Greetings, and welcome to the United Natural Foods Incorporated First Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Katie Turner for opening remarks.

Thank you. Good afternoon and thank you for joining us on UNFI's First Quarter Fiscal 2018 Earnings Conference Call. By now, you should have received a copy of the earnings release issued this afternoon. This press release and webcast of today's call are available under the Investors section of the company’s website, at www.unfi.com. On the call today are Steve Spinner, Chairman and CEO; Sean Griffin, Chief Operating Officer; and Mike Zechmeister, Chief Financial Officer. Before we begin, we would like to remind everyone that comments made by management during today’s call may contain forward-looking statements. These forward-looking statements assess plans, expectations, estimates and projections that might involve significant risks and uncertainties. These risks are discussed in the company’s earnings release and SEC filings. Actual results may differ materially from the results discussed in these forward-looking statements. In addition, in today’s earnings release and during the call, management will provide GAAP and non-GAAP financial measures. These non-GAAP financial measures include EBITDA, EBITDA margin, free cash flow and leverage. A complete reconciliation and explanation of these data changes and reconciliation to the most directly comparable GAAP measures is located on the Investors section of the company’s website. And I’d now like to turn the call over to Steve Spinner.

Thank you, Katie. Good evening everyone. Today, we’re excited to discuss our first quarter business highlights, and then Mike will review our financial results and annual guidance. Finally, Sean, Mike, and I will take your questions once we finished our prepared remarks. We're out of the gate in our first quarter of fiscal year 2018 with very strong topline growth, which we will expect to continue throughout our fiscal year. All of our significant customer channels saw a broad-based growth with our broadline business shipping over 100 million units and leading UNFI to record quarterly sales of $2.4 billion in the first quarter. We are very encouraged by what we see is increasing and broad-based demand for the capabilities and solutions, UNFI provides to our very diverse customer base. We expect this business momentum to continue for the balance of the year as reflected in our increased sales and earnings guidance for fiscal 2018 which Mike will address shortly. We believe we are uniquely positioned and in an excess of robust industry activity and interest in better-for-you food products and services; across brick-and-mortar retail, eCommerce, food service, and international relationships. Wherever the demand is, we believe UNFI is the preferred solution. As aforementioned momentum came on quite quickly, our ability to respond and execute at a high service and low cost manner was challenged during the quarter. Typically, our operational teams would plan and prepare several months in advance for the kind of ramp-up we saw in Q1, in this case we adjusted in real-time. We did incur higher than normal over time in outside storage expenses, we need to overall lower productivity levels and higher expense ratios. I would really like to salute UNFI’s management and associate teams who work tirelessly and around the clock, including dealing with two…

Thanks, Steve and good evening, everybody. Net sales for the first quarter of fiscal 2018 increased 7.9% versus Q1 of last year or approximately $179 million to $2.46 billion. This was the company record for quarterly net sales which resulted from broad based growth across our significant channels. As a reminder, our acquisition of Haddon House closed on May 13th of 2016 approximately two weeks into Q4 of fiscal 2016 and the Gourmet Guru acquisition closed on August 10th of 2016 less than two weeks into Q1 of fiscal 2017. And as a result of the acquisition timing of Haddon House and Gourmet Guru, they did not have a meaningful impact on the comparability of our results in Q1 of this fiscal year versus Q1 of last fiscal year. In Q1 of this fiscal year, we experienced modest inflation of approximately 19 basis points, which was relatively consistent with our inflation from the last quarter and this marks the sixth consecutive quarter of either modest deflation or 0% inflation which continues to be a headwind to our net sales and our [dollar sales]. From a channel perspective, supernatural net sales were up approximately $106.6 million or 14.3% over last year’s first quarter and represented 34.7% of total net sales compared to 32.8% in Q1 last year. As Steve mentioned, demand for our products ramped up quickly and resulted in higher level growth than we expected in Q1. Supermarket channel net sales increased 4.7% in Q1 versus Q1 last year and landed at 28.6% of total company net sales. Independent channel net sales grew 6.6% in Q1 versus Q1 last year and represented 26.0% of total net sales in the quarter. Our Foodservice net sales increased 1.2% over the first quarter last year. Our eCommerce net sales increased 32.1% versus first…

[Operator Instructions] Our first question is from Rupesh Parikh, Oppenheimer & Company. Please proceed with your question.

So maybe to start out, I guess looking at the overall environment, we’ve clearly seen trends pick up really all the natural, organic, publically traded players at this point. So just curious from your advantage point, what do you think is driving that pickup and how are you thinking about the sustainability?

