SpartanNash Co - Quarter Report: 2023 July (Form 10-Q)

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 15, 2023.

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 000-31127

 

 

 

SPARTANNASH COMPANY

(Exact Name of Registrant as Specified in Its Charter)

Michigan		38-0593940
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
850 76th Street, S.W. P.O. Box 8700 Grand Rapids, Michigan		49518
(Address of Principal Executive Offices)		(Zip Code)

(616) 878-2000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, no par value		SPTN		NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 15, 2023, the registrant had 34,616,396 outstanding shares of common stock, no par value.

 

 

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FORWARD-LOOKING STATEMENTS

The matters discussed in this Quarterly Report on Form 10-Q, in the Company’s press releases, 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 SpartanNash Company and subsidiaries (“SpartanNash” or “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 the forward-looking statements contained in this Quarterly Report on Form 10-Q, SpartanNash’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and other periodic reports filed with the Securities and Exchange Commission (“SEC”), 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.

This section and the discussions contained in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and in Part I, Item 2 “Critical Accounting Policies” of this Quarterly Report on Form 10-Q, are intended to provide meaningful cautionary statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash 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 Quarterly Report. In addition, historical information should not be considered as an indicator of future performance.

 

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TABLE OF CONTENTS

 

		Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Earnings	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statements of Shareholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II.	OTHER INFORMATION	29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	31
	Signatures	32

 

 

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PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, Unaudited)

	July 15,					December 31,
	2023					2022
Assets
Current assets
Cash and cash equivalents	$		16,910			$		29,086
Accounts and notes receivable, net			426,186					404,016
Inventories, net			576,859					571,065
Prepaid expenses and other current assets			65,402					62,244
Total current assets			1,085,357					1,066,411
Property and equipment, net			609,236					610,220
Goodwill			182,160					182,160
Intangible assets, net			103,795					106,341
Operating lease assets			254,146					257,047
Other assets, net			92,217					84,382
Total assets	$		2,326,911			$		2,306,561
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$		500,044			$		487,215
Accrued payroll and benefits			61,344					103,048
Other accrued expenses			58,306					62,465
Current portion of operating lease liabilities			43,194					45,453
Current portion of long-term debt and finance lease liabilities			7,644					6,789
Total current liabilities			670,532					704,970
Long-term liabilities
Deferred income taxes			78,472					66,293
Operating lease liabilities			235,424					239,062
Other long-term liabilities			28,229					33,376
Long-term debt and finance lease liabilities			545,857					496,792
Total long-term liabilities			887,982					835,523
Commitments and contingencies (Note 8)
Shareholders’ equity
Common stock, voting, no par value; 100,000 shares      authorized; 34,618 and 35,079 shares outstanding			454,844					468,061
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding			—					—
Accumulated other comprehensive income			2,923					2,979
Retained earnings			310,630					295,028
Total shareholders’ equity			768,397					766,068
Total liabilities and shareholders’ equity	$		2,326,911			$		2,306,561

See accompanying notes to condensed consolidated financial statements.

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

	12 Weeks Ended										28 Weeks Ended
	July 15, 2023					July 16, 2022					July 15, 2023					July 16, 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					34,366					35,565
Diluted			34,641					36,528					35,116					36,470

 

See accompanying notes to condensed consolidated financial statements.

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, Unaudited)

	12 Weeks Ended										28 Weeks Ended
	July 15, 2023					July 16, 2022					July 15, 2023					July 16, 2022
Net earnings	$		19,468			$		5,115			$		30,805			$		24,404
Other comprehensive income (loss), before tax
Change in interest rate swap			2,281					—					1,145					—
Postretirement liability adjustment			(326	)				7,258					(1,237	)				7,288
Total other comprehensive income (loss), before tax			1,955					7,258					(92	)				7,288
Income tax (expense) benefit related to items of other comprehensive income (loss)			(454	)				(1,780	)				36					(1,787	)
Total other comprehensive income (loss), after tax			1,501					5,478					(56	)				5,501
Comprehensive income	$		20,969			$		10,593			$		30,749			$		29,905

See accompanying notes to condensed consolidated financial statements.

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, Unaudited)

										Accumulated
										Other
	Shares				Common					Comprehensive					Retained
	Outstanding				Stock					Income (Loss)					Earnings					Total
Balance at December 31, 2022		35,079			$		468,061			$		2,979			$		295,028			$		766,068
Net earnings		—					—					—					11,337					11,337
Other comprehensive loss		—					—					(1,557	)				—					(1,557	)
Dividends - $0.215 per share		—					—					—					(7,679	)				(7,679	)
Share repurchases		(435	)				(10,910	)				—					—					(10,910	)
Stock-based compensation		—					5,147					—					—					5,147
Stock warrant		—					607					—					—					607
Issuances of common stock for associate stock purchase plan		17					358					—					—					358
Issuances of restricted stock		425					—					—					—					—
Cancellations of stock-based awards		(151	)				(3,917	)				—					—					(3,917	)
Balance at April 22, 2023		34,935			$		459,346			$		1,422			$		298,686			$		759,454
Net earnings		—					—					—					19,468					19,468
Other comprehensive income		—					—					1,501					—					1,501
Dividends - $0.215 per share		—					—					—					(7,524	)				(7,524	)
Share repurchases		(330	)				(7,617	)				—					—					(7,617	)
Stock-based compensation		—					2,465					—					—					2,465
Stock warrant		—					353					—					—					353
Issuances of common stock for associate stock purchase plan and other stock-based awards		18					328					—					—					328
Issuances of restricted stock		10					—					—					—					—
Cancellations of stock-based awards		(15	)				(31	)				—					—					(31	)
Balance at July 15, 2023		34,618			$		454,844			$		2,923			$		310,630			$		768,397

