiscal 2021 year-to-date compared to $1,746.4 million, or 13.72% of net sales, for fiscal 2020 year-to-date.

Operating expenses in fiscal 2020 year-to-date included $28.9 million of bad debt expense associated with customer bankruptcies, and $18.8 million of charges and expenses, primarily related to customer notes receivable, surplus property depreciation and a legal reserve charge.

The remaining decrease in operating expenses as a percent of net sales was driven by leveraging fixed operating expenses over higher net sales and lower benefit costs, which was partially offset by higher operating costs related to starting up three distribution centers.

Total operating expenses also included share-based compensation expense of $26.8 million and $9.1 million for fiscal 2021 and 2020 year-to-date, respectively.

Goodwill and Asset Impairment Charges

A goodwill impairment adjustment of $425.4 million was recorded in the first quarter of fiscal 2020, which was attributable to changes in the preliminary fair value of net assets, which affected the initial goodwill resulting from the Supervalu acquisition.

As discussed further in Note 5—Goodwill and Intangible Assets in Part I, Item 1 of this Quarterly Report, we recorded a goodwill impairment charge of $421.5 million in the first quarter of fiscal 2020.

The goodwill impairment charge is reflected in Goodwill and asset impairment charges in the Condensed Consolidated Statements of Operations.

The goodwill impairment charge reflects the impairment of all of the U.S.

Wholesale’s reporting unit goodwill.

Goodwill and asset impairment charges of $425.4 million were recorded for fiscal 2020 year-to-date, which reflects $421.5 million from an impairment charge on the remaining goodwill attributable to the U.S.

Wholesale goodwill reporting unit, $2.5 million related to purchase accounting adjustments to finalize the opening balance sheet goodwill and $1.4 million of other asset impairment charges.

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were $16.4 million for the first quarter of fiscal 2021, which included $14.8 million of restructuring and integration costs primarily reflecting costs associated with advisory and transformational activities as we position our business for further value-creation post-acquisition and $1.7 million of closed property charges and costs.

Expenses incurred were $14.7 million for the first quarter of fiscal 2020, which included $9.3 million of integration related costs, including a charge for an off-site storage contract, $3.5 million of closed property reserve charges and costs, and $1.8 million of restructuring costs.

Restructuring, acquisition and integration related expenses were $17.8 million for the second quarter of fiscal 2021, which included $14.7 million of restructuring and integration costs primarily reflecting costs associated with advisory and transformational activities as we position our business for further value creation post Supervalu acquisition and $3.1 million of closed property charges and costs.

Expenses for the second quarter of fiscal 2020 were $36.5 million, which included $20.4 million of closed property charges and costs primarily related to lease asset impairments on Shoppers store and surplus properties exits, $15.4 million of integration related costs primarily related to a multiemployer pension plan withdrawal obligation resulting from distribution center consolidation and $0.7 million of restructuring costs.

Restructuring, acquisition and integration related expenses were $34.2 million for fiscal 2021 year-to-date, which included $29.4 million of restructuring and integration costs primarily reflecting costs associated with advisory and transformational activities as we position our business for further value creation post Supervalu acquisition and $4.8 million of closed property charges and costs.

Expenses for fiscal 2020 year-to-date were $51.2 million, which included $24.7 million of integration costs including a multiemployer pension plan withdrawal obligation resulting from distribution center consolidation and a charge for an off-site storage contract, $24.0 million closed property charges and costs primarily related to lease asset impairments on surplus properties and Shoppers store lease exits and $2.5 million of restructuring costs.

We expect to incur additional costs associated with advisory and integration activities, and distribution center integration costs throughout fiscal 2021 related to our operational restructuring to achieve cost synergies and supply chain efficiencies within continuing operations.

Operating Income (Loss)

Reflecting the factors described above, operating income increased $465.8 million to $49.3 million for the first quarter of fiscal 2021, from an operating loss of $416.5 million for the first quarter of fiscal 2020.

The operating income increase was primarily driven by the fiscal 2020 goodwill impairment charge and an increase in gross profit in excess of operating expenses discussed above.

Table of C ontents

Reflecting the factors described above, operating income increased $87.8 million to $105.3 million for the second quarter of fiscal 2021, compared to $17.5 million for the second quarter of fiscal 2020.

The operating income increase was primarily driven by an increase in gross profit in excess of operating expenses and lower Restructuring, acquisition and integration related expenses discussed above.

