PR Newswire
GRAND RAPIDS, Mich., Aug. 17, 2023
Reaffirms Fiscal 2023 Adjusted EBITDA and Adjusted EPS Guidance; Updates Sales and Capital Outlook
Advances Long-Term Strategic Plan with Continued Transformation Initiatives
GRAND RAPIDS, Mich., Aug. 17, 2023 /PRNewswire/ -- Food solutions company SpartanNash (the "Company") (Nasdaq: SPTN) today reported financial results for its 12-week second quarter ended July 15, 2023.
Second Quarter Fiscal 2023 Highlights
- Net sales of $2.31 billion, an increase of 1.7%, compared to $2.27 billion in the prior year quarter.
- Retail comparable sales increased 3.9%, compared to the prior year quarter.
- Net earnings of $19.5 million, compared to $5.1 million in the prior year quarter.
- Adjusted EBITDA(1) of $66.1 million, compared to $61.8 million in the prior year quarter.
- Cash generated from operating activities was $49.7 million during the first half of fiscal 2023 compared to $28.5 million in the first half of the prior year.
- Returned $33.6 million to shareholders during the first half of fiscal 2023 through $18.5 million in share repurchases and $15.1 million in dividends.
- Continued long-term plan transformation work by implementing new ways of working across the Company's go-to-market functions, launching in the third quarter fiscal 2023. Expected run-rate cost savings of approximately $20 million by year-end.
(1) | A reconciliation of net earnings to adjusted EBITDA, a non-GAAP financial measure, is provided in Table 2 below. |
"Our team delivered solid results in the first half of 2023, leveraging transformational initiatives for growth and value. We are encouraged by the success to date, but also believe there is a long runway of benefits that will help us achieve our long-term strategic plan," said SpartanNash President and CEO Tony Sarsam. "We are now entering the next phase of our transformation, bolstering our go-to-market strategy and building on our Signature Strength of being the most customer-focused, innovative food solutions company. All of the elements of our long-term strategic plan differentiate SpartanNash as a growth-oriented organization, which further positions us to drive profitability and increase shareholder value."
Second Quarter Consolidated Financial Results
Net sales increased $38.5 million, or 1.7%, to $2.31 billion from $2.27 billion in the prior year quarter. The year-over-year increase reflected sales growth in both the Wholesale and Retail segments, which were favorably impacted by inflation trends.
Gross profit was $352.4 million, or 15.2% of net sales, compared to $354.2 million, or 15.6% of net sales, in the prior year quarter. The gross profit decline was driven by lower volumes while the gross profit rate decrease was driven by lower inflation-related price change benefits in the Wholesale segment compared to elevated levels in the prior year. The gross profit decline was partially offset by benefits realized from the merchandising transformation initiative and higher overall margin rates in the Retail segment. Last-in-first-out ("LIFO") expense decreased $13.2 million, or 58 basis points, compared to the prior year quarter.
Reported operating expenses for the second quarter were $316.6 million, or 13.7% of net sales, compared to $341.9 million, or 15.0% of net sales, in the prior year quarter. The decrease in expenses as a percentage of sales was due primarily to a decline in incentive compensation expense compared to the prior year quarter, a reduction in the supply chain expense rates as a result of efficiencies realized from the Company's supply chain transformation initiative, and lower restructuring and asset impairment charges.
The Company reported operating earnings of $35.8 million, an increase of $23.5 million, compared to $12.3 million in the prior year quarter. The increase was driven by the changes in net sales, gross profit, and operating expenses discussed above.
Interest expense of $9.3 million increased $4.8 million from the prior year quarter. Higher interest rates were driven by federal monetary policy tightening, resulting in a 350 basis point increase in the federal funds rate by the end of the second quarter compared to the prior year quarter, and accounted for $3.9 million of the increase in interest expense. Other income for the second quarter included a $0.8 million gain related to the amortization of a prior service credit of a previously terminated post-retirement plan.
The Company reported net earnings of $19.5 million, or $0.56 per diluted share, compared to $5.1 million, or $0.14 per diluted share in the prior year quarter. Adjusted earnings from continuing operations(2) for the second quarter were $22.4 million, or $0.65 per diluted share, compared to $24.2 million, or $0.66 per diluted share in the prior year quarter.
Adjusted EBITDA(1) increased $4.3 million to $66.1 million, compared to $61.8 million in the prior year quarter, due to the sales, gross profit and expense year-over-year trends mentioned above.
(2) | A reconciliation of net earnings to adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), a non-GAAP financial measure, is provided in Table 4 below. |
Second Quarter Segment Financial Results
Wholesale
The Company's supply chain network serves Wholesale customers that include independent and chain grocers, national retail brands, e-commerce platforms, and U.S. military commissaries and exchanges around the globe. The Company distributes products for every aisle in the grocery store, from fresh produce to household goods to its OwnBrands, which include the Our Family® portfolio of products.
