Good morning, everyone. Thank you for joining us on UNFI's fourth-quarter fiscal 2021 earnings conference call.

By now, you should have received a copy of the earnings release issued this morning. The press release webcast, and a supplemental slide deck are available under the Investor section of the Company's website at www.unfi.com under the Events tab.

Joining me for today's call are Sandy Douglas, our Chief Executive Officer, John Howard, our Chief Financial Officer, Chris Testa, President of UNFI, and Eric Dorne, our Chief Operating Officer. Sandy, Chris and John will provide a business update, after which we'll take your questions.

Before we begin, I'd like to remind everyone that comments made by management during today's call may contain forward-looking statements. These forward-looking statements include plans, expectations, estimates, and projections that might involve significant risks and uncertainties.

These risks are discussed in the Company's earnings release and SEC filings. Actual results may differ materially from the results discussed in these forward-looking statements.

And lastly, I'd like to point out that during today's call, management will refer to certain non-GAAP financial measures, definitions and reconciliations to the most comparable GAAP financial measures are included in our press release. I will now turn the call over to Sandy.

Thank you, Steve, and good morning everyone. And thank you for joining us on our Fiscal 2021 Fourth Quarter Earnings Call.

Let me begin by saying how happy I am to join UNFI and how excited I am to be back in the food business. Over my career, I've had the opportunity to meet and work with many of our customers and I look forward to renewing and carrying forward those relationships.

I also look forward to meeting customers that I've not met and learning how UNFI can help make all of them even more successful. I've been on the job for about 7 seven weeks now and has spent the majority of my time meeting with customers, our senior team, and with associates across the organization.

Focusing on growth opportunities for customers and how we can all work together to capture these opportunities in a very complex operating environment. Several things have become apparent to me about this Company.

First, I've been impressed with the leadership team, both on an individual level as well as how they work together collectively to solve problems, serve our customers and our associates, and move the business forward. They've brought me up to speed and given me the support I've needed to successfully onboard during these interesting times.

They also embodied the values and culture that were a key part of what attracted me to UNFI. Second, my early take is that there are significant opportunities to improve the way we serve existing and new customers, and the opportunity to partner with suppliers to bring customers the highest quality differentiated products and services that they want and need.

Importantly, as the COVID pandemic lingers, our operating environment remains challenging. From our suppliers to UNFI, to our customers, we are all facing challenges making, moving and delivering products through our interdependent supply chains.

My focus will continue to be learning the full extent of this business, and assisting our team as we manage through the challenges and execute our plans for the benefit of our incredible community of customers. In doing so, I'm confident that we will continue to find ways to help our customers create value, which will benefit all of our stakeholders.

The final point I'd make is, despite the challenges that we're managing, we have momentum in our business, and it is accelerating. And I believe our plans for the new fiscal year will carry that momentum forward.

Under the leadership of my predecessor Steve Spinner and our senior team, we delivered a solid Fiscal 2021, and we expect this new fiscal year to be even better. We start Fiscal 22 with less debt and an improved leverage ratio, and plans for further growth driven by a sincere focus on doing everything we can do to serve our customers.

John will go over the details of our Fiscal 22 outlook shortly, and I'm genuinely excited for the year to come. Let me now turn the call over to our President, Chris Testa for his comments on our performance.

Chris.

Thanks, Sandy. And good morning, everyone.

On today's call, I'll provide color on our fourth-quarter performance and commentary on how these results and our Fuel the Future strategy will help drive growth for UNFI moving forward. We're pleased with our results this quarter and for fiscal 2021 in total.

Sales for the full year came in about where we expected while adjusted EBITDA and adjusted EPS were both above our previous outlook. We believe our fourth-quarter results reflect the work underway as we begin to implement our Fuel the Future strategy.

Focusing on the fourth quarter, sales totaled slightly more than $6.7 billion. This was down slightly from last year's fourth quarter, as we are now cycling the months in calendar 2020, with the elevated levels of early COVID-19 consumer demand.

Anticipated sales decline in our retail, independent and chain channels, which are the largest a year ago, were partially offset by growth in the supernatural and other channels. On a sequential basis, our business is growing as sales in the fourth quarter increased about 1.6% from the third quarter.

Part of this, about 80 of the 160 basis point increase was the result of accelerating inflation within our business, which increased to approximately 2.4% in the fourth quarter. The remaining 80 basis points was the result of the underlying strength of our customers' retail business and our committed success with cross-selling, and the addition of new customers.

A meaningful portion of sequential increase came from our top 100 customers, where sales increased 2.2% from Q3 to Q4. The fourth quarter also included an incremental $80 million in cross-selling revenue.

As customers continue to benefit from UNFI's unmatched product variety, and the value only we can ask from consolidating purchases. In fiscal '21, over $700 million of our total revenue came from cross-selling that was made possible by the merger of our conventional and natural businesses.