Reflecting the factors described above, operating income increased $553.6 million, to $154.6 million for fiscal 2021 year-to-date, from an operating loss of $398.9 million for fiscal 2020 year-to-date.

The increase in operating income was primarily driven by the fiscal 2020 goodwill impairment charge, an increase in gross profit in excess of operating expenses and lower Restructuring, acquisition and integration related expenses discussed above.

Total Other Expense, Net

13-Week Period Ended

(in thousands) October 31, 2020 November 2, 2019 Increase (Decrease)

13-Week Period Ended 26-Week Period Ended

(in thousands) January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020

Net periodic benefit income, excluding service cost $ (17,127) $ (3,277) $ (34,160) $ (14,661)

Interest expense on long-term debt, net of capitalized interest 37,793 43,137 74,989 86,676

37,196 43,539 (6,343)

Interest expense on finance lease obligations 4,678 2,020 9,546 4,263

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Total other expense, net $ 32,143 $ 44,339 $ 83,445 $ 82,264

The increase in net periodic benefit income, excluding service costs reflects the recognition of lower interest costs due to a lower discount rate utilized in the measurement of pension liabilities.

The decrease in interest expense on long-term debt, net of capitalized interest was driven by lower amounts of outstanding debt and lower average interest rates.

The increase in loss on debt extinguishment costs primarily reflects the acceleration of unamortized debt issuance costs and original issue discounts related to mandatory and voluntary prepayments on the Term Loan Facility made in the first quarter of fiscal 2021.

The increase in net periodic benefit income, excluding service costs in the second quarter of fiscal 2021 and year-to-date fiscal 2021 reflects the recognition of lower interest costs due to a lower discount rate utilized in the measurement of pension liabilities.

The decrease in interest expense on long-term debt, net of capitalized interest, in the second quarter of fiscal 2021 and year-to-date fiscal 2021 was driven by lower amounts of outstanding debt.

Refer to Note 8—Long-Term Debt for further information.

The increase in interest expense on finance leases primarily reflects interest related to a distribution center for which we executed a purchase option with a delayed purchase provision.

Benefit for Income Taxes

The effective income tax rate for continuing operations was a benefit of 50.5% compared to a benefit of 14.7% on pre-tax income for the first quarters of fiscal 2021 and 2020, respectively.

The change in the effective income tax rate for the first quarter of fiscal 2021 was primarily driven by a discrete tax benefit in the first quarter of fiscal 2021 related to employee stock awards compared to a discrete tax expense for this item in the first quarter of fiscal 2020.

In addition, the first quarter of fiscal 2020 was impacted by a goodwill impairment charge.

Income from Discontinued Operations, Net of Tax

The results of operations for the first quarter of fiscal 2021 reflect net sales of $24.8 million for which we recognized $8.0 million of gross profit and Income from discontinued operations, net of tax of $1.3 million.

Net sales and gross profit of discontinued operations decreased $70.8 million and $22.5 million, respectively, for the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020 primarily due to a lower operating store base due to closures and sales that occurred in fiscal 2020, which was partially offset by an increase in identical store sales results driven by the impacts of the COVID-19 pandemic.

The increase in interest expense on finance leases in the second quarter of fiscal 2021 and year-to-date fiscal 2021 primarily reflects interest related to a distribution center for which we executed a purchase option with a delayed purchase provision.

Provision (Benefit) for Income Taxes

The effective income tax rate for continuing operations was an expense of 22.4% on pre-tax income compared to a benefit of 47.8% on pre-tax losses for the second quarters of fiscal 2021 and 2020, respectively.

The change in the effective income tax rate for the second quarter of fiscal 2021 was primarily driven by a pre-tax loss of approximately $26.8 million in the second quarter of fiscal 2020 compared to pre-tax income of approximately $73.2 million in the second quarter of fiscal 2021.

In addition, the change in the rate is partially driven by a discrete tax benefit of approximately $2.8 million in the second quarter of fiscal 2021 related to the release of unrecognized tax positions versus a discrete tax benefit of approximately $0.5 million for this item in the second quarter of fiscal 2020.

The tax provision had $3.1 million and $0.1 million of discrete tax benefits, including those mentioned above, for the second quarters of fiscal 2021 and fiscal 2020, respectively.

The effective income tax rate for continuing operations was an expense of 21.6% on pre-tax income compared to a benefit of 16.6% on pre-tax losses for fiscal 2021 year-to-date and fiscal 2020 year-to-date, respectively.

