UNITED NATURAL FOODS INC (UNFI) FY 2026 MD&A

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto, “Risk Factors” included in Part I, Item IA, “Cautionary Note Regarding Forward-Looking Statements” and other risks described elsewhere in this Annual Report. The following includes a comparison of our consolidated results of operations, segment results and financial position for fiscal years 2026 and 2025. In evaluating financial performance in each business segment, management primarily uses Net sales and Adjusted EBITDA of its business segments as discussed and reconciled within Note 16—Business Segments in Part II, Item 8 of this Annual Report. For a comparison of our consolidated results of operations, segment results and financial position for fiscal years 2025 and 2024, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended August 2, 2025, filed with the Securities and Exchange Commission on October 1, 2025.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act, that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “should,” “will” and “would,” or similar words. Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions or state other “forward-looking” information.

Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect. These statements are based on our management’s beliefs and assumptions, which are based on currently available information. These assumptions could prove inaccurate. You are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to:

•our dependence on principal customers;

•our relatively low margins, which are sensitive to inflationary and deflationary pressures and intense competition, including as a result of the continuing retailer consolidation and the growth of consumer choices for grocery and consumable purchases;

•our ability to realize the anticipated benefits of our strategic initiatives;

•changes in relationships with our suppliers;

•our ability to develop, implement, operate and maintain, and rely on third parties to operate and maintain, reliable and secure technology systems;

•the effectiveness of our business continuity plans in response to incidents impacting our operating network or technology systems;

•our sensitivity to general economic conditions including inflation, tariff policy and changes in disposable income levels and consumer purchasing habits;

•labor and other workforce shortages and challenges;

•the addition or loss of significant customers or material changes to our relationships with these customers;

•our ability to continue to grow sales, including of our higher margin natural and organic foods and non-food products;

•our ability to maintain sufficient volume in our Natural and Conventional businesses to support our operating infrastructure;

•increases in healthcare, pension and other costs under our single employer benefit plan and multiemployer benefit plans;

•the potential for our insurance and self-insurance programs not to be adequate to cover our claims;

•the potential for disruptions in our supply chain or our distribution capabilities from circumstances beyond our control, including due to lack of long-term contracts, severe weather, labor shortages or work stoppages or otherwise;

•the effect of adverse decisions in, or settlement of, litigation or other proceedings to which we are subject;

•volatility in fuel costs;

•our ability to access additional capital;

•our ability to realize anticipated benefits of strategic transactions;

•the potential for additional asset impairment charges;

•our ability to maintain food quality and safety;

•moderated supplier promotional activity, including decreased forward buying opportunities;

•union-organizing activities that could cause labor relations difficulties and increased costs; and

•changes in tax laws and regulations, and actions by federal, state and local taxing authorities related to the interpretation and application of such tax laws and regulations.

You should carefully review the risks described under “Risk Factors” included in Part I, Item 1A, as well as any other cautionary language in this Annual Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.

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EXECUTIVE OVERVIEW

Business Overview

UNFI is a leading grocery wholesaler and support services provider to retailers in the United States and Canada. We believe our broad array of products, data, insights, programs and services uniquely positions us to help meet a wide range of customer and supplier needs across North America. Our diversified customer base includes over 30,000 customer locations ranging from some of the largest grocers in North America to smaller retailers. We offer over 200,000 products consisting of national, regional and private label brands grouped into the following main product categories: center store and general merchandise; fresh and perishables; frozen; wellness and personal care; and bulk and foodservice. We believe we are North America’s premier grocery wholesaler with 46 distribution centers and warehouses representing approximately 26 million square feet of warehouse space. We are a coast-to-coast distributor with customers in all 50 states as well as all ten provinces in Canada, making us a desirable partner for retailers and consumer product manufacturers. We believe our total product assortment and service offerings help differentiate UNFI in the wholesale marketplace. We plan to continue to pursue new business opportunities with independent retailers that operate diverse formats, regional and national chains and international customers with wide-ranging needs. Our business is classified into three reportable segments: Natural, Conventional and Retail.

We are executing against our value creation strategy, which seeks to build capabilities that add value to our customers and suppliers through our portfolio of products, programs, insights and services while improving our effectiveness and efficiency. We are focused on controllable variables in several key areas: network optimization; managing annual capital spending; optimizing our cost structure and net working capital position. We believe our strategy uniquely positions us to help our partners differentiate, compete and profitably grow.

We expect to continue to use available capital to re-invest in our business and are committed to improving our free cash flow and financial leverage through working to improve our profitability, disciplined capital investment and strengthened working capital management, while reducing outstanding debt.

We believe we can optimize our performance and profitability through our improvement efforts, which we expect will improve our operational effectiveness and cost structure, increase sales of products and services to new and existing customers and position us to provide tailored, data-driven solutions to help our customers and suppliers run their businesses more efficiently.

We are continually striving to better serve our stakeholders, including our customers, suppliers, associates and communities, and to drive profitable growth and sustainable shareholder value creation.

Trends and Other Factors Affecting Our Business

Our results are impacted by several macroeconomic, industry, demographic and consumer-driven trends that affect demand for grocery products, product mix, pricing and operating costs. These trends arise from factors largely outside our control, including broader economic conditions, geopolitical events and other events that may trigger economic volatility and negatively impact discretionary income levels and consumer confidence, social trends, changes in the levels of disposable income and structural shifts in the food distribution market structure.

Economic volatility in the U.S. has persisted, which has had, and we expect may continue to have, an impact on consumer confidence and purchasing behavior. In response to pressure on discretionary income levels, certain consumers have increasingly prioritized value, including by trading down to a less expensive mix of products for grocery items or buying fewer items. This trend has influenced product mix and margin dynamics, with shifts towards lower-margin value-oriented categories. At the same time, there remains stable demand for essential food items and higher unit volumes in natural and organic categories. Based on current conditions, we believe these consumer purchasing patterns are reasonably likely to continue in the near term and could continue to affect our results of operations. We believe our diversified product assortment, which ranges from natural and organic products to national and local conventional brands, including cost conscious private label brands, helps mitigate the impact of adverse product mix shifts and positions us to serve a broad cross section of North American retailers and end customers.

Inflationary pressures and changes in pricing levels have affected our business, and fluctuating commodity, fuel and labor input costs are reasonably likely to continue to impact the prices of products we procure from manufacturers. Commodity and labor markets remain volatile, and ongoing variability in input costs may affect our cost structure and pricing dynamics. Additional discussion is included under the caption “Impact of Product Cost Changes” below.