 

 

										Accumulated
										Other
	Shares				Common					Comprehensive					Retained
	Outstanding				Stock					(Loss) Income					Earnings					Total
Balance at January 1, 2022		35,948			$		493,783			$		(1,455	)		$		290,541			$		782,869
Net earnings		—					—					—					19,289					19,289
Other comprehensive income		—					—					23					—					23
Dividends - $0.21 per share		—					—					—					(7,665	)				(7,665	)
Stock-based compensation		—					4,295					—					—					4,295
Stock warrant		—					673					—					—					673
Issuances of common stock for associate stock purchase plan		3					108					—					—					108
Issuances of restricted stock		369					—					—					—					—
Cancellations of stock-based awards		(180	)				(4,288	)				—					—					(4,288	)
Balance at April 23, 2022		36,140			$		494,571			$		(1,432	)		$		302,165			$		795,304
Net earnings		—					—					—					5,115					5,115
Other comprehensive income		—					—					5,478					—					5,478
Dividends - $0.21 per share		—					—					—					(7,561	)				(7,561	)
Share repurchases		(215	)				(6,573	)				—					—					(6,573	)
Stock-based compensation		—					1,397					—					—					1,397
Stock warrant		—					481					—					—					481
Issuance of common stock for associate stock purchase plan		4					104					—					—					104
Issuances of restricted stock		14					—					—					—					—
Cancellations of stock-based awards		(30	)				(23	)				—					—					(23	)
Balance at July 16, 2022		35,913			$		489,957			$		4,046			$		299,719			$		793,722

See accompanying notes to condensed consolidated financial statements.

 

 

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, Unaudited)

	28 Weeks Ended
	July 15, 2023					July 16, 2022
Cash flows from operating activities
Net earnings	$		30,805			$		24,404
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash restructuring, asset impairment, and other charges			1,735					2,570
Depreciation and amortization			52,203					50,441
Non-cash rent			(2,044	)				(2,462	)
LIFO expense			15,839					28,032
Postretirement benefits (income) expense			(1,149	)				392
Deferred income taxes			12,214					9,071
Stock-based compensation expense			7,612					5,692
Stock warrant			960					1,154
Loss (gain) on disposals of assets			46					(131	)
Other operating activities			879					1,051
Changes in operating assets and liabilities:
Accounts receivable			(20,163	)				(49,528	)
Inventories			(25,313	)				(93,919	)
Prepaid expenses and other assets			2,068					(128	)
Accounts payable			32,252					67,874
Accrued payroll and benefits			(46,469	)				(369	)
Current income taxes			(7,645	)				(7,501	)
Other accrued expenses and other liabilities			(4,174	)				(8,124	)
Net cash provided by operating activities			49,656					28,519
Cash flows from investing activities
Purchases of property and equipment			(60,824	)				(46,431	)
Net proceeds from the sale of assets			3,996					4,422
Acquisitions, net of cash acquired			(780	)				(9,408	)
Payments from customers on loans			740					849
Other investing activities			(189	)				(139	)
Net cash used in investing activities			(57,057	)				(50,707	)
Cash flows from financing activities
Proceeds from senior secured credit facility			781,075					720,800
Payments on senior secured credit facility			(743,132	)				(658,197	)
Repayment of other long-term debt and finance lease liabilities			(4,366	)				(3,771	)
Share repurchases			(18,527	)				(6,573	)
Net payments related to stock-based award activities			(3,948	)				(4,311	)
Dividends paid			(15,117	)				(15,165	)
Other financing activities			(760	)				(44	)
Net cash (used in) provided by financing activities			(4,775	)				32,739
Net (decrease) increase in cash and cash equivalents			(12,176	)				10,551
Cash and cash equivalents at beginning of period			29,086					10,666
Cash and cash equivalents at end of period	$		16,910			$		21,217

See accompanying notes to condensed consolidated financial statements.

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SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

9

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” which appears at the beginning of this report, and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Overview

SpartanNash, headquartered in Grand Rapids, Michigan, is a food solutions company that delivers the ingredients for a better life. Its 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 operating a premier fresh produce distribution network and the Our Family® private label brand. SpartanNash serves customer locations in all 50 states and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar, Djibouti, Korea and Japan.

At the beginning of the third quarter of 2022, the Company combined the previous Food Distribution and Military operating segments into one operating segment: Wholesale. As a result, the Company now operates two reportable segments: Wholesale and Retail. Segment financial information for the comparative prior year periods within this quarterly report has been recast to reflect this update.

The Company’s Wholesale segment provides a wide variety of nationally branded and private brand grocery products and perishable food products to independent retailers, national accounts, food service distributors, e-commerce providers, and the Company’s corporate owned retail store. The Company’s Wholesale segment also distributes grocery products to 160 military commissaries and over 400 exchanges worldwide. The Company is the exclusive supplier of private brand products to U.S. military commissaries, a partnership with DeCA which began in fiscal 2017.