The change in the effective income tax rate was primarily driven by a discrete tax benefit in fiscal 2021 year-to-date for employee stock vestings versus a discrete tax expense for this item in fiscal 2020 year-to-date, as well as a discrete tax benefit for the release of unrecognized tax positions in fiscal 2021 year-to-date versus a discrete tax expense for this item in fiscal 2020 year-to-date.

In addition, fiscal 2020 year-to-date was impacted by a goodwill impairment charge that did not repeat in fiscal 2021 year-to-date.

The tax provision had $3.5 million and $64.4 million of discrete tax benefits for fiscal 2021 and fiscal 2020 year-to-date, respectively.

Income (Loss) from Discontinued Operations, Net of Tax

The results of operations for the second quarter of fiscal 2021 reflect net sales of $23.0 million for which we recognized $7.2 million of gross profit and Income (loss) from discontinued operations, net of tax of $3.8 million.

Net sales and gross profit of discontinued operations decreased $52.1 million and $11.3 million, respectively, for the second quarter of fiscal 2021 as compared to the second quarter of fiscal 2020 primarily due to a lower operating store base due to closures and sales that occurred in fiscal 2020, which was partially offset by an increase in identical store sales results driven by the impacts of the pandemic.

The results of operations for fiscal 2021 year-to-date reflect net sales of $47.8 million for which we recognized $15.3 million of gross profit and Income (loss) from discontinued operations, net of tax of $5.1 million.

Net sales and gross profit of discontinued operations decreased $122.9 million and $33.8 million, respectively, for the fiscal 2021 year-to-date as compared to fiscal 2020 year-to-date primarily due to a lower operating store base due to closures and sales that occurred in fiscal 2020 year-to-date, which was partially offset by an increase in identical store sales results driven by the impacts of the pandemic.

Discontinued operations for fiscal 2020 year-to-date included $24.2 million of charges and costs primarily related to store closures charges and expenses, and asset impairment charges related to exited locations.

Refer to the section above Executive Overview—Divestiture of Retail Operations and to Note 16—Discontinued Operations in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional financial information regarding these discontinued operations.

Net Loss Attributable to United Natural Foods, Inc.

Reflecting the factors described in more detail above, we incurred a net loss attributable to United Natural Foods, Inc.

of $1.0 million, or $0.02 per diluted common share, for the first quarter of fiscal 2021, compared to $383.9 million, or $7.21 per diluted common share, for the first quarter of fiscal 2020.

Table of C ontents

As described in more detail in Note 10—Share-Based Awards in Part I, Item I of this Quarterly Report on Form 10-Q, in the first quarter of fiscal 2021, we granted restricted stock units and performance share units representing a right to receive an aggregate of 2.6 million shares of common stock under our 2020 Equity Incentive Plan.

As described in more detail within Note 13—Share-Based Awards in Part II, Item 8 of the Annual Report on Form 10-K, in fiscal 2020 we issued approximately 1.3 million shares of common stock to fund the settlement of time-vesting replacement award obligations from the Supervalu acquisition, which has had a dilutive effect on our weighted average earnings per share as compared to last year.

Segment Results of Operations

In evaluating financial performance in each business segment, management primarily uses Net sales and Adjusted EBITDA of its business segments as discussed and reconciled within Note 14—Business Segments within Part I, Item 1 of this Quarterly Report on Form 10-Q and the above table within the Executive Overview section.

The following tables set forth Net sales and Adjusted EBITDA by segment for the periods indicated.

13-Week Period Ended

(in thousands) October 31, 2020 November 2, 2019 Increase (Decrease)

Wholesale $ 6,431,283 $ 6,067,307 $ 363,976

Retail 594,911 515,226 79,685

Other 55,612 65,079 (9,467)

Eliminations (409,199) (351,000) (58,199)

Total Net sales $ 6,672,607 $ 6,296,612 $ 375,995

Continuing operations Adjusted EBITDA:

Wholesale $ 122,961 $ 106,312 $ 16,649

Retail 24,282 10,562 13,720

Other 4,150 (1,597) 5,747

Eliminations 5,724 1,159 4,565

Total continuing operations Adjusted EBITDA $ 157,117 $ 116,436 $ 40,681

Wholesale net sales increased primarily due to growth in sales to existing customers in the Chains, Independent retailers and Supernatural channels.

