United Natural Foods, Inc. (UNFI) Q1 2019 Earnings Report, Transcript and Summary

Good afternoon. My name is Jesse and I will be your conference operator today. At this time, I would like to welcome everyone to the UNFI First Quarter Fiscal 2019 Earnings Call. [Operator instructions] Thank you. Steve Bloomquist, Vice President of Investor Relations, you may begin your conference.

Thank you, Jesse and good evening everyone. Thank you for joining us on our first quarter fiscal 2019 earnings conference call. We appreciate everyone’s flexibility since we moved our call from yesterday to today in recognition of the financial markets being closed to honor former President George H. W. Bush. By now, you should have received a copy of the earnings release issued this afternoon. Press release, webcast and a supplemental slide deck are available under the Investors section of the company’s website at www.unfi.com. Joining me for today’s call are Steve Spinner, our Chairman and Chief Executive Officer; Sean Griffin, the CEO of SUPERVALU; Mike Zechmeister, our Chief Financial Officer; and Chris Testa, President of UNFI. Steve, Sean and Mike will provide a business update, speak about our performance in the quarter and address our fiscal ‘19 outlook for the combined company. We will then take your questions after management’s prepared remarks. Please limit your questions to one question with one follow-up. Before we begin, I would like to remind everyone that comments made by management during today’s call may contain forward-looking statements. These forward-looking statements include plans, expectations, estimates and projections that might involve significant risks and uncertainties. These risks are discussed in the company’s earnings release and SEC filings. Actual results may differ materially from the results discussed in these forward-looking statements. And lastly, I would like to point out that during today’s call, management will refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP financial measures are included in the schedules included in our press release. With that, I will turn the call over to Steve.

Thank you, Steve. Good evening, everyone and thank you for joining our first quarter earnings call. I will start with some comments on the quarter and our new combined fiscal 2019 outlook for the completion of the SUPERVALU acquisition, which replaces our original UNFI standalone guidance. Sean will then provide some remarks about SUPERVALU, including our integration process. Mike will then go over some more details on our financials and outlook, which as mentioned now reflects the combined company, UNFI and SUPERVALU. This acquisition was and is all about the creation of value. We are transforming the way in which food is supplied throughout North America through synergy, scale, services, products, and people, providing better food for a better future. While we are clearly disappointed by the near-term results in SUPERVALU, we started this process with a viewpoint that in order to build the business for the future and to create considerable value for our constituents, UNFI would serve its shareholders over the long-term by becoming the premier wholesaler of products and services throughout North America. This thesis has not changed. In fact, as we have begun to integrate, our outlook for the combination is stronger than ever. We have no doubt that the combination of UNFI and SUPERVALU will translate into more significant value for shareholders than UNFI as a standalone company over time. I do want to recognize the incredible work done by our leadership team and all of the associates of UNFI and SUPERVALU. We worked diligently to complete the acquisition of SUPERVALU, something we accomplished 1 week prior to the end of our first quarter. There is a heightened level of excitement and energy now that we have combined the two organizations, and together we are transforming food across North America as the premier wholesaler of products and services. We have begun the integration work. And I want to remind you that strategic M&A was one of our core strategies in fiscal year ‘18 to fulfill our strategic imperative to build out the store. The acquisition of SUPERVALU accelerated our progress towards this strategic objective. The size of our business at over $20 billion in revenue with over 20,000 associates, the importance of a successful integration and capture of synergy means we will be doubling down our entire team’s focus on this work. As we previously outlined, strategic rationale that led us to acquire SUPERVALU is the creation of value driven largely by delivering meaningful cost synergies, increasing our scale, distribution network and capacity while enhancing and leveraging our core technology and systems, enabling cross-selling through a variety of greater products and services, essentially completing our build-out the store model with meaningful revenue synergies. More customers and suppliers across a wider berth of retailers, representing all channels, all of which will drive value for UNFI and our stakeholders. Now, we are facing several near-term headwinds, which include; first, the macroeconomic environment of retail continues to be challenging, more and more retailers competing for their share of the consumers’ dollar. Products are now available in more and more outlets, including online. We expect the scale, the product offering, and services of a combined UNFI to offset this trend as we start to realize the benefits of the combination. Second, SUPERVALU’s performance where trends have weakened, causing us to reset near-term expectations. This is partly due to the macro trends I just mentioned as well as accelerated strategic investments made to the distribution network. The integration work at Unified Grocers and Associated Grocers Florida had softer product margins across certain center store categories. Third, like many distribution companies, we have continued to be challenged with higher labor costs and productivity issues related to serving this busy holiday season and the addition of temporary labor where needed. While labor costs will persist in the near term, we are confident that productivity will return to more normalized levels as we train new teams and stabilize volume. Fourth, continued supplier out of stocks, which were approximately 80 basis points higher than the first quarter of last year. Our suppliers’ ability to fill our demand has continued to be a headwind and is negatively affecting our sales growth. Additionally, supplier promotional spending is also down significantly, driven primarily by very limited price elasticity at retail. And finally, higher acquisition financing costs, which Mike will discuss shortly. These elements are included in our combined company fiscal 2019 guidance, which now includes the contribution from SUPERVALU for the remainder of fiscal 2019. We believe our expectations for fiscal 2019 reflect the realities of the near-term operating environment and we are driving towards bringing the two companies together at a pace that reflects both speed and risk. Our long-term thesis for value creation is intact. We have developed and already have in place plans to unlock the value of our newly combined business. As we stated previously, part of our vision is the commitment to selling our retail assets and we are very pleased with last week’s announcement that we have reached agreement to sell our Hornbacher’s banner to Coborn’s while securing supply agreements for both Hornbacher’s and Coborn’s. And previously, we had announced the sale of all remaining Shop ‘n Save stores. While Cub and Shoppers continue to perform in line with our expectations, we are moving forward with our marketing efforts and we are optimistic that buyers will be found at the right price. Additionally, we are driven to paying down debt and we will use available proceeds to do so and we will also consider monetizing additional assets to expedite this. Now, to the quarter, for the first quarter of fiscal ‘19, we again saw revenue growth as UNFI sales increased about 8% in addition to the $224 million that SUPERVALU added to the quarter during 1 week that it was part of the company. We saw moderate revenue increases in the independent and supermarket channels again driven by a very tough macro environment for many retailers. Our top line gains didn’t translate to the bottom line. Legacy UNFI gross margins were down about 37 basis points to last year largely driven by continued mix shift towards our lower-margin customers, which was exacerbated by higher levels of supplier out of stocks. Operating and SG&A expenses, excluding SUPERVALU, remained flat as a percentage of sales, but increased in dollars due to higher labor costs across the network and higher warehouse turnover increased overtime and lower productivity. We have been working hard to stabilize these costs and have seen improvement in recent weeks as new operating best practices have been implemented to balance workload and train our teams. While higher labor costs will continue, turnover and productivity should return to more historic levels over the next several months. We will spend a lot of time at our upcoming Investor Day walking you through our efforts to automate facilities, implement new processes, and redesign our network to materially bring down our costs to serve while enhancing service to our customers. We have taken the opportunity through this acquisition to review and revise our governance policies and practices to be reflective of best practices, market trends, and recommendations made through our ongoing shareholder outreach program. Additionally, we have begun a process to refresh our Board of Directors so that we have the right combination of skills and expertise of existing and new board members to add value to the company for the integration and transformational growth ahead. UNFI is transforming the North American food supply chain for retail. In the near-term, industry headwinds have challenged our results. However, the creation of value associated with this acquisition is sound. It will take some time to fully integrate the two businesses, but we are carefully and thoughtfully coming together as a company without equal, a company with the broadest product and services offering, greatest North American reach, capacity to handle more from existing and new customers, technology to drive-down costs in today’s tough labor environment, and most importantly the people to lead us towards full integration. The cost synergies are significant, and we are driven to use our assets and balance sheet to fully enable the company to succeed over the long-term. And now, I will turn the call over to Sean.

