What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-06-09 compared with 2021-03-10 · 137 added, 142 removed, 412 unchanged (40% of the section changed)

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and personal care items.

Through our October 2018 acquisition of Supervalu, we are transforming into North America’s premier wholesaler with 58 distribution centers and warehouses representing approximately 30 million square feet of warehouse space.

Following our October 2018 acquisition of Supervalu, we believe we are North America’s premier wholesaler with 58 distribution centers and warehouses representing approximately 30 million square feet of warehouse space.

Our business is classified into two reportable segments:

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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.

(“Key Food”).

On October 6, 2020, we announced UNFI had been selected as the primary grocery wholesaler by Key Food, a Co-Operative of 315 member-owned and corporate grocery stores located in the Northeast and Florida.

We expect the benefits of our significant scale, product and service offerings and nationwide footprint to attract new customers.

For example, on October 6, 2020, we announced UNFI had been selected as the primary grocery wholesaler by Key Food Stores co-operative, Inc.

(“Key Food”), a Co-Operative of over 300 member-operated and corporate grocery stores located in the Northeast and Florida.

UNFI’s supply agreement with Key Food has a term of 10 years with expected sales over that time period of approximately $10 billion.

We have begun selling to a small group of Key Food stores in the South region;

however, most of the supply is expected to commence shipping in the first quarter of fiscal 2022.

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

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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 our Quarterly Reports.

We currently operate 72 continuing operations Retail grocery stores acquired in the Supervalu acquisition.

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 our 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.

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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;

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

however, consumer spending in the food-away-from-home industry had increased steadily as a percentage of total food expenditures.

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

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.

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 experienced 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.

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.

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

The pandemic also drove significant growth in eCommerce 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 eCommerce platform.

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.

Beginning in the third quarter of fiscal 2020, we took actions to respond to the pandemic, including supporting our associates’ safety and well-being, and maximizing 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.

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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.

We expect to continue to benefit from elevated sales 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 prior to the pandemic.

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

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Network Optimization and Construction

Within the Pacific Northwest, we completed the consolidation of the volume of five distribution centers and their related supporting off-site storage facilities into two distribution centers during fiscal 2020.

In the Pacific Northwest, we completed the consolidation of the volume of five distribution centers and their related supporting off-site storage facilities into two distribution centers during fiscal 2020.

We expect to achieve synergies and cost savings through eliminating inefficiencies, including incurring lower operating, shrink and off-site storage expenses.

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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 for approximately 1.3 million square foot facility.

To support our continued growth on the East coast, including supplying Key Food, we entered into a new lease agreement in Allentown, PA for a facility with approximately 1.3 million square feet.

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.

We recognized a right-of-use asset and an operating lease liability for this distribution center in the third quarter of fiscal 2021.

We expect to begin distribution from this facility in the first half of fiscal 2022.

To support our continued growth within southern California, we began operating a newly leased facility in Riverside, CA 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 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.

We entered into an agreement to monetize the real property of this location through a sale-leaseback transaction, which is contingent upon the acquisition of the facility that we expect would occur on or before June 2022.

We continue to evaluate our distribution center network to optimize its performance and expect to incur incremental expenses related to any future network realignment and are working to both minimize these costs and obtain new business to further improve the efficiency of our transforming distribution network.

Distribution Center Sales

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.

In fiscal 2021 year-to-date, we received $50.0 million of proceeds from the sales of surplus distribution centers related to network consolidation, including 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.

Operating Efficiency

As part of our “one company” approach, we are in the process of converting to a single national warehouse management and procurement system to integrate our existing facilities, including acquired Supervalu facilities, onto one nationalized platform across the organization.

Network Technology Efficiency

As part of our “one company” approach, we are in the process of converting to a single national warehouse management and procurement system to integrate our existing facilities onto one nationalized platform across the organization.

We continue to focus on the automation of our new or expanded distribution centers that are at different stages of construction and implementation.

