10-K: UNFI Reports Fiscal 2025 Net Loss Amid Cybersecurity Impact

United Natural Foods, Inc. (UNFI) reported a net loss of $118 million for fiscal year 2025, impacted by a cybersecurity incident and increased restructuring costs, despite growth in its Natural segment.

Summary

• Net sales for fiscal 2025 increased by 2.6% to $31.8 billion, or 4.6% excluding the estimated impact of the 53rd week in fiscal 2024.
• The Natural segment's net sales increased by 7.2% to $16.0 billion, or 9.2% excluding the 53rd week impact, driven by new business and inflation.
• Conventional segment net sales decreased by 1.9% to $14.7 billion, approximately flat excluding the 53rd week impact, due to declining unit volumes offset by inflation and new business.
• Retail segment net sales decreased by 3.9% to $2.3 billion, or 2.0% excluding the 53rd week impact, primarily due to lower identical store sales and store closures.
• Gross profit increased by 0.5% to $4,222 million, but the gross profit rate decreased to 13.3% from 13.6% in fiscal 2024, mainly due to lower product margin rates and customer/product mix.
• Operating expenses increased by 0.4% to $4,117 million, or 13.0% of net sales, with the rate decreasing from 13.2% in fiscal 2024 due to cost-saving initiatives and sales leveraging, partially offset by higher occupancy and employee benefits.
• Restructuring, acquisition, and integration related expenses significantly increased to $94 million in fiscal 2025 from $36 million in fiscal 2024, primarily due to a $53 million charge from a customer supply agreement termination.
• Operating loss was $31 million in fiscal 2025, a decrease of $39 million from an operating income of $8 million in fiscal 2024.
• Net loss attributable to UNFI was $118 million, or $1.95 per diluted common share, compared to a net loss of $112 million, or $1.89 per diluted common share, in fiscal 2024.
• Adjusted EBITDA increased by 6.6% to $552 million in fiscal 2025 from $518 million in fiscal 2024, despite an estimated $50 million adverse impact from the cybersecurity incident.
• The cybersecurity incident in Q4 fiscal 2025 resulted in an estimated $400 million in lost sales and $26 million in incremental costs (remediation, legal, governance, shrink).
• Total debt decreased by $223 million to $1,862 million as of August 2, 2025, primarily due to debt repayments and reduced ABL Credit Facility borrowings.
• Capital expenditures decreased by $114 million to $231 million in fiscal 2025, with future spending expected to be approximately $250 million in fiscal 2026.

Sentiment

Score: 4

Explanation: The company reported an increased net loss and a shift from operating income to operating loss, significantly impacted by a cybersecurity incident and high restructuring costs. While there was growth in the Natural segment and debt reduction, the overall financial performance for fiscal 2025 was negative, and the stock underperformed its industry peers. Strategic initiatives are underway, but their full benefits are yet to be realized, and significant risks remain.

Positives

• Net sales increased by 2.6% to $31.8 billion in fiscal 2025, or 4.6% excluding the 53rd week impact in fiscal 2024.
• Natural segment net sales grew by 7.2% to $16.0 billion, or 9.2% excluding the 53rd week impact, driven by new business and inflation.
• Adjusted EBITDA increased by 6.6% to $552 million in fiscal 2025, despite the cybersecurity incident.
• Total debt decreased by $223 million to $1,862 million, improving financial leverage.
• Net cash provided by operating activities increased significantly to $470 million in fiscal 2025 from $253 million in fiscal 2024, primarily due to improved working capital management.
• The company successfully implemented Lean daily management in 28 distribution centers in fiscal 2025, enhancing effectiveness and efficiency.
• Completed construction of a roof-mounted solar array at the Riverside, California distribution center, the largest to date, contributing to sustainability and energy savings.
• Jury found in favor of the company in the False Claims Act qui tam action, determining no liability.

Negatives

• Reported a net loss attributable to United Natural Foods, Inc. of $118 million in fiscal 2025, an increase from $112 million in fiscal 2024.
• Operating loss was $31 million in fiscal 2025, a decrease of $39 million from an operating income of $8 million in fiscal 2024.
• The cybersecurity incident in Q4 fiscal 2025 resulted in an estimated $400 million in lost sales and $26 million in incremental costs.
• Gross profit as a percentage of Net sales decreased to 13.3% in fiscal 2025 from 13.6% in fiscal 2024, primarily due to lower product margin rates and customer/product mix.
• Restructuring, acquisition, and integration related expenses increased significantly to $94 million, driven by a $53 million charge for a customer supply agreement termination.
• Conventional segment net sales were approximately flat (excluding 53rd week) due to a decline in unit volumes.
• Retail segment net sales decreased by 2.0% (excluding 53rd week) due to lower identical store sales and store closures.
• Experienced a $24 million non-cash asset impairment charge related to the Allentown, Pennsylvania distribution center due to expected volume loss from a contract termination.

