What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-06-05 compared with 2024-03-06 · 112 added, 99 removed, 299 unchanged (41% of the section changed)

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We are focused on becoming a more effective and efficient business partner to our customers, which we believe will position us for long-term profitable growth.

Our business transformation initiatives consist of four areas:

network automation and optimization;

commercial value creation;

digital offering enhancement and infrastructure unification and modernization.

To enable these efforts, we have engaged consultants and recruited leadership with the appropriate experience to upgrade and modernize our technology and platforms to better serve our customers.

We are also implementing near-term initiatives to help improve profitability while we execute our longer-term strategy.

We are finalizing our multi-year strategic plan that we expect will begin in fiscal 2025.

We expect our updated strategy to focus on optimizing controllable variables across network optimization, cost management and working capital efficiency as well as the reallocation of resources to enhance value for our stakeholders.

We are also implementing near-term initiatives to help improve profitability while we finalize and implement our revised strategy.

These include actioning administrative structure efficiencies, reprioritizing our selling and administrative spending, optimizing our stock-keeping unit (“SKU”) assortment as well as reviewing commercial contracts in collaboration with our customers and suppliers.

We expect to continue to use available capital to re-invest in our business and we remain committed to improving our financial leverage and reducing outstanding debt over the long term.

We expect to continue to use available capital to re-invest in our business and we remain committed to improving our financial leverage and reducing outstanding debt.

We believe we can optimize our performance and profitability through our improvement efforts, which we expect will improve our cost structure, increase sales of products and services, and position us to provide tailored, data-driven solutions to help our customers run their businesses more efficiently and contribute to customer acquisitions.

We believe the key drivers for value creation will be improved efficiency through the automation and optimization of our supply chain, as well as new customer growth associated with the benefits of our significant scale, product and service offerings and nationwide footprint.

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 May 21, 2024, we amended and restated our distribution agreement dated October 30, 2015 which, among other things, extended the term of that agreement through May 20, 2032.

Trends and Other Factors Affecting Our Business

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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, including initiatives under the network automation and optimization area of our transformation agenda.

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 the second quarter of fiscal 2024, we began the development of a new distribution center in Manchester, Pennsylvania, which has approximately 1.3 million square feet.

We recognized a $205 million right-of-use asset and operating lease liability for this distribution center in the second quarter of fiscal 2024.

We recognized a $205 million right-of-use asset and operating lease liability for this distribution center in fiscal 2024.

Retail Operations

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Impact of Product Cost Changes

We experienced a mix of inflation and deflation across product categories during the second quarter of fiscal 2024.

In the aggregate across our businesses, including the mix of products, management estimates our businesses experienced product cost inflation of approximately two percent in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023.

We experienced a mix of inflation and deflation across product categories during the third quarter of fiscal 2024.

In the aggregate across our businesses, including the mix of products, management estimates our businesses experienced product cost inflation of approximately two percent in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023.

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

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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.

In the second quarter of fiscal 2024, we experienced fewer and less significant vendor product cost increases as compared to the second quarter of fiscal 2023.

These decreases negatively impacted our gross profit rate when comparing the second quarter of fiscal 2024 to the second quarter of fiscal 2023.

In the third quarter of fiscal 2024, we experienced fewer and less significant vendor product cost increases as compared to the third quarter of fiscal 2023.

These decreases negatively impacted our gross profit rate when comparing the third quarter of fiscal 2024 to the third quarter of fiscal 2023.

Composition of Condensed Consolidated Statements of Operations and Business Performance Assessment

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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 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.

Restructuring, Acquisition and Integration Related Expenses (Benefits)

Restructuring, acquisition and integration related expenses (benefits) reflect expenses resulting from restructuring activities, including severance costs, share-based compensation acceleration charges and acquisition and integration related expenses.

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

Loss (Gain) on Sale of Assets and Other Asset Charges

Loss (gain) on sale of assets and other asset charges primarily includes losses (gains) on sales of assets, losses on sales of financial assets, and asset impairments.

Loss on Sale of Assets and Other Asset Charges

Loss on sale of assets and other asset charges primarily includes losses (gains) on sales of assets, losses on sales of financial assets, and asset impairments.

