UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 7, 2023.

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 000-31127

 

 

 

SPARTANNASH COMPANY

(Exact Name of Registrant as Specified in Its Charter)

Michigan		38-0593940
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
850 76th Street, S.W. P.O. Box 8700 Grand Rapids, Michigan		49518
(Address of Principal Executive Offices)		(Zip Code)

(616) 878-2000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, no par value		SPTN		NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 7, 2023, the registrant had 34,623,737 outstanding shares of common stock, no par value.

 

 

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FORWARD-LOOKING STATEMENTS

The matters discussed in this Quarterly Report on Form 10-Q, in the Company’s press releases, in the Company's website-accessible conference calls with analysts, and investor presentations include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), about the plans, strategies, objectives, goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or “the Company”). These forward-looking statements may be identifiable by words or phrases indicating that the Company or management "expects," "projects," "anticipates," "plans," "believes," "intends," or "estimates," or that a particular occurrence or event "may," "could," "should," "will" or "will likely" result, occur or be pursued or "continue" in the future, that the "outlook", "trend", "guidance" or "target" is toward a particular result or occurrence, that a development is an "opportunity," "priority," "strategy," "focus," that the Company is "positioned" for a particular result, or similarly stated expectations.

Undue reliance should not be placed on the forward-looking statements contained in this Quarterly Report on Form 10-Q, SpartanNash’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and other periodic reports filed with the Securities and Exchange Commission (“SEC”), which speak only as of the date made. Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies may affect actual results and could cause actual results to differ materially. These risks and uncertainties include the Company's ability to compete in an extremely competitive industry; the Company's dependence on certain major customers; the Company's ability to implement its growth strategy and transformation initiatives; changes in relationships with the Company’s vendor base and supply chain disruptions; vulnerability to decreases in the supply and increases in the price of raw materials and labor, manufacturing, distribution and other costs; macroeconomic uncertainty, including rising inflation, potential economic recession, and increasing interest rates; difficulty attracting and retaining well-qualified Associates and effectively managing increased labor costs; customers to whom the Company extends credit or for whom the Company guarantees loans or lease obligations may fail to repay the Company; not achieving the Company’s strategy of growth through acquisitions and encountering difficulties successfully integrating acquired businesses that may not realize the anticipated benefits; the Company's ability to manage its private brand program for U.S. military commissaries, including the termination of the program or not achieving the desired results; disruptions to the Company's information security network, including security breaches and cyber-attacks; changes in the geopolitical conditions; instances of security threats, severe weather conditions and natural disasters; climate change and an increased focus by stakeholders on environmental sustainability and corporate responsibility; impacts to the Company’s business and reputation due to an increasing focus on environmental, social and governance matters; disruptions associated with disease outbreaks, such as the COVID-19 pandemic; impairment charges for goodwill or other long-lived assets; the Company's ability to successfully manage leadership transitions; interest rate fluctuations; the Company's ability to service its debt and to comply with debt covenants; the Company’s level of indebtedness; changes in government regulations; changes in the military commissary system, including its supply chain, or in the level of governmental funding; product recalls and other product-related safety concerns; labor relations issues; cost increases related to multi-employer pension plans and other postretirement plans; and other risks and uncertainties listed under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's most recent Annual Report on Form 10-K and in subsequent filings with the Securities and Exchange Commission.

This section and the discussions contained in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and in Part I, Item 2 “Critical Accounting Policies” of this Quarterly Report on Form 10-Q, are intended to provide meaningful cautionary statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur, or information obtained after the date of this Quarterly Report. In addition, historical information should not be considered as an indicator of future performance.

 

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TABLE OF CONTENTS

 

		Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Earnings	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statements of Shareholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 6.	Exhibits	32
	Signatures	33

 

 

3

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PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, Unaudited)

	October 7,					December 31,
	2023					2022
Assets
Current assets
Cash and cash equivalents	$		17,554			$		29,086
Accounts and notes receivable, net			427,275					404,016
Inventories, net			579,631					571,065
Prepaid expenses and other current assets			63,594					62,244
Total current assets			1,088,054					1,066,411
Property and equipment, net			616,320					610,220
Goodwill			182,160					182,160
Intangible assets, net			102,661					106,341
Operating lease assets			251,426					257,047
Other assets, net			93,155					84,382
Total assets	$		2,333,776			$		2,306,561
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$		505,786			$		487,215
Accrued payroll and benefits			71,531					103,048
Other accrued expenses			53,267					62,465
Current portion of operating lease liabilities			43,372					45,453
Current portion of long-term debt and finance lease liabilities			8,410					6,789
Total current liabilities			682,366					704,970
Long-term liabilities
Deferred income taxes			78,318					66,293
Operating lease liabilities			231,809					239,062
Other long-term liabilities			28,212					33,376
Long-term debt and finance lease liabilities			535,804					496,792
Total long-term liabilities			874,143					835,523
Commitments and contingencies (Note 8)
Shareholders’ equity
Common stock, voting, no par value; 100,000 shares      authorized; 34,629 and 35,079 shares outstanding			457,830					468,061
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding			—					—
Accumulated other comprehensive income			5,155					2,979
Retained earnings			314,282					295,028
Total shareholders’ equity			777,267					766,068
Total liabilities and shareholders’ equity	$		2,333,776			$		2,306,561

See accompanying notes to condensed consolidated financial statements.