Risks

• Heavy dependence on principal customers, with the largest customer accounting for approximately 25% of Net sales in fiscal 2025, posing a risk if business is lost or diverted.
• Low profit margins in the grocery industry, sensitive to inflationary and deflationary pressures, and intense competition, which could negatively impact operating margins.
• Inability to realize anticipated benefits from strategic initiatives, including network optimization, reduced capital intensity, and cost structure optimization, due to financial or operational challenges.
• Changes in relationships with suppliers, including disruptions in supply, increased product costs, or reduced promotional spending, could adversely affect profitability.
• Risks related to the availability of qualified labor, increased labor costs, and potential labor disputes or work stoppages due to collective bargaining agreements.
• Disruptions to or failure of technology systems, including cyber-attacks and security breaches, could negatively impact business operations, customer service, and financial results.
• Potential losses from uncollectible accounts if customers experience financial difficulties, especially small to medium-sized independent retailers.
• Failure to realize expected benefits from strategic transactions or effectively integrate acquired businesses, leading to inefficiencies or adverse financial impacts.
• Increases in healthcare, pension, and other costs under single employer and multiemployer benefit plans, particularly underfunded multiemployer pension plans, could adversely affect financial condition.
• Inadequacy of insurance and self-insurance programs to cover claims, potentially leading to significant losses if actual losses exceed reserves or coverage.
• Increased cost of capital or limitations on access to additional capital could restrict the ability to grow organically or through acquisitions, and engage in strategic buying initiatives.
• Restrictive covenants in debt agreements may limit operating flexibility and ability to execute business strategy.
• Impairment charges for long-lived assets could adversely affect financial condition and results of operations if carrying values are not recoverable.
• Activist investors could negatively impact business and cause operational disruptions, diverting management attention and resources.
• Changes in consumer purchasing habits, including shifts to lower-cost products or food-away-from-home options, could reduce demand for higher-margin products.
• High leverage and debt service obligations increase sensitivity to economic downturns and could adversely affect the business.
• Disruption of the distribution network or customer operations due to weather, natural disasters, strikes, product recalls, or other events could impair product distribution.
• Increased fuel costs may adversely affect results of operations if not fully passed on to customers.
• Failure to comply with significant governmental regulations (e.g., food safety, environmental, labor, data security) could result in penalties, fines, or operational disruptions.
• Product liability claims from injury, illness, or contamination could have an adverse effect on the business and reputation.
• Inability to adequately protect intellectual property rights could harm the business and competitive advantage.

Future Outlook

The company expects to continue using available capital to reinvest in its business and is committed to improving free cash flow and financial leverage while reducing outstanding debt. Management believes performance and profitability can be optimized through improvement efforts, which are expected to enhance the cost structure, increase sales of products and services, and enable tailored, data-driven solutions for customers. Fiscal 2026 capital and cloud implementation spending is projected to be approximately $250 million, focusing on technology platform investments and distribution network automation and optimization. The full claim and settlement process for the cybersecurity incident is expected to extend throughout fiscal 2026. No prepayment from Excess Cash Flow is required on the Term Loan Facility in fiscal 2026 based on fiscal 2025 leverage ratio.

Management Comments

• We are continually striving to better serve our stakeholders, including our customers, suppliers, associates and communities, and to drive profitable growth and sustainable shareholder value creation.
• Our strategy is centered on adding value to our customers and suppliers through our expansive assortment of products, programs, insights and services that help them grow and compete.
• We expect to continue to use available capital to re-invest in our business and are committed to improving our free cash flow and financial leverage while reducing outstanding debt.
• We believe we can optimize our performance and profitability through our improvement efforts, which we expect will improve our cost structure, increase sales of products and services, and position us to provide tailored, data-driven solutions to help our customers run their businesses more efficiently and expand our customer base.
• We are actively monitoring the impacts of the evolving macroeconomic and geopolitical landscape, including rapidly evolving tariff and global trade policies, on all aspects of our business.
• We are working to optimize our distribution center network to better and more efficiently service customers and suppliers.
• We are working to both minimize future costs and obtain new business to further improve the efficiency of our distribution network.

Industry Context

The company operates in a highly competitive and rapidly evolving grocery industry characterized by low profit margins and the entry of new, non-traditional competitors. Consumer purchasing habits are shifting towards value-oriented categories and private brands due to economic volatility and inflation, dampening demand for discretionary and higher-margin products. The company's strategy to focus on natural, organic, specialty, multi-cultural, and differentiated conventional grocery retailers aims to capitalize on a resilient segment of the food retail industry. Consolidation within the grocery industry continues to intensify competition, with many competitors having greater financial resources. The company is responding to growing competition from online and non-traditional retailers by adding options like online ordering, curbside pick-up, and home delivery.

Comparison to Industry Standards

• The company's common stock performance for the last five fiscal years (August 1, 2020, to August 2, 2025) showed a cumulative total return of $136.07 for an initial $100 investment, underperforming the S&P SmallCap 600 Index ($165.65) and the S&P SmallCap 600 Food Distributors Index ($228.14).
• The S&P SmallCap 600 Food Distributors Index includes SpartanNash Company, The Andersons, Inc., The Chefs Warehouse, Inc., and United Natural Foods, Inc., indicating that UNFI's stock performance lagged its direct industry peer group over this five-year period.

