Q4 2024 United Natural Foods Inc Earnings Call
Speaker Change: Hello, and welcome to the UNF5 fiscal 2024 Q4 earnings call. All lines have been placed on you to prevent any background noise. After the speaker's remarks, there will be a question and answer session, and if you would like to ask questions during this time, please press star 1 on your telephone keypad.
Speaker Change: I would now like to turn the conference over to Mr. Steve Bloomquist, Vice President of Investor Relations. You may begin.
Steve Bloomquist: Good morning everyone. Thank you for joining us and UNFI's fourth quarter fiscal 2024 earnings conference call. By now you should have received a copy of the earnings release issued this morning.
Steve Bloomquist: The press release and earnings presentation, which management will speak to, are available under the investor section of the company's website at www.unfi.com
Speaker Change: We've also included a supplemental disclosure file in Microsoft Excel with key financial information. Joining me for today's call, our Sandy Douglas, our Chief Executive Officer and Matteo Tarditi, our President and Chief Financial Officer.
Speaker Change: Sandy and Mateo will provide a business update after which we'll take your questions.
Speaker Change: Before we begin, I'd like to remind everyone the 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. Extra results may differ materially from the results discussed in these forward-looking statements.
Speaker Change: And lastly, I'd like to point out that during today's call, management will refer to certain non-gap financial measures.
Speaker Change: Definitions and reconciliations to the most comparable gap financial measures are included in our press release and the end of our earnings presentation. I'd ask you to turn to slide six of our presentation, as I turn the call over to Sandy.
Sandy: Thanks, Steven. Thank you everyone for joining us this morning. As you've seen in our release, we've delivered fourth quarter results that drove fiscal 2024 performance to the upper end of our previously provided outlook.
Sandy: This capped a year in which we significantly strengthened our foundation and build momentum as we enter fiscal 2025.
Sandy: During fiscal 2024, we drove strong, sane customer growth.
Sandy: Extended our agreement with our largest customer until mid-2032, realized approximately $150 million in benefits from structural efficiency initiatives.
Sandy: Significantly Reduce Shrek, lengthen the maturity on our term loan until 2031, and onboarded our new President and CFO Matteo Tarditi.
Sandy: We are confident that our new strategy and multi-year financial objectives informed by our ongoing board and management led financial review will continue to drive accelerating performance.
Sandy: and creates a sustainable value for our customers and suppliers alongside our shareholders.
Sandy: Today I will go into more detail around our new strategy, business plan, and the three-year financial objectives that we expect to deliver by executing this strategy.
Sandy: As I outlined in our last call
Sandy: Our analysis of our current and potential customer base has identified a resilient portion of the industry that totals over 90 billion dollars of wholesale sales today and includes many specialty, natural, ethnic and conventional operators.
Sandy: This market segment is expected to grow at a low, single-digit rate over the longer term, and will likely be led by natural and specialty volumes.
Speaker Change: We are highly focused on this industry segment as it capitalizes on unify strengths, including our heritage in natural and organic products, which grew around 5% in Q4 on a comparable 13-week basis.
Speaker Change: Compared to the prior year and are going even faster so far in Q1.
Speaker Change: Natural customers are broadly performing strongly.
Speaker Change: Customers are also gaining value from unifies margin-accretive digital and professional services business.
Speaker Change: We are actively positioning ourselves to add value to our customers and suppliers through a differentiated portfolio of products, services, programs, and insights that help them grow their businesses and succeed in a dynamic marketplace.
Speaker Change: Simultaneously, we're working to improve free cash flow by focusing on what we can control to become a more efficient organization, optimize our distribution center network and reduce the capital intensity of our business and enabling steady-delivering.
Speaker Change: We expect these two elements of our strategy will work together to help us generate meaningful value creation for our key stakeholders, including our shareholders.
Speaker Change: Let me take a few minutes to explain our new strategy in greater detail and provide a few early proof points around execution.
Speaker Change: I'll start with adding value.
Speaker Change: Our new strategy focuses on providing retailers with a strong value proposition.
Speaker Change: Composed of an increasingly relevant portfolio of differentiated products and value added services.
Speaker Change: that helped and grow profitably, while offering suppliers the right go-to-market services and insights that helped them grow within UNFIs large diverse retailer network, totaling over 30,000 customer locations.
Speaker Change: For example, our revamp commercial go-to-market program for suppliers is a new partnership model that aligns our mutual interests around growth and makes doing business together easier.
Speaker Change: We stream line 15 to 20 unique fees into one and are now providing suppliers access to our enhanced data and insights.
Speaker Change: The result is more value for suppliers and ultimately more tools to help them invest and grow their brands faster and more profitably with UNFIs Retailer Base.
Speaker Change: We have a sizable basis of suppliers including some of the largest CPGs in North America that are now enrolled in the new Go-to-Market model and are already seen early returns faster growth and less friction.
Speaker Change: Our value added digital and professional services portfolio is another differentiator that will increasingly be important to both customers and suppliers, offering mutually compelling economics for them and UNFI.
Speaker Change: We continue to add offerings to our sizable services portfolio that leverage our competitive advantages through unifies scale relationships.
Speaker Change: Data, Programs, and Insights to help our retailers and suppliers more effectively meet their consumers' needs.
