PROVIDENCE, R.I., Dec. 6, 2018 /PRNewswire/ -- United Natural Foods, Inc. UNFI (the "Company" or "UNFI") today reported financial results for the first quarter of fiscal 2019 ended October 27, 2018.
First Quarter Fiscal 2019 Highlights
13-Week Period Ended | |||||||||||||
($ in thousands, except for per share data) | October 27, | October 28, | Change | ||||||||||
Net Sales | $ | 2,868,156 | $ | 2,457,545 | $ | 410,611 | 16.7 | % | |||||
Net (Loss) Income | $ | (19,294) | $ | 30,505 | $ | (49,799) | (163.2) | % | |||||
Adjusted EBITDA(1) | $ | 86,194 | $ | 84,824 | $ | 1,370 | 1.6 | % | |||||
(Loss) Earnings Per Diluted Share (EPS) | $ | (0.38) | $ | 0.60 | $ | (0.98) | (163.3) | % | |||||
Adjusted EPS(1) | $ | 0.59 | $ | 0.60 | $ | (0.01) | (1.7) | % | |||||
(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. |
"We closed on the previously announced purchase of SUPERVALU which will accelerate UNFI's transformation of food distribution throughout North America," said Steven L. Spinner, Chairman and Chief Executive Officer. "The integration of the two companies is well underway and we continue to be excited about the long-term creation of value for our shareholders we expect to deliver with this combination."
First Quarter Fiscal 2019 Summary
Net sales of continuing operations by customer channel for the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 were as follows ($ in millions):
13-Week Period Ended | ||||||||||
Customer Channel | % Growth | October 27, 2018 | October 28, 2017 | |||||||
Supernatural | 20.4% | $ | 1,027 | $ | 853 | |||||
Independents | 4.4% | 667 | 639 | |||||||
Supermarkets | 0.6% | 707 | 704 | |||||||
Other | (7.3)% | 243 | 262 | |||||||
Supervalu | 224 | — | ||||||||
Total | 16.7% | $ | 2,868 | $ | 2,458 | |||||
Gross margin for the first quarter of fiscal 2019 was 14.38% of net sales and included a $1.8 million, or 0.06% of net sales, inventory fair value adjustment charge related to the acquisition of SUPERVALU. When adjusted for this charge, gross margin in the first quarter of fiscal 2019 was 14.44% of net sales compared to 14.94% of net sales in last fiscal year's first quarter. The decline in the gross margin rate was driven by a shift in customer mix, including the growth of the supernatural channel, and increased inbound freight expense, partially offset by higher levels of vendor support and greater fuel surcharge income.
Operating expenses in the first quarter of fiscal 2019 were $363.2 million, or 12.66% of net sales, compared to $312.1 million, or 12.70% of net sales, for the first quarter of fiscal 2018. The decrease in operating expenses, as a percent of net sales, was driven by lower health care costs and fixed cost leverage partially offset by increased labor and fuel costs.
Restructuring, acquisition, and integration related expenses in the first quarter of fiscal 2019 were $68.0 million. This was primarily driven by $33.8 million of expenses related to change-in-control payments made to satisfy outstanding equity awards and severance as well as acquisition and integration costs of approximately $31.9 million.
Operating (loss) income was $(18.8) million in the first quarter of fiscal 2019 and included restructuring, acquisition, and integration related expenses of $68.0 million and a $1.8 million inventory fair value adjustment charge associated with the purchase of SUPERVALU. When adjusted for these items, operating income was $51.0 million, or 1.78% of net sales, in the first quarter of fiscal 2019. Operating income in the first quarter of fiscal 2018 was $55.1 million, or 2.24% of net sales. The decrease in adjusted operating income was driven by lower gross margins, as a percent of net sales, and higher labor costs.
Interest expense for the first quarter of fiscal 2019 was $7.7 million and included expense of $0.7 million related to interest on the SUPERVALU senior notes during the redemption waiting period. When excluding this amount, interest expense was $7.0 million compared to $3.7 million for the first quarter of fiscal 2018. The increase in interest expense was driven by the acquisition financing.
Adjusted EBITDA for the first quarter of fiscal 2019 was $86.2 million compared to $84.8 million for the first quarter of fiscal 2018.
Effective tax rate for continuing operations for the first quarter of fiscal 2019 was 16.6% compared to 41.8% for the first quarter of fiscal 2018. The first quarter of fiscal 2019 effective tax rate reflects a tax benefit based on consolidated pre-tax loss from continuing operations. The decrease in the effective income tax rate was primarily driven by a full year of tax savings due to the Tax Cuts and Jobs Act of 2017 offset by an increase in non-deductible compensation expense.
Net (loss) income for the first quarter of fiscal 2019 was $(19.3) million, including $2.1 million of income related to discontinued operations, compared to $30.5 million for the first quarter of fiscal 2018.
(Loss) Earnings Per Share (EPS) was $(0.38) for the first quarter of fiscal 2019 compared to $0.60 for the first quarter of fiscal 2018. When adjusted for the impact of restructuring, acquisition, and integration related expenses as well as the inventory fair value adjustment charge, a loss on debt extinguishment and interest expense related to the SUPERVALU senior notes, adjusted EPS was $0.59 for the first quarter of fiscal 2019.
Fiscal 2019 Guidance
UNFI is now providing fiscal 2019 guidance, inclusive of SUPERVALU, for its 53-week fiscal 2019 as follows:
Fiscal Year Ending August 3, 2019 (53 weeks) | FY 2019 | |
Net Sales ($ in billions) | $21.5 - $22.0 | |
Earnings Per Share (EPS) | $(0.19) - $0.01 | |
Adjusted EPS (1) | $1.69 - $1.89 | |
Net Income ($ in millions) | $(10) - $1 | |
Adjusted EBITDA ($ in millions) (1) | $650 - $665 |
(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 Webcast
The Company's first quarter fiscal 2019 conference call and audio webcast will be held today, Thursday, December 6, 2018 at 5:00 p.m. ET. A webcast of the conference call will be available to the public, 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 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, conventional supermarket 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, and fresh 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 is Moving 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 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 the Company's filings under the Securities Exchange Act of 1934, as amended, including its annual report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on September 24, 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, 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 Company's reliance on the continued growth in sales of its 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 the 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 foregoing reports 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.
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 gross margin, adjusted operating (loss) income, adjusted EBITDA, and adjusted earnings per diluted common share. The Company has also included in this press release projected non-GAAP financial measures for estimated adjusted EBITDA and adjusted earnings per diluted common share for the fiscal year ending August 3, 2019. The non-GAAP measures adjusted total operating expenses, adjusted operating (loss) income, adjusted earnings per diluted common share and estimated adjusted earnings per diluted common share all exclude restructuring and asset impairment expenses, and acquisition and integration related costs. The non-GAAP measure adjusted EBITDA excludes total other expense, net, provision for income taxes, depreciation and amortization, share-based compensation, restructuring and asset impairment expenses and acquisition and integration related costs. The non-GAAP measure estimated adjusted effective tax rate also excludes restructuring and asset impairment expenses, and acquisition and integration related costs.
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 a substitute 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 and understanding 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 other items 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 prepared projections.
UNITED NATURAL FOODS, INC. | ||||||||
13-Week Period Ended | ||||||||
October 27, | October 28, | |||||||
Net sales | $ | 2,868,156 | $ | 2,457,545 | ||||
Cost of sales | 2,455,825 | 2,090,329 | ||||||
Gross profit | 412,331 | 367,216 | ||||||
Operating expenses | 363,165 | 312,109 | ||||||
Restructuring, acquisition, and integration related expenses | 68,004 | — | ||||||
Operating (loss) income | (18,838) | 55,107 | ||||||
Other expense (income): | ||||||||
Net periodic benefit income, excluding service cost | (844) | — | ||||||
Interest expense | 7,671 | 3,667 | ||||||
Interest income | (146) | (91) | ||||||
Other, net | 97 | (863) | ||||||
Total other expense, net | 6,778 | 2,713 | ||||||
(Loss) income from continuing operations before income taxes | (25,616) | 52,394 | ||||||
(Benefit) provision for income taxes | (4,255) | 21,889 | ||||||
Net (loss) income from continuing operations | (21,361) | 30,505 | ||||||
Income from discontinued operations, net of tax | 2,070 | — | ||||||
Net (loss) income including noncontrolling interests | (19,291) | 30,505 | ||||||
Net loss (income) attributable to noncontrolling interests | (3) | — | ||||||
Net (loss) income attributable to United Natural Foods, Inc. | $ | (19,294) | $ | 30,505 | ||||
Basic per share data: | ||||||||
Continuing operations | $ | (0.42) | $ | 0.60 | ||||
Discontinued operations | $ | 0.04 | $ | — | ||||
Basic (loss) income per share | $ | (0.38) | $ | 0.60 | ||||
