SpartanNash sees strong top-line finish to 2022 fiscal year

Grocery distributor and retailer SpartanNash closed out its 2022 fiscal year with double-digit sales gains in the fourth quarter, while quarterly adjusted earnings per share declined but were in line with Wall Street estimates.

For the 12-week quarter ended Dec. 31, net sales totaled $2.31 billion, up 10.3% from $2.09 billion a year earlier, SpartanNash reported Thursday. The Grand Rapids, Michigan-based company’s wholesale and retail business units both generated double-digit net sales growth, fueled by elevated inflation.

By business segment, the wholesale arm—including food and military distribution—tallied net sales of $1.63 billion in the fourth quarter, up 10.2% from $1.48 billion a year ago. SpartanNash attributed the increase mainly to the inflationary impact on pricing, which lifted net sales by 11.8% but was offset 1.6% from lower case volumes.

SpartanNash’s corporate-owned supermarkets turned in a bigger gain, as Q4 retail segment net sales rose 10.5% to $677.5 million from $613.1 million in the prior-year period. Comparable-store sales climbed 9.1% in the quarter, reflecting an 11.2% uptick from inflation and a 2.1% decrease from reduced item counts, the company said.

Overall, SpartanNash operates 147 grocery stores 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 strategy is driving sustainable growth," SpartanNash CEO Tony Sarsam stated. / Photo courtesy of SpartanNash

Consolidated net sales for SpartanNash in the 52-week 2022 fiscal year came in at $9.64 billion, up 8% from $8.93 billion in fiscal 2021. Distribution sales in fiscal 2022 advanced 7.8% to $6.85 billion from $6.35 billion, while full-year retail net sales increased 8.4% to $2.8 billion from $2.58 billion. The business segment sales totals reflect inflation-driven gains of 10.4% in wholesale and 9.6% in retail, offset by a case volume decline of 2.6% in distribution and an item decrease of 1.9% in retail.

“2022 was a transformational year at SpartanNash. Our corporate identity, which we call ‘Our Winning Recipe,’ served to align our associates as they executed on our strategic plan,” President and CEO Tony Sarsam told analysts in a conference call on Thursday. (Call transcript provided by AlphaSense/FactSet.)

In its core wholesale business, SpartanNash drove cost savings via its supply chain transformation, Sarsam said. That included optimizing fleet mileage by adding a West Coast distribution solution through its partnership with Coastal Pacific Food Distributors as well as a 7% increase in throughput, generating over $25 million in run-rate cost savings by year-end.”

“Our success in supply chain has enabled us to gain share in our wholesale segment. We expect our supply chain transformation to make even greater strides in 2023, which includes custom operational plans for each distribution center,” Sarsam said. “There are more savings and efficiencies to come as we strive to reduce footsteps and fingerprints in our process.”

The CEO also pointed to a robust retail performance as well as additional e-commerce offerings through partnerships with DoorDash, Uber Technologies and Shipt.

“Our comparable-store sales remain strong, increasing 9.1% for the quarter. This is an increase of 110 basis points sequentially from Q3,” Sarsam noted. “We also continued to deliver unit share growth year over year, fueled in part by our strong own-brands performance. We’re building on this momentum with investments in store renovations. We plan to renovate about a quarter of our stores by the end of 2025.”

SpartanNash’s merchandising transformation also has made “meaningful progress,” according to Sarsam.

“To start, we’re making significant strides linking sales, profitability and customer loyalty driven across our wholesale and retail segments. Secondly, we are leveraging insights to enhance our category management capabilities, and we are improving our customer offerings,” he explained in the call. “We also remain focused on our cost-quality capabilities, which [protect] customers from unjustified vendor cost increases based on underlying commodity markets. And we are revamping our end-to-end fresh food offerings with an initial focus in service. Finally, we’re investing in wholesale deals and new retail promotions to offer more value for our [distribution] customers and store guests.”

At its first Investor Day event, held in early November, SpartanNash unveiled an accelerated growth plan that projects the company to top $10 billion in total sales by 2025 (or 12% growth from a 3% compound annual growth rate in 2021) as well as exceed $300 million in adjusted EBITDA (or 40% growth from a 9% CAGR in 2021).

