Q1 2026 United Natural Foods Inc Earnings Call

December 2, 2025

Operator: Thank you for standing by, and welcome to the UNFI Q1, Q2 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press * followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press *1. Thank you. I'd now like to turn the call over to Steve Bloomquist, Vice President of Investor Relations. You may begin.

Speaker #1: Welcome to the UNFI First Quarter Fiscal 2026 Earnings Conference Call. Thank you for standing by. All lines have been placed on mute to prevent any background noise.

Speaker #1: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad.

Speaker #1: If you would like to withdraw your question, again, press star one. Thank you. I'd now like to turn the call over to Steve Bloomquist, Vice President of Investor Relations.

Speaker #1: You may

Speaker #1: begin.

Speaker #2: Good morning,

Steve Bloomquist: Good morning, everyone, and thank you for joining us on UNFI's Q1, Q2 2026 earnings conference call. By now, you should have received a copy of the earnings release from this morning. 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. 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 Matteo Tarditi, our President and Chief Financial Officer. Sandy and Matteo 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.

Speaker #2: everyone, and thank you for joining us on UNFI's first quarter fiscal 2026 earnings conference call. By now, you should have received a copy of the earnings release from this morning.

Speaker #2: 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.

Speaker #2: Joining me for today's call are Sandy Douglas, our Chief Executive Officer, and Mateo Tarditi, our President and Chief Financial Officer. Sandy and Mateo will provide a business update, after which we'll take your questions.

Speaker #2: 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.

Speaker #2: These risks are discussed in the company's earnings release. Actual results may differ materially from the results discussed in these forward-looking statements. I'd like to point out that during today's call, management will refer to certain non-GAAP financial measures and SEC filings.

Speaker #2: These risks are discussed in the company's earnings release Actual results may differ materially from the results discussed in these forward-looking statements. I'd like to point out that during today's call, management will refer to certain non-GAAP financial and SEC filings.

Steve Bloomquist: These risks are discussed in the company's earnings release and SEC filings. Actual results may differ materially from the results discussed in these forward-looking statements. 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 now ask you to turn to slide 6 of our presentation as I turn the call over to Sandy.

These risks are discussed in the company's earnings release and SEC filings. Actual results may differ materially from the results discussed in these forward-looking statements. 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 now ask you to turn to slide 6 of our presentation as I turn the call over to Sandy.

Speaker #2: measures are included in our press release and the end of our earnings presentation. I'd now ask you presentation as I turn the call over to Sandy.

Sandy Douglas: Thanks, Steve, and thank you, everyone, for joining us this morning. In Q1 of Q2 2026, UNFI delivered solid results, including adjusted EBITDA and free cash flow meaningfully above prior-year levels, while net leverage declined approximately one turn compared to the prior-year quarter. Importantly, we delivered these results amidst an operating environment that remains highly dynamic. Our Q1 net sales performance was driven by sustained natural and organic product growth, new business projects, and strong retail execution across our customer base. Positive sales in our natural product segment largely offset declines in our conventional product segment, consistent with our expectations as part of our accelerated network optimization efforts, most notably at Allentown, which have proceeded ahead of schedule. As we improve our network, we're focused on continuing to improve service levels for our customers and suppliers in a growing $90 billion target market, and on further increasing our long-term profitability.

Speaker #3: including adjusted EBITDA and free cash flow, meaningfully above Thanks, Steve, and thank prior year levels. While net leverage declined approximately one turn, compared to the prior year quarter, importantly, we delivered these results amidst an operating environment that remains highly dynamic.

Speaker #3: Our first quarter net sales performance was driven by sustained natural and organic product growth, new business projects, and strong retail execution across our customer base.

Speaker #3: Positive sales in our natural product segment largely offset declines in our conventional product segment, consistent with our expectations as part of our accelerated network optimization efforts most notably at Allentown, which have preceded ahead of schedule.

Speaker #3: As we improve our network, we're focused on continuing to improve service levels for our customers and suppliers, in a growing $90 billion target market, and on further increasing our long-term profitability.

Speaker #3: Our adjusted EBITDA growth in the first quarter continued to be driven by improving execution effectiveness and efficiency across the business. This reflects actions taken within our Value Delivery Office to help support gross margins, as well as continued progress managing shrink.

Sandy Douglas: Our adjusted EBITDA growth in Q1 continued to be driven by improving execution, effectiveness, and efficiency across the business. This reflects actions taken within our Value Delivery Office to help support gross margins, as well as continued progress managing shrink. Free cash flow results improved by over $100 million compared to last year's Q1, even as we took necessary steps to stock up on the inventory our customers need in advance of the high-volume holiday selling season that is now well underway. This performance enabled us to both improve fill rates and reduce net leverage sequentially compared to the end of Q2 2025 and from prior-year levels. As a result of our solid Q1 performance, we're firmly on track to achieve our full-year outlook, and we remain focused on executing our strategy, adding value for our customers and suppliers, while becoming a more effective and efficient company.

Our adjusted EBITDA growth in Q1 continued to be driven by improving execution, effectiveness, and efficiency across the business. This reflects actions taken within our Value Delivery Office to help support gross margins, as well as continued progress managing shrink. Free cash flow results improved by over $100 million compared to last year's Q1, even as we took necessary steps to stock up on the inventory our customers need in advance of the high-volume holiday selling season that is now well underway. This performance enabled us to both improve fill rates and reduce net leverage sequentially compared to the end of Q2 2025 and from prior-year levels. As a result of our solid Q1 performance, we're firmly on track to achieve our full-year outlook, and we remain focused on executing our strategy, adding value for our customers and suppliers, while becoming a more effective and efficient company.

Speaker #3: Free cash flow results improved by over 100 million dollars, compared to last year's first quarter. Even as we took necessary steps to stock up on the inventory our customers need, in advance of the high volume holiday selling season, that is now well underway.

Speaker #3: This performance enabled us to both improve fill rates and reduce net leverage, sequentially compared to the end of fiscal 2025 and from prior year levels.

Speaker #3: As a result of our solid Q1 performance, we're firmly on track to achieve our full year outlook. And we remain focused on executing our strategy.

Speaker #3: Adding value for our customers and suppliers while becoming a more effective and efficient company. During the first quarter, we continued to make progress in both areas.

Sandy Douglas: During Q1, we continue to make progress in both areas. I'll start with how we're adding value for our customers and suppliers. At UNFI, we aim to do more than safely receive, store, and transport food. We're working to bring our customers the products, insights, programs, and services that will help them execute their strategies and successfully differentiate themselves in a highly competitive environment. We know this environment is increasingly challenging, especially for traditional grocers. This is why we aren't stopping with what we can do for our customers and suppliers today. We're focused on what we can do to help them succeed for years to come. Our commercial organization is working to revamp and strengthen our merchandising capabilities as a competitive advantage for our customers, because we believe tailored merchandising and competitive pricing on key items is critical to helping retailers more effectively differentiate and compete.

During Q1, we continue to make progress in both areas. I'll start with how we're adding value for our customers and suppliers. At UNFI, we aim to do more than safely receive, store, and transport food. We're working to bring our customers the products, insights, programs, and services that will help them execute their strategies and successfully differentiate themselves in a highly competitive environment. We know this environment is increasingly challenging, especially for traditional grocers. This is why we aren't stopping with what we can do for our customers and suppliers today. We're focused on what we can do to help them succeed for years to come. Our commercial organization is working to revamp and strengthen our merchandising capabilities as a competitive advantage for our customers, because we believe tailored merchandising and competitive pricing on key items is critical to helping retailers more effectively differentiate and compete.

Speaker #3: I'll start with how we're adding value do more than safely receive store and transport food. We're suppliers. At UNFI, we aim to working to bring our customers the products insights, programs, and services that will help them execute their strategies and successfully differentiate themselves in a highly competitive environment.

Speaker #3: We know this environment is increasingly challenging. Especially for traditional grocers. This is why we are stopping with what we can do for our customers and suppliers today.

Speaker #3: We're focused on what we can do to help them succeed for commercial organization is working to years to come. Our revamp and strengthen our merchandising capabilities as a competitive advantage for our customers.

Speaker #3: Because we believe tailored merchandising and competitive pricing on key items is critical to helping retailers more effectively differentiate and compete. This focus also helps our suppliers successfully build their brands across the diversified 30,000 plus retail locations that we serve.

Sandy Douglas: This focus also helps our suppliers successfully build their brands across the diversified 30,000-plus retail locations that we serve. A critical part of our broader merchandising capability is supported by our private brands portfolio. During the quarter, we appointed a new leader for this business with deep knowledge of how private brands can help retailers differentiate and drive value for consumers. We also continue taking action to improve the experience for independent customers and emerging suppliers, who are critical to the vitality of our industry. In fact, an early focus of our Lean Management Kaizen workshops has been to troubleshoot some of the areas that suppliers have told us are important to them, such as time to shelf. Following a recent Kaizen Continuous Improvement workshop, we took swift action to improve item setup forms and processes to streamline the new item setup process.

This focus also helps our suppliers successfully build their brands across the diversified 30,000-plus retail locations that we serve. A critical part of our broader merchandising capability is supported by our private brands portfolio. During the quarter, we appointed a new leader for this business with deep knowledge of how private brands can help retailers differentiate and drive value for consumers. We also continue taking action to improve the experience for independent customers and emerging suppliers, who are critical to the vitality of our industry. In fact, an early focus of our Lean Management Kaizen workshops has been to troubleshoot some of the areas that suppliers have told us are important to them, such as time to shelf. Following a recent Kaizen Continuous Improvement workshop, we took swift action to improve item setup forms and processes to streamline the new item setup process.

Speaker #3: A critical part of our broader merchandising capability is supported by our private brands portfolio. During the quarter, we appointed a new leader for this business, with deep knowledge of how private brands can help retailers consumers.

Speaker #3: We also continue taking action to improve the experience for independent customers differentiate and drive value for and emerging suppliers. Who are critical to the vitality of our industry.

Speaker #3: In fact, an early focus of our lean management Kaizen workshops has been to troubleshoot some of the areas that suppliers have told us are important to them, such as time to shelf.

Speaker #3: Following a recent Kaizen continuous improvement workshop, we took swift action to improve item setup forms and processes to streamline the new item setup process.

Speaker #3: This type of action not only directly helps our suppliers, but also our customers by ensuring that they get access to innovative products that their shoppers want.

Sandy Douglas: This type of action not only directly helps our suppliers, but also our customers by ensuring that they get access to innovative products that their shoppers want. Turning to our focus on improving effectiveness and efficiency, in Q1, we took additional steps on our operational roadmap to pair advanced supply chain technologies with processes and capabilities that empower UNFI associates to champion operational excellence. We recently deployed the supply chain technology RELEX across about half of our distribution network, with the second half expected to be completed by Q2. This solution is helping us partner with our customers and suppliers to make smarter procurement decisions by using an AI-based platform to predict demand, avoid waste, and reduce out-of-stocks. It is helping to deliver improved fill rates and inventory effectiveness as we expected, and we anticipate further benefits as we complete the rollout this year.

This type of action not only directly helps our suppliers, but also our customers by ensuring that they get access to innovative products that their shoppers want. Turning to our focus on improving effectiveness and efficiency, in Q1, we took additional steps on our operational roadmap to pair advanced supply chain technologies with processes and capabilities that empower UNFI associates to champion operational excellence. We recently deployed the supply chain technology RELEX across about half of our distribution network, with the second half expected to be completed by Q2. This solution is helping us partner with our customers and suppliers to make smarter procurement decisions by using an AI-based platform to predict demand, avoid waste, and reduce out-of-stocks. It is helping to deliver improved fill rates and inventory effectiveness as we expected, and we anticipate further benefits as we complete the rollout this year.

Speaker #3: Turning to our focus on improving effectiveness and efficiency. In the first quarter, we took additional steps on our operational roadmap to pair advanced supply chain technologies with processes and capabilities that empower UNFI associates to champion operational excellence.

Speaker #3: We recently deployed the supply chain technology RELAX, across about half of our distribution network. With the second half expected to be completed by fiscal year end.

Speaker #3: This solution is helping us partner with our customers and suppliers to make smarter procurement decisions by using an AI-based platform to predict demand and avoid waste, and reduce out of stocks.

