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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549______________________
FORM 8-K
CURRENT REPORTPursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 5, 2019
UNITED NATURAL FOODS, INC.(Exact Name of Registrant as Specified in its Charter)
Delaware 001-15723 05-0376157
(State or Other Jurisdiction of Incorporation) (Commission File Number) (I.R.S. Employer Identification No.)
313 Iron Horse Way, Providence, RI 02908(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (401) 528-8634
N/A(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On March 5, 2019 , United Natural Foods, Inc., a Delaware corporation (the "Company"), issued a press release to report its financial results for the second fiscal quarter ended January 26, 2019 . The press release isfurnished as Exhibit 99.1 hereto. The Company also released an investor presentation, which is furnished as Exhibit 99.2 hereto.
The information contained in the Current Report on Form 8-K, including the exhibits attached hereto, shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Actof 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or under theExchange Act, regardless of any general incorporation language in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. Description 99.1 Press Release of United Natural Foods, Inc. dated March 5, 201999.2 Investor Presentation dated March 5, 2019
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
UNITED NATURAL FOODS, INC.
By: /s/ Michael P. ZechmeisterName: Michael P. ZechmeisterTitle: Chief Financial Officer
Date: March 5, 2019
March 5, 2019
UNITED NATURAL FOODS, INC. REPORTS SECOND QUARTER FISCAL 2019 RESULTS
Fiscal 2019 Guidance Updated
Providence, Rhode Island- March 5, 2019 -- United Natural Foods, Inc. (NYSE: UNFI) (the "Company" or "UNFI") today r eported financial results for the second quarter of fiscal 2019 ended January 26, 2019 .
Second Quarter Fiscal 2019 Highlights
• Net Sales Increased To $6.15 Billion, Including $3.47 Billion From SUPERVALU• Legacy UNFI Sales Increased 5.8%• Results Include $370.9 Million Non-Cash Goodwill Impairment Charge
13-Week Period Ended
($ in thousands, except per share data)January 26,
2019 January 27,
2018 ChangeNet Sales $ 6,149,206 $ 2,528,011 $ 3,621,195Net (Loss) Income $ (341,725) $ 50,486 $ (392,211)Adjusted EBITDA (1) $ 142,573 $ 79,824 $ 62,749(Loss) Earnings Per Diluted Share (EPS) $ (6.72) $ 0.99 $ (7.71)Adjusted EPS (1) $ 0.44 $ 0.71 $ (0.27)
(1) Please refer to the tables in this press release for a reconciliation of non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP.
“I’m pleased by the tremendous work and meaningful progress our team accomplished this quarter on the integration of SUPERVALU and the positioning of UNFI as the premier food distribution company in North America,”said Steven L. Spinner, Chairman and Chief Executive Officer. “We know realizing all the benefits of this combination will take time, and we’re focused on executing against our plan for the long-term. We experienced higherthan anticipated costs, largely associated with our network realignment projects resulting primarily from SUPERVALU's previous acquisitions, which we believe will be short-term in nature. I’m confident we have the peopleand resources focused on this integration and remain optimistic about our drive towards operating as one company with the broadest product selection, services offering and scaled supply chain.”
Second Quarter Fiscal 2019 Summary
Net sales from continuing operations by customer channel for the second quarter of fiscal 2019 compared to the second quarter of fiscal 2018 were as follows ($ in millions):
13-Week Period EndedCustomer Channel (1) Total % Growth Legacy UNFI % Growth January 26, 2019 (2) January 27, 2018Supernatural 18.2% 18.2% $ 1,100 $ 931Independents 25.3% 4.6% 810 646Supermarkets 444.6% (1.4)% 3,902 716Other 44.0% (17.4)% 337 235
Total 143.2% 5.8% $ 6,149 $ 2,528
(1) During the second quarter of fiscal 2019, the presentation of net sales by customer channel was adjusted to reflect changes in the classification of customer types as a result of a detailed review of customer channel definitions. Fiscal 2018 amounts have been restated to reflectthis
change which decreased supermarkets channel net sales by approximately $12 million and other channel net sales by approximately $15 million which were offset by a $27 million increase to independents channel net sales.(2) Net sales by customer channel for the 13-week period ended January 26, 2019 includes SUPERVALU.
Gross margin for the second quarter of fiscal 2019 was 12.39% of net sales and included an $8.6 million , or 0.14% of net sales, inventory fair value adjustment charge related to the acquisition of SUPERVALU. Whenexcluding this charge, gross margin in the second quarter of fiscal 2019 was 12.53% of net sales compared to 14.70% of net sales for the second quarter of fiscal 2018. The decline in the gross margin rate was driven by theaddition of SUPERVALU at a lower gross profit rate as well as a shift in customer mix, including the faster growth of the supernatural channel relative to the other customer channels .
