United Natural Foods Inc. (UNFI) finished fiscal 2023 on a down note, posting a net loss and a smaller sales gain in the fourth quarter.
The bottom-line result beat Wall Street’s estimate for a slightly larger net loss per share in Q4. But Providence, Rhode Island-based UNFI closed out the year with both quarterly earnings and sales growth declining since Q1.
UNFI said Tuesday that, for the fourth quarter ended July 29, net sales totaled $7.42 billion, up 2% from $7.27 billion in the fiscal 2022 quarter, when the top line rose 8%. The company attributed the uptick mainly to inflation and new business, the latter stemming from sales of new or expanded categories to current customers and adding new clients. A decrease in total units sold partially offset the sales increase, but the unit volume improved by 100 basis points from the third quarter, the UNFI noted. The distributor saw net sales rise 3.7% year over year in Q3.
Full-year 2023 net sales climbed 4.6% to $30.27 billion from $28.93 billion in 2022, when UNFI recorded a 7.3% gain.
“Our fourth-quarter results for sales and capital expenditures were in line with the updated outlook we provided in June, while adjusted EPS and adjusted EBITDA finished towards the high-end of their respective ranges,” UNFI CEO Sandy Douglas told analysts Tuesday in a conference call. (Call transcript provided by AlphaSense.)
Just before the earnings call, UNFI announced a refresh of its board of directors and plans for a board-led financial review of the company, both connected to a new cooperation agreement with JCP Investment Management, whose founder will join the distributor’s board. The moves are expected to tune up UNFI’s financial performance and help drive its transformation plan.
“UNFI has not been immune to the post-COVID, post-inflation challenges that the entire food industry is facing. Despite these challenges, we remain confident in our multiyear value-creation opportunity and our plan to create and capture it,” he said. “We are seeking to build upon our strengthening foundation and market leadership position by investing in the necessary capabilities to create a differentiated technology-enabled food retail services company that generates sustainable growth, profitability and shareholder value.”
Supernatural segment spurs wholesale business
Growth in UNFI’s customer channels was led by the supernatural category—Whole Foods Market, the wholesaler’s largest single customer—as fourth-quarter net sales surged 9.5% year over year to $1.56 billion (+11.5% to $6.37 billion in fiscal 2023). Chain retailers, UNFI’s biggest customer channel, saw Q4 net sales inch up 0.5% to $3.14 billion (+2% to $12.82 billion for fiscal 2023).
In UNFI’s independent retailer category, fourth-quarter net sales edged up 1.3% to $1.9 billion (+4.6% to $7.7 billion in fiscal 2023). Sales in the Other channel—including international customers outside Canada, foodservice, e-commerce, conventional military business and additional sales—fell 3.7% to $593 million in Q4 but were up 3.1% to $2.48 billion for the full year.
“Sales from our three primary wholesale channels grew by nearly 3%, including the impact of inflation of nearly 6%, with Supernatural growing the fastest at over 9%. This includes incremental volume from new customers added over the last year, additional categories and new store openings in Supernatural, and increased item and category penetration with existing customers,” Chief Financial Officer John Howard said in the call. “Unit volumes remained negative but improved sequentially by about 100 basis points from Q3 and were slightly better than Nielsen’s total U.S. food volume changes, which is representative of performance for the grocery industry as a whole.”
UNFI’s Retail channel, including Cub Foods and Shoppers stores, saw net sales dip 1.9% year over year to $609 million in the fourth quarter but eke out a 0.5% increase to $2.48 billion for full-year 2023.
“Retail sales declined [about] 2% compared to last year’s fourth quarter, primarily driven by lower unit volumes, partly offset by higher average unit retail prices,” according to Howard. “We’ve continued to experience pressure across our retail footprint, primarily located in the Minneapolis/St. Paul market, due in large part to tightening consumer demand, reductions in government support programs and more intense competition on price.”
He added that UNFI opened one new store during the fourth quarter, lifting the total number of locations opened in fiscal 2023 to six stores. As of the previous quarter, the Retail segment included 54 Cub Foods and 22 Shoppers stores.
Quarterly loss tarnishes bottom line
At the bottom line, UNFI posted a 2023 fourth-quarter net loss of $68 million, or $1.15 per diluted share, compared with net income $39 million, or 63 cents per diluted share, a year ago.
Excluding a $36 million pretax LIFO charge; $25 million in asset sale and other asset charges; $9 million in business transformation costs; and $7 million in restructuring, acquisition and acquisition-related expenses, among other items, the adjusted net loss per share was 25 cents versus net earnings of $1.27 in the 2022 quarter. Analysts, on average, had forecast an adjusted net loss of 28 cents per share, with estimates ranging from a 75-cent net loss per share to adjusted net EPS of 80 cents, according to Refinitiv.
Full-year net income totaled $24 million, or 40 cents per diluted share, compared with $248 million, or $4.07 per diluted share, in 2022. Adjusted net earnings for 2023 were $136 million, or $2.23 per diluted share, versus $295 million, or $4.83 per diluted share, in 2022, UNFI reported. Wall Street’s consensus estimate was for fiscal 2023 adjusted EPS of $2.06, with projections running from $1.72 to $2.24, according to Refinitiv.
For fiscal 2024, UNFI forecasts a reported net loss per share of $1.86 to 60 cents and, on an adjusted basis, a net loss of 88 cents to net EPS of 38 cents. Net sales are projected at $30.9 billion to $31.5 billion. Analysts’ average projection is for adjusted EPS of $2.569, with estimates ranging from $1.14 to $3.67, on revenue of $30.2 billion to $30.42 billion.
“From a cadence perspective, we would expect our [fiscal 2024] first quarter to be the lowest of the year, and absolute adjusted EBITDA dollar terms are likely to be similar to the adjusted EBITDA level we generated during Q4 2023,” Howard added in the call. “Our first quarter is expected to have the largest percentage decline compared to last year, as we cycle last year’s elevated level of procurement gains and further build the benefits of our near-term profitability initiatives.”