I mean, that's really the question of the day, isn't it. And I think, we've spent a lot of time thinking about that and we think the products are more desirable. We think that the retail price environment has become more competitive. And what that's doing I think is closing the gap, the price gap between healthy and better-for-you and conventional, which is bringing more traffic into the stores. We've had long periods of a very limited inflation. And so UNFI is the clear beneficiary in the short-term and we believe in the long-term as evidenced by the revision to our guidance. So the other interesting comment is, when you look at our growth overall, you kind of - Mike talked about kind of the disclosure around supernatural. But if you look at our other top 24 customers, they also grew at 10%. And so we're seeing lift across most of our customer channels, which is great news for us. So I think that's our view of what's happening.

And again, I'm not sure if you guys actually have the data, but any sense of in terms of whether or not organic growth rates have increased across the industry?

Yes, I mean, it's premature for that and we would probably get access to the data and probably in the next quarter, two quarters or so, because it takes a long time to aggregate it. But my guess is that we're going to see nice pick up there.

And then one more quick question. You commented on the increase SG&A expense, it was just really is the greater unexpected demand. Is there any way to quantify that - I guess quantify what those - what I guess the expense slip was during the quarter or impact on EPS?

We typically don't give that kind of disclosure. I mean, I can tell you anecdotally, when you get the kind of dramatic increase that we had in demand, we are so focused on service. In other words, making sure that our customers have access to the products that we kind of close our eyes to the fact that we're going to have to spend a lot of money in order to do it, whether it’d be moving product around the country, using less efficient lanes to move the freight. And whenever you get that kind of increase, it's just something that we have to do and we certainly have that in this quarter.

I would add to Steve's comments that when the demand picks up unexpectedly, that's when we get put in a position where we're going to spend a little more on overtime outside storage and transportation and the like. But once we've got a sense for that over a longer period of time, then we certainly can handle that expense and it doesn't present itself as a headwind. Now, we would expect that certainly by the back half of this year, we would be able to absorb this kind of demand flow without additional expense over our normal run rate.

Our next question is from John Heinbockel, Guggenheim Securities. Please proceed with your question.

So Steve, just following up on that then. I guess, you have not yet been able to work the overtime and outside storage costs back down to a more normal level. That will still take a few more months?

Yes, absolutely, we’ll probably see that continue until after the holidays.

Yes. I would say, early Q3.

And what is - we all talked about the issue of capacity utilization, the fact that you had a little dip there. Are you seeing - putting aside these one-time costs, are you seeing a benefit? And do you think you'll see a benefit as we get into the back half of the year from higher utilization? Or is that demand coming in the right places?

First of all as it relates to capacity and utilization, we certainly have had discussions in FY 2017 in this regard. So, we did not obviously discuss plan for the revenue ramp up from a timing perspective for the size of the ramp up related to our present capacity model, so we're evaluating that here as we go. And we may make some changes to the model, we'll see - we’ll see how that goes. But in terms of the expense and leverage in the distribution centers, we do expect in the back half of the year to begin to see the type of leverage off of our DC expense ratios that we historically would get with an increase in the topline. So, we feel good about where we can go from here.

It's important to note that, we did not revise our CapEx for this year, we're still comfortable with that. And once we get through the back half of the year and we’ll start looking at fiscal 2019 and 2020, we'll give consideration to where we need to do some additions or new construction, but we're comfortable with the CapEx guidance we provided for 2018.

And then lastly, where are we pipeline-wise on M&A and new customer wins? And did the - do you think the whole Amazon-Whole Foods dynamic, did that kind of freeze things in terms of people making changes or no?

No, not at all. Our pipeline for new customer is strong, our pipeline for M&A is strong. And as I said previously, we swallowed four acquisitions within 18 months, it took a lot of work and heavy lifting, a lot of people within the company did a lot - spent a lot of time integrating them and we're really satisfied with where we ended. And so we're really ready to get back on to the M&A trail, we’ve got a balance sheet to support it. And so, I look forward to both the customer and the M&A pipeline delivering some nice results throughout fiscal 2018.

Our next question is from Andrew Wolf, Loop Capital Markets. Please proceed with your question.

On the vendor shortages, is there any commonality there like, was it more from in grocery versus the specialty perishable side of things?

