What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-12-08 compared with 2021-06-09 · 222 added, 370 removed, 179 unchanged (77% of the section changed)

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

• labor and other workforce shortages and challenges;

• our dependence on principal customers;

• the addition or loss of significant customers or material changes to our relationships with these customers;

• our sensitivity to general economic conditions including changes in disposable income levels and consumer spending trends;

• our ability to realize anticipated benefits of our acquisitions and dispositions, in particular, our acquisition of SUPERVALU INC.

(“Supervalu”);

• our reliance on the continued growth in sales of our higher margin natural and organic foods and non-food products in comparison to lower margin conventional grocery products;

• the relatively low margins of our business, which are sensitive to inflationary and deflationary pressures;

• our ability to realize anticipated benefits of our acquisitions and strategic initiatives, including, our acquisition of Supervalu;

• our ability to timely and successfully deploy our warehouse management system throughout our distribution centers and our transportation management system across the Company and to achieve efficiencies and cost savings from these efforts;

• our ability to continue to grow sales, including of our higher margin natural and organic foods and non-food products, and to manage that growth;

• increased competition in our industry as a result of increased distribution of natural, organic and specialty products, and direct distribution of those products by large retailers and online distributors;

• the possibility that restructuring, asset impairment, and other charges and costs we may incur in connection with the sale or closure of our retail operations will exceed our current expectations;

• increased competition as a result of continuing consolidation of retailers in the natural product industry and the growth of supernatural chains;

• the addition or loss of significant customers or material changes to our relationships with these customers;

• increased competition in our industry, including as a result of continuing consolidation of retailers and the growth of chains;

• union-organizing activities that could cause labor relations difficulties and increased costs;

• our ability to operate, and rely on third-parties to operate, reliable and secure technology systems;

• the relatively low margins of our business;

• moderated supplier promotional activity, including decreased forward buying opportunities;

• the potential for additional asset impairment charges;

• our sensitivity to inflationary and deflationary pressures;

• the potential for disruptions in our supply chain or our distribution capabilities by circumstances beyond our control, including a health epidemic;

• the potential for additional asset impairment charges;

• the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise;

• our ability to maintain food quality and safety;

• volatility in fuel costs;

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You should carefully review the risks described under “Part I.

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.

Item 1A Risk Factors” of our Annual Report on Form 10-K for the year ended July 31, 2021 (the “Annual Report”) 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.

EXECUTIVE OVERVIEW

This Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” and the information in the Annual Report.

Business Overview

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:

We offer nearly 300,000 products consisting of national, regional and private label brands grouped into six product categories:

grocery and general merchandise;

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and personal care items.

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.

We believe we are North America’s premier wholesaler with 56 distribution centers and warehouses representing approximately 30 million square feet of warehouse space.

We are a coast-to-coast distributor with customers in all fifty states as well as all ten provinces in Canada, making us a desirable partner for retailers and consumer product manufacturers.

We believe our total product assortment and service offerings are unmatched by our wholesale competitors.

We plan to aggressively pursue new business opportunities with independent retailers who operate diverse formats, regional and national chains, as well as international customers with wide-ranging needs.

Our business is classified into two reportable segments:

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and also includes a manufacturing division and a branded product line division.

We introduced our Fuel the Future strategy with the mission of making our customers stronger, our supply chain better and our food solutions more inspired.

Fuel the Future is composed of six strategic pillars, which are detailed in “Part I.

Business” of our Annual Report.

Collectively, the actions and plans behind each pillar are meant to capitalize on our unique position in the food distribution industry, including the number and location of distribution centers we operate, the array of services and the data driven insights that we are able to customize for each of our customers, our innovation platforms and the growth potential we see in each, our commitment to our people and the planet, the positioning of our retail operations, and our focus on delivering returns for our shareholders.

We also introduced our ValuePath initiative early in fiscal 2021, pursuant to which we plan to improve operating performance through various initiatives to be implemented through the end of fiscal 2023.

We intend to re-invest a portion of these operating savings in the business to drive market share gains, accelerate innovation, invest in automation and maintain competitive wage scales for our frontline workers.

We will continue to use free cash flow to reduce outstanding debt and are committed to improving our financial leverage.

Growth Drivers

A key component of our business and growth strategy has been to acquire distribution companies 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 synergies and accelerate growth.

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 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.

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 believe our Fuel the Future strategy will further accelerate our growth through increasing sales of products and services, providing tailored, data-driven solutions to help our existing customers run their business more efficiently and contributing to new customer acquisitions.

We believe the key drivers for growth through new customers will come from the benefits of our significant scale, product and service offerings, and nationwide footprint, which we believe were demonstrated by the following recent developments in our relationships with certain large customers.

