UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 20, 2024.
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 000-31127
SPARTANNASH COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Michigan
38-0593940
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
850 76th Street, S.W.
P.O. Box 8700
Grand Rapids, Michigan
49518
(Address of Principal Executive Offices)
(Zip Code)
(616) 878-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, no par value
SPTN
NASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 28, 2024, the registrant had 33,891,770 outstanding shares of common stock, no par value.
FORWARD-LOOKING STATEMENTS
The matters discussed in this Quarterly Report on Form 10-Q, in the Company’s press releases, in the Company's website-accessible conference calls with analysts and investor presentations include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), about the plans, strategies, objectives, goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or “the Company”). These forward-looking statements may be identifiable by words or phrases indicating that the Company or management "expects," "projects," "anticipates," "plans," "believes," "intends," or "estimates," or that a particular occurrence or event "may," "could," "should," "will" or "will likely" result, occur or be pursued or "continue" in the future, that the "outlook", "trend", "guidance" or "target" is toward a particular result or occurrence, that a development is an "opportunity," "priority," "strategy," "focus," that the Company is "positioned" for a particular result, or similarly stated expectations.
Undue reliance should not be placed on the forward-looking statements contained in this Quarterly Report on Form 10-Q, SpartanNash’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023 and other periodic reports filed with the Securities and Exchange Commission (“SEC”), which speak only as of the date made. Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies may affect actual results and could cause actual results to differ materially. These risks and uncertainties include the Company's ability to compete in an extremely competitive industry; the Company's dependence on certain major customers; the Company's ability to implement its growth strategy and transformation initiatives; the Company's ability to implement its growth strategy through acquisitions and successfully integrate acquired businesses; disruptions to the Company's information security network, including security breaches and cyber-attacks; impacts to the availability and performance of the Company's information technology systems; changes in relationships with the Company's vendor base; changes in product availability and product pricing from vendors; macroeconomic uncertainty, including rising inflation, potential economic recession, and increasing interest rates; difficulty attracting and retaining well-qualified Associates and effectively managing increased labor costs; failure to successfully retain or manage transitions with executive leaders and other key personnel; impacts to the Company's business and reputation due to an increasing focus on environmental, social and governance matters; customers to whom the Company extends credit or for whom the Company guarantees loans may fail to repay the Company; changes in the geopolitical conditions; disruptions associated with severe weather conditions and natural disasters, including effects from climate change; disruptions associated with disease outbreaks; the Company's ability to manage its private brand program for U.S. military commissaries, including the termination of the program or not achieving the desired results; impairment charges for goodwill or other long-lived assets; the Company's level of indebtedness; interest rate fluctuations; the Company's ability to service its debt and to comply with debt covenants; changes in government regulations; labor relations issues; changes in the military commissary system, including its supply chain, or in the level of governmental funding; product recalls and other product-related safety concerns; cost increases related to multi-employer pension plans; and other risks and uncertainties listed under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's most recent Annual Report on Form 10-K and in subsequent filings with the Securities and Exchange Commission.
This section and the discussions contained in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023 and in Part I, Item 2 “Critical Accounting Policies” of this Quarterly Report on Form 10-Q, are intended to provide meaningful cautionary statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to the Company or that the Company currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur or information obtained after the date of this Quarterly Report. In addition, historical information should not be considered as an indicator of future performance.
2
TABLE OF CONTENTS
Page
PART I.
FINANCIAL INFORMATION
4
Item 1.
Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Earnings
5
Condensed Consolidated Statements of Comprehensive Income
6
Condensed Consolidated Statements of Shareholders’ Equity
7
Condensed Consolidated Statements of Cash Flows
8
Notes to Condensed Consolidated Financial Statements
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
27
Item 4.
Controls and Procedures
PART II.
OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
28
Item 5.
Other Information
Item 6.
Exhibits
29
Signatures
30
3
PART I
ITEM 1. Financial Statements
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, Unaudited)
April 20,
December 30,
2024
2023
Assets
Current assets
Cash and cash equivalents
$
18,968
17,964
Accounts and notes receivable, net
422,161
421,859
Inventories, net
555,368
575,226
Prepaid expenses and other current assets
69,608
62,440
Total current assets
1,066,105
1,077,489
Property and equipment, net
647,536
649,071
Goodwill
182,160
Intangible assets, net
100,132
101,535
Operating lease assets
245,385
242,146
Other assets, net
100,483
103,174
Total assets
2,341,801
2,355,575
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable
447,458
473,419
Accrued payroll and benefits
54,135
78,076
Other accrued expenses
54,548
57,609
Current portion of operating lease liabilities
42,162
41,979
Current portion of long-term debt and finance lease liabilities
9,724
8,813
Total current liabilities
608,027
659,896
Long-term liabilities
Deferred income taxes
81,315
73,904
Operating lease liabilities
232,887
226,118
Other long-term liabilities
20,503
28,808
Long-term debt and finance lease liabilities
613,864
588,667
Total long-term liabilities
948,569
917,497
Commitments and contingencies (Note 8)
Shareholders’ equity
Common stock, voting, no par value; 100,000 shares authorized; 34,349 and 34,610 shares outstanding
459,204
460,299
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding
—
Accumulated other comprehensive income
3,648
796
Retained earnings
322,353
317,087
Total shareholders’ equity
785,205
778,182
Total liabilities and shareholders’ equity
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
16 Weeks Ended
April 20, 2024
April 22, 2023
Net sales
2,806,263
2,907,394
Cost of sales
2,365,919
2,460,728
Gross profit
440,344
446,666
Operating expenses
Selling, general and administrative
403,633
418,196
Acquisition and integration, net
327
74
Restructuring and asset impairment, net
5,768
4,083
Total operating expenses
