SpartanNash capped off a solid fiscal 2023 first half as both its wholesale and retail businesses drove sales growth for the second quarter, with adjusted earnings in line with Wall Street’s forecast.
In the 12-week quarter ended July 15, consolidated net sales edged up 1% to $2.31 billion from $2.27 billion a year earlier, SpartanNash said Thursday. Inflation contributed to the uptick in wholesale and retail sales, the Grand Rapids, Michigan-based company noted. The gain came atop 7.9% net sales growth in the 2022 quarter but reflected slower momentum from a 5.2% increase in first-quarter 2023.
Net sales for distribution, including food and military wholesale, totaled $1.63 billion, up 2% from $1.12 billion in the prior-year period, when sales rose 7.7% (food and military distribution results were reported separately in Q2 2022).
A favorable impact on the wholesale business from inflationary trends, however, was partially offset by market demand changes from national account Amazon Fresh, according to SpartanNash.
Grocery retail net sales, meanwhile, grew 1% to $679 million in Q2 2023 from $672.4 million a year ago, when SpartanNash tallied an 8.5% increase. Lower fuel prices in the quarter trimmed reported net sales by 2%, according to the company. Same-store sales advanced 3.9%, lifted mainly by price inflation, and built on a 6.5% gain in the 2022 quarter.
SpartanNash now owns and operates 144 corporate-owned supermarkets—down from 147 a year earlier—in Michigan, Indiana, Iowa, Minnesota, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin, primarily under the Family Fare, Martin’s Super Markets and D&W Fresh Market banners.
For the 28-week fiscal 2023 first half, net sales came in at $5.22 billion, up 3.6% from $5.04 billion in the year-ago period.
“I’m very proud of our team for delivering solid results in the first half of 2023,” SpartanNash President and CEO Tony Sarsam told analysts Thursday in a conference call.
“Let’s pivot to highlights from our second quarter,” he said. “Compared to the prior-year quarter, our net sales increased 1.7% to $2.31 billion, and our retail comparable sales remained strong with a 3.9% increase. We also improved our [distribution] throughput rate by 3% since last quarter. And, most notably, we increased our adjusted EBITDA by 7% to $66.1 million.” (Call transcript provided by AlphaSense.)
Execs address issues with Amazon Fresh
Sarsam and Chief Financial Officer Jason Monaco shed more light on Amazon Fresh’s impact to SpartanNash’s wholesale volume during Q2.
Last month, Amazon announced job cuts and an operational restructuring for its Amazon Fresh supermarket business, which encompasses 44 stores in eight states and the District of Columbia.
“For a little more context, let’s talk about our wholesale volume,” Monaco explained in the call. “We are pleased that we maintained core share during the quarter, and all of our customer channels achieved expectations, with the exception of Amazon Fresh, which addressed changes to its grocery business in its recent earnings update. We are working closely with them as they manage through format changes that resonate more with its customers,” he explained. “With that said, we believe its demand profile has leveled out at this time, and the bottom-line impacts have already been built into our run-rate expectations.”
SpartanNash has “great tools” in place with Amazon Fresh, and the companies are “sort of learning together on their business” as Amazon fine-tunes its supermarket operation, according to Sarsam.
“Amazon is a great customer, and we’re going to continue to work with them to make sure that we can be a productive part of their business and the business plans they’ve announced recently,” he said. “Their business is a little bit in flux. They’ve also doubled down [on Amazon Fresh]. So they want to make sure that they’re going to be a player in grocery, and we're going to be a great partner for them in their journey.”
CEO cites SpartanNash’s ‘strong turnaround story’
At the bottom line in Q2, SpartanNash’s reported net income totaled $19.5 million, or 56 cents per diluted share, compared with $5.1 million, or 14 cents per diluted share, a year earlier, which reflected adjustments of 52 cents per diluted share, including a LIFO expense of $17.8 million.
On an adjusted basis, net earnings (continuing operations) were $22.4 million, or 65 cents per diluted share, versus $24.2 million, or 66 cents per diluted share, in the 2022 quarter. Adjustments in the 2023 quarter, accounting for a 9-cents-per-diluted-share impact, included a LIFO charge of $4.7 million and $2 million in organizational realignment expenses.
Analysts, on average, had projected SpartanNash’s Q2 2023 adjusted EPS at 65 cents, with estimates ranging from 60 cents to 70 cents, according to Refinitiv.
Also on the earnings side, SpartanNash saw adjusted EBITDA rise 7% to $66.1 million, following up a 13.7% gain in the 2022 quarter.
Fiscal 2023 first-half net income came in at $30.8 million, or 88 cents per diluted share, compared with $24.4 million, or 67 cents per diluted share, a year earlier. Adjusted earnings were $45.2 million, or $1.29 per diluted share, versus $54.5 million, or $1.49 per diluted share, in the 2022 half. Adjusted EBITDA rose 3.2% to $142.9 million.
Sarsam noted that SpartanNash “demonstrates our strong turnaround story” through the strides that the company is making in its strategic plan.
“We are energized about how the plan incorporates long-term value creation through our transformational initiatives and related margin-expansion opportunities,” he told analysts. “These initiatives—our supply chain transformation, merchandising transformation and marketing innovation—continue to gain momentum. In fact, we expect to realize more than 50% of the total growth benefits from our transformational initiatives by the end of this year. This progress gives us confidence in achieving our long-term target of a more than 40% increase in adjusted EBITDA to over $300 million by fiscal 2025.”
Based on its year-to-date performance, SpartanNash reaffirmed its fiscal 2023 outlook for adjusted earnings and EBITDA but slightly lower its sales forecast, amid declining inflation. Full-year adjusted EPS is pegged at $2.20 to $2.35, with adjusted EBITDA of $248 million to $263 million. Total net sales are now projected at $9.65 to $9.95 billion, down from $9.9 billion to $10.2 billion previously.
Analysts’ consensus estimate, before to the second-quarter report, was for adjusted EPS of $2.25, with projections running from $2.20 to $2.32, according to Refinitiv.
“Overall for the quarter, we were able to maintain profitability despite the macro pressures that our entire industry is experiencing,” Sarsam said. “We credit this success to transformation initiatives that our team continues to aggressively execute upon.”