Great. Thank you, Steve and good evening everyone. Today marks the 44th day that I have been leading SUPERVALU and there has been a lot going on as we take the initial steps toward delivering our future. October 22, 2018 was truly a transformational day in our company’s history. However, as Steve pointed out, it has not come without its challenges, which I will get to momentarily. Much of my time has been focused on three of our key constituencies, our associates, our customers and our suppliers. Since the deal closed, I visited 15 SUPERVALU distribution centers and regional offices and have met with thousands of our associates to welcome them to our new company. This time has given me a jumpstart on the pulse of our people and our business. It has been extremely beneficial to me in seeing, hearing and feeling how our associates are thinking about our future. It’s been encouraging to see the engagement and excitement as our team can clearly see the benefits and the opportunities this combination creates for them and their families. I have also had the opportunity and the pleasure to meet with many of our customers. We have articulated our vision for the new UNFI and gathered valuable feedback on how we can win together in the future. Our customers are truly excited about our new company and their newly created ability to purchase a wider variety of products and services from one partner. Scale wins and our customers certainly understand how our consolidated company can bring value to our relationship. Over the last several days, I have also met with several significant suppliers to our company. Every one of our supplier partners and in this instance, I am describing big CPG here, get why we did this deal and the benefits in partnering with our company. We are putting together the pieces to become the nation’s premier wholesale distributor, 60 distribution centers strong and we are leveraging the best of both companies talent, process and systems, taking the learnings from SUPERVALU automation and redistribution and adding it to UNFI’s slower velocity each pick assortment and lower our cost-to-serve and also mitigate a near full employment economy. We have lots more to learn in terms of where we go in creating value in our distribution network. Prior to closing, our teams were planning for day one, working to anticipate any issues that may arise and I am really pleased to say that we executed very well on those plans. We are now beginning to realize some of the early synergies, including executive leadership reductions, organizational design opportunities and let me share an example or two. UNFI’s Blue Marble Brands is moving into SUPERVALU’s enterprise brand structure and offering. This reduces cost while unlocking cross-selling upside. Our Albert’s Organics business has been merged with SUPERVALU’s produce category under a single head of house, which we believe will accelerate unlocking the cross-selling opportunities as well as cost structure in this very important category. Alignment of commercial terms and the launch of our indirect spend programs are all on target to deliver value in our first 90 days as well as how we go forward. We maintain our confidence around delivering cost synergies of $175 million in year three, consisting of $122 million in SG&A cost-out and $63 million in operational cost reductions and again in year four, $185 million. To put what we are working towards in some context, we are creating a path that leads from an entity that has four unique cultures to a single way of doing business. We are moving from legacy UNFI, legacy SUPERVALU, Unified Grocers and AG Florida toward a wholesaler with one way of going to market. This is complicated work with many moving pieces and we are addressing the challenges with energy and urgency with a view always towards a long-term solution. We have a very well thought-out plan, a roadmap if you will to move us from today to our desired end state. And we know that we will have to adjust as we go, but I am pleased with the progress we have made to-date. This roadmap focuses on several elements from our operating model and how we are organized and support the business to how our distribution centers align and operate to what we will do to support our trade markets and what we will expect in return, all with a relentless focus on our customers and what we must do to assure their success. We only win if they win and we are passionate about helping them do just that. Part of why we are so optimistic about the long-term prospects of this deal is the rigorous governance process that we have put in place. At a very high level, we have broken the integration into four specific areas that all have an executive sponsor as its lead: foundational, customer, supplier and network, each of which provides regular updates to myself and our executive steering committee. To-date, we are pleased with the integration and the synergy work that’s been done and I plan to provide much more color in detail next month at our Investor Day. So, now let me touch upon the SUPERVALU business and drivers of recent performance. As SUPERVALU previously reported, wholesale sales in its second quarter, excluding Unified Grocers and AG Florida, were down on a year-over-year basis as was adjusted EBITDA. The lower sales were due to the general softness in our customer base and center store, I think grocery, frozen, dairy and at least partially, we believe due to the uncertainty following the announcement of the acquisition of SUPERVALU by UNFI. There are no barriers ahead of us to engage customers in new and exciting opportunities as a combined company. And we are quickly moving down the path of turning our sales organization if you will from playing defense to playing offense maximizing the full benefits of our acquisition. Sales and operating expenses were also meaningfully impacted by network integration and alignment projects. Unified Grocers in the Pacific Northwest and a DC – excuse me and one involving the move-out of a DC and Greenfield standup that had previously been shared with Albertsons. These network realignment projects simply must get done and will benefit the business when complete. They will also help us realize synergies earlier than the timeline SUPERVALU had previously committed, but they will be a drag on performance for the balance of this fiscal year. Our bottom line also was impacted by the wind down of the Albertsons TSA, which is now pretty much complete. We did experience softer gross margins, which we attribute to lower levels of new product introductions from our CPG partners, which translates to lower new item income. We experienced higher levels of strength in certain distribution centers and we also had a general lack of product cost inflation. As I said earlier, I firmly believe that we will overcome the near-term sales headwinds as we continue to share our vision in the future with our customers. We have plans in place to mitigate the operating challenges both in the short and in the long-term. Overall, I am very excited to be part of what’s happening with this combined company. The work we are doing to truly transform how food is distributed throughout this country is exciting and is meaningful while creating shareholder value. And I remain very optimistic for where we plan to take this business in the long-term. With that, I will turn the call over to Mike.