We have recently begun delivering product to Key Food Stores co-operative, Inc.

(“Key Food”), a Co-Operative of over 300 grocery stores, after being selected as Key Food’s primary wholesaler.

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

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 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 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.

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.

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 27, 2027.

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, 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 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.

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

We expect that food-at-home expenditures as a percentage of total food expenditures will remain elevated in the near term compared to levels prior to the COVID-19 pandemic, which we refer to as the pandemic.

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, 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.

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 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.

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.

We expect to benefit from this trend through the growth of our traditional eCommerce customers, our Community Marketplace, an online marketplace connecting suppliers and retailers, and EasyOptions, which directly services non-traditional customers, such as bakeries or yoga studios, and through customers adopting our turnkey eCommerce platform.

Recently-enacted federal orders require certain employers, including us, to implement a vaccine mandate for employees or require periodic testing for employees who are not vaccinated.

On November 4, 2021, the Occupational Safety and Health Administration issued its related regulations for covered employers, including us, which set a January 4, 2022 deadline for compliance, which has subsequently been challenged in the courts and is currently stayed.

Such vaccine mandates could result in disruptions to our current and potential future workforce and our vendors’ ability to deliver product and/or maintain pricing, and could impact our ability to supply products to our customers.

We are currently evaluating methods of compliance with the mandates, and those efforts could result in increased costs and/or turnover in our workforce.

The future impact of the pandemic on our results from changes in the pandemic is uncertain and dependent upon future developments, including any resurgence of infection rates and new variants with higher transmissibility, any economic downturn, actions taken by governmental authorities and other third parties in response to the pandemic such as social distancing orders, vaccine mandates or companies’ remote work policies, the impact on capital and financial markets, food-at-home purchasing levels and other consumer trends, each of which is uncertain.

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.

Considerable uncertainty remains regarding the future impact of the pandemic on our business.

We are experiencing a tighter operating labor market for our warehouse and driver associates, which has caused additional reliance on and higher costs from third-party resources, and incremental hiring and wage costs.

We believe this operating environment has been impacted by labor force availability and the pandemic.

We are working to implement actions to fill open roles and maintain existing and future employment levels.

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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Network Optimization and Construction

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.

We also expect that the optimization of the Pacific Northwest distribution network will help deliver meaningful synergies contemplated in the Supervalu acquisition.

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.

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, 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 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 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.

On February 24, 2020, we executed a purchase option with a delayed purchase provision to acquire the real property of this distribution center for approximately $152 million.

In the first quarter of fiscal 2022, we started shipping from our Allentown, PA distribution center with a capacity of 1.3 million square feet that is being utilized to service customers in that geographical area.

We incurred and expect to continue to incur initial start-up costs and operating losses in fiscal 2022 as the volume in this facility ramps up to match its expected full operating capacity.

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 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.

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.

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

Divestiture of Retail Operations

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 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.

As a result, we revised our Condensed Consolidated Financial Statements to reclassify Retail from discontinued operations to continuing operations.

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.

The revision of our Condensed Consolidated Statements of Operations to present Retail within continuing operations resulted in an increase in our consolidated net sales, gross profit and operating expenses, and an increase in consolidated gross profit as a percentage of net sales, which was partially offset by an increase in operating expenses as a percent of net sales.

In order to present Retail’s results of operations within continuing operations, Wholesale sales to Retail have been eliminated upon consolidation.

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

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.

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, 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 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 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.

These retail assets have been classified as held for sale as of the Supervalu acquisition date, and the results of operations, financial position and cash flows directly attributable to these operations are reported within discontinued operations in our Condensed Consolidated Financial Statements for all periods presented.

As of the Supervalu acquisition date, retail assets and liabilities were recorded at their estimated fair value less costs to sell, and subsequent to that date, we reviewed the fair value, less cost to sell, of these disposal groups.

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.

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.

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 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 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.

Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation and deflation on Net sales and Gross profit.

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 during periods of inflation.

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 provider of support services to retailers, adjusted for customer volume discounts, vendor incentives when applicable, returns and allowances, and professional services revenue.

Retail Operations

We currently operate 74 continuing operations Retail grocery stores, including 53 Cub Foods corporate stores and 21 Shoppers Food Warehouse stores.

In addition, we supply another 27 Cub Foods stores operated by our Wholesale customers through franchise and equity ownership arrangements.

We operate 81 pharmacies primarily within the stores we operate and the stores of our franchisees.

In addition, we operate 23 “Cub Wine and Spirit” and “Cub Liquor” stores.

