United Natural Foods Surges on Whole Foods Extended Partnership

Key Points

• United Natural Foods is a wholesale distributor of natural, organic, and specialty foods with over 60 distribution centers.
• Its turn-key private label program offers over 5,000 products across 200 categories.
• United Natural Foods extended its partnership as the primary distributor with Whole Foods Market for another 8 years, expiring in May 2032.

United Natural Foods Inc. NYSE: UNFI is a leading wholesale distributor of organic, natural, and specialty foods and grocery products in the United States and Canada. The company has an extensive network of over 60 distribution centers in North America. The company inked an 8-year extension with Amazon.com Inc. NASDAQ: AMZN, which owned Whole Foods Market stores. The deal extends the distribution partnership for United Natural Foods to be the primary distributor to Whole Foods Market to run until May 2032 versus the prior date of September 2027. Shares spiked 10% on the news.

The consumer staples sector giant competes with other food distributors like Sysco Co. NYSE: SYY, Chef’s Warehouse Inc. (NASDAQ: CHEF), and US Foods Holding Co. NYSE: USFD.

Private Label and Brands Business

United Natural Foods has a comprehensive private label program with over 5,000 products across 200 store categories. Retail grocers can add their brand names to the private label products as United Natural offers turn-key opportunities. They also carry a line of private-label products that may seem familiar to you. Some of these brands include Essential Everyday, Woodstock, Wild Harvest, Culinary Circle, and Stone Ride Creamery ice cream products.

They also sell low-carbohydrate products like Tumaro’s Carb Wise Wraps and Equaline over-the-counter (OTC) health and beauty items. The company offers services to streamline grocers' operations, such as shelf management and data analytics, to improve efficiencies and sales.

Daily Cup Pattern for UNFI Stock  

United Natural Foods displays a daily cup pattern. The cup pattern commenced the cup lip line at $12.41 on March 21, 2024. UNFI shares fell to a swing low of $8.58, triggering a market structure low (MSL) breakout through $9.03. This is a bottoming and reversal signal. UNFI climbed back up to $11.58 by May 21, 2024. The AMZN wholesale distribution partnership extension announcement triggered a 10% gap the following day to peak it at the cup lip line. The pullbacks might start to form a handle if another MSL triggers. An MSL is comprised of a low candle, a lower low candle and a higher low candle. The daily relative strength index (RSI) peaked and fell just below the 70-band. Pullback support levels are at $11.28, $10.27, $9.51 and $9.03.

United Natural Foods: Expecting a Return to the Red

On March 6, 2024, United Natural Foods reported its fiscal Q2 2024 EPS of 7 cents, beating analyst expectations by 9 cents. Net loss was $15 million or 25 cents per diluted share. Adjusted EBITDA fell 29.3% YoY to $128 million. Revenues fell 0.5% YoY to $7.78 billion missing $7.87 billion consensus estimates.

United Natural Foods narrowed its guidance for the fiscal full year 2024 to account for reduced net sales expectations but maintained midpoints. It narrowed the range for net income, adjusted EPS and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Optimizing UNFI's Network and Distribution Centers

United Natural Foods continues to drive operational efficiency and execution through network automation and optimization. The Centralia, Washington, automation system will go live in the spring. Its Manchester, Pennsylvania, distribution center will be automated. The northeast distribution center optimization is expected to be completed in fiscal 2025.

CEO Insights

United Natural Foods CEO Sandy Douglas underscored the company’s goal of building $150 million in annualized operational efficiencies to simplify organizational structure and remediate shrinkage. Douglas remarked that its fiscal Q2 2024 results exceeded company expectations, reflecting a sequential improvement in adjusted EBITDA. While inflation is receding, consumers are continuing to buy less and shifting some purchases away from traditional grocery channels.

Net sales declined 0.5%, driven by a drop in units sold partially offset by inflation and new business with existing customers from growth in its Supernatural channel. Adjusted EBITDA declined 29.3%, driven by lower inflation, leading to a drop in gross profits partially offset by cost-saving initiatives.

Douglas concluded, “Importantly, while the external environment remains challenging, it continues to gradually become less volatile, which provides us a clearer look at the long-term trajectory of our industry and our business, and this provides a productive backdrop for our management and board-led finance review that we announced on our fourth quarter call, which remains ongoing."

United Natural Foods analyst ratings and price targets are on MarketBeat.