UNFI has elected to move onto the LIFO method of inventory valuation for certain product categories. This, combined with a higher inflation assumption for the combined business, is expected to add an additional $10-$15million in non-cash expense to fiscal 2019 results.
Operating expenses in the second quarter of fiscal 2019 were $751.9 million , or 12.23% of net sales, compared to $320.1 million , or 12.66% of net sales for the second quarter of fiscal 2018. The decrease in operatingexpenses, as a percent of net sales, was driven by the benefit of acquisition synergies.
Restructuring, acquisition, and integration related expenses in the second quarter of fiscal 2019 were $47.1 million including certain charges related to the divestiture of retail banners.
Goodwill and asset impairment charges were $370.9 million in the second quarter of fiscal 2019 resulting from an impairment assessment conducted in the second quarter, which indicated a goodwill impairment attributed tothe SUPERVALU Wholesale reporting unit. Goodwill and asset impairment charges were $11.2 million in the second quarter of fiscal 2018 related to the Company's Earth Origins Market retail business, which was completelydisposed of in the fourth quarter of fiscal 2018. Following this impairment charge, approximately $481.1 million of goodwill remains on the balance sheet.
Operating (loss) income was $(408.1) million in the second quarter of fiscal 2019 and included a goodwill impairment charge of $370.9 million , restructuring, acquisition, and integration related expenses of $47.1 million ,and an $8.6 million inventory fair value adjustment charge associated with the purchase of SUPERVALU. When excluding these items, operating income was $18.5 million , or 0.30% of net sales, in the second quarter of fiscal2019. Operating income in the second quarter of fiscal 2018 was $40.2 million , or 1.59% of net sales and included goodwill and impairment charges of $11.2 million . When excluding these charges, operating income for thesecond quarter of fiscal 2018 was $51.4 million or 2.04% of net sales. The decrease in operating income, as a percent of net sales, was primarily driven by lower gross margins, as a percent of net sales, partially offset by loweroperating expenses, as a percent of net sales.
Adjusted EBITDA for the second quarter of fiscal 2019 was $142.6 million compared to $79.8 million for the second quarter of fiscal 2018 . The increase was predominantly driven by the addition of SUPERVALU.
Interest expense, net for the second quarter of fiscal 2019 was $58.7 million and included expense of $2.5 million related to interest on the now-retired SUPERVALU senior notes and $1.0 million of unamortized debt issuancecosts for certain term loan prepayments made in the quarter with asset sale proceeds. When excluding these amounts, interest expense, net was $55.2 million compared to $4.1 million for the second quarter of fiscal 2018. Theincrease in interest expense, net was driven by the acquisition financing.
Effective tax rate for continuing operations for the second quarter of fiscal 2019 was 20.2% compared to (38.4)% for the second quarter of fiscal 2018. The second quarter of fiscal 2019 effective tax rate reflects a tax benefitbased on consolidated pre-tax loss from continuing operations. In the second quarter of fiscal 2018, the Company recognized a provisional one-time non-cash net tax benefit from the Tax Cuts and Jobs Act of $21.9 millionrepresenting the estimated impact of the remeasurement of U.S. net deferred tax liabilities based on the new lower corporate income tax rate. Excluding this provisional one-time net tax benefit of $21.9 million, the Company’seffective tax rate would have been 21.6% for the second quarter of fiscal 2018.
In February, UNFI made cash tax payments of approximately $59 million in conjunction with anticipated 338g tax elections related to the acquisition of SUPERVALU. These elections allow UNFI to utilize a portion ofSUPERVALU's $2.9 billion capital loss carryforward to generate estimated net cash tax savings of $300 million over the next 15 years.
Net (loss) income for the second quarter of fiscal 2019 was $(341.7) million , including $21.4 million of income related to discontinued operations compared to $50.5 million for the second quarter of fiscal 2018 . The decreasein net income was primarily the result of goodwill and asset impairment charges as well as restructuring, acquisition, and integration related expenses and increased interest expense.
(Loss) Earnings Per Share (EPS) was $(6.72) for the second quarter of fiscal 2019 compared to $0.99 for the second quarter of fiscal 2018 . Adjusted EPS was $0.44 for the second quarter of fiscal 2019 compared to adjustedEPS of $0.71 in the second quarter of fiscal 2018, reflecting lower operating income and higher interest expense.
Debt reduction during the second quarter (compared to first quarter balances) was approximately $120 million with cash from operations, net of capital expenditures, and the proceeds from asset sales. In addition, capital leaseobligations were reduced by approximately $47 million, including $31 million that are now considered long term liabilities.
