Spartan Narrows Net Debt in Q4
Spartan Stores Inc. reported a 2.3 percent increase in consolidated net sales to $571.5 million for the company’s fourth quarter ending March 26, compared to $558.8 million for the same period last year.
Q4 operating earnings increased 80 percent to $15.9 million, compared with $8.9 million in the year-ago period. Excluding a pre-tax charge associated with restructuring costs of $200,000 this year and $4.8 million last year, adjusted Q4 operating earnings were $16.1 million, compared with $13.7 million in the previous year. Last year’s fourth quarter pretax charge related to a previously disclosed warehouse consolidation initiative and its associated administrative cost reductions as well as adjustments for certain real estate projects.
“We are pleased that we concluded fiscal 2011 with a strong fourth-quarter financial performance,” said Dennis Eidson, Spartan’s president and CEO. “Our profitability remains at historically high levels and we continue to generate strong cash from operations.”
Q4 earnings from continuing operations improved 129.6 percent to $7.7 million, or 34 cents per diluted share, from $3.3 million, or 15 cents per diluted share in the year-ago quarter. Excluding the previously mentioned net charges, adjusted earnings from continuing operations for the quarter increased 19.5 percent to $7.8 million, or 34 cents per diluted share, compared to $6.5 million, or 29 cents per diluted share last year.
Sales increases, improved overall margins, a continued focus on cost control and increased operating efficiencies related to the company’s spring 2010 warehouse consolidation initiative primarily contributed to the earnings improvement.
Q4 gross profit margin increased 10 basis points to 22.7 percent from 22.6 percent in the same period last year. The increase was due to improved margin contribution from the company’s distribution segment and higher fuel margins partially offset by lower retail supermarket margins.
Operating expenses totaled $113.9 million, or 19.9 percent of net sales, compared with $117.3 million, or 21.0 percent of sales in the year-ago quarter. Spartan’s expense leverage was improved by a shift in mix of sales towards fuel, productivity improvements in both segments and cost containment initiatives which were partially offset by higher debit/credit card fees and employee incentive compensation costs.
Q4 net sales for the distribution segment rose to $248.9 million from $244.3 million in the year-ago period, due largely to an improvement in pharmacy related sales and new customers gained.
Operating earnings for the segment increased 74.4 percent to $13.9 million, compared with $8 million in the same period last year.
Q4 net sales for the retail segment increased 2.6 percent to $322.6 million, compared to $314.4 million in the same period last year. The higher sales were due primarily to higher retail fuel selling prices and a new supermarket location partially offset by a decline in comparable store sales, excluding fuel, of 0.9 percent. Q4 comparable store sales results continued Spartan’s trend of sequential quarter-over-quarter improvement.
Retail segment operating earnings for the quarter increased to $2.1 million, compared to $900,000 million in the year-ago period. The increase in operating earnings was attributed to lower employee incentive costs, improved fuel margins and the cycling of the cost of an employee benefit change last year, partially offset by lower supermarket gross margins due in part to the launch of the YES customer loyalty card at the VG’s banner and an increased LIFO inventory valuation charge.
As of March 26, total net long-term debt (including current maturities and capital lease obligations and subtracting cash) decreased $45 million to $131.1 million from $176.1 million at the end of last year.
“I am pleased to report we achieved our third consecutive year of over $100 million in adjusted EBITDA,” Eidson said. “We continued to improve the fundamental operating structure and effectiveness of our business which allowed us to generate increased cash flow and reduce net debt. Our consistent improvement of these key financial metrics reflects the strength of our business model and the commitment and the ability of our entire team to execute our business strategy.”
Consolidated net sales for FY 2011 were $2.53 billion, compared with $2.55 billion last year. The annual net sales decline resulted from continuing adverse regional economic conditions and competitive pressures partially offset by higher retail fuel selling prices. Also contributing to the decline were lost sales of $13 million related to retail stores that were closed or sold during fiscal 2010.
Fiscal 2011’s adjusted operating earnings, excluding the pretax impacts of restructuring were $65.0 million compared with $64.8 million last year.
“Our priorities for fiscal 2012 will continue to focus on improving sales growth in both our distribution and retail segments, enhancing our value proposition to the consumer and achieving additional efficiencies, through tight management of the controllable aspects of our business,” Eidson said. “The key initiatives to achieve these results will include the continued development of our private brand program, rollout of our loyalty card program to the remainder of our banners, a focus on fresh excellence across our banners and a continued emphasis on providing health and wellness solutions to the consumer. Additionally, we will continue to seek prudent growth opportunities in our existing markets or adjacent states through new customer development or acquisitions and we remain confident in our long-term strategy.”
Grand Rapids, Michigan-based Spartan Stores Inc. distributes more than 40,000 corporate and national brand products to approximately 375 independent grocery stores in Michigan, Indiana and Ohio, and to 97 corporate-owned stores located in Michigan, including Family Fare Supermarkets, Glen’s Markets, D&W Fresh Markets and VG’s Food and Pharmacy and Valu Land.