Net Periodic Benefit Income, Excluding Service Cost

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13-Week Period Ended 39-Week Period Ended

(in millions) January 27, 2024 January 28, 2023 Change January 27, 2024 January 28, 2023 Change

(in millions) April 27, 2024 April 29, 2023 Change April 27, 2024 April 29, 2023 Change

Net sales $ 7,498 $ 7,507 $ (9) $ 22,825 $ 22,855 $ (30)

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Operating expenses 992 967 25 3,025 2,969 56

Restructuring, acquisition and integration related expenses 4 3 1 8 5 3

Loss (gain) on sale of assets and other asset charges 5 1 4 24 (4) 28

Restructuring, acquisition and integration related expenses (benefits) 9 (4) 13 17 1 16

Loss on sale of assets and other asset charges 13 4 9 37 — 37

Operating income 6 33 (27) 6 195 (189)

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13-Week Period Ended 39-Week Period Ended

(in millions) January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023

(in millions) April 27, 2024 April 29, 2023 April 27, 2024 April 29, 2023

Net (loss) income including noncontrolling interests $ (20) $ 8 $ (73) $ 97

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LIFO charge 6 33 19 83

Restructuring, acquisition and integration related expenses

Loss (gain) on sale of assets and other asset charges (1)

Restructuring, acquisition and integration related expenses (benefits)

Loss on sale of assets and other asset charges (1)

Business transformation costs (2)

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Adjusted EBITDA $ 130 $ 159 $ 375 $ 547

(1) Fiscal 2024 includes a $21 million non-cash asset impairment charge related to one of our corporate-owned office locations in the first quarter of fiscal 2024.

(2) Reflects costs associated with business transformation initiatives, primarily including third-party consulting costs and licensing costs, which are included within Operating expenses in the Condensed Consolidated Statements of Operations.

(3) Primarily reflects third-party professional service fees related to shareholder negotiations.

(1) Fiscal 2024 primarily includes a $21 million non-cash asset impairment charge related to one of our corporate-owned office locations in the first quarter of fiscal 2024 and a $7 million non-cash asset impairment charge related to the decision to close certain retail store locations in the third quarter of fiscal 2024.

(2) Reflects costs associated with business transformation initiatives, primarily including third-party consulting costs and licensing costs, and third-party professional service fees related to the board-led financial review in the third quarter of fiscal 2024, all of which are included within Operating expenses in the Condensed Consolidated Statements of Operations.

(3) Primarily reflects third-party professional service fees related to shareholder negotiations in the first quarter of fiscal 2024.

RESULTS OF OPERATIONS

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Customer Channel (1)

2024 January 28,

2023 $ % January 27,

2024 January 28,

2024 April 29,

2023 $ % April 27,

2024 April 29,

Chains $ 3,092 $ 3,129 $ (37) (1.2) % $ 9,542 $ 9,675 $ (133) (1.4) %

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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.

Second Quarter

Our Net sales for the second quarter of fiscal 2024 decreased approximately 0.5% from the second quarter of fiscal 2023.

The decrease in Net sales was primarily driven by a decline in unit volumes, which was partially offset by inflation and new business with existing customers, primarily resulting from growth in our Supernatural channel.

Third Quarter

Our Net sales for the third quarter of fiscal 2024 decreased approximately 0.1% from the third quarter of fiscal 2023.

The decrease in Net sales was primarily driven by a decline in unit volumes, which was offset by inflation and new business with existing customers.

Retail Net sales decreased primarily due to a 4.0% decrease in identical store sales from lower volume.

Our Net sales for fiscal 2024 year-to-date decreased approximately 0.1% from fiscal 2023 year-to-date.

The decrease in Net sales was primarily driven by a decline in unit volumes.

This decrease was largely offset by inflation and new business with existing customers, primarily resulting from growth in our Supernatural channel.

The decrease in Net sales was primarily driven by a decline in unit volumes, which was offset by inflation and new business with existing customers.

Retail Net sales decreased primarily due to a 4.0% decrease in identical store sales from lower volume.

Cost of Sales and Gross Profit

Our Gross profit decreased $34 million, or 3.2%, to $1,035 million for the second quarter of fiscal 2024, from $1,069 million for the second quarter of fiscal 2023.

