SpartanNash posts mixed results for Q4, fiscal year

Lifted by its food distribution business, SpartanNash Co. saw sales inch up for its 2018 fourth quarter and fiscal year, but the company fell short of Wall Street’s earnings projections for both periods.

For the 12-week fourth quarter ended Dec. 29, SpartanNash totaled sales of $1.897 billion, up 0.6% from $1.886 billion a year earlier. Sales in the core food distribution segment rose 4.7% year over year to $954.4 million from $911.5 million, which the company attributed mainly to sales growth from current and new customer programs.

SpartanNash completed the Martin's Super Markets acquisition in early fiscal 2019.

In the military distribution unit, quarterly sales fell 2% to $513.3 million. SpartanNash said the decrease stemmed primarily from lower comparable sales at DeCA-operated locations, partially offset by incremental volume from new business with a current customer and DeCA’s private brand program.

Retail store sales declined 4.6% to $429.1 million for quarter, reflecting a $12.3 million decrease from store closures and a 1.9% decrease in comparable-store sales excluding fuel.

SpartanNash finished fiscal 2018 with 139 corporate-owned supermarkets, down from 145 in 2017. With the closing of the Martin’s Super Markets acquisition in early fiscal 2019, the company now operates 160 stores, including Family Fare Supermarkets, D&W Fresh Market, VG’s Grocery, Dan’s Supermarket, Family Fresh Market and Martin’s.

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The Grand Rapids, Mich.-based distributor posted an operating loss of $11.9 million in the fourth quarter versus year-ago operating earnings of $18.8 million. The company attributed the decrease mainly to a noncash impairment charge of $32 million (68 cents per diluted share) from the expected insolvency of a food distribution customer. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $44.3 million, down from $48.1 million a year earlier.

At the bottom line, SpartanNash had a quarterly loss from continuing operations of $14 million, or 39 cents per diluted share, compared with earnings from continuing operations of $34.7 million, or 94 cents per diluted share, a year ago. The company said the decline reflects the non-cash charge, increased interest expense and an unfavorable year-over-year income tax comparison related to changes from federal tax reform.

Adjusted earnings from continuing operations for the fourth quarter were $11.4 million, or 32 cents per diluted share, versus $15.2 million, or 41 cents per diluted share, in the prior-year period. Analysts, on average, had projected adjusted earnings per share (EPS) of 38 cents, with estimates ranging from a low of 37 cents to a high of 39 cents, according to Refinitiv/Thomson Reuters.

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“Our team worked diligently in the fourth quarter to position SpartanNash to succeed across our food distribution, military and retail business segments in a dynamic operating environment. We continue to be pleased with the ability to grow our top line. However, we were unable to translate this growth to our bottom-line results,” President and CEO David Staples said in a statement.

“In December, we began executing on Project One Team, a companywide initiative to drive growth while increasing efficiency and reducing costs as a way to address this,” he added. The Project One effort will assess all aspects of SpartanNash’s business, including ways to hone supply-chain efficiency, leverage technology and improve the products and services offered to customers. “We are excited to see this initiative empowering our associates at all levels to drive sustainable improvements in our business as we take full advantage of the growth opportunities we expect to see over the next one to two years.”

For the full 2018 fiscal year, SpartanNash reported sales of $8.06 billion, up 1.3% from $7.96 billion in 2017, fueled by gains in the food and military distribution businesses. Food distribution sales rose 4.3% to $3.99 billion, while military distribution sales edged up 1.1% to $2.17 billion. Retail sales fell 4.3% to nearly $1.91 billion.

Adjusted EBITDA for fiscal 2018 was $209.4 million, or 2.6% of sales, versus $236 million, or 3% of net sales, in 2017.

Fiscal 2018 earnings from continuing operations came in at $33.8 million, or 94 cents per diluted share, compared with a loss from continuing operations of $52.6 million, or $1.41 per diluted share, in 2017.

Adjusted earnings from continuing operations for fiscal 2018 were $67.3 million, or $1.87 per diluted share, compared with $78.6 million, or $2.10 per diluted share, in 2017. Analysts’ consensus estimate was for adjusted EPS of $1.93, with projections running from a low of $1.92 to a high of $1.94, according to Refinitiv/Thomson Reuters.

For fiscal 2019, SpartanNash forecasts reported EPS from continuing operations of $1.27 to $1.44. Adjusted EPS from continuing operations is pegged at $1.70 to $1.80. Wall Street’s average estimate is for adjusted EPS of $1.98, with projections ranging from $1.80 to $2.14.

“As we look forward over the next couple of years, we believe the landscape will continue to provide us with growth opportunities through acquisition, new customers and expanded programs with existing customers,” said Staples. “That said, we still expect the operating environment to remain challenging during fiscal 2019. Our top five objectives for fiscal 2019 are achieve mid-single-digit sales growth, drive adjusted operating earnings and adjusted EBITDA growth over the prior year, realize $15 million of savings over the next 24 months from Project One Team, strengthen our management team, systems and supply chain operations to further position the company for future growth and reduce our debt levels and financial leverage ratios to facilitate achieving our strategic objectives.”