Speaker #3: It is helping to deliver improved fill rates and inventory effectiveness as we expected, and we anticipate further benefits as we complete the rollout this year.

Speaker #3: At the same time, we continue to scale lean daily management across our distribution network. With 34 DCs now onboarded, through first quarter's end. In these DCs, we continue to see encouraging improvements in our KPIs for safety, quality, delivery, and cost.

Sandy Douglas: At the same time, we continue to scale Lean Daily Management across our distribution network, with 34 DCs now onboarded through Q1's end. In these DCs, we continue to see encouraging improvements in our KPIs for safety, quality, delivery, and cost, all as a result of empowering our associates to see and solve problems faster and more effectively. Together, RELEX and Lean are driving effectiveness and efficiency across our network. Our customer fill rates have improved and are now trending above Q2 2024 and Q2 2025 levels on average. We still have work to do, but we see even more opportunities to improve as we continue to scale these initiatives in the months ahead. During Q1, we also continue to optimize our network following the actions we took last Q2 to streamline parts of our footprint while also strategically investing to support future growth.

At the same time, we continue to scale Lean Daily Management across our distribution network, with 34 DCs now onboarded through Q1's end. In these DCs, we continue to see encouraging improvements in our KPIs for safety, quality, delivery, and cost, all as a result of empowering our associates to see and solve problems faster and more effectively. Together, RELEX and Lean are driving effectiveness and efficiency across our network. Our customer fill rates have improved and are now trending above Q2 2024 and Q2 2025 levels on average. We still have work to do, but we see even more opportunities to improve as we continue to scale these initiatives in the months ahead. During Q1, we also continue to optimize our network following the actions we took last Q2 to streamline parts of our footprint while also strategically investing to support future growth.

Speaker #3: All as a result of empowering our associates to see and solve problems faster and more effectively. Together, RELAX and LEAN are driving effectiveness and efficiency across our network.

Speaker #3: Our customer fill rates have improved and are now trending above fiscal 2024 and 2025 levels on average. We still have work to do, but we see even more opportunities to improve as we continue to scale these initiatives in the months ahead.

Speaker #3: During the first quarter, we also continue to optimize our network, following the actions we took last fiscal year to streamline parts of our footprint.

Speaker #3: While also strategically investing to support future growth, these actions were completed at an accelerated pace relative to our initial efforts. They are enabling us to serve customers and suppliers through strategically located facilities with broad assortments, while removing redundant and wasteful costs.

Sandy Douglas: These actions were completed at an accelerated pace relative to our initial expectations. Our optimization efforts are enabling us to serve customers and suppliers through strategically located facilities with broad assortments, while removing redundant and wasteful costs. These actions have enabled us to continue to make network improvements and contributed meaningfully to our improved results. During Q1, we ramped operations at our new automated natural product distribution center in Sarasota, FL, which is expected to help address strong demand in that area. By combining the power of an optimized portfolio with the right mix of technology, processes, and people, we are building a more responsive and resilient supply chain to support customer and supplier needs today and into the future.

These actions were completed at an accelerated pace relative to our initial expectations. Our optimization efforts are enabling us to serve customers and suppliers through strategically located facilities with broad assortments, while removing redundant and wasteful costs. These actions have enabled us to continue to make network improvements and contributed meaningfully to our improved results. During Q1, we ramped operations at our new automated natural product distribution center in Sarasota, FL, which is expected to help address strong demand in that area. By combining the power of an optimized portfolio with the right mix of technology, processes, and people, we are building a more responsive and resilient supply chain to support customer and supplier needs today and into the future.

Speaker #3: These actions have enabled us to continue to make network improvements and contributed meaningfully to our improved results. During the first quarter, we ramped operations at our new automated natural product distribution center in Sarasota, Florida, which is expected to help address strong demand in that area.

Speaker #3: By combining the power of an optimized portfolio with the right mix of technology, processes, and people, we are building a more responsive and resilient supply chain to support customer and supplier needs today and into the future.

Speaker #3: At next week's Investor Day, we'll provide a closer look at the key capabilities that we're building to add more value for customers and suppliers and continue to drive effectiveness and efficiency across our business.

Sandy Douglas: At next week's Investor Day, we'll provide a closer look at the key capabilities that we're building to add more value for customers and suppliers, and continue to drive effectiveness and efficiency across our business. We also look forward to giving everyone a chance to hear directly from several of the talented UNFI leaders who are leading this important work. Together, all of us at UNFI remain focused on becoming the food retail industry's most valued partner. Our Q1 performance reinforces our confidence in our ability to continue to create sustainable, long-term value for our customers, suppliers, associates, and shareholders. With that, let me turn it over to Matteo to provide more detail about our Q1 performance. Matteo.

At next week's Investor Day, we'll provide a closer look at the key capabilities that we're building to add more value for customers and suppliers, and continue to drive effectiveness and efficiency across our business. We also look forward to giving everyone a chance to hear directly from several of the talented UNFI leaders who are leading this important work. Together, all of us at UNFI remain focused on becoming the food retail industry's most valued partner. Our Q1 performance reinforces our confidence in our ability to continue to create sustainable, long-term value for our customers, suppliers, associates, and shareholders. With that, let me turn it over to Matteo to provide more detail about our Q1 performance. Matteo.

Speaker #3: We also look forward to giving everyone a chance to hear directly from several of the talented UNFI leaders who are leading this important work.

Speaker #3: at UNFI remain focused on becoming the food retail Together, all of us industry's most valued partner. Our first quarter performance reinforces our confidence in our ability to continue to create sustainable, long-term value for our customers, suppliers, associates, and shareholders.

Speaker #3: With that, let me turn it over to Mateo to provide more detail about our first quarter performance.

Speaker #3: Mateo?

Speaker #2: Thank you, everyone. Our first quarter results reflect our focus, Sandy. And good morning, on building capabilities to better support our customers while simultaneously improving profitability and free cash flow, resulting in meaningful progress on our deleveraging efforts.

Matteo Tarditi: Thank you, Sandy, and good morning, everyone. Our Q1 results reflect our focus on building capabilities to better support our customers while simultaneously improving profitability and free cash flow, resulting in meaningful progress on our deleveraging efforts. We're also firming our annual outlook for all key financial metrics. Today, I will provide additional insight into our Q1 results, our financial position and capital structure, and our Q2 2026 outlook. With that, let's review our Q1 results. Starting with slide 8, our Q1 sales came in at $7.8 billion, roughly flat to last year. This includes natural segment growth of 11%, reflecting strong unit growth, which outperformed the market. This growth, as Sandy mentioned, was driven by the performance of our customers, some new business projects for existing customers, as well as the continued secular strength in our natural, organic, and specialty products.

Speaker #2: We're also firming our annual outlook for all key financial metrics. Today, I will provide additional insight into our first quarter results, our financial position and capital structure, and our fiscal 2026 outlook.

Speaker #2: With that, let's review our Q1 results. Starting with slide 8, our first quarter sales came in at 7.8 billion dollars, roughly flat to last year.

Speaker #2: This includes natural segment growth of 11%, reflecting strong unit growth, which outperformed the market. This growth, as Sandy mentioned, was driven by the performance of our customers, some new business projects for existing customers, as well as the continuous secular strength in our natural, organic, and specialty products.

Speaker #2: In conventional, as we anticipated and previously discussed, sales declined about 12%, primarily driven by our accretive transition out of our LN Town distribution center.

Matteo Tarditi: In conventional, as we anticipated and previously discussed, sales declined about 12%, primarily driven by our accretive transition out of our Allentown distribution center, which was completed ahead of our expectations. While this move pressured the top line, it supports improved profitability and free cash flow. Overall, wholesale inflation was about 3%. Unit volumes declined about 5%, driven primarily by network optimization, and mix was positive during the quarter. In retail, total sales fell 5% in the quarter, partly due to store closures over the past 12 months, reflecting our strategic decision to strengthen the store network and improve future free cash flow. Same-store sales declined 3%, but we are optimistic about the impact that David Best and his strengthened leadership team will have on this business. Moving to slide 9, let's review profitability drivers in the quarter.

In conventional, as we anticipated and previously discussed, sales declined about 12%, primarily driven by our accretive transition out of our Allentown distribution center, which was completed ahead of our expectations. While this move pressured the top line, it supports improved profitability and free cash flow. Overall, wholesale inflation was about 3%. Unit volumes declined about 5%, driven primarily by network optimization, and mix was positive during the quarter. In retail, total sales fell 5% in the quarter, partly due to store closures over the past 12 months, reflecting our strategic decision to strengthen the store network and improve future free cash flow. Same-store sales declined 3%, but we are optimistic about the impact that David Best and his strengthened leadership team will have on this business. Moving to slide 9, let's review profitability drivers in the quarter.

Speaker #2: Which was completed ahead of our expectations. While this move pressured the top line, it supports improved profitability and free cash flow. Overall, wholesale inflation was about 3%, unit volumes declined about 5%, driven primarily by network optimization and mix was a positive during the quarter.

Speaker #2: In retail, total sales fell 5% in the quarter, partly due to store closures over the past 12 months. This reflects our strategic decision to strengthen the store network and improve future free cash flow.

Speaker #2: Same store sales declined 3%, but we are optimistic about the impact the debit best and its strength in leadership team will have on this business.

Speaker #2: Moving to slide 9, let's review profitability drivers in the quarter. Our gross margin rate in the first quarter was 13.4%, up 20 basis points versus the prior year quarter.

Matteo Tarditi: Our gross margin rate in Q1 was 13.4%, up 20 basis points versus the prior-year quarter. This rate represents continued progress and execution to optimize our portfolio, our advanced supplier programs, and higher levels of temporary procurement gains resulting from vendor price increases. Our operating expense rate was 12.7% of net sales compared to 12.9% last year. This improvement reflects the benefit of our effectiveness and efficiency initiatives driven by our Value Delivery Office, network optimization, including continued strategic automation investments, and acceleration of lean daily management across UNFI. In addition, throughput, a key indicator of supply chain productivity measured by cases moving through the DCs over an hour, increased by over 2% compared to last year's Q1, and by nearly 10% from Q1 2024. Adjusted EBITDA for Q1 was $167 million, up nearly 25% year-over-year.

Our gross margin rate in Q1 was 13.4%, up 20 basis points versus the prior-year quarter. This rate represents continued progress and execution to optimize our portfolio, our advanced supplier programs, and higher levels of temporary procurement gains resulting from vendor price increases. Our operating expense rate was 12.7% of net sales compared to 12.9% last year. This improvement reflects the benefit of our effectiveness and efficiency initiatives driven by our Value Delivery Office, network optimization, including continued strategic automation investments, and acceleration of lean daily management across UNFI. In addition, throughput, a key indicator of supply chain productivity measured by cases moving through the DCs over an hour, increased by over 2% compared to last year's Q1, and by nearly 10% from Q1 2024. Adjusted EBITDA for Q1 was $167 million, up nearly 25% year-over-year.

Speaker #2: This rate represents continued progress and execution to optimize our portfolio, our event supply of programs, and higher levels of temporary procurement gains resulting from vendor price increases.

Speaker #2: Our operating expense rate was 12.7% of net sales, compared to 12.9% last year. This improvement reflects the benefit of our effectiveness and efficiency initiatives driven by our value delivery office, network optimization including continuous and acceleration of lean daily management strategic automation investments, across indicator of supply chain productivity UNFI.

Speaker #2: Measured by cases moving through the DCs over an hour, increased by over 2% compared to last year's first quarter and by nearly 10% from Q1 2024. In addition, throughput, a key metric, was also discussed.

Speaker #2: Adjusted EBITDA for the first quarter was 25% year over 167 million dollars, up nearly year. On a rate basis, adjusted EBITDA was 2.1% of net sales, up 40 basis points year over year.

Matteo Tarditi: On a rate basis, adjusted EBITDA was 2.1% of net sales, up 40 basis points year-over-year. All in, adjusted EPS for Q1 was $0.56 compared to $0.16 last year. This was driven by higher profitability, including the benefit of lower net interest and depreciation expense, partially offset by a higher tax rate. Turning to slide 10, free cash flow in Q1 was a use of $54 million, which was an improvement of about $105 million compared to last year's Q1. This was the result of higher adjusted EBITDA, more efficient working capital investment, and lower levels of year-over-year capital spending. We continue to expect capital investments to accelerate as we move further into the year based on the expected project schedule.

