Item 2. Management’s Discussion and Analysis
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.
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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.
The Company is in the process of realigning its commercial wholesale organization into two product-centered divisions that are expected to enhance service to its customers and suppliers. These two divisions are Conventional Grocery Products and Natural, Organic, Specialty & Fresh Products. Each division will have focused sales teams aligned to the unique product and service needs of its customers and will be supported by dedicated functional experts in merchandising, operations, procurement and supplier services. In addition, capability centers of excellence in areas such as supply chain, professional and digital services, and private brands will work across the divisions to help create customized programs to help customers and suppliers accelerate their growth strategies.
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.
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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.
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. In the second quarter of fiscal 2025, we announced the closure of a third distribution center in the Central region, which was completed subsequent to the second quarter of fiscal 2025. We expect to achieve cost savings as a result of these efforts through streamlining operations and delivering efficiencies, including incurring lower operating and shrink expenses, while also improving 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 75 grocery stores, including 53 Cub Foods stores and 22 Shoppers stores. In addition, we supply another 26 Cub Foods stores operated by our Wholesale customers through franchise and minority equity ownership arrangements. We operate 80 pharmacies primarily within the stores we operate and the stores of our franchisees. In addition, we operate 23 “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 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 second 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 two percent in the second quarter of fiscal 2025 as compared to the second quarter of fiscal 2024. Cost inflation and deflation estimates are based on individual like items sold during the periods being compared. 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. 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.
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, mix of units sold and vendor promotions are constant. 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. We continued to experience fewer and less significant vendor product cost increases in the second quarter of fiscal 2025, which negatively impacted our gross profit rate when comparing to the second quarter of fiscal 2024.
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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.
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.
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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.
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 26-Week Period Ended
(in millions) February 1, 2025 January 27, 2024 Change February 1, 2025 January 27, 2024 Change
Net sales $ 8,158 $ 7,775 $ 383 $ 16,029 $ 15,327 $ 702
Cost of sales 7,086 6,740 346 13,919 13,262 657
Gross profit 1,072 1,035 37 2,110 2,065 45
Operating expenses 1,031 1,010 21 2,046 2,033 13
Restructuring, acquisition and integration related expenses 9 4 5 21 8 13
Loss on sale of assets and other asset charges 5 5 — 11 24 (13)
Operating income 27 16 11 32 — 32
Net periodic benefit income, excluding service cost (5) (4) (1) (10) (7) (3)
Interest expense, net 38 40 (2) 74 75 (1)
Other income, net (1) (1) — (3) (1) (2)
Loss before income taxes (5) (19) 14 (29) (67) 38
Benefit for income taxes (3) (5) 2 (7) (14) 7
Net loss including noncontrolling interests (2) (14) 12 (22) (53) 31
Less net income attributable to noncontrolling interests (1) (1) — (2) (1) (1)
Net loss attributable to United Natural Foods, Inc. $ (3) $ (15) $ 12 $ (24) $ (54) $ 30
Adjusted EBITDA
$ 145 $ 128 $ 17 $ 279 $ 245 $ 34
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The following table reconciles Net loss including noncontrolling interests to Adjusted EBITDA:
13-Week Period Ended 26-Week Period Ended
(in millions) February 1, 2025 January 27, 2024 February 1, 2025 January 27, 2024
Net loss including noncontrolling interests $ (2) $ (14) $ (22) $ (53)
Adjustments to net loss including noncontrolling interests:
Less net income attributable to noncontrolling interests (1) (1) (2) (1)
Net periodic benefit income, excluding service cost
(5) (4) (10) (7)
Interest expense, net 38 40 74 75
Other income, net (1) (1) (3) (1)
Benefit for income taxes (3) (5) (7) (14)
Depreciation and amortization 81 74 161 152
Share-based compensation 11 10 18 16
LIFO charge 3 6 10 13
Restructuring, acquisition and integration related expenses
9 4 21 8
Loss on sale of assets and other asset charges (1)
5 5 11 24
Business transformation costs (2)
8 14 26 29
Other adjustments (3)
2 — 2 4
Adjusted EBITDA $ 145 $ 128 $ 279 $ 245
(1) 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) Fiscal 2025 primarily reflects certain estimated accrued legal-related costs, which are included within Operating expenses in the Condensed Consolidated Statements of Operations. Fiscal 2024 primarily reflects third-party professional service fees related to shareholder negotiations, which are included within Operating expenses in the Condensed Consolidated Statements of Operations.