Our Gross profit as a percentage of Net sales decreased to 13.3% for the second quarter of fiscal 2024 compared to 13.7% for the second quarter of fiscal 2023.

The LIFO charge was $6 million and $29 million in the second quarters of fiscal 2024 and 2023, respectively.

E xcluding the non-cash LIFO charge, gross profit rate was 13.4% of Net sales and 14.0% of Net sales for the second quarter of fiscal 2024 and 2023 , respectively.

The decrease in gross profit rate, excluding the LIFO charge, was primarily driven by lower levels of procurement gains resulting from decelerating inflation.

Our Gross profit increased $20 million, or 2.0%, to $1,020 million for the third quarter of fiscal 2024, from $1,000 million for the third quarter of fiscal 2023.

Our Gross profit as a percentage of Net sales increased to 13.6% for the third quarter of fiscal 2024 compared to 13.3% for the third quarter of fiscal 2023.

The LIFO charge was $6 million and $33 million in the third quarters of fiscal 2024 and 2023, respectively.

E xcluding the non-cash LIFO charge, gross profit rate was 13.7% of Net sales and 13.8% of Net sales for the third quarter of fiscal 2024 and 2023 , respectively.

The decrease in gross profit rate, excluding the LIFO charge, was primarily driven by lower levels of procurement gains resulting from decelerating inflation and a lower retail gross profit rate, which were nearly offset by the benefit of lower shrink expense.

Our Gross profit decreased $80 million, or 2.5%, to $3,085 million for fiscal 2024 year-to-date, from $3,165 million for fiscal 2023 year-to-date.

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E xcluding the non-cash LIFO charge, gross profit rate was 13.6% of Net sales and 14.2% of Net sales for fiscal 2024 and fiscal 2023 year-to-date , respectively.

The decrease in gross profit rate, excluding the LIFO charge, was primarily driven by lower levels of procurement gains resulting from decelerating inflation.

The decrease in gross profit rate, excluding the LIFO charge, was primarily driven by lower levels of procurement gains resulting from decelerating inflation and a lower retail gross profit rate, which were partially offset by the benefit of lower shrink expense.

Operating Expenses

Operating expenses increased $8 million, or 0.8%, to $1,010 million, or 13.0% of Net sales, for the second quarter of fiscal 2024 compared to $1,002 million, or 12.8% of Net sales, for the second quarter of fiscal 2023.

The increase in Operating expenses as a percentage of Net sales was primarily driven by investments in our transformation initiatives, partially offset by lower transportation and distribution center labor costs due to increased operational efficiencies across our supply chain.

Operating expenses increased $25 million, or 2.6%, to $992 million, or 13.2% of Net sales, for the third quarter of fiscal 2024 compared to $967 million, or 12.9% of Net sales, for the third quarter of fiscal 2023.

The increase in Operating expenses as a percentage of Net sales was primarily driven by a $33 million increase in incentive compensation due to $13 million in expense in the third quarter of fiscal 2024, compared to a $20 million benefit in the third quarter of fiscal 2023 resulting from the reversal of previously accrued incentive compensation expense driven by underperformance in fiscal 2023.

This increase was partially offset by lower transportation costs and other operational supply chain efficiencies.

Operating expenses increased $56 million, or 1.9%, to $3,025 million, or 13.3% of Net sales, for fiscal 2024 year-to-date compared to $2,969 million, or 13.0% of Net sales, for fiscal 2023 year-to-date.

Loss (Gain) on Sale of Assets and Other Asset Charges

Loss on sale of assets and other asset charges increased $4 million to $5 million for the second quarter of fiscal 2024, from $1 million for the second quarter of fiscal 2023, driven by a gain on the sale of property and equipment during the second quarter of fiscal 2023, which partially offset losses on the sales of receivables under the accounts receivable monetization program incurred in both periods.

Loss on sale of assets and other asset charges was $24 million for fiscal 2024 year-to-date, compared to a gain on sale of assets of $4 million for fiscal 2023 year-to-date.

Fiscal 2024 year-to-date primarily includes a $21 million asset impairment charge related to one of our corporate-owned office locations.

