UNFI cyberattack shuts down network, leaves customers in limbo

UNFI first became aware of the security breach on Thursday, CEO Sandy Douglas said during the call. The wholesaler activated its incident response plan, implemented containment measures, and started working to assess, mitigate, and remediate the incident. By Friday afternoon, UNFI had shut down its entire network.

UNFI is working with a third-party cybersecurity firm to implement a workaround, continuing to service customers as it is able. The distributor is bringing systems back online to restore customer service as soon as possible, Douglas said.

“We believe we are managing the incident capably with a very strong team of inside and outside professionals, including specialized experts,” Douglas said during the call. “We’ll continue to keep our customers, suppliers, and associates regularly updated on our progress and next steps.”

The breach has already impacted UNFI’s business, limiting the company’s ability to ship to customers.

Douglas would not comment on how much the breach is affecting business in terms of percentage of orders shipped, but said the company said it was doing all it could to serve customers—including obtaining help from other wholesalers.

“The focus is making sure we serve our customers and help them do whatever they need to do the best they can in this environment. In parallel, our focus is to address the issues as quickly as possible, ensure the systems are safe, and bring them back online,” said Douglas.

Douglas said the company uses multiple external benchmarks to assess itself when it comes to cybersecurity and will continue to look at every aspect of defense and what may be necessary to bolster cybersecurity going forward.

The breach was not the only dose of bad news during the earnings call. UNFI also announced it was ending its northeastern distribution agreement with Key Food Stores, which Douglas described as an “unprofitable relationship.” The termination will also close UNFI’s Allentown, Pa., distribution facility.

“It was a clear choice to end the agreement with Key Food after careful consideration of all the options,” Douglas said.

UNFI reported during the call that Lean processes to make operations more efficient were now being used in 20 of its 52 distribution centers. Gross profit increased 6.1% year over year to $1.1 billion, and adjusted EBITDA for the third quarter was $157 million, compared to $130 million a year ago. UNFI turned in its highest adjusted EBITDA margin rate in two years.

“Our results reflect sales growth above the industry benchmark and adjusted EBITDA growth that was meaningfully higher than our sales growth,” Douglas said. “As part of our strategic plan, we expect to continue driving consistent annual margin expansion.”

Douglas said UNFI is tracking ahead of the three-year fiscal 2027 financial objectives that was set last year.

During the 2024 third-quarter earnings call, the wholesale distributor outlined four foundational initiatives to become a more efficient and effective company, and in turn help accelerate free cash flow and strengthen UNFI’s balance sheet. The four initiatives are: intensify network optimization, focus and reduce annual capital spending, optimize cost structure, and increase working capital efficiency.

In addition to the Lean processes at the distribution centers, UNFI has made progress to increase working capital efficiency by reducing inventory days-on-hand, the average number of days it takes to sell current inventory, to pre-COVID levels while also continuing to improve controllable fill rates. UNFI set the goal of generating up to $100 million in free cash flow during fiscal year 2025 and that it would use the funds to pay off net debt, which now stands at under $1.93 billion. Douglas said during the earnings call that goal has been surpassed and the goal could be over 50% higher than the initial outlook.

UNFI is holding firm on its 2025 projections in net sales, which fall in the $31.3 billion to $31.7 billion range.