Speaker Change: This includes our recently launched Unified Media Network, or U.M.N. for short, which I described last quarter. We're seeing a lot of interest in U.M.N.N. and are continuing to enroll both retailers and suppliers onto the platform.
Speaker Change: We expect to develop, continue to invest in or partner to provide other similar capital light services in the future, which we believe will bring value to customers and suppliers while helping us drive margin expansion.
Speaker Change: We know that bringing value to our upstream and downstream partners will continue to make you identify an attractive partner.
Speaker Change: In parallel, the second element of our strategy is focused on shaping a more efficient distribution center network to better serve our customers and suppliers.
Speaker Change: Lowering our cost structure and reducing capital intensity, which we expect will drive improving profitability, free cash flow generation, and reduced leverage.
Speaker Change: We also expect these moves will help us increase process capability, service levels and responsiveness and enable us to strengthen our broader business, which should enhance the customer and supplier experience.
Speaker Change: Over the last few months, we've executed some of our initial work on the network and optimizing to streamline operations and consolidate volume, focused on our conventional distribution business.
Speaker Change: In our central region, removing volume from our billings and Bismarck DCs into nearby facilities.
Speaker Change: Once we close these two DCs, all of the smart customers and most Billings customers will transition to our nearby Fargo DC with the remainder transitioning to our commerce, Santa Fe Springs and Centralia facilities.
Speaker Change: We own the real estate at both Billings and Bismarck and are actively marketing these properties and will use the proceeds to repay debt.
Speaker Change: These moves are expected to improve the customer experience in the region by leveraging our advanced DC technology solutions, including our modern cloud warehouse management system and case scanning technology.
Speaker Change: In conjunction with our focus on employing rigorously in management practices, emphasizing process, production and preparation, we expect this transition to deliver better quality, service and operational efficiency to both our customers and suppliers.
Speaker Change: In addition, our Fargo DC will provide customers with access to a broader product assortment and enable suppliers to reach more customers out of a single DC.
Speaker Change: Actions like this result in both customer and supplier benefits and help to reduce the capital intensity of our conventional network while lowering our operating cost.
Speaker Change: Importantly, we see further opportunities to streamline our supply chain footprint.
Speaker Change: We'll be working to evaluate and take action similar to what we've done in Billings in his mark over the next couple of years.
Speaker Change: To consolidate volumes, generate operating savings, sustainably improve cash flow generation, and potentially generate cash from asset sales, all while improving the customer and supplier experience.
Speaker Change: We are extending our focus on reducing capital intensity beyond network optimization, to improve the way we invest our capital.
Speaker Change: As you saw in our press release, we expect fiscal 2025 capital investments to be around $300 million, a decline of $70 million compared to fiscal 2024.
Speaker Change: This reduced intensity is being driven by a shift in spending based on asset utilization and wear and tear. Rather than a calendar approach where maintenance dollars get spent on a regular cadence with less focus on need.
Speaker Change: As we improve capital allocation, we will continue to prioritize safety and service levels.
Speaker Change: Additionally, we are focused on reducing our investment in working capital, and are seeking to improve capabilities to return our inventory days on hand to pre-pandemic levels.
Speaker Change: We expect to reduce days on hand by around two days during fiscal 2025 and have introduced processes to more efficiently manage this under the enduring basis.
Speaker Change: To provide structure and ensure discipline, we have created a value delivery office. This group reports to Mateo and is charged with project managing and problem solving on key initiatives and the progress being made against defined timelines and expected benefits.
Speaker Change: It is also focused on ensuring progress achieved is maintained through lean management practices and structural process improvements.
Speaker Change: Turning to slide seven from a financial perspective, our new strategy in three year financial objectives are expected to result in revenue that is roughly flat as organic growth offsets the revenue impact of network optimization.
Speaker Change: We will be focused on increasing unify share of the resilient $90 billion priority market segment and expect overall margin expansion over the next three years to be driven by first.
Speaker Change: Faster growth in our higher margin natural business, compare to our conventional business, partially reflecting the prioritization of products we believe will help add value for retailers, particularly in our priority market segment, as well as projected secular trends.
Speaker Change: As I mentioned earlier, our natural organic and specialty business is growing strongly and represents the majority of our distribution property.
Speaker Change: Our second margin driver relates to the benefits from our multi-year efficiency initiatives introduced on our last call, which are expected to approach a similar magnitude to the $150 million we realized in fiscal 2024.
Speaker Change: And lastly, growth from our digital and professional services which add value to customers while carrying higher margins for UNFI. As a result, we expect our average annual adjusted EBITDA growth rate over the next three years to be in the high single digit range.
Speaker Change: We expect adjusted EPS growth to outpace that of adjusted EVDA as we target net leverage reduction to 2.5 turns or less by fiscal year and 2027 and benefit from lower interest expense.
Speaker Change: This reduction in net leverage is expected to be driven by higher adjusted evitah, as well as strong free cash flow generation, which we plan to direct towards repaying debt.
Speaker Change: Once we complete the initial execution of our planned key strategic initiatives over the next couple of years, we expect to generate annual free cash flow of well over 0.5% of net sales.
Speaker Change: In fiscal 2025, we expect to generate around $100 million in free cash flow about $200 million better than fiscal 2024 which material will discuss in more detail.
Speaker Change: These three financial objectives assume a generally stable operating backdrop.
Speaker Change: Our board and management led review remains ongoing, and we continue to evaluate value creation opportunities beyond this updated strategy as we execute and drive toward the improved metrics embedded in our three-year financial objectives.