Fiscal 2019 GuidanceUNFI is updating fiscal 2019 guidance, other than for net sales, to reflect the Company's most recent business performance and outlook, for the 53-week fiscal 2019 (inclusive of SUPERVALU) as follows:
Fiscal Year Ending August 3, 2019 (53 weeks) FY 2019Net Sales ($ in billions) $21.5 - $22.0Earnings Per Share (EPS) $(6.50) - $(6.10)Adjusted Earnings Per Share (EPS) (1) $2.00 - $2.40Net Income ( $ in millions ) $(332) - $(312)Adjusted EBITDA ($ in millions) (1) $580 - $610
(1) Please refer to the tables in this press release for a reconciliation of non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP .
Conference Call and WebcastThe Company's second quarter fiscal 2019 conference call and audio webcast will be held today, Tuesday, March 5, 2019 at 5:00 p.m. ET. A webcast of the conference call (and supplemental materials) will be available to thepublic, on a listen only basis, via the internet at the Investors section of the Company's website www.unfi.com. An online archive of the webcast (and supplemental materials) will be available for 120 days.
About United Natural Foods(NOTE: On October 22, 2018, UNFI completed the acquisition of SUPERVALU INC. For more information on the acquisition, please visit www.bettertogether.unfi.com .)
UNFI is North America’s premier food wholesaler delivering the widest variety of products to customer locations throughout North America including natural product superstores, independent retailers, conventionalsupermarket chains, ecommerce retailers, and food service customers. By providing this deeper ‘full-store’ selection and compelling brands for every aisle, UNFI is uniquely positioned to deliver great food, more choices, andfresh thinking to customers everywhere. Combined with SUPERVALU, UNFI is the largest publicly-traded grocery distributor in America with expected annual sales of over $21 billion. To learn more about how UNFI isMoving Food Forward, visit www.unfi.com .
INVESTOR CONTACT: Steve Bloomquist Vice President, Investor Relations 952-828-4144
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding the Company's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties and arebased on current expectations and management estimates; actual results may differ materially. The risks and uncertainties which could impact these statements are described in the Company's filings under the Securities Exchange Act of 1934, as amended,including its quarterly report on Form 10-Q for the period ended October 27, 2018 filed with the Securities and Exchange Commission (the "SEC") on December 6, 2018 and other filings the Company makes with the SEC, and include, but are not limited to, theCompany's dependence on principal customers; the Company's sensitivity to general economic conditions including changes in disposable income levels and consumer spending trends; the Company’s ability to realize anticipated benefits of its acquisitions anddispositions, in particular, its acquisition of SUPERVALU; the possibility that restructuring, asset impairment, and other charges and costs we may incur in connection with the sale or closure of SUPERVALU's retail operations will exceed current estimates;the potential for additional goodwill impairment charges as a result of purchase accounting adjustments or otherwise; the Company's reliance on the continued growth in sales of higher margin natural and organic foods and non-food products in comparison tolower margin conventional products; increased competition in the Company's industry as a result of increased distribution of natural, organic and specialty products by conventional grocery distributors and direct distribution of those products by large retailersand online distributors; increased competition as a result of continuing consolidation of retailers in the natural product industry and the growth of supernatural chains; the Company's ability to timely and successfully deploy its warehouse management systemthroughout its distribution centers and its transportation management system across the Company and to achieve efficiencies and cost savings from these efforts; the addition or loss of significant customers or material changes to the Company's relationshipswith these customers; volatility in fuel costs; volatility in foreign exchange rates; the Company's sensitivity to inflationary and deflationary pressures; the relatively low margins and economic sensitivity of the Company's business; the potential for disruptions inthe Company's supply chain by circumstances beyond its control; the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise; moderated supplier promotional activity, including decreased forward buyingopportunities; union-organizing activities that could cause labor relations difficulties and increased costs; and the ability to identify and successfully complete acquisitions of other natural, organic and specialty food and non-food products distributors. Anyforward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. The Company is not undertaking to update any information in the foregoing reports until the effective date of itsfuture reports required by applicable laws. Any estimates of future results of operations are based on a number of assumptions, many of which are outside the Company's control and should not be construed in any manner as a guarantee that such results will infact occur. These estimates are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced estimates, but it is not obligated to do so. Non-GAAP Financial Measures: To supplement the financial information presented on a U.S. generally accepted accounting principles (“GAAP”) basis, the Company has included in this press release non-GAAP financial measures for adjusted EBITDA andadjusted earnings per diluted common share. The Company has also included in this press release projected non-GAAP financial measures for estimated adjusted EBITDA and estimated adjusted earnings per diluted common share for the fiscal year endingAugust 3, 2019. The non-GAAP measures adjusted earnings per diluted common share and estimated adjusted earnings per diluted common share exclude goodwill and asset impairment charges, restructuring, acquisition, and integration related expenses, losson debt extinguishment and interest on SUPERVALU's senior notes during their mandatory redemption period, and inventory fair value adjustment expense. The non-GAAP measures adjusted EBITDA and estimated adjusted EBITDA exclude total otherexpense, net, (benefit) provision for income taxes, depreciation and amortization, share-based compensation, goodwill and asset impairment charges, restructuring, acquisition and integration related expenses, and inventory fair value adjustment related to theacquisition of SUPERVALU.