Thank you, Sean and good evening everybody. Let me start by echoing the prior sentiments on how exciting it is to be part of the food distribution transformation that we have in front of us. It’s a momentous time in our company’s history and we have an opportunity to deliver incredible results. Our focus remains on value creation by delivering our synergy targets through effective integration actions. For fiscal 2019, while we expected some of the core business softness at SUPERVALU, the downside has been much greater than we anticipated. That said, synergies continue to be the key to driving value in the combined companies and we are on track to deliver our targets. This evening, I will provide additional detail on the quarter, talk about the financing of SUPERVALU acquisition and end with comments on the full fiscal year. Let’s start with our fiscal ‘19 first quarter results, which includes 6 days of the SUPERVALU operating results and the full impact on the balance sheet. Q1 net sales were $2.87 billion, an increase of 16.7% or approximately $411 million compared to Q1 last year. Excluding approximately $224 million net sales from SUPERVALU, net sales increased 7.6% compared to Q1 last year. We experienced modest inflation during the quarter at approximately 71 basis points, which makes Q1 the 10th consecutive quarter of either deflation or modest inflation. Our 10-year average inflation is approximately 1.9% per year. The lack of inflation continues to be a headwind to both top and bottom line results. From a channel perspective, first quarter supernatural net sales grew 20.4% over Q1 last year and represented about 35.8% of total net sales. The Independent channel net sales grew 4.4% and represented approximately 23% of total net sales. Supermarket channel net sales increased 0.6% versus Q1 last year in line with that 24.7% of net sales. Please note that the 6 days of SUPERVALU net sales were presented on a separate line and excluded from our customary channel breakouts. As we go forward, SUPERVALU results will be integrated into the existing channel breakouts. Our other channel was down 7.3% in Q1 compared to Q1 last year, driven primarily by ecommerce declines, where we have rationalized out some of our less profitable business and the July sale of our Earth Origins Markets business. Gross margin for the first quarter was 14.38% of net sales and included incremental non-cash expense of $1.8 million to unwind the stepped-up basis for SUPERVALU inventory that resulted from purchase accounting. This unwind impact is expected to continue and add an additional $8 million to $9 million of non-cash expense in the second quarter, at which time the full unwind will be realized and there will be no further impact on ongoing expense. Excluding the $1.8 million of unwind expense, Q1 gross margin was 14.44% of net sales, a decrease of 50 basis points compared to the same period last year. The decline was driven by continued shift in customer mix, where net sales growth of our largest customer, outpaced growth of other customers with higher margins, and increased inbound freight expense, both of which were partially offset by improved vendor programs and higher fuel surcharge income. Although inbound freight was still a year-over-year headwind, Q1 was the lowest we’ve seen over the past 4 quarters as a percentage of net sales and was a meaningful sequential improvement over Q4 of fiscal ‘18. Q1 operating expenses totaled $363 million in the first quarter compared to $312 million in Q1 last year. Legacy UNFI operating expenses were up $21 million versus Q1 last year, but improved by 10 basis points as a percent of net sales. For the total company, increased labor costs in our distribution centers and higher fuel costs were offset by lower year-over-year healthcare costs and fixed cost leverage. For the quarter, total legacy UNFI fuel costs increased 10 basis points as a percentage of net sales in comparison to Q1 of fiscal ‘18 and represented 54 basis points of distribution net sales. Our diesel fuel costs per gallon increased approximately 21% in Q1 versus Q1 last year. The Department of Energy’s national average diesel was up approximately 20.4% or $0.56 per gallon compared to the same period last year. The negative impact of increased diesel expense is offset by our fuel surcharge program, which increases net sales and gross margin and neutralizes the fuel increase included in our operating expense. Share-based compensation expense was 28 basis points of net sales in Q1 compared to 30 basis points in the first quarter of last year. Please note that we’ve revised our definition of adjusted EBITDA to exclude the impact of share-based compensation. This definition aligns with the change that legacy SUPERVALU made at the beginning of fiscal ‘19, provides a better proxy for operating cash flow and is the more common practice amongst our peer companies. Operating loss for the first quarter was $18.8 million and included restructuring, acquisition and integration-related costs of $68 million, as well as the $1.8 million inventory charge mentioned previously. The restructuring, acquisition and integration-related costs included $33.8 million of change-in-control and severance-related payments, $31.9 million of other acquisition and integration costs and $2.3 million of other restructuring. Excluding these amounts, operating income was $51 million or 1.78% of net sales compared to $55.1 million or 2.24% of net sales last year. The decline was driven primarily by lower gross margins. Adjusted EBITDA for the first quarter was $86.2 million, a slight increase over the $84.8 million in Q1 last year. Other expense was $6.8 million for Q1 compared to $2.7 million for Q1 last year. The driver of the Q1 increase was interest expense, which was $7.7 million and included approximately $4.3 million from the 6 days of acquisition-related financing. Excluding the impact of acquisition-related financing, interest expense would have been $3.4 million in Q1 compared to $3.7 million in Q1 last year. Q1 GAAP EPS was a loss of $0.38, driven primarily by expenses related to the SUPERVALU acquisition. Adjusted EPS, which excludes these expenses was $0.59 per share compared to $0.60 per diluted share in last year’s first quarter. Next, I’d like to address the financing of the SUPERVALU acquisition and our Q1 balance sheet. As many of you are aware, the final interest rate and fees we paid on our term loan B financing were significantly higher than we had originally expected for several reasons, which include the state of the term loan market, SUPERVALU’s Q2 results, and the unexpected financing costs we incurred. As a result, we took actions in Q1 to mitigate the added debt costs in a risk-adjusted manner and made the following changes to our debt structure versus our original plan. First, we reduced the sizing of our term loan B by $250 million to $1.8 billion. Term loan B has a 7-year term and was priced at 97 with an interest rate of LIBOR plus 425 basis points. Of the 300 basis points of original issue discount, we covered 250 basis points or $45 million. Second, we increased the size of our asset-based credit facility by $100 million to $2.1 billion. This ABL credit facility has a 5-year term with an interest rate of LIBOR plus 125 basis points. Next, we added $150 million, 364-day term loan at a rate of LIBOR plus 200 basis points, which was priced at par. Note that all of our new debt is pre-payable without penalty. With these debt structure changes and the significant increase in interest rate and financing costs on our term loan B, we now expect our fiscal 2019 adjusted interest expense to be between $181 million and $191 million, which is approximately $38 million higher on a comparable basis than the $185 million to $190 million we estimated back in September for the full first fiscal year of the combined companies. At the end of Q1, outstanding lender commitments under our ABL credit facility were approximately $2.09 billion, net of reserves, with available liquidity of approximately $735 million, including unrestricted cash and cash equivalents. We are now in the process of converting a portion of our floating interest rate debt into fixed interest rates. Our target is to fix the rates on 60% to 75% of our total debt portfolio. As of last week, 47% of our total outstanding debt had fixed interest rates with maturities ranging from 4 months to 7 years. We plan to enter into additional swaps to bring our fixed rate exposure into our target range by the end