In the fourth quarter of fiscal 2021, we determined that the Company no longer met the held for sale criterion for a probable sale to be completed within 12 months for two of the four stores that were previously included within discontinued operations.

As a result, we revised the Condensed Consolidated Financial Statements to reclassify two Shoppers stores from discontinued operations to continuing operations.

The prior period presented in the Condensed Consolidated Financial Statements have been conformed to the current period presentation.

The remaining two stores in discontinued operations were sold subsequent to the end of the first quarter of fiscal 2022.

Impact of Inflation

We experienced a mix of inflation across product categories during the first quarter of fiscal 2022.

In the aggregate across our businesses, including the mix of products, management estimates our business experienced cost inflation of approximately four percent in the first quarter of fiscal 2022.

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

Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation on Net sales and Gross profit.

Absent any changes in units sold or the mix of units sold, inflation generally has the effect of increasing sales.

Under the last-in, first out (“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 during periods of inflation.

Composition of Condensed Consolidated Statements of Operations and Business Performance Assessment

Our net sales consist primarily of product sales of natural, organic, specialty, produce and conventional grocery and non-food products, and support services revenue from 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.

Cost of sales and Gross profit

The principal components of our cost of sales include the amounts paid to suppliers for product sold, plus the cost of transportation necessary to bring the product to, or move product between, our various distribution centers, partially offset by consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products.

Cost of sales also includes amounts incurred by us at our manufacturing subsidiary, Woodstock Farms Manufacturing, for inbound transportation costs.

The principal components of our cost of sales include the amounts paid to suppliers for product sold, plus transportation costs necessary to bring the product to, or move product between, our distribution centers and retail stores, partially offset by consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products.

Our gross margin may not be comparable to other similar companies within our industry that may include all costs related to their distribution network in their costs of sales rather than as operating expenses.

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Operating expenses include salaries and wages, employee benefits, warehousing and delivery, selling, occupancy, insurance, administrative, share-based compensation, depreciation, and amortization expense.

These expenses relate to warehousing and delivery expenses including purchasing, receiving, selecting and outbound transportation expenses.

These expenses include warehousing, delivery, purchasing, receiving, selecting and outbound transportation expenses.

Restructuring, acquisition and integration expenses

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Interest expense, net

Interest expense, net includes primarily interest expense on long-term debt, net of capitalized interest, interest expense on finance and direct finance lease obligations, and amortization of financing costs and discounts.

Interest expense, net includes primarily interest expense on long-term debt, net of capitalized interest, loss on debt extinguishment, interest expense on finance lease obligations, amortization of financing costs and discounts, and interest income.

Net periodic benefit income, excluding service cost

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

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

Adjusted EBITDA

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Adjusted EBITDA is provided as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to, any financial measure of performance prepared and presented in accordance with GAAP.

Adjusted EBITDA excludes certain items because they are non-cash items or are items that do not reflect management’s assessment of on-going business performance.

We believe Adjusted EBITDA is useful to investors and financial institutions because it provides additional understanding of factors and trends affecting our business, which are used in the business planning process to understand expected operating performance, to evaluate results against those expectations, and as the primary compensation performance measure under certain compensation programs and plans.

Adjusted EBITDA excludes certain items because they are non-cash items or are items that do not reflect management’s assessment of ongoing business performance.

We believe Adjusted EBITDA is useful to investors and financial institutions because it provides additional information regarding factors and trends affecting our business, which are used in the business planning process to understand expected operating performance, to evaluate results against those expectations, and because of its importance as a measure of underlying operating performance, as the primary compensation performance measure under certain compensation programs and plans.

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 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.

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 non-operating income and expenses, including Net periodic benefit income, excluding service cost, Interest expense, net and Other, net, plus Provision (benefit) for income taxes and Depreciation and amortization all calculated in accordance with GAAP, plus adjustments for Share-based compensation, Restructuring, acquisition and integration related expenses, Goodwill impairment charges, (Gain) loss on sale of assets, certain legal charges and gains, certain other non-cash charges or other items, as determined by management, plus Adjusted EBITDA of discontinued operations calculated in a manner consistent with the results of continuing operations, outlined above.

The changes to the definition of Adjusted EBITDA from prior periods reflect changes to line item references in our Condensed Consolidated Financial Statements, which do not impact the calculation of Adjusted EBITDA.

Assessment of Our Business Results

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

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) May 1, 2021 May 2, 2020 Change May 1, 2021 May 2, 2020 Change

We have revised the following table for the prior-period presentation of two discontinued operations stores moved to continuing operations as discussed in Note 1—Significant Accounting Policies within Part II, Item 8 of the Annual Report.

