I don’t care how many pairs of rose-colored glasses that UNFI CEO Sandy Douglas owns. While the former Coca-Cola and Staples executive continues to preach about the progress his company is making, the numbers tell a different story.
“Our second quarter results reflect our continued focus and progress on execution and profitability improvement through the important holiday selling season. Greater than anticipated benefits from our near-term value creation initiatives and further advances in managing shrink partially offset the expected reduction in procurement gains and start-up costs associated with a new distribution center,” he said.
“We are making steady progress on the multiple work-streams underlying both our near-term and longer-term transformation into a more efficient and effective partner to our customers, while we also enhance profitability and long-term shareholder value creation.”
From that statement you might think that the Providence, RI based wholesaler/retailer was on a roll with continued increasing profits and revenue.
“Our second quarter results reflect our continued focus and progress on execution and profitability improvement through the important holiday selling season. Greater than anticipated benefits from our near-term value creation initiatives and further advances in managing shrink partially offset the expected reduction in procurement gains and start-up costs associated with a new distribution center,” said Douglas. “We are making steady progress on the multiple work-streams underlying both our near-term and longer-term transformation into a more efficient and effective partner to our customers, while we also enhance profitability and long-term shareholder value creation.”
However, my reading of UNFI’s numbers indicates something completely different. Let’s start with some fundamental metrics: net sales declined by 0.5 percent; net operating loss was $15 million (you could say that was an improvement from Q1’s loss of $39 million); adjusted EBITDA decreased 29.3 percent; free cash flow was $116 million compared to $448 million in the second quarter of fiscal 2023; and total outstanding debt, net of cash, was $2.16 billion at the end of the second quarter of fiscal 2024, reflecting a decrease of $124 million compared to the end of the first quarter of fiscal 2024.
After the financial announcement, UNFI narrowed the range of its projected loss from negative $46 million-negative $120 million to now fall into the negative $65 million-negative $101 million range. When Douglas was named chief executive on July 28, 2021, UNFI’s stock price was $32.96 per share; as of March 13, the company’s shares were trading at $11.55.
Additionally, UNFI named Giorgio “Matteo” Tarditi president and chief financial officer, effective April 15. As president, he replaces the way overrated Chris Testa (a disciple of former CEO Steve “The Spinmeister” Spinner) who left in October. As CFO, Tarditi will succeed the very competent John Howard, who will leave UNFI following a transition period.
Tarditi, who spent 26 years at GE, may prove to be a very able leader, but Douglas continues to not prioritize the main ingredient that missing in his formula: declining credibility with its independent retailers.
While re-engineering UNFI to become more tech oriented and internally efficient are notable goals, nothing is more important than building trust and confidence with the largest part of UNFI’s business – its independent customers.
Over the past year, according to no fewer than six Mid-Atlantic independents (and regional chains), the loss of several UNFI account counselors (some dating back to the Richfood days), its inability to remain wholesale-price competitive, and the marketing and execution of its private label program (despite the very good quality of its products) has left some key independent merchants frustrated.
Continued poor financial results only make the task of turning the company around more difficult. Of more near-term concern to UNFI should be that several customers are facing contract expirations over the next 12-18 months and have told me that they are strongly considering switching wholesalers.
“Honestly, it’s worse than the Craig Herkert era,” said one medium-sized independent recalling the former Supervalu chief executive from 2009-2012 (UNFI acquired Supervalu in 2018). “As bad as the leadership at the top was back then, at least we had competent and knowledgeable counselors to work with us and a go-to-market strategy that we could work with. As a customer since 1995, even in the dark days, I never felt that the company was run from the c-suite – there was always an attempt at a hands-on approach. That’s not the case now. Frankly, from a competitive landscape perspective, the business has changed significantly from the pre-COVID days and UNFI hasn’t adjusted quickly enough. Replacing (former Supervalu CEO) Mark Gross with Steve Spinner proved damaging, and while Douglas claims he’s working hard to improve things, we are not seeing tangible results as it impacts us. And that’s also reflected in UNFI’s financial performance.”