4

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

	12 Weeks Ended										40 Weeks Ended
	October 7, 2023					October 8, 2022					October 7, 2023					October 8, 2022
Net sales	$		2,264,248			$		2,296,512			$		7,484,036			$		7,334,060
Cost of sales			1,916,709					1,945,302					6,337,449					6,178,024
Gross profit			347,539					351,210					1,146,587					1,156,036
Operating expenses
Selling, general and administrative			322,796					333,373					1,059,787					1,094,422
Acquisition and integration, net			2,130					(577	)				2,259					98
Restructuring and asset impairment, net			(458	)				(886	)				1,371					1,738
Total operating expenses			324,468					331,910					1,063,417					1,096,258
Operating earnings			23,071					19,300					83,170					59,778
Other expenses and (income)
Interest expense, net			9,280					6,051					30,218					14,764
Other, net			(786	)				(768	)				(2,510	)				(384	)
Total other expenses, net			8,494					5,283					27,708					14,380
Earnings before income taxes			14,577					14,017					55,462					45,398
Income tax expense			3,450					4,553					13,530					11,530
Net earnings	$		11,127			$		9,464			$		41,932			$		33,868
Net earnings per basic common share	$		0.33			$		0.27			$		1.22			$		0.96
Net earnings per diluted common share	$		0.32			$		0.26			$		1.20			$		0.93
Weighted average shares outstanding:
Basic			34,020					35,160					34,262					35,444
Diluted			34,523					36,145					34,967					36,398

 

See accompanying notes to condensed consolidated financial statements.

5

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, Unaudited)

	12 Weeks Ended										40 Weeks Ended
	October 7, 2023					October 8, 2022					October 7, 2023					October 8, 2022
Net earnings	$		11,127			$		9,464			$		41,932			$		33,868
Other comprehensive income (loss), before tax
Change in interest rate swap			3,625					—					4,770					—
Postretirement liability adjustment			(720	)				(687	)				(1,957	)				6,601
Total other comprehensive income (loss), before tax			2,905					(687	)				2,813					6,601
Income tax (expense) benefit related to items of other comprehensive income (loss)			(673	)				168					(637	)				(1,619	)
Total other comprehensive income (loss), after tax			2,232					(519	)				2,176					4,982
Comprehensive income	$		13,359			$		8,945			$		44,108			$		38,850

See accompanying notes to condensed consolidated financial statements.

6

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, Unaudited)

										Accumulated
										Other
	Shares				Common					Comprehensive					Retained
	Outstanding				Stock					Income (Loss)					Earnings					Total
Balance at December 31, 2022		35,079			$		468,061			$		2,979			$		295,028			$		766,068
Net earnings		—					—					—					11,337					11,337
Other comprehensive loss		—					—					(1,557	)				—					(1,557	)
Dividends - $0.215 per share		—					—					—					(7,679	)				(7,679	)
Share repurchases		(435	)				(10,910	)				—					—					(10,910	)
Stock-based compensation		—					5,147					—					—					5,147
Stock warrant		—					607					—					—					607
Issuances of common stock for associate stock purchase plan		17					358					—					—					358
Issuances of restricted stock		425					—					—					—					—
Cancellations of stock-based awards		(151	)				(3,917	)				—					—					(3,917	)
Balance at April 22, 2023		34,935			$		459,346			$		1,422			$		298,686			$		759,454
Net earnings		—					—					—					19,468					19,468
Other comprehensive income		—					—					1,501					—					1,501
Dividends - $0.215 per share		—					—					—					(7,524	)				(7,524	)
Share repurchases		(330	)				(7,617	)				—					—					(7,617	)
Stock-based compensation		—					2,465					—					—					2,465
Stock warrant		—					353					—					—					353
Issuances of common stock for associate stock purchase plan and other stock-based awards		18					328					—					—					328
Issuances of restricted stock		10					—					—					—					—
Cancellations of stock-based awards		(15	)				(31	)				—					—					(31	)
Balance at July 15, 2023		34,618			$		454,844			$		2,923			$		310,630			$		768,397
Net earnings		—					—					—					11,127					11,127
Other comprehensive income		—					—					2,232					—					2,232
Dividends - $0.215 per share		—					—					—					(7,475	)				(7,475	)
Stock-based compensation		—					2,348					—					—					2,348
Stock warrant		—					319					—					—					319
Issuances of common stock for associate stock purchase plan		19					348					—					—					348
Issuances of restricted stock		11					—					—					—					—
Cancellations of stock-based awards		(19	)				(29	)				—					—					(29	)
Balance at October 7, 2023		34,629			$		457,830			$		5,155			$		314,282			$		777,267

See accompanying notes to condensed consolidated financial statements.

 

 

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, CONTINUED

(In thousands, Unaudited)

										Accumulated
										Other
	Shares				Common					Comprehensive					Retained
	Outstanding				Stock					(Loss) Income					Earnings					Total
Balance at January 1, 2022		35,948			$		493,783			$		(1,455	)		$		290,541			$		782,869
Net earnings		—					—					—					19,289					19,289
Other comprehensive income		—					—					23					—					23
Dividends - $0.21 per share		—					—					—					(7,665	)				(7,665	)
Stock-based compensation		—					4,295					—					—					4,295
Stock warrant		—					673					—					—					673
Issuances of common stock for associate stock purchase plan		3					108					—					—					108
Issuances of restricted stock		369					—					—					—					—
Cancellations of stock-based awards		(180	)				(4,288	)				—					—					(4,288	)
Balance at April 23, 2022		36,140			$		494,571			$		(1,432	)		$		302,165			$		795,304
Net earnings		—					—					—					5,115					5,115
Other comprehensive income		—					—					5,478					—					5,478
Dividends - $0.21 per share		—					—					—					(7,561	)				(7,561	)
Share repurchases		(215	)				(6,573	)				—					—					(6,573	)
Stock-based compensation		—					1,397					—					—					1,397
Stock warrant		—					481					—					—					481
Issuance of common stock for associate stock purchase plan		4					104					—					—					104
Issuances of restricted stock		14					—					—					—					—
Cancellations of stock-based awards		(30	)				(23	)				—					—					(23	)
Balance at July 16, 2022		35,913			$		489,957			$		4,046			$		299,719			$		793,722
Net earnings		—					—					—					9,464					9,464
Other comprehensive loss		—					—					(519	)				—					(519	)
Dividends - $0.21 per share		—					—					—					(7,436	)				(7,436	)
Share repurchases		(543	)				(16,716	)				—					—					(16,716	)
Stock-based compensation		—					1,280					—					—					1,280
Stock warrant		—					505					—					—					505
Issuances of common stock for associate stock purchase plan		5					121					—					—					121
Issuances of restricted stock		4					—					—					—					—
Cancellations of stock-based awards		(20	)				(11	)				—					—					(11	)
Balance at October 8, 2022		35,359			$		475,136			$		3,527			$		301,747			$		780,410

See accompanying notes to condensed consolidated financial statements.