As of the end of the second quarter, the Company’s Retail segment operated 144 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare, Martin’s Super Markets and D&W Fresh Market. The Company also offered pharmacy services in 91 of its corporate owned retail stores (81 of the pharmacies are owned by the Company), operated three pharmacy locations not associated with corporate-owned retail locations and operated 36 fuel centers. The Company’s neighborhood market strategy distinguishes its corporate owned retail stores from supercenters and limited assortment stores.

All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.

The majority of the Company’s revenues are not seasonal in nature. However, in some geographies, corporate retail stores and independent retail customers are dependent on tourism, and therefore can be affected by seasons. The Company's revenues may also be impacted by weather patterns.

2023 Second Quarter Highlights

Key financial and operational highlights for the second quarter include the following:

The Company believes that certain known or anticipated trends may cause future results to vary from historical results. The Company believes certain initiatives tied to its long-term plan including the supply chain transformation, merchandising transformation, and refreshed go-to-market strategy will favorably impact future results. The Company anticipates that additional investments in capital expenditures, and increased borrowings from the Company's senior secured credit facility, will be necessary to support these and other programs. Offsetting the Company's expectations of favorable future results are macroeconomic headwinds including economic uncertainty associated with inflation, labor costs, and interest rates. The Company continues to be exposed to inflationary impacts to other general areas including utilities, insurance and fuel costs.

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Results of Operations

The following table sets forth items from the condensed consolidated statements of earnings as a percentage of net sales and the year-to-year percentage change in the dollar amounts:

	Percentage of Net Sales																Percentage Change
	12 Weeks Ended								28 Weeks Ended								12 Weeks Ended				28 Weeks Ended
	July 15, 2023				July 16, 2022				July 15, 2023				July 16, 2022				July 15, 2023				July 15, 2023
Net sales		100.0				100.0				100.0				100.0				1.7				3.6
Gross profit		15.2				15.6				15.3				16.0				(0.5	)			(0.7	)
Selling, general and administrative		13.8				14.9				14.1				15.1				(5.9	)			(3.2	)
Acquisition and integration		0.0				0.0				0.0				0.0				(87.4	)			(80.9	)
Restructuring charges and asset impairment, net		(0.1	)			0.1				0.0				0.1			**					(30.3	)
Operating earnings		1.5				0.5				1.2				0.8				190.3				48.5
Other expenses		0.4				0.2				0.4				0.2				69.0				111.2
Earnings before income taxes		1.2				0.3				0.8				0.6				276.6				30.3
Income tax expense		0.3				0.1				0.2				0.1				266.9				44.5
Net earnings		0.8				0.2				0.6				0.5				280.6				26.2

Note: Certain totals do not sum due to rounding.

** Not meaningful

Net Sales – The following table presents net sales by segment and variances in net sales:

	12 Weeks Ended															28 Weeks Ended
(In thousands)	July 15, 2023					July 16, 2022					Variance					July 15, 2023					July 16, 2022					Variance
Wholesale	$		1,633,364			$		1,601,485			$		31,879			$		3,719,048			$		3,583,864			$		135,184
Retail			679,030					672,405					6,625					1,500,740					1,453,684					47,056
Total net sales	$		2,312,394			$		2,273,890			$		38,504			$		5,219,788			$		5,037,548			$		182,240

Net sales for the quarter ended July 15, 2023 (the “second quarter”) increased $38.5 million, or 1.7%, to $2.31 billion from $2.27 billion in the quarter ended July 16, 2022 (the “prior year quarter”). Net sales for the year-to-date period ended July 15, 2023 (the "year-to-date period") increased $182.2 million, or 3.6%, to $5.22 billion from $5.04 billion in the year-to-date period ended July 16, 2022 (the "prior year-to-date-period"). The increases reflected sales growth in both the Wholesale and Retail segments, which were favorably impacted by inflation trends and partially offset by lower volumes.

Wholesale net sales increased $31.9 million, or 2.0% to $1.63 billion in the second quarter from $1.60 billion in the prior year quarter. Wholesale net sales for the year-to-date period increased $135.2 million, or 3.8%, to $3.72 billion from $3.58 billion in the prior year-to-date period. The increases were primarily due to the inflationary impact on pricing in the current quarter and current year-to-date periods. Overall case volumes for the segment were down in the current quarter and current year-to-date period compared to the prior year by 4.6% and 3.6%, respectively, which were led by marketplace demand changes from a certain national account.

Retail net sales increased $6.6 million, or 1.0%, to $679.0 million in the second quarter from $672.4 million in the prior year quarter. Net sales for the year-to-date period increased $47.1 million, or 3.2%, to $1.50 billion from $1.45 billion in the prior year-to-date period. Comparable store sales grew 3.9% and 4.7% for the current quarter and current year-to-date periods, respectively. The comparable store sales growth was due primarily to the inflationary impact on pricing, which included an offsetting 5.1% and 5.6% decline in volumes in the current quarter and current year-to-date periods, respectively. Additionally, lower fuel prices reduced reported net sales by 2.0% and 1.1% in the current quarter and current year-to-date periods, respectively. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions, or relocated stores. Acquired stores are included in the comparable sales calculation 13 periods after the acquisition date. Sales are compared to the same store’s operations from the prior year period for purposes of calculation of comparable store sales. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.

