Earnings Up, Sales Down in Q2 at SpartanNash

Grand Rapids, Mich.-based SpartanNash Co. reported consolidated net sales of $1.8 billion for its 12-week second quarter that ended July 18.

Increases in the food distribution segment were offset by the impact of closed stores, a decrease in comparable store sales, significantly lower retail fuel prices compared to the prior year, and lower sales in the military segment, the company reported. Meanwhile, SpartanNash reported adjusted earnings of $58.5 million, or 3.3 percent of net sales, compared to $58.3 million, or 3.2 percent of net sales, for the year-ago period. Reported operating earnings increased to $36.8 million from $32.6 million in the prior year quarter, credited to improved operational efficiencies and lower merger and integration expenses. Adjusted earnings from continuing operations for Q2 increased to $19.8 million, or 53 cents per diluted share, from $19.1 million, or 50 cents per share, a year ago.  

"We are pleased with our earnings results in the second quarter," said Dennis Eidson, SpartanNash's president and CEO. "In spite of a challenging sales environment, we grew operating profit and exceeded earnings expectations due to our disciplined cost control, merger synergies and improved operational efficiencies. While we experienced sales growth in our food distribution segment, sales in our retail segment were negatively affected by the closure of stores, lower fuel prices, a continued competitive retail food environment and unfavorable weather conditions in our Michigan markets. As we have previously mentioned, we are very focused on improving the performance of our retail segment's western store base. We continue to make progress on our initiatives, including the rollout of merchandising, pricing, and promotional strategies across this store base, as well as the re-grand opening of our six remodeled stores in Omaha a few weeks ago. In addition, we are pleased to have acquired six stores from Dan's Supermarket Inc., which was not previously supplied by SpartanNash, in Bismarck, North Dakota, and have been encouraged by the transition to SpartanNash operations."

Food Distribution Segment

Net sales for the food distribution segment increased 1.9 percent to $782.7 million in Q2 from $767.9 million for the second quarter last year. Q2 adjusted operating earnings for the food distribution segment increased to $18.5 million from adjusted operating earnings of $13.5 million in the same period last year. 

Retail Segment

Net sales for the retail segment were $516.1 million in Q2 compared to $539.8 million last year, primarily due to $17.1 million in lower sales due to the closure of retail stores and fuel centers, a 3.2 percent decrease in comparable store sales, excluding fuel, and $10.6 million due to significantly lower retail fuel prices compared to the prior year, partially offset by sales of $9.2 million from the recently acquired stores. Comparable store sales reflect increased competition, unseasonably cool weather in the Michigan market compared to the prior year, and the continued impact of a low inflationary environment. Second quarter adjusted operating earnings for the retail segment were $14.7 million, compared to adjusted operating earnings of $16.9 million in the prior year second quarter.

During the second quarter, SpartanNash acquired six stores from Dan's Supermarket Inc. in Bismarck, N.D., and ended the quarter with 165 corporate-owned stores and 29 fuel centers.

Military Segment

Net sales for the company's military segment were $497 million in the second quarter compared to $502.4 million in the prior year period due to lower sales at the DeCA-operated commissaries. Reported operating earnings for the military segment were $3.9 million, compared to $5.9 million in the prior year quarter primarily due to the cycling of a purchase accounting related adjustment for depreciation expense.

"As we begin the second half of 2015, we are pleased with our solid execution and the progress we have made operationally and strategically," Eidson said. "Although the retail environment in our markets remains challenging, we continue to work on improving our offerings in the Western Division and recently completed six remodels and re-banners to Family Fare in the Nebraska market. In conjunction with the re-banners, we launched our new Things Are Good Here advertising campaign, which is focused on our differentiated shopping experience and our commitment to convenience, quality and overall value. We are in the process of rolling out our yes Rewards loyalty program to our western markets and are highly encouraged by the initial acceptance rates and preliminary success of this venture. In addition, we remain optimistic about our prospects in our Food Distribution segment and continue to expect further benefits from the merger integration and improved operational efficiencies, including the optimization of our supply chain. Additionally, we will continue to proactively pursue financially and strategically attractive acquisition opportunities."

For the third quarter and remainder of fiscal 2015, the company anticipates that net earnings from continuing operations per diluted share will slightly exceed last year's adjusted comparable third and fourth quarter results of 46 and 44 cents per diluted share, respectively, excluding merger integration costs and any other one-time expenses.

SpartanNash's core businesses include distributing food to military commissaries and exchanges and independent and corporate-owned retail stores located in 46 states and the District of Columbia, Europe, Cuba, Puerto Rico, Bahrain and Egypt. SpartanNash currently operates 165 supermarkets, primarily under the banners of Family Fare Supermarkets, Family Fresh Markets, D&W Fresh Markets and Econofoods.