Selling more to existing customers represents a $38 billion addressable opportunity, and we believe is UNFI's unique advantage. With over 18,000 unique customers representing over 30,000 locations, UNFI has significant growth potential with customers we already service.

New customers will also play an important role for our future growth, and our sales pipeline includes hundreds of opportunities to help us grow share within the $140 billion adjustable market opportunity, we the discussed. Let's turn to the growth platforms we spoke to at our Investor Day under our the future pillar, mainly own brands, professional services, and fresh.

Starting with our own brands business, our three-pronged strategy for growth is built around increasing penetration with our existing customers, bringing owned brands to new customers and channels that presently don't carry them, and introducing innovative items that meet the evolving needs of today's consumers. We're making progress across all 3 fronts as we're now selling our own brands' products to a nearly an additional 500 stores that were onboarded during Fiscal 21.

And we realized significant top-line growth on key brands like Woodstock, Tomorrow's and Field Day. We've also introduced about 100 new items to our portfolio products this year, and plan to introduce another 150 in Fiscal 22, including more plant-based and functional ingredient skews.

This combination of larger customer base and relevant new product offerings is expected to be part of our growth in Fiscal 2022. Professional services remains another key differentiator for UNFI.

In fiscal 2021, our services business grew 12% and we're looking for our fiscal 2022 to be another year of double-digit growth. Our optimism is based on customer feedback that our portfolio of services adds value to their businesses.

And a robust pipeline of opportunities that our sales organization is actively pursuing. In fiscal 2021, we introduced 17 new services, and we expect to launch similar number this coming year driven by current industry trends, as well as feedback from customers and what problems we can help them solve.

Two noteworthy services coming this year include an advanced retail pricing platform that will allow customers to manage gross margins across the entire store in more sophisticated ways than were previously available from any wholesaler. And an offering net tracks scanned data against product code dates, and provide the store real-time information on unsold products that may be going past their code dates and allows them to better manage inventory and reduce shrink.

Finally is Fresh, where we continue to invest in people, infrastructure, and technology to strengthen our foundation and the platform for future growth as consumer demand continues to be strong for products sold around the perimeter of the store. A bullish outlook includes growing produce sales at a rate several 100 basis points above total Company growth rate.

In addition to improving our infrastructure across the network, we've staffed many of our facilities with produce specialists that have a strong working knowledge of this category, which gives us further confidence in our ability to better support our customers and accelerate growth. We've also restructured our sourcing team to take full advantage of UNFI's purchasing scale.

Deeper relationships with growers are expected to improve our supply consistency to days out of the supply chain and ultimately improve product quality across the network and help drive sales. Finally, our bakery daily category experienced double-digit growth in the fourth quarter.

Consumer demand has increased since the height of the pandemic and UNFI is uniquely positioned with a broad portfolio of specialty items, including a majority of the SKUs we sell through our Tony's Fine Foods portfolio. Turning now to operations.

Our fulfillment network is facing the same labor shortages, supply shortages, and ongoing pandemic challenges being felt throughout the U.S. supply chain.

We continue to take innovative and meaningful steps to mitigate each of these headwinds, allowing us to provide the best possible service to our customers. Starting with labor.

We have and will continue to modify distribution center associate wage groups as necessary to maintain competitive compensation programs. We're also taking steps beyond wage increases to focus on the work-life experience of our associates, including the implementation of new incentives, daily pay, enhanced health benefits, and flextime programs.

These wage and lifestyle programs are part of our ongoing efforts to attract and retain talent. We have also refocused our entire organization on the recruiting and onboarding and training of new associates in our DCs, so we're prepared for the upcoming holiday season and future growth.

Suppliers face many of the same challenges we see in our network. And the retailer community is growing fatigue with a limited assortments and increasing out-of-stocks across several key categories.

These supply challenges caused our inbound supplier service levels to begin to deteriorate in the fourth quarter. To offset these challenges, we continue to proactively meet with our vendor partners to get our deserved share of supply and get in front of the upcoming holiday demand so we can provide the best possible experience for our customers.

Safety and the well-being of our associates is our top priority. As a result, we did voluntarily and temporarily suspend full operations at our Centralia, Washington distribution center in the first week of August due to an increase of COVID-19 cases at that facility.

During the shutdown, we continue to service our customers to the greatest extent possible, despite increase costs, by leveraging contingency plans to meet essential customer needs and through moderating shipments, and shifting the volume to other distribution centers. While we do expect this voluntary temporary shutdown to be a headwind to our Fiscal 2022 first-quarter financial results, the impact is incorporated into the full-year financial guidance that John will review with you shortly.