Net sales for Wholesale increased $31.9 million, or 2.0%, to $1.63 billion from $1.60 billion in the prior year quarter. The growth in net sales was due primarily to the inflationary impact on pricing in the quarter partially offset by marketplace demand changes from a certain national account.
Reported operating earnings for Wholesale were $21.5 million, compared to $12.7 million in the prior year quarter. The increase in reported operating earnings was due to improved leverage of operating expenses, including lower incentive compensation, as well as efficiencies realized from the Company's supply chain transformation initiative. The increase in reported operating earnings was partially offset by lower gross profit from cycling the prior year quarter's inflation-related price change benefits and reduced volume in the current quarter. Adjusted EBITDA(1) decreased $1.9 million to $40.7 million from $42.6 million in the prior year quarter.
Retail
The Company operates a scaled regional Retail segment with 144 brick-and-mortar grocery stores, in addition to pharmacies and fuel centers.
Net sales for Retail increased $6.6 million, or 1.0%, to $679.0 million from $672.4 million in the prior year quarter. Retail comparable store sales grew 3.9% for the quarter, due primarily to the inflationary impact on pricing. Additionally, lower fuel prices in the quarter reduced reported net sales by 2.0%.
Reported operating earnings for Retail were $14.2 million, compared to a reported operating loss of $0.4 million in the prior year quarter. The improvement was due to lower incentive compensation, a higher gross profit rate, and reduced asset impairment and restructuring charges. This was partially offset by reduced volume, continued investment in store wage rates, and reduced pharmacy margins. Adjusted EBITDA(1) increased $6.2 million to $25.4 million from $19.2 million in the prior year quarter.
Balance Sheet and Cash Flow
Long-term debt and finance lease liabilities, including current maturities, increased $49.9 million during the first half of fiscal 2023. The Company's net long-term debt(3) to adjusted EBITDA(1) ratio improved sequentially by 10 basis points to 2.2x, compared to the first quarter 2023. The Company's liquidity remains strong, giving it flexibility to support its strategic plan.
Cash flows provided by operating activities for the first half of fiscal 2023 were $49.7 million, compared to $28.5 million in the first half of the prior year. The increase in cash flows compared to the prior year was due primarily to improvements in working capital.
Purchases of property and equipment were $60.8 million for the first half of fiscal 2023, compared to $46.4 million in the first half of the prior year, while capital expenditures and IT capital(4) totaled $63.5 million for the first half of fiscal 2023, compared to $49.6 million in the first half of the prior year.
During the first half of fiscal 2023, the Company paid $15.1 million in cash dividends, equal to $0.43 per common share. The Company also repurchased 765,194 shares of common stock for a total of $18.5 million during the first half of fiscal 2023, at an average price of $24.21 per share. In total, the Company returned $33.6 million to shareholders through the second quarter. As of July 15, 2023, $25.5 million remains available under the Company's share repurchase program, which expires on February 22, 2027.
(3) | A reconciliation of long-term debt and finance lease obligations to net long-term debt, a non-GAAP financial measure, is provided in Table 5 below. |
(4) | A reconciliation of purchases of property and equipment to capital expenditures and IT capital, a non-GAAP financial measure, is provided in Table 6 below. |
Fiscal 2023 Outlook
Based upon the Company's performance to date and the current outlook for the remainder of fiscal 2023, the Company has reaffirmed its previous guidance provided on February 23, 2023 with respect to adjusted EBITDA and adjusted EPS. The Company is updating its total net sales and capital expenditures and IT capital guidance to reflect current trends and market conditions. The following table provides the Company's updated guidance for fiscal 2023:
Fiscal 2022 | Previous Fiscal 2023 Outlook | Updated Fiscal 2023 Outlook | ||||||||||||||||||||||
Actual | Low | High | Low | High | ||||||||||||||||||||
Total net sales (millions) | $ | 9,643 | $ | 9,900 | $ | 10,200 | $ | 9,650 | $ | 9,950 | ||||||||||||||
Adjusted EBITDA(1) (millions) | $ | 243 | $ | 248 | $ | 263 | $ | 248 | $ | 263 | ||||||||||||||
Adjusted EPS(2) | $ | 2.33 | $ | 2.20 | $ | 2.35 | $ | 2.20 | $ | 2.35 | ||||||||||||||
Capital expenditures and IT capital(4) (thousands) | $ | 102,097 | $ | 130,000 | $ | 145,000 | $ | 130,000 | $ | 140,000 | ||||||||||||||
Continuing to Execute Long-Term Plan
With meaningful progress underway with the Company's supply chain transformation, merchandising transformation and marketing innovation initiatives, SpartanNash is now repositioning its go-to-market strategy. The strategy enhances customer centricity and is expected to deliver both effectiveness and efficiency. Over the past several months, the Company developed a refreshed go-to-market plan, which is being implemented in the third quarter fiscal 2023.
