Greetings, and welcome to the United Natural Foods, UNFI Preliminary Fourth Quarter and Fiscal Year 2015 Net Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Katie Turner for opening remarks. Thank you. You may begin.

Thank you. Good morning. By now you’ve likely review UNFI’s preliminary fourth quarter and fiscal year 2015 net sales and earnings release, issued yesterday after market closed. The press release and webcast are also available under the Investor section of the company’s Web site www.unfi.com. On the call today are Steve Spinner, President and Chief Executive Officer; Sean Griffin, Chief Operating Officer and Mark Shamber, Chief Financial Officer. Before we begin, we'd like to remind everyone that comments made by management during today's call may contain forward-looking statements. These forward-looking statements discuss plans, expectations, estimates and projections that might involve significant risks and uncertainties. Actual results may differ materially from the results expressed in these forward-looking statements. In addition, the press release issued yesterday and on today’s call include both GAAP and non-GAAP financial measures and they will referenced today including adjusted earnings per diluted share. And this also reconciled in the press release and it can be found on our company’s Web site. And with that, I'd like to turn the call over to Steve Spinner.

Thank you, Katie. Good morning everybody. So today’s call is going to be a little bit different than most, I am going to make a couple of brief introductory comments and then we’re going to straight to the Q&A and remember that our formal fiscal ’15 and ’16 call will take place on September 14th. So we may end up deferring some of your questions to our formal announcement date in September. Given the changes in the marketplace we felt that it was important to get high level fiscal year ’15 as well as fiscal year ’16 estimates out as fast as we possibly could. And as we disclosed in the press release we’re still finalizing 2015 and we’ll provide our audited results on September ’14 during our regularly schedule earnings call for both year-end ’15 as well as our guidance for fiscal year ’16. And we continue to hone in on our detailed 2016 expectations. Again as I said earlier during the call, we may defer you to our September 14th year-end results and fiscal ’16 guidance. However as I said also a moment ago, we do feel it's important to provide some summary of our ’15 and top-line ’16 and that’s what we’re doing today. The current trends are good, the first several weeks of our fiscal year are up approximately 100 basis points versus our P12, but again I would caution you it's only the first two weeks of the year, but we’re encouraged. Our new customer contracts or extensions are being negotiated in normal course, we’re not seeing any new additional competitive pressure and those customers are focused on growing their categories that they procure from UNFI. One reminder in looking at our fiscal ’16 estimate is that we do have an interest rate swap that…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of John Heinbockel with Guggenheim. Please go ahead with your question.

So Steve I’ll give you two at once here, but let me start with if I try to take out the contract you lost and then the ones you picked up and then just for that in core, it looks like you've got core accelerating by 100 to 200 basis points this coming year, right, from maybe up into the eight to nine range. Is that all the Tony's roll out? Where does that roll out stand? Are we just going to get one DC this year or perhaps more? And then my second question is what does the acquisition pipeline look like and do you think evaluations are reasonable enough where you can actually get something done this year?

Okay, good morning John. So I think your math around the sales is directionally accurate. Now that we've rolled out -- we've had Tony's for a year, we are not going specifically breakout what we sell within Tony's and what we sell within UNFI. And additionally, we do put ourselves in a little bit of a competitive disadvantage when we talk specifically about where Tony's is going and when it's going. Now we've already disclosed that Denver is a market that we are deep into rolling the Tony's product line out and that's still the case. But we're not going to provide a lot more clarity than that other than to say that those product categories are extremely fast growing for us, we have high expectations for those categories, the parameter in particular as we move across the country and I would also say that same thing is true for our ethnic/gourmet product offering because we're moving quickly as we identify opportunities in very core and very important markets where we have a lot of capacity and so those are the two product categories that I have a lot of confidence in. From the M&A perspective, we have a very disciplined approach to M&A and I don’t intend to break that discipline and I think that for a lot of companies UNFI is the acquirer of choice. We're not -- I feel good that we haven’t been put in a position where we’re not able to get a deal done because of the multiple expectation, but on the other side UNFI is in the market to buy some of the manufacturing and marketing companies that have been sold over the last year or so where multiples are in the two or three times sales. So we don’t play in that world, we’re buying companies that are distribution by nature and I feel good that the discipline that we've attach to M&A will continue. So I don’t see that the multiples are going to contract significantly and I also don’t think they are going to expand.