We continue to maintain our strong COVID safety protocols that are in line or greater than CDC guidance, including mandatory mask-wearing, enhanced sanitation protocols, onsite vaccine clinics, and strict social distancing enforcement throughout our entire fulfillment network. Now turning to retail, our banners had another solid quarter.

The 6% decline in sales was largely the result of cycling last year's 21% year-over-year increase. Putting the 2-year SPAC at 15.2%, which is in line or ahead of many food retailers.

As you heard during our Investor Day, we are investing in our retail business to enhance the shopping experience for our consumers through efforts like an enhanced e-commerce platform, expanded delivery offerings, and improved data analytics and merchandising concepts. We're striving to make our stores more appealing and easier to shop.

Finally, we're proud to have been recently awarded a Progressive Grocer Impact Award in the category of sustainability in resource conservation. This award recognizes our ambitious goals and progress under the Better For All platform, and is a great reflection of the strategic direction and outstanding efforts of our people.

We will be releasing our next ESG report in early 2022. And we're excited to share all the great work being done at UNFI to make our world, our communities and our people better.

Let me now turn the call over to John.

Thank you Chris, and good morning, everyone. On today's call, I will cover our fourth-quarter financial performance, balance sheet, capital structure, and outlook for next year, our Fiscal 2022.

As Sandy and Chris both said, we're very pleased with our operating performance this quarter and the finish we had to Fiscal 2021. Sales for the fourth quarter totaled $6.7 billion, slightly below last year given the prior comparisons Chris mentioned, while adjusted EBITDA of $201 million and adjusted EPS of a $1.18 per share were both higher than last year, and contribute to our finishing above our Fiscal 21 full-year outlook.

Fourth-quarter gross margin rate increased 7 basis points compared to last year's fourth quarter, driven by the benefits from our value path initiatives, partially offset by a higher year-over-year LIFO charge. Gross margin rate in our retail business was approximately flat to last year.

Fourth-quarter operating expense rate increased slightly compared to last year's fourth quarter, driven by higher employee-related costs, as well as $9 million in start-up costs, related to Alan down that I mentioned on our last call. These 2 items were partially offset by lower levels of pandemic-related costs and incentive compensation expense, as well as the benefits from value path on our ongoing operating expense.

We're pleased with the fourth quarter's adjusted EBITDA rate of 3% of net sales for the second-highest quarterly rate during the last 3 years. We also experienced leverage in our P&L for Fiscal 2021 as we increased adjusted EBITDA by nearly 11% on a 1.5% sales increase.

Our GAAP earnings per share totaled $0.69, which included $0.49 in net after-tax charges. Our adjusted EPS for the fourth quarter totaled a $1.18 per share, further demonstrating our P&L leverage.

As you know, UNFI contributes to various multi-employer pension plans across our wholesale and retail operations. Across these plans, we look for opportunities to maintain benefits for our associates, while also reducing risks around retirement benefit obligations.

During the fourth quarter, we elected to withdraw from 3 multi-employer retail pension plans, covering certain associates in our club banner. These defined benefit plans have been replaced with defined contribution plans going forward.

This action resulted in a $63 million pension withdrawal charge in the fourth quarter, which is recorded in the operating expense line of our P&L. To satisfy our withdrawal liability, we'll make cumulative annual after-tax cash payments of $3 million, which will have a nominal impact on our annual free cash flow.

Across our multi-employer pension plans, we will continue to look for opportunities to maintain benefits for our associates, while also reducing risks around future retirement benefit obligations. We may have another transaction before the end of the calendar year, and we will consider additional transactions that further decouple our retail operations from its remaining net plans.

Turning to the balance sheet. We have $9 billion, and total liquidity of over $1.3 billion.

A combination of cash provided by operations and asset sale proceeds led to a $317 million reduction in our net debt level compared to the end of Fiscal 2020, and a nearly $1.1 billion reduction since the SUPERVALU acquisition. Our lower net debt balance in Q4 operating performance drove our leverage down to 3.1 times, an improvement from 3.9 times leverage at the end of Fiscal 2020.

And these figures include a $310 million capital investment back into our business, including nearly $80 million towards the Allentown distribution center, as well as additional investments across the business to enable growth, deliver automation, maintain our physical assets and help us deliver synergies and cost savings, all with the goal of better serving our customers. Let's turn to our outlook for fiscal 2022.

Today's operating backdrop continues to evolve and change quickly, so our guidance for fiscal 2022 reflects our current expectations. Starting with net sales, we expect fiscal 2022's full-year net sales to be in the range of 27.8 to $28.3 billion, which represents more than a $1 billion increase over fiscal 2021, or about 4% at the midpoint.

Net new business, including the phase on-boarding of new business in the Northeast, and with our largest customer, as well as continued cross-selling and new customer wins are expected to contribute 4% to 5% of growth. We're also percentage points.

