SpartanNash follows through on Q1 warning

In line with an alert earlier this month forecasting weak results, SpartanNash Co. reported declined earnings for the first quarter while sales were buoyed by its acquisition of Martin’s Super Markets.

For the 16-week fiscal 2019 first quarter ended April 20, net sales rose 6.3% to $2.54 billion from $2.39 billion a year earlier, SpartanNash said Monday. The Grand Rapids, Mich.-based company said the gain reflects sales growth in its food and military distribution businesses as well as the contribution from the acquired Martin’s stores.

Food distribution net sales totaled $1.17 billion, up 1.2% from $1.16 billion a year ago. Excluding the impact of the elimination of intercompany sales to Martin’s before the acquisition, sales increased 5.2%, stemming mainly from existing-customer sales growth, SpartanNash said.

Military distribution net sales grew by the same percentage, rising 1.2% to $671.3 million from $663.6 million. The company attributed the gain mainly to incremental volume from new business with an existing customer and the Defense Commissary Agency (DeCA) private-brand program.

SpartanNash President and CEO David Staples said the period marked the 12th straight quarter of sales growth for the food distribution segment.

“This growth has come from our ability to attract new accounts, and we will continue to provide a strong partnership to existing accounts throughout our expanded services and geographical reach,” Staples told analysts in a conference call Monday morning. “We continue to look for ways to grow the perimeter and center store as well as sponsored programs and partner with independent retailers to help them succeed in this intensely competitive marketplace.”

Related:SpartanNash cuts guidance in preliminary Q1 report

Retail net sales surged 23.9% year over year to $701.8 million from $566.2 million. Excluding the Martin’s acquisition, which was completed early in the first quarter, sales were down 3% due to $12.4 million in lost sales from store closures and decreased fuel prices, SpartanNash said. Same-store sales dipped 0.3% in the quarter.

“In our retail segment, we continue to navigate through a tough operating environment, which was compounded in the first quarter by a significant shift and the timing of government's SNAP benefit payments in the Easter holiday. However, at the same time, we are pleased with the improvement in our comparable-store sales trend and with the look and feel of our stores, including of the new brand positioning initiative,” Staples said.

“Our brand's positioning was tested in several stores last year, and a more significant implementation was just completed Sunday into additional Michigan Family Fare stores,” he explained. “This positioning will be key to the differentiation of our operation by sharpening our focus on affordable wellness, value beyond price, a fun and indulging shopping experience, with a focus on local products and providing a socially smart and community-focused store operation.”

Related:Caito Foods again recalls pre-cut melon products

Currently, SpartanNash operates 160 supermarkets under such banners as Family Fare Supermarkets, Martin’s Super Markets, D&W Fresh Market, VG’s Grocery, Dan’s Supermarket and Family Fresh Market.

SpartanNash’s reported net earnings for the 2019 first quarter came in at nearly $7.5 million, or 21 cents per diluted share, compared with $12.3 million, or 34 cents per diluted share, a year earlier. The company said adjusted net income from continuing operations was $8.5 million, or 24 cents per diluted share, versus $20 million, or 55 cents per diluted share, in the 2018 quarter.

In its May 9 preliminary earnings report, SpartanNash had lowered its guidance for adjusted earnings per diluted share (continuing operations) to 23 cents to 24 cents, compared with its earlier estimate of 33 cents to 37 cents. Executives cited challenges in the supply chain, fresh kitchen and retail operations and the impact of a voluntary recall of pre-cut melon products at the company’s Caito Foods subsidiary.

“Q1 was further impacted by increased cost in the supply chain and discount retail environment, and our food processing operations were a larger drag on performance than expected partly due to voluntary recall of our fresh-cut food operations,” Chief Financial Officer Mark Shamber said in the call. “Both our adjusted and GAAP EPS reflects an impact of approximately $1.1 million, or 2 cents [per diluted share], associated with the fresh-cut recall.”

On average, analysts had forecast adjusted EPS of 34 cents, with estimates ranging from a low of 23 cents to a high of 39 cents, according to Refinitiv/Thomson Reuters.

“While we are not satisfied with our bottom-line performance in the quarter, I am pleased with the progress the team made in the first quarter on many of our key objectives for 2019. We believe these are necessary to move our organization forward, and they will enable us to win over the long term,” Staples said in the call with analysts. “We believe the execution of our strategic objectives will help us increasingly develop a national, highly efficient distribution platform that services a diverse customer base and leverages our complementary business units, food distribution, military distribution and retail.”

For the full 2019 fiscal year, SpartanNash reiterated its guidance of mid-single-digit sales growth. The company also reaffirmed the lowered EPS guidance issued in the May 9 preliminary first-quarter report. In that announcement, SpartanNash lowered adjusted EPS (diluted) to between $1.20 and $1.50 from its prior estimate of between $1.70 and $1.80. Reported EPS is pegged at 70 cents to $1.04, down from previous guidance of $1.27 to $1.44.

Analysts’ consensus estimate is for full-year adjusted EPS of $1.69, with projections running from a low of $1.30 to a high of $1.84, Refinitiv/Thomson Reuters reported.