What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-12-07 compared with 2022-06-07 · 172 added, 282 removed, 198 unchanged (70% of the section changed)

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Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions or state other “forward-looking” information.

Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false.

Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect.

These statements are based on our management’s beliefs and assumptions, which are based on currently available information.

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

• the impact and duration of the COVID-19 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;

• 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;

• 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;

• the impact and duration of any pandemics or disease outbreaks;

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

• labor and other workforce shortages and challenges;

• our ability to realize anticipated benefits of our strategic initiatives, including any acquisitions;

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

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

• 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, including as a result of continuing consolidation of retailers and the growth of chains, direct distribution by large retailers and the growth of online distributors;

• the potential for disruptions in our supply chain or our distribution capabilities from circumstances beyond our control, including due to lack of long-term contracts, severe weather, labor shortage or work stoppages or otherwise;

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

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

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

• 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;

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

UNFI is a leading distributor of grocery and non-food products, and support services provider 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.

Our diversified customer base includes over 30,000 customer locations ranging from some of the largest grocers in the country to smaller independents.

We offer approximately 260,000 products consisting of national, regional and private label brands grouped into six product categories:

grocery and general merchandise;

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nutritional supplements and sports nutrition;

bulk and food service products;

bulk and foodservice products;

and personal care items.

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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.

We plan to continue to pursue new business opportunities with independent retailers that 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 helping to make 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.

We are committed to executing our Fuel the Future strategy with the mission of building a food ecosystem that is better for all by delivering great food, more choices and fresh thinking for our customers and suppliers.

Our Fuel the Future strategy consists of six pillars and is underpinned by four focus areas, 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.

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 recent developments in our relationships with certain large customers.

Collectively, the actions and plans behind each focus area are meant to capitalize on what we believe is 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 and the positioning of our retail operations.

We expect to continue to use available capital to re-invest in our business to support our Fuel the Future initiatives and to reduce outstanding debt, and we remain committed to improving our financial leverage.

The decline in our financial leverage in recent years offers us increased flexibility to invest in growing our business and selectively return cash to shareholders as appropriate.

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

We believe the key drivers for new customer growth will be the benefits of our significant scale, product and service offerings and nationwide footprint.

Trends and Other Factors Affecting our Business

Our results are impacted by macroeconomic and demographic trends, 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 Community Marketplace, an online marketplace connecting suppliers and retailers, and EasyOptions, which directly services non-traditional customers.

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

The pandemic continues to evolve and affect global economies, markets and supply chains.

The continued impact on our results is uncertain and dependent upon future developments, including any resurgence of infection rates and new variants with higher transmissibility, any economic downturn, the availability and efficacy of vaccines and treatments, 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.

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

We believe food-at-home expenditures as a percentage of total food expenditures are subject to these trends, including changes in consumer behaviors in response to social and economic trends, such as levels of disposable income and the health of the economy in which our customers and our stores operate.

economy has experienced economic volatility in recent years due to uncertain economic conditions, which have had and we expect may continue to have an impact on consumer confidence.

Consumer spending may be impacted by levels of discretionary income and consumers trading down to a less expensive mix of products for grocery items.

In addition, inflation has increased and continues to be unpredictable.

For example, we experienced volatility in our energy operating costs, and commodity and labor input costs have impacted the prices of products we procured from manufacturers.

We believe our product mix ranging from high-quality natural and organic products to national and local conventional brands, including cost conscious private label brands, positions us to serve a broad cross section of North American retailers and end customers, and may lessen the impact of any shifts in consumer and industry trends in grocery product mix.

We continue to experience a tight labor market for our warehouse and driver associates, which has caused additional reliance on third-party resources, incremental hiring and increases in wages, all of which has led to higher labor expenses.

We believe this operating environment has been impacted by labor force availability, in part as a result of the COVID-19 pandemic, which we refer to as the pandemic.

We continue to take actions to maintain existing employment levels, fill open roles and prepare for future employment needs.

Uncertainty remains regarding the longer-term impact of the pandemic on our business as global economies, markets and supply chains respond to the ongoing effects.

We continue to monitor guidelines released by the Centers for Disease Control and Prevention and the World Health Organization and, when appropriate, implement mitigation measures to protect our associates, including safety protocols and strongly encouraging vaccinations/boosters.

Our results could be impacted by, among other factors, any resurgence of infection rates and new variants of COVID-19 with higher transmissibility, the availability and efficacy of vaccines and treatments, actions taken by governmental authorities and other third parties in response to the pandemic such as health and safety orders and mandates, companies’ remote work policies, any economic downturn, 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.

We continue to implement mitigation measures to protect our associates and workplaces, including safety protocols and strongly encouraging vaccinations/boosters.

We are experiencing a tighter operating labor market for our warehouse and driver associates in fiscal 2022 than we have in recent years, 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 continue to take 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.

Our Wholesale customers manage their businesses independently and operate in a competitive environment.

We seek to obtain security interests and other credit support in connection with the financial accommodations we extend these customers;

however, we may incur additional credit or inventory charges related to our customers, as we expect the competitive environment to continue to lead to financial stress on some customers.

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

Distribution Center Network

Network Optimization and Construction

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

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

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

Wholesale Distribution Center Network

We evaluate our distribution center network to optimize performance and expect to incur incremental expenses related to any future network realignment, expansion or improvements.

We are working to both minimize these potential future costs and obtain new business to further improve the efficiency of our transforming distribution network.

In fiscal 2022, our Allentown, Pennsylvania distribution center began operations, with a capacity of 1.3 million square feet to service customers in the surrounding geographic area.

We incurred start-up costs and operating losses, as the volume in this facility continues to ramp up to its operating capacity.