13-Week Period Ended

(in millions) October 30, 2021 October 31, 2020 Change

Net sales $ 6,997 $ 6,684 $ 313

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Operating expenses 932 904 28

Goodwill and asset impairment charges — — — — 425,405 (425,405)

Restructuring, acquisition and integration related expenses 3 16 (13)

(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

Other expense (income):

Operating income 107 50 57

Net periodic benefit income, excluding service cost (10) (17) 7

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Other, net 1 (1) 2

Total other expense, net 25,383 32,669 (7,286) 108,828 114,933 (6,105)

Income (loss) from continuing operations before income taxes 76 (1) 77

Provision (benefit) for income taxes 16,812 (2,799) 19,611 32,213 (82,562) 114,775

Net income (loss) from continuing operations 48,299 94,447 (46,148) 104,089 (306,971) 411,060

Income (loss) from discontinued operations, net of tax 1,653 (4,078) 5,731 6,752 (16,128) 22,880

Net income (loss) including noncontrolling interests 49,952 90,369 (40,417) 110,841 (323,099) 433,940

Benefit for income taxes (1) (1) —

Net income from continuing operations 77 — 77

Income from discontinued operations, net of tax — — —

Net income including noncontrolling interests 77 — 77

Less net income attributable to noncontrolling interests (1) (1) —

3 unchanged sentences

$ 189 $ 159 $ 30

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 39-Week Period Ended

(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)

Adjustments to continuing operations net income (loss):

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

13-Week Period Ended

(in millions) October 30, 2021 October 31, 2020

Net income from continuing operations $ 77 $ —

Adjustments to continuing operations net income:

Less net income attributable to noncontrolling interests (1) (1)

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

Provision (benefit) for income taxes 16,812 (2,799) 32,213 (82,562)

Net periodic benefit income, excluding service cost

Interest expense, net 40 69

Other, net 1 (1)

Benefit for income taxes (1) (1)

Depreciation and amortization 69 77

Share-based compensation 11 14

Goodwill and asset impairment charges (1)

— — — 425,405

Restructuring, acquisition and integration related expenses (1)

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

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

Note receivable charges (3)

Legal reserve charge (4)

Other retail expense (2)

355 — 3,358 —

Adjusted EBITDA of continuing operations 189 158

Adjusted EBITDA of discontinued operations (3)

2,168 2,587 7,828 11,313

Adjusted EBITDA $ 189 $ 159

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

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

(198) 6,752 735 30,934

Income from discontinued operations, net of tax $ — $ —

Adjustments to discontinued operations net income:

Provision for income taxes — 1

Adjusted EBITDA of discontinued operations

$ 2,168 $ 2,587 $ 7,828 $ 11,313

(1) Fiscal 2020 reflects a goodwill impairment charge attributable to a reorganization of our reporting units and a sustained decrease in market capitalization and enterprise value of the Company, resulting in a decline in the estimated fair value of the U.S.

Wholesale reporting unit.

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, 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.

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

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, net of income received to settle a separate legal proceeding.

(2) 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.

(3) The last two remaining retail stores of discontinued operations were sold subsequent to the end of the first quarter of fiscal 2022.

RESULTS OF OPERATIONS

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

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

13-Week Period Ended

Increase (Decrease) 39-Week Period Ended

Increase (Decrease)

Customer Channel (1)

2020 $ % May 1,

2021 October 31,

Chains $ 3,082 $ 3,027 $ 55 1.8 %

5 unchanged sentences

Total net sales $ 6,997 $ 6,684 $ 313 4.7 %

(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.

(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.

(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 additional information.

Our net sales for the first quarter of fiscal 2022 increased approximately 4.7% from the first quarter of fiscal 2021.

The increase in net sales was primarily driven by inflation and new business from both existing and new customers, including the benefit of cross selling, partially offset by supply chain challenges and expected modest market contraction.

Chains net sales increased primarily due to growth in sales to existing customers, including an increase from higher product costs.

Independent retailers net sales increased primarily due to the beginning of a new supply agreement with a new customer for East Coast locations in the first quarter of fiscal 2022 and growth in sales to existing customers.

Supernatural net sales increased primarily due to growth in existing store sales, including the supply of new product categories previously impacted by the pandemic, such as bulk and ingredients used for prepared foods, and increased sales to new stores.

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 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 net sales decreased primarily due to a 1.0% decrease in identical store sales from lower transaction counts as a result of cycling strong sales in the first quarter of 2021.

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 a 27% increase in eCommerce sales at Cub Foods.

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.

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 customers and stores lost 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 customers and stores lost prior to the pandemic.

