UNFI: ‘The supply chain is stressed right now,’ but ‘we’re uniquely positioned’ to offer retailers relief

By Elizabeth Crawford

- Last updated on GMT

Source:  Getty/ supersizer
Source: Getty/ supersizer

Related tags UNFI

Shares of United Natural Foods skyrocketed yesterday after the natural and organic food wholesaler’s fourth quarter earnings beat industry expectations, and executives laid out an optimistic outlook for 2022 with concrete plans to make the best of lingering labor, supply chain and inflationary challenges that plague the entire industry.

Even though UNFI’s revenue fell 0.5% to $6.74bn and sales slipped 18.9% in the fourth quarter compared to the same period last year when many consumers were stocking their pantries and eating primarily at home, the company’s positive bottom line came in higher than expected with adjusted earnings per share at $1.18 compared to the consensus estimate of 81 cents per share. Likewise, gross margin ticked up slightly to 14.91% from 14.84%.

The sales drop in the quarter also is softened when viewed through a two-year stack in which revenue is up 7.5% compared to pre-pandemic numbers in 2019.

With this context, UNFI’s stock climbed steadily after its results were delivered – increasing 23.73% by 5 pm ET yesterday to reach its highest point in the past year.

UNFI leverages size to bring supply chain relief

Investors on the company’s earnings call also were impressed with UNFI’s ability to mitigate some of the supply chain challenges reverberating through the industry and even benefit from them as a resource for retailers looking to keep shelves full.

“The supply chain is stressed right now, and it’s been stressed for 17 months. And that level, that environment has been an opportunity for UNFI. We’re uniquely positioned because we have the full portfolio of conventional and natural,”​ which allows us to sell both product portfolios to conventional retailers “and take some relief on their captive distribution,”​ UNFI president Christopher Testa told investors during the company’s quarterly call.

He explained that because UNFI is a top one, two or three customer for many of the manufacturers for which it distributes products, it is able to leverage its size and purchasing power to secure sufficient product even as supply chain challenges caused inbound supplier service levels to deteriorate in the fourth quarter.

“We continue to proactively meet with our vendor partners to get our deserved share of supply and get in front of the upcoming holiday demand so we can provide the best possible experience for our customers,”​ he said.

COVID-19 continues to impact labor, operations

At the same time, UNFI has faced some of its own challenges – notably the voluntary and temporary two-day suspension of operations at its Centralia, Wash., distribution center in the first week of August due to increased COVID-19 cases at that facility.

“During the shutdown, we continued to service our customers to the greatest extent possible, despite increased costs, by leveraging contingency plans to meet essential customer needs and through moderating shipments and shifting the volume to other distribution centers,”​ Testa said.

He acknowledged this will be a headwind in the coming fiscal year first quarter, but over the full-year it will be incorporated.

UNFI, like others in the industry, also has faced its share of labor constraints, but investors seemed satisfied with the company’s strategy of modifying distribution center associate wage groups, offering more work-life experiences and other new incentives, including enhanced health benefits and flextime programs.

With these strategies in place, UNFI anticipates fiscal 2022 will bring full-year net sales between $27.8b and $28.3b, which represents more than a $1b increase over fiscal 2021, or about 4% at the midpoint.

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