Speaker Change: We reduced management layers in 2024, allowing for faster, more streamlined decision-making and improve the customer and supplier experience.
Speaker Change: This includes the reorganization and reprioritization of our digital organization in the fourth quarter that integrated digital capabilities throughout the business and increased digital scalability.
Speaker Change: As we embed a lean continuous improvement mindset in the organization, we will identify more opportunities for improved efficiency.
Speaker Change: As I stated earlier, we enter fiscal 2025 with momentum and a large stable business with significant organic growth and free cash flow generation potential through optimizing controllable variables.
Speaker Change: Our focus remains on helping our customers compete through our products, services, programs, and insights while bringing value to suppliers to the 30,000 diverse customer locations that we service.
Speaker Change: We believe this focus on adding value to customers and suppliers to sustain organic growth. While also driving, improving, recurring free cash flow generation, will result in meaningful shareholder value creation over the short in the long term.
Speaker Change: We expect fiscal 2025 will be a year of delivering and delivering as we pursue our new strategy.
Speaker Change: With that, let me turn it over to Mateo to discuss our Q4 results outlook and continuous improvement and process transformation work.
Mateo: Thank you, Sandy and good morning, everyone. I'm pleased to join you for our year-end earnings call.
Sandy: A sandy state, we finished fiscal 2024, at the upper end of the revised outlook ranges we provided in June for sales, adjusted EBDA and adjusted EPS.
Mateo: Today, I will provide additional insights into our fourth quarter operational results, our year-end financial position and capital structure, the management process changes with implemented guided by lean principles, and our outlook for fiscal 2025.
Mateo: With that, let's dive into our four Cures ups.
Mateo: is turned to slide nine.
Mateo: Our fourth quarter sales came in at $8.2 billion, which included close to a $600 billion benefit from the extra week in the quarter, as fiscal 2024 was a 53 week year for UNFI.
Mateo: On a comparable 13-week basis, which excludes the additional week, fourth quarter sales grew approximately 2.1%.
Mateo: Our fourth quarter performance contributed to a fully-year sales increase of 0.4% on a 52-week basis.
Mateo: In a whole tale, we again saw sequentially improving volumes, as well as declining levels of inflation, continuing the trends we discussed on our third quarter call.
Mateo: Hossil volumes, viewer on a trailing four week basis compared to last year, turned positive in week 49 and trended higher each consecutive week for the balanced of the fiscal year and ended the year up 2%.
Mateo: is continued volume improvement was largely driven by the natural side of our business. Although conventional volumes improved as well by a slower pace.
Mateo: This volume improvement has also continued into early fiscal 2025.
Speaker Change: At the same time, inflation decelerated modestly approximately 1.5% and we continue to expect inflation to gradually slow before leveling out later this fiscal year.
Speaker Change: Sales in our retail business continue to see pressure as many consumers in our operating markets remain highly price-sensitive.
Speaker Change: Including the additional week, retail sales improved from the third quarter, but were still done by slightly more than 4% compared to the prior year.
Speaker Change: is the client was primarily attributable to lower the same store sales.
Speaker Change: Our team is working to execute a robust plan, expected to drive improving top and bottom-line performance in fiscal 2025 and beyond. Moving to slide 10, let's review profitability drivers in the core.
Speaker Change: Our gross margin rate, excluding life was 13.5% in the fourth quarter. We have now broadly cycled the period of large year over year declines in procurement gains and would expect margins to be comparable going forward.
Speaker Change: Within our business segments, both our wholesale and retail gross margin rates were up compared to last year.
Speaker Change: Our improved wholesale margin during Q4 includes a benefit of the shrink and margin initiatives we focus on during the year and more than a set of our commercial investments and lower procurement gains.
Speaker Change: We're close to pre-cogged shrink levels and are working to drive shrink expanse even lower as one of our efficiency initiatives, which I'll touch upon in greater detail shortly.
Speaker Change: Last quarter we spoke about focusing our efforts on what we can control, and within an environment that remains challenging, we improve our overall operating expense rate by around 30 business points compared to last year's fourth quarter.
Speaker Change: This occurred despite a more normalized level of incentive compensation, which was about $12 million in the quarter, markedly higher than last year's fourth quarter when there was no material incentive compensation expense.
Speaker Change: We're in our operating expenses with a lever and other solid floor of SG&A reduction as we further streamline the organization in generated expand savings, consistent with our strategic vision.
Speaker Change: The biggest rival of improvement was a broad-based reduction in labor expense, partly through spend and layers which has reduced the total count by around 4% since the end of last year.
Speaker Change: He also reflects some benefits from the actions we took to streamline and increase the scalability of our digital platform, which Sandy described in his remarks.
Speaker Change: A just a little bit that for the Ford Corps was $143 million, compared to $93 million in last year's Ford Corps.
Speaker Change: This included an approximate $10 million benefit from the additional week, higher sales on a comparable 13-week basis and strong execution against our near-term cost savings initiatives.
Speaker Change: This was our fourth consecutive quarter of sequentially higher profitability, which means each quarter of a just a EBITDA in fiscal 2024 was higher than the prior quarter in both dollar and rate terms evidencing the momentum with which we enter fiscal 2025.
Speaker Change: This higher adjusted EBITDA during Q4, more than a set higher interest expense, primarily driven by higher average interest rates.
