Shares of United Natural Foods Inc. (UNFI) climbed Tuesday after the grocery wholesaler delivered fourth-quarter fiscal 2026 results that beat Wall Street's earnings expectations, with revenue landing roughly in line with estimates. The company also issued its fiscal 2027 outlook, which calls for more inflation but relies on productivity gains rather than price hikes to improve margins.

Earnings Snapshot

Fourth-quarter sales slipped 0.7% year over year to $7.642 billion, just shy of the $7.677 billion analysts had penciled in. Network optimization efforts trimmed reported sales growth by about 500 basis points, while the unwind of short-term project work took another 150-basis-point bite. Underlying sales, however, grew at a low-single-digit rate, broadly matching market growth.

Gross margin expanded about 30 basis points year over year to 13.7%, helped by network optimization benefits and customer mix. Adjusted EBITDA jumped 48.3% to $172 million, with the adjusted EBITDA margin reaching about 2.3%, marking another quarter of margin expansion.

Adjusted earnings came in at 69 cents per share, beating the consensus estimate of 61 cents. Free cash flow for the quarter totaled $80 million, while full-year free cash flow hit a company record of $323 million.

During the quarter, UNFI repurchased about 420,000 shares for $21 million. The board also authorized a new $200 million share repurchase program, replacing the authorization set to expire in September.

Natural Products Outperform

Underlying sales in UNFI's natural products business outpaced the broader market, with demand staying strong for natural, organic, fresh and specialty products. Conventional product sales, meanwhile, declined at a mid-single-digit rate.

Retail sales fell 8% as UNFI executed planned footprint optimization measures. Cub same-store sales improved about 150 basis points sequentially from the third quarter, after adjusting for the prior-year cyber impact.

Fiscal 2027 Outlook

For fiscal 2027, UNFI expects adjusted earnings of $3.00 to $3.50 per share, compared with the $3.22 estimate. The company forecast sales of $31.2 billion to $31.8 billion, versus the $31.858 billion analysts were looking for.

During the earnings call, United Natural Foods said its fiscal 2027 outlook assumes low-single-digit inflation. But here's the interesting part: the company does not expect price increases to drive margin expansion. Instead, management said productivity and operational improvements will support margins as it works with suppliers to keep prices "low, stable and predictable."

Adjusted EBITDA is expected to range from $730 million to $780 million. The midpoint represents high-single-digit growth and stands $25 million above the target outlined at UNFI's Investor Day.

The company expects sales to decline in the first quarter as network optimization continues to weigh on results. However, UNFI expects profitable growth to return in the second half as its initiatives gain momentum.

The midpoint of the sales and adjusted EBITDA forecasts implies about 10 basis points of year-over-year margin expansion. That would allow UNFI to reach its fiscal 2028 margin-rate target one year ahead of schedule.

For fiscal 2028, UNFI expects adjusted EBITDA to increase about 10% from the midpoint of its fiscal 2027 guidance, implying further margin expansion.

UNFI Price Action: United Natural Foods shares were up 4.03% at $45.70 at the time of publication on Tuesday.