Further Yin and Yang of Network Optimization, Better Profitability Not Enough to Sustain Stock's Recent Gains - Remain Neutral

Research evidence excerpt

Further Yin and Yang of Network Optimization, Better Profitability Not Enough to Sustain Stock's Recent Gains - Remain Neutral

closures and (4.4%) same-store sales, while Natural grew 4.4% to offset the other FY26E EBITDA 692.75 696.83

channels, but still shy of our 6.0% estimate and below recent trends owing to the FY27E EBITDA 748.81 752.64

unwind of short-term project sales. Management noted the Allentown exit was

a ~450 bps headwind and short-term project unwind another ~200 bps, so sales Revenue (M)

would have grown low-2% excluding these factors. Retail conditions have broadly FY Jul 2025A 2026E 2027E

weakened so far this year (described as "challenging times") owing to pressure from Q1 7,871.00 7,840.00A 7,945.89

higher gas prices and SNAP reductions, but sales (inclusive of above factors) were Q2 8,158.00 7,947.00A 8,089.20

inline with the addressable market and better than the broader industry. Q3 8,059.00 7,723.00A 7,866.83

■ Operating Expenses Again the Offsetting Positive. Gross margin of 13.6% matched Q4 7,696.00 7,627.28 7,754.84

our estimate, but lower operating expense remained the saving grace, declining FY REV 31,784.00 31,137.28 31,656.76

40 bps y/y to 12.4%, and driving adjusted EBITDA slightly ahead to $183MM vs. FY EV/S 0.1x 0.1x 0.1x

our $178MM estimate. Continued productivity gains were the driver, lean daily

FY P/S 0.1x 0.1x 0.1x management is now in 40 DCs (up 4 from last quarter), supply chain technology

continues to roll out, and both throughput and fill rates showed y/y improvement. EBITDA (Adjusted)

Higher diesel prices were a modest pressure that will continue into 4Q, though FY Jul 2025A 2026E 2027E

better productivity was able to largely offset this, and fuel surcharges and route Q1 134.00 167.00A 171.98