Walmart Undaunted By Economic Headwinds; E-Commerce Sales Surpass $100 Billion Mark
While many other retailers are struggling to maintain the same comparable store sales levels and earnings of a year earlier, Walmart continues to be a standout among those merchants that sell food.
That continued success was illustrated by very healthy Q4 2024 sales and profits for the world’s largest retailer. Virtually every metric was strong including a 4 percent comp store gain at its more than 5,000 U.S units (including Sam’s Club and Neighborhood Markets). Total U.S. sales grew by 3.4 percent and Q4 earnings in the U.S. increased 12.9 percent to $6.1 billion for the period ended January 31. Other overall highlights included surpassing the $100 billion mark in global ecommerce sales and a 22 percent sales gain at Walmart Connect, the company’s advertising business.
For its full fiscal year, Walmart’s revenue reached a record high of $648.1 billion, and its adjusted operating income was 10.2 percent, a faster growth rate than sales. Walmart said that it currently has $9.9 billion in cash and equivalents on hand.
“Our team delivered a great quarter, finishing off a strong year,” said CEO Doug McMillon. “We crossed $100 billion in e-commerce sales and drove share gains as our customer metrics improved, even during our highest volume days leading up to the holidays. We’re proud of the team and excited about building on our momentum as we work to bring prices down for our customers and members.”
Prior to its Q4 and year-end financial release, Walmart announced that it was returning to its fundamental brick-and-mortar roots as an additional growth opportunity. It said that over the next five years, it will add 150 new stores to its fold, the first significant store expansion plan since 2017 when it shifted most of its cap-ex into digital enhancement. Earlier in 2024, the retailer said it would also remodel 650 existing stores over the next few years.
It’s been a busy two months for the company which also announced that it would acquire TV manufacturer Vizio Holding Corp. for $2.3 billion. The Irvine, CA-based firm also owns the SmartCast operating platform which currently has 18 million active accounts with a growth rate of 400 percent since 2018. Walmart believes the acquisition aligns well with the company’s goals including an opportunity to grow its retail media business – Walmart Connect.
‘Round The Trade
Publix recently released its fourth quarter 2023 financials (ended December 30) and, despite still strong profits, the Lakeland, FL-based ESOP is being impacted by the economic realities that most other merchants are now facing. Overall sales were up 2.8 percent (adjusted for an additional week as was the case in 2022), while comp store revenue increased 0.4 percent, its smallest gain in several years. And while profits remained strong at $1.2 billion in the 13-week period, those earnings represented a 7.8 percent decrease from Q4 in’22.
Kroger posted solid Q4 numbers but faced the same headwinds as other traditional supermarket chains. While earnings increased from $1.01 billion to $1.19 billion, ID revenue decreased 0.8 percent (ex-fuel). For its entire fiscal 2023, Kroger’s sales were $150 billion.
The story at Target, sales-wise, continues to be mediocre. Its Q4 comps declined by 4.4 percent, the third consecutive quarter of identical store (including the busy holiday period) decreases. And the Minneapolis-based mass merchant is predicting that comp store revenue will dip between 3-5 percent in Q1 which will end in a few weeks. Tar-jay will also enter the membership program ranks with the formation of “Target Circle 360” which offers paid members free same-day deliveries on orders of more than $35, free two-day shipping and other merchandise discounts.
My question to CEO Brian Cornell and members of his leadership team: what took you so long to get in the game? And if you want to compare the hurdles that Target faces in catching up to its major competitors in the membership game, consider the revenues reaped by some of them, which include Walmart and Sam’s which took in $2.6 billion in fees in 2023; Costco, where membership fees garnered were $4.6 billion last year; and Amazon which amassed $40.2 billion in membership revenue in 2023. Those fees are essentially house money for those retailers that gain tremendous free cash access without even selling a single case.
Local Notes
Marc Lore and Walmart again? The former jet.com (acquired by Walmart in 2016 for $3.3 billion) and diapers.com (acquired by Amazon in 2010 for $545 million) exec is teaming up with his old buddies from Bentonville. Since leaving Walmart in 2021, Lore has funded various projects including Wonder, his vision of food halls and foodservice kitchens aimed at creating alternative dinner solutions (he also acquired meal kit firm Blue Apron last year). And in what will be Wonder’s biggest showcase yet is coming to four Walmarts in Pennsylvania and New Jersey. Actually, the first Wonder unit opened last month in Quakertown, PA and others are on tap for the Behemoth’s stores in Teterboro, NJ and Ledgewood, NJ. The location of the fourth site has not yet been announced.
