SpartanNash Co.’s financial results for the 12-week third quarter ended Oct. 4 reflect an increase in comparable stores sales of 0.4 percent, as well as the continuing impact of the November 2013 merger of Spartan Stores and Nash Finch Co.
Net sales increased 187.2 percent to $1.81 billion vs. $630.1 million a year ago, primarily due to the $1.2 billion in sales generated as a result of the merger.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter increased 103.6 percent to $55.9 million, or 3.1 percent of net sales, compared to $27.5 million, or 4.4 percent of net sales last year.
Reported operating earnings increased 171.7 percent to $33.6 million vs. $12.4 million for the prior year quarter. The increase was primarily due to contributions from the merger and the resulting reduction in expenses, partially offset by higher LIFO expense and the impact of continued low center store inflation.
Adjusted earnings from continuing operations for the third quarter were $17.2 million, or $0.46 per diluted share on approximately 37.8 million shares outstanding, compared to $9.3 million, or $0.43 per diluted share on approximately 22.0 million shares outstanding last year.
Reported earnings from continuing operations were $17.2 million, or $0.45 per diluted share, compared to $6.7 million, or $0.30 per diluted share, in the prior year quarter, primarily due to the factors previously mentioned.
“We are very pleased with our third quarter results,” said Dennis Eidson, SpartanNash president and CEO. “Our team delivered strong earnings growth and positive comparable store sales, reflecting our efforts to provide the products and services that best fulfill the needs of our diverse customer base and the realization of synergies from the merger.
“The integration process is progressing well and we remain confident that we will exceed our previously announced cost-savings estimates,” Eidson said. “As we look to the remainder of 2014 and beyond, we are well positioned to leverage our expertise in food distribution and retail to develop impactful solutions for our customers and partners and to leverage our financial resources to take advantage of the growth opportunities in our industry.”
Gross profit margin for the third quarter was 14.4 percent compared to 20.7 percent in the prior year, reflecting the higher LIFO expense and continued low center store inflation. Third quarter operating expenses would have been $227.7 million, or 12.6 percent of net sales, compared to $113.5 million, or 18.0 percent of net sales, in the same quarter last year, if the charges related to the merger, integration and restructuring were excluded in both periods.
The higher expenses were due to the inclusion of Nash Finch’s operations and the decrease in the rate to sales was due primarily to the change in mix of the company’s segments and cost reduction efforts. Reported operating expenses were $227.8 million, or 12.6 percent of sales, compared to $118.1 million, or 18.7 percent of sales, in the third quarter last year.
Net sales for the food distribution segment increased 182.9 percent to $764.3 million in the third quarter from $270.2 million for the third quarter last year. The increase in sales was primarily due to $493.5 million in sales from Nash Finch being included in this year’s third quarter.
Third quarter adjusted operating earnings for the food distribution segment were $15.2 million, excluding $1.4 million of pre-tax merger integration expenses, compared to adjusted operating earnings of $6.0 million, excluding $4.6 million of pre-tax merger expenses, in the same period last year. The benefit from the sales volume of Nash Finch’s distribution operations was again partially offset by higher LIFO expense and lower inflation-related gains.
Reported operating earnings for the third quarter of fiscal year 2014 were $13.8 million compared to operating earnings of $1.4 million in the prior year third quarter.
Retail segment net sales increase 45%
Net sales for the retail segment increased 45.0 percent to $521.7 million in the third quarter from $359.9 million for the third quarter last year, primarily due to $179.2 million in sales generated as a result of the merger and a 0.4 percent increase in comparable store sales, excluding fuel. These gains were partially offset by $19.5 million in lower sales due to the closure of certain stores and lower retail fuel prices compared to the prior year.
Third quarter adjusted operating earnings for the retail segment were $12.9 million, excluding $1.3 million of the non-cash pre-tax asset impairment and restructuring gains, compared to adjusted operating earnings of $11.0 million in the same period last year. The improvement in adjusted operating earnings was primarily a result of the store closures, as well as lower expenses due to cost reduction initiatives. Reported operating earnings in the retail segment were $14.1 million compared to $11.0 million in the prior year quarter.
During the third quarter, the company completed two major remodels and opened one new store. Additionally, one supermarket was sold to a distribution customer and one underperforming supermarket was closed. SpartanNash ended the quarter with 165 corporate-owned stores and 30 fuel centers.
Net sales for the company’s military segment were $523.6 million and operating earnings were $5.7 million for the third quarter of fiscal 2014.
SpartanNash also increased its adjusted earnings guidance for fiscal 2014 to a range of $1.75 to $1.80 as a result of the third quarter performance and expectations for the remainder of the year, Eidson said.
“Although the economic environment in some of our markets remains challenging, it appears to have stabilized and we are encouraged by our positive comparable store sales trend and pleased with the solid execution of both our operating plan and integration activities,” Eidson said. “During the fourth quarter, we will continue to introduce new merchandising, pricing and promotional programs to stores acquired in the merger with Nash Finch and will continue to expand our food distribution programs and services to the entire distribution network.”
SpartanNash plans to complete three major remodels and re-banners and close two stores during the fourth quarter as part of the ongoing evaluation of its overall store base.
“As we move through the integration, we intend to further strengthen our strategic and competitive positions by increasing the operating efficiency of our business segments while improving the offering to our customers,” Eidson said. “Additionally, we will seek targeted acquisitions that will help us increase our scale, sales and cash flow. We remain committed to growing our business and creating value for our customers and shareholders.”
For fiscal 2014, the company is maintaining its previously issued guidance of consolidated net sales in the range of $7.90 billion to $8.04 billion and raising the low end of its adjusted EBITDA to a range of $232.0 million to $239.0 million. The company also is raising the range of adjusted earnings per share from continuing operations to approximately $1.75 to $1.80, excluding integration costs and other one-time expenses and gains.
The company expects capital expenditures for fiscal year 2014 to be in the range of $77.0 million to $82.0 million, net of anticipated sale leaseback proceeds related to a new store location, with depreciation and amortization in the range of $87.0 million to $89.0 million and total interest expense in the range of $24.0 million to $25.0 million.
The company’s fiscal year end was changed from the last Saturday in March to the Saturday nearest to Dec. 31, effective beginning with the transition period ended Dec. 28, 2013. The prior year financial statements were recast to the new fiscal year format based upon the original fiscal period end dates. As a result, the period end date for the prior year financial statements differs from the current year by one week and the comparable prior year will consist of 51 weeks with the fourth quarter comprised of 11 weeks.
SpartanNash is the largest food distributor serving military commissaries and exchanges in the U.S., in terms of revenue. The company’s core businesses include distributing food to military commissaries and exchanges and independent and corporate-owned retail stores located in 44 states and the District of Columbia, Europe, Cuba, Puerto Rico, the Azores, Bahrain and Egypt.
SpartanNash currently operates 165 supermarkets, primarily under the banners of Family Fare Supermarkets, D&W Fresh Markets, Family Fresh, No Frills, Bag ‘n Save, Sun Mart and Econofoods.