 

 

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, Unaudited)

	40 Weeks Ended
	October 7, 2023					October 8, 2022
Cash flows from operating activities
Net earnings	$		41,932			$		33,868
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash restructuring, asset impairment, and other charges			1,273					1,664
Depreciation and amortization			75,245					72,274
Non-cash rent			(2,760	)				(3,428	)
LIFO expense			22,445					42,916
Postretirement benefits income			(1,990	)				(367	)
Deferred income taxes			11,388					5,299
Stock-based compensation expense			9,960					6,972
Stock warrant			1,279					1,659
Loss (gain) on disposals of assets			304					(68	)
Other operating activities			1,308					1,501
Changes in operating assets and liabilities:
Accounts receivable			(23,071	)				(68,142	)
Inventories			(32,688	)				(140,698	)
Prepaid expenses and other assets			(3,558	)				(2,043	)
Accounts payable			37,517					54,682
Accrued payroll and benefits			(34,960	)				16,348
Current income taxes			(3,564	)				(350	)
Other accrued expenses and other liabilities			(4,380	)				(14,633	)
Net cash provided by operating activities			95,680					7,454
Cash flows from investing activities
Purchases of property and equipment			(86,212	)				(66,282	)
Net proceeds from the sale of assets			4,055					28,981
Acquisitions, net of cash acquired			(780	)				(9,408	)
Payments from customers on loans			1,097					1,103
Other investing activities			(163	)				(350	)
Net cash used in investing activities			(82,003	)				(45,956	)
Cash flows from financing activities
Proceeds from senior secured credit facility			1,044,242					1,057,633
Payments on senior secured credit facility			(1,017,484	)				(955,456	)
Repayment of other long-term debt and finance lease liabilities			(6,279	)				(5,116	)
Share repurchases			(18,527	)				(23,289	)
Net payments related to stock-based award activities			(3,977	)				(4,322	)
Dividends paid			(22,381	)				(22,458	)
Other financing activities			(803	)				(192	)
Net cash (used in) provided by financing activities			(25,209	)				46,800
Net (decrease) increase in cash and cash equivalents			(11,532	)				8,298
Cash and cash equivalents at beginning of period			29,086					10,666
Cash and cash equivalents at end of period	$		17,554			$		18,964

See accompanying notes to condensed consolidated financial statements.

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SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

10

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17

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” which appears at the beginning of this report, and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Overview

SpartanNash, headquartered in Grand Rapids, Michigan, is a food solutions company that delivers the ingredients for a better life. Its core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate-owned retail stores, and U.S. military commissaries and exchanges; as well as operating a premier fresh produce distribution network and the Our Family® private label brand. SpartanNash serves customer locations in all 50 states and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar, Djibouti, Korea and Japan.

The Company’s Wholesale segment provides a wide variety of nationally branded and private brand grocery products and perishable food products to independent retailers, national accounts, food service distributors, e-commerce providers, and the Company’s corporate owned retail store. The Company’s Wholesale segment also distributes grocery products to 160 military commissaries and over 400 exchanges worldwide. The Company is the exclusive supplier of private brand products to U.S. military commissaries, a partnership with DeCA which began in fiscal 2017.

As of the end of the third quarter, the Company’s Retail segment operated 144 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare, Martin’s Super Markets and D&W Fresh Market. The Company also offered pharmacy services in 91 of its corporate owned retail stores (81 of the pharmacies are owned by the Company), operated three pharmacy locations not associated with corporate-owned retail locations and operated 36 fuel centers. The Company’s neighborhood market strategy distinguishes its corporate owned retail stores from supercenters and limited assortment stores.

All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.

The majority of the Company’s revenues are not seasonal in nature. However, in some geographies, corporate retail stores and independent retail customers are dependent on tourism, and therefore can be affected by seasons. The Company's revenues may also be impacted by weather patterns.

2023 Third Quarter Highlights

Key financial and operational highlights for the third quarter include the following:

The Company believes that certain known or anticipated trends may cause future results to vary from historical results. The Company believes certain initiatives tied to its long-term plan including the supply chain transformation, merchandising transformation, and refreshed go-to-market strategy will favorably impact future results. The Company anticipates that additional investments in capital expenditures, and increased borrowings from the Company's senior secured credit facility, will be necessary to support these and other programs. Offsetting the Company's expectations of favorable future results are macroeconomic headwinds including economic uncertainty associated with inflation, labor costs, and interest rates. The Company continues to be exposed to inflationary impacts to other general areas including utilities, insurance and fuel costs.

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Results of Operations

The following table sets forth items from the condensed consolidated statements of earnings as a percentage of net sales and the year-to-year percentage change in the dollar amounts:

	Percentage of Net Sales																Percentage Change
	12 Weeks Ended								40 Weeks Ended								12 Weeks Ended				40 Weeks Ended
	October 7, 2023				October 8, 2022				October 7, 2023				October 8, 2022				October 7, 2023				October 7, 2023
Net sales		100.0				100.0				100.0				100.0				(1.4	)			2.0
Gross profit		15.3				15.3				15.3				15.8				(1.0	)			(0.8	)
Selling, general and administrative		14.3				14.5				14.2				14.9				(3.2	)			(3.2	)
Acquisition and integration, net		0.1				(0.0	)			0.0				0.0			**				**
Restructuring charges and asset impairment, net		(0.0	)			(0.0	)			0.0				0.0				(48.3	)			(21.1	)
Operating earnings		1.0				0.8				1.1				0.8				19.5				39.1
Other expenses		0.4				0.2				0.4				0.2				60.8				92.7
Earnings before income taxes		0.6				0.6				0.7				0.6				4.0				22.2
Income tax expense		0.2				0.2				0.2				0.2				(24.2	)			17.3
Net earnings		0.5				0.4				0.6				0.5				17.6				23.8

Note: Certain totals do not sum due to rounding.

