United Natural Foods, Inc. Reports Second Quarter Fiscal 2020 Results

13-Week Period Ended

($ in millions, except per share data)

February 1,
2020

January 26,
2019

% Change

Net Sales

$

6,138

$

6,149

(0.2)

%

Supermarkets channel⁽¹⁾

$

3,879

$

3,928

(1.2)

%

Supernatural channel

$

1,210

$

1,100

10.0

%

Independents channel⁽¹⁾

$

631

$

675

(6.5)

%

Other channel⁽¹⁾

$

418

$

446

(6.3)

%

Net Loss

$

(31)

$

(342)

Adjusted EBITDA⁽²⁾

$

131

$

143

Net Loss Per Diluted Share (EPS)

$

(0.57)

$

(6.72)

Adjusted Earnings Per Diluted Share (EPS)⁽²⁾

$

0.32

$

0.44

(1)

During the first quarter of fiscal 2020, the presentation of net sales by customer channel was adjusted to reflect reclassification of customer types resulting from management's determination that a customer serviced by both Supervalu and legacy UNFI should be classified as a Supermarket customer given that customer's operations. During the second quarter of fiscal 2020, the presentation of net sales by customer channel was adjusted to reflect conventional military sales within Other instead of Independents based on management's determination to better reflect the focus of its ongoing business and the definition of customer channels. There was no impact to the Condensed Consolidated Statements of Income as a result of the reclassification of customer types. As a result of these adjustments, net sales to the Company's Supermarkets channel for the second quarter of fiscal 2019 increased approximately $26 million compared to the previously reported amounts, while net sales to the Other channel for the second quarter of fiscal 2019 increased $109 million compared to previously reported amounts. Net sales to the Company's Independents channel for the second quarter of fiscal 2019 decreased $135 million compared to the previously reported amounts. In addition, net sales to the Company's Other channel for the first quarter of fiscal 2020 increased $90 million compared to the previously reported amounts, with an offsetting elimination to the Independents channel.

(2)

Please refer to the tables in this press release for a reconciliation of these non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with U.S. GAAP. 

Net Sales ($ in billions)

$23.5 - $24.3

Net Loss ($ in millions)

$(395) - $(363)

Loss Per Share (EPS)

$(7.39) - $(6.79)

Adjusted Earnings Per Diluted Share (EPS) ^{(2) (3)}

$0.85 - $1.45

Adjusted EBITDA⁽³⁾ ($ in millions)

$520 - $560

(1)

The outlook provided above is for fiscal 2020.  This outlook is forward-looking, is based on management's current estimates and expectations and is subject to a number of risks, including many that are outside of management's control.  See cautionary language below. 

(2)

Beginning with periods ending after August 3, 2019, the Company is using an adjusted effective tax rate in calculating Adjusted EPS.  The adjusted effective tax rate will be calculated based on adjusted net income before tax.  It also excludes the potential impact of changes to uncertain tax positions, valuation allowances, stock compensation accounting (ASU 2016-09) and discrete GAAP tax items which could impact the comparability of the operational effective tax rate.  The Company believes using this adjusted effective tax rate will provide better consistency across the interim reporting periods since each of these discrete items can cause volatility in the GAAP tax rate that is not indicative of the underlying ongoing operations of the Company.  By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's effective tax rate on ongoing operations.

(3)

Please refer to the tables in this press release for a reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(In thousands, except for per share data)

13-Week Period Ended

26-Week Period Ended

February 1,
2020

January 26,
2019

February 1,
2020

January 26,
2019

Net sales

$

6,137,604

$

6,149,206

$

12,157,189

$

9,017,362

Cost of sales

5,362,144

5,387,423

10,610,687

7,843,248

Gross profit

775,460

761,783

1,546,502

1,174,114

Operating expenses

750,845

751,922

1,526,259

1,115,087

Goodwill and asset impairment charges

?

