UNFI sees positive results of greater efficiency during strong Q1

An increase in efficiencies has started to produce real results for United Natural Foods Inc. as the wholesale distributor of natural and organic foods delivered strong first-quarter 2025 results on Tuesday.

UNFI also raised its full-year outlook, which boosted Wall Street's mood as the wholesale supplier’s stock price rose more than 25% Tuesday morning.

For the first quarter of 2025, net sales increased 4.2% year over year to $7.9 billion, primarily driven by a nearly 2% increase in wholesale unit volumes.

Gross profit reached $1 billion, marking a 0.8% year-over-year increase. Adjusted EBITDA rose 14.5% compared to Q1 2024, reaching $134 million and marking the fifth consecutive quarter of sequential improvement in adjusted EBITDA dollars.

“This performance signals a solid start to the execution of our strategy,” said UNFI CEO Sandy Douglas during the earnings call. “As we continue to sharpen our focus on providing differentiated products, programs, services, and insights that help [our customers] compete effectively and extend this performance, we remain focused on strengthening service levels, simplicity, and transparency for our customers and suppliers while increasing efficiency across the business.”

UNFI raised its full-year outlook, with net sales now projected to fall between $30.6 billion and $31 billion. The previous full-year outlook was between $30.3 billion and $30.8 billion. Adjusted EBITDA is now projected to be between $530 million and $580 million, up from the original range of $520 million to $580 million.

Positive momentum from implementing lean principles throughout the business and supply chain began to take hold for UNFI in the first quarter.

One major change recently completed was the decentralization of UNFI’s procurement function. The wholesale supplier is now a distribution-based organization, rather than relying on a single centralized procurement team. This move has empowered teams to become more directly involved in demand forecasting, enabling timelier and more accurate inventory management.

“The team is embracing the process and steadily driving improvements,” said President Matteo Tarditi during the call. “We will continue to focus on driving sustained improvements in this area to better align demand with supply and steadily increase customer service levels, which is the core focus of our multi-year strategy.”

UNFI has also launched lean daily management routines at distribution centers in Texas and Colorado. Early results show an 11% improvement in fulfillment quality, a 5% improvement in on-time delivery, and gains in warehouse labor productivity.

“As we move through fiscal 2025, we plan to methodically scale lean daily management processes across our network while maintaining our focus on quality and value delivery,” said Tarditi.

The emphasis on lean principles contributed to profitability and free cash flow in the first quarter. Free cash flow was approximately $159 million, a roughly $170 million improvement compared to the past two fiscal years, according to Tarditi.

In November, UNFI decided  to close its Fort Wayne distribution center, with closures also completed for the DCs in Billings, Mont., and Bismarck, N.D. Facilities in Pennsylvania and Illinois will handle additional volume from the Fort Wayne DC. UNFI also transferred natural volumes from its York, Pa., distribution center to the Manchester, N.H., DC, which is 50% larger and will soon be automated.

“We’re focused on delivering strong customer fill rates,” said Douglas. “And we’ve set the goal of reducing our inventories back to pre-COVID levels within the scope of our multi-year plan.”

UNFI also continues to roll out a revamped go-to-market program for suppliers.

“Several of our large suppliers that have embraced the program have experienced volume gains that surpass their peer group, as they’ve taken advantage of the data and insights we provide in areas such as new item placement or bringing items discontinued during COVID back into customer sales,” said Douglas.

Shrink reduction has been another focus for UNFI over the past five quarters, and Douglas stated during the call that the company has brought shrink in line with “historic pre-COVID levels.”

UNFI has spent the last few months trimming its labor force. In October, the company announced it would lay off nearly 300 workers as it transferred certain tasks to a third-party provider. Offices in Phoenix and Lincoln, R.I., are being closed.

UNFI plans to relocate its corporate headquarters to downtown Providence, R.I., at 15 Park Row West in the summer.The wholesale distributor is also facing a class-action lawsuit accusing it of taking advantage of suppliers by applying prompt-pay discounts even when invoices are not paid on time.