SpartanNash reported softer sales gains for its fiscal 2020 third quarter, while at the bottom line adjusted earnings per share topped Wall Street’s forecast.
For the 12-week quarter ended Oct. 3, SpartanNash totaled net sales of $2.06 billion, up 3.1% from $2 billion a year earlier. The Grand Rapids, Mich.-based grocery distributor and retailer attributed the uptick to higher sales in its retail and food distribution businesses, partially offset by a decline in the company’s military distribution unit.
In the core food distribution segment, net sales climbed 7.8% to $1.01 billion from $939 million in the prior year quarter. SpartanNash said the increase reflects sales growth with current customers plus volume gains from higher consumer demand driven by the coronvirus pandemic, despite a negative impact from the company’s decision to exit its fresh production operations.
Net sales remained robust in the retail business unit, rising 6.2% to $596.7 million from $561.6 million a year ago, mainly due to COVID-fueled consumer demand, according to SpartanNash. Same-store sales jumped 10.6% year over year but were partially offset by lower fuel sales and store closings. E-commerce sales by the retail store banners surged more than 175% in the quarter.
Currently, SpartanNash operates 156 supermarkets in the Midwest, primarily under the Family Fare, Martin’s Super Markets, D&W Fresh Market, VG’s Grocery and Dan’s Supermarket banners.
Tony Sarsam succeed Dennis Eidson as SpartanNash president and CEO in September. (Photo courtesy of SpartanNash)
Military distribution net sales, meanwhile, fell 9.5% to $452 million from $499.2 million in the 2019 quarter. SpartanNash noted that private-label and export sales gains were more than offset by the impact of pandemic-related restrictions on domestic base access and commissary shopping, which the company said led to “significant declines” in Defense Commissary Agency sales.
In the fiscal 2020 second quarter, consolidated net sales rose 9.4%, including increases of 16.5% in food distribution and 10.8% in retail (with same-store sales up 17.1%) and a 5.6% decrease in military distribution.
The third quarter marked the first reporting period for new President and CEO Tony Sarsam, who took the helm at SpartanNash on Sept. 21 in succeeding Chairman and Interim CEO Dennis Eidson.
“During my first nine weeks in the job, I’ve had the pleasure of meeting hundreds of associates at our stores and distribution centers. In those visits, my first objective was to listen and understand what drives their success and challenges on a daily basis. I’m inspired by the level of passion we have within this organization and our unrelenting commitment to serve our customers,” Sarsam told analysts in a third-quarter conference call on Thursday. “I’ve planned to share more specific objectives for the organization over the coming months. However, my immediate goal is to ensure that we are leveraging our existing competencies to yield improvements in our operating performance. Our financial results have underwhelmed in recent years, and I’m confident that, together, we can achieve more. I will work to pair the insights I have gained with the operational strategies to unlock the true potential of our organization.”
Chief Financial Officer Mark Shamber pointed to a continued strong performance by SpartanNash’s retail division, which has met shoppers’ changing needs amid the COVID-19 crisis.
“Comparable-store sales benefited from the shift towards food-at-home and also reflect our strong customer penetration. These results also reflect the increases of over 175% in our e-commerce sales for the quarter and continued favorably in our private-label sales, particularly compared to competitors,” Shamber said in the call. “We also continue to benefit from higher EBT sales, although not at the same levels as earlier in the year. Early in the fourth quarter, we had a grand opening for our new Martin’s store in Elkhart, Ind., replacing a previously closed store as part of the redevelopment of the city’s River District, increasing our current store count to 156 stores.”
On the earnings side, SpartanNash posted third-quarter net income of nearly $20 million, or 56 cents per diluted share, compared with a net loss of $337 million, or 1 cent per diluted share, a year ago. Adjusted earnings (continuing operations), which exclude more than $6.5 million in restructuring and asset impairment costs, among other items, came in at $25.1 million, or 70 cents per diluted share, versus $10.9 million, or 30 cents per diluted share, in the prior-year period.
Analysts, on average, had projected adjusted EPS of 62 cents for the quarter, according to Refinitiv/Thomson Reuters.
During the analyst call, Shamber also commented on SpartanNash’s recent stock warrant offering to e-tail giant Amazon. In an early October filing with the Securities and Exchange commission, SpartanNash said it issued a warrant to an Amazon subsidiary that would enable it to buy up to more than 5.4 million shares of common stock at about $17.7e per share, or a $96.4 million total investment, through Oct. 7, 2027. The aggregate number of shares offered through the warrant represent about 15% of SpartanNash’s shares outstanding.
“We’ve been doing business with Amazon since back in 2016 when Dennis [Eidson] was in the CEO seat and Dave [Staples] was in the COO seat,” Shamber explained. The relationship encompassed supplying dry and chilled groceries to Amazon distribution centers, including support of the Amazon Prime Now grocery delivery program and emerging AmazonFresh perishables delivery service.
“That relationship has continued over the last four-and-a-half, almost five years now. And I think that the announcement certainly indicates that we’re going to continue to work with them, and there’s an opportunity for Amazon — which we hope they fully take advantage of — to purchase up to $8 billion over the course of seven years or less in order to get the warrants to be able to exercise in our stock,” he said.
“If you do the math, if there’s $8 billion in purchases over seven years to fully vet the exercisability of all the warrants, that would average out to north of $1.1 billion in sales over that seven-year period,” Shamber added. “So we hope they do that over that time frame, and if they’d like to get that done even sooner, that would be a welcome benefit. So we’ve worked with them for a number of years, we’ll continue to work with them, they’ve been a great customer, and we look forward to continuing the partnership.”
Looking ahead, SpartanNash has narrowed its fiscal 2020 earnings guidance, projecting reported EPS of $2.09 to $2.17 (versus $2.13 to $2.41 previously) and adjusted EPS of $2.42 to $2.50 (versus $2.40 to $2.60 previously). The company said its updated outlook reflects the continued benefits of sales trends from higher consumer demand amid the pandemic, offset by estimated noncash stock warrant expense of $6 million to $7 million, or 13 cents to 15 cents per diluted share.
Analysts’ consensus projection for the full year is for adjusted EPS of $2.55, with estimates ranging from a low of $2.44 to a high of $2.78, according to Refinitiv/Thomson Reuters.