I expected modest contraction in overall industry growth. We're expecting adjusted EBITDA for Fiscal 2022 to be in the range of $760 million to $790 million, also about a 4% increase at the midpoint.

From a puts-and-takes perspective, Fiscal 2022 will benefit from the higher level of sales and the continued benefits from our Value Path initiative, net of dollars reinvested in the business. Temporary year-over-year headwinds, including Fiscal 2021 as associates are assumed to make more frequent business to the healthcare providers.

The ending of our transition services agreement will save a lot and added rent expense from the strategic value-maximizing sale-leaseback at our Riverside California distribution center, where we've exercised an option to monetize that asset. These costs as we transition from Fiscal '21 to Fiscal '22 are all included in our outlook and at this point, we don't foresee items of a similar magnitude or '24.

Adjusted EPS is expected to be in the range of $3.90 to $4.20 per share, an increase of about 4% at for an increase in adjusted EBITDA tax rate of approximately 26%. It also includes lower net non-cash pension income based on the improved funded retirement plans, which are now slightly overfunded on a net basis compared to last year's $294 million net underfunded position.

This favorable change in the funded status has allowed us to further de-risk these liabilities by migrating to a more conservative asset allocation, which in turn leads to lower assumed return on assets. The year-over-year decrease in non-cash earnings per share.

Given the cadence of onboarding new business, and the timing of the temporary voluntary should the growth to be weighted to the back half after Fiscal 2022. The timing and impact of these items for the current fiscal year to deliver the sales, adjusted EBITDA, and adjusted EPS targets I've outlined for you today.

We expect to reduce net $150 million in Fiscal concludes the investment we expect to make in the working capital to support our new business. The use of cash in FISCAL 2022, unlike Fiscal 2021, when we received an overall net refund, driven by provisions within the Cares Act, which required us to utilize prior-year net operating losses at a 35% rate.

Capital expenditures are expected to be approximately $300 million, which excludes the amount for the Riverside sale-leaseback transaction, which will be to be less than three times by the end of the fiscal '22 driven by higher adjusted EBITDA and further debt reduction, including applying the proceeds of our Riverside monetization to reducing debt. The fundamental growth drivers we outlined in June remain unchanged and we believe that they will be the catalyst that delivers the fiscal 2024 targets provided at Investor Day.

Except for the Centralia temporary closure, all of the fiscal '22 headwinds I spoke to were considered when we established our fiscal 2024 figures provided at Investor Day. Therefore, we can continue to feel confident in our ability to meet or exceed those targets.

Increasing value for our shareholders remains a priority and focus of UNFI. We remain confident in our ability to grow our cash flow.

Operator, we're now ready to take questions.

And good morning, everyone. Thank you for the questions.

My first question is for Sandy. Back in June, the Company gave the goals for fiscal 2024, and I guess my question is, what areas do you envision as maybe the most challenging and the heaviest lifting?

And which areas toward those goals are more of the lower-hanging fruit in your mind?

Thanks, Bill. 7 weeks in, I'm still very much on a steep learning curve, learning about all facets of the business.

And I'm learning from the senior team about the details of the strategic plan. And I have to tell you, I like what I'm seeing.

The plan is customer-focused and growth-oriented with an estimated $140 billion addressable opportunity that we talked about with existing and also potential new customers. In parallel, our customers are counting on us to do the very best job possible to meet their product service needs in a complicated environment.

So for at least the foreseeable short-term, my focus continues to be on learning about our business, listening to our customers and UNFI teammates, and accelerating the quality of our execution on behalf of our customers.

Thank you. And then maybe one has been manufacturer-led activity versus retailer-led.

And then, what do you expect that to look like going forward.

Yeah, I'm not going to speak to the retailer led because that's really for the retailers to speak about. But the manufacturer-led promotions are starting we are seeing more activity in our promotions.

The thing that is still sort of a headwind for us, Bill, is the fill rate. So those 2 things go head -- hand-in-hand.

Promotions come as the fill rate improves, and we didn't see steady improvement on our inbound supplier fill rate up until the summer. And then the summer months, it started to decline for all the macro issues that I'm sure everybody is aware of, raw material shortages, especially in bottled beverages, labor, freight, and so forth.

So, we -- from a percentage base, we're happy with what we're seeing from the promotions. But in aggregate, the fill rate is going to continue to be a headwind on the promotional activity.

Thank you. Thank you both.

Thanks and welcome, Sandy. Looking forward to working -- looking forward to working together.

The Supernatural channel obviously is growing pretty rapidly even though it's cycling. I wonder if you could give us any thoughts on what's going on there, how sustainable that is?

Hey, Scott, it's Chris. Well, yes, there's a couple of reasons for that growth.

One, it was the slower growth in the fourth quarter last year, so it's cycling that number from last year. So that's why we're seeing the bigger year-over-year growth in the fourth quarter.

