- Restaurants are starting to reopen for dine-in service across the country, but United Natural Foods, Inc., (UNFI) Chairman and CEO Steve Spinner says many consumers are still hesitant to eat out due to safety concerns. During the company’s third-quarter earnings call Wednesday, he said a recession and high unemployment will also continue to drive sales of at-home dining for at least the next year, boosting the distribution company’s outlook.
- UNFI revised its forecast for the year to include more than $650 million in adjusted earnings, a roughly $100 million increase over its previous projection. For the third financial quarter, UNFI reported a 12% increase in net sales to $6.67 billion and net income up 54% to $88 million. Adjusted earnings per share rose 130% to $1.40.
- UNFI expects to operate its Cub Foods banner along with select Shoppers Food & Pharmacy stores for up to 24 months in order to continue serving communities and wait for a more favorable sale environment. UNFI will classify these stores as continuing operations and report their results as part of the company’s earnings. Spinner announced last month that UNFI will spin off its retail division in order to better manage it and prepare it for an eventual sale.
UNFI, which has struggled to integrate Supervalu and expand its sales beyond main client Whole Foods, has gotten a major boost from pandemic-driven shopping patterns and expects its fortunes to continue improving over the coming months.
The wholesaler, whose results reflect broader sales and consumer trends across the industry, reported earnings that were in line with estimates released last month. In addition to notably high demand from independent and conventional retailers, UNFI has seen high demand for its private label products, with sales up 26% over the same period a year ago and growth in options like frozen vegetables and household products double and even triple that of the overall category. The company also reported growth in its retail services division, which includes building e-commerce platforms for retailers.
Spinner said the company’s strategy of cross-selling natural and conventional products — one of the main reasons it acquired Supervalu in 2018 — is also paying off, on track to net $175 million in additional revenue.
However, financial analysts noted during the company's earnings call Wednesday that they expected results to be slightly better than what UNFI reported. When questioned about this, Spinner pointed to the bankruptcies of Lucky’s Market and Earth Fare as having impacted results by 900 basis points. He also said inbound fill rates were low as suppliers struggled to meet intense shopper demand. Spinner said he expects fill rates to improve in the fourth quarter, but doesn’t expect them to return to pre-COVID-19 levels until fiscal 2021.
Grocers have weathered intense periods of stock-up shopping in-stores and then online as sales — not to mention costs — have skyrocketed over the past three months. But reopening restaurants and upstarts like direct-to-consumer marketplaces threaten to slow grocers’ momentum. Pointing to a survey that found two-thirds of shoppers tend to cook more at home post-pandemic, Spinner said safety concerns are still high and new eating habits have taken root as many people settle in to working from home long term.
“COVID is not over,” he said. “There are many states that have very high rates of infection. As long as that continues — and we have every reason to believe it’s going to continue until there’s a vaccine — there is going to be pressure to continue to eat more meals at home.”
During a virtual conference last month, Spinner announced UNFI would delay the sale of its remaining retail stores and spin them off into a separate business. On Wednesday, executives formalized that process, noting that it will classify all 81 Cub Foods stores along with an unspecified number of Shoppers stores as continuing operations, expected to add $1.2 billion to UNFI’s top line in fiscal 2020. Previously, UNFI had said it planned to be out of retail by the end of this year.
Spinner reiterated UNFI's desire to exit retail and said the company expects to make more money off an eventual sale due to rising sales driven by the pandemic. But for now, the wholesaler will have to bide its time.
“The M&A environment for retail is just poor," Spinner said.