Distribution, Military Businesses Boost SpartanNash's Q2 Sales

Continued sales growth in food distribution and military businesses helped consolidated net sales grow in SpartanNash’s second quarter of fiscal 2018, despite lower sales at its retail business.

Altogether, SpartanNash’s net sales rose 2.1 percent, reaching $1.9 billion, with sales continuing to grow in food distribution (4.3 percent) and military (3.9 percent).

“We continue to make progress towards our long-term strategic objective of becoming a growth company focused on developing a national, highly efficient distribution platform that services a diverse customer base and is known for solving unique and complex logistical issues,” said David Staples, SpartanNash president and CEO. “Our business will be driven by an efficient and versatile supply chain that services our highly complementary business units of food distribution, military distribution and retail.”

Food Distribution

In food distribution, net sales reached $941.7 million, compared to $903.1 million during the same period a year prior. This was primarily due to sales growth from both new and existing customer programs, and partially offset by reduced sales volume as a result of a product recall.

The recall, which occurred in June, concerned potential salmonella contamination with certain fresh-cut products made at the Caito Foods facility in Indianapolis, where production and distribution of the products was temporarily suspended. While no evidence of the contamination was detected in any tests that followed, the company did suffer pre-tax estimated losses of $2.9 million.

Military

In the military segment, net sales hit $489.7 million, compared to $471.1 million in Q2 of last year. This was primarily due to the commisary business in the Southwest purchased in last year’s Q3 and incremental volume from the private-label program, partially offset by lower comparable sales at Defense Commissary Agency-operated locations.

Retail

In retail, net sales fell from $482 million in Q2 2017 to $464.6 million in Q2 2018. This was primarily attributable to $15.5 million in lower sales resulting from the closure and sale of retail stores, as well as a 1.9 percent decrease in comps, which exclude fuel. The declines were partially offset by higher fuel sales compared to the prior year’s Q2.

SpartanNash also closed one retail store and sold another as part of its store rationalization plan. It ended the period with 140 corporate-owned retail stores compared to 151 stores for the prior year’s Q2.

"We expect to see continued strong distribution sales growth during the back half of fiscal 2018 and into 2019,” Staples said. “As I stated previously, we remain excited about our long-term strategic objectives as we continue to build our distribution businesses, move forward with the rebranding of our Family Fare banner and grow our fresh product offering. However, we will continue to face some challenges as we move into the second half of the year. Within our military segment, all parties are very pleased with the performance of the private-brand products released to-date, and we continue to expect growth for the remainder of this year and significant growth in fiscal 2019."

He continued, however, that the release of new products under the program for the back half of the year is now anticipated to be “much slower” than the original plan for fiscal 2018. The company also expects lower sales and profit growth than originally anticipated from food processing operations.

“Despite strong interest in our offerings, the new business development timeline is taking longer than anticipated and production efficiency improvements are running behind plan partially due to disruption caused by the voluntary product recall. Lastly, within the food distribution segment, the roll out of one of our significant customer programs is taking longer than our initial expectations. While this program has now launched, and we believe it will provide substantial volume going forward, the volume and profit contributions to the business for the second half of 2018 will be below our initial forecast. We expect all of these efforts to benefit our fiscal 2019 results.”

SpartanNash also updated its guidance for the rest of the fiscal year, primarily due to the headwinds Staples mentioned. Updates include such expectations as:

• Food distribution sales to grow at an even stronger rate during the second half, and military sales slightly negative as the company cycles the new business obtained in the prior year’s Q3 
• The retail segment sales trend to continue improving over the second half of the year as the company remodels and launches more stores with its repositioning and also begin inserting elements of the repositioning into additional stores

Grand Rapids, Mich.-based SpartanNash is one of the country’s biggest grocery distributors and grocery wholesalers, and serves customer locations in all 50 states and the District of Columbia, Europe, Cuba, Puerto Rico, Bahrain, Djibouti and Egypt. SpartanNash currently operates 140 supermarkets, primarily under the banners of Family Fare Supermarkets, D&W Fresh Market, VG’s Grocery, Dan’s Supermarket and Family Fresh Market. For its corporate-owned retail operations, SpartanNash ranks No. 35 on Progressive Grocer’s 2018 Super 50 list of the top grocers in the United States.