United Natural Foods Inc Q4 2024 Earnings Call Transcript

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

Question: John Heinbockel - Guggenheim Partners - Analyst : Sandy, I wanted to start with your view on the role of conventional in the portfolio, right? Because you said most of the profitability comes from natural, and that business is growing. So the role of conventional, and I know to get to flat revenue, it means that you're probably giving up $1 billion or $1.5 billion somewhere. So there will be more closures beyond Billings and Bismarck, I assume. And do you think you managed conventional accounts out of the system in warehouses that you don't close? Is that part of this as well?

Question: John Heinbockel - Guggenheim Partners - Analyst : Okay. And then maybe for Matteo. Can you speak to -- right, there's sort of two sides of the labor productivity aspect here, right? So number one, wage rate inflation, right? Do you think that is -- is that a 3% to 4%, 4% to 5% inflation rate going forward just given supply-demand? And then the flip side of that is the productivity you can drive in cases per labor hour, right? And is the idea to offset the two? Where do you think the lean productivity gains can be in excess of your wage rate inflation?

Question: Leah Jordan - Goldman Sachs - Analyst : Just seeing if you could walk us through the puts and takes to gross margin in your '25 outlook. How much could vendor promotions be a tailwind in the coming year? What are you seeing there? And how should we think about procurement opportunities, given your inflation outlook for some deceleration and then stabilization?

Question: Leah Jordan - Goldman Sachs - Analyst : Great. And just for my follow-up, I just wanted to see if you could provide more detail on the retail segment. What demand trends are you seeing within your banners there and the competitive environment where you operate? And how important is that business to supporting your Wholesale business as well?

Question: Mark Carden - UBS - Analyst : Great. So in your three-year plan, you're prioritizing natural, organic, which makes a lot of sense. Digging into what you're doing on conventionals, though, how are you thinking about the balance of growth between independent conventionals and chains over the next few years? Would you expect one to grow much faster than the other?

Question: Mark Carden - UBS - Analyst : Okay. That makes sense. And then on your higher-margin professional services, how is traction trending for your natural and organic business? I know historically, it's been more geared towards conventional, but are you seeing any signs of a step change on that front?

Question: Edward Kelly - Wells Fargo - Analyst : My first question, just as it pertains to the 2025 as we think about like the first year of this leg of multiyear high single-digit EBITDA growth, I think, but you tell us the back half of '24 and what is an improved level of EBITDA growth already kind of locks in, it seems like a portion of that growth in '25. Is that correct?

Question: Edward Kelly - Wells Fargo - Analyst : Got it. Okay. That makes sense. And I wanted to ask you about vendor promo and the trends that you're seeing there, the impact that it's having on your customers' ability to drive better volume and then the impact that it's also having on your own P&L. Can you maybe update us there?

Question: Andrew Paul Wolf - C.L. King & Associates - Analyst : Could you provide more color on what drove the step-up in volume intraquarter and I think you said currently? I know the press release referenced new customers and also increased penetration, just sort of maybe a lot that between those two things. And also was the increased volume kind of uniform across the customer segments? Or is it more concentrated with supernatural, for example?

Question: Andrew Paul Wolf - C.L. King & Associates - Analyst : Got it. Okay. That's helpful. And just probably more for Matteo. Can you just tell me how kind of square if you're running 2% or better sales at least in the quarter, and it sounds like maybe now, but you're guiding to midpoint up 0.5%. I mean is the difference all network optimization? Or is there other expectations in there for maybe volumes to settle down a little less or inflation to come down? Just trying to understand that differential.

Question: Andrew Paul Wolf - C.L. King & Associates - Analyst : Okay. And is any more closures kind of contemplated in the guidance? Or is that still to be determined just what you already did is in there?

Question: Kelly Bania - BMO Capital Markets - Analyst : Can you just help us understand the network optimization strategy a little deeper in terms of the magnitude of the sales impact that we should expect this year and in coming years? And should we presume that, that strategy impacts primarily chains or independents or both but not the supernatural channel? Can you just walk us through what the vision is there?

Question: Kelly Bania - BMO Capital Markets - Analyst : Okay. And can you just talk a little bit more about customer feedback on the new fee structure and how your fee structure -- this consolidated fee structure varies from competitors in the marketplace? And any impacts we should be considering in terms of volatility of margins or lack of volatility of margins or seasonality from this new structure?

Question: Kelly Bania - BMO Capital Markets - Analyst : Okay. That's helpful. And then just one other one for me. In terms of the professional services and digital services, I guess that means on the retail media side, can you just help us understand what percent of your customer base are engaged with some of these services today and what kind of growth you are planning in fiscal '25 and really over the next three years from these two components?

Question: Charles Cerankosky - Northcoast Research - Analyst : We've got a repeated series of quarters here where the consumer is inflation-weary, very price sensitive, yet the United Natural management team sounds refreshingly confident about delivering and deleveraging. How sensitive to the economic environment do you think your recovery plan is?

Question: Charles Cerankosky - Northcoast Research - Analyst : Good. Sandy or Matteo, could you talk about the timing of selling those two distribution centers and what amount of cash you might get from them?