Speaker Change: This life to a Jocelyn P.S. in the quarter of the penny which compares to a net loss of 25 cents in last year's fourth quarter.
Speaker Change: Turning to slide 11, Frickers flowing Q4 was $71 million, it decreased from last year as higher level of profitability was more than a set by higher capital expenditures related to the timing of payments for automation investments.
Speaker Change: Higher-caching for espayments and lower benefits from working capital changes compared to last year's fourth order.
Speaker Change: The change in working capital partially reflects the lower use of our accounts receivable monetization and seem that our programs as a result of a strategic shift focused on greater discipline, higher and more decentralized accountability, and minimizing ongoing working capital use.
Speaker Change: We expect to employ vehicles like the Cancer Sevalbol Monetization Program, less over time as we prioritize organic, free cash flow generation.
Speaker Change: The 71 million dollar free cash flow in Q4 enabled us to reduce net depth to under 2.1 billion and net leverage to 4.0 turns in decline of 0.6 turns from Q3.
Speaker Change: The Sandy Highlight earlier, with a main on track with our longer term goal to reduce net leverage to under 2.5 turns by fiscal year 2027, and we'll continue to look for opportunities to accelerate this.
Speaker Change: Moving to slide 12, since I've joined you onify, we've begun the process of introducing a more detailed framework to manage and forecast free cash flow. These are my previous experience in success in doing so.
Speaker Change: Previously, leaders and teams at UNFI have largely been focused on driving sales and profitability.
Speaker Change: The Veterans and Divide Frikesh Floor Generation, we have embedded these metric in the goals and objectives for our broader organization, the part of our fiscal 2025 incentive planning process.
Speaker Change: The Sandy detailing his remarks, improving Frikes' flow is an important focus of the financial review. And we have identified meaningful, controllable levers that we believe will enable us to return to generating significant Frikes' flow, starting in fiscal 2025.
Speaker Change: At the end of this sustained improvement in frequent flood generation will depend on rigorous daily management routines and action plans, which we have already put in place and helped us close out fiscal 2024 strong and set us up well for fiscal 2025.
Speaker Change: Ladies and gentlemen, routines are one way the lean practices are ready to benefit in our organization.
Speaker Change: We have completed the initial phase of lean training for our senior leadership team and have begun to more broadly roll this out across our organization.
Speaker Change: Associates will get a stronger sense for how daily actions and decisions influence how cash moves into an out-of-the-organization.
Speaker Change: We will more aggressively celebrate in metrics and goals across the company, and more frequently measure results again in these goals, so corrective actions can be taken quickly, where appropriate, and more real-time learning can be reflected.
Speaker Change: We've looked at violent short-term cost savings wings with longer-term breakthroughs of accomplishments. It will further position UNIFI for future success.
Speaker Change: As we're fiscal 2025, our goals this year are based on defined short and long-term benchmarks that advance our long-term vision and drive a high due to say ratio of continuous improvement across all dimensions of the organization.
Speaker Change: Looking at the slide 13, we have closed fiscal 2024 at the upper end of our previous guidance in our highly focus on generating continuous improvement in our financial performance in fiscal 2025.
Speaker Change: As I'm finding our press release, the guidance ranges and increases compared to fiscal 2024 include sales that are expected to be in the range of $30.3 billion to $30.8 billion.
Speaker Change: and increase of 0.5% at the midpoint when adjusting for the 53rd week in fiscal 2024.
Speaker Change: An expected range for a just a EBDA of 520 to 580 million dollars in increase of 8% to the midpoint on a comparable 52 week basis.
Speaker Change: We expect our overall adjusted EBITDA margin rate to sequential expand from Q1 to Q4. With first quarter adjusted EBITDA dollars expected to grow in the mid-single digits compared to the prior year first quarter.
Speaker Change: This reflects the cadence of actions we plan to take in fiscal 2025, executing our revised strategy and how they will benefit results over the year.
Speaker Change: Sending mention, where focus on generating unwell adjusted EBD emerging expansion in our revised strategy by QC Flectuation's quarter-to-quarter.
Speaker Change: An adjusted EPS range of 20 cents to 80 cents per share and increase of over 3 times at the midpoint when adjusting for the 53rd week in fiscal 2024.
Speaker Change: We continue to expect capital spending including dollars for cloud implementation to be approximately $300 million. Down from the $370 million spent in fiscal 2024.
Speaker Change: Our topics plan include one automation project, continued investments in safety and usage based maintenance spending as well as the completion of our Sarasoda DC, already under construction.
Speaker Change: We believe we will be able to generate approximately $100 million in Freakish Flow, a almost $200 million year over year, which we plan to allocate to reduce in net debt and improve in our leverage.
Speaker Change: Sandy stated, our longer term goal is to generate the recurring freakish flow of well over a percent of sales.
Speaker Change: Note that these guidance ranges are all based on what I will call state-based operations, which also applies to the longer-term metrics that they provided earlier.
Speaker Change: We made a strategic decision to close two-on distribution centers, which we expect will generate cash for us, save on future operating costs and provide a customer benefits he spoke to.
Speaker Change: We will continue to evaluate other opportunities along these lines, but have not yet included any incremental strategic initiatives in our outlook.
Sandy: His artwork for Fiscal 2025 is the first year of the three year business plan and financial objectives Sandy described earlier.
