UNFI
$21.21
United Nat Foods
$1.61
8.21%
Earnings Details
2nd Quarter January 2020
Wednesday, March 11, 2020 6:58:00 AM
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Summary

United Nat Foods Beats

United Nat Foods (UNFI) reported 2nd Quarter January 2020 earnings of $0.32 per share on revenue of $6.1 billion. The consensus earnings estimate was $0.27 per share on revenue of $6.2 billion. The Earnings Whisper number was $0.27 per share. Revenue fell 0.2% compared to the same quarter a year ago.

The company said, due to a customer bankruptcy, it now expects fiscal 2020 earnings of $0.85 to $1.45 per share but continues to expect revenue of $23.50 billion to $24.30 billion. The company's previous guidance was earnings of $1.22 to $1.76 per share and the current consensus earnings estimate is $1.28 per share on revenue of $24.16 billion for the year ending July 31, 2020.

United Natural Foods Inc is a distributor of natural, organic and specialty foods and non-food products in the United States and Canada. Its products consist of national, regional and private label brands.

Results
Reported Earnings
$0.32
Earnings Whisper
$0.27
Consensus Estimate
$0.27
Reported Revenue
$6.14 Bil
Revenue Estimate
$6.16 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

United Natural Foods, Inc. Reports Second Quarter Fiscal 2020 Results

PROVIDENCE, R.I., March 11, 2020 /PRNewswire/ -- United Natural Foods, Inc. (NYSE: UNFI) (the "Company" or "UNFI") today reported financial results for the second quarter of fiscal 2020 (13 weeks) ended February 1, 2020.

Second Quarter Fiscal 2020 Highlights

  • Net Sales of $6.14 billion compared to $6.15 billion in last year's fiscal second quarter
  • Total outstanding net debt reduced by $149 million compared to the first quarter of fiscal 2020
  • Gross margin rate increased compared to last year's fiscal second quarter
  • Second quarter GAAP and adjusted results include charges of $0.44 per diluted share associated with three customer bankruptcies
  • Update to fiscal 2020 guidance

"UNFI continues to evolve as the industry leader providing retailers with today's most sought-after products," said Steven L. Spinner, Chairman and Chief Executive Officer.  "Despite considerable industry headwinds, I'm encouraged by our underlying performance and the momentum that is building within our business.  Prior to charges associated with the three customer bankruptcies that impacted the quarter, we grew Adjusted EBITDA by low double digits, and we remain optimistic as we move into the second half of our fiscal year and confident in UNFI's long-term growth prospects."


13-Week Period Ended



($ in millions, except per share data)

February 1,
2020


January 26,
2019


% Change

Net Sales

$

6,138



$

6,149



(0.2)

%

Supermarkets channel(1)

$

3,879



$

3,928



(1.2)

%

Supernatural channel

$

1,210



$

1,100



10.0

%

Independents channel(1)

$

631



$

675



(6.5)

%

Other channel(1)

$

418



$

446



(6.3)

%

Net Loss

$

(31)



$

(342)




Adjusted EBITDA(2)

$

131



$

143




Net Loss Per Diluted Share (EPS)

$

(0.57)



$

(6.72)




Adjusted Earnings Per Diluted Share (EPS)(2)

$

0.32



$

0.44





(1)

During the first quarter of fiscal 2020, the presentation of net sales by customer channel was adjusted to reflect reclassification of customer types resulting from management's determination that a customer serviced by both Supervalu and legacy UNFI should be classified as a Supermarket customer given that customer's operations. During the second quarter of fiscal 2020, the presentation of net sales by customer channel was adjusted to reflect conventional military sales within Other instead of Independents based on management's determination to better reflect the focus of its ongoing business and the definition of customer channels. There was no impact to the Condensed Consolidated Statements of Income as a result of the reclassification of customer types. As a result of these adjustments, net sales to the Company's Supermarkets channel for the second quarter of fiscal 2019 increased approximately $26 million compared to the previously reported amounts, while net sales to the Other channel for the second quarter of fiscal 2019 increased $109 million compared to previously reported amounts. Net sales to the Company's Independents channel for the second quarter of fiscal 2019 decreased $135 million compared to the previously reported amounts. In addition, net sales to the Company's Other channel for the first quarter of fiscal 2020 increased $90 million compared to the previously reported amounts, with an offsetting elimination to the Independents channel.