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Divestiture of Retail Operations

We have announced our intention to thoughtfully and economically divest our retail businesses acquired as part of the Supervalu acquisition in an efficient and economic manner in order to focus on our core wholesale distribution business.

We previously announced our intention to thoughtfully and economically divest our retail businesses acquired as part of the Supervalu acquisition to focus on our core wholesale distribution business.

During the fourth quarter of fiscal 2020, we determined we no longer met the held for sale criterion for a probable sale to be completed within 12 months for the Cub Foods business and the majority of the remaining Shoppers locations, collectively referred to as the Retail segment.

The Retail segment excludes retail banners and stores previously sold or closed.

The Retail segment excludes retail banners and stores previously sold or closed and our four Shoppers locations held for sale.

We reviewed our reportable segments and determined we were required to report Retail as a separate segment.

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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 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.

We continue to strive to maximize the value of Retail.

Part of any Retail divestiture process would include efforts to limit liabilities and stranded costs associated with these divestitures.

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

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.

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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.

In addition, we are evaluating various options to address our off-balance sheet liability under certain of our multiemployer pension plans, irrespective of any 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 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.

Our discontinued operations as of the end of the third 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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We may incur additional costs and charges in the future related to the divestiture of Retail if these locations are subsequently sold, indicators exist that the business may be impaired, or if we incur employee-related charges or wind-down costs.

Professional Services Agreements

Services Agreement

In connection with the sale of Save-A-Lot on December 5, 2016, Supervalu entered into a services agreement (the “Services Agreement”) with Moran Foods, LLC, the entity that operates the Save-A-Lot business.

Pursuant to the Services Agreement, we provide certain technical, human resources, finance and other operational services to Save-A-Lot for a term of five years, on the terms and subject to the conditions set forth therein.

The initial annual base charge under the Services Agreement is $30 million, subject to adjustments.

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 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.

At that time, we would lose the revenue associated with this agreement, and any fixed or variable costs associated with servicing this agreement not eliminated concurrently with the decline in revenue, would result in decreased operating profit.

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 second 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 second quarter of fiscal 2021.

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

In the aggregate across our businesses and taking into account the mix of products, management estimates our businesses experienced cost inflation of approximately two percent in the third 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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Absent any changes in units sold or the mix of units sold, deflation has the effect of decreasing sales.

Under the LIFO method of inventory accounting, product cost increases are recognized within Cost of sales based on expected year end inventory quantities and costs, which has the effect of decreasing Gross profit and the carrying value of inventory.

Business Performance Assessment and Composition of Condensed Consolidated Statements of Operations

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Restructuring, acquisition and integration expenses reflect expenses resulting from restructuring activities, including severance costs, change-in-control related charges, facility closure asset impairment charges and costs, stock-based compensation acceleration charges, and acquisition and integration expenses.

Integration expenses include incremental expenses related to combining facilities required to optimize our distribution network as a result of acquisitions.

Integration expenses include certain professional consulting expenses related to business transformation and incremental expenses related to combining facilities required to optimize our distribution network as a result of acquisitions.

Interest expense, net

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The following table sets forth a summary of our results of operations and Adjusted EBITDA for the periods indicated.

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.

We have revised prior-year periods 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 39-Week Period Ended

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

(in thousands) May 1, 2021 May 2, 2020 Change May 1, 2021 May 2, 2020 Change

Net sales $ 6,619,842 $ 7,031,718 $ (411,876) $ 20,180,582 $ 19,759,712 $ 420,870

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Restructuring, acquisition and integration related expenses 9,867 14,557 (4,690) 44,078 65,751 (21,673)

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

(Gain) loss on sale of assets (25) 351 (376) 144 785 (641)

Operating income (loss) 90,494 124,317 (33,823) 245,130 (274,600) 519,730

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13-Week Period Ended 39-Week Period Ended

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

(in thousands) May 1, 2021 May 2, 2020 May 1, 2021 May 2, 2020

Net income (loss) from continuing operations $ 48,299 $ 94,447 $ 104,089 $ (306,971)

