Dive Brief:

• United Natural Foods, Inc., (UNFI) reported strong sales during its fourth financial quarter driven by its retail business and wholesale services to independent grocers. Net income was $52 million, a 174% increase over the same period last year, while net sales increased 0.4%, to $6.75 billion. Earnings per share was 89 cents, above the consensus estimate of 74 cents.
• UNFI announced Steven Spinner plans to retire as company CEO at the completion of his contract on July 31, 2021, or before then if the company finds a successor. He will remain on the company’s board, serving as executive chairman once a replacement is named. UNFI has retained a leading executive talent firm to search for its next chief executive and is considering both internal and external candidates.
• UNFI expects elevated sales to continue in fiscal 2021 as food-at-home sales continue to outpace food consumed away from home during the pandemic. The company anticipates net sales will fall between $27 billion and $27.8 billion while earnings per share will range from $3.05 to $3.55 per share. 

Dive Insight:

With the announcement of his retirement, Spinner brings to a close 12 years at the helm of the retailer-wholesaler. Hired in 2008 from Performance Food Group, Spinner guided UNFI through a series of specialty wholesale acquisitions, capped off by its blockbuster $2.9 billion merger with Supervalu in 2018.  

Although investors initially balked at that acquisition, the pandemic proved Spinner’s case for selling a wider assortment of specialty and conventional products to retail customers.

“We went out on a limb a little bit to do it. I think investors initially didn't like it, as evidenced by the stock price, but it was right on — it was 100% right,” Spinner said during UNFI’s earnings call Tuesday morning.

In a sign of just how topsy-turvy the pandemic’s influence on grocery has been, UNFI’s strongest sales growth has come from two divisions that have formerly been Achilles heels for the company — retail stores and wholesale services to independent grocers. 

That trend continued in Q4. Retail stores UNFI has listed under continuing operations, including 52 Cub Foods and 19 Shoppers locations, saw same-store sales rise 21% while contributing $16 million in adjusted earnings before interest, taxes, amortization and depreciation (EBITDA). E-commerce was a particular bright spot, with Cub stores “aggressively” touting their delivery and pickup services en route to a 309% increase in Q4 channel sales, said UNFI president and chief marketing officer Chris Testa.

This was the first quarter reflecting retail sales in continuing operations — a move UNFI announced in June. It plans to operate Cub and Shoppers stores for up to 24 months amid elevated sales and as the acquisitions market adjusts to the evolving pandemic.

On the wholesale side, independent grocery led segment growth for UNFI, with consolidated sales up 11.4% in Q4. Formerly constrained in their ability to spend and under pressure from chain competitors, small-scale grocers have benefited from more consumers working at home and from increased loyalty to local brands during the pandemic, Testa said.

Sales to chain grocers, which account for 40% of UNFI’s business and which the company defines as those retail customers with more than 10 stores, increased 6.9% on a consolidated basis, to $2.7 billion. The increase would have been higher, executives noted, without the bankruptcies earlier this year of three retail customers — Earth Fare, Lucky’s Market and Fairway Market.

Sales to Whole Foods Market, UNFI’s largest customer, increased 3.6% in Q4, to just over $1.1 billion.

For the fiscal year, UNFI recorded a net loss of $274 million, including a $425 million pre-tax goodwill and asset impairment charges recorded in Q1. Adjusted EBITDA increased to $673 million and the company lowered its debt-to-EBITDA ratio to 4.0.

Looking ahead to fiscal 2021, Spinner said UNFI expects to see heightened sales continue into the holidays and through the calendar year as the coronavirus pandemic continues to impact communities across the U.S. The company expects sales to slow in the second half of fiscal 2021 but still remain above average levels due to fundamental shifts in consumer habits.

Operationally, UNFI is investing in warehouse automation to boost efficiency. It’s also promoting its e-commerce services to customers, having added 300 independent grocers to its turnkey offering during the pandemic so far. It also aims to add new wholesale customers while building out sales among its existing base.

“We have a strong diversified customer base from which we can grow sales,” Spinner said Tuesday. “We have an unmatched distribution center network that we've shown can handle demand capacity and performance at scale.”