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 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 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 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 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.

Our gross profit increased $72 million, or 7.4%, to $1,042 million for the first quarter of fiscal 2022, from $970 million for the first quarter of fiscal 2021.

Our gross profit as a percentage of net sales increased to 14.89% for the first quarter of fiscal 2022 compared to 14.51% for the first quarter of fiscal 2021.

The increase in gross profit rate was primarily driven by improvements in the Wholesale segment margin rate, including the impact of inflation and the Company’s ValuePath initiative.

Retail gross margin rate declined modestly compared to last year.

Operating Expenses

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.

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 $38.5 million and $22.1 million for fiscal 2021 and 2020 year-to-date, respectively.

Goodwill and Asset Impairment Charges

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.

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

Operating expenses increased $28 million, or 3.1%, to $932 million, or 13.32% of net sales, for the first quarter of fiscal 2022 compared to $904 million, or 13.52% of net sales, for the first quarter of fiscal 2021.

The decrease in operating expenses as a percent of net sales was due to leveraging fixed operating and administrative expenses and lower year-over-year distribution center start-up and consolidation costs, partially offset by higher transportation expenses, the temporary, voluntary closure of a distribution center and the investment in distribution center labor to better support our customers.

Restructuring, Acquisition and Integration Related Expenses

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 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.

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 39-Week Period Ended

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

Restructuring, acquisition and integration related expenses were $3 million for the first quarter of fiscal 2022.

Expenses for the first quarter of fiscal 2021 were $16 million, which included $15 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 million of closed property charges and costs.

Operating Income

Reflecting the factors described above, operating income increased $57 million to $107 million for the first quarter of fiscal 2022, compared to $50 million for the first quarter of fiscal 2021.

The operating income increase was primarily driven by an increase in gross profit in excess of an increase in operating expenses as described above.

Net Periodic Benefit Income, Excluding Service Cost

Net periodic benefit income, excluding service cost decreased $7 million to $10 million for the first quarter of fiscal 2022, from $17 million for the first quarter of fiscal 2021.

The decrease in Net periodic benefit income, excluding service cost was primarily driven by lower expected rates of return on plan assets.

Interest Expense, Net

13-Week Period Ended

(in millions) October 30, 2021 October 31, 2020

Interest expense on long-term debt, net of capitalized interest $ 33 $ 37

4 unchanged sentences

Interest expense, net $ 40 $ 69

Other, net (989) (1,842) (3,461) (3,462)

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

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.

The decrease in interest expense on long-term debt, net of capitalized interest, in the first quarter of fiscal 2022 compared to fiscal 2021 was primarily driven by lower outstanding debt balances.

The decrease 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 expensed financing costs related to the First Term Loan Amendment in the first quarter of fiscal 2021.

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

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 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 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 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.

Discontinued operations for fiscal 2020 year-to-date included $30.9 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.

Benefit for Income Taxes

The effective tax rate for the first quarter of fiscal 2022 was a benefit of 1.3% on pre-tax income, primarily driven by discrete tax benefits from employee stock award vestings and the release of uncertain tax positions that occurred in the quarter.

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 $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.

was $106.5 million, or $1.78 per diluted common share, for fiscal 2021 year-to-date, compared to a net loss of 326.5 million, or $6.10 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 2.7 million shares of common stock under our 2020 Equity Incentive Plan.

was $76 million, or $1.25 per diluted common share, for the first quarter of fiscal 2022, compared to a net loss of $1 million, or $0.02 per diluted common share, for the first quarter of fiscal 2021.

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 millions) October 30, 2021 October 31, 2020 Change

Wholesale $ 6,734 $ 6,438 $ 296

Retail 602 606 (4)

Other 56 56 —

Eliminations (395) (416) 21

Total Net sales $ 6,997 $ 6,684 $ 313

Continuing operations Adjusted EBITDA:

Wholesale $ 164 $ 123 $ 41

Retail 22 25 (3)

Eliminations (1) 6 (7)

Total continuing operations Adjusted EBITDA $ 189 $ 158 $ 31

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

Refer to the Net Sales discussion above for additional information.

Retail’s net sales decreased primarily due to a 1.0% decrease in identical store sales from lower transaction counts as a result of cycling strong sales in the first quarter of 2021.

Adjusted EBITDA

Wholesale’s Adjusted EBITDA increased 33.3% for the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2021.

The increase was driven by gross margin rate expansion, partially offset by a slight increase in operating expenses.

Wholesale’s gross profit dollar growth for the first quarter of fiscal 2022 was $82 million with a gross profit rate increase of approximately 68 basis points primarily driven by margin rate expansion from the benefits of inflation and the Company’s ValuePath initiative.