409,728
422,353
Operating earnings
30,616
24,313
Other expenses and (income)
Interest expense, net
13,487
11,589
Other, net
(1,048
)
(1,039
Total other expenses, net
12,439
10,550
Earnings before income taxes
18,177
13,763
Income tax expense
5,206
2,426
Net earnings
12,971
11,337
Net earnings per basic common share
0.38
0.33
Net earnings per diluted common share
0.37
0.32
Weighted average shares outstanding:
Basic
34,139
34,547
Diluted
34,593
35,457
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive income (loss), before tax
Change in interest rate swap
4,608
(1,136
Postretirement liability adjustment
(892
(911
Total other comprehensive income (loss), before tax
3,716
(2,047
Income tax (expense) benefit related to items of other comprehensive income (loss)
(864
490
Total other comprehensive income (loss), after tax
2,852
(1,557
Comprehensive income
15,823
9,780
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumulated
Other
Shares
Common
Comprehensive
Retained
Outstanding
Stock
Income
Earnings
Total
Balance at December 30, 2023
34,610
Other comprehensive income
Dividends - $0.2175 per share
(7,705
Share repurchases
(134
(2,616
Stock-based compensation
3,720
Stock warrant
326
Issuances of common stock for associate stock purchase plan
32
626
Cancellations of stock-based awards
(159
(3,151
Balance at April 20, 2024
34,349
Income (Loss)
Balance at December 31, 2022
35,079
468,061
2,979
295,028
766,068
Other comprehensive loss
Dividends - $0.215 per share
(7,679
(435
(10,910
5,147
607
17
358
Issuances of restricted stock
425
(151
(3,917
Balance at April 22, 2023
34,935
459,346
1,422
298,686
759,454
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Non-cash restructuring, asset impairment, and other charges
6,168
4,040
Depreciation and amortization
30,646
29,745
Non-cash rent
(985
(1,148
LIFO expense
2,020
11,172
Postretirement benefits income
(856
(706
6,547
14,765
Stock-based compensation expense
(Gain) loss on disposals of assets
(20
22
Other operating activities
567
459
Changes in operating assets and liabilities:
Accounts receivable
(720
(5,052
Inventories
17,842
(9,069
Prepaid expenses and other assets
1,947
6,243
(3,526
5,136
(30,813
(52,867
Current income taxes
(6,377
(17,512
Other accrued expenses and other liabilities
(2,994
(5,027
Net cash provided by (used in) operating activities
36,463
(2,708
Cash flows from investing activities
Purchases of property and equipment
(40,163
(38,864
Net proceeds from the sale of assets
1,754
125
Payments from customers on loans
558
355
Other investing activities
(253
Net cash used in investing activities
(38,104
(39,276
Cash flows from financing activities
Proceeds from senior secured credit facility
412,238
459,706
Payments on senior secured credit facility
(392,905
(404,328
Repayment of other long-term debt and finance lease liabilities
(2,694
(2,232
Net payments related to stock-based award activities
Dividends paid
(8,088
(7,820
Other financing activities
(139
(636
Net cash provided by financing activities
2,645
29,863
Net increase (decrease) in cash and cash equivalents
1,004
(12,121
Cash and cash equivalents at beginning of period
29,086
Cash and cash equivalents at end of period
16,965
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SpartanNash Company and its subsidiaries (“SpartanNash” or “the Company”). Intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2023.
In the opinion of management, the accompanying condensed consolidated financial statements, taken as a whole, contain all adjustments, including normal recurring items, necessary to present fairly the financial position of SpartanNash as of April 20, 2024, and the results of its operations and cash flows for the interim periods presented. The preparation of the condensed consolidated financial statements and related notes to the financial statements requires management to make estimates. Estimates are based on historical experience, where applicable, and expectations of future outcomes which management believes are reasonable under the circumstances. Interim results are not necessarily indicative of results for a full year.
The unaudited information in the condensed consolidated financial statements for the first quarters of 2024 and 2023 include the results of operations of the Company for the 16-week periods ended April 20, 2024 and April 22, 2023, respectively.
Note 2 – Adoption of New Accounting Standards and Recently Issued Accounting Standards
As of April 20, 2024 and for the period then ended, there were no recently adopted accounting standards that had a material impact on the Company’s condensed consolidated financial statements. There were no recently issued accounting standards not yet adopted which would have a material effect on the Company’s condensed consolidated financial statements.
Note 3 – Revenue
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type of products and customers for each of the Company’s reportable segments:
16 Weeks Ended April 20, 2024
(In thousands)
Wholesale
Retail
Type of products:
Center store (a)
761,245
303,214
1,064,459
Fresh (b)
615,369
296,916
912,285
Non-food (c)
608,306
148,871
757,177
Fuel
42,921
29,101
320
29,421
2,014,021
792,242
Type of customers:
Individuals
791,922
Independent retailers (d)
665,185
National accounts
636,630
Military (e)
699,907
12,299
12,619
16 Weeks Ended April 22, 2023
827,701
314,814
1,142,515
654,258
310,712
964,970
570,967
147,599
718,566
48,266
32,758
319
33,077
2,085,684
821,710
821,392
702,806
681,985
685,695
15,198
318
15,516
(a) Center store includes dry grocery, frozen and beverages.
(b) Fresh includes produce, meat, dairy, deli, bakery, prepared proteins, seafood and floral.
(c) Non-food includes general merchandise, health and beauty care, tobacco products and pharmacy.
(d) Independent retailers include sales to manufacturers, brokers and distributors.
(e) Military represents the distribution of grocery products to U.S. military commissaries and exchanges, which primarily includes sales to manufacturers and brokers.
Contract Assets and Liabilities
Under its contracts with customers, the Company stands ready to deliver product upon receipt of a purchase order. Accordingly, the Company has no performance obligations under its contracts until its customers submit a purchase order. The Company does not receive pre-payment from its customers or enter into commitments to provide goods or services that have terms greater than one year. As the performance obligation is part of a contract that has an original expected duration of less than one year, the Company has applied the practical expedient under Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, to omit disclosures regarding remaining performance obligations.
Revenue recognized from performance obligations related to prior periods (for example, due to changes in estimated rebates and incentives impacting the transaction price) was not material in any period presented.
For volume-based arrangements, the Company estimates the amount of the advanced funds earned by the retailers based on the expected volume of purchases by the retailer and amortizes the advances as a reduction of the transaction price and revenue earned. These advances are not considered contract assets under ASC 606 as they are not generated through the transfer of goods or services to the retailers. These advances are included in Other assets, net within the condensed consolidated balance sheets.
