Good morning. I'm Leah Jordan, the Food Retail and Packaged Food Analyst at Goldman, and it is my pleasure to introduce Sandy Douglas, Chief Executive Officer of United Natural Foods. Thank you for joining us today. Thanks, Leah. It's good to be with everybody, and it's really a good time for us to have this conversation coming off of a really strong fiscal 2026, which is the second year of our new strategic plan, and a year into the three-year period that we talked about at our investor day last December with strong EBITDA performance of 26% last year right on our cash flow numbers and de-levering down from a high of 4x, a couple of turns a couple of years ago, down to 2x. It's a good time to talk about the future and the opportunity that's ahead. Absolutely. I think a lot to get in. There's been a lot of moving pieces in your story over the last couple of years. Just for a quick refresher to anyone newer to the UNFI story, it is a North American grocery distributor serving 30,000 locations through its network of 47 distribution centers and 230,000 SKUs across conventional, natural, and specialty products. You really do see a lot of the world of food retail and distribution. I think before we get into all of that, because I think your intro hit on a lot of what we want to talk about today. I think to start us off, you've been the CEO of UNFI for a little over five years now, and it's been a very dynamic period. At the start, it was amidst COVID. We've had several bouts of inflation during that time. You were integrating an acquisition as well. More recently, you've done a number of initiatives to improve the business operationally that's driven a lot of the growth over the last couple of years. As you look back over that you fit a lot in five years. As you look back over that timeframe, what have been some of the biggest wins and the biggest challenges? Sure. Yeah, it is true. I joined the company right in the heart of COVID, and everyone remembers the supply chain challenges, the labor challenges, the more broader crisis in our communities that were going on, but significant amount of churn leading to that period of very aggressive inflation. During those years along the side, there was a lot of very strong profitability for independent grocers and distributors. As we pivoted out of that, we level set and had to stare straight in the eye what capability we had to manage in a very rapidly changing time. For UNFI, we set our foundation. We did a bunch of work to evaluate processes and systems and skills. I think that the area that I am most proud of is the work we have done on the leadership team. We recruited top talent from General Electric, from Coca-Cola, our CIOs from Mars. We have also developed an internal team that, alongside our board, recast our strategy and focused it more directly on $90 billion of the wholesale market that represent retailers that are pursuing differentiation strategies. UNFI is really designed well for that because of our products, because of our services. We carry the full range of conventional and natural products. Over those two years, with additional focus and amping up the skills, we began the work of building the capabilities that would really differentiate us and then attacking the $4 billion of cost that represent the broad supply chain for the most part, and looking at ways to make it more effective and then more efficient. That has produced over two years 40% EBITDA improvement, significant free cash flow, and de-levering by 2x. I guess the way I close that out, because it was very challenging and we had to be very direct. The work that we have done and the team that we have built put us in really good position heading into the next year. Of course, we guided last week at high single digit coming off of 26% last year. We beat by a strong amount last year, and we decided to roll that forward into this year and increase what you would have expected out of us this year from Investor Day, and then we expect to accomplish that again next year. If there were a through line to looking ahead, I simply would say we are excited about the underlying growth that we have had over the last year, where we have removed the impact of the profitable optimization we have done. The company will once again start to grow, and we expect to grow in the second half of the year. The opportunity for improvement, and we say this a lot internally, we have not even really begun. This is a big multi-company, many acquisitions over the years, business that is ready to significantly improve and create more value going forward. That's great detail digging in and all that. I know you've accomplished a lot with that tremendous growth you've had over the last couple of years. I think before we dig further into that, I just want to switch over to the consumer. This is a consumer conference, and you're really at a unique position given your intersection of retailers and suppliers. Based on what you're seeing in wholesale demand across your different retail types, even in your own retail stores, what are you seeing from the consumer? Any notable shifts in behavior, maybe differences by category or income cohort, and how are you thinking about volumes? Sure. Let me start that first by talking a little bit about how retailers are stratifying, because I think obviously that's our first focus. One of the myths in grocery retail is that the discounters are winning and everybody else is losing. Indeed, if you double-click on the everybody else, you find retailers that are differentiating in different ways. Pure play natural have tripled their share of retail over the last 20 years. They gained share last year, they did the year before, and I expect they'll continue. You have ethnic retailers, other forms of grocery stores that are pursuing differentiation strategies, and successfully. Good trade name up here in the Northeast would be Wegmans. Outstanding performer consistently over time. There are retailers pursuing various forms