Wholesale’s operating expense increased $41 million, which excludes depreciation and amortization, stock-based compensation and other adjustments as outlined in Note 14—Business Segments.

Wholesale’s operating expense rate increased 17 basis points driven by higher transportation expenses and the temporary, voluntary closure of a distribution center and the investment in distribution center labor to better support our customers, partially offset by lower year-over-year distribution center start-up and consolidation costs in fiscal 2021.

Wholesale’s depreciation expense decreased $7 million compared to last year.

Retail’s Adjusted EBITDA decreased 12.0% for the first quarter of fiscal 2022 from the first quarter of fiscal 2021.

The decrease was driven by a lower gross margin rate.

Retail operating expenses, which excludes depreciation and amortization, stock-based compensation and other adjustments as outlined in Note 14—Business Segments, was approximately flat.

Retail’s depreciation and amortization expense was approximately flat compared to last year.

LIQUIDITY AND CAPITAL RESOURCES

• 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 $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.

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 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.

• 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 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.

• Total liquidity as of October 30, 2021 was $1,112 million and consisted of the following:

◦ Unused credit under our revolving line of credit was $1,066 million, which decreased $214 million from $1,280 million as of July 31, 2021, primarily due to increased cash utilized to fund seasonal working capital increases.

◦ Cash and cash equivalents was $46 million, which increased $5 million from $41 million as of July 31, 2021.

• Our total debt increased $202 million to $2,390 million as of October 30, 2021 from $2,188 million as of July 31, 2021, primarily related to additional borrowings under the ABL Credit Facility to fund seasonal working capital increases.

• In the remainder of fiscal 2022, scheduled debt maturities are expected to be $11 million.

We are also obligated to make payments to reduce finance lease obligations, including a payment to acquire the Riverside, CA distribution center in fiscal 2022, which we expect to fund with the proceeds of a concurrent sale-leaseback transaction in fiscal 2022.

Based on our Consolidated First Lien Net Leverage Ratio (as defined in the Term Loan Agreement) at the end of fiscal 2021, no prepayment from Excess Cash Flow (as defined in the Term Loan Agreement) in fiscal 2021 is required to be made in fiscal 2022.

• Subsequent to the end of the first quarter of fiscal 2022, we made a voluntary prepayment of $150 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 generated during fiscal 2022, if any, which would be due in fiscal 2023.

In the second quarter of fiscal 2022, 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.

Also subsequent to the end of the first quarter of fiscal 2022, we amended our Term Loan Agreement to, reduce the applicable margin for LIBOR and base rate loans under the Term Loan Facility by 25 basis points.

• Working capital increased $265 million to $1,328 million as of October 30, 2021 from $1,063 million as of July 31, 2021, primarily due to seasonal increases in inventory and accounts receivable levels, partially offset by an increase in accounts payable related to inventories.

Sources and Uses of Cash

We expect to continue to replenish operating assets and pay down debt obligations with internally generated funds and sale of surplus and/or non-core assets.

We expect to continue to replenish operating assets and pay down debt obligations with internally generated funds and proceeds from the sale of surplus and/or non-core assets.

A significant reduction in operating earnings or the incurrence of operating losses could have a negative impact on our operating cash flow, which may limit our ability to pay down our outstanding indebtedness as planned.

Our credit facilities are secured by a substantial portion of our total assets.

Our primary sources of liquidity are from internally generated funds and from borrowing capacity under our credit facilities.

Our short-term and long-term financing abilities are believed to be adequate as a supplement to internally generated cash flows to satisfy debt obligations and fund capital expenditures as opportunities arise.

We expect to be able to fund debt maturities and finance lease liabilities through fiscal 2022 with internally generated funds, proceeds from asset sales or borrowings under the ABL Credit Facility.

Our primary sources of liquidity are from internally generated funds and from borrowing capacity under the ABL Credit Facility.

We believe our short-term and long-term financing abilities are adequate as a supplement to internally generated cash flows to satisfy debt obligations and fund capital expenditures as opportunities arise.

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.

2 unchanged sentences

Inventories are managed primarily through demand forecasting and replenishing depleted inventories.

We currently do not pay a dividend on our common stock, and have no current plans to do so.

We currently do not pay a dividend on our common stock, and have no plans to do so.

In addition, we are limited in the aggregate amount of dividends that we may pay under the terms of our Term Loan Facility, ABL Credit Facility, and Senior Notes.

2 unchanged sentences

Long-Term Debt

During fiscal 2021 year-to-date, we borrowed a net $82.6 million under the ABL Credit Facility, repaid $770.7 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.