10
When the Company transfers goods or services to a customer, payment is due subject to normal terms and is not conditional on anything other than the passage of time. Typical payment terms range from "due upon receipt" to due within 30 days, depending on the customer. At contract inception, the Company expects that the period of time between the transfer of goods to the customer and when the customer pays for those goods will be less than one year, which is consistent with the Company’s standard payment terms. Accordingly, the Company has elected the practical expedient to not adjust for the effects of a significant financing component. As a result, these amounts are recorded as receivables and not contract assets. The Company had no contract assets for any period presented.
The Company does not typically incur incremental costs of obtaining a contract that are contingent upon successful contract execution and would therefore be capitalized.
Allowance for Credit Losses
Changes to the balance of the allowance for credit losses were as follows:
Current Accounts
Long-term
and Notes Receivable
Notes Receivable
4,611
1,212
5,823
Changes in credit loss estimates
(279
(430
Write-offs charged against the allowance
(35
(350
(385
4,425
583
5,008
6,098
948
7,046
(1,370
240
(1,130
(210
4,518
1,188
5,706
Note 4 – Goodwill and Other Intangible Assets
The Company has two reporting units, Wholesale and Retail. The carrying amount of goodwill recorded within the Wholesale reporting unit was $181.0 million and the value within the Retail reporting unit was $1.1 million as of both April 20, 2024 and December 30, 2023.
The Company has indefinite-lived intangible assets that are not amortized, consisting primarily of indefinite-lived trade names and liquor licenses. The carrying amount of indefinite-lived intangible assets was $67.8 million as of both April 20, 2024 and December 30, 2023.
The Company reviews goodwill and other indefinite-lived intangible assets for impairment annually, during the fourth quarter of each year, and more frequently if circumstances indicate impairment is probable. Such circumstances have not arisen in the current fiscal year. Testing goodwill and other indefinite-lived intangible assets for impairment requires management to make significant estimates about the Company’s future performance, cash flows, and other assumptions that can be affected by potential changes in economic, industry or market conditions, business operations, competition, or the Company’s stock price and market capitalization.
Note 5 – Restructuring and Asset Impairment
The following table provides the activity of reserves for closed properties for the 16-week period ended April 20, 2024. Included in the liability are lease-related ancillary costs from the date of closure to the end of the remaining lease term, as well as related severance. Reserves for closed properties recorded in the condensed consolidated balance sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on the timing of when the obligations are expected to be paid. Reserves for severance are recorded in “Accrued payroll and benefits”.
Reserves for Closed Properties
Lease Ancillary Costs
Severance
2,977
Accretion expense
25
Payments
(169
2,833
11
Restructuring and asset impairment, net in the condensed consolidated statements of earnings consisted of the following:
Asset impairment charges (a)
6,121
3,745
Loss (gain) on sales of assets related to closed facilities
51
(61
Other (income) costs associated with site closures
(254
314
Lease termination adjustments
(150
Changes in estimates
85
(a) Asset impairment charges in the current year quarter were incurred on long-lived assets in the Retail segment due to changes in the competitive environment. In the prior year quarter, asset impairment charges related to two store closures within the Retail segment and impairment losses related to a distribution location that sustained significant store damage within the Wholesale segment.
Long-lived assets which are not recoverable are measured at fair value on a nonrecurring basis using Level 3 inputs under the fair value hierarchy, as further described in Note 6. In the current year, assets with a book value of $6.1 million were fully impaired. In the prior year quarter, long-lived assets with a book value of $7.4 million were measured at a fair value of $3.7 million, resulting in impairment charges of $3.7 million. The fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows, including the expected proceeds from the sale of assets and expected insurance recoveries, discounted using a risk-adjusted rate of interest. The Company estimates future cash flows based on historical results of operations, external factors expected to impact future performance, experience and knowledge of the geographic area in which the assets are located, and when necessary, uses the support of real estate brokers.
Note 6 – Fair Value Measurements
ASC 820, Fair Value Measurement, prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that market participants would use in pricing.
Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of the short-term maturities of these financial instruments. For discussion of the fair value measurements related to goodwill, and long- or indefinite-lived asset impairment charges, refer to Notes 4 and 5. At April 20, 2024 and December 30, 2023, the book value and estimated fair value of the Company’s debt instruments, excluding debt financing costs, were as follows:
December 30, 2023
Book value of debt instruments, excluding debt financing costs:
Current maturities of long-term debt and finance lease liabilities
617,918
593,061
Total book value of debt instruments
627,642
601,874
Fair value of debt instruments, excluding debt financing costs
626,184
603,117
(Deficit) excess of fair value over book value
(1,458
1,243
The estimated fair value of debt is based on market quotes for instruments with similar terms and remaining maturities (Level 2 inputs and valuation techniques).
The Company's interest rate swap agreement is considered a Level 2 instrument. The Company values the interest rate swap using standard models and observable market inputs including SOFR interest rates and discount rates, which are considered Level 2 inputs. The location and the fair value of the interest rate swap agreement in the condensed consolidated balance sheet is disclosed in Note 7.
12
Note 7 – Derivatives
Hedging of Interest Rate Risk
During the first quarter of 2023, the Company entered into an interest rate swap contract to mitigate its exposure to changes in variable interest rates. The Company's interest rate swap was designated as a cash flow hedge as of the effective date, March 17, 2023, and continues to be designated as a cash flow hedge. The interest rate swap is reflected at its fair value in the condensed consolidated balance sheets. Refer to Note 6 for further information on the fair value of the interest rate swap.
Details of the pay-fixed, receive-floating interest rate swap contract are as follows:
Effective Date
Maturity Date
Notional Value(in millions)
Pay Fixed Rate
Receive Floating Rate
Floating Rate Reset Terms
March 17, 2023
November 17, 2027
$150
3.646%
One-Month CME Term SOFR
Monthly
The Company performed an initial quantitative assessment of hedge effectiveness using the change-in-variable-cash-flows method. Under this method, the Company assessed the effectiveness of the hedging relationship by comparing the present value of the cumulative change in the expected future cash flows on the variable leg of the interest rate swap with the present value of the cumulative change in the expected future interest cash flows on the variable-rate debt. The Company determined the interest rate swap to be highly effective. To assess for continued hedge effectiveness, the Company performs retrospective and prospective qualitative assessments each quarter. The Company also monitors the credit risk of the counterparty on an ongoing basis. The change in the fair value of the interest rate swap is initially reported in "Other comprehensive income" in the condensed consolidated statements of comprehensive income and subsequently reclassified to earnings in "Interest expense, net" in the condensed consolidated statements of earnings when the hedged transactions affect earnings.