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Gross Profit – Gross profit represents net sales less cost of sales, which for all non-production operations includes purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional allowances and excludes warehousing costs, depreciation and other administrative expenses. The Company’s gross profit definition may not be identical to similarly titled measures reported by other companies. Vendor allowances that relate to the buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for the Company’s merchandising costs, such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of sales when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The Wholesale segment includes shipping and handling costs in the Selling, general and administrative section of operating expenses in the consolidated statements of earnings.

Gross profit decreased $1.9 million, or 0.5%, to $352.4 million in the second quarter from $354.2 million in the prior year quarter. As a percent of net sales, gross profit was 15.2% compared to 15.6% in the prior year quarter. Gross profit for the year-to-date period decreased $5.8 million, or 0.7% from $804.8 million in the prior year-to-date period to $799.0 million in the current year. As a percent of net sales, gross profit for the year-to-date period was 15.3% compared to 16.0% in the prior year-to-date period. The gross profit declines were driven by lower volumes while the gross profit rate decreases were driven by lower inflation-related price change benefits in the Wholesale segment compared to elevated levels in the prior year. The gross profit declines were 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 and decreased $12.2 million, or 25 basis points, compared to the prior year-to-date period.

Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of operating costs related to retail and supply chain operations, including salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation, and out-bound freight, in addition to corporate administrative expenses.

SG&A expenses for the second quarter decreased $20.1 million, or 5.9%, to $318.8 million from $338.9 million in the prior year quarter, representing 13.8% of net sales in the second quarter compared to 14.9% in the prior year quarter. SG&A expense for the year-to-date period decreased $24.1 million, or 3.2% to $737.0 million, from $761.0 in the prior year-to-date period, representing 14.1% in the current year-to-date period compared to 15.1% as a percentage of net sales in the prior year-to-date period. The decreases in selling, general and administrative expenses as a rate of sales were due primarily to a decline in incentive compensation expense compared to the prior year and a reduction in the supply chain expense rates as a result of efficiencies realized from the Company's supply chain transformation initiative.

Acquisition and Integration – Acquisition and integration expenses for the second quarters ended July 15, 2023, and July 16, 2022 were $0.1 million and $0.4 million, respectively. The year-to-date period and prior year-to-date period included charges of $0.1 million and $0.7 million, respectively. Current year activity is primarily within the Wholesale segment while the prior year expense is primarily related to an acquisition within the Retail segment.

Restructuring and Asset Impairment, net – Second quarter and prior year quarter results included a net gain of $2.3 million and net charges of $2.6 million, respectively. The year-to-date period and prior year-to-date period included charges of $1.8 million and $2.6 million, respectively. The current quarter gain primarily relates to the sale of a store location within the Retail segment, partially offset by other costs related to Retail store closings. The year-to-date charges primarily relate to two store closures within the Retail segment and impairment losses related to a distribution location that sustained significant storm damage within the Wholesale segment, partially offset by the sale of a store within the Retail segment. The prior year quarter and prior year-to-date amounts primarily consist of asset impairment charges related to the restructuring of the Retail segment's ecommerce delivery model, partially offset by a gain on sales of assets related to the sale of real property of previously closed locations in the Retail segment.

Operating Earnings – The following table presents operating earnings (loss) by segment and variances in operating earnings (loss).

	12 Weeks Ended															28 Weeks Ended
(In thousands)	July 15, 2023					July 16, 2022					Variance					July 15, 2023					July 16, 2022					Variance
Wholesale	$		21,542			$		12,697			$		8,845			$		47,867			$		40,819			$		7,048
Retail			14,244					(368	)				14,612					12,232					(341	)				12,573
Total operating earnings	$		35,786			$		12,329			$		23,457			$		60,099			$		40,478			$		19,621

Operating earnings increased $23.5 million, or 190.3% to $35.8 million in the second quarter from $12.3 million in the prior year quarter. Operating earnings for the year-to-date period increased $19.6 million, or 48.5%, to $60.1 million from $40.5 million in the prior year-to-date period. The increases in operating earnings was due to the changes in net sales, gross profit and operating expenses discussed above.

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Wholesale operating earnings increased $8.8 million, or 69.7%, to $21.5 million in the second quarter from $12.7 million in the prior year quarter. Operating earnings for the year-to-date period increased $7.0 million, or 17.3%, to $47.9 million from $40.8 million in the prior year-to-date period. The increases in operating earnings were due to improved leverage of operating expenses, including lower incentive compensation as well as efficiencies realized from the Company's supply chain transformation initiative, partially offset by lower gross profit from cycling prior year's inflation-related price change benefits and reduced volumes in the current year.

Retail operating earnings increased $14.6 million, to $14.2 million in the second quarter from a $0.4 million operating loss in the prior year quarter. Operating earnings for the year-to-date period increased $12.6 million, to $12.2 million from a $0.3 million operating loss in the prior year-to-date period. The increases in operating earnings were due to lower incentive compensation, a higher gross profit rate, and reduced asset impairment and restructuring charges, partially offset by reduced volume, continued investment in store wage rates, and reduced pharmacy margins.