During the first quarter of fiscal 2022, we borrowed a net $209 million under the ABL Credit Facility and repaid $8 million on the Term Loan Facility related to voluntary prepayments.

Subsequent to the end of the first quarter of fiscal 2022, we repaid an additional $150 million under the Term Loan Facility with borrowings under the ABL Credit Facility.

We also entered into a second amendment to the Term Loan Facility to, among other things, reduce the applicable margin by 0.25%.

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

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.

Our ABL Loan Agreement subjects us to a fixed charge coverage ratio 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 is ever less than the greater of (i) $235 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 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.

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 our restricted subsidiaries’ ability to, among other things, incur debt, declare or pay dividends or make other distributions to our stockholders, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of our and our subsidiaries’ assets 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.

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

Derivatives and Hedging Activity

We enter into interest rate swap contracts from time to time to mitigate our exposure to changes in market interest rates as part of our overall strategy to manage our debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates.

We enter into interest rate swap contracts from time to time to mitigate our exposure to changes in market interest rates as part of our strategy to manage our debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates.

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 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.

As of October 30, 2021, we had an aggregate of $1,232 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 $56 million and are subject to volatility based on changes in market interest rates.

In the first quarter of fiscal 2021, we paid $11 million to terminate or novate $954 million of interest rate swap contracts over our floating rate notional debt.

The termination payments reflect 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.

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 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 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.

Capital Expenditures

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, 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.

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

Gains and losses and the outstanding assets and liabilities from these arrangements are insignificant.

Payments for Capital Expenditures

Our capital expenditures for the first quarter of fiscal 2022 were $56 million, compared to $41 million for the first quarter of fiscal 2021, an increase of $15 million primarily due to the new Allentown, PA distribution center investment in the first quarter of fiscal 2022.

Fiscal 2022 capital spending is expected to be approximately $300 million and include projects that optimize and expand our distribution network, technology platform investments and the remaining investments in the Allentown, PA distribution center.

In addition to this fiscal 2022 capital spending, we expect to spend an incremental $152 million to acquire the real property of the Riverside, CA distribution center, which we expect to fund with the proceeds of a concurrent sale-leaseback transaction.

We expect to finance fiscal 2022 capital expenditures requirements with cash generated from operations and borrowings under our ABL Credit Facility.

Longer term, capital spending is expected to be at or below 1.0% of net sales.

We expect to finance requirements with cash generated from operations and borrowings under our ABL Credit Facility.

Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility.

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13-Week Period Ended

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

Net cash provided by operating activities of continuing operations

(in millions) October 30, 2021 October 31, 2020 Change

Net cash used in operating activities of continuing operations

$ (81) $ (55) $ (26)

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(81) (37) (44)

Net cash used in financing activities of continuing operations

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

Net cash provided by discontinued operations

3,597 29,554 (25,957)

Net cash provided by financing activities of continuing operations

Net cash used in discontinued operations

Effect of exchange rate on cash — — —

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

Net increase in cash and cash equivalents 5 2 3

Cash and cash equivalents, at beginning of period 41 47 (6)

Cash and cash equivalents, at end of period $ 46 $ 49 $ (3)

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.

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 fiscal 2021 and 2020 year-to-date pursuant to 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.

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.

The increase in net cash used in operating activities of continuing operations in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 was primarily due to higher levels of cash utilized to build inventories and credit extended through accounts receivable from seasonal working capital changes and continued sales growth, partially offset by an increase in accounts payable related to inventory increases.

The increase in net cash used in investing activities of continuing operations in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 was primarily due to increased payments for investments and capital expenditures.

The increase in net cash provided by financing activities of continuing operations in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 was due to a larger increase in net borrowings under the ABL Credit Facility resulting from increases in net cash used in operating activities and investing activities, as described above.

Other Obligations and Commitments

Except as otherwise disclosed in Note 8—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes in the Company’s contractual obligations since the end of fiscal 2021.

Refer to Item 7 of the Annual Report for additional information regarding the Company’s contractual obligations.

Pension and Other Postretirement Benefit Obligations

In fiscal 2021, no pension contributions are required to be made under either the SUPERVALU Inc.

Retirement Plan or the Unified Grocers, Inc.

Cash Balance Plan under Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

We anticipate fiscal 2021 non-qualified pension contributions and other postretirement benefit plan contributions to be approximately $5.3 million.

In fiscal 2022, no minimum pension contributions are required to be made under the Unified Grocers, Inc.

Cash Balance Plan or the SUPERVALU INC.