The reconciliation of these non-GAAP financial measures to their comparable GAAP financial measures are presented in the tables appearing below. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as asubstitute for any measure prepared in accordance with GAAP. The Company believes that presenting non-GAAP financial measures aids in making period-to-period comparisons, assessing the underlying operating performance of the Company andunderstanding core business trends, and is a meaningful indication of its actual and estimated operating performance. The Company currently expects to continue to exclude the items listed above from non-GAAP financial measures and may also exclude otheritems that may arise. Management utilizes and plans to utilize these non-GAAP financial measures to compare the Company's operating performance during the 2019 fiscal year to the comparable periods in the 2018 fiscal year and to internally preparedprojections.
UNITED NATURAL FOODS, INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(In thousands, except for per share data)
13-Week Period Ended 26-Week Period Ended
January 26,
2019 January 27,
2018 January 26,
2019 January 27,
2018Net sales $ 6,149,206 $ 2,528,011 $ 9,017,362 $ 4,985,556Cost of sales 5,387,423 2,156,489 7,843,248 4,246,818
Gross profit 761,783 371,522 1,174,114 738,738Operating expenses 751,922 320,076 1,115,087 632,185Goodwill and asset impairment charges 370,871 11,242 370,871 11,242Restructuring, acquisition, and integration related expenses 47,125 — 115,129 —
Operating (loss) income (408,135) 40,204 (426,973) 95,311Other expense (income): Net periodic benefit income, excluding service cost (10,906) — (11,750) —Interest expense, net 58,707 4,137 66,232 7,713Other, net (824) (418) (727) (1,281)
Total other expense, net 46,977 3,719 53,755 6,432(Loss) income from continuing operations before income taxes (455,112) 36,485 (480,728) 88,879
(Benefit) provision for income taxes (91,809) (14,001) (96,064) 7,888Net (loss) income from continuing operations (363,303) 50,486 (384,664) 80,991Income from discontinued operations, net of tax 21,407 — 23,477 —Net (loss) income including noncontrolling interests (341,896) 50,486 (361,187) 80,991Less net loss (income) attributable to noncontrolling interests 171 — 168 —
Net (loss) income attributable to United Natural Foods, Inc. $ (341,725) $ 50,486 $ (361,019) $ 80,991
Basic per share data: Continuing operations $ (7.15) $ 1.00 $ (7.59) $ 1.60Discontinued operations 0.42 — $ 0.46 $ —Basic (loss) income per share $ (6.72) $ 1.00 $ (7.12) $ 1.60
Diluted per share data: Continuing operations $ (7.15) $ 0.99 $ (7.59) $ 1.59Discontinued operations 0.42 — 0.46 $ —Diluted (loss) income per share $ (6.72) $ 0.99 $ (7.12) $ 1.59
Weighted average share outstanding: Basic 50,815 50,449 50,699 50,633Diluted 50,815 50,741 50,699 50,849
UNITED NATURAL FOODS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(In thousands, except for per share data)
January 26,
2019 July 28,
2018ASSETS
Cash and cash equivalents $ 49,515 $ 23,315Accounts receivable, net 1,094,874 579,702Inventories 2,242,724 1,135,775Prepaid expenses and other current assets 119,659 50,122Current assets of discontinued operations 159,893 —Total current assets 3,666,665 1,788,914
Property and equipment, net 1,658,010 571,146Goodwill 481,095 362,495Intangible assets, net 1,054,222 193,209Other assets 122,644 48,708Long-term assets of discontinued operations 415,648 —
Total assets $ 7,398,284 $ 2,964,472
LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable $ 1,452,643 $ 517,125Accrued expenses and other current liabilities 277,158 103,526Accrued compensation and benefits 171,669 66,132Current portion of long-term debt and capital lease obligations 143,614 12,441Current liabilities of discontinued operations 133,981 —Total current liabilities 2,179,065 699,224