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We are also actively monitoring developments in macroeconomic and geopolitical conditions, including evolving tariff and global trade policies and volatile fuel costs. Additional changes in the macroeconomic and geopolitical landscape could impact product acquisition and operating costs, disrupt supply availability and impact other aspects of our business.

In addition, changes in food distribution trends affecting our wholesale customers, such as the increased use of direct store delivery and alternative distribution models, have continued to affect competitive dynamics within the industry. Our wholesale customers manage their businesses independently and operate in a competitive environment.

As previously disclosed, in June 2025, we experienced a cybersecurity incident. We have submitted claims to our insurers for reimbursement of costs, expenses, and losses stemming from the cybersecurity incident, and continue our efforts to complete the full claim and settlement process.

Impact of Product Cost Changes

We experienced a mix of inflation and deflation across product categories during fiscal 2026. In the aggregate across our businesses, including the mix of products, management estimates our businesses experienced product cost inflation of approximately 3% in fiscal 2026 as compared to fiscal 2025. Cost inflation and deflation estimates are based on individual like items sold during the periods being compared. Our pricing to our customers is determined at the time of sale, primarily based on the then prevailing vendor listed base cost, and includes discounts we offer to customers. Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation and deflation on Net sales and Gross profit.

In an inflationary environment, rising vendor costs typically increase Net sales for wholesalers, driven by higher vendor prices when other variables such as quantities sold, mix of units sold and vendor promotions are constant. Under the last-in, first out (“LIFO”) method of inventory accounting, product cost increases are recognized within Cost of sales based on expected year-end inventory quantities and costs, which generally has the effect of decreasing Gross profit and the carrying value of inventory during periods of inflation.

Wholesale Distribution Network Optimization

We continue to evaluate our distribution center network to more effectively and efficiently service customers and suppliers and further optimize performance. In connection with the termination of our supply agreement with a customer in the East region in fiscal 2025, we ceased operations at our Allentown, Pennsylvania, distribution center in the first quarter of fiscal 2026 with the remaining volume consolidated into other facilities in the Northeast. Business with this customer in the Northeast accounted for approximately $1 billion in annual sales. The termination enabled us to accelerate progress toward our longer-term strategic and three-year financial objectives. Additionally, we consolidated the volume of a distribution center into a nearby facility in the West region in the third quarter of fiscal 2026. In the fourth quarter of fiscal 2026, we consolidated the volume of a distribution center primarily serving the Natural segment into a nearby automated facility in the Central region.

We could incur incremental expenses related to any future network realignment, expansion or improvements, including network optimization and automation initiatives. We are working to both minimize future costs and obtain new business to further improve the efficiency of our distribution network.

Retail Operations

We operated 65 grocery stores, including 52 Cub Foods stores and 13 Shoppers stores, as of August 1, 2026. In addition, we supplied another 24 Cub Foods stores operated by our wholesale customers through franchise and minority equity ownership arrangements. We operated 77 pharmacies primarily within the stores we operate and the stores of our franchisees. In addition, we operated 23 “Cub Wine and Spirits” and “Cub Liquor” stores.

In fiscal 2026, we closed two Cub Foods stores and eight Shoppers stores related to our strategic initiatives focused on optimization of our retail footprint. We plan to continue to invest in and optimize our Retail segment in areas such as customer-facing merchandising initiatives, physical facilities, technology and operational tools.

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Composition of Consolidated Statements of Operations and Business Performance Assessment

Net Sales

Our Net sales consist primarily of product sales of natural, organic, specialty and conventional food and non-food products, adjusted for customer volume discounts, vendor incentives when applicable, returns and allowances, and professional services revenue. Net sales also include amounts charged by us to customers for shipping and handling and fuel surcharges.

Cost of Sales and Gross Profit

The principal components of our Cost of sales include the amounts paid to suppliers for product sold, plus transportation costs necessary to bring the product to, or move product between, our distribution centers and retail stores, partially offset by consideration received from suppliers in connection with the purchase, transportation or promotion of the suppliers’ products.

Operating Expenses

Operating expenses include distribution expenses of warehousing, delivery, purchasing, receiving, selecting, and outbound transportation expenses, and selling and administrative expenses. These expenses include salaries and wages, employee benefits, occupancy, insurance, depreciation and amortization expense and share-based compensation expense.

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses reflect expenses resulting from restructuring activities, including severance costs, facility closure costs, contract exit-related costs, share-based compensation acceleration charges and acquisition and integration related expenses, when applicable. Integration related expenses, when incurred, can include certain professional consulting expenses and incremental expenses related to combining facilities required to optimize our distribution network as a result of acquisitions.

Loss (Gain) on Sale of Assets and Other Asset Charges

Loss (gain) on sale of assets and other asset charges primarily includes (gains) losses on sales of assets, losses on sales of financial assets, and asset impairments.

Net Periodic Benefit Income, Excluding Service Cost

Net periodic benefit income, excluding service cost reflects the recognition of expected returns on benefit plan assets and interest costs on plan liabilities.

Interest Expense, Net

Interest expense, net includes primarily interest expense on long-term debt, net of capitalized interest, loss on debt extinguishment, interest expense on finance lease obligations, amortization of financing costs and discounts, and interest income.

Adjusted EBITDA

Our Consolidated Financial Statements are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”). In addition to the GAAP results, we consider certain non-GAAP financial measures to assess the performance of our business and understand underlying operating performance and core business trends, which we use to facilitate operating performance comparisons of our business on a consistent basis over time. Adjusted EBITDA is provided as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to, any financial measure of performance prepared and presented in accordance with GAAP. Adjusted EBITDA excludes certain items because they are non-cash items or items that do not reflect management’s assessment of ongoing business performance.

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We believe Adjusted EBITDA is useful because it provides additional information regarding factors and trends affecting our business, which are used in the business planning process to understand expected operating performance, to evaluate results against those expectations, and because of its importance as a measure of underlying operating performance, as the primary compensation performance measure under certain compensation programs and plans. We believe Adjusted EBITDA is reflective of factors that affect our underlying operating performance and facilitate operating performance comparisons of our business on a consistent basis over time. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Certain adjustments to our GAAP financial measures reflected below exclude items that may be considered recurring in nature and may be reflected in our financial results for the foreseeable future. These measurements and items may be different from non-GAAP financial measures used by other companies. Adjusted EBITDA should be reviewed in conjunction with our results reported in accordance with GAAP in this Annual Report.

