Scott Mushkin

Scott Mushkin asked if UNFI's natural organic sales would accelerate if the broader industry's growth rate for these categories returned to higher levels, given that some of UNFI's customers have seen a slowdown. He also inquired about the impact on UNFI's conventional business if the competitive environment continues to deteriorate over the next 6 to 12 months, particularly regarding increased manufacturer promotions.

Answer

Sandy Douglas (CEO, UNFI) explained that UNFI's natural organic growth is influenced by customer performance, UNFI's effectiveness in serving them, and new customer acquisition, in addition to the mid-single-digit industry growth. He noted that the Q1 +10% growth included significant project work that will annualize. Regarding conventional, Sandy Douglas segmented the industry, highlighting that innovative retailers focused on cost control, unique assortments, and "secret sauce" are outperforming. He emphasized UNFI's strategy to partner with these differentiating retailers and to help them negotiate better costs for EDLP rather than relying solely on promotions, which he believes are not always effective. He declined to accept the premise of continued industry deterioration but stressed UNFI's commitment to stepping up as a partner in tough times.

Scott Mushkin asked if UNFI's natural organic sales could accelerate if the industry's organic growth rate (on a comparable basis for customers) were to return to higher levels, given UNFI's recent strong performance. He also questioned how UNFI's business would be impacted if the conventional side of the industry continues to deteriorate competitively, with increased promotions from manufacturers.

Answer

CEO Sandy Douglas stated that UNFI does not provide divisional guidance but expects to compete strongly in the natural organic and specialty categories, which external analysis projects as mid-single-digit growers. He noted that UNFI's +10% growth includes significant project work that will annualize. For the conventional side, Sandy Douglas emphasized a segmented view of the industry, focusing on innovative retailers who are outperforming by managing costs, innovating assortments, and differentiating. He highlighted UNFI's merchandising reboot to help wholesale-supported retailers negotiate better costs and build a robust supermarket channel, asserting that partners must step up in tough times.

Scott Mushkin posed a strategic question regarding UNFI's relationship with Amazon, exploring opportunities for a more symbiotic partnership, such as bundling smaller customers into a 3P network, creating a buying consortium, or integrating Cub into Amazon's network. He also asked if stronger-than-anticipated volume growth would necessitate significant capital investment and facility expansion.

Answer

CEO Sandy Douglas stated UNFI's policy not to comment on specific customers but affirmed that customized strategies are developed for enterprise accounts, including the widest range of mutually beneficial values. He also mentioned efforts to improve profitable growth for customers of all sizes, especially small independents. Regarding capital investment, Sandy Douglas noted UNFI's ongoing network optimization, including new automated DCs in Manchester, PA, and Sarasota, FL, totaling 400,000 incremental square feet. President and CFO Matteo Tarditi added that the $250 million capital investment for 2026 and beyond includes automation and modernization, with six automated DCs expected by the end of 2026. He emphasized that lean practices also help optimize layouts and create capacity without excessive CapEx.

Scott Mushkin asked about the strategic relationship with Amazon, exploring ways to make it more symbiotic, such as bundling smaller customers into a 3P network, creating a buying consortium, or integrating Cub into such a network. He also questioned whether stronger-than-anticipated volumes in the next 2-3 years would necessitate significant capital investment and facility expansion, given ongoing distribution rationalization and automation.

Answer

CEO Sandy Douglas stated UNFI's policy not to comment on specific customers but emphasized a customized, tailored strategy for enterprise accounts, including the widest range of mutually agreed values. He also highlighted a segmented approach to help customers of all sizes. Regarding capital investment, Sandy Douglas noted ongoing network optimization, expansion (e.g., new DCs in Manchester, PA, and Sarasota, FL), and automation. President and CFO Matteo Tarditi added that the $250 million CapEx budget for 2026 includes automation and modernization, with Lean practices also optimizing capacity without excessive capital spend.

Scott Mushkin of R5 Capital inquired about the current operational status of UNFI's distribution network following the cyberattack, including shipping capacity, potential for contract breaches, and the timeline for disclosing the incident to the market.

