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

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

 

img254338912_0.jpg 

 

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.

 

 


 

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.

 

2


 

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

 

 

3


 

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.

4


 

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.

5


 

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.

6


 

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.

 

 

7


 

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.

8


 

SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 – Summary of Significant Accounting Policies and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SpartanNash Company and its subsidiaries (“SpartanNash” or “the Company”). Intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

In the opinion of management, the accompanying condensed consolidated financial statements, taken as a whole, contain all adjustments, including normal recurring items, necessary to present fairly the financial position of SpartanNash as of July 15, 2023, and the results of its operations and cash flows for the interim periods presented. The preparation of the condensed consolidated financial statements and related notes to the financial statements requires management to make estimates. Estimates are based on historical experience, where applicable, and expectations of future outcomes which management believes are reasonable under the circumstances. Interim results are not necessarily indicative of results for a full year.

The unaudited information in the condensed consolidated financial statements for the second quarter and year-to-date periods of 2023 and 2022 include the results of operations of the Company for the 12- and 28-week periods ended July 15, 2023 and July 16, 2022, respectively.

Segment Change

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. Accordingly, the Company's business now consists of 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.

Note 2 – Adoption of New Accounting Standards and Recently Issued Accounting Standards

As of July 15, 2023 and for the period then ended, there were no recently adopted accounting standards that had a material impact on the Company’s condensed consolidated financial statements. There were no recently issued accounting standards not yet adopted which would have a material effect on the Company’s condensed consolidated financial statements.

9


 

Note 3 – Revenue

Disaggregation of Revenue

The following table provides information about disaggregated revenue by type of products and customers for each of the Company’s reportable segments:

 

12 Weeks Ended July 15, 2023

 

 

28 Weeks Ended July 15, 2023

 

(In thousands)

Wholesale

 

 

Retail

 

 

Total

 

 

Wholesale

 

 

Retail

 

 

Total

 

Type of products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Center store (a)

$

 

603,441

 

 

$

 

260,838

 

 

$

 

864,279

 

 

$

 

1,431,142

 

 

$

 

575,652

 

 

$

 

2,006,794

 

Fresh (b)

 

 

508,004

 

 

 

 

257,915

 

 

 

 

765,919

 

 

 

 

1,162,262

 

 

 

 

568,627

 

 

 

 

1,730,889

 

Non-food (c)

 

 

499,440

 

 

 

 

119,245

 

 

 

 

618,685

 

 

 

 

1,070,407

 

 

 

 

266,844

 

 

 

 

1,337,251

 

Fuel

 

 

 

 

 

 

40,787

 

 

 

 

40,787

 

 

 

 

 

 

 

 

89,053

 

 

 

 

89,053

 

Other

 

 

22,479

 

 

 

 

245

 

 

 

 

22,724

 

 

 

 

55,237

 

 

 

 

564

 

 

 

 

55,801

 

Total

$

 

1,633,364

 

 

$

 

679,030

 

 

$

 

2,312,394

 

 

$

 

3,719,048

 

 

$

 

1,500,740

 

 

$

 

5,219,788

 

Type of customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individuals

$

 

 

 

$

 

678,785

 

 

$

 

678,785

 

 

$

 

 

 

$

 

1,500,177

 

 

$

 

1,500,177

 

Independent retailers (d)

 

 

563,412

 

 

 

 

 

 

 

 

563,412

 

 

 

 

1,266,218

 

 

 

 

 

 

 

 

1,266,218

 

National accounts

 

 

554,451

 

 

 

 

 

 

 

 

554,451

 

 

 

 

1,236,436

 

 

 

 

 

 

 

 

1,236,436

 

Military (e)

 

 

504,736

 

 

 

 

 

 

 

 

504,736

 

 

 

 

1,190,431

 

 

 

 

 

 

 

 

1,190,431

 

Other

 

 

10,765

 

 

 

 

245

 

 

 

 

11,010

 

 

 

 

25,963

 

 

 

 

563

 

 

 

 

26,526

 

Total

$

 

1,633,364

 

 

$

 

679,030

 

 

$

 

2,312,394

 

 

$

 

3,719,048

 

 

$

 

1,500,740

 

 

$

 

5,219,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12 Weeks Ended July 16, 2022

 

 

28 Weeks Ended July 16, 2022

 

(In thousands)

Wholesale

 

 

Retail

 

 

Total

 

 

Wholesale

 

 

Retail

 

 

Total

 

Type of products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Center store (a)

$

 

599,945

 

 

$

 

252,016

 

 

$

 

851,961

 

 

$

 

1,367,598

 

 

$

 

547,072

 

 

$

 

1,914,670

 

Fresh (b)

 

 

511,366

 

 