Our next question comes from the line of Mark Wiltamuth with Jefferies. Please go ahead with your question.

Hi. Is there a way you can tell us what the X acquisition sales growth was for the fourth quarter and also what you are assuming X acquisition and X Albertsons for the year ahead. John alluded to it, but if you could just tell us what the number is, that would be helpful. And also just a little commentary on who your next biggest conventional customer is out there behind the Albertsons?

Yes. So Mark I'll answer that last question first and that, we generally don’t disclose who the customers are, as from a size standpoint. I would tell you that we don’t have anybody that's north of a 5% customer and so we wouldn’t otherwise be breaking out on the super market side who is next. As it relates to fiscal 2016 and the breakout, I mean, Tony’s -- again we’ve left the Tony’s acquisition, so there won’t be any further disclosure once we report the full Q4 numbers in September and on the Albertsons side, I would say that we gave what they were on a trailing 12 months basis when we announced the contract early termination. But we aren’t going to give any details to what we expected their growth was, I think you folks can put in growth estimates on your size as to what it would have been and get a reasonable estimate. With respect to the final question, given that we’re still having our auditors go through, I kind of want to defer on giving the X acquisition number. But I think I would feel comfortable saying that the sales growth for the fourth quarter did accelerate a little bit further beyond what we had talked about in the earnings call back in June where we said we were up 40 to 50 basis points sequentially. We did see a little bit further acceleration throughout the fourth quarter. So I’d say that the X acquisition number for the fourth quarter will probably be north of that 7, 7.1 [ph] that we had talked about back in June. And then the only other thing to maybe add and I’ll note that it's only the first two weeks of the quarter, but given that somebody will likely ask, just as well, we’ve seen an acceleration coming out over the fourth quarter through the first two weeks of the first quarter of fiscal ’16 in excess of a 100 basis points. But again I would caution that it's only two weeks. We’ll provide an update when we report in mid-September, but we have seen a nice acceleration with the start of fiscal ’16.

Our next question comes from the line of Andrew Wolf with BB&T Capital Markets. Please go ahead.

Couple of follow-ups, so I’ll call it one on the internal sales. The 1% pick up here in August, the acceleration is that from existing customers because I think -- I don’t think you get benefit from Canadian currency yet. So is that just what’s going on with the existing customers?

Yes, any lapping of the Canadian currency headwind that we had will occur in the middle of the second quarter probably around late November, early December as when we will lap that headwind that we’ve had.

And just the other follow-up is, for both Q4 acceleration in last two weeks, is that across all the three segments that you report? And my particularly interest for you guys is it also similar for the independence?

Yes, I mean I don’t think we have enough comfort in giving clarity around which channels it's accelerating in at this point other than to say the acceleration has been fairly broad based.

Our next question comes from the line of Scott Van Winkle with Canaccord Genuity. Please go ahead with your question.

A little follow-up on Andy’s question if I could, couple of days ago Hain Celestial reported and one of their comments was not seeing really any comp growth in the core natural food channels. So I am wondering if that’s a fair statement for UNFI or if we’re seeing new business, I am wondering kind of where the acceleration is coming from the standpoint of doors or comp, and I know you probably can’t answer yet, but I’ll throw the question out anyway.

I mean again comp growth is less important to us because what’s embedded in our comp growth is new store openings, and they certainly have continued to be fairly robust pipeline of new store openings across many of the customers that you follow -- that we all follow. And so I would defer you for any further clarity to our September call, when I think we’ll be in a better position to talk about that.

Our next question comes from the line of Joe Edelstein with Stephens. Please go ahead.

Could you give us a sense for how much of your book is really up for bid as we think about 2016, I mean if you're signing three to five year contracts, I mean, we might be thinking a third or 20% of the business is up every year. But I was curious is there any lumpiness to which -- this year or perhaps maybe next year might be a bit heavier where you see that mix coming in a little heavier in any particular year and then also do you have other contracts that would allow early terminations without any sort of break fees, like what we saw with Albertsons?