** Not meaningful

Net Sales – The following table presents net sales by segment and variances in net sales:

	12 Weeks Ended															40 Weeks Ended
(In thousands)	October 7, 2023					October 8, 2022					Variance					October 7, 2023					October 8, 2022					Variance
Wholesale	$		1,602,000			$		1,629,869			$		(27,869	)		$		5,321,048			$		5,213,733			$		107,315
Retail			662,248					666,643					(4,395	)				2,162,988					2,120,327					42,661
Total net sales	$		2,264,248			$		2,296,512			$		(32,264	)		$		7,484,036			$		7,334,060			$		149,976

Net sales for the quarter ended October 7, 2023 (the “third quarter”) decreased $32.3 million, or 1.4%, to $2.26 billion from $2.30 billion in the quarter ended October 8, 2022 (the “prior year quarter”). Net sales for the year-to-date period ended October 7, 2023 (the "year-to-date period") increased $150.0 million, or 2.0%, to $7.48 billion from $7.33 billion in the year-to-date period ended October 8, 2022 (the "prior year-to-date-period"). The decrease during the current quarter reflected sales declines in both the Wholesale and Retail segments, which were unfavorably impacted by a reduction in volume and partially offset by higher pricing from inflationary trends. The year-to-date increase reflected sales growth in both the Wholesale and Retail segments, which were favorably impacted by higher pricing from inflationary trends and partially offset by lower volumes.

Wholesale net sales decreased $27.9 million, or 1.7% to $1.60 billion in the third quarter from $1.63 billion in the prior year quarter. Wholesale net sales for the year-to-date period increased $107.3 million, or 2.1%, to $5.32 billion from $5.21 billion in the prior year-to-date period. The decrease in the current quarter was due primarily to marketplace demand changes from a certain national account customer. The increase in the year-to-date period was primarily due to the inflationary impact on pricing, partially offset by a decrease led by marketplace demand changes from a certain national account customer. Overall case volumes for the segment were down in the current quarter and current year-to-date period compared to the prior year by 5.4% and 4.2%, respectively.

Retail net sales decreased $4.4 million, or 0.7%, to $662.2 million in the third quarter from $666.6 million in the prior year quarter. Net sales for the year-to-date period increased $42.7 million, or 2.0%, to $2.16 billion from $2.12 billion in the prior year-to-date period. Comparable store sales grew 1.2% and 3.6% for the current quarter and current year-to-date periods, respectively. The comparable store sales growth was due primarily to the inflationary impact on pricing, which included an offsetting 6.0% and 5.8% decline in unit volumes in the current quarter and current year-to-date periods, respectively. Additionally, lower fuel sales reduced reported net sales by 0.8% and 1.3% in the current quarter and current year-to-date periods, respectively. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions, or relocated stores. Acquired stores are included in the comparable sales calculation 13 periods after the acquisition date. Sales are compared to the same store’s operations from the prior year period for purposes of calculation of comparable store sales. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.

20

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Gross Profit – Gross profit represents net sales less cost of sales, which for all non-production operations includes purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional allowances and excludes warehousing costs, depreciation and other administrative expenses. The Company’s gross profit definition may not be identical to similarly titled measures reported by other companies. Vendor allowances that relate to the buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for the Company’s merchandising costs, such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of sales when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The Wholesale segment includes shipping and handling costs in the Selling, general and administrative section of operating expenses in the consolidated statements of earnings.

Gross profit decreased $3.7 million, or 1.0%, to $347.5 million in the third quarter from $351.2 million in the prior year quarter. As a percent of net sales, gross profit for the current quarter was 15.35% compared to 15.29% in the prior year quarter. The gross profit decline was driven by lower volumes. The gross profit rate increase in the current quarter was driven by lower last-in-first-out ("LIFO") expense and benefits realized from the merchandising transformation initiative. These benefits were mostly offset by the anticipated lower inflation-related price change benefits in the Wholesale segment compared to elevated levels in the prior year quarter and lower pharmacy margins in the Retail segment. LIFO expense decreased $8.3 million, or 36 basis points, compared to the prior year quarter. Gross profit for the year-to-date period decreased $9.4 million, or 0.8% from $1.16 billion in the prior year-to-date period to $1.15 billion in the current year. As a percent of net sales, gross profit for the year-to-date period was 15.32% compared to 15.76% in the prior year-to-date period. The gross profit decline was driven by lower volumes. In addition, the gross profit rate decrease in the year-to-date period was driven by lower inflation-related price change benefits in the Wholesale segment compared to elevated levels in the prior year, partially offset by benefits realized from the merchandising transformation initiative and a decline in LIFO expense. LIFO expense decreased $20.5 million, or 29 basis points, compared to the prior year-to-date period.

Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of operating costs related to retail and supply chain operations, including salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation, and out-bound freight, in addition to corporate administrative expenses.

SG&A expenses for the third quarter decreased $10.6 million, or 3.2%, to $322.8 million from $333.4 million in the prior year quarter, representing 14.3% of net sales in the third quarter compared to 14.5% in the prior year quarter. SG&A expense for the year-to-date period decreased $34.6 million, or 3.2% to $1.06 billion, from $1.09 billion in the prior year-to-date period, representing 14.2% in the current year-to-date period compared to 14.9% as a percentage of net sales in the prior year-to-date period. The decreases in selling, general and administrative expenses as a rate of sales was due primarily to lower incentive compensation expense compared to the prior year and a reduction in the supply chain expense rates as a result of efficiencies realized from the Company's supply chain transformation initiative. These decreases were partially offset by organizational realignment costs related to the previously announced go-to-market plan.

Acquisition and Integration, net – Third quarter and prior year quarter results included net charges of $2.1 million and net gains of $0.6 million, respectively. Acquisition and integration expenses for the year-to-date periods ended October 7, 2023 and October 8, 2022 included charges of $2.3 million and $0.1 million, respectively. Current year activity primarily consists of expenses associated with the Company's acquisition efforts within the Retail segment. The prior year quarter activity primarily consisted of a gain from the reversal of a litigation accrual within the Retail segment. Prior year-to-date expense is primarily related to an acquisition within the Retail segment, partially offset by the reversal of the litigation accrual in the prior year quarter.