 

 

258,288

 

 

 

 

769,654

 

 

 

 

1,139,420

 

 

 

 

558,167

 

 

 

 

1,697,587

 

Non-food (c)

 

 

462,168

 

 

 

 

104,510

 

 

 

 

566,678

 

 

 

 

1,015,307

 

 

 

 

235,941

 

 

 

 

1,251,248

 

Fuel

 

 

 

 

 

 

57,356

 

 

 

 

57,356

 

 

 

 

 

 

 

 

111,947

 

 

 

 

111,947

 

Other

 

 

28,006

 

 

 

 

235

 

 

 

 

28,241

 

 

 

 

61,539

 

 

 

 

557

 

 

 

 

62,096

 

Total

$

 

1,601,485

 

 

$

 

672,405

 

 

$

 

2,273,890

 

 

$

 

3,583,864

 

 

$

 

1,453,684

 

 

$

 

5,037,548

 

Type of customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individuals

$

 

 

 

$

 

672,179

 

 

$

 

672,179

 

 

$

 

 

 

$

 

1,453,138

 

 

$

 

1,453,138

 

Independent retailers (d)

 

 

554,504

 

 

 

 

 

 

 

 

554,504

 

 

 

 

1,233,493

 

 

 

 

 

 

 

 

1,233,493

 

National accounts

 

 

552,437

 

 

 

 

 

 

 

 

552,437

 

 

 

 

1,232,725

 

 

 

 

 

 

 

 

1,232,725

 

Military (e)

 

 

480,716

 

 

 

 

 

 

 

 

480,716

 

 

 

 

1,088,510

 

 

 

 

 

 

 

 

1,088,510

 

Other

 

 

13,828

 

 

 

 

226

 

 

 

 

14,054

 

 

 

 

29,136

 

 

 

 

546

 

 

 

 

29,682

 

Total

$

 

1,601,485

 

 

$

 

672,405

 

 

$

 

2,273,890

 

 

$

 

3,583,864

 

 

$

 

1,453,684

 

 

$

 

5,037,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Center store includes dry grocery, frozen and beverages.

 

(b) Fresh includes produce, meat, dairy, deli, bakery, prepared proteins, seafood and floral.

 

(c) Non-food includes general merchandise, health and beauty care, tobacco products and pharmacy.

 

(d) Independent retailers include sales to manufacturers, brokers and distributors.

 

(e) Military represents the distribution of grocery products to U.S. military commissaries and exchanges, which primarily includes sales to manufacturers and brokers.

 

Contract Assets and Liabilities

Under its contracts with customers, the Company stands ready to deliver product upon receipt of a purchase order. Accordingly, the Company has no performance obligations under its contracts until its customers submit a purchase order. The Company does not receive pre-payment from its customers or enter into commitments to provide goods or services that have terms greater than one year. As the performance obligation is part of a contract that has an original expected duration of less than one year, the Company has applied the practical expedient under Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, to omit disclosures regarding remaining performance obligations.

Revenue recognized from performance obligations related to prior periods (for example, due to changes in estimated rebates and incentives impacting the transaction price) was not material in any period presented.

For volume-based arrangements, the Company estimates the amount of the advanced funds earned by the retailers based on the expected volume of purchases by the retailer and amortizes the advances as a reduction of the transaction price and revenue earned. These advances are not considered contract assets under ASC 606 as they are not generated through the transfer of goods or services to the retailers. These advances are included in Other assets, net within the condensed consolidated balance sheets.

10


 

When the Company transfers goods or services to a customer, payment is due subject to normal terms and is not conditional on anything other than the passage of time. Typical payment terms range from "due upon receipt" to due within 30 days, depending on the customer. At contract inception, the Company expects that the period of time between the transfer of goods to the customer and when the customer pays for those goods will be less than one year, which is consistent with the Company’s standard payment terms. Accordingly, the Company has elected the practical expedient to not adjust for the effects of a significant financing component. As a result, these amounts are recorded as receivables and not contract assets. The Company had no contract assets for any period presented.

The Company does not typically incur incremental costs of obtaining a contract that are contingent upon successful contract execution and would therefore be capitalized.