The increase in Operating expenses as a percentage of Net sales was primarily driven by approximately $40 million higher incentive compensation expense in fiscal 2024 year-to-date and incremental transformation costs, which were partially offset by lower transportation costs and other operational supply chain efficiencies.

Restructuring, Acquisition and Integration Related Expenses (Benefits)

Restructuring, acquisition and integration related expenses were $9 million for the third quarter of fiscal 2024, compared to a benefit of $4 million for the third quarter of fiscal 2023.

The third quarter of fiscal 2024 primarily includes costs associated with certain employee severance.

Restructuring, acquisition and integration related expenses increased $16 million to $17 million for fiscal 2024 year-to-date, from $1 million for fiscal 2023 year-to-date primarily driven by costs associated with certain employee severance in fiscal 2024 year-to-date.

Loss on Sale of Assets and Other Asset Charges

Loss on sale of assets and other asset charges increased $9 million to $13 million for the third quarter of fiscal 2024, from $4 million for the third quarter of fiscal 2023, primarily driven by a $7 million asset impairment charge related to the decision to close certain retail store locations during the third quarter of fiscal 2024.

Loss on sale of assets and other asset charges increased $37 million to $37 million for fiscal 2024 year-to-date, from $0 million for fiscal 2023 year-to-date.

Fiscal 2024 year-to-date primarily includes $28 million in asset impairment charges related to one of our corporate-owned office locations and certain retail store locations.

Fiscal 2024 year-to-date also includes higher losses on the sales of receivables under the accounts receivable monetization program, which was entered into early in the second quarter of fiscal 2023.

Operating Income

Reflecting the factors described above, Operating income decreased $47 million to $16 million for the second quarter of fiscal 2024, compared to $63 million for the second quarter of fiscal 2023.

The decrease in Operating income was primarily driven by a decrease in Gross profit and an increase in Operating expenses, each as described above.

Reflecting the factors described above, Operating income decreased $27 million to $6 million for the third quarter of fiscal 2024, compared to $33 million for the third quarter of fiscal 2023.

The decrease in Operating income was primarily driven by an increase in Operating expenses and Restructuring, acquisition and integration related expenses in the third quarter of fiscal 2024, partially offset by an increase in Gross profit, each as described above.

Reflecting the factors described above, Operating income decreased $189 million to $6 million for fiscal 2024 year-to-date, compared to operating income of $195 million for fiscal 2023 year-to-date.

The decrease in Operating income was primarily driven by a decrease in Gross profit, an increase in Operating expenses, and a loss on sale of assets and other asset charges in fiscal 2024 year-to-date compared to a gain in fiscal 2023 year-to-date, each as described above.

The decrease in Operating income was primarily driven by a decrease in Gross profit, an increase in Operating expenses, a loss on sale of assets and other asset charges in fiscal 2024 year-to-date that did not occur in fiscal 2023 year-to-date, and higher Restructuring, acquisition and integration related expenses, each as described above.

Interest Expense, Net

13-Week Period Ended 39-Week Period Ended

(in millions) January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023

(in millions) April 27, 2024 April 29, 2023 April 27, 2024 April 29, 2023

Interest expense on long-term debt, net of capitalized interest $ 35 $ 33 $ 105 $ 98

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Interest expense, net $ 37 $ 35 $ 112 $ 109

The increase in interest expense, net, in the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023 was primarily driven by higher average interest rates, partially offset by lower loss on debt extinguishment.

The increase in interest expense, net, in fiscal 2024 year-to-date compared to fiscal 2023 year-to-date was primarily driven by higher average interest rates, partially offset by lower loss on debt extinguishment and lower outstanding debt balances.

The increase in interest expense, net, in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023 was primarily driven by higher average interest rates.

(Benefit) Provision for Income Taxes

The effective tax rate for the second quarter of fiscal 2024 was a benefit rate of 26.3% on pre-tax loss compared to an expense rate of 29.0% on pre-tax income for the second quarter of fiscal 2023.

The change from the second quarter of fiscal 2023 is primarily driven by the reduction in pre-tax income during the second quarter of fiscal 2023.

The effective tax rate for the third quarter of fiscal 2024 was a benefit rate of 23.1% on pre-tax loss compared to a benefit rate of 14.3% on pre-tax income for the third quarter of fiscal 2023.