Long-term debt 2,965,336 308,836Long-term capital lease obligations 124,599 31,487Pension and other postretirement benefit obligations 222,231 —Deferred income taxes 75,462 44,384Other long-term liabilities 347,082 34,586Long-term liabilities of discontinued operations 1,141 —Total liabilities 5,914,916 1,118,517Stockholders’ equity: Preferred stock, $0.01 par value, authorized 5,000 shares; none issued or outstanding — —Common stock, par value $0.01 per share, authorized 100,000 shares; 51,433 shares issued and 50,818 shares outstanding at January 26, 2019, 51,025 shares issued and 50,411 sharesoutstanding at July 28, 2018 514 510
Additional paid-in capital 495,514 483,623Treasury stock at cost (24,231) (24,231)Accumulated other comprehensive loss (25,863) (14,179)Retained earnings 1,039,490 1,400,232Total United Natural Foods, Inc. stockholders’ equity 1,485,424 1,845,955
Noncontrolling interests (2,056) —Total stockholders’ equity 1,483,368 1,845,955
Total liabilities and stockholders’ equity $ 7,398,284 $ 2,964,472
UNITED NATURAL FOODS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
26-Week Period Ended
January 26,
2019 January 27,
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income including noncontrolling interests $ (361,187) $ 80,991
Income from discontinued operations, net of tax 23,477 —
Net (loss) income from continuing operations (384,664) 80,991
Adjustments to reconcile net (loss) income from continuing operations to net cash used in operating activities:
Depreciation and amortization 97,993 44,249
Share-based compensation 14,511 13,846
(Gain) loss on disposition of assets (60) 100Gain associated with disposal of investments — (699)
Restructuring charges 20,701 —
Goodwill and asset impairment charges 370,871 11,242
Net pension and other postretirement benefit income (11,750) —
Deferred income taxes (65,605) (22,733)
LIFO charge 6,265 —
Provision for doubtful accounts 7,958 5,569
Loss on debt extinguishment 2,117 —
Non-cash interest expense 4,298 956
Changes in operating assets and liabilities, net of acquired businesses (62,679) (136,932)
Net cash used in operating activities of continuing operations (44) (3,411)
Net cash provided by operating activities of discontinued operations 25,910 —
Net cash provided by (used in) operating activities 25,866 (3,411)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (80,137) (15,535)
Purchase of acquired businesses, net of cash acquired (2,281,934) (19)
Proceeds from dispositions of assets 168,274 36Proceeds from disposal of investments — 756
Long-term investment (110) (3,010)
Other 363 —
Net cash used in investing activities of continuing operations (2,193,544) (17,772)
Net cash provided by investing activities of discontinued operations 44,263 —
Net cash used in investing activities (2,149,281) (17,772)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt 1,905,000 —
Proceeds from borrowings under revolving credit line 2,698,604 311,061
Repayments of borrowings under revolving credit line (1,666,600) (247,632)
Repayments of long-term debt and capital lease obligations (713,366) (6,054)
Repurchase of common stock — (22,237)
Proceeds from exercise of stock options 118 268
Payment of employee restricted stock tax withholdings (3,141) (4,424)
Payments for capitalized debt issuance costs (64,519) —
Net cash provided by financing activities of continuing operations 2,156,096 30,982
Net cash used in financing activities of discontinued operations (254) —
Net cash provided by financing activities 2,155,842 30,982
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,868) 188
NET INCREASE IN CASH AND CASH EQUIVALENTS 30,559 9,987
Cash and cash equivalents, at beginning of period 23,315 15,414
Cash and cash equivalents, at end of period 53,874 25,401
Less: cash and cash equivalents of discontinued operations (4,359) —
Cash and cash equivalents of continuing operations $ 49,515 $ 25,401
Supplemental disclosures of cash flow information: Cash paid for interest $ 66,016 $ 7,900
Cash paid for federal and state income taxes, net of refunds $ 13,449 $ 36,929
UNITED NATURAL FOODS, INC.