Retail Operations

We currently operate 76 continuing operations Retail grocery stores, including 56 Cub Foods corporate stores and 20 Shoppers Food Warehouse stores.

We currently operate 76 Retail grocery stores, including 54 Cub Foods corporate stores and 22 Shoppers Food Warehouse stores.

In addition, we supply another 26 Cub Foods stores operated by our Wholesale customers through franchise and equity ownership arrangements.

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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 in the second quarter of fiscal 2022.

Impact of Inflation

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

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

We plan to continue to invest in our Retail segment in areas such as customer-facing merchandising initiatives, physical facilities, technology and operational tools.

Cub Foods and Shoppers Food Warehouse anticipate continued investment in improving the customer and associate experience through express remodels focused on customer facing elements.

Impact of Product Cost Inflation

We experienced a mix of inflation across product categories during the first quarter of fiscal 2023.

In the aggregate across our businesses, including the mix of products, management estimates our businesses experienced product cost inflation of approximately ten percent in the first quarter of fiscal 2023, as compared to the first quarter of fiscal 2022.

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

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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.

Our pricing to our customers is determined at the time of sale primarily based on the then prevailing vendor listed base cost, and include discounts we offer to our customers.

Our pricing to our customers is determined at the time of sale primarily based on the then prevailing vendor listed base cost, and includes discounts we offer to our customers.

Generally in an inflationary environment as a wholesaler, rising vendor costs result in higher Net sales driven by higher vendor prices when other variables such as quantities sold and vendor promotions are constant.

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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.

Operating expenses

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These expenses include salaries and wages, employee benefits, occupancy, insurance, depreciation and amortization expense and share-based compensation expense.

Restructuring, acquisition and integration expenses

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

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

Interest expense, net

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.

Restructuring, acquisition and integration related expenses

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

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

Net periodic benefit income, excluding service cost

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

Interest expense, net

Adjusted EBITDA

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These measurements and items may be different from non-GAAP financial measures used by other companies.

Adjusted EBITDA should be reviewed in conjunction with our results reported in accordance with GAAP in this Quarterly Report.

Adjusted EBITDA should be reviewed in conjunction with our results reported in accordance with GAAP in this Quarterly Report on Form 10-Q.

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 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, non-cash LIFO charge or benefit, 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.

During the third quarter of fiscal 2022, the Company revised its definition of Adjusted EBITDA to exclude the impact of the non-cash LIFO charge or benefit.

The Company believes that this change provides a better indicator of its underlying operating performance and permits better comparability between periods.

We define Adjusted EBITDA as a consolidated measure which we reconcile by adding Net income (loss) including noncontrolling interests, 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 (income) expense, net, plus Provision (benefit) for income taxes and Depreciation and amortization all calculated in accordance with GAAP, plus adjustments for Share-based compensation, non-cash LIFO charge or benefit, Restructuring, acquisition and integration related expenses, Goodwill impairment charges, (Gain) loss on sale of assets, certain legal charges and gains, and certain other non-cash charges or other items, as determined by management.

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.

During fiscal 2022, we revised our definition of Adjusted EBITDA to exclude the impact of the non-cash LIFO charge or benefit.

We believe that this change provides a better indicator of our underlying operating performance and permits better comparability between periods.

Refer to footnote one in the table below and Note 13—Business Segments in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding the impact of the change in definition of Adjusted EBITDA.

In the fourth quarter of fiscal 2021, we made changes to line item references in our Condensed Consolidated Financial Statements, for which the definition and reconciliation of Adjusted EBITDA has been recast for consistency, such that all periods presented reflect the same reconciliation.

This change in the fourth quarter of fiscal 2021 did 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 the following tables 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 and with respect to Adjusted EBITDA for prior period presentation of the change in segment profit measurement discussed in Note 14—Business Segments within Part I, Item 1 of this Quarterly Report on Form 10-Q.

13-Week Period Ended 39-Week Period Ended

(in millions) April 30, 2022 May 1, 2021 Change April 30, 2022 May 1, 2021 Change

We have revised the following tables for the change in segment profit measurement for Adjusted EBITDA as discussed in Note 13—Business Segments within Part I, Item 1 of this Quarterly Report on Form 10-Q.

13-Week Period Ended

(in millions) October 29, 2022 October 30, 2021 Change

Net sales $ 7,532 $ 6,997 $ 535

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Interest expense, net 35 40 (5)

Other, net (1) (1) — (2) (4) 2

Income from continuing operations before income taxes 97 66 31 266 140 126

Provision for income taxes 29 16 13 53 32 21

Net income from continuing operations 68 50 18 213 108 105

Income from discontinued operations, net of tax — — — — 3 (3)

Other (income) expense, net (1) 1 (2)

Income before income taxes 72 76 (4)

Provision (benefit) for income taxes 5 (1) 6

Net income including noncontrolling interests 67 77 (10)

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$ 207 $ 200 $ 7

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 39-Week Period Ended

(in millions) April 30, 2022 May 1, 2021 April 30, 2022 May 1, 2021

Net income from continuing operations $ 68 $ 50 $ 213 $ 108

Adjustments to continuing operations net income:

The following table reconciles Net income including noncontrolling interests to Adjusted EBITDA:

13-Week Period Ended

(in millions) October 29, 2022 October 30, 2021

Net income including noncontrolling interests $ 67 $ 77

Adjustments to net income including noncontrolling interests:

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

Net periodic benefit income, excluding service cost

(10) (17) (30) (51)

Interest expense, net 35 40

Other, net (1) (1) (2) (4)

Provision for income taxes 29 16 53 32

Other (income) expense, net (1) 1

Provision (benefit) for income taxes 5 (1)

Depreciation and amortization 74 69

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Gain on sale of assets (5) —

(88) — (87) —

Multi-employer pension plan withdrawal benefit (4)

Other retail expense (5)

Adjusted EBITDA of continuing operations 196 184 616 560

Adjusted EBITDA of discontinued operations (6)

Adjusted EBITDA $ 207 $ 200

Income from discontinued operations, net of tax $ — $ — $ — $ 3

Adjustments to discontinued operations net income:

Provision for income taxes — 1 — —

Restructuring, store closure and other charges, net

Adjusted EBITDA of discontinued operations

$ — $ 1 $ — $ 4

(1) During the third quarter of fiscal 2022, the Company revised its definition of Adjusted EBITDA to exclude the impact of the non-cash LIFO charge or benefit.