of differentiation strategies around the country. Then there are retailers that are centrally positioned that have been donating share for a period of time. Many of them have set new courses for their companies, and we're working hand-in-hand with them to help them succeed and grow. That's where our $90 billion addressable market comes. Within that frame, we see a fair amount of strain in the consumer right now. Strain that comes from fuel expense, that comes from SNAP benefits. GLP-1s for UNFI, it's a negative in the sense that it's impacting volume, but it's a positive for us because people are eating healthier food. So we're well-positioned for that. But what amazes me is how retailers are responding. Inside that segmentation I sort of went through, retailers are doing just fine. They're competing, they're winning, but they're having to meet the customer where their value is, and each of them are doing it in their own way, and we're trying to help them do it well. That's a great color. Thank you. I think on this topic, we have to touch on inflation. You talked about the fuel expense weighing on the consumer. We're seeing a lot of dynamic movements across commodities recently. What are you seeing in your business in terms of food inflation today? How are you planning for that into your new fiscal year? Can you remind us how food inflation impacts your top line and gross margin, just given your contract structure? Sure. I think if I were to go to sort of the central truth about cost, our job as a representative of retailers and consumers is to try to keep costs down, particularly costs of items that are comparable between our customers and discounters. That's an area of significant focus for us. Also products that are not comparable, simply because affordability is a major issue for their customers, and that's really important. We saw food inflation sort of moderate a little bit last year and more in sort of the longer term 2% - 3% range. Our outlook for fiscal 2027 is about the same, although it's dynamic and we're agile to be able to sort of move where it is with an effort, as I said, to continue to manage cost. How it affects us, when prices go up, there are opportunities for us to buy better and potentially create procurement gains for our customers and ourselves. But those are short-term in nature, and so we typically plan them out of our high-confidence planning just to not have some of the challenges that the company had a few years ago. Okay. No, that's very helpful, and we'll continue to watch the dynamic inflationary backdrop, just as you will. Yeah. I want to go back to kind of what you mentioned at the top. You have refocused on this $90 billion TAM, and really as you have done that, we have observed a strategy shift in recent years. You have leaned into the growth opportunity on the natural side, and then you have optimized conventional really around profitability and cash flow. Can you provide more detail around the drivers of that change and how you are thinking about opportunities for natural versus conventional going forward? Sure. This does get a little confusing, but effectively, we sell, and one of our strengths is the breadth of our portfolio of products all the way from conventional through natural and organic. Our strategy is to deploy the assortment that every customer uses to optimize their strategy. So to a degree, we are agnostic. Natural are slightly higher margin, so you could say, well, you favor natural that way. Yeah, but that is not our mode. Our mode is let us make sure the customer has the products they need to run their play. Increasingly, natural and organic products are more on-trend, and therefore, there is a higher level of growth there. But the very large majority of our customers buy both. It is a real strength to be able, even the natural and organic customer that may want to do some dark store work and carry some conventional items to round out the basket, we are in a position to serve them. Ultimately, our assortment strategy is to help customers position themselves for differentiation that will lean harder on the natural products, almost by definition, because they are on-trend and much of the news in natural is innovation. That is a capability we have been working on to help our customers not only have the best products, but also the most innovative ones. Okay. That is very helpful. There has been a divergence in those two trends. But again, you play across the whole basket. Then I wanted to ask this because we often get asked this, but are you seeing, and it sounds like you are, more traditional retailers lean more into the natural side and shifting those SKUs? Are they adding outright, or is it really being led by more the natural and organic traditional grocers at this stage? Or is there an acceleration of the shift given what we are seeing in the consumer? Yeah, I think I would say there's a slight acceleration broadly, but the answer to your first question is both. It really depends on the retailer's positioning. Natural retailers are doing very well, and different ones of them are a little bit focused more on one thing or another, but generally, we're seeing them grow in above industry level, continuing their almost three decades of share growth. Within full portfolio customers, if I can call them that, there's definitely a consumer-driven shift towards natural products, and then what our organization's doing with them is trying to make sure they have the right assortment. There are new products that get introduced every day. Some of them, surprisingly, will do very well in a grocery store. Others, maybe not so much because it may be too early. Ultimately, it's fitting the products to the customer, and then do I think natural will continue to outperform more conventional products? Yeah, I think the enduring health and wellness food as medicine trend is here for a long time. Okay. That's very helpful. I just wanted to go back as we're talking about top-line demand to a comment