There are significant limitations to using Adjusted EBITDA as a financial measure including, but not limited to, it not reflecting the cost of cash expenditures for capital assets or certain other contractual commitments, finance lease obligation and debt service expenses, income taxes and any impacts from changes in working capital.

We define Adjusted EBITDA as a consolidated measure which we reconcile by adding Net income (loss) including noncontrolling interests, less Net income attributable to noncontrolling interests, plus Non-operating income and expenses, including Net periodic benefit income, excluding service cost, Interest expense, net and Other (income) expense, net, plus (Benefit) provision for income taxes and Depreciation and amortization all calculated in accordance with GAAP, plus adjustments for Share-based compensation, non-cash LIFO charge or benefit, Restructuring, acquisition and integration related expenses, Goodwill impairment charges, Loss (gain) on sale of assets and other asset charges, certain legal charges and gains, and certain other non-cash charges or other items, as determined by management.

Assessment of Our Business Results

The following table sets forth a summary of our results of operations and Adjusted EBITDA for the periods indicated.

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The following table reconciles Net income (loss) including noncontrolling interests to Adjusted EBITDA.

(1)Fiscal 2026 primarily reflects distribution center and store closure charges, costs associated with certain employee severance and other employee separation costs and adjustments to previously recorded multiemployer pension plan withdrawal liabilities. Fiscal 2025 primarily reflects the $53 million charge related to the Company’s termination of its supply agreement with a customer in the East region and costs associated with certain employee severance and other employee separation costs and outsourcing certain corporate functions under restructuring initiatives.

(2)Fiscal 2026 primarily includes $30 million in non-cash asset impairment charges related to decisions to close certain retail store locations and discontinue operations at certain distribution centers, warehouses or offsite storage facilities, an $18 million gain on the sale of a surplus distribution center and $17 million in losses on the sales of receivables under the accounts receivable monetization program. Fiscal 2025 primarily includes a $24 million non-cash asset impairment charge related to a distribution center in our East region and $19 million in losses on the sales of receivables under the accounts receivable monetization program. Refer to Note 3—Revenue Recognition, Note 5—Property and Equipment, Net and Note 11—Leases in Part II, Item 8 of this Annual Report for additional information.

(3)Fiscal 2026 reflects store closure inventory charges, which are included within Cost of sales in the Consolidated Statements of Operations.

(4)Reflects costs associated with business transformation initiatives, primarily including third-party consulting costs and licensing costs, which are included within Operating expenses in the Consolidated Statements of Operations.

(5)Fiscal 2026 includes $45 million of insurance recoveries, which are included within Operating expenses in the Consolidated Statements of Operations, partially offset by $24 million of costs and charges related to the June 2025 cybersecurity incident, of which $20 million is included within Gross profit and $4 million is included within Operating expenses in the Consolidated Statements of Operations. Fiscal 2025 includes costs and charges related to the cybersecurity incident, of which $15 million is included within Gross profit and $11 million is included within Operating expenses in the Consolidated Statements of Operations. Refer to Note 1—Significant Accounting Policies in Part II, Item 8 of this Annual Report for additional information.

(6)Primarily reflects accrued costs related to an agreement to settle certain legal proceedings, which are included within Operating expenses in the Consolidated Statements of Operations.

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RESULTS OF OPERATIONS

Fiscal year ended August 1, 2026 (fiscal 2026) compared to fiscal year ended August 2, 2025 (fiscal 2025)

Net Sales

The following table sets forth our Net sales by segment. Refer to Note 16—Business Segments in Part II, Item 8 of this Annual Report for additional information.

Our Net sales for fiscal 2026 decreased $632 million, or 2.0%, to $31.2 billion in fiscal 2026, from $31.8 billion in fiscal 2025. The decrease in Net sales was primarily driven by a decrease in Conventional and Retail Net sales, partially offset by an increase in Natural Net sales and lapping the impact of the cybersecurity incident experienced in the fourth quarter of fiscal 2025.

Natural Net sales increased $1,115, or 7.0%, to $17.1 billion in fiscal 2026, from $16.0 billion in fiscal 2025. The increase in Natural Net sales was primarily driven by a low single digit increase in unit volumes, including new business with existing and new customers, as well as a low single digit increase from inflation and lapping the impact of the cybersecurity incident experienced in the fourth quarter of fiscal 2025.

Conventional Net sales decreased $1,693 million, or 11.5%, to $13.0 billion in fiscal 2026, from $14.7 billion in fiscal 2025. The decrease in Conventional Net sales was primarily driven by a mid-teens decline in unit volumes including the high single digit impact from network optimization actions, largely driven by the transition out of our Allentown, Pennsylvania, distribution center completed in the first quarter of fiscal 2026, partially offset by a low single digit increase from inflation and lapping the impact of the cybersecurity incident experienced in the fourth quarter of fiscal 2025.

Retail Net sales decreased $185 million, or 7.9%, to $2.2 billion in fiscal 2026, from $2.3 billion in fiscal 2025. The decrease in Retail Net sales was primarily driven by a mid single digit decline from store closures and a 2.5% decrease in identical store sales from lower volume, partially offset by lapping the impact of the cybersecurity incident experienced in the fourth quarter of fiscal 2025.

Lower eliminations of Net sales for fiscal 2026 as compared to fiscal 2025 were primarily due to a decrease in Conventional to Retail sales, which are eliminated upon consolidation.

Cost of Sales and Gross Profit

Our Gross profit decreased $26 million, or 0.6%, to $4,196 million in fiscal 2026, from $4,222 million in fiscal 2025. Our Gross profit as a percentage of Net sales increased to 13.5% in fiscal 2026 compared to 13.3% in fiscal 2025. The increase in gross profit rate was primarily driven by the positive impact of network optimization actions and customer mix as well as higher levels of procurement gains, which were partially offset by a lower margin rate in the Retail segment.

Operating Expenses

Operating expenses decreased $211 million, or 5.1%, to $3,906 million, or 12.5% of Net sales, in fiscal 2026 compared to $4,117 million, or 13.0% of Net sales, in fiscal 2025. The decrease in Operating expenses as a percentage of Net sales was primarily driven by the benefits from cost saving initiatives, including network and cost structure optimization actions and higher levels of distribution center productivity, as well as $50 million in cybersecurity insurance recoveries, partially offset by higher costs associated with union and other employee benefits.