370,871

425,405

370,871

Restructuring, acquisition and integration related expenses

29,686

47,125

43,936

115,129

Operating loss

(5,071)

(408,135)

(449,098)

Other expense (income):

Net periodic benefit income, excluding service cost

(3,277)

(10,906)

(14,661)

(11,750)

Interest expense, net

48,621

58,707

98,139

66,232

Other, net

(520)

(824)

(566)

(727)

Total other expense, net

44,824

46,977

82,912

53,755

Loss from continuing operations before income taxes

(49,895)

(455,112)

(532,010)

(480,728)

Benefit for income taxes

(17,728)

(91,809)

(91,481)

(96,064)

Net loss from continuing operations

(32,167)

(363,303)

(440,529)

(384,664)

Income from discontinued operations, net of tax

2,107

21,407

27,061

23,477

Net loss including noncontrolling interests

(30,060)

(341,896)

(413,468)

(361,187)

Less net (income) loss attributable to noncontrolling interests

(650)

171

(1,169)

168

Net loss attributable to United Natural Foods, Inc.

$

(30,710)

$

(341,725)

$

(414,637)

$

(361,019)

Basic (loss) earnings per share:

Continuing operations

$

(0.60)

$

(7.15)

$

(8.25)

$

(7.59)

Discontinued operations

$

0.03

$

0.42

$

0.49

$

0.46

Basic loss per share

$

(0.57)

$

(6.72)

$

(7.77)

$

(7.12)

Diluted (loss) earnings per share:

Continuing operations

$

(0.60)

$

(7.15)

$

(8.25)

$

(7.59)

Discontinued operations

$

0.03

$

0.42

$

0.48

$

0.46

Diluted loss per share

$

(0.57)

$

(6.72)

$

(7.77)

$

(7.12)

Weighted average shares outstanding:

Basic

53,523

50,815

53,368

50,699

Diluted

53,523

50,815

53,368

50,699

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(In thousands, except for per share data)

February 1,
2020

August 3,
2019

ASSETS

Cash and cash equivalents

$

40,064

$

42,350

Accounts receivable, net

1,074,941

1,065,699

Inventories

2,134,905

2,089,416

Prepaid expenses and other current assets

224,174

226,727

Current assets of discontinued operations

145,369

143,729

Total current assets

3,619,453

3,567,921

Property and equipment, net

1,470,704

1,639,259

Operating lease assets

1,061,946

?

Goodwill

19,734

442,256

Intangible assets, net

978,170

1,041,058

Deferred income taxes

96,044

31,087

Other assets

108,470

107,319

Long-term assets of discontinued operations

327,905

352,065

Total assets

$

7,682,426

$

7,180,965

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable

$

1,462,843

$

1,476,857

Accrued expenses and other current liabilities

245,800

249,426

Accrued compensation and benefits

164,112

148,296

Current portion of operating lease liabilities

131,315

?

Current portion of long-term debt and finance lease liabilities

32,218

112,103

Current liabilities of discontinued operations

122,761

122,265

Total current liabilities

2,159,049

2,108,947

Long-term debt

2,917,131

2,819,050

Long-term operating lease liabilities

967,933

?

Long-term finance lease liabilities

56,799

108,208

Pension and other postretirement benefit obligations

205,651

237,266

Deferred income taxes

1,041

1,042

Other long-term liabilities

275,082

393,595

Long-term liabilities of discontinued operations

646

1,923

Total liabilities

6,583,332

5,670,031

Stockholders' equity:

Preferred stock, $0.01 par value, authorized 5,000 shares; none issued or outstanding

?

?