Diluted per share data: | ||||||||
Continuing operations | $ | (0.42) | $ | 0.60 | ||||
Discontinued operations | $ | 0.04 | $ | — | ||||
Diluted (loss) income per share | $ | (0.38) | $ | 0.60 | ||||
Weighted average share outstanding: | ||||||||
Basic | 50,583 | 50,817 | ||||||
Diluted | 50,583 | 50,957 | ||||||
UNITED NATURAL FOODS, INC. | ||||||||
October 27, | July 28, | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 53,910 | $ | 23,315 | ||||
Restricted cash | 566,353 | — | ||||||
Accounts receivable, net | 1,114,015 | 579,702 | ||||||
Inventories | 2,405,017 | 1,135,775 | ||||||
Prepaid expenses and other current assets | 158,967 | 50,122 | ||||||
Current assets of discontinued operations | 191,779 | — | ||||||
Total current assets | 4,490,041 | 1,788,914 | ||||||
Property and equipment, net | 1,543,952 | 571,146 | ||||||
Goodwill | 707,950 | 362,495 | ||||||
Intangible assets, less accumulated amortization of $68,133 and $64,438 | 1,278,205 | 193,209 | ||||||
Other assets | 145,138 | 48,708 | ||||||
Long-term assets of discontinued operations | 422,327 | — | ||||||
Total assets | $ | 8,587,613 | $ | 2,964,472 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Accounts payable | $ | 1,485,783 | $ | 517,125 | ||||
Accrued expenses and other current liabilities | 308,110 | 103,526 | ||||||
Accrued compensation and benefits | 167,889 | 66,132 | ||||||
Current portion of long-term debt and capital lease obligations | 730,401 | 12,441 | ||||||
Current liabilities of discontinued operations | 140,610 | — | ||||||
Total current liabilities | 2,832,793 | 699,224 | ||||||
Notes payable | 1,315,453 | 210,000 | ||||||
Deferred income taxes | 223,001 | 44,384 | ||||||
Other long-term liabilities | 227,032 | 27,200 | ||||||
Long-term debt and capital lease obligations, excluding current portion | 1,924,221 | 137,709 | ||||||
Pension and other postretirement benefit obligations | 233,436 | — | ||||||
Long-term liabilities of discontinued operations | 1,361 | — | ||||||
Total liabilities | 6,757,297 | 1,118,517 | ||||||
Stockholders' 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; 51,426 shares issued and 50,811 shares outstanding at October 27, 2018, 51,025 shares issued and 50,411 shares outstanding at July 28, 2018 | 514 | 510 | ||||||
Additional paid-in capital | 489,103 | 483,623 | ||||||
Treasury stock at cost | (24,231) | (24,231) | ||||||
Accumulated other comprehensive loss | (14,655) | (14,179) | ||||||
Retained earnings | 1,381,215 | 1,400,232 | ||||||
Total United Natural Foods, Inc. stockholders' equity | 1,831,946 | 1,845,955 | ||||||
Noncontrolling interests | (1,630) | — | ||||||
Total stockholders' equity | 1,830,316 | 1,845,955 | ||||||
Total liabilities and stockholders' equity | $ | 8,587,613 | $ | 2,964,472 | ||||
UNITED NATURAL FOODS, INC. | ||||||||
13-Week Period Ended | ||||||||
(in thousands) | October 27, | October 28, | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) income including noncontrolling interests | $ | (19,291) | $ | 30,505 | ||||
Income from discontinued operations, net of tax | 2,070 | — | ||||||
Net (loss) income from continuing operations | (21,361) | 30,505 | ||||||
Adjustments to reconcile net (loss) income from continuing operations to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 24,793 | 22,442 | ||||||
Share-based compensation | 8,089 | 7,275 | ||||||
Loss on disposition of assets | 6 | 103 | ||||||
Gain associated with disposal of investments | — | (699) | ||||||
Restructuring charges | 412 | — | ||||||
Net pension and other postretirement benefit income | (844) | — | ||||||
Deferred income taxes | 1,214 | 891 | ||||||
Provision for doubtful accounts | 3,037 | 1,656 | ||||||
Loss on debt extinguishment | 1,114 | — | ||||||
Non-cash interest expense | 345 | 344 | ||||||
Changes in operating assets and liabilities, net of acquired businesses | (118,124) | (102,674) | ||||||
Net cash used in operating activities of continuing operations | (101,319) | (40,157) | ||||||
Net cash used in operating activities of discontinued operations | (5,701) | — | ||||||
Net cash used in operating activities | (107,020) | (40,157) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Capital expenditures | (16,381) | (5,257) | ||||||
Purchase of acquired businesses, net of cash acquired | (2,273,829) | (11) | ||||||
Proceeds from dispositions of assets | 149,529 | 34 | ||||||
Proceeds from disposal of investments | — | 756 | ||||||
Long-term investment | (110) | — | ||||||
Net cash used in investing activities of continuing operations | (2,140,791) | (4,478) | ||||||
Net cash used in investing activities of discontinued operations | (89) | — | ||||||
Net cash used in investing activities | (2,140,880) | (4,478) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from borrowings from long-term debt | 1,905,547 | — | ||||||
Proceeds from borrowings under revolving credit line | 1,805,300 | 173,581 | ||||||
Repayments of borrowings under revolving credit line | (688,000) | (109,229) | ||||||
Repayments of long-term debt | (110,000) | (2,985) | ||||||
Repurchase of common stock | — | (6,449) | ||||||
Proceeds from exercise of stock options | 118 | 151 | ||||||
Payment of employee restricted stock tax withholdings | (3,126) | (4,389) | ||||||
Capitalized debt issuance costs | (60,309) | — | ||||||
Net cash provided by financing activities | 2,849,530 | 50,680 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (49) | (304) | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 601,581 | 5,741 | ||||||
Cash and cash equivalents, at beginning of period | 23,315 | 15,414 | ||||||
Cash and cash equivalents, including restricted cash at end of period | 624,896 | 21,155 | ||||||
Less: cash and cash equivalents of discontinued operations | (4,633) | — | ||||||
Cash and cash equivalents, including restricted cash of continuing operations | $ | 620,263 | $ | 21,155 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 7,325 | $ | 3,667 | ||||
Cash paid for federal and state income taxes, net of refunds | $ | 462 | $ | 2,559 | ||||
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 | |||||||
October 27, | October 28, | ||||||
Net (loss) income per diluted common share | $ | (0.38) | $ | 0.60 | |||
Restructuring, acquisition, and integration related expenses (1) | 1.34 | — | |||||
Loss on debt extinguishment (2) | 0.02 | — | |||||
Interest expense on senior notes (3) | 0.01 | — | |||||
Inventory fair value adjustment (4) | 0.04 | — | |||||
Tax impact of adjustments | (0.43) | — | |||||
Impact of diluted shares | (0.01) | ||||||
Adjusted net income per diluted common share(5) | $ | 0.59 | $ | 0.60 | |||
(1) | Expenses resulting from the acquisition of SUPERVALU on October 22, 2018. |
(2) | Extinguishment of the Company's term loan, which was in place prior to the acquisition of SUPERVALU. |
(3) | Interest expense recorded on the SUPERVALU senior notes in the mandatory 30-day redemption notice period during the quarter. |
(4) | Non-cash charge to related to the step-up in inventory values from purchase accounting. |
(5) | 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 to Adjusted EBITDA (unaudited) | |||||||
(in thousands) | |||||||
13-Week Period Ended | |||||||
October 27, | October 28, | ||||||
Net (loss) income attributable to United Natural Foods, Inc. | $ | (19,294) | $ | 30,505 | |||
Restructuring, acquisition, and integration related expenses | 68,004 | — | |||||
Depreciation and amortization | 24,793 | 22,442 | |||||
Total other expense, net | 6,778 | 2,713 | |||||
(Benefit) provision for income taxes | (4,255) | 21,889 | |||||
Share-based compensation | 8,089 | 7,275 | |||||
Inventory fair value adjustment | 1,819 | — | |||||
Impact of discontinued operations | 260 | — | |||||
Adjusted EBITDA | $ | 86,194 | $ | 84,824 | |||
Reconciliation of 2019 Guidance for Estimated Net (Loss) Income per Common Share to | |||||||
Fiscal Year Ending August 3, 2019 | |||||||
Low Range | High Range | ||||||
Net (loss) income per diluted common share(1) | $ | (0.19) | $ | 0.01 | |||
Restructuring, acquisition and integration related costs (1)(2) | 2.40 | 2.40 | |||||
Tax impact of adjustments | (0.52) | (0.52) | |||||
Adjusted net income per diluted common share | $ | 1.69 | $ | 1.89 | |||
(1) Excludes costs or charges associated with divestiture of retail banners or stores. | |||||||
(2) Also includes the loss on debt extinguishment, interest expense on bonds, and inventory fair value adjustment incurred in the first quarter of fiscal 2019. | |||||||
Reconciliation of 2019 Guidance for Net (Loss) Income to Adjusted EBITDA (unaudited) | |||||||||
Fiscal Year Ending August 3, 2019 | |||||||||
(in thousands) | Low Range | Estimate | High Range | ||||||
Net (loss) income attributable to United Natural Foods, Inc.(1) | $ | (10,000) | $ | 800 | |||||
(Benefit) provision for Income tax | (4,000) | 200 | |||||||
Restructuring, acquisition, and integration related costs (1)(2) | $ | 125,000 | |||||||
Net interest expense | 186,000 | ||||||||
Total other (income) expense, net | (2,000) | ||||||||
Depreciation and amortization | 332,000 | ||||||||
Share-based compensation | 58,000 | ||||||||
Net periodic benefit income, excluding service costs | (35,000) | ||||||||
Adjusted EBITDA | $ | 650,000 | $ | 665,000 | |||||
(1) Excludes costs or charges associated with divestiture of retail banners or stores. | |||||||||
(2) Also includes approximately $3 million of interest expense related to the SUPERVALU notes. | |||||||||
SOURCE United Natural Foods, Inc.
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