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Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses decreased $42 million to $52 million for fiscal 2026, from $94 million for fiscal 2025. The decrease was primarily driven by the non-recurrence of a $53 million charge in fiscal 2025 related to the Company’s termination of its supply agreement with a customer in the East region and a decrease in certain employee severance and other employee separation costs, as well as costs associated with outsourcing certain corporate functions under restructuring initiatives, partially offset by higher closed property charges and costs in fiscal 2026 and an adjustment to previously recorded multiemployer pension plan withdrawal liabilities in the first quarter of fiscal 2026.

Loss (Gain) on Sale of Assets and Other Asset Charges

Loss (gain) on sale of assets and other asset charges decreased $15 million to $27 million for fiscal 2026, from $42 million for fiscal 2025. The decrease in fiscal 2026 was primarily driven by higher gains on sales of assets, partially offset by higher asset impairment charges. Fiscal 2026 primarily included $30 million in non-cash asset impairment charges related to decisions to close certain retail store locations and discontinue operations at certain distribution centers, warehouses or offsite storage facilities, an $18 million gain on the sale of a surplus distribution center and $17 million in losses on the sales of receivables. Fiscal 2025 primarily included a $24 million asset impairment charge related to our Allentown, Pennsylvania, distribution center and $19 million in losses on the sales of receivables.

Operating Income (Loss)

Reflecting the factors described above, Operating income was $211 million for fiscal 2026, a $242 million increase from Operating loss of $31 million in fiscal 2025. The increase was primarily driven by a decrease in Operating expenses, Restructuring, acquisition and integration related expenses and Loss (gain) on sale of assets and other asset charges, partially offset by a decrease in Gross profit, each as described above.

Net Periodic Benefit Income, Excluding Service Cost

Net periodic benefit income, excluding service cost increased $3 million to $23 million in fiscal 2026, from $20 million in fiscal 2025. The increase in Net periodic benefit income, excluding service cost was primarily driven by lower interest costs due to the reduction in pension liabilities and changes in the interest rate yield curve utilized in the measurement of Net periodic benefit income, excluding service cost.

Interest Expense, Net

The decrease in Interest expense, net for fiscal 2026 compared to fiscal 2025 was primarily driven by lower outstanding long-term debt balances.

Provision (Benefit) for Income Taxes

The effective tax rate was an expense rate of 17.6% on a pre-tax income for fiscal 2026 compared to a benefit rate of 25.3% on a pre-tax loss for fiscal 2025. The change in effective tax rate from fiscal 2025 was primarily driven by the increase in discrete tax benefits from employee stock award vestings and favorable tax audit settlements during fiscal 2026, as well as tax credit benefits primarily related to a solar array placed in service during the first quarter of fiscal 2026.

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Net Income (Loss) Attributable to United Natural Foods, Inc.

Reflecting the factors described in more detail above, Net income attributable to United Natural Foods, Inc. was $84 million, or $1.34 per diluted common share, for fiscal 2026, compared to Net loss attributable to United Natural Foods, Inc. of $118 million, or $1.95 per diluted common share, for fiscal 2025.

Adjusted EBITDA

The following table sets forth Adjusted EBITDA by segment for the periods indicated. Refer to Note 16—Business Segments in Part II, Item 8 of this Annual Report for additional information.

Natural Adjusted EBITDA increased $85 million, or 19.2% for fiscal 2026 as compared to fiscal 2025. The increase was driven by an increase in gross profit and lapping the impact of the cybersecurity incident experienced in the fourth quarter of fiscal 2025, partially offset by an increase in operating expenses.

•Natural Gross profit, which excludes the LIFO charge (benefit) and other adjustments as outlined in Note 16—Business Segments in Part II, Item 8 of this Annual Report, increased $132 million. Natural gross profit rate decreased approximately 10 basis points primarily driven by lower product margin rates and customer mix, which were partially offset through supplier programs and higher levels of procurement gains.

•Natural Operating expense, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 16—Business Segments in Part II, Item 8 of this Annual Report, increased $47 million. Natural operating expense rate decreased approximately 42 basis points primarily due to the benefits from cost saving initiatives in distribution expenses and selling, general and administrative expenses and the leveraging impact of higher sales, partially offset by increases in distribution expenses associated with union and other employee benefits.

Conventional Adjusted EBITDA increased $96 million, or 55.2% for fiscal 2026 as compared to fiscal 2025. The increase was driven by a decrease in operating expenses and lapping the impact of the cybersecurity incident experienced in the fourth quarter of fiscal 2025, partially offset by a decrease in gross profit.

•Conventional Gross profit, which excludes the LIFO charge (benefit) and other adjustments as outlined in Note 16—Business Segments in Part II, Item 8 of this Annual Report, decreased $65 million. Conventional gross profit rate increased approximately 86 basis points primarily driven by the positive impact of network optimization actions and customer and product category mix, recoveries related to settlements with customers and suppliers in the first quarter of fiscal 2026 and higher levels of procurement gains.

•Conventional Operating expense, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 16—Business Segments in Part II, Item 8 of this Annual Report, decreased $161 million. Conventional operating expense rate was approximately flat primarily due to the benefits from cost saving initiatives in distribution expenses, which included the benefits of network optimization actions and higher levels of distribution center productivity, largely offset by increases in distribution expenses associated with union and other employee benefits and the deleveraging impact of lower sales on fixed costs.

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Retail Adjusted EBITDA decreased $31 million for fiscal 2026 as compared to fiscal 2025. The decrease was driven by a decrease in gross profit, partially offset by a decrease in operating expenses and lapping the impact of the cybersecurity incident experienced in the fourth quarter of fiscal 2025.

•Retail Gross profit, which excludes the LIFO charge (benefit) and other adjustments as outlined in Note 16—Business Segments in Part II, Item 8 of this Annual Report, decreased $69 million. Retail gross profit rate decreased approximately 102 basis points driven primarily by lower product margin rates due to price investments and changes in category mix.

•Retail Operating expense, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 16—Business Segments in Part II, Item 8 of this Annual Report, decreased $38 million. Retail operating expense rate increased approximately 40 basis points primarily due to increases in labor and other employee benefit costs and occupancy-related costs combined with the deleveraging impact of lower sales, partially offset by lower costs resulting from store closures.