Well. Let me comment on the last customer you just mentioned because it's certainly been a lot of noise around that one. This is the situation where would the customer asked us to terminate early, this was not a UNFI driven decision to escape the contract. This was a purely economic decision driven by the customer who asked UNFI to terminate the agreement within 60 days, which was something that we were not accustomed to, but we want to make sure that we have customers with us who want to be with us. But first and foremost, the customer asked us to terminate early within 60 days and we agreed. As it relates to any other customers -- as we've said before that customer wins are usually pretty lumpy you win -- first of all you don’t win many customers of that scale, because there are just not that many out there. So I would say there is nothing unusual about the customers that both renewed, that contracts end, coming up in the next fiscal year. This was kind of an anomaly that quite frankly has gotten blown way out of proportion and we’re eager to put it behind us. But I would say that there is nothing unusual about any contracts expiring or renewing within the next 12 months. And the only thing I would add Joe, just is that, if you think about it we have our largest customer who is under -- who is in the middle of a 10 year deal that has five years remaining as of next month and so really you’re looking at let's say the remaining 60% to 65% of the business that's up in that three to five years cycle, sure there is some lumpiness to it, but it's never anything less than say 5%, it’s never anything more than say 20% to 25%. A lot of contracts don’t really get to the end. We have renewals during the process of the existing arrangement where we might renew it before they -- it even gets to the last year of the contract. So a lot of times it might be a five year contract but it always gets renewed with a year left. And I would also say that historically the average tenure of UNFI agreement with a customer is not in terms of two to three years, it's in terms of decades. But tend -- then those contracts tend to get renewed fairly regularly. This again was an anomaly, we had it for a brief period of time and life goes on.

That's very helpful, and in fact you did just extend the contract with a large independent customer and I was hoping you could just talk about some of the puts and takes on the negotiation process. Did you feel like you needed to get more aggressive on price, to keep that customer or is that just a continuation of really the long term relationship?

Yes. It's a long term relationship where we very much value them, they very much value us. We provide a very unique service level, those discussions were going on way before any of these discussions began taking place and that negotiation occurred in normal course. There was nothing unusual about their announcement yesterday.

Our next question comes from the line of Vincent Sinisi with Morgan Stanley. Please go ahead.

Just wanted to ask a couple of things around your newer categories, if we look at Tony's or ethnic/gourmet. Can you folks give just maybe a little bit more color in terms of the uptick that you are starting to see with some of your existing customers and if you think some of these newer categories in and of themselves are maybe sparking some of your new customer pipeline as well. And then maybe just one more addition to that, you had mentioned a while back that you were seeing some pretty good growth opportunities within your private label categories as well any updates there?

So I'll answer the last question first on private label. Our private label business or our branded business which is managed by Blue Marble and those are primarily in the Field Day which is a private everyday low price product for -- only for our independent grows phenomenally every year. And our -- what some people would refer to as our UNFI private label which is broadly available is Woodstock and those two brands combined grow very high double-digit every year and we expect that to continue. The SKU basis expanding rapidly, the adoption, it's expanding rapidly and as a matter of fact within the Woodstock brand we also have a production facility that makes organic and natural nuts, nut mix and trail mix, granola and that business not only produces product for Field Day and for Woodstock, but it’s also a significant private label producer for many of the biggest retail brands both serviced by UNFI and non-service by UNFI. And they are growing extremely well. As it relates to the category growth, it puts UNFI in a really unique and distinctive situation, because our view is, we want to be able to sell the customer as much as we possibly can as relates to gourmet/ethnic products that come out of our Woodstock facility, both organic and conventional produce core grocery and frozen refrigerated dairy, specialty cheese, food service. We want to provide customers with every reason in the world to do business with UNFI across as many or as few categories as they choose and that’s kind of a vision for UNFI of the future. Now today the only limitation is those SKUs aren’t available on every single geographic area. But we do have the distribution capacity in majority of the key urban markets to be able to have a strong product offering once we either grow it organically or acquire it. And that’s what makes our business really exciting as you look out over the next couple of years.

And, Steve, with that, in the geographies where you do have the products available, any further color in terms of what type of adoption you're seeing from your existing customers, or if these in and of themselves, some of these newer categories, are bringing in new customers from the get go?