Restructuring and Asset Impairment, net – Third quarter and prior year quarter results included net gains of $0.5 million and $0.9 million, respectively. The year-to-date period and prior year-to-date period included charges of $1.4 million and $1.7 million, respectively. The current quarter gain primarily relates to a $0.3 million gain for additional insurance proceeds related to a distribution location that sustained significant storm damage within the Wholesale segment, in addition to revised estimates for turnover and other lease ancillary costs associated with previously closed locations. The year-to-date net charges primarily relate to two store closures within the Retail segment and impairment losses related to a distribution location that sustained significant storm damage within the Wholesale segment, partially offset by the sale of a store within the Retail segment. The prior year quarter income was primarily due to gains on the sales of real property of previously closed locations within both segments, partially offset by Retail store closing charges and asset impairment charges related to the restructuring of the Retail segment's e-commerce delivery model. The prior year-to-date expense primarily consists of asset impairment charges related to the restructuring of the Retail segment's e-commerce delivery model and Retail store closing charges, partially offset by a gain on sales of assets related to the sale of real property of previously closed locations in both segments.

21

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Operating Earnings – The following table presents operating earnings by segment and variances in operating earnings.

	12 Weeks Ended															40 Weeks Ended
(In thousands)	October 7, 2023					October 8, 2022					Variance					October 7, 2023					October 8, 2022					Variance
Wholesale	$		18,153			$		14,015			$		4,138			$		66,020			$		54,834			$		11,186
Retail			4,918					5,285					(367	)				17,150					4,944					12,206
Total operating earnings	$		23,071			$		19,300			$		3,771			$		83,170			$		59,778			$		23,392

Operating earnings increased $3.8 million, or 19.5% to $23.1 million in the third quarter from $19.3 million in the prior year quarter. Operating earnings for the year-to-date period increased $23.4 million, or 39.1%, to $83.2 million from $59.8 million in the prior year-to-date period. The increases in operating earnings was due to the changes in net sales, gross profit and operating expenses discussed above.

Wholesale operating earnings increased $4.1 million, or 29.5%, to $18.2 million in the third quarter from $14.0 million in the prior year quarter. Operating earnings for the year-to-date period increased $11.2 million, or 20.4%, to $66.0 million from $54.8 million in the prior year-to-date period. The increases in operating earnings were due to benefits realized from the merchandising transformation initiative, lower incentive compensation as well as efficiencies realized from the Company's supply chain transformation initiative. The increases in operating earnings were partially offset by the anticipated lower inflation-related price change benefits compared to elevated levels in the prior year.

Retail operating earnings decreased $0.4 million, or 6.9%, to $4.9 million in the third quarter from $5.3 million in the prior year quarter. Operating earnings for the year-to-date period increased $12.2 million, to $17.2 million from $4.9 million in the prior year-to-date period. The decrease in operating earnings in the current quarter 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. The increase in operating earnings in the year-to-date period was due to higher gross margin driven by inflation, lower incentive compensation and reduced asset impairment and restructuring charges, partially offset by a decline in unit volume.

Interest Expense – Interest expense increased $3.2 million, or 53.4%, to $9.3 million in the third quarter from $6.1 million in the prior year quarter. Interest expense for the year-to-date period increased $15.5 million, or 104.7%, to $30.2 million from $14.8 million in the prior year-to-date period. Higher interest rates on the Company's credit facility were driven by federal monetary policy tightening and accounted for $2.5 million and $12.6 million of the increase in interest expense in the quarterly and year-to-date periods, respectively.

Income Taxes – The effective income tax rates were 23.7% and 32.5% for the third quarter and prior year quarter, respectively. For the year-to-date period and prior year-to-date period, the effective tax rates were 24.4% and 25.4%, respectively. The difference from the federal statutory rate in the current year and prior year quarters were primarily due to state taxes and non-deductible expenses, partially offset by benefits associated with federal tax credits. The difference from the federal statutory rate in the current year was primarily due to state taxes and non-deductible expenses, partially offset by benefits associated with federal tax credits, discrete tax benefits due to a change in contingencies and discrete tax benefits related to stock compensation. The difference in the federal statutory rate in the prior year was primarily due to state taxes, limitations on the deductibility of executive compensation and non-deductible expenses, partially offset by benefits associated with federal tax credits and discrete tax benefits related to stock compensation.

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, as well as per diluted share (“adjusted EPS”), net long-term debt, total capital, and adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.

22

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Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other items, LIFO expense, organizational realignment, severance associated with cost reduction initiatives, a non-routine settlement related to a legal matter resulting from a previously closed operation that was resolved during the year and operating and non-operating costs associated with the postretirement plan amendment and settlement. Current year organizational realignment includes consulting and severance costs associated with the Company's change in its go-to-market strategy as part of its long-term plan, which relates to the reorganization of certain functions. Costs related to the postretirement plan amendment and settlement include non-operating expenses associated with amortization of the prior service credit related to the amendment of the retiree medical plan, which are excluded from adjusted earnings from continuing operations. Postretirement plan amendment and settlement costs also include operating expenses related to payroll taxes which are adjusted out of all non-GAAP financial measures. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other things, LIFO expense, costs related to shareholder activism, organizational realignment, operating and non-operating costs associated with the postretirement plan amendment and settlement, and severance associated with cost reduction initiatives. Costs related to shareholder activism include consulting, and other expenses incurred in relation to shareholder activism activities. Organizational realignment includes benefits for associates terminated as part of leadership transition plans, which do not meet the definition of reduction-in-force.

Each of these items are considered “non-operational” or “non-core” in nature.

Adjusted Operating Earnings

Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company as a whole and for its operating segments. The Company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature and also excludes the contributions of activities classified as discontinued operations. Because adjusted operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in an adjusted operating earnings format.

Adjusted operating earnings is not a measure of performance under GAAP and should not be considered as a substitute for operating earnings, and other income statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.

23

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Following is a reconciliation of operating earnings to adjusted operating earnings for the 12 and 40 weeks ended October 7, 2023 and October 8, 2022.