Speaker Change: We will be focused on executing this year so that we can fully realize our financial objectives and continue to better realize the significant value creation and organic growth potential embedded in our large stable 30 billion plus business.
Speaker Change: Clipping to slide 14, with two decisive actions to strengthen our foundation during fiscal 2024, and expect to drive continued improvement in fiscal 2025 as we strive to become a more efficient business partner in two retailers and suppliers to benefit from the full advantage of all the products and services we bring to the market.
Speaker Change: Have you been here for over five months now? I'm even more confident about the future of our company and the returns we can generate for our shareholders.
Speaker Change: It is so much opportunity to create value from improving processes and generating efficiencies, which is a vital aspect of my prior experience.
Speaker Change: We expect fiscal 2025 to be a year of delivering and delivering, I look forward to updating you on our progress. But that operator please open the line for questions.
John Howard: and John Howard.
Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you wish to withdraw your question, simply press star 1 again. Please ensure that your phone is not on mute when called upon. Thank you.
Speaker Change: One moment please for your first question.
Speaker Change: First Question comes from the line of John Heimbuckle with Guggenheim, your line is open.
John Heimbuckle: A saying, I wanted to start with your view on the role of conventional in the portfolio, right? As you said, most of the profitability comes from...
Speaker Change: Natural and that business is growing. So the role of conventionally, I know to get to flat revenue.
Speaker Change: It means that you're probably given up a billion or a billion and a half somewhere. So there will be more closures beyond buildings in Bismarck, I assume. And do you think you manage conventional accounts out of the system?
Speaker Change: You know, in warehouses that you don't close, is that part of this as well.
Speaker Change: Good morning, I think our view of our product portfolio is more broad-based in the sense that we seek to have the products that our customers need and want.
Speaker Change: What you see in our network rationalization is a effort to make sure that our supply chain is as efficient as possible and that all of the capital that we have invested is generating the best returns.
Speaker Change: Ultimately, the consumer...
Speaker Change: Clearly is trending towards natural and better for you products, so that's a big focus of ours and also part of our heritage.
Speaker Change: But at this stage, we're designed for the customers we serve and we believe inside the addressable market we talked about there will be material amounts of both conventional and natural products.
Speaker Change: Okay, and then maybe for, uh, for Mateo.
Mateo: Can you speak to right there's sort of two sides of the labor productivity aspect here, right? So number one, wage rate inflation.
Mateo: Do you think that is 3% to 4% to 5% inflation rate going forward just given supply demand?
Mateo: and then the flip side of that is the productivity you can drive in cases per labor hour. Right, and is the idea to offset the two, what do you think the lean productivity gains can be an excess of your wage rate inflation?
Mateo: [inaudible]
Mateo: and John, thank you for the question.
Speaker Change: Two things, so first of all, our goal is always through productivity and throughput.
Speaker Change: to a more than offset the pressure from inflation. So while you're correct, we don't necessarily pin down percentage point.
Speaker Change: We will see some pressure between renax and inflation on labor, but our goal through lean and we have some good proof points to ready is to continue to remove waste.
Speaker Change: Improve the number of cases per hours and how do we continue then to drive productivity out of the large distribution center network.
Speaker Change: So in mid-term long-term, the plan is clearly to continue to offset any labor pressure from a cost and point with more productivity.
Speaker Change: Okay, thank you.
Steven Bloomquist: and Steven Bloomquist.
Speaker Change: Your next question comes from the line of Leah Jordan with Goldman Sachs, your line is open.
Leah Jordan: Good morning. Thank you for taking my question. Just seeing if you could walk us through the puts and takes to gross margin in your 25 outlook, you know, how much could vendor promotions be a tailwind in the coming year, you know, what are you seeing there? And how should we think about procurement opportunities, given your inflation outlook for some deceleration and stabilization? Thank you.
Speaker Change: Thank you, Good Morning. So, a couple of thoughts here. First of all, on the general guidance, you know, we're looking at kind of...
Speaker Change: High-Single DJ, you know, grows in the in the long-term and we were guiding 520 to 580 and EBITDA with a midpoint of 150 million dollars.
Speaker Change: are relatively to a gross profit. So what we expect is that obviously actions like shrink that have given great results and great benefits in 2024 will continue into 2025.
Speaker Change: and we also expect the pressure from Mix from customer Mix to continue into 2025 broadly and kind of balancing between this two.
Speaker Change: As Cindy mentioned, part of the DC network optimization is going to help us remark in the business.
Speaker Change: That is going to be probably through 26 and 27, but relative to 2025, so on the specific question of gross profit, we expect to see some balance between the benefits of gross profit and sorry, the benefits from shrink and the pressure from weeks.
Speaker Change: to promotions. We still don't see promotions going back to kind of the pre-pandemic levels.
Speaker Change: So for now, you know, we're modeled some level of improvement, but not kind of significant improvement back to the pre-pandemic levels, send in order to want to answer that. Yeah, I think you covered the wholesale view really well. I think the added point would be that our digital professional services give us a margin tail when because they create value for our customers and their higher margin for us and so they're a big part of our focus.
Speaker Change: which is a big part of our GoFour in margin strategy.
Speaker Change: Great. Thank you. And just for my follow up, just wanted to see if you could provide more detail on the retail segment. You know, what demand trends are you seeing within your banners there and the competitive environment where you operate? And how important is that business to supporting your, your whole business as well?