of this quarter. Our Q1 balance sheet included legacy SUPERVALU’s notes that were scheduled to mature in 2021 and 2022. These notes had outstanding balances and accrued premiums of approximately $547 million. We also held restricted cash with a trustee to cover the note obligations. After the close of Q1, the notes were paid off following the required 30-day call period and they are no longer obligations to the company. Total outstanding balance sheet debt and capital lease obligations at quarter end, net of cash and cash equivalents, was $3.37 billion. Based on the midpoint of our adjusted EBITDA guidance for fiscal 2019 and assuming a Q1 value of debt, net of cash on hand, total company debt to EBITDA leverage would be 5.1 times. On the last day of the quarter, we closed on a previously agreed upon short-term sale leaseback for a legacy SUPERVALU warehouse, which produced cash proceeds of approximately $48.5 million. This amount is reflected on the Q1 balance sheet as cash and was subsequently applied against our ABL balance. For those of you who have followed SUPERVALU, they had closed on 7 out of 8 of their previously announced sale leaseback transactions this past May. The closing on the eighth property occurred just prior to the end of Q1, which meant that our Q1 ending balance reflects the application of approximately $100 million in net sale leaseback proceeds. We remain dedicated to reducing outstanding debt and de-levering our balance sheet. We will forego M&A opportunities in the near-term and have no plans for dividends or share buybacks until we hit our target leverage of 2.0 to 2.5 times. Our team is focused on efficient management of our working capital and capital spend with a focus on maximizing free cash flow while making the necessary investments to drive our business results. In Q1, we used approximately $101 million of cash for continuing operations, which was largely acquisition-related and also included the typical working capital build prior to the holiday selling season. Capital expenditures for the quarter amounted to approximately $16.4 million or 0.57% of net sales which was lower than our original expectations as we have paired back spending as a result of the combination with SUPERVALU. Let me next turn to our fiscal 2019 guidance and start with a couple of points. First, with the acquisition complete, we are now including the contribution from SUPERVALU to our fiscal 2019 guidance for the remaining 41 weeks of the fiscal year. Second, we are now providing guidance on a consolidated basis rather than just continuing operations meaning that guidance will include Cub and Shoppers, which will remain in discontinued operations after the close of the sale of Hornbacher’s. Our guidance assumes that Cub and Shoppers are operated through the end of the fiscal year and that the closing of the previously announced Hornbacher’s sale occurs over the next month or so. Although these banners will be reported in discontinued operations, we felt the more meaningful way to look at the balance of the year is on a consolidated basis given the relatively large financial swings associated with the move of retail from continuing operations to discontinued operations. To the extent we have additional retail divestitures prior to the end of the fiscal year we will provide guidance on the meaningful adjustments to the results based on the timing and specific terms related to those divestitures. With that context, we expect full year fiscal ‘19 consolidated net sales to be in the range of $21.5 billion to $22.0 billion. Included in that range is a legacy UNFI net sales growth of approximately 6.5% to 8.0% which includes the benefit of the 53rd week and is down from our previous expectations due to the headwinds across our channels as Steve described earlier. For SUPERVALU, this range includes wholesale sales to retail stores that we expect to continue to supply following their divestiture. For the forecasted net sales growth – or I am sorry, the forecasted net sales growth for SUPERVALU’s wholesale business is expected to be 0.5% to 2.0% for the comparable 41-week period versus last year. Fiscal ‘19 consolidated adjusted EBITDA, including the 53rd week, is expected to be in the range of $650 million to $665 million. As a reminder, adjusted EBITDA excludes approximately $58 million of share-based compensation expense. To provide additional clarity on the impact of moving the remaining retail banners into discontinued operations, it is important to note that continuing operations will include approximately $80 million of temporarily stranded costs that would normally have been included with retail. Let me elaborate on this point further. When we placed all of the retail banners in discontinued operations, the accounting rules require us to absorb expenses in continuing operations that were historically captured in retail. For example, lease expense associated with retail stores is required to be captured in continuing operations instead of with the retail banners. The $80 million in temporarily stranded costs include overhead, supply chain and lease costs that will not travel with retail banners into discontinued operations, but instead remain as temporary new costs in continuing operations. As retail stores are divested, these costs will be transferred with the divestiture or eliminated over a relatively short period of time. The results for continuing operations will improve accordingly all else being equal. For additional context, if the retail banners have been sold prior to the UNFI acquisition and the stranded costs removed, the fiscal 2019 adjusted EBITDA guidance would be approximately $45 million lower and our balance sheet would reflect the benefit of the proceeds from the banner sales. Fiscal ‘19 adjusted earnings per diluted share, which excludes restructuring, acquisition and integrated-related costs, is expected to be in the range of $1.69 to $1.89 per diluted share. This adjusted EPS range includes approximately $1.05 per diluted share and higher depreciation and amortization expense as a result of the impact of purchase accounting. It also includes approximately $0.51 per diluted share in higher than anticipated interest expense and a limited amount of share dilution associated with the SUPERVALU acquisition. Our fiscal 2019 GAAP EPS includes an estimated $125 million of restructuring, acquisition and integration costs, which excludes expenses associated with the divestiture of retail, including those previously announced. This estimate is higher than the $95 million to $100 million referenced in September due to changes in purchase accounting assumptions regarding our change of control payments to SUPERVALU executives and the unwinding of the inventory step up that I described earlier. Neither of these changes impacted our use of cash. Given the impact of one-time acquisition expenses on pre-tax earnings, we are expecting to pay less than $20 million in cash taxes in fiscal 2019 related to continuing operations. We will provide further guidance on our expected tax rate after we work through some integration related tax projects. Given ongoing integration work stream prioritization efforts and the related timing of capital projects, we will also provide further clarity on capital expenditures at our Investor Day on January 16. In closing, let me reconcile how this guidance compares to the full year one adjusted EBITDA guidance of $655 million to $675 million that we provided back in September. The following adjustments are required to the September year one guidance to get to a comparable basis for our fiscal 2019 guidance. Starting with the $665 million midpoint of the September guidance at $58 million for the exclusion of share-based compensation; next, add $45 million for the inclusion of discontinued operations, as I have described; next, subtract approximately $78 million to account for the partial year of SUPERVALU-adjusted EBITDA; and finally, subtract approximately $32.5 million to get to the $657.5 million midpoint of our fiscal 2019 adjusted EBITDA guidance of $650 million to $665 million. The final reduction of approximately $32.5 million is driven primarily by the full fiscal year impact of the SUPERVALU wholesale business softness described earlier by Steve and Sean. Keep in mind that our EPS guidance relative to prior guidance is also impacted primarily by changes in interest expense and the non-cash impact of purchase accounting that was described earlier. Now let me turn the call back over to Steve.

