United Natural Foods, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the UNFI first quarter earnings call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. I would now like to hand the call over to your speaker for today, Mr. Steve Blomquist, Vice President of Investor Relations Please go ahead, sir.

Good morning, everyone. Thank you for joining us on UNFI's first quarter fiscal 2020 earnings conference call. By now, you should have received a copy of the earnings release issued earlier this morning. The press release, webcast, and a supplemental slide deck are available under the Investors section of the company's website at www.unfi.com. Joining me for today's call are Steve Spinner, our Chairman and Chief Executive Officer, Sean Griffin, our Chief Operating Officer, Chris Testa, President of UNFI, and John Howard, our Interim Chief Financial Officer. Steve and John will provide a business update after which we'll take your questions. Before we begin, I'd like to remind everyone that comments made by management during today's call may contain forward-looking statements. Thank you for joining us. Definitions and reconciliations to the most comparable GAAP financial measures are included in our press release. I'll now turn the call over to Steve.

Thank you, Steve. Good morning, everyone, and thanks for joining us on today's first quarter call. These are truly exciting times. In the week before Thanksgiving, UNFI hit a record day in terms of cases and volume. Moving approximately 5 million cases, representing more than $100 million in sales on a single day, and we did it with a high level of service and strong on-time delivery performance despite challenging weather in much of the United States. In early August, We entered the new fiscal year operating an unmatched distribution network that carries the broadest variety of products and services in our industry providing our customers access to more than 250,000 SKUs and critical retail services needed to run their operations Our new sales structure enables cross-selling by creating a singular organization responsible for the entire portfolio. The cross-sell wins to date represent a meaningful portion of total revenue growth, and I am really pleased with the progress we're making. Our business model is providing UNFI with truly distinct competitive advantages for our customers and our company. And with our learnings from the last year and our focus on driving the business forward, we are confident in UNFI's positioning today and for the future. Net sales totaled $6.02 billion, an increase of $3.2 billion over last year, including an incremental $3.1 billion from conventional, which was included for only one week last year. Legacy UNFI net sales increased 2.8% over last year, the same year-over-year growth as the prior two quarters, led by the Supernatural channel, where year-over-year sales increased 8.2%. The year-over-year growth in our Supernatural channel has moderated relative to prior quarters as we've cycled some of the Supernatural initiatives forward. We're pleased with sales in our largest channel, the supermarket channel, where quarterly trends, excluding conventional, have been improving and have now turned positive, driven by both higher volumes with existing customers, as well as the addition of new customers on the natural side of our business. Our larger customers continue to outpace the balance of our business as wholesale sales to our top 25 customers increased 5.4%. Excluding our largest customer, wholesale sales at the next 24 customers increased by 4.1%, driven by formats that resonate with their shoppers. I'd also like to note that seven of our top eight customers now use UNFI as both their primary natural and conventional distributor. Operationally, we made good progress this quarter on several distribution center network projects designed to improve efficiency, service, and capacity in several key geographies. In the first quarter, Thank you for joining us. Further down the West Coast in Marino Valley, California, we're adding approximately 1.2 million square feet of multi-temperature capacity to position UNFI for growth in the highly attractive Southern California market where we see strong growth potential from both adding new customers as well as expanding our offering to existing customers. During the quarter, we incurred an estimated $7 million in costs. to consolidate these markets. Investments we are making in the future, which will make us the best positioned wholesaler in the growing California market with an incredible array of products fully representing our built-out store. As we've worked through the period of transitioning these warehouses and bringing others online, we've seen solid improvement in key operational and service metrics. Most of these projects include some level of automation that more efficiently handles slower-moving SKUs. With significantly higher throughputs and higher service levels, we can improve the customer experience while lowering our cost to serve. We're pleased with how these projects are progressing and the value their completion will bring to UNFI. We did incur some higher operating costs this quarter, which I mentioned, as we ramped up and transitioning distribution center costs we expect will decline going forward. From a marketing perspective, as I stated earlier, this was the first quarter that our combined sales organization was in place, and we began to see the promise of cross-selling legacy portfolios into our existing customer base. We expect larger wins will come as we leverage long-standing relationships and our newly combined product portfolio. In the quarter, we experience a significant uptick of professional services into our existing natural base and the seeding of natural or organic products into our conventional customers. As a reminder, our professional services business includes payment processing, data-driven shelf management, and retail store design and construction. Cross-selling consists of effectively mining our data to identify product and category voids. We continue to believe that we have a large opportunity for selling fast-moving natural products into conventional and faster-moving conventional SKUs as appropriate into natural stores. With a single national sales force and added technology to assist our team, We can identify these material wins for UNFI while providing a much needed point of differentiation for our customers. Consumer preferences have evolved and our assortment is able to meet those changing eating habits. We're partnering with our customers on opportunities so that they can keep their assortments current, relevant, and in tune with the market, which is good for them and good for us. Our suppliers clearly recognize these opportunities and are embracing our efforts to expand distribution of their products. We'll use a similar approach where appropriate as we pursue new business opportunities. As I noted earlier, our geographic footprint, industry-leading product variety and our scale are competitive differentiators and our team is focused on showing customers how UNFI's offering will benefit their business. As we've moved into fiscal 2020, Thank you so much for joining us. and we're focused on maintaining that identity while looking to further expand our broader customer base. There is clearly a lot happening at UNFI and I'm pleased to say that through it all our operating and service metrics are improving. Fill rates in our wholesale business have improved by about 90 basis points compared to last year's Q1. Warehouse productivity, on-time deliveries and inventory days on hand are all better than a year ago. A sign of the many enhancements we've made to our network. As we continue to build and refine our future operating model, most of our future incremental synergies will come as a result of either moving onto common systems or further optimizing our distribution center network. These are more long-tailed in nature compared to much of the cost reductions and synergies we've realized to date. We continue to be comfortable and expect to achieve the overall synergy targets we've previously communicated Working capital continues to be an important element of how we manage the business and our capital structure We continually evaluate our working capital position and manage our balance sheet towards paying down debt Finally, let me provide a status report on our efforts to divest retail As you saw in our press release last week We've reached agreement with three buyers to sell 13 shopper stores in the Washington, Baltimore market. We also announced that four additional stores will be closed. We're continuing to market the remaining shopper stores with several potential buyers. At Cub, we're continuing to market the banner in its entirety, have given management presentations to interested parties, and the process is moving forward. Let me now turn the call over to John Howard, our Interim Chief Financial Officer. As you know, John has served as the Interim Chief Financial Officer since August, and it's an update. We're finalizing the search process that includes both internal and external candidates and expect to have that complete in the next 30 days. John?