Sales growth was primarily driven by strong customer demand in response to the COVID-19 pandemic as well as the benefits from cross selling, which was partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Retail net sales increased primarily due to a 15.7% increase in identical store sales from higher average basket sizes related to the COVID-19 pandemic.

The increase in eliminations net sales was driven by higher Wholesale sales to Retail to support Retail’s continued sales growth.

Adjusted EBITDA

Wholesale’s Adjusted EBITDA increased 16% for the first quarter of fiscal 2021 from the first quarter of fiscal 2020.

The increase was driven by leveraged sales growth, which was partially offset by higher operating costs related to starting up three distribution centers.

Gross profit dollar growth for the first quarter of fiscal 2021 was $28.3 million with a gross profit rate decrease of 26 basis points driven by lower supplier income, which outpaced operating expense increases, excluding depreciation and amortization and stock-based compensation, of $11.6 million.

Operating expense rate decreased 42 basis points primarily driven by leveraging fixed and variable costs, which was partially offset by higher operating costs related to starting up three distribution centers.

Wholesale depreciation expense was approximately flat to last year.

Table of C ontents

Retail’s Adjusted EBITDA increased 130% for the first quarter of fiscal 2021 from the first quarter of fiscal 2020.

The increase was driven by leveraged sales growth from increases in food-at-home purchases that drove sales at our stores.

Gross profit dollar growth for the first quarter of fiscal 2021 was $27.1 million with gross profit rate increasing 99 basis points from lower promotional activity, which outpaced operating expense growth of $12.5 million with an operating expense rate decrease of 117 basis points driven by fixed and variable cost leveraging.

Retail depreciation and amortization expense increased $5.9 million primarily related to assets previously classified as held for sale that were moved to continuing operations in the fourth quarter of fiscal 2020 for which we are required to begin recording depreciation and amortization expense.

Net Income (Loss) Attributable to United Natural Foods, Inc.

Reflecting the factors described in more detail above, Net income attributable to United Natural Foods, Inc.

was $59.0 million, or $1.00 per diluted common share, for the second quarter of fiscal 2021, compared to a net loss of $30.7 million, or $0.57 loss per diluted common share, for the second quarter of fiscal 2020.

Reflecting the factors described in more detail above, Net income attributable to United Natural Foods, Inc.

was $57.9 million, or $0.98 per diluted common share, for fiscal 2021 year-to-date, compared to a net loss of 414.6 million, or $7.77 loss per diluted common share, for fiscal 2020 year-to-date, which was driven lower due to goodwill impairment charges.

As described in more detail in Note 10—Share-Based Awards in Part I, Item I of this Quarterly Report on Form 10-Q, in fiscal 2021 year-to-date, we granted restricted stock units and performance share units representing a right to receive an aggregate of 2.6 million shares of common stock under our 2020 Equity Incentive Plan.

LIQUIDITY AND CAPITAL RESOURCES

• Total liquidity as of October 31, 2020 was $1.06 billion and consisted of the following:

◦ Unused credit under our ABL Credit Facility was $1,008.3 million, which decreased $226.5 million from $1,234.8 million as of August 1, 2020, primarily due to increased cash utilized to fund seasonal working capital increases and prepayments on the Term Loan Facility.

◦ Cash and cash equivalents was $49.0 million, which increased $2.1 million from $47.0 million as of August 1, 2020.

• Our total debt increased $135.8 million to $2,633.4 million as of October 31, 2020 from $2,497.6 million as of August 1, 2020, primarily related to additional borrowings under the ABL Credit Facility to fund seasonal inventory build in excess of accounts payable and increases in accounts receivable.

• Total liquidity as of January 30, 2021 was $1.16 billion and consisted of the following:

◦ Unused credit under our ABL Credit Facility was $1,117.8 million, which decreased $117.0 million from $1,234.8 million as of August 1, 2020, primarily due to an incremental borrowing under the ABL Credit Facility in the second quarter of fiscal 2021 to fund the voluntary prepayment of $150.0 million on the Term Loan Facility.

◦ Cash and cash equivalents was $40.5 million, which decreased $6.5 million from $47.0 million as of August 1, 2020.

• Our total debt decreased $110.4 million to $2,387.2 million as of January 30, 2021 from $2,497.6 million as of August 1, 2020, primarily driven by net positive cash flows from operating activities, partially offset by cash capital expenditures, during fiscal 2021 year-to-date.