On a rate basis, adjusted EBITDA was 2.1% of net sales, up 40 basis points year-over-year. All in, adjusted EPS for Q1 was $0.56 compared to $0.16 last year. This was driven by higher profitability, including the benefit of lower net interest and depreciation expense, partially offset by a higher tax rate. Turning to slide 10, free cash flow in Q1 was a use of $54 million, which was an improvement of about $105 million compared to last year's Q1. This was the result of higher adjusted EBITDA, more efficient working capital investment, and lower levels of year-over-year capital spending. We continue to expect capital investments to accelerate as we move further into the year based on the expected project schedule.

Speaker #2: All in, adjusted EPS for Q1 was 56 cents, compared to 16 cents last year. This was driven by higher profitability, including the benefit of lower net interest and depreciation expense, partially offset by a higher tax rate.

Speaker #2: Turning to slide 10, free cash flow in Q1 was a use of $54 million, which was an improvement of about $105 million compared to last year's first quarter.

Speaker #2: This was the result of higher adjusted EBITDA, more efficient working capital investment, and lower levels of year over year capital spending. We continue to expect capital investments to accelerate as we move further into the year, based on the expected project schedule.

Speaker #2: The free cash flow performance in Q1, coupled with the higher adjusted EBITDA, enabled us to lower our net leverage ratio sequentially to 3.2 times and by one full turn compared to this time last year.

Matteo Tarditi: The free cash flow performance in Q1, coupled with the higher adjusted EBITDA, enabled us to lower our net leverage ratio sequentially to 3.2x and by one full turn compared to this time last year. Historically, we have seen net leverage increase as we move from Q4 to Q1 and build inventory heading into the holiday season. However, our focus on customer service, combined with improved procurement processes and early benefits of RELEX, have led to higher average fee rates while we have continued to reduce net leverage. With the strong Q1 performance, we remain confident that we will further reduce net leverage to our target of below 2.5x by the end of the fiscal year as we enter the seasonally higher free cash flow generation quarters. Flipping to slide 11, we continue to deepen Lean practices to drive benefits across safety, quality, delivery, and cost.

The free cash flow performance in Q1, coupled with the higher adjusted EBITDA, enabled us to lower our net leverage ratio sequentially to 3.2x and by one full turn compared to this time last year. Historically, we have seen net leverage increase as we move from Q4 to Q1 and build inventory heading into the holiday season. However, our focus on customer service, combined with improved procurement processes and early benefits of RELEX, have led to higher average fee rates while we have continued to reduce net leverage. With the strong Q1 performance, we remain confident that we will further reduce net leverage to our target of below 2.5x by the end of the fiscal year as we enter the seasonally higher free cash flow generation quarters. Flipping to slide 11, we continue to deepen Lean practices to drive benefits across safety, quality, delivery, and cost.

Speaker #2: Historically, we have seen net leverage increase as we move from Q4 to Q1 and build inventory heading into the holiday season. However, our focus on customer service combined with improved procurement processes and early benefits of Relax have led to higher average fee rates while we've continued to reduce net leverage.

Speaker #2: With the strong first quarter performance, we remain confident that we will further reduce net leverage to our target of below 2.5 times by the end of the fiscal year as we enter the seasonally higher free cash flow generation quarters.

Speaker #2: Flipping to slide 11, we continue to deepen lean practices to drive benefits across safety, quality, delivery, and cost. We have now implemented lean daily management in 34 DCs as of the end of the first quarter, representing a sequential increase of six facilities in the quarter.

Matteo Tarditi: We have now implemented lean daily management in 34 DCs as of the end of Q1, a sequential increase of six facilities in the quarter. We're actively working to eliminate waste and improve distribution center effectiveness and efficiency, all driven by our strategy of adding value to our customers and suppliers. As Sandy stated, we continue to focus on building and enhancing capabilities, including customer stewardship, merchandising, supply chain, and technology. This builds on work done over the past few years to better understand the needs of all customers and suppliers, and will be an important part of the content at next week's Investor Day. Looking at slide 12, our performance in Q1 keeps us solidly on track to deliver our full-year outlook for Q2 2026. To review, our guidance ranges and increases compared to Q2 2025 include sales of $31.6 billion to $32 billion.

We have now implemented lean daily management in 34 DCs as of the end of Q1, a sequential increase of six facilities in the quarter. We're actively working to eliminate waste and improve distribution center effectiveness and efficiency, all driven by our strategy of adding value to our customers and suppliers. As Sandy stated, we continue to focus on building and enhancing capabilities, including customer stewardship, merchandising, supply chain, and technology. This builds on work done over the past few years to better understand the needs of all customers and suppliers, and will be an important part of the content at next week's Investor Day. Looking at slide 12, our performance in Q1 keeps us solidly on track to deliver our full-year outlook for Q2 2026. To review, our guidance ranges and increases compared to Q2 2025 include sales of $31.6 billion to $32 billion.

Speaker #2: We're actively working to eliminate waste and improve distribution center effectiveness and efficiency. All driven by our strategy of adding value to our customers and suppliers.

Speaker #2: As Sandy stated, we continue to focus on building enhanced capabilities including customer stewardship, merchandising, supply chain, and technology. This builds on work done over the past few years, to better understand the needs of all customers and suppliers.

Speaker #2: And will be an important part of the content at next week's Investor Day. Looking at slide 12, our performance in Q1 keeps us solidly on track to deliver our full-year outlook for fiscal 2026.

Speaker #2: To review, our guidance ranges and increases compared to fiscal 2025 include: sales of 31.6 billion to 32 billion dollars, this includes the year over year loss of sales from our transition out of LN Town, which will improve profitability and free cash flow, but suppress the growth in consolidated net sales by about 3%.

Matteo Tarditi: This includes the year-over-year loss of sales from our transition out of Allentown, which will improve profitability and free cash flow but suppress the growth in consolidated net sales by about 3%. Adjusted EBITDA of $630 to $700 million, representing a year-over-year increase of about 20% and an average annual growth rate of close to 15% at the midpoint relative to our reported Q2 2024 results. This implies about 35 basis points of margin expansion at the midpoint of our outlook. An adjusted EPS range of $1.50 to $2.30 per share, an increase of about $1.20 per share at the midpoint compared to last year. Our outlook for capital spending remains at $250 million, reflecting our focus on safety, modernization, and continued prioritization of investment for growth. Finally, our free cash flow expectations remain at approximately $300 million.

This includes the year-over-year loss of sales from our transition out of Allentown, which will improve profitability and free cash flow but suppress the growth in consolidated net sales by about 3%. Adjusted EBITDA of $630 to $700 million, representing a year-over-year increase of about 20% and an average annual growth rate of close to 15% at the midpoint relative to our reported Q2 2024 results. This implies about 35 basis points of margin expansion at the midpoint of our outlook. An adjusted EPS range of $1.50 to $2.30 per share, an increase of about $1.20 per share at the midpoint compared to last year. Our outlook for capital spending remains at $250 million, reflecting our focus on safety, modernization, and continued prioritization of investment for growth. Finally, our free cash flow expectations remain at approximately $300 million.

Speaker #2: Adjusted EBITDA of 630 to 700 million dollars, representing a year over year increase of about 20%, and an average annual growth rate of close to 15% at the midpoint relative to our reported fiscal 2024 results.

Speaker #2: This implies about 35 basis points of margin expansion at the midpoint of our outlook. At an adjusted EPS range of 1.50 to 2.30 per share, an increase of about 1.20 per share at the midpoint compared to last year.

Speaker #2: Our outlook for capital spending remains at $250 million, reflecting our focus on safety, modernization, and continued prioritization of investment for growth. Finally, our free cash flow expectations remain at approximately $300 million.

Speaker #2: We will continue to prioritize reducing net debt to improve our net leverage

Matteo Tarditi: We will continue to prioritize reducing net debt to improve our net leverage ratio to 2.5x or less by year-end. While it's still early in the year, we remain confident in delivering our plan as we move through the balance of Q2 2026. As highlighted on slide 13, the strength of our customers, and a focus on continuing to improve execution across our operations, including the benefits from Lean and our network optimization efforts, have led to a solid start to Q2 2026. We are encouraged by our sustained progress on improving free cash flow and deleveraging our balance sheet, with our net leverage ratio decreasing by one turn versus this time last year. We remain committed to our strategy of adding value to our customers and suppliers, while making UNFI more effective and efficient as a business partner.

We will continue to prioritize reducing net debt to improve our net leverage ratio to 2.5x or less by year-end. While it's still early in the year, we remain confident in delivering our plan as we move through the balance of Q2 2026. As highlighted on slide 13, the strength of our customers, and a focus on continuing to improve execution across our operations, including the benefits from Lean and our network optimization efforts, have led to a solid start to Q2 2026. We are encouraged by our sustained progress on improving free cash flow and deleveraging our balance sheet, with our net leverage ratio decreasing by one turn versus this time last year. We remain committed to our strategy of adding value to our customers and suppliers, while making UNFI more effective and efficient as a business partner.

Speaker #1: We remain confident delivering our in we move balance of through the As slide highlighted on the 13 , our customers and a focus on continuing to improve execution across our operations , including the benefit from lean in network our optimization efforts , have led to a solid start to fiscal 2026 .

Speaker #1: We have been making sustained progress on cash, improving free cash flow and deleveraging. Our balance sheet shows our leverage ratio net decreasing by one turn compared to this time last year.

Speaker #1: We by our sustained are progress on cash improving free flow and deleveraging . Our balance sheet with our leverage ratio net decreasing by one turn versus last year this time encouraged remain We committed to our strategy of adding value to our customers and suppliers while making unify more effective and efficient as a business partner .

Speaker #1: As suggested on our last call , our goal this we accelerate year is to fiscal the and we're momentum , on a path of doing just that .

Matteo Tarditi: As we suggested on our last call, our goal this fiscal year is to accelerate the momentum, and we are on a path of doing just that. We look forward to sharing more with you at next week's Investor Day. With that, Operator, please open the line for questions.

As we suggested on our last call, our goal this fiscal year is to accelerate the momentum, and we are on a path of doing just that. We look forward to sharing more with you at next week's Investor Day. With that, Operator, please open the line for questions.

Speaker #1: We look forward to sharing more with you at next week's Investor . With that , Day operator , please open for questions the line .

Speaker #2: Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.

Operator: Thank you. We will now begin the question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star 1 again. We ask that you please limit yourself to one question and one follow-up. Your first question today comes from the line of John Heinbockel from Guggenheim. Your line is open.

Speaker #2: If you would like to withdraw your question , simply press star one again . We ask that you please limit yourself to one question and one follow up .

Speaker #2: Your first question today comes from the line Heinbockel from of John Guggenheim . Your line is open .

Speaker #3: Hey , Sandy . Two related questions on natural growth , right ? So growing 10% markets growing right . Maybe mid-single digit . So can you drop talk to size .

John Heinbockel: Hey, Sandy, two related questions on natural growth. Right? Growing 10%, market's growing, right, maybe mid-single digit. Can you talk to drop size, right, or new account distribution versus existing growth? Is that sort of a 50/50 split, drop size up mid-single digit as well? You also mentioned fill rates. I know the fill rates in natural are not where they need to be, some of that's structural, but how big of an opportunity is that?

Speaker #3: Right . Or new new account distribution versus existing that sort of a 50 over 50 split right . Drop size up mid-single digit as well .

Speaker #3: And then you growth . mentioned fill also rates . And I know the fill rates are Is natural , are not where they need to be .

Speaker #3: Some of that is structural. But how big of an opportunity is that?

Speaker #4: Yeah I John good morning . I would say the general trend in our drop sizes have been positive , largely because the a lot of growth has happened with some of our larger customers who are at the same time .

Sandy Douglas: Yeah, I think, John, good morning. I would say the general trend in our drop sizes has been positive, largely because a lot of growth has happened with some of our larger customers who are at the same time, and this is the premise of your question, giving us more to do. I think as that dynamic happens, obviously, that makes us more efficient down through the line. At the heart of it, it's strong growth, and it drops to EBITDA.