RESULTS OF OPERATIONS
Net Sales
In the second quarter of fiscal 2025, we announced that we are realigning our commercial wholesale organization as discussed in Executive Overview - Business Overview section above. We updated our presentation of disaggregated revenue to align with how management evaluates our top-line commercial and financial performance. Prior period disaggregation of revenue amounts have been recast to conform with our current period presentation. The following table sets forth Net sales by category for the periods indicated. Refer to Note 3—Revenue Recognition in Part 1, Item 1 of this Quarterly Report on Form 10-Q for our category definitions and additional information.
13-Week Period Ended
Increase (Decrease) 26-Week Period Ended
Increase (Decrease)
(in millions, except percentages) February 1,
2025 January 27,
2024 $ % February 1,
2025 January 27,
2024 $ %
Natural $ 4,021 $ 3,715 $ 306 8.2 % $ 7,859 $ 7,292 $ 567 7.8 %
Conventional 3,861 3,783 78 2.1 % 7,625 7,495 130 1.7 %
Retail 610 631 (21) (3.3) % 1,196 1,237 (41) (3.3) %
Eliminations (334) (354) 20 (5.6) % (651) (697) 46 (6.6) %
Total net sales $ 8,158 $ 7,775 $ 383 4.9 % $ 16,029 $ 15,327 $ 702 4.6 %
Second Quarter
Our Net sales for the second quarter of fiscal 2025 increased approximately 4.9% from the second quarter of fiscal 2024. The increase in Net sales was primarily driven by an increase in Natural unit volumes, including new business with existing and new customers, as well as inflation.
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Retail Net sales decreased primarily due to a 0.4% decrease in identical store sales from lower volume, and store closures.
Year-to-Date
Our Net sales for fiscal 2025 year-to-date increased approximately 4.6% from fiscal 2024 year-to-date. The increase in Net sales was primarily driven by an increase in Natural unit volumes, including new business with existing and new customers, as well as inflation.
Retail Net sales decreased primarily due to a 0.9% decrease in identical store sales from lower volume, and store closures.
Cost of Sales and Gross Profit
Our Gross profit increased $37 million, or 3.6%, to $1,072 million for the second quarter of fiscal 2025, from $1,035 million for the second quarter of fiscal 2024. Our Gross profit as a percentage of Net sales decreased to 13.1% for the second quarter of fiscal 2025 compared to 13.3% for the second quarter of fiscal 2024. The LIFO charge was $3 million and $6 million in the second quarters of fiscal 2025 and 2024, respectively. E xcluding the non-cash LIFO charge, gross profit rate was 13.2% of Net sales and 13.4% of Net sales for the second 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, the benefit of lower shrink expense and a higher retail gross margin rate.
Our Gross profit increased $45 million, or 2.2%, to $2,110 million for fiscal 2025 year-to-date, from $2,065 million for fiscal 2024 year-to-date. Our Gross profit as a percentage of Net sales decreased to 13.2% for fiscal 2025 year-to-date compared to 13.5% for fiscal 2024 year-to-date. The LIFO charge was $10 million and $13 million for fiscal 2025 and 2024 year-to-date, respectively. E xcluding the non-cash LIFO charge, gross profit rate was 13.2% of Net sales and 13.6% of Net sales for fiscal 2025 and 2024 year-to-date , 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 $21 million, or 2.1%, to $1,031 million, or 12.6% of Net sales, for the second quarter of fiscal 2025 compared to $1,010 million, or 13.0% of Net sales, for the second quarter of fiscal 2024. The decrease in Operating expenses as a percentage of Net sales was primarily driven by the leveraging impact of higher sales and the benefits from cost saving initiatives.
