Fourth Quarter Net Sales Increase Driven by Continued Strong Growth in Food Distribution Segment of 4.7%
11th Consecutive Quarter of Sales Growth
Closed on Acquisition of Martin’s Super Markets in December 2018
Announced Strategic Additions to Senior Management Team
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SpartanNash Company has reported financial results for the 12-week fourth quarter and 52-week fiscal year ended December 29, 2018.
“Our team worked diligently in the fourth quarter to position SpartanNash to succeed across our food distribution, military and retail business segments in a dynamic operating environment. We continue to be pleased with the ability to grow our top line, however we were unable to translate this growth to our bottom line results. In December, we began executing on Project One Team, a company-wide initiative to drive growth while increasing efficiency and reducing costs as a way to address this,” said David Staples, President and Chief Executive Officer. “We are excited to see this initiative empowering our associates at all levels to drive sustainable improvements in our business as we take full advantage of the growth opportunities we expect to see over the next one to two years.”
Strategic Business Objectives
The Company believes that the next one to two years will be conducive to its acquisition strategy which is a key component of its long-term strategic objective to evolve into a growth company that is focused on developing a national, highly efficient distribution platform that services a diverse customer base through its three highly complementary business units of Food Distribution, Military Distribution and Retail. The Company has executed several corporate level strategic actions that will position it to deliver on these objectives. First, the Company amended its current credit facility, allowing for additional capacity and enabling growth through acquisition. Second, the Company made strategic additions to the senior management team through the hiring of a new Chief Merchandising and Marketing Officer and Chief Information Officer. The new Chief Merchandising and Marketing Officer brings extensive merchandising, marketing and store operations experience, having most recently run one of the largest divisions of a national supermarket chain. She will lead the Company’s efforts to continue the development of consumer-centric programs for both independent retailers and our corporate owned retail stores. The newly hired Chief Information Officer brings very strong international CPG and supply chain experience and will lead the Company’s process of investing in its technology resources and infrastructure to become more efficient and customer focused. Lastly, the Company began Project One Team during the quarter, as noted above. While Project One Team is still very early in its deployment, the Company is focused on opportunities in all aspects of its business, including those which improve supply chain efficiency, leverage technology and improve the products and services offered to customers.
The Company also took numerous actions at the segment level. In Food Distribution, the Company continues to see opportunities for new business wins and is leveraging strategic partnerships and its network to position it to realize these opportunities. SpartanNash further invested in its labor force, distribution fleet, and technology in the quarter to improve its supply chain and food processing capabilities and efficiency. Military Distribution expanded its partnership with the Defense Commissary Agency (“DeCA”) and realized an increase in private brand net sales and product offerings in the fourth quarter. In addition, a new fresh program started with an existing customer in the fourth quarter within this segment. In Retail, the Company continued the implementation of its new retail brand positioning initiative in select stores during the fourth quarter with a more significant implementation planned for the first half of fiscal 2019. Finally, the Company closed on its acquisition of Martin’s Super Markets (“Martin’s”) early in fiscal 2019. Martin’s is a highly respected food retailer with complementary brand positioning and store footprint to SpartanNash.
Consolidated Financial Results
Consolidated net sales for the fourth quarter increased $11.3 million, or 0.6%, to $1.90 billion from $1.89 billion in the prior year quarter(1). The increase in net sales was driven by continued sales growth in Food Distribution of 4.7%, partially offset by lower sales in Military Distribution and Retail as discussed in the Segment Financial Results.
Gross profit for the fourth quarter of fiscal 2018 was $245.4 million, or 12.9% of net sales, compared to $254.8 million, or 13.5% of net sales, in the prior year quarter. As a percent of net sales, the change in gross profit was primarily driven by a higher mix of sales within Food Distribution as a percentage of total sales in addition to the other factors described below within the Segment Financial Results.
Reported operating expenses for the fourth quarter were $257.2 million, or 13.6% of net sales, compared to $236.0 million, or 12.5% of net sales, in the prior year’s fourth quarter. The increase in expenses as a rate of sales compared to the prior year quarter was primarily attributable to a $32.0 million, or $0.68 per diluted share, noncash impairment charge (the “non-cash charge”) related to the expected insolvency of a Food Distribution customer, offset by lower selling, general and administrative expenses. Fourth quarter operating expenses would have been $223.2 million, or 11.8% of net sales, compared to $228.0 million, or 12.1% of net sales, in the prior year quarter, excluding the adjustments related to the tax planning initiative, restructuring and impairment charges and merger and integration costs. Operating expenses were favorable to the prior year quarter as a rate of sales on an adjusted basis, due to the higher mix of sales within Food Distribution and Military Distribution as well as lower healthcare, incentive and other administrative expenses, partially offset by higher supply chain costs.
The Company reported an operating loss of $11.9 million compared to operating earnings of $18.8 million in the prior year quarter. The decrease was primarily attributable to the previously referenced non-cash charge. Non-GAAP adjusted operating earnings(2) were $22.2 million compared to $28.2 million in the prior year quarter due, in part, to the impact of warehouse operational issues at one of our distribution centers, serving both Military Distribution and Food Distribution. Additionally, the Company experienced higher LIFO expense associated with rising inflation rates, as well as lost sales and costs associated with the industry-wide romaine lettuce recall. The combination of these items impacted operating earnings by approximately $5.3 million, or $0.10 in earnings per diluted share. 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(3) was $44.3 million compared to $48.1 million in the prior year quarter due to the factors mentioned above.
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