Nash Finch Cites Impact of Sequestration

MINNEAPOLIS — The budget cuts known as sequestration that took effect on Friday have already been impacting wholesaler Nash Finch [2], the company said.

The company, which generates nearly half its sales from distribution to military commissaries, said those volumes have been under pressure since January as a result of the threat of sequestration.

“On the military side of our business, sequestration will cast a cloud on our sales during at least the first half,” said Alec Covington, chief executive officer, Nash Finch, in a conference call discussing year-end financial results. “We have noticed since Jan. 1 an impact on the domestic sales into commissaries, and that’s been driven by preparations for sequestration.

“Sequestration is not a light switch. It’s not like people get up one day and they make these changes. The reality is that the preparation for that work has been going on for quite some time, and I think there has been consumer reaction to that,” he said. “If every morning you get up and you are an employee of the Department of Defense, and you hear about furloughs, and being furloughed one day a week, and those kinds of things, it has to affect the way that you spend your money.”

“So sequestration is already impacting the overall broader economy I believe, and as it relates to our business and to all parties that are involved in the military resale system — and I am talking manufacturers and distributors such as Nash Finch and others — we are already seeing some of the impacts of that in our numbers, and in our sales.”

Covington said that full sequestration would most likely result in commissaries closing one day a week — most likely Wednesday — and it was not yet clear how much of those sales would be shifted on to other days of the week.

 “We do expect sales to stabilize in military in the second half of the year, and we further expect to see improvements in the fourth quarter assuming that sequestration by that time has been pulled back a little bit, or maybe more logically resolved than the way it is being resolved right now,” he said.

Sales in the military segment were down 5.3% for the fourth quarter, to $536.8 million, and down 1.8% for the year, to $2.31 billion.

Overall, Nash Finch posted a loss for 2012 after writedowns totaling $133.5 million.

The company said net income without the impact of the charges was down about 50% for the fourth quarter, to $6.4 million, and down about 22.5% for the year, to $39.7 million.

Including the one-time charges, the losses totaled $29 million in the fourth quarter and $93.9 million for the full year.

Sales for the fourth quarter fell 1.1%, to $1.14 billion, and sales for the year were down 0.7%, to $4.82 billion.

Following the acquisition of the Bag ’N Save and No Frill chains in the Omaha, Neb., market, Nash Finch reported a gain in retail segment sales for the year, to $666.4 million. It also recorded a corresponding decline in distribution revenues of $119.7 million, to $1.84 billion, as both chain were former customers. Combined retail/distribution sales were up 3.1% in the fourth quarter and 0.4% for the year.

Read more: Nash Finch Debt Outlook Lowered [3]

Same-store sales were down 1.4% for the fourth quarter and 1.1% for the year.

Covington said he expected distribution sales and EBITDA to increase in the second half of 2013 as the company recently added a new customer, whom he did not identify, in North Dakota.

“We have the strongest pipeline of new business that I have seen in a number of years,” he said.

Covington also said the company will launch yet another Family Fresh Market in St. Peter, Minn., later this year, and will focus on remodels in the Omaha market, where Wal-Mart Stores is expanding with Neighborhood Markets.

In addition, Nash Finch recently sealed an agreement to supply tobacco products to Dollar General and is exploring other distribution opportunities with nontraditional retailers, Covington said.

”In 2013 we are focusing our efforts on sales growth and reducing expenses and are already beginning to see progress,” he noted.

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