SpartanNash Announces First Quarter 2019 Financial Results

First Quarter Net Sales Increase in All Three Business Segments

Expects to Achieve Over $20 Million in Annual Run Rate Cost Savings
from Project One Team Initiatives Over the Next 24 Months

GRAND RAPIDS, Mich.–(BUSINESS WIRE)–SpartanNash Company (the “Company”) (Nasdaq: SPTN) today reported
financial results for the 16-week first quarter ended April 20, 2019.

“We are pleased with our team’s efforts to grow net sales across all
three business segments, particularly in light of the challenging
operating environment,” said David Staples, President and Chief
Executive Officer. “While we are not satisfied with our bottom-line
results for the quarter, our team remains committed to our fiscal 2019
objectives and long-term strategy, which we believe will support both
future growth and profitability long-term.”

Strategic Business Objectives

As outlined in its fourth quarter earnings release, the Company has
defined its top five objectives for 2019. These objectives remain
critical in the context of the Company’s long-term strategic objective
to evolve into a company with a national, highly efficient distribution
platform servicing a diverse customer base through its three highly
complementary business units of Food Distribution, Military Distribution
and Retail.

The following summarizes these objectives and the Company’s progress
during the first quarter of 2019, consistent with its preliminary
earnings release on May 9, 2019:

Achieve Mid-Single Digit Sales Growth. The Company achieved this
objective in the first quarter, realizing 6.6% net sales growth versus
the same quarter in the prior year. This growth was bolstered by
contributions from newly acquired Martin’s Super Markets (“Martin’s”) in
the Retail segment, as well as growth in both the Food Distribution and
Military Distribution segments. Before the intercompany elimination of
Martin’s sales, the Food Distribution segment realized growth of 5.2%.

Realize at least $15 Million of Annual Run Rate Savings Over the Next
24 Months from Project One Team.
The Company has exceeded its
objective by identifying over $20 million in savings opportunities,
which it expects to achieve in annual run rate over the next 24 months.
The effect of implementing these opportunities is not currently expected
to be material to earnings in 2019.

Strengthen Management Team, Systems and Supply Chain Operations.
During the first quarter, the Company appointed a new Chief
Merchandising and Marketing Officer, Chief Information Officer and
several other key additions throughout the IT and supply chain
operations. Other strategic additions to the management team at various
levels are in process. The Company continues to invest in enhancements
to its systems and supply chain operations, however some improvements
are developing more slowly than initially expected, partly due to the
competitive employment environment in both warehousing and
transportation.

Reduce Debt and Working Capital While Lowering Financial Leverage
Ratios.
Adjusted for the funding of the Martin’s acquisition, the
Company paid down over $20 million of debt in the first quarter of
fiscal 2019. The Company also reduced its inventory levels by over 2%
from the first quarter of fiscal 2018, without negatively impacting
customer service levels, despite continued sales growth. The Company
will continue to focus on debt and working capital improvements in
fiscal 2019.

Improve Adjusted Operating Earnings and Adjusted EBITDA Growth. First
quarter of fiscal 2019 profitability did not meet the Company’s
expectations due to the factors discussed in the consolidated and
segment financial results below. The Company is focused on improving its
financial performance through various initiatives aligned with the
organization’s overall long-term strategy, which include the strategic
objectives noted above. The Company is also in the process of executing
strategic investments in the Retail segment in connection with the
implementation of its new retail brand positioning.

Consolidated Financial Results

Consolidated net sales for the first quarter increased $157.3 million,
or 6.6%, to $2.54 billion from $2.39 billion in the prior year quarter.
The increase in net sales was bolstered by the acquisition of Martin’s,
as well as sales growth in the Food Distribution and Military
Distribution segments.

Gross profit for the first quarter of fiscal 2019 was $377.7 million, or
14.9% of net sales, compared to $343.2 million, or 14.4% of net sales,
in the prior year quarter. As a percent of net sales, the change in
gross profit was primarily driven by the acquisition of Martin’s
partially offset by the other factors described below within the Segment
Financial Results, as well as the losses associated with the voluntary
product recall for certain fresh-cut products, which were approximately
$0.02 per diluted share.

Reported operating expenses for the first quarter were $355.5 million,
or 14.0% of net sales, compared to $317.5 million, or 13.3% of net
sales, in the prior year quarter. The increase in expenses as a rate of
sales compared to the prior year quarter was primarily due to the
acquisition of Martin’s and one-time costs associated with Project One
Team, partially offset by restructuring gains related to the sale of
real property for a previously closed site. Operating expenses were
unfavorable to the prior year quarter as a rate of sales on an adjusted
basis, due to the higher mix of sales within the Retail segment as well
as higher supply chain costs in both the Military Distribution and Food
Distribution segments and operational inefficiencies within the
Company’s food processing operations. First quarter operating expenses
would have been $354.6 million, or 13.9% of net sales, compared to
$308.8 million, or 12.9% of net sales, in the prior year quarter,
excluding the adjustments related to restructuring gains, one-time costs
associated with Project One Team, merger and integration costs and
organizational realignment costs.