Allowance for Credit Losses

Changes to the balance of the allowance for credit losses were as follows:

 

 

Allowance for Credit Losses

 

 

 

Current Accounts

 

 

Long-term

 

 

 

 

(In thousands)

 

and Notes Receivable

 

 

Notes Receivable

 

 

Total

 

Balance at December 31, 2022

 

$

 

6,098

 

 

$

 

948

 

 

$

 

7,046

 

Changes in credit loss estimates

 

 

 

(1,214

)

 

 

 

439

 

 

 

 

(775

)

Write-offs charged against the allowance

 

 

 

(408

)

 

 

 

 

 

 

 

(408

)

Balance at July 15, 2023

 

 

 

4,476

 

 

 

 

1,387

 

 

 

 

5,863

 

 

 

 

Allowance for Credit Losses

 

 

 

Current Accounts

 

 

Long-term

 

 

 

 

(In thousands)

 

and Notes Receivable

 

 

Notes Receivable

 

 

Total

 

Balance at January 1, 2022

 

$

 

4,414

 

 

$

 

731

 

 

$

 

5,145

 

Changes in credit loss estimates

 

 

 

307

 

 

 

 

 

 

 

 

307

 

Write-offs charged against the allowance

 

 

 

(545

)

 

 

 

 

 

 

 

(545

)

Balance at July 16, 2022

 

 

 

4,176

 

 

 

 

731

 

 

 

 

4,907

 

 

Note 4 – Goodwill and Other Intangible Assets

The Company has two reporting units, Wholesale and Retail. The carrying amount of goodwill recorded within the Wholesale reporting unit was $181.0 million and the value within the Retail reporting unit was $1.1 million as of both July 15, 2023 and December 31, 2022.

The Company has indefinite-lived intangible assets that are not amortized, consisting primarily of indefinite-lived trade names and liquor licenses. The carrying amount of indefinite-lived intangible assets was $67.8 million as of both July 15, 2023 and December 31, 2022.

The Company reviews goodwill and other indefinite-lived intangible assets for impairment annually, during the fourth quarter of each year, and more frequently if circumstances indicate impairment is probable. Such circumstances have not arisen in the current fiscal year. Testing goodwill and other indefinite-lived intangible assets for impairment requires management to make significant estimates about the Company’s future performance, cash flows, and other assumptions that can be affected by potential changes in economic, industry or market conditions, business operations, competition, or the Company’s stock price and market capitalization.

Note 5 – Restructuring and Asset Impairment

The following table provides the activity of reserves for closed properties for the 28-week period ended July 15, 2023. Included in the liability are lease-related ancillary costs from the date of closure to the end of the remaining lease term, as well as related severance. Reserves for closed properties recorded in the condensed consolidated balance sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on the timing of when the obligations are expected to be paid. Reserves for severance are recorded in “Accrued payroll and benefits”.

 

 

Reserves for Closed Properties

 

 

 

Lease

 

 

 

 

 

 

 

 

 

 

 

Ancillary

 

 

 

 

 

 

 

 

 

(In thousands)

 

Costs

 

 

Severance

 

 

Total

 

Balance at December 31, 2022

 

$

 

3,977

 

 

$

 

 

 

$

 

3,977

 

Provision for severance

 

 

 

 

 

 

 

20

 

 

 

 

20

 

Changes in estimates

 

 

 

54

 

 

 

 

 

 

 

 

54

 

Accretion expense

 

 

 

60

 

 

 

 

 

 

 

 

60

 

Payments

 

 

 

(699

)

 

 

 

(20

)

 

 

 

(719

)

Balance at July 15, 2023

 

$

 

3,392

 

 

$

 

 

 

$

 

3,392

 

 

11


 

Restructuring and asset impairment, net in the condensed consolidated statements of earnings consisted of the following:

 

12 Weeks Ended

 

 

28 Weeks Ended

 

 

July 15,

 

 

July 16,

 

 

July 15,

 

 

July 16,

 

(In thousands)

2023

 

 

2022

 

 

2023

 

 

2022

 

Asset impairment charges (a)

$

 

 

 

$

 

3,480

 

 

$

 

3,745

 

 

$

 

3,480

 

Gain on sales of assets related to closed facilities (b)

 

 

(2,529

)

 

 

 

(615

)

 

 

 

(2,590

)

 

 

 

(615

)

Provision for severance

 

 

20

 

 

 

 

 

 

 

 

20

 

 

 

 

9

 

Other costs (income) associated with site closures (c)

 

 

286

 

 

 

 

(106

)

 

 

 

600

 

 

 

 

(75

)

Lease termination adjustments (d)

 

 

 

 

 

 

(102

)

 

 

 

 

 

 

 

(102

)

Changes in estimates (e)

 

 

(31

)

 

 

 

(46

)

 

 

 

54

 

 

 

 

(73

)

   Total

$

 

(2,254

)

 

$

 

2,611

 

 

$

 

1,829

 

 

$

 

2,624

 

(a) Asset impairment charges in the current year 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. In the prior year, asset impairment charges related to restructuring of the Retail segment's e-commerce delivery model.

(b) Gains on sale of assets in the current year primarily relate to the sale of a store within the Retail segment. Gains on sales of assets in the prior year relates to the sales of real property of previously closed locations within the Retail segment.

