PROVIDENCE, R.I., Dec. 11, 2019 /PRNewswire/ -- United Natural Foods, Inc. (NYSE: UNFI) (the "Company" or "UNFI") today reported financial results for the first quarter of fiscal 2020 (13 weeks) ended November 2, 2019.
First Quarter Fiscal 2020 Highlights
- Net Sales Increased to $6.0 billion, including an incremental $3.1 billion from SUPERVALU
- Re-affirms guidance for full year net sales, Adjusted EPS, and Adjusted EBITDA
- Balance sheet reflects addition of approximately $1 billion in operating lease assets and liabilities as UNFI adopts new lease accounting standard (ASC 842)
- GAAP results reflect non-cash goodwill and asset impairment charge
"We entered the new fiscal year operating with an unmatched geographic footprint, the largest variety of products and services in the industry and the critical scale needed to succeed over the long term. We delivered first quarter results in-line with our expectations and are pleased to reaffirm our fiscal 2020 outlook for net sales, Adjusted EBITDA and Adjusted EPS," said Steven L. Spinner, Chairman and Chief Executive Officer. "We remain confident that UNFI is well-positioned today and for the future to deliver an industry-leading and sustainable supply chain platform for all customer channels. As we look to the remainder of fiscal 2020, we are committed to converting our sales momentum into improved earnings and cash flow."
First Quarter Fiscal 2020 Summary
Net sales from continuing operations by customer channel for the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019 were as follows ($ in millions):
Gross margin for the first quarter of fiscal 2020 was 12.81% of net sales compared to 14.38% of net sales for the first quarter of fiscal 2019, which included a $1.8 million, or 0.06% of net sales, inventory fair value adjustment related to the Supervalu acquisition. The decline in the gross margin rate was primarily driven by the addition of SUPERVALU at a lower gross profit rate.
Operating expenses in the first quarter of fiscal 2020 were $775.4 million and included charges of $12.5 million related to customer notes receivable, surplus property expense of $3.6 million, and legal reserve charge of $1.9 million. When excluding these items, operating expenses were $757.5 million, or 12.58% of net sales, compared to $363.2 million, or 12.66% of net sales for the first quarter of fiscal 2019. The decrease in operating expenses as a percent of net sales (after adjusting for the items above) was driven by the addition of SUPERVALU at a lower operating expense rate and the benefit of cost synergies from the SUPERVALU acquisition, both of which were partially offset by higher depreciation and amortization expense.
Goodwill and asset impairment charges were $425.4 million in the first quarter of fiscal 2020 primarily reflecting the remaining goodwill attributable to the U.S. Wholesale reporting unit.
Restructuring, acquisition and integration related expenses in the first quarter of fiscal 2020 were $14.3 million, including costs and charges related to the disposal of surplus real estate, distribution network consolidation, and employee-related costs.
Operating (loss) income was $(444.0) million in the first quarter of fiscal 2020 and included goodwill and asset impairment charges of $425.4 million; restructuring, acquisition and integration related expenses of $14.3 million; customer notes receivable charges of $12.5 million; closed property expense of $3.6 million, and legal reserve charge of $1.9 million. When excluding these items, operating income was $13.6 million, or 0.23% of net sales, in the first quarter of fiscal 2020. Operating loss in the first quarter of fiscal 2019 was $(18.8) million and included restructuring, acquisition and integration related expenses of $68.0 million and a fair value inventory adjustment charge associated with the purchase of SUPERVALU of $1.8 million. When excluding these items, operating income for the first quarter of fiscal 2019 was $51.0 million, or 1.78% of net sales. The decrease in adjusted operating income, as a percent of net sales, was driven by lower gross margins, as a percent of net sales, and higher depreciation and amortization expense both resulting from the SUPERVALU acquisition, as a percent of net sales.
Interest expense, net for the first quarter of fiscal 2020 was $49.5 million. Interest expense for the first quarter of fiscal 2019 was $7.5 million. The increase in interest expense, net was driven by an increase in debt outstanding due to the SUPERVALU acquisition financing.
Effective tax rate for continuing operations for the first quarter of fiscal 2020 was 15.3% compared to 16.6% for the first quarter of fiscal 2019. The first quarter effective tax rate for both fiscal years reflects a tax benefit based on consolidated pre-tax loss from continuing operations. The change in the effective tax rate for the quarter was primarily driven by the impact of the goodwill impairment charge.
Net loss for the first quarter of fiscal 2020 was $(383.9) million, including $25.0 million of income related to discontinued operations, compared to $(19.3) million for the first quarter of fiscal 2019. The decrease in net income was primarily the result of the goodwill and asset impairment charges, higher depreciation and amortization expense, and higher interest expense, partially offset by lower restructuring, acquisition, and integration expenses and the benefit of higher net income from discontinued operations.
Net Loss Per Diluted Share (EPS) was $(7.21) for the first quarter of fiscal 2020 compared to $(0.38) for the first quarter of fiscal 2019. Adjusted EPS was $0.12 for the first quarter of fiscal 2020 compared to adjusted EPS of $0.59 in the first quarter of fiscal 2019, reflecting higher interest expense and lower operating income, offset in part by net income from discontinued operations. The income tax rate used for adjusted EPS represents a forecasted rate for the full year. Beginning in fiscal 2020, in calculating adjusted EPS, the Company uses an adjusted effective tax rate. See footnotes in the reconciliation tables below for more information.
Adjusted EBITDA for the first quarter of fiscal 2020 was $121.7 million compared to $86.2 million for the first quarter of fiscal 2019. The increase was predominantly driven by the addition of SUPERVALU.
Total Outstanding Debt, net of cash, increased in the first quarter of fiscal 2020 (compared to the fourth quarter of fiscal 2019) due to an increase in working capital to support the holiday selling period. The Company expects this increase in working capital to reverse by the end of the second quarter.
Fiscal 2020 Outlook (1)
Conference Call and Webcast
The Company's first quarter fiscal 2020 conference call and audio webcast will be held today, Wednesday, December 11, 2019 at 8:30 a.m. ET. A webcast of the conference call (and supplemental materials) 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 (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.)
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. To learn more about how UNFI is Moving Food Forward, visit www.unfi.com .
Vice President, Investor Relations
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 for the period ended August 3, 2019 filed with the Securities and Exchange Commission (the "SEC") on October 1, 2019 and other filings the Company makes with the SEC, and include, but are not limited to, the Company's dependence on principal customers; the potential for additional asset impairment charges; 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 our retail operations will exceed our current expectations; 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 grocery products; increased competition in the Company's industry as a result of increased distribution of natural, organic and specialty products 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; and union-organizing activities that could cause labor relations difficulties and increased costs, and our ability to identify and successfully complete asset or business acquisitions. 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 EBITDA, adjusted earnings per diluted common share, and adjusted effective tax rate. The measure adjusted earnings per diluted common share excludes goodwill and asset impairment benefits and charges, restructuring, acquisition, and integration related expenses, note receivable charges, closed property depreciation and interest, loss on debt extinguishment and interest on SUPERVALU's senior notes during their mandatory redemption period, inventory fair value adjustment expense related to the acquisition of SUPERVALU, a legal reserve adjustment, discontinued operations store closures and other charges, net, the impact of diluted shares and the tax impact of adjustments, which tax impact for fiscal 2020 outlook is calculated using the adjusted effective tax rate. The non-GAAP measure adjusted EBITDA is defined as a consolidated measure inclusive of continuing and discontinued operations results, which we reconcile by adding Net (loss) income from continuing operations, plus Total other expense, net and (Benefit) provision for income taxes, plus Depreciation and amortization calculated in accordance with GAAP, plus non-GAAP adjustments for Share-based compensation, Restructuring, acquisition and integration related expenses, goodwill and asset impairment charges, certain legal charges and gains, certain other non-cash charges or items, as determined by management, plus Adjusted EBITDA of discontinued operations calculated in manner consistent with the results of continuing operations outlined above. The non-GAAP adjusted effective tax rate excludes the potential impact of changes to various uncertain tax positions and valuation allowances, as well as stock compensation accounting (ASU 2016-09).
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 2020 fiscal year to the comparable periods in the 2019 fiscal year and to internally prepared projections.
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SOURCE United Natural Foods, Inc.