The change from the third quarter of fiscal 2023 is primarily driven by the impact of a partnership investment entered into in the third quarter of fiscal 2023, and the reduction in pre-tax income during the third quarter of fiscal 2023.

The effective tax rate for fiscal 2024 year-to-date was a benefit rate of 21.5% on pre-tax loss compared to an expense rate of 11.8% on pre-tax income for fiscal 2023 year-to-date.

The change from fiscal 2023 year-to-date is primarily driven by the reduction of discrete tax benefits related to employee stock award vestings in the first quarter of fiscal 2024.

In addition, the first quarter of fiscal 2023 included a tax benefit from the release of reserves for unrecognized tax positions that did not recur in the first quarter of fiscal 2024.

In addition, the first quarter of fiscal 2023 included a tax benefit from the release of reserves for unrecognized tax positions, while the third quarter of fiscal 2024 included a tax expense for the establishment of reserves for unrecognized tax positions.

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

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

was $15 million, or $0.25 per diluted common share, for the second quarter of fiscal 2024, compared to Net income attributable to United Natural Foods, Inc.

of $19 million, or $0.31 per diluted common share, for the second quarter of fiscal 2023.

was $21 million, or $0.34 per diluted common share, for the third quarter of fiscal 2024, compared to Net income attributable to United Natural Foods, Inc.

of $7 million, or $0.12 per diluted common share, for the third quarter of fiscal 2023.

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

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13-Week Period Ended 39-Week Period Ended

(in millions) January 27, 2024 January 28, 2023 Change January 27, 2024 January 28, 2023 Change

(in millions) April 27, 2024 April 29, 2023 Change April 27, 2024 April 29, 2023 Change

Wholesale $ 7,236 $ 7,235 $ 1 $ 22,004 $ 22,008 $ (4)

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Total Adjusted EBITDA $ 130 $ 159 $ (29) $ 375 $ 547 $ (172)

Second Quarter

Wholesale’s Net sales decreased in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023 primarily due to a decline in unit volumes and declines in the Independent retailers and Chains channels, partially offset by inflation and growth in the Supernatural channel, as discussed in Results of Operations - Net Sales section above.

Retail’s Net sales decreased in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023 primarily due to a 4.8% decrease in identical store sales from lower volume.

Lower eliminations of Net sales in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023 were primarily due to a decrease in Wholesale to Retail sales, which are eliminated upon consolidation.

Wholesale’s Net sales decreased for fiscal 2024 year-to-date as compared to fiscal 2023 year-to-date primarily due to a decline in unit volumes and declines in the Independent retailers and Chains channels, partially offset by inflation and growth in the Supernatural channel, as discussed in Results of Operations - Net Sales section above.

Third Quarter

Wholesale’s Net sales increased in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023 primarily due to inflation and new business with existing customers, which was offset by a decline in unit volumes, as discussed in Results of Operations - Net Sales section above.

Retail’s Net sales decreased in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023 primarily due to a 4.0% decrease in identical store sales from lower volume.

Lower eliminations of Net sales in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023 were primarily due to a decrease in Wholesale to Retail sales, which are eliminated upon consolidation.

Wholesale’s Net sales decreased for fiscal 2024 year-to-date as compared to fiscal 2023 year-to-date primarily due to a decline in unit volumes, which was offset by inflation and new business with existing customers, as discussed in Results of Operations - Net Sales section above.

Retail’s Net sales decreased for fiscal 2024 year-to-date as compared to fiscal 2023 year-to-date primarily due to a 4.0% decrease in identical store sales from lower volume.

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Adjusted EBITDA

Second Quarter

Wholesale’s Adjusted EBITDA decreased 13.9% for the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023.

The decrease was driven by a decline in gross profit excluding the LIFO charge, partially offset by a decrease in operating expenses.

Wholesale’s Gross profit excluding the LIFO charge for the second quarter of fiscal 2024 decreased $30 million and gross profit rate decreased approximately 36 basis points driven by lower levels of procurement gains resulting from decelerating inflation.

Wholesale’s Operating expense decreased $11 million, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 14—Business Segments.

Wholesale’s operating expense rate decreased 11 basis points primarily driven by lower transportation and distribution center labor costs due to a decrease in volume and increased operational efficiencies across our supply chain.