(2)

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. 

Second Quarter Fiscal 2020 Summary

Net sales from continuing operations benefited from continued growth in our Supernatural channel, which was offset by sales declines in other customer channels.

Gross margin for the second quarter of fiscal 2020 was 12.63% of net sales compared to 12.39% of net sales for the second quarter of fiscal 2019, which included an $8.6 million, or 0.14% of net sales, inventory fair value adjustment related to the Supervalu acquisition. When excluding this charge, gross margin in the second quarter of fiscal 2019 was 12.53% of net sales. The increase in gross margin rate was primarily driven by lower inbound freight expense.  Included in gross margin for the second quarter of fiscal 2020 was inventory shrink expense of approximately $4.2 million, or 0.07% of net sales, associated with customer bankruptcies.

Operating expenses in the second quarter of fiscal 2020 were $750.8 million, or 12.23% of net sales, compared to $751.9 million, also 12.23% of net sales, for the second quarter of fiscal 2019.  Operating expenses in the second quarter of fiscal 2020 and fiscal 2019, as a percent of net sales, were approximately equal as cost savings in the second quarter of fiscal 2020 were offset by approximately $28.9 million, or 0.47% of net sales, of bad debt expense associated with customer bankruptcies.

Restructuring, acquisition and integration related expenses in the second quarter of fiscal 2020 were $29.7 million, including costs and charges related to the disposal of existing retail and surplus real estate, distribution network consolidation, and employee-related costs, compared to $47.1 million in the second quarter of fiscal 2019.

Operating (loss) income in the second quarter of fiscal 2020 was $(5.1) million and included expense of $33.1 million associated with customer bankruptcies and $29.7 million of restructuring, acquisition and integration related expenses.  When excluding the restructuring, acquisition and integration expenses, operating income in the second quarter of fiscal 2020 was $24.6 million, or 0.40% of net sales. Operating loss in the second quarter of fiscal 2019 was $(408.1) million and included a goodwill impairment charge of $370.9 million, restructuring, acquisition, and integration related expenses of $47.1 million, and a fair value inventory adjustment charge associated with the purchase of SUPERVALU of $8.6 million.  When excluding these items, operating income for the second quarter of fiscal 2019 was $18.5 million, or 0.30% of net sales.  The increase in adjusted operating income, as a percent of net sales, was driven by higher gross margins.

Interest expense, net for the second quarter of fiscal 2020 was $48.6 million. 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 then-outstanding SUPERVALU senior notes and $1.0 million of unamortized debt issuance costs for certain term loan prepayments made in the second quarter of fiscal 2019 with asset sale proceeds. When excluding these amounts, interest expense, net was $55.2 million in the second quarter of fiscal 2019.  The decrease in interest expense, net was driven by lower amounts of outstanding debt and lower average interest rates.

Effective tax rate for continuing operations for the second quarter of fiscal 2020 was a benefit of 35.5% compared to a benefit of 20.2% for the second quarter of fiscal 2019. The second 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 a tax benefit on the goodwill impairment charge in the second quarter of fiscal 2019 which did not recur in the second quarter of fiscal 2020.

Net loss for the second quarter of fiscal 2020 was $(30.7) million compared to $(341.7) million for the second quarter of fiscal 2019.  The second quarter of fiscal 2019 included a $370.9 million pre-tax goodwill impairment charge as well as $17.4 million in additional restructuring, acquisition and integration related expenses compared to the second quarter of fiscal 2020.

Net (loss) income per diluted share (EPS) was $(0.57) for the second quarter of fiscal 2020 compared to $(6.72) for the second quarter of fiscal 2019.  Adjusted EPS was $0.32 for the second quarter of fiscal 2020 compared to adjusted EPS of $0.44 in the second quarter of fiscal 2019, reflecting customer bankruptcy charges and lower net income from discontinued operations in the second quarter of fiscal 2020.  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 second quarter of fiscal 2020 was $131.1 million compared to $142.6 million for the second quarter of fiscal 2019.  Adjusted EBITDA for the second quarter of fiscal 2020 included expense of $33.1 million associated with customer bankruptcies.

Total Outstanding Debt, net of cash, decreased $149 million in the second quarter of fiscal 2020 (compared to the first quarter of fiscal 2020) driven by an expected decrease in net working capital following the holiday selling period.

Fiscal 2020 Outlook (1)

Fiscal 2020 guidance for net sales is unchanged from previously provided guidance.  Fiscal 2020 guidance for Net Loss, EPS, Adjusted EPS and Adjusted EBITDA has been changed to reflect charges taken in the second quarter associated with customer bankruptcy filings.

Fiscal Year Ending August 1, 2020



Net Sales ($ in billions)


$23.5 - $24.3

Net Loss ($ in millions)


$(395) - $(363)

Loss Per Share (EPS)


$(7.39) - $(6.79)

Adjusted Earnings Per Diluted Share (EPS) (2) (3)


$0.85 - $1.45

Adjusted EBITDA(3) ($ in millions)


$520 - $560


(1)

The outlook provided above is for fiscal 2020.  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.  See cautionary language below. 

(2)

Beginning with periods ending after August 3, 2019, the Company is using 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 also excludes 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.  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 underlying ongoing 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.

Conference Call and Webcast
The Company's second quarter fiscal 2020 conference call and audio webcast will be held today, Wednesday, March 11, 2020 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
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.

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 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 or its distribution capabilities by circumstances beyond its control, including a health epidemic; 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 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 charges, restructuring, acquisition, and integration related expenses, pension settlement charges, note receivable charges, surplus 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 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 a 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 performance of our business and understanding the underlying operating performance and 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. 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.

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(In thousands, except for per share data)




13-Week Period Ended


26-Week Period Ended



February 1,
2020


January 26,
2019


February 1,
2020


January 26,
2019

Net sales


$

6,137,604



$

6,149,206



$

12,157,189



$

9,017,362


Cost of sales


5,362,144



5,387,423



10,610,687



7,843,248


Gross profit


775,460



761,783



1,546,502



1,174,114


Operating expenses


750,845



751,922



1,526,259



1,115,087


Goodwill and asset impairment charges




370,871



425,405



370,871


Restructuring, acquisition and integration related expenses


29,686



47,125



43,936



115,129


Operating loss


(5,071)



(408,135)



(449,098)



(426,973)


Other expense (income):









Net periodic benefit income, excluding service cost


(3,277)



(10,906)



(14,661)



(11,750)


Interest expense, net


48,621



58,707



98,139



66,232


Other, net


(520)



(824)



(566)



(727)


Total other expense, net


44,824



46,977



82,912



53,755


Loss from continuing operations before income taxes


(49,895)



(455,112)



(532,010)



(480,728)


Benefit for income taxes


(17,728)



(91,809)



(91,481)



(96,064)


Net loss from continuing operations


(32,167)



(363,303)



(440,529)



(384,664)


Income from discontinued operations, net of tax


2,107



21,407



27,061



23,477


Net loss including noncontrolling interests


(30,060)



(341,896)



(413,468)



(361,187)


Less net (income) loss attributable to noncontrolling interests


(650)



171



(1,169)



168


Net loss attributable to United Natural Foods, Inc.


$

(30,710)



$

(341,725)



$

(414,637)



$

(361,019)











Basic (loss) earnings per share:









Continuing operations


$

(0.60)



$

(7.15)



$

(8.25)



$

(7.59)


Discontinued operations


$

0.03



$

0.42



$

0.49



$

0.46


Basic loss per share


$

(0.57)



$

(6.72)



$

(7.77)



$

(7.12)


Diluted (loss) earnings per share:









Continuing operations


$

(0.60)



$

(7.15)



$

(8.25)



$

(7.59)


Discontinued operations


$

0.03



$

0.42



$

0.48



$

0.46


Diluted loss per share


$

(0.57)



$

(6.72)



$

(7.77)



$

(7.12)


Weighted average shares outstanding:









Basic


53,523



50,815



53,368



50,699


Diluted


53,523



50,815



53,368



50,699


 

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(In thousands, except for per share data)




February 1,
2020


August 3,
2019

ASSETS





Cash and cash equivalents


$

40,064



$

42,350


Accounts receivable, net


1,074,941



1,065,699


Inventories


2,134,905



2,089,416


Prepaid expenses and other current assets


224,174



226,727


Current assets of discontinued operations


145,369



143,729


Total current assets


3,619,453



3,567,921


Property and equipment, net


1,470,704



1,639,259


Operating lease assets


1,061,946




Goodwill


19,734



442,256


Intangible assets, net


978,170



1,041,058


Deferred income taxes


96,044



31,087


Other assets


108,470



107,319


Long-term assets of discontinued operations


327,905



352,065


Total assets


$

7,682,426



$

7,180,965


LIABILITIES AND STOCKHOLDERS' EQUITY





Accounts payable


$

1,462,843



$

1,476,857


Accrued expenses and other current liabilities


245,800



249,426


Accrued compensation and benefits


164,112



148,296


Current portion of operating lease liabilities


131,315




Current portion of long-term debt and finance lease liabilities


32,218



112,103


Current liabilities of discontinued operations


122,761



122,265


Total current liabilities


2,159,049



2,108,947


Long-term debt


2,917,131



2,819,050


Long-term operating lease liabilities


967,933




Long-term finance lease liabilities


56,799



108,208


Pension and other postretirement benefit obligations


205,651



237,266


Deferred income taxes


1,041



1,042


Other long-term liabilities


275,082



393,595


Long-term liabilities of discontinued operations


646



1,923


Total liabilities


6,583,332



5,670,031


Stockholders' equity:





Preferred stock, $0.01 par value, authorized 5,000 shares; none issued or outstanding





Common stock, $0.01 par value, authorized 100,000 shares; 54,175 shares issued and 53,560 shares outstanding at 
     February 1, 2020; 53,501 shares issued and 52,886 shares outstanding at August 3, 2019


542



535


Additional paid-in capital


535,900



530,801


Treasury stock at cost


(24,231)



(24,231)


Accumulated other comprehensive loss


(108,420)



(108,953)


Retained earnings


698,269



1,115,519


Total United Natural Foods, Inc. stockholders' equity


1,102,060



1,513,671


Noncontrolling interests


(2,966)



(2,737)


Total stockholders' equity


1,099,094



1,510,934


Total liabilities and stockholders' equity


$

7,682,426



$

7,180,965



 

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)




26-Week Period Ended

(In thousands)


February 1,
2020


January 26,
2019

CASH FLOWS FROM OPERATING ACTIVITIES:





Net loss including noncontrolling interests


$

(413,468)



$

(361,187)


Income from discontinued operations, net of tax


27,061



23,477


Net loss from continuing operations


(440,529)



(384,664)


Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:





Depreciation and amortization


144,360



97,993


Share-based compensation


3,951



14,511


Loss (gain) on disposition of assets


1,269



(60)


Closed property and other restructuring charges


16,907



20,701


Goodwill and asset impairment charges


425,405



370,871


Net pension and other postretirement benefit income


(14,633)



(11,750)


Deferred income tax benefit


(60,260)



(65,605)


LIFO charge


12,943



6,265


Provision for doubtful accounts


45,503



7,958


Loss on debt extinguishment


73



2,117


Non-cash interest expense


7,393



4,298


Changes in operating assets and liabilities, net of acquired businesses


(151,247)



(62,679)


Net cash used in operating activities of continuing operations


(8,865)



(44)


Net cash provided by operating activities of discontinued operations


47,947



25,910


Net cash provided by operating activities


39,082



25,866


CASH FLOWS FROM INVESTING ACTIVITIES:





Capital expenditures


(84,627)



(80,137)


Purchases of acquired businesses, net of cash acquired




(2,281,934)


Proceeds from dispositions of assets


11,737



168,274


Payments for long-term investment


(162)



(110)


Payments of company owned life insurance premiums


(1,310)




Other




363


Net cash used in investing activities of continuing operations


(74,362)



(2,193,544)


Net cash provided by investing activities of discontinued operations


16,677



44,263


Net cash used in investing activities


(57,685)



(2,149,281)


CASH FLOWS FROM FINANCING ACTIVITIES:





Proceeds from borrowings of long-term debt


2,050



1,905,000


Proceeds from borrowings under revolving credit line


2,269,989



2,698,604


Repayments of borrowings under revolving credit line


(2,162,821)



(1,666,600)


Repayments of long-term debt and finance leases


(93,326)



(713,366)


Proceeds from the issuance of common stock and exercise of stock options


2,027



118


Payment of employee restricted stock tax withholdings


(872)



(3,141)


Payments for debt issuance costs




(64,519)


Net cash provided by financing activities of continuing operations


17,047



2,156,096


Net cash used in financing activities of discontinued operations


(1,398)



(254)


Net cash provided by financing activities


15,649



2,155,842


EFFECT OF EXCHANGE RATE CHANGES ON CASH


19



(1,868)


NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS


(2,935)



30,559


Cash and cash equivalents, at beginning of period


45,263



23,315


Cash and cash equivalents at end of period


42,328



53,874


Less: cash and cash equivalents of discontinued operations


(2,264)



(4,359)


Cash and cash equivalents


$

40,064



$

49,515


Supplemental disclosures of cash flow information:





Cash paid for interest


$

94,010



$

66,016


Cash (refunds) payments for federal and state income taxes, net


$

(24,376)



$

13,449



 

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

UNITED NATURAL FOODS, INC.


Reconciliation of Net loss per Diluted Common Share to Adjusted Net income per Diluted Common Share (unaudited)



13-Week Period Ended


26-Week Period Ended


February 1,
2020


January 26,
2019


February 1,
2020


January 26,
2019

Net loss attributable to UNFI per diluted common share

$

(0.57)



$

(6.72)



$

(7.77)



$

(7.12)


Goodwill and asset impairment charges(1)



7.30



7.97



7.32


Restructuring, acquisition and integration related 
     expenses(2)

0.55



0.93



0.82



2.27


Pension settlement charge(3)

0.19





0.19




Surplus property depreciation and interest expense(4)

0.04





0.12




Note receivable charges(5)





0.23




Loss on debt extinguishment(6)



0.02





0.04


Interest expense on senior notes(7)



0.05





0.06


Inventory fair value adjustment(8)



0.17





0.21


Legal (settlement income) reserve charge(9)

(0.01)





0.02




Discontinued operations store closures and other 
     charges, net(10)

0.58



0.25



0.60



0.24


Tax impact of adjustments and adjusted effective tax 
     rate(11)

(0.46)



(1.54)



(1.73)



(1.97)


Impact of diluted shares(12)







(0.01)


Adjusted net income per diluted common share(11)

$

0.32



$

0.44


*

$

0.45



$

1.04



* Includes rounding


(1)

Fiscal 2020 year-to-date reflects a goodwill impairment charge attributable to a reorganization of our reporting units and a sustained decrease in market capitalization and enterprise value of the Company, resulting in a decline in the estimated fair value of the U.S. Wholesale reporting unit. In addition, this charge includes a goodwill finalization charge attributable to the SUPERVALU acquisition and an asset impairment charge. Fiscal 2019 year-to-date reflects a goodwill impairment charge attributable to the SUPERVALU acquisition.

(2)

Fiscal 2020 year-to-date primarily reflects integration charges, closed property reserve charges and administrative and operational restructuring costs. Fiscal 2019 year-to-date primarily reflects expenses resulting from the acquisition of SUPERVALU and acquisition and integration expenses, including employee-related costs.

(3)

Reflects a non-cash pension settlement charge associated with the acceleration of a portion of the accumulated unrecognized actuarial loss as a result of the lump sum settlement payments.

(4)

Reflects surplus, non-operating property depreciation and interest expense, including accelerated depreciation related to a location on which we recognized a gain that is included in Restructuring, acquisition and integration related expenses.

(5)

Reflects reserves and charges for notes receivable issued by the SUPERVALU business prior to its acquisition to finance the purchase of stores by its customers.

(6)

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.

(7)

Interest expense recorded on the SUPERVALU senior notes in the mandatory 30-day redemption notice period.

(8)

Reflects a non-cash charge related to the step-up in inventory values as part of purchase accounting.

(9)

Reflects income received to settle a legal proceeding, a charge to settle a legal proceeding and a charge related to our assessment of legal proceedings.

(10)

Amounts represent store closure charges and costs, operational wind-down and inventory charges, and asset impairment charges related to discontinued operations.

