SpartanNash’s wholesale and retail business units built on prior-year gains with solid sales growth in the fiscal 2023 first quarter.
At the bottom line, the grocery distributor and retailer posted adjusted earnings per share (EPS) just above Wall Street’s consensus estimate, despite reported net income declining year over year.
For the 16-week quarter ended April 22, net sales rose 5.2% to $2.91 billion from $2.76 billion a year earlier, aided in part by inflation, SpartanNash said Thursday. That came atop a 4% increase in the year-ago period and continued sales momentum generated during the 2022 fiscal year, including a 10.3% net sales increase in Q4.
Distribution, supermarket businesses tally gains
SpartanNash’s wholesale segment totaled 2023 Q1 net sales of $2.09 billion, up 5.2% from $1.98 billion a year ago, when combined food and military distribution sales (then reported separately) grew 3.5%. Along with a lift from inflationary pricing, the wholesale arm’s sales got a boost from higher volume in the military channel, though lower overall case volumes in the division trimmed net sales by 2.9%, SpartanNash noted.
In the grocery retail unit, net sales climbed 5.2% to $821.7 million from $781.3 million in the 2022 quarter, when SpartanNash posted a 5.7% increase. Same-store sales rose 5.4%—reflecting the inflationary impact on pricing, partially offset by a 6% decline in volume, the company said—and added onto 7.2% growth in the prior-year period.
Currently, SpartanNash operates 144 corporate-owned supermarkets 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.
“Our team also continues to do an outstanding job of managing through challenging macro dynamics. This last quarter, our team successfully cycled a significant retail wage increase. With that headwind behind us, we are confident about hitting our full-year and long-term targets,” SpartanNash President and CEO Tony Sarsam told analysts Thursday in a conference call. (Call transcript provided by AlphaSense.)
“We believe that growth benefits from our two transformation initiatives. Our merchandising transformation and our supply chain transformation will continue driving value,” he explained. “Notably, we expect to realize more than 50% of the total growth benefits from both initiatives by the end of this year. And we expect these actions will also contribute to margin expansion. This gives us confidence in our ability to grow adjusted EBITDA by at least 40% in fiscal 2025 compared to 2021. We have momentum behind our strategic plan, and there is plenty of runway ahead. And our core capabilities—which are people, operational excellence and insights that drive solutions—have given us focus we need to win in this environment.”
Keeping prices in check
In its wholesale and retail businesses, SpartanNash has “worked hard to mitigate these rising costs” from “unprecedented food inflation,” Sarsam said. That has included collaborating with CPG brands “to ensure consumers maintain affordable access to groceries and essentials,” he noted.
“We have processes in place to continuously monitor the impact of the macro environment on our business. Because of these processes, we are able to anticipate inflation-related price gains or forward-buy headwinds, and we strategically timed the launch of our merchandising transformation last year,” Sarsam said in the call. “Along with offsetting some headwinds, the merchandising transformation is providing a strong foundation for years of growth through enhanced, customer-led capabilities. The focus of the program involves filling as many shelves as possible with the right products at the right place at the right price. We started realizing the benefits from the merchandising transformation this past quarter, and we're gaining momentum.”
First-quarter retail traffic rose slightly year over year, Sarsam reported, also sharing some customer insights with analysts.
“What we’re seeing in folks’ baskets is an interesting mix. We’re seeing that the price per unit is roughly the same as the amount of inflation from our suppliers,” he said. “The mix in the basket, though, is a combination of folks seeking out ways to save money—particularly with [SpartanNash’s] Our Family brand—and looking for ways to find national brands at a lower price, and still seeking out opportunities for either convenience or indulgence.”
Supply-chain transformation moves ahead
Sarsam also shed more light on the strides that SpartanNash is making in optimizing its supply-chain network. He noted that the company realized $25 million of gross savings from the supply-chain transformation in fiscal 2022 and this year expects another $20 million to $30 million in benefits.
“We continue to find synergies and gross savings in our operations, and there are plenty of opportunities ahead,” he told analysts. “Compared to the prior year, during the first quarter, the team delivered the following: One, we drove a 99-basis-point improvement in the reported operating expenses in our wholesale segment; two, we increased our throughput rate by 6%; and three, we improved our fill rate to 77%, compared to 61% in Q1 of 2022.”
On the earnings front in Q1 2023, net income came in at $11.34 million, or 32 cents per diluted share, compared with $19.29 million, or 53 cents per diluted share, a year earlier. Excluding items (net of taxes) totaling nearly $11.53 million, or 32 cents per diluted share—namely a LIFO expense of $11.17 million—adjusted net earnings from continuing operations were $22.86 million, or 64 cents per diluted share, versus $30.33 million, or 83 cents per diluted share, in the 2022 quarter.
Analysts, on average, had projected adjusted EPS of 63 cents, with estimates ranging from 55 cents to 72 cents, according to Refinitiv.
“We lapped our best quarterly adjusted EBITDA results from Q1 of last year and outperformed internal expectations by delivering $76.8 million in adjusted EBITDA in the  first quarter, compared to $76.6 million in Q1 of 2022,” Chief Financial Officer Jason Monaco said during the analyst call. “The team accomplished this despite a challenging macro environment.”
Looking ahead, SpartanNash affirmed its fiscal 2023 guidance, projecting full-year adjusted EPS at $2.20 to $2.35 on total net sales of $9.64 billion to $9.9 billion billion, with adjusted EBITDA of $248 million to $263 million.
Analysts’ consensus estimate, prior to the third-quarter report, was for adjusted EPS of $2.21, with estimates running from $2.00 to $2.32, on revenue of $9.93 billion to $10.14 billion, according to Refinitiv.