Common stock, $0.01 par value, authorized 100,000 shares; 54,175 shares issued and 53,560 shares outstanding at 
     February 1, 2020; 53,501 shares issued and 52,886 shares outstanding at August 3, 2019

542

535

Additional paid-in capital

535,900

530,801

Treasury stock at cost

(24,231)

(24,231)

Accumulated other comprehensive loss

(108,420)

(108,953)

Retained earnings

698,269

1,115,519

Total United Natural Foods, Inc. stockholders' equity

1,102,060

1,513,671

Noncontrolling interests

(2,966)

(2,737)

Total stockholders' equity

1,099,094

1,510,934

Total liabilities and stockholders' equity

$

7,682,426

$

7,180,965

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

26-Week Period Ended

(In thousands)

February 1,
2020

January 26,
2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss including noncontrolling interests

$

(413,468)

$

(361,187)

Income from discontinued operations, net of tax

27,061

23,477

Net loss from continuing operations

(440,529)

(384,664)

Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:

Depreciation and amortization

144,360

97,993

Share-based compensation

3,951

14,511

Loss (gain) on disposition of assets

1,269

(60)

Closed property and other restructuring charges

16,907

20,701

Goodwill and asset impairment charges

425,405

370,871

Net pension and other postretirement benefit income

(14,633)

(11,750)

Deferred income tax benefit

(60,260)

(65,605)

LIFO charge

12,943

6,265

Provision for doubtful accounts

45,503

7,958

Loss on debt extinguishment

73

2,117

Non-cash interest expense

7,393

4,298

Changes in operating assets and liabilities, net of acquired businesses

(151,247)

(62,679)

Net cash used in operating activities of continuing operations

(8,865)

(44)

Net cash provided by operating activities of discontinued operations

47,947

25,910

Net cash provided by operating activities

39,082

25,866

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(84,627)

(80,137)

Purchases of acquired businesses, net of cash acquired

?

(2,281,934)

Proceeds from dispositions of assets

11,737

168,274

Payments for long-term investment

(162)

(110)

Payments of company owned life insurance premiums

(1,310)

?

Other

?

363

Net cash used in investing activities of continuing operations

(74,362)

(2,193,544)

Net cash provided by investing activities of discontinued operations

16,677

44,263

Net cash used in investing activities

(57,685)

(2,149,281)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from borrowings of long-term debt

2,050

1,905,000

Proceeds from borrowings under revolving credit line

2,269,989

2,698,604

Repayments of borrowings under revolving credit line

(2,162,821)

(1,666,600)

Repayments of long-term debt and finance leases

(93,326)

(713,366)

Proceeds from the issuance of common stock and exercise of stock options

2,027

118

Payment of employee restricted stock tax withholdings

(872)

(3,141)

Payments for debt issuance costs

?

(64,519)

Net cash provided by financing activities of continuing operations

17,047

2,156,096

Net cash used in financing activities of discontinued operations

(1,398)

(254)

Net cash provided by financing activities

15,649

2,155,842

EFFECT OF EXCHANGE RATE CHANGES ON CASH

19

(1,868)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(2,935)

30,559

Cash and cash equivalents, at beginning of period

45,263

23,315

Cash and cash equivalents at end of period

42,328

53,874

Less: cash and cash equivalents of discontinued operations

(2,264)

(4,359)

Cash and cash equivalents

$

40,064

$

49,515

Supplemental disclosures of cash flow information:

Cash paid for interest

$

94,010

$

66,016

Cash (refunds) payments for federal and state income taxes, net

$

(24,376)

$

13,449

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

UNITED NATURAL FOODS, INC.

Reconciliation of Net loss per Diluted Common Share to Adjusted Net income per Diluted Common Share (unaudited)

13-Week Period Ended

26-Week Period Ended

February 1,
2020

January 26,
2019

February 1,
2020

January 26,
2019

Net loss attributable to UNFI per diluted common share

$

(0.57)

$

(6.72)

$

(7.77)

$

(7.12)

Goodwill and asset impairment charges⁽¹⁾

?

7.30

7.97

7.32

Restructuring, acquisition and integration related 
     expenses⁽²⁾

0.55

0.93

0.82

2.27

Pension settlement charge⁽³⁾

0.19

?

0.19

?

Surplus property depreciation and interest expense⁽⁴⁾

0.04

?