(1) During fiscal 2022, the Company revised its definition of Adjusted EBITDA to exclude the impact of the non-cash LIFO charge or benefit.

The following illustrates the impact of the revised definition on previously reported periods to show the effect of this change:

13-Week Period Ended 39-Week Period Ended

(in millions) May 1, 2021 May 1, 2021

Adjusted EBITDA of continuing operations (previously reported definition) $ 179 $ 541

13-Week Period Ended

(in millions) October 30, 2021

Adjusted EBITDA (previously reported definition) $ 189

LIFO charge 11

Adjusted EBITDA of continuing operations (revised definition) 184 560

Adjusted EBITDA of discontinued operations 1 4

Adjusted EBITDA (revised definition) $ 185 $ 564

(2) 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) Fiscal 2022 primarily reflects the gain on sale of our Riverside, California distribution center in the third quarter of fiscal 2022.

Refer to the gain on sale of assets discussion below for additional information.

(4) Reflects an adjustment to multi-employer withdrawal charge estimates.

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

(6) The two remaining retail stores in discontinued operations were sold in the second quarter of fiscal 2022.

Adjusted EBITDA (current definition) $ 200

(2) Includes costs for certain technology-related initiatives.

RESULTS OF OPERATIONS

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

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

13-Week Period Ended

Increase (Decrease) 39-Week Period Ended

Increase (Decrease)

Customer Channel (1)

2021 $ % April 30,

2022 October 30,

Chains $ 3,224 $ 3,082 $ 142 4.6 %

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(1) Refer to Note 3—Revenue Recognition in Part 1, Item 1 of this Quarterly Report on Form 10-Q for our channel definitions and additional information.

Third Quarter

Our net sales for the third quarter of fiscal 2022 increased approximately 9.2% from the third 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 modest market contraction.

Chains net sales increased primarily due to growth in sales to existing customers, including an increase from higher product costs, which drove higher wholesale selling prices to our customers.

Independent retailers net sales increased primarily due to sales under a new supply agreement with a new customer for East Coast locations commencing in the first quarter of fiscal 2022 and growth in sales to existing customers, including an increase from higher product costs, which drove higher wholesale selling prices to our 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 net sales increased primarily due to a 2.4% increase in identical store sales from higher average basket sizes.

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.

Our net sales for fiscal 2022 year-to-date increased approximately 7.1% from fiscal 2021 year-to-date.

Chains net sales increased primarily due to growth in sales to existing customers, including an increase from higher product costs, which drove higher wholesale selling prices to our customers.

Retail net sales increased primarily due to a 1.1% increase in identical store sales from higher average basket sizes.

Our Net sales for the first quarter of fiscal 2023 increased approximately 7.6% from the first quarter of fiscal 2022.

The increase in Net sales was primarily driven by inflation and new business.

This new business resulted from selling new or expanded categories to existing customers and adding new customers from our robust pipeline.

These increases were partially offset by an expected decrease in unit volume consistent with the overall industry.

Chains Net sales increased primarily due to growth in sales to existing and new customers, including an increase from higher product costs, which drove higher wholesale selling prices to our customers, partially offset by a decrease in units sold.

Independent retailers Net sales increased primarily due to sales under a supply agreement with a new customer within the Atlantic region commencing in the first quarter of fiscal 2022 and growth in sales to existing customers, including an increase from higher product costs, which drove higher wholesale selling prices to our customers, partially offset by a decrease in units sold.

Supernatural Net sales increased primarily due to growth in existing store sales, including the supply of new fresh categories, inflation, and increased sales to new stores.

Retail Net sales increased primarily due to a 2.0% increase in identical store sales from higher average basket sizes driven by inflation, offset by lower volume.

Other Net sales increased primarily due to higher e-commerce sales.

Cost of Sales and Gross Profit

Our gross profit increased $42 million, or 4.3%, to $1,012 million for the third quarter of fiscal 2022, from $970 million for the third quarter of fiscal 2021.

Our gross profit as a percentage of net sales decreased to 14.0% for the third quarter of fiscal 2022 compared to 14.6% for the third quarter of fiscal 2021.

The LIFO charge was $72 million and $5 million in the third quarter of fiscal 2022 and 2021, respectively.

E xcluding the non-cash LIFO charge, gross margin rate was 15.0% of net sales and 14.7% of net sales for the third quarter of fiscal 2022 and 2021, respectively.

The increase in gross margin rate, excluding the LIFO charge, was driven by improvements in the Wholesale segment margin rate, including the impact of inflation and the Company’s ValuePath initiative, partially offset by changes in customer mix.

Our gross profit increased $194 million, or 6.6%, to $3,129 million for fiscal 2022 year-to-date, from $2,935 million for fiscal 2021 year-to-date.

Our gross profit as a percentage of net sales decreased to 14.4% for fiscal 2022 year-to-date compared to 14.5% for fiscal 2021 year-to-date.

