UNITED NATURAL FOODS INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act, that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “should,” “will” and “would,” or similar words. Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions or state other “forward-looking” information. Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect. These statements are based on our management’s beliefs and assumptions, which are based on currently available information. These assumptions could prove inaccurate. You are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to: • our dependence on principal customers; • 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 strategic initiatives; • changes in relationships with our suppliers; • our ability to operate, and rely on third parties to operate, reliable and secure technology systems; • labor and other workforce shortages and challenges; • the addition or loss of significant customers or material changes to our relationships with these customers; • 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 single employer benefit plan and multiemployer benefit plans; • the potential for additional asset impairment charges; • our sensitivity to general economic conditions including inflation, changes in disposable income levels and consumer purchasing habits; • our ability to timely and successfully deploy our warehouse management system throughout our distribution centers and our transportation management system across the Company and to achieve efficiencies and cost savings from these efforts; • the potential for disruptions in our supply chain or our distribution capabilities from circumstances beyond our control, including due to lack of long-term contracts, severe weather, labor shortages or work stoppages or otherwise; • moderated supplier promotional activity, including decreased forward buying opportunities; • union-organizing activities that could cause labor relations difficulties and increased costs; • our ability to maintain food quality and safety; and • 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 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. 23 Table of Contents EXECUTIVE OVERVIEW This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Cautionary Note Regarding Forward-Looking Statements,” and the information in the Annual Report. Business Overview UNFI is a leading distributor of grocery and non-food products, and support services provider to retailers in the United States and Canada. We believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America. Our diversified customer base includes over 30,000 customer locations ranging from some of the largest grocers in the country to smaller independents as well. We offer approximately 250,000 products consisting of national, regional and private label brands grouped into the following main product categories: grocery and general merchandise; perishables; frozen foods; wellness and personal care items; and bulk and foodservice products. We believe we are North America’s premier grocery wholesaler with 53 distribution centers and warehouses representing approximately 31 million square feet of warehouse space. We are a coast-to-coast distributor with customers in all 50 states as well as all ten provinces in Canada, making us a desirable partner for retailers and consumer product manufacturers. We believe our total product assortment and service offerings are unmatched by our wholesale competitors. We plan to continue to pursue new business opportunities with independent retailers that operate diverse formats, regional and national chains, as well as international customers with wide-ranging needs. Our business is classified into two reportable segments: Wholesale and Retail; and also includes a manufacturing division and a branded product line division. 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. Trends and Other Factors Affecting Our Business Our results are impacted by macroeconomic and demographic trends, changes in the food distribution market structure and changes in consumer behavior. We believe food-at-home expenditures as a percentage of total food expenditures are subject to these trends, including changes in consumer behaviors in response to social and economic trends, such as levels of disposable income and the health of the economy in which our customers and our stores operate. The U.S. 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. We are also impacted by changes in food distribution trends affecting our Wholesale customers, such as direct store deliveries and other methods of distribution. Our Wholesale customers manage their businesses independently and operate in a competitive environment. 24 Table of Contents 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 We currently operate 76 retail grocery stores, including 54 Cub Foods corporate stores and 22 Shoppers Food Warehouse stores. In addition, we supply another 26 Cub Foods stores operated by our Wholesale customers through franchise and equity ownership arrangements. We operate 81 pharmacies primarily within the stores we operate and the stores of our franchisees. In addition, we operate 24 “Cub Wine and Spirit” and “Cub Liquor” stores. We plan to continue to invest in our Retail segment in areas such as customer-facing merchandising initiatives, physical facilities, technology and operational tools. Cub Foods and Shoppers Food Warehouse anticipate continued investment in improving the customer and associate experience through express remodels focused on customer facing elements. Impact of Product Cost Changes 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. 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. Under the last-in, first out (“LIFO”) method of inventory accounting, product cost increases are recognized within Cost of sales based on expected year-end inventory quantities and costs, which generally has the effect of decreasing Gross profit and the carrying value of inventory during periods of inflation. Our pricing to our customers is determined at the time of sale primarily based on the then prevailing vendor listed base cost, and includes discounts we offer to our customers. Generally, in an inflationary environment as a wholesaler, rising vendor costs result in higher Net sales driven by higher vendor prices when other variables such as quantities sold and vendor promotions are constant. 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 Net Sales Our Net sales consist primarily of product sales of natural, organic, specialty, produce, and conventional grocery and non-food products, adjusted for customer volume discounts, vendor incentives when applicable, returns and allowances, and professional services revenue. Net sales also include amounts charged by us to customers for shipping and handling and fuel surcharges. 