(11)

Represents the tax effect of the pre-tax adjustments and beginning in the first quarter of fiscal 2020 an adjustment to utilize an adjusted effective tax rate to calculate Adjusted EPS. The adjusted effective tax rate is calculated based on adjusted net income before tax, and its impact reflects the exclusion of changes to uncertain tax positions, valuation allowances, tax impacts related to the exercise of share-based compensation awards and discrete GAAP tax items which could impact the comparability of the operational effective tax rate. 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. For the second quarter of fiscal 2020 and fiscal 2020 year-to-date, the use of the effective tax rate methodology used in fiscal 2019 to calculate Adjusted EPS would have resulted in the tax impact of adjustments being ($0.54) and ($1.82) per diluted share, respectively, and Adjusted EPS of $0.24 and $0.36, respectively. If the Company had utilized an adjusted effective tax rate in calculating Adjusted EPS in the second quarter of fiscal 2019 and fiscal 2019 year-to-date, the tax impact of adjustments using the adjusted effective tax rate would have been ($1.78) and ($2.13) per diluted share, respectively, and Adjusted EPS would have been $0.20 and $0.88 per diluted share, respectively.

(12)

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 from continuing operations and Income from discontinued operations, net of tax to Adjusted EBITDA (unaudited)



13-Week Period Ended


26-Week Period Ended

(in thousands)

February 1,
2020


January 26,
2019


February 1,
2020


January 26,
2019

Net loss from continuing operations

$

(32,167)



$

(363,303)



$

(440,529)



$

(384,664)


Adjustments to continuing operations net loss:








Total other expense, net

44,824



46,977



82,912



53,755


Benefit for income taxes

(17,728)



(91,809)



(91,481)



(96,064)


Depreciation and amortization

69,219



73,200



144,360



97,993


Share-based compensation

4,880



10,423



8,552



18,512


Restructuring, acquisition and integration related expenses

29,686



47,125



43,936



115,129


Goodwill and asset impairment charges



370,871



425,405



370,871


Note receivable charges





12,516




Inventory fair value adjustment



8,644





10,463


Legal (settlement income) reserve charge

(654)





1,196




Adjusted EBITDA of discontinued operations(1)(2)

33,050



40,446



65,937



42,772


Adjusted EBITDA

$

131,110



$

142,574



$

252,804



$

228,767










Income from discontinued operations, net of tax(1)(2)

$

2,107



$

21,407



$

27,061



$

23,477


Adjustments to discontinued operations net income:








Less net income attributable to noncontrolling interests

(650)



171



(1,169)



168


Total other expense, net

41



(339)



(1,050)



(588)


Provision for income taxes

286



5,239



8,376



5,987


Other expense



378





238


Share-based compensation

253



532



506



532


Restructuring, store closure and other charges, net(3)

31,013



13,058



32,213



12,958


Adjusted EBITDA of discontinued operations(1)(2)

$

33,050



$

40,446



$

65,937



$

42,772



(1)

In the third quarter of fiscal 2019, UNFI expanded its GAAP reconciliations to provide additional supplemental information regarding its adjustments within discontinued operations to arrive at the consolidated measure of Adjusted EBITDA. Previously, these line items were presented together as Net (loss) income attributable to United Natural Foods, Inc. These lines have been separated to provide for a separate presentation of the adjustments included within Adjusted EBITDA related to discontinued operations. This additional information had no impact on the previously presented calculation and definition of Adjusted EBITDA. For additional information regarding our discontinued operations, refer to UNFI's Annual Report on Form 10-K for the year ended August 3, 2019.

(2)

Adjusted EBITDA of discontinued operations excludes rent expense of $11.0 million and $12.4 million in the second quarters of fiscal 2020 and 2019, respectively, and $23.5 million and $13.3 million in fiscal 2020 and 2019 year-to-date, respectively, of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases. Due to these GAAP requirements to show rent expense, along with other administrative expenses of discontinued operations within continuing operations, UNFI believes the inclusion of discontinued operations results within Adjusted EBITDA provides investors a meaningful measure of total performance.

(3)

Amounts represent store closure charges and costs, operational wind-down and inventory charges, and asset impairment charges related to discontinued operations.

 

Reconciliation of 2020 Guidance for Estimated Net Loss per diluted Common Share to

Estimated Non-GAAP Adjusted Net Income per diluted Common Share (unaudited)



Fiscal Year Ending August 1, 2020


Low Range


Estimate


High Range

Net loss attributable to United Natural Foods, Inc. per diluted common share

$

(7.39)





$

(6.79)


Goodwill and asset impairment charges



7.97




Restructuring, acquisition and integration related costs



0.97




Note receivable charges



0.23




Pension settlement charge



0.19




Surplus property depreciation and interest expense



0.20




Legal settlement income, reserve charge



0.02




Discontinued operations store closures and other charges, net



0.62




Tax impact of adjustments and adjusted effective tax rate(1)



(1.96)




Adjusted net income per diluted common share(2)(3)

$

0.85





$

1.45



(1)

The impact of the adjusted effective tax rate represents approximately $(0.20) of the $(1.96).

(2)

Fiscal year ending August 1, 2020 Adjusted net income per diluted common share includes results reflected in our discontinued operations related to a full year of operations of Cub Foods

(3)

The estimated adjusted effective tax rate excludes the potential impact of changes in uncertain tax positions, tax impacts related to ASU 2006-09 regarding stock compensation and valuation allowances. Refer to the reconciliation for adjusted effective tax rate.

 

Reconciliation of 2020 Guidance for Net loss Attributable to United Natural Foods, Inc. to Adjusted EBITDA (unaudited)



Fiscal Year Ending August 1, 2020

(in thousands)

Low Range


Estimate


High Range

Net loss attributable to United Natural Foods, Inc.

$

(395,000)





$

(363,000)


Benefit for income taxes

(81,000)





(73,000)


Goodwill and asset impairment charges



425,000




Restructuring, acquisition and integration related costs(1)



52,000




Note receivable charges



13,000




Pension settlement charge



10,000




Closed property depreciation and interest expense



10,000




Legal settlement income, reserve charge



2,000




Discontinued operations store closures and other charges, net



33,000




Net interest expense



191,000




Other (income) expense, net



(2,000)




Depreciation and amortization



278,000




Share-based compensation



33,000




Net periodic benefit income, excluding service costs



(49,000)




Adjusted EBITDA(2)

$

520,000





$

560,000



(1)

Excludes potential future costs and charges associated with divestitures of retail banners.

(2)

Fiscal year ending August 1, 2020 Adjusted EBITDA includes results reflected in our Discontinued Operations related to a full year of operations of Cub Foods.

 

Reconciliation of Estimated 2020 and Actual 2020 U.S. GAAP Effective Tax Rate to Adjusted Tax Rate (unaudited)




Estimated
Fiscal 2020


Actual Fiscal
2019

U.S. GAAP Effective Tax Rate


16

%


18

%

Discrete quarterly recognition of GAAP items(1)


2

%


(2)

%

Tax impact of other charges and adjustments(2)


(6)

%


%

Changes in valuation allowances(3)


5

%


%

Impact of Goodwill Impairment


9

%


11

%

Other(4)


3

%


%

Adjusted Effective Tax Rate


29

%


27

%


Note: As part of the year-end reconciliation, we will update the reconciliation of the GAAP effective tax rate for actual results.


(1)

Reflects changes in tax laws, uncertain tax positions, the tax impacts related to the exercise of share-based compensation awards and any prior-year audit adjustments.

(2)

Reflects the tax impact of pre-tax adjustments that are excluded from pre-tax income when calculating adjusted earnings per share.

(3)

Reflects changes in valuation allowances related to changes in judgment regarding the realizability of deferred tax assets or current year operations.

(4)

Tax impacts related to full-year forecasted tax opportunities and related costs.  The Company establishes an estimated Adjusted Effective Tax Rate at the beginning of the fiscal year based on the best available information. The Company will re-evaluate its estimated Adjusted Effective Tax Rate as appropriate throughout the year and adjust for any material changes. The actual Adjusted Effective Tax Rate at the end of the fiscal year will be based on actual results and may differ from the estimated Adjusted Effective Tax Rate used during the year.

 

Cision View original content:http://www.prnewswire.com/news-releases/united-natural-foods-inc-reports-second-quarter-fiscal-2020-results-301021208.html

SOURCE United Natural Foods, Inc.