0.12

?

Note receivable charges⁽⁵⁾

?

?

0.23

?

Loss on debt extinguishment⁽⁶⁾

?

0.02

?

0.04

Interest expense on senior notes⁽⁷⁾

?

0.05

?

0.06

Inventory fair value adjustment⁽⁸⁾

?

0.17

?

0.21

Legal (settlement income) reserve charge⁽⁹⁾

(0.01)

?

0.02

?

Discontinued operations store closures and other 
     charges, net⁽¹⁰⁾

0.58

0.25

0.60

0.24

Tax impact of adjustments and adjusted effective tax 
     rate⁽¹¹⁾

(0.46)

(1.54)

(1.73)

(1.97)

Impact of diluted shares⁽¹²⁾

?

?

?

(0.01)

Adjusted net income per diluted common share⁽¹¹⁾

$

0.32

$

0.44

*

$

0.45

$

1.04

* Includes rounding

(1)

Fiscal 2020 year-to-date reflects a goodwill impairment charge attributable to a reorganization of our reporting units and a sustained decrease in market capitalization and enterprise value of the Company, resulting in a decline in the estimated fair value of the U.S. Wholesale reporting unit. In addition, this charge includes a goodwill finalization charge attributable to the SUPERVALU acquisition and an asset impairment charge. Fiscal 2019 year-to-date reflects a goodwill impairment charge attributable to the SUPERVALU acquisition.

(2)

Fiscal 2020 year-to-date primarily reflects integration charges, closed property reserve charges and administrative and operational restructuring costs. Fiscal 2019 year-to-date primarily reflects expenses resulting from the acquisition of SUPERVALU and acquisition and integration expenses, including employee-related costs.

(3)

Reflects a non-cash pension settlement charge associated with the acceleration of a portion of the accumulated unrecognized actuarial loss as a result of the lump sum settlement payments.

(4)

Reflects surplus, non-operating property depreciation and interest expense, including accelerated depreciation related to a location on which we recognized a gain that is included in Restructuring, acquisition and integration related expenses.

(5)

Reflects reserves and charges for notes receivable issued by the SUPERVALU business prior to its acquisition to finance the purchase of stores by its customers.

(6)

Reflects non-cash charges related to the acceleration of unamortized debt issuance costs due to term loan prepayments and extinguishment charges from the Company's term loan, which was in place prior to the acquisition of SUPERVALU.

(7)

Interest expense recorded on the SUPERVALU senior notes in the mandatory 30-day redemption notice period.

(8)

Reflects a non-cash charge related to the step-up in inventory values as part of purchase accounting.

(9)

Reflects income received to settle a legal proceeding, a charge to settle a legal proceeding and a charge related to our assessment of legal proceedings.

(10)

Amounts represent store closure charges and costs, operational wind-down and inventory charges, and asset impairment charges related to discontinued operations.

(11)

Represents the tax effect of the pre-tax adjustments and beginning in the first quarter of fiscal 2020 an adjustment to utilize an adjusted effective tax rate to calculate Adjusted EPS. The adjusted effective tax rate is calculated based on adjusted net income before tax, and its impact reflects the exclusion of changes to uncertain tax positions, valuation allowances, tax impacts related to the exercise of share-based compensation awards and discrete GAAP tax items which could impact the comparability of the operational effective tax rate. The Company believes using this adjusted effective tax rate will provide better consistency across the interim reporting periods since each of these discrete items can cause volatility in the GAAP tax rate that is not indicative of the true operations of the Company. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's effective tax rate on ongoing operations. For the second quarter of fiscal 2020 and fiscal 2020 year-to-date, the use of the effective tax rate methodology used in fiscal 2019 to calculate Adjusted EPS would have resulted in the tax impact of adjustments being ($0.54) and ($1.82) per diluted share, respectively, and Adjusted EPS of $0.24 and $0.36, respectively. If the Company had utilized an adjusted effective tax rate in calculating Adjusted EPS in the second quarter of fiscal 2019 and fiscal 2019 year-to-date, the tax impact of adjustments using the adjusted effective tax rate would have been ($1.78) and ($2.13) per diluted share, respectively, and Adjusted EPS would have been $0.20 and $0.88 per diluted share, respectively.