The Company reported operating earnings of $22.2 million compared to
$25.7 million in the prior year quarter. The decrease was primarily
attributable to lower Food Distribution and Retail margin rates, higher
supply chain costs and one-time expenses associated with the Project One
Team initiative, partially offset by favorable restructuring gains and
the incremental earnings from the Martin’s business. Non-GAAP adjusted
operating earnings(1) were $23.2 million compared to $35.8
million in the prior year quarter, due to previously mentioned gross
margin rate pressures and higher supply chain costs. 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.

Adjusted EBITDA(2) was $54.7 million compared to $67.2
million in the prior year quarter due to the factors mentioned above.

The Company reported first quarter earnings from continuing operations
of $7.5 million, or $0.21 per diluted share, compared to $12.4 million,
or $0.34 per diluted share, in the prior year quarter. The decrease
reflects the factors noted above, as well as increased interest expense
due to higher interest rates on the Company’s borrowings.

Adjusted earnings from continuing operations(3) for the first
quarter were $8.5 million, or $0.24 per diluted share, compared to $20.0
million, or $0.55 per diluted share, in the prior year quarter.

Segment Financial Results

Food Distribution

Net sales for Food Distribution increased $14.0 million, or 1.2%, to
$1,169.2 million from $1,155.2 million in the prior year quarter.
Excluding the impact of the elimination of intercompany sales to
Martin’s subsequent to the acquisition, net sales increased 5.2%,
primarily due to sales growth from existing customers.

Reported operating earnings for Food Distribution were $24.6 million
compared to $24.5 million in the prior year quarter. The increase in
reported operating earnings was primarily attributable to higher sales
volumes and the gain on the sale of real property for a previously
closed site, offset by lower margin rates and higher supply chain costs,
including warehouse operational issues at one of the Company’s
distribution centers. First quarter adjusted operating earnings(4)
were $21.3 million compared to $29.5 million in the prior year quarter.
Adjusted operating earnings for the current year quarter exclude $3.3
million of net pre-tax gains related to the sale of real property, the
allocation of one-time costs associated with Project One Team and
severance; the prior year quarter excluded $5.0 million in
merger/acquisition and integration costs, Fresh Kitchen start-up
activities and an asset impairment charge related to certain
discontinued warehouse equipment.

Military Distribution

Net sales for Military Distribution increased $7.7 million, or 1.2%, to
$671.3 million from $663.6 million in the prior year quarter. The
increase was primarily due to incremental volume from new business with
an existing customer that commenced late in the fourth quarter of 2018
and DeCA’s private brand program, partially offset by lower comparable
sales at DeCA operated locations.

Reported operating loss for Military Distribution was $1.6 million
compared to operating earnings of $1.5 million in the prior year
quarter. The decrease was primarily attributable to warehouse
operational issues at one of the Company’s distribution centers and
increases in transportation costs, partially offset by favorable price
changes. First quarter adjusted operating loss(4) was $0.8
million compared to earnings of $1.6 million in the prior year quarter.
Adjusted operating earnings in the current year exclude the allocation
of one-time costs associated with Project One Team.

Retail

Net sales for Retail increased $135.6 million, or 23.9%, to $701.8
million from $566.2 million in the prior year quarter. Excluding the
acquisition of Martin’s, sales decreased 3.0%, due to lower sales
resulting from store closures of $12.4 million and a decrease in fuel
prices per gallon. Retail comparable store sales were -0.3% in the first
quarter.

Reported operating loss for Retail was $0.8 million compared to $0.3
million in the prior year quarter. The decrease in reported operating
earnings was primarily attributable to lower supermarket margin rates,
the allocation of one-time costs associated with Project One Team,
higher healthcare costs, merger/acquisition and integration expenses
related to the Martin’s acquisition and higher fees paid to pharmacy
benefit managers. Mostly offsetting these items were the contribution of
the acquired Martin’s stores, lower occupancy costs due to the adoption
of the new lease accounting standard and the favorable impact of closing
underperforming stores. Adjusted operating earnings(4) were
$2.7 million compared to $4.7 million in the prior year quarter and
exclude $3.5 million of pre-tax charges primarily related to the
allocation of one-time costs associated with Project One Team,
merger/acquisition and integration expenses, and store closing expenses
in the current year versus $5.0 million of store closing and asset
impairment expenses in the prior year quarter.

