Covington: Nash Finch Turnaround Gaining Traction

MINNEAPOLIS — Although accounting and impairment charges caused a 44% decline in net income, Nash Finch officials declared the third quarter a success on the basis of sales and EBITDA increases in all three of its operating segments.

“I think the headline for us this quarter is that the company is growing again, and that's important, because companies that don't grow die,” Alec Covington, chief executive officer, said in a conference call discussing results.

Food distribution sales improved 3.7%, retail sales gained 3% and military sales improved 9.1% in the quarter, the company said.

For the 16-week period, which ended Oct. 4, Nash Finch reported net income of $8.6 million on sales of $1.44 billion. Income was down from $15.4 million in the same period a year ago, due in part to $4.6 million in LIFO accounting charges vs. a $3.9 million credit in the same period a year ago. Overall sales improved by 3%.

Covington was upbeat as he contrasted the quarterly performance from the point at which he joined the company in 2006 and began a turnaround. “We have longed for the day when we could see ourselves again as a growth company,” he said. “This quarter we exceeded our 2% growth target. We are very proud of that.”

Covington said capital expenditures, previously expected to be about $50 million in fiscal 2008, would come in at about $35 million, due mainly to various construction delays. That capital, he said, would be redeployed in fiscal 2009, when Nash Finch expects to spend about $60 million — including some to accelerate the rollout of its Hispanic-themed Avanza stores to new markets. Nash Finch also plans two conversions of existing retail stores to its Family Fresh format.

“We've experienced really great results with our Avanza format in 2008,” he said, citing converted stores in Omaha, Neb., and Greeley, Colo. “We want to do more of those.”

Covington said Family Fresh, which Nash Finch debuted earlier this year in Hudson, Wis., was generating a “phenomenal” consumer reaction. “Sales projections are exceeding anything we thought was possible.”

Remodeled and reformatted stores in the Family Fresh and Avanza concepts, along with improved conditions in other stores, helped Nash Finch's retail base post $186.2 million in sales, including a comparable-store gain of 0.7%.

“That's not exactly claiming victory, we understand that,” Covington said. “But being positive by 70 basis points is something we are quite proud of, given where we have come from in the past.”

The distribution segment accounted for $839.9 million in sales, a 3.7% improvement from the same period last year, due to an increase in new customers, as well as increases in sales to existing customers, Covington said. The food distribution segment's EBITDA increased 3.4%, he added.

Nash Finch's military sales unit posted a 9.1% increase, to $410.4 million, and EBITDA from the unit improved 20.6% thanks to improved sales and better inventory management, Covington said.