The location and the fair value of the interest rate swap in the condensed consolidated balance sheets as of April 20, 2024 and December 30, 2023, respectively, are as follows:
Derivative Fair Value
Condensed Consolidated Balance Sheets Location
Cash Flow Hedge:
Interest rate swap
2,215
1,721
2,141
-
1,914
3,209
(316
The location and amount of gains recognized in the condensed consolidated statements of earnings for the interest rate swap, presented on a pre-tax basis, are as follows:
Total amounts of expense line items presented in the condensed consolidated statementsof earnings in which the effects of cash flow hedges are recorded
Gain on cash flow hedging relationships:
Gain reclassified from comprehensive income into earnings
789
175
Note 8 – Commitments and Contingencies
The Company is engaged from time-to-time in routine legal proceedings incidental to its business. The Company does not believe that these routine legal proceedings, taken as a whole, will have a material impact on its business or financial condition. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in an adverse effect on the Company’s consolidated financial position, operating results or liquidity.
The Company has contributed and is required to continue making contributions to the Central States Southeast and Southwest Pension Fund (the “Central States Plan” or the “Plan”), a multi-employer pension plan, based on obligations arising from certain of its collective bargaining agreements. If the Company were to cease making such contributions and triggered a withdrawal from the Plan, it is possible that the Company would be obligated to pay a withdrawal liability to the Plan if the Plan is underfunded at the time of such withdrawal.
13
On January 12, 2023, the Central States Plan received approximately $35.8 billion in Special Financial Assistance ("SFA"), inclusive of interest, which is designed to alleviate the risk of insolvency of the Plan. On March 29, 2024, in accordance with the Pension Protection Act ("PPA"), the Plan's actuary certified that the Plan was considered to be in "critical" zone status for the plan year beginning January 1, 2024. Due to the receipt of the SFA, the Central States Plan has stated that it expects it "will be funded well into the future". Despite the expectations of the Plan, the Company views the Plan's solvency as an ongoing risk factor.
Based on the most recent information available to the Company, management believes the value of assets held in trust to pay benefits covers the present value of actuarial accrued liabilities in the Central States Plan. Management is not aware of any significant change in funding levels in the Plan since December 30, 2023. Due to uncertainty regarding future factors that could trigger a withdrawal liability, the Company is unable to determine with certainty the current amount of the Plan’s funding and/or SpartanNash’s current potential withdrawal liability exposure in the event of a future withdrawal from the Plan. Any adjustment for withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably determined.
Note 9 – Associate Retirement Plans
During the 16- week periods ended April 20, 2024 and April 22, 2023 the Company recognized net periodic postretirement benefit income of $0.9 million, related to the SpartanNash Retiree Medical Plan (“Retiree Medical Plan” or "Plan").
Effective June 30, 2022, the Company has amended the Retiree Medical Plan. In connection with the amendment, the Company will make lump sum cash payments to all active and retired participants in lieu of future monthly benefits and reimbursements previously offered under the Plan. As a result of the amendment effective June 30, 2022, the Plan obligation was remeasured, resulting in a reduction to the obligation of $6.6 million and a corresponding prior service credit in AOCI, which will be amortized to net periodic postretirement benefit income over the remaining period until the final payment on July 1, 2024. During the 16- week periods ended April 20, 2024 and April 22, 2023 the Company recognized $0.9 million and $1.0 million, respectively, in net periodic postretirement benefit income related to the amortization of the prior service credit from AOCI.
On July 1, 2023 and July 1, 2022, the Company made lump sum payments to retired participants totaling $1.3 million and $2.0 million, respectively. The payments constituted partial settlements of the Plan, which resulted in the recognition within net periodic postretirement expense of $0.3 million and $0.7 million on July 1, 2023 and July 1, 2022, respectively, related to the net actuarial loss within AOCI. The remaining payment, which relates to active participants, is expected to be made on or about July 1, 2024.
The Company’s retirement programs also include defined contribution plans providing contributory benefits, as well as executive compensation plans for a select group of management personnel and highly compensated associates.
Multi-Employer Plans
In addition to the plans listed above, the Company participates in the Central States Southeast and Southwest Pension Fund, the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans (collectively referred to as “multi-employer plans”), and other company-sponsored defined contribution plans for most associates covered by collective bargaining agreements.
With respect to the Company’s participation in the Central States Plan, expense is recognized as contributions are payable. The Company’s contributions during the 16- week periods ended April 20, 2024 and April 22, 2023 were $4.6 million and $4.3 million, respectively. See Note 8 for further information regarding contingencies related to the Company’s participation in the Central States Plan.
Note 10 – Income Taxes
The effective income tax rate was 28.6% and 17.6% for the 16 weeks ended April 20, 2024 and April 22, 2023, respectively. Differences from the federal statutory rate in both the current and prior year quarters were due to state taxes and non-deductible expenses, partially offset by benefits associated with federal tax credits. The prior year quarter also included discrete tax benefits from both a change in tax contingencies, as well as stock compensation.
Note 11 – Stock-Based Compensation
Stock-Based Employee Awards
The Company sponsors shareholder-approved stock incentive plans that provide for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units, dividend equivalent rights, and other stock-based and stock-related awards to directors, officers and other key associates.