(12)

The computation of diluted earnings per share is calculated using diluted weighted average shares outstanding, which includes the net effect of dilutive stock awards.

Reconciliation of Net loss from continuing operations and Income from discontinued operations, net of tax to Adjusted EBITDA (unaudited)

13-Week Period Ended

26-Week Period Ended

(in thousands)

February 1,
2020

January 26,
2019

February 1,
2020

January 26,
2019

Net loss from continuing operations

$

(32,167)

$

(363,303)

$

(440,529)

$

(384,664)

Adjustments to continuing operations net loss:

Total other expense, net

44,824

46,977

82,912

53,755

Benefit for income taxes

(17,728)

(91,809)

(91,481)

(96,064)

Depreciation and amortization

69,219

73,200

144,360

97,993

Share-based compensation

4,880

10,423

8,552

18,512

Restructuring, acquisition and integration related expenses

29,686

47,125

43,936

115,129

Goodwill and asset impairment charges

?

370,871

425,405

370,871

Note receivable charges

?

?

12,516

?

Inventory fair value adjustment

?

8,644

?

10,463

Legal (settlement income) reserve charge

(654)

?

1,196

?

Adjusted EBITDA of discontinued operations⁽¹⁾⁽²⁾

33,050

40,446

65,937

42,772

Adjusted EBITDA

$

131,110

$

142,574

$

252,804

$

228,767

Income from discontinued operations, net of tax⁽¹⁾⁽²⁾

$

2,107

$

21,407

$

27,061

$

23,477

Adjustments to discontinued operations net income:

Less net income attributable to noncontrolling interests

(650)

171

(1,169)

168

Total other expense, net

41

(339)

(1,050)

(588)

Provision for income taxes

286

5,239

8,376

5,987

Other expense

?

378

?

238

Share-based compensation

253

532

506

532

Restructuring, store closure and other charges, net⁽³⁾

31,013

13,058

32,213

12,958

Adjusted EBITDA of discontinued operations⁽¹⁾⁽²⁾

$

33,050

$

40,446

$

65,937

$

42,772

(1)

In the third quarter of fiscal 2019, UNFI expanded its GAAP reconciliations to provide additional supplemental information regarding its adjustments within discontinued operations to arrive at the consolidated measure of Adjusted EBITDA. Previously, these line items were presented together as Net (loss) income attributable to United Natural Foods, Inc. These lines have been separated to provide for a separate presentation of the adjustments included within Adjusted EBITDA related to discontinued operations. This additional information had no impact on the previously presented calculation and definition of Adjusted EBITDA. For additional information regarding our discontinued operations, refer to UNFI's Annual Report on Form 10-K for the year ended August 3, 2019.

(2)

Adjusted EBITDA of discontinued operations excludes rent expense of $11.0 million and $12.4 million in the second quarters of fiscal 2020 and 2019, respectively, and $23.5 million and $13.3 million in fiscal 2020 and 2019 year-to-date, respectively, of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases. Due to these GAAP requirements to show rent expense, along with other administrative expenses of discontinued operations within continuing operations, UNFI believes the inclusion of discontinued operations results within Adjusted EBITDA provides investors a meaningful measure of total performance.

(3)

Amounts represent store closure charges and costs, operational wind-down and inventory charges, and asset impairment charges related to discontinued operations.