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9,867 14,557 44,078 65,751

Loss on sale of assets 399 524 169 434

(Gain) loss on sale of assets (25) 351 144 785

Note receivable charges (3)

Legal (settlement income) reserve charge (4)

— (654) — 1,196

Legal reserve charge (4)

Other retail expense (5)

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Income (loss) from discontinued operations, net of tax $ 1,653 $ (4,078) $ 6,752 $ (16,128)

Adjustments to discontinued operations net income:

Total other expense, net — (3) — (64)

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

Adjustments to discontinued operations net income (loss):

Other income, net — (107) — (171)

Provision (benefit) for income taxes 713 20 341 (3,322)

Restructuring, store closure and other charges, net

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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 Supervalu acquisition.

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

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

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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

13-Week Period Ended

Increase (Decrease) 39-Week Period Ended

Increase (Decrease)

Customer Channel (1)(2)

2021 February 1,

2020 $ % January 30,

2021 February 1,

2020 $ % May 1,

Chains $ 2,949 $ 3,125 $ (176) (6) % $ 9,066 $ 8,909 $ 157 2 %

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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.

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 .

(2) As a result of displaying amounts in millions, rounding differences may exist in the table above.

Third Quarter

Our net sales for the third quarter of fiscal 2021 decreased approximately 5.9% from the third quarter of fiscal 2020.

The decrease in net sales was primarily driven by stronger customer demand in the third quarter of fiscal 2020 from the initial responses to the pandemic.

During the third quarter of fiscal 2020, we experienced a surge in demand and sales due to the effects of rapid changes in consumer purchasing habits that depleted our inventory levels at the end of the third quarter of fiscal 2020.

Chains and Independent retailers net sales decreased primarily driven by stronger customer demand from the initial responses to the pandemic experienced in the third quarter of fiscal 2020 .

Supernatural net sales increased primarily due to new store sales, partially offset by a decrease in sales due to the initial response to the pandemic in the third quarter of fiscal 2020.

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 15.3% increase in identical store sales from higher average basket sizes related to the pandemic.

Retail’s net sales decreased primarily due to a 9.0% decrease in identical store sales from lower average basket sizes compared

to the initial effects of the pandemic last year.

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.

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The increase in Retail sales included the benefit of a 27% 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.

Other net sales decreased primarily due to a decrease in military sales, partially offset by higher eCommerce sales.

Eliminations of net sales decreased primarily due to lower Wholesale sales to Retail.

Our net sales for fiscal 2021 year-to-date increased approximately 2.1% from fiscal 2020 year-to-date.

Supernatural net sales increased primarily due to growth in existing store sales related to the pandemic, including growth in certain product categories, and increased sales to 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 .

Retail’s net sales increased primarily due to a 6.3% increase in identical store sales from higher average basket sizes related to the pandemic.

The increase in Retail sales included the benefit of a 104% 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.

Other net sales decreased primarily due to a 31% (or $90 million) decline in sales to food service customers resulting from the lower purchases due to the pandemic and a decrease in military sales, which were partially offset by higher eCommerce sales.

Eliminations of net sales increased primarily due to increased Wholesale sales to Retail.

Cost of Sales and Gross Profit

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 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 decreased $83.4 million, or 7.9%, to $966.8 million for the third quarter of fiscal 2021, from $1,050.2 million for the third quarter of fiscal 2020.

Our gross profit as a percentage of net sales decreased to 14.60% for the third quarter of fiscal 2021 compared to 14.94% for the third quarter of fiscal 2020.

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

The 34 basis point decrease in gross profit rate was driven by lower levels of supplier-related income in the Wholesale segment.

Retail gross margin rate was approximately flat compared to last year.

Our gross profit increased $48.9 million, or 1.7%, to $2,923.7 million for fiscal 2021 year-to-date, from $2,874.8 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.

Our gross profit as a percentage of net sales decreased to 14.49% for fiscal 2021 year-to-date compared to 14.55% 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.

