United Natural Foods Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Heinbockel - Guggenheim Securities LLC - Analyst : Sandy, I want to start with decentralized procurement. Maybe just talk about balancing, right, you want to manage the inventory locally, but you want to buy it with the benefit of scale. So how you're managing that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 1:30PM, UNFI.N - Q1 2025 United Natural Foods Inc Earnings Call And then when you think about accountability is great, but if you can write alter your or make the compensation program -- make changes there to strengthen accountability, what do you want to do on the compensation side that might be different?

Question: John Heinbockel - Guggenheim Securities LLC - Analyst : And maybe as a follow-up, I think you mentioned 5% improvement in cases per hour. I believe that was the number. Now you didn't give what the result was in the two DCs. So I'm curious, I mean, you should see improved productivity beyond that, right, as you roll out Lean. Is that fair? And when you think about time to -- we implement day one, when do you hit your stride on focus on productivity? Is that -- is it six months out? Is it a year out? Is it longer? What's the timeline?

Question: Leah Jordan - Goldman Sachs - Analyst : Your updated sales guide implies a deceleration for the balance of the year on a comparable 52-week basis. Just if you could walk us through how you're thinking about inflation and volume as drivers for the balance of the year, underscoring that. Just surprised, given the new business wins this quarter, that you called out volumes coming in a bit better than expected. Why should that not flow through in a bigger way for the remainder of the year?

Question: Leah Jordan - Goldman Sachs - Analyst : And then just on a related follow-up, just digging a bit more to the new business gains this quarter driving some of that volume. Which categories are presenting the most opportunities for you now? And then why do you think these same customers, existing customers are more engaged now? Or how do you think you're resonating more today?

Question: Andrew Wolf - C.L. King & Associates - Analyst : I want to ask about the gross margin rate contraction in the quarter, and if you could give us any sense of the outlook there? At least sequentially versus the last couple of quarters, at the end of last year, last fiscal year, there was a pickup in that gross margin contraction. So you've talked about some of the things that could contract it, let's say, our commercial investments, customer mix and things that were helping with shrink, and other things. Could you just dive a little deeper into the quarter, why the contraction might have been greater than it was? Why it was greater than it has been? And what's the outlook to the extent you're willing to talk about that?

Question: Andrew Wolf - C.L. King & Associates - Analyst : Great. I appreciate that granularity. So it sounds like the gross margin rate contraction was much less so, obviously, in wholesale, even though -- I mean, it was more in line with the sales growth. And I think as you spoke to, there was some investment in retail, which I guess, to get the same-store sales improving. And that's why retail gross margin was down year over year, gross profit dollars?

Question: Andrew Wolf - C.L. King & Associates - Analyst : And if I can ask a much longer focused question, if I will. I think the Lean processes are -- sounds like they're gaining traction pretty rapidly in labor productivity and other efficiencies. But they're pretty new. So I think it's quite reasonable to assume that it's the rightsizing of headcount reduction and less facilities that really is driving the lower operating expenses as adjusted. And what I really want to get to is, will that mix change over time, when you start heading to the back end of -- the second half to the back end of the fiscal '27 guidance, is it going to be more of the Lean processes that really start to drive labor operating expense efficiencies, more so than I would imagine upfront?

Question: Ben Wood - BMO Capital Markets - Analyst : This is Ben Wood on for Kelly. I want to start with, first, how is the demand for your services tracking? And where are we in the evolution of some of those programs and offerings? Previously, UNFI had disclosed it was about 20% of EBITDA, which we believe may be a little closer to 30% plus given where EBITDA is expected now. Is that fair? And where do you see services growing at and mixing to longer-term?

Question: Ben Wood - BMO Capital Markets - Analyst : Great. And then following up on your last point there, Sandy. With some of the success, and it seems pretty drastically different in the natural and organic categories and channels, are you seeing more interest from other parts of your wholesale universe to adopt some of those offerings and put them into their assortment? Are any of your customers trying to chase volume growth by adding more natural and organic categories?

Question: Ben Wood - BMO Capital Markets - Analyst : Okay. And then just one quick follow-up, if I may here. Where are we in the rollout of the simplified fee structure? What proportion of your customers are on that? And what's some of the main pushback you're hearing to a faster adoption to that?

Question: Alex Slagle - Jefferies - Analyst : Congrats. Actually, I just wanted to follow up on a couple of those points. And maybe just a bit more on the supplier go-to-market programs, and I think you provided some examples just how successful this has been for certain suppliers, which sounds pretty impactful, so curious on that. And then just how that feeds into your business and profitability specifically.

Question: Alex Slagle - Jefferies - Analyst : That's helpful. And earlier, you mentioned natural and organic portfolio growth and sounded -- mentioned mid-double digits, maybe I got the number wrong, but if you could just clarify what you have commented.

Question: Chuck Cerankosky - Northcoast Research - Analyst : Nice quarter. When you're talking about the new customers, how much of this is business coming back to you that might have been lost during the most difficult parts of integrating the SUPERVALU acquisition? And how much of it might be getting towards the goal of selling more organic to conventional customers and more conventional product to organic customers prior to the original goal? It's a complex question, but trying to get a sense of where the new business is all coming from.

Question: Chuck Cerankosky - Northcoast Research - Analyst : On the conventional side, where the volume has actually slipped, Sandy, how do you see that playing out going forward, especially if the economy stays where it's at where it was a lot of pressure on budget-constrained consumers?

Question: Chuck Cerankosky - Northcoast Research - Analyst : All right. Thank you very much. Good luck for the rest of the year.

Question: Scott Mushkin - R5 Capital - Analyst : So I was wondering if you can give us, it sounds like you're going to give us a different revenue layout next quarter. But I was wondering if you could maybe frame for us the revenue percentage associated with the legacy UNFI and the legacy SUPERVALU?

Question: Scott Mushkin - R5 Capital - Analyst : Okay. And Sandy, how integrated are the businesses? I know we used to talk about, this is a few years ago now, like one bill, one truck, like how integrated are the facilities? How integrated is -- are the two businesses at this stage?

Question: Scott Mushkin - R5 Capital - Analyst : Okay. And I'm sure I could dig through filings and stuff like that, but what facilities have you been closing? Are those legacy UNFI or legacy SUPERVALU?

Question: Scott Mushkin - R5 Capital - Analyst : And the idea there, Matteo, is obviously to pay down debt with those funds?

Question: Scott Mushkin - R5 Capital - Analyst : And do you expect that to be material?

Question: Scott Mushkin - R5 Capital - Analyst : Okay. Is there anyone else in the queue, or can I have one more?

Question: Scott Mushkin - R5 Capital - Analyst : Okay. So and again, this is something that I know goes back a long time, I think we've talked about it a little bit off and on. But to get cleaner here with the business, it would be nice to get rid of retail, in my mind. Like where is your head around that, Sandy, and Matteo? Like is that a possibility? I know it's so complicated up in the Twin Cities, but is that something that could go back on the table?

Question: Matthew Rothway - UBS Equities - Analyst : This is Matthew Rothway on for Mark Carden. You had mentioned on the previous earnings call that you have a goal of achieving another $150 million of cost efficiencies this year. Would you be able to share any more on your outlook there and where we might be able to see that show up?