Interest Expense – Interest expense increased $4.8 million, or 106.5%, to $9.3 million in the second quarter from $4.5 million in the prior year quarter. Interest expense for the year-to-date period increased $12.2 million, or 140.3%, to $20.9 million from $8.7 million in the prior year-to-date period. The increases during the current quarter and current year-to-date period 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 end of the prior year quarter, and accounted for $3.9 million and $10.0 million of the increase in interest expense, respectively.

Income Taxes – The effective income tax rates were 28.2% and 29.0% for the second quarter and prior year quarter, respectively. For the year-to-date period and prior year-to-date period, the effective tax rates were 24.7% and 22.2%, respectively. The difference from the federal statutory rate in current year and prior year quarters were primarily due to state taxes and non-deductible expenses, partially offset by benefits associated with federal tax credits. The difference from the federal statutory rate in current year was primarily due to state taxes and non-deductible expenses, partially offset by benefits associated with federal tax credits, discrete tax benefits due to a change in contingencies and discrete tax benefits related to stock compensation. The difference in the federal statutory rate in the prior year was primarily due to state taxes and non-deductible expenses, partially offset by benefits associated with federal tax credits and discrete tax benefits related to stock compensation.

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, as well as per diluted share (“adjusted EPS”), net long-term debt, total capital, and adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”). 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, among other items, LIFO expense, organizational realignment, severance associated with cost reduction initiatives, a non-routine settlement related to a legal matter resulting from a previously closed operation that was resolved during the year and operating and non-operating costs associated with the postretirement plan amendment and settlement. Current year organizational realignment includes consulting costs associated with the Company's change in its go-to-market strategy as part of its long-term plan, which relates to the reorganization of certain functions. Costs related to the postretirement plan amendment and settlement include non-operating expenses associated with amortization of the prior service credit related to the amendment of the retiree medical plan, which are excluded from adjusted earnings from continuing operations. Postretirement plan amendment and settlement costs also include operating expenses related to payroll taxes which are adjusted out of all non-GAAP financial measures. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other things, LIFO expense, costs related to shareholder activism, organizational realignment, operating and non-operating costs associated with the postretirement plan amendment and settlement, and severance associated with cost reduction initiatives. Costs related to shareholder activism include consulting, and other expenses incurred in relation to shareholder activism activities. Organizational realignment includes benefits for associates terminated as part of leadership transition plans, which do not meet the definition of reduction-in-force.

Each of these items are considered “non-operational” or “non-core” in nature.

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Adjusted Operating Earnings

Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company as a whole and for its operating segments. The Company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature and also excludes the contributions of activities classified as discontinued operations. Because adjusted operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in an adjusted operating earnings format.

Adjusted operating earnings is not a measure of performance under GAAP and should not be considered as a substitute for operating earnings, and other income statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.

Following is a reconciliation of operating earnings to adjusted operating earnings for the 12 and 28 weeks ended July 15, 2023 and July 16, 2022.

	12 Weeks Ended										28 Weeks Ended
(In thousands)	July 15, 2023					July 16, 2022					July 15, 2023					July 16, 2022
Operating earnings	$		35,786			$		12,329			$		60,099			$		40,478
Adjustments:
LIFO expense			4,667					17,845					15,839					28,032
Acquisition and integration			55					436					129					675
Restructuring and asset impairment, net			(2,254	)				2,611					1,829					2,624
Organizational realignment, net			2,029					252					2,029					1,271
Severance associated with cost reduction initiatives			(12	)				495					272					741
Legal settlement			—					—					900					—
Postretirement plan amendment and settlement			94					133					94					133
Costs related to shareholder activism			—					3,864					—					7,335
Adjusted operating earnings	$		40,365			$		37,965			$		81,191			$		81,289
Wholesale:
Operating earnings	$		21,542			$		12,697			$		47,867			$		40,819
Adjustments:
LIFO expense			3,590					13,904					12,323					22,179
Acquisition and integration			55					—					124					—
Restructuring and asset impairment, net			1					(139	)				981					(128	)
Organizational realignment, net			1,266					156					1,266					793
Severance associated with cost reduction initiatives			(7	)				495					257					619
Legal settlement			—					—					900					—
Postretirement plan amendment and settlement			59					83					59					83
Costs related to shareholder activism			—					2,411					—					4,577
Adjusted operating earnings	$		26,506			$		29,607			$		63,777			$		68,942
Retail:
Operating earnings (loss)	$		14,244			$		(368	)		$		12,232			$		(341	)
Adjustments:
LIFO expense			1,077					3,941					3,516					5,853
Acquisition and integration			—					436					5					675
Restructuring and asset impairment, net			(2,255	)				2,750					848					2,752
Organizational realignment, net			763					96					763					478
Severance associated with cost reduction initiatives			(5	)				—					15					122
Postretirement plan amendment and settlement			35					50					35					50
Costs related to shareholder activism			—					1,453					—					2,758
Adjusted operating earnings	$		13,859			$		8,358			$		17,414			$		12,347

 

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Adjusted Earnings from Continuing Operations

Adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), is a non-GAAP operating financial measure that the Company defines as net earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

The Company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the Company. The Company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and excludes the contributions of activities classified as discontinued operations. Because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted earnings from continuing operations format.

Adjusted earnings from continuing operations is not a measure of performance under GAAP and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies.

 

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Following is a reconciliation of net earnings to adjusted earnings from continuing operations for the 12 weeks ended July 15, 2023 and July 16, 2022.

