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UNFI’s business strategy already proving its worth

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UNFI’s business strategy already proving its worth

With its three-year business strategy now in full swing and a natural and organic food business that continues to gain momentum, United Natural Foods, Inc., had a robust finish to fiscal year 2024.

UNFI released fourth quarter earnings on Tuesday, finishing the fiscal year in the upper end of outlook ranges for key financial metrics and sequentially increasing profitability for a fourth consecutive quarter.

Net sales increased 10% to $8.2 billion, which includes an approximate $582 million benefit from an additional week in fiscal year 2024. Excluding the additional week sales increased 2.1% driven by improving unit volumes which turned positive toward the end of the fourth quarter.

Gross profit in Q4 rose 15.5% year over year at $1.1 billion. On a comparable 13-week basis gross profit grew 7%. Adjusted EBITDA increased 53.8% year over year to $143 million.

UNFI’s stock price soared on Tuesday — up over 25% — following the earnings report as the company also projected fiscal year 2025 sales to be in the range of $30.3 billion to $30.8 billion.

Free cash flow in the fourth quarter was $71 million, which is a decrease year over year but enabled the company to reduce net debt to under $2.1 billion.

UNFI is also moving volume from its Billings, Mont., and Bismarck, N.D., distribution centers into nearby facilities. The Billings and Bismarck distribution centers will be closed and sold which will also help UNFI repay debt.

The Fargo, N.D., distribution center will also provide access to a broader product assortment and will enable suppliers to reach more customers out of a single distribution center, UNFI CEO Sandy Douglas said during the call, resulting in both customer and supplier benefits and helping reduce the capital intensity of UNFI’s conventional network while lowering operating costs.

Network optimization strategy is a core part of UNFI’s three-year plan. A distribution center will also open in Manchester, Pa., which will employ  new technology and will be automated sometime next spring.

Capital intensity for the company is on the decline. UNFI expects capital investments to be around $300 million in fiscal year 2025, a decrease of $70 million compared to fiscal year 2024. The reduced intensity is driven by a shift in spending based on asset utilization and wear and tear rather than a calendar approach where maintenance dollars are spent on a regular cadence with less focus on need.

UNFI announced a three-year plan earlier in the fiscal year that aims to increase customer and supplier value, expand margins, generate free cash flow, and reduce leverage.

“We are confident that our new strategy and multiyear financial objectives, informed by our ongoing board and management-led financial review, will continue to drive accelerating performance and creates sustainable value for our customers and suppliers alongside our shareholders,” Douglas said during the earnings call.

UNFI’s revamped commercial go-to-market program for suppliers allows for the streamlining of 15 to 20 unique fees into one, and the program is providing suppliers access to enhanced data and insights.

“We have a sizable base of suppliers…that are now enrolled in the new go-to-market model and are already seeing early returns, faster growth, and less friction,” said Douglas.

Douglas also pointed to a declining inflation rate and a shopper eager for more natural and organic products. UNFI’s wholesale volume improvement turned positive in week 49 of the 52-week fiscal year “largely driven by the natural side of our business,” Matteo Tarditi, president and CFO of UNFI, said during the call.

UNFI is seeing natural and organic and specialty retailers growing faster than natural conventional retailers. Ethnic retailers are also performing well.

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