And then two, as we announced earlier in Fiscal '21, we got the extension with our largest customer there, that's open the door for additional categories and growth. So we see that continuing, at least for the fiscal '22 year and hopefully beyond that.

Perfect. That's obviously good news.

And the second question is a little bit more short-term. Obviously, you got a facility closed down because of COVID, how should we -- the thing is you kind of sit back half later, but how should we specifically think about the first quarter revenues kind of cost just so we can kind of get the models right here?

Yeah. No, I appreciate that.

This is John. As you know, we generally don't provide quarterly guidance.

I think the comments that I made in the script relates to some of the headwinds we're seeing in Q1, Centralia, et cetera. I think that can help guide how you guys think about the quarter.

We look at it as a full year. We know the year is -- has various degrees of uncertainty, but we feel good about the numbers that we put out there for the full year.

And then my final one is just you guys talked about labor. Obviously, labor is a challenge.

You talked about some of the things you're doing to mitigate it. Are you worried about some other distribution centers being either short-labor or COVID, or is that really not a concern that you put into the model at this stage.

Good morning, Scott. It's Eric.

I would just start out by saying that Centralia was the first significant disruption we've had in our network since the pandemic began. And that's large because of the proactive and robust protocols we've implemented across the network by our teams.

We also are very focused on our workforce, and as Chris referenced that we've taken a lot of proactive and innovative steps to, not only address wage challenges, but also workforce availability and workforce lifestyle, so we remain very focused. We've seen some pockets of improvement

while we're also experiencing the challenges that we've described in other DCs across the network, but we're continuing to stay on it, it's our number one focus and we have the entire organization supporting our supply chain teams as we work through this.

All right, guys. Thanks for your thoughts, I appreciate it.

Thanks, guys. Great quarter, good guidance for the out-year.

I guess, first of all, I wanted to drill down a little bit on the net sales guidance for the next year. So if I'm looking kind of back of the envelope math, there's $800 million in there - ish from Key Food, which leaves about $500 million upsides.

Could you maybe break down where you see the opportunity? Is that going to come from cross-selling wins, from new account wins, new products or any granularity confront of that would be awesome?

Hey Jim, it's Chris. On the Key Food win.

That -- we won't realize the full billion dollars a year that we talked about in a fiscal year until Fiscal 23, so that will be phased in across Fiscal 22. But again, we're not going to see that full benefit in a single fiscal year until next year.

Like the rest of it, it's going to be coming from weekly wins, daily wins, of all sizes. If you think about what UNFI has to offer, there is no single competitor that we compete against, so every day we're seeing wins with Produce, we're seeing wins that are helping our customers with their captive distribution, we're seeing natural to conventional, conventional to natural.

So in that total fiscal '22 guidance, it's all of those on top of the Key Food's onboarding that we're going to have throughout the year.

Okay. Great.

And actually to build off something you mentioned that with the captive distribution. We've all heard about some of the supply chain and logistics challenges.

Does that end up benefiting you guys? If some of these captives, retailers don't have the capacity to scale up or if they get some, whether it's COVID outbreak or any issues they might have.

Do they kind of lean on you guys more to support their existing network or do you guys view that as a tailwind if some of these supply chain headwinds for the broader to keep going to move forward?

The short answer to your question is, yes. The supply chain is stressed right now and it's been stressed for 17 months.

And that level -- that environment has been an opportunity for UNFI. We're uniquely positioned because we have the full portfolio of conventional and natural.

So you think about some of those large natural retailers -- I'm sorry, conventional retailers that we were previously just selling natural. They can now come to UNFI and leverage our network to sell them conventional and take some relief on their captive distribution.

So absolutely, what we learned through the pandemic is when the supply chain stress, that typically is a tailwind for us that creates opportunities for us.

Awesome, and if I could sneak in one more quick question. You did a really impressive on the operating margin side.

Can you maybe just touch on a real quick couple of leverage you guys are pulling to keep that number where in fact is filed where it's basically flat year-over-year. I would imagine you guys move some of the shrinks benefits just compared to the big COVID quarter last still around.

So any detail on that you could provide, it would be great.

Yeah, if you look at the EBITDA margin, when we think about what's driving that, we've talked before about the Value Path initiative, which has various underlying multi-pads that we're running related to margin, SG&A, OpEx, et cetera. All of which is bringing that value that you are seeing as we can leverage the P&L.

And then as we talked about for FY '22 and the go-forward for '22. We know we've got some of those headwinds that I mentioned, particularly the -- we looked at 22 as a transition year.

We've got some health and wellness, that'll be coming back if some rent for the Marino Valley side. We're losing the stabilized CSA contractually from a contract that's been pronounced there for years.

We knew all of that was coming as we established those long-term targets. So when we think about EBITDA margin from '21 to '22, we know we've got those headwinds in '22, but we also know once we go through that transition year and get into '23 and '24, we're going to be right on track for those targets.

