UNFI Hits Record $10.23B in Fiscal 2018 Net Sales
United Natural Foods, the Providence, R.I.- based grocery wholesaler that recently announced it was acquiring Supervalu, reported record net sales of $10.23 billion in fiscal 2018, up from $9.28 billion last year, a 10.3 percent increase.
Fourth quarter net sales of $2.6 billion were a 10.7 percent increase from last year’s $2.3 billion. Fiscal 2019 net sales, excluding Supervalu, are projected to be $11.1 to $11.3 billion, an increase of 8.6 to 10.5 percent.
“We continued to deliver solid top-line growth across our customer channels, demonstrating sustained strong demand for UNFI’s product assortment and services. On the bottom-line, our results reflected the impact of customer mix shift and higher than anticipated freight costs, while improvement in our working capital has resulted in record free cash flow for the quarter," said Steven Spinner, chairman and CEO. “We are on track to close the Supervalu transaction in the fourth quarter of calendar 2018, and our teams are hard at work planning for the integration to capture the significant synergies and strategic benefits of this transformative combination, positioning our company for growth and value creation.”
Fiscal 2018 Year-End Results
In fiscal 2018, supernatural channel net sales increased by 21.4 percent to $3.7 million; independent grocery stores' net sales were $2.6 million, increasing 6 percent; supermarkets net sales were up 4 percent to $2.9 million while other customer channels increased 3.5 percent for $1 million in net sales.
UNFI's liquidity position remains strong with availability of $650.2 million, as of July 28, 2018, under its revolving credit facility.
Q4 Results
In fiscal Q4, supernatural sales were $982,000, up 27.5 percent from a year ago; net sales from the independent grocery channel were up 5.7 percent to hit $651,000 in sales; supermarkets accounted for $707,000 in net sales for a 1.1 percent increase; and other customer channels saw a decline of 1.5 percent to 252,000 in sales.
The decline in the “other” channel is attributed to the divestiture of the Earth Origins Market retail business. The wholesaler completed the transaction of all the retail stores to Amcon Distributing Co. during the fourth quarter.
Gross margin for the fourth quarter of fiscal 2018 was 14.50 percent, a decrease of 125 basis points from 15.75 percent for the same period last year. Gross margin was impacted by a shift in customer mix where net sales growth of our largest customer outpaced growth of other customers with higher margin and by an increase in inbound freight costs.
Adjusted EBITDA for the fourth quarter of fiscal 2018 was $81.0 million, a decrease of 6.4 percent from adjusted EBITDA of $86.5 million for the fourth quarter of fiscal 2017. This decline was driven by leveraging of fixed costs.
Supervalu Acquisition
On July 25, UNFI entered into an agreement to acquire Supervalu for $32.50 per share in cash, or about $2.9 billion, including the assumption of outstanding debt and liabilities.
The acquisition was attractive, both financially and strategically, as it will accelerate UNFI's Build-out-the-Store strategy by expanding product portfolio in the fastest growing segments and broadening the universe of customers and suppliers.
The transaction is expected to achieve run-rate cost synergies, net of reverse synergies, of more than $175 million in year three and more than $185 million in year four.
The size and scale of the combined company will provide continued relevance to all customers, including UNFI’s largest customer. It will also reduce the company's dependence on any one customer, while creating a larger platform for UNFI to serve customers and successfully navigate a challenging retail environment.
One-time costs including deal and integration costs for year one are expected to be about $95 million. Total one-time costs for year two and beyond are expected to be $110 million with the majority expected to be incurred in year two.
The transaction is expected to close in the fourth quarter of calendar 2018.