Answer

CEO Sandy Douglas stated that shipping is occurring on a limited, customized basis and is improving daily, but declined to provide a specific capacity percentage. He emphasized that the company is focused on partnering with customers to meet their needs, viewing it as a defining moment for relationships. Regarding the disclosure, Douglas detailed that the unauthorized activity was detected Thursday, systems were locked down late Friday, and an 8-K was filed Monday morning, asserting they could not have communicated faster.

Scott Mushkin of R5 Capital questioned the long-term strategic fit of the conventional and natural businesses, referencing the original 'one truck' merger thesis. He also requested details on the core volume growth for the conventional business, excluding the impact of new customer wins.

Answer

CEO James Alexander Douglas responded that the strategy incorporates both specialization and scale; product-focused teams for conventional and natural serve customer needs better, while a scaled supply chain and back office provide enterprise-wide efficiencies. President & CFO Giorgio Tarditi added that conventional volume was roughly flat, which slightly outperformed the industry benchmark, showing positive sequential progress.

Scott Mushkin of R5 Capital inquired about the revenue split between legacy UNFI and SUPERVALU, the level of operational integration, the plan for proceeds from DC sales, and the potential for divesting the Cub retail business.

Answer

CEO Sandy Douglas confirmed a 50/50 revenue split and noted fulfillment systems remain largely separate. President & CFO Matteo Tarditi stated proceeds from selling the three owned, legacy SUPERVALU DCs will be used to pay down debt. Regarding retail, Douglas said the current strategy is to drive performance at Cub, as it is deeply integrated into the ecosystem, but did not rule out future strategic changes.

Scott Mushkin asked about the competitive landscape for natural and organic products, specifically if traditional supermarkets are catching up, and sought clarification on the specific business indicators driving the company's cautious economic outlook. He also inquired about the free cash flow expectations for fiscal year 2026.

Answer

Co-President Kemper Isely emphasized Natural Grocers' long-standing differentiation and authentic brand story, contrasting it with conventional retailers and competitors like Whole Foods and Sprouts. He noted that less loyal customers have pulled back due to economic uncertainty. CFO Richard Hallé elaborated on macro pressures, including low consumer sentiment, job layoffs, government benefits loss, and tariffs, while reaffirming confidence in the core customer base and long-term health and wellness trends. Richard Hallé also confirmed positive free cash flow for fiscal year 2026, supported by a $50-$55 million CapEx plan for new stores, relocations, and remodels, with Kemper Isely adding that strategic building purchases contribute to CapEx.

Scott Mushkin asked about the competitive landscape for natural and organic retailers, specifically addressing investor concerns that traditional supermarkets are catching up by offering similar products at lower prices. He also questioned the specific economic indicators driving the company's cautious outlook and the free cash flow expectations for fiscal year 2026.

Answer

Kemper Isely, Co-President, countered that Natural Grocers differentiates itself through an authentic brand, higher product standards, and a commitment to 'always affordable prices,' which resonates with loyal customers. Richard Hallé, CFO, attributed the cautious outlook to broad economic uncertainty, low consumer sentiment, job layoffs, and the impact of tariffs, noting a pullback from lower and middle-income consumers. He confirmed positive free cash flow for fiscal 2026, supported by increased CapEx for new stores, relocations, remodels, and strategic building purchases.

Scott Mushkin of R5 Capital inquired about Natural Grocers' margin outlook, questioning why gross margins are guided to be relatively flat for the year despite strong Q1 leverage from high comps. He also asked about the drivers behind working capital movements, the long-term potential for operating margin expansion compared to peers like Sprouts, and the possibility of accelerating new store openings beyond the current guidance.

Answer

Richard Halle, Chief Financial Officer, explained that the flat gross margin guidance reflects conservatism, as comps are expected to moderate in the second half of the year, reducing occupancy leverage, and there is uncertainty around potential tariffs. He confirmed Q1's working capital movements were timing-related, primarily in accounts payable. Regarding operating margins, Halle noted that while sales leverage should drive expansion, the company's commitment to affordable pricing as a core value will temper direct comparisons to higher-margin competitors. Co-President Kemper Isely added that the company is focused on opening 4-6 stores in fiscal 2025, with a goal to increase the pace to 6-8 stores in subsequent years.