Great. Thanks, guys.

I'll pass it on.

Thank you. Congratulations on a good quarter, guys, and, Sandy, welcome aboard.

We're looking forward to working with you over the next, hopefully, a number of years. So welcome aboard.

The first question I have is, I believe you said that fourth-quarter inflation was 2.4%. and obviously, this is rooted first inflationary period you've had in many years.

So, maybe this question is for Chris. In your guidance, are you building in maybe a 2% plus inflation rate for this year?

And of course, then that should really help your gross margins, well then maybe John can comment on that.

Yeah, Eric. This is John, I'll start and Chris can add some color as well.

I think the way we think about '22, we're including about 1% inflation for the year. We know the situation we're in right now.

But as it relates to a full-year, we think we're going on , come back to roughly a 1% for the year. As we talked about before, broadly inflation is a little bit of a tailwind for us.

So anything above that could provide a little bit of upside but for us, the way we think about inflation internally, it's more about how we can coordinate and work with our suppliers so that we can then provide competitive pricing for our customers. And that's really our focus to support our growth initiatives.

And that's the way we view that. But as it relates to purely the numbers you're seeing in the guidance, we've got 1% for the full year in our numbers.

Okay. And then just a quick follow-up to that.

Your largest customer has been trying to increase the value of their grocery portfolio relative to other conventional for some time. Are you seeing the same rate of inflation across all the channels, or are there large disparities?

So Eric, I think you're talking about the register sales, right? The inflation and what the retailers are doing to pass them on, or not pass them on.

I don't think we're in a position really to comment on the retailer pricing strategies on that. To your point, there are many different approaches, whether to pass it on or not, but I don't think that we can comment on the strategy of our customers.

Okay. I just thought I'd try.

Thank you, Chris. And then just final follow-up on , maybe I was -- it's related to the first question that was asked on the conference call.

So do you endorse the new 2024 guidance that was put out at the Investor Day in June or are you reserving the right as you get to learn the business more over the next three or four to five months, the right to adjust those guidance numbers?

To John, the answer to that is both. I am excited about the strategic plan.

I think we have a tremendous opportunity. I haven't seen anything that would signal to me that the numbers that we put out there aren't exactly .

But as a team, we're going to always be agile, and work together to make sure that our plans make the most sense for all of our stakeholders, our shareholders, our customers, our employees, et cetera. So very supportive and certainly reserving the right to tighten the plan in a different way based on condition.

Great. Thank you, everyone.

Congrats again.

Thanks. So, guys, I want to start top-line in the environment.

So if I think about the cross-sell embedded in the guidance for '22, it seems to me it's got to be maybe half or less than half of what it was in '21. Is that fair in order of magnitude?

And then I'm curious in this environment right where there's so much uncertainty. Is it easier or harder to win new accounts or people more likely to stay with them -- where they're at for now, or they're looking to move more than they did before.

I'm curious what you're seeing on that front.

Hey, John, it's Chris. On the guidance moving forward, I think that you're looking at it the right way.

And as we think about our sales growth over the next 3 years, I think your estimate on half of it coming from existing customers is the right way to look at it. Our growth platforms like services, brands, Fresh, the majority of that is going to come from deeper customer penetration.

In addition to the daily, weekly blocking and tackling of getting more categories, fixing the mix, and just improving our share of wallet with our existing customers. That said, our growth will be balanced by new customers as well.

Key Food it's going to be a big part of that on fiscal '22, so it will be more weighted that way in the short year, but long term, I think about half is the right way to look at it. And then as far as the environment, look it's -- I've been here over 12 years.

It's still a competitive environment. And -- but what we have found as I said earlier, under these conditions in this environment of a stressed supply chain, our customers are looking for security.

When you have the distribution network that we have, when you have the buying scale and purchasing power that we have when you have the broad portfolio of products that we have, including a huge portfolio of Fresh, which is where the consumers going, to the perimeter of the store. We have proven to win a lot more than we're losing.

So it's not easy, it remains competitive. We've got to show value to our customers to get those new accounts.

But what we've seen over the last 17 months is that when the supply chain is stressed, it's typically we're the answer for a lot of customers' problems.

All right. Maybe as a follow-up then, the -- where do you guys sit today on capacity utilization or the availability in the network, right.

And I know it'll vary by DC, but are there any places that are getting stressed. And then your thoughts on if labor is going to stay elevated.

What more can you do on automation. And I know you've done the big SuperCenters with automation.

Can you bring automation on a more limited basis to more DCs or is that not financially feasible.

It's a good question. I'll take the first part and turn the automation question over to Eric.

So one thing during the pandemic is we learned that our network, you might go back to the third quarter of fiscal '20. We learned that our network can pump out more volume.

