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UNFI Terminates Albertsons Contract 10 Months Early

The distribution contract between United Natural Foods Inc. (UNFI) and Albertsons will end on Sept. 20, 2015, nearly one year earlier than its originally scheduled end date of July 31, 2016.

“We are disappointed to end our existing relationship with Albertsons,” said Steve Spinner, UNFI's president and CEO. “However, we believe that this course of action is in the best long-term interests of United Natural Foods, as it will now allow us to redirect our resources to pursue our previously announced plans to expand our focus in fresh categories such as proteins and specialty cheeses across the country, grow our gourmet and ethnic business, and serve as an e-commerce solution for our customers."

Spinner said the Providence, R.I.-based distributor will utilize the "capital freed up from the termination of our Albertsons’ relationship to further pursue our strategic objectives," which in turn "will provide greater value for our shareholders long-term.”

For its fiscal year ending Aug. 1, 2015, UNFI's revenue from Albertsons is expected to be approximately $410 million. However, the company said it does not expect its fiscal fourth quarter financial results or its current fiscal 2015 guidance to be impacted by the early termination.

UNFI said it anticipates taking a one-time charge reflecting severance and associated termination costs in the first quarter of fiscal 2016, which will be disclosed in September 2015 when it reports its fourth quarter and full year 2015 results, and provides its fiscal 2016 guidance.

In a report on UNFI, Canaccord Genuity analyst Scott Van Winkle lowered his target price to $65 from $71 while noting, “The loss of the Albertsons business comes on the heels of softer channel growth, which will undoubtedly shake investor confidence and impact valuation. The Albertsons loss is a reversal of fortune, as UNFI won the business four years ago and was clearly underbid by the former contract servicer, who we suspect had more incentive to be aggressive with pricing. The recent win of $100 million in incremental business that began shipping a couple of weeks ago, is now not incremental, but rather a partial offset to the Albertsons loss. We maintain our buy rating, assuming a correction at the open Tuesday.”

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