Reconciliation of Net (Loss) Income per Diluted Common Share to Adjusted Net Income per Diluted Common Share (unaudited)
13-Week Period Ended 26-Week Period Ended
January 26,
2019 January 27,
2018 January 26,
2019 January 27,
2018Net (loss) income per diluted common share $ (6.72) $ 0.99 $ (7.12) $ 1.59
Restructuring, acquisition, and integration related expenses (1) 0.93 — 2.27 —Goodwill and asset impairment charges (2) 7.30 0.22 7.32 0.22Loss on debt extinguishment (3) 0.02 — 0.04 —Interest expense on senior notes (4) 0.05 — 0.06 —Inventory fair value adjustment (5) 0.17 — 0.21 —Net tax benefit related to U.S. Tax Reform (6) — (0.43) — (0.43)Impact of discontinued operations (7) 0.25 — 0.24 —Tax impact of adjustments (8) (1.54) (0.07) (1.97) (0.07)Impact of diluted shares (9) — — (0.01) —
Adjusted net income per diluted common share (9) $ 0.44 * $ 0.71 $ 1.04 $ 1.31
* Includes rounding
(1) Primarily reflects expenses resulting from the acquisition of SUPERVALU, including employee-related costs, store closure charges, and acquisition and integration expenses.(2) Fiscal 2019 reflects a goodwill impairment charge related to the SUPERVALU acquisition. Fiscal 2018 reflects goodwill and asset impairment charges recorded related to the previously disposed Earth Origin's Market retail business.(3) 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.(4) Interest expense recorded on the SUPERVALU senior notes in the mandatory 30-day redemption notice period.(5) Non-cash charge related to the step-up in inventory values from purchase accounting.(6) Fiscal 2018 periods represent the earnings per share impact of a $21.9 million benefit related to the remeasurement of net deferred tax liabilities as a result of U.S. tax reform enacted in December 2017.(7) Amounts represent store closure charges and an inventory fair value adjustment related to discontinued operations.(8) Represents the tax effect of adjustments, using the blended rate for the period.(9) 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) Income attributable to United Natural Foods, Inc. to Adjusted EBITDA (unaudited)(in thousands)
13-Week Period Ended 26-Week Period Ended
January 26,
2019 January 27,
2018 January 26,
2019 January 27,
2018Net (loss) income attributable to United Natural Foods, Inc. $ (341,725) $ 50,486 $ (361,019) $ 80,991
Total other expense, net 46,977 3,719 53,755 6,432(Benefit) provision for income taxes (91,809) (14,001) (96,064) 7,888Depreciation and amortization 73,200 21,807 97,993 44,249Share-based compensation 10,423 6,571 18,512 13,846Restructuring, acquisition, and integration related expenses 47,125 — 115,129 —Goodwill and asset impairment charges 370,871 11,242 370,871 11,242Inventory fair value adjustment 8,644 — 10,463 —Impact of discontinued operations (1) 18,867 — 19,127 —
Adjusted EBITDA $ 142,573 $ 79,824 $ 228,767 $ 164,648
(1) Amount represents the cumulative effect of differences between net income from discontinued operations, excluding earnings from noncontrolling interests, and adjusted EBITDA of discontinued operations adjustments, including total other expense, net, provision for incometaxes, share-based compensation, and store closure charges and costs.
Reconciliation of 2019 Guidance for Estimated Net (Loss) Income per Common Share toEstimated Non-GAAP Adjusted Diluted Income per Common Share (unaudited)
Fiscal Year Ending August 3, 2019 Low Range Estimate High RangeNet loss per diluted common share $ (6.50) $ (6.10)
Goodwill and asset impairment charges 7.30 Restructuring, acquisition and integration related costs (1) 3.33 Tax impact of adjustments (2.12)Impact of diluted shares (0.01)
Adjusted net income per diluted common share $ 2.00 $ 2.40
(1) Includes certain costs and charges associated with divestiture of retail banners, charges related to surplus property, the loss on debt extinguishment and interest expense on SUPERVALU's senior notes, and inventory fair value adjustments.
Reconciliation of 2019 Guidance for Net (Loss) Income to Adjusted EBITDA (unaudited)(in thousands)
Fiscal Year Ending August 3, 2019 Low Range Estimate High RangeNet loss attributable to United Natural Foods, Inc. $ (332,000) $ (312,000)
(Benefit) provision for Income tax (76,000) (66,000)Goodwill and asset impairment charges 371,000 Restructuring, acquisition, and integration related costs (1) 172,000 Net interest expense 186,000 Total other (income) expense, net (2,000)Depreciation and amortization 252,000 Share-based compensation 43,000 Net periodic benefit income, excluding service costs (34,000)
Adjusted EBITDA $ 580,000 $ 610,000
(1) Includes certain costs and charges associated with divestiture of retail banners, charges related to surplus property, the loss on debt extinguishment and interest expense on SUPERVALU's senior notes, and inventory fair value adjustments.
Reconciliation of Adjusted EBITDA Guidance: December 2018 vs. March 2019 (Unaudited)(in thousands)
Midpoint December 2018 Adjusted EBITDA Guidance $ 657,500Updated Distribution Center Network Realignment (37,500)Customer Mix Shift and Decreased Vendor Promotional Activity (12,500)LIFO Election and Inflation Impact (12,500)
Midpoint March 2019 Adjusted EBITDA Guidance $ 595,000
Q2 Fiscal 2019 Supplemental Slides March 5, 2019
Disclaimer Certain information in this presentation and discussed on the conference call which this presentation accompanies constitutes forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. Statements regarding the Company’s business that are not historical facts are “forward looking statements” that involve risk and uncertainties and are based on current expectations and management estimates; actual results may differ materially. The risks and uncertainties which could impact these statements are described in filings that United Natural Foods, Inc. (the “Company”) has made under the Securities Exchange Act of 1934, as amended, including its quarterly report on Form 10-Q for the period ended October 27, 2018 filed with the Securities and Exchange Commission (the "SEC") on December 6, 2018 and other filings the Company makes with the SEC, and include, but are not limited to the Company’s dependence on principal customers; the Company's sensitivity to general economic conditions, including changes in disposable income levels and consumer spending trends; the Company’s ability to realize anticipated benefits of its acquisitions and dispositions, in particular, its acquisition of SUPERVALU; the possibility that restructuring and other charges and costs we may incur in connection with the sale or closure of SUPERVALU's retail operations will exceed current estimates; the potential for additional goodwill impairment charges as a result of purchase accounting adjustments or otherwise; the Company's reliance on the continued growth in sales of higher margin natural and organic foods and non-food products in comparison to lower margin conventional products; increased competition in the Company's industry as a result of increased distribution of natural, organic and specialty products by conventional grocery distributors and direct distribution of those products by large retailers and online distributors; increased competition as a result of continuing consolidation of retailers in the natural product industry and the growth of supernatural chains; the Company's ability to timely and successfully deploy its warehouse management system throughout its distribution centers and its transportation management system across the Company and to achieve efficiencies and cost savings from these efforts; the addition or loss of significant customers or material changes to the Company’s relationships with these customers; volatility in fuel costs; volatility in foreign exchange rates; the Company's sensitivity to inflationary and deflationary pressures; the relatively low margins and economic sensitivity of the Company's business; the potential for disruptions in the Company's supply chain by circumstances beyond its control; the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise; moderated supplier promotional activity, including decreased forward buying opportunities; union -organizing activities that could cause labor relations difficulties and increased costs; and the ability to identify and successfully complete acquisitions of other natural, organic and specialty food and non-food products distributors. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. The Company is not undertaking to update any information in the foregoingreports until the effective date of its future reports required by applicable laws. Any estimates of future results of operations are based on a number of assumptions, many of which are outside the Company's control and should not be construed in any manner as a guarantee that such results will in fact occur. These estimates are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced estimates, but it is not obligated to do so. This presentation also contains the non-GAAP financial measures estimated adjusted diluted earnings per common share, adjusted EBITDA, estimated adjusted EBITDA, and adjusted interest expense. The reconciliations of certain of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the appendix to this presentation. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. The Company believes that presenting these non-GAAP financial measures aids in making period-to-period comparisons and is a meaningful indication of its estimated operating performance. The Company's management utilizes and plans to utilize this non-GAAP financial information to compare the Company's operating performance during certain fiscal periods to the comparable periods in the other fiscal years and, in certain cases, to internally prepared projections. 2 Better Food. Better Future.
Second Quarter Fiscal 2019 Supplemental Presentation This material is provided as a supplement to UNFI’s March 5, 2019 press release announcing second quarter results for the period ended January 26, 2019. 3 Better Food. Better Future.
Key Accomplishments Second Quarter Fiscal 2019 • Grew legacy UNFI sales by 5.8% • Paid down approximately $120 million of outstanding net debt with cash generated in the quarter including asset sale proceeds • Won new business totaling nearly $200M on an annualized basis • Completed sale of Hornbacher’s with long-term supply agreement • Announced optimization plan for Pacific Northwest distribution center network • Integration work proceeding as planned o Affirming cost synergy outlook of more than $185M in year 4 4 Better Food. Better Future.
Sales: Q2 FY18 to Q2 FY19 Second quarter sales increase driven by addition of SUPERVALU ($’s in Millions) Q2 FY18 Net Sales Supernatural Independents Supermarkets Other Q2 FY19 Net Sales 5 Better Food. Better Future.
Adjusted EBITDA: Q2 FY18 to Q2 FY19 Second quarter Adjusted EBITDA increase driven by addition of SUPERVALU ($’s in Thousands) Q2 FY18 Definition Q2 FY18 – New Adjusted Depreciation / Share Based Disc Ops / Q2 FY19 Adjusted Change (Exclude Definition Operating Amortization Compensation Other Adjusted EBITDA (1) Stock Comp) Income EBITDA (1) Adjusted EBITDA(1) is defined as net income / (loss) plus provision for income taxes, depreciation and amortization, total other expense (including interest), share based compensation expense, and certain adjustments determined by management. 6 Better Food. Better Future. (1) See reconciliation in appendix.