Based on its fiscal 2022 results, SpartanNash is closing in on those targets. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the year were $242.9 million, or 2.5% of net sales, versus $213.7 million, or 2.4% of net sales, in fiscal 2021. For the fourth quarter, adjusted EBITDA rose to $47.2 million from $43 million a year earlier.

SpartanNash said it expects to hit those growth targets by hoisting net sales by over $1 billion via customer acquisition and further expansion into value-added offerings; supply-chain and merchandising transformation benefits of $125 million to $150 million realized from fiscal 2021 through fiscal 2025, as well as ongoing marketing innovation; and increased shareholder value achieved through a continued focus on return on capital.

SpartanNash said comparable-store sales rose 9.1% in Q4 for its corporate-owned supermarket business. / Photo courtesy of SpartanNash

“This morning, we provided our 2023 guidance and raised our 2025 long-term sales target to $10.2 billion,” Sarsam said in the call. “We remain committed to achieving adjusted EBITDA of more than $300 million, which is an increase of at least 40% since 2021. We are confident in our ability to achieve this aggressive target as we continue firing on all cylinders.”

At the bottom line, SpartanNash on Thursday reported fiscal 2022 fourth-quarter net income of $0.65 million, or 2 cents per diluted share, compared with $22.2 million, or 62 cents per diluted share, a year ago. Adjusted earnings (continuing operations) came in at $10.2 million, or 28 cents per diluted share, compared with $12.4 million, or 34 cents per diluted share, in the 2021 quarter. Analysts, on average, had projected adjusted EPS of 32 cents, with estimates ranging from a low of 27 cents to a high of 36 cents, according to Refinitiv.

Fiscal 2022 net earnings totaled $34.52 million, or 95 cents per diluted share, versus $73.75 million, or $2.05 per diluted share, in fiscal 2021. On an adjusted basis, net income (continuing operations) were $84.7 million, or $2.33 per diluted share, compared with $74.9 million, or $2.08 per diluted share, a year earlier. Wall Street’s consensus estimate was for adjusted EPS of $2.36, with projections running from a low of $2.32 to a high of $2.73.

SpartanNash noted that fiscal 2022 earnings results reflect a higher LIFO expense of $38.2 million, higher corporate administrative costs (including increased incentive compensation of $21.6 million), $10.6 million in up-front merchandising transformation investments, and costs related to shareholder activism ($7.3 million), lower retail margin rates, the transition impact of the new PTO policy in the prior year ($21.4 million) and increased interest expense ($8.9 million). Those items were partially offset by increased sales, an improved wholesale gross-margin rate, supply-chain cost reductions from efficiencies and lower fees, and reduced health insurance costs.

Looking ahead, SpartanNash forecasts fiscal 2023 net sales of $9.9 billion to $10.2 billion, compared with Wall Street’s estimated range of $9.86 billion to $10.05 billion and consensus of $9.93 billion.

“In wholesale, we expect sales to grow between 4% and 7%, inclusive of net sales from [the acquisition of] Great Lakes Foods," Chief Financial Officer Jason Monaco told analysts in the call. “We are projecting that trends in our independent customer base will be similar to that of our corporate retail segment. We also expect to see growth within other areas of our portfolio. In retail, we believe sales will continue to increase, resulting in an expected comparable-sales growth range of 2% to 5%.”

SpartanNash expected adjusted EPS (continuing operations) of $2.20 to $2.35 for fiscal 2023. Before the company’s fiscal 2022 report, analysts’ consensus estimate was for 2023 adjusted EPS of $2.57, with a range of $2.36 to $2.73, according to Refinitiv. SpartanNash forecasts fiscal 2023 net sales of $9.9 billion to $10.2 billion, compared with Wall Street’s estimated range of $9.86 billion to $10.05 billion and consensus of $9.93 billion.

“Despite uncertainties in the broader market, we’ve built a strong foundation and continue to execute on our winning recipe,” Monaco added.

*Editor's Note: Article updated with executive comment.