Well, I mean the way I would direct you is, economically our whole business is based on scale, the more product we can deliver, the less expenses it is for us to do it and the less expensive it becomes for the retailer to buy it. And so it makes all the sense in the world for the retailer assuming they have the confidence in our ability to do it, to add as much product into the program as they possibly can, because economically it just make sense. If you think about a typical retailer who is buying their center store frozen refrigerated and dry groceries from UNFI and all of a sudden we have capacity in ethnic/gourmet, we have capacity in specialty cheese and in food service and prepared foods. All that does is drive the cost down for everyone. And so while some customers may embrace it fully, some customers will embrace it partially, but we want to provide a reason for every retailer to do business with us. For some it may be a very small relationship in specialty cheese, in some it maybe are very broad relationship that represents every product category that we play in.

Our next question comes from the line of Rupesh Parikh with Oppenheimer. Please go ahead.

I had a question for your FY16 guidance. I know this year out of stocks and Albert's Organics produce depletion was a headwind to your organic sales growth. Just Wanted to get a sense of whether we're now past those headwinds and how you guys are currently thinking of those two factors?

Well actually Albert’s Organics, I would say in the last several periods the service level of fill rate to our retailers has improved in a range of 100 to 200 basis points inflation, while deflation has moderated. And their fresh business has continued to accelerate. So we see stronger trends ahead for Albert's And I think the service level of comment is true on the UNFI side as well. We've seen some fairly significant improvement in overall supplier fill rates and as a result in UNFI overall fill rates which makes us feel really good about going into the holiday.

And I would just add that the other headwind, that I think Andy touched on in his question was that we've had the FX which will mitigate when we get into the second quarter. So that had been above the 60 to 70 basis points headwind depending upon the quarter so far this year.

Our next question comes from the line of Stephen Grambling with Goldman Sachs. Please go ahead with your question.

Just as follow up on that -- on the guidance, I guess it's still early but could you help us think through any of the key puts and takes embedded in the margin assumptions for fiscal 2016 and then also as you look at the CapEx expectation if any sense for what's embedded in there is that really kind of maintenance kind of CapEx level or is that the right run rate kind of going forward? Thanks.

Let me answer the first part Stephen and then I will differ to Mark on the margin question. We wanted to be really careful about our ’16 guidance. We would -- as you might imagine there is a lot of moving parts because as you transition through what we’re in the process of transitioning there is a lot of things that you can get wrong and were going to get it right. So number one, I think that generally our view of ’16 is a fairly conservative one, but one that we’re comfortable with. As it relates to CapEx, I had mentioned in my opening remarks that the bulk -- about a third of our CapEx usually it just maintenance CapEx and if you look at the balance of the CapEx for fiscal ’16 it's primarily driven around IT projects continuing to rollout our WM platform as well as a couple of other core initiatives for us. Looking out beyond fiscal ’16 I 'm kind of hesitant to do that. I think we’ll see what happens with overall growth trends, we’ll see what happens with M&A and we’ll see what happens with the new customer wins and we’ll kind of cross that bridge when we get there. But we felt it was important looking at our fiscal ’16 numbers to tighten down our CapEx and get it back down to where it's been to really generate some free cash into the current year. Mark do you have any commentary on the margin?

Yes. I think the only thing I would say is, I wouldn’t want to guidance ’16 until we are able to talk about the gross margin and the actual operating margins for ’15. So I think that part of the questions, Stephen, we’ll differ until the call in mid-September.

Okay that works. Thanks for all the transparency this morning.

Our next question comes from the line of Scott Mushkin with Wolfe Research. Please go ahead with your question.

So I'm going to attack the concerns that come into my office when I'm talking to investors and it was kind of one on margins and two on growth, concern number one is that given the emergence of KE [ph] as competitor that this is going to just pressure margins on your businesses as we move forward. The two are in growth basically it has to do -- and I know Steve you talked about this before, Direct, you have sprouts taking more Direct and I know they are not necessarily a big customer of yours, but I do -- we hear more and more chatter about that and then the second thing is your biggest customer having issues, how do you differentiate your growth rate from them. So those are kind of the three areas, I was wondering if you could take those head on?