Q2 Capital Structure ($'s in Millions) Maturity Rate Q1 FY19 Q2 FY19 Secured term loan B-1 October 2025 L + 4.25% $ 1,800 $ 1,800 Secured term loan B-2 October 2019 L + 2.00% 150 103 $2.1B ABL revolver October 2023 L + 1.25% / Prime + 0.25% 1,327 1,242 Unsecured bonds & premium (SVU) (1) 7.41% 547 Capital leases Various Various 211 153 Equipment loan October 2023 5.735% 42 40 Total Debt (face value) $ 4,077 $ 3,338 Restricted cash - SVU notes (2) (566) Balance sheet cash (3) (59) (54) Total Debt Net of Cash (face value) $ 3,452 $ 3,284 (1) Includes $530M of SVU note principal and $17M of prepayment premiums (classified as debt on Q1 FY19 balance sheet) (2) There was an additional $19M of Restricted cash on the Q1 FY19 balance sheet set aside to pay accrued interest on the SVU notes redeemed on 11/21/18 (3) Includes cash of Discontinued Operations. There is no debt in Discontinued Operations. 7 Better Food. Better Future.
Integration Integration on-track • Nearly 10% reduction in combined administrative workforce to date • Standardized Associated Grocers of Florida onto SUPERVALU systems • Indirect procurement team working on 44 projects • Implemented better of legacy organizations’ payment terms 8 Better Food. Better Future.
338(g) Election For SUPERVALU Acquisition Election generates meaningful tax savings over time • As a result of the acquisition of SUPERVALU, UNFI is expecting to utilize a significant portion of the $2.9B capital loss carryforward generated from the SUPERVALU divestiture of Albertson’s in March 2013 by making a 338(g) election. • Under a 338(g) election, UNFI treats the purchase of SUPERVALU as an asset purchase for tax purposes, allowing UNFI to step up the basis of the acquired assets to fair market value. • This provides UNFI with higher future depreciation and amortization deductions which lowers future tax obligations. • UNFI made a $59 million payment in February 2019 related to the anticipated 338(g) election. • The 338(g) election is expected to generate cash tax benefits of approximately $300 million over 15 years. 9 Better Food. Better Future.
Retail Divestiture All banners reported in Discontinued Operations Continue to operate until divested Sold December 2018 Sold / closed November 2018 Expect to complete sale of remaining 5 stores by end of Q3 10 Better Food. Better Future.
Fiscal 2019 Guidance – 53 weeks Consolidated UNFI Sales • $21.5 - $22.0 billion • $580 - $610 million; including discontinued operations Adjusted EBITDA (1) • Decrease from prior $650 - $665 million due to higher transition and integration costs • $181 - $191 million Adjusted Interest Expense • Excludes $3 million related to the 30-day redemption period of the now retired SUPERVALU notes and $1 million loss on debt extinguishment related to the unamortized debt issuance costs on amounts prepaid under Term Loan B-2. • Expect to pay cash taxes related to continuing operations of less than $20 million Tax Rate • $59 million payment for anticipated 338(g) election related to purchase of SUPERVALU Earnings Per Share • $(6.50) - $(6.10) • $2.00 - $2.40, excluding goodwill and asset impairment charges; restructuring, Adjusted Earnings Per Share (1) acquisition, and integration related costs; and inventory fair value adjustment charges. 11 Better Food. Better Future. (1) See reconciliation in appendix.
Changes to Adjusted EBITDA Guidance: December 2018 vs March 2019 ($’s in Thousands) Midpoint December Updated Customer Mix Shift and LIFO Election and Midpoint March 2018 Adj EBITDA Distribution Decreased Vendor Inflation Impact 2019 Adj EBITDA Guidance (1) Center Network Promotional Activity Guidance (1) Realignment 12 Better Food. Better Future. (1) See reconciliation in appendix.
Changes to Adjusted EPS Guidance: December 2018 vs March 2019 Depreciation / Share Based Midpoint March 2019 Midpoint December Adjusted Tax Impact of Amortization Compensation / Adj. Earnings Per 2018 Adj. Earnings Per EBITDA Adjustments / Expense Net Periodic Share Guidance (1) Share Guidance (1) Rounding Benefit Income 13 Better Food. Better Future. (1) See appendix for reconciliation
Appendix 14 Better Food. Better Future.
Reconciliation – Q2 FY19 and Q2 FY18 Adjusted EBITDA 15 Better Food. Better Future.
Reconciliation – FY19 Guidance for Adjusted EBITDA 16 Better Food. Better Future.
Reconciliation – FY19 Guidance for Adjusted EPS 17 Better Food. Better Future.
Reconciliation – FY19 Guidance for Adjusted EBITDA (as provided December 6, 2018) 18 Better Food. Better Future.
Reconciliation – FY19 Guidance for Adjusted EPS (as provided December 6, 2018) 19 Better Food. Better Future.