The LIFO charge was $102 million and $19 million for fiscal 2022 year-to-date and for fiscal 2021 year-to-date, respectively.

E xcluding the non-cash LIFO charge, gross margin rate was 14.9% of net sales and 14.6% of net sales for fiscal 2022 year-to-date and fiscal 2021 year-to-date, respectively.

Our gross profit increased $54 million, or 5.2%, to $1,096 million for the first quarter of fiscal 2023, from $1,042 million for the first quarter of fiscal 2022.

Our gross profit as a percentage of Net sales decreased to 14.6% for the first quarter of fiscal 2023 compared to 14.9% for the first quarter of fiscal 2022.

The LIFO charge was $21 million and $11 million in the first quarter of fiscal 2023 and 2022, respectively.

E xcluding the non-cash LIFO charge, gross profit rate was 14.8% of Net sales and 15.0% of Net sales for the first quarter of fiscal 2023 and 2022, respectively.

The decrease in gross profit rate, excluding the LIFO charge, was driven by changes in customer mix as we continued to grow sales with larger customers.

Operating Expenses

Operating expenses increased $101 million, or 11.6%, to $969 million, or 13.4% of net sales, for the third quarter of fiscal 2022 compared to $868 million, or 13.1% of net sales, for the third quarter of fiscal 2021.

The increase in operating expenses as a percent of net sales resulted from continued investments in servicing our customers, which led to approximately 50 basis points of higher transportation and distribution center labor costs in the third quarter of fiscal 2022, and occupancy-related inflation, which were partially offset by leveraging fixed costs and benefits of the Company’s ValuePath initiative.

Operating expenses increased $203 million, or 7.7%, to $2,845 million, or 13.1% of net sales, for fiscal 2022 year-to-date compared to $2,642 million, or 13.1% of net sales, for fiscal 2021 year-to-date.

Operating expenses were approximately flat as a percent of net sales.

Changes in operating expenses as a percentage of net sales included continued investments in servicing our customers, which led to approximately 50 basis points of higher transportation expenses and distribution labor costs in fiscal 2022 year-to-date, occupancy-related inflation, and the temporary, voluntary closure of a distribution center in the first quarter of fiscal 2022.

These increases were partially offset by leveraging fixed expenses and lower year-over-year distribution center start-up and consolidation costs.

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were $8 million for the third quarter of fiscal 2022 and $10 million for the third quarter of fiscal 2021.

Restructuring, acquisition and integration related expenses were $16 million for fiscal 2022 year-to-date.

Expenses for fiscal 2021 year-to-date were $44 million, which included $41 million of restructuring and integration costs primarily reflecting costs associated with advisory and transformational activities as we position our business for further value creation following the Supervalu acquisition and $3 million of closed property charges and costs.

Gain on Sale of Assets

During the third quarter of fiscal 2022, we acquired the real property of our Riverside, California distribution center for approximately $153 million.

Immediately following this acquisition, we monetized this property through a sale-leaseback transaction, pursuant to which we received $225 million in aggregate proceeds for the sale of the property, which represented the fair value of the property.

Under the terms of the sale-leaseback agreement, we entered into a lease for the distribution center for a term of 15 years.

We recorded a pre-tax gain on sale of approximately $87 million in the third quarter of fiscal 2022 as a result of the transactions, which primarily reflects the pre-tax net proceeds.

Operating expenses increased $68 million, or 7.3%, to $1,000 million, or 13.3% of Net sales, for the first quarter of fiscal 2023 compared to $932 million, or 13.3% of Net sales, for the first quarter of fiscal 2022.

Operating expenses as a percent of Net sales for the first quarter of fiscal 2023 were approximately flat compared to the first quarter of fiscal 2022, primarily driven by continued investments in servicing our customers, which led to higher transportation and distribution center labor costs in the first quarter of fiscal 2023, and higher occupancy costs, partially offset by leveraging fixed expenses across higher sales.

Operating Income

Reflecting the factors described above, operating income increased $31 million to $123 million for the third quarter of fiscal 2022, compared to $92 million for the third quarter of fiscal 2021.

The increase in operating income was primarily driven by an increase in gain on sale of assets and gross profit, partially offset by an increase in operating expenses, all of which are described above.

Reflecting the factors described above, operating income increased $106 million to $355 million for fiscal 2022 year-to-date, from operating income of $249 million for fiscal 2021 year-to-date.

The increase in operating income was primarily driven by an increase in gross profit and gain on sale of assets, and lower restructuring, acquisition and integration expenses, partially offset by an increase in operating expenses, all of which are described above.

Net Periodic Benefit Income, Excluding Service Cost

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

Net periodic benefit income, excluding service cost decreased $21 million to $30 million for fiscal 2022 year-to-date, from $51 million for fiscal 2021 year-to-date.

The decrease in Net periodic benefit income, excluding service cost for the third quarter and fiscal 2022 year-to-date as compared to the respective comparative periods was primarily driven by lower expected rates of return on plan assets driven by a higher target investment allocation to fixed income assets.

Reflecting the factors described above, Operating income decreased $8 million to $99 million for the first quarter of fiscal 2023, compared to $107 million for the first quarter of fiscal 2022.

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

Interest Expense, Net

13-Week Period Ended 39-Week Period Ended

(in millions) April 30, 2022 May 1, 2021 April 30, 2022 May 1, 2021

13-Week Period Ended

(in millions) October 29, 2022 October 30, 2021

Interest expense on long-term debt, net of capitalized interest $ 32 $ 33

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Amortization of financing costs and discounts 2 3

Loss on debt extinguishment 1 2 7 31

Interest income — — — (1)

Interest expense, net $ 35 $ 40

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

The decrease in loss on debt extinguishment costs in fiscal 2022 year-to-date compared to fiscal 2021 year-to-date primarily reflects the acceleration of unamortized debt issuance costs and original issue discounts related to higher mandatory and voluntary prepayments on the Term Loan Facility made in fiscal 2021 year-to-date.

