Food solutions company SpartanNash (the “Company”) (Nasdaq: SPTN) today reported financial results for its 12-week third quarter ended Oct. 8, 2022.
Third Quarter Fiscal 2022 Highlights
- Net sales of $2.3 billion, increased 10.8%, compared to $2.1 billion in the prior year quarter.
- Retail comparable sales increased 8.0% for the quarter.
- Net earnings of $9.5 million, a decrease of 37.6%, compared to $15.2 million in the prior year quarter.
- Adjusted EBITDA(1) of $57.3 million, an increase of 11.3%, compared to $51.5 million in the prior year quarter.
“In the third quarter, we delivered strong topline growth and continued improvements in our key throughput and fill rate metrics, which contributed to our solid third quarter results and our improved outlook for the balance of this year,” said SpartanNash President and CEO Tony Sarsam. “We remain relentlessly focused on our People First culture, achieving operational excellence and meeting the needs of our customers. We will continue to execute on our core capabilities to drive results and increase shareholder value.”
Third Quarter Consolidated Financial Results
Consolidated net sales increased $223.3 million, or 10.8%, to $2.3 billion from $2.1 billion in the prior year quarter. The growth from prior year was driven by net sales increases in both the Wholesale and Retail segments, which were favorably impacted by inflation.
Gross profit was $351.2 million, or 15.3% of net sales, compared to $329.5 million, or 15.9% of net sales, in the prior year quarter. The gross profit increase was driven by higher sales, while the gross margin rate decrease was primarily driven by an increase in LIFO expense of $9.0 million, or 36 basis points. In addition to the impact of LIFO, lower Retail margin rates were partially offset by improvements in margin rates within the Wholesale segment.
Reported operating expenses were $331.9 million, or 14.5% of net sales, compared to $306.8 million, or 14.8% of net sales, in the prior year quarter. The decrease in operating expenses as a percentage of sales was due to a reduction in the supply chain expense rates as a result of efficiencies realized from the Company’s Supply Chain Transformation initiative. These efficiencies were partially offset by higher corporate administrative costs, including higher incentive compensation expense and up-front investments in the Merchandising Transformation initiative.
The Company reported operating earnings of $19.3 million, a decrease of $3.4 million, or 15.1%, compared to $22.7 million in the prior year quarter, due to the changes in net sales, gross profit, and operating expenses discussed above. Adjusted operating earnings(2) were $33.4 million, an increase of $4.6 million, or 16.0%, compared to $28.8 million in the prior year quarter.
Interest expense increased $3.0 million from the prior year quarter due to rising interest rates and an increase in borrowings due to inflationary increases in working capital. Other income for the current year includes $0.8 million of income related to the partial settlement of a post-retirement benefit plan. The income tax rate increased from the prior year quarter due to increases in non-deductible expenses and state taxes.
The Company reported net earnings of $9.5 million, or $0.26 per diluted share, compared to $15.2 million, or $0.42 per diluted share in the prior year quarter. Adjusted earnings from continuing operations(3) for the third quarter were $20.0 million, or $0.55 per diluted share, compared to $19.7 million, or $0.55 per diluted share in the prior year quarter.
Adjusted EBITDA(1) increased $5.8 million to $57.3 million, compared to $51.5 million in the prior year quarter, due to the factors mentioned above.
Please see the financial tables at the end of this press release for a reconciliation of each non-GAAP financial measure to the most directly comparable measure, prepared and presented in accordance with GAAP.
Third Quarter Segment Financial Results
As noted in its preliminary third quarter fiscal 2022 results issued on Nov. 2, 2022, at the beginning of the quarter, the Company combined the previous Food Distribution and Military operating segments into one operating segment: Wholesale. The change in the operating segments was driven by both a change in the Company’s organizational structure, and in the reporting utilized by the Chief Operating Decision Maker to allocate the Company’s resources and assess operating performance. As a result, the Company now operates two reportable segments: Wholesale and Retail. Segment financial information for the comparative prior year periods within this earnings release has been recast to reflect this update.
Net sales for Wholesale increased $165.4 million, or 11.3%, to $1.63 billion from $1.46 billion in the prior year quarter. The increase in net sales was due primarily to the inflationary impact on pricing.
Reported operating earnings for Wholesale were $14.0 million, compared to $5.9 million in the prior year quarter. The increase in reported operating earnings was due to increased sales and a reduced rate of supply chain expenses, partially offset by increases in corporate administrative costs and LIFO expense. Adjusted operating earnings(2) increased $14.3 million to $25.3 million from $11.0 million in the prior year quarter. Adjusted operating earnings exclude, among other items, LIFO expense and restructuring and asset impairment activity in both years.
Net sales for Retail increased $57.9 million, or 9.5%, to $666.6 million from $608.7 million in the prior year quarter, primarily due to inflationary pricing. Retail comparable store sales increased 8.0% for the quarter.
