Food solutions company SpartanNash has reported financial results for its 12-week third quarter ended Oct. 7.
Third Quarter Fiscal 2023 Highlights
- Net sales of $2.26 billion, a decrease of 1.4%, compared to $2.30 billion in the prior year quarter
- Retail comparable sales increased 1.2%, compared to the prior year quarter
- Net earnings of $11.1 million, compared to $9.5 million in the prior year quarter
- Adjusted EBITDA of $60.9 million, compared to $57.3 million in the prior year quarter
- Cash generated from operating activities was $95.7 million during the year-to-date period of fiscal 2023 compared to $7.5 million in the year-to-date period of the prior year
- Returned $40.9 million to shareholders during the year-to-date period of fiscal 2023 through $18.5 million in share repurchases and $22.4 million in dividends
"We continue to make tremendous progress on our plan, growing share, and executing on our transformational initiatives despite the ongoing headwinds facing our industry," said SpartanNash President and CEO Tony Sarsam. "Our team is capturing savings, actively collaborating with the supplier community, and delivering reliable services to our wholesale customers and retail shoppers. With the success of Our Winning Recipe, we are energized by the opportunities ahead to further capture share, drive results, and grow sustainable value for shareholders."
Third Quarter Consolidated Financial Results
Net sales decreased $32.3 million, or 1.4%, to $2.26 billion from $2.30 billion in the prior year quarter. The year-over-year decrease reflected sales declines in both the wholesale and retail segments, which were unfavorably impacted by a reduction in volume, partially offset by higher pricing from inflationary trends.
Gross profit was $347.5 million, or 15.35% of net sales, compared to $351.2 million, or 15.29% of net sales, in the prior year quarter. The gross profit dollar decline was driven by lower unit volumes within both segments. Last in first out expense decreased $8.3 million, or 36 basis points, compared to the prior year quarter. Additional variances in the gross profit rate are discussed within the segment financial results below.
Reported operating expenses for the third quarter were $324.5 million, or 14.3% of net sales, compared to $331.9 million, or 14.5% of net sales, in the prior year quarter. During the quarter, efficiencies realized from the company's supply chain transformation helped to offset industry-wide headwinds. The reduction in expenses was also due to lower incentive compensation compared to the prior year quarter. These decreases were partially offset by an increase in acquisition and integration charges and organizational realignment costs related to the previously announced go-to-market plan.
The company reported operating earnings of $23.1 million, an increase of $3.8 million, compared to $19.3 million in the prior year quarter. The increase was driven by the changes in net sales, gross profit, and operating expenses discussed above.
Interest expense of $9.3 million increased $3.2 million from the prior year quarter. Higher interest rates on the company's credit facility were driven by federal monetary policy tightening and accounted for $2.5 million of the increase in interest expense. Other income for the third quarter included a $0.8 million gain related to the amortization of a prior service credit of a previously terminated post-retirement plan.
The company reported net earnings of $11.1 million, or $0.32 per diluted share, compared to $9.5 million, or $0.26 per diluted share, in the prior year quarter. Adjusted earnings from continuing operations for the third quarter were $18.8 million, or $0.54 per diluted share, compared to $20.0 million, or $0.55 per diluted share in the prior year quarter.
Adjusted EBITDA increased $3.6 million to $60.9 million, compared to $57.3 million in the prior year quarter, due to the sales, gross profit, and expense variances described above.
Third Quarter Segment Financial Results
Wholesale
The company's supply chain network serves wholesale customers that include independent and chain grocers, national retail brands, e-commerce platforms, and U.S. military commissaries and exchanges around the globe. The company distributes products for every aisle in the grocery store, from fresh produce to household goods to its OwnBrands, which include the Our Family portfolio of products.
Net sales for wholesale decreased $27.9 million, or 1.7%, to $1.60 billion from $1.63 billion in the prior year quarter. The decline in net sales was due primarily to marketplace demand changes from a certain national account customer.
Reported operating earnings for wholesale were $18.2 million, compared to $14.0 million in the prior year quarter. The increase in reported operating earnings was due to an increase in the gross profit rate, lower incentive compensation, and efficiencies realized from the company's supply chain transformation initiative. The gross profit rate increase was primarily driven by lower LIFO expense, as well as benefits realized from the merchandising transformation initiative. These benefits mostly offset the anticipated impact of lower inflation-related price change benefits compared to elevated levels in the prior year quarter. The increase in reported operating earnings was partially offset by cycling asset impairment and restructuring gains in the prior year quarter. Adjusted EBITDA increased $0.7 million to $39.0 million from $38.3 million in the prior year quarter.
Retail
The company operates a scaled regional retail segment with 144 brick-and-mortar grocery stores, in addition to pharmacies and fuel centers.
Net sales for retail decreased $4.4 million, or 0.7%, to $662.2 million from $666.6 million in the prior year quarter. Retail comparable store sales grew 1.2% for the quarter, due primarily to the inflationary impact on pricing. Additionally, lower fuel sales in the quarter reduced reported net sales by 0.8%.
Reported operating earnings for retail were $4.9 million, compared to $5.3 million in the prior year quarter. The decrease in reported operating earnings was due to higher acquisition and integration expenses, a decline in unit volume, and lower pharmacy margin rates. This was partially offset by lower incentive compensation and reduced asset impairment and restructuring charges. Adjusted EBITDA increased $2.9 million to $21.9 million from $19.0 million in the prior year quarter.