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

Provision for Income Taxes

The effective tax rate for the third quarter of fiscal 2022 was 29.9% compared to 24.2% for the third quarter of fiscal 2021.

The change in the effective tax rate was primarily driven by limitations on the deductibility of certain share-based compensation expenses in the third quarter of fiscal 2022 and a discrete benefit for the vesting of employee stock awards in the third quarter of fiscal 2021 that was not material to the effective tax rate in the third quarter of fiscal 2022.

The effective tax rate for fiscal 2022 year-to-date was 19.9% compared to 22.9% for fiscal 2021 year-to-date.

The change in the effective tax rate was primarily driven by discrete tax benefits from employee stock award vestings that occurred in fiscal 2022 year-to-date.

The impacts from the release of unrecognized tax positions in fiscal 2022 year-to-date were comparable to fiscal 2021 year-to-date.

The decrease in interest expense, net, in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 was primarily driven by lower outstanding debt balances.

In addition, our interest expense included the benefit of lower interest expense on our portfolio of interest rate swaps, partially offset by higher average floating interest rates on the company’s credit facilities.

Provision (Benefit) for Income Taxes

The effective tax rate for the first quarter of fiscal 2023 was an expense rate of 6.9% compared to a benefit rate of 1.3% for the first quarter of fiscal 2022.

The effective tax rate for both periods was reduced by the impact of discrete tax benefits related to the vesting of employee stock awards.

The change from the first quarter of fiscal 2022 was primarily driven by the reduction of these discrete tax benefits during the first quarter of fiscal 2023.

Net Income Attributable to United Natural Foods, Inc.

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

was $67 million, or $1.10 per diluted common share, for the third quarter of fiscal 2022, compared to $48 million, or $0.80 per diluted common share, for the third quarter of fiscal 2021.

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

was $209 million, or $3.44 per diluted common share, for fiscal 2022 year-to-date, compared to $106 million, or $1.78 per diluted common share, for fiscal 2021 year-to-date.

was $66 million, or $1.07 per diluted common share, for the first quarter of fiscal 2023, compared to $76 million, or $1.25 per diluted common share, for the first quarter of fiscal 2022.

Segment Results of Operations

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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 millions) April 30, 2022 May 1, 2021 Change April 30, 2022 May 1, 2021 Change

13-Week Period Ended

(in millions) October 29, 2022 October 30, 2021 Change

Wholesale $ 7,259 $ 6,734 $ 525

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Total Net sales $ 7,532 $ 6,997 $ 535

Continuing operations Adjusted EBITDA:

Adjusted EBITDA:

Wholesale (1)

$ 171 $ 175 $ (4)

14 23 (9) 68 75 (7)

Other 19 4 15

Eliminations (3) (1) (2)

Total continuing operations Adjusted EBITDA $ 196 $ 184 $ 12 $ 616 $ 560 $ 56

(1) Adjusted EBITDA amounts as previously reported by segment have been recast to conform with the revised segment profit measure of Adjusted EBITDA, which excludes the non-cash LIFO charge or benefit recorded by segment.

The effect of the revision increased Adjusted EBITDA for Wholesale and Retail by $4 million and $1 million for the third quarter of fiscal 2021, respectively, and increased Adjusted EBITDA for Wholesale and Retail by $18 million and $1 million for fiscal 2021 year-to-date, respectively.

Third Quarter

Wholesale’s net sales increased primarily due to growth in the Independent retailers, Supernatural and Chains channels, as discussed in the Net Sales section above.

Retail’s net sales increased primarily due to a 2.4% increase in identical store sales from higher average basket sizes.

Total Adjusted EBITDA $ 207 $ 200 $ 7

The effect of the revision increased Adjusted EBITDA for Wholesale by $11 million for the first quarter of fiscal 2022.

The impact on Retail was insignificant.

Wholesale’s Net sales increased primarily due to growth in sales to new and existing customers, including an increase from higher product costs, in Independent retailers, Chains and Supernatural channels, as discussed in Results of Operations - Net Sales section above.

Retail’s Net sales increased primarily due to a 2.0% increase in identical store sales from higher average basket sizes driven by inflation, offset by lower volume.

The increase in eliminations Net sales was driven by higher sales from Other to Wholesale.

Wholesale’s net sales increased primarily due to growth in sales to existing customers in the Independent retailers, Supernatural and Chains, as discussed in the Net Sales section above.

Retail’s net sales increased primarily due to a 1.1% increase in identical store sales from higher average basket sizes.

Adjusted EBITDA

Third Quarter

Wholesale’s Adjusted EBITDA increased 3.0% for the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021.

The increase was driven by gross profit expansion excluding the LIFO charge, in excess of higher operating costs.

Wholesale’s gross profit increase excluding the LIFO charge for the third quarter of fiscal 2022 was $105 million with a gross profit rate increase of approximately 41 basis points primarily driven by margin rate expansion from the benefits of inflation and the Company’s ValuePath initiative, which was partially offset by changes in customer mix.

Wholesale’s operating expense increased $101 million, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 14—Business Segments.

Wholesale’s operating expense rate increased 58 basis points driven by the decision to invest in higher transportation expenses and distribution center labor to better support our customers in this year’s third quarter, partially offset by leveraging fixed expenses.

Wholesale’s depreciation expense increased $6 million compared to last year.

Retail’s Adjusted EBITDA decreased 39.1% for the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021.