Wholesale’s depreciation and amortization expense increased $4 million in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023.

Retail’s Adjusted EBITDA decreased 71.4% for the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023.

The decrease was driven by a decline in gross profit primarily due to lower volume.

Third Quarter

Wholesale’s Adjusted EBITDA decreased 12.6% for the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023.

The decrease was driven by an increase in operating expenses, partially offset by gross profit growth excluding the LIFO charge.

Wholesale’s Gross profit excluding the LIFO charge for the third quarter of fiscal 2024 increased $9 million and gross profit rate increased approximately 12 basis points driven primarily by lower shrink expense, which was partially offset by lower levels of procurement gains resulting from decelerating inflation.

Wholesale’s Operating expense increased $27 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 37 basis points primarily due to $8 million of incentive compensation expense recorded in the third quarter of fiscal 2024, compared to a benefit of approximately $23 million in the third quarter of fiscal 2023 resulting from the reversal of previously accrued incentive compensation expense driven by underperformance in fiscal 2023.

This increase was partially offset by lower transportation costs and other operational supply chain efficiencies.

Wholesale’s depreciation and amortization expense increased $1 million in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023.

Retail’s Adjusted EBITDA decreased $21 million for the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023.

The decrease was driven by a decline in gross profit due to margin rate investments intended to drive traffic and lower sales volume, and an increase in operating expenses primarily due to incentive compensation expense in the third quarter of fiscal 2024, compared to a benefit in the third quarter of fiscal 2023 resulting from the reversal of previously accrued incentive compensation expense driven by underperformance in fiscal 2023.

Retail’s Adjusted EBITDA excludes depreciation and amortization, share-based compensation, LIFO charge and other adjustments as outlined in Note 14—Business Segments.

Retail’s depreciation and amortization expense decreased $2 million in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023.

Other Adjusted EBITDA decreased $11 million in the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023 primarily due to an increase in operating expenses.

Retail’s depreciation and amortization expense was flat compared to the third quarter of fiscal 2023.

Other Adjusted EBITDA increased $8 million in the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023 primarily due to changes in incentive compensation.

Wholesale’s Adjusted EBITDA decreased 20.2% for fiscal 2024 year-to-date as compared to fiscal 2023 year-to-date.

The decrease was driven by a decline in gross profit excluding the LIFO charge, partially offset by a decrease in operating expenses.

Wholesale’s Gross profit excluding the LIFO charge for fiscal 2024 year-to-date decreased $92 million and gross profit rate decreased approximately 62 basis points driven by lower levels of procurement gains resulting from decelerating inflation.

Wholesale’s Operating expense decreased $19 million, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 14—Business Segments.

Wholesale’s operating expense rate decreased 13 basis points primarily driven by lower transportation and distribution center labor costs due to a decrease in volume and increased operational efficiencies across our supply chain.

The decrease was driven by a decline in gross profit excluding the LIFO charge and an increase in operating expenses.

Wholesale’s Gross profit excluding the LIFO charge for fiscal 2024 year-to-date decreased $83 million and gross profit rate decreased approximately 37 basis points driven by lower levels of procurement gains resulting from decelerating inflation, partially offset by lower shrink expense.

Wholesale’s Operating expense increased $8 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 4 basis points primarily driven by higher incentive compensation expense, offset by lower transportation costs and other operational supply chain efficiencies.

Wholesale’s depreciation and amortization expense increased $8 million for fiscal 2024 year-to-date as compared to fiscal 2023 year-to-date.

Retail’s Adjusted EBITDA decreased 93.9% for fiscal 2024 year-to-date as compared to fiscal 2023 year-to-date.

The decrease was driven by a decline in gross profit primarily due to lower volume, and higher operating expenses primarily due to increased costs associated with new stores.

The decrease was driven by a decline in gross profit due to margin rate investments intended to drive traffic and lower sales volume, and higher operating expenses.

Retail’s Adjusted EBITDA excludes depreciation and amortization, share-based compensation, LIFO charge and other adjustments as outlined in Note 14—Business Segments.

