UNFI FY 4Q16 Earnings Call Notes

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United Natural Foods’ (UNFI) CEO Steven Spinner on Q4 2016 Results

Still challenging food retail environment in fiscal 2017

“Before I turn the call over to Mike to discuss the financials, I just want to comment on some of the headlines in recent weeks. Some of our publically traded food retailers have recently commented that they are experiencing slower same-store sales trends and ongoing pressure from food deflation. We believe our guidance for fiscal 2017 incorporates a still challenging and difficult food retail environment as well as little to no inflation. However, as always, we are intently watching and listening to our customers.”

A deflationary environment works against us

” as a distributor, that’s primarily cost plus. The math works against us, when we don’t have 3% inflation, right? So, 3% inflation we passed it through, and the math works in our favor because we’re using percentages. So, we’re delivering the same case, we can have a little bit more margin, where we have no inflation, it’s a little harder. We still have to ship the same case and it still costs us the same, we’re just generating less margin. If I may also that, when we’re in periods of high product cost inflation, our opportunity from a buy side, from a purchasing side, from an inventory optimization side improves and so we have incremental gross margin gains as a result of forward buying against those product cost increases.”

It’s hyper competitive at the shelf

” I think kind of we’re all seeing the same thing. It’s hyper competitive at the shelf, I think from what we read is the same thing you read, the retailers are feeling the same pinch on – in terms of their margin structure, certainly some of the retailers are talking about reduction in basket size and obviously that same kind of pressure ultimately finds our way to us. So, the one side of it is, misery loves company, the other side of it is, the tide has to arrive at some point. ”

Still considerable demand for organic products but many many more outlets

“There’s still considerable demand for the products across center store and [ph] Brenner, it’s just being dispersed over a much wider approach. So, there’s many, many, many, many more outlets by the same product.”

Sean Griffin

Shoot for 85% capacity utilization

So, what we’re looking for, from a utilization perspective out of our network that we believe is optimum is in the range of approximately 85% capacity. It’s our best perspective around productivity and service, as well as giving us some flex around new customer wins. So, today with the addition of Gilroy, our capacity is in the mid-70s. So, you can kind of do the modeling between mid-70s to 85% based upon FY 2017’s revenue guidance to sort of come up with our opportunity to add business without doing any further expansions.