• Subsequent to the end of the second quarter of fiscal 2021, we amended our Term Loan Agreement which, among other things, reduced the applicable margin for LIBOR and base rate loans under the Term Loan Facility by 75 basis points.

• In the second quarter of fiscal 2021, we made a voluntary prepayment of $150.0 million on the Term Loan Facility funded with incremental borrowings under the ABL Credit Facility that will reduce our interest costs.

This prepayment will count towards satisfying any requirement to make a mandatory prepayment with Excess Cash Flow (as defined in the Term Loan Agreement) generated during fiscal 2021, if any, which would be due in fiscal 2022.

• In the first quarter of fiscal 2021, we issued $500.0 million of unsecured 6.750% Senior Notes due October 15, 2028 (the “Senior Notes”) and utilized the net proceeds and borrowings under the ABL Credit Facility to make a $500.0 million prepayment on our Term Loan Facility.

In addition, during the quarter, the Company made $108.0 million of additional repayments under the Term Loan Facility, including $72.0 million related to cash flow generated in fiscal 2020, as required under the Term Loan Agreement and a voluntary prepayment of $36.0 million with incremental borrowings under the ABL Credit Facility.

In addition, during the first quarter of fiscal 2021, the Company made $108.0 million of additional repayments under the Term Loan Facility, including $72.0 million related to cash flow generated in fiscal 2020, as required under the Term Loan Agreement and a voluntary prepayment of $36.0 million with incremental borrowings under the ABL Credit Facility.

Other debt maturities are expected to be $6.5 million in fiscal 2021.

We are also obligated to make payments to reduce finance lease obligations.

Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to make additional Term Loan Facility payments or be reinvested in the business.

• Subsequent to the end of the first quarter of fiscal 2021, we made a voluntary prepayment of $150.0 million on the Term Loan Facility funded with incremental borrowings under the ABL Credit Facility that will reduce our interest costs.

In the second quarter of fiscal 2021, we expect to record an accelerated charge related to deferred financing fees and original issue discounts based on the proportionate amount of this prepayment to the Term Loan Facility balance.

• We expect to be able to fund near-term debt maturities through fiscal 2023 with internally generated funds, proceeds from asset sales or borrowings under the ABL Credit Facility.

• Working capital increased $231.4 million to $1,566.3 million as of October 31, 2020 from $1,334.8 million as of August 1, 2020, primarily due to seasonal inventory build in excess of accounts payable increases, an increase in accounts payable, a reduction of the current portion of long-term debt resulting from the Term Loan Facility Excess Cash Flow prepayment described above, and an increase in accounts receivable driven by credit extended to higher sales growth customers.

Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to be used to make additional Term Loan Facility payments or to be reinvested in the business.

• We expect to be able to fund near-term debt maturities through fiscal 2023 with internally generated funds, proceeds from asset sales or borrowings under the ABL Credit Facility, which expires in fiscal 2024.

• Working capital increased $20.2 million to $1,355.1 million as of January 30, 2021 from $1,334.8 million as of August 1, 2020, primarily due to a reduction of the current portion of long-term debt resulting from the Term Loan Facility Excess Cash Flow prepayment described above.

Sources and Uses of Cash

5 unchanged sentences

Our continued access to short-term and long-term financing through credit markets depends on numerous factors, including the condition of the credit markets and our results of operations, cash flows, financial position and credit ratings.

Table of C ontents

Primary uses of cash include debt service, capital expenditures, working capital maintenance and income tax payments.

5 unchanged sentences

Long-Term Debt

During the first quarter of fiscal 2021, we borrowed a net $230.0 million under the ABL Credit Facility, repaid $608.0 million on the Term Loan Facility related to mandatory prepayments and voluntary prepayments, and issued $500.0 million of Senior Notes.

During fiscal 2021 year-to-date, we borrowed a net $128.3 million under the ABL Credit Facility, repaid $758.0 million on the Term Loan Facility related to mandatory prepayments and voluntary prepayments, and issued $500.0 million of Senior Notes.

Refer to Note 8—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements and additional information.

Our Term Loan Agreement does not include any financial maintenance covenants.

Our Term Loan Agreement and Senior Notes do not include any financial maintenance covenants.

Our ABL Loan Agreement subjects us to a fixed charge coverage ratio (as defined in the ABL Loan Agreement) of at least 1.0 to 1.0 calculated at the end of each of our fiscal quarters on a rolling four quarter basis, if the adjusted aggregate availability (as defined in the ABL Loan Agreement) is ever less than the greater of (i) $235.0 million and (ii) 10% of the aggregate borrowing base.