LIQUIDITY AND CAPITAL RESOURCES

Highlights

•Total liquidity as of August 1, 2026 was $1,268 million and consisted of the following:

◦$1,231 million of unused credit under our ABL Credit Facility, which decreased $222 million from $1,453 million as of August 2, 2025, primarily due to a reduction in the borrowing base, partially offset by a reduction in net borrowings under the ABL Credit Facility; and

◦$37 million of cash and cash equivalents, which decreased $7 million from $44 million as of August 2, 2025.

•Total debt decreased $299 million to $1,563 million as of August 1, 2026 from $1,862 million as of August 2, 2025, primarily related to the redemption of $150 million of our Senior Notes and a reduction in net borrowings under the ABL Credit Facility due to net cash provided by operating activities, partially offset by payments for capital expenditures and repurchases of common stock.

•Working capital decreased $121 million to $700 million as of August 1, 2026 from $821 million as of August 2, 2025.

•In the first quarter of fiscal 2026, we paid the remaining $35 million in connection with the contract termination with a customer in the East region in fiscal 2025, as described further in Note 4—Restructuring, Acquisition and Integration Related Expenses.

•In the second quarter of fiscal 2026, we made a voluntary prepayment of $9 million on our Term Loan Facility funded with proceeds from the sale of the Bismarck, North Dakota, distribution center.

•In the third quarter of fiscal 2026, we refinanced our ABL Credit Facility, reducing the aggregate principal amount available to up to $2,530 million and extending the maturity to April 1, 2031.

•In the fourth quarter of fiscal 2026, we repriced our Term Loan Facility, reducing the applicable margin over the Secured Overnight Financing Rate (“SOFR”) from 4.75% to 4.00%.

•In fiscal 2026, we repurchased 1,245,357 shares of our common stock for a total cost of $50 million.

•In fiscal 2027, scheduled debt maturities are expected to be $4 million. Based on our Consolidated First Lien Net Leverage Ratio (as defined in the Term Loan Agreement) at the end of fiscal 2026, no prepayment from Excess Cash Flow (as defined in the Term Loan Agreement) in fiscal 2026 is required to be made on the Term Loan Facility in fiscal 2027.

Sources and Uses of Cash

We expect to continue to replenish operating assets and pay down debt obligations with internally generated funds. A significant reduction in operating earnings or the incurrence of operating losses could have a negative impact on our operating cash flow, which may limit our ability to pay down our outstanding indebtedness as planned. Our credit facilities are secured by a substantial portion of our total assets. We expect to be able to fund debt maturities and finance lease liabilities through fiscal 2027 with internally generated funds and borrowings under the ABL Credit Facility.

Our primary sources of liquidity are from internally generated funds and from borrowing capacity under the ABL Credit Facility. We believe our short-term and long-term financing abilities are adequate as a supplement to internally generated cash flows to satisfy debt obligations and fund capital expenditures as opportunities arise. Our continued access to short-term and long-term financing through credit markets depends on numerous factors, including the condition of the credit markets and our results of operations, cash flows, financial position and credit ratings.

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Primary uses of cash include debt service, capital expenditures, working capital maintenance depending on seasonality and other fluctuations, investments in cloud technologies and income tax payments. We typically finance working capital needs with cash provided from operating activities and short-term borrowings. Inventories are managed primarily through demand forecasting and replenishing depleted inventories.

We currently do not pay a dividend on our common stock. In addition, we are limited in the aggregate amount of dividends that we may pay under the terms of our Term Loan Facility, ABL Credit Facility and Senior Notes. Subject to certain limitations contained in our debt agreements and as market conditions warrant, we may from time to time refinance indebtedness that we have incurred, including through the incurrence or repayment of loans under existing or new credit facilities or the issuance or repayment of debt securities. Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to be used to make additional Term Loan Facility payments or to be reinvested in the business.

Long-Term Debt

On April 1, 2026, we entered into an amendment and restatement of the ABL Loan Agreement, which provides for an ABL Credit Facility with an aggregate principal amount available of up to $2,530 million, including Revolver Loans (as defined in the ABL Loan Agreement) of up to $2,400 million and a First In, Last Out (“FILO”) tranche of incremental ABL loans of $130 million, and extends the maturity of our ABL Credit Facility to April 1, 2031. On June 18, 2026, we amended the Term Loan Agreement to reprice the Term Loan Facility, reducing the applicable margin over the SOFR from 4.75% to 4.00%. During fiscal 2026, we reduced borrowings under the ABL Credit Facility by a net $136 million, made voluntary and mandatory prepayments on the Term Loan Facility totaling $13 million and redeemed $150 million of our Senior Notes.

Our Term Loan Agreement and Senior Notes do not include any financial maintenance covenants. Our ABL Loan Agreement subjects us to a fixed charge coverage ratio of at least 1.0 to 1.0 calculated at the end of each of our fiscal quarters on a rolling four quarter basis, if the adjusted aggregate availability is ever less than the greater of (i) $204 million, or $194 million if no ABL FILO Loans are then outstanding at such time and (ii) 10% of the aggregate borrowing base. We have not been subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement, including through the filing date of this Annual Report. The Term Loan Agreement, Senior Notes and ABL Loan Agreement contain certain operational and informational covenants customary for debt securities of these types that limit our and our restricted subsidiaries’ ability to, among other things, incur debt, declare or pay dividends or make other distributions to our stockholders, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of our and our subsidiaries’ assets on a consolidated basis. We were in compliance with all such covenants for all periods presented. If we fail to comply with any of these covenants, we may be in default under the applicable debt agreement, and all amounts due thereunder may become immediately due and payable.

Refer to Note 9—Long-Term Debt in Part II, Item 8 of this Annual Report for additional information, including a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements and further detail of our scheduled debt maturities by fiscal year and by debt instrument, which excludes debt prepayments that may be required from Excess Cash Flow generated or sales of mortgaged properties in fiscal 2027 or beyond. Based on our Consolidated First Lien Net Leverage Ratio at the end of fiscal 2026, no prepayment from Excess Cash Flow in fiscal 2026 is required to be made on the Term Loan Facility in fiscal 2027.

Derivatives and Hedging Activity

We enter into interest rate swap contracts from time to time to mitigate our exposure to changes in market interest rates as part of our strategy to manage our debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures.