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LIQUIDITY AND CAPITAL RESOURCES

• Total liquidity as of January 27, 2024 was $1,430 million and consisted of the following:

◦ Unused credit under our $2,600 million asset-based revolving credit facility (the “ABL Credit Facility”) was $1,396 million as of January 27, 2024, which decreased $84 million from $1,480 million as of July 29, 2023, primarily due to increased cash utilized to fund working capital increases.

◦ Cash and cash equivalents was $34 million as of January 27, 2024, which decreased $3 million from $37 million as of July 29, 2023.

• Our total debt increased $217 million to $2,180 million as of January 27, 2024 from $1,963 million as of July 29, 2023, primarily related to additional borrowings under the ABL Credit Facility to fund working capital increases.

• Working capital increased $187 million to $1,245 million as of January 27, 2024 from $1,058 million as of July 29, 2023, primarily due to increases in accounts receivable and inventory levels, combined with a decrease in accounts payable, accrued expenses and other current liabilities.

• Total liquidity as of April 27, 2024 was $1,264 million and consisted of the following:

◦ $1,225 million of unused credit under our $2,600 million asset-based revolving credit facility (the “ABL Credit Facility”) as of April 27, 2024, which decreased $255 million from $1,480 million as of July 29, 2023, primarily due to increased cash utilized to fund working capital increases;

◦ $39 million of cash and cash equivalents as of April 27, 2024, which increased $2 million from $37 million as of July 29, 2023.

• Total debt increased $188 million to $2,151 million as of April 27, 2024 from $1,963 million as of July 29, 2023, primarily related to additional net borrowings under the ABL Credit Facility to fund payments for capital expenditures and investments, partially offset by net cash flow from operating activities.

• Working capital increased $135 million to $1,193 million as of April 27, 2024 from $1,058 million as of July 29, 2023, primarily due to a decrease in accounts payable combined with an increase in accounts receivable levels, which were partially offset by a decrease in inventory levels.

• In May 2024, we entered into an amendment to the ABL Loan Agreement to execute on a First In, Last Out (“FILO”) incremental loan tranche and used the $130 million in proceeds from the amendment to fund a $145 million voluntary prepayment on the Term Loan Facility.

• Concurrent with the voluntary prepayment on the Term Loan Facility, we amended the Term Loan Agreement to reduce the principal amount of the Term Loan Facility to $500 million and extend the maturity to May 2031.

Sources and Uses of Cash

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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 2024, on May 1, 2024, the Company entered into an amendment to the ABL Loan Agreement (the “First ABL Amendment”) to execute on a FILO tranche of incremental loans under the ABL Loan Agreement.

The First ABL Amendment provides for the creation of a FILO tranche of $130 million (the “ABL FILO Loan”) with an applicable margin equal to SOFR plus 2.50% per annum (or a base rate plus 1.5% per annum).

The ABL FILO Loan is subject to a borrowing base which is based on 5% of eligible accounts receivable, plus 5% of eligible credit card receivables, plus 5% of the net orderly liquidation value of eligible inventory, plus 5% of the value of eligible pharmacy receivables of each U.S.

Also on May 1, 2024, the Company entered into the Fourth Term Loan Amendment, which provides for the reduction of the principal amount of the Term Loan Facility to $500 million, the extension of the maturity to May 1, 2031, subject to certain springing maturity conditions, and a change in the applicable margin over a base rate from 2.25% to 3.75% per annum, or over a SOFR rate from 3.25% to 4.75% per annum.

In conjunction with the First ABL Amendment and the Fourth Term Loan Amendment, the Company made a voluntary prepayment of $145 million on the Term Loan Facility funded with the $130 million of ABL FILO Loan proceeds and incremental borrowings under the ABL Credit Facility.

Refer to Note 16—Subsequent Events in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

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 January 27, 2024, we had an aggregate of $850 million of floating rate notional debt subject to active interest rate swap contracts, which effectively fix the SOFR component of our floating interest payments through pay fixed and receive floating interest rate swap agreements.

These fixed rates range from 2.360% to 3.777%, with maturities between March 2024 and June 2027.

The fair values of these interest rate derivatives represent a total net asset of $13 million as of January 27, 2024, and are subject to volatility based on changes in market interest rates.