	12 Weeks Ended
	July 15, 2023											July 16, 2022
						per diluted											per diluted
(In thousands, except per share amounts)	Earnings					share						Earnings					share
Net earnings	$		19,468			$		0.56				$		5,115			$		0.14
Adjustments:
LIFO expense			4,667											17,845
Acquisition and integration			55											436
Restructuring and asset impairment, net			(2,254	)										2,611
Organizational realignment, net			2,029											252
Severance associated with cost reduction initiatives			(12	)										495
Postretirement plan amendment and settlement			(631	)										745
Costs related to shareholder activism			—											3,864
Total adjustments			3,854											26,248
Income tax effect on adjustments (a)			(955	)										(7,211	)
Total adjustments, net of taxes			2,899					0.09		*				19,037					0.52
Adjusted earnings from continuing operations	$		22,367			$		0.65				$		24,152			$		0.66
* Includes rounding
	28 Weeks Ended
	July 15, 2023											July 16, 2022
						per diluted											per diluted
(In thousands, except per share amounts)	Earnings					share						Earnings					share
Net earnings	$		30,805			$		0.88				$		24,404			$		0.67
Adjustments:
LIFO expense			15,839											28,032
Acquisition and integration			129											675
Restructuring and asset impairment, net			1,829											2,624
Organizational realignment, net			2,029											1,271
Severance associated with cost reduction initiatives			272											741
Pension refund from annuity provider			—											(200	)
Postretirement plan amendment and settlement			(1,649	)										745
Legal settlement			900											—
Costs related to shareholder activism			—											7,335
Total adjustments			19,349											41,223
Income tax effect on adjustments (a)			(4,925	)										(11,145	)
Total adjustments, net of taxes			14,424					0.41						30,078					0.82
Adjusted earnings from continuing operations	$		45,229			$		1.29				$		54,482			$		1.49

 

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Adjusted EBITDA

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items including share-based payments (equity awards measured in accordance with ASC 718, Stock Compensation, which include both stock-based compensation to employees and stock warrants issued to non-employees) and the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company.

The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company and for its operating segments. The Company considers adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted EBITDA and adjusted EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted EBITDA format.

Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under GAAP and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.

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Following is a reconciliation of net earnings to adjusted EBITDA for the 12 and 28 weeks ended July 15, 2023 and July 16, 2022.

	12 Weeks Ended										28 Weeks Ended
(In thousands)	July 15, 2023					July 16, 2022					July 15, 2023					July 16, 2022
Net earnings	$		19,468			$		5,115			$		30,805			$		24,404
Income tax expense			7,654					2,086					10,080					6,977
Other expenses, net			8,664					5,128					19,214					9,097
Operating earnings			35,786					12,329					60,099					40,478
Adjustments:
LIFO expense			4,667					17,845					15,839					28,032
Depreciation and amortization			22,458					21,968					52,203					50,441
Acquisition and integration			55					436					129					675
Restructuring and asset impairment, net			(2,254	)				2,611					1,829					2,624
Cloud computing amortization			1,076					869					2,426					1,769
Organizational realignment, net			2,029					252					2,029					1,271
Severance associated with cost reduction initiatives			(12	)				495					272					741
Stock-based compensation			2,465					1,397					7,612					5,838
Stock warrant			353					481					960					1,154
Non-cash rent			(635	)				(839	)				(1,563	)				(1,927	)
Loss (gain) on disposal of assets			24					(54	)				46					(131	)
Legal settlement			—					—					900					—
Postretirement plan amendment and settlement			94					133					94					133
Costs related to shareholder activism			—					3,864					—					7,335
Adjusted EBITDA	$		66,106			$		61,787			$		142,875			$		138,433
Wholesale:
Operating earnings	$		21,542			$		12,697			$		47,867			$		40,819
Adjustments:
LIFO expense			3,590					13,904					12,323					22,179
Depreciation and amortization			11,644					11,228					27,014					25,512
Acquisition and integration			55					—					124					—
Restructuring and asset impairment, net			1					(139	)				981					(128	)
Cloud computing amortization			725					579					1,665					1,228
Organizational realignment, net			1,266					156					1,266					793
Severance associated with cost reduction initiatives			(7	)				495					257					619
Stock-based compensation			1,611					903					4,994					3,849
Stock warrant			353					481					960					1,154
Non-cash rent			(63	)				(93	)				(138	)				(196	)
Gain on disposal of assets			(45	)				(72	)				(35	)				(158	)
Legal settlement			—					—					900					—
Postretirement plan amendment and settlement			59					83					59					83
Costs related to shareholder activism			—					2,411					—					4,577
Adjusted EBITDA	$		40,731			$		42,633			$		98,237			$		100,331
Retail:
Operating earnings (loss)	$		14,244			$		(368	)		$		12,232			$		(341	)
Adjustments:
LIFO expense			1,077					3,941					3,516					5,853
Depreciation and amortization			10,814					10,740					25,189					24,929
Acquisition and integration			—					436					5					675
Restructuring and asset impairment, net			(2,255	)				2,750					848					2,752
Cloud computing amortization			351					290					761					541
Organizational realignment, net			763					96					763					478
Severance associated with cost reduction initiatives			(5	)				—					15					122
Stock-based compensation			854					494					2,618					1,989
Non-cash rent			(572	)				(746	)				(1,425	)				(1,731	)
Loss on disposal of assets			69					18					81					27
Postretirement plan amendment and settlement			35					50					35					50
Costs related to shareholder activism			—					1,453					—					2,758
Adjusted EBITDA	$		25,375			$		19,154			$		44,638			$		38,102