Operating expenses increased $13 million, or 0.6%, to $2,046 million, or 12.8% of Net sales, for fiscal 2025 year-to-date compared to $2,033 million, or 13.3% of Net sales, for fiscal 2024 year-to-date. 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 increased $5 million to $9 million for the second quarter of fiscal 2025, compared to $4 million for the second quarter of fiscal 2024. The increase was primarily driven by higher costs associated with certain employee severance and other employee separation costs in the second quarter of fiscal 2025.
Restructuring, acquisition and integration related expenses increased $13 million to $21 million for fiscal 2025 year-to-date, compared to $8 million for fiscal 2024 year-to-date. The increase was primarily driven by higher costs associated with certain employee severance and other employee separation costs in fiscal 2025 year-to-date.
Loss on Sale of Assets and Other Asset Charges
Loss on sale of assets and other asset charges was $5 million for the second quarters of fiscal 2025 and 2024. The second quarters of fiscal 2025 and 2024 primarily included losses on the sales of receivables under the accounts receivable monetization program.
Loss on sale of assets and other asset charges decreased $13 million to $11 million for fiscal 2025 year-to-date, from $24 million for fiscal 2024 year-to-date. Fiscal 2024 year-to-date primarily included a $21 million asset impairment charge related to one of our corporate-owned office locations. Fiscal 2025 and 2024 year-to-date included losses on the sales of receivables under the accounts receivable monetization program.
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Operating Income
Reflecting the factors described above, Operating income increased $11 million to $27 million for the second quarter of fiscal 2025, compared to Operating income of $16 million for the second quarter of fiscal 2024. The increase in Operating income was primarily driven by an increase in Gross profit, partially offset by an increase in Operating expenses and Restructuring, acquisition and integration related expenses in the second quarter of fiscal 2025, each as described above.
Reflecting the factors described above, Operating income increased $32 million to $32 million for fiscal 2025 year-to-date, compared to Operating income of $0 million for fiscal 2024 year-to-date. The increase in Operating income was primarily driven by an increase in Gross profit and a decrease in Loss on sale of asset and other asset charges, partially offset by an increase in Operating expenses and Restructuring, acquisition and integration related expenses in fiscal 2025 year-to-date, each as described above.
Interest Expense, Net
13-Week Period Ended 26-Week Period Ended
(in millions) February 1, 2025 January 27, 2024 February 1, 2025 January 27, 2024
Interest expense on long-term debt, net of capitalized interest $ 36 $ 37 $ 71 $ 70
Interest expense on finance lease obligations 1 — 1 1
Amortization of financing costs and discounts 1 3 3 5
Interest income — — (1) (1)
Interest expense, net $ 38 $ 40 $ 74 $ 75
The decrease in interest expense, net, in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024 was primarily driven by lower outstanding debt balances.
The decrease in interest expense, net, in fiscal 2025 year-to-date compared to fiscal 2024 year-to-date was primarily driven by lower outstanding debt balances.
Benefit for Income Taxes
The effective tax rate for the second quarter of fiscal 2025 was a benefit rate of 60.0% on pre-tax loss compared to a benefit rate of 26.3% on pre-tax loss for the second quarter of fiscal 2024. The change from the second quarter of fiscal 2024 is primarily driven by a reduction in pre-tax loss combined with discrete tax benefits resulting from share award vestings in the second quarter of fiscal 2025.
The effective tax rate for fiscal 2025 year-to-date was a benefit rate of 24.1% on pre-tax loss compared to a benefit rate of 20.9% on pre-tax loss for fiscal 2024 year-to-date. The change from fiscal 2024 year-to-date is primarily driven by a reduction in pre-tax loss for fiscal 2025 year-to-date and a decrease in discrete tax expenses resulting from share award vestings through the second 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 $3 million, or $0.05 per diluted common share, for the second quarter of fiscal 2025, compared to Net loss attributable to United Natural Foods, Inc. of $15 million, or $0.25 per diluted common share, for the second quarter of fiscal 2024.