And we haven't yet hit that feeling that we saw back then, and I actually wouldn't even call it a feeling, I would call it a realization that we had in the third quarter of last year. So we know that the existing network can handle more volume.

And we're also building, right? So we just started our new DC in Allentown, Pennsylvania to service the New York metro market and we continue to invest in CapEx for building expansions and, or new buildings where needed.

So it does vary by market to your point but we have a long-term capacity plan that's embedded in the fiscal '24 guidance that we believe we can achieve those numbers with that guidance in our CapEx reinvestment.

Yeah. And, John, I would just add on to Chris ' comments that going through Centralia, we saw the network pivot very quickly during that disruption to service our customers on the West Coast.

Further demonstrating our capacity as well as some of the strategic investments, where Texas is getting an expansion.

We're investing heavily in our Carlile, PA automated building, which should hopefully come online during summer next year. And just a reminder, we did have full-scale automation for our RePax offering in Riverside, California as well as Richfield, Washington that is months in operation now and yielding terrific benefits both from productivity, quality, and labor standpoint.

So, it's not important to add that.

Thank you.

Hi. Good morning.

This is Kelly Bania. Also just wanted to add my welcome to you, Sandy, look forward to working with you.

Thank you.

Also, just outlook for Fiscal 22. I think in your slides here, you have an estimated market contraction of about 1% to 2% and was just help us understand your thought process there.

I'm assuming that's the volume related, but just the thought process and what you see -- how you see that impacting retail versus wholesale.

Well, the numbers we're providing, obviously wholesale, but it is consumer-driven Kelly, with that is the cycling of COVID and the consumer trends that we're seeing is the shift between away-from-home spending and in-home spending. And we are seeing tremendous moderation as we get out of the pantry loading and the COVID spikes, but we do think there's going to continue to be moderation throughout the year.

Okay. that's helpful.

And then, I guess this is just another question on wages and benefits. And can you just help quantify to what extent you are investing on a year-over-year basis?

Just what headwind is as to the guidance in terms of wages and benefits and overtime and so forth.

Hey, Kelly, this is John. We won't get into specifics on that but what I can tell you is given the challenges that we all know about happening to market, we've made what we consider to be reasonable assumptions in that guidance for the year, for what those costs will be for us in '22 compared to '21, and that's embedded in those numbers.

But beyond that, as far as providing specifics with that, we generally won't do that.

Okay. I'll try 1 more just on retail here if you don't mind.

I believe you mentioned the gross margin was flat to last year in retail. I was just wondering if you could talk about puts and takes there as I would assume shrink would be a little bit more of a headwind this year, but maybe there are some other factors.

And then just more broadly as you think about retail EBITDA margins. It's pretty much doubled over the past few years.

and I'm just wondering if you expect them to stay at these higher levels in Fiscal 22.

Yeah, sure Kelly, happy to answer that one. So a lot of what you're seeing is a combination of factors, and I'm going to give you the first one, which is our retail leadership team, which has just been outstanding throughout the pandemic.

As well as the timing of potential sales better coming out of the acquisition. And as we talked about on Investor Day, we're now in a position where we believe we're going to keep and continue to run those at this stage.

So when we think about that EBITDA performance, I think a lot of it is just the broader stability, and the expert leadership from that retail team that we have; that's just been outstanding and the other 2 markets that we continue to operate in. If you think just about the margins, even gross or EBITDA margin, those are expected to be relatively flat, just from a -- there are puts and takes related to promo spend.

There's a little bit of strength noise in there, but the reality is there are also corresponding offsets. There's no dramatic movement one way or the other within those margin rates.

it's relatively stable beyond just the market contraction that we're

Go on to the next question.

Good morning. You mentioned some disruption in terms of the service levels from some of your vendors.

What levels of fulfillment of orders are you seeing. And how has this impacted your ability with your customers in terms of service levels?

Yeah, it's been a roller-coaster. We ended significantly above our service level than we were the fourth quarter prior post continue to improve and everybody expected that trajectory to continue.

But over the last 3 months, we've seen the deterioration base for the macro factors that I mentioned earlier, labor, freight, raw materials, and so forth. As far as our ability to service our customers, what the customers and the wholesalers are disappointed that we at this items replacing planogram with items that we do have in stock.

Taking high demand, low inventory items off promotion, working with our suppliers every day from the top-down on making sure that we have our fair share of product coming in. This is where scale helps our customers because, for most of our suppliers, we're a top 1, 2 or 3 customer to them.

And so that gives us larger broad buying power, and larger allocations for those high-demand skews.

I would imagine, just following up on this, that these are industry trends that your customers generally understand and don't create a great risk of customer losses when contracts end. Am I understanding that right or has there been frustration from some customers?

There is. You're right with your understanding.