(c) Other costs in the current year primarily relate to Retail store closings. In the prior year, activity primarily relates to restructuring activity within the Wholesale segment and Retail store closings.

(d) Lease termination adjustments in the prior year relate to the gain recognized upon termination of a lease agreement.

(e) Changes in estimates primarily relate to revised estimates for turnover and other lease ancillary costs associated with previously closed locations.

Long-lived assets which are not recoverable are measured at fair value on a nonrecurring basis using Level 3 inputs under the fair value hierarchy, as further described in Note 6. In the current year, assets with a book value of $7.4 million were measured at a fair value of $3.7 million, resulting in impairment charges of $3.7 million. In the prior year, long-lived assets with a book value of $4.1 million were measured at a fair value of $0.6 million, resulting in impairment charges of $3.5 million. The fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows, including the expected proceeds from the sale of assets and expected insurance recoveries, discounted using a risk-adjusted rate of interest. The Company estimates future cash flows based on historical results of operations, external factors expected to impact future performance, experience and knowledge of the geographic area in which the assets are located, and when necessary, uses the support of real estate brokers.

Note 6 – Fair Value Measurements

ASC 820, Fair Value Measurement, prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that market participants would use in pricing.

Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of the short-term maturities of these financial instruments. For discussion of the fair value measurements related to goodwill, and long- or indefinite-lived asset impairment charges, refer to Notes 4 and 5. At July 15, 2023 and December 31, 2022, the book value and estimated fair value of the Company’s debt instruments, excluding debt financing costs, were as follows:

 

July 15,

 

 

December 31,

 

(In thousands)

2023

 

 

2022

 

Book value of debt instruments, excluding debt financing costs:

 

 

 

 

 

 

 

Current maturities of long-term debt and finance lease liabilities

$

 

7,644

 

 

$

 

6,789

 

Long-term debt and finance lease liabilities

 

 

550,518

 

 

 

 

501,419

 

Total book value of debt instruments

 

 

558,162

 

 

 

 

508,208

 

Fair value of debt instruments, excluding debt financing costs

 

 

557,410

 

 

 

 

507,668

 

Deficit of fair value over book value

$

 

(752

)

 

$

 

(540

)

The estimated fair value of debt is based on market quotes for instruments with similar terms and remaining maturities (Level 2 inputs and valuation techniques).

12


 

The Company's interest rate swap agreement is considered a Level 2 instrument. The Company values the interest rate swap using standard models and observable market inputs including SOFR interest rates and discount rates, which are considered Level 2 inputs. The location and the fair value of the interest rate swap agreement in the condensed consolidated balance sheet is disclosed in Note 7.

Note 7 – Derivatives

Hedging of Interest Rate Risk

During the first quarter of 2023, the Company entered into an interest rate swap contract to mitigate its exposure to changes in variable interest rates. The Company's interest rate swap is designated as a cash flow hedge as of both the effective date, March 17, 2023, and as of July 15, 2023. The interest rate swap is reflected at its fair value in the condensed consolidated balance sheets. Refer to Note 6 for further information on the fair value of interest rate swap.

Details of the pay-fixed, receive-floating interest rate swap contract as of July 15, 2023 are as follows:

Effective Date

Maturity Date

Notional Value
(in millions)

Pay Fixed Rate

Receive Floating Rate

Floating Rate Reset Terms

March 17, 2023

November 17, 2027

$150

3.646%

One-Month CME Term SOFR

Monthly

The Company performed an initial quantitative assessment of hedge effectiveness using the change-in-variable-cash-flows method. Under this method, the Company assessed the effectiveness of the hedging relationship by comparing the present value of the cumulative change in the expected future cash flows on the variable leg of the interest rate swap with the present value of the cumulative change in the expected future interest cash flows on the variable-rate debt. The Company determined the interest rate swap to be highly effective. To assess for continued hedge effectiveness, the Company performs a retrospective and prospective qualitative assessment each quarter. The Company also monitors the credit risk of the counterparty on an ongoing basis. The change in the fair value of the interest rate swap is initially reported in "Other comprehensive income" in the condensed consolidated statements of comprehensive income and subsequently reclassified to earnings in "Interest expense, net" in the condensed consolidated statements of earnings when the hedged transactions affect earnings.