Thanks Mike. As you can sense, there is a lot of enthusiasm at UNFI, which is shared by our customers and suppliers. And simply put, no one is better positioned to feed today’s consumer than UNFI. And we know from talking to our customers that they want to buy more goods from fewer suppliers and we are now the wholesaler that offers them the widest variety of products from natural and organic to conventional, including meat and produce to private labels, specialty and multicultural. Our merchandise selection is complemented by our industry leading services business that helps customers lower their cost on a wide range of services needed to run their business. If they want it, we are the wholesaler that has it. We certainly have some near-term headwinds and we know there is no silver bullet that can turn it in the short run. We are acutely aware of the need to balance running the business with combining the businesses and we are committed to doing them both concurrently. I am confident in our team and the leadership at UNFI that has continually delivered on our strategies. We will move with urgency and believe that we will make the decisions that are necessary and thus for the long-term success of our business and our shareholders to position UNFI as the premier food wholesaler in North America. By providing better food choices, we will help create a better future. With that, we are ready to take your questions.

[Operator instructions] Your first question comes from John Heinbockel with Guggenheim Securities. Your line is open.

So Steve, let me start, the UNFI outlook EBITDA or EBITDA outlook that is unchanged. Is that correct? And I think you had $45 million of synergy built into the prior outlook, is it still – is that still the number?

Yes. So John, on the UNFI side for the full year, we are still pretty confident with where the original guidance that we provided fit, no real change. That’s a little bit soft on the top line, but bottom line is in good shape, and I will turn it over to Mike and he can talk to you about the synergies.

Yes. John, on the synergies, you will recall that back in September, what we said was more than $185 million of cost synergies as our long-term run-rate synergies in year four. We went on then to say that for year one, we would expect to get 25% of that $185 million, and now with the partial year and call it the 41 of 53 weeks, about 77%, you could calculate that to be an implied synergy in fiscal ‘19 of about $36 million.

Alright. Then just one quick follow-up, Steve, when you think about the customer base of SUPERVALU, right and whether there is some leakage there, I think about Fresh Market closing some locations. How much more risk do you think there is to the top line of erosion in some of the SUPERVALU’s customer base that they picked up in recent years?

Yes. I mean, obviously, the chain that you mentioned had some store closures, and that’s certainly embedded in the results. But I think what we are hearing, and I will certainly defer this to Sean in a second, but what we are hearing from the customers is the acquisition does bring some stability. As you know, SUPERVALU had a lot of things going on before we acquired them. And so, there certainly was a lot of noise within the company, a lot of noise within the customer base, a lot of noise within the supplier base. The UNFI acquisition brings a lot of stability to that. And so, the customers and the suppliers are all telling us really, really compelling, good things about what’s going to happen in the future. So, I certainly feel good about kind of the numbers that we’re guiding towards the back half of the year. Sean?

Yes. I would just say, John, that in addition, both companies have had historically really phenomenally high retention rates. We – on the SUPERVALU side, we haven’t lost any customers specifically. Although to your point, we have had some store closings, very difficult to look ahead and sort of forecast what that might look like in terms of any closures. But there’s -- one other factor here is that, since the announcement of the deal, since the closing of the deal and now we’re sort of moving forward, it’s really hard to engage new customers, if you will. Any substantially new customers would be reticent to engage thinking about integration and so on and so forth, so we think that from a selling perspective that we’ve run through that. That has been part of the last 6 months at SUPERVALU. And of course, now we’re pivoting to playing offense, if you will, and we expect to have some benefits of that in the remaining part of the year.

And I would just follow it up with the SUPERVALU customers are just desperate for the UNFI product offering. And so we’re going to figure out a way to get those products into those DCs. And number two, SUPERVALU when we acquired them was going through three, what I would call, pretty significant DC integrations. And obviously, when you’re in the middle of an integration, and I’m talking about Florida and the Pacific Northwest and in Pennsylvania, it’s tough to get sales growth when you’re in the throes of it, and we’ve got a lot of resources in those buildings, getting some stability and already starting to see some positive results.

Thanks.

Your next question comes from Edward Kelly with Wells Fargo. Your line is open.

Yes. Hi, guys, good afternoon.

Hi, Ed.

Could you talk about the retail business and maybe just provide an update on the potential sale? How is interest, can you do this in a value accretive way? And then as we think about the $45 million, is this a stable business right now? And then how does that number change if you sell it to someone who does not sign a wholesale contract?

