United Natural Foods (UNFI) is on our Hedgeye Consumer Staples Best Ideas list as a LONG.


We recently presented a Black Book on our UNFI LONG thesis (click HERE for replay). We believe in the strong growth prospects that this company has and that the risks to the business have been overblown.





There were no surprises in this announcement as everything came in in-line with the numbers that were preannounced a few weeks ago. Although, notably there was a CFO change, as Mark Shamber will be leaving the company, to be replaced by Mike Zechmeister General Mills’ Yoplait Division Finance Officer. Revenue for the quarter was $2.06bn matching consensus estimates of $2.06bn. UNFI reported 4Q15 EPS of $0.72 also matching consensus estimates of $0.72.


Notably, gross margin for 4Q15 was down 109bps YoY to 15.3%. The decrease was primarily attributable to the dilution from Tony’s, the declining value of the Canadian dollar, lower fuel surcharges and a shift in mix of sales. The company will be lapping the effect of the Canadian dollar during 2Q16 around the November or December timeframe.


We are looking at fiscal 2015 as a rebuilding year for UNFI, as they invested in growing their infrastructure, fully integrated the Tony’s business and lost a big contract with Albertsons. We believe that their newly built capacity in shelf-stable and perishable, will afford them the ability to go out and obtain large accounts across the country.


The outlook for 2016 is just confirmation of the previously announced guidance, estimated sales in the range of $8.51 to $8.67, an increase of about 4% to 6%. Adjusted earnings per diluted share for fiscal year 2016 are expected to be in the range of $2.86 to $2.98, an increase of 0.4% to 4.6%.



UNFI saw strong organic growth in 4Q15, Supernatural (Whole Foods Market) organic sales increased by 10%, Supermarket organic sales grew 2.6%, Independent channel grew 3.6% organically, lastly, Foodservice sales were up 23.7% organically, showing that this small business could prove as a strong growth opportunity for the company.


Management spoke to their robust distribution system that they have invested in over the last five years. They are prepared to fill this capacity with new customers, and to grow relationships with current customers.


The success of this company is dependent on organic growth but equally as important is growth through M&A. This is a hot topic on calls, analysts often asking: What are you looking at? How are valuations looking? UNFI management talks more openly about M&A than most companies. When asked about the size of a potential M&A deal and a playbook for success, on this call Steve Spinner (CEO) responded simply with “go large.” The larger companies have infrastructure and processes already in place making them much easier to acquire than smaller companies.


From the way Steve was talking about current M&A discussions they are having, we get the feeling that they are weeks away from announcing something. We know given their history that they are very smart with their cash and will stay within their guidelines when acquiring a company. And potential sellers know this because they have been so firm in the past, if owners want to sell, UNFI is the only game in town to sell to.



Whether Mark Shamber’s exit was a forced one or a personal decision doesn’t really matter to us. Mike Zechmeister is a great choice to fill in this role and a big win for UNFI. His resume from General Mills speaks for itself, working across the company in all major roles over the last 25 years, from Sales, Treasury, VP Finance Pillsbury and most recently the VP Finance in the Yoplait Division. Finance has a big voice at the table at General Mills and he led the charge to return the Yoplait division back to growth.  


I (Shayne Laidlaw) worked with Mike personally during my first year at General Mills and I can’t say enough about what a great leader he is. He is one of the smartest people you will find in not only finance but at the entire company, he leads with a no nonsense mindset which drove strong results at GIS. Mike will be able to bring his widespread experience from GIS and arguably a higher level of experience to the CFO role at UNFI.


Besides the obvious on his resume, Mike brings the process knowledge that General Mills instills in all its leadership. He has strong experience in refrigerated production and distribution, as well as experience with Holistic Margin Management (HMM), GIS’s cost savings initiative, which he can help bring to UNFI.


From a personal decision stand point I have not spoken with Mike yet but he is not a person that would take a role with a sinking company. He obviously sees potential in the business going forward, and I would definitely trust his judgement.



This story is still unfolding but everything seems to be headed down the right path. We strongly believe in UNFI’s ability to grow sales organically, and M&A will supplement this growth along the way. We believe current valuations are a generational opportunity to buy this stock, as risks to the business have been far overblown.


Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw



The Macro Show Replay | September 16, 2015


September 16, 2015

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August Restaurant Sales and Employment Trends

Black Box Sales, Traffic

Black Box released same-restaurant sales and traffic estimates for the month of August that showed slight improvement sequentially, although still down YoY. Same-restaurant sales grew to +1.7% up 10bps sequentially, but down 40bps YoY and same-restaurant traffic decreased -1.1%, a 10bps sequential improvement, and down 60 bps YoY.

August Restaurant Sales and Employment Trends - CHART 1

August Restaurant Sales and Employment Trends - CHART 2


Restaurant price increases are continuing to taper off, after the nearly 12-months of increases. Not surprisingly, after the last three months of flat to down pricing, traffic is continuing to accelerate month over month.  As you can see from the chart below, the divergence between the operators taking price and a decline in traffic is reversing and it looks like they are headed to cross again. In August there was a continuation of the uptick in traffic we saw in July, although slightly less of a sequential improvement.

August Restaurant Sales and Employment Trends - CHART 3


Knapp August Sales Trends

Knapp reported that comparable restaurant sales in August 2015 were +0.9% for same-store sales and -1.0% for guest counts.  August comparable restaurant sales represent a sequential acceleration of +50bps, additionally traffic sequentially is up 30bps for the month.  On a 2-year basis, sales accelerated to +0.8% and traffic decelerated at a slower pace, down -1.5%. 


Employment Growth Slowing

In the month of August we saw a marked improvement in the employment trend, driven by growth within the 20-24 YOA cohort. The downward trend that we were concerned about seems to have reversed; continued growth among younger workers is encouraging for the quick service segment. The losses among the 45-54 YOA cohort continued in this month, down -0.43% YoY and -24bps sequentially.


August Employment Growth Data:

  • 20-24 YOA +3.1% YoY; +245.2 bps sequentially
  • 25-34 YOA +2.35% YoY; +4.3 bps sequentially
  • 35-44 YOA +1.26% YoY; -3.6 bps sequentially
  • 45-54 YOA -0.43% YoY; -23.9bps sequentially
  • 55-64 YOA +1.57% YoY; -95.1bps sequentially


August Restaurant Sales and Employment Trends - CHART 4


Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw



Cartoon of the Day: Disappearing Spanish Bulls

Cartoon of the Day: Disappearing Spanish Bulls - z xx

The Spanish stock market is down over -10% in the last month as its negative divergence in Europe continues.

Earlier On Fox Business: The Rising Populist Tide

On Fox Business this morning, Eurasia Group President Ian Bremmer and Hedgeye CEO Keith McCullough discuss the current 2016 presidential race, Trump's ascent (Hillary Clinton's descent), the migrant crisis in Europe and what all of it all means with host Maria Bartiromo.

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