14
Stock-based compensation expense recognized and included in “Selling, general and administrative expenses” in the condensed consolidated statements of earnings, and related tax impacts were as follows:
Restricted stock expense
2,082
4,801
Restricted stock unit expense
2,790
Performance share unit (benefit) expense
(1,152
346
Income tax benefit
(925
(2,166
Stock-based compensation expense, net of tax
2,795
2,981
The following table summarizes activity in the stock incentive plans for the 16 weeks ended April 20, 2024:
Weighted
Restricted
Average
Performance
Grant-Date
Share
Awards
Fair Value
Units
Outstanding at December 30, 2023
819,457
24.92
290,310
27.00
Granted
562,948
20.34
193,363
20.41
Vested
(455,401
23.12
Cancelled/Forfeited
(6,779
25.94
(2,910
Outstanding at April 20, 2024
357,277
27.20
560,038
483,673
24.37
The following table summarizes the unrecognized compensation cost and weighted average recognition period for awards granted under the Company's stock incentive plans as of April 20, 2024:
Unrecognized
Compensation
Recognition
Cost
Period
(in years)
Restricted stock awards
6,752
1.5
Restricted stock units
8,629
2.6
Performance share units
5,009
2.4
20,390
Stock Warrant
On October 7, 2020, in connection with its entry into a commercial agreement with Amazon.com, Inc. (“Amazon”), the Company issued Amazon.com NV Investment Holdings LLC, a subsidiary of Amazon, a warrant to acquire up to an aggregate of 5,437,272 shares of the Company’s common stock (the “Warrant”), subject to certain vesting conditions. Warrant shares totaling 1,087,455 shares vested upon the signing of the commercial agreement and had a grant date fair value of $5.51 per share. Warrant shares totaling up to 4,349,817 shares may vest in connection with conditions defined by the terms of the Warrant, as Amazon makes payments to the Company in connection with the commercial supply agreement, in increments of $200 million, and had a grant date fair value of $5.33 per share. Upon vesting, shares may be acquired at an exercise price of $17.7257. The Warrant contains customary anti-dilution, down-round and change-in-control provisions. The right to purchase shares in connection with the Warrant expires on October 7, 2027.
Share-based payment expense recognized as a reduction of “Net sales” in the condensed consolidated statements of earnings, and related tax benefits were as follows:
Warrant expense
(42
(65
Warrant expense, net of tax
284
542
The following table summarizes stock warrant activity for the 16 weeks ended April 20, 2024:
Warrant
Outstanding and nonvested at December 30, 2023
3,262,357
(108,746
Outstanding and nonvested at April 20, 2024
3,153,611
15
As of April 20, 2024, total unrecognized cost related to nonvested warrant shares was $16.6 million, which may be expensed as vesting conditions are satisfied over the remaining term of the agreement, or 3.5 years. Warrants representing 2,283,661 shares are vested and exercisable. As of April 20, 2024, nonvested warrant shares had an intrinsic value of $6.1 million, and vested warrant shares had an intrinsic value of $4.4 million.
Note 12 – Earnings Per Share
Outstanding nonvested restricted stock awards under the 2015 Stock Incentive Plan contain nonforfeitable rights to dividends or dividend equivalents, which participate in undistributed earnings with common stock. These awards are classified as participating securities and are included in the calculation of basic earnings per share. Except for retirement-eligible Associates, awards under the 2020 Stock Incentive Plan do not contain nonforfeitable rights to dividends or dividend equivalents and are therefore not classified as participating securities. The dilutive impact of the restricted stock awards, restricted stock units, and warrants are presented below, as applicable. Weighted average restricted stock awards that were not included in the EPS calculations because they were anti-dilutive were 218,045 for the 16 week period ended April 20, 2024. The performance share units are not currently dilutive. The following table sets forth the computation of basic and diluted net earnings per share:
Numerator:
Adjustment for earnings attributable to participating securities
(82
(102
Net earnings used in calculating earnings per share
12,889
11,235
Denominator:
Weighted average shares outstanding, including participating securities
Adjustment for participating securities
(216
(310
Shares used in calculating basic earnings per share
33,923
34,237
Effect of dilutive stock warrant
364
761
Effect of dilutive stock-based employee compensation
89
149
Shares used in calculating diluted earnings per share
34,376
35,147
Basic earnings per share
Diluted earnings per share
Note 13 – Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
Non-cash investing activities:
Capital expenditures included in accounts payable
7,377
4,294
Operating lease asset additions
20,260
9,381
Finance lease asset additions
9,130
7,152
Non-cash financing activities:
Recognition of operating lease liabilities
Recognition of finance lease liabilities
Other supplemental cash flow information:
Cash paid for interest
14,188
11,558
16
Note 14 – Segment Information
The following tables set forth information about the Company by reportable segment:
Net sales to external customers
Inter-segment sales
334,365
591
334,956
Acquisition and integration
5,918
16,078
14,568
Operating earnings (loss)
36,002
(5,386
Capital expenditures
22,622
17,541
40,163
349,294
324
349,618
69
980
3,103
15,370
14,375
26,325
(2,012
24,397
14,467
38,864
1,576,552
1,576,182
765,249
779,393
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” which appears at the beginning of this report, and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
Overview
SpartanNash, headquartered in Grand Rapids, Michigan, is a food solutions company that delivers the ingredients for a better life. Its core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate-owned retail stores, and U.S. military commissaries and exchanges; as well as operating a premier fresh produce distribution network and the Our Family® private label brand. SpartanNash serves customer locations in all 50 states and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar, Djibouti, Korea and Japan.
The Company’s Wholesale segment provides a wide variety of nationally branded and its own private brand grocery products and perishable food products to independent retailers, national accounts, food service distributors, e-commerce providers, and the Company’s corporate owned retail stores. The Company’s Wholesale segment also distributes grocery products to 160 military commissaries and over 400 exchanges worldwide. The Company is the primary supplier of private brand products to U.S. military commissaries, a partnership with the Defense Commissary Agency ("DeCA") which began in fiscal 2017.
As of the end of the first quarter, the Company’s Retail segment operated 144 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare, Martin’s Super Markets and D&W Fresh Market. The Company also offered pharmacy services in 91 of its corporate owned retail stores (81 of the pharmacies are owned by the Company), operated three pharmacy locations not associated with corporate-owned retail locations and operated 36 fuel centers. The Company’s neighborhood market strategy distinguishes its corporate-owned retail stores from supercenters and limited assortment stores.
All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.
The majority of the Company’s revenues are not seasonal in nature. However, in some geographies, corporate retail stores and independent retail customers are dependent on tourism, and therefore can be affected by seasons. The Company's revenues may also be impacted by weather patterns.