So let's see let's start with the last one first. We have a great deal of confidence in Wholefoods we have a great deal and confidence in their management team, their competitive, their store experience and again I've said this couple of times we sell primarily to the central of the store which is strong, as it has been strong, continuous to be strong, and we get the benefit of their new store opening. So our overall growth within the super natural channel continuous to be good and were fairly optimistic that it will continue to be good. As it relates to Direct, this is kind of my view of Direct, it certainly it's always been there, has it been a little bit more ramped up now than it has been in the past, maybe. But then I think a lot of that is just being driven by the hype around the space and the retailer’s kind of emotional need to want to have the products at retail. But again, been at this now for seven years and the trend always seems to come back to, if you look on paper economically looking solely at the difference between cost to distribution through UNFI or cost on distribution to captive or direct. And remember that only 25% of our business had a captive option, the rest doesn’t. And so when you look at this whole direct notion, ultimately what the better retailers come back to is that, yes, maybe they can save 400 to 500 basis points in distribution feed by moving it from distribution to captive. But when they calculate the service level difference, in other words, they know the UNFI service level, because we are the largest consolidator of slow moving product in the country, which means we know…

Our next question comes from the line of Karen Short with Deutsche Bank. Please go ahead with your question.

Just a couple of housekeeping, on the top-line can you just clarify what your inflation expectations are within your top line and then what the FX impact expectations is? And then I had bigger picture question.

Yes, with respect to inflation, we've been running mid to high 2s right now Karen, so there is an expectation that continues through the first half of the year and then I usually don’t want to go out more than six months, just it can go either way, but I don’t think we're seeing anything meaningful step up or step down for the back half of the year. But anywhere from 2.5 to 2.75, I think is a range we expect for the next six months based on what we have seen. And then as it relates to the FX, we -- on a year-over-year standpoint we would expect the headwinds to continue, the Canadian dollar is fluctuating anywhere from $0.76 to $0.80 on the U.S. dollar at this point roughly 1.3 to 1 and I think we are not expecting any kind of meaningful movement there based on all the different forecast that we have seen. So we've got that factored into our plan for ’16, but on a year-over-year basis we go from having a headwind of 60 to 70 basis points through the November timeframe as I mentioned down to a headwind of maybe 10 to 15 basis points if those forecast hold true. And if there are any -- if the Canadian dollar strengthens at all it maybe even gets a little bit better or little bit less than that.

That's helpful, okay. And then within your CapEx and I guess your free cash flow, you talked about the free cash flow that you expect to generate this year. So I guess a question I have there is maybe some thoughts on allocation of free cash flow and then following that it seems like it could be much more likely that you are much more focused on M&A this year and I'm assuming if that's the case, it would be in kind of specialty and/or ethnic categories. So is there anything out there in M&A that it's meaningful on size to really move the needle in those categories? And is that a fair assumption in terms of free cash flow allocation this year? Thanks.

I think it's a fair assumption in terms of free cash flow generation. I would say with respect to M&A and being able to move the needle. We think there are some opportunities out there that would be attractive to us, but I wouldn’t want to give any sort of reference on size from that standpoint, simply to not tip off on what we might be looking at or where we might be looking. But you’re thinking is correct.

Okay. And as in borrowing M&A, how should we think about allocation and free cash flow?

Well. I think our focus is to continue to build the business. We still see ourselves as a growth company and that's how -- that’s what we’ll allocate the capital towards.

Thank you. Our final question comes from the line from Meredith Adler with Barclays. Please go ahead with your question.

The first question I have is probably to march, can you give us the sense of how much is in your earnings per share guidance for 2016, that will relate to a lack of leverage because of the lost contract. I remember you've got some severance in there, so clearly you are doing your best to lower the cost but is there much that still needs to come out over the time?