Balance Sheet and Cash Flow

Cash flows provided by operating activities for the first quarter were
$13.5 million compared to $60.4 million in the prior year, representing
a decrease of $46.9 million. The decrease in cash flows provided by
operating activities was primarily related to the change in working
capital requirements, mostly due to timing with respect to the Easter
holiday, partially offset by improvements in accounts payable compared
to the prior year.

During the first quarter, the Company returned $6.9 million to
shareholders in the form of cash dividends equal to $0.19 per common
share.

Outlook

Based on the Company’s performance to date and the current outlook for
the remainder of fiscal 2019, SpartanNash is reaffirming its previous
sales guidance provided on February 20, 2019, and maintaining its fiscal
2019 guidance regarding its effective tax rate, capital expenditures,
depreciation and amortization, and interest expense.

Additionally, the Company is maintaining the updated fiscal 2019
adjusted EBITDA and adjusted earnings per share guidance provided on May
9, 2019. Fiscal 2019 adjusted EBITDA is expected to be $190 million to
$205 million, while the Company anticipates adjusted earnings per share(5)
from continuing operations of approximately $1.20 to $1.50, excluding
the adjusted items totaling $16.5 million to $18.5 million after taxes,
as detailed in Table 6. The Company anticipates that reported earnings
from continuing operations will be in the range of approximately $0.70
to $1.04 per diluted share, compared to earnings from continuing
operations of $0.94 per diluted share in fiscal 2018.

Conference Call

A telephone conference call to discuss the Company’s first quarter 2019
financial results is scheduled for today, Monday, May 20, 2019 at 8:00
a.m. ET. A live webcast of this conference call will be available on the
Company’s website, www.spartannash.com/webcasts.
Simply click on “For Investors” and follow the links to the live
webcast. The webcast will remain available for replay on the Company’s
website for approximately ten days.

About SpartanNash

SpartanNash (Nasdaq: SPTN) is a Fortune 400 company whose core
businesses include distributing grocery products to a diverse group of
independent and chain retailers, its corporate-owned retail stores and
U.S. military commissaries and exchanges; as well as premier fresh
produce distribution and fresh food processing. SpartanNash serves
customer locations in all 50 states and the District of Columbia,
Europe, Cuba, Puerto Rico, Bahrain, Djibouti and Egypt. SpartanNash
currently operates 160 supermarkets, primarily under the banners of Family
Fare Supermarkets, Martin’s Super Markets, D&W Fresh Market, VG’s
Grocery, Dan’s Supermarket
and Family Fresh Market. Through
its MDV military division, SpartanNash is a leading distributor of
grocery products to U.S. military commissaries.

Forward-Looking Statements

This press release contains “forward-looking” statements within the
meaning of Section 27A of the Securities Act of 1933, and Section 21E of
the Securities Exchange Act of 1934. These include statements preceded
by, followed by or that otherwise include the words “outlook,”
“believe,” “anticipates,” “continue,” “expects,” “guidance,” “trend,”
“on track,” “encouraged” or “plan” or similar expressions. The
statements in the “Outlook” section of this press release are inherently
forward looking. Forward-looking statements relating to expectations
about future results or events are based upon information available to
SpartanNash as of today’s date, and are not guarantees of the future
performance of the Company, and actual results may vary materially from
the results and expectations discussed. Additional risks and
uncertainties include, but are not limited to, the Company’s ability to
compete in the highly competitive grocery distribution, retail grocery,
and military distribution industries. Additional information concerning
these and other risks is contained in SpartanNash’s most recently filed
Annual Report on Form 10-K, recent Current Reports on Form 8-K and other
SEC filings. All subsequent written and oral forward-looking statements
concerning SpartanNash, or other matters and attributable to SpartanNash
or any person acting on its behalf are expressly qualified in their
entirety by the cautionary statements above. SpartanNash does not
undertake any obligation to publicly update any of these forward-looking
statements to reflect events or circumstances that may arise after the
date hereof.

(1) A reconciliation of operating earnings to adjusted
operating earnings, a non-GAAP financial measure, is provided below.
(2)
A reconciliation of net earnings to Adjusted EBITDA, a non-GAAP
financial measure, is provided below.
(3) A
reconciliation of earnings from continuing operations to adjusted
earnings from continuing operations, a non-GAAP financial measure, is
provided below.
(4) A reconciliation of operating (loss)
earnings to adjusted operating earnings (loss) by segment, a non-GAAP
financial measure, is provided below.
(5) A
reconciliation of projected earnings per share from continuing
operations to adjusted earnings per share from continuing operations, a
non-GAAP financial measure, is provided below.

