Exchange: NYSE | Sector: Consumer Defensive | Industry: Food Distribution
Q4 2024
Published: Oct 1, 2024
Earnings Highlights
Revenue of $8.16B up 10% year-over-year
EPS of $-0.62 increased by 45.7% from previous year
Gross margin of 13.7%
Net income of -37.00M
"Our revamped commercial go-to-market program for suppliers is a new partnership model that aligns our mutual interest around growth and makes doing business together easier. We streamlined 15 to 20 unique fees into one and are now providing suppliers access to our enhanced data and insights." - Sandy Douglas
United Natural Foods, Inc. (UNFI) Q4 2024 Earnings Review and Three-Year Plan: Lean Transformation, Margin Restoration and deleveraging Path in a Turbulent Consumer Grocery Landscape
Executive Summary
UNFI reported the fourth quarter of fiscal 2024 with a strong top-line performance helped by the extra 53rd week, yet profitability remained constrained by financing costs and a challenging mix. Revenue for Q4 reached $8.155 billion, up 9.95% YoY (53-week impact acknowledged), with gross profit of $1.116 billion and a gross margin of 13.68%. Adjusted EBITDA for the quarter was $143 million, marking the fourth consecutive quarter of sequential profitability improvement versus 4Q24 prior year. However, net income was negative at $37 million and GAAP EPS was -$0.63, reflecting substantial interest expense and one-time adjustments in a year of heavy capital allocations and network investments. Management outlined a multi-year plan to drive high-single-digit adjusted EBITDA growth, accelerate deleveraging toward 2.5x net debt-to-EBITDA by FY2027, and generate free cash flow around $100 million in fiscal 2025 (roughly $200 million higher than fiscal 2024). The plan hinges on: (1) a value-added strategy leveraging higher-margin natural/organic products and digital/professional services; (2) capital-light services expansion (including UMN retail media network) and a more efficient distribution network; and (3) disciplined capital allocation and working capital management to improve cash flow generation. Near-term momentum is expected to build from mid-single-digit EBITDA growth in early 2025 to a high-single-digit annual growth trajectory, supported by DC-network optimization, higher-margin product mix, and ongoing cost-savings initiatives. The company also signaled further DC rationalization (Billings and Bismarck closures completed, with potential additional actions) and emphasis on reducing working capital days to pre-pandemic levels. Overall, UNFI remains in a transition phase: it possesses a sizable addressable market, a visible path to margin expansion and deleveraging, but remains sensitive to consumer price pressure, promotions tempo, and execution risk around the multi-year network optimization program.
Key Performance Indicators
Revenue
8.16B
QoQ: 8.76% | YoY:9.95%
Gross Profit
1.12B
13.68% margin
QoQ: 18.35% | YoY:15.53%
Operating Income
2.00M
QoQ: -94.74% | YoY:102.67%
Net Income
-37.00M
QoQ: -76.19% | YoY:45.59%
EPS
-0.63
QoQ: -80.00% | YoY:45.69%
Revenue Trend
Margin Analysis
Key Insights
Q4 2024 revenue: $8.155 billion; YoY growth 9.95% and QoQ growth 8.76% (53-week year contributed ~ $0.6 billion of Q4 sales). On a 52-week basis for the full year, revenue increased 0.4% YoY.
Gross profit: $1.116 billion; gross margin 13.68% (gross margin improved vs. prior year as shrink and margin initiatives offset mix pressures).
Operating income: $2 million; operating margin 0.02% (Q4), reflecting ongoing structural costs and investments in efficiency programs.
EBITDA: Q4 Adjusted EBITDA $143 million, up from $93 million in prior-year Q4, aided by the extra week, higher sales, and timely cost-savings initiatives; 4Q24 marked the fourth consecutive quarter of higher profitability sequentially.
Net income: $(37) million; net income margin: (0.45)%; GAAP EPS: $(0.63); Adjusted EPS: $(0.62) (Q4).
Financial Highlights
Revenue and profitability:
- Q4 2024 revenue: $8.155 billion; YoY growth 9.95% and QoQ growth 8.76% (53-week year contributed ~ $0.6 billion of Q4 sales). On a 52-week basis for the full year, revenue increased 0.4% YoY.
- Gross profit: $1.116 billion; gross margin 13.68% (gross margin improved vs. prior year as shrink and margin initiatives offset mix pressures).
- Operating income: $2 million; operating margin 0.02% (Q4), reflecting ongoing structural costs and investments in efficiency programs.
- EBITDA: Q4 Adjusted EBITDA $143 million, up from $93 million in prior-year Q4, aided by the extra week, higher sales, and timely cost-savings initiatives; 4Q24 marked the fourth consecutive quarter of higher profitability sequentially.