Reflecting the factors described in more detail above, Net loss attributable to United Natural Foods, Inc. was $24 million, or $0.39 per diluted common share, for fiscal 2025 year-to-date, compared to Net loss attributable to United Natural Foods, Inc. of $54 million, or $0.92 per diluted common share, for fiscal 2024 year-to-date.
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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 26-Week Period Ended
(in millions) February 1, 2025 January 27, 2024 Change February 1, 2025 January 27, 2024 Change
Net sales:
Wholesale $ 7,872 $ 7,487 $ 385 $ 15,462 $ 14,768 $ 694
Retail 610 631 (21) 1,196 1,237 (41)
Other 53 52 1 111 112 (1)
Eliminations (377) (395) 18 (740) (790) 50
Total Net sales $ 8,158 $ 7,775 $ 383 $ 16,029 $ 15,327 $ 702
Adjusted EBITDA:
Wholesale $ 136 $ 118 $ 18 $ 267 $ 235 $ 32
Retail 6 8 (2) 6 7 (1)
Other 5 4 1 6 7 (1)
Eliminations (2) (2) — — (4) 4
Total Adjusted EBITDA $ 145 $ 128 $ 17 $ 279 $ 245 $ 34
Net Sales
Second Quarter
Wholesale’s Net sales increased in the second quarter of fiscal 2025 as compared to the second quarter of fiscal 2024 primarily due to a 3% 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 second quarter of fiscal 2025 as compared to the second quarter of fiscal 2024 primarily due to a 0.4% decrease in identical store sales from lower volume, and store closures.
Lower eliminations of Net sales in the second quarter of fiscal 2025 as compared to the second quarter of fiscal 2024 were primarily due to a decrease in Wholesale to Retail sales, which are eliminated upon consolidation.
Year-to-Date
Wholesale’s Net sales increased for fiscal 2025 year-to-date as compared to fiscal 2024 year-to-date 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 for fiscal 2025 year-to-date as compared to fiscal 2024 year-to-date primarily due to a 0.9% decrease in identical store sales from lower volume, and store closures.
Lower eliminations of Net sales for fiscal 2025 year-to-date as compared to fiscal 2024 year-to-date were primarily due to a decrease in Wholesale to Retail sales, which are eliminated upon consolidation.
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Adjusted EBITDA
Second Quarter
Wholesale’s Adjusted EBITDA increased $18 million, or 15.3%, for the second quarter of fiscal 2025 as compared to the second quarter of fiscal 2024. The increase was driven by gross profit growth excluding the LIFO charge, partially offset by an increase in operating expenses. Wholesale’s Gross profit excluding the LIFO charge for the second quarter of fiscal 2025 increased $36 million and gross profit rate decreased approximately 11 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 increased $18 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 28 basis points primarily due to benefits from cost saving initiatives and the leveraging impact of higher sales.
Retail’s Adjusted EBITDA decreased $2 million, or 25.0%, for the second quarter of fiscal 2025 as compared to the second quarter of fiscal 2024. The decrease was driven primarily by a decline in gross profit primarily due to lower sales volume, which was partially offset by the benefit of lower shrink expense which favorably impacted margin rate. Retail’s Adjusted EBITDA excludes depreciation and amortization, share-based compensation, LIFO charge and other adjustments as outlined in Note 13—Business Segments.
Year-to-Date
Wholesale’s Adjusted EBITDA increased $32 million, or 13.6%, for fiscal 2025 year-to-date as compared to fiscal 2024 year-to-date. The increase was driven by gross profit growth excluding the LIFO charge, partially offset by an increase in operating expenses. Wholesale’s Gross profit excluding the LIFO charge for fiscal 2025 year-to-date increased $46 million and gross profit rate increased approximately 24 basis points driven primarily by supplier programs and the benefit of lower shrink expense, which were partially offset by lower product margin rates and customer and product mix. Wholesale’s Operating expense increased $14 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 38 basis points primarily due to benefits from cost saving initiatives and the leveraging impact of higher sales.