25 Table of Contents 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, transportation or promotion of the suppliers’ products. Operating Expenses Operating expenses include distribution expenses of warehousing, delivery, purchasing, receiving, selecting, and outbound transportation expenses, and selling and administrative expenses. These expenses include salaries and wages, employee benefits, occupancy, insurance, depreciation and amortization expense and share-based compensation expense. Restructuring, Acquisition and Integration Related Expenses Restructuring, acquisition and integration related expenses reflect expenses resulting from restructuring activities, including severance costs, facility closure costs, share-based compensation acceleration charges and acquisition and integration related expenses. Integration related expenses include certain professional consulting expenses and incremental expenses related to combining facilities required to optimize our distribution network as a result of acquisitions. Loss on Sale of Assets and Other Asset Charges Loss on sale of assets and other asset charges primarily includes losses (gains) on sales of assets, losses on sales of financial assets, and asset impairments. Net Periodic Benefit Income, Excluding Service Cost Net periodic benefit income, excluding service cost reflects the recognition of expected returns on benefit plan assets and interest costs on plan liabilities. Interest Expense, Net Interest expense, net includes primarily interest expense on long-term debt, net of capitalized interest, loss on debt extinguishment, interest expense on finance lease obligations, amortization of financing costs and discounts, and interest income. Adjusted EBITDA Our Condensed Consolidated Financial Statements are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”). In addition to the GAAP results, we consider certain non-GAAP financial measures to assess the performance of our business and understand underlying operating performance and core business trends, which we use to facilitate operating performance comparisons of our business on a consistent basis over time. Adjusted EBITDA is provided as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to, any financial measure of performance prepared and presented in accordance with GAAP. Adjusted EBITDA excludes certain items because they are non-cash items or items that do not reflect management’s assessment of ongoing business performance. 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. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Certain adjustments to our GAAP financial measures reflected below exclude items that may be considered recurring in nature and may be reflected in our financial results for the foreseeable future. These measurements and items may be different from non-GAAP financial measures used by other companies. Adjusted EBITDA should be reviewed in conjunction with our results reported in accordance with GAAP in this Quarterly Report on Form 10-Q. 26 Table of Contents 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 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. 13-Week Period Ended (in millions) November 2, 2024 October 28, 2023 Change Net sales $ 7,871 $ 7,552 $ 319 Cost of sales 6,833 6,522 311 Gross profit 1,038 1,030 8 Operating expenses 1,015 1,023 (8) Restructuring, acquisition and integration related expenses 12 4 8 Loss on sale of assets and other asset charges 6 19 (13) Operating income (loss) 5 (16) 21 Net periodic benefit income, excluding service cost (5) (3) (2) Interest expense, net 36 35 1 Other income, net (2) — (2) 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 attributable to United Natural Foods, Inc. $ (21) $ (39) $ 18 Adjusted EBITDA $ 134 $ 117 $ 17 27 Table of Contents 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 (5) (3) Interest expense, net 36 35 Other income, net (2) — Benefit for income taxes (4) (9) Depreciation and amortization 80 78 Share-based compensation 7 6 LIFO charge 7 7 Restructuring, acquisition and integration related expenses 12 4 Loss on sale of assets and other asset charges (1) 6 19 Business transformation costs (2) 18 15 Other adjustments (3) — 4 Adjusted EBITDA $ 134 $ 117 (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 Net Sales Our Net sales by customer channel was as follows (in millions except percentages): 13-Week Period Ended Increase (Decrease) Customer Channel (1) November 2, 2024 October 28, 2023 $ % Chains $ 3,294 $ 3,184 $ 110 3.5 % Independent retailers 1,853 1,899 (46) (2.4) % Supernatural 1,835 1,612 223 13.8 % Retail 586 606 (20) (3.3) % Other 666 646 20 3.1 % Eliminations (363) (395) 32 (8.1) % Total net sales $ 7,871 $ 7,552 $ 319 4.2 % (1) Refer to Note 3—Revenue Recognition in Part 1, Item 1 of this Quarterly Report on Form 10-Q for our channel definitions and additional information. Our Net sales for the first quarter of fiscal 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. 28 Table of Contents Cost of Sales and Gross Profit 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 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 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 (in millions) November 2, 2024 October 28, 2023 Interest expense on long-term debt, net of capitalized interest $ 35 $ 33 Interest expense on finance lease obligations — 1 Amortization of financing costs and discounts 2 2 Interest income (1) (1) Interest expense, net $ 36 $ 35 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. 29 Table of Contents 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 $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 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 13—Business Segments within Part I, Item 1 of this Quarterly Report on Form 10-Q and the above table within the Executive Overview section. The following tables set forth Net sales and Adjusted EBITDA by segment for the periods indicated. 13-Week Period Ended (in millions) November 2, 2024 October 28, 2023 Change Net sales: Wholesale $ 7,590 $ 7,281 $ 309 Retail 586 606 (20) Other 58 60 (2) Eliminations (363) (395) 32 Total Net sales $ 7,871 $ 7,552 $ 319 Adjusted EBITDA: Wholesale $ 131 $ 117 $ 14 Retail — (1) 1 Other 1 3 (2) Eliminations 2 (2) 4 Total Adjusted EBITDA $ 134 $ 117 $ 17 Net Sales 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 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. 30 Table of Contents 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 increased $1 million compared to the first quarter of fiscal 2024. LIQUIDITY AND CAPITAL RESOURCES Highlights • 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; and ◦ $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 We expect to continue to replenish operating assets and pay down debt obligations with internally generated funds. A significant reduction in operating earnings or the incurrence of operating losses could have a negative impact on our operating cash flow, which may limit our ability to pay down our outstanding indebtedness as planned. Our credit facilities are secured by a substantial portion of our total assets. We expect to be able to fund debt maturities and finance lease liabilities through fiscal 2025 with internally generated funds and borrowings under the ABL Credit Facility. Our primary sources of liquidity are from internally generated funds and from borrowing capacity under the ABL Credit Facility. We believe our short-term and long-term financing abilities are adequate as a supplement to internally generated cash flows to satisfy debt obligations and fund capital expenditures as opportunities arise. Our continued access to short-term and long-term financing through credit markets depends on numerous factors, including the condition of the credit markets and our results of operations, cash flows, financial position and credit ratings. Primary uses of cash include debt service, capital expenditures, working capital maintenance, investments in cloud technologies and income tax payments. We typically finance working capital needs with cash provided from operating activities and short-term borrowings. Inventories are managed primarily through demand forecasting and replenishing depleted inventories. 