Scott Mushkin of R5 Capital inquired about the outlook for gross margin leverage, drivers of working capital changes, long-term operating margin potential compared to competitors, and the possibility of accelerating new store openings.

Answer

CFO Richard Halle explained that the full-year gross margin outlook is conservative due to expected moderation in sales comps in the second half and uncertainty around potential tariffs. He attributed working capital fluctuations to timing in accounts payable. Regarding operating margins, Halle noted that while sales leverage should drive some expansion, the company's core value proposition of 'always affordable prices' differentiates them from competitors and will temper margin growth. Co-President Kemper Isely confirmed the fiscal 2025 store opening target of 4-6, with a goal of increasing to 6-8 in subsequent years.

Scott Mushkin of R5 Capital inquired about the outlook for gross margins, asking why they are expected to remain flat despite strong Q1 leverage. He also questioned the drivers behind working capital movements impacting free cash flow, the long-term potential for operating margin expansion compared to peers, and the possibility of accelerating new store openings beyond the current guidance.

Answer

Chief Financial Officer Richard Hallé explained that the flat gross margin outlook is a conservative stance, anticipating moderating sales comps in the second half of the year, which would reduce occupancy leverage, and accounting for uncertainty around potential tariffs. He confirmed that working capital shifts were timing-related. Regarding operating margins, Hallé noted that while sales leverage helps, expansion is tempered by the company's core value proposition of "always affordable prices." Co-President Kemper Isely addressed store growth, stating the plan is 4-6 stores this year, with a goal to increase the pipeline to 6-8 stores in subsequent years.

Scott Mushkin of R5 Capital inquired about the outlook for gross margins, asking why they are expected to be flat for the year despite strong Q1 leverage. He also questioned the timing of working capital movements affecting free cash flow, the long-term potential for operating margin expansion, and whether the company could accelerate its new store opening pace beyond the current guidance.

Answer

CFO Richard Halle explained that the full-year gross margin outlook is conservative because sales comps are expected to moderate in the second half, reducing store occupancy leverage. He also cited uncertainty around potential tariffs. Halle confirmed that working capital shifts were timing-related, primarily in accounts payable. On operating margins, he stated that while sales leverage should drive expansion, the company's core value of 'always affordable prices' will keep its margin profile distinct from competitors. Co-President Kemper Isely addressed store growth, reiterating the fiscal 2025 target of 4-6 stores but adding that the company hopes to increase the pace to 6-8 stores in the following year.

Scott Mushkin of R5 Capital inquired about recent sales trends compared to competitors, the performance of stores in markets with direct competition from Sprouts, and the potential industry impact of weight-loss drugs. He also asked for management's perspective on potential regulatory changes regarding food additives and questioned the primary revenue and efficiency drivers for fiscal 2025, with a specific focus on the {N}power loyalty program growth strategy.

Answer

Co-President Kemper Isely explained that recent sales trends remained strong and consistent, and that store performance is not materially affected by direct competition with Sprouts. He opined that the impact of weight-loss drugs is minimal, but that increased regulatory focus on food additives would be beneficial by highlighting the company's authentic product standards. Isely identified the {N}power rewards program as the primary revenue driver for fiscal 2025, aiming to boost membership through in-store associate engagement and exclusive promotions, a point reinforced by CFO Todd Dissinger.

Scott Mushkin asked about the competitive environment, specifically noting hyper-competition in the produce area, particularly in Texas. He inquired about Sprouts' pricing in the fresh basket, who they consider their direct competitors, and how they react to increased competitiveness from traditional markets. He also asked about Amazon Proper's aggressive pricing on everyday essentials and if Whole Foods is considered a direct competitor, and Sprouts' sensitivity to their actions.

Answer

Jack Sinclair, Chief Executive Officer, confirmed close monitoring of produce pricing, especially in Texas due to HEB's expansion, but noted strong new store performance there. He stated Sprouts maintains a significant price gap on most grocery competitors nationally, with produce remaining a competitive advantage. Regarding Amazon/Whole Foods, Jack said they are watched closely, but Sprouts is not seeing significant competitive changes in stores facing them. He views Sprouts as a complementary retailer, confident in its differentiation strategy.