Speaker Change: Yeah, I mean, our retail business, think about it as a minute, Minnesota, 20 cities business, it's the Cub brand.
Speaker Change: It's a market leader in the Twin Cities. It's had some challenging performance over the last couple years.
Speaker Change: We have a new team in there that's building a new strategy working closely with our franchisees.
Speaker Change: and we're optimistic that CUB will be a strong player for years to come and there are a number of initiatives that are underway to improve the performance there. From a competitive standpoint, CUB is competing against the widest range of local and national players.
Speaker Change: and, like many, they're pursuing differentiation strategies to improve the performance. And, again, I mentioned the franchisees up there. We've got a unique structure. It's very collaborative. And I think we're increasingly constructive on the plan that's being built.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Mark Kardon with UBS, your line is open.
Mark Kardon: Great, good morning. Thanks so much for taking the questions. So in your three-year plan, you're prioritizing National Organic, which makes a lot of sense.
Mark Kardon: Thinking into what you're doing on conventionals, though, how are you thinking about the balance of growth between independent conventionals and chains over the next few years? Would you expect one to grow much faster than the other?
Mark Kardon: Mark, it's hard to generalize, then I'm not dodging the question. We find performance.
Mark Kardon: amongst our 32,000 approximate retail base to very, uh, literally from one segment to the other based on the retailer and their positioning.
Speaker Change: What we see is yet the natural and organic and specialty retailers are growing faster right now.
Speaker Change: But we also see really well positioned retailers in ethnic and other sort of specializations doing quite well as well.
Speaker Change: and some of them are one-store operators who are just brilliant merchants and others are larger. So you can find across our entire customer-based winners and then those who are going to win in the future. And our job is to try to help all of them from wherever they are.
Speaker Change: Do better tomorrow than they did yesterday, but you'll really see winners all over the market.
Speaker Change: Okay, that makes sense. And then on your higher margin professional services, how is traction trending for your national organic business? I know historically, it's been more geared towards conventional that are you seeing any time to the step change on that front.
Speaker Change: Yeah, well the services business, as you said, was it originated with a more conventional focus, but we've been ramping it up across our customer base services continue to significantly outgrow our general business.
Speaker Change: and as I mentioned earlier, we're very bullish about the services business and generally think about as any place where we can add capability inside or scale.
Speaker Change: to a customer's either technology or products and services that they don't resell.
Speaker Change: and then typically what we do is we aggregate, we help them on board and we tell media that work is the latest example and we're seeing interest across both the conventional and the natural customer base.
Speaker Change: Great, thanks so much for your good luck, guys.
Speaker Change: Thanks for watching.
Speaker Change: Your next question comes from the line of Edward Kelly with Wells Fargo, your line is open.
Edward Kelly: Hi, good morning guys how are you?
Speaker Change: Alright, back to you!
Edward Kelly: My first question, just as it pertains to the end of the 2025, as you think about the first year of, you know, this leg of multi-year, high-sting levity to the dog growth.
Speaker Change: I think, but you tell us, the back half of 24 and what is an improved level of the dog rose already kind of locks in. It seems like a portion of that growth in 25 is that correct?
Speaker Change: And what I would say, and this was in Mateo's remarks, is the high single digit compound that growth rate is the guide for the three-year plan and is also the guide for fiscal 25.
Speaker Change: We believe that it will build as the year starts. Mateo said that he expected the first quarter in the early part of the year to be mid-single digits.
Mateo: and that's because a number of the video or productivity initiatives are being implemented in the first half and will be building as we get into the second half.
Mateo: So, obviously it's a multi-year story last year, a number of the initiatives were in very early, so they cycle through the whole year.
Mateo: But have some benefit that come over to the new year. But think about the first half as mid-single digits, and then the second half being sort of at the upper end to get to high-single digits for the full year.
Mateo: Scott, it's okay, that makes sense. And I wanted to ask you about the vendor promo and you know the trends that you're seeing there. The impact that it's having on, you know, your customers' ability to drive better volume and then the impact that it's also having on your own piano. Can you maybe update us there?
Scott: Yeah, what we're seeing is promotions are starting to continue to come back. They're still below pre-pandemic levels, consumer products companies.
Speaker Change: Spending is obviously varies by the company.
Speaker Change: but they're continuing to grow as Mateo alluded to units or starting to improve slightly. And we see growth oriented energy from our suppliers continuing to grow.
Speaker Change: The impact to our company is that we benefit when suppliers promote, because we service all of that for them through to our customer base.
Speaker Change: and our customers obviously benefit. And our merchants are very focused on driving the maximum amount of spend through to our customers.
Speaker Change: I also mentioned a new program that we developed over the last year for suppliers called so the supplier could a market program.
Speaker Change: where we're trying to simplify a lot of the way we used to operate by reducing 15 to 20 fees into one and providing suppliers data so that they can be more laser.
Speaker Change: A like in the way they spend their trade dollars to help our customers grow, particularly the smaller of our customers, and typically don't get called on by suppliers, which opens up new growth and profitable growth for suppliers and more investment for our customers.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Andrew Wolfe with CL King. Your line is open.
Andrew Wolfe: Thank you. Good morning. Good morning. Good morning. Can you provide more color on what drove the step up and volume in her quarter? And I think you said currently, you know, I know the press release referenced new customers.