 

SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 
  16 Weeks Ended
April 20,   April 21,

(In thousands, except per share amounts)

2019 2018
Net sales $   2,542,375 $   2,385,073
Cost of sales     2,164,646     2,041,859
Gross profit 377,729 343,214
 
Operating expenses
Selling, general and administrative 360,400 309,058
Merger/acquisition and integration 782 2,206
Restructuring (gains) charges and asset impairment     (5,662 )     6,202
Total operating expenses     355,520     317,466
 
Operating earnings 22,209 25,748
 
Other expenses and (income)
Interest expense 11,881 8,778
Other, net     183     (225 )
Total other expenses, net     12,064     8,553
 
Earnings before income taxes and discontinued operations 10,145 17,195
Income tax expense     2,624     4,760
Earnings from continuing operations 7,521 12,435
 
Loss from discontinued operations, net of taxes     (52 )     (92 )
Net earnings $   7,469 $   12,343
 
Basic earnings per share:
Earnings from continuing operations $ 0.21 $ 0.34
Loss from discontinued operations        
Net earnings $   0.21 $   0.34
 
Diluted earnings per share:
Earnings from continuing operations $ 0.21 $ 0.34
Loss from discontinued operations        
Net earnings $   0.21 $   0.34
 
Weighted average shares outstanding:
Basic 36,121 36,186
Diluted 36,121 36,197
 
 

SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 
    April 20,     December 29,
(In thousands) 2019 2018

Assets

   
Current assets
Cash and cash equivalents $ 21,360 $ 18,585
Accounts and notes receivable, net 376,708 346,260
Inventories, net 595,741 553,799
Prepaid expenses and other current assets 59,014 73,798
Property and equipment held for sale         8,654
Total current assets 1,052,823 1,001,096
 
Property and equipment, net 623,132 579,060
Goodwill 178,648 178,648
Intangible assets, net 144,451 128,926
Operating lease assets 273,537
Other assets, net     86,905     84,182
 
Total assets $   2,359,496 $   1,971,912
 

Liabilities and Shareholders’ Equity

 
Current liabilities
Accounts payable $ 391,315 $ 357,802
Accrued payroll and benefits 55,922 57,180
Other accrued expenses 48,437 43,206
Current portion of operating lease liabilities 41,425
Current portion of long-term debt and finance lease liabilities     18,006     18,263
Total current liabilities 555,105 476,451
 
Long-term liabilities
Deferred income taxes 45,087 49,254
Operating lease liabilities 279,599
Other long-term liabilities 32,785 50,463
Long-term debt and finance lease liabilities     753,118     679,797
Total long-term liabilities 1,110,589 779,514
 
Commitments and contingencies
 
Shareholders’ equity
Common stock, voting, no par value; 100,000 shares

authorized; 36,319 and 35,952 shares outstanding

488,155 484,064
Preferred stock, no par value, 10,000 shares

authorized; no shares outstanding

Accumulated other comprehensive loss (15,699 ) (15,759 )
Retained earnings     221,346     247,642
Total shareholders’ equity     693,802     715,947
 
Total liabilities and shareholders’ equity $   2,359,496 $   1,971,912
 
 

SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
      16 Weeks Ended

(In thousands)

April 20, 2019     April 21, 2018
Cash flow activities    
Net cash provided by operating activities $ 13,519 $ 60,381
Net cash used in investing activities (87,225 ) (20,933 )
Net cash provided by (used in) financing activities 76,567 (37,863 )
Net cash used in discontinued operations     (86 )     (85 )
Net increase in cash and cash equivalents 2,775 1,500
Cash and cash equivalents at beginning of the period     18,585     15,667
Cash and cash equivalents at end of the period $   21,360 $   17,167
 
 
SPARTANNASH COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
 
Table 1: Sales and Operating Earnings by Segment
(Unaudited)
 
    16 Weeks Ended
(In thousands) April 20, 2019     April 21, 2018

Food Distribution Segment:

       
Net sales $ 1,169,238 46.0 % $ 1,155,211 48.5 %
Operating earnings 24,592 24,521

Military Segment:

Net sales 671,370 26.4 % 663,620 27.8 %
Operating (loss) earnings (1,557 ) 1,513

Retail Segment:

Net sales 701,767 27.6 % 566,242 23.7 %
Operating loss (826 ) (286 )

Total:

Net sales $ 2,542,375 100.0 % $ 2,385,073 100.0 %
Operating earnings 22,209 25,748
 

