Andrew Wolf: Thank you. Good morning. Wanted to ask about industry-wide supply chain issues, which are noticeably not in your press release this quarter versus last year or so. So, — and I’m kind of — context here is are we fastly approaching or are we, kind of in a normal environment for the trade and how the trade is going to market up and down the supply chain? And the second part of that is — so first, the general observations on the supply chain and normalization. And secondly, assuming we’re — that’s the case, we’re approaching some type of normalization. With volumes down 3% for the industry, what are the manufacturers now that they can sell product reliably, but with negative volumes. What’s their appetite for turning up their promotional spending through you and through the retailers directly?
Sandy Douglas: Hi Andy, the way I describe the supply chain environment is that it’s improving, and it’s somewhat gradual. We talked a little bit about staffing being the best it has been since the beginning of the last fiscal year. In fact, our supply chain vacancy rate is down to 6%, which is almost fully staffed. We saw marginal improvement infill rates in the quarter, sequential from Q4 by about 1.5% year-over-year, about 4%. So, I would say we’re seeing improvement in stabilization, which has allowed us to activate the kind of supply chain program that you’d expect around improvement, process normalization, training, tactical use of technology and then more strategic use of automation. And that’s why we’re confident that with all those actions, we should see an improvement in our operating rates as we go forward, expense rates and continue to see improvements in our service to our customers.
And it just bears remembering, in the first quarter of last year, which we’re comparing to in this quarter, there was a lot of distress in the supply chain, which got even worse than the second quarter. So, we’ve taken a lot of action around people and recruitment and staffing. Our first priority was making sure that we were serving our customers in a stable way and in a reliable way. And I would say we’ve made some improvements. But I think collectively, our team and I, working with our suppliers believe, we have a very long way to go and a rich opportunity to improve going forward. Regarding promotions, we — what we’re seeing in this environment is private label brands, our own brand program performed very strongly in the first quarter, and we outgrew private brands in the broader market.
We’ve added some brand and commercial talent to the private brands group. And we have made it a significant priority to make that program significantly more competitive and to sustain that kind of outperforming growth rate. Where all that comes back to our suppliers is through their strategies and our efforts to make customer opportunity more visible to them, we do expect promotions to improve sequentially. We hear that, that’s in many of their plans, and we’re continuing to want to make sure that they can see a good return from those investments because in the end, unit declines, which equal brand occasions is not good for their business over a sustainable basis. And so we want to work really hard to attract that investment, and we expect it to improve going forward.
Andrew Wolf: Thanks. And John, I believe it’s probably for you, just a quick follow-up on the accounts receivable program you talked — you quantified, I would guess that’s pretty attractive financially. So, I don’t know if you could speak to any of the terms of that. But also kind of economically, if you’re selling your receivables, it would seem like at least the internal activities around collections and accounting for receivables, stuff like that. At least some hours would come out, if not some personnel. So, is there a direct bit of an economic advantage to the firm as well as whatever the financial aspects of it are.
John Howard: No, great question. The — so on the AR monetization, we — all we did was monetize the receivables, the responsibilities for the credit and the collections, et cetera, that’s still with UNFI. So, there’s no additional productivity within our SG&A functions as a result of the AR monetization. But what it does provide is just away for us to reduce our cost of borrowing using the working capital that is tied up on our balance sheet. It is — by far, it’s our cheapest borrowing option, including our ABL, which has historically been our lowest borrowing option. So, for us, it’s just another tool for us to optimize our cost of capital, and it’s relatively common within our industry, as you know.
Andrew Wolf: All right. Well, thank you for that. Appreciate it.
Sandy Douglas: Yes. Thank you.
Operator: Our next question comes from Bill Kirk with MKM Partners.
Bill Kirk: Hey, thanks for taking the questions. I want to go back to margins. If I remember 2Q of last year correctly, there was some rather significant COVID absenteeism that resulted in extra overtime pay or even having to use some third-party for the quarter. So, I guess, as you’re lapping that, how should we think about the incremental margin that would come back from the P&L if that type of disruption does not happen again?
Sandy Douglas: So, Bill, this is Sandy here. What I would say is your recollection is obviously correct. And that’s a little bit of the history that I was going over. What we saw in the first quarter of last year was buildings trying to run without enough people. And there was a fair amount of distress in our operating system. We were very focused then on addressing the vacancy issues. And then, of course, Omicron made the second quarter very difficult over the holidays and so we had to rely on a lot of third-party labor. As the year progressed, we’ve been able to replace third-party to a large degree with our own employees, and we’ve seen some other inflation around buildings and maintenance and supplies, et cetera. But the net effect of that is that we saw that sort of peak in the fourth quarter of last year, and we sequentially improved in the first quarter versus the fourth quarter.
And as John mentioned, we expect based on the programs we have, the comparisons and more importantly, the general staffing and improvement agenda that we have to see sequential improvements from the first quarter, which will start to compare more favorably to prior year in the second quarter.