Reported operating earnings for Retail were $5.3 million, compared to $16.8 million in the prior year quarter. The decrease was due to a lower gross profit rate, investments in store wage rates and increased corporate administrative costs. Adjusted operating earnings(2) were $8.1 million, compared to $17.8 million in the prior year quarter. Adjusted operating earnings exclude, among other items, LIFO expense and restructuring and asset impairment charges in both years.
Balance Sheet and Cash Flow
Cash flows provided by operating activities for the year-to-date period were $7.5 million compared to $144.0 million in the prior year. The decrease in cash flows compared to the prior year was due primarily to inflationary increases in working capital. Accordingly, long-term debt and finance lease liabilities increased $112.8 million for the year-to-date period, which resulted in a change in the Company’s net long-term debt(4) to adjusted EBITDA(1) ratio over this period from 1.8x to 2.1x.
Purchases of property and equipment were $66.3 million in the year-to-date period compared to $55.0 million in the prior year period, while capital expenditures and IT capital(5) totaled $69.5 million in the year-to-date period compared to $61.9 million in the prior year.
Through the third quarter, the Company paid $22.5 million in cash dividends, equal to $0.63 per common share. The Company also repurchased 757,928 shares during year-to-date period for a total of $23.3 million, with an average price of $30.73 per share. In total, the Company returned $45.7 million to shareholders through the third quarter.
Fiscal 2022 Outlook
As announced on Nov. 2, 2022, given strong year-to-date results through the third quarter, the Company raised its fiscal year 2022 guidance. These updates included increasing:
- Net sales to a range of $9.5 billion to $9.7 billion, compared to the prior guidance of $9.3 billion to $9.6 billion.
- Adjusted EBITDA to a range of $237 million to $242 million, compared to the prior guidance of $227 million to $240 million.
In addition, the Company has updated its guidance with respect to certain other items, as noted in the table below.
*Prior guidance has been recast due to the combination of the previous Food Distribution and Military operating segments into the Wholesale operating segment.
Conference Call & Supplemental Earnings Presentation
The Company will host a conference call to discuss its quarterly results with additional comments and details on Wednesday, November 9, 2022, at 8:30 a.m. ET. There will also be a simultaneous, live webcast made available at SpartanNash’s website at www.spartannash.com/webcasts under the “Investor Relations” section and will remain archived on the Company’s website.
A supplemental quarterly earnings presentation will also be available on the Company’s website at www.spartannash.com/investor-presentations.
About SpartanNash
SpartanNash (Nasdaq: SPTN) is a food solutions company that delivers the ingredients for a better life. As a distributor, wholesaler and retailer with a global supply chain network, SpartanNash customers span a diverse group of national accounts, independent and chain grocers, e-commerce retailers, U.S. military commissaries and exchanges, and the Company’s own brick-and-mortar grocery stores, pharmacies and fuel centers. SpartanNash distributes grocery and household goods, including fresh produce and its Our Family® portfolio of products, to locations in all 50 states, in addition to distributing to the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar, Djibouti, Korea and Japan. To support its distribution business, the Company operates a strategically developed network of large-scale distribution facilities and a nationwide transportation fleet. In addition, the Company owns and operates 147 supermarkets – primarily under the banners of Family Fare, Martin’s Super Markets and D&W Fresh Market – and shares its operational insights to drive innovative solutions for SpartanNash food retail customers. Committed to fostering a People First culture, the SpartanNash family of Associates is 17,500 strong and growing. For more information, visit spartannash.com.
Forward-Looking Statements
The matters discussed in this press release and in the Company’s website-accessible conference calls with analysts and investor presentations include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), about the plans, strategies, objectives, goals or expectations of the Company. These forward-looking statements may be identifiable by words or phrases indicating that the Company or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or that a particular occurrence or event “may,” “could,” “should,” “will” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook”, “trend”, “guidance” or “target” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that the Company is “positioned” for a particular result, or similarly stated expectations. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date made. Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies may affect actual results and could cause actual results to differ materially. These risks and uncertainties include the Company’s ability to compete in the highly competitive wholesale distribution and retail grocery industries; changes in economic or geopolitical conditions, including inflationary pressures and the Russia-Ukraine conflict; interest rate fluctuations; labor relations issues and rising labor costs; the ability of customers to fulfill their obligations to the Company; the Company’s dependence on certain major customers, suppliers and vendors; disruptions to the Company’s information security network; disruptions associated with the COVID-19 pandemic; the Company’s ability to implement its growth strategy and transformation initiatives; instances of security threats, severe weather conditions and natural disasters; impairment charges for goodwill and other long-lived assets; the Company’s ability to successfully manage leadership transitions; the Company’s ability to service its debt and to comply with debt covenants; the Company’s ability to manage its private brand program for U.S. military commissaries; changes in the military commissary system, including its supply chain, or in the level of governmental funding; product recalls and other product-related safety concerns; changes in government regulations; and other risks and uncertainties listed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s most recent Annual Report on Form 10-K and in subsequent filings with the Securities and Exchange Commission. Additional risks and uncertainties not currently known to the Company or that the Company currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur or information obtained after the date of this press release.