 

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Liquidity and Capital Resources

Cash Flow Information

The following table summarizes the Company’s consolidated statements of cash flows:

				28 Weeks Ended
(In thousands)				July 15, 2023					July 16, 2022
Cash flow activities
Net cash provided by operating activities				$		49,656			$		28,519
Net cash used in investing activities						(57,057	)				(50,707	)
Net cash (used in) provided by financing activities						(4,775	)				32,739
Net (decrease) increase in cash and cash equivalents						(12,176	)				10,551
Cash and cash equivalents at beginning of the period						29,086					10,666
Cash and cash equivalents at end of the period				$		16,910			$		21,217

Net cash provided by operating activities. Net cash provided by operating activities increased $21.1 million in the current year-to-date period compared to the prior year-to-date period, due primarily to improvements in working capital.

Net cash used in investing activities. Net cash used in investing activities increased $6.4 million in the current year compared to the prior year primarily due to an increase in capital expenditures in the current year in line with the Company's long-term plan, partially offset by an acquisition that occurred within the Retail segment in the prior year.

Capital expenditures were $60.8 million in the current year and cloud computing application development spend, which is included in operating activities, was $2.7 million, compared to capital expenditures of $46.4 million and cloud computing application development spend of $3.2 million in the prior year. The Wholesale and Retail segments utilized 62.8% and 37.2% of capital expenditures, respectively, in the current year.

Net cash provided by financing activities. Net cash provided by financing activities decreased $37.5 million in the current year compared to the prior year, primarily due to decreased net borrowings on the senior credit facility in the current year and an increase in share repurchases in the current year.

Debt Management

Total debt, including finance lease liabilities, was $553.5 million and $503.6 million as of July 15, 2023 and December 31, 2022, respectively. The increase in total debt was due to additional net borrowings on the senior credit facility to fund working capital changes, purchases of property, plant and equipment and share repurchases.

Liquidity

The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility, which includes Tranche A revolving loans, with a borrowing capacity of $1.09 billion, and Tranche A-1 revolving loans, with a borrowing capacity of $40 million. As of July 15, 2023, the senior secured credit facility had outstanding borrowings of $483.8 million. During the first quarter, the Company increased the borrowing capacity of Tranche A revolving loans by $115.0 million to $1.09 billion from $975.0 million through the addition of two new lenders. This expansion of borrowing capacity aligns with the Company's recent growth and provides flexibility to support the Company's strategic long-term plans, including both organic and inorganic investments.

Additional available borrowings under the Company’s credit facility are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintain excess availability of 10% of the borrowing base, as such term is defined in the Credit Agreement. The Company had excess availability after the 10% covenant of $488.9 million at July 15, 2023. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The credit facility provides for the issuance of letters of credit, of which $17.7 million were outstanding as of July 15, 2023. The credit facility matures November 17, 2027 and is secured by substantially all of the Company’s assets.

The Company believes that cash generated from operating activities and available borrowings under the credit facility will be sufficient to meet anticipated requirements for working capital, capital expenditures, dividend payments, and debt service obligations for the foreseeable future. However, there can be no assurance that the business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the Credit Agreement.

The Company’s current ratio (current assets to current liabilities) was 1.62-to-1 at July 15, 2023 compared to 1.51-to-1 at December 31, 2022, and its investment in working capital was $414.8 million at July 15, 2023 compared to $361.4 million at December 31, 2022. The net long-term debt to total capital ratio was 0.41-to-1 at July 15, 2023 compared to 0.38-to-1 at December 31, 2022.

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Net long-term debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current portion of long-term debt and finance lease liabilities, less cash and cash equivalents. The ratio of net long-term debt to total capital is a non-GAAP financial measure that is calculated by dividing net long-term debt, as defined previously, by total capital (net long-term debt plus total shareholders’ equity). The Company believes both management and its investors find the information useful because it reflects the amount of long-term debt obligations that are not covered by available cash and temporary investments. Total net long-term debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

Following is a reconciliation of “Long-term debt and finance lease liabilities” to Net long-term debt as of July 15, 2023 and December 31, 2022.

(In thousands)	July 15, 2023					December 31, 2022
Current portion of long-term debt and finance lease liabilities	$		7,644			$		6,789
Long-term debt and finance lease liabilities			545,857					496,792
Total debt			553,501					503,581
Cash and cash equivalents			(16,910	)				(29,086	)
Net long-term debt	$		536,591			$		474,495

Following is a reconciliation of "Net long-term debt" and "Total shareholders' equity" to Total capital as of July 15, 2023 and December 31, 2022.

(In thousands)	July 15, 2023					December 31, 2022
Net long-term debt	$		536,591			$		474,495
Total shareholders' equity			768,397					766,068
Total capital	$		1,304,988			$		1,240,563

For information on material cash requirements, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. At July 15, 2023, there have been no significant changes to the Company’s material cash requirements outside the ordinary course of business.

