Dive Brief:

• United Natural Foods, Inc. (UNFI) reported net sales of $7 billion for the first quarter of fiscal 2022, marking just the second time in the company’s history that it logged quarterly sales at or above that metric, President Chris Testa said during the company’s earnings call. 
• The strong results were driven by inflation and building out business among new and existing customers, executives said on Wednesday. UNFI’s adjusted EBITDA increased to $189 million, while gross margins increased 38 basis points over last year’s Q1.
• UNFI’s results underscore the continued strength of food-at-home consumption as all three of the distributor’s sales channels — chains, independents and supernatural — experienced year-over-year sales growth.

Dive Insight:

UNFI is staying ahead of a still-challenging supply environment through a combination of new business wins, inflation and a strong at-home eating trend that’s benefiting its retail customers.

Like many companies that sell and distribute food right now, UNFI is facing declining fill rates and higher costs in its supply chain operations. The wholesaler didn’t cite specific numbers, though competitor SpartanNash recently noted that inbound fill rates among some of its largest suppliers were down as much as 20%. Testa said during UNFI’s earnings call on Wednesday it expects supply chain challenges to continue in the near term.

Those challenges, though, were partly offset by rising inflation, which boosted wholesale net sales by 2.5% to 3%, Testa noted, adding that inflation should remain high and continue boosting its business well into next year.

“At least for the next several months, we don't see inflation easing,” he said.

Equally important was the additional business UNFI gained in the quarter from both current and new customers. The company has placed an emphasis on building out sales from the retailers it currently services by cross-selling natural and conventional products, and by adding services like private label items to their tabs. 

Also providing a boost was the addition of UNFI’s largest distribution center to date, which opened for business in Allentown, Pennsylvania, during Q1. That facility is intended to service UNFI’s $10 billion contract with Key Food, which it won last year, along with other grocers.

UNFI’s “supernatural” channel, which covers its largest customer, Whole Foods Market, led sales channels for the company, increasing 13.5% to roughly $1.38 billion thanks to opening new SKUs and categories, Testa said.

Sales at the company’s Cub Foods and Shoppers Food & Pharmacy locations, meanwhile, continued to hum along, with sales up 14.7% on a two-year stack. UNFI was in the process of selling off its retail stores but earlier this year announced it would hold onto its remaining locations given the boost they received during the pandemic, and the company is now investing in remodels and new locations in existing markets.

UNFI’s stock price jumped more than 13% on Wednesday on the strong earnings news. The company reaffirmed its financial targets for the fiscal year ahead, which call for net sales in the range of $27.8 billion to $28.3 billion and adjusted EBITDA of $760 million to $790 million.