Based on Lore’s track record and after reading a fascinating piece about the new venture as well as his vision and drive in the New York Times, I’m a believer – although radical concepts like his need capital (he’s got plenty of it with a reported net worth exceeding $4 billion) and the patience and resiliency to fail and try again.
The Grocery Outlet opened its newest Mid-Atlantic store in Jamison, PA (Bucks County) late last month. The 25,000 square foot discount unit is operated by Bill and Starla Lohr, first time food retailers who moved from the San Francisco area to acquire the Jamison location.
And speaking of discount retailers, Aldi said it will open 800 new stores over the next four years including about 330 new units in Northeast. The German-owned merchant also announced that it has completed its acquisition of Southeastern Grocers (more than 400 stores). Some (but not all) of those former Winn-Dixie and Harvey’s bannered units will be converted to Aldis beginning later this year with about 50 units. As much as I’m impressed with the continuing progress made by Walmart and Costco in these challenging times, I can’t forget about Aldi, which is figuratively “killing it.”
We have a few obituaries to report this month, including two from the food industry. Our sympathies go out to the Marrazzo family on the passing of Sam Marrazzo,76, a legend in the Trenton area for many years. Starting with a produce market in Trenton owned by Sam’s father, Don, the Marrazzos have been a fixture in and around the state capital region for nearly 70 years. And Sam would become the face of the business, which now consists of a single 36,000 square foot store in Ewing, NJ. He knew many of his customers by their first names; he understood that as an independent retailer in a highly competitive market he needed to differentiate (with a strong perishables program and outstanding customer service) and that he needed to give back to the community in a meaningful way. Those boxes were all checked.
I met Sam in the early 1980s and was impressed by his warmth, his great sense of humor (I can only repeat some of his jokes and stories offline) and his ability to solve problems as part of a larger group – RMG, the retail marketing group which consisted of other smaller independent retailers mostly located in the Delaware Valley. Sam Marrazzo was a leader – he led by example and by his bigger than life persona. And he will be missed by the many people he touched in the business and in the community!
Two singers (of very diverse styles) have also left us. Eric Carmen, who led the rock group The Raspberries and later went on to have a successful solo career, died earlier this month at the age of 74. Formed in Cleveland, the Raspberries burst onto the music scene in 1972 with the release of their first album powered by the number one single, “Go All the Way.” Other hits by the band were “I Wanna Be With You,” and “Let’s Pretend.” After the band broke up in 1975, Carmen launched his solo career which included writing and singing the bit hit “All By Myself” and contributing to several movie soundtracks including “Hungry Eyes” for the iconic “Dirty Dancing” in 1987. Carmen possessed an excellent rock voice, was a skilled guitar player and a notable songwriter.
Steve Lawrence is also gone. The versatile crooner and comic actor passed away earlier this month at the age of 88. Born in Brooklyn as Sidney Liebowitz, Lawrence first hit it big in 1953 when he was hired as a singer on “Steve Allen Show.” Also hired for the show was Eydie Gorme, who would later become Lawrence’s wife. Together and alone, Lawrence recorded about 65 albums during a career which spanned more than 60 years. His biggest hits included “Go Away Little Girl” (1965) written by Carole King and Gerry Goffin and “I’ve Gotta Be Me” (1967 – a year before the Sammy Davis Jr. recording).
He also starred in the original Broadway version of “What Makes Sammy Run?” in 1964 and he appeared in 39 TV and film roles, perhaps most memorably as Maury Sline, the semi-sleazy manager of Jake and Elwood Blues in the original “Blues Bothers” movie in 1980. With his mellow baritone voice, Lawrence’s music catalogue heavily favored American Songbook tunes and soft pop numbers, but he did delve into the rock world at least one time with his unique take on the Soundgarden hit, “Black Hole Sun” which could be found on a strange 1997 compilation album, “Lounge-A-Palooza.”