The decrease in gross profit rate was driven by a lower levels of vendor income in Wholesale, partially offset by an increase due to mix from the Retail segment representing a greater percentage of total net sales and lower levels of promotional activity.

Operating Expenses

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 decreased $44.5 million, or 4.9%, to $866.5 million, or 13.09% of net sales, for the third quarter of fiscal 2021 compared to $911.0 million, or 12.96% of net sales, for the third quarter of fiscal 2020.

The increase in operating expenses as a percent of net sales resulted from the deleveraging effect of lower sales, partially offset by lower pandemic-related costs.

Total operating expenses also included share-based compensation expense of $11.7 million and $13.0 million for the third quarters of fiscal 2021 and 2020, respectively.

Operating expenses decreased $23.1 million, or 0.9%, to $2,634.3 million, or 13.05% of net sales, for fiscal 2021 year-to-date compared to $2,657.4 million, or 13.45% of net sales, for fiscal 2020 year-to-date.

Operating expenses in fiscal 2020 year-to-date included $26.8 million of bad debt expense associated with customer bankruptcies, and $20.3 million of charges and expenses, primarily related to customer notes receivable, surplus property depreciation and a legal reserve charge.

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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.

There were no goodwill impairment charges in fiscal 2021 year-to-date.

Restructuring, Acquisition and Integration Related Expenses

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.

Restructuring, acquisition and integration related expenses were $9.9 million for the third quarter of fiscal 2021, which included $12.0 million of costs primarily associated with advisory and transformational activities as we position our business for further value creation post Supervalu acquisition, partially offset by $2.2 million of closed property income.

Expenses for the third quarter of fiscal 2020 were $14.6 million, which included $12.5 million of closed property charges and costs primarily related to lease asset impairments on Shoppers store and surplus properties exits, $0.6 million of integration related costs and $1.5 million of restructuring costs.

Restructuring, acquisition and integration related expenses were $44.1 million for fiscal 2021 year-to-date, which included $41.5 million associated with advisory and transformational activities as we position our business for further value creation post Supervalu acquisition and $2.6 million of closed property charges and costs.

Expenses for fiscal 2020 year-to-date were $65.8 million, which included $25.3 million of integration costs including a multiemployer pension plan withdrawal obligation resulting from distribution center consolidation, $36.5 million closed property charges and costs primarily related to lease asset impairments on surplus properties and Shoppers store lease exits and $4.0 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 $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 decreased $33.8 million to $90.5 million for the third quarter of fiscal 2021, compared to $124.3 million for the third quarter of fiscal 2020.

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

Reflecting the factors described above, operating income increased $519.7 million, to $245.1 million for fiscal 2021 year-to-date, from an operating loss of $274.6 million for fiscal 2020 year-to-date.

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13-Week Period Ended 39-Week Period Ended

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

(in thousands) May 1, 2021 May 2, 2020 May 1, 2021 May 2, 2020

Net periodic benefit income, excluding service cost $ (17,128) $ (12,758) $ (51,288) $ (27,419)

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Total other expense, net $ 25,383 $ 32,669 $ 108,828 $ 114,933

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.

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 second quarter of fiscal 2021 and fiscal 2021 year-to-date.

The increase in net periodic benefit income, excluding service costs in the third 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 third quarter of fiscal 2021 and year-to-date fiscal 2021 was driven by lower amounts of outstanding debt.

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 and financing costs expensed related to the First Term Loan Amendment in fiscal 2021 year-to-date.

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

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.

The increase in interest expense on finance leases in the third 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 25.8% compared to a benefit of 3.1% on pre-tax income for the third quarter of fiscal 2021 and 2020, respectively.

The change in the rate for the quarter was primarily driven by the impact of a tax benefit from the revaluation of net operating loss deferred tax assets in the third quarter of fiscal 2020 due to passage of the CARES Act.

The effective income tax rate for continuing operations was an expense of 23.6% on pre-tax income compared to a benefit of 21.2% 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.

