UNFI starts off fiscal 2024 with flattish Q1 sales, net loss

United Natural Foods Inc. (UNFI) began fiscal 2024 by continuing trends of shrinking net sales growth and poor earnings in the first quarter, despite posting a smaller earnings-per-share loss than projected by Wall Street.

For the quarter ended Oct. 28, net sales came in virtually flat, up 0.3% to $7.55 billion from $7.53 billion a year earlier, when the top line rose 7.6%, Providence, Rhode Island-based UNFI said Wednesday.

The grocery distributor attributed the Q1 2024 uptick to inflation and new business with current customers—namely Amazon-owned Whole Foods Market, which constitutes the wholesaler’s Supernatural channel. A unit sales decrease in the quarter offset much of the gain, but the company noted that it saw a 60-basis-point improvement in unit volume from the fiscal 2023 fourth quarter.

Only UNFI’s Supernatural and Other wholesale business units posted net sales increases in Q1. Sales for Supernatural totaled $1.61 billion, up 6.5% year over year, compared with a 9.8% gain in the 2023 quarter. At the Other unit—including international customers outside Canada, foodservice, e-commerce, conventional military and other business—sales inched up 1.7% to $646 million, down from year-ago growth of 9.5%.

UNFI’s largest business unit, Chains (retail customers with more than 10 stores), saw first-quarter net sales decline 1.2% to $3.18 billion versus a prior-year increase of 4.6%. Meanwhile, sales at the Independent grocery business segment (retail customers with fewer than 10 stores) fell 2.5% to $1.9 billion, compared with an 11.3% jump in the fiscal 2023 quarter.

Related:UNFI taps Andre Persaud as retail president and CEO

First-quarter net sales at UNFI’s Retail segment—the Cub Foods and Shoppers supermarket chains—dipped 1.1% to $606 million versus a 1.8% gain in the year-ago period. That marked the third straight quarterly sales decline for UNFI’s retail business includes 54 Cub Foods and 22 Shoppers supermarkets.

UNFI CEO notes “challenging industry backdrop”

“Net sales increased by 0.3% to [approximately] $7.6 billion, the largest first-quarter sales result in our history. Wholesale growth reflected the benefit of inflation, which was nearly offset by a decline in unit sold,” Chief Financial Officer John Howard told analysts Wednesday in a conference call. (Call transcript provided by AlphaSense.)

“Sales in our retail business declined by slightly more than 1% as we continue to be impacted by a difficult macro and industry environment. As we announced in late October, we have a new CEO leading retail and remain optimistic that we’ll be able to work with our suppliers, franchisees and our associates to sustainably improve performance as we move forward,” Howard said, citing UNFI’s appointment last month of Andre Persaud as president and CEO of retail.

Related:UNFI rolls out zero-emission trucks and cold trailers in Northern California

In the call, UNFI CEO Sandy Douglas noted an “industry backdrop that continues to be challenging.” Inflation rates are receding on a sequential basis, but consumers are still grappling with the impact of “structurally higher food prices,” he explained.

“We saw inflation decline by over 200 basis points compared to last fiscal year’s fourth quarter, but it remains modestly above historical levels. To manage these higher prices, consumers continue to buy less and shift their purchases away from the grocery channel. This has led to negative volumes on average across the retail food industry and share gains by mass merchandisers and discounters,” Douglas said.

“These challenges create even greater urgency for us to be successful in both our short-term and longer-term transformation efforts so that we can help our retail customers remain as competitive as possible as the environment continues to evolve,” he continued. “Many of our customers are performing well, even in this environment, but all of them need UNFI and our supplier partners to step up for them. Our revamped leadership team is rising to this challenge, gaining even more UNFI experience and starting to drive tangible operating improvement. We expect this will increasingly benefit our financial performance throughout the remainder of fiscal 2024 and beyond as we manage for the short-term and build for the future.”

Related:UNFI President Christopher Testa to depart

Push for improved profitability continues

At the bottom line, UNFI reported a fiscal 2024 first-quarter net loss (attributable to the company) of $39 million, or 67 cents per diluted share, compared with net income of $66 million, or $1.07 per diluted share, a year ago. The loss reflected a $15 million in business transformation costs, a $14 million loss on the sale of assets and related charges, a $7 million LIFO charge, $4 million in restructuring- and integration-related expenses, plus other items.

On an adjusted basis, UNFI recorded a net loss of $2 million, or 4 cents per diluted share, versus net earnings of $70 million, or $1.13 per diluted share, in the prior-year period.

Analysts, on average, had forecast an adjusted net loss of 31 cents per share for UNFI’s Q1 2024, with per-share estimates ranging from a loss of 44 cents to a loss of 1 cent, according to Refinitiv.

Adjusted EBITDA for the 2024 first quarter totaled $117 million, down from $207 million a year earlier but, Douglas noted, marking an improvement from Q4 2023.

“Our first-quarter results exceeded our expectations and reflected a sequential improvement in adjusted EBITDA of $24 million,” he told analysts in the call. “This resulted from improved operational execution and progress on near-term value creation initiatives, which helped deliver savings earlier in the year than we previously expected.”

Looking ahead, UNFI lowered its full-year fiscal 2024 earnings guidance to a reported net loss of between $2.02 and 76 cents per share. However, the company reaffirmed its adjusted EPS forecast of a net loss of 88 cents to net EPS of 38 cents as well as its net sales projection of $30.9 billion to $31.5 billion for 2024.

Analysts’ consensus forecast is for a 2024 adjusted net loss of 2 cents per share, with estimates running from a loss of 51 cents per share to earnings of 13 cents per share, on revenue of $30.83 billion to $31.46 billion, according to Refinitiv.

“We’re rapidly realizing our near-term value creation initiatives and continue to expect these will deliver about $150 million of operating efficiencies to our fiscal 2024 results,” Douglas said in the call. “Importantly, some of these initiatives—particularly the wholesale efficiency actions we’ve taken—also help lay the groundwork for our longer-term transformation aspirations, giving us increased confidence as we move down this path.”