Sure, I’ll take that one. So I’m really optimistic about where we are with retail. We worked really hard on selling Hornbacher’s to an existing, a really good existing SUPERVALU and UNFI customer. And so, in that particular sale, obviously, we had a great economic event and we signed long-term supply agreements both at Coborn’s and Hornbacher’s. And so, in the Shoppers banner in the East, we said in the beginning that if we could sell it with a supply agreement, we would. If we can’t, then we won’t because that’s one market where we just desperately need the capacity, because all of the legacy DCs in that market are just out of space. And so, SUPERVALU has a big facility, an underutilized facility in Mechanicsville, Virginia. And so, as the Shoppers are sold and we obviously make room for some other capacity, we can divert from York, Pennsylvania; Howell, New Jersey; Richburg, South Carolina, and fill that facility pretty quickly. So, we are deep in the process at Shoppers, and again, I’m optimistic. And then on the remaining banners which is Cub, we’ll take our time. Cub is a great, great retail banner, number 1 market share in Minneapolis. And again, in that particular case, we certainly will look to sell Cub with a supply agreement and to the right supplier or to the right investor in that market. But generally, I feel pretty good about where we are in selling the retail banners.

Is there risk to the $45 million if that changes or in the underlying performance of the business, or do you feel pretty good about that number?

No, I feel really good about that number.

Okay. And then just a question on the free cash flow, can you just maybe talk about what you’re expecting from a free cash-flow perspective this year and next year just given all the integration costs and the headwinds that you mentioned? And then, what’s the CapEx outlook going to be, the working capital demand? I’m just trying to understand the extent to which you’re going to be able to pay down debt in the next couple of years?

Yes, hi, Ed, this is Mike. That’s a good question. And we’ve got a lot of integration work stream planning and initiatives going on that can move that number around, and so we didn’t provide that guidance today. We’ll come back on January 16 and provide more color around that. But as you know with this business, there are lot of moving parts and with this integration, that increases the number of moving parts. And so to be – we just want to make sure we give you the right color on that.

Okay. And then just, this is the last question for you related to the integration of the assets. Could you maybe talk a little bit about the timing of the individual steps? And for investors that are sitting here worried about the integration and the execution risk associated with that, what are the key milestones that we should really be keeping an eye out for here?

Well, I think Sean covered some of the major milestones in his script. And we certainly look at the synergy as it relates to costs, first and foremost, and network redesign as well. Obviously, selling retail is also a big part of the synergy, but not part of the overall synergy calculation. So I think really, the first step is labor.

Yes. I mean, I would – Steve, if I may.

Sure.

I would not necessarily time bound how we’re proceeding and communicating milestones per se. But we’ve talked about around the $185 million is that it’s approximately 66% SG&A cost-out and 34% operationally cost-out. Inside of that 34% is distribution center consolidation. I’ve communicated and as you know, the network is large. It’s 60 distribution centers. We’re doing the work now to understand from an inventory perspective, in a model perspective, whether 60 is the right number. Frankly, we’re quite certain it is not the right number. But whether that number is 60 or 55, and frankly, 3 years from now, it may be something greater than 60. But we’re running the models, we’re doing the work, we’re phasing the appropriate consolidation and operational benefits, certainly, I’m really not going to go any further than that on this call. And I’ll add some more information and provide some more color on the 16th of January.

And just for perspective, we have a significant heavily resourced internal team that sole focus is synergy and integration. They meet regularly. We have very specific milestones, and I’m not worried about hitting the very specific synergy targets that we’ve outlined.

Great. Thanks, guys.

Your next question comes from Christopher Mandeville with Jefferies. Your line is open.

Hey, good afternoon, guys. Mike, I may have just missed it, but can you just walk us through again the math in getting to the adjusted EBITDA, how much of that was actually related to the SUPERVALU wholesale business?

Yes. I kind of – I knew that was going to be a question out there, and so I tried to walk you from the first full-year guidance, which is what we provided back in September. And if you remember, that was $655 million to $675 million. And again, that was for the first full-year. And so now with the SUPERVALU acquisition behind us, we’ve got a partial year. And so if you take, if you want to start with the midpoint of that guidance, that’s $665 million. And so if you want to get to our current guidance, you add $58 million for the exclusion of share-based comp, you add $45 million for the inclusion of the discontinued operations that we talked about. You subtract $78 million for the partial year of SUPERVALU adjusted EBITDA, and then you subtract $32.5 million, and that gets you to the midpoint of our new guidance of $657.5 million. And that last $32.5 million was really the business softness that we said is primarily driven by the wholesale business of SUPERVALU.

Okay. I appreciate that review. And then just a follow-up here. I think, Steve, you had referenced in kind of your initial commentary that there was maybe the idea of considering selling additional assets to accelerate debt pay-down. Was that in regards to something outside of the retail business that you’re already pursuing to sell? And if so, what might that be?

Yes. So obviously, we are looking at, for example, real estate. We acquired quite a bit of real estate with SUPERVALU, not to mention some other assets that we own. And so I think the point that I was trying to make is, where we can create value and it’s in the best interest of the company long-term, then we will look to sell those assets in order to pay down the debt sooner.

Okay. So that’s not necessarily saying something like Woodstock, for example, would be up for it to pay [ph]?

Yes. Again, holistically, we’re going to look at those assets within the UNFI system, and if it makes sense for us to monetize them, then we will.

Okay. Thank you.

Whether it’s retail or whether it’s some other banner that UNFI owns, where it makes sense, where the market is right, I think the point is we don’t – we’re not going to be pigeonholed to just looking at things that we historically have looked at. We’re going to make sure that we pay down this debt in a very disciplined way.

We’ve talked a lot about our leverage and we’re committed to reducing that leverage, and so we’re looking at opportunities to bring value in, and I think that’s what Steve is talking about.

Got it. Thanks.

Your next question comes from the line of Vincent Sinisi from Morgan Stanley. Your line is open.

Hey, great. Good evening, guys. Thanks very much for taking my question. Just wanted to go back to one of your early on comments in the prepared remarks. It seems like in terms of the reception that you’ve been getting, it seems like things so far, it’s early, of course, but as you mentioned, kind of suppliers, as well as customers seem to be kind of open to the combined company potential, of course. But you did mention early on that you’re continuing to have some out-of-stock issues, as well as kind of that continued supplier promotional spending going down. So I just want to get more of your basic thoughts around that. Do you see any changes? How have maybe some of those conversations with suppliers been going with regard to those two items and just kind of thoughts going forward?