The change in the year-to-date rate was primarily driven by the impact of the goodwill impairment charge recorded in fiscal 2020, partially offset by the impact of a tax benefit from the revaluation of net operating loss deferred tax assets in the third quarter of fiscal 2020 due to passage of the CARES Act.

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.

The results of discontinued operations for the third quarter of fiscal 2021 reflect net sales of $20.0 million for which we recognized $6.8 million of gross profit and income from discontinued operations, net of tax of $1.7 million.

Net sales and gross profit of discontinued operations decreased $10.1 million and $1.7 million, respectively, for the third quarter of fiscal 2021 as compared to the third quarter of fiscal 2020 primarily due to a lower operating store base due to closures and sales that occurred in fiscal 2020.

The results of discontinued operations for fiscal 2021 year-to-date reflect net sales of $67.8 million for which we recognized $22.1 million of gross profit and income from discontinued operations, net of tax of $6.8 million.

Net sales and gross profit of discontinued operations decreased $133.0 million and $35.5 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.

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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.

was $48.6 million, or $0.80 per diluted common share, for the third quarter of fiscal 2021, compared to $88.1 million, or $1.60 per diluted common share, for the third quarter of fiscal 2020.

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

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LIQUIDITY AND CAPITAL RESOURCES

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

• Total liquidity as of May 1, 2021 was $1,182.3 million and consisted of the following:

◦ Unused credit under our ABL Credit Facility was $1,142.8 million, which decreased $92.0 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 $39.5 million, which decreased $7.5 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.

• Our total debt decreased $170.2 million to $2,327.4 million as of May 1, 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.

• In the third quarter of fiscal 2021, we amended our Term Loan Agreement to, among other things, reduce 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.

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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 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.

• Working capital decreased $14.0 million to $1,320.9 million as of May 1, 2021 from $1,334.8 million as of August 1, 2020, primarily due to the collection of tax refunds related to prior year tax returns, partially offset by 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

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Subject to certain limitations contained in our debt agreements and as market conditions warrant, we may from time to time refinance indebtedness that we have incurred, including through the incurrence or repayment of loans under existing or new credit facilities or the issuance or repayment of debt securities.

Long-Term Debt

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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 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.

As of May 1, 2021, we had an aggregate of $1,234.0 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 August 2022 and October 2025.

The fair value of these interest rate derivatives represents a total net liability of $79.7 million and are subject to volatility based on changes in market interest rates.

See Note 7—Derivatives in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

In the third quarter of fiscal 2021, we paid $6.3 million to terminate $250.0 million of notional value interest rate swaps.

In the first quarter of fiscal 2021, we paid $11.3 million to terminate $954.0 million of notional value interest rate swaps, $504.0 million of which were effective interest swaps and $450.0 million of which were forward starting.

The termination payment reflects the amount of accumulated other comprehensive loss that will continue to be amortized into interest expense over the original interest rate swap contract terms as long as the hedged interest rate transactions are still probable of occurring.

The termination payments reflects the amount of accumulated other comprehensive loss that will continue to be amortized into interest expense over the original interest rate swap contract terms as long as the hedged interest rate transactions are still probable of occurring.

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

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

As of May 1, 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.

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Our capital expenditures for fiscal 2021 year-to-date were $165.5 million, compared to $126.8 million for fiscal 2020 year-to-date, an increase of $38.7 million.

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

In fiscal 2021 year-to-date, our capital expenditures principally included information technology and supply chain expenditures, including related to the new Allentown, PA distribution center.

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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39-Week Period Ended

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

(in thousands) May 1, 2021 May 2, 2020 Change

Net cash provided by operating activities of continuing operations

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(112,239) (99,533) (12,706)

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

Net cash used in financing activities of continuing operations

(233,657) (365,485) 131,828

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Effect of exchange rate on cash 443 (290) 733

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

Net (decrease) increase in cash and cash equivalents (7,486) 13,474 (20,960)

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

Cash and cash equivalents, at end of period $ 39,631 $ 58,737 $ (19,106)

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.

The decrease 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 higher levels of cash utilized in working capital.