Retirement Plan under Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

An insignificant amount of contributions are expected to be made to defined benefit pension plans and postretirement benefit plans in fiscal 2022.

We fund our defined benefit pension plans based on the minimum contribution amount required under ERISA, the Pension Protection Act of 2006 and other applicable laws, as determined by us, including our external actuarial consultant, and additional contributions made at our discretion.

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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 39-Week Period Ended

(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

Retail 578,246 636,887 (58,641) 1,794,028 1,690,742 103,286

Other 54,808 58,359 (3,551) 165,848 164,511 1,337

Eliminations (373,022) (413,512) 40,490 (1,179,162) (1,119,750) (59,412)

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

Continuing operations Adjusted EBITDA:

Wholesale $ 161,073 $ 199,884 $ (38,811) $ 470,802 $ 408,650 $ 62,152

Retail 21,547 36,931 (15,384) 71,159 58,921 12,238

Other 85 (17,247) 17,332 (3,610) (4,419) 809

Eliminations (5,375) 53 (5,428) (1,429) 547 (1,976)

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

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.

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

Adjusted EBITDA

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 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 $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.

Wholesale depreciation expense decreased $15.8 million.

Retail’s Adjusted EBITDA increased 20.8% 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 $37.5 million and gross profit rate increased 55 basis points from lower promotional activity.

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.

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

Off-Balance Sheet Arrangements

Guarantees and Contingent Liabilities

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.

We are also a party to a variety of contractual agreements under which we may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise.

Refer to Note 15—Commitments, Contingencies and Off-Balance Sheet Arrangements under the caption Guarantees and Contingent Liabilities in Part I, Item I of this Quarterly Report on Form 10-Q for further information regarding our outstanding guarantees and contingent liabilities.

Multiemployer Benefit Plans

Off-Balance Sheet Multiemployer Pension Arrangements

We contribute to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans.

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However, the amount of any increase or decrease in contributions will depend on a variety of factors, including the results of our collective bargaining efforts, investment returns on the assets held in the plans, actions taken by the trustees who manage the plans and requirements under the Pension Protection Act of 2006, the Multiemployer Pension Reform Act and Section 412(e) of the Internal Revenue Code.

Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, we could trigger a partial or complete withdrawal that would require us to record a withdrawal liability.

Expense is recognized in connection with these plans as contributions are funded, in accordance with GAAP.

We made contributions to these plans, and recognized continuing and discontinued operations expense of $48 million in fiscal 2021.

In fiscal 2021, we expect to contribute approximately $45 million related to continuing and discontinued operations contributions to the multiemployer pension plans, subject to the outcome of collective bargaining and capital market conditions.

Any withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP.

In fiscal 2022, we expect to contribute approximately $46 million to multiemployer plans related to continuing operations, subject to the outcome of collective bargaining and capital market conditions.

We expect required cash payments to fund multiemployer pension plans from which we have withdrawn to be immaterial in any one fiscal year, which would exclude any payments that may be agreed to on a lump sum basis to satisfy existing withdrawal liabilities.

Any future withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP.

Any triggered withdrawal obligation could result in a material charge and payment obligations that would be required to be made over an extended period of time.

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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.

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.

Contractual Obligations

Refer to Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 2020 for additional information regarding the Company’s contractual obligations.

Refer to Note 13—Benefit Plans in Part II, Item 8 of the Annual Report for additional information regarding the plans in which we participate.

Share Repurchases

On October 6, 2017, we announced that our Board of Directors authorized a share repurchase program for up to $200 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 million.

We did not repurchase any shares of our common stock in the first quarters of fiscal 2022 and fiscal 2021 pursuant to the share repurchase program.

As of October 30, 2021, we have $176 million remaining authorized under the share repurchase program.

We do not expect to purchase shares under the share repurchase program during fiscal 2022.

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

Critical Accounting Policies and Estimates

There were no material changes to our critical accounting policies during the period covered by this Quarterly Report on Form 10-Q.

Refer to the description of critical accounting policies included in Item 7 of our Annual Report on Form 10-K for the fiscal year ended August 1, 2020.

Generally, we do not experience any material seasonality.

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.

Refer to the description of critical accounting policies included in Item 7 of our Annual Report.

Generally, we do not experience 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.

Our working capital needs are generally greater during the months leading up to high sales periods, such as the build up in inventory during the time period leading to the calendar year-end holidays.

Our inventory, accounts payable and accounts receivable levels may be impacted by macroeconomic impacts and changes in food-at-home purchasing rates.

These effects can result in normal operating fluctuations in working capital balances, which in turn can result in changes to cash flow from operations that are not necessarily indicative of long-term operating trends.

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