Scott Mushkin asked about the hyper-competitive produce market in Texas, Sprouts' pricing strategy in the fresh basket, and its competitive set, including sensitivity to actions by Amazon Proper and Whole Foods.

Answer

CEO Jack Sinclair confirmed close monitoring of produce pricing, especially in Texas due to HEB's expansion, but noted produce remains a competitive advantage nationally. He stated that Sprouts watches Amazon/Whole Foods intently but isn't seeing significant competitive changes impacting its stores, emphasizing Sprouts' role as a complementary, differentiated retailer.

Scott Mushkin from R5 Capital questioned the implied low fourth-quarter comp from the full-year guidance, given current momentum. He also asked about the long-term comp potential, suggesting it could be above the industry average of 5-6%.

Answer

CFO Curtis Valentine acknowledged the Q4 guidance implies a lower comp but noted key variables are still ahead, including cycling a major comp step-up in September and the impact of new stores and the loyalty program. CEO Jack Sinclair added that while there are industry tailwinds and ambitions to grow, the company remains disciplined to avoid pressuring SG&A.

Scott Mushkin drew a parallel to Whole Foods' history and asked how Sprouts can expand its competitive moat as competitors inevitably try to copy its successful model. He questioned what, beyond product differentiation, could drive a unique customer experience, such as investing more in customer service.

Answer

CEO Jack Sinclair outlined a multi-faceted strategy to maintain differentiation. He stated Sprouts will double down on its strengths: a leading position in produce, especially fast-growing organics; a rapid pace of innovation with thousands of new products launched annually; a sharp price differential on fresh items; and creating a superior in-store atmosphere. He emphasized that the operations team is focused on being the best in service, and efficiency gains from other initiatives are being reinvested to fund this service and product differentiation, creating a durable moat.

Scott Mushkin asked what further actions Sprouts could take to solidify its brand identity and differentiation in the market beyond its current plans for distribution and marketing.

Answer

CEO Jack Sinclair emphasized that a significant opportunity remains in simply increasing brand awareness through new stores and more effective communication, highlighting the potential of the upcoming loyalty program. President and COO Nick Konat added that there is still substantial runway within their existing strategic pillars of loyalty, store density, and assortment differentiation.

Scott Mushkin asked about the company's priorities for uses of capital, its thoughts on M&A, and any 'store of the future' initiatives to sustain strong comps.

Answer

CFO Curtis Valentine prioritized capital for business investment and store growth, followed by returning excess cash to shareholders, currently through a mix of holding cash and share repurchases. CEO Jack Sinclair stated that M&A is not a priority unless an opportunity aligns perfectly with their target customer. He added that stores are gradually evolving with more meal cases and innovation centers, with a focus on new builds rather than major remodels.

Scott Mushkin from R5 Capital posed long-term questions about how the business model would adapt to a potential permanent decline in CPG volumes, the impact of changes to food stamp programs, and the company's current stance on M&A.

Answer

President and CEO Tony Sarsam expressed confidence that shifting consumer trends, such as a focus on health, present opportunities to sell different, high-margin products. EVP & CFO Jason Monaco added that the company's flexible model has proven it can adapt, for example, by catering to GLP-1 users. Regarding M&A, Sarsam confirmed that the company is very active in looking at all opportunities, both large and small, to maximize shareholder value.

Scott Mushkin from R5 Capital posed long-term questions about the business model's viability in an environment of declining CPG volumes, the impact of changes to food stamp programs, and the company's current perspective on M&A activity.

Answer

President and CEO Tony Sarsam expressed confidence that the business can adapt to shifting consumer trends, such as a focus on health, by offering higher-margin products. EVP & CFO Jason Monaco noted the SNAP impact was slightly negative but manageable. Regarding M&A, Sarsam confirmed that the company remains very active in evaluating all opportunities, both large and small, to maximize shareholder value.

Scott Mushkin from R5 Capital asked about the long-term implications of potential volume declines in CPG, the impact of changes to food stamp programs, and the company's current perspective on M&A.

Answer

President and CEO Tony Sarsam expressed confidence in the business's ability to adapt to shifting consumer trends, viewing them as opportunities. EVP & CFO Jason Monaco added that the company has proven its flexibility, such as catering to GLP-1 users, and noted the Q1 impact from SNAP changes was negative but less severe than in prior periods. Regarding M&A, Sarsam confirmed that the company remains very active in evaluating opportunities of all sizes to maximize shareholder value.

