MINNEAPOLIS — After-effects of a court settlement with Roundy's Supermarkets helped Nash Finch here post a strong gain in earnings for the fiscal third quarter, despite sales declines in its retail and wholesale grocery business.
Company officials last week said they were “extremely pleased” with the quarter, highlighting underlying EBITDA growth despite price deflation and consumers under continued pressure.
“As you look at our quarterly results, you see there is quite a bit of noise in the numbers,” Alec Covington, president and chief executive officer, told analysts in a conference call, referring to the impact of the Roundy's settlement that allowed the company to recognize a $7.6 million gain from an adjustment in the purchase price for two facilities sold by Roundy's to Nash Finch in 2006, as well as lapping an $8.8 million inventory charge in the third quarter last year. Those events helped Nash Finch post net earnings of $21.9 million — a 185.3% increase from the same period last year, on revenues of $1.6 billion.
Revenues increased 15.3% overall, but were boosted by the acquisition of three military distribution centers. Excluding the acquired assets, sales decreased by 0.9%, led by a 4.4% decline in retail sales and a 2.6% decline in food distribution revenues.
Covington noted that Nash Finch grew EBITDA by 4.6% during the quarter to $46 million, due in part to military distribution sales and cost reductions. “It's all about managing in choppy waters,” he said.
Covington noted rising unemployment among Hispanics in the Denver market — along with new competitors — adversely affected sales at its three Avanza stores there. He called Denver the company's “No. 1 issue” for retail sales, which fell 3.3% on a comparable basis during the quarter.
Overall, revenues were down more than Nash Finch had anticipated as price deflation accelerated.
“Instead of deflation beginning to stabilize as we had thought it might, we were wrong and deflation actually had more impact in the third quarter than it did in the second and the first,” Covington said. He added that the company has “no visibility” as to when that trend will reverse.
Covington said it was likely the company would acquire a military distribution center during the fourth quarter. The company originally planned to lease the facility.