We have not been subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement, including through the filing date of this Quarterly Report.

The ABL Loan Agreement and the Term Loan Agreement contain certain customary operational and informational covenants.

If we fail to comply with any of these covenants, we may be in default under the applicable loan agreement, and all amounts due thereunder may become immediately due and payable.

The Senior Notes contain covenants customary for debt securities of this type that limit the ability of the Company and its restricted subsidiaries to, among other things, incur debt, declare or pay dividends or make other distributions to stockholders of the Company, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis.

The Term Loan Agreement, ABL Loan Agreement and Senior Notes contain certain operational and informational covenants customary for debt securities of these types that limit the ability of the Company and its restricted subsidiaries to, among other things, incur debt, declare or pay dividends or make other distributions to stockholders of the Company, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis.

We were in compliance with all such covenants for all periods presented..

If we fail to comply with any of these covenants, we may be in default under the applicable loan agreement, and all amounts due thereunder may become immediately due and payable.

Derivatives and Hedging Activity

1 unchanged sentence

Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures.

As of October 31, 2020, we had an aggregate of $1.49 billion of notional debt hedged through pay fixed and receive floating interest rate swap contracts to effectively fix the LIBOR component of our floating LIBOR based debt at fixed rates ranging from 1.795% to 2.959%, with maturities between April 2022 and October 2025.

As of January 30, 2021, we had an aggregate of $1,485.0 million of floating rate notional debt subject to active interest rate swap contracts, which effectively hedge the LIBOR component of our interest rate payments through pay fixed and receive floating interest rate swap agreements.

These fixed rates range from 1.795% to 2.959%, with maturities between April 2022 and October 2025.

The fair value of these interest rate derivatives represents a total net liability of $101.2 million and are subject to volatility based on changes in market interest rates.

3 unchanged sentences

From time to time, we enter into fixed price fuel supply agreements and foreign currency hedges.

As of October 31, 2020, we had fixed price fuel contracts outstanding and foreign currency forward agreements outstanding.

Gains and losses and the outstanding net asset from these arrangements are insignificant.

Table of C ontents

As of January 30, 2021, we had fixed price fuel contracts outstanding and foreign currency forward agreements outstanding.

Gains and losses and the outstanding net liability from these arrangements are insignificant.

Capital Expenditures

Our capital expenditures for the first quarter of fiscal 2021 were $41.4 million, compared to $45.0 million for the first of fiscal 2020, a decrease of $3.6 million.

In the first quarter of fiscal 2021, our capital expenditures principally included information technology and equipment expenditures.

Our capital expenditures for fiscal 2021 year-to-date were $91.5 million, compared to $91.1 million for fiscal 2020 year-to-date, an increase of $0.4 million.

In fiscal 2021 year-to-date, our capital expenditures principally included information technology and supply chain expenditures.

Fiscal 2021 capital spending is expected to be in the range of $250 million to $300 million and include projects that optimize and expand our distribution network and our technology platform.

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26-Week Period Ended

(in thousands) October 31, 2020 November 2, 2019 Change

Net cash used in operating activities of continuing operations $ (55,182) $ (134,381) $ 79,199

(in thousands) January 30, 2021 February 1, 2020 Change

Net cash provided by operating activities of continuing operations

$ 205,675 $ 34,730 $ 170,945

Net cash used in investing activities of continuing operations

Net cash provided by financing activities of continuing operations 95,265 156,096 (60,831)

Net cash (used in) provided by discontinued operations (998) 20,376 (21,374)

(51,705) (80,270) 28,565

Net cash (used in) provided by financing activities of continuing operations

(163,492) 15,649 (179,141)

Net cash provided by discontinued operations

2,791 26,937 (24,146)

Effect of exchange rate on cash 265 19 246

Net increase (decrease) in cash and cash equivalents 2,149 (2,664) 4,813

Net decrease in cash and cash equivalents (6,466) (2,935) (3,531)

Cash and cash equivalents, at beginning of period 47,117 45,263 1,854

Cash and cash equivalents, at end of period $ 40,651 $ 42,328 $ (1,677)

The decrease in net cash used in operating activities of continuing operations in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was primarily due lower cash utilized to build inventories, and higher earnings before taxes, depreciation and amortization, and impairments.