Speaker #4: And this is the us question giving more to do . I think as as dynamic that obviously that makes us more efficient down through happens , the line .

Speaker #4: at the heart But of it's it , growth and it to EBITDA .

Speaker #3: And the , you know , drops fill rate issue .

Speaker #4: Yeah , fill rate , fill rate has been solid . and we're And very heartened by it We've taken actually . of steps to improve fill rate .

John Heinbockel: The fill rate issue?

Sandy Douglas: Yeah. Fill rate's been solid, and we're very heartened by it, actually. We've taken a number of steps to improve fill rate. It's obviously a key metric to our customers. Between the reintroduction of technology and the new implementation of RELEX on a bed of lean daily management, driven by a more localized management structure that was put in place a couple of years ago, it's giving us sequential improvement in fill rates, 2025 versus 2024, and then this year, 2026 versus 2025. We continue to see opportunity to improve in that area, and it's an area that's very important to us and to our customers.

Speaker #4: It's obviously a key metric to our customers . And the between reintroduction of technology new and the implementation of relax on a bed of daily lean management , and then driven by more a localized management structure that place a was put in couple of years ago , is giving us improvement in sequential rates fill 24 .

Speaker #4: And then 25 versus this year , 26 versus 25 . And we continue to see opportunity to improve in that And it's area .

Speaker #4: An area that's very important to us and to our customers.

Speaker #3: my quick And then follow up is if I look at EBITDA margin in the conventional business , right . So this quarter it up over 100 basis or almost 100 basis points right of 2% .

John Heinbockel: My quick follow-up is, if I look at EBITDA margin in the conventional business, right, this quarter is up over 100 basis or almost 100 basis points, right, north of 2%. How do you look at the potential of that business, right? It may not grow, but how much more profitable can it be?

Speaker #3: How do you look at the potential of that business ? Right . It may north not grow , but how much more profitable can it be ?

Speaker #5: Yeah . John . Good morning . If you think about conventionally in Q1 , the EBITDA reflected the benefit of the accretive network optimization .

Matteo Tarditi: Yeah, John, good morning. If you think about conventional in Q1, the EBITDA reflected the benefit of the accretive network optimization, the supplier programs, and then a little bit of temporary procurement gains that, again, we continue to view as secondary and temporary to our strategy. The conventional outlook for adjusted EBITDA for the rest of the year largely reflects the network optimization, the growth of the supplier funds, the continuous work that we do on shrink, and then the initiatives that we have deployed between lean daily management and indirect cost management, all kind of helping on the operating expenses and the leverage.

Speaker #5: The supplier programs then a little bit of and temporary procurement gains that , again , we view secondary and temporary to our continue to strategy as .

Speaker #5: The conventional outlook for adjusted EBITDA for the rest of the year , largely reflects the network optimization . The growth suppliers of the funds , the continuous work that we do on shrink , and the then initiatives have deployed that we lean Daily management and indirect cost management .

Speaker #5: All kind of helping on the the on operating expenses leverage . So Q1 between a little bit heightened by some may be temporary procurement gains , but in general , our strategy consistent of remains creating new to capabilities our keep customers competitive Merchandising , professional brands , while services , working the benefits of the network and the management and optimization daily cost actions indirect .

Matteo Tarditi: Q1 may be a little bit heightened by some temporary procurement gains, but in general, our strategy remains consistent of creating new capabilities to keep our customers competitive, merchandising professional services brands, while working in the benefits of the network optimization, the Lean Daily Management, and indirect cost actions.

Q1 may be a little bit heightened by some temporary procurement gains, but in general, our strategy remains consistent of creating new capabilities to keep our customers competitive, merchandising professional services brands, while working in the benefits of the network optimization, the Lean Daily Management, and indirect cost actions.

Speaker #4: John, one just one sort of strategic overlay around EBITDA, there is margin as we look ahead. Our view is that opportunities, in fact, the mandate to create and in customers, in value for environment, a very opportunity for us, long term, continues to get better.

Sandy Douglas: John, just one sort of strategic overlay there around EBITDA margin as we look ahead. Our view is that the opportunities and, in fact, the mandate to create value for customers in this environment is a very long-term opportunity for us to continue to get better, whether that's execution, whether it's services, whether it's programs, whether it's merchandising. If you look at our cost base, we have a huge amount of cost related to what we do, and we see a very long runway of continuous improvement opportunity there. We would expect EBITDA margins to continue to edge up in the effectiveness and efficiency areas as well.

Speaker #4: Whether that's execution , whether it's services , whether is it's merchandising it's whether then if you look at our cost base have a huge amount , we of cost related to what we do , and we see a very long runway of improvement opportunity .

Speaker #4: There . So we would EBITDA continuous margins expect to continue to edge up in the effectiveness and efficiency areas , as well .

Speaker #3: Thank you .

Speaker #2: Your next question comes from the line of Ed Kelly from Wells Fargo. The line is open.

John Heinbockel: Thank you.

Speaker #6: Hey. Good morning. This is John Park on for Ed. Thanks for our guests just kind of given the gross margin and the strength in the quarter. Can you kind of talk about the sustainability of maybe parsing out how big of a factor that efforts were for optimization in Q1?

Operator: Your next question comes from the line of Ed Kelly from Wells Fargo. Your line is open.

Mark Carden: Hey, good morning. This is John Park on for Ed. Thanks for taking our question. I guess just kind of given the gross margin strength in the quarter, can you kind of talk about the sustainability of that, and maybe parse out how big of a benefit the network optimization efforts were in Q1?

John Parks: Hey, good morning. This is John Park on for Ed. Thanks for taking our question. I guess just kind of given the gross margin strength in the quarter, can you kind of talk about the sustainability of that, and maybe parse out how big of a benefit the network optimization efforts were in Q1?

Speaker #6: in

Speaker #5: Yeah . Good morning John . The gross margin rate for the quarter was 13.6% versus last year of 13.3% . So we were up 30 basis points .

Matteo Tarditi: Yeah. Good morning, John. The gross margin rate at the clock in the quarter was 13.6% versus last year of 13.3%. We were up about 30 basis points. The key drivers within the gross profit growth, obviously, we had strong natural growth that brings gross profit and operating leverage based on their efficient business model. We had supplier funds and shrink continuing to help and accrete within the gross profit. We had some level of procurement gains that, again, we continue to view as temporary and secondary, both in our financial construction and in the strategic partnership with our suppliers. The EBITDA of $167 million, if you consider the large driver of productivity, the growth in natural is basically a fair representation of the quarter in our round rate. You can think about the $167 million as a normalized kind of EBITDA for the quarter.

Speaker #5: key The drivers within about gross profit growth , the obviously , we had strong natural growth brings gross . profit That leverage based on their efficient operating .

Speaker #5: We had suppliers model , funds and shrink business to continuing help and accrete within gross the profit . And then we had some level of procurement gains that continue again , we to view as temporary and secondary our , both in financial construction and the strategic in partnership with our suppliers .

Speaker #5: The EBITDA of $167 million , if you consider the large driver of productivity , the growth in natural basically a fair representation is of the quarter and our run rate .

Speaker #5: So you can think about the $167 million as a normalized EBITDA for the quarter. Even if we had temporary procurement gains in a $32 billion business in a given quarter, you have a puts and number of takes.

Matteo Tarditi: Even if we had temporary procurement gains in a $32 billion business in a given quarter, you have a number of puts and takes. That 167 is a good kind of recurring run rate that we plan to sustain. Relative to incremental opportunities for gross profit, the capabilities that we're going to discuss next week at Investor Day between merchandising, professional digital services, brands, all help keeping our customers competitive, strengthening the relationship with our suppliers, but also helping on mix, which is an important component of our gross profit.

Even if we had temporary procurement gains in a $32 billion business in a given quarter, you have a number of puts and takes. That 167 is a good kind of recurring run rate that we plan to sustain. Relative to incremental opportunities for gross profit, the capabilities that we're going to discuss next week at Investor Day between merchandising, professional digital services, brands, all help keeping our customers competitive, strengthening the relationship with our suppliers, but also helping on mix, which is an important component of our gross profit.

Speaker #5: So that 167 is a good kind recurring run rate of that we plan to to sustain . And then to incremental opportunities for gross profit , the capabilities that we're going to discuss next week at the Investor Day between merchandising relative , professional , digital services , all help keeping our customers competitive , strengthening the relationship with our suppliers , but also helping on on is an important component of our gross profit .

Speaker #6: Got it. And then just kind of switching gears a little bit, can you talk about the competitive environment at retail for both natural and conventional, and are you seeing any changes out recently?

Mark Carden: Got it. Just kind of switching gears a little bit, can you talk about the competitive environment at retail for both conventional and natural? Are you seeing any changes out there more recently?

John Parks: Got it. Just kind of switching gears a little bit, can you talk about the competitive environment at retail for both conventional and natural? Are you seeing any changes out there more recently?

Speaker #6: ?

Speaker #4: know , at a You

Speaker #4: at 200,000ft , one of the one of the fun things about being in our seat in the industry is there more we get to see a lot of retailers work their magic and this is no exception .

Sandy Douglas: You know, at 200,000 feet, one of the fun things about being in our seat in the industry is we get to see a lot of retailers work their magic. This is no exception at this time. I mean, clearly, given the stress that a significant percentage of the consumer base is feeling right now, discount is very competitive and compelling. That has stimulated a lot of innovation in retail, and we see it across our customer base, whether it's in the pure play, natural, and organic folks, or customers who are beginning to rethink what they do to continue to bring different, better, and special offers in their market, community-based retailers, multicultural-focused retailers. If you took the part of the industry that's innovating and differentiating and winning, they're growing very strongly. It really is a market-by-market, customer-by-customer strategic and operational battle.

Speaker #4: At this time . I mean , clearly , given the that stress a percentage of the significant consumer base is feeling right now , discount is very competitive and compelling , but that has stimulated a lot of retail .

Speaker #4: And innovation in our across customer base , whether it's in pure play the organic folks , natural and who are beginning customers to rethink do to continue to bring different , better and special offers in their market , what they community based retailers , multicultural focused and if you if you took the the part of the retailers of industry that's innovating and differentiating and winning , they're growing very strongly .

Speaker #4: And so it really is a market by market customer , strategic customer , by and operational battle . And there's lots of winners .

Speaker #4: There are people that are challenged as well . And I think from our end at least we're busy trying to to help them figure out how win .

Sandy Douglas: There are lots of winners. There are people that are challenged as well. I think from our end, at least, we're busy trying to figure out how to help them win. It's very competitive out there, but that's creating a lot of innovation. We continue to view the broader industry as very healthy.

There are lots of winners. There are people that are challenged as well. I think from our end, at least, we're busy trying to figure out how to help them win. It's very competitive out there, but that's creating a lot of innovation. We continue to view the broader industry as very healthy.

Speaker #4: And but it's very out there . But that's creating a lot of innovation and we continue to competitive the broader industry as very healthy .

Speaker #6: Great. Best of luck, guys.

Speaker #2: Your next question comes from the line of Mark Kardon from UBS . Your open .

Mark Carden: Great. Best of luck, guys.

John Parks: Great. Best of luck, guys.

Speaker #7: Good morning . Thanks so much for

Speaker #7: questions . So you continue to generate quite strong growth in natural line is organic . How would conventional have shaken out the Allentown X transition .

Operator: Your next question comes from the line of Mark Carden from UBS. Your line is open.

Mark Carden: Good morning. Thanks so much for taking the question. You continue to generate quite strong growth in natural organic. How would conventional have shaken out the Allentown transition? It sounds like the impact there may have been more than expected, just given you completed ahead of your expectations. What are you seeing with respect to the health of the consumer in both your natural organic segments of the business?

Speaker #7: It the sounds like may have been more than expected just given you completed ahead of your expectations . And then what seeing with the health respect to of the consumer in both your natural , organic segments of the business are you

Speaker #4: morning . Mark .

Speaker #4: What I say would is the lion's share of ? our weakness , weakness in conventional is because of network optimization . Obviously , the Allentown .