The location and the fair value of the interest rate swap in the condensed consolidated balance sheets as of July 15, 2023 is as follows:

 

 

Derivative Fair Value

 

 

 

July 15,

 

(In thousands)

Condensed Consolidated Balance Sheet Location

2023

 

Cash Flow Hedge:

 

 

 

 

Interest rate swap

Prepaid expenses and other current assets

$

 

2,309

 

Interest rate swap

Other long-term liabilities

 

 

883

 

Interest rate swap

Accumulated other comprehensive income

 

 

876

 

The location and amount of gains recognized in the condensed consolidated statements of earnings for the interest rate swap, presented on a pre-tax basis, are as follows:

 

12 Weeks Ended

 

 

28 Weeks Ended

 

 

July 15,

 

 

July 15,

 

 

2023

 

 

2023

 

(In thousands)

Interest expense, net

 

 

Interest expense, net

 

Total amounts of expense line items presented in the condensed consolidated statements of
earnings in which the effects of cash flow hedges are recorded

$

 

9,349

 

 

$

 

20,938

 

Gain on cash flow hedging relationships:

 

 

 

 

 

 

 

Gain reclassified from comprehensive income into earnings

 

 

494

 

 

 

 

669

 

 

Note 8 – Commitments and Contingencies

The Company is engaged from time-to-time in routine legal proceedings incidental to its business. The Company does not believe that these routine legal proceedings, taken as a whole, will have a material impact on its business or financial condition. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in an adverse effect on the Company’s consolidated financial position, operating results or liquidity.

The Company has contributed and is required to continue making contributions to the Central States Southeast and Southwest Pension Fund (the “Central States Plan” or the “Plan”), a multi-employer pension plan, based on obligations arising from certain of its collective bargaining agreements. If the Company were to cease making such contributions and triggered a withdrawal from the Plan, it is possible that the Company would be obligated to pay a withdrawal liability to the Plan if the Plan is underfunded at the time of such withdrawal.

13


 

On March 10, 2021, the United States Congress passed the American Rescue Plan Act of 2021 (the “Act”), which provides financial relief to certain failing multiemployer pension plans. On January 12, 2023, the Central States Plan received approximately $35.8 billion in Special Financial Assistance (“SFA”), inclusive of interest, which is designed to alleviate the risk of insolvency of the Plan.

Based on the most recent information available to the Company, management believes the value of assets held in trust to pay benefits covers the present value of actuarial accrued liabilities in the Central States Plan. Except with respect to the approved SFA, management is not aware of any significant change in funding levels in the Plan since December 31, 2022. Due to uncertainty regarding future factors that could trigger a withdrawal liability, as well as the absence of specific information regarding matters such as the Plan’s current financial situations, we are unable to determine with certainty the current amount of the Plan’s funding and/or SpartanNash’s current potential withdrawal liability exposure in the event of a future withdrawal from the Plan. Any adjustment for withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably determined.

Note 9 – Associate Retirement Plans

During the 12- and 28-week periods ended July 15, 2023, the Company recognized net periodic postretirement benefit income of $0.6 million and costs of $1.5 million, respectively, related to the SpartanNash Retiree Medical Plan (“Retiree Medical Plan” or "Plan"). During the 12- and 28- week periods ended July 16, 2022 the Company recognized net periodic postretirement benefit expense of $0.7 million and $0.9 million, respectively, related to the Retiree Medical Plan.

Effective June 30, 2022, the Company has amended the Retiree Medical Plan. In connection with the amendment, the Company will make lump sum cash payments to all active and retired participants in lieu of future monthly benefits and reimbursements previously offered under the Plan. As a result of the amendment effective June 30, 2022, the Plan obligation was remeasured, resulting in a reduction to the obligation of $6.6 million and a corresponding prior service credit in AOCI, which will be amortized to net periodic postretirement benefit income over the remaining period until the final payment on July 1, 2024. During the 12- and 28- week periods ended July 15, 2023, the Company recognized $0.8 million and $1.8 million in net periodic postretirement benefit income related to the amortization of the prior service credit from AOCI.

On July 1, 2023 and July 1, 2022, the Company made lump sum payments to retired participants totaling $1.3 million and $2.0 million, respectively. The payments constituted partial settlements of the Plan, which resulted in the recognition within net periodic postretirement expense of $0.3 million and $0.7 million on July 1, 2023 and July 1, 2022, respectively, related to the net actuarial loss within AOCI. The remaining payment, which relates to active participants, is expected to be made on or about July 1, 2024.

The Company’s retirement programs also include defined contribution plans providing contributory benefits, as well as executive compensation plans for a select group of management personnel and/or highly compensated associates.

In the first quarter of the prior year, the Company realized a gain of $0.2 million related to a refund from the annuity provider associated with an ineligible participant previously included in the terminated SpartanNash Company Pension Plan. These amounts are included in “Other, net” in the condensed consolidated statements of earnings.

Multi-Employer Plans

In addition to the plans listed above, the Company participates in the Central States Southeast and Southwest Pension Fund, the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans (collectively referred to as “multi-employer plans”), and other company-sponsored defined contribution plans for most associates covered by collective bargaining agreements.