I would say that actually the demand was so sudden that it affected a great many categories. Keep in mind, it's generally specialty suppliers that we’re talking about. So, we expect that to moderate. We expect that suppliers or manufacturers will sort of get their legs under them to meet this demand deal towards the Q2-Q3 timeframe. An important note is, for instance 2018 [indiscernible] and so, in our case, the majority is buyers are doing less than $30 million a year. So, when you subject a smaller supplier to a great deal of increase demand because they don't have the ingredients, they don't have the co-packers to produce it. And the vast majority of our suppliers do a just heroic job in trying to get the inventory to us that we need. There were some suppliers that had significant out of stocks during the holiday season. But they have the same issue that we did and that is a lot of increased demand really quickly that just could produce vast enough.

But there's enough ingredients out there that if the pipeline stays strong as it is eventually, they should be able to meet demand or really close the gap.

Without a doubt we agree.

Now, on your sales feed, was that mainly from just more sales with existing customers and was there a reasonable cohort of new customer business sales, so help that.

It was a little bit of both.

And I would tell you to target as it relates to shipping the new customers that we previously discussed

And then just the last thing is a quick kind of follow-up on the expense side, called healthcare costs, I think that's not related necessarily to the surge in demand and all the other costs, but nevertheless is that something that is manageable or is that just one of these - it’s a randomness of health care or is it a trend that you’re going to have up of healthcare costs for the year?

We instituted a really, really terrific wellness program across the company about four years, five years ago and made significant improvements to that plan every year to have a healthier workforce and an educated workforce about how to acquire healthcare. And so if you look at our healthcare costs over the last couple of years, they were really, really strong and we're just in the quarter in particular, we just had a handful of claims that brought our healthcare costs way higher than we thought they were going to be. Whether it continues or not, I don't know, I'm hopeful that it doesn't. But in this particular quarter, they were significant.

And then any of these excess costs that I understand you don’t want to – necessarily want to quantify them it precisely, but nevertheless were any of them impacting the gross margin rate or did any of that flow through cost of goods sold or was – did at all impact operating expenses?

Well, when we talked about the increased overtime outside storage transportation expense, medical expense, none of that was in gross margin. When you think about fuel costs, we have a geography difference that needs to be noted which is when we have increased fuel costs which we've had, we have a surcharge and the surcharge enhances gross margin, but then we pay for the extra fuel costs in our operating expense. And so we get an increased margin but then - gross margin but then it comes back to us and nets out neutral at net income.

One other comment I would make and Andy we’ll probably going to take another call. But if you look back at our fiscal 2017, we did a great job managing our gross margin. And when you can properly plan for the inventory, you have a much greater capacity to manage the gross margin on the inbound associated with that inventory. When you're scrambling to catch up and you're doing everything in your power to get inventory into the buildings, you're spending less time managing the gross margin than you should be. And so, that's just something that we have to get back to once we get some stability in our overall growth number.

Our next question comes from Chuck Cerankosky, Northcoast Research. Please proceed with your question.

In looking at inflations still flattish, any - or flat with the previous quarter, are you seeing the rate of inflation perhaps looking better for you and I’m getting at opportunities for United to earn some inside margin?

Chuck, we really enjoy inflation and we haven't seen it now for a year and a half but there is a very modest trend within those six quarters that it is a little bit higher now than it was, as you recall we had some quarters of deflation in there too. So it's got a little bit better. But our 10-year average inflation rate is a little over 2.5% and that includes these past six quarters where we didn't have it. So no guarantees of where it's going in the future, but as if it were to head back to the historical average that would certainly be a tailwind for us in net sales and EBITDA dollars.

We can now see it, yeah. And then get back quickly on the vendors, so it's going to take them at least another quarter sort of catch up with the demand just because of their size?

I mean it’s improving here early Q2, but we expect it's going to take another couple of periods. Yes.

And then, finally on the sales growth you saw in the quarter, how did that sort of pace over the three months of the quarter? Was it uniform accelerated through the quarter?

I mean we started to see some acceleration at the back end of the fourth quarter 2017. We weren't exactly sure where the acceleration was coming from. We were very happy to see it. We really didn't know whether it was going to be sustained. But we've seen a continual ramp since then.

Our next question is from Shane Higgins, Deutsche Bank. Please proceed with your question.

So you guys said it looks like eCommerce had a nice ramp up during the quarter. Any color as to what was driving that, and then how that impacted what was driving to add in and you know how that impacted the overall margins?