The decrease was driven by higher Retail operating expenses from higher employee and occupancy costs, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 14—Business Segments.

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

Wholesale’s Adjusted EBITDA increased 6.5% for fiscal 2022 year-to-date as compared to fiscal 2021 year-to-date.

The increase was driven by gross profit expansion excluding the LIFO charge, in excess of higher operating costs.

Wholesale’s gross profit increase excluding the LIFO charge for fiscal 2022 year-to-date was $284 million and gross profit rate increased approximately 52 basis points driven by margin rate expansion from the benefits of inflation and the Company’s ValuePath initiative, which was partially offset by changes in customer mix.

Wholesale’s Adjusted EBITDA decreased 2.3% for the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022.

The decrease was driven by an increase in operating expenses in excess of gross profit growth excluding the LIFO charge.

Wholesale’s Gross profit increase excluding the LIFO charge for the first quarter of fiscal 2023 was $65 million with a gross profit rate decrease of approximately 4 basis points primarily driven by changes in customer mix.

Wholesale’s Operating expense increased $69 million, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 13—Business Segments.

Wholesale’s operating expense rate increased 54 basis points primarily driven by the decision to invest in higher transportation expenses and distribution labor to better support our customers in fiscal 2022 year-to-date, and the temporary, voluntary closure of a distribution center, partially offset by leveraging fixed expenses and lower year-over-year distribution center start-up and consolidation costs.

Wholesale’s depreciation expense increased $1 million.

Retail’s Adjusted EBITDA decreased 9.3% for fiscal 2022 year-to-date as compared to fiscal 2021 year-to-date, driven by higher Retail operating expenses from higher employee and occupancy costs, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 14—Business Segments.

Wholesale’s operating expense rate increased 18 basis points primarily driven by continued investments in servicing our customers, which led to higher transportation and distribution labor costs in the first quarter of fiscal 2023, and higher occupancy costs.

These increases were partially offset by leveraging fixed costs.

Wholesale’s depreciation and amortization expense increased $3 million compared to the first quarter of fiscal 2022.

Retail’s Adjusted EBITDA decreased 9.1% for the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022.

Retail’s gross profit rate was approximately flat compared to the first quarter of fiscal 2022 and operating expenses increased primarily due to higher employee-related costs.

Retail’s Adjusted EBITDA excludes depreciation and amortization, share-based compensation, LIFO charge and other adjustments as outlined in Note 13—Business Segments.

Retail’s depreciation and amortization expense increased $1 million compared to the first quarter of fiscal 2022.

LIQUIDITY AND CAPITAL RESOURCES

• Total liquidity as of April 30, 2022 was $909 million and consisted of the following:

◦ Unused credit under our $2,100 million secured asset-based revolving credit facility (the “ABL Credit Facility”) was $861 million, which decreased $419 million from $1,280 million as of July 31, 2021, primarily due to increased cash utilized to fund working capital increases and a voluntary prepayment on the Term Loan Facility described below.

◦ Cash and cash equivalents was $48 million, which increased $7 million from $41 million as of July 31, 2021.

• Our total debt increased $203 million to $2,391 million as of April 30, 2022 from $2,188 million as of July 31, 2021, primarily related to additional borrowings under the ABL Credit Facility, to fund working capital increases.

• Working capital increased $528 million to $1,591 million as of April 30, 2022 from $1,063 million as of July 31, 2021, primarily due to increases in inventory and accounts receivable levels related to new customers and sales growth of existing customers, partially offset by an increase in accounts payable related to inventories.

In the remainder of fiscal 2022, scheduled debt maturities are expected to be $4 million.

• In the second quarter of fiscal 2022, we made a voluntary prepayment of $150 million on the term loan agreement (the “Term Loan Agreement”) related to our $1,950 million term loan facility (the “Term Loan Facility”) funded with incremental borrowings under the ABL Credit Facility that reduced 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 2022, if any, which would be due in fiscal 2023.

Also in the second 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.

• In the third quarter fiscal 2022, we paid $153 million to acquire the Riverside, California distribution center, which reduced our Current portion of long-term debt and finance lease liabilities by $96 million with the remainder primarily reducing our Accrued expenses and other current liabilities.

Immediately following this acquisition, we monetized this property through a sale-leaseback transaction, pursuant to which we received $225 million in aggregate proceeds for the sale of the property.

In March 2022, we made a $44 million voluntary prepayment on the Term Loan Facility from the majority of the after-tax net proceeds from the transactions.

This prepayment will also count towards satisfying any requirement to make a mandatory prepayment with Excess Cash Flow (as defined in the Term Loan Agreement) generated during fiscal 2022, if any, which would be due in fiscal 2023.

• Subsequent to the end of the third quarter of fiscal 2022, we entered into a new loan agreement (the “2022 ABL Loan Agreement”), which provides for a $2,600 million secured asset-based revolving credit facility (“2022 ABL Credit Facility”), and we used borrowings thereunder to repay all amounts outstanding under the ABL Credit Facility and terminated the ABL Credit Facility.

Our total available liquidity increased by $500 million in connection with this refinancing, which reflects borrowing base levels at closing.

The 2022 ABL Loan Agreement utilizes Term Secured Overnight Financing Rate (“SOFR”) and Prime rates as the benchmark interest rates.

Borrowings under the 2022 ABL Loan Agreement bear interest at rates that, at the applicable borrowers’ option, can be either:

(i) a base rate plus a 0.00% - 0.25% margin or (ii) a Term SOFR rate plus a 1.00% - 1.25% margin.

Refer to Note 8—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

• Total liquidity as of October 29, 2022 was $1,289 million and consisted of the following:

◦ Unused credit under the ABL Credit Facility was $1,250 million, which decreased $377 million from $1,627 million as of July 30, 2022, primarily due to increased cash utilized to fund seasonal working capital increases.