Speaker Change: Also increased penetration, this sort of maybe a lot that between that, those two things and also was the increased volume kind of uniform across the customer segments.
Speaker Change: Well, is it more concentrated with, you know, supernatural, for example?
Speaker Change: So, beyond the reported segments is probably as deep as I'll go into specific customers Andy, but clearly we saw natural organic and specialty growth accelerate significantly in the fourth quarter and it's continued to accelerate further in the first quarter.
Speaker Change: We saw natural, conventional, in general, start to improve by the slower rate.
Speaker Change: And then I would describe the sort of differentiating growth for us with the expansion that we have with existing customers, where we expanded the work that we do in a couple of customers.
Speaker Change: that we're bigger and then in a number of them that we're smaller. So they all three of those were playing a role, broader industry factors, the success of our customers, and then our expansion with certain customers.
Speaker Change: Got it. Okay, that's helpful. And this probably more from Mateo, would you just tell me how it kind of square, you know, if you're running 2% or better sales, at least in the quarter and sounds like maybe now.
Mateo: but you're guiding to the midpoint of a path of percent. I mean, is the difference all that work optimization or is there.
Mateo: Other expectations in there for maybe volumes to settle down a little lesser inflation to come down and just trying to understand that differential.
Mateo: Yeah, that's a very good question. Thanks for asking. So couple of thoughts here. So as we say in the script, start it in fiscal week 49, our volumes started trending favorably and you know, they are tracking favorably.
Mateo: The send-imensional primarily through the strength of the natural and special to business and so far, you know, this, this trend has continued into the year.
Mateo: I think it's very early, it's only second month of 12, but if this trend continues, it is possible that we're going to be able to outperform the midpoint of our outlook, which is why we're cutting 30.3 to a 30.8, 30.8 would imply two percent or so of kind of growth over a year, 3.4 percent on a.
Mateo: Case is 10.200 cases, volume 10. So we're trying to have a pragmatic and conservative approach to sending the outlook, feel comfortable with the current outlook. And we believe that this 30.3 to 30.8 midpoint reflects the dynamic market.
Mateo: Backdrop, and if we see this volume of sustaining, you know, we will continue to look at the forecast.
Mateo: Now, the thing that we've got to bear in mind is that while, again, we see the volume improving, we are going to continue to look at the DC Playbook and the network optimization. And so we will continue to balance what we see in terms of growth on the organic and specialty, with the fact that we may see contraction in revenues coming from DC closures.
Speaker Change: Okay, and is any more closures kind of contemplated in the guidance or is it?
Speaker Change: can still be determined.
Speaker Change: This is what you've pretty did, isn't it?
Speaker Change: Yes, still to be the Tardis. So, Billings and Bees Mark are announced and ongoing, and then we continue to look at opportunities to serve the customers while improving our operating efficiency and cost position.
Speaker Change: Thank you, Richard. Thank you. Your next question comes from the line of Kelly Banyan with BML Capital Markets. Your line is open.
Kelly Banyan: Good morning, and thanks for taking our questions. Can you just help us understand the networked optimization strategy a little deeper in terms of the magnitude of the sales impact that we should expect this year and in coming years? And...
Speaker Change: should we presume that that strategy impact primarily chains or independence are both but not a supernatural channel can you just walk us through what the what the vision is there.
Speaker Change: Yeah, I got it, Sandy.
Speaker Change: The Network Optimization Strategy is a core part of our three-year plan and the way to think about it is how can we optimize the footprint?
Speaker Change: The capability from a technology as well as an automation and an assortment and efficiency perspective. And we're really rationalizing and that work that's built and built over decades into a modern network that's fit for purpose for customers today.
Speaker Change: So, it's principally focused on the...
Speaker Change: Conventional side of the business where a lot of the DCs have and legacy DCs are. Most of the way our natural network has been built has been built, custom or back anyway.
Speaker Change: but it's being enabled by technology and investments we're making in regional technology and DC technology and it's all built around the metrics.
Speaker Change: of excellent customer service returns on Capitol and free cash flow.
Speaker Change: The other point I'd make is we did announce two closures, we also have also announced a DC opening in Manchester, Pennsylvania, which is a significant expansion on the Jason DC and York, which we will close.
Speaker Change: that is going to be employing all of our newest technology and will be automated sometime next spring.
Speaker Change: There's a lot involved in the strategy, there will be a net closure of DCs to improve returns on capital, but always with customer metrics first and foremost.
Speaker Change: Okay, and can you just talk a little bit more about...
Speaker Change: Custom receipt back on the new C structure and how your C structure is consolidated C structure varies from competitors in the marketplace and any impacts we should be considering.
Speaker Change: in terms of volatility of margins or lack of volatility of margins or seasonality from this new structure.
Speaker Change: Chair, a number of facets to that question. What I would say is that...
Speaker Change: You should see our fees that we're collecting from suppliers be more consistent.
Speaker Change: and allow for faster action by suppliers. I'll give you an example.
Speaker Change: Suppliers who are enrolled in the program do not pay slotting fees. So once we decide together that an item is right for a DC, we get much faster with the goal of being faster or fastest to shelf.
Speaker Change: All of this strategy is designed to create value by earning retailer and supplier alignment for faster action and then to make the fee structure simpler and more consistent for suppliers and for us.