	12 Weeks Ended										40 Weeks Ended
(In thousands)	October 7, 2023					October 8, 2022					October 7, 2023					October 8, 2022
Operating earnings	$		23,071			$		19,300			$		83,170			$		59,778
Adjustments:
LIFO expense			6,606					14,884					22,445					42,916
Acquisition and integration, net			2,130					(577	)				2,259					98
Restructuring and asset impairment, net			(458	)				(886	)				1,371					1,738
Organizational realignment, net			2,681					588					4,710					1,859
Severance associated with cost reduction initiatives			39					54					311					795
Legal settlement			—					—					900					—
Postretirement plan amendment and settlement			—					—					94					133
Costs related to shareholder activism			—					—					—					7,335
Adjusted operating earnings	$		34,069			$		33,363			$		115,260			$		114,652
Wholesale:
Operating earnings	$		18,153			$		14,015			$		66,020			$		54,834
Adjustments:
LIFO expense			4,411					12,959					16,734					35,138
Acquisition and integration, net			65					—					189					—
Restructuring and asset impairment, net			(293	)				(2,088	)				688					(2,216	)
Organizational realignment, net			1,673					367					2,939					1,160
Severance associated with cost reduction initiatives			39					43					296					662
Legal settlement			—					—					900					—
Postretirement plan amendment and settlement			—					—					59					83
Costs related to shareholder activism			—					—					—					4,577
Adjusted operating earnings	$		24,048			$		25,296			$		87,825			$		94,238
Retail:
Operating earnings	$		4,918			$		5,285			$		17,150			$		4,944
Adjustments:
LIFO expense			2,195					1,925					5,711					7,778
Acquisition and integration, net			2,065					(577	)				2,070					98
Restructuring and asset impairment, net			(165	)				1,202					683					3,954
Organizational realignment, net			1,008					221					1,771					699
Severance associated with cost reduction initiatives			—					11					15					133
Postretirement plan amendment and settlement			—					—					35					50
Costs related to shareholder activism			—					—					—					2,758
Adjusted operating earnings	$		10,021			$		8,067			$		27,435			$		20,414

 

Adjusted Earnings from Continuing Operations

Adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), is a non-GAAP operating financial measure that the Company defines as net earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

The Company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the Company. The Company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and excludes the contributions of activities classified as discontinued operations. Because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted earnings from continuing operations format.

Adjusted earnings from continuing operations is not a measure of performance under GAAP and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies.

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Following is a reconciliation of net earnings to adjusted earnings from continuing operations for the 12 weeks ended October 7, 2023 and October 8, 2022.

	12 Weeks Ended
	October 7, 2023											October 8, 2022
						per diluted											per diluted
(In thousands, except per share amounts)	Earnings					share						Earnings					share
Net earnings	$		11,127			$		0.32				$		9,464			$		0.26
Adjustments:
LIFO expense			6,606											14,884
Acquisition and integration, net			2,130											(577	)
Restructuring and asset impairment, net			(458	)										(886	)
Organizational realignment, net			2,681											588
Severance associated with cost reduction initiatives			39											54
Postretirement plan amendment and settlement			(762	)										(763	)
Total adjustments			10,236											13,300
Income tax effect on adjustments (a)			(2,600	)										(2,725	)
Total adjustments, net of taxes			7,636					0.22						10,575					0.29
Adjusted earnings from continuing operations	$		18,763			$		0.54				$		20,039			$		0.55
	40 Weeks Ended
	October 7, 2023											October 8, 2022
						per diluted											per diluted
(In thousands, except per share amounts)	Earnings					share						Earnings					share
Net earnings	$		41,932			$		1.20				$		33,868			$		0.93
Adjustments:
LIFO expense			22,445											42,916
Acquisition and integration, net			2,259											98
Restructuring and asset impairment, net			1,371											1,738
Organizational realignment, net			4,710											1,859
Severance associated with cost reduction initiatives			311											795
Pension refund from annuity provider			—											(200	)
Postretirement plan amendment and settlement			(2,411	)										(18	)
Legal settlement			900											—
Costs related to shareholder activism			—											7,335
Total adjustments			29,585											54,523
Income tax effect on adjustments (a)			(7,525	)										(13,870	)
Total adjustments, net of taxes			22,060					0.63						40,653					1.12
Adjusted earnings from continuing operations	$		63,992			$		1.83				$		74,521			$		2.05

 

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Adjusted EBITDA

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items, including share-based payments (equity awards measured in accordance with ASC 718, Stock Compensation, which include both stock-based compensation to employees and stock warrants issued to non-employees) and the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company.

The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company and for its operating segments. The Company considers adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted EBITDA and adjusted EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted EBITDA format.

Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under GAAP and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.

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Following is a reconciliation of net earnings to adjusted EBITDA for the 12 and 40 weeks ended October 7, 2023 and October 8, 2022.