With respect to the Company’s participation in the Central States Plan, expense is recognized as contributions are payable. The Company’s contributions during the 12- week periods ended July 15, 2023 and July 16, 2022 were $3.3 million and $3.1 million, respectively. The Company's contributions during the 28-week periods ended July 15, 2023 and July 16, 2022 were $7.6 million and $6.9 million, respectively. See Note 8 for further information regarding contingencies related to the Company’s participation in the Central States Plan.

Note 10 – Income Taxes

The effective income tax rate was 28.2% and 29.0% for the 12 weeks ended July 15, 2023 and July 16, 2022, respectively. The effective income tax rate was 24.7% and 22.2% for the 28 weeks ended July 15, 2023 and July 16, 2022, respectively.

The difference from the federal statutory rate in the current year and prior year quarters was 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 the 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.

14


 

Note 11 – Stock-Based Compensation

Stock-Based Employee Awards

The Company sponsors shareholder-approved stock incentive plans that provide for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units, dividend equivalent rights, and other stock-based and stock-related awards to directors, officers and other key associates.

Stock-based compensation expense recognized and included in “Selling, general and administrative expenses” in the condensed consolidated statements of earnings, and related tax impacts were as follows:

 

12 Weeks Ended

 

 

28 Weeks Ended

 

(In thousands)

July 15, 2023

 

 

July 16, 2022

 

 

July 15, 2023

 

 

July 16, 2022

 

Restricted stock expense

$

 

1,896

 

 

$

 

1,397

 

 

$

 

6,697

 

 

$

 

5,692

 

Performance share unit expense

 

 

569

 

 

 

 

 

 

 

 

915

 

 

 

 

 

Income tax benefit

 

 

(742

)

 

 

 

(458

)

 

 

 

(2,909

)

 

 

 

(3,048

)

Stock-based compensation expense, net of tax

$

 

1,723

 

 

$

 

939

 

 

$

 

4,703

 

 

$

 

2,644

 

The following table summarizes activity in the stock incentive plans for the 28 weeks ended July 15, 2023:

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

Restricted

 

 

Average

 

 

Performance

 

 

Average

 

 

Stock

 

 

Grant-Date

 

 

Share Unit

 

 

Grant-Date

 

 

Awards

 

 

Fair Value

 

 

Awards

 

 

Fair Value

 

Outstanding at December 31, 2022

 

 

863,063

 

 

$

 

22.05

 

 

 

 

 

 

$

 

 

Granted

 

 

434,625

 

 

 

 

27.12

 

 

 

 

294,848

 

 

 

 

27.11

 

Vested

 

 

(429,102

)

 

 

 

21.16

 

 

 

 

 

 

 

 

 

Cancelled/Forfeited

 

 

(20,165

)

 

 

 

26.52

 

 

 

 

 

 

 

 

 

Outstanding at July 15, 2023

 

 

848,421

 

 

$

 

25.00

 

 

 

 

294,848

 

 

$

 

27.11

 

As of July 15, 2023, total unrecognized compensation cost related to nonvested restricted stock awards granted under the Company’s stock incentive plans is $13.1 million and is expected to be recognized over a weighted average period of 2.0 years. As of July 15, 2023, total unrecognized compensation cost related to nonvested performance share unit awards granted under the Company’s stock incentive plans is $7.1 million and is expected to be recognized over a weighted average period of 2.5 years.

Stock Warrant

On October 7, 2020, in connection with its entry into a commercial agreement with Amazon.com, Inc. (“Amazon”), the Company issued Amazon.com NV Investment Holdings LLC, a subsidiary of Amazon, a warrant to acquire up to an aggregate of 5,437,272 shares of the Company’s common stock (the “Warrant”), subject to certain vesting conditions. Warrant shares totaling 1,087,455 shares vested upon the signing of the commercial agreement and had a grant date fair value of $5.51 per share. Warrant shares totaling up to 4,349,817 shares may vest in connection with conditions defined by the terms of the Warrant, as Amazon makes payments to the Company in connection with the commercial supply agreement, in increments of $200 million, and had a grant date fair value of $5.33 per share. Upon vesting, shares may be acquired at an exercise price of $17.7257. The Warrant contains customary anti-dilution, down-round and change-in-control provisions. The right to purchase shares in connection with the Warrant expires on October 7, 2027.