It is industry-wide and our customers are patient and understanding on that. But I would say that the entire indigenous folks that we don't even service, it just fatigued by it and we're used to it is correct that the industry-wide trends do not get

Okay. And then just lastly for me, you provided a lot of the components of free cash flow in terms of EBITDA and CapEx, etc.

I guess the pieces that we don't know are working capital assumptions for the year, as well as proceeds from the sale facility out west. So I guess, can you provide anything that's going to get us to that leverage below 3 times, meaning, how much below 3 times are we thinking or what the range of from asset sales might be.

Yeah, we've managed the specifics to that, but those are the 2 remaining components. When you think about the $1.3 million facility square-foot, the facility we have we've got to put inventory in, bringing on a large new customer, you can imagine the working capital impact of just those 2 things alone coupled with the broader growth that's embedded in our top so certainly working capital be a large component.

And we're thinking about that Riverside sale-leaseback arrangement. We'll talk about that when the deal closes, NFY '22, but I think the other component like debt reduction is the ability to deploy capital leaves off our books as well.

So it's going to be a really good transaction for us from a debt perspective. Now I think guiding towards below 3 is comfortable for us given some of the uncertainty as we move through FY '22 if we have an opportunity to tighten that up.

Great. Thanks.

That's all from me.

Good morning. This is Spencer Hanus on for Greg.

I just wanted to drill down into inflation run rate to the full year of next year. Any additional color

The way we think about that again, it's something we next 12 months can look like. And we know we're in an inflationary environment right now, but we think about on balance for the year, we think that 1% looks to be relatively reasonable.

So when we think about what we're -- how Q1 or again, we don't provide that quarterly guidance but I think it's reasonable to assume that we are seeing similar inflation situations as you're seeing and reading about elsewhere. But we still believe on balance for the year will be somewhere around that 1%

Okay. That's helpful.

And then do you think your fill rates are lagging the industry today or are you guys in mind? And then has the worsening of service levels impacted your ability to get cross-sell wins over time?

And then just a follow-up on the Centralia DC has that reopened yet and is it

So I'll take the fill rate question, Spencer. No, we do not believe we are below the industry, and matter of fact, we think we're above the industry because of our purchasing scale.

So we also do quite a bit of our volume through Fresh. And the Fresh categories have been not impacted to the level of the center store CPG category.

So we think our fill rates are actually above the standard in the industry, albeit the industry is much lower than we wish we were. Do you want to take the question

Sure. Spencer, this is Eric.

I will just -- I'm happy to report that our Centralia, DC has returned to normal operating business again. With a two-day shutdown, full shutdown, and then we had a partial week that was disruptive, and I think.

Speaking on behalf of the whole Company, we can't thank our customers enough for their cooperation as we worked through that situation.

Perfect. Thank you.

Sure.

Great. Thanks for taking the question and congrats, Sandy.

I just want to come back to the comment on inflation. I know you guys have guided me to 1% inflation for FY '22.

It does sound like inflation, at least, from your last comments, is running similarly. In the first quarter, so are you assuming inflation trails off in the back end of the year?

And then what would be driving that? Just any more color on that would be helpful.

balance for the year, and as I mentioned, we're seeing relatively similar inflation as you are reading and hearing about elsewhere. Do I think it will trail off, I think it's not sustainable at its current phase.

At what point that trails off, and how that happens, what drives it. Now your guess is as good as mine, but I think certainly where we are right now in the current environment does not seem to be sustainable for 12 months.

Understood. All right.

And then just on the labor environment, can you guys give us a sense of where your staffing levels are today versus where they were maybe pre-pandemic and maybe what you're seeing on turn or turnover and has that slowed or moderated at all in the recent past?

Yeah. I mean, this is Eric.

Our turnover has not slowed. I mean, the workforce has a variety of options, lot of steps to not only improve our associates' experience but also improve our retention.

So I think this is an ongoing problem that we're going we've taken. But we as an organization are very focused on this and are putting all of our resources against supporting our supply chain and our distribution centers as we work through this.

Thank you very much.

Thanks to all of you for joining us on today's call. As I hope all of you can sense, we had a solid plan on how to create value for our customers and grow UNFI.

We have the leadership team in place to continue to execute that plan. And our customers are some of this country's finest food retailers from publicly traded change, to single-store independents, from value and ethnic operators to general market-focused retailers to high-end operators, and everything in between.

Hope to serve their customers and add value to their businesses in the process. We're confident in our ability to deliver on our Fiscal 2022 outlook.

And the entire leadership team and I are committed to driving those results. I look forward to meeting many of you in the investment community throughout the coming months and continuing to update you on our key initiatives and performance over the course of the fiscal year.

For our customers, we thank you for the continued trust and business we do together. And for our suppliers and especially UNFI associates listening today, my thanks to you.

Thanks, everyone.