◦ Cash and cash equivalents was $39 million, which decreased $5 million from $44 million as of July 30, 2022.

• Our total debt increased $376 million to $2,499 million as of October 29, 2022 from $2,123 million as of July 30, 2022, primarily related to additional borrowings under the ABL Credit Facility to fund seasonal working capital increases.

• Working capital increased $415 million to $1,795 million as of October 29, 2022 from $1,380 million as of July 30, 2022, primarily due to seasonal increases in inventory and accounts receivable levels, partially offset by an increase in accounts payable related to inventories.

• Subsequent to the end of the first quarter of fiscal 2023, we monetized certain receivables within Accounts receivable, net, pursuant to a purchase agreement with a third-party financial institution for the sale of certain receivables up to $300 million, which generated net cash proceeds of $253 million.

These proceeds were used to make a $125 million voluntary prepayment on the Term Loan Facility and reduce outstanding borrowings under the ABL Credit Facility.

Sources and Uses of Cash

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

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

We expect to be able to fund debt maturities and finance lease liabilities through fiscal 2023 with internally generated funds and 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.

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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 plans to do so.

We currently do not pay a dividend on our common stock.

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 2022 year-to-date, we borrowed a net $400 million under the ABL Credit Facility and repaid $202 million on the Term Loan Facility related to voluntary prepayments.

We 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 the indenture governing our unsecured 6.75% Senior Notes due October 15, 2028 (the “Senior Notes”) do not include any financial maintenance covenants.

During the first quarter of fiscal 2023, we borrowed a net $377 million under the ABL Credit Facility.

Subsequent to the end of the first quarter of fiscal 2023, we made a $125 million voluntary prepayment on the Term Loan Facility with a portion of the proceeds received from monetizing certain receivables within Accounts receivable, net.

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 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) $210 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 or 2022 ABL Loan Agreement, including through the filing date of this Quarterly Report on Form 10-Q.

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 on Form 10-Q.

The Term Loan Agreement, Senior Notes and ABL Loan Agreement contain certain operational and informational covenants customary for debt securities of these types that limit our and 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.

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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.

Subsequent to the end of the third quarter of fiscal 2022, on June 3, 2022, we entered into an amendment ( the “Third Term Loan Amendment”) to the Term Loan Agreement to amend the reference rate thereunder from LIBOR to Term SOFR.

There were no other changes to the Term Loan Agreement as a result of the Third Loan Amendment.

We do not expect to record any gains or losses on the conversion of these interest rate swap contracts from LIBOR to SOFR.

Derivatives and Hedging Activity

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

As of April 30, 2022, we had an aggregate of $1,230 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 represent a long-term asset of $5 million and a current liability of $5 million as of April 30, 2022, and are subject to volatility based on changes in market interest rates.

In fiscal 2021 year-to-date, we paid $17 million to terminate or novate $1,204 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.

As discussed above, subsequent to the end of the third quarter of fiscal 2022, we (i) entered into the 2022 ABL Loan Agreement, (ii) amended the Term Loan Agreement to change the Term Loan Facility reference rate from LIBOR to Term SOFR and (iii) amended our outstanding interest rate swap contracts to replace One-Month LIBOR with One-Month Term SOFR.

We do not expect to record any gains or losses upon the conversion of the reference rates in these interest rate swap contracts, and we believe these amendments will not have a material impact on our Condensed Consolidated Financial Statements.

The cumulative effect of these changes includes the replacement of LIBOR with Term SOFR as the benchmark interest rate from all remaining credit facilities.

As such, we expect to adopt ASU 2020-04, as discussed in Note 2—Recently Adopted and Issued Accounting Pronouncements in Part I, Item 1 of this Quarterly Report on Form 10-Q, which will allow us to continue to apply hedge accounting to our outstanding interest rate swap contracts and terminated or novated interest rate swap contracts for which the hedged interest rate transactions are still probable of occurring.

As of October 29, 2022, we had an aggregate of $1,200 million of floating rate notional debt subject to active interest rate swap contracts, which effectively hedge the SOFR component of our interest rate payments through pay fixed and receive floating interest rate swap agreements.

These fixed rates range from 2.274% to 2.875%, with maturities between October 2022 and October 2025.

The fair value of these interest rate derivatives represent a current asset of $16 million and a long-term asset of $11 million as of October 29, 2022, and are subject to volatility based on changes in market interest rates.

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

As of April 30, 2022, we had fixed price fuel contracts outstanding and foreign currency forward agreements outstanding.

As of October 29, 2022, we had fixed price fuel contracts 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 fiscal 2022 year-to-date were $158 million compared to $165 million for fiscal 2021 year-to-date, a decrease of $7 million.

Our capital spending for fiscal 2022 and 2021 year-to-date principally included information technology and supply chain expenditures, including continued investment in the new Allentown, Pennsylvania distribution center.

Fiscal 2022 capital spending is expected to be approximately $250 million and includes projects that optimize and expand our distribution network, technology platform investments and the remaining investments in the Allentown, Pennsylvania distribution center.

Our capital expenditures for the first quarter of fiscal 2023 were $67 million compared to $56 million for the first quarter of fiscal 2022, an increase of $11 million.

Our capital spending for the first quarter of fiscal 2023 and 2022 principally included information technology and supply chain expenditures, including continued investment in the new Allentown, Pennsylvania distribution center during the first quarter of fiscal 2022.

Fiscal 2023 capital spending is expected to be approximately $350 million and include projects that automate, optimize and expand our distribution network, and finance our technology platform investments.