So I’ll try to answer the first part. So I think what we were trying to communicate is that the suppliers’ ability to fill our demand actually got quite worse in the quarter versus the same period the year before. So you might ask, well, why is it getting worse? So everybody’s interests are aligned, right? Suppliers want to have products and we want to have products to selling. What we think is happening is a couple of things: One, a lot of the products that are historically packed in natural and organic are co-packed, and in other words, they don’t make it themselves, they contract with others to make it. Well, there’s a limited number of co-packers and our view is that the co-packers are just adding capacity. They can’t produce much more than what they’re currently making until they add more lines, more buildings, more plants, more manufacturing. And we’re just at a point where there’s just more demand than there is capacity to meet it. I think it’s a temporary headwind, but we’ve been facing it for a while and it got meaningfully worse. Secondly, and I said this I think in my remarks, there’s no price elasticity at retail. In other words, the retailers are saying to the big manufacturers, don’t you dare pass through any price increases because we can’t pass it through, which means we have to eat it. And that’s the biggest primary driver of the reduction in promotional spend because if the manufacturers can’t pass through the price increases, then they’re just going to reduce the promo spend to make sure that they remain whole. So we’re just in a little bit of a tug of war that will pass and we certainly hope it passes soon, but it hasn’t. Does that help explain your question or answer your question?

Yes, Steve. No, that’s helpful. That definitely helps to get at it. And maybe just as a follow-up, you’re a month and a half or so at least as of the quarter end into the integration. Just like maybe kind of the most pleasant as well as unpleasant surprises, if you will, since kind of really having everything open to you guys post the deal closing, what would you say kind of on each of those ends?

Well, I mean, certainly, the worst is the general condition of where the numbers are coming in. I mean, that was a bit of a surprise to us. But we’re getting our head around it. It is what it is. The deal pieces still works, the economics still works, and we’ll fix it. I think the best surprise is the quality of the people, number one. We’ve inherited some – just some terrific, very dedicated people that suppliers and customers and all of our existing UNFI departments have really come to respect. And I think the general commentary from both the customers and the suppliers has been incredibly good. And I think Sean could give you some more specific color on that.

Yes. I mean to me, Steve, it’s the latter in terms of when you get into a quiet space with a customer and you can discuss how our company will look going forward and positioning UNFI and vis-a-vis our retailer in a position to compete, win in every department in a retail store, that scale can really go to work in a positive way for a customer. And when you see and you get – and the – and if you will, the thesis is validated in these conversations by the customer. Well, that buoys us that we’ve done the right thing here and our customers are supporting. Same conversations with suppliers in terms of the benefits to move natural organic into what we believe are underserved, independent supermarkets that had – really have had limited or no access to the incredible brands and the strength of UNFI’s better-for-you assortment. That indexes really well for CPGs that certainly have spent the last 5, 7, 10, 3 years acquiring natural organic brands. And so one step further is as companies out there, CPG companies work to put their supply chain and manufacturing prowess to work against these natural organic better-for-you brands, the cost of these products and the price to consumers are narrowed between a conventional cereal or cookie, if you will, to a natural product, and that is going to attract more consumers. And that is what these CPG firms and our suppliers are all about. And so it’s a tremendous alignment around growth, but it takes time. And they get it and we get it, but it’s a longer-term play in vision versus this quarter or next.

As an example, we talk a lot about how scale drives today with retailers. 5 years ago, you could argue that a retailer might buy from 10, 15, 20 different wholesalers, whether it be specific by product or just general distributors. Today, the retailers want to buy as much as they possibly can from as few as they possibly can, because the economics of delivery are such that the more you can add into the delivery system, the lower the price. When you think about building out the store, which we’ve talked about for a long time, we now do multiple billions of dollars in conventional and organic produce. We now do multiple billions of dollars in conventional and better-for-you protein. So we have effectively fully built out the store, which enables us to go to a retailer across conventional or independent or natural and provide them with just about every single item they need to put in their store. On the natural side, we’ve also talked a lot about the cross-over consumer, the fact that a lot of consumers who generally eat with clean ingredients also buy Tide in Great Northern and Charmin. And so I think we’re starting to see a trend of more and more of the more kind of natural retailers putting a lot of pressure on us to carry some of the more conventional SKUs. And this gives us the ability to do it in a really good and really economic way.

Okay. That’s super helpful to hear your thoughts kind of flushed out there. So good luck, fellows and we look forward to hearing more next month at the Investor Day.

Thank you.

Your next question comes from the line of Karen Short from Barclays. Your line is open.

Hi, this is actually Renato Basanta on for Karen. Thanks for taking my questions. Just on the guidance, a good full year color, but can you just give us a better sense of how we should think about EBITDA by quarter just the puts and takes for 2Q through 4Q? And then if there is just anything from a modeling perspective on why some quarters might be weaker than others?

Yes, Renato, this is Mike. We have never broken out quarterly guidance. And I would suggest that given all the moving pieces that we have here, this wouldn’t be a good time to start with that. There is a little bit of seasonality on each business that you can observe if you go back and look at history. For example, on legacy UNFI, our third quarter tends to be our strongest quarter. Our second quarter tends to be our weakest. It’s a little different at SUPERVALU, but we weren’t intending on providing additional guidance on the EBITDA by quarter.

Okay. And then I guess just to follow-up on the synergies, can you talk a little bit about what you consider to be the biggest risk to achieving those and just how you are sort of thinking about mitigating those risks?

Yes. I mean, Renato, I kind of would say that the most significant risk is timing. We feel like we have done a really good job at identifying and validating from a bottoms-up where the opportunities lie, but we are running this business and it is complex. And to a very large extent, we are talking about integrating four companies into one as I previously commented on. So, it’s not really the size of the opportunity or the value of the synergies so much as assuring that we are appropriately timing and running frankly fast enough that we are getting the value of the phasing over the next 4 years that we have communicated. So, the price is very much in place. It’s the timing. So that’s how I would think about risk.

Okay. And if I could just sneak one more in, can you just tell us how much of the combined revenues will be up for contract renewal in year one?

Yes. I don’t think that we could provide that. We don’t know. We don’t have that with us. But it’s not material, I can tell you that.

Okay. Alright, thanks. Best of luck.

Thank you.

Your next question comes from the line of Scott Mushkin from Wolfe Research. Your line is open.

Hey, guys. This is Paul Kearney on for Scott. Thanks for taking my question.

Hey, Paul.

I guess two-part question. Can you tell us what your expectations are for profitability on the legacy UNFI business this year, excluding SVU? And then also supermarket channel growth was 60 basis points. Are you expecting this business to pickup during the year? Thanks.

Yes. So we touched on the UNFI numbers for this year earlier and we expect that the initial full year guidance that we provided is still our full year guidance. So top line will be a little bit softer, but the guidance that we provided on the bottom line is still the guidance that’s in effect. As it relates to the supermarket numbers again, we lowered the overall revenue number to be more reflective of some of the economic headwinds that we are seeing our retailers face whether it be supplier out of stocks, the retailers having difficulty getting the consumers into the store and it’s just the nature of what we are seeing within the supermarket channel right now. And our overall guidance reflects some of that headwind in the supermarket channel.

