A low inflationary environment and sales challenges resulting from cannibalization and new competition triggered third-quarter financial results that came in below expected ranges from SpartanNash, the company said Thursday.
The Grand Rapids, Mich.-based distributor said consolidated sales of $1.8 billion decreased by 1.2%, with retail sales falling by 2.8%; distribution sales dipping by 0.3% and military sales down by 3.4%. Net earnings for the period, ending Oct. 10, were down 10% to $15.4 million, although adjusted for merger-related costs and for continuing operations, earnings increased to $18.6 million, or 49 cents per share.
Citing an expectation that the challenging sales environment would continue, SpartanNash said adjusted earnings for the fourth quarter would be around 44 cents per share — flat from the same period last year. The company previously expected per-share earnings “slightly above” last year’s figures.
Dennis Eidson, SpartanNash's president and CEO, said inflation in grocery was less than 1% in the third quarter “and it also feels like the early read on Q4 is that inflation is going to soften even more.”
Eidson said his outlook on inflation was driven by what he feels has been a decrease in consumption, “and I don't think CPGs have much of a desire to take the risk of raising prices now, and risk losing demand even further. So I think we're in for a bit of a challenging time.”
Consolidated gross profit margin for the third quarter was 14.6% compared to 14.4% in the prior year, and primarily reflects an increase in fuel margin rate, partially offset by the impact of lower inflation-related gains in the military segment, officials said.
"We are pleased with our ability to generate improved third quarter adjusted earnings," Eidson said. "While the sales environment remains more challenging than anticipated, our team continues to strengthen SpartanNash's value proposition as well as the quality and service that we offer customers across our retail, food distribution and military segments.”
Eidson said SpartanNash during the quarter continued to invest in its western store base, completing six store remodels in Omaha, Neb., and rolling out its Yes rewards shopping program. But retail sales were challenged as non-fuel comps fell by 3%, reflecting a low inflationary environment, increased competition, and cannibalization in western markets. SpartanNash stores in Michigan experienced only a slight decline in comps for the quarter, Eidson noted.
Eidson highlighted progress in the food distribution segment, saying the company made significant progress on streamlining its network, and integrating distribution between its traditional distribution and military business.
“Although we're still in the early stages, we're encouraged by the potential economies of scale we can achieve as we reduce empty miles and improve efficiencies,” he said, adding that all of the company’s tractors and more than 100 trailers have been rebranded as SpartanNash, facilitating a more efficient deployment.
He said the company would continue looking to consolidate its warehouses.
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