Sandy Douglas: Good morning, Mark. Yeah. What I would say is the lion's share of our weakness in conventional is because of network optimization. Obviously, the Allentown exit is the largest factor there, but there's been other tweaking across the country. Beyond that in conventional, it's been a bumpy quarter for the consumer with the shutdown creating general sentiment challenges with SNAP delayed for a while, created some issues in those weeks. Now retailers are coming back as that all comes back online. Very competitive in conventional, and it sets up a mandate for us. It's the principal kind of North Star of our merchandising reboot is to figure out how to get our customers in a place where they can be competitive in any scenario.

Speaker #4: Exit is the largest factor there , but there's been other tweaking across the country that . And conventional , there's it's been a bumpy .

Speaker #4: With the consumer shutdown creating general sentiment challenges, Snap was delayed for a while and created some issues in those beyond weeks. And now we are coming back as all online retailers come back.

Speaker #4: Very competitive in conventional. And up it sets a mandate for us. It's the principle kind of north star of our merchandising reboot is to figure out how to get our customers in a place where they can be competitive in any scenario.

Speaker #4: And then in the natural environment, obviously there has been very strong growth in that segment across the different retailers. The largest of all are our customers.

Sandy Douglas: In the natural environment, obviously, been very strong growth in that segment across the different retailers, the largest of which all are our customers, and we're getting the opportunity to serve them. We continue to believe over the long term that the natural business as an industry is a mid-single digit grower, and we hope to be able to compete and support the retailers that are competing in that environment.

In the natural environment, obviously, been very strong growth in that segment across the different retailers, the largest of which all are our customers, and we're getting the opportunity to serve them. We continue to believe over the long term that the natural business as an industry is a mid-single digit grower, and we hope to be able to compete and support the retailers that are competing in that environment.

Speaker #4: And we're getting the opportunity to them serve . We continue to believe over the that the natural business is long term a an industry is a mid-single digit grower , and we hope to be able to compete and support the retailers that are competing in that environment .

Speaker #7: That's great . And then as a follow up , just at this stage , have you guys seen much incremental customer attrition following the cyber attack ?

Speaker #7: To be weathering quite well. Last quarter, just how was it compared to what you may have expected at the time of your last call in Q4? You guys seem to have it quite well.

Mark Carden: That's great. As a follow-up, just at this stage, have you guys seen much incremental customer attrition following the cyber attack? You guys seem to be weathering it quite well last quarter. How was it compared to what you may have expected at the time of your last quarter call?

Speaker #4: Yeah , Mark , I don't think it's any different . My answer would be exactly the same . As I answered it last quarter .

Speaker #4: had one southern customer We that joined , and us we had one Upper Midwest customer leave us . But the I think the core answer is that we and our entire network , our sales , our merchandising , supply teams our busy are serving customers as well as possibly they .

Sandy Douglas: Yeah. Mark, I don't think it's any different. My answer would be exactly the same as I answered it last quarter. We had one southern customer that joined us, and we had one upper Midwest customer leave us. I think the core answer is that we and our entire network, our sales, our merchandising, and our supply chain teams are busy serving customers as well as they possibly can. We continue to manage through a couple of situations there. As far as customer retention, we've been extremely fortunate, and we're working very, very hard to earn that and hope to continue to be the best choice for customers going forward.

Speaker #4: can we we And continue to to manage to through a couple situations . There . But as far as customer been retention , we've we're extremely very , very hard fortunate and to working earn that .

Speaker #4: And and hope to continue to be the best choice for customers going forward .

Speaker #7: Thanks so luck guys much . .

Speaker #7: Good Thanks

Speaker #4: .

Speaker #2: next question comes from the line of Kelly Bunya from Capital BMO Markets . Your line is open .

Mark Carden: Thanks so much. Good luck, guys.

John Parks: Thanks so much. Good luck, guys.

Sandy Douglas: Thanks.

Operator: Your next question comes from the line of Kelly Bania from BMO Capital Markets. Your line is open.

Speaker #8: taking our questions Thanks for , Mateo . Just wanted to follow up first on the procurement gains . I guess that helped Q1 a little bit , if I heard you right , there's nothing there in the plan going forward .

Sandy Douglas: Thanks for taking our questions. Mateo, just to follow up first on the procurement gains, I guess that helped Q1 a little bit. If I heard you right, there's nothing there in the plan going forward. Wondering if you could just confirm I heard that right. Can you help us understand, did those procurement gains drive some upside to your plan, your internal plan for the quarter? Was that specific to any categories that you could help us just understand what was happening there?

Kelly Bania: Thanks for taking our questions. Mateo, just to follow up first on the procurement gains, I guess that helped Q1 a little bit. If I heard you right, there's nothing there in the plan going forward. Wondering if you could just confirm I heard that right. Can you help us understand, did those procurement gains drive some upside to your plan, your internal plan for the quarter? Was that specific to any categories that you could help us just understand what was happening there?

Speaker #8: So I'm wondering if you could just confirm . I heard that right . And then can you help us understand ? Did but those procurement gains drive some upside to your plan , your internal plan for the quarter ?

Speaker #8: And was specific to any categories that you could help us just understand what was there happening ?

Speaker #5: Yeah . Good morning Kelly . So answering that the first part of your we have not question , model any procurement gains in our 2026 or 2027 outlook .

Matteo Tarditi: Yeah. Good morning, Kelly. Answering the first part of your question, we have not modeled any procurement gains in our 2026 or 2027 outlook. We continue to describe those as temporary and secondary. They happen in the first quarter. As I was saying before, in a given quarter, we have puts and takes, so some of the upside from the procurement gains were offset by other dynamics. Relative to how we are thinking about the procurement gains, our strategy is always to work with the suppliers and build strong relationships with them, making sure that through that kind of strategic partnership, we keep our customers competitive, keep our prices low, stable, and predictable. We do not rely on procurement gains in order to achieve our financial targets. Again, we continue to view them as temporary.

Speaker #5: So we continue to describe those as temporary and secondary . They they happen in the first quarter . But as I was saying before , in in a given quarter we have puts and so some of the takes .

Speaker #5: upside from the procurement And gains were offset by by other dynamics in relative to kind of how we are thinking about the procurement gains , our is always to strategy work with the suppliers and build strong relationships with them , making sure that through that kind of we strategic customers competitive , keep our keep our prices low , stable and predictable .

Speaker #5: So we don't rely on procurement gains in order to achieve our financial targets . And again , we view them as temporary relative to continue to specific , specific categories has little bit been a a of combination of can imagine , many .

Matteo Tarditi: Relative to specific categories, it's been a little bit of a combination of many. As you can imagine, partly related to tariffs, partly related to kind of the general inflation that is still in the 2.5% to 3% range, so modestly up versus 2025.

Relative to specific categories, it's been a little bit of a combination of many. As you can imagine, partly related to tariffs, partly related to kind of the general inflation that is still in the 2.5% to 3% range, so modestly up versus 2025.

Speaker #5: tariffs , partly related to kind of the general that is still in the 2.5 to 3% range . So modestly up versus 2025 .

Speaker #8: Okay , that's that's very helpful . I was also wondering if I could just ask a couple of about top line the two on questions sides of the wholesale business .

Sandy Douglas: Okay. That's very helpful. I was also wondering if I could just ask a couple of questions about top line on the two sides of the wholesale business. First, on conventional, I guess excluding that optimization, it looks like sales were down in the mid-single digit range. You called out some of the factors, I guess, going on during the quarter. Can you continue to hit your targets with that magnitude of kind of core sales pressure in conventional? Are you seeing or hearing suppliers in those categories becoming more promotional to help maybe drive some volume in those categories?

Kelly Bania: Okay. That's very helpful. I was also wondering if I could just ask a couple of questions about top line on the two sides of the wholesale business. First, on conventional, I guess excluding that optimization, it looks like sales were down in the mid-single digit range. You called out some of the factors, I guess, going on during the quarter. Can you continue to hit your targets with that magnitude of kind of core sales pressure in conventional? Are you seeing or hearing suppliers in those categories becoming more promotional to help maybe drive some volume in those categories?

Speaker #8: first , on conventional , So guess I excluding that optimization , it looks like sales were down in the mid single digit range .

Speaker #8: You called out some of the guess going on during the factors , I but guess continue to hit your can you targets with that magnitude of of I kind of core sales pressure in conventional ?

Speaker #8: And are you seeing or hearing suppliers in those categories becoming more promotional to help maybe drive some volume in that , in those categories ?

Speaker #4: Yeah, Kelly, this is Sandy. What I say is that the general environment conventionally gets out of our optimization, which is the large majority of our decline.

Sandy Douglas: Yeah. Kelly, this is Sandy. What I would say is the general environment in conventional, get out of our optimization, which is the large majority of our decline, by the way. More of the decline than I think your question framed. Be that as it may, there is pressure in conventional, and it's seen broadly. The major source of that pressure comes from the consumer situation, the bumpiness with SNAP, and then the efficacy of a discount positioning in that environment. Retailers are responding to that in obviously different ways. If you were to draw broad themes, it's to respond by getting more competitive on key value items to start, for sure. Secondly, it's to look at product assortments and seek to innovate in a way that fits the retailer's positioning and minimizes comparability.

Speaker #4: By the way . So more of the in decline than I think you're your question framed . But as it may , there is be that conventional and it's seen broadly .

Speaker #4: And the major source of that pressure comes from the consumer situation. The bumpiness with Snap and then the efficacy of a discount positioning in that environment.

Speaker #4: And so retailers are responding to that in , in obviously different ways . if you were to draw a broad themes , it's to respond by more getting competitive on key value items to start for sure it's to look at .

Speaker #4: product assortments and and Secondly , to innovate and seek in a way that fits the retailers positioning and comparability . third area then the is kind of And the So the secret sauce .

Speaker #4: Retailer, it's food, whether service or service customer or community or local minimizes or sourcing, whatever it might be, and can see evidence of your formula working in conventional across the country.

Sandy Douglas: The third area is kind of the secret sauce of the retailer, whether it's food service, customer service, community, local sourcing, or whatever it might be. You can see evidence of that formula working in conventional across the country. You can just think of the retailers that might fit that, many of whom are customers of ours in one way or another. We see a great opportunity to try to continue to help retailers break that code and manage through the kind of consumer stress, which, as it abates, will continue to favor them, particularly those who've executed that formula well in their businesses.

The third area is kind of the secret sauce of the retailer, whether it's food service, customer service, community, local sourcing, or whatever it might be. You can see evidence of that formula working in conventional across the country. You can just think of the retailers that might fit that, many of whom are customers of ours in one way or another. We see a great opportunity to try to continue to help retailers break that code and manage through the kind of consumer stress, which, as it abates, will continue to favor them, particularly those who've executed that formula well in their businesses.

Speaker #4: just think You can of the of the retailers that might fit that . of whom are customers of Many ours in one way or another .

Speaker #4: So we see a great to try to continue to help retailers break that code . And manage through the kind of consumer opportunity which , as abates , stress will continue to favor them , executed that have particularly those who formula .

Speaker #4: Well in their businesses .

Speaker #8: Thank you, Sandy. Can I also ask about the, just side natural, and obviously very strong there? Just wondering if you could comment a little bit about how widespread that growth is.

Sandy Douglas: Thank you, Sandy. Can I just also ask about the natural side? Obviously, very strong there. Just wondering if you could comment a little bit more about how widespread that growth is. You talked about getting kind of more business with large customers. Are you seeing kind of more broad-based adoption of natural and organic? There have been some signs of a slowdown. It seems like you have a different point of view there. Wondering if you could just elaborate.

Kelly Bania: Thank you, Sandy. Can I just also ask about the natural side? Obviously, very strong there. Just wondering if you could comment a little bit more about how widespread that growth is. You talked about getting kind of more business with large customers. Are you seeing kind of more broad-based adoption of natural and organic? There have been some signs of a slowdown. It seems like you have a different point of view there. Wondering if you could just elaborate.

Speaker #8: You talked about getting kind of more business with with large but of seeing kind more are you broad based adoption of natural and organic because there has some been , some signs of a slowdown ?

Speaker #8: like you have of view It seems there . different point So a wondering if you elaborate could just .

Speaker #4: . I the Sure think very much like the business , conventional it's a retailer by retailer . Story . Our as you business , know , is slightly different than just a pure of retail .

