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Item 7. Management’s Discussion and Analysis

2024-10-01 compared with 2023-09-26 · 179 added, 183 removed, 330 unchanged (52% of the section changed)

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The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto, “Risk Factors” included in Part I, Item IA, “Cautionary Note Regarding Forward-Looking Statements” and other risks described elsewhere in this Annual Report.

The following includes a comparison of our consolidated results of operations, our segment results and financial position for fiscal years 2024 and 2023.

For a comparison of our consolidated results of operations, segment results and financial position for fiscal years 2023 and 2022, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in our Annual Report on Form 10-K for the fiscal year ended July 29, 2023, filed with the Securities and Exchange Commission on September 26, 2023.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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• the relatively low margins of our business, which are sensitive to inflationary and deflationary pressures and intense competition, including as a result of the continuing consolidation of retailers and the growth of consumer choices for grocery and consumable purchases;

• our ability to realize the anticipated benefits of our transformation initiatives;

• our ability to realize the anticipated benefits of our strategic initiatives;

• changes in relationships with our suppliers;

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

• our ability to realize anticipated benefits of our acquisitions;

• 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;

• our ability to maintain sufficient volume in our wholesale segment to support our operating infrastructure;

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

• our ability to realize anticipated benefits of strategic transactions;

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

• our ability to maintain sufficient volume in our wholesale distribution and services businesses to support our operating infrastructure;

• our ability to access additional capital;

• increases in healthcare, pension and other costs under our and multiemployer benefit plans;

• increases in healthcare, pension and other costs under our single employer benefit plan and multiemployer benefit plans;

• the potential for additional asset impairment charges;

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

We are focused on executing our transformation strategy, which we believe will position us for long-term profitable growth.

Our enterprise-wide business transformation strategy consists of four areas, detailed under “Business” included in Part I, Item 1 of this Annual Report, which represent the next evolution of our business strategy.

To enable this business transformation, we have engaged consultants and brought in new leadership with transformation experience to upgrade and modernize our technology and platforms to better serve our customers.

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

These include actioning administrative structure efficiencies, reprioritizing our selling and administrative spending, optimizing our 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.

Since the close of our 2018 acquisition of Supervalu, we have reduced net debt by $1.4 billion.

We believe we can enhance our profitability and accelerate our growth through our transformation 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 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.

We have undertaken a new strategy and have established new three-year financial objectives that begin in fiscal 2025 and are designed to make us more efficient while improving free cash flow generation and reducing net leverage.

Our strategy includes the areas of focus detailed under “Business” included in Part 1, Item 1 of this Annual Report.

During fiscal 2024, we continued to implement near-term initiatives to help improve profitability and strengthen our foundation while we finalized and began implementing our revised strategy.

We expect to continue to use available capital to re-invest in our business and are committed to improving our free cash flow and financial leverage while 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.

Our largest customer accounted for more than 10% of our Net sales in fiscal 2024.

On May 21, 2024, we amended and restated our distribution agreement with this customer 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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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, which has 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 or buying fewer items.

In addition, inflation remains at elevated levels and continues to be unpredictable.

For example, we experienced volatility in our energy operating costs, and fluctuating commodity and labor input costs continue to impact the prices of products we procure from manufacturers.

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

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

In addition, inflation continues to affect our business, and fluctuating commodity and labor input costs may continue to impact the prices of products we procure from manufacturers.

We believe our product mix, which ranges 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 further shifts in consumer and industry trends in grocery product mix.

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

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 pillar of our transformation agenda.

Wholesale Distribution Network Optimization

We are making initial strides towards our network optimization goal by streamlining our distribution center network to create a more efficient supply chain and reduce capital intensity.

Subsequent to the fourth quarter of fiscal 2024, we began the consolidation of the volume of two distribution centers in the upper Midwest and their related off-site storage facilities into other facilities in the Central region.

We expect to achieve synergies and cost savings as a result of these efforts through eliminating inefficiencies, including incurring lower operating, shrink and off-site storage expenses.

In the second quarter of fiscal 2024, we began the development of our new Manchester, Pennsylvania distribution center, 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 fiscal 2024.

Subsequent to the fourth quarter of fiscal 2024, in September 2024, we began operating this facility, and we expect to begin consolidating volume from other nearby distribution centers in the East region into this new distribution center in fiscal 2025.

We plan to continue to evaluate our distribution center network to further optimize performance and expect to incur incremental expenses related to any future network realignment, expansion or improvements, including network optimization and automation initiatives.

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 continue to incur operating losses, as the volume in this facility continues to ramp up to its operating capacity.

Retail Operations

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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 fiscal 2023.

In the aggregate across our businesses, including the mix of products, management estimates our businesses experienced product cost inflation of approximately nine percent in fiscal 2023.

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

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

Impact of Product Cost Changes

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

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

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

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

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

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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 latter half of fiscal 2023, we experienced fewer and less significant vendor product cost increases as compared to fiscal 2022.

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

These decreases negatively impacted our gross profit rate when comparing fiscal 2024 to fiscal 2023.

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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 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.

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

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

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

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

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

We define Adjusted EBITDA as a consolidated measure inclusive of continuing and discontinued operations results, which we reconcile by adding Net income (loss) from continuing operations, less Net income attributable to noncontrolling interests, plus 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, Loss (gain) on sale of assets and other asset charges, certain legal charges and gains, certain other non-cash charges or other items, as determined by management, plus Adjusted EBITDA of discontinued operations calculated in a manner consistent with the results of continuing operations, outlined above.

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

We define Adjusted EBITDA as a consolidated measure which we reconcile by adding Net (loss) income 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 (Benefit) provision 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, Loss (gain) on sale of assets and other asset charges, certain legal charges and gains, and certain other non-cash charges or other items, as determined by management.

Assessment of Our Business Results

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

Increase (Decrease)

(in millions) 2024

2023 Compared to 2022

2022 Compared to 2021

Increase (Decrease)

Net sales $ 30,980 $ 30,272 $ 708

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Restructuring, acquisition and integration related expenses 36 8 28

Loss (gain) on sale of assets and other asset charges 30 (87) (4) 117 (83)

Loss on sale of assets and other asset charges 57 30 27

Operating income 8 120 (112)

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Other income, net (2) (2) —

Income from continuing operations before income taxes 7 310 183 (303) 127

(Benefit) provision for income taxes (23) 56 34 (79) 22

Net income from continuing operations 30 254 149 (224) 105

Income from discontinued operations, net of tax — — 6 — (6)

Net income including noncontrolling interests 30 254 155 (224) 99

(Loss) income before income taxes (137) 7 (144)

Benefit for income taxes (27) (23) (4)

Net (loss) income including noncontrolling interests (110) 30 (140)

Less net income attributable to noncontrolling interests (2) (6) 4

Net income attributable to United Natural Foods, Inc.

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

$ (112) $ 24 $ (136)

Adjusted EBITDA $ 518 $ 640 $ (122)

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

The following table reconciles Net (loss) income including noncontrolling interests to Adjusted EBITDA.

(in millions) 2024

Net income from continuing operations $ 30 $ 254 $ 149

Adjustments to continuing operations net income:

Net (loss) income including noncontrolling interests $ (110) $ 30

Adjustments to net (loss) income including noncontrolling interests:

Less net income attributable to noncontrolling interests (2) (6)

Net periodic benefit income, excluding service cost

(29) (40) (85)

Interest expense, net 162 144

Other income, net (2) (2)

(Benefit) provision for income taxes

Benefit for income taxes

Depreciation and amortization 319 304

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Restructuring, acquisition and integration related expenses (1)

Loss (gain) on sale of assets and other asset charges (3)

Multiemployer pension plan withdrawal charges (benefit) (4)

Loss on sale of assets and other asset charges (2)

Multiemployer pension plan withdrawal charges (3)

Other retail expense (4)

Business transformation costs (5)

Adjusted EBITDA of continuing operations 640 829 766

Adjusted EBITDA of discontinued operations (7)

Other adjustments (6)

Adjusted EBITDA $ 518 $ 640

Income from discontinued operations, net of tax (7)

Adjustments to discontinued operations net income:

Benefit for income taxes — — (1)

Restructuring, store closure and other charges, net (8)

Adjusted EBITDA of discontinued operations (7)

(1) Fiscal 2021 includes a postretirement settlement gain of $17 million associated with the termination of remaining corporate plans.

(2) Fiscal 2023 primarily reflects severance costs.

Fiscal 2022 and fiscal 2021 primarily reflects costs associated with advisory and transformational activities to position our business for further value-creation related to integration.

In addition, fiscal 2021 includes costs associated with distribution center consolidations.

Refer to Note 4—Restructuring, Acquisition and Integration Related Expenses in Part II, Item 8 of this Annual Report for additional information.

(3) Fiscal 2023 includes a $25 million intangible asset impairment charge attributable to a rationalization of our brands portfolio in an effort to focus on our core private brand offerings.

Refer to Note 6—Goodwill and Intangible Assets, Net in Part II, Item 8 of this Annual Report for additional information.

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

(4) Fiscal 2023 and fiscal 2022 reflect adjustments to multiemployer withdrawal charge estimates.

Fiscal 2021 includes charges related to withdrawal liabilities from three Retail multiemployer pension plans.

(5) Fiscal 2023 reflects store closure charges and costs, operational wind-down and inventory charges.

Fiscal 2022 and fiscal 2021 r eflect expenses associated with event-specific damages to certain retail stores.

(6) Reflects third-party costs primarily for business transformation initiatives, including network automation and optimization, commercial value creation, digital offering enhancement and infrastructure unification and modernization.

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

(8) Amounts represent store closure charges and costs, operational wind-down and inventory charges, asset impairment charges related to discontinued operations and income related to a severance benefit.

The following includes a comparison of our consolidated results of operations, our segment results and financial position for fiscal years 2023 and 2022.

For a comparison of our consolidated results of operations, segment results and financial position for fiscal years 2022 and 2021, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in our Annual Report on Form 10-K for the fiscal year ended July 30, 2022, filed with the Securities and Exchange Commission on September 27, 2022.

(1) Fiscal 2024 and fiscal 2023 primarily reflects costs associated with certain employee severance.

(2) 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, 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, a $15 million non-cash impairment charge related to the decision to close certain leased and owned distribution center locations in the fourth quarter of fiscal 2024 and $21 million in losses on the sales of receivables under the accounts receivable monetization program.

Fiscal 2023 primarily includes a $25 million intangible asset impairment charge attributable to a rationalization of our brands portfolio in an effort to focus on our core private brand offerings and $14 million in losses on the sales of receivables .

Refer to Note 3—Revenue Recognition, Note 5—Property and Equipment, Net and Note 6—Goodwill and Intangible Assets, Net in Part II, Item 8 of this Annual Report for additional information.

(3) Fiscal 2023 reflects adjustments to multiemployer pension plan withdrawal charge estimates.

(4) Fiscal 2023 reflects store closure costs, operational wind-down and inventory charges.

(5) 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 fiscal 2024, all of which are included within Operating expenses in the Consolidated Statements of Operations.

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

Within the following results of operations, we have estimated the impact of the additional week in fiscal 2024, where applicable and estimable, to provide more comparable financial results on a year-over-year basis.

The impact of the 53rd week discussed below represents an estimate of the contribution from the additional week in fiscal 2024 and is calculated by taking one-fifth of the respective metrics for the last five-week period within the 14-week fourth quarter of fiscal 2024.

The 53rd week in fiscal 2024 had no impact on Restructuring, acquisition and integration related expenses or Loss on sale of assets and other asset charges.

RESULTS OF OPERATIONS

Fiscal year ended July 29, 2023 (fiscal 2023) compared to fiscal year ended July 30, 2022 (fiscal 2022)

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

Increase (Decrease)

Fiscal year ended August 3, 2024 (fiscal 2024) compared to fiscal year ended July 29, 2023 (fiscal 2023)

The following table sets forth our Net sales by customer channel.

Within the following table, we have estimated the impact of the additional 53rd week in fiscal 2024 to provide more comparable financial results on a year-over-year basis.

(in millions except percentages) 2024

(53rd week estimated impact)

(52 weeks) (2)

Comparable 52-Week Increase (Decrease) (2)

Customer Channel (1)

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(1) Refer to Note 3—Revenue Recognition in Part II, Item 8 of this Annual Report for our channel definitions and additional information.

Our Net sales for fiscal 2023 increased 4.6% from fiscal 2022.

The increase in Net sales for fiscal 2023 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.

These increases were partially offset by a decrease in units sold.

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 increased sales under a supply agreement with a new customer within the East 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, partially offset by a decrease in units sold to existing stores.

Retail Net sales increased primarily due to inflation and new store sales, partially offset by lower volume.

(2) Excludes the estimated impact of the 53rd week in fiscal 2024.

Our Net sales for fiscal 2024 increased $708 million, or 2.3%, to $31.0 billion in fiscal 2024, from $30.3 billion in fiscal 2023.

The 53rd week in fiscal 2024 contributed an estimated $582 million to Net sales.

Excluding the impact of the 53rd week, Net sales were $30.4 billion, an increase of approximately 0.4% from fiscal 2023.

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

These increases were partially offset by a decline in unit volumes.

Retail Net sales decreased $44 million in fiscal 2024 as compared to fiscal 2023.

The 53rd week in fiscal 2024 contributed an estimated $45 million to Retail Net sales.

Excluding the impact of the 53rd week, Retail Net sales decreased $89 million, or 3.6%, primarily due to lower volume and store closures.

Identical store sales decreased 3.7%.

Other Net sales increased primarily due to a $49 million increase in sales to Military customers.

Eliminations Net sales primarily relate to Wholesale’s sales to Retail.

Cost of Sales and Gross Profit

Our Gross profit decreased $51 million, or 1.2%, to $4,131 million in fiscal 2023, from $4,182 million in fiscal 2022.

Our Gross profit as a percentage of Net sales decreased to 13.6% in fiscal 2023 compared to 14.5% in fiscal 2022.

Our Gross profit increased $70 million, or 1.7%, to $4,201 million in fiscal 2024, from $4,131 million in fiscal 2023.

Gross profit increased by $82 million from the estimated impact of the 53rd week in fiscal 2024.

Our Gross profit as a percentage of Net sales was 13.6% in fiscal 2024, which was approximately flat compared to fiscal 2023.

The LIFO charge was $7 million and $119 million in fiscal 2024 and fiscal 2023, respectively.

Excluding the non-cash LIFO charge, gross profit rate was 13.6% of Net sales and 14.0% of Net sales for fiscal 2024 and fiscal 2023, respectively.

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

The remaining decrease in gross profit rate of 46 basis points 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 $127 million, or 3.2%, to $4,100 million, or 13.2% of Net sales, in fiscal 2024 compared to $3,973 million, or 13.1% of Net sales, in fiscal 2023.

The decrease in Operating expenses as a percentage of Net sales was primarily driven by approximately $52 million lower incentive compensation expense in fiscal 2023 resulting from underperformance compared to targets.

Excluding incentive compensation expense, Operating expenses as a percentage of Net sales were 13.1% and 13.0% in fiscal 2023 and 2022, respectively.

The remaining increase in Operating expenses as a percent of Net sales was primarily driven by higher occupancy-related costs.

Operating expenses increased by $78 million from the estimated impact of the 53rd week in fiscal 2024.

The increase in Operating expenses as a percentage of Net sales was primarily driven by approximately $49 million higher incentive compensation expense in fiscal 2024 and incremental transformation costs, which were partially offset by lower transportation costs and other operational supply chain efficiencies.

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were $36 million for fiscal 2024, compared to $8 million for fiscal 2023.

Fiscal 2022 expenses primarily included integration costs associated with transformational and advisory activities to position our business for further value creation.

The increase was primarily driven by costs associated with certain employee severance and other employee separation costs in fiscal 2024.

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

Loss on sale of assets and other asset charges was $30 million in fiscal 2023, compared to a gain on sale of assets of $87 million in fiscal 2022.

Fiscal 2023 includes a $25 million intangible asset impairment charge related to a rationalization of our brands portfolio in an effort to focus on our core private brand offerings.

Fiscal 2022 primarily reflects the $87 million gain on sale of our Riverside, California distribution center.

Loss on sale of assets and other asset charges increased $27 million to $57 million for fiscal 2024, from $30 million for fiscal 2023.

The increase in fiscal 2024 was primarily driven by higher asset impairment charges and losses on the sales of receivables under the accounts receivable monetization program, which was entered into early in the second quarter of fiscal 2023.

Fiscal 2024 primarily includes $43 million in asset impairment charges related to one of our corporate-owned office locations, certain leased and owned distribution centers and certain retail store locations and $21 million in losses on the sales of receivables.

Fiscal 2023 primarily included a $25 million intangible asset impairment charge related to a rationalization of our brands portfolio and $14 million in losses on the sales of receivables.

Operating Income

Reflecting the factors described above, Operating income decreased $303 million to $120 million in fiscal 2023, from $423 million in fiscal 2022.

The decrease in Operating income was primarily driven by an increase in Operating expenses, a loss on sale of assets and other asset charges in fiscal 2023 compared to a gain in fiscal 2022 as described above, and a decrease in Gross profit, partially offset by lower Restructuring, acquisition and integration related expenses.

Reflecting the factors described above, Operating income decreased $112 million to $8 million for fiscal 2024, from $120 million in fiscal 2023.

The decrease in Operating income was primarily driven by an increase in Operating expenses, an increase in Restructuring, acquisition and integration related expenses and an increase in Loss on sale of assets and other asset charges, partially offset by an increase in Gross profit.

Net Periodic Benefit Income, Excluding Service Cost

Net periodic benefit income, excluding service cost decreased $14 million to $15 million in fiscal 2024, from $29 million in fiscal 2023.

The decrease in Net periodic benefit income, excluding service cost was primarily driven by higher interest costs from a higher discount rate utilized in the measurement of pension liabilities, partially offset by $13 million of higher income from expected returns on plan assets.

The decrease in Net periodic benefit income, excluding service cost was primarily driven by higher interest costs from a higher discount rate utilized in the measurement of pension liabilities and $3 million of lower income from expected returns on plan assets.

Interest Expense, Net

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Interest expense, net $ 162 $ 144 $ 18

The decrease in Interest expense, net for fiscal 2023 compared to fiscal 2022 was primarily driven by lower outstanding debt balances and finance leases, partially offset by higher average interest rates.

The increase in Interest expense, net for fiscal 2024 compared to fiscal 2023 was primarily driven by higher average interest rates, an increase in losses on debt extinguishment, and an estimated $3 million impact from the 53rd week in fiscal 2024.

(Benefit) Provision for Income Taxes

The effective income tax rate for continuing operations was a benefit rate of 328.6% in fiscal 2023 compared to an expense rate of 18.1% in fiscal 2022.

For fiscal 2023, the effective tax rate was impacted by solar credits, including the tax credit impact of a fiscal 2023 investment in an equity method partnership and solar credits associated with a solar array installation at the Company’s Howell Township, New Jersey facility.

The effective tax rate was a benefit rate of 19.7% on a pre-tax loss for fiscal 2024 compared to a benefit rate of 328.6% on pre-tax income for fiscal 2023.

For fiscal 2024, the effective tax rate was impacted by non-deductible share-based compensation and the establishment of valuation allowances against deferred tax assets with limited lives.

The effective tax rate was also impacted by the recognition of previously unrecognized tax benefits and excess tax deductions attributable to share-based compensation.

The combined impact of these fiscal 2023 tax benefits exceeded pre-tax income, generating an overall tax benefit rate for fiscal 2023.

For fiscal 2022, the effective tax rate was reduced by the impact of discrete tax benefits related to employee stock awards and the release of unrecognized tax positions, partially offset by non-deductible executive compensation.

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 $24 million, or $0.40 per diluted common share, in fiscal 2023, compared to $248 million, or $4.07 per diluted common share, in fiscal 2022.

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 $112 million, or $1.89 per diluted common share, for fiscal 2024, compared to Net income attributable to United Natural Foods, Inc.

of $24 million, or $0.40 per diluted common share, for fiscal 2023.

Segment Results of Operations

In evaluating financial performance in each business segment, management primarily uses Net sales and Adjusted EBITDA of its business segments as discussed and reconciled within Note 16—Business Segments within Part II, Item 8 of this Annual Report and the above table within the Executive Overview section.

In evaluating financial performance in each business segment, management primarily uses Net sales and Adjusted EBITDA of its business segments as discussed and reconciled within Note 16—Business Segments in Part II, Item 8 of this Annual Report and the above table within the Executive Overview section.

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

Increase (Decrease)

(in millions) 2024

2023 Compared to 2022

2022 Compared to 2021

Increase (Decrease)

Wholesale $ 29,853 $ 29,142 $ 711

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Total Net sales $ 30,980 $ 30,272 $ 708

Continuing operations Adjusted EBITDA:

Adjusted EBITDA:

Wholesale $ 476 $ 540 $ (64)

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Eliminations 4 (1) 5

Total continuing operations Adjusted EBITDA $ 640 $ 829 $ 766 $ (189) $ 63

Wholesale’s Net sales increased in fiscal 2023 as compared to fiscal 2022 primarily due to growth in the Supernatural, Independent retailers, and Chains channels, as discussed in Results of Operations - Fiscal year ended July 29, 2023 (fiscal 2023) compared to fiscal year ended July 30, 2022 (fiscal 2022) - Net Sales section above.

Retail’s Net sales increased for fiscal 2023 as compared to fiscal 2022 primarily due to inflation and new store sales, partially offset by lower volume.

Total Adjusted EBITDA $ 518 $ 640 $ (122)

Wholesale Net sales increased $152 million in fiscal 2024 as compared to fiscal 2023, excluding an estimated $559 million benefit from the 53rd week in fiscal 2024.

The increase in Wholesale Net sales, excluding the 53rd week, was primarily driven by inflation and new business with existing customers.

These increases were partially offset by a decline in unit volumes, as discussed in Results of Operations - Fiscal year ended August 3, 2024 (fiscal 2024) compared to fiscal year ended July 29, 2023 (fiscal 2023) - Net Sales section above.

Retail Net sales decreased $89 million, or 3.6%, in fiscal 2024 as compared to fiscal 2023, excluding an estimated benefit of $45 million from the 53rd week in fiscal 2024.

The decrease in Retail Net sales, excluding the 53rd week, was primarily due to lower volume and store closures.

Identical store sales decreased 3.7%.

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

Adjusted EBITDA

Wholesale’s Adjusted EBITDA decreased 22% in fiscal 2023 as compared to fiscal 2022.

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 2023 decreased $81 million and gross profit rate decreased 87 basis points driven by lower levels of procurement gains resulting from decelerating inflation, higher shrink expense and customer mix.

Wholesale’s Operating expense increased $75 million, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 16—Business Segments in Part II, Item 8 of this Annual Report.

Wholesale’s operating expense rate decreased 22 basis points primarily driven by lower incentive compensation expense resulting from underperformance compared to targets and favorable transportation and distribution center labor costs due to a decrease in volume, partially offset by higher occupancy costs.

Wholesale’s depreciation expense increased $9 million compared to fiscal 2022.

Retail’s Adjusted EBITDA decreased 29% in fiscal 2023 as compared to fiscal 2022.

Retail’s Gross profit dollar decline excluding the LIFO charge in fiscal 2023 was $15 million and its gross profit rate decreased 74 basis points from higher shrink expense and increased promotional activity.

Retail’s Operating expense increased $13 million, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 16—Business Segments in Part II, Item 8 of this Annual Report.

Retail’s operating expense rate increased 41 basis points primarily driven by higher employee-related costs and new store start-up costs.

Retail’s depreciation and amortization expense increased $7 million compared to fiscal 2022.

Wholesale Adjusted EBITDA decreased 11.9% for fiscal 2024 as compared to fiscal 2023.

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

Wholesale Gross profit excluding the LIFO charge for fiscal 2024 decreased $57 million, when excluding an estimated $67 million benefit from the 53rd week in fiscal 2024.

Wholesale gross profit rate decreased approximately 26 basis points primarily driven by lower levels of procurement gains resulting from decelerating inflation, partially offset by lower shrink expense.

Wholesale Operating expense, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 16—Business Segments in Part II, Item 8 of this Annual Report, increased $15 million when excluding an estimated $59 million impact from the 53rd week in fiscal 2024.

Wholesale operating expense rate was approximately flat to fiscal 2023 primarily driven by higher incentive compensation expense, offset by lower transportation costs and other operational supply chain efficiencies.

Wholesale depreciation and amortization expense increased $4 million for fiscal 2024 compared to fiscal 2023, when excluding an estimated $5 million in additional expense from the 53rd week in fiscal 2024.

Retail Adjusted EBITDA decreased 88.6% for fiscal 2024 as compared to fiscal 2023.

Retail Gross profit excluding the LIFO charge for fiscal 2024 decreased $55 million, when excluding an estimated $11 million benefit from the 53rd week in fiscal 2024.

Retail gross profit rate decreased approximately 132 basis points from margin rate investments intended to drive traffic and lower sales volume.

Retail Operating expense, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 16—Business Segments in Part II, Item 8 of this Annual Report, increased $10 million when excluding an estimated $11 million impact from the 53rd week in fiscal 2024.

Retail operating expense rate increased 129 basis points primarily driven by decreased leverage on higher fixed and variable costs against lower sales.

Retail depreciation and amortization expense decreased $2 million for fiscal 2024 compared to fiscal 2023, when excluding an estimated $1 million in additional expense from the 53rd week in fiscal 2024.

LIQUIDITY AND CAPITAL RESOURCES

• Total liquidity as of July 29, 2023 was $1,517 million and consisted of the following:

◦ Unused credit under our $2,600 million asset-based revolving credit facility (the “ABL Credit Facility”) was $1,480 million as of July 29, 2023, which decreased $147 million from $1,627 million as of July 30, 2022, primarily due to reduced total availability under the ABL Credit Facility driven by lower levels of assets comprising the facility’s borrowing base.

◦ Cash and cash equivalents was $37 million as of July 29, 2023, which decreased $7 million from $44 million as of July 30, 2022.

• Our total debt decreased $160 million to $1,963 million as of July 29, 2023 from $2,123 million as of July 30, 2022, primarily driven by debt repayments from net cash flow from operating activities, partially offset by payments for capital expenditures, repurchases of common stock and employee restricted stock tax withholdings during fiscal 2023.

• Working capital decreased $322 million to $1,058 million as of July 29, 2023 from $1,380 million as of July 30, 2022, primarily due to lower accounts receivable levels resulting from the monetization of certain receivables and lower inventory levels, partially offset by lower liabilities related to accrued compensation and benefits.

• In the second quarter of fiscal 2023, we monetized certain receivables previously presented within accounts receivable, pursuant to a purchase agreement with a third-party financial institution for the sale of certain receivables on a revolving basis up to $300 million.

This purchase agreement was subsequently amended in the fourth quarter of fiscal 2023 to allow the sale of certain receivables up to $350 million.

In fiscal 2023, we received net cash proceeds of $287 million from selling receivables under this agreement, which were used to make a $125 million voluntary prepayment on the Term Loan Facility and reduce outstanding borrowings under the ABL Credit Facility.

• Total liquidity as of August 3, 2024 was $1,275 million and consisted of the following:

◦ $1,235 million of unused credit under our asset-based revolving credit facility (the “ABL Credit Facility”) as of August 3, 2024, which decreased $245 million from $1,480 million as of July 29, 2023, primarily due to increased borrowings under the ABL Credit Facility utilized to fund voluntary prepayments on the Term Loan Facility (as described below) and payments used in investing activities, partially offset by net cash flow from operating activities and higher levels of availability under the ABL Credit Facility resulting from the First ABL Amendment (defined below);

◦ $40 million of cash and cash equivalents as of August 3, 2024, which increased $3 million from $37 million as of July 29, 2023.

• Total debt increased $122 million to $2,085 million as of August 3, 2024 from $1,963 million as of July 29, 2023, primarily related to additional net borrowings under the ABL Credit Facility to fund payments used in investing activities and for debt issuance costs, partially offset by net cash flow from operating activities.

• Working capital decreased $21 million to $1,037 million as of August 3, 2024 from $1,058 million as of July 29, 2023, primarily due to a decrease in inventory levels and an increase in accrued compensation and benefits, which were partially offset by a decrease in accounts payable combined with an increase in accounts receivable.

• In the fourth quarter of fiscal 2024, we entered into an amendment to the ABL Loan Agreement (the “First ABL Amendment”) to execute on a First In, Last Out (“FILO”) tranche of incremental loans (the “ABL FILO Loan”) and used the $130 million in proceeds from the ABL FILO Loan and borrowings under the ABL Credit Facility to fund a $145 million voluntary prepayment on the Term Loan Facility.

• Concurrent with the voluntary prepayment on the Term Loan Facility, we entered into an amendment to the Term Loan Agreement (the “Fourth Term Loan Amendment”) to reduce the principal amount of the Term Loan Facility to $500 million and extend the maturity to May 1, 2031.

• In fiscal 2025, scheduled debt maturities are expected to be $6 million.

Based on our Consolidated First Lien Net Leverage Ratio (as defined in the Term Loan Agreement) at the end of fiscal 2023, no prepayment from Excess Cash Flow in fiscal 2023 is required to be made in fiscal 2024.

Based on the Company’s Excess Cash Flow (as defined in the Term Loan Agreement) in fiscal 2024, no prepayment from Excess Cash Flow in fiscal 2024 is required to be made in fiscal 2025.

Sources and Uses of Cash

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Long-Term Debt

During fiscal 2023, we made voluntary prepayments of $130 million on the Term Loan Facility with a portion of the proceeds received from monetizing certain receivables previously presented within accounts receivable, and from asset sales, and made net payments of $28 million on the ABL Credit Facility.

Refer to Note 9—Long-Term Debt in Part II, Item 8 of this Annual Report for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements.

During fiscal 2024, we borrowed a net $301 million under the ABL Credit Facility, including $130 million from the creation of the FILO tranche of incremental loans described above, and made voluntary prepayments on the Term Loan Facility totaling $171 million.

Refer to Note 9—Long-Term Debt in Part II, Item 8 of this Annual Report for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements and additional information.

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.

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) $220 million, or $210 million if no ABL FILO Loans are then outstanding at such time and (ii) 10% of the aggregate borrowing base.

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

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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.

In the fourth quarter of fiscal 2024, we entered into an amendment to the ABL Loan Agreement 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 with an applicable margin equal to Secured Overnight Financing Rate (“SOFR”) plus 2.50% per annum (or a base rate plus 1.50% per annum).

The ABL FILO Loan is subject to a borrowing base consisting of specified percentages of the value of eligible accounts receivable, credit card receivables, inventory, pharmacy receivables and pharmacy prescription files.

Also in the fourth quarter of fiscal 2024, we 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, we 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 9—Long-Term Debt in Part II, Item 8 of this Annual Report for additional information.

Refer to Note 9—Long-Term Debt in Part II, Item 8 of this Annual Report for further detail of our scheduled debt maturities by fiscal year and by debt instrument, which excludes debt prepayments that may be required from Excess Cash Flow (as defined in the Term Loan Agreement) generated or sales of mortgaged properties in fiscal 2025 or beyond.

Based on our Excess Cash Flow (as defined in the Term Loan Agreement) in fiscal 2024, no prepayment from Excess Cash Flow in fiscal 2024 is required to be made in fiscal 2025.

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 July 29, 2023, we had an aggregate of $800 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 2.360% to 2.875%, with maturities between September 2023 and October 2025.

The fair values of these interest rate derivatives represent a total net asset of $22 million and are subject to volatility based on changes in market interest rates.

In fiscal 2021, 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 8—Derivatives in Part II, Item 8 and —Interest Rate Risk in Part II, Item 7A of this Annual Report for additional information.

As of August 3, 2024, we had an aggregate of $750 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 4.130%, with maturities between October 2024 and June 2028.

The fair values of these interest rate derivatives represent a total net asset of $0 million as of August 3, 2024, and are subject to volatility based on changes in market interest rates.

Refer to Note 8—Derivatives in Part II, Item 8 and Interest Rate Risk in Part II, Item 7A of this Annual Report for additional information.

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

As of July 29, 2023, we had fixed price fuel contracts and foreign currency forward agreements outstanding.

As of August 3, 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

Our capital expenditures increased $72 million in fiscal 2023 to $323 million compared to $251 million for fiscal 2022, primarily due to automation investments in our supply chain.

Our capital spending for fiscal 2023 and 2022 principally included information technology and supply chain expenditures including maintenance expenditures and investments in growth initiatives.

Payments for Capital Expenditures and Cloud Technology Implementation Expenditures

Our capital expenditures for fiscal 2024 were $345 million compared to $323 million for fiscal 2023, an increase of $22 million.

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

Fiscal 2024 included $281 million of distribution center improvements, technology and other expenditures, $41 million of investments in new distribution centers, primarily the new Manchester, Pennsylvania distribution center, and $23 million of Retail expenditures.

Fiscal 2023 included $290 million of distribution center improvements, technology and other expenditures, and $33 million of Retail expenditures.

Fiscal 2022 included $182 million of distribution center improvements, technology and other expenditures, $42 million of investments in new distribution centers, primarily the new Allentown, Pennsylvania distribution center, and $27 million of Retail expenditures.

Fiscal 2024 capital spending is expected to be approximately $400 million and include projects that automate, optimize and expand our distribution network, and finance our technology platform investments.

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

Cloud technology implementation expenditures, which are included in operating activities in the Consolidated Statements of Cash Flows, were $25 million for fiscal 2024 compared to $21 million for fiscal 2023.

Fiscal 2025 capital and cloud implementation spending is expected to be approximately $300 million and includes 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 2025 will be primarily dependent on the nature of certain contracts to be executed.

We expect to finance fiscal 2025 capital and cloud implementation expenditures requirements with cash generated from operations and borrowings under our ABL Credit Facility.

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

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The following summarizes our Consolidated Statements of Cash Flows:

Increase (Decrease)

(in millions) 2024

Net cash provided by operating activities of continuing operations $ 624 $ 331 $ 614 $ 293 $ (283)

Net cash used in investing activities of continuing operations (339) (49) (239) (290) 190

Net cash used in financing activities (292) (279) (384) (13) 105

Net cash flows from discontinued operations — — 2 — (2)

Net cash provided by operating activities $ 253 $ 624 $ (371)

Net cash used in investing activities (342) (339) (3)

Net cash provided by (used in) financing activities 92 (292) 384

Effect of exchange rate on cash — — —

Net (decrease) increase in cash and cash equivalents (7) 3 (6) (10) 9

Net increase (decrease) in cash and cash equivalents 3 (7) 10

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

Cash and cash equivalents at end of period, including discontinued operations $ 37 $ 44 $ 41 $ (7) $ 3

Cash and cash equivalents at end of period $ 40 $ 37 $ 3

Fiscal 2024 compared to Fiscal 2023

The increase in Net cash provided by operating activities of continuing operations was primarily due to lower levels of cash utilized in net working capital, including the monetization of certain receivables discussed above, partially offset by lower cash generated from net income in fiscal 2023.

The increase in Net cash used in investing activities of continuing operations was primarily due to lower proceeds from asset sales, primarily due to cash received from the sale of the Riverside, California distribution center in fiscal 2022 discussed above, and an increase in payments for capital expenditures in fiscal 2023.

The increase in Net cash used in financing activities was primarily due to a net decrease in proceeds from borrowings under the revolving credit line and an increase in cash used to repurchase common stock, partially offset by lower levels of repayments of long-term debt and finance leases.

The decrease in net cash provided by operating activities was primarily due to lower levels of cash generated by net working capital, including lower proceeds received from the monetization of certain receivables compared to fiscal 2023 and higher receivables levels from sales growth in fiscal 2024.

These decreases in cash provided by operating activities were partially offset by higher levels of accrued incentive compensation net of related payments and lower inventory levels net of related payables in fiscal 2024.

In addition, lower cash was generated from net income in fiscal 2024.

The increase in net cash used in investing activities was primarily due to increased payments for capital expenditures in fiscal 2024.

The increase in net cash provided by financing activities was primarily due to an increase in net borrowings under the ABL Credit Facility resulting from decreases in net cash provided by operating activities, increases in net cash used in investing activities and the creation of the FILO tranche of incremental loans discussed above, and a decrease in cash used to repurchase common stock.

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.

Refer to Note 9—Long-Term Debt, Note 11—Leases, Note 13—Benefit Plans, Note 1—Significant Accounting Policies and Note 17—Commitments, Contingencies and Off-Balance Sheet Arrangements to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for more information on the nature and timing of obligations for debt, leases, benefit plans, self-insurance and purchase obligations, respectively.

Refer to Note 9—Long-Term Debt, Note 11—Leases, Note 13—Benefit Plans, Note 1—Significant Accounting Policies and Note 17—Commitments, Contingencies and Off-Balance Sheet Arrangements in Part II, Item 8 of this Annual Report for more information on the nature and timing of obligations for debt, leases, benefit plans, self-insurance and purchase obligations, respectively.

The future amount and timing of interest expense payments are expected to vary with the amount and then prevailing contractual interest rates over our debt as discussed in Interest Rate Risk in Part II, Item 7A of this Annual Report.

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We contributed $1 million and $1 million to our defined benefit pension and other postretirement benefit plans, respectively, in fiscal 2024.

As described in further detail in Note 13—Benefit Plans in Part II, Item 8 of this Annual Report, in fiscal 2022, we merged the Unified Grocers, Inc.

Cash Balance Plan into the SUPERVALU INC.

Retirement Plan.

In fiscal 2024, no minimum pension contributions are required to be made under the SUPERVALU INC.

In fiscal 2025, no minimum pension contributions are required to be made to the SUPERVALU INC.

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

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Share Repurchases

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”).

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

Under the 2022 Repurchase Program, we repurchased approximately 1,888,000 shares of our common stock for a total cost of $62 million in fiscal 2023.

We did not repurchase any shares of our common stock in fiscal 2022 or 2021.

As of July 29, 2023, we had $138 million remaining authorized under the 2022 Repurchase Program.

We did not repurchase any shares of our common stock in fiscal 2024.

As of August 3, 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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Inventories are recorded net of vendor allowances and cash discounts.

We evaluate inventory shortages (shrink) throughout each fiscal year based on actual physical counts in our facilities.

We evaluate inventory shortages (shrink) throughout each fiscal year based on physical counts in our facilities.

The majority of our inventory is valued under the LIFO method, which allows for matching of costs and revenues, as the current acquisition cost is used to value cost of goods sold as inventory is sold in an inflationary environment.

If the first-in, first-out (“FIFO”) method had been used, Inventories, net, would have been higher by approximately $344 million and $225 million at July 29, 2023 and July 30, 2022, respectively.

As of July 29, 2023, approximately 2.0 billion or 81% of inventory was valued under the LIFO method, before the application of any LIFO reserve, and primarily included grocery, frozen food and general merchandise products, with the remaining inventory valued under the first-in, first-out method and primarily included meat, dairy and deli products.

When holding inventory levels and mix constant, as of July 29, 2023, we estimate a 50 basis point increase in the inflation rate on our ending LIFO-based inventory would result in an $8 million increase in the LIFO charge on an annualized basis.

During fiscal 2024, inventory quantities in certain LIFO layers were reduced.

These reductions resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of fiscal 2024 purchases, the effect of which decreased Cost of sales by approximately $15 million in fiscal 2024.

If the first-in, first-out (“FIFO”) method had been used, Inventories, net, would have been higher by approximately $351 million and $344 million at August 3, 2024 and July 29, 2023, respectively.

As of August 3, 2024, approximately $1.9 billion or 82% of inventory was valued under the LIFO method, before the application of any LIFO reserve, and primarily included grocery, frozen food and general merchandise products, with the remaining inventory valued under the first-in, first-out method and primarily included meat, dairy and deli products.

When holding inventory levels and mix constant, as of August 3, 2024, we estimate a 50 basis point increase in the inflation rate on our ending LIFO-based inventory would result in an $8 million increase in the LIFO charge on an annualized basis.

We receive funds from many of the vendors whose products we buy for resale.

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Pension benefits associated with these plans are generally based on each participant’s years of service, compensation, and age at retirement or termination.

Our defined benefit pension plan and certain supplemental executive retirement plans are closed to new participants and service crediting.

Our defined benefit pension plan and certain supplemental executive retirement plans are closed to new participants and service crediting ended for all participants.

While we believe the valuation methods used to determine the fair value of plan assets are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

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We believe the “full yield curve” approach reflects a greater correlation between projected benefit cash flows and the corresponding yield curve spot rates and provides a more precise measurement of interest and service costs.

Each 25-basis point reduction in the discount rate would increase our projected pension benefit obligation by $37 million, as of July 29, 2023, and for fiscal 2023 would increase Net periodic benefit income by approximately $3 million.

Each 25-basis point reduction in the discount rate would increase our projected pension benefit obligation by $36 million, as of August 3, 2024, and for fiscal 2024 would increase Net periodic benefit income by approximately $2 million.

Expected rate of return on plan assets

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The benefits are paid from assets held in trust for that purpose.

Trustees are typically responsible for determining the level of benefits to be provided to participants as well as such matters as the investment of the assets and the administration of the plans.

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

We continue to evaluate and address our potential exposure to underfunded multiemployer pension plans as it relates to our associates who are or were beneficiaries of these plans.

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As we continue to work to find solutions to underfunded multiemployer pension plans, it is possible we could incur withdrawal liabilities for certain additional multiemployer pension plan obligations in the future as we actively negotiate new collective bargaining agreements with a number of our unions in due course.

The American Rescue Plan Act (“ARPA”) established the Special Financial Assistance (“SFA”) Program for financially troubled multi-employer pension plans.

Under ARPA, eligible multiemployer pension plans can apply to receive a cash payment in an amount projected by the Pension Benefit Guaranty Corporation to remain solvent and pay pension benefits through the plan year ending 2051.

The American Rescue Plan Act (“ARPA”) established the Special Financial Assistance (“SFA”) Program for financially troubled multiemployer pension plans.

Under ARPA, eligible multiemployer pension plans can apply to receive a cash payment intended to keep the plan solvent and able to pay pension benefits through the plan year ending 2051.

As of the end of fiscal 2024, one plan to which the Company contributes has received SFA, and two other plans to which the Company contributes are currently on the waiting list to apply for SFA funding.

We continue to evaluate our exposure to underfunded multiemployer pension plans.

Although these liabilities are not a direct obligation or liability of ours, addressing these uncertainties requires judgment in the timing of expense recognition when we determine our commitment is probable and estimable.

In fiscal 2021, we incurred a $63 million charge for obligations related to withdrawal liabilities for three Retail multiemployer pension plans where our active associates moved to defined contribution plans for future benefits.

Refer to Note 13—Benefit Plans in Part II, Item 8 of this Annual Report for more information relating to our participation in these multiemployer pension plans and to the actuarial assumptions used in determining pension and other postretirement liabilities and expenses.

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If actual claims incurred are greater than those anticipated, our reserves may be insufficient and additional costs could be recorded in our Consolidated Financial Statements.

Accruals for workers’ compensation, general and automobile liabilities totaled $97 million and $98 million as of July 29, 2023 and July 30, 2022, respectively.

Accruals for workers’ compensation, general and automobile liabilities totaled $89 million and $97 million as of August 3, 2024 and July 29, 2023, respectively.

Recoverability of long-lived assets

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These estimates project cash flows several years into the future and include assumptions on variables such as changes in supply contracts, macroeconomic impacts and market competition.

As part of our annual impairment assessment, we recognized a $25 million intangible asset impairment charge associated with the rationalization of our brands portfolio in an effort to focus on our core private brand offerings.

As part of our quarterly procedures and annual impairment assessment, we recognized a $21 million non-cash asset impairment charge related to one of our corporate-owned office locations in the first quarter of fiscal 2024, a $7 million non-cash asset impairment charge related to the decision to close certain retail store locations in the third quarter of 2024 and a $15 million non-cash impairment charge related to the decision to close certain leased and owned distribution center locations in the fourth quarter of fiscal 2024.

The Company accounts for income taxes under the asset and liability method.

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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-K

Item 7. Management’s Discussion and Analysis