2024 First Quarter Highlights
Key financial and operational highlights for the first quarter compared to the prior year quarter, unless otherwise noted, include the following:
The Company believes that certain known or anticipated trends may cause future results to vary from historical results. The Company believes certain initiatives including both the supply chain and merchandising transformations, as well as the go-to-market strategy may favorably impact future results. The Company anticipates that additional investments in capital expenditures will be necessary to support these and other programs. Offsetting the Company's expectations of favorable future results are macroeconomic headwinds including changes in consumer demand driven by inflation and elevated interest rates. The Company may also be exposed to other price changes such as utilities, insurance and occupancy costs.
Results of Operations
The following table sets forth items from the condensed consolidated statements of earnings as a percentage of net sales and the year-to-year percentage change in the dollar amounts:
Percentage of Net Sales
Percentage Change
100.0
(3.5
15.7
15.4
(1.4
14.4
0.0
341.9
Restructuring charges and asset impairment, net
0.2
0.1
41.3
1.1
0.8
25.9
Other expenses
0.4
17.9
0.6
0.5
32.1
114.6
Note: Certain totals do not sum due to rounding.
Net Sales – The following table presents net sales by segment and variances in net sales:
Variance
(71,663
(29,468
Total net sales
(101,131
Net sales for the quarter ended April 20, 2024 (the “first quarter”) decreased $101.1 million, or 3.5%, to $2.81 billion from $2.91 billion in the quarter ended April 22, 2023 (the “prior year quarter”). The decrease during the current quarter reflected sales declines in both the Wholesale and Retail segments, which were unfavorably impacted by lower volumes.
Wholesale net sales decreased $71.7 million, or 3.4% to $2.01 billion in the first quarter from $2.09 billion in the prior year quarter. The decrease in the current quarter was due primarily to demand changes from a certain national account customer. Overall case volumes for the segment were down in the current quarter compared to the prior year quarter by 7.3%.
Retail net sales decreased $29.5 million, or 3.6%, to $792.2 million in the first quarter from $821.7 million in the prior year quarter. Comparable store sales decreased 2.5% in the current year driven by a 4.8% reduction in unit volumes. The decrease in comparable store sales was primarily due to a reduction in food assistance program benefits. Additionally, lower fuel sales reduced Retail's reported net sales by 0.7%. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions, or relocated stores. Sales are compared to the same store’s operations from the prior year period for purposes of calculation of comparable store sales. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.
Gross Profit – Gross profit represents net sales less cost of sales, which includes purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional allowances and excludes warehousing costs, depreciation and other administrative expenses. The Company’s gross profit definition may not be identical to similarly titled measures reported by other companies. Vendor allowances that relate to the buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for the Company’s merchandising costs, such as setting up warehouse infrastructure. These vendor allowances are recognized as a reduction in cost of sales when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The Wholesale segment includes shipping and handling costs in the Selling, general and administrative section of operating expenses in the consolidated statements of earnings.
19
Gross profit decreased $6.3 million, or 1.4%, to $440.3 million in the first quarter from $446.7 million in the prior year quarter. As a percent of net sales, gross profit for the current quarter was 15.7% compared to 15.4% in the prior year quarter. The gross profit decline was driven primarily by lower volumes. The gross profit rate increase in the current quarter was driven by lower last-in-first-out ("LIFO") expense of $9.2 million, or 31 basis points, and benefits realized from the merchandising transformation initiative. These increases were partially offset by changes in customer mix within the Wholesale segment.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of operating costs related to retail and supply chain operations, including salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation, and out-bound freight, in addition to corporate administrative expenses.
SG&A expenses for the first quarter decreased $14.6 million, or 3.5%, to $403.6 million from $418.2 million in the prior year quarter, representing 14.4% of net sales in both the first quarter and in the prior year quarter. The decrease in selling, general and administrative expenses as a rate of sales was due primarily to lower incentive compensation compared to the prior year and benefits realized from both the merchandising transformation and recent go-to-market strategy. These decreases were mostly offset by increased corporate administrative costs, driven by investments in the transformational initiatives, and depreciation and amortization expense compared to the prior year quarter.
Acquisition and Integration, net – First quarter and prior year quarter results included net charges of $0.3 million and $0.1 million, respectively. Current year activity relates to the Retail segment while the prior year quarter activity relates primarily to the Wholesale segment.
Restructuring and Asset Impairment, net – First quarter and prior year quarter results included net charges of $5.8 million and $4.1 million, respectively. The current quarter charges were primarily due to impairment losses on long-lived assets in the Retail segment due to changes in the competitive environment. The prior year charges primarily relate to two store closures within the Retail segment and impairment losses related to a distribution location that sustained significant storm damage within the Wholesale segment.
Operating Earnings – The following table presents operating earnings (loss) by segment and variances in operating earnings (loss).
9,677
(3,374
Total operating earnings
6,303
Operating earnings increased $6.3 million, or 25.9% to $30.6 million in the first quarter from $24.3 million in the prior year quarter. The increases in operating earnings was due to the changes in net sales, gross profit and operating expenses discussed above.
Wholesale operating earnings increased $9.7 million, or 36.8%, to $36.0 million in the first quarter from $26.3 million in the prior year quarter. The increase in operating earnings was due to a higher gross profit rate, benefits realized from the merchandising transformation initiative, and lower incentive compensation. The increases in operating earnings were partially offset by lower unit volumes.
Retail operating loss increased $3.4 million, or 167.6%, to $5.4 million in the first quarter from $2.0 million in the prior year quarter. The increase in the operating loss in the current quarter was due to lower unit volumes, increased restructuring and asset impairment charges, and increased corporate administration expenses, partially offset by lower incentive compensation.
Interest Expense – Interest expense increased $1.9 million, or 16.4%, to $13.5 million in the first quarter from $11.6 million in the prior year quarter. Higher average debt balances on the Company's credit facility accounted for $1.4 million of the increase in interest expense.
Income Taxes – The effective income tax rates were 28.6% and 17.6% for the first quarter and prior year quarter, respectively. Differences from the federal statutory rate in both the current and prior year quarters were due to state taxes and non-deductible expenses, partially offset by benefits associated with federal tax credits. The prior year quarter also included discrete tax benefits from both a change in tax contingencies, as well as stock compensation.