I would answer by saying, Meredith, the way we usually talk about our guidance is that I usually talk about it an idea that there is a basket of 10 things and the low end of the range has seven going wrong and three going right, and the high end of the range is the flip. So I would say that the risk from a leverage standpoint is one of those items this year in the basket is that, we talked about it a little bit in answering some of the calls after the announcement, that we've identified in our models as to what we think the loss of leverage is with that business coming out. The restructuring takes out some of those fixed or semi-fixed costs. But to the extent that we’re successful I think that that allows us to move the range up a little bit if the cost that we’re looking out there, deleveraging is less than we anticipate and if it's more, that may tend to trend us towards the lower end of the range. I think one thing that we what anticipate as we get closer to the mid-September and the fourth quarter earnings state is that, we typically do not guide the quarters and I think that from our standpoint as we look at taking the costs our, we are very likely to give earnings guidance for the first two quarters of fiscal ’16 to try to address where some of that deleverage risk may occur and to the extent that any of it happens. And then leave the back half of the year with the remainder of the guidance. So I think that there is certainly some in there and I think that in mid-September we’ll probably give a little bit better direction there. But it’s always factored into our basket, it's just one of those 10 items that I referenced.

And Merry, if I would give you a little more clarity, when you think in terms of leverage. We built a big brand new facility in Gilmore in California which is south of San Francisco and these buildings -- you got to plan two, three years in advance, especially in California. And so when we built that building, we didn’t anticipate having the kind of change in customer dynamics that we’re facing right now. And so we deferred the opening of Gilroy from right around -- it would have been opening right now, to February and that building will obviously be opening with less volume than we had originally anticipated. And so yes, there is a leverage issue within that building, but I will tell you the up side is that, I am a firm believer in, build it and they will come. And we’ve got a big beautiful facility, very close to big population and a lot of customers and that gives us the ability to offer up that capacity in a pretty interesting way. But as it relates to ’16 that building will surely be a drag until we can get it moving.

And then I have a question that I am not exactly sure you're want me to ask, but I’ve had some people ask me whether KE [ph] would be able to take more substantial business from you, and I think we’ve had some conversations and my sort of guess is that they are going to be very, very busy, and perhaps rather overwhelmed because of this new contract. And that it just didn’t seem very likely that they’re going to be running out now trying to pick up more large amounts of business.

I certainly wouldn’t be comfortable talking about that. I can tell you that I would be disappointed if we didn’t have a lot of interesting new customer opportunities, I would be disappointed if we didn’t have a lot of opportunities to expand our current relationship with the existing customers, regardless of who they buy from. I would say that again the competitive landscape is not in any one distribution company, it's across a lot of them and I would really urge people to not look at one singular event in time as a basis for how the rest of the year or the world for that matter is going to play out.

That is fair, and another just question that I had for you is, I used to think about your contracts being sort of monolithic, you did everybody, everything for a customer or you didn’t do it at all. But I mean -- after I had spent some time with you Steve it seems to me that there are -- it’s almost like a Chinese menu where you take, customers have the choice of some various different products that you offer. Is that fair way to look at it?

It is, now again the economics work in such a way that the more product that can be pushed into distribution, the better it is for us and the better it is for our retailer. But we can certainly sell retailers limited categories, we can sell at DSP, direct-to-store, we can sell it to their distribution center if they have one, there is many, many, many different ways that we can get product to a customer across many, many different product categories. Economically, it makes sense for them to migrate as much as they can. But we’re certainly okay selling retailer X just products, retailer Y just ethnic/gourmet and retailer A just center store.

And the final thing I want to say, is more just a suggestion. Again when I’m talking to people, I don’t think a lot of people understand really what slow return means, it might be useful perhaps when you give out your actual for the fourth quarter, that you provide some data about what -- how you would compare slow turning natural organic products with other kinds of products, because I really have talked to enough people who just don’t understand the whole concept of slow return.

That’s a great suggestion, I mean I would give you one analogy before we close, but the best one that I’ve ever given is if you think about product movement within a supermarket, so typically supermarkets have a snacks and soda in one aisle and then it's usually where you find it. The number of units that pass through that one aisle are greater than the number of units that are sold in the entire balance of the entire store. And if you were to break out natural organic even further you would see how vastly different the product to attributes in terms of movement are from soda, snacks and related kind of items. But I think it's a good suggestion and we’ll try to include it in some further disclosure.

Okay. Thank you everybody for joining us this morning and we look forward to giving you a lot more detail during our September 14 year end close of ’15 as well as our guidance of fiscal ’16. Thanks and have a great day.

Thank you. Ladies and gentlemen. This does concludes our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.