Scott Mushkin from R5 Capital posed long-term questions about the business model's viability in an environment of declining CPG volumes, the impact of changes to food stamp programs, and the company's current perspective on M&A activity.

Answer

President and CEO Tony Sarsam expressed confidence that shifting consumer trends toward health create new opportunities for higher-margin products. EVP & CFO Jason Monaco noted the SNAP impact was slightly negative but manageable. Regarding M&A, Sarsam confirmed the company remains very active in evaluating all opportunities, both large and small, to maximize shareholder value.

Scott Mushkin from R5 Capital asked how SpartanNash is addressing industry trends like the growth of broadline retailers and organic/specialty products, and whether to expect increased CPG promotions in 2025.

Answer

President and CEO Tony Sarsam explained that SpartanNash counters these trends by focusing on local and specialty products, citing the Metcalfe's acquisition as a key example. He confirmed they are working with suppliers on more promotions, which are resonating with shoppers. EVP and CFO Jason Monaco added that this aligns with their merchandising transformation and that continued promotional activity is expected from vendors, which is a factor in their 2025 EBITDA growth outlook.

Scott Mushkin questioned the strategy for achieving organic revenue growth in a difficult market, asking if it relies on acquisitions or if there are paths to taking market share. He followed up by asking about wholesale growth opportunities, specifically within the dollar store channel, as they expand into fresh categories.

Answer

President and CEO Tony Sarsam asserted that the company's strategy involves both organic growth through share gains and M&A. He highlighted the CVP initiative as a key driver for taking share. CFO Jason Monaco added that the company's focus on strengthening margins has created a solid foundation for this growth. Regarding the dollar channel, Mr. Sarsam confirmed that SpartanNash is currently seeing growth there and is well-positioned to support their expansion, particularly in fresh products.

Scott Mushkin asked for more details on the growth strategy for SpartanNash's ethnic store footprint. He also questioned if the tuck-in acquisitions included in the 2025 adjusted EBITDA guidance were expected to be material.

Answer

CEO Tony Sarsam explained that the company leverages its expertise from three high-performing ethnic stores in Nebraska and plans to double that footprint in 2025 by expanding into other Midwest cities, viewing it as a long-term growth vector. CFO Jason Monaco clarified that the 2025 guidance primarily reflects the full-year impact of acquisitions already completed in 2024, and any future tuck-ins are not considered material to the current forecast. Monaco also emphasized the positive retail comp trend and the company's overall growth vectors.

Scott Mushkin of R5 Capital asked whether positive sales growth in the center store category is necessary to achieve the company's overall comparable sales guidance. He also questioned if any potential EBITDA outperformance would be returned to shareholders or reinvested in the business.

Answer

CEO-elect Susan Morris confirmed that the company is seeing growth in both center store (grocery and non-food) and fresh departments, in addition to strong pharmacy and e-commerce growth. President and CFO Sharon McCollam stated that the company's guidance of $3.8 billion to $3.9 billion is its current expectation and declined to speculate on the use of funds from potential outperformance.

Scott Mushkin asked how Albertsons balances investing in price versus enhancing the store experience and merchandise. He also inquired about the level of investment needed for the store fleet to remain competitive.

Answer

CEO Vivek Sankaran explained their strategy focuses on adding value through service and unique products, while also making targeted price investments funded by productivity. Both he and President and CFO Sharon McCollam emphasized that significant capital has been consistently invested in the store fleet, guided by data analytics, and that this spending was not reduced during the merger period.

Scott Mushkin of R5 Capital asked a high-level question about the primary drivers behind Costco's consistently strong traffic growth and the outlook for sustaining this momentum.

Answer

Executive Ron Vachris attributed the strong traffic growth to the collective success across all parts of the business, including pharmacy, food court, and fresh foods. He credited the company's buyers and operators for maintaining relevance to member needs by offering a dynamic product mix, from lower-cost proteins to high-end items. He emphasized that strong execution by the teams across a robust non-food business and growing e-commerce is key to the sustained performance.