you made earlier around FY 2027 guidance that you introduced last week, the return to top-line growth in the back half. Can you help us understand what gives you confidence in that outlook? Any more color around the $90 billion TAM you see and how that should support the growth? Sure. Well, background that you know but perhaps everyone doesn't completely. We, as a part of our strategy, the previous strategy looked at $150 billion TAM, which was basically every wholesale dollar. In the process of that, a number of decisions were made around DC deployment and customer relationships that were cash-consuming, unprofitable, and we engaged two years ago with all of those customers. Many of them said, "Yeah, I want to keep working with you. Let's redo this thing." Others said, "Nope. I don't want to change it. I like what I got. If we're going to separate, let me go somewhere else." We made tough decisions. We addressed our DC fleet and implemented really vigorously two years ago. That led to a year where our reported sales number was below prior year. We knew it would be. We knew exactly how much we had sold those customers and what those DCs represented. We went into that sort of 12-month period where we said, well, underlying growth was positive, but our reported was a result of DC optimization, customer relationship management. Then we did a large project for a natural player as they transitioned one of their categories from a set of suppliers to captive, and they asked us to handle it for them for a year. It was a big piece of profitable business, but we knew it was going to go away. What we've tried to do for investors is unpack all of that. As that math proceeds to this fiscal year and we cycle all of that, we've said that we will return to growth in the second half of the year, and we have confidence that we'll do that based on the math of all that, point one. Point two, the customers that we're serving are great customers. They're doing well. That gives us the ability to project growth. Then we have understanding about our business pipeline, which is potentially new categories with existing customers or new customers. Put all that in the mix, and that's what gives us confidence to guide for growth in the second half of the year. We're a growth company. We intend to grow with and alongside the most advantaged parts of the grocery industry. It's much more fun to grow than it is to explain why we're not. Yep. No, that's very clear and very helpful. We'll look forward to that in the back half. I wanted to touch on one point. You briefly talked about the new business pipeline, and I know that's something you've always had in the background, but I just wanted to spend a little bit more time, if you could kind of dig into the status of it today, how it's been building, what you're seeing for existing versus new customers, and just opportunities out there. Sure. One of the things that we did as a part of the reskilling of the company was we took a hard look at our sales organization and how to elevate and develop the most talented people, and we had plenty of really talented people, plus recruit strategically. Because ultimately, in a value-added strategy where you're looking to fit an assortment and a set of services and brands to their strategy, your account management organization's really important to getting it done. We built a much stronger sales force, and when we refer to pipeline, we just have visibility that we review each week, looking at conversations with customers about different extensions, different opportunities to do more for them, and then potential new customers. We have a set of standards about which we sort of position them in the pipeline, and as they get to higher confidence, we start to talk with you all about the fact that the pipeline's strong, and that's because we expect them to start to print. The sales cycle's pretty long because you're having conversations and making sure that what solutions we're bringing forth would actually produce the ultimate impact that the customer wants, and you don't want to rush into that, but you also want to capture opportunity when it's there. Yeah, absolutely. That's helpful color. Thank you. You mentioned services, and I wanted to dig in that before we dig into other pieces of the business. It's part of your wholesale offering. It gets a little bit of air time over the years and ebbs and flows, but I just want to get a status update on that. Where are the opportunities today? What's resonating now? What type of services? Where are the biggest opportunities there, and how you think about kind of top line versus margin contribution? Sure. Our professional and digital services, each led by a different leader are value-added services. What I mean by that is that our pricing for the service is directly related to the value it creates. Unlike wholesale, where typically we're trying to keep our fees down. Our customers are competing in a very dynamic marketplace. They don't need us to try, nor would they tolerate us margining up just because we decided to. So we have to earn virtually every penny of margin we get. When it comes to a service, let's say we looked at your credit card fee program, and we said, "How about this program that we could offer you based on some scale negotiation we've done with some of the credit card companies, and that saved you $100,000?" We could say, "We think we should get $20,000 of that." Now, that's nothing like our normal margins, right? But it's value we created, and it's a portion of the value that we would like to get ourselves. With that business model, what our services groups are doing is looking for ways, whether it's to aggregate a relationship with a technology company or to find a way, particularly, let's say a retailer is doing a complete assortment reset. We have arms and legs that can help do that reset work much faster. Or we have relationships with professional services companies that we can have help us do something that would