You know we don't give any disclosure on the margin. I can tell you that eCommerce is a very big focus for us, both in terms of the technology that we use to deploy an eCommerce solution as well as the rate of sales growth in all. I don't know about all, but most of our eCommerce providers whether it would be brick-and-mortar eCommerce or web-based eCommerce, we saw really, really strong growth across all of them. That's an area that's a very important strategic objective for us. We're doing a lot of work on the technology side. We're really focused on having an endless aisle for our retailers, so we can go directly to them or to their consumers to offer really extensive lines of all the products that we curate so well.

And do you guys have the capacity to continue to handle that level of growth that kind of 30% plus year-over-year growth?

Yes, I mean, we've - fortunately, we've deployed eCommerce into I guess four of our DCs through the quarter four of our DCs now. And so I think we're pretty – we’re well poised to continue to see that kind of growth for some period of time. And we now have that volume segregated into four different distribution centers as opposed to just in one.

And then just last one for me on the hurricanes. Was that a net benefit or was that fairly neutral to sales and to earnings during the quarter?

Yes, we think of that as a net headwind to earnings. We definitely experienced some disruption and some of the expense associated with that disruption. We’ll make a claim under insurance and get back some of that. But because of our deductible and other things, there were certainly some expenses in quarter and not a net benefit.

So but it wasn't that material I mean you guys then call it out?

Right.

Our next question is from Ben Bienvenu, Stephens Inc. Please proceed with your question.

You call out in the last quarter competitive pricing as a pressure on gross margin, but not in this quarter. Would it be inaccurate to infer that competition is lessened sequentially? Any color you can offer there would be appreciated.

Yes, Ben, we've called out competitive pricing pressure for quite a while in many quarters, I can't tell you how many is exactly, but it's been quite a few. And so that, that came out this quarter. Your observation is accurate and I think we were trying to point to the biggest drivers of our gross margin in our margin overall. And at this point, we just didn’t feel like that made the list because is one of the notable call-outs.

And the strong growth in supernatural is impressive that was obviously a contributing factor to the mix shift and resulting lower margin pressure from lower margin customers. I would think of the incorrect to assume that if this growth persists and the mix shift persists, this wouldn't preclude you from leveraging operating margins would it - put it another way, would you have leveraged the operating margins, x some of the ramp to fulfill the demand?

Yes, I think you are going down the right path.

And then just one last quick one. The $200 million share purchase, you guys have a lot of free cash, not a lot of leverage. That's not a signal of that M&A isn't particularly imminent, is it or is it more just a you want to get this program in place, put capital to work now, and then you could have the flexibility to turn it off when a deal heats up?

Ben, we wanted to have share repurchase as a tool in our toolbox for capital structure management. To the extent that we have investments in capacity or in M&A that provide greater returns and we do believe we've got a pipeline for those, then we prefer to use our balance sheet strength to return value to shareholders through investment. But in need to the extent that we didn't have that teed up, then we believe that opportunistic share repurchase at the right price is a way to help ourselves out. And so in the quarter, you saw we made some share repurchase at under $40 a share and we feel pretty good about that today.

Our next question is from Chris Mandeville, Jefferies. Please proceed with your question.

Mike, I apologize my connection was quite poor earlier on the call. But just in terms of order of magnitude, what were the primary drivers to the gross margin erosion aside from just the actual mix shift to the lower margin customer?

As I’ve said, we only called out one and that was the customer mix shift. You heard Steve comment a little bit more about that, we certainly saw our disclosure in supernatural a 14% growth there. But if you but if you look at our top 25 customers or top 24 customers excluding our number one customer that growth rate was 10% also. So you can surmise from that, that we had real good growth there. But from a margin standpoint that was a headwind on gross margins.

And any color in terms of the benefit from the actual fuel margins and maybe anything regarding FX?

Yes, we didn't call out those specifically. I can tell you that there the fuel was in the neighborhood of 8 basis points to 10 basis points on the gross margin from a tailwind standpoint, but then we give that back in the operating expense. From an FX standpoint to talking about, the same level roughly from translation and transaction.

And then, I apologize, but I am still a little bit confused by the true surprise in the sales ramp at the back end of the quarter. Can you just give us a little bit more context around what caught you off guard?

I mean, obviously, we finished out our fiscal 2017. We budgeted for fiscal 2018 based upon what we knew in fiscal 2017 and then towards the end of our fourth quarter, we started to see the sales starting to ramp up. Yeah, we really weren't sure whether it was going to be a sustained ramp and as we got into the first couple of weeks and months in fiscal 2018, not only was it sustained, but it continued to grow. And so as you might imagine, in a distribution center if you budgeted for example 5% volume growth and in a very short period of time that that 5% budget turns into 15% actual. We're just not prepared with the inventory with the labor, with the workforce. And so it tends – puts a tremendous amount of stress on the organization in order to ensure that we have a high level of service. And so that’s really what we're talking about.

