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UNFI: Reports Fourth Quarter Fiscal 2019 Results

Providence / RI. (unfi) United Natural Foods Inc. (UNFI) reported financial results for the fourth quarter and fiscal year ended August 03, 2019. Highlights:

  • Fourth Quarter Net Sales Increased to USD 6.41 billion, or 2.8 percent when excluding the contribution from Supervalu and the additional week in the quarter compared to last year’s fourth quarter
  • Fourth Quarter Net income of USD 18.9 million
  • Fourth Quarter Earnings Per Diluted Share (EPS) of USD 0.36; Adjusted EPS of USD 0.44
  • Net outstanding debt decreased by USD 166 million since the end of the third quarter and USD 353 million since the end of the first quarter
Fourth Quarter Ended Fiscal Year
(USD in thousands, except for per share data) 2019-08-03 (14 weeks) 2018-07-28 (13 weeks) 2019-08-03 (53 weeks)
Net sales USD 6,407,086 USD 2,592,248 USD 21,387,068
Net Income (Loss) USD 18,937 USD 32,788 USD (284,990)
Adjusted Ebitda(1) USD 165,542 USD 85,064 USD 562,484
Earnings (Loss) Per Diluted Share (EPS) USD 0.36 USD 0.64 USD (5.56)
Adjusted Earnings Per Diluted Share (EPS) (1) USD 0.44 USD 0.76 USD 2.08

(1) Please refer to the tables in this press release for a reconciliation of these non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with U.S. GAAP.

Chief Executive’s Remarks

«This past fiscal year has been a transformational one for us as we began realizing some of the key benefits and competitive advantages from the Supervalu acquisition that will be the foundation of our long-term success,» said Steven L. Spinner, Chairman and Chief Executive Officer. «As we begin the new fiscal year, I see tremendous focus and enthusiasm across the organization as we execute our strategy. This passion will be a tailwind as we drive to accelerate cross-selling efforts, realize new cost efficiencies, aggressively pay down debt and deliver results in the quarters to come.»

Fourth Quarter Fiscal 2019 Summary

Net sales from continuing operations by customer channel for the fourth quarter of fiscal 2019 compared to the fourth quarter of fiscal 2018 were as follows (USD in millions):

Customer Channel Total Growth Comparable 13-Week Legacy UNFI Growth Q4/2019 Q4/2018(1)
Supermarkets 473.5% (0.9)% USD 4,024 USD 702
Supernatural 18.5% 10.1% 1,164 982
Independents 26.6% 0.4% 848 670
Other 55.5% (10.0)% 371 238
Total 147.2% 2.8% USD 6,407 USD 2,592

(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. There was no impact to the Consolidated Statements of Operations as a result of revising the classification of customer types. As a result of this adjustment, net sales to our supermarkets channel and to our other channel for the fourth quarter of fiscal 2018 decreased approximately USD 5 million and USD 14 million, respectively, compared to the previously reported amounts, while net sales to the independents channel for the fourth quarter of fiscal 2018 increased approximately USD 19 million compared to the previously reported amounts.

Gross margin for the fourth quarter of fiscal 2019 was 12.83 percent of net sales compared to 14.50 percent of net sales for the fourth quarter of fiscal 2018. The largest driver of the decline in the gross margin rate was the addition of Supervalu at a lower gross profit rate.

Operating expenses in the fourth quarter of fiscal 2019 were USD 776.9 million, or 12.13 percent of net sales, compared to USD 316.6 million, or 12.21 percent of net sales in the fourth quarter of fiscal 2018. The decrease in operating expenses as a percent of net sales is 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 benefit was USD 39.9 million in the fourth quarter of fiscal 2019, resulting from adjustments to the purchase price allocation undertaken in the fourth quarter related primarily to tax assets and liabilities acquired in the Supervalu acquisition. The fiscal 2019 goodwill impairment charge of USD 292.8 million reflects the preliminary goodwill impairment charge of USD 370.9 million and the favorable adjustments to the charge of USD 38.3 million in the third quarter and USD 39.9 million described above.

Restructuring, acquisition and integration related expenses in the fourth quarter of fiscal 2019 were USD 19.0 million, primarily driven by employee-related costs and charges.

Operating income was USD 66.3 million in the fourth quarter of fiscal 2019 and included the benefit from a goodwill and asset impairment adjustment of USD 39.9 million partially offset by restructuring, acquisition, and integration related expenses of USD 19.0 million. When excluding these items, operating income was USD 45.4 million, or 0.71 percent of net sales, in the fourth quarter of fiscal 2019. Operating income in the fourth quarter of fiscal 2018 was USD 49.8 million and included restructuring charges and acquisition costs of USD 9.6 million. When excluding these items, operating income for the fourth quarter of fiscal 2018 was USD 59.4 million, or 2.29 percent of net sales. The decrease in adjusted operating income, as a percent of net sales, was driven by lower gross margins resulting from the addition of Supervalu at a lower gross margin rate, partially offset by lower operating expenses.

Interest expense, net for the fourth quarter of fiscal 2019 was USD 58.8 million and included expense of USD 0.3 million for accelerated unamortized debt issuance costs and original issue discount related to term loan prepayments made in the quarter with asset sale proceeds. When excluding this amount, interest expense, net was USD 58.5 million compared to USD 4.0 million for the fourth quarter of fiscal 2018. The increase in interest expense, net was driven by the Supervalu acquisition financing.

Effective tax rate for continuing operations for the fourth quarter of fiscal 2019 was 94.2 percent compared to 28.8 percent for the fourth quarter of fiscal 2018. The change in the effective tax rate for the fourth quarter compared to last year’s fourth quarter was primarily driven by purchase accounting adjustments that impacted the goodwill impairment benefit recorded in the quarter. The goodwill and asset impairment benefit recorded in the fourth quarter increased the effective tax rate by approximately 59.8 percent.

Net income for the fourth quarter of fiscal 2019 was USD 18.9 million, including USD 18.0 million of net income related to discontinued operations, compared to USD 32.8 million for the fourth quarter of fiscal 2018. The decrease in net income was primarily the result of higher interest and tax expense, partly offset by the contribution from discontinued operations and higher operating income, including the benefit from the goodwill and asset impairment adjustment. Net loss for fiscal 2019 was USD 285.0 million and was primarily driven by the USD 292.8 million goodwill and asset impairment charge and full-year restructuring, acquisition, and integration related expenses that totaled USD 153.5 million.

Earnings Per Diluted Share (EPS) was USD 0.36 for the fourth quarter of fiscal 2019 compared to USD 0.64 for the fourth quarter of fiscal 2018. Net loss per common share for fiscal 2019 was USD 5.56 and was primarily driven by the goodwill and asset impairment charge and restructuring, acquisition, and integration related expenses.

Adjusted Ebitda for the fourth quarter of fiscal 2019 was USD 165.5 million compared to USD 85.1 million for the fourth quarter of fiscal 2018. The increase was predominantly driven by the addition of Supervalu.

Net debt reduction during the fourth quarter was USD 166 million, primarily the result of cash from operations and the proceeds from asset sales, net of capital expenditures.

Fiscal 2020 Outlook (1)

Fiscal Year Ending 2020-08-01
Net Sales (USD in billions) USD 23.5 to USD 24.3
Net Income (USD in millions) USD 19 to USD 48
Earnings Per Diluted Share (EPS) USD 0.35 to USD 0.89
Adjusted Earnings Per Diluted Share (EPS) (2) (3) USD 1.22 to USD 1.76
Adjusted Ebitda(3) (USD in millions) USD 560 to USD 600
Capital Expenditures (% of Net Sales) approximately 1 percent

(1) The outlook provided above is for fiscal 2020 only and replaces and supersedes any and all guidance provided prior to the date hereof covering fiscal 2020 or subsequent years. This outlook is forward-looking, is based on management’s current estimates and expectations and is subject to a number of risks, including many that are outside of management’s control.

(2) Beginning with periods ending after August 3, 2019, the Company will use an adjusted effective tax rate in calculating Adjusted EPS. The adjusted effective tax rate will be calculated based on adjusted net income before tax. It will also exclude the potential impact of changes to uncertain tax positions, valuation allowances, stock compensation accounting (ASU 2016-09) and discrete GAAP tax items which could impact the comparability of the operational effective tax rate. This change is reflected in the Company’s outlook for Adjusted EPS for fiscal 2020. The Company believes using this adjusted effective tax rate will provide better consistency across the interim reporting periods since each of these discrete items can cause volatility in the GAAP tax rate that is not indicative of the true operations of the Company. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company’s effective tax rate on ongoing operations.

(3) Please refer to the tables in this press release for a reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.