Retail charges hit SpartanNash in Q3

SpartanNash said struggles in its retail division continued in the third quarter, weighing down the strong performance in the company’s food distribution business and leading the company to report a loss for the period.

Comparable-store sales excluding fuel were down 2.5% for the 12-week period, which ended Oct. 7, and the company took a $189 million goodwill impairment charge for the retail division. Competitive pricing pressures have persisted at its retail stores, company executives said in a conference call with analysts.

The Grand Rapids, Mich.-based company said it closed three stores and sold one location to a distribution customer in the third quarter, and also closed one store and sold another since the beginning of the fourth quarter. It now operates 145 stores, down from 159 at the end of the third quarter a year ago.

“While retail remains a challenge, we have a quality store base located in the right geographies, and I am excited about what our team is putting forth to consumers,” David Staples, president and CEO, SpartanNash, said in a conference call with analysts.

Among the initiatives the company is deploying to boost retail sales include rolling out the Fast Lane click-and-collect offering, which launched at the end of the second quarter and is expected to be in 40 locations by year-end. The service is generating larger baskets, and half of the sales it generates are incremental, the company said.

“We are encouraged by the results,” said Staples, who also said he believes the service “has the potential to enhance profitability” in the long term.

SpartanNash also began piloting home delivery from one location in Michigan after the third quarter ended.

The company also began testing several new initiatives in a newly remodeled Forest Hills Foods store in Grand Rapids. New offerings at the upscale store include more fresh and value-added foods, meal kits, local craft-beer growlers and cold-pressed juices, among others.

The new offerings that are successful could be rolled out at additional locations where appropriate, and eventually offered to distribution customers, the company said. The company also said a handful of remodeled stores in South Dakota are performing well.

The retail operating loss in the third quarter totaled $215.3 million, compared with operating income of $8 million in the year-ago period. Adjusted operating earnings were $8.5 million vs. $12.4 million in last year’s third quarter.

Total retail sales in the quarter fell 5.2%, to $463.6 million, primarily due to $16.7 million in reduced sales from the store closures and the 2.5% comp-store sales decline.

Inflation in the retail segment was up 58 basis points, the company said, although deflation persisted in some categories, including frozen and dairy.

Distribution sales up 16.5%

In the distribution segment, sales grew by 16.5%, to $937.4 million, primarily due to contributions from the company’s acquisition of Caito Foods and from a 5.2% increase in organic sales growth. The company added some new customers from a wholesaler it did not identify “in the Illinois region” — presumably Central Grocers, which filed bankruptcy earlier this year and sold its warehouse to Supervalu.

Operating income in food distribution increased 7.4%, to $20.4 million. Adjusted operating earnings increased to $23.8 million from $19.8 million in the year-ago quarter.

Inflation in the distribution segment was up 136 basis points and spread across all categories. The company expects a “modest uptick” in inflation in the fourth quarter, said Mark Shamber, chief financial officer.

In the military segment, SpartanNash reported operating earnings of $1.1 million vs. $2.9 million in the third quarter of a year ago, primarily due to integration costs from new commissary business and other costs. Adjusted operating earnings increased to $3.1 million in the recent third quarter after adjusting for $1.5 million of pre-tax integration expenses and $500,000 of asset impairment charges.

Sales for the military segment were essentially flat at $505.6 million, but sequentially, sales increased 7.3% over the second quarter as the company added new commissary business in the Southwest and expanded its private-brand program.

Overall, SpartanNash reported a loss of $123.5 million for the third quarter, following one-time goodwill and asset impairment charges. Net income in the year-ago period totaled $16.6 million.

Consolidated net sales for the third quarter increased 5.9%, to $1.91 billion.

Due to anticipated ongoing retail pressures, SpartanNash said it now expects a reported loss from continuing operations of approximately $2.04 to $2.10 per share for the current fiscal year. The company previously had projected reported earnings from continuing operations of about $1.83 to $1.90 per diluted share.