Wholesaler United Natural Foods Inc. reported higher-than-expected earnings for the first quarter of the company’s fiscal 2022, beating analysts expectations. Higher adjusted EBITDA, improved margins and lower interest expenses, contributed to adjusted earnings of 97 cents per share resulting in a 90.2% increase. Net sales increased 4.7% to $7 billion, and the company recorded net income of $76 million. The sales boost was driven in part by an approximately 200% increase in e-commerce sales at Cub Foods.
“As consumers continue to seek at-home food solutions, UNFI remains dedicated to providing our customers with the products and services they need to compete effectively in today’s marketplace,” said Sandy Douglas, CEO, according to a Sentieo transcript of the Dec. 8 earnings call. “I’m pleased with our start to fiscal 2022 and how UNFI is navigating a challenging operating environment while simultaneously investing for the future, including improved distribution capabilities and new facilities to better serve our customers.”
Douglas, marking his fourth month with the company this week, said he has been focused on engaging UNFI customers in conversations about their businesses and the challenges they face. “I continue to invest a significant amount of my time meeting with our customers with the simple goal of learning as much as I can about their business, what differentiates their offering in the marketplace, what are their biggest opportunities and pain points and what can we do to add value to their operations,” he said, adding that UNFI is “laser-focused” on helping meeting the needs of holiday shoppers.
With 30 years of experience on the supplier side of the industry, Douglas emphasized how “important it is to partner across the supply chain to transparently share information and identify opportunities to increase distribution and maximize sales. UNFI’s B2B2C business model puts us in a unique position to help suppliers understand and access our diverse and vibrant retail customers and their 30,000 retail locations.”
UNFI continues to prioritize ESG topics through its Better for All mission, with Douglas noting it’s “core to who we are as a company. From our top priority associate safety to an ongoing commitment towards diversity and inclusion to ambitious climate and environmental goals, to name just a few, UNFI’s core value remains doing the right thing every day.”
Citing the impacts of COVID-19, Douglas is still encouraged with the “first quarter and the start to fiscal 2022, despite a difficult backdrop, which isn’t likely to change in the short term.”
President Christopher P. Testa offered financial insight into the company’s record-setting revenue total.
“It’s worth noting that this is only the second time in the company’s history that revenue totaled $7 billion in a single quarter,” he said. “All three major sales channels experienced year-over-year growth, which was driven by two primary factors: new business wins and inflation. Modest market contraction and continued supply chain challenges were also partial offsets to these favorable sales drivers.”
Testa said UNFI’s strong sales in its “supernatural” channel resulted from winning new categories and SKUs with the company’s largest customer, Austin, Texas-based Whole Foods Market, which “reflects the strength of our relationship and the value we bring to their business.” He added that “independent sales channel growth was driven largely by new sales we realized from our Allentown, Pennsylvania facility, which began serving independents in the New York metro area in Q1. This new DC has been the largest distribution center startup in UNFI’s history, and its run rate volume has quickly made it a top 15 warehouse in terms of revenue.”
Citing learnings along the way, Testa said “UNFI is pleased with our progress and the greater opportunity to pursue enhanced customer service to existing customers and new customer growth in the New York metro market. Both in the supernatural and independent new business wins have been exceeding volume expectations, and we expect continued strong performance through the balance of this fiscal year.” Testa said that “across all channels, our top 100 customers realized year-over-year revenue gains of 6.7%, driven by expanding the categories we service with our existing customer base and new business initiatives.”
Testa further noted UNFI’s Fuel the Future strategy also expanded in Q1 and that “we’ll now be distributing produce to another large national customer as a result of our expansive DC footprint and category expertise.”
CFO John W. Howard shared that “the first quarter gross margin rate increased 38 basis point compared to last year’s first quarter.” Howard said the company continues to grow adjusted EBITDA faster and that this “quarter’s 19% growth in adjusted EBITDA on a 4.7% increase in sales exemplified just that and translated to a 32 basis-point year-over-year expansion in our adjusted EBITDA margin.”
According to the company’s financials, on a two year stack basis, net sales rose 10.7% while EPS is expected to be between 3.6-3.9 representing 51% growth from the fiscal 2021 year midpoint.
The company expects net income to be between $221 and $243 million, resulting in a 56% growth over fiscal year 2021 at midpoint, according to UNFI.
Later in the call, Douglas reaffirmed UNFI’s full-year outlook for fiscal 2022. “I think our outlook is essentially realistic. It’s very hard to predict what’s around the next corner. As Chris [Testa] said in his remarks, we’ve made some improvements in terms of our net openings in our fulfillment system, and we’re doing that by intensifying our recruiting but also working on simplifying the associate experience as well. And as we talk to suppliers, they continue to believe that they’re going to have constraints around their supply environment. And so our general expectation is that we’re going to have to stay agile. We’re going to have to stay customer-focused and that the environment will continue to be difficult.”
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