SpartanNash saw sales rise for the 2019 fourth quarter and fiscal year, as growth in its retail business — buoyed by the acquisition of Martin’s Super Markets — overcame lackluster sales at its food and military distribution segments.
At the bottom line, Grand Rapids, Mich.-based SpartanNash fell a few cents short of Wall Street’s earnings-per-share projections for both periods.
For the 12-week fourth quarter ended Dec. 28, overall net sales rose 5.3% to nearly $2 billion from almost $1.9 billion a year earlier, SpartanNash reported late Wednesday. The company attributed the increase to the Martin’s acquisition, which closed in January 2019, and higher sales in the food distribution segment before the elimination of the intercompany sales for the acquired business.
Gross profit came in at $286.7 million, or 14.4% of net sales, up from $245.4 million, or 12.9% of net sales, in the 2018 quarter. The improvement reflects the addition of Martin’s and the resulting higher mix of retail sales, according to SpartanNash.
Fiscal year 2019 net sales totaled $8.54 billion, climbing 5.8% from $8.06 billion in 2018, also driven by the Martin’s acquisition and increased food distribution sales prior to intracompany sales elimination. Gross profit grew to $1.24 billion, or 14.6% of net sales, from $1.11 billion, or 13.8% of net sales, last year.
The fourth-quarter sales gain marked SpartanNash’s 15th consecutive quarter of growth, according to Dennis Eidson, chairman and interim president and CEO.
SpartanNash's strategic plans made headway during the 2019 fiscal year, Chairman and Interim CEO Dennis Eidson noted. (Image courtesy of SpartanNash)
“We not only met our goal of sustaining mid-single-digit sales growth for another quarter, but we continued our momentum at retail by closing the year with positive comp-store sales for the second consecutive quarter,” Eidson told analysts in a conference call Thursday.
“We were able to conclude 2019 with consolidated financial results in line with our guidance despite some ongoing challenges and cost pressures, including elevated health care costs, in the fourth quarter,” he noted. “Our team remains committed to improving our execution and to our long-term strategy. We're building upon our existing foundation each day from our retail stores to our food and military distribution businesses as we increasingly position the company to sustain profitable growth.”
In core food distribution segment, net sales dipped 1.6% year over year to $938.9 million in the fourth quarter. SpartanNash said that, excluding the elimination of intercompany sales to Martin’s, net sales advanced 2.5%, mainly from sales growth with existing customers. Fiscal 2019 food distribution sales totaled $3.98 billion, a decrease of 0.2%.
“We're continuously supporting initiatives to make improvements to our supply chain to increase efficiencies as well as reduce expenses. As evidenced in the fourth quarter, a significant component of our working capital improvements resulted from better inventory management. We're building on the tools we discussed previously to better forecast demand and informed purchasing activities to also manage our assortment,” Eidson explained in the call.
“Our transportation team is in the process of implementing new route-management tools to reduce miles traveled, which includes the installation of new on-board computers on all trucks to improve road planning, efficiency and service levels. We're encouraged by these new programs that will enable us to better leverage our fleet across the distribution network,” he said. “We concluded the operation of the Fresh Kitchen during the fourth quarter of fiscal 2019 and entered into an agreement to sell the facility and related equipment, with an expected closing date late in the first quarter of fiscal 2020.”
Retail net sales, boosted by the Martin’s acquisition, surged 27.7% in the fourth quarter to $548 million. Comparable-store sales inched up 0.5%, offset by the impact of store closures, SpartanNash said. Full-year retail sales were $2.38 billion, up 24.5%.
“In the retail segment, sales growth was driven by contributions from the newly acquired Martin’s business and the second consecutive quarter of positive comp-store sales,” Eidson told analysts. “We continue to gain valuable insights from our partnership with dunnhumby, which will strengthen our assortment, positioning and loyalty programs to deliver better experiences for our customers as we meet their shopping needs and fuel future growth.”
Meanwhile, military distribution net sales declined 0.5% to $511.0 million in the fourth quarter, reflecting lower comp sales at Defense Commissary Agency (DeCA)-operated locations, partially offset by the expansion of DeCA’s private-label program, SpartanNash reported. For the year, military sales edged up 0.2% to $2.17 billion.
“As fourth-quarter 2019’s shortfall is easily explained by elevated health care costs, and given improved retail comps and distribution margins, SpartanNash appears to be showing signs of stabilization,” Jefferies analyst Christopher Mandevile said in a research note Thursday. “Moreover, 2020 guidance feels attainable. Credit is due to certain c-suite changes, where hard choices have been made and a greater sense of urgency has been instilled.”
On the earnings side, SpartanNash had fourth-quarter net income (continuing operations) of $5.5 million, or 15 cents per diluted share, compared with a loss of $14 million, or 39 cents per diluted share, a year earlier. Adjusted earnings (continuing operations) were $8.3 million, or 23 cents per diluted share, versus $11.4 million, or 32 cents per diluted share, in the year-ago period. The company noted that adjusted earnings for the 2019 quarter reflect an after-tax impact of 11 cents per diluted share from transition costs.
Fiscal 2019 net earnings (continuing operations) totaled $5.9 million, or 16 cents per diluted share, compared with $33.8 million, or 94 cents per diluted share, in 2018. SpartanNash said the decrease stems mainly from pension termination expenses as well as higher supply-chain costs and administrative expenses, including transition costs, partially offset by lower restructuring charges and the addition of the Martin’s stores. Adjusted earnings from continuing operations were $39.9 million, or $1.10 per diluted share, versus $67.3 million, or $1.87 per diluted share, in the previous year.
Analysts, on average, had forecast fourth-quarter adjusted EPS of 27 cents, with estimates ranging from 20 cents to 36 cents, according to Refinitiv/Thomson Reuters. Their full-year consensus estimate was for adjusted EPS of $1.13, with projections running from $1.08 to $1.24.
SpartanNash added that, during fiscal 2019, it made big strides in its Project One Team plan, a companywide initiative to spur growth, improve efficiency and cut costs. The distributor/retailer said it remains on track to realize a run-rate of more than $20 million in annual cost savings by April 20, 2021.
“We are pleased with the progress we made in the second half of the year, and we'll continue to focus on our execution,” Eidson said in the call. “We remain confident the strength of our platform and our future outlook.”
Looking ahead, SpartanNash projects reported earnings (continuing operations) of 93 cents to $1.04 per diluted share for the 53-week 2020 fiscal year. Adjusted EPS (continuing operations) is pegged at $1.12 to $1.20. Analysts’ consensus estimate is for fiscal 2020 adjusted EPS of $1.24, with a range of 97 cents to $1.79, according to Refinitiv/Thomson Reuters.
SpartanNash expects fiscal 2020 sales growth in the low single digits, with retail comp-store sales rising 0.1% to 0.7%. The company currently operates 155 supermarkets, primarily under the banners of Family Fare, Martin’s Super Markets, D&W Fresh Market, VG’s Grocery, and Dan’s Supermarket.