And just to add a couple more comments there, if you look at our core growth, so you look at the growth ex-acquisition impact, ex-inflation, we've seen our core growth increasing quarter-by-quarter for the last four quarters or five quarters. And so, we've enjoyed that increase. As we set the guidance for this year at 3.8% to 5.8%, we didn't - this year, we didn't have the impact of acquisitions as a tailwind, so we felt like that captured that core growth that we had seen previously. Now obviously we delivered a 7.9% without inflation and without the benefit of acquisitions. So that just kind of in numbers that shows you the rapid increase from expectation that we saw just on core growth.

And then just on the sales increase or the outsized move in the quarter itself with the lower-margin customer. Was that simply a factor of them driving more volume with what you've historically been servicing them with? Or is that somewhat of a result of you may be expanding and providing them with the greater SKU set?

I think generally speaking, it's a former rather than later, it's higher traffic into the stores. It's the effect of new customers coming on board. It's expansion of existing contracts, some category expansion inside. But I think generally speaking, it's just a general lift, an improvement at the stores that we service. And they're expanding at a higher velocity than the rest of the customer base.

And there is a lot of consumer excitement out there and the kind of products that we sell. And I think the attention in the space has really picked up and that's translated into higher volumes.

And then the last one for me here, just on the buyback itself of $6 million in the quarter, had it not been for the incremental demand on working capital? Would that have been greater in the quarter? I'm just kind of curious as to why it was so small relative to the $200 million you have available?

If you look at, at the approval of the program didn't start till October. So, we didn't have a - the benefit of the full quarter to be out there and then – yeah, and that's probably the primary reason.

Our next question is from Vincent Sinisi, Morgan Stanley. Please proceed with your question.

So, just wanted to just once again go back to the sales dynamics and kind of the balance with the margin here. So totally get it. That the mix shift in the customers had the obviously nice effect on volume, reverse on the margin. But maybe is it fair to say that, as you mentioned the competitive commentary coming out, is it kind of like status quo on the competitive front and the top 24 customers, 25 customers that had that 10% growth or greater. Is it fair to say that the smaller ones had similar growth, I guess kind of the hard that question is, are you seeing a difference in growth rates between your larger versus smaller customers just trying to get a sense for kind of where the industry dynamics may have changed or not?

Yes, I mean I think, that's a pretty good observation that the larger customers are growing faster than the smaller. But we still have over 6% percent growth in our independents, which was a really respectable quarter. But I think directionally, we certainly believe that the larger customers are growing faster.

And I think that's a good point that Steve is making that the growth with our largest customers did not come at the expense of our other customers and the fact that independents grew at 6.6%, that's a stronger growth rate than the quarter before. And it's testament to the popularity of the products across all of our most significant channels.

And just a fast follow-up just to make sure that we understand when you had mentioned earlier on with some of the - with the ramp in sales some of the outside storage expenses, was that more of a case and maybe varied by geography, but was it more of a case that the timing just didn't allow for it to normally come to the DC’s as you would have planned if you had more kind of advanced planning or was it more of a case where in some areas you just did not have the capacity physically. How should we kind of think about that?

It certainly is geography, certain distribution centers had challenges versus others that continue to have some upside capacity. But the long and the short of it as we've sort of described a couple of times is that typically to digest and execute against the volume ramp up that we saw in Q1, we would have several months to prepare. And if that included adding expansion into a distribution center or contiguous space in a distribution center, we certainly would have done that. In this instance, we would not afford it that instance, we would not afford it that planning and prep opportunity, so we kind of did the best we could. And that irons out and levels out and from an execution perspective, we’ll gain that leverage as the year goes by.

Our next question is from Scott Mushkin, Wolfe Research. Please proceed with your question.

I'm on my cell and I apologize for that. But one clarification, the top 24 clients to be independent or none of the top 24 clients in that bucket - the independent bucket, I thought there were some, maybe I’m mistaken there?

If you're talking about true independent, singular customers, they are not reflected in the top 24 obviously. But in the top 24 are some…

Significant customers that are aggregated as a single entity that are national in scope and have significant scale.

Customers that we would consider are natural multi-unit operator.

But they're not in that independent bucket you guys give us?

No, they're not.

Okay.

Is that true, that’s not true.

Yes, some of them are in the independent channel.