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 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. Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to be used to make additional Term Loan Facility payments or to be reinvested in the business. Long-Term Debt 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. 31 Table of Contents 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. The Term Loan Agreement, Senior Notes and ABL Loan Agreement contain certain operational and informational covenants customary for debt securities of these types that limit our and our restricted subsidiaries’ ability to, among other things, incur debt, declare or pay dividends or make other distributions to our stockholders, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of our and our subsidiaries’ assets on a consolidated basis. We were in compliance with all such covenants for all periods presented. If we fail to comply with any of these covenants, we may be in default under the applicable debt agreement, and all amounts due thereunder may become immediately due and payable. 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 We enter into interest rate swap contracts from time to time to mitigate our exposure to changes in market interest rates as part of our strategy to manage our debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. As of 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 $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 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 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. 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. 32 Table of Contents Cash Flow Information The following summarizes our Condensed Consolidated Statements of Cash Flows: 13-Week Period Ended (in millions) November 2, 2024 October 28, 2023 Change Net cash used in operating activities $ (110) $ (254) $ 144 Net cash used in investing activities (47) (72) 25 Net cash provided by financing activities 154 326 (172) 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 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 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. Pension and Other Postretirement Benefit Obligations 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”). 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. We assess the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums or in order to achieve exemption from participant notices of underfunding. 33 Table of Contents Off-Balance Sheet Multiemployer Pension Arrangements We contribute to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. These multiemployer plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Plan trustees typically are responsible for determining the level of benefits to be provided to participants as well as the investment of the assets and plan administration. Trustees are appointed in equal number by employers and unions that are parties to the relevant collective bargaining agreements. Based on the assessment of the most recent information available from the multiemployer plans, we believe that most of the plans to which we contribute are underfunded. We are only one of a number of employers contributing to these plans and the underfunding is not a direct obligation or liability to us. Our contributions can fluctuate from year to year due to store closures, employer participation within the respective plans and reductions in headcount. Our contributions to these plans could increase in the near term. However, the amount of any increase or decrease in contributions will depend on a variety of factors, including the results of our collective bargaining efforts, investment returns on the assets held in the plans, actions taken by the trustees who manage the plans and requirements under the Pension Protection Act of 2006, the Multiemployer Pension Reform Act and Section 412(e) of the Internal Revenue Code. Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, we could trigger a partial or complete withdrawal that could require us to record a withdrawal liability obligation and make withdrawal liability payments to the fund. 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. Any future withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP. Any triggered withdrawal obligation could result in a material charge and payment obligations that would be required to be made over an extended period of time. We also make contributions to multiemployer health and welfare plans in amounts set forth in the related collective bargaining agreements. A small minority of collective bargaining agreements contain reserve requirements that may trigger unanticipated contributions resulting in increased healthcare expenses. If these healthcare provisions cannot be renegotiated in a manner that reduces the prospective healthcare cost as we intend, our Operating expenses could increase in the future. Refer to Note 13—Benefit Plans in Part II, Item 8 of the Annual Report for additional information regarding the plans in which we participate. Share Repurchases 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 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. We may implement the 2022 Repurchase Program pursuant to a plan or plans meeting the conditions of Rule 10b5-1 under the Exchange Act. Critical Accounting Estimates There were no material changes to our critical accounting estimates during the period covered by this Quarterly Report on Form 10-Q. Refer to the description of critical accounting estimates included in Item 7 of our Annual Report. Seasonality Overall product sales are fairly balanced throughout the year, although demand for certain products of a seasonal nature may be influenced by holidays, changes in seasons or other annual events. Our working capital needs are generally greater during the months of and leading up to high sales periods, such as the buildup in inventory leading to the calendar year-end holidays. Our inventory, accounts payable and accounts receivable levels may be impacted by macroeconomic impacts and changes in food-at-home purchasing rates. These effects can result in normal operating fluctuations in working capital balances, which in turn can result in changes to cash flow from operations that are not necessarily indicative of long-term operating trends. 34 Table of Contents