Reconciliation of 2020 Guidance for Estimated Net Loss per diluted Common Share to

Estimated Non-GAAP Adjusted Net Income per diluted Common Share (unaudited)

Fiscal Year Ending August 1, 2020

Low Range

Estimate

High Range

Net loss attributable to United Natural Foods, Inc. per diluted common share

$

(7.39)

$

(6.79)

Goodwill and asset impairment charges

7.97

Restructuring, acquisition and integration related costs

0.97

Note receivable charges

0.23

Pension settlement charge

0.19

Surplus property depreciation and interest expense

0.20

Legal settlement income, reserve charge

0.02

Discontinued operations store closures and other charges, net

0.62

Tax impact of adjustments and adjusted effective tax rate⁽¹⁾

(1.96)

Adjusted net income per diluted common share⁽²⁾⁽³⁾

$

0.85

$

1.45

(1)

The impact of the adjusted effective tax rate represents approximately $(0.20) of the $(1.96).

(2)

Fiscal year ending August 1, 2020 Adjusted net income per diluted common share includes results reflected in our discontinued operations related to a full year of operations of Cub Foods. 

(3)

The estimated adjusted effective tax rate excludes the potential impact of changes in uncertain tax positions, tax impacts related to ASU 2006-09 regarding stock compensation and valuation allowances. Refer to the reconciliation for adjusted effective tax rate.

Reconciliation of 2020 Guidance for Net loss Attributable to United Natural Foods, Inc. to Adjusted EBITDA (unaudited)

Fiscal Year Ending August 1, 2020

(in thousands)

Low Range

Estimate

High Range

Net loss attributable to United Natural Foods, Inc.

$

(395,000)

$

(363,000)

Benefit for income taxes

(81,000)

(73,000)

Goodwill and asset impairment charges

425,000

Restructuring, acquisition and integration related costs⁽¹⁾

52,000

Note receivable charges

13,000

Pension settlement charge

10,000

Closed property depreciation and interest expense

10,000

Legal settlement income, reserve charge

2,000

Discontinued operations store closures and other charges, net

33,000

Net interest expense

191,000

Other (income) expense, net

(2,000)

Depreciation and amortization

278,000

Share-based compensation

33,000

Net periodic benefit income, excluding service costs

(49,000)

Adjusted EBITDA⁽²⁾

$

520,000

$

560,000

(1)

Excludes potential future costs and charges associated with divestitures of retail banners.

(2)

Fiscal year ending August 1, 2020 Adjusted EBITDA includes results reflected in our Discontinued Operations related to a full year of operations of Cub Foods.

Reconciliation of Estimated 2020 and Actual 2020 U.S. GAAP Effective Tax Rate to Adjusted Tax Rate (unaudited)

Estimated
Fiscal 2020

Actual Fiscal
2019

U.S. GAAP Effective Tax Rate

16

%

18

%

Discrete quarterly recognition of GAAP items⁽¹⁾

2

%

(2)

%

Tax impact of other charges and adjustments⁽²⁾

(6)

%

?

%

Changes in valuation allowances⁽³⁾

5

%

?

%

Impact of Goodwill Impairment

9

%

11

%

Other⁽⁴⁾

3

%

?

%

Adjusted Effective Tax Rate

29

%

27

%

Note: As part of the year-end reconciliation, we will update the reconciliation of the GAAP effective tax rate for actual results.

(1)

Reflects changes in tax laws, uncertain tax positions, the tax impacts related to the exercise of share-based compensation awards and any prior-year audit adjustments.

(2)

Reflects the tax impact of pre-tax adjustments that are excluded from pre-tax income when calculating adjusted earnings per share.

(3)

Reflects changes in valuation allowances related to changes in judgment regarding the realizability of deferred tax assets or current year operations.

(4)

Tax impacts related to full-year forecasted tax opportunities and related costs.  The Company establishes an estimated Adjusted Effective Tax Rate at the beginning of the fiscal year based on the best available information. The Company will re-evaluate its estimated Adjusted Effective Tax Rate as appropriate throughout the year and adjust for any material changes. The actual Adjusted Effective Tax Rate at the end of the fiscal year will be based on actual results and may differ from the estimated Adjusted Effective Tax Rate used during the year.