Share-based payment expense recognized as a reduction of “Net sales” in the condensed consolidated statements of earnings, and related tax benefits were as follows:

 

12 Weeks Ended

 

 

28 Weeks Ended

 

(In thousands)

July 15, 2023

 

 

July 16, 2022

 

 

July 15, 2023

 

 

July 16, 2022

 

Warrant expense

$

 

353

 

 

$

 

481

 

 

$

 

960

 

 

$

 

1,154

 

Income tax benefit

 

 

(31

)

 

 

 

(42

)

 

 

 

(95

)

 

 

 

(126

)

Warrant expense, net of tax

$

 

322

 

 

$

 

439

 

 

$

 

865

 

 

$

 

1,028

 

 

The following table summarizes stock warrant activity for the 28 weeks ended July 15, 2023:

 

 

 

 

 

 

 

 

Warrant

 

Outstanding and nonvested at December 31, 2022

 

 

 

 

 

 

 

 

3,479,849

 

Vested

 

 

 

 

 

 

 

 

(108,746

)

Outstanding and nonvested at July 15, 2023

 

 

 

 

 

 

 

 

3,371,103

 

 

15


 

As of July 15, 2023, total unrecognized cost related to nonvested warrant shares was $17.6 million, which may be expensed as vesting conditions are satisfied over the remaining term of the agreement, or 4.2 years. Warrants representing 2,066,169 shares are vested and exercisable. As of July 15, 2023, nonvested warrant shares had an intrinsic value of $12.5 million, and vested warrant shares had an intrinsic value of $7.7 million.

Note 12 – Earnings Per Share

Outstanding nonvested restricted stock awards under the 2015 Stock Incentive Plan contain nonforfeitable rights to dividends or dividend equivalents, which participate in undistributed earnings with common stock. These awards are classified as participating securities and are included in the calculation of basic earnings per share. Awards under the 2020 Stock Incentive Plan do not contain nonforfeitable rights to dividends or dividend equivalents and are therefore not classified as participating securities. The dilutive impact of both the restricted stock awards and warrants are presented below, as applicable. The performance share units are not currently dilutive. The following table sets forth the computation of basic and diluted net earnings per share:

 

12 Weeks Ended

 

 

28 Weeks Ended

 

(In thousands, except per share amounts)

July 15, 2023

 

 

July 16, 2022

 

 

July 15, 2023

 

 

July 16, 2022

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

$

 

19,468

 

 

$

 

5,115

 

 

$

 

30,805

 

 

$

 

24,404

 

Adjustment for earnings attributable to participating securities

 

 

(140

)

 

 

 

(54

)

 

 

 

(254

)

 

 

 

(307

)

Net earnings used in calculating earnings per share

$

 

19,328

 

 

$

 

5,061

 

 

$

 

30,551

 

 

$

 

24,097

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, including participating securities

 

 

34,125

 

 

 

 

35,564

 

 

 

 

34,366

 

 

 

 

35,565

 

Adjustment for participating securities

 

 

(246

)

 

 

 

(373

)

 

 

 

(283

)

 

 

 

(448

)

Shares used in calculating basic earnings per share

 

 

33,879

 

 

 

 

35,191

 

 

 

 

34,083

 

 

 

 

35,117

 

Effect of dilutive stock warrant

 

 

468

 

 

 

 

789

 

 

 

 

650

 

 

 

 

735

 

Effect of dilutive restricted stock awards

 

 

48

 

 

 

 

175

 

 

 

 

100

 

 

 

 

170

 

Shares used in calculating diluted earnings per share

 

 

34,395

 

 

 

 

36,155

 

 

 

 

34,833

 

 

 

 

36,022

 

Basic earnings per share

$

 

0.57

 

 

$

 

0.14

 

 

$

 

0.90

 

 

$

 

0.69

 

Diluted earnings per share

$

 

0.56

 

 

$

 

0.14

 

 

$

 

0.88

 

 

$

 

0.67

 

 

Note 13 – Supplemental Cash Flow Information

Supplemental cash flow information is as follows:

 

28 Weeks Ended

 

(In thousands)

July 15, 2023

 

 

July 16, 2022

 

Non-cash investing activities:

 

 

 

 

 

 

 

Capital expenditures included in accounts payable

$

 

6,192

 

 

$

 

3,574

 

Operating lease asset additions

 

 

27,214

 

 

 

 

9,353

 

Finance lease asset additions

 

 

10,000

 

 

 

 

15,386

 

Non-cash financing activities:

 

 

 

 

 

 

 

Recognition of operating lease liabilities

 

 

27,214

 

 

 

 

9,353

 

Recognition of finance lease liabilities

 

 

10,000

 

 

 

 

15,386

 

Other supplemental cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

 

 

21,172

 

 

 

 

7,148

 

 

 

16


 

Note 14 – Segment Information

The following tables set forth information about the Company by reportable segment:

(In thousands)

Wholesale

 

 

Retail

 

 

Total

 

12 Weeks Ended July 15, 2023

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

$

 

1,633,364

 