Speaker #4: . I the Sure think very much like the business , conventional it's a retailer by retailer . Story . Our as you business , know , is slightly different than just a pure of mirror We we also project work .

Sandy Douglas: Sure. I think very much like the conventional business, it's a retailer-by-retailer story. Our business, as you know, is slightly different than just a pure mirror of retail. We also do project work. We do market entry services as an example of project work. Sometimes we have business in a particular channel or with a given customer that might be temporary as they make a strategic transition in their business. If you look at our report, you'll see strong growth. You'll see a number of customers performing very well. You see a component of it that is project-related, where we're helping customers execute against short-term initiatives. You'll see the ongoing secular health of the natural, organic, and specialty categories. The way we think about it is that the category, based on the same information you all have, looks like it's a mid-single digit grower.

Speaker #4: We do do entry market as an example services of work . And project so sometimes we have business in in a particular channel or given customer be temporary as they that might with a strategic transition in their business .

Speaker #4: So if you look at our report , you'll see strong growth . You'll see number of a customers performing very well . You see a component of it that is project related , where we're helping customers execute against short term initiatives .

Speaker #4: And then you'll see the ongoing secular health of natural , the organic and specialty categories . The way we think about it is that the category based on the same information you all have , looks a mid-single like it's digit grower we'd like to believe .

Speaker #4: we'll punch And our weight that strongly in industry . Going forward . But certainly performance our in the last quarter and over last year and a half or so , because of the we've project work the doing , has been very been strong .

Sandy Douglas: We'd like to believe that we'll punch our weight strongly in that industry going forward. Certainly, our performance in the last quarter and over the last year and a half or so because of the project work we've been doing has been very strong.

We'd like to believe that we'll punch our weight strongly in that industry going forward. Certainly, our performance in the last quarter and over the last year and a half or so because of the project work we've been doing has been very strong.

Speaker #5: Kelly , let me after 2 or 3 maybe on sales , helicopter up say a couple and we're thinking words on how about the sales outlook .

Matteo Tarditi: Kelly and Sandy, let me maybe after two or three questions on sales, helicopter up and say a couple of words on how we're thinking about the sales outlook. In Q1, sales were roughly flat compared to the prior year. The midpoint of our outlook, $31.6 to 32 billion, is also flat. Q1 has been consistent with the outlook. The outlook reflects the expectation that the underlying natural growth for the year will be similar to the long-term industry average, which is MSD. Now, when we think about the rest of the year, in Q2, in conventional, we'll have the full top line impact as well as the full adjusted EBITDA benefits of the Allentown, Fort Wayne, Billings, and Bismarck optimizations versus Q2 2025 when we were adjusting the early earnings of the network optimization.

Speaker #5: So in Q1 , sales were roughly flat compared to the prior And the midpoint year . of our outlook . 31.6 to 32 billion is also been consistent the Q1 has the with outlook with .

Speaker #5: The outlook the reflects expectation that the underlying growth for natural the year will be similar to the long term average , which is industry MSD we think .

Speaker #5: The outlook the reflects expectation that the underlying growth for natural the year will be similar to the long term average , which is industry MSD we think . the rest of the year in Q2 , in will have the conventional full top line Now , when impact as well as the full adjusted EBITDA benefits of the Allentown , Fort Wayne Billings and Bismarck optimizations versus Q2 25 , when we were early just in the , we optimization think the the third quarter will be be ramping about the critical customer down some of project that we started 12 months ago , but that we know that base also can ramp up very quickly .

Matteo Tarditi: When we think about the third quarter, we will be ramping down some of the critical customer project-based that we started 12 months ago, but we know that also can ramp up very quickly and that is part of the solution that we offer to our customers and how we create value. In the fourth quarter, obviously, we have an easier comp as we will have the no-repeat tailwind for the $400 million of cyber-related losses. It is a full-year framework. We don't guide by quarter, but wanted to offer a little bit of a helicopter view on how we're thinking about the next nine months through that kind of framework of flat and midpoint.

When we think about the third quarter, we will be ramping down some of the critical customer project-based that we started 12 months ago, but we know that also can ramp up very quickly and that is part of the solution that we offer to our customers and how we create value. In the fourth quarter, obviously, we have an easier comp as we will have the no-repeat tailwind for the $400 million of cyber-related losses. It is a full-year framework. We don't guide by quarter, but wanted to offer a little bit of a helicopter view on how we're thinking about the next nine months through that kind of framework of flat and midpoint.

Speaker #5: And that is part solutions of the that we offer to our customers and how we create And then in the fourth quarter , obviously , we value .

Speaker #5: an easier comp as we will the no repeat have the $400 million of cyber related losses . So it is a full year framework .

Speaker #5: We don't , you know , guide by quarter , but offer a wanted to a view on how we're helicopter thinking about the next nine months through that kind framework of flat and midpoint .

Speaker #5: We don't , you know , guide by quarter , but offer a wanted to a view on how we're helicopter thinking about the next nine months through that kind framework of flat and midpoint of

Speaker #8: helpful . Thank you so Very much .

Speaker #2: Your next question comes line of Chuck from the Saarikoski from Research . Your line is open Northcoast .

Sandy Douglas: Very helpful. Thank you so much.

Kelly Bania: Very helpful. Thank you so much.

Speaker #2: .

Operator: Your next question comes from a line of Chuck Cerankosky from North Coast Research. Your line is open.

Speaker #9: quarter Great . As we look Good morning the margin at going improvement forward , that we anticipate . What what's left realistically left in the shrink area and where might that come from ?

Mark Carden: Good morning, everyone. Great quarter. As we look at the margin improvement going forward that we anticipate, what's realistically left in the shrink area and where might that come from? Is it lower inventories leading to less spoilage, less breakage? Can you talk about that in some detail, please?

Chuck Cerankosky: Good morning, everyone. Great quarter. As we look at the margin improvement going forward that we anticipate, what's realistically left in the shrink area and where might that come from? Is it lower inventories leading to less spoilage, less breakage? Can you talk about that in some detail, please?

Speaker #9: Is it is it lower inventories leading spoilage , less less breakage . But can you talk about that in some detail , please ?

Speaker #5: Hey good morning Chuck . So on margins , the current outlook calls for margin expansion in 2026 . And then if you think it's about about 24 through 27 , points of margin expansion .

Matteo Tarditi: Hey, good morning, Chuck. On margins, the current outlook calls for 35 basis points of margin expansion in 2026. If you think about 2024 through 2027, it's about 60 basis points of margin expansion. That is really rooted in large productivity programs, the benefit of the network optimization, and the supplier programs. There is still a contribution from shrink. Now, as you think about 2025 to 2024, shrink was a very important contributor. In the end, our goal is to continue to improve and eliminate waste. I mean, it's a main principle of lean that is now at 34 or 49 distribution centers. There will be a relentless effort on reducing shrink. We closed pretty well at the end of the first quarter. We are pleased with the progress.

Speaker #5: And that is really rooted into large programs . The productivity the network benefit of optimization , the programs . And then there is still a supplier from from shrink .

Speaker #5: Now , as you think about 25 to 24 , shrink very was a contributor . In the our end , important continue to improve eliminate it's a waste .

Speaker #5: main and principle I mean , of that is lean at 34 or 49 distribution centers . So there will be a relentless on effort reducing shrink .

Speaker #5: We closed pretty well at the end of the first quarter . We are pleased with the progress , so we'll probably see less of a dollar large contribution to other productivity compared And some of the capabilities that programs .

Matteo Tarditi: We'll probably see less of a large dollar contribution compared to other productivity programs and some of the capabilities that will help on mix. Our focus on eliminating waste and inventory-related waste will continue for a very long time.

We'll probably see less of a large dollar contribution compared to other productivity programs and some of the capabilities that will help on mix. Our focus on eliminating waste and inventory-related waste will continue for a very long time.

Speaker #5: mix . But our on focus on eliminating waste and inventory related waste will continue for a very long time .

Speaker #9: right . All Thank you .

Speaker #2: question comes from the Your next line of Leah Jordan from Goldman Sachs . Your line is open

Mark Carden: All right. Thank you.

Chuck Cerankosky: All right. Thank you.

Operator: Your next question comes from a line of Leah Jordan from Goldman Sachs. Your line is open.

Speaker #10: Thank you . Good

Speaker #10: morning . . Sandy . about You talked new business projects prepared remarks . And it you're doing more sounds like with your largest customer .

Leah Jordan: Thank you. Good morning. Sandy, you talked about new business projects in the prepared remarks. It sounds like you're doing more with your largest customer. Just seeing if we could get an update on your new business pipeline. What are the opportunities between new versus existing at this point? I think ultimately, more importantly, how do you view the competitive environment for winning new business across wholesale? What are the differences really between conventional versus natural in the current landscape? Thank you.

Speaker #10: So, just seeing if we could get an update on your new business pipeline. What are the opportunities between new versus existing at this point?

Speaker #10: And then I think ultimately, more importantly, how do you view the competitive environment for winning new business across wholesale? What are the differences really between conventional versus natural in the current landscape?

Speaker #10: Thank you .

Speaker #4: Sure . Well , let me comment on projects and then just to make sure that I'm being precise in the way I'm defining them and distinguishing them from General pipeline Type , either expansion with an existing customer or a new customer .

Sandy Douglas: Sure. Well, let me comment on projects, and then just to make sure that I'm being precise in the way I'm defining them and distinguishing them from general pipeline-type either expansion with an existing customer or a new customer. The way we talk about projects is, imagine a retailer is moving into a new region and they're building a DC. They might hire us to be their distribution for a couple of years. That's a project. We know it's a beginning, and we know it's an end. We're happy to facilitate their strategy and happy to earn that business, assuming it's profitable. We would call that a project. Whereas a customer might hire us to start to handle their culinary or a different category that we haven't carried before, that would be pipeline. Obviously, a new banner would be a pipeline expansion. Just getting the definitions right.

Speaker #4: way we talk The about is imagine a projects retailer is moving into a new region , they're and building DC . a They might hire us to be their distribution for a couple of years .

Speaker #4: That's a project we know it's a beginning and we know it's an end , and we're happy to facilitate their strategy and happy to to earn that business .

Speaker #4: Assuming it's profitable . But that we would call that a project , whereas a customer might hire us to start handle their to culinary or a different category that we haven't carried before .

Speaker #4: That would be pipeline . And obviously a new banner would be a pipeline expansion just getting the . So from our perspective , the pipeline is strong on both natural and conventional .

Sandy Douglas: From our perspective, the pipeline is strong on both natural and conventional. What I would say to you that's enhanced is we have a very disciplined review process where we assess all of those programs and deals for profitability, for sustainability, for operational sensitivity, and for value for the customer. We're very disciplined. We do not pursue business for business' sake. That's what our network optimization is unwinding right now. There's a highly disciplined underwriting process that our presidents and Matteo very carefully review. Pipelines are strong in both sides. Our basis of competition typically is when it's a product, a service, or a program that helps the customer differentiate as opposed to price for price's sake. We have to be very competitive, make no mistake. Our customers expect that. We try to bring a whole package, and that allows for us to have a win-win.

From our perspective, the pipeline is strong on both natural and conventional. What I would say to you that's enhanced is we have a very disciplined review process where we assess all of those programs and deals for profitability, for sustainability, for operational sensitivity, and for value for the customer. We're very disciplined. We do not pursue business for business' sake. That's what our network optimization is unwinding right now. There's a highly disciplined underwriting process that our presidents and Matteo very carefully review. Pipelines are strong in both sides. Our basis of competition typically is when it's a product, a service, or a program that helps the customer differentiate as opposed to price for price's sake. We have to be very competitive, make no mistake. Our customers expect that. We try to bring a whole package, and that allows for us to have a win-win.

Speaker #4: What I would say to you , that's is enhanced a very disciplined review process where assess all of those programs and deals for we profitability , for sustainability , for operational sensitivity , and value for the for customer .

Speaker #4: And we're very disciplined . We do not pursue business sake business for . That's what our network is optimization right now . So a there's highly disciplined underwriting process that our presidents and Mateo very carefully review .

Speaker #4: But pipelines are are strong in both sides . Our basis of competition typically is when it's a product , or a service or a program that helps the customer differentiate as opposed price .