In connection with these changes, the Company expects to realize approximately $20 million in run-rate cost savings in late 2023, which was previously incorporated in the long-term strategic plan's gross benefits communicated by the Company.
Conference Call & Supplemental Earnings Presentation
The Company will host a conference call to discuss its quarterly results with additional comments and details on Thursday, August 17, 2023, at 10:30 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 through Thursday, August 31, 2023.
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. Committed to fostering a People First culture, the SpartanNash family of Associates is 17,500 strong and growing. SpartanNash operates two complementary business segments – food wholesale and grocery retail. Its global supply chain network serves wholesale customers that include independent and chain grocers, national retail brands, e-commerce platforms, and U.S. military commissaries and exchanges. The Company distributes products for every aisle in the grocery store, from fresh produce to household goods to its OwnBrands, which include the Our Family® portfolio of products. On the retail side, SpartanNash operates 144 brick-and-mortar grocery stores, primarily under the banners of Family Fare, Martin's Super Markets and D&W Fresh Market, in addition to dozens of pharmacies and fuel centers. Leveraging insights and solutions across its segments, SpartanNash offers a full suite of support services for independent grocers. 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," "projects," "anticipates," "plans," "believes," "intends," 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 an extremely competitive industry; the Company's dependence on certain major customers; the Company's ability to implement its growth strategy and transformation initiatives; changes in relationships with the Company's vendor base and supply chain disruptions; vulnerability to decreases in the supply and increases in the price of raw materials and labor, manufacturing, distribution and other costs; macroeconomic uncertainty, including rising inflation, potential economic recession, and increasing interest rates; difficulty attracting and retaining well-qualified Associates and effectively managing increased labor costs; customers to whom the Company extends credit or for whom the Company guarantees loans or lease obligations may fail to repay the Company; not achieving the Company's strategy of growth through acquisitions and encountering difficulties successfully integrating acquired businesses that may not realize the anticipated benefits; the Company's ability to manage its private brand program for U.S. military commissaries, including the termination of the program or not achieving the desired results; disruptions to the Company's information security network, including security breaches and cyber-attacks; changes in the geopolitical conditions, including the Russia-Ukraine conflict; instances of security threats, severe weather conditions and natural disasters; climate change and an increased focus by stakeholders on environmental sustainability and corporate responsibility; impacts to the Company's business and reputation due to an increasing focus on environmental, social and governance matters; disruptions associated with disease outbreaks, such as the COVID-19 pandemic; impairment charges for goodwill or other long-lived assets; the Company's ability to successfully manage leadership transitions; interest rate fluctuations; the Company's ability to service its debt and to comply with debt covenants; the Company's level of indebtedness; changes in government regulations; 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; labor relations issues; cost increases related to multi-employer pension plans and other postretirement plans; 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.
SPARTANNASH COMPANY AND SUBSIDIARIES | ||||||||||||||||||||
12 Weeks Ended | 28 Weeks Ended | |||||||||||||||||||
July 15, | July 16, | July 15, | July 16, | |||||||||||||||||
(In thousands, except per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
Net sales | $ | 2,312,394 | $ | 2,273,890 | $ | 5,219,788 | $ | 5,037,548 | ||||||||||||
Cost of sales | 1,960,012 | 1,919,647 | 4,420,740 | 4,232,722 | ||||||||||||||||
Gross profit | 352,382 | 354,243 | 799,048 | 804,826 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||
Selling, general and administrative | 318,795 | 338,867 | 736,991 | 761,049 | ||||||||||||||||
Acquisition and integration | 55 | 436 | 129 | 675 | ||||||||||||||||
Restructuring and asset impairment, net | (2,254) | 2,611 | 1,829 | 2,624 | ||||||||||||||||
Total operating expenses | 316,596 | 341,914 | 738,949 | 764,348 | ||||||||||||||||
Operating earnings | 35,786 | 12,329 | 60,099 | 40,478 | ||||||||||||||||
Other expenses and (income) | ||||||||||||||||||||
Interest expense, net | 9,349 | 4,528 | 20,938 | 8,713 | ||||||||||||||||
Other, net | (685) | 600 | (1,724) | 384 | ||||||||||||||||
Total other expenses, net | 8,664 | 5,128 | 19,214 | 9,097 | ||||||||||||||||
Earnings before income taxes | 27,122 | 7,201 | 40,885 | 31,381 | ||||||||||||||||
Income tax expense | 7,654 | 2,086 | 10,080 | 6,977 | ||||||||||||||||
Net earnings | $ | 19,468 | $ | 5,115 | $ | 30,805 | $ | 24,404 | ||||||||||||
Net earnings per basic common share | $ | 0.57 | $ | 0.14 | $ | 0.90 | $ | 0.69 | ||||||||||||
Net earnings per diluted common share | $ | 0.56 | $ | 0.14 | $ | 0.88 | $ | 0.67 | ||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||
Basic | 34,125 | 35,564 | ||||||||||||||||||
