It is nice that Adafruit will send you a new one, but it does not appear that you have not done very conclusive testing of the one you have. This is an analog output device. You need to disconnect it from the Arduino and just connect power and ground to it. Then measure the output voltage from it with a volt meter. When you put a reflective object about a foot away from it, it should put out about 2V, 8" away about 2.5V, 2 feet away about 1V. Please do that test and report back.