SpartanNash posted across-the-board sales gains for its 2020 fourth quarter but saw quarterly adjusted earnings per share fall short of Wall Street’s consensus forecast.
For the 13-week quarter ended Jan. 2, net sales totaled $2.25 billion, up 12.5% from $2 billion a year earlier, SpartanNash reported yesterday after the market close. Sales drivers for the period included continued growth with current food distribution clients and higher consumer demand in the retail and food distribution segments due to the COVID-19 crisis, the Grand Rapids, Mich.-based grocery distributor and retailer said. Growth was partially offset in the military distribution segment by pandemic-related restrictions on domestic base access and commissary shopping.
Consolidated net sales for the 53-week 2020 fiscal year climbed 9.5% to $9.35 billion from $8.54 billion in 2019, with the extra week contributing $158.9 million to the sales total. Increased business with food distribution customers and coronavirus-driven demand in the retail and food distribution segments boosted full-year results, in part offset by the exit of the fresh production operations and lower comparable sales in the military segment.
“We are pleased with our top-line results of 12.5% growth in the quarter, which of course includes the impact of the 53rd week. Although the pandemic has contributed to our overall increase in sales volume, our team continues to deliver new business wins, which will contribute to our company's growth for years to come,” President and CEO Tony Sarsam (left) told analysts in a conference call on Thursday.
“With record demand across most of our businesses, merely keeping the shelves stocked was no small achievement, and I’m proud of our team’s tenacity and their ability to keep our communities fed. We also generated a substantial amount of free cash flow during 2020, mostly due to improved profitability, which allowed us to pay down a significant portion of our long-term debt balance,” Sarsam said. “Naturally, this improvement provides increased flexibility and for us the ability to reinvest in the business to support future growth and driver greater efficiencies,” he added. “It will also enable us to deploy capital for other projects as opportunities present themselves.”
By business unit, food distribution led the way in the fourth quarter with net sales rising 17.8% to $1.11 billion. Fiscal-year net sales in the segment, including $76.4 million from the 53rd week, came in at $4.58 billion, up 14.9% year over year.
SpartanNash’s corporate-owned supermarkets also turned in strong gains. Retail segment net sales grew 14.5% to $627.4 million in the quarter, with comparable-store sales up 8.7%, partially offset by lower fuel sales. E-commerce sales jumped nearly 180% year over year, the company said. Full-year retail net sales rose 10.8% to $2.64 billion, with the extra week adding sales of $49.1 million.
Overall, SpartanNash operates 154 grocery stores in Michigan, Indiana, Iowa, Minnesota, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin under the banners Ada Fresh Market, D&W Fresh Market, Dan’s Supermarket, Dillonvale IGA, Econofoods, Family Fare, Forest Hills Foods, Fresh City Market, Martin’s Super Markets, No Frills, Pick’n Save, SunMart, Supermercado Nuestra Familia, ValuLand and VG’s Grocery.
Net sales in the military distribution segment edged up 0.6% to $514.1 million in the fourth quarter but dipped 1.8% to $2.13 billion for the full year. In addition to incremental net sales of $33.4 million in the 53rd week, the fiscal year result reflects growth in private-label and export sales, SpartanNash said. However, the sales growth drivers were more than offset by significant declines in Defense Commissary Agency (DCA) sales, which were impacted by restrictions on domestic base access and commissary shopping due to the pandemic, according to the company.
“Having visited the front lines and carried out a dialogue with leaders at all levels of the organization, I’ve gained great insight into the areas which require focus and, at the same time, I’ve gained an appreciation for what our team is capable of achieving,” Sarsam noted on the call. “Despite the truly valiant efforts put forward by our associates during COVID-19, the pandemic has highlighted where we require investments in our efforts to grow sales and operate efficiently in the coming years. In the last few months, many of our warehouses have been strained, and they operate at or above capacity. On top of that, we have held our teams to heighten safety protocols and often been required to manage through staffing challenges associated with the pandemic. While we’ve been limited in our ability to make progress on improvement initiatives during the pandemic, over this period our team has identified several areas that offer potential for measurable process improvements.”
Areas earmarked for improvement, which Sarsam dubbed as key performance indicators (KPIs), include safety and retention, distribution service levels, private-brand assortment and penetration, and gross margin levels. A “renewed focus” on training supply chain associates also stands to “promote their growth as efficient to operators,” he said.
“These KPIs will be utilized to measure ourselves internally and to evaluate our progress. Improvements in these areas require some operational investments in people and processes,” Sarsam explained. “In addition to support our continued growth in the food distribution segment and the expanding capabilities of supply chain network, we recently opened a new distribution center at Severn, Md. This strategic investment represents our most significant addition to the supply chain network in many years. It will alleviate the stress on some of our other facilities in the short term and support our growth in the long term.”
At the bottom line, SpartanNash recorded fiscal 2020 fourth-quarter net income from continuing operations of $12.1 million, or 34 cents per diluted share, compared with $5.5 million, or 15 cents per diluted share, a year ago. Adjusted earnings from continuing operations came in at $15.5 million, or 43 cents per diluted share, compared with $8.3 million, or 23 cents per diluted share, in the 2019 quarter.
Analysts, on average, had projected adjusted EPS of 46 cents, with estimates ranging from a low of 40 cents to a high of 58 cents, according to Refinitiv.
“The increase in our profitability from the prior-year quarter was driven by the higher sales volume, particularly from the higher-margin retail segment, gross-margin rate expansion across all our business segments, and increased leverage of our operating expenses, particularly in retail store labor and various fixed costs,” Chief Financial Officer Mark Shamber said in the call. “These positive contributions were partially offset by the previously announced non-cash warrant expense of $6.5 million related to the transaction with Amazon, increased corporate administrative expenses, including incentive compensation and a higher rate of supply chain expenses, which were compounded by the effects of COVID-19.”
Fiscal 2020 net income from continuing operations totaled $75.9 million, or $2.12 per diluted share, versus $5.9 million, or 16 cents per diluted share, in fiscal 2019. On an adjusted basis, net earnings from continuing operations were $90.8 million, or $2.53 per diluted share, compared with $39.9 million, or $1.10 per diluted share, a year earlier. The 2020 fourth quarter and full-year adjustments include restructuring, asset impairment and other charges of $3.9 million and $24.4 million, respectively, among other items. Wall Street’s consensus estimate was for adjusted EPS of $2.53, with projections running from a low of $2.44 to a high of $2.68.
Looking ahead, SpartanNash projects reported earnings (continuing operations) of $1.48 to $1.67 per diluted share for the 52-week 2021 fiscal year. Adjusted EPS (continuing operations) is pegged at $1.65 to $1.80. Analysts’ consensus estimate is for 2021 adjusted EPS of $2.08, with a range of $1.84 to $2.34, according to Refinitiv.
Citing the year-over-year cycling of sales gains from the pandemic, SpartanNash expects fiscal 2021 sales to decline 1% to 3% in food distribution and 3% to 5% in military distribution, with retail comp sales down 6% to 8%.