The decrease in net cash used in investing activities of continuing operations in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was primarily due to lower cash payments for capital expenditures and higher cash proceeds for the sale of property and equipment.

The decrease in net cash provided by financing activities of continuing operations in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was primarily due to higher payments of long-term debt attributable to the mandatory and voluntary prepayments on the Term Loan Facility, partially offset by new borrowings from the Senior Notes.

The decrease in cash flows from discontinued operations in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was primarily due to lower investing activities cash flow from the sale of property.

The increase in net cash provided by operating activities of continuing operations for fiscal 2021 year-to-date compared to fiscal 2020 year-to-date was primarily due to lower cash utilized to build inventories, and higher earnings before taxes, depreciation and amortization, and impairments.

The decrease in net cash used in investing activities of continuing operations for fiscal 2021 year-to-date compared to fiscal 2020 year-to-date was primarily due to higher cash proceeds for the sale of property and equipment.

The increase in net cash used in financing activities of continuing operations for fiscal 2021 year-to-date compared to fiscal 2020 year-to-date was primarily due to higher payments of long-term debt attributable to the mandatory and voluntary prepayments on the Term Loan Facility, partially offset by new borrowings from the Senior Notes.

The decrease in cash flows from discontinued operations for fiscal 2021 year-to-date compared to fiscal 2020 year-to-date was primarily due to lower investing activities cash flow from the sale of property.

On October 6, 2017, we announced that our Board of Directors authorized a share repurchase program for up to $200.0 million of our outstanding common stock.

The repurchase program is scheduled to expire upon our repurchase of shares of our common stock having an aggregate purchase price of $200.0 million.

We did not purchase any shares of our common stock in the first quarters of fiscal 2020 and 2021 pursuant to the share repurchase program.

As of October 31, 2020, we have $175.8 million remaining authorized under the share repurchase program.

We did not purchase any shares of our common stock in fiscal 2021 and 2020 year-to-date pursuant to the share repurchase program.

As of January 30, 2021, we have $175.8 million remaining authorized under the share repurchase program.

We do not expect to purchase shares under the share repurchase program during fiscal 2021.

Additionally, our ABL Credit Facility, Term Loan Facility, and Senior Notes contain terms that limit our ability to repurchase of common stock above certain levels unless certain conditions and financial tests are met.

Table of C ontents

Additionally, our ABL Credit Facility, Term Loan Facility, and Senior Notes contain terms that limit our ability to repurchase shares of common stock above certain levels unless certain conditions and financial tests are met.

Pension and Other Postretirement Benefit Obligations

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We assess the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums, or in order to achieve exemption from participant notices of underfunding.

Segment Results of Operations

The following tables set forth Net sales and Adjusted EBITDA by segment for the periods indicated.

13-Week Period Ended 26-Week Period Ended

(in thousands) January 30, 2021 February 1, 2020 Change January 30, 2021 February 1, 2020 Change

Wholesale $ 6,608,775 $ 6,206,918 $ 401,857 $ 13,040,058 $ 12,274,225 $ 765,833

Retail 620,871 538,629 82,242 1,215,782 1,053,855 161,927

Other 55,428 41,073 14,355 111,040 106,152 4,888

Eliminations (396,941) (355,238) (41,703) (806,140) (706,238) (99,902)

Total Net sales $ 6,888,133 $ 6,431,382 $ 456,751 $ 13,560,740 $ 12,727,994 $ 832,746

Continuing operations Adjusted EBITDA:

Wholesale $ 186,768 $ 102,454 $ 84,314 $ 309,729 $ 208,766 $ 100,963

Retail 25,330 11,428 13,902 49,612 21,990 27,622

Other (7,845) 14,425 (22,270) (3,695) 12,828 (16,523)

Eliminations (1,778) (665) (1,113) 3,946 494 3,452

Total continuing operations Adjusted EBITDA $ 202,475 $ 127,642 $ 74,833 $ 359,592 $ 244,078 $ 115,514

Second Quarter

Wholesale’s net sales increased primarily due to growth in sales to existing customers in the Chains, Independent retailers and Supernatural channels.

Sales growth was primarily driven by strong customer demand in response to the pandemic as well as the benefits from cross selling, which was partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Retail’s net sales increased primarily due to a 15.3% increase in identical store sales from higher average basket sizes related to the pandemic.

The increase in eliminations net sales was driven by higher Wholesale sales to Retail to support Retail’s continued sales growth.