As of August 1, 2026, we had an aggregate of $850 million of floating rate notional debt subject to active interest rate swap contracts, which effectively fix the SOFR component of our floating interest payments through pay fixed and receive floating interest rate swap agreements. These fixed rates range from 3.333% to 4.130%, with maturities between October 2026 and October 2029. The fair values of these interest rate derivatives represent a total net asset of $2 million as of August 1, 2026, and are subject to volatility based on changes in market interest rates. Refer to Note 8—Derivatives in Part II, Item 8 and Interest Rate Risk in Part II, Item 7A of this Annual Report for additional information.

From time to time, we enter into fixed price fuel supply agreements and foreign currency hedges. As of August 1, 2026, we had fixed price fuel contracts and foreign currency forward agreements outstanding. Gains and losses and the outstanding assets and liabilities from these arrangements are insignificant.

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Payments for Capital Expenditures and Cloud Technology Implementation Expenditures

Our capital expenditures for fiscal 2026 were $217 million compared to $231 million for fiscal 2025, a decrease of $14 million primarily driven by reduced capital spending related to automation initiatives, partially offset by increases in other supply chain, technology and Retail expenditures. Our capital spending for fiscal 2026 and 2025 principally included supply chain and information technology expenditures, including maintenance expenditures and investments in growth initiatives. Fiscal 2026 included $181 million of distribution center improvements, technology and other expenditures, including investments in automation, $33 million of Retail expenditures and $3 million of investments in new distribution centers. Fiscal 2025 included $193 million of distribution center improvements, technology and other expenditures, including investments in automation, $20 million of Retail expenditures and $18 million of investments in new distribution centers. Cloud technology implementation expenditures, which are included in operating activities in the Consolidated Statements of Cash Flows, were $35 million for fiscal 2026 compared to $7 million for fiscal 2025, an increase of $28 million primarily driven by investments in new information technology, including a multi-year implementation of a new ERP system.

Fiscal 2027 capital and cloud implementation spending is expected to be approximately $300 million and includes technology platform investments and projects that automate and optimize our distribution network. The components of capital and cloud implementation expenditures for fiscal 2027 will be primarily dependent on the nature of certain contracts to be executed. We expect to finance fiscal 2027 capital and cloud implementation expenditures requirements with cash generated from operations and borrowings under our ABL Credit Facility. Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility and cash from operations.

Cash Flow Information

The following summarizes our Consolidated Statements of Cash Flows:

The increase in net cash provided by operating activities was primarily due to an increase in cash generated from net income, partially offset by lower levels of cash generated by net working capital. The lower cash generated by net working capital was primarily driven by a decrease in Accounts payable related to lower inventory levels, year-over-year changes in incentive compensation accruals and corresponding payments, higher payments for cloud technology implementation expenditures, higher payments for legal settlements and higher contract termination payments described further in Note 4—Restructuring, Acquisition and Integration Related Expenses in Part II, Item 8 of this Annual Report in fiscal 2026, partially offset by a decrease in customer Accounts receivable.

The decrease in net cash used in investing activities was primarily due to higher proceeds from the sale of distribution centers and other long-lived assets and lower payments for capital expenditures.

The increase in net cash used in financing activities was primarily due to an increase in cash used to repurchase common stock, an increase in repayments of long-term debt and finance leases and higher net repayments of borrowings under the ABL Credit Facility in fiscal 2026 resulting from the increase in net cash provided by operating activities and the decrease in net cash used in investing activities, as described above.

Other Obligations and Commitments

Our principal contractual obligations and commitments consist of obligations under our long-term debt, interest on long-term debt, operating and finance leases, purchase obligations, self-insurance liabilities and multiemployer plan withdrawal liabilities.

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Refer to Note 9—Long-Term Debt, Note 11—Leases, Note 13—Benefit Plans, Note 1—Significant Accounting Policies and Note 17—Commitments, Contingencies and Off-Balance Sheet Arrangements in Part II, Item 8 of this Annual Report for more information on the nature and timing of obligations for debt, leases, benefit plans, self-insurance and purchase obligations, respectively. The future amount and timing of interest expense payments are expected to vary with the amount and then prevailing contractual interest rates over our debt as discussed in Interest Rate Risk in Part II, Item 7A of this Annual Report.

Pension and Other Postretirement Benefit Obligations

We contributed $1 million and $1 million to our defined benefit pension and other postretirement benefit plans, respectively, in fiscal 2026. In fiscal 2027, no cash pension contributions are required to be made to the SUPERVALU INC. Retirement Plan under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). An insignificant amount of contributions is expected to be made to other defined benefit pension plans and postretirement benefit plans in fiscal 2027. We fund our tax-qualified defined benefit pension plan based on the minimum contribution required under ERISA, the Pension Protection Act of 2006 and other applicable laws and additional contributions made at our discretion. We may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable. We assess the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums or the ability to achieve exemption from participant notices of underfunding.

Off-Balance Sheet Multiemployer Pension Arrangements

We contribute to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. These multiemployer plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Plan trustees are typically responsible for determining the level of benefits to be provided to participants as well as the investment of the assets and plan administration. Trustees are appointed in equal number by employers and the unions that are parties to the relevant collective bargaining agreements. Based on the assessment of the most recent information available from the multiemployer plans, we believe that most of the plans to which we contribute are underfunded. We are only one of a number of employers contributing to these plans and the underfunding is not a direct obligation or liability to us.

Our contributions can fluctuate from year to year due to store closures, employer participation within the respective plans and reductions in headcount. Our contributions to these plans could increase in the near term. However, the amount of any increase or decrease in contributions will depend on a variety of factors, including the results of our collective bargaining efforts, investment returns on the assets held in the plans, actions taken by the trustees who manage the plans and requirements under the Pension Protection Act of 2006, the Multiemployer Pension Reform Act and Section 412 of the Internal Revenue Code. Expense is recognized in connection with these plans as contributions are funded, in accordance with GAAP. We made contributions to these plans and recognized expense of $45 million, $48 million and $47 million in fiscal 2026, 2025 and 2024, respectively. In fiscal 2027, we expect to contribute approximately $49 million to multiemployer plans, subject to the outcome of collective bargaining and capital market conditions. If we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, we could trigger a partial or complete withdrawal that could require us to record a withdrawal liability obligation and make withdrawal liability payments to the fund. We expect required cash payments to fund multiemployer pension plans from which we have withdrawn to be insignificant in any one fiscal year, which would exclude any payments that may be agreed to on a lump sum basis to satisfy existing withdrawal liabilities. Any future withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP. Any triggered withdrawal obligation could result in a material charge and payment obligations that would be required to be made over an extended period of time.