- Net income: $(37) million; net income margin: (0.45)%; GAAP EPS: $(0.63); Adjusted EPS: $(0.62) (Q4).
- Free cash flow: $71 million in Q4; year-to-date FCF benefited from operating profitability but weighed by working capital timing and higher capex related to automation.
- Leverage and liquidity: Net debt approximately $3.508 billion; net debt to EBITDA 4.0x at quarter-end, down from Q3; target deleveraging to 2.5x by FY2027.
- Cash flow and capex: Operating cash flow $199 million in the quarter; capex $128 million in the quarter; full-year 2025 capex guided around $300 million; free cash flow guidance around $100 million in 2025 (vs. ~ $0 in 2024).
- Balance sheet metrics: Total assets $7.529B; total liabilities $5.889B; total equity $1.641B; current ratio 1.44; quick ratio 0.52; cash balance $40 million; working capital initiatives aim to reduce days-on-hand by ~2 days in 2025.
- Growth indicators: 3-year plan targets high-single-digit Adjusted EBITDA CAGR; 2.5x net leverage target by 2027; long-term goal of free cash flow well over 0.5% of net sales.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
8.16B
9.95%
8.76%
Gross Profit
1.12B
15.53%
18.35%
Operating Income
2.00M
102.67%
-94.74%
Net Income
-37.00M
45.59%
-76.19%
EPS
-0.63
45.69%
-80.00%
Key Financial Ratios
currentRatio
1.44
grossProfitMargin
13.7%
operatingProfitMargin
0.02%
netProfitMargin
-0.45%
returnOnAssets
-0.49%
returnOnEquity
-2.25%
debtEquityRatio
2.16
operatingCashFlowPerShare
$3.39
freeCashFlowPerShare
$1.21
priceToBookRatio
0.52
priceEarningsRatio
-5.79
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Strategy and value creation
- 'Our new strategy focuses on providing retailers with a strong value proposition, composed of an increasingly relevant portfolio of differentiated products and value-added services that help them grow profitably while offering suppliers the right go-to-market services and insights that help them grow within UNFI's large, diverse retailer network totaling over 30,000 customer locations.' (Sandy Douglas)
- 'Our revamped commercial go-to-market program for suppliers is a new partnership model that aligns our mutual interest around growth and makes doing business together easier. We streamlined 15 to 20 unique fees into one and are now providing suppliers access to our enhanced data and insights.' (Sandy Douglas)
- 'We launched UNFI Media Network (UMN) and are seeing strong interest; we expect to enroll both retailers and suppliers on to the platform.' (Sandy Douglas)
Network optimization and capital allocation
- 'We are shaping a more efficient distribution center network to better serve our customers and suppliers, lowering our cost structure and reducing capital intensity... actions in Billings and Bismarck will transition to nearby DCs with real estate sales proceeds used to repay debt.' (Sandy Douglas)
- 'We expect fiscal 2025 capital investments to be around $300 million, down from $370 million in 2024; we will reduce days-on-hand by about two days in fiscal 2025.' (Matteo Tarditi)
- 'We created a Value Delivery Office to project-manage key initiatives and ensure progress is maintained through lean management.' (Sandy Douglas)
Outlook and financial objectives
- 'We expect revenue to be roughly flat over the next three years as organic growth offsets the revenue impact of network optimization; margin expansion driven by faster growth in natural and by efficiency initiatives and higher-margin services.' (Sandy Douglas)
- 'Average annual adjusted EBITDA growth in the next three years to be in the high single-digit range; adjusted EPS growth to outpace EBITDA; net leverage to 2.5x or less by FY2027; free cash flow well over 0.5% of net sales.' (Sandy Douglas and Matteo Tarditi)
- 'For fiscal 2025, we guide sales of $30.3B to $30.8B, adjusted EBITDA of $520M to $580M, and adjusted EPS of $0.20 to $0.80; capex about $300M; free cash flow around $100M.' (Matteo Tarditi)
Our revamped commercial go-to-market program for suppliers is a new partnership model that aligns our mutual interest around growth and makes doing business together easier. We streamlined 15 to 20 unique fees into one and are now providing suppliers access to our enhanced data and insights.
— Sandy Douglas
We expect fiscal 2025 capital investments to be around $300 million, a decline of $70 million compared to fiscal 2024. This reduced intensity is being driven by a shift in spending based on asset utilization and wear and tear rather than a calendar approach.
— Matteo Tarditi
Forward Guidance
Financial targets and execution cadence:
- Revenue: approximately flat over the planned three-year horizon, with minor lift from growth in natural/organic and offset by network optimization effects.
- Adjusted EBITDA: targeted range of $520M to $580M for FY2025, representing roughly 8% midpoint growth on a comparable 52-week basis; margins expected to expand sequentially from Q1 to Q4 2025 as efficiency initiatives take hold.