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, the
Company also provides information regarding Adjusted Earnings Before
Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”),
adjusted operating earnings, adjusted earnings from continuing
operations, total net long-term debt, and projected adjusted earnings
per diluted share from continuing operations. These are non-GAAP
financial measures, as defined below, and are used by management to
allocate resources, assess performance against its peers and evaluate
overall performance. The Company believes these measures provide useful
information for both management and its investors. The Company believes
these non-GAAP measures are useful to investors because they provide
additional understanding of the trends and special circumstances that
affect its business. These measures provide useful supplemental
information that helps investors to establish a basis for expected
performance and the ability to evaluate actual results against that
expectation. The measures, when considered in connection with GAAP
results, can be used to assess the overall performance of the Company as
well as assess the Company’s performance against its peers. These
measures are also used as a basis for certain compensation programs
sponsored by the Company. In addition, securities analysts, fund
managers and other shareholders and stakeholders that communicate with
the Company request its financial results in these adjusted formats.

Current year adjusted operating earnings, adjusted earnings from
continuing operations, and adjusted EBITDA exclude costs associated with
the organizational realignment, which include significant changes to the
Company’s management team. Also excluded are the fees paid to a
third-party advisory firm associated with Project One Team, the
Company’s initiative to drive growth while increasing efficiency and
reducing costs. These items are considered “non-operational” or
“non-core” in nature. Prior year adjusted operating earnings, adjusted
earnings from continuing operations, and adjusted EBITDA exclude
start-up costs associated with the Fresh Kitchen operation, which
concluded during the first quarter of 2018. The Fresh Kitchen
represented a new line of business for the Company, and provides the
Company with the ability to process, cook, and package fresh
protein-based foods and complete meal solutions.

 

Table 2: Reconciliation of Net Earnings to Adjusted Earnings
Before Interest, Taxes, Depreciation and Amortization

(Adjusted EBITDA)

(A Non-GAAP Financial Measure)

(Unaudited)

 
    16 Weeks Ended

(In thousands)

April 20, 2019     April 21, 2018
Net earnings $   7,469 $   12,343
Loss from discontinued operations, net of tax 52 92
Income tax expense 2,624 4,760
Other expenses, net     12,064     8,553
Operating earnings 22,209 25,748
Adjustments:
LIFO expense 1,425 1,540
Depreciation and amortization 26,632 25,018
Merger/acquisition and integration 782 2,206
Restructuring (gains) charges and asset impairment (5,662 ) 6,202
Fresh Kitchen start-up costs 1,366
Stock-based compensation 5,383 5,290
Non-cash rent (1,918 ) (77 )
Costs associated with Project One Team 4,618
Organizational realignment costs 858
Other non-cash charges (gains)     342     (122 )

Adjusted EBITDA

$   54,669 $   67,171
16 Weeks Ended

(In thousands)

April 20, 2019 April 21, 2018
Food Distribution:
Operating earnings $ 24,592 $ 24,521
Adjustments:
LIFO expense 703 766
Depreciation and amortization 10,233 9,321
Merger/acquisition and integration (130 ) 2,195
Restructuring (gains) charges and asset impairment (6,343 ) 1,260
Fresh Kitchen start-up costs 1,366
Stock-based compensation 2,676 2,526
Non-cash rent 57 (22 )
Costs associated with Project One Team 2,448
Organizational realignment costs 455
Other non-cash charges     319     237
Adjusted EBITDA $   35,010 $   42,170
Military:
Operating (loss) earnings $ (1,557 ) $ 1,513
Adjustments:
LIFO expense 378 424
Depreciation and amortization 3,597 3,678
Merger/acquisition and integration 4
Stock-based compensation 854 805
Non-cash rent (122 ) (1 )
Costs associated with Project One Team 600
Organizational realignment costs 111
Other non-cash gains     (20 )     (70 )
Adjusted EBITDA $   3,841 $   6,353
Retail:
Operating loss $ (826 ) $ (286 )
Adjustments:
LIFO expense 344 350
Depreciation and amortization 12,802 12,019
Merger/acquisition and integration 912 7
Restructuring charges and asset impairment 681 4,942
Stock-based compensation 1,853 1,959
Non-cash rent (1,853 ) (54 )
Costs associated with Project One Team 1,570
Organizational realignment costs 292
Other non-cash charges (gains)     43     (289 )
Adjusted EBITDA $   15,818 $   18,648
 

Contacts

Investor Contacts:
Mark Shamber
Chief Financial Officer and
Executive Vice President
(616) 878-8023

Katie Turner
Partner, ICR
(646) 277-1228

Media Contact:
Meredith Gremel
Vice President Corporate
Affairs and Communications
(616) 878-2830

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