 

$

 

679,030

 

 

$

 

2,312,394

 

Inter-segment sales

 

 

278,886

 

 

 

 

328

 

 

 

 

279,214

 

Acquisition and integration

 

 

55

 

 

 

 

 

 

 

 

55

 

Restructuring and asset impairment, net

 

 

1

 

 

 

 

(2,255

)

 

 

 

(2,254

)

Depreciation and amortization

 

 

11,644

 

 

 

 

10,814

 

 

 

 

22,458

 

Operating earnings

 

 

21,542

 

 

 

 

14,244

 

 

 

 

35,786

 

Capital expenditures

 

 

13,828

 

 

 

 

8,132

 

 

 

 

21,960

 

 

 

 

 

 

 

 

 

 

 

 

 

12 Weeks Ended July 16, 2022

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

$

 

1,601,485

 

 

$

 

672,405

 

 

$

 

2,273,890

 

Inter-segment sales

 

 

279,232

 

 

 

 

240

 

 

 

 

279,472

 

Acquisition and integration

 

 

 

 

 

 

436

 

 

 

 

436

 

Restructuring and asset impairment, net

 

 

(139

)

 

 

 

2,750

 

 

 

 

2,611

 

Depreciation and amortization

 

 

11,228

 

 

 

 

10,740

 

 

 

 

21,968

 

Operating earnings (loss)

 

 

12,697

 

 

 

 

(368

)

 

 

 

12,329

 

Capital expenditures

 

 

7,960

 

 

 

 

8,533

 

 

 

 

16,493

 

 

 

 

 

 

 

 

 

 

 

 

 

28 Weeks Ended July 15, 2023

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

$

 

3,719,048

 

 

$

 

1,500,740

 

 

$

 

5,219,788

 

Inter-segment sales

 

 

628,180

 

 

 

 

652

 

 

 

 

628,832

 

Acquisition and integration

 

 

124

 

 

 

 

5

 

 

 

 

129

 

Restructuring and asset impairment, net

 

 

981

 

 

 

 

848

 

 

 

 

1,829

 

Depreciation and amortization

 

 

27,014

 

 

 

 

25,189

 

 

 

 

52,203

 

Operating earnings

 

 

47,867

 

 

 

 

12,232

 

 

 

 

60,099

 

Capital expenditures

 

 

38,225

 

 

 

 

22,599

 

 

 

 

60,824

 

 

 

 

 

 

 

 

 

 

 

 

 

28 Weeks Ended July 16, 2022

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

$

 

3,583,864

 

 

$

 

1,453,684

 

 

$

 

5,037,548

 

Inter-segment sales

 

 

623,252

 

 

 

 

401

 

 

 

 

623,653

 

Acquisitions and integration

 

 

 

 

 

 

675

 

 

 

 

675

 

Restructuring and asset impairment, net

 

 

(128

)

 

 

 

2,752

 

 

 

 

2,624

 

Depreciation and amortization

 

 

25,512

 

 

 

 

24,929

 

 

 

 

50,441

 

Operating earnings (loss)

 

 

40,819

 

 

 

 

(341

)

 

 

 

40,478

 

Capital expenditures

 

 

25,225

 

 

 

 

21,206

 

 

 

 

46,431

 

 

(In thousands)

 

 

 

July 15,
2023

 

 

December 31, 2022

 

Total Assets

 

 

 

 

 

 

 

 

 

 

Wholesale

 

 

 

$

 

1,567,385

 

 

$

 

1,525,760

 

Retail

 

 

 

 

 

759,526

 

 

 

 

780,801

 

Total

 

 

 

$

 

2,326,911

 

 

$

 

2,306,561

 

 

17


 

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:

Net sales of $2.31 billion, an increase of 1.7%, compared to $2.27 billion in the prior year quarter.
Retail comparable store sales increased 3.9% compared to the prior year quarter.
Net earnings of $19.5 million, compared to $5.1 million in the prior year quarter.
Adjusted EBITDA of $66.1 million, compared to $61.8 million in the prior year quarter.
Cash generated from operating activities was $49.7 million during the first half of fiscal 2023 compared to $28.5 million in the first half of the prior year.
Returned $33.6 million to shareholders during the first half of fiscal 2023 through share repurchases and dividends.

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.

18


 

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.

19


 

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.

20


 

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.

21


 

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

 

 

22


 

 

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.

 

23


 

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

 

 

 

(a)
The income tax effect on adjustments is computed by applying the effective tax rate, before discrete tax items, to the total adjustments for the period.

24


 

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.

25


 

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

 

 

26


 

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.

27


 

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.

28


 

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

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.

29


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30


 

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.

 

 

 

 

 

 

 

31


 

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)

 

32