I just wanted to make sure, I thought so, and I just want to make sure. The second question I had is financial I mean, Amazon buys Whole Foods, Amazon - Whole Foods would comprise, volumes goes through the roof, they’ve been cutting prices again and there's been some stock issues there and I don't think you're really at fault, I think it's just the volumes gone through the roof. So if they continue to do that, I mean, how well are you guys prepared to deal with this and it’s a great problem to have, but it’s a problem we see in more stores and again they're being very aggressive about research. So how do you guys to deal with it. And is it possible you might have to pull forward some of your CapEx spend, or other things to deal with this, because my expectation would be if they continue to operate this way, this challenge is likely to persist?

We obviously wouldn’t comment on any one customer or channel. We've had periods in our history where we see volume ramping either as a result of a new customer or inflation. And so we're used to having some lumpy growth in our history and we know how to deal with it. And so regardless of the cost, our goal is to provide the finest level of service across our entire customer base and we have the most built out distribution network, we have the most sophisticated supply chain network throughout North America. We know how to buy the product, we know how to move it around the country and we know how to deliver a very high level of service and that's really our function, that’s what we do. And when we get bumps like the one that we're in or challenges as a result of a hurricane, we get a little bit of a short-term pain in our neck. But we know how to deal with it. We've got an incredible workforce that is very focused on execution and we'll work our way through it like we always do.

My last question is regarding the tax cuts, the potential of the tax cuts to the Home Depot Analyst Day yesterday and question came up, what do you expect your vendors to do to get the cuts and they kind of said, well we expect them to reduce their pricing and share. And so can you maybe walk us through how you guys are thinking about the tax cuts vis-à-vis, maybe some of your big retail partners and how that may play out, that would be wonderful and thank you for taking my questions?

I can't speak for what the tax reform may do to customers or suppliers, but I'll tell you how we're thinking about it. And, just as a disclaimer, until the contemplated tax reform signed into law, we can't provide any assurances on the impact of UNFI. But that said, we’re evaluating all aspects of the tax reform that had been made public and we see the potential for significant reductions to our effective tax rate as a result and that would certainly lead to a meaningful increase to net income, free cash flow, and EPS. Now, if you assume for example that the 20% corporate tax rate does happen, then we would expect to see $25 million to $35 million cash benefit and an additional book tax benefit that would be $25 million or more as well. Now, the timing of the impact is certainly subject to when the bill get signed and when the various changes go into effect and what if any changes occur in the state tax rates, where we do business as well. But overall, we see is quite a bit of a positive. Now, again not able to comment on what might happen with suppliers or customers in terms of the impact that it has on now.

Our next question is from Chris Prykull, Goldman Sachs. Please proceed with your question.

Just a few follow ups on the sales growth. Are there specific categories that you saw large increases and given the cadence that you described is it fair to assume the strength has, A, continued into the second quarter and you're probably running above where you reported for the first quarter? And then just an accounting question, are any online sales done by your supernatural customer reflected in that line item or is that reflected in the eCommerce number you report?

Well, so the last question is all of our eCommerce sales are reflected in eCommerce, because our sales are calculated by the channel in which we handle the distribution not the customer. Number two, I mean, on the categories side, I would respond that we generally do not speak and communicate in terms of the category growth, but the channel growth. But and looking at it I would say it's broad based. I think there was third in there, Chris, I just don’t remember what it is.

I was just trying to gather from the cadence of sales growth that you described sort of from 4Q to today. Is it fair to assume that that strength I guess has continued in the second quarter and probably you're running above what you just printed for the first quarter?

Yes. So obviously we don't get quarterly guidance. We just revised our guidance upward for the year and so that's a number that we're comfortable disclosing.

And then just one last one on CapEx. What does the scenario look like where your CapEx needs to go back up and would it be closer to sort of that 1% of revenue number or would you have to go higher?

Chris, what we've said is that our long-term guidance on CapEx is 1% of sales. Now what you seen here over the past few years is certainly lighter than that, but that's because we haven’t put on new warehouses or expansions onto existing warehouses. If you go back in our history and you look at the years where we opened new warehouses, you see that that CapEx as a percent of sales pops up. So, as we contemplate capacity expansion and again we've affirmed our guidance for this year, so we don't see that happening in this year. But as we go forward, if we have to put the CapEx in, it's likely to go above that historical average.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Steve Spinner for closing remarks.

Yes. Thanks everybody for joining us this evening. I know there's a couple of people that were in the queue that we didn't get to, we just ran out of time and we're happy to have one-on-one conversations with you. Have a safe and healthy holiday season and we'll talk to you next year.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.