create value and everybody shares in the cost. So it's a much more entrepreneurial effort. It's completely in service to the customer strategy. And the areas that are most resonant are areas that save lots of money and areas that help propel the implementation of a strategy that the customer wants to pursue. And we continue to configure the portfolio of services to try to make sure we have something to serve whatever the customer's looking to do. That's great. Thank you for that. I want to go back to the operational improvements that you've made. We've talked about the strong growth over the last two years. You talked about the high confidence outlook for 2027 and into 2028. So it's been a tailwind. You expect it to still be a tailwind. So I just wonder if you can catch us up on where we are on the runway there as you've rolled out a number of initiatives. How much more optimization do you see? What are the main projects that are going to drive the growth over the next couple of years on that EBITDA margin expansion? I know specifically you called out Lean 2.0 after you've done Lean in the past couple of years. So any color there that's a new initiative that we've heard about and just anything around AI automation, just what are the levers that are still there for further optimization? That's a very multifaceted question, Leah, and a good one. Matteo Tarditi, our President and Chief Operating Officer, is here today. And a great example of the talent upgrade that we've done in the company. Matteo's been our Chief Financial Officer and President for the last couple of years, and he's transitioning over to be Chief Operating Officer, and his responsibility includes sales, supply chain, IT, and Lean. And it's a perfect way to deepen and intensify the next chapter of our improvement agenda. We always say effectiveness first, efficiency second. That's sort of a simple person's way of saying safety, quality, service, cost, which is the Lean mantra. And Matteo is an expert in it. He's a Black Belt and Six Sigma expert, but as the CFO, he was encouraging us to implement it and driving it from his seat. For his development and for the benefit of our customers and our shareholders, he is now fully accountable. What is Lean 2.0? Lean 2.0 is we built the foundation, now we are going to start using it. Matteo, if you know him and you do, is very into the details and a very strong leader, and we intend to maximize the process improvement and human system benefits of Lean. Alongside that, we are and have been for the last two years, implementing new technology. We have a North Star out there on the hill that we talked about at Investor Day called DC of the Future, which has modern technology, which is harmonized across our network so that we can continue to drive steps of effectiveness and efficiency and continue to make our network unparalleled in terms of its ability to operate efficiently, to operate with high quality, to build that DC of the Future. I guess it nets down to one thing that I think is important for investors to understand, which is this was a company, a great company with an amazing heritage, that began on the idea and conviction that people should eat healthier food and should have access to clean and really cared for food. But it was also a compendium of acquisitions that had not been integrated, including SUPERVALU, which we got somewhat interrupted midstream when COVID came in. There is a lot of really powerful work going on here that for years wanted to be done, but it just was overwhelming and COVID became so operationally demanding, it got put off. We are now two years in to implementing on a roadmap that will go well past what we have formally talked about in terms of outlook or multi-years. The translation of that is customers have a lot to expect, a management team that is completely discontent with what exists, and that $4 billion of spending with the help of Lean, with the help of technology, will continue to get more effective and efficient for years to come, and we can now start to see buckets of improvement out years. We kind of put it all together. You mentioned AI. The last thing I will say about AI is AI is a very powerful tool. We are pursuing it in three ways. Phase one is embedded in technology that we are adapting. Our procurement and inventory system has a very strong AI base and runs on AI and has delivered hundreds of millions of dollars of more efficient inventory that shows up in free cash flow improvement, as well as higher customer fill rates. We have a technology out there helping our drivers not turn too fast, not change lanes without a blinker, not be distracted in a cabin. Huge increase in safety, which ultimately becomes cost savings, but starts with something even happier than that. That sort of embedded in was phase one. Phase two is personal productivity, where we are starting to socialize AI tools within our environment in a very secure way to help our associates become more productive. The third one, which we are pursuing with a lot of discipline, is dedicated use cases, and we have a strong governance system. We're meticulous about looking at the detail and making sure it's secure, but u ltimately, use case improvement will be part of what we can unlock in some of that productivity I talk about out there in the future. Through those three pillars, we have confidence that our AI implementation will produce benefit. It's a lot of great detail, and we've definitely seen it in the results with improving shrink in a number of initiatives and the team that you've built to drive all that. That's great, and great to see the runway ahead. You did mention your drivers, right? You do have a lot of road miles out there as you're moving these goods around the country, and with that comes fuel and diesel costs. That has been somewhat of a recent headwind for UNFI, and oil prices remain high today. Could you provide an update on what you're seeing there and how you're planning for fuel expenses into