We also make contributions to multiemployer health and welfare plans in amounts set forth in the related collective bargaining agreements. A small minority of collective bargaining agreements contain reserve requirements that may trigger unanticipated contributions resulting in increased healthcare expenses. If these healthcare provisions cannot be renegotiated in a manner that reduces the prospective healthcare cost as we intend, our Operating expenses could increase in the future.

Refer to Note 13—Benefit Plans in Part II, Item 8 of this Annual Report for additional information regarding the plans in which we participate.

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Share Repurchases

On September 3, 2026, our Board of Directors authorized a new repurchase program for up to $200 million of our common stock (the “2026 Repurchase Program”). Upon approval of the 2026 Repurchase Program, our Board of Directors terminated the repurchase program authorized in September 2022, which provided for the repurchase of up to $200 million of our common stock (the “2022 Repurchase Program”). Under the 2022 Repurchase Program, we repurchased 1,245,357 shares of our common stock at an average price of $40.15 per share, for a total cost of $50 million in fiscal 2026. As of August 1, 2026, we had $88 million remaining authorized under the 2022 Repurchase Program.

We will manage the timing of any repurchases in response to market conditions and other relevant factors, including any limitations on our ability to make repurchases under the terms of our ABL Credit Facility, Term Loan Facility and Senior Notes. We may implement the 2026 Repurchase Program pursuant to a plan or plans meeting the conditions of Rule 10b5-1 under the Exchange Act.

CRITICAL ACCOUNTING ESTIMATES

The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Management believes the following critical accounting estimates reflect our more subjective or complex judgments and estimates used in the preparation of our Consolidated Financial Statements.

Inventories

Inventories are predominantly valued at the lower of cost or market. Substantially all of our inventories consist of finished goods. Inventories are recorded net of vendor allowances and cash discounts. We evaluate inventory shortages (shrink) throughout each fiscal year based on physical counts in our distribution centers and stores. The majority of our inventory is valued under the LIFO method, which allows for matching of costs and revenues, as the current acquisition cost is used to value cost of goods sold as inventory is sold. In an inflationary environment, this typically results in higher cost of goods sold and lower inventory carrying values. During fiscal 2026, inventory quantities in certain LIFO layers were reduced. These reductions resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of fiscal 2026 purchases, the effect of which decreased Cost of sales by approximately $37 million in fiscal 2026. If the first-in, first-out (“FIFO”) method had been used, Inventories, net, would have been higher by approximately $368 million at August 1, 2026. As of August 1, 2026, approximately $1.7 billion or 81% of inventory was valued under the LIFO method, before the application of any LIFO reserve, and primarily included grocery, frozen food and general merchandise products, with the remaining inventory valued under the first-in, first-out and weighted average cost methods and primarily included meat, dairy and deli products. When holding inventory levels and mix constant, as of August 1, 2026, we estimate a 50-basis point increase in the inflation rate on our ending LIFO-based inventory would result in a $5 million increase in the LIFO charge on an annualized basis.

Vendor funds

We receive funds from many of the vendors whose products we buy for resale. These vendor funds are generally provided to increase the purchasing and sell-through of the related products. We receive vendor funds for a variety of merchandising activities: placement of the vendors’ products in our advertising; display of the vendors’ products in prominent locations in our stores; support for the introduction of new products into our stores and distribution centers; exclusivity rights in certain categories; and compensation for temporary price reductions offered on products held for sale. We also receive vendor funds for buying activities such as volume commitment rebates, credits for purchasing products in advance of their need and cash discounts for the early payment of merchandise purchases. The majority of our vendor funds contracts have terms of two years or less.

We recognize vendor funds for merchandising activities as a reduction of Cost of sales when the related products are sold, unless it has been determined that a discrete identifiable benefit has been provided to the vendor, in which case the related amounts are recognized within Net sales and represent approximately 3% of total Net sales. Vendor funds that have been earned as a result of completing the required performance under the terms of the underlying agreements but for which the product has not yet been sold are recognized as reductions to the value of on-hand inventory.

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The amount and timing of recognition of vendor funds as well as the amount of vendor funds to be recognized as a reduction to ending inventory requires management judgment and estimates. Management determines these amounts based on estimates of current year purchase volume using forecast and historical data and a review of average inventory turnover data. These judgments and estimates impact our reported Gross profit, Operating income and inventory amounts. The historical estimates have been reliable in the past, and we believe our methodology will continue to be reliable in the future. Based on previous experience, we do not expect significant changes in the level of vendor support. However, if such changes were to occur, Cost of sales and Net sales could change, depending on the specific vendors involved. If vendor advertising allowances were substantially reduced or eliminated, we would consider changing the volume, type and frequency of the advertising, which could increase or decrease our advertising expense.

Benefit plans

We sponsor pension and other postretirement plans in various forms covering substantially all employees who meet eligibility requirements. Pension benefits associated with these plans are generally based on each participant’s years of service, compensation, and age at retirement or termination. Our defined benefit pension plan and supplemental executive retirement plans are closed to new participants and service crediting ended for all participants.

While we believe the valuation methods used to determine the fair value of plan assets are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The determination of our obligation and related expense for Company-sponsored pension and other postretirement benefits is dependent, in part, on management’s selection of certain actuarial assumptions used in calculating these amounts. These assumptions include, among other things, the discount rate, the expected long-term rate of return on plan assets and the rates of increase in healthcare costs. We measure our defined benefit pension and other postretirement plan obligations as of the nearest calendar month end. Refer to Note 13—Benefit Plans in Part II, Item 8 of this Annual Report for information related to the actuarial assumptions used in determining pension and postretirement healthcare liabilities and expenses.

Discount rates

We review and select the discount rate to be used in connection with our pension and other postretirement obligations annually. The discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year. We set our rate to reflect the yield of a portfolio of high quality, fixed-income debt instruments that would produce cash flows sufficient in timing and amount to settle projected future benefits.