In fiscal 2020 year-to-date, higher levels of cash were realized on the sale of inventory at a faster rate than accounts payable were paid driven by the initial impacts of the pandemic.

The increase 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 capital expenditures, partially offset by higher proceeds from asset sales.

The decrease in net cash used in financing activities of continuing operations for fiscal 2021 year-to-date compared to fiscal 2020 year-to-date was due to less cash available to be used in financing activities to reduce outstanding debt.

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 cash provided by investing activities 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.

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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.

As of May 1, 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.

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13-Week Period Ended 39-Week Period Ended

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

(in thousands) May 1, 2021 May 2, 2020 Change May 1, 2021 May 2, 2020 Change

Wholesale $ 6,359,810 $ 6,749,984 $ (390,174) $ 19,399,868 $ 19,024,209 $ 375,659

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Total continuing operations Adjusted EBITDA $ 177,330 $ 219,621 $ (42,291) $ 536,922 $ 463,699 $ 73,223

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.

Third Quarter

Wholesale’s net sales decreased primarily due to stronger customer demand during the initial responses to the pandemic experienced in the third quarter of fiscal 2020.

Retail’s net sales decreased primarily due to a 9.0% decrease in identical store sales from lower average basket sizes compared

to the initial effects of the pandemic last year.

The decrease in eliminations net sales was driven by lower Wholesale sales to Retail related to the pandemic.

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 customers and stores lost prior to the pandemic.

Retail’s net sales increased primarily due to a 6.3% increase in identical store sales from higher average basket sizes related to the pandemic.

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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.

Third Quarter

Wholesale’s Adjusted EBITDA decreased 19.4% for the third quarter of fiscal 2021 from the third quarter of fiscal 2020.

The decrease was driven by lower sales volume.

Wholesale’s gross profit dollar decline for the third quarter of fiscal 2021 was $62.0 million and gross profit rate decreased by 19 basis points driven by lower levels of suppler-related income.

Wholesale’s operating expense decreased $23.2 million, which excludes depreciation and amortization, stock-based compensation and other adjustments as outlined in Note 14—Business Segments, driven by lower operating expenses from sales volume and lower pandemic-related costs.

Wholesale’s operating expense rate increased 24 basis points primarily driven by the deleveraging effect from fixed and variable costs on lower sales volume, partially offset by lower pandemic-related costs.

Wholesale depreciation expense decreased $8.6 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 Adjusted EBITDA decreased 41.7% for the third quarter of fiscal 2021 from the third quarter of fiscal 2020.

The decrease was driven by lower sales volume.

Retail’s gross profit dollar decline for the third quarter of fiscal 2021 was $15.9 million and gross profit rate was flat.

Retail’s operating expense increased $0.3 million, which excludes depreciation and amortization, stock-based compensation and other adjustments as outlined in Note 14—Business Segments, and operating expense rate increased 222 basis points driven by the deleveraging effect from fixed and variable costs on lower sales volume.

Retail’s depreciation and amortization expense increased $6.2 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.

Other’s Adjusted EBITDA increase was primarily driven by higher incentive compensation expenses in the third quarter of fiscal 2020 resulting from the expected impacts of the pandemic.

Wholesale’s Adjusted EBITDA increased 15.2% 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.

Gross profit dollar growth for fiscal 2021 year-to-date was $15.8 million and gross profit rate decreased 16 basis points driven by lower supplier income.

Wholesale’s operating expense decreased $46.3 million, which excludes depreciation and amortization, stock-based compensation and other adjustments as outlined in Note 14—Business Segments.

Wholesale’s operating expense rate decreased 44 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.

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Gross profit dollar growth for fiscal 2021 year-to-date was $37.5 million and gross profit rate increased 55 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 operating expense increased $24.3 million, which excludes depreciation and amortization, stock-based compensation and other adjustments as outlined in Note 14—Business Segments, and operating expense rate increased 2 basis points.

Retail’s depreciation and amortization expense increased $18.0 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.

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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 January 30, 2021.

We have outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of May 1, 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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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