Speaker #4: For price have to sake , we to be very competitive , make no mistake , our customers expect that . But we try to bring a whole package and that it allows for us to have a win win and it fits the customer because the things , some of the we can things that do , we do better .

Speaker #4: And we're continuing to work, as we'll explain next week at Investor Day. We see a significant opportunity to continue to improve the offer, and we'll be talking about it next week.

Sandy Douglas: It fits the customer because some of the things that we can do, we do better. We're continuing to work, as we'll explain next week at Investor Day. We see a significant opportunity to continue to improve the offer, and we'll be talking about that next week.

It fits the customer because some of the things that we can do, we do better. We're continuing to work, as we'll explain next week at Investor Day. We see a significant opportunity to continue to improve the offer, and we'll be talking about that next week.

Speaker #10: helpful . Thank That's very you . And then one thing that stood out in the deck , you really were highlighting a refocused effort .

Speaker #10: It seemed on on private label . There seems to be new leadership Just seeing if there . you can provide more detail on your updated strategy .

Sandy Douglas: That's very helpful. Thank you. One thing that stood out in the deck, you really were highlighting a refocused effort, it seemed, on private label. There seems to be new leadership there. Just seeing if you can provide more detail on your updated strategy. What are the opportunities in natural versus conventional for that category? What are the points of differentiation you're providing? I don't think we've had an update. Where are percent of sales on private label today as well? Thank you.

Leah Jordan: That's very helpful. Thank you. One thing that stood out in the deck, you really were highlighting a refocused effort, it seemed, on private label. There seems to be new leadership there. Just seeing if you can provide more detail on your updated strategy. What are the opportunities in natural versus conventional for that category? What are the points of differentiation you're providing? I don't think we've had an update. Where are percent of sales on private label today as well? Thank you.

Speaker #10: What are the opportunities in natural versus conventional for that category? What are the points of differentiation you are providing? And I don't think we've had an update.

Speaker #10: Where are our percent of sales on label today private as well? Thank you.

Speaker #4: Okay . Thanks , Leah . Yeah , I mean speaking , you all see , broadly it natural brands are strong and strengthening relative to the whole store for consumer value reasons .

Sandy Douglas: Okay. Thanks, Leah. Yeah. I mean, broadly speaking, you all see it. Natural brands are strong and strengthening relative to the whole store for consumer value reasons. Increasingly, there's opportunities to build them across good, better, and best, so all three tiers. We did strengthen our leadership there with a veteran of private brands from another wholesaler who, she's absolutely outstanding, and we're thrilled to have her join the team. We see a significant opportunity to increase penetration here. Our penetration of private brands is not at industry levels, and we see it as an opportunity for growth, and an opportunity to create more value for customers. We're very focused on achieving it. It's a long-term opportunity. Again, I'll say this a few times today, we'll talk more about it next week. That's the long and short of it.

Speaker #4: But increasingly there's opportunities to build them across good , better and best . So all three tiers we did strengthen our leadership there with a veteran of private brands from another wholesaler who she's absolutely outstanding , and we're thrilled to have her join the team .

Speaker #4: see We a significant opportunity to increase penetration here . This is not our penetration of private brands , is not at industry levels .

Speaker #4: And we see it opportunity for as an growth and an opportunity to create more value for customers . And so we're very focused on it .

Speaker #4: achieving And a long term opportunity . Again , I'll say this a few times today , but we'll talk more about it next week .

Speaker #4: So but that's the long and short of it . It's a great opportunity across good better and best . And we're working on all three .

Speaker #4: The other thing that I would say for a little more color is the portfolio of private brands is segmented . It's not the same portfolio going into a traditional grocery store as it is to natural store .

Sandy Douglas: It's a great opportunity across good, better, and best, and we're working on all three. The other thing that I would say for a little more color is the portfolio of private brands is segmented. It's not the same portfolio going into a traditional grocery store as it is to a natural store, so there's opportunities on both sides.

It's a great opportunity across good, better, and best, and we're working on all three. The other thing that I would say for a little more color is the portfolio of private brands is segmented. It's not the same portfolio going into a traditional grocery store as it is to a natural store, so there's opportunities on both sides.

Speaker #4: So there's opportunities on both sides .

Speaker #10: Great . Thank you .

Speaker #2: Your next question comes from the line of Scott Mushkin from R5 capital . Your line is open .

Leah Jordan: Great. Thank you.

Speaker #11: Thanks , guys . I appreciate the time ask some questions . So I to we've been wanted spending a lot of time on sales , and I think the reason is , is you guys , especially on the organic , natural , organic side , surprised the heck out of a lot of people .

Operator: Your next question comes from a line of Scott Mushkin from R5 Capital. Your line is open.

Steve Bloomquist: Thanks, guys. Appreciate the time to ask some questions. I wanted to, we've been spending a lot of time on sales, and I think the reason is, you guys, especially on the natural organic side, surprised the heck out of a lot of people. It seems like the incremental growth is organic growth with what the industry is doing. I think we all have seen it slow across even your customers, more store openings, winning more business. I think you've talked about incremental projects. Taking the other side of the sales slowdown idea, if the industry were to.

Scott Mushkin: Thanks, guys. Appreciate the time to ask some questions. I wanted to, we've been spending a lot of time on sales, and I think the reason is, you guys, especially on the natural organic side, surprised the heck out of a lot of people. It seems like the incremental growth is organic growth with what the industry is doing. I think we all have seen it slow across even your customers, more store openings, winning more business. I think you've talked about incremental projects. Taking the other side of the sales slowdown idea, if the industry were to.

Speaker #11: So it seems like the incremental growth is organic growth with your with the industry is doing . And I all have seen think we slow even your across customers more store openings , winning more business .

Speaker #11: And I think you've talked about projects incremental . So taking that other side of the sales slowdown idea , if the industry were to .

Speaker #12: Sorry about that .

Speaker #11: Valerate again, could we expect your business to accelerate?

Mark Carden: Sorry about that. If the.

Sorry about that. If the.

Speaker #4: So Scott , I'm going

Speaker #4: Could you please paraphrase the question? We lost you for a couple of seconds. You were commenting that you'd seen the industry slow down, and you're wondering if our sales would accelerate if the industry did.

Steve Bloomquist: Accelerate again, could we expect your business to accelerate?

Accelerate again, could we expect your business to accelerate?

Sandy Douglas: Scott, I'm going to paraphrase the question because we lost you for a couple of seconds there. You were commenting that you'd seen the industry slow down, and you're wondering if our sales would accelerate if it accelerated. Do you want to rephrase that one more time?

Speaker #4: you want to Do rephrase that one more time ?

Speaker #11: I guess Yeah . I mean , say is we've seen some of your customers slow down their organic growth , their comp , your business , you know , I think higher surprised us street .

Steve Bloomquist: Yeah. I mean, I guess what I'd say is we've seen some of your customers slow down their organic growth, their comp. Your business moved, I think, higher, surprised us, surprised the street. What I was wondering is, taking the other side of it, could we actually see your sales accelerate in natural organic if the growth rate returns to some of these customers on a comp basis?

Scott Mushkin: Yeah. I mean, I guess what I'd say is we've seen some of your customers slow down their organic growth, their comp. Your business moved, I think, higher, surprised us, surprised the street. What I was wondering is, taking the other side of it, could we actually see your sales accelerate in natural organic if the growth rate returns to some of these customers on a comp basis?

Speaker #11: surprised the So what I was wondering is taking the other it . Can we side of actually your see sales accelerate in organic if the growth rate returns to some of these customers on a comp basis ?

Speaker #4: So Yeah . let's try to look at the pieces . We don't give guidance by division , but what we said earlier is that our external analysis points to kind of mid-single digit growth in the , organic natural and specialty categories .

Sandy Douglas: Yeah. Let's try to look at the pieces. We don't give guidance by division. What we said earlier is that our external analysis points to kind of mid-single digit growth in the natural, organic, and specialty categories. How I might look at that if I was trying to think about UNFI's growth is how would UNFI's customers tend to perform against that average, and how effective is UNFI at doing more to serve those customers or gaining more customers? From a print of plus 10%, which has a significant amount of project work that will annualize in the next couple of months, you can develop your own forecast. What we would say about our business is we continue to expect to compete and perform strongly in those categories.

Speaker #4: Then how I might look at that if I was trying to unifies , growth is how would Unfi's customers tend to perform against that average and how effective Unfi at is doing more to those customers serve or gaining more customers ?

Speaker #4: But you know , from a print of which has plus 10% , a amount significant of of that will annualize work in the next couple months , you you you can develop your own forecast .

Speaker #4: What we would say about our business is we continue to expect to compete and perform strongly in those categories.

Speaker #11: Perfect . All right . then the other And question is turning towards the now conventional side . I think Sandy , you mentioned that it's gotten tougher .

Steve Bloomquist: All right. Perfect. The other question is turning now towards the conventional side. I think, Sandy, you mentioned that it's gotten tougher. We've seen that. Our research has seen that. That also is spurring more promos from manufacturers. Just walk us out like six to 12 months and say the industry continues, the conventional side continues to deteriorate from a competitive standpoint. How does that impact your business? I mean, obviously, it would slow the sales a little bit. Overall, how does that impact your business if we kind of take the line down, continue to take it down, and the competitive environment deteriorates further?

Scott Mushkin: All right. Perfect. The other question is turning now towards the conventional side. I think, Sandy, you mentioned that it's gotten tougher. We've seen that. Our research has seen that. That also is spurring more promos from manufacturers. Just walk us out like six to 12 months and say the industry continues, the conventional side continues to deteriorate from a competitive standpoint. How does that impact your business? I mean, obviously, it would slow the sales a little bit. Overall, how does that impact your business if we kind of take the line down, continue to take it down, and the competitive environment deteriorates further?

Speaker #11: We've seen that research has our that . seen But that also is spurring more for So manufacturers . just walk us out like 6 to 12 months and say the industry continues to conventional side continues to deteriorate from a competitive standpoint .

Speaker #11: How does that impact your business ? I mean , obviously it would slow the little sales a bit , but does that impact your business ?

Speaker #11: If we kind of take the line down and continue to take it down and the competitive environment deteriorates further ?

Speaker #4: So Scott , first , let's let's talk about the pieces of the industry . I think this is really important . It is a well , well documented , well talked about fact that the biggest four have been taking share for decades in the so-called conventional part of the industry .

Sandy Douglas: Scott, first, let's talk about the pieces of the industry because I think this is really important. It is a well-documented, well-talked-about fact that the biggest four have been taking share for decades in the so-called conventional part of the industry. What doesn't get talked about, though, is there aren't only two piles of customers in that segment. There are many piles. If you take a third pile and say, I'm going to put the innovative retailers who've been aggressive in keeping their center store costs down, that have been innovative relative to assortment and avoiding unnecessary comparability with the big four, and then have their own secret sauce, whether it's food service, prepared food, great customer service, local associates, whatever it might be, and you put that group in a pile, they're outperforming everybody.

Speaker #4: doesn't get talked What about , though , is there aren't only two piles of customers in that segment . There's many if you piles .

Speaker #4: a take third pile And and say , I'm going to put the innovative retailers who've been aggressive in their center store keeping costs down that have been innovative relative to assortment and avoiding unnecessary comparability with the big four .

Speaker #4: And then have their own sauce , secret whether it's food service , prepared food , great customer service , local associates , whatever it might be , and you put that group in a pile , they're outperforming everybody and our strategic work is first and foremost to try to be the partner of choice for that pile .

Sandy Douglas: Our strategic work is first and foremost to try to be the partner choice for that pile. That's why we took our addressable market from $150 billion down to $90 billion, as we just said, we're probably not going to be good at folks that are just trying to find a drayage partner to try to duke it out on price alone. We've got to be sharp on price, but we've got to be good in helping customers implement a more, let's call it, differentiated strategy. I would encourage everybody to look at the industry in a more segmented way. The next comment I'd make relative to promotions, and this is the commentary about merchandising. We're going to talk about this a little bit next week.

