Modest y/y product cost deflation was driven by center-of-the-plate categories despite slight grocery inflation. +5% growth in independent restaurant cases and +7% growth in both healthcare & hospitality was offset by a -4% chain restaurant decline (reflecting weak traffic).
Commentary
- May & June results strengthened sequentially & the start to 3Q was slightly stronger than the end to 2Q, with management reporting strong health for independent operators.
- Adjusted gross profit dollars increased +9% y/y. As grocery categories are predominantly a percent markup, they are more impacted by deflation compared to center-of-the-plate categories which are largely fixed markups.
- Productivity in warehouse & delivery has been improving both on a sequential and y/y basis.
- While the company’s product service levels for its customers have returned to pre-COVID levels, vendor service level to US Foods has remained slightly below pre-covid levels although they have steadily improved.
- Pilot market testing of its flex scheduling approach is driving a double-digit percent reduction in turnover. 50%+ of the system should incorporate flex scheduling by year-end & management noted that the use of a 7-day delivery schedule will be limited to capacity constraints.