We utilize the “full yield curve” approach for determining the interest and service cost components of net periodic benefit cost for defined benefit pension and other postretirement benefit plans. Under this method, the discount rate assumption used in the interest and service cost components of net periodic benefit cost is built through applying the specific spot rates along the yield curve used in the determination of the benefit obligation described above, to the relevant projected future cash flows of our pension and other postretirement benefit plans. We believe the “full yield curve” approach reflects a greater correlation between projected benefit cash flows and the corresponding yield curve spot rates and provides a more precise measurement of interest and service costs. Each 25-basis point reduction in the discount rate would increase our projected pension benefit obligation by $29 million, as of August 1, 2026, and for fiscal 2026 would increase Net periodic benefit income by approximately $2 million.

Expected rate of return on plan assets

Our expected long-term rate of return on plan assets assumption is determined based on the portfolio’s actual and target composition, current market conditions, forward-looking return and risk assumptions by asset class, and historical long-term investment performance. The assumed long-term rate of return on pension assets was 6.25% for fiscal 2026. The 10-year rolling average annualized return for the SUPERVALU INC. Retirement Plan is approximately 7.4% based on returns from 2017 to 2026. Each 25-basis point reduction in expected return on plan assets would decrease Net periodic benefit income for fiscal 2026 by approximately $4 million.

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Amortizing gains and losses

In accordance with GAAP, actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, affect expense and obligations in future periods. We recognize the amortization of net actuarial loss on the SUPERVALU INC. Retirement Plan over the remaining life expectancy of inactive participants based on our determination that almost all of the defined benefit pension plan participants are inactive and the plan is frozen to new participants. For the purposes of inactive participants, we utilized a 90% threshold established under our policy.

Multiemployer pension plans

We contribute to various multiemployer pension plans based on obligations arising from collective bargaining agreements. These multiemployer pension plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Plan trustees are typically responsible for determining the level of benefits to be provided to participants as well as the investment of the assets and plan administration.

We continue to evaluate and address our potential exposure to underfunded multiemployer pension plans as it relates to our associates who are or were beneficiaries of these plans. In the future, we may consider opportunities to limit our exposure to underfunded multiemployer pension obligations by moving our active associates in such plans to defined contribution plans, and withdrawing from the pension plan or continuing to participate in the plans for prior obligations. As we continue to work to find solutions to underfunded multiemployer pension plans, it is possible we could incur withdrawal liabilities for certain additional multiemployer pension plan obligations in the future as we actively negotiate new collective bargaining agreements with a number of our unions in due course.

The American Rescue Plan Act (“ARPA”) established the Special Financial Assistance (“SFA”) Program for financially troubled multiemployer pension plans. Under ARPA, eligible multiemployer pension plans can apply to receive a cash payment intended to keep the plans solvent and able to pay pension benefits through the plan year ending 2051. As of the end of fiscal 2026, three plans to which we contribute have received SFA. Although these liabilities are not a direct obligation or liability of ours, addressing these uncertainties requires judgment in the timing of expense recognition when we determine our commitment is probable and estimable.

Refer to Note 13—Benefit Plans in Part II, Item 8 of this Annual Report for more information relating to our participation in these multiemployer pension plans and to the actuarial assumptions used in determining pension and other postretirement liabilities and expenses.

Self-insurance liabilities

We are primarily self-insured for workers’ compensation, general and automobile liability insurance. It is our policy to record the self-insured portions of our workers’ compensation, general and automobile liabilities based upon actuarial methods of estimating the future cost of claims and related expenses that have been reported but not settled, and that have been incurred but not yet reported. Any projection of losses concerning these liabilities is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting litigation trends, benefit level changes and claim settlement patterns. If actual claims incurred are greater than those anticipated, our reserves may be insufficient and additional costs could be recorded in our Consolidated Financial Statements. Accruals for workers’ compensation, general and automobile liabilities totaled $106 million and $100 million as of August 1, 2026 and August 2, 2025, respectively.

Recoverability of long-lived assets

We review long-lived assets, including definite-lived intangible assets at least annually, and on an interim basis if events occur or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We evaluate these assets at the asset-group level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Cash flows expected to be generated by the related assets are estimated over the assets’ useful lives based on updated projections. When the undiscounted future cash flows are not sufficient to recover an asset’s carrying amount, the fair value is compared to the carrying value to determine the loss to be recorded. Estimates of future cash flows and expected sales prices are judgments based on our experience and knowledge of operations. These estimates project cash flows several years into the future and include assumptions on variables such as changes in supply contracts, macroeconomic impacts and market competition.

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Operating and finance lease impairments are determined based on the present value of estimated subtenant rentals that could be reasonably obtained for the property. The calculation of lease impairment charges requires significant judgments and estimates, including estimated subtenant rentals, discount rates and future cash flows based on our experience and knowledge of the market in which the property is located, previous efforts to dispose of similar assets and the assessment of existing market conditions.

As part of our quarterly procedures and annual impairment assessment, we recognized $30 million in non-cash asset impairment charges in fiscal 2026 related to decisions to close certain retail store locations and discontinue operations at certain distribution centers, warehouses or offsite storage facilities.

Income taxes

We account for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized within the provision for income tax in the period that includes the enactment date.

The calculation of our tax liabilities includes addressing uncertainties in the application of complex tax regulations and is based on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Addressing these uncertainties requires judgment and estimates; however, actual results could differ, and we may be exposed to losses or gains. Our effective tax rate in a given financial statement period could be affected based on favorable or unfavorable tax settlements. Unfavorable tax settlements will generally require the use of cash and may result in an increase to our effective tax rate in the period of resolution. Favorable tax settlements may be recognized as a reduction to our effective tax rate in the period of resolution.

We regularly review our deferred tax assets for recoverability to evaluate whether it is more likely than not that they will be realized. In making this evaluation, we consider the statutory recovery periods for the assets, along with available sources of future taxable income, including reversals of existing and future taxable temporary differences, tax planning strategies, history of taxable income and projections of future income. We give more significance to objectively verifiable evidence, such as the existence of deferred tax liabilities that are forecast to generate taxable income within the relevant carryover periods and a history of earnings. A valuation allowance is provided when we conclude, based on all available evidence, that it is more likely than not that the deferred tax assets will not be realized during the applicable recovery period.

Recently Issued Financial Accounting Standards

For a discussion of recently issued financial accounting standards, refer to Note 2—Recently Adopted and Issued Accounting Pronouncements in Part II, Item 8 of this Annual Report.