Great. Thanks.

Your next question comes from the line of Kelly Bania from BMO Capital. Your line is open.

Hi, thanks for taking the time to have a long call here and fit all these questions in. I wanted to start with the inclusion on the share-based compensation. I was just curious if that – the way that you are now looking at it, is that consistent with the way that the rating agencies and your debt covenants particularly your leverage ratios are calculated?

Yes. Mike, do you know the answer to that?

Yes. I don’t have insight into how the rating agencies are specifically thinking about share-based compensation in the entirety of their analysis. The thing we said about share-based compensation that has changed is we have adopted from an EBITDA, an adjusted EBITDA standpoint. We have adopted the practice that SUPERVALU went to at the beginning of fiscal ‘19, which is to exclude stock-based compensation from EBITDA, which is more consistent with what our peers in the industry are doing and also that we believe provides more transparency and a better estimation of cash generation.

Are your debt covenants the same though?

The debt covenants the same as – just please clarify that, our debt covenants.

The way that you are calculating it now up by adding – by including the share-based compensation. I can follow-up with you on that. I guess the other question on the retail. So we are adding the $45 million. Can you just go back and clarify again exactly which banners that are included or accounting for that $45 million and which are not? And then also as you go through the process of pursuing to sell the retail banners, I believe the unfunded pension liability that’s in SUPERVALU’s filings, I believe that’s connected to the retail business. So, maybe can you just help us understand what happens with that as you go through the process, if there is any specific banners those are attached to or not?

Yes, so good question, Kelly. So first of all, included in discontinued operations today are three banners, Cub, Shoppers and Hornbacher’s. Now we have just announced the sale of Hornbacher’s and we would expect that deal to close in a month or so. So by the time we get to the end of Q2, we would expect that Hornbacher’s no longer in discontinued operations and therefore, it’s just Shoppers and Cub. And I think on your unfunded pension question, I will hand it to Steve.

Yes. So, Kelly, both wholesale and retail have some pension obligations. Obviously, we are continuing to run wholesale. So, we don’t anticipate triggering any kind of pension liability associated with continuing to run the wholesale business. In retail, some of the banners have pension, which all are liability issues, some obviously don’t. And the way we look at it is it’s really an economic value associated with how we sell those banners. So if we are looking to sell a banner that has a withdrawal liability, then in theory, the purchase price on a dollar-for-dollar basis would have to cover the potential withdrawal liability. And so today, we are pretty comfortable based upon the work that we have done and the progress we have made thus far in actually seeing the value of retail that we will be able to in fact cover the withdrawal liability associated with retail as we sell.

Okay, great. That’s very helpful. And if I could just squeeze in one more just on the interest expense, I guess, first question is as you pursue going through these swaps, which it sounds like you are partially way through that process, how does that change the – how could that change the guidance for the interest expense? Can you give any clarity or color on how you expect that to play out? And then two in terms of the pricing of the term loan B, you called – you mentioned the higher than expected rate, I was just curious how much the maturity played a part in that, because it does seem like there is some language in there about the Whole Foods contract and the timing in 2025. And I was just curious if that was the maturity that you were targeting for, for that term loan B? Thank you.

Yes. So, couple of things. First of all, on the possibility of the spring maturity that can move up the 7-year term by less than a year and that was really in the event that we didn’t resign Whole Foods to an extension in September of 2025. So I don’t see that as a big difference in the term or on the rate. And then I am sorry, what’s the first part of your question again?

Just how the swaps could impact your interest rate guidance as it sounds like you are partially in some of those?

So we have got an incredibly flat yield curve right now. So interestingly, the fixing rates had very short tenures, 1, 2 years are very similar to going all the way up to 7 years. And so we are laddering our maturities to reduce refinancing risk, but the pricing associated with short-term versus long-term rate fixing is almost negligible.

Thank you.

And your last question comes from the line of Eric Larson from Buckingham Research. Your line is open.

Thank you. Appreciate getting the end here. So, when you look at your adjusted EBITDA guidance, the one thing that’s kind of stuck out and maybe it’s because of the inclusion of the discontinued ops, but you had D&A of $332 million, which was sort of a big number. What is in that, what will that number go to when you finally sell the Cub and Shoppers banners? I think that’s why that number is so high, I am speculating but...

Yes. The impact of purchase accounting has a big impact on both amortization and depreciation as we brought the assets from SUPERVALU into the company and adjust them for the purchase price. And so that’s a big driver of the deepening. With respect to the sale of the banners, I won’t speculate on where we land as a result of the divestiture of those businesses.

Okay, alright. So the final question is can you – with your new guidance range of $1.69 to $1.89, can you go through the same EPS build on the EPS build that you did the EBITDA build given we don’t really know what that tax rate is? Obviously, you have got higher interest – a bunch of things in there. Can you do a build for us from your previous guidance of $3.48, $3.58 to where you are now and what the big components on that are?

Yes. So let me take a cut at it here. So first of all, we have given you pretty good idea of the build on all the way through EBITDA. We have given you the impact of purchase accounting of $1.05. We have given you the impact of the interest expense at $0.51. We have bucked on providing full clarity on the tax rate, but we have said that we would expect our taxes to be less than $20 million given all the one-time expenses that we have had this year. So that should be a pretty small rate. And then we also gave a nod to a little bit more share dilution as it relates to the conversion of some SUPERVALU equity on the acquisition, call that less than $0.05. And I think you have got all the pieces there.

Okay, great. Thanks, guys.

I want to thank you again for joining us today and we look forward to seeing you at our upcoming Investor Day. As we have said many times, UNFI is transforming the way food is supplied to North America. And along the way, we expect to create significant value, synergy and opportunity. It’s going to be a journey that takes some time. However, in the end, we will have created North America’s premier wholesaler with over $20 billion in revenue, over 60 distribution centers and an unequaled offering of products and services. The thesis for this acquisition has not changed. In fact, as I said earlier, as we begun to integrate, our outlook for the combination is stronger than ever. We have no doubt that the combination of UNFI and SUPERVALU will translate into more significant value for shareholders than UNFI as a standalone company over time. Thank you and have a good evening.

This concludes today’s conference call. You may now disconnect.