- Adjusted EPS: guided $0.20 to $0.80 for FY2025; midpoint implies >3x YoY improvement at the adjusted level, aided by deleveraging and margin expansion.
- Capex: about $300M in FY2025 (vs. $370M in FY2024), focused on automation, safety, cloud implementations, and the Sarasota DC completion.
- Free cash flow: around $100M in FY2025, about $200M higher year over year, to be directed toward debt repayment and leverage reduction.
- Leverage and capital return: target net debt/EBITDA of 2.5x or less by FY2027; ongoing asset optimization, potential asset sales, and disciplined working capital management to sustain deleveraging.
- Key risk factors: macro consumer demand softness, promotional intensity cycle, execution risk of DC closures and asset dispositions, and potential volatility in supplier promotions and inflation/remittance dynamics.
- Key monitorables for investors: volume trajectory in natural/organic vs. conventional, progress of DC network optimization (closures/opens, capacity realization), GM/SG&A cadence, and free cash flow generation pace.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
UNFI Focus
13.68%
0.02%
-2.25%
-5.79%
CHEF
24.30%
4.49%
4.45%
19.35%
AVO
15.70%
8.07%
3.00%
12.29%
ANDE
6.82%
2.11%
3.30%
7.67%
PFGC
11.50%
1.85%
4.03%
15.32%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Bullish on the credibility of UNFI’s three-year plan to stabilize revenue, expand margins and deleverage, anchored by the natural/organic growth tail, margin-enhancing shrink initiatives, and a scalable digital services platform. The company has laid out a tangible path to mid/high-single-digit EBITDA growth and roughly flat revenue, with free cash flow turning positive in 2025 and leverage trending toward 2.5x by 2027. Valuation remains challenged by negative GAAP earnings and a subdued earnings multiple (negative P/E historically), but the strategic emphasis on higher-margin categories, DC optimization, and scalable services improves the quality of earnings over time. Key catalysts include successful execution of DC closures/openings, acceleration of margin uplift from shrink and mix, growth of professional/digital services, and the monetization of UMN/retail media. Investors should monitor: (1) volume trajectory in natural/organic segments vs. conventional, (2) cadence of EBITDA margin expansion and FCF generation, (3) progress on leverage reduction and debt repayment, and (4) uptake and profitability of services and digital platforms.
Key Investment Factors
Growth Potential
High-single-digit adjusted EBITDA growth trajectory over the next three years driven by: (a) stronger mix and growth in higher-margin natural/organic categories; (b) margin uplift from shrink and network efficiency; (c) expansion of digital and professional services (UMN, supplier go-to-market, analytics). Management targets EBITDA CAGR in the high single digits with EPS outpacing EBITDA growth as leverage declines and FCF improves.
Profitability Risk
Execution risk associated with aggressive network optimization (DC closures/asset sales) and potential disruption to service levels; ongoing consumer price sensitivity and promotional variability; reliance on large customer relationships and supplier partnerships; execution risk in scaling new services (retail media, UMN) and potential competition in the wholesale/distributor space; leverage remains elevated (~4.0x) despite progress in 2024.
Financial Position
Solid liquidity headroom is limited by a high debt load; current ratio ~1.44 with negative GAAP profitability in 4Q24, but cash flow generation and planned deleveraging to 2.5x by 2027 offer a credible path to improved credit metrics. Capex discipline and working capital optimization are central to the 2025 plan; long-term FCF target >0.5% of sales.
SWOT Analysis
Strengths
Scale in a stable, large addressable market (~$90B wholesale segment) with entrenched natural/organic heritage
Diversified value-added services (digital, analytics, professional services) with higher margins
Strong retail network reach (~30,000 customer locations) and supplier base including major CPGs
Lean transformation progress and disciplined cost control (SG&A reductions, labor headcount reductions, lean initiatives)
Weaknesses
Near-term profitability and cash generation constrained by high debt load and macro headwinds
Low current profitability (Q4 GAAP net loss, negative EPS), and interest expense burden
Execution risk of large-scale network optimization and asset dispositions
Reliance on working capital programs that historically supported liquidity but may be de-emphasized over time
Opportunities
Natural/organic/ specialty growth to expand margin and drive share in the resilient $90B market
Expansion of UMN and other digital/pro services to improve margin and stickiness
Further DC consolidation and asset monetization could unlock cash for deleveraging
Retail media and data insights monetization could become a growing high-margin revenue stream
Threats
Consumer price sensitivity and promotional intensity cycles impacting top-line growth
Inflation volatility or renewed inflation pressure impacting labor costs and operating leverage
Competitive press from other large distributors and foodservice players
Regulatory, supply chain disruptions and supplier/retailer mix risk