20
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, as well as per diluted share (“adjusted EPS”), net long-term debt, total capital, and adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.
Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other items, LIFO expense, organizational realignment, severance associated with cost reduction initiatives and non-operating costs associated with the postretirement plan amendment and settlement. Current year organizational realignment includes consulting and severance costs associated with the Company's change in its go-to-market strategy as part of its long-term plan, which relates to the reorganization of certain functions. Costs related to the postretirement plan amendment and settlement include non-operating expenses associated with amortization of the prior service credit related to the amendment of the retiree medical plan, which are adjusted out of adjusted earnings from continuing operations. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other items, LIFO expense, non-operating costs associated with the postretirement plan amendment and settlement, severance associated with cost reduction initiatives and a non-routine settlement related to a legal matter resulting from a previously closed operation that was resolved during the quarter.
Each of these items are considered “non-operational” or “non-core” in nature.
Adjusted Operating Earnings
Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company as a whole and for its operating segments. The Company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in an adjusted operating earnings format.
Adjusted operating earnings is not a measure of performance under GAAP and should not be considered as a substitute for operating earnings, and other income statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.
21
Following is a reconciliation of operating earnings (loss) to adjusted operating earnings for the 16 weeks ended April 20, 2024 and April 22, 2023.
Adjustments:
Organizational realignment, net
306
Severance associated with cost reduction initiatives
Legal settlement
900
Adjusted operating earnings
39,106
40,826
Wholesale:
1,555
8,733
191
264
37,667
37,271
Retail:
Operating loss
465
2,439
115
1,439
3,555
Adjusted Earnings from Continuing Operations
Adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), is a non-GAAP operating financial measure that the Company defines as net earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the Company. The Company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and excludes the contributions of activities classified as discontinued operations. Because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted earnings from continuing operations format.
Adjusted earnings from continuing operations is not a measure of performance under GAAP and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies.
Following is a reconciliation of net earnings to adjusted earnings from continuing operations for the 16 weeks ended April 20, 2024 and April 22, 2023.
per diluted
share
Postretirement plan amendment and settlement
(945
(1,018
Total adjustments
7,545
15,495
Income tax effect on adjustments (a)
(2,036
(3,970
Total adjustments, net of taxes
5,509
0.16
11,525
*
Adjusted earnings from continuing operations
18,480
0.53
22,862
0.64
* Includes rounding
Adjusted EBITDA
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items including share-based payments (equity awards measured in accordance with ASC 718, Stock Compensation, which include both stock-based compensation to employees and stock warrants issued to non-employees) and the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company.
The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company and for its operating segments. The Company considers adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted EBITDA and adjusted EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted EBITDA format.
Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under GAAP and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.
23
Following is a reconciliation of net earnings to adjusted EBITDA for the 16 weeks ended April 20, 2024 and April 22, 2023.
Other expenses, net
Cloud computing amortization
2,018
1,350
(901
(928
(Gain) loss on disposal of assets
74,895
76,769
1,369
940
2,504
3,383
(300
(75
(18
57,626
57,506
649
410
1,216
1,764
(601
(853
(2
17,269
19,263
24
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows:
Cash flow activities
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Net cash provided by (used in) operating activities. Net cash provided by (used in) operating activities increased $39.2 million in the current year-to-date period compared to the prior year-to-date period, due primarily to changes in working capital.
Net cash used in investing activities. Net cash used in investing activities decreased $1.2 million in the current year compared to the prior year primarily due to an increase in net proceeds received from the sale of assets in the current year.
Capital expenditures were $40.2 million in the current year and cloud computing application development spend, which is included in operating activities, was $3.9 million, compared to capital expenditures of $38.9 million and cloud computing application development spend of $0.9 million in the prior year. The increase in capital expenditures in the current year compared to the prior year was in line with the Company's long-term plan. The Wholesale and Retail segments utilized 56.3% and 43.7% of capital expenditures, respectively, in the current year.
Net cash provided by financing activities. Net cash provided by financing activities decreased $27.2 million in the current year compared to the prior year, primarily due to reduced proceeds in the current year from the senior credit facility.
Debt Management
Total debt, including finance lease liabilities, was $623.6 million and $597.5 million as of April 20, 2024 and December 30, 2023, respectively. The increase in total debt was due to additional net borrowings on the senior credit facility to fund working capital changes, purchases of property, plant and equipment and share repurchases.
Liquidity
The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility, which includes Tranche A revolving loans, with a borrowing capacity of $1.17 billion, and Tranche A-1 revolving loans, with a borrowing capacity of $40 million. The Company has the ability to increase the amount borrowed under the Credit Agreement by an additional $195 million, subject to certain conditions. As of April 20, 2024, the senior secured credit facility had outstanding borrowings of $541.8 million.
Additional available borrowings under the Company’s credit facility are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintain excess availability of 10% of the borrowing base, as such term is defined in the Credit Agreement. The Company had excess availability after the 10% covenant of $431.3 million at April 20, 2024. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The credit facility provides for the issuance of letters of credit, of which $18.1 million were outstanding as of April 20, 2024. The credit facility matures November 17, 2027 and is secured by substantially all of the Company’s assets.
The Company believes that cash generated from operating activities and available borrowings under the credit facility will be sufficient to meet anticipated requirements for working capital, capital expenditures, dividend payments, and debt service obligations for the foreseeable future. However, there can be no assurance that the business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the Credit Agreement. The Company anticipates that additional borrowings may be required to fund investments related to both organic and inorganic initiatives included in the long-term strategic plan.
The Company’s current ratio (current assets to current liabilities) was 1.75-to-1 at April 20, 2024 compared to 1.63-to-1 at December 30, 2023, and its investment in working capital was $458.1 million at April 20, 2024 compared to $417.6 million at December 30, 2023. The net long-term debt to total capital ratio was 0.44-to-1 at April 20, 2024 compared to 0.43-to-1 at December 30, 2023.