Our strategic work is first and foremost to try to be the partner choice for that pile. That's why we took our addressable market from $150 billion down to $90 billion, as we just said, we're probably not going to be good at folks that are just trying to find a drayage partner to try to duke it out on price alone. We've got to be sharp on price, but we've got to be good in helping customers implement a more, let's call it, differentiated strategy. I would encourage everybody to look at the industry in a more segmented way. The next comment I'd make relative to promotions, and this is the commentary about merchandising. We're going to talk about this a little bit next week.

Speaker #4: That's why we took our market addressable from 150 billion down to 90 billion , as we just said , we're probably not going to be good at folks that are just trying to find a partner to try to duke it out on price alone .

Speaker #4: We've got to be sharp on price , but be good in helping customers implement it more . Let's call it differentiated strategy . So I would encourage everybody to look at the industry in a more segmented way .

Speaker #4: The next comment I'd make relative to promotions , and this is the commentary about merchandising . And we're going to talk about this a little bit next week .

Speaker #4: But we think actually that , as I mentioned , went when I through that set of things that we're seeing the winners do that wholesale supported retailers need more help .

Sandy Douglas: We actually think that, as I mentioned when I went through that set of things that we're seeing the winners do, wholesale-supported retailers need more help and need to work together with their wholesaler to negotiate better costs relative to EDLP. It's not just promotional dollars. That game is not working very effectively for a lot of people. That's not to say it doesn't work for anybody. Our merchandising effort now is going to work backwards from the shelf and say, what conditions have to be there so that our customers have a credible center of the store, and what programming is there that suppliers might want to invest in because they do with the big four. How can we get them to invest through to help and continue to build a robust supermarket channel? Lots of work going on there.

We actually think that, as I mentioned when I went through that set of things that we're seeing the winners do, wholesale-supported retailers need more help and need to work together with their wholesaler to negotiate better costs relative to EDLP. It's not just promotional dollars. That game is not working very effectively for a lot of people. That's not to say it doesn't work for anybody. Our merchandising effort now is going to work backwards from the shelf and say, what conditions have to be there so that our customers have a credible center of the store, and what programming is there that suppliers might want to invest in because they do with the big four. How can we get them to invest through to help and continue to build a robust supermarket channel? Lots of work going on there.

Speaker #4: And need to work together with their wholesaler to negotiate better costs relative to Edlp . It's not just promotional dollars that that game is not working very effectively for a lot of people .

Speaker #4: That's not to say it doesn't work for anybody , but so our merchandising effort now is going to work backwards from the shelf and say , what conditions have to be there .

Speaker #4: So that our customers have a credible center of the store. And what programming is there for that? Suppliers might want to invest in it, because they do with the big four.

Speaker #4: How can we get them to invest through to help and continue to build a robust supermarket channel ? So lots of work there .

Speaker #4: macro trends are macro trends , but within But them there are winners and it's a sizable chunk . And that's a lot of what's on our work desk right now , some of which able to give will be updates on work in progress updates next week in New York .

Sandy Douglas: Our macro trends, but within them, there are winners, and it's a sizable chunk. That's a lot of what's on our work desk right now, some of which we'll be able to give updates on, work in progress updates next week in New York.

Our macro trends, but within them, there are winners, and it's a sizable chunk. That's a lot of what's on our work desk right now, some of which we'll be able to give updates on, work in progress updates next week in New York.

Speaker #11: Perfect . And just to clarify , that was a great answer . But I guess your expectations if the industry continues to deteriorate , you guys should be okay .

Steve Bloomquist: Perfect. Just to clarify, it was a great answer. I guess your expectations that the industry continues to deteriorate, you guys should be okay. Is that a good summation of what you just said to me?

Scott Mushkin: Perfect. Just to clarify, it was a great answer. I guess your expectations that the industry continues to deteriorate, you guys should be okay. Is that a good summation of what you just said to me?

Speaker #11: Is that a good summation of what you just said to me?

Speaker #4: Well , I don't want to accept the premise . I believe that in tough times , people that partner with an industry have to step up .

Sandy Douglas: Well, I don't want to accept the premise. I believe that in tough times, people that partner with an industry have to step up. That's as far as I'll go in my crystal ball.

Speaker #4: That's as far as I'll go in my crystal ball .

Speaker #11: All right, see you guys next week.

Speaker #4: forward to

Speaker #4: it .

Speaker #2: final next question today comes And your from the line of Peter Saleh from Btig . Your line is open .

Steve Bloomquist: All right. See you guys next week.

Scott Mushkin: All right. See you guys next week.

Sandy Douglas: Look forward to it.

Operator: Your final question today comes from the line of Peter Saleh from BTIG. Your line is open.

Speaker #13: Great . Thanks for taking all the just questions . I had one question on capital allocation . I know you're at 3.2 turns now on leverage .

Operator: Your final question today comes from the line of Peter Saleh from BTIG. Your line is open.

John Heinbockel: Great. Thanks for taking all the questions. I just had one question on capital allocation. I know you're at 3.2x now on leverage, and that's down pretty substantially from last year, and well on your way to 2.5x by the end of this year. How should we be thinking about or modeling out your capital allocation strategy, capital returns going forward? When you get to 2.5x, will you continue to focus on deleveraging, or should we consider more capital returns to shareholders? How do we think about that going forward? Thanks.

Peter Saleh: Great. Thanks for taking all the questions. I just had one question on capital allocation. I know you're at 3.2x now on leverage, and that's down pretty substantially from last year, and well on your way to 2.5x by the end of this year. How should we be thinking about or modeling out your capital allocation strategy, capital returns going forward? When you get to 2.5x, will you continue to focus on deleveraging, or should we consider more capital returns to shareholders? How do we think about that going forward? Thanks.

Speaker #13: And that's down pretty substantially from last year. And well on your way to two and a half turns by the end of this year.

Speaker #13: So how should we be thinking about or modeling out your capital allocation strategy ? Capital returns going forward ? When you get to two and a half ?

Speaker #13: Will you continue to focus on, you know, deleveraging, or should we consider more capital returns to shareholders? How do we think about that going forward?

Speaker #13: Thanks .

Speaker #5: Hey good morning Peter . So 2026 . Our goal to is a deleverage to 2.5 times or lower . And in the last earnings call we also in affirmed that 2027 , we want to deleverage to two terms or less .

Operator: Hey, good morning, Peter. 2026, our goal is to deleverage to 2.5x or lower. In the last earnings call, we also affirmed that in 2027, we want to deleverage to 2x or less. Our capital allocation and our application of the free cash flow that we generate remains solely focused on deleveraging and reducing debt. If you think about the cash performance in the quarter, we improved by about $100 million year-over-year, combination of better EBITDA and better working capital management. For the rest of the year, we continue to see the EBITDA at the midpoint, obviously accreting more than $100 million for the full year. That implied math to be at 2.5x would be basically a free cash flow performance closer to $225 to 250 million, and we have an outlook at $300 million.

Matteo Tarditi: Hey, good morning, Peter. 2026, our goal is to deleverage to 2.5x or lower. In the last earnings call, we also affirmed that in 2027, we want to deleverage to 2x or less. Our capital allocation and our application of the free cash flow that we generate remains solely focused on deleveraging and reducing debt. If you think about the cash performance in the quarter, we improved by about $100 million year-over-year, combination of better EBITDA and better working capital management. For the rest of the year, we continue to see the EBITDA at the midpoint, obviously accreting more than $100 million for the full year. That implied math to be at 2.5x would be basically a free cash flow performance closer to $225 to 250 million, and we have an outlook at $300 million.

Speaker #5: So, our capital allocation and our application of free cash flow that we generate remain solely focused on deleveraging and reducing debt. If you think about the performance in the cash quarter, we improved by about $100 million year over year.

Speaker #5: of Combination better EBITDA and better working capital management for the rest of the year . We continue to see the EBITDA at the midpoint .

Speaker #5: Obviously accretive more than $100 million for the year , and then that full implied math to be a 2.5 times would be basically free cash flow performance closer to a two , 25 to 50 .

Speaker #5: And we have an outlook at 300 . So there is clearly multiple ways to achieve the 2.5 turns . And less . And the same carries over into 2027 , where again , we plan to print another $65 million of EBITDA at the current outlook .

Operator: There is clearly multiple ways to achieve the 2.5 turns and less. The same carries over into 2027 where, again, we plan to print another $65 million of EBITDA at the current outlooks and generate another $300 million of free cash flow. The only comment that I wanted to make is that in the first quarter, CapEx was low by design. In the end, we focused on regular maintenance and some of the technology investments, but we have a very tight monthly steering committee with the business presidents that review both the new projects, but also the cadence of spending. Within that $250 million outlook, we still have all the projects and all the schedule lined up to consume that envelope in the usual three-partition of maintenance and modernization, safety, technology, and then automation and growth investments.

There is clearly multiple ways to achieve the 2.5 turns and less. The same carries over into 2027 where, again, we plan to print another $65 million of EBITDA at the current outlooks and generate another $300 million of free cash flow. The only comment that I wanted to make is that in the first quarter, CapEx was low by design. In the end, we focused on regular maintenance and some of the technology investments, but we have a very tight monthly steering committee with the business presidents that review both the new projects, but also the cadence of spending. Within that $250 million outlook, we still have all the projects and all the schedule lined up to consume that envelope in the usual three-partition of maintenance and modernization, safety, technology, and then automation and growth investments.

Speaker #5: And generate another $300 million of free cash flow . The only comment that I wanted to make is that in the first quarter is CapEx was low by design .

Speaker #5: the end , In we focused on regular maintenance and some of the investments , technology we have a very tight monthly steering committee with the business that presidents review both the new projects , but also the cadence of spending .

Speaker #5: So, within that $250 million outlook, we still have all the projects and all the schedules lined up to consume their envelope in the usual three partitions of maintenance and modernization, safety, and technology.

Speaker #5: And then automation and growth investments .

Speaker #13: Thank you very much .

Speaker #2: concludes our question and answer session . I will now turn the that back over call And Sandy Douglas for closing remarks

John Heinbockel: Thank you very much.

Peter Saleh: Thank you very much.

Operator: That concludes our question and answer session. I will now turn the call back over to Sandy Douglas for closing remarks.

Speaker #4: you .

Speaker #4: Operator . . Thank We remain focused on executing our strategy to value for our customers suppliers and while becoming a more effective and efficient company as we continue to strengthen our operational execution , we're steadily improving our service levels , profitability , free cash flow and capital structure .

Sandy Douglas: Thank you, operator. We remain focused on executing our strategy to add value for our customers and suppliers while becoming a more effective and efficient company. As we continue to strengthen our operational execution, we're steadily improving our service levels, profitability, free cash flow, and capital structure. We have a long runway of opportunity to continue improving in these areas while building capabilities to help our customers and suppliers differentiate, compete, and grow profitably in a dynamic marketplace. We look forward to providing more details on our journey to create long-term shared value for all our stakeholders at our Investor Day next week. To our customers and suppliers, we thank you for your continued partnership, collaboration, and support. We look forward to serving you during this busy holiday season.

Speaker #4: We have a long runway of opportunity to continue improving in these areas while building capabilities to help our customers and suppliers , compete and grow differentiate profitably in a dynamic marketplace .

Speaker #4: forward to We look providing more details on our journey to create long term shared value for all our stakeholders at our Investor Day next week to our customers and suppliers .

Speaker #4: We thank you for your continued partnership , collaboration and support . We look forward to serving you during this busy holiday season to the associates .

Speaker #4: Unfi today , Listening our thanks for all that you continue to do for our customers , our suppliers , our communities , and each other , and to our shareholders .

Sandy Douglas: To the UNFI associates listening today, our thanks for all that you continue to do for our customers, our suppliers, our communities, and each other. To our shareholders, we thank you for the trust you continue to place in us. Thanks again for joining us this morning. We look forward to updating everyone on our progress, and I hope you'll join us at our investor day next week.

To the UNFI associates listening today, our thanks for all that you continue to do for our customers, our suppliers, our communities, and each other. To our shareholders, we thank you for the trust you continue to place in us. Thanks again for joining us this morning. We look forward to updating everyone on our progress, and I hope you'll join us at our investor day next week.

Speaker #4: thank you for We the trust you continue to place in us . Thanks again for joining us this morning . We look to updating everyone on our progress I hope you'll join us at our Investor Day next week , and .

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Q1 2026 United Natural Foods Inc Earnings Call

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