Cash Dividends

During the quarter ended July 15, 2023, the Company declared $7.5 million in dividends. A 2.4% increase in the quarterly dividend rate from $0.21 per share to $0.215 per share was approved by the Board of Directors and announced on March 1, 2023. Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. Whether the Board of Directors continues to declare dividends depends on a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows and compliance with the terms of its credit facilities.

Under the senior revolving credit facility, the Company is generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends and repurchase shares in excess of $35.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility, is in excess of 15% of the Total Borrowing Base, as defined in the senior revolving credit facility, before and after giving effect to the repurchases and dividends.

Off-Balance Sheet Arrangements

The Company has also made certain commercial commitments that extend beyond July 15, 2023. These commitments consist primarily of purchase commitments, standby letters of credit of $17.7 million as of July 15, 2023, and interest on long-term debt and finance lease liabilities.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Based on the Company’s ongoing review, the Company makes adjustments it considers appropriate under the facts and circumstances. This discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements. The Company believes these accounting policies and others set forth in Item 7 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 should be reviewed as they are integral to understanding the Company’s financial condition and results of operations. The Company has discussed the development, selection and disclosure of these accounting policies with the Audit Committee of the Board of Directors. The accompanying financial statements are prepared using the same critical accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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Recently Issued Accounting Standards

Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

There have been no material changes in market risk of SpartanNash from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, with the exception of the interest rate swap entered into during the first quarter of 2023 described below.

As of July 15, 2023, the Company maintained an interest rate swap agreement with a maturity date of November 17, 2027 with an aggregate notional amount totaling $150 million. An interest rate swap is an agreement that effectively converts a portion of the variable interest payable on $150 million of the Company's outstanding debt to a fixed rate. The fixed interest rate for the interest rate swap is 3.646%. The variable rate leg of the interest rate swap is the one-month Secured Overnight Financing Rate (SOFR). As of July 15, 2023, the fair value of the interest rate swap was recorded in "Prepaid expenses and other current assets" and "Other long-term liabilities" for $2.3 million and $0.9 million, respectively, and "Accumulated other comprehensive income" for $0.9 million, net of tax.

ITEM 4. Controls and Procedures

An evaluation of the effectiveness of the design and operation of SpartanNash Company’s disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Exchange Act) was performed as of July 15, 2023 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Corporate Controller. As of the Evaluation Date, SpartanNash Company’s management, including the CEO, CFO and Corporate Controller, concluded that SpartanNash’s disclosure controls and procedures were effective as of the Evaluation Date to ensure that material information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including its principal executive and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. During the second quarter of 2023 there were no changes that materially affected, or were reasonably likely to materially affect, SpartanNash’s internal control over financial reporting.

 

PART II

OTHER INFORMATION

ITEM 1. Legal Proceedings

The information required by this Part II, Item 1 is incorporated by reference to the information set forth under the caption “Commitments and Contingencies” in Note 8 in the notes to condensed consolidated financial statements included in this report.

ITEM 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K (2022 10-K) for the year ended December 31, 2022 filed with Securities and Exchange Commission. You should carefully consider the risks included in our 2022 10-K, together with all the other information in this Quarterly Report on Form 10-Q, including the forward-looking statements which appear at the beginning of this report.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

On February 24, 2022, the Board of Directors authorized the repurchase of common shares in connection with a $50 million share repurchase program, which expires of February 22, 2027. There were $7.6 million of common stock share repurchases made under this program during the second quarter of 2023. At July 15, 2023, $25.5 million remains available under the program. Repurchases of common stock may include: (1) shares of SpartanNash common stock delivered in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The value of the shares delivered or withheld is determined by the applicable stock compensation plan. The Company plans to return value to shareholders through share repurchases under this program as well as continuing regular dividends.

Fiscal Period	Total Number of Shares Purchased				Average Price Paid per Share					Total Number of Shares Purchased as Part of Publicly Announced Programs				Maximum Dollar Value of Shares Yet to be Purchased Under the Plans or Programs (in thousands)
April 23 - May 20, 2023
Employee Transactions		—			$		—			N/A					N/A
Repurchase Program		178,242			$		23.92				178,242			$		28,820
May 21 - June 17, 2023
Employee Transactions		1,323			$		23.14			N/A					N/A
Repurchase Program		91,735			$		22.40				91,735			$		26,765
June 18 - July 15, 2023
Employee Transactions		156			$		22.96			N/A					N/A
Repurchase Program		60,000			$		21.65				60,000			$		25,467
Total for quarter ended July 15, 2023
Employee Transactions		1,479			$		23.12			N/A					N/A
Repurchase Program		329,977			$		23.08				329,977			$		25,467

 

 

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ITEM 6. Exhibits

The following documents are filed as exhibits to this Quarterly Report on Form 10-Q:

Exhibit Number		Document
3.1		Restated Articles of Incorporation of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 15, 2017. Incorporated herein by reference.
3.2		Bylaws of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Incorporated herein by reference.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 15, 2023, has been formatted in Inline XBRL.

 

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SPARTANNASH COMPANY (Registrant)
Date: August 17, 2023		By		/s/ Jason Monaco
				Jason Monaco Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date: August 17, 2023		By		/s/ R. Todd Riksen
				R. Todd Riksen Vice President and Corporate Controller (Principal Accounting Officer)

 

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