Speaker Change: from a competitive standpoint, you really need to ask our competitors, our goal with suppliers.
Speaker Change: is to be the most valuable distributor of partners that they have.
Speaker Change: and by doing so, help them see opportunity in our customer base and invest on it and then make the return that they're seeking so that it creates a virtuous cycle.
Speaker Change: and it's early. We'll see how it goes. We have a number of suppliers that are enrolled today. I'd say we're kind of mainstream in the implementation with more to come and we're getting...
Speaker Change: Plenty of feedback on ways we can make it better and we're listening and trying to do that as we go. But over time, it should show up more like a subscription and be more about growth and earn the suppliers' dollars and allow their promotional spend and retailers spend to flow directly through to the retailers.
James Douglas: and James Douglas.
Speaker Change: Okay, that's helpful and I'm just one other one for me.
James Douglas: In terms of the professional services and digital services, I guess that means on the retail media side.
Speaker Change: Can you just help us understand what percent of your customer base are engaged with some of the services today and what kind of growth you are planning in fiscal 25s and really over the next three years from these two components?
Speaker Change: Yeah, I'll give you a couple of ways of thinking about that. Some of our older, more analog services are highly penetrated.
Speaker Change: New Services and Digital Services are new and therefore they're not penetrated highly.
Speaker Change: We're seeing strong growth in services we saw it for the last three years and we expected to only accelerate going forward.
Speaker Change: and we have a curation process where effectively, whatever our customers need. And I'll use retail media as an example. retail media is going to be a hundred billion dollar advertising business. Our customers didn't have access to it.
Speaker Change: We worked with a partner to create a facility where consumer products companies could invest into it and get the same kind of experience and returns on their investment that they have with some of the bigger players.
Speaker Change: We have a team in professional and digital services that are looking for opportunities like that to drive penetration of existing services, but then to figure out what's next so that our customers don't have to wait for years to participate in things that they would need to be successful.
Speaker Change: The New Year's Day.
Speaker Change: Your final question comes from the line of Chuck Serenkovsky with North Coast Research. Your line is open.
Chuck Serenkovsky: Good morning, everyone. We've got a repeated series of quarters here where the consumer is inflation-weary, very price-ensitive yet the EAT.
Chuck Serenkovsky: United Natural Management Team sounds refreshingly confident about delivering and delivering. How sensitive to the economic environment do you think your recovery plan is?
Speaker Change: Chuck, a super good question. I think our...
Chuck Serenkovsky: Recovery Plan is focused on...
Chuck Serenkovsky: Helping our customers be successful and taking the controllable self-help actions in our own business.
Chuck Serenkovsky: to make sure that we're healthy alongside.
Speaker Change: Needs in the market are not challenged for us, meeting them is, and then taking the actions to make sure that our cost structure is managed tightly using as the tail-outline leading principles and other management disciplines to make sure we're fit for purpose for the environment.
Speaker Change: So, the consumer is, as you said, very price sensitive.
Speaker Change: We're working very hard to give our customers the tools to appeal to the customer where they are. But our outlook is balanced in the environment that it's in. Obviously, inflation has lowered down from a percentage gross standpoint, but prices are still high. Value is still important.
Speaker Change: Our brand's plus program is an important initiative there, but in terms of our own profitability growth, we're focused on the things that we need to do to control the controllables and we built some confidence based on our performance in fiscal 24th.
Speaker Change: Could, thank you for that, and Sandy or Mateo, could you talk about the timing of selling those two distribution centers and what amount of cash you might get from them?
Speaker Change: Yeah, the request and take shot.
Speaker Change: So, couple of thoughts here. We are facing down the operations and we are starting the marketing process for these two facilities.
Speaker Change: We are webbing clear with a team that we're not going to trade time for value. We do believe that there are good opportunities in the market out there. We're not going to rush into a transaction to cut economics.
Speaker Change: So we'll go through a discipline process that we've implemented on both capital acquisitions and dispositions and providing updates as we go through the next few months. But again, we start to the marketing process positive response so far and we'll go through that.
Speaker Change: Alright, thank you, good luck.
Speaker Change: This concludes the question and answer session, I'll turn the call to Sandy Douglas for closing remarks.
Sandy Douglas: Thank you, Operator. We are focused on executing our new strategy, which is I outlined earlier. Emphasizes delivering value for customers and suppliers while simultaneously improving free cash flow and strengthening UNFI broadly.
Sandy Douglas: We've already taken many actions to demonstrate that we're seeking to accomplish.
Sandy Douglas: and I'm confident in our ability to help customers suppliers and in turn you and a high-growing succeed.
Sandy Douglas: Mateo has been a great addition to our leadership team.
Mateo: His emphasis on efficiency, free cash flow and process management is valuable, as we embark on the first year of our three-year plan, which I believe will create significant and sustainable value for our customers, suppliers, associates and shareholders.
Mateo: with Mateo's onboarding our senior leadership team is complete, well aligned and focused on driving operational improvement. This skill sets to the team are highly complementary and it gives me confidence that we will execute our plan well.
Mateo: For our customers and suppliers, we thank you for your continued partnership and the business we do together.
Mateo: For the Unify and Societies 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 that you continue to place in us.
Mateo: Thanks again for joining us this morning. I look forward to updating you on our progress in December.
Speaker Change #100: This concludes today's conference call, we thank you for joining. You may now disconnect your lines.