As of April 27, 2024, we had an aggregate of $650 million of floating rate notional debt subject to active interest rate swap contracts, which effectively fix the SOFR component of our floating interest payments through pay fixed and receive floating interest rate swap agreements.

These fixed rates range from 2.403% to 3.777%, with maturities between October 2024 and June 2027.

The fair values of these interest rate derivatives represent a total net asset of $16 million as of April 27, 2024, 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 January 27, 2024, we had fixed price fuel contracts and foreign currency forward agreements outstanding.

As of April 27, 2024, 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 and Cloud Technology Implementation Expenditures

Our capital expenditures decreased $10 million for fiscal 2024 year-to-date to $141 million compared to $151 million for fiscal 2023 year-to-date, primarily due to lower retail expenditures.

Our capital expenditures for fiscal 2024 year-to-date were $217 million compared to $218 million for fiscal 2023 year-to-date, a decrease of $1 million.

Our capital spending for fiscal 2024 and 2023 year-to-date principally included supply chain and information technology expenditures, including investments in growth initiatives and maintenance expenditures.

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Fiscal 2024 capital and cloud implementation spending is expected to be approximately $370 million and include projects that automate, optimize and expand our distribution network, as well as our technology platform investments.

The components of capital and cloud implementation expenditures for fiscal 2024 will be primarily dependent on the nature of certain contracts to be executed.

We expect to finance fiscal 2024 capital and cloud implementation expenditures requirements with cash generated from operations and borrowings under our ABL Credit Facility.

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39-Week Period Ended

(in millions) January 27, 2024 January 28, 2023 Change

Net cash (used in) provided by operating activities

(in millions) April 27, 2024 April 29, 2023 Change

Net cash provided by operating activities

$ 54 $ 402 $ (348)

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174 (197) 371

Effect of exchange rate on cash — — —

Net decrease in cash and cash equivalents (3) (4) 1

Net increase (decrease) in cash and cash equivalents 2 (6) 8

Cash and cash equivalents, at beginning of period 37 44 (7)

Cash and cash equivalents, at end of period $ 39 $ 38 $ 1

The increase in net cash used in operating activities in fiscal 2024 year-to-date compared to fiscal 2023 year-to-date was primarily due to the monetization of certain receivables in fiscal 2023 year-to-date and lower cash generated from net income in fiscal 2024 year-to-date.

The decrease in net cash used in investing activities in fiscal 2024 year-to-date compared to fiscal 2023 year-to-date was primarily due to lower payments for capital expenditures, partially offset by increased payments for investments in fiscal 2024 year-to-date.

The increase in net cash provided by financing activities in fiscal 2024 year-to-date compared to fiscal 2023 year-to-date was primarily due to an increase in net borrowings under the revolving credit line resulting from increases in net cash used in operating activities, as described above.

The decrease in net cash provided by operating activities in fiscal 2024 year-to-date compared to fiscal 2023 year-to-date was primarily due to lower proceeds received from the monetization of certain receivables compared to fiscal 2023 year-to-date and lower cash generated from net income in fiscal 2024 year-to-date.

The increase in net cash used in investing activities in fiscal 2024 year-to-date compared to fiscal 2023 year-to-date was primarily due to increased payments for investments in fiscal 2024 year-to-date.

The increase in net cash provided by financing activities in fiscal 2024 year-to-date compared to fiscal 2023 year-to-date was primarily due to an increase in net borrowings under the revolving credit line resulting from decreases in net cash provided by operating activities and increases in net cash used in investing activities, as described above.

Other Obligations and Commitments

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.

Except as otherwise disclosed in Note 15—Commitments, Contingencies and Off-Balance Sheet Arrangements and Note 8—Long-Term Debt, there have been no material changes in our contractual obligations since the end of fiscal 2023.

Except as otherwise disclosed in Note 15—Commitments, Contingencies and Off-Balance Sheet Arrangements, Note 8—Long-Term Debt and Note 16—Subsequent Events there have been no material changes in our contractual obligations since the end of fiscal 2023.

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

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We did not repurchase any shares of our common stock in fiscal 2024 year-to-date.

As of January 27, 2024, we had $138 million remaining authorized under the 2022 Repurchase Program.

As of April 27, 2024, we had $138 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.

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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