Net long-term debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current portion of long-term debt and finance lease liabilities, less cash and cash equivalents. The ratio of net long-term debt to total capital is a non-GAAP financial measure that is calculated by dividing net long-term debt, as defined previously, by total capital (net long-term debt plus total shareholders’ equity). The Company believes both management and its investors find the information useful because it reflects the amount of long-term debt obligations that are not covered by available cash and temporary investments. Total net long-term debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.
Following is a reconciliation of “Long-term debt and finance lease liabilities” to Net long-term debt as of April 20, 2024 and December 30, 2023.
Total debt
623,588
597,480
(18,968
(17,964
Net long-term debt
604,620
579,516
Following is a reconciliation of "Net long-term debt" and "Total shareholders' equity" to Total capital as of April 20, 2024 and December 30, 2023.
Total shareholders' equity
Total capital
1,389,825
1,357,698
For information on material cash requirements, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023. At April 20, 2024, there have been no significant changes to the Company’s material cash requirements outside the ordinary course of business.
Cash Dividends
During the quarter ended April 20, 2024, the Company declared $7.7 million in dividends. A 1.2% increase in the quarterly dividend rate from $0.215 per share to $0.2175 per share was approved by the Board of Directors and announced on March 7, 2024. Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. Whether the Board of Directors continues to declare dividends depends on a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows and compliance with the terms of its credit facilities.
Under the senior revolving credit facility, the Company is generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends and repurchase shares in excess of $35.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility, is in excess of 15% of the Total Borrowing Base, as defined in the senior revolving credit facility, before and after giving effect to the repurchases and dividends.
Off-Balance Sheet Arrangements
The Company has also made certain commercial commitments that extend beyond April 20, 2024. These commitments consist primarily of purchase commitments, standby letters of credit of $18.1 million as of April 20, 2024, and interest on long-term debt and finance lease liabilities.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Based on the Company’s ongoing review, the Company makes adjustments it considers appropriate under the facts and circumstances. This discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements. The Company believes these accounting policies and others set forth in Item 7 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023 should be reviewed as they are integral to understanding the Company’s financial condition and results of operations. The Company has discussed the development, selection and disclosure of these accounting policies with the Audit Committee of the Board of Directors. The accompanying financial statements are prepared using the same critical accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
26
Recently Issued Accounting Standards
Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in market risk of SpartanNash from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
ITEM 4. Controls and Procedures
An evaluation of the effectiveness of the design and operation of SpartanNash Company’s disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Exchange Act) was performed as of April 20, 2024 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Corporate Controller. As of the Evaluation Date, SpartanNash Company’s management, including the CEO, CFO and Corporate Controller, concluded that SpartanNash’s disclosure controls and procedures were effective as of the Evaluation Date to ensure that material information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including its principal executive and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. During the first quarter of 2024 there were no changes that materially affected, or were reasonably likely to materially affect, SpartanNash’s internal control over financial reporting.
PART II
ITEM 1. Legal Proceedings
The information required by this Part II, Item 1 is incorporated by reference to the information set forth under the caption “Commitments and Contingencies” in Note 8 in the notes to condensed consolidated financial statements included in this report.
ITEM 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K (2023 10-K) for the year ended December 30, 2023 filed with Securities and Exchange Commission. You should carefully consider the risks included in our 2023 10-K, together with all the other information in this Quarterly Report on Form 10-Q, including the forward-looking statements which appear at the beginning of this report.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
On February 24, 2022, the Board of Directors authorized the repurchase of common shares in connection with a $50 million share repurchase program, which expires on February 22, 2027. There were $2.6 million of common stock share repurchases made under this program during the first quarter of 2024. At April 20, 2024, $22.8 million remains available under the program. Repurchases of common stock may include: (1) shares of SpartanNash common stock delivered in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The value of the shares delivered or withheld is determined by the applicable stock compensation plan. The Company plans to return value to shareholders through share repurchases under this program as well as continuing regular dividends.
Fiscal Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs
Maximum Dollar Value of Shares Yet to be Purchased Under the Plans or Programs(in thousands)
December 31 - January 27, 2024
Employee Transactions
N/A
Repurchase Program
25,399
January 28 - February 24, 2024
February 25 - March 23, 2024
151,833
20.76
67,439
19.90
24,057
March 24 - April 20, 2024
66,631
19.11
22,783
Total for quarter ended April 20, 2024
134,070
19.51
Item 5. Other Information
Rule 10b5-1 Plan Elections
On March 18, 2024, Ileana McAlary, EVP, Chief Legal Officer and Corporate Secretary, and Masiar Tayebi, EVP, Chief Strategy and Information Officer, each adopted a pre-arranged stock trading plan for the sale of up to 1,300 and 1,400 shares of the Company's common stock, respectively. Ms. McAlary and Mr. Tayebi's plan's will terminate on the earlier of (i) March 17, 2026 and (ii) the date on which all sales contemplated under their respective plans have been executed. Ms. McAlary and Mr. Tayebi's plans are intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended ("Exchange Act"). No other Rule 10b5-1 trading arrangements or "non-Rule 10b5-1 trading arrangements" (as defined by S-K Item 408(c)) were entered into or terminated by our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) during the first quarter of 2024.
ITEM 6. Exhibits
The following documents are filed as exhibits to this Quarterly Report on Form 10-Q:
ExhibitNumber
Document
3.1
Restated Articles of Incorporation of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 15, 2017. Incorporated herein by reference.
3.2
Bylaws of SpartanNash Company, as amended. Previously filed as an exhibit to the Company's Current Report of Form 8-K filed on August 25, 2023.
10.1*
Form of SPTN Restricted Stock Unit Plan Document (Non-Employee Directors).
10.2*
Form of SPTN Restricted Stock Unit Plan Document (Associates).
10.3*
Form of SPTN Long-Term Incentive Plan Document.
10.4*
Form of SPTN Annual Cash Incentive Plan Document.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended April 20, 2024, has been formatted in Inline XBRL.
* Indicates management contract or compensatory plan
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date: May 30, 2024
By
/s/ Jason Monaco
Jason Monaco
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ R. Todd Riksen
R. Todd Riksen
Vice President and Corporate Controller
(Principal Accounting Officer)