Wholesale’s net sales increased primarily due to growth in sales to existing customers in the Chains, Independent retailers and Supernatural channels.

Retail’s net sales increased primarily due to a 15.5% increase in identical store sales from higher average basket sizes related to the pandemic.

The increase in eliminations net sales was driven by higher Wholesale sales to Retail to support Retail’s continued sales growth.

Adjusted EBITDA

Second Quarter

Wholesale’s Adjusted EBITDA increased 82.3% for the second quarter of fiscal 2021 from the second quarter of fiscal 2020.

The increase was driven by leveraged sales growth.

Wholesale’s gross profit dollar growth for the second quarter of fiscal 2021 was $49.5 million and gross profit rate was flat to the second quarter of fiscal 2020;

however, it included the benefits of lower shrink offset by lower levels of supplier-related income.

Wholesale’s operating expense, excluding depreciation and amortization and stock-based compensation, decreased $34.8 million driven by $28.9 million of lower bad debt expense associated with customer bankruptcies.

Wholesale’s operating expense rate decreased 117 basis points primarily driven by leveraging fixed and variable costs, and lower bad debt expense.

Wholesale depreciation expense decreased $7.0 million compared to last year.

Retail’s Adjusted EBITDA increased 121.6% for the second quarter of fiscal 2021 from the second quarter of fiscal 2020.

The increase was driven by leveraged sales growth from increases in food-at-home purchases that drove sales at our stores.

Wholesale’s gross profit dollar growth for the second quarter of fiscal 2021 was $26.3 million and gross profit rate increased 76 basis points from lower promotional activity.

Retail’s operating expense increased $11.4 million, excluding depreciation and amortization and stock-based compensation, and operating expense rate decreased 133 basis points driven by fixed and variable cost leveraging.

Retail’s depreciation and amortization expense increased $5.9 million primarily related to assets previously classified as held for sale that were moved to continuing operations in the fourth quarter of fiscal 2020 for which we are required to begin recording depreciation and amortization expense.

Wholesale’s Adjusted EBITDA increased 48.4% for fiscal 2021 year-to-date from fiscal 2020 year-to-date.

The increase was driven by leveraged sales growth, which was partially offset by higher operating costs related to starting up three distribution centers.

Gross profit dollar growth for fiscal 2021 year-to-date was $77.8 million and gross profit rate decreased 13 basis points driven by lower supplier income, partially offset by lower shrink.

Wholesale’s operating expense increased $23.2 million, excluding depreciation and amortization and stock-based compensation.

Wholesale’s operating expense rate decreased 80 basis points primarily driven by leveraging fixed and variable costs, and lower bad debt expense, which was partially offset by higher operating costs related to starting up three distribution centers.

Wholesale depreciation expense decreased $7.2 million.

Retail’s Adjusted EBITDA increased 125.6% for fiscal 2021 year-to-date from fiscal 2020 year-to-date.

The increase was driven by leveraged sales growth from increases in food-at-home purchases that drove sales at our stores.

Gross profit dollar growth for fiscal 2021 year-to-date was $53.4 million and gross profit rate increased 87 basis points from lower promotional activity.

Retail’s operating expense increased $23.9 million, excluding depreciation and amortization and stock-based compensation, and operating expense rate decreased 125 basis points driven by fixed and variable cost leveraging.

Retail’s depreciation and amortization expense increased $11.9 million primarily related to assets previously classified as held for sale that were moved to continuing operations in the fourth quarter of fiscal 2020 for which we are required to begin recording depreciation and amortization expense.

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

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Guarantees and Contingent Liabilities

We have outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of October 31, 2020.

We have outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of January 30, 2021.

We are contingently liable for leases that have been assigned to various parties in connection with facility closings and dispositions.

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If these healthcare provisions cannot be renegotiated in a manner that reduces the prospective healthcare cost as we intend, our Operating expenses could increase in the future.

Table of C ontents

Refer to Note 14—Benefit Plans in Part II, Item 8 of the Annual Report on Form 10-K for the fiscal year ended August 1, 2020 for additional information regarding the plans in which we participate.

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Generally, we do not experience any material seasonality.

However, our sales and operating results may vary significantly from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, demand for our products, supply shortages and general economic conditions.

However, our inventory levels and related demand for certain products of a seasonal nature may be influenced by holidays, changes in seasons or other annual events.

In addition, our sales and operating results may vary significantly from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, demand for our products, supply shortages and general economic conditions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis