What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-12-10 compared with 2024-06-05 · 123 added, 173 removed, 238 unchanged (55% of the section changed)

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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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• volatility in fuel costs.

You should carefully review the risks described under “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended July 29, 2023 (the “Annual Report”), as well as any other cautionary language in this Quarterly Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.

You should carefully review the risks described under “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended August 3, 2024 (the “Annual Report”), as well as any other cautionary language in this Quarterly Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.

EXECUTIVE OVERVIEW

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

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 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.

We have introduced and are executing against a new strategy and three-year financial objectives that seek to add value to our customers and suppliers through our portfolio of products, services, programs and insights while improving our efficiency and cash flow.

To accomplish the latter, we are focused on controllable variables in four key areas:

intensifying and expanding our network optimization;

reducing annual capital spending;

optimizing our cost structure;

and reducing our net working capital position.

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.

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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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 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 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 fiscal 2024.

Wholesale Distribution Network Optimization

We are working to optimize our distribution center network to better and more efficiently service customers and suppliers.

In the first quarter of fiscal 2025, we consolidated the volume of two distribution centers into other facilities in the Central region.

Subsequent to the first quarter of fiscal 2025, we announced the closure of a third distribution center in the Central region.

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

These actions are also expected to improve the product assortment and overall customer experience.

In the first quarter of fiscal 2025, we began operating a new distribution center in Manchester, Pennsylvania, which has approximately 1.3 million square feet, optimizes volume from other nearby distribution centers in the East region and primarily distributes natural products.

This distribution center is expected to be automated later in fiscal 2025.

Also in the first quarter of fiscal 2025, we began the development of a new distribution center in Sarasota, Florida, which has approximately 1.0 million square feet.

We recognized a $118 million right-of-use asset and operating lease liability for this distribution center in the first quarter of 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 future costs and obtain new business to further improve the efficiency of our distribution network.

Retail Operations

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Impact of Product Cost Changes

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.

We experienced a mix of inflation and deflation across product categories during the first quarter of fiscal 2025.

In the aggregate across our businesses, including the mix of products, management estimates our businesses experienced product cost inflation of approximately one percent in the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024.

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 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.

In the first quarter of fiscal 2025, we experienced fewer and less significant vendor product cost increases as compared to the first quarter of fiscal 2024.

These decreases negatively impacted our gross profit rate when comparing the first quarter of fiscal 2025 to the first quarter of fiscal 2024.

Composition of Condensed Consolidated Statements of Operations and Business Performance Assessment

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Cost of Sales and Gross Profit

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

Operating Expenses

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

Restructuring, Acquisition and Integration 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.

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses reflect expenses resulting from restructuring activities, including severance costs, facility closure 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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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.

The changes to the definition of Adjusted EBITDA in the fourth quarter of fiscal 2023 from prior periods reflect changes to line item references in our Consolidated Financial Statements, which do not impact the calculation of Adjusted EBITDA.

Assessment of Our Business Results

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

13-Week Period Ended 39-Week Period Ended

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

13-Week Period Ended

(in millions) November 2, 2024 October 28, 2023 Change

Net sales $ 7,871 $ 7,552 $ 319

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Operating expenses 1,015 1,023 (8)

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

Restructuring, acquisition and integration related expenses 12 4 8

Loss on sale of assets and other asset charges 6 19 (13)

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

Operating income (loss) 5 (16) 21

Net periodic benefit income, excluding service cost (5) (3) (2)

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Other income, net (2) — (2)

(Loss) income before income taxes (26) 7 (33) (93) 110 (203)

(Benefit) provision for income taxes (6) (1) (5) (20) 13 (33)

Net (loss) income including noncontrolling interests (20) 8 (28) (73) 97 (170)

Loss before income taxes (24) (48) 24

Benefit for income taxes (4) (9) 5

Net loss including noncontrolling interests (20) (39) 19

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

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

Net loss attributable to United Natural Foods, Inc.

$ (21) $ (39) $ 18

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$ 134 $ 117 $ 17

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

13-Week Period Ended 39-Week Period Ended

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

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

Adjustments to net (loss) income including noncontrolling interests:

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

13-Week Period Ended

(in millions) November 2, 2024 October 28, 2023

Net loss including noncontrolling interests $ (20) $ (39)

Adjustments to net loss including noncontrolling interests:

Less net income attributable to noncontrolling interests (1) —

Net periodic benefit income, excluding service cost

(4) (8) (11) (22)

Interest expense, net 36 35

Other income, net (2) —

(Benefit) provision for income taxes (6) (1) (20) 13

Benefit for income taxes (4) (9)

Depreciation and amortization 80 78

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LIFO charge 7 7

Restructuring, acquisition and integration related expenses (benefits)

Restructuring, acquisition and integration related expenses

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

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Adjusted EBITDA $ 134 $ 117

(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.

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

(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) The first quarter of fiscal 2024 primarily reflects third-party professional service fees related to shareholder negotiations.

RESULTS OF OPERATIONS

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13-Week Period Ended

Increase (Decrease) 39-Week Period Ended

Increase (Decrease)

Customer Channel (1)

2024 April 29,

2023 $ % April 27,

2024 April 29,

2024 October 28,

Chains $ 3,294 $ 3,184 $ 110 3.5 %

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

Third Quarter

Our Net sales for the third quarter of fiscal 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, 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 the first quarter of fiscal 2025 increased approximately 4.2% from the first quarter of fiscal 2024.

The increase in Net sales was primarily driven by an increase in unit volumes, including new business with existing and new customers, as well as inflation.

Retail Net sales decreased primarily due to a 1.4% decrease in identical store sales from lower volume, and store closures.

Cost of Sales and Gross Profit

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.

Our Gross profit as a percentage of Net sales decreased to 13.5% for fiscal 2024 year-to-date compared to 13.8% for fiscal 2023 year-to-date.

The LIFO charge was $19 million and $83 million for fiscal 2024 and 2023 year-to-date, respectively.

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 and a lower retail gross profit rate, which were partially offset by the benefit of lower shrink expense.

Our Gross profit increased $8 million, or 0.8%, to $1,038 million for the first quarter of fiscal 2025, from $1,030 million for the first quarter of fiscal 2024.

Our Gross profit as a percentage of Net sales decreased to 13.2% for the first quarter of fiscal 2025 compared to 13.6% for the first quarter of fiscal 2024.

The LIFO charge was $7 million in each of the first quarters of fiscal 2025 and 2024.

E xcluding the non-cash LIFO charge, gross profit rate was 13.3% of Net sales and 13.7% of Net sales for the first quarter of fiscal 2025 and 2024 , respectively.

The decrease in gross profit rate, excluding the LIFO charge, was primarily driven by lower product margin rates and customer and product mix, which were partially offset through supplier programs and the benefit of lower shrink expense.

Operating Expenses

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.

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.

Operating expenses decreased $8 million, or 0.8%, to $1,015 million, or 12.9% of Net sales, for the first quarter of fiscal 2025 compared to $1,023 million, or 13.5% of Net sales, for the first quarter of fiscal 2024.

The decrease in Operating expenses as a percentage of Net sales was primarily driven by benefits from cost saving initiatives and the leveraging impact of higher sales.

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were $12 million for the first quarter of fiscal 2025, compared to $4 million for the first quarter of fiscal 2024.

The increase was primarily driven by higher costs associated with certain employee severance and other employee separation costs in the first quarter of fiscal 2025.

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 $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, 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.

Loss on sale of assets and other asset charges decreased $13 million to $6 million for the first quarter of fiscal 2025, from $19 million for the first quarter of fiscal 2024.

The first quarter of fiscal 2024 primarily included a $21 million asset impairment charge related to one of our corporate-owned office locations, while there were no asset impairment charges in the first quarter of fiscal 2025.

Operating Income (Loss)

Reflecting the factors described above, Operating income increased $21 million to $5 million for the first quarter of fiscal 2025, compared to Operating loss of $16 million for the first quarter of fiscal 2024.

The increase in Operating income was primarily driven by a decrease in Loss on sale of asset and other asset charges and Operating expenses and an increase in Gross profit, partially offset by an increase in Restructuring, acquisition and integration related expenses in the first quarter of fiscal 2025, each as described above.

Interest Expense, Net

13-Week Period Ended 39-Week Period Ended

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

13-Week Period Ended

(in millions) November 2, 2024 October 28, 2023

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

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Amortization of financing costs and discounts 2 2

Loss on debt extinguishment — — — 3

Interest income (1) (1)

Interest expense, net $ 36 $ 35

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.

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.

(Benefit) Provision for Income Taxes

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, 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 $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.

The increase in interest expense, net, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily driven by higher average interest rates.

Benefit for Income Taxes

The effective tax rate for the first quarter of fiscal 2025 was a benefit rate of 16.7% on pre-tax loss compared to a benefit rate of 18.8% on pre-tax loss for the first quarter of fiscal 2024.

The change from the first quarter of fiscal 2024 is primarily driven by an increase in state net operating loss valuation allowances for the first quarter of fiscal 2025.

Net Loss Attributable to United Natural Foods, Inc.

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

was $75 million, or $1.26 per diluted common share, for fiscal 2024 year-to-date, compared to Net income attributable to United Natural Foods, Inc.

of $92 million, or $1.51 per diluted common share, for fiscal 2023 year-to-date.

was $21 million, or $0.35 per diluted common share, for the first quarter of fiscal 2025, compared to Net loss attributable to United Natural Foods, Inc.

of $39 million, or $0.67 per diluted common share, for the first quarter of fiscal 2024.

Segment Results of Operations

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

13-Week Period Ended 39-Week Period Ended

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

13-Week Period Ended

(in millions) November 2, 2024 October 28, 2023 Change

Wholesale $ 7,590 $ 7,281 $ 309

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Total Adjusted EBITDA $ 134 $ 117 $ 17

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.

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

Wholesale’s Net sales increased in the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024 primarily due to an increase in unit volumes, including new business with existing and new customers, as well as inflation, as discussed in Results of Operations - Net Sales section above.

Retail’s Net sales decreased in the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024 primarily due to a 1.4% decrease in identical store sales from lower volume, and store closures.

Lower eliminations of Net sales in the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024 were primarily due to a decrease in Wholesale to Retail sales, which are eliminated upon consolidation.

Adjusted EBITDA

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 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 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 due to margin rate investments intended to drive traffic and lower sales volume, and higher operating expenses.

Wholesale’s Adjusted EBITDA increased 12.0% for the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024.

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

Wholesale’s Gross profit excluding the LIFO charge for the first quarter of fiscal 2025 increased $10 million and gross profit rate decreased approximately 36 basis points driven primarily by lower product margin rates and customer and product mix, which were partially offset through supplier programs and the benefit of lower shrink expense.

Wholesale’s Operating expense decreased $4 million, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 13—Business Segments.

Wholesale’s operating expense rate decreased 48 basis points primarily due to benefits from cost saving initiatives and the leveraging impact of higher sales.

Wholesale’s depreciation and amortization expense increased $3 million in the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024.

Retail’s Adjusted EBITDA increased $1 million for the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024.

The increase was driven primarily by lower operating expenses from operating efficiencies, which were largely offset by a decline in gross profit primarily due to lower sales volume.

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

Retail’s depreciation and amortization expense decreased $2 million for fiscal 2024 year-to-date as compared to fiscal 2023 year-to-date.

Other Adjusted EBITDA decreased $19 million for fiscal 2024 year-to-date as compared to fiscal 2023 year-to-date primarily due to an increase in operating expenses.

Retail’s depreciation and amortization expense increased $1 million compared to the first quarter of fiscal 2024.

LIQUIDITY AND CAPITAL RESOURCES

• 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.

• Total liquidity as of November 2, 2024 was $1,174 million and consisted of the following:

◦ $1,137 million of unused credit under our asset-based revolving credit facility (the “ABL Credit Facility”), which decreased $98 million from $1,235 million as of August 3, 2024, primarily due to increased cash utilized to fund seasonal working capital increases;

◦ $37 million of cash and cash equivalents, which decreased $3 million from $40 million as of August 3, 2024.

• Total debt increased $162 million to $2,247 million as of November 2, 2024 from $2,085 million as of August 3, 2024, primarily related to additional net borrowings under the ABL Credit Facility to fund seasonal working capital increases and payments for capital expenditures.

• Working capital increased $176 million to $1,213 million as of November 2, 2024 from $1,037 million as of August 3, 2024, primarily due to seasonal increases in inventory and accounts receivable levels, partially offset by an increase in accounts payable related to inventories.

Sources and Uses of Cash

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

In addition, we are limited in the aggregate amount of dividends that we may pay under the terms of our Term Loan Facility, ABL Credit Facility and our $500 million of unsecured 6.750% senior notes due October 15, 2028 (the “Senior Notes”).

In addition, we are limited in the aggregate amount of dividends that we may pay under the terms of our senior secured first lien term loan (the “Term Loan Facility”), ABL Credit Facility and our $500 million of unsecured 6.750% senior notes due October 15, 2028 (the “Senior Notes”).

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

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Long-Term Debt

During fiscal 2024 year-to-date, we borrowed a net $214 million under the ABL Credit Facility and made voluntary prepayments on the Term Loan Facility totaling $25 million.

During the first quarter of fiscal 2025, we borrowed a net $163 million under the ABL Credit Facility.

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

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 term loan agreement dated as of October 22, 2018, (as amended, the “Term Loan Agreement”) and Senior Notes do not include any financial maintenance covenants.

Our revolving credit agreement dated as of June 3, 2022, (as amended, the “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 Quarterly Report on Form 10-Q.

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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.

The potential amount of prepayment under the Term Loan Facility from Excess Cash Flow (as defined in the Term Loan Agreement) in fiscal 2025 that may be required in fiscal 2026 is not reasonably estimable as of November 2, 2024.

Derivatives and Hedging Activity

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

As of April 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.

As of November 2, 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 2.475% to 4.130%, with maturities between October 2025 and June 2028.

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.

The fair values of these interest rate derivatives represent a total net asset of $4 million as of November 2, 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 April 27, 2024, we had fixed price fuel contracts and foreign currency forward agreements outstanding.

As of November 2, 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 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.

Cloud technology implementation expenditures, which are included in operating activities in the Condensed Consolidated Statements of Cash Flows, were $28 million for fiscal 2024 year-to-date compared to $9 million for fiscal 2023 year-to-date.

Our capital expenditures for the first quarter of fiscal 2025 were $49 million compared to $74 million for the first quarter of fiscal 2024, a decrease of $25 million.

Our capital spending for the first quarter of fiscal 2025 and 2024 principally included supply chain and information technology expenditures, including investments in growth initiatives and maintenance expenditures.

Cloud technology implementation expenditures, which are included in operating activities in the Condensed Consolidated Statements of Cash Flows, were $4 million for the first quarter of fiscal 2025 compared to $9 million for the first quarter of fiscal 2024.

Fiscal 2025 capital and cloud implementation spending is expected to be approximately $300 million and include projects that automate, optimize and expand our distribution network, as well as our technology platform investments.

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13-Week Period Ended

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

Net cash provided by operating activities

(in millions) November 2, 2024 October 28, 2023 Change

Net cash used in operating activities

$ (110) $ (254) $ 144

Net cash used in investing activities

(226) (211) (15)

Net cash provided by (used in) financing activities

Net cash provided by financing activities

154 326 (172)

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

Net decrease in cash and cash equivalents (3) — (3)

Cash and cash equivalents, at beginning of period 40 37 3

Cash and cash equivalents, at end of period $ 37 $ 37 $ —

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.

The decrease in net cash used in operating activities in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily due to lower levels of cash utilized in net working capital, including lower inventory levels compared to the first quarter of fiscal 2024.

This decrease was partially offset by payments related to accrued incentive compensation in the first quarter of fiscal 2025.

The decrease in net cash used in investing activities in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily due to lower payments for capital expenditures in the first quarter of fiscal 2025.

The decrease in net cash provided by financing activities in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily due to a decrease in net proceeds from borrowings under the ABL Credit Facility resulting from decreases in net cash used in operating activities and decreases 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, 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.

Except as otherwise disclosed in Note 14—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 2024.

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

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

An insignificant amount of contributions are expected to be made to defined benefit pension plans and postretirement benefit plans in fiscal 2024.

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

An insignificant amount of contributions are expected to be made to other defined benefit pension plans and postretirement benefit plans in fiscal 2025.

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

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

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

We made contributions to these plans and recognized expense of $47 million in fiscal 2024.

In fiscal 2025, we expect to contribute approximately $51 million to multiemployer plans, subject to the outcome of collective bargaining and capital market conditions.

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

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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”).

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

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

We did not repurchase any shares of our common stock in the first quarter of fiscal 2025.

As of November 2, 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