We expect to finance fiscal 2023 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.

Future investments may be financed through long-term debt or borrowings under our 2022 ABL Credit Facility.

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

Cash Flow Information

1 unchanged sentence

13-Week Period Ended

(in millions) April 30, 2022 May 1, 2021 Change

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

$ (31) $ 338 $ (369)

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

Net cash used in financing activities

(in millions) October 29, 2022 October 30, 2021 Change

Net cash used in operating activities

$ (262) $ (81) $ (181)

Net cash used in discontinued operations — (1) 1

Net cash used in investing activities

Net cash provided by financing activities

Effect of exchange rate on cash (1) — (1)

Net increase (decrease) in cash and cash equivalents 7 (7) 14

Net (decrease) increase in cash and cash equivalents (5) 5 (10)

Cash and cash equivalents, at beginning of period 44 41 3

Cash and cash equivalents, at end of period $ 39 $ 46 $ (7)

The increase in net cash used in operating activities of continuing operations in fiscal 2022 year-to-date compared to fiscal 2021 year-to-date was primarily due to increases in inventory driven by higher purchasing levels intended to offset supply chain limitations and accounts receivable levels related to new customers and sales growth of existing customers, partially offset by an increase in accounts payable related to inventories.

The increase in net cash provided by investing activities of continuing operations in fiscal 2022 year-to-date compared to fiscal 2021 year-to-date was primarily due to proceeds received from the sale of the Riverside, California distribution center discussed above, partially offset by higher cash payments for investments.

The decrease in net cash used in financing activities in fiscal 2022 year-to-date compared to fiscal 2021 year-to-date was due to an increase in net borrowings resulting from increases in net cash used in operating activities, partially offset by an increase in net cash provided by investing activities, as described above.

The increase in net cash used in operating activities in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 was primarily due to higher levels of cash utilized to build inventories and a decrease in accounts payable relative to inventory increases, partly due to earlier seasonal inventory purchases in the first quarter of fiscal 2023.

The decrease in net cash used in investing activities in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 was primarily due to a reduction in payments for investments.

The increase in net cash provided by financing activities in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 was primarily due to a larger increase in net borrowings under the ABL Credit Facility resulting from increases in net cash used in operating activities, net of cash used in investing activities, as described above.

Other Obligations and Commitments

Except as otherwise disclosed in Note 8—Long-Term Debt and in Note 15—Commitments, Contingencies and Off-Balance Sheet Arrangements for the sale-leaseback transaction 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.

Our principal contractual obligations and commitments consist of obligations under our long-term debt, interest on long-term debt, operating and finance leases, purchase obligations, self-insurance liabilities and multiemployer plan withdrawal liabilities.

There have been no material changes in our contractual obligations since the end of fiscal 2022.

Refer to Item 7 of the Annual Report for additional information regarding our contractual obligations.

Pension and Other Postretirement Benefit Obligations

As described in further detail in Note 11—Benefit Plans, in the second quarter of fiscal 2022, we merged the Unified Grocers, Inc.

Cash Balance Plan into the SUPERVALU INC.

Retirement Plan.

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

Cash Balance Plan or are required under the SUPERVALU INC.

In fiscal 2023, no minimum pension contributions are required to be made under 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 2023.

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.

We fund our defined benefit pension plans based on the minimum contribution required under ERISA, the Pension Protection Act of 2006 and other applicable laws and additional contributions made at our discretion.

We may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable.

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Plan trustees typically are responsible for determining the level of benefits to be provided to participants as well as the investment of the assets and plan administration.

Trustees are appointed in equal number by employers and unions that are parties to the collective bargaining agreement.

Trustees are appointed in equal number by employers and unions that are parties to the relevant collective bargaining agreement.

Based on the assessment of the most recent information available from the multiemployer plans, we believe that most of the plans to which we contribute are underfunded.

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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 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.

We made contributions to these plans, and recognized expense of $45 million in fiscal 2022.

In fiscal 2023, we expect to contribute approximately $51 million to multiemployer plans, 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 insignificant 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.

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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 fiscal 2022 year-to-date or fiscal 2021 year-to-date pursuant to the share repurchase program.

As of April 30, 2022, 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, the 2022 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.

In September 2022, our Board of Directors authorized a new repurchase program for up to $200 million of our common stock over a term of four years (the “2022 Repurchase Program”).

Upon approval of the 2022 Repurchase Program, our Board terminated the repurchase program authorized in October 2017 (the “2017 Repurchase Program”).

In the first quarter of fiscal 2023, we repurchased approximately 0.4 million shares of our common stock for a total cost of $12 million under the 2022 Repurchase Program.

As of October 29, 2022, we had $188 million remaining authorized under the 2022 Repurchase Program.

We will manage the timing of any repurchases of our common stock in response to market conditions and other relevant factors, including any limitations on our ability to make repurchases under the terms of our ABL Credit Facility, Term Loan Facility and Senior Notes.

We may implement the 2022 Repurchase Program pursuant to a plan or plans meeting the conditions of Rule 10b5-1 under the Exchange Act.

Critical Accounting Policies and Estimates

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

In the third quarter of fiscal 2022, we experienced an increase in product cost inflation and also raised our expectation of the year end inflation rate in ending LIFO-based inventory.

When holding inventory levels and mix constant, we estimate a 50 basis point increase in the inflation rate in our ending LIFO-based inventory results in an increase in the non-cash LIFO charge of approximately $10 million on an annual basis.

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.

Overall product sales are fairly balanced throughout the year, although demand for certain products of a seasonal nature may be influenced by holidays, changes in seasons or other annual events.

Our working capital needs are generally greater during the months of and leading up to high sales periods, such as the buildup in inventory 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis