Q2 2024 United Natural Foods Inc Earnings Call
Operator: www. UnitedNaturalFoods.org Good morning, my name is Jeannie, and I will be your conference operator today. I would like to welcome you to the UNFI fiscal 2024 second quarter earnings call. All lines have been placed on mute to prevent any background noise.
Good morning, My name is Jamie and I will be your conference operator today I would like to welcome you to the UNFI fiscal 'twenty 'twenty four second quarter earnings call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Steve Bloomquist. You may begin your conference. Good morning, everyone, and thank you for joining us on UNFI's second quarter fiscal 2024 earnings conference call. By now, you should have received a copy of the earnings release issued this morning.
If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one again.
Speaker Change: Thank you.
Speaker Change: I would now like to turn the conference over to Steve Bloomquist, Steve Bloomquist.
Steven J. Bloomquist: You may begin your conference.
Steven J. Bloomquist: Good morning, everyone and thank you for joining us on Unfi's second quarter fiscal 2024 earnings conference call.
Steven J. Bloomquist: By now you Should've received a copy of the earnings release issued this morning.
Steven J. Bloomquist: The press release and earnings presentation, which management will speak to, are available under the Investors section of the company's website at www.unfi.com. We've also included a supplemental disclosure file in Microsoft Excel with key financial information. Joining me for today's call are Sandy Douglas, our Chief Executive Officer, and John Howard, our Chief Financial Officer. Sandy and John will provide a business update, after which we'll take your questions. Before we begin, I'd like to remind everyone that comments made by management during today's call may contain forward-looking statements. These forward-looking statements include plans, expectations, estimates, and projections that might involve significant risks and uncertainties. These risks are discussed in the company's earnings release and SEC filing.
Steven J. Bloomquist: Our press release and earnings presentation, which management will speak to our available under the investors section of the Companys website at Www Dot UNFI Dot Com. We've also included a supplemental disclosure file in Microsoft Excel with key financial information.
Steven J. Bloomquist: Joining me for today's call are Sandy Douglas, our Chief Executive Officer, and John Howard, Our Chief Financial Officer.
James Alexander Miller Douglas: Sandy and John will provide a business update after which we'll take your questions.
Speaker Change: Before we begin I'd like to remind everyone that comments made by management during today's call may contain forward looking statements.
Speaker Change: These forward looking statements include plans expectations estimates and projections that might involve significant risks and uncertainties.
Speaker Change: These risks are discussed in the company's earnings release and SEC filings.
Steven J. Bloomquist: And lastly, I'd like to point out that during today's call, management will refer to certain non-GAAP financial measures. Definitions and reconciliations to the most comparable GAAP financial measures are included in our press release and the end of our earnings presentation. I'd ask you to turn to slide 6 of our presentation as I turn the call over to Sandy. Thanks, Steve.
Speaker Change: Actual results may differ materially from the results discussed in these forward looking statements.
And lastly, I'd like to point out that during today's call management will refer to certain non-GAAP financial measures.
Speaker Change: Definitions and reconciliations to the most comparable GAAP financial measures are included in our press release and the end of our earnings presentation.
Speaker Change: I'd ask you to turn to slide six of our presentation as I turn the call over to Sandy.
James Alexander Miller Douglas: Thanks, Steve we appreciate everyone joining us for our second quarter call.
James Alexander Miller Douglas: We appreciate everyone joining us for our second quarter call. In my remarks this morning, I'll provide a brief review of our results, the operating environment, and the progress we're making resetting and restoring our profitability and driving sustainable value creation for our customers, suppliers, and our shareholders. I'll also discuss this morning's other news, in which we announce that Matteo Tarditi will be joining UNFI later this spring as our new President and
James Alexander Miller Douglas: In my remarks. This morning, I'll provide a brief review of our results the operating environment and the progress, we're making resetting and restoring our profitability and driving sustainable value creation for our customers suppliers and our shareholders.
James Alexander Miller Douglas: I'll also discuss this morning's other release, and which we announced that Matteo toward D. T will be joining UNFI later this spring as our new President and CFO.
James Alexander Miller Douglas: Our second quarter results again exceeded expectations and reflected a sequential improvement in adjusted EBITDA. This resulted from continued improvements in operational execution, progress on our near-term value creation initiatives, and some seasonality benefits. We accomplished this despite an industry backdrop that continues to be challenging. Inflation rates continue to decline sequentially, with some category-specific deflation occurring.
James Alexander Miller Douglas: Our second quarter results again exceeded expectations and reflected a sequential improvement in adjusted EBITDA.
James Alexander Miller Douglas: This resulted from continued improvements in operational execution.
James Alexander Miller Douglas: Progress on our near term value creation initiatives and some seasonality benefits.
James Alexander Miller Douglas: We accomplished this despite an industry backdrop that continues to be challenging.
James Alexander Miller Douglas: Inflation rates continue to decline sequentially with some category specific deflation occurring.
James Alexander Miller Douglas: Despite this trend, overall unit volumes remain under pressure, and increased competition in food retail persists. Following a prolonged period of high inflation, consumers are continuing to buy less and are shifting some purchases away from the traditional grocery channel. This has led to lower volumes across the retail food industry and share gains by mass merchandisers and discounters.
James Alexander Miller Douglas: Despite this trend overall unit volumes remain under pressure and increased competition in food retail persists.
James Alexander Miller Douglas: Following a prolonged period of high inflation consumers are continuing to buy less and are shifting some purchases away from the traditional grocery channel. This has led to negative volumes across the retail food industry and share gains by mass merchandisers and discounters.
James Alexander Miller Douglas: Given these challenges, we are focused on strengthening and adding new capabilities in addition to driving increased efficiency across our business so that we can help our customers remain as competitive as possible. Many of our customers are performing well, even in this environment, especially those with differentiated go-to-market propositions. Importantly, we see successful food retailers positioned across the value spectrum in both large and small markets and in natural and conventional channels.
James Alexander Miller Douglas: Given these challenges we are focused on strengthening and adding new capabilities. In addition to driving increased efficiency across our business. So that we can help our customers remain as competitive as possible.
James Alexander Miller Douglas: Many of our customers are performing well even in this environment, especially those with differentiated go to market propositions.
James Alexander Miller Douglas: Importantly, we see successful food retailers positioned across the value spectrum in both large and small markets and in natural and conventional channels no matter, how our customers are positioned in their markets. We were focused in supporting them and their unique strategies with improved deficiency.
James Alexander Miller Douglas: No matter how our customers are positioned in their markets, we are focused on supporting them and their unique strategies with improved efficiency, service levels, and market intelligence, as well as with the introduction of new products, well-executed promotions, merchandising expertise, and professional services, similar to how our customers are setting themselves apart and creating significant value for consumers in their communities. UNFI continues to differentiate itself through continuous improvement. This includes refining operational execution, maintaining a broad, diversified assortment, providing value-added services that drive cost savings and help generate growth for retailers, and driving supply chain efficiencies that are optimized with industry scale. We're working to realize this potential by embedding a transformation mindset across our business focused on driving improved profitability, cost management, innovation, and service levels across the short and long term.
James Alexander Miller Douglas: Service levels and market intelligence as well as with the introduction of new products, well executed promotions merchandising expertise and professional services.
James Alexander Miller Douglas: Similar to how our customers are setting themselves apart and creating significant value for consumers and their communities.
James Alexander Miller Douglas: UNFI continues to differentiate itself through continuous improvement.
James Alexander Miller Douglas: This includes refining operational execution, maintaining a broad diversified assortment providing.
James Alexander Miller Douglas: Providing value added services that drive cost savings and help generate growth for retailers.
James Alexander Miller Douglas: And driving supply chain efficiencies that are optimized with industry scale.
James Alexander Miller Douglas: We're working to realize this potential by embedding a transformation mindset across our business focused on driving improved profitability.
James Alexander Miller Douglas: Cost management innovation and service levels across the short and long term.
James Alexander Miller Douglas: Over the last several months, we've achieved approximately $150 million in cumulative annualized savings from the near-term efficiency initiatives, and we see opportunities to further refine and lower our cost structure. We've realized additional incremental SG&A efficiencies which are expected to benefit future profitability, while also improving our service levels and making it easier to do business with UNFI by streamlining our business. We're continuing to review our organizational composition to ensure that we are structured in a way that allows us to be focused on the needed skill sets, technology, and insights to best drive profitability and growth for UNFI customers and suppliers. We've also continued to embed improved supply chain processes and management disciplines to drive significant improvement. For example, we've achieved a significant reduction in shrink. Net shrink, a percentage of sales, declined both sequentially from the first quarter, as well as compared to the prior year period, with shrink reduction meaningfully exceeding our prior expectations in the quarter.
James Alexander Miller Douglas: Over the last several months, we've action to approximately $150 million in cumulative annualized savings from the near term efficiency initiatives and we see opportunities to further refine and lower our cost structure.
James Alexander Miller Douglas: We realized additional incremental SG&A efficiencies, which are expected to benefit future profitability.
James Alexander Miller Douglas: While also improving our service levels and making it easier to do business with UNFI by streamlining our business.
James Alexander Miller Douglas: We're continuing to review our organizational composition to ensure that we are structured in a way that allows us to be focused with the needed skill sets technology and insights to best drive profitability and growth for UNFI customers and suppliers.
James Alexander Miller Douglas: We've also continued to embed improved supply chain processes and management disciplines to drive significant improvement for example, we've achieved significant reduction in shrink net shrink as a percentage of sales declined both sequentially from the first quarter as well as compared to the prior year period with shrink reduction meaningfully serpe.
James Alexander Miller Douglas: Passing our prior expectations in the quarter.
James Alexander Miller Douglas: Importantly, we believe there's still room for further improvement. In addition to these improvements aimed at delivering near-term profitability gains, we are working to improve our commercial go-to-market programs to better connect suppliers and enhance their ability to see, invest in, and rapidly capture win-win merchandising opportunities with our shared customers. These program improvements are expected to significantly reduce operational friction, and over time, we believe they will help maximize supplier investment in our customers, which should enable them to accelerate their own profitable growth, while helping UNFI to simplify our business model, drive savings, and ultimately support sustainable, profitable growth. We've continued to progress on key transformation investments that are expected to structurally increase our efficiency and service levels. The automation project at our Centralia Distribution Center remains on track to go live later this fiscal year, as does the realignment and optimization of our Northeastern Distribution Network, currently in progress.
James Alexander Miller Douglas: Importantly, we believe there is still room for further improvement.
James Alexander Miller Douglas: In addition to these improvements aimed at delivering near term profitability gains we are working to improve our commercial go to market programs to better connect suppliers and enhance their ability to see invest in and rapidly capture win win merchandising opportunities with our shared customers.
James Alexander Miller Douglas: These program improvements are expected to significantly reduce operational friction and over time, we believe it will help maximize supplier investment and our customers, which should enable them to accelerate their own profitable growth, while helping UNFI to simplify our business model drives savings and ultimately support sustain.
James Alexander Miller Douglas: Annabelle profitable growth.
James Alexander Miller Douglas: We've continued to progress on key transformation investments that are expected to structurally increase our efficiency and service levels.
James Alexander Miller Douglas: The automation project at our Centralia distribution Center remains on track to go live later this fiscal year as does the realignment and optimization of our northeastern distribution network currently in progress. These.
James Alexander Miller Douglas: These projects are expected to drive operational savings, increase fulfillment accuracy, and create higher capacity in these geographies. We're also continuing to evaluate paths to reduce the near-term and long-term capital intensity of our distribution centers, and we'll continue to be focused on optimizing the free cash flow profile of our network. Additionally, we've also driven significant improvement to the online tools our customers use, which is creating a more seamless ordering experience.
James Alexander Miller Douglas: These projects are expected to drive operational savings increase fulfillment accuracy and create higher capacity in these geographies.
James Alexander Miller Douglas: We're also continuing to evaluate paths to reduce the near term and long term capital intensity of our distribution centers and we will continue to be focused on optimizing the free cash flow profile of our network.
James Alexander Miller Douglas: Additionally, we've also driven significant improvement to the online tools, our customers use which is creating a more seamless ordering experience.
James Alexander Miller Douglas: We remain focused on the path to driving compelling long-term value creation by transforming the efficiency, profitability, and service levels of our business. We plan to build on the progress we've made so far this year as we move into the second half of fiscal 2024. I remain confident in the opportunities that we've already begun to address to create enduring value for all our stakeholders, especially our shareholders.
James Alexander Miller Douglas: We remain focused on the path to driving compelling long term value creation by transforming the efficiency profitability and service levels of our business.
James Alexander Miller Douglas: We plan to build on the progress we've made so far this year as we move into the second half of fiscal 2024.
James Alexander Miller Douglas: I remain confident in the opportunities that we've already begun to action to create enduring value for all our stakeholders, especially our shareholders.
James Alexander Miller Douglas: Importantly, while the external environment remains challenging, it continues to gradually become less volatile, which provides us with a clearer look at the long-term trajectory of our industry and our business. And this provides a productive backdrop for our management and board-led finance review that we announced on our fourth-quarter call, which remains ongoing. The group of directors leading the review on behalf of the broader board includes our chairman, the chair of our audit committee, and the three newest members of our board who joined last September.
James Alexander Miller Douglas: Importantly, while the external environment remains challenging it continues to gradually become less volatile which provides us a clearer look at the long term trajectory of our industry and our business and this provides a productive backdrop for our management and board led Finance review that we announced on our fourth quarter.
James Alexander Miller Douglas: Paul which remains ongoing the.
James Alexander Miller Douglas: The group of directors, leading the review on behalf of the broader board includes our chairman the chair of our audit Committee and the three newest members of our board who joined last September.
James Alexander Miller Douglas: This group brings strong backgrounds and experience in finance, business transformation, and strategic planning and are actively involved with our management team in assessing a broad range of potential opportunities for meaningful value creation. We'll plan to provide timely updates as the process moves forward. Before I turn the call over to John, let me take a moment to thank him for his years of service and leadership.
James Alexander Miller Douglas: This group brings strong backgrounds and experience in finance business transformation and strategic planning and are actively involved with our management team and assessing a broad range of potential opportunities for meaningful value creation, we will plan to provide timely updates as the process moves forward.
Speaker Change: Before I turn the call over to John Let me take a moment to thank him for his years of service and leadership.
James Alexander Miller Douglas: John helped UNIFI navigate the challenges of a global pandemic, and I have appreciated his counsel and partnership during my time at the company. I know he will be a helpful partner to Matteo, too, as he works to enable a quick and smooth transition during his onboarding. As I've said several times in the past, our philosophy is to recruit talented leaders who can help us execute our strategy and move the business forward. Mateo is a proven and experienced finance executive who has served as CFO of several of the largest reportable segments at GE. He has extensive operating company experience and has consistently delivered results and proven to be adaptable to different businesses. He has also previously executed several transformations.
Speaker Change: John helped unify navigate the challenges of a global pandemic and I appreciated his counsel and partnership during my time at the company I know he will be a helpful partner to Matteo to as he works to enable a quick and smooth transition during his onboarding as I've said several times in the past.
Speaker Change: Our philosophy is to recruit talented leaders, who can help us execute our strategy and move the business forward.
Speaker Change: Matteo has a proven and experienced finance executive who has served as CFO of several of the largest reportable segments at GE.
Speaker Change: He has extensive operating company experience and has consistently delivered results and proven to be adaptable to different businesses.
Speaker Change: He has also previously executed several transformations.
John W. Howard: I believe this experience, combined with his strong background in process excellence, is an important complement to the existing efforts that we have put in place to reset and improve our profitability. It also positions him well to augment the momentum we are building in our customer and merchandising capabilities across our existing organization. John will remain with UNFI until the end of May to help onboard Mateo and ensure a smooth transition. With that, let me now turn the call over to John for his remarks. John.
Speaker Change: I believe this experience combined with his strong background and process excellence is an important complement to the existing efforts that we have put in place to reset and improve our profitability.
Speaker Change: It also positions him well to augment the momentum we are building in our customer and merchandising capabilities across our existing organization.
Speaker Change: John will remain with UNFI until the end of May to help onboard Matteo and ensure a smooth transition.
Speaker Change: With that let me now turn the call over to John for his remarks.
Speaker Change: John.
John W. Howard: Thank you, Sandy, and good morning everyone. As Sandy just noted, today will mark my last earnings call as CFO of UNFI. I look forward to partnering with Mateo during the transition over the coming months. Our finance leadership team is awaiting Mateo's start date, and we're already preparing for his onboarding process, and we expect a quick and smooth handoff.
John W. Howard: Thank you Sandy and good morning, everyone.
John W. Howard: As Sandy just noted today will Mark My last earnings call as CFO of UNFI.
John W. Howard: I look forward to partnering with Mateo during a transition over the coming months, our finance leadership team is awaiting Matteo start date, and we're already preparing for is onboarding process and expect a quick and smooth handoff.
John W. Howard: As you also heard earlier from Sandy, our second quarter was ahead of our expectations, driven by solid and improving execution across the business. Our updated outlook reflects this performance balance against an environment that remains challenging, with consumers seeking value as they manage household spending. This morning, I will provide commentary on the second quarter results, our balance sheet and capital structure, and some considerations as we look to the balance of the year and our updated fiscal 2024 outlook. With that, let's review our Q2 results. Turning to slide 8, net sales decreased 50 basis points from last year's second quarter to $7.8 billion, reflecting a continuing negative year-over-year trend in units sold that was partially offset by inflation, albeit at a decelerating rate, and new business. However, inflation declined by about 800 basis points compared to last year's second quarter, and we are continuing to see category-specific deflation.
John W. Howard: As you also heard earlier from Sandy our second quarter was ahead of our expectations driven by solid and improving execution across the business.
John W. Howard: Our updated outlook reflects this performance balanced against an environment that remains challenging with consumers seeking value as they manage household spending.
John W. Howard: This morning, I will provide commentary on the second quarter results, our balance sheet and capital structure and some considerations as we look to the balance of the year and our updated fiscal 2024 outlook.
Speaker Change: With that let's review our Q2 results.
Speaker Change: Turning to slide eight net sales decreased 50 basis points from last year's second quarter to $7 8 billion, reflecting a continuing negative year over year trend in unit sold that was partially offset by inflation, albeit at a decelerating rate and new business.
Speaker Change: Inflation declined by about 800 basis points compared to last year's second quarter, and we are continuing to see category specific deflation.
John W. Howard: As Sandy discussed in his remarks, the environment continues to be challenging for traditional grocery retailers. However, there is diverse performance across our customer base. We see this in our own results, as well as some channels continuing to grow, while others face significant pressure in a highly competitive environment. Sales in our retail business declined by approximately 4.4% as we continue to be impacted by a difficult macro and industry environment. This partially reflects a significant decline in government assistance.
Speaker Change: As Andy discussed in his remarks, the environment continues to be challenging for traditional grocery retailers.
Speaker Change: However, there is diverse performance across our customer base, we see this in our own results as well as with some channels continuing to grow while others face significant pressure in a highly competitive environment.
Speaker Change: Sales in our retail business declined by approximately four 4% as we continued to be impacted by a difficult macro and industry environment. This partially reflects a significant decline in government assistance flipping.
John W. Howard: Flipping to slide 9, let's now look at our profitability drivers this quarter. Our gross profit rate, prior to the non-cash LIFO charge in both years, decreased by about 60 basis points, which was close to our expectation. As we've previously stated, the second quarter is when we've now cycled most of the elevated procurement gains that benefited last year's gross profit rate in quarters one and two. While there are still some procurement gains to be cycled in the second half, the level of gains in the prior year period is expected to decline sequentially from Q2 to Q3 and from Q3 to Q4. As a reminder, the gains we experienced last year were driven by substantial supplier price increases that led to last year's Q2 inflation rate of about 10 percent, which is meaningfully higher than this quarter's rate of around 2 percent. The anticipated decrease in procurement gains was partially offset by continuing progress on reducing shrink, which was markedly lower than last year's second quarter.
Speaker Change: Flipping to slide nine, let's now look at our profitability drivers this quarter.
Speaker Change: Our gross profit rate prior to the noncash LIFO charge in both years decreased by about 60 basis points, which was close to our expectations.
Speaker Change: As we've previously stated the second quarter is when we've now cycled most of the elevated procurement gains that benefited last year's gross profit rate in quarters, one and two.
Speaker Change: While there are still some procurement gains to be cycled in the second half the level of gains in the prior year period is expected to decline sequentially from Q2 to Q3 and from Q3 to Q4.
Speaker Change: As a reminder, the gains we experienced last year were driven by substantial supplier price increases that led to last year's Q2 inflation rate of about 10%.
Speaker Change: Which is meaningfully higher than this quarter's rate of around 2%.
Speaker Change: The anticipated decrease in procurement gains was partially offset by continuing progress on reducing shrink which was markedly lower than last year's second quarter.
John W. Howard: Our operating expenses, excluding business transformation costs, as a percentage of sales, were down sequentially compared to the first quarter and flat versus last year's second quarter. We again saw improving throughput in our DCs, which rose by nearly 12% compared to last year's second quarter, and a further decline in turnover rates. We've also seen steadily increasing outbound fill rates. However, these improvements were offset by D.C.'s startup and real estate-related costs, which include about $5 million related to rent we began incurring partway through the quarter for our new Manchester, Pennsylvania, D.C. data center, expected to go live in fiscal 2025. This also includes continued investment in foundational initiatives designed to drive operating efficiencies and provide the highest possible service levels for our customers. Adjusted EBITDA totaled $128 million, or 1.6% of sales, compared to $181 million, or 2.3% of sales, last year, with the difference being largely the decline in gross profit related to adjusting last year's inflation-driven procurement gains. Within our retail segment, there was a $9 million sequential increase in adjusted EBITDA primarily related to the holiday selling season. Our gap loss was $0.25 per share, which included $0.32 in charges primarily for business transformation costs and LIFO.
Speaker Change: Our operating expenses, excluding business transformation costs as a percentage of sales were down sequentially compared to the first quarter and flat versus last year's second quarter.
Speaker Change: We again saw improving throughput in our Dcs, which rose by nearly 12% compared to last year's second quarter and a further decline in turnover rates.
Speaker Change: We've also seen steadily increasing outbound fill rates. These improvements were offset by DC startup in real estate related costs, which include about $5 million related to rent, we began occurring partway through the quarter for our new Manchester, Pennsylvania, DC expected to go live in fiscal 2025.
Speaker Change: This also includes continued investment in foundational initiatives designed to drive operating efficiencies and provide the highest possible service levels for our customers.
Speaker Change: Adjusted EBITDA totaled $128 million or one 6% of sales compared to $181 million or two 3% of sales last year with the difference being largely the decline in gross profit related to cycling last year's inflation driven procurement gains.
Speaker Change: Within our retail segment, there was a $9 million sequential increase in adjusted EBITDA, primarily related to the holiday selling season are.
Speaker Change: Our GAAP loss was 25 per share, which included 32 and charges primarily for business transformation costs and LIFO.
Speaker Change: Adjusting for these as well as several smaller items, our adjusted EPS totaled <unk> seven compared to <unk> 78 per share last year with the largest driver of the change being the lowered level of adjusted EBITDA.
John W. Howard: Adjusting for these as well as several smaller items, our adjusted EPS totaled $0.07 compared to $0.78 per share last year, with the largest driver of the change being the lower level of adjusted EBITDA. Moving to slide 10, we finish the quarter with total outstanding net debt of $2.16 billion, a $124 million decrease compared to the end of the first quarter. This reflects the cash inflows from the expected lower levels of investment and working capital now that we're through the holiday selling season. We retain significant balance sheet flexibility with $1.4 billion of liquidity. We will continue to manage our debt structure consistent with optimizing our long-term credit profile and expect to maintain our base of prepayable debt, including our term loan, to provide capital structure flexibility as our turnaround plan and long-term strategy are implemented.
Speaker Change: Moving to slide 10, we finished the quarter with total outstanding net debt of 2.16 billion, a $124 million decrease compared to the end of the first quarter.
Speaker Change: This reflects the cash inflows from the expected lower levels of investment in working capital now that we're through the holiday selling season.
Speaker Change: We retained significant balance sheet flexibility with $1 $4 billion of liquidity, we will continue to manage our debt structure consistent with optimizing our long term credit profile and expect to maintain our base of pre payable debt, including our term loan to provide capital structure flexibility as our turnaround plan and long term strategy are implemented.
Speaker Change: Turning to slide 11 as outlined in our press release, we're updating our full year outlook for fiscal 2024 to reflect our performance to date and the operating environment that continues to be challenging.
Speaker Change: We have lowered the midpoint of our expectation for full year net sales by about one 4% to a new range of 35 to <unk> $31 billion.
John W. Howard: Turning to slide 11, as outlined in our press release, we're updating our full-year outlook for fiscal 2024 to reflect our performance to date and the operating environment that continues to be challenging. We've lowered the midpoint of our expectation for full-year net sales by about 1.4% to a new range of $30.5 to $31 billion. For adjusted EBITDA, we've narrowed the range to $475 to $525 million, maintaining a midpoint of $500 million. And we've updated the corresponding range for adjusted EPS, which is now expected to be a loss of $0.56 to earnings of $0.06 per share.
Speaker Change: For adjusted EBITDA, we have narrowed the range to $475 million to $525 million, maintaining the midpoint of $500 million.
Speaker Change: And we've updated the corresponding range for adjusted EPS, which is now expected to be a loss of 56.
Speaker Change: To earnings of <unk> <unk> per share.
Speaker Change: Our outlook for fiscal 2020 for capital and cloud implementation expenditures remains at approximately $400 million, including investments in our transformation plan with a largest component going towards network optimization and automation.
Speaker Change: Also includes investments to continue to improve our technology infrastructure that we believe will drive higher efficiency.
Speaker Change: This outlook balances our year to date progress resetting and improving profitability and our new customer expectations with a macroeconomic and industry backdrop that remains challenging.
John W. Howard: Our outlook for fiscal 2024 capital and cloud implementation expenditures remains at approximately $400 million, including investments in our transformation plan, with the largest component going towards network optimization and automation. This also includes investments to continue to improve our technology infrastructure, which we believe will drive higher efficiency. This outlook balances our year-to-date progress, resetting and improving profitability, and our new customer expectations with a macroeconomic and industry backdrop that remains challenging. We expect inflation to continue to decline, but believe the pace of the decline is likely to moderate.
Speaker Change: We expect inflation to continue to decline, but believe the pace of the decline is likely to moderate.
Speaker Change: We also continue to anticipate a more prolonged recovery for volume, but remain cautiously optimistic that these volume trends will drive increases in the quantity and depth of supply of promotions, which benefits both our customers and UNFI.
Speaker Change: As for the balance of the year the implied level of adjusted EBITDA for the second half of the year at the midpoint of our outlook is approximately $255 million, including about $9 million from the 50 <unk> week in the fourth quarter.
Speaker Change: This modest acceleration includes our expectations for the continued ramp up of our cost saving initiatives further incremental improvements in shrink and disciplined expense management, which will help enable investments in our new Manchester distribution Center.
Speaker Change: We expect about $14 million of incremental rent and other expenses related to our Manchester DC within our second half results importantly.
Operator: We also continue to anticipate a more prolonged recovery for volume but remain cautiously optimistic that these volume trends will drive increases in the quantity and depth of supplier promotions, which benefits both our customers and UNFI. As for the balance of the year, the implied level of adjusted EBITDA for the second half of the year at the midpoint of our outlook is approximately $255 million, including about $9 million from the 53rd week in the fourth quarter. This modest acceleration includes our expectations for the continued ramp-up of our cost-saving initiatives, further incremental improvements in shrink, and disciplined expense management, which will help enable investments in our new Manchester Distribution Center. We expect about $14 million of incremental rent and other expenses related to our Manchester, D.C., facility within our second half result.
Speaker Change: Importantly, the focus of these near term investments is largely on increasing efficiency and profitability.
Speaker Change: In summary, as outlined on slide 12, our updated outlook for fiscal 2024 balances the challenging operating backdrop, our performance year to date and a relentless focus on execution and cost management.
Speaker Change: We remain encouraged by our overall performance in the first half of our fiscal year and continue to be focused on driving profitability through efficiency and effectiveness in our supply chain and retail stores.
Speaker Change: We remain confident in our business model and transformation agenda as well as our management team and board of directors' ability to execute our strategy and deliver increased shareholder value.
Speaker Change: Before we open the call for questions.
Speaker Change: I'd like to thank those of you that I've interacted with over the past five years for your support and feedback I'm, leaving UNFI is an eager shareholder with conviction that its future is bright and Matteo will be a strong leader to support the organization.
Operator: Importantly, the focus of these near-term investments is largely on increasing efficiency and profitability. In summary, as outlined on slide 12, our updated outlook for fiscal 2024 balances the challenging operating backdrop, our performance year-to-date, and a relentless focus on execution and cost management. We remain encouraged by our overall performance in the first half of our fiscal year and continue to be focused on driving profitability through efficiency and effectiveness in our supply chain and retail stores. We remain confident in our business model and transformation agenda, as well as our management team and board of directors' ability to execute our strategy and deliver increased shareholder value. Before we open the call for questions, I would like to thank those of you that I've interacted with over the past five years for your support and feedback. I'm leaving UNFI as an eager shareholder with conviction that its future is bright, and Mateo will be a strong leader to support the organization. Operator, please open the line for questions. If you would like to ask a question, press star followed by the number one on your telephone keypad.
Speaker Change: Operator, please open the line for questions.
Speaker Change: If you would like to ask a question press star followed by the number one on your telephone keypad.
Speaker Change: Your first question comes from the line of Mark Carden with UBS. Your line is open.
Mark David Carden: Good morning, Thanks, so much for taking the questions.
Mark David Carden: John Best of luck going forward.
Mark David Carden: I wanted to start by digging into what you guys are seeing on channel shifts from traditional grocery mass was this largely in line with what you guys were expecting say a quarter ago or has it accelerated and then how much of an impact is that having on demand for your value added services. Thank you.
Andy: Hi, Mark its Andy.
Andy: I think it's in line with trends for the most part I think.
What our customers will tell you is that.
Andy: Competition is very fierce right now and the consumer being stressed is looking for value and a lot of ways from approach services standpoint, it's increasing demand for them and it's increasing our commitment to make sure that we continue to refresh them to create more and more ways for our customers to save money. So they can be more.
Andy: Competitive.
Speaker Change: Got it that's helpful. Thank you and then at this stage how are you guys thinking about the level of inflation over the course of the next few quarters.
James Alexander Miller Douglas: Your first question comes from the line of Mark Carden with UBS. Your line is open. Good morning, thanks so much for taking the questions, and John, best of luck going forward. I wanted to start by digging into what you guys are seeing in channel shifts from traditional grocery to mass. Was this largely in line with what you guys were expecting, say, a quarter ago, or how has this accelerated? And then how much of an impact is it having on demand for your value-added services? Thank you. Hi Mark, it's Sandy.
Speaker Change: I think John can pile on here as he said obviously year over year in the second quarter was a significant drop from about 10% down to 2%.
Speaker Change: And we're expecting the rate of change to moderate as we go towards the end of the year, John you want to add anything no I think thats.
John W. Howard: It's exactly right I think we will end up somewhere in the between 1% and 2% in the back half of the year.
Speaker Change: We end our fiscal year.
Speaker Change: Great. Thanks, so much and good luck guys.
Speaker Change: Thank you appreciate it mark.
Speaker Change: Your next question comes from the line of Elliot Jordan <unk> with Goldman Sachs. Your line is open.
James Alexander Miller Douglas: I think it's in line with trends, for the most part. I think what our customers will tell you is that competition is very fierce right now. And the consumer being stressed is looking for value in a lot of ways. From a professional services standpoint, it's increasing demand for them. And it's increasing our commitment to make sure that we continue to refresh them to create more and more ways for our customers to save money so they can be more competitive.
Leah Dianne Jordan: Good morning, Thank you for taking my question.
Leah Dianne Jordan: I first wanted to ask about vendor promotions and see what you're seeing there how are your conversations with suppliers evolving and what's baked into guidance for the back half of the year.
Leah Dianne Jordan: Yes, we're seeing Lee.
Leah Dianne Jordan: Is a continued sequential increase in promotional activity.
Leah Dianne Jordan: But still below.
Leah Dianne Jordan: What they were pre COVID-19.
Leah Dianne Jordan: My expectation and I think the sense, we get from meetings with suppliers is that theyre going to continue to promote more aggressively.
James Alexander Miller Douglas: That's helpful. Thank you. And then, at this stage, how are you guys thinking about the level of inflation over the course of the next few quarters? I think, well, John can pile on here.
Leah Dianne Jordan: And there is sequentially, increasing and thats whats in our expectations for the rest of the year.
John W. Howard: As he said, obviously, year over year in the second quarter was a significant drop from about 10% down to 2%. And we're expecting the rate of change to moderate as we go towards the end of the year. John, do you want to add anything?
Speaker Change: Okay, great. Thank you and then for my follow up I just wanted to ask about the retail segment, we continue to see some weakness there just.
Speaker Change: I'll just comment.
Speaker Change: Around demand trends and the competitive environment and then I know you made some leadership changes recently, so maybe any updates on some improvements that you made in the business, there and how youre thinking about about it longer term.
John W. Howard: No, I think that's exactly right. I think we'll end up somewhere between 1% and 2% in the back half of the year. That's that way into our fiscal year. Great. Thanks so much, and good luck, guys.
Speaker Change: Sure.
Speaker Change: From a overall performance standpoint, obviously it was a challenging quarter for retail we did appoint a new CEO Andre pursued.
James Alexander Miller Douglas: Thank you. Appreciate it, Mark. Your next question comes from the line of Leah Jordan with Goldman Sachs. Your line is open. Good morning.
Speaker Change: Who's taking a fresh look at the <unk>.
James Alexander Miller Douglas: Thank you for taking my question. I first wanted to ask about vendor promotions and see what you're seeing there. You know, how are your conversations with suppliers evolving, and what's baked into guidance for the back half of the year? Yeah, what we're seeing, Leah, is a continued sequential increase in promotional activity, but still below what they were pre-COVID.
Speaker Change: The carbon in the shoppers brand and I would say actively consulting with our local franchisees because covers a good brand it's competing in a very challenging environment in the twin cities area with discounters and with mass.
Speaker Change: Andre is looking at all aspects of our merchandising and service performance I think our view long term is bullish relative to cub and the potential of that brand in the twin cities market.
James Alexander Miller Douglas: My expectation and, I think, the sense we get from meetings with suppliers is that they're going to continue to promote more aggressively, and they're sequentially increasing, and that's what's in our expectations for the rest of the year. Okay, great. Thank you. And then for my follow-up, I just wanted to ask about the retail segment. We continue to see some weakness there.
Speaker Change: And obviously, we're looking at all the ways to accelerate performance and value for shareholders do that platform.
Speaker Change: Thank you.
Speaker Change: Yes.
John W. Howard: Your next question comes from the line of John behind Mako Glenn.
John: <unk> Securities Your line is open.
John: So sandy I wanted to start with.
John: I know you guys in the past it outlined this $40 billion existing wallet opportunity right. So your view on that now.
James Alexander Miller Douglas: Just comment on demand trends and the competitive environment. And then, I know you made some leadership changes recently. So maybe some updates on some improvements that you made in the business there and how you're thinking about it longer term? Sure. From an overall performance standpoint, obviously, it was a challenging quarter for retail. We did appoint a new CEO, Andre Persaud, who's taking a fresh look at both the Cub and the Shoppers brands and, I would say, actively consulting with our local franchisees because Cub is a good brand.
John: Together with the service opportunity that you see which I think is not part of that.
John: Then.
Speaker Change: And when do you think.
Speaker Change: You got stalled work today, when do you think you'll be ready to provide a three year outlook or sort of longer term financial targets. So that's still maybe a year away.
Speaker Change: Hi, John.
Speaker Change: Let me start where you started we continue to see a very significant pipeline of opportunity both from new customers as well as new category perspective.
John: And you see some of that in our performance and in our outlook, but we remain very bullish in the service opportunity continues to grow simply because the need is there.
James Alexander Miller Douglas: It's competing in a very challenging environment in the Twin Cities area with discounters and with masks, and Andre's looking at all aspects of our merchandising and service performance. I think our view long term is bullish relative to Cub and the potential of that brand in the Twin Cities market, and obviously, we're looking at all the ways to accelerate performance and value for shareholders through that platform. Thank you. Your next question comes from the line of John Heinbockel with Google and Hime Securities. Your line is open.
John: And we have a number of new services that we're working on that we're not quite ready to go public with but we're talking with customers about to help them be more competitive.
John: Longer term perspective, and I think I've mentioned this in my remarks, we're in the middle of our strategy focused review.
John: With our board and management team that are going to help us clarify our long term strategy and financial plan and I don't want to get ahead of ourselves on this that being said, we're making good progress on it.
James Alexander Miller Douglas: So, Sandy, I wanted to start with, I know you guys in the past have outlined this $40 billion existing wallet opportunity, right? So your view on that now, together with the service opportunity that you see, which I think is not part of that. And then, you know, when do you think, you know, you've got still work to do? When do you think you'll be ready to provide a three-year outlook or sort of longer-term financial targets? That's still maybe a year away, right?
John: While we are performing.
John: In a strong way relative to the efficiency programs that we've already put in place.
John: As I highlighted last year, when we exit exited fiscal 2023 for example in terms of operational improvements shrink was running about 40 basis points above pre COVID-19 level. We now believe based on the progress that we're making that we actually can Jim that below pre COVID-19.
James Alexander Miller Douglas: Hi John. Let me start where you started. We continue to see a very significant pipeline of opportunity, both from a new customers perspective as well as a new category perspective. And you see some of that in our performance and in our outlook, but we remain very bullish, and the service opportunity continues to grow simply because the need is there. And we have a number of new services that we're working on that we're not quite ready to go public with, but we're talking with customers about them to help them be more competitive.
John: Reasonable near term so lots of work going on by the team to drive operational improvement and efficiency and improve profitability in the short term.
A strong process under way with our board.
John: Financial review linked to our next strategic plan and we are committed to giving the street updates and more forward looking detail when it's appropriate.
Speaker Change: Alright, and maybe as a follow up.
Speaker Change: Other than just growing EBITDA when you think about deleveraging.
Speaker Change: Right.
Speaker Change: <unk>, whether it be asset sales accounts receivable you monetized in the past.
James Alexander Miller Douglas: From a longer-term perspective, and I think I mentioned this in my remarks, we're in the middle of a strategy-focused review with our board and management team that is going to help us clarify our long-term strategy and financial plan. But I don't want to get ahead of ourselves on this. That being said, we're making good progress on it, while performing in a strong way relative to the efficiency programs that we've already put in place. As I highlighted last year, when we exited fiscal 2023, for example, in terms of operational improvements, shrink was running about 40 basis points above its pre-COVID level. We now believe, based on the progress that we're making, that we can actually trim that below pre-COVID levels in the reasonable near term.
Speaker Change: Is there anything interesting.
Speaker Change: And not stupid right long term.
Uh huh.
Speaker Change: To reduce leverage quicker or it's just going to by definition is going to have to be a gradual process.
Speaker Change: Yes, John I would say.
Speaker Change: We're looking at a range of different value creation ideas do the financial review.
Speaker Change: And I would describe the ones as interesting and hopefully none that are stupid.
Speaker Change: And again more to come on that but where we are.
Speaker Change: We're doing a very thorough review.
Speaker Change: And we see lots of opportunity for this company.
Speaker Change: Alright, thank you.
Speaker Change: Your next question comes from the line of Edward Kelly with Wells Fargo. Your line is open.
Edward Kelly: Hi, Good morning, everyone and John Best of luck.
James Alexander Miller Douglas: So lots of work going on by the team to drive operational improvement and efficiency and improve profitability in the short term. A strong process is underway with our board through a financial review linked to our next strategic plan. And we're committed to giving the street updates and more forward-looking detail when it's appropriate. All right, maybe as a follow-up, other than just growing EBITDA, when you think about deleveraging? Write creatively, whether it be assets, sales, or accounts receivable you monetized in the past.
Edward Kelly: I wanted to come back to the volume.
Edward Kelly: Syed.
Edward Kelly: Yes.
Edward Kelly: And expectation that volumes can get better from here, it's hard to know because you don't report volumes, but it looks like <unk>.
Edward Kelly: <unk> might be down 3% ish something like that.
Edward Kelly: Vendors are leaning into promos.
Edward Kelly: Are you seeing any elasticity benefit out of that are you seeing any elasticity benefit out of the fact that pricing seems to be <unk>.
Edward Kelly: Adding on.
Edward Kelly: Are your customers leaning into promo as well like in addition to what the vendors doing because it sure stops I'm just trying to get a sense for what the volume picture.
James Alexander Miller Douglas: Is there anything interesting, you know, and not stupid, right, long term, you know, to reduce leverage quicker, or is it just going to, by definition, it's going to have to be a gradual process? Yeah, John. I would say that we're looking at a range of different value creation ideas through the financial review, and I would describe them as interesting, and hopefully, none that are stupid. And again, more to come on that, but we're doing a very thorough review, and we see lots of opportunity for this company. All right, thank you. Your next question comes from the line of Edward Kelly with Wells Fargo. Your line is open. Hi, good morning, everyone, and John, best of luck with your book. I wanted to come back to the volume, you know.
Edward Kelly: But look like.
Edward Kelly: Over time here and then as it relates to all of that.
Edward Kelly: What's the right level of volume growth and inflation you need in the business to drive sustained EBITDA overtime.
Speaker Change: Thanks, Ed let me start with sort of a few facts that may help build out the picture and then.
Ed: Get to the more strategic element of your question.
Ed: Unit growth or unit declines are fairly consistent right now as they had been over the past couple of years.
Ed: And.
Ed: While the inflation rate is clearly significantly lower.
Ed: Is there still a lot higher than they were a couple of years ago.
James Alexander Miller Douglas: There's, I think, an expectation that volumes can get better from here. It's hard to know because you don't report volumes, but it looks like volumes might be down 3%-ish, something like that. Vendors are leaning into promos. I mean, are you seeing any elasticity benefit out of that?
Ed: And I think thats weighing on consumers certainly in the mid and lower parts of the economy and thats, creating an opportunity for discounters and mass.
Ed: That consumers are responding to <unk>.
Ed: Promotions are increasing as I mentioned and retailers are promoting as well to be competitive.
Ed: Inside the sort of retail detail customer counts.
James Alexander Miller Douglas: Are you seeing any elasticity benefit out of the fact that pricing seems to be ending? Are your customers leaning into promotion as well, like in addition to what the vendor's doing because you have to share stuff? I'm just trying to get a sense for what the volume picture could look like over time here.
Our healthy still but thats get youre going down and I think that has to do with some category trading.
Ed: Our growth going forward and this gets to the latter part of your question is going to be a function of more customers more categories, and then our ability to work with them to be for them to be as healthy and profitable as possible and clearly we think profitable growth as part of our algorithm going forward, but I emphasize.
James Alexander Miller Douglas: And then as it relates to all of that, what's the right level of volume growth and inflation you need in the business to drive, like, sustainable EBITDA growth over time? Thanks, Ed.
Ed: Profitable growth.
Ed: Okay, and then as it pertains to the procurement gains have you now fully worked their way through those so the EBITDA that you're reporting now is what you would consider.
James Alexander Miller Douglas: Let me start with sort of a few facts that may help build out the picture and then get to the more strategic element of your question. Unit growth or unit declines are fairly consistent right now, as they have been over the past couple of years. However, while the inflation rate is clearly significantly lower, prices are still a lot higher than they were a couple of years ago.
Ed: A more normalized and then flipped.
Ed: Flip side of that you talked about.
Ed: Vendor promotions rising sea levels are below 2019 is there a way to frame what the opportunity is related to that for you as we think about like levels of EBITDA.
James Alexander Miller Douglas: And I think that's weighing on consumers, certainly in the mid and lower parts of the economy. And that's creating an opportunity for discounters and math, which consumers are responding to. Promotions are increasing, as I mentioned, and retailers are increasing them as well to be competitive. Inside the sort of retail detail, customer counts are healthy still, but baskets are going down, and I think that has to do with some category trading.
Ed: Yes.
Ed: So the way I would describe the procurement gains is there substantially annualized although they still had some in the third quarter last year, and then again tapering further in the fourth quarter and into this fiscal.
Ed: In terms of profitability I think a good way to look at it as sequentially as opposed to year over year and our profitability improved in the second quarter versus the first quarter in the first quarter versus the fourth quarter of last year some of that being driven by.
James Alexander Miller Douglas: Our growth going forward, and this gets to the latter part of your question, is going to be a function of more customers, more categories, and then our ability to work with them to make them be as healthy and profitable as possible. And clearly, profitable growth is part of our algorithm going forward, but I emphasize profitable growth. Okay, and then as it pertains to procurement gains, have you now fully worked your way through those?
Ed: Holiday seasonality and what is our second quarter, but also the actions that we're taking to drive incremental profitability into the business, which will continue.
Ed: From a promotion standpoint.
James Alexander Miller Douglas: So, you know, like the EBITDA that you're recording now is what you would consider, you know, more normalized. And then, on the flip side of that, you talked about vendor promotions rising. Obviously, levels are below 2019.
Ed: There is a lot of ways that suppliers are investing in the market there.
They are investing to promotions they are investing through new items and they are investing through various media investments some in partnership with retailers and some over the top.
Ed: And then we're seeing increases in all of those.
James Alexander Miller Douglas: Is there a way to frame what the opportunity is related to that for you as we think about levels of EBITDA? Yeah. So the way I describe the procurement gains is they're substantially annualized, although they still had some in the third quarter last year and then again, tapering further in the fourth quarter and into this fiscal year. In terms of profitability, I think a good way to look at it is sequentially, as opposed to year over year. And our profitability improved in the second quarter versus the first quarter and the first quarter versus the fourth quarter of last year, some of that being driven by holiday seasonality in what is our second quarter, but also the actions that we're taking to drive incremental profitability into the business, which will continue, from a promotion standpoint. There are a lot of ways that suppliers are investing in the market. They're investing through promotions, they're investing in new items, and they're investing through various media investments, some in partnership with retailers and some over the top.
Ed: Our strategy is as I mentioned to try to help suppliers see our customer base, our customer base is vibrant.
Ed: With all kinds of positioning is really across the country over 30000 outlets. So did exempted suppliers can see all of the not just the big ones that you can quantify the opportunity watch the returns that they get we believe that get the flywheel going and the more successful that consumer products companies are with.
Ed: Independence, the more profitable and successful there'll be overtime.
Okay. Thank you.
Ed: Your next question comes from the line of Scott <unk> with RFID capital. Your line is open.
Scott: Scott motion.
Scott: <unk> capital your line is open.
Scott: Hey, guys. Thanks, sorry, I think I had it on mute.
Scott: First of all John it's been an absolute pleasure working with you. So good luck going forward.
Speaker Change: You bet Scott.
Speaker Change: Actually I wanted to jump on the answer the tender gave to the last question.
John: And maybe it's because of the adds that some of these the advertising businesses as some of these large retailers have it.
James Alexander Miller Douglas: And we're seeing increases in all of those. And our strategy is, as I mentioned, to try to help suppliers see our customer base. Our customer base is vibrant, with all kinds of positions really across the country, over 30,000 outlets. So to the extent that suppliers can see all of them, not just the big ones, they can quantify the opportunity, and watch the returns that they get. We believe that gets the flywheel going.
Scott: Our research would say the vendor promotions are not necessarily being spread equally across the market.
Scott: During some maybe some larger retailers.
Speaker Change: How do you stop that how do you kind of work against that as we move forward and promotions can probably continue to go higher.
Scott: So Scott.
Speaker Change: Our editorial is a little bit and then come back to year Your question Mark.
Speaker Change: My experience in consumer products over many years.
Speaker Change: Is that the diversity of the customer base is an extreme value driver.
James Alexander Miller Douglas: And the more successful that consumer products companies are with independence, the more profitable and successful they'll be over time. Thank you. Your next question comes from the line of Scott Mushkin with R5 Capital. Your line is open.
Speaker Change: For consumer products companies.
Speaker Change: So the conversations we're having with the commercial leaders Chief customer Officer is North America presence is really advocating for that strategic focus now.
Speaker Change: A successful consumer products company is going to work with all retailers and certainly focus on big ones.
Operator: R5 Capital, your line is open. Hey guys, thanks. Sorry, I think I had it on mute.
Speaker Change: But the unlock is to drive accelerated growth with independents, our job is to help them do that help them see it.
Speaker Change: Streamline and simplify how we work together and have them begin the investment return measurement invest again consumer products companies are very sophisticated and they see growth when it works and they see profitable growth when it works well and Thats, our focus with them and I think we will end.
James Alexander Miller Douglas: Just first of all, John, it's been an absolute pleasure. So, actually, I wanted to jump on the answer that Sandy gave to the last question. It seems, and maybe it's because of the ads that some of these, the advertising businesses that some of these large retailers have. You know, our research would say that vendor promotions are not necessarily being spread equally across the market, favoring some, maybe some larger retailers. How do you stop that?
Speaker Change: Being able to earn our fair share or hopefully a little more for our customers by virtue of their ability to see the return that they can get the final point is relative to advertising businesses I think that's an opportunity.
James Alexander Miller Douglas: How do you kind of work against that as we move forward and promotions probably continue to go higher? So, Scott, I'll editorialize for a little bit and then come back to your question. My experience in consumer products over many years is that the diversity of the customer base is an extreme value driver for consumer products companies. So the conversations we're having with the commercial leaders, chief customer officers, North America presidents, are really advocating for that strategic focus now. A successful consumer products company is going to work with all retailers and certainly focus on the big ones.
Speaker Change: Retail media through an independent lens would be incredibly successful if it can be executed and obviously, we're focusing on ways in which we might be able to help with that.
Speaker Change: Alright, perfect and then actually two others, if I could slip demand. So first of all on the Capex.
Speaker Change: Going forward I guess is about $400 million this year.
When do you expect maybe that will come down do you expect it to come down. So that's number one and the second again more strategic it has to do with Cub.
Speaker Change: Originally when the merger was done and the thought was that cut would be sold.
James Alexander Miller Douglas: But the key is to drive accelerated growth with independence. Our job is to help them do that, help them see it, streamline and simplify how we work together, and have them begin the investment, return, measurement, and invest again. Consumer products companies are very sophisticated, and they see growth when it works, and they see profitable growth when it works well.
Speaker Change: Is that still on the table or is that hey, This is that's really not on the table.
Speaker Change: Scott Let me, let me start with the second one first.
Speaker Change: We believe the Cub brand is a very viable brand and has a lot of success ahead in the future one of the interesting parts of the model is that a significant part of it is franchise and some of the leading retailers in twin cities are in the brand.
James Alexander Miller Douglas: And that's our focus with them, and I think we will end up being able to earn our fair share or, hopefully, a little more for our customers by virtue of their ability to see the return that they can get. The final point is relative to advertising businesses; I think that's an opportunity. Retail media through an independent lens would be incredibly successful if it could be executed, and obviously, we're focusing on ways in which we might be able to help with that. All right, perfect. And then actually, I've got two others, if I could slip them in.
Speaker Change: And with Andres joining the company, we're engaged heavily with our franchisees to discuss the best ways to drive the brand forward in a number of very good ideas around the table and so we will continue to do that.
Speaker Change: In a way that's good for the brand good for the franchisees and good for our shareholders.
Speaker Change: Relative to capital and the outlook there as I mentioned earlier in my script, we are in the middle of the.
James Alexander Miller Douglas: So, first of all, on the CapEx... Going forward, I guess it's about $400 million this year. When do you expect maybe that will come down? Do you expect it to come down? So that's number one. And the second is, again, more strategic. It has to do with CUB.
Speaker Change: Next three year plan process and a financial review with our board.
Speaker Change: Capital intensity is an important part of the focus of that conversation and we're employing the zero based philosophy that we used for overall planning to capital planning as well and we will have more to talk about at an appropriate time.
James Alexander Miller Douglas: Originally, when the merger was done, the thought was that CUB would be sold. Is that still on the table, or is that, you know, hey, this is, that's really not? Thank you. Thank you. Thank you. Scott, let me start with the second one first.
Speaker Change: Alright, guys. Thanks, so much.
Speaker Change: Thanks Scott.
Speaker Change: Your next question comes from the line of Chuck Cerankosky with Northcoast Research. Your line is open.
James Alexander Miller Douglas: We believe the CUB brand is a very viable brand and has a lot of success ahead of it. One of the interesting parts of the model is that a significant part of it is franchised, and some of the leading retailers in the Twin Cities are in the brand. And with Andres joining the company, we're engaged heavily with our franchisees to discuss the best ways to drive the brand forward, and a number of very good ideas are on the table. And so we will continue to do that in a way that's good for the brand, good for the franchisees, and good for our shareholders. Relative to capital and the outlook there, as I mentioned earlier in my script, we're in the middle of a next three-year plan process and a financial review with our board. Capital intensity is an important part of the focus of that conversation. And we're employing the zero-based philosophy that we use for overall planning for capital planning as well, and we'll have more to talk about it at an appropriate time. Alright guys, thanks so much.
Charles Edward Cerankosky: Good morning, everyone.
Charles Edward Cerankosky: And looking at the.
Charles Edward Cerankosky: The quest to grow your volume improve your volumes can you talk.
Charles Edward Cerankosky: About private label do you don't have much if any in the way of manufacturing.
Charles Edward Cerankosky: How do you get that in a loop while at the same time.
Charles Edward Cerankosky: Annoying the CPG, but.
Charles Edward Cerankosky: It seems to be incredibly important as consumers are looking for value and lower prices et cetera.
Speaker Change: Yes, Chuck is extremely good point I mean, we're.
Speaker Change: Focused on private brands as an important part of the value proposition that we bring to our customers and we've done a bunch of work on it actually.
Speaker Change: We've recruited top talent into that way.
Speaker Change: And a streamlined out of a lot of little ideas into some big portfolios that fit the various positions of our customers and we're focused on helping our retailers be very competitive in private and exclusive brands. So I agree with the thesis of your question.
James Alexander Miller Douglas: Thanks, Scott. Your next question comes from the line of Chuck Kerankosky with North Coast Research. Your line is open. Good morning, everyone.
Speaker Change: Alright, thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Kelly Bania with BMO capital markets. Your line is open.
Speaker Change: Okay.
Kelly Ann Bania: Hi, Good morning. This is been worried on behalf of Kelly. Thank you for taking my questions and good luck John on your future endeavors.
James Alexander Miller Douglas: In looking at the quest to grow your volume, improve your volumes, can you talk about private label? You don't have much, if any, in the way of manufacturing? How do you get that in the loop, while at the same time, not annoying the CPGs, but it seems to be incredibly important as consumers are looking for value and lower prices, etc.? Yeah, Chuck, very good point.
Speaker Change: I appreciate that.
Kelly Ann Bania: Our first question is we've been hearing that UNFI recently introduced a new simplified approach to supplier fee structures would you be able to expand on that initiative. What's the thought process behind that what are the efficient efficient fees or incremental business you hope to gain from it.
James Alexander Miller Douglas: I mean, we're focused on private brands as an important part of the value proposition that we bring to our customers, and we've done a bunch of work on them, actually. We've recruited top talent into that, and we've kind of streamlined out of a lot of little ideas into some big portfolios that fit the various positioning needs of our customers. And we're focused on helping our retailers be very competitive in private or exclusive brands. So I agree with the thesis of your question. All right, thank you. Your next question comes from the line of Kelly Bania with BMO Capital Markets. Your line is open. Hi, good morning.
Kelly Ann Bania: Sure.
Ben it's early in the.
Speaker Change: Launch process, but you described it well.
New way of working with our suppliers that will enable them to have access to data and insights and a faster more flexible relationship with us.
Speaker Change: Really is the design of which is to simplify their ability to get their new items to get their investment their promotions to our customers easier faster quicker.
Speaker Change: We traditionally had a very fee based approach to how we work with suppliers and what we're doing is we're eliminating a lot of that and creating a much simpler relationship. So.
Benjamin Wood: This is Ben Wood on behalf of Kelly. Thank you for taking our questions and good luck, John, on your future endeavors. Appreciate that, Tom. Our first question is, we've been hearing that UNFI recently introduced a new simplified approach to supplier fee structures. Would you be able to expand on that initiative? What's the thought process behind it?
Speaker Change: They'll be able to make a simple investment has been weak, but their focus and our focus on driving value to the shelf.
Speaker Change: More details to come it's early but at this stage we are in the rollout mode.
James Alexander Miller Douglas: You know, what are the efficiencies or incremental business you hope to gain from it? Sure. And Ben, it's early in the launch process, but you described it well. It's a new way of working with our suppliers that will enable them to have access to data and insights and a faster, more flexible relationship with us that, really, is designed to simplify their ability to get their new items, to get their investment, their promotions to our customers easier, faster, quicker. We have traditionally had a very fee-based approach to how we work with suppliers.
Speaker Change: Great. Thank you and then just wanted to dig into gross margins a little bit.
Speaker Change: Staying in <unk>, you guys were still lapping some procurement gains it looks to us like there should be some mix shift pressure between the segments and then.
Speaker Change: Potentially offset by increases in promotions. So our question is when should gross margins start to stabilize.
Speaker Change: What are the major puts and takes from in.
Speaker Change: Gross margin in the second half, maybe compared to Q2 as well.
James Alexander Miller Douglas: And what we're doing is eliminating a lot of that and creating a much simpler relationship so that they'll be able to make a simple investment. And then we put their focus and our focus on driving value to the shelf. More details to come. It's early, but at this stage, we're in the rollout mode. Great, thank you.
Speaker Change: Yes. This is John I'll start.
John: So we generally don't provide guidance on gross margin, just the sales and EBITDA and EPS.
John: As you might imagine a lot of puts and takes on margin all of which I think we've talked about between promo spend the improvements and strength that we're seeing the forward buy that.
John: We're lapping mostly through through the first half of this year.
John W. Howard: And then just wanted to dig into gross margins a little bit, understanding that in 2Q you guys were still lapping some procurement gains, but it looks to us like there should be some mixed shift pressure between the segments, you know, potentially offset by increases in promotions. So our question is, when should gross margins start to stabilize? You know, what are the major puts and takes from gross margin in the second half, maybe compared to Q2 as well? Yeah, Ben, this is John. I'll start.
John: So the guidance that we provided for EBITDA reflects how we're thinking about the margin in the rate.
John: And what we're anticipating is as Sandy mentioned that promo spend will continue to tick up we will see.
John: To start to see you're continuing to see the improvements in shrink, but we still have the.
John: The margin pressure in general that we're seeing within the industry.
Speaker Change: David anything to add to that no I think you said it well.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Andrew Wolf with C. L. King Your line is open.
Andrew Paul Wolf: Thank you good morning.
John W. Howard: So we generally don't provide guidance on gross margin, just the sales and EBITDA EPS. We have, as you might imagine, a lot of puts and takes in margin, all of which I think we've talked about between promotion spend, the improvements in strength that we're seeing, and the forward buy that we're lapping mostly through the first half of this year. So the guidance that we provided for EBITDA reflects how we're thinking about the margin and the rate. And what we're anticipating is, as Sandy has mentioned, that promo spend will continue to tick up, we'll start to see or continue to see the improvements in strength, but we still have the margin pressure in general that we're seeing within the industry, to add to that. Nope, I think he said it well.
Andrew Paul Wolf: Secondly, I wanted to sort of.
Andrew Paul Wolf: Maybe a follow on to what Scott was asking about with capital expenditures.
Andrew Paul Wolf: Could you just kind of review and discuss <unk>.
This is much.
For additional information or insight as you wish on kind of the business case for automation.
Andrew Paul Wolf: At the distribution centers, you have centralia is going to open.
Andrew Paul Wolf: And I think you announced a new one.
Andrew Paul Wolf: Is this like a sea change in our cost structure is it incremental or is it kind of defensive because the price or the cost of labor has gone up now how do you really.
View the opportunity.
Andrew Paul Wolf: Sure.
John W. Howard: Your next question comes from the line of Andrew Wolf with CL King. Your line is open. Thank you. Good morning.
Andrew Paul Wolf: Reasonably well large capitalized business.
Andrew Paul Wolf: As you go through an automation and transformation.
Speaker Change: So thanks Andy.
Andy: You articulated some of the big strokes of the case.
Andrew Paul Wolf: Maybe a follow-on to what Scott was asking about capital expenditures. Could you just kind of review and discuss? as much at the distribution centers. You know, you have some trail you're just going to open.
Andy: We believe that automation enables us over time to materially enhanced capability.
Andy: Low quality the layout of how pallets are distributed and organized for retailers based on how their shelves are set.
James Alexander Miller Douglas: I think he announced a new one, you know. Is this like a sea change in a cost structure? Is it incremental? Is it kind of defensive because the price of, the cost of labor has gone up? Now, how do you really feel?
Andy: It drives efficiency.
Andy: It's obviously more friendly from a from a labor perspective, which is a labor scarcity issue more than anything else.
James Alexander Miller Douglas: view the opportunity for a reasonably large capitalized business as you go through an automation transformation. So, thanks, Andy. You articulated some of the big strokes of the case. We believe that automation will enable us, over time, to materially enhance capability, load quality, and the layout of how pallets are distributed and organized for retailers based on how their shelves are set. It drives efficiency. It's obviously more friendly from a labor perspective, which is a labor scarcity issue more than anything else.
It also allows us to drive very efficient growth.
Andy: In the distribution center, and I think Thats, a big part of the case ultimately.
Andy: We see the network.
Andy: Optimization, and organizing our Dcs and automation as being part and parcel of each other and the ultimate payoff is return on invested capital better customer service and more profitable growth.
James Alexander Miller Douglas: It also allows us to drive very efficient growth in a distribution center. And I think that's a big part of the case. Ultimately, we see network optimization and organizing RDCs and automation as being part and parcel of each other. And the ultimate payoff is return on invested capital, better customer service, and more profitable growth. Okay, I see them being related. I, you know, I can see them both being helpful.
Speaker Change: Okay, I see them being related.
Andy: <unk> seen them both being helpful.
Speaker Change: But I assume.
Speaker Change: This is.
Speaker Change: Could you somehow at least qualitatively discuss.
Speaker Change: Where it is between a sea change in the cost structure, and just an incremental and or even a defensive type.
Speaker Change: But investment.
Speaker Change: Defensive meaning to maintain your margins profit margins C change, meaning big increase.
James Alexander Miller Douglas: But I assume, you know....
James Alexander Miller Douglas: Did you somehow at least qualitatively discuss where it is between a sea change in the cost structure and just an incremental and or even a defensive type of investment, www. UnitedNaturalFoods.org, Profit Margin, to change, meaning, you know, big? I think it's incremental rather than a sea change. It's something we have to do in an extremely disciplined way because it fits certain situations and doesn't fit others. And as a part of our overall financial review, we're working through that in a much more granular and disciplined way. But we have high expectations for it in the market situations we put it in, and we think it incrementally improves our financials and our returns on capital, and also a follow-up on the $150 million. Thank you, other cost savings. You know, you've, I think, identified, and I think just kind of two things about that.
Speaker Change: Yes, I think it's I.
Speaker Change: I think it is incremental more than a sea change in law.
Speaker Change: Largely because.
Speaker Change: It's something we have to do an extremely disciplined way.
Speaker Change: Because it fits certain situations and doesn't fit others and as a part of our overall financial review, we're working through that.
Speaker Change: Much more granular and disciplined way.
Speaker Change: But we have high expectations for it in the market situations, we put it in and we think it incrementally improves our financials and our returns on capital.
Speaker Change: Okay and also a follow up on the $150 million.
Speaker Change: Shrinking.
Speaker Change: Are there cost savings that.
Speaker Change: I think identified and I think just kind of two things about that one it sounds like you've added to it.
Speaker Change: The last that you could say how much more it might have been added to that.
James Alexander Miller Douglas: One, it sounds like you've added to it. Is that enough that you could say how much more might have been added to that? And two, where are you in real life?
Speaker Change: And two where are you at in realized and yet is at a full run rate.
Speaker Change: 150 divided by four or is it going to be cumulative is it less than that and there is accumulating.
James Alexander Miller Douglas: Is it a full run rate? Is it, you know, 150 divided by 4? Or is it going to be cumulative? Is it less than that, and there is a cumulative effect? is increasing. So, Andy, let me try to unpack it, at least as far as we've been public about it. We've actioned the $150 million run rate savings. Shrink improvement is not in the $150 million of savings, and the incremental work we've done around spans and layers, which is relatively small compared to the $150 million, would be incremental and is going forward, and that's in process now. What I would further say is that streamlining and improving the efficiency of this company is going to be our work forever, and that effort will continue with each quarter and year. But the 150 is actioned.
Speaker Change: It's increasing.
Speaker Change: So Andy let me try to unpack it at least as far as we've been public about it.
Speaker Change: We have action to $150 million run rate savings.
Speaker Change: Shrink improvement has not in the $150 million of savings and the incremental work, we've done around spans and layers, which is.
Speaker Change: Relatively small compared to the $150 million would be incremental and as going forward and thats in process now.
Speaker Change: What I would further say is that streamlining and improving the efficiency of this company is going to be our work forever.
Speaker Change: That effort will continue.
Speaker Change: With each quarter and year coming but the 150 is action.
Speaker Change: Shrink is incremental and the spans and layers is incremental but small compared to the 150 and it's in process.
James Alexander Miller Douglas: The shrink is incremental, and the spans and layers are incremental but small compared to the 150, and it's in process. Okay, thank you. Your next question comes from the line of Alex Flagel with Jefferies. Your line is open. Hey, good morning.
Speaker Change: Okay. Thank you.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of Alex Slagle with Jefferies. Your line is open.
Alex Slagle: Hey, good morning, Thanks for question.
James Alexander Miller Douglas: Thanks for the question. I want to see if you could talk to turnover levels and productivity improvements just related to tenure and training and how impactful these have been in the relative margin improvements you've seen and maybe what the path looks like going forward, just more room to go, or have really the biggest gains been captured at this point? So I'm going to make a summary comment, and then I'm going to ask John to fill in with detail. We saw market improvement in our throughput, in our DCs, and a significant component of that is increased tenure of associates. In addition, a driver of it is process improvements, which are a driver not only of productivity but also of cost and shrink. Much like SG&A savings, we think operational productivity is a constant effort.
Alex Slagle: I'm wondering if you could talk to turnover levels and productivity improvements just related tenure in training and talent tactful. These have been in the relative margin improvements you've seen and maybe what the path looks like going forward just more room to go or Havent really the biggest gains.
Speaker Change: <unk> captured at this point.
Speaker Change: So I'm going to make a summary comment and then I'm going to ask John to fill in with detail.
John: We saw market improvement in our throughput in our Dcs and in eight.
John: A significant component of that is increased 10 Europe associates.
John: In addition, the driver of it is process improvements, which are driving not only productivity, but also a driver of the reduction in shrink.
John: Much like.
John: SG&A savings, we think operational productivity is a key.
John: Constant effort and I would say, we continue to have significant opportunity for improvement there, but the specific answer to your question is we're seeing throughput grow 10 year increase as the workforce stabilizes John you want to put anything more on that no I think thats right I think we mentioned in our first quarter that we've seen progress on LOE.
James Alexander Miller Douglas: And I would say we continue to have significant opportunity for improvement there. But the specific answer to your question is we're seeing throughput grow, tenure increase, as the workforce stabilizes. John, do you want to add anything more on that? No, I think that's right.
John W. Howard: I think we mentioned in the first quarter that we've seen progress on lowering the vacancy rate, and we continue to see that improve in Q2. We also said, as Sandy suggested, that throughput was actually the highest it's been in the last two years in Q1. And we've seen that level continue to improve also in Q2. And that's a direct result of what Sandy just said.
John: During the vacancy rate.
John: And we continue to see that improve in Q2.
Speaker Change: We also said as Andy suggested the throughput throughput was actually the highest it's been in the last two years in.
Speaker Change: In Q1, and we've seen that level continue to improve also in Q2.
Speaker Change: And that's a direct result of whats Andrew just said as a result of the new processes. Our standard operating procedures. Some additional warehouse technology, we put in place. So we're seeing the results come through on our in our Opex.
John W. Howard: It's a result of the new processes, our standard operating procedures, and some additional warehouse technology we put in place. So we're seeing the results come through in our Outback.
Speaker Change: Got it and any high level guardrails and thinking about our EQ profitability as you sort of evaluate where <unk> came out in <unk>.
James Alexander Miller Douglas: And any high-level guardrails and thinking about req profitability as you sort of evaluate where 2q came out? If there was timing of cost saves or a bigger ramp in the shrink reduction that maybe had an outside benefit in the quarter, I'm just trying to get a view on the third quarter from that perspective. Yeah, I think John said it in his prepared remarks very well, and we our guidance implies $255 million of EBITDA in the second half. The fourth quarter has an extra week, which is about $9 million, and that would be all that we've said about the pace. Okay, thank you. And your last question for today comes from the line of Peter Saleh with VTIG. Your line is open.
Speaker Change: There are timing of cost saves or a bigger ramp in the shrink reduction that maybe had an outside benefit in the quarter.
Speaker Change: And to get at.
Speaker Change: Our view on the third quarter from that perspective.
Speaker Change: Yes, I think John said in his prepared remarks, very well, we our guidance implies.
Speaker Change: $255 million of EBITDA in the second half.
The fourth quarter has an extra week, which is about $9 million and.
Speaker Change: That would be all that we've said about the pacing.
Speaker Change: Okay. Thank you.
Speaker Change: Yes.
Speaker Change: And your last question for today comes from the line of Peter <unk> with <unk>. Your line is open.
Peter Mokhlis Saleh: Great. Thanks for taking the question. Did you guys give us an exact amount of where we were on shrink? I know pre-pandemic, I think it was 20 basis points.
Peter: Great. Thanks for taking the question.
Peter: I may have missed this did you guys give us an exact amount of where we were on shrink I know pre pandemic I think it was 20 basis points.
James Alexander Miller Douglas: And last we heard, we were running, I don't know, maybe 60 basis points or so of shrink. Just trying to understand exactly where we are today, given the progress you've made on shrink. Yeah, I think the numbers you just provided are consistent with what we've said before. And what we said today is that we've made significant progress, in fact, more progress than we'd expected to make. And I'm happy to see that because this is pure waste.
Speaker Change: Last we heard were running.
Peter: Maybe 60 basis points or so of shrink just trying to understand exactly where we are today given the progress you've made on shrink.
Speaker Change: Yes, I think the numbers you just provided are consistent with what we've said before.
Speaker Change: What we said today is that we have made significant progress in fact more progress and we'd expect it to make and I'm happy to see that because this is pure waste so.
James Alexander Miller Douglas: So and then I think commented further that we actually see the opportunity going forward to get to new lows below pre-COVID. So we've made material progress on it, and we have more progress to go. Great. And then, Sandy, on that progress to, you know, being better than pre-COVID on shrink, is that? Something you foresee in the near term, or is that more of a, you know, multi-year kind of initiative, just trying to understand the timeline on getting to those levels. Yeah, that's Peter, we haven't obviously given go forward guidance.
Speaker Change: And then I think commented further that we actually see the opportunity going forward to get to new lows below pre COVID-19. So we've made material progress on it we have more progress to go.
Speaker Change: Great and then sandy on that progress.
Speaker Change: <unk> be better than pre COVID-19 on shrink is that.
James Alexander Miller Douglas: Something you foresee in the near term or is that more of a multiyear kind of initiatives just trying to understand the timeline on getting to those levels.
James Alexander Miller Douglas: Yes, Peter we haven't obviously given the go forward guidance I think.
James Alexander Miller Douglas: I think I'm just pointing to it as an operational opportunity and something that we've got conviction about. Great, thanks. I will now turn the call back over to Sandy Douglas for closing remarks. Thanks, Operator, and thanks to everybody for joining us this morning. Our team is committed to sustaining our operational momentum as we look to the balance of fiscal 2024. We remain confident in our multi-year improvement plan. As a result, we believe we have a compelling opportunity to create sustainable value for our customers, suppliers, and our shareholders through our scale, enhanced capabilities, efficiency initiatives, and profitability focus. We're optimistic, and we will build on the progress we've made in our first half, and we look forward to continuing to update you on this.
James Alexander Miller Douglas: Pointing to it is an operational opportunity, it's something that we've got conviction on.
Speaker Change: Great. Thanks.
Speaker Change: I will now turn the call back over to Sandy Douglas for closing remarks.
James Alexander Miller Douglas: Thanks, operator, and thanks to everybody for joining us this morning.
James Alexander Miller Douglas: Our team is committed to sustaining our operational momentum as we look to the balance of fiscal 2024.
James Alexander Miller Douglas: We remain confident in our multiyear improvement plan.
James Alexander Miller Douglas: As a result, we believe we have a compelling opportunity to create sustainable value for our customers suppliers and our shareholders through our scale enhanced capabilities efficiency initiatives and profitability focus.
We are optimistic we will build on the progress we've made in our first half and we'll look forward to continuing to update you on this.
Speaker Change: Also want to thank John Howard for his leadership over the last five years and for the support that he's provided to me when I joined UNFI.
Speaker Change: John on behalf of UNFI, we wish you all the best.
Speaker Change: And finally for our customers and suppliers. We thank you for your continued partnership and the business. We do together for the UNFI associates listening today are thanks to each of you for everything that you do for our business our customers our communities and each other and for our shareholders. We thank you for the trust you continue to place them.
James Alexander Miller Douglas: I also want to thank John Howard for his leadership over the last five years and for the support that he provided to me when I joined UNFI. John, on behalf of UNFI, we wish you all the best. And finally, for our customers and suppliers, we thank you for your continued partnership and the business we do together. For the UNFI associates listening today, our thanks to each of you for everything that you do for our business, our customers, our communities, and each other. And for our shareholders, we thank you for the trust you continue to place in us. Thanks again for joining us this morning, and I look forward to updating you in June with Mateo. This concludes today's call. You may now disconnect.
Speaker Change: Yes.
Speaker Change: Thanks again for joining us this morning, and I look forward to updating you in June with Matteo.
Speaker Change: This concludes today's call you may now disconnect.
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