UNFI turns supply chain woes into higher sales

Dive Brief:

United Natural Foods, Inc. (UNFI) reported better-than-anticipated fourth-quarter earnings on Tuesday as its scale, cost-savings plan and new growth strategy boosted profitability.
The company reported a 0.5% decrease in net sales to $6.7 billion for the quarter ended July 31. Adjusted earnings per share increased 11.3%, to $1.18, and adjusted EBITDA grew 1.5% to $201 million. Both figures were better than the company expected. Sales in the company's "supernatural" channel, which is primarily comprised of Whole Foods Market stores, grew 11.8% during the quarter.
UNFI executives said the company is benefiting from supply chain disruptions and trying to keep its operations nimble. “It’s been a roller-coaster ride,” Chris Testa, the supplier’s president, said during the earnings call on Tuesday.

Dive Insight:

The ongoing supply chain woes causing havoc for retailers have continued to be a rising tide for UNFI.

The supplier’s scale and depth of assortment across natural and conventional products have translated into retailers increasingly relying on the company to meet demand, Testa said. This promises a continued near-term boost for the company that has made expanding its product selection a core strategy in recent years.

“The supply chain is stressed right now and it's been stressed for 17 months. And that level — that environment — has been an opportunity for UNFI,” he said.

Taking advantage of the opportunity has been difficult, Testa said, requiring vigilance in working with suppliers, replacing items, taking depleted products off promotion and other steps. And the challenges are beginning to impact service levels.

“The retailer community is growing fatigued with the limited assortments and increasing out-of-stocks across several key categories," Testa noted. "These supply challenges caused our inbound supplier service levels to begin to deteriorate in the fourth quarter.”

UNFI has also had to contend with a temporary shutdown at one of its facilities. In early August, the company temporarily closed its Centralia, Washington, distribution center to contend with a COVID-19 outbreak. That disruption, which effectively lasted for a week, caused a supply disruption that will show up in the company’s next earnings report, officials said.

But Q4 and next year’s outlook were seen in a mainly positive light by analysts and investors, with UNFI’s stock climbing more than 20% on Tuesday. The supplier’s largest customer, Whole Foods, led growth among the company’s various divisions. Sales to that “supernatural” channel increased to $1.25 billion due to improving results at that chain as well as a renewed agreement that’s “opened the door for additional categories and growth,” Testa noted. UNFI’s retail stores, Cub Foods and Shoppers Food & Pharmacy, saw sales decline 6% in comparison to the lofty growth posted during the same period last year. The company also saw a boost to profitability from its Value Path savings initiative launched late last year.

UNFI’s new CEO, Sandy Douglas, also introduced himself to investors and the analyst community. In seven weeks on the job, he sees opportunities to grow the business and said he endorses the company’s strategic plan that was put in place over the summer aimed at generating $30 billion in sales and $900 million in adjusted earnings by 2024.

“My early take is that there are significant opportunities to improve the way we serve existing and new customers and the opportunity to partner with suppliers to bring customers the highest quality differentiated products and services that they want and need,” Douglas said.