	12 Weeks Ended										40 Weeks Ended
(In thousands)	October 7, 2023					October 8, 2022					October 7, 2023					October 8, 2022
Net earnings	$		11,127			$		9,464			$		41,932			$		33,868
Income tax expense			3,450					4,553					13,530					11,530
Other expenses, net			8,494					5,283					27,708					14,380
Operating earnings			23,071					19,300					83,170					59,778
Adjustments:
LIFO expense			6,606					14,884					22,445					42,916
Depreciation and amortization			23,042					21,833					75,245					72,274
Acquisition and integration, net			2,130					(577	)				2,259					98
Restructuring and asset impairment, net			(458	)				(886	)				1,371					1,738
Cloud computing amortization			1,259					925					3,685					2,694
Organizational realignment, net			2,681					588					4,710					1,859
Severance associated with cost reduction initiatives			39					54					311					795
Stock-based compensation			2,461					1,370					10,073					7,208
Stock warrant			319					505					1,279					1,659
Non-cash rent			(531	)				(764	)				(2,094	)				(2,691	)
Loss (gain) on disposal of assets			258					63					304					(68	)
Legal settlement			—					—					900					—
Postretirement plan amendment and settlement			—					—					94					133
Costs related to shareholder activism			—					—					—					7,335
Adjusted EBITDA	$		60,877			$		57,295			$		203,752			$		195,728
Wholesale:
Operating earnings	$		18,153			$		14,015			$		66,020			$		54,834
Adjustments:
LIFO expense			4,411					12,959					16,734					35,138
Depreciation and amortization			12,151					11,090					39,165					36,602
Acquisition and integration, net			65					—					189					—
Restructuring and asset impairment, net			(293	)				(2,088	)				688					(2,216	)
Cloud computing amortization			834					645					2,499					1,873
Organizational realignment, net			1,673					367					2,939					1,160
Severance associated with cost reduction initiatives			39					43					296					662
Stock-based compensation			1,621					894					6,615					4,743
Stock warrant			319					505					1,279					1,659
Non-cash rent			—					(92	)				(138	)				(288	)
Loss (gain) on disposal of assets			24					(26	)				(11	)				(184	)
Legal settlement			—					—					900					—
Postretirement plan amendment and settlement			—					—					59					83
Costs related to shareholder activism			—					—					—					4,577
Adjusted EBITDA	$		38,997			$		38,312			$		137,234			$		138,643
Retail:
Operating earnings	$		4,918			$		5,285			$		17,150			$		4,944
Adjustments:
LIFO expense			2,195					1,925					5,711					7,778
Depreciation and amortization			10,891					10,743					36,080					35,672
Acquisition and integration, net			2,065					(577	)				2,070					98
Restructuring and asset impairment, net			(165	)				1,202					683					3,954
Cloud computing amortization			425					280					1,186					821
Organizational realignment, net			1,008					221					1,771					699
Severance associated with cost reduction initiatives			—					11					15					133
Stock-based compensation			840					476					3,458					2,465
Non-cash rent			(531	)				(672	)				(1,956	)				(2,403	)
Loss on disposal of assets			234					89					315					116
Postretirement plan amendment and settlement			—					—					35					50
Costs related to shareholder activism			—					—					—					2,758
Adjusted EBITDA	$		21,880			$		18,983			$		66,518			$		57,085

 

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Liquidity and Capital Resources

Cash Flow Information

The following table summarizes the Company’s consolidated statements of cash flows:

				40 Weeks Ended
(In thousands)				October 7, 2023					October 8, 2022
Cash flow activities
Net cash provided by operating activities				$		95,680			$		7,454
Net cash used in investing activities						(82,003	)				(45,956	)
Net cash (used in) provided by financing activities						(25,209	)				46,800
Net (decrease) increase in cash and cash equivalents						(11,532	)				8,298
Cash and cash equivalents at beginning of the period						29,086					10,666
Cash and cash equivalents at end of the period				$		17,554			$		18,964

Net cash provided by operating activities. Net cash provided by operating activities increased $88.2 million in the current year-to-date period compared to the prior year-to-date period, due primarily to improvements in working capital.

Net cash used in investing activities. Net cash used in investing activities increased $36.0 million in the current year compared to the prior year primarily due to net proceeds received from the sale of assets in the prior year and an increase in capital expenditures in the current year in line with the Company's long-term plan, partially offset by an acquisition within the Retail segment in the prior year.

Capital expenditures were $86.2 million in the current year and cloud computing application development spend, which is included in operating activities, was $4.1 million, compared to capital expenditures of $66.3 million and cloud computing application development spend of $3.2 million in the prior year. The Wholesale and Retail segments utilized 63.2% and 36.8% of capital expenditures, respectively, in the current year.

Net cash (used in) provided by financing activities. Net cash (used in) provided by financing activities increased $72.0 million in the current year compared to the prior year, primarily due to an increased rate of borrowing in the prior year on the senior credit facility.

Debt Management

Total debt, including finance lease liabilities, was $544.2 million and $503.6 million as of October 7, 2023 and December 31, 2022, respectively. The increase in total debt was due to additional net borrowings on the senior credit facility to fund working capital changes, purchases of property, plant and equipment and share repurchases.

Liquidity

The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility, which includes Tranche A revolving loans, with a borrowing capacity of $1.09 billion, and Tranche A-1 revolving loans, with a borrowing capacity of $40 million. As of October 7, 2023, the senior secured credit facility had outstanding borrowings of $472.6 million. During the first quarter, the Company increased the borrowing capacity of Tranche A revolving loans by $115.0 million to $1.09 billion from $975.0 million through the addition of two new lenders. This expansion of borrowing capacity aligns with the Company's recent growth and provides flexibility to support the Company's strategic long-term plans, including both organic and inorganic investments.

Additional available borrowings under the Company’s credit facility are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintain excess availability of 10% of the borrowing base, as such term is defined in the Credit Agreement. The Company had excess availability after the 10% covenant of $518.2 million at October 7, 2023. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The credit facility provides for the issuance of letters of credit, of which $17.7 million were outstanding as of October 7, 2023. The credit facility matures November 17, 2027 and is secured by substantially all of the Company’s assets.

The Company believes that cash generated from operating activities and available borrowings under the credit facility will be sufficient to meet anticipated requirements for working capital, capital expenditures, dividend payments, and debt service obligations for the foreseeable future. However, there can be no assurance that the business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the Credit Agreement.

The Company’s current ratio (current assets to current liabilities) was 1.59-to-1 at October 7, 2023 compared to 1.51-to-1 at December 31, 2022, and its investment in working capital was $405.7 million at October 7, 2023 compared to $361.4 million at December 31, 2022. The net long-term debt to total capital ratio was 0.40-to-1 at October 7, 2023 compared to 0.38-to-1 at December 31, 2022.

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Net long-term debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current portion of long-term debt and finance lease liabilities, less cash and cash equivalents. The ratio of net long-term debt to total capital is a non-GAAP financial measure that is calculated by dividing net long-term debt, as defined previously, by total capital (net long-term debt plus total shareholders’ equity). The Company believes both management and its investors find the information useful because it reflects the amount of long-term debt obligations that are not covered by available cash and temporary investments. Total net long-term debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

Following is a reconciliation of “Long-term debt and finance lease liabilities” to Net long-term debt as of October 7, 2023 and December 31, 2022.