next year? Sure. Generally, and you're familiar with the concept that Matteo brought to the company around high confidence planning. What that means is that when we go out with a commitment to deliver a certain set of results, we have managed it through a process to get to what we call high confidence, which means we have multiple ways to get there. That could, if we're successful and our innovations hit, turn into a beat. It will hopefully never turn into a miss because there's multiple ways to get there. Fuel is an example of something. Obviously, when we put our plan together last year, we didn't expect the increase in fuel to happen the way it did. Nobody did. Our way of managing it is through some traditional tools like hedges and our customer contracts and our supplier contracts, and that gives us a way of sort of keeping our exposure in a reasonable place. Probably the more exciting way to address it is to use the crisis to look at ways in which we can be more efficient with customers to reduce miles. Samsara happens to be a technology that helps with that. That entire endeavor and looking critically with our customers, Matteo was just with one in the Southeast looking at how we're set up to distribute to them and trying to find ways to win through shared accountability to deliver more efficiently into their network. A range of levers. Would never put myself as an expert to forecast what's going to happen in the fuel market, but we are in a position to manage it as it goes. That's great. Thank you. I wanted to touch on your retail business. It is relatively small for you guys, but you do have a few banners in some regionalized markets. Could you just talk about your recent trends there? What are you seeing in the competitive environment, and how does this segment fit into your long-term strategy? As kind of stepping out to 200,000 ft, as you can appreciate, three years ago-ish, when we were going through the foundation setting and the strategy build, we had a rigorous review with our board who are very talented and highly engaged in this. We looked at all the pieces of the business and asked the question: How can we best serve a defined set of customers and a designed set of needs, and how can we maximize value for our shareholders? We looked at retail inside the conventional ecosystem and separately, and what we concluded is based on the structure of the Cub brand in the Twin Cities, about a third of the Cub business, a little less, is franchised, and all of those franchisees, virtually all of them, have separate banners that they run themselves. They're all customers of ours. What you have in the Cub ecosystem is something that's kind of unitary to that whole distribution center and how we operate in that market. We decided to be a full portfolio company. That meant we were going to be a retailer, and how could we then rebuild Cub that had been somewhat adrift for 15 years? We recruited David Best, outstanding talent. We've given him room. Last year in our high confidence model, we had the room to say to him, "Look, you figure out how to get customers moving again, and we'll give you the room to do that." He's been completely rebuilding his team. David grew up at General Mills and Target, worked at an independent retailer, has a long Rolodex of people who enjoyed working with him, and he has unashamedly built that team, promoted from within. Too early to say that we're making concrete progress, but we'll let our results speak for ourselves. As I mentioned at Investor Day and reinforced recently, we don't have a retail turnaround in our high-confidence plan. If it happens, it'll add. I'm excited about the work he's doing and the progress he's making, and look forward to reporting on it in the future. That's great. We saw sequential improvement in the latest quarter, which is great. I know we're nearing our chat, so I wanted to make sure we touch on this because all the operational improvement, it drove such a tremendous improvement in the free cash flow, which you mentioned earlier, and an improvement in leverage over the last few years. With that, you're nearing your leverage target. How are you thinking about capital allocation today? How might that change once you hit your target? Any comment on what you view around M&A and how that fits in the longer-term plans? UNFI was a consolidator historically. Very relevant topic right now for us. We're moving into a new chapter where we're producing free cash flow every year. We're still focused on taking down that leverage. That's still in our matrix right now and i nvesting in the business. DC of the Future will happen across a network and involve technology implementation, automation, where it makes sense, and that obviously will use some capital as we go forward. Although, I point out managerially that capital's never the restraining factor, it's the talent to do it well, so we're focusing on making sure we have the right change management. We just launched the DC of the Future in Joliet, Illinois. It's going to be fantastic for customers in that region, but it's bumpy as you implement all that and put all those DCs together, so Matteo's task is to figure out how to make it less bumpy in the future. As we go forward, the matrix of exactly how we'll think about the allocation of resources and returning to shareholders. We've been opportunistic buyers of our stock. We just added a new program for $200 million approved by the board at the last meeting. On M&A, it's not out, but a lot of our opportunity, and significant opportunity for years to come, comes with things we can see that we can do better ourselves. Never say never, but that's how we're thinking about it, and we'll have more to say about it in the upcoming quarters. Okay, great. Yep. No, that's great color, and I think a great discussion of all the tremendous work you've been doing over the last several years and all the look ahead. Thank you, Sandy, for our chat today and- It was great to be with you. Thank you.