Management Changes

Corporate Governance

Legal Proceedings

• The company is named in approximately 40 lawsuits consolidated as Multi-District Litigation (MDL) alleging contribution to the national opioid epidemic. Mediation began on June 3, 2025. The company believes these claims are without merit and intends to vigorously defend.
• A complaint filed in Minnesota state court alleges the company, Albertsons, and Safeway committed fraud by improperly reporting inflated prices for prescription drugs. The trial date is set for May 18, 2026. The company believes these claims are without merit and is vigorously defending.
• In a False Claims Act (FCA) qui tam action, the relators alleged overcharging government healthcare programs. After a three-week jury trial, the jury found in favor of the company on March 4, 2025, determining no liability. Relators filed a motion to alter or amend the judgment.
• A putative securities class action alleges violations of federal securities laws by making materially false and/or misleading statements. A motion to dismiss was partially granted/denied, and the company answered denying allegations. A mediation is scheduled for November 17, 2025.
• A putative class action lawsuit, NYSM Organics LLC v. United Natural Foods, Inc., alleges improper prompt-pay discounts. The Massachusetts Consumer Protection Act claim was dismissed on June 5, 2025. The company filed its answer to the Amended Complaint.

Stakeholder Impact

• Shareholders: Experienced a net loss and underperformed industry benchmarks, but debt reduction and strategic initiatives aim for long-term value. The stock repurchase program has $138 million remaining authorized.
• Employees: Approximately 42% are covered by collective bargaining agreements, with 12 agreements expiring in fiscal 2026, indicating ongoing labor relations considerations. The new Executive Severance Plan provides benefits for eligible associates upon certain terminations. Safety and well-being are prioritized through initiatives like Mental Health First Aid.
• Customers: Impacted by the cybersecurity incident which temporarily disrupted order fulfillment and distribution. Strategic realignments and network optimization aim to enhance service and provide tailored solutions. The termination of a significant supply agreement in the East region will impact a specific customer and the company's operations.
• Suppliers: The company is investing in programs and partnerships to drive product quality and improve supply chain resilience, including the UNFI Climate Action Partnership. Changes in relationships or disruptions could affect product supply and costs.
• Creditors: Total debt decreased, and the company expects to fund debt maturities and finance lease liabilities with internally generated funds and ABL Credit Facility borrowings. Compliance with debt covenants is maintained.

Next Steps

• Continue to pursue new business opportunities with independent retailers, regional and national chains, and international customers.
• Further optimize the distribution network, including streamlining distribution center footprint and implementing Lean daily management.
• Prioritize capital investment needs and reduce overall spending, emphasizing maintenance and targeted network enablement and technology enhancements.
• Strengthen working capital management processes to improve efficiency and customer satisfaction.
• Continue to reduce ongoing operating expenses and better align corporate resources with the updated strategy.
• Continue to use available capital to reinvest in the business and improve free cash flow and financial leverage while reducing outstanding debt.
• Submit and continue to submit claims to insurers for reimbursement of costs, expenses, and losses stemming from the Cybersecurity Incident, with the full process expected to extend throughout fiscal 2026.
• Evaluate the distribution center network to further optimize performance, expecting incremental expenses related to future realignment, expansion, or improvements.
• Continue to invest in and optimize the Retail segment in areas such as customer-facing merchandising initiatives, physical facilities, technology, and operational tools.
• Finalize confidential settlement negotiations with the EPA regarding alleged Clean Air Act violations, with an expected monetary penalty in excess of $300,000 by the end of the calendar year.
• Mediation scheduled for November 17, 2025, for the securities class action lawsuit.
• Trial date set for May 18, 2026, for the health plans fraud case.
• Negotiate 12 collective bargaining agreements covering approximately 3,381 employees scheduled to expire during fiscal 2026.
• Expected capital and cloud implementation spending of approximately $250 million in fiscal 2026.

Key Dates

Recommendation

While UNFI reported an increased net loss and an operating loss for fiscal 2025, largely due to a significant cybersecurity incident and restructuring charges, there are some mitigating factors. The Natural segment showed strong growth, and the company successfully reduced its total debt. Management is actively pursuing strategic initiatives focused on network optimization, cost reduction, and improved cash flow, which could yield benefits in the long term. However, the stock has significantly underperformed its industry peers over the past five years, and ongoing legal proceedings and the potential for future macroeconomic headwinds present considerable uncertainties. Given the mixed financial performance, the impact of one-time events, and the long-term nature of the strategic turnaround, a 'hold' recommendation is appropriate. Investors should monitor the execution of strategic initiatives, the resolution of legal matters, and the company's ability to improve profitability and free cash flow generation.

Keywords

Grocery Distribution, Natural Foods, Organic Products, Wholesale, Retail, Supply Chain, Cybersecurity, SEC Filing, 10-K, Financial Results, Distribution Centers, Private Label, Food Service, Risk Factors, Debt Management, Sustainability, Labor Relations, Consumer Trends