Retail’s Adjusted EBITDA decreased $1 million, or 14.3%, for fiscal 2025 year-to-date as compared to fiscal 2024 year-to-date. The decrease was driven primarily by a decline in gross profit primarily due to lower sales volume, which was largely offset by lower operating expenses from operating efficiencies. Retail’s Adjusted EBITDA excludes depreciation and amortization, share-based compensation, LIFO charge and other adjustments as outlined in Note 13—Business Segments.
LIQUIDITY AND CAPITAL RESOURCES
Highlights
• Total liquidity as of February 1, 2025 was $1,312 million and consisted of the following:
◦ $1,268 million of unused credit under our asset-based revolving credit facility (the “ABL Credit Facility”), which increased $33 million from $1,235 million as of August 3, 2024, primarily due to an increase in the borrowing base and a reduction of net borrowings under the ABL Credit Facility; and
◦ $44 million of cash and cash equivalents, which increased $4 million from $40 million as of August 3, 2024.
• Total debt decreased $14 million to $2,071 million as of February 1, 2025 from $2,085 million as of August 3, 2024, primarily related to a reduction in net borrowings under the ABL Credit Facility due to net cash provided by operating activities, partially offset by payments for capital expenditures.
• Working capital increased $50 million to $1,087 million as of February 1, 2025 from $1,037 million as of August 3, 2024, primarily due to increases in accounts receivable and inventory 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.
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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 depending on seasonality and other fluctuations, 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 fiscal 2025 year-to-date, we reduced borrowings by a net $13 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 dated as of October 22, 2018 (as amended, the “Term Loan Agreement”) and our 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 February 1, 2025.
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 February 1, 2025, we had an aggregate of $750 million of floating rate notional debt subject to active interest rate swap contracts, which effectively fix the Secured Overnight Financing Rate (“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 $5 million as of February 1, 2025, 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 February 1, 2025, 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.
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Payments for Capital Expenditures and Cloud Technology Implementation Expenditures
Our capital expenditures for fiscal 2025 year-to-date were $103 million compared to $141 million for fiscal 2024 year-to-date, a decrease of $38 million. Our capital spending for fiscal 2025 and 2024 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 $5 million for fiscal 2025 year-to-date compared to $17 million for fiscal 2024 year-to-date.
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.
Cash Flow Information
The following summarizes our Condensed Consolidated Statements of Cash Flows:
26-Week Period Ended
(in millions) February 1, 2025 January 27, 2024 Change
Net cash provided by (used in) operating activities
$ 137 $ (71) $ 208
Net cash used in investing activities
(100) (142) 42
Net cash (used in) provided by financing activities
(32) 210 (242)
Effect of exchange rate on cash (1) — (1)
Net increase (decrease) in cash and cash equivalents
4 (3) 7
Cash and cash equivalents, at beginning of period 40 37 3
Cash and cash equivalents, at end of period $ 44 $ 34 $ 10
The increase in net cash provided by operating activities in fiscal 2025 year-to-date compared to fiscal 2024 year-to-date was primarily due to lower levels of cash utilized in net working capital.
The decrease in net cash used in investing activities in fiscal 2025 year-to-date compared to fiscal 2024 year-to-date was primarily due to lower payments for capital expenditures in fiscal 2025 year-to-date.
The increase in net cash used in financing activities in fiscal 2025 year-to-date compared to fiscal 2024 year-to-date was primarily due to an increase in net repayments of borrowings under the ABL Credit Facility resulting from the increase in net cash provided by operating activities and the decrease 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.
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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.
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 fiscal 2025 year-to-date. As of February 1, 2025, 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.
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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.