(In thousands)	October 7, 2023					December 31, 2022
Current portion of long-term debt and finance lease liabilities	$		8,410			$		6,789
Long-term debt and finance lease liabilities			535,804					496,792
Total debt			544,214					503,581
Cash and cash equivalents			(17,554	)				(29,086	)
Net long-term debt	$		526,660			$		474,495

Following is a reconciliation of "Net long-term debt" and "Total shareholders' equity" to Total capital as of October 7, 2023 and December 31, 2022.

(In thousands)	October 7, 2023					December 31, 2022
Net long-term debt	$		526,660			$		474,495
Total shareholders' equity			777,267					766,068
Total capital	$		1,303,927			$		1,240,563

For information on material cash requirements, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. At October 7, 2023, there have been no significant changes to the Company’s material cash requirements outside the ordinary course of business.

Cash Dividends

During the quarter ended October 7, 2023, the Company declared $7.5 million in dividends. A 2.4% increase in the quarterly dividend rate from $0.21 per share to $0.215 per share was approved by the Board of Directors and announced on March 1, 2023. Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. Whether the Board of Directors continues to declare dividends depends on a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows and compliance with the terms of its credit facilities.

Under the senior revolving credit facility, the Company is generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends and repurchase shares in excess of $35.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility, is in excess of 15% of the Total Borrowing Base, as defined in the senior revolving credit facility, before and after giving effect to the repurchases and dividends.

Off-Balance Sheet Arrangements

The Company has also made certain commercial commitments that extend beyond October 7, 2023. These commitments consist primarily of purchase commitments, standby letters of credit of $17.7 million as of October 7, 2023, and interest on long-term debt and finance lease liabilities.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Based on the Company’s ongoing review, the Company makes adjustments it considers appropriate under the facts and circumstances. This discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements. The Company believes these accounting policies and others set forth in Item 7 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 should be reviewed as they are integral to understanding the Company’s financial condition and results of operations. The Company has discussed the development, selection and disclosure of these accounting policies with the Audit Committee of the Board of Directors. The accompanying financial statements are prepared using the same critical accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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Recently Issued Accounting Standards

Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

There have been no material changes in market risk of SpartanNash from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, with the exception of the interest rate swap entered into during the first quarter of 2023 described below.

As of October 7, 2023, the Company maintained an interest rate swap agreement with a maturity date of November 17, 2027 with an aggregate notional amount totaling $150 million. An interest rate swap is an agreement that effectively converts a portion of the variable interest payable on $150 million of the Company's outstanding debt to a fixed rate. The fixed interest rate for the interest rate swap is 3.646%. The variable rate leg of the interest rate swap is the one-month Secured Overnight Financing Rate (SOFR). As of October 7, 2023, the fair value of the interest rate swap was recorded in "Prepaid expenses and other current assets" and "Other assets, net" for $2.5 million and $2.3 million, respectively, and "Accumulated other comprehensive income" for $3.7 million, net of tax.

ITEM 4. Controls and Procedures

An evaluation of the effectiveness of the design and operation of SpartanNash Company’s disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Exchange Act) was performed as of October 7, 2023 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Corporate Controller. As of the Evaluation Date, SpartanNash Company’s management, including the CEO, CFO and Corporate Controller, concluded that SpartanNash’s disclosure controls and procedures were effective as of the Evaluation Date to ensure that material information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including its principal executive and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. During the third quarter of 2023 there were no changes that materially affected, or were reasonably likely to materially affect, SpartanNash’s internal control over financial reporting.

 

PART II

OTHER INFORMATION

ITEM 1. Legal Proceedings

The information required by this Part II, Item 1 is incorporated by reference to the information set forth under the caption “Commitments and Contingencies” in Note 8 in the notes to condensed consolidated financial statements included in this report.

ITEM 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K (2022 10-K) for the year ended December 31, 2022 filed with Securities and Exchange Commission. You should carefully consider the risks included in our 2022 10-K, together with all the other information in this Quarterly Report on Form 10-Q, including the forward-looking statements which appear at the beginning of this report.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

On February 24, 2022, the Board of Directors authorized the repurchase of common shares in connection with a $50 million share repurchase program, which expires on February 22, 2027. There were not any repurchases of common stock made under this program during the third quarter of 2023. At October 7, 2023, $25.5 million remains available under the program. Repurchases of common stock may include: (1) shares of SpartanNash common stock delivered in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The value of the shares delivered or withheld is determined by the applicable stock compensation plan. The Company plans to return value to shareholders through share repurchases under this program as well as continuing regular dividends.

Fiscal Period	Total Number of Shares Purchased				Average Price Paid per Share					Total Number of Shares Purchased as Part of Publicly Announced Programs				Maximum Dollar Value of Shares Yet to be Purchased Under the Plans or Programs (in thousands)
July 16 - August 12, 2023
Employee Transactions		89			$		23.47			N/A					N/A
Repurchase Program		—			$		—				—			$		25,467
August 13 - September 9, 2023
Employee Transactions		418			$		22.14			N/A					N/A
Repurchase Program		—			$		—				—			$		25,467
September 10 - October 7, 2023
Employee Transactions		94			$		21.04			N/A					N/A
Repurchase Program		—			$		—				—			$		25,467
Total for quarter ended October 7, 2023
Employee Transactions		601			$		22.16			N/A					N/A
Repurchase Program		—			$		—				—			$		25,467

 

 

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ITEM 6. Exhibits

The following documents are filed as exhibits to this Quarterly Report on Form 10-Q:

Exhibit Number		Document
3.1		Restated Articles of Incorporation of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 15, 2017. Incorporated herein by reference.
3.2		Bylaws of SpartanNash Company, as amended. Previously filed as an exhibit to the Company's Current Report of Form 8-K filed on August 25, 2023.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 7, 2023, has been formatted in Inline XBRL.

 

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		SPARTANNASH COMPANY (Registrant)
Date: November 9, 2023		By		/s/ Jason Monaco
				Jason Monaco Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date: November 9, 2023		By		/s/ R. Todd Riksen
				R. Todd Riksen Vice President and Corporate Controller (Principal Accounting Officer)

 

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