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 October 5, 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 November 5, 2024, the registrant had 33,754,905 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
9
Notes to Condensed Consolidated Financial Statements
10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
30
Item 4.
Controls and Procedures
PART II.
OTHER INFORMATION
31
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 5.
Other Information
Item 6.
Exhibits
32
Signatures
33
3
PART I
ITEM 1. Financial Statements
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, Unaudited)
October 5,
December 30,
2024
2023
Assets
Current assets
Cash and cash equivalents
$
17,510
17,964
Accounts and notes receivable, net
490,131
421,859
Inventories, net
557,955
575,226
Prepaid expenses and other current assets
74,167
62,440
Total current assets
1,139,763
1,077,489
Property and equipment, net
668,927
649,071
Goodwill
190,023
182,160
Intangible assets, net
101,817
101,535
Operating lease assets
259,890
242,146
Other assets, net
107,013
103,174
Total assets
2,467,433
2,355,575
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable
513,577
473,419
Accrued payroll and benefits
70,516
78,076
Other accrued expenses
65,432
57,609
Current portion of operating lease liabilities
42,355
41,979
Current portion of long-term debt and finance lease liabilities
9,747
8,813
Total current liabilities
701,627
659,896
Long-term liabilities
Deferred income taxes
85,660
73,904
Operating lease liabilities
245,270
226,118
Other long-term liabilities
26,611
28,808
Long-term debt and finance lease liabilities
626,957
588,667
Total long-term liabilities
984,498
917,497
Commitments and contingencies (Note 8)
Shareholders’ equity
Common stock, voting, no par value; 100,000 shares authorized; 33,755 and 34,610 shares outstanding
452,024
460,299
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding
—
Accumulated other comprehensive (loss) income
(325
)
796
Retained earnings
329,609
317,087
Total shareholders’ equity
781,308
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)
12 Weeks Ended
40 Weeks Ended
October 5, 2024
October 7, 2023
Net sales
2,250,681
2,264,248
7,287,700
7,484,036
Cost of sales
1,896,032
1,916,709
6,139,704
6,337,449
Gross profit
354,649
347,539
1,147,996
1,146,587
Operating expenses
Selling, general and administrative
324,061
322,796
1,045,851
1,059,787
Acquisition and integration, net
272
2,130
3,212
2,259
Restructuring and asset impairment, net
5,397
(458
17,272
1,371
Total operating expenses
329,730
324,468
1,066,335
1,063,417
Operating earnings
24,919
23,071
81,661
83,170
Other expenses and (income)
Interest expense, net
9,915
9,280
33,943
30,218
Other, net
(216
(786
(1,814
(2,510
Total other expenses, net
9,699
8,494
32,129
27,708
Earnings before income taxes
15,220
14,577
49,532
55,462
Income tax expense
4,300
3,450
14,152
13,530
Net earnings
10,920
11,127
35,380
41,932
Net earnings per basic common share
0.33
1.05
1.22
Net earnings per diluted common share
0.32
1.03
1.20
Weighted average shares outstanding:
Basic
33,580
34,020
33,847
34,262
Diluted
34,102
34,523
34,266
34,967
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive (loss) income, before tax
Change in interest rate swap
(1,739
3,625
(13
4,770
Postretirement liability adjustment
(720
(1,462
(1,957
Total other comprehensive (loss) income, before tax
2,905
(1,475
2,813
Income tax benefit (expense) related to items of other comprehensive (loss) income
409
(673
354
(637
Total other comprehensive (loss) income, after tax
(1,330
2,232
(1,121
2,176
Comprehensive income
9,590
13,359
34,259
44,108
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumulated
Other
Shares
Common
Comprehensive
Retained
Outstanding
Stock
Income (Loss)
Earnings
Total
Balance at December 30, 2023
34,610
12,971
Other comprehensive income
2,852
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
626
Cancellations of stock-based awards
(159
(3,151
Balance at April 20, 2024
34,349
459,204
3,648
322,353
785,205
11,489
Other comprehensive loss
(2,643
(7,582
(627
(12,435
1,856
190
Restricted stock units issued as common stock
15
Issuances of common stock for associate stock purchase plan and other stock-based awards
19
291
(6
(30
Balance at July 13, 2024
33,750
449,076
1,005
326,260
776,341
(7,571
2,476
184
17
303
(12
(15
Balance at October 5, 2024
33,755
Income
Balance at December 31, 2022
35,079
468,061
2,979
295,028
766,068
11,337
(1,557
Dividends - $0.215 per share
(7,679
(435
(10,910
5,147
607
358
Issuances of restricted stock
425
(151
(3,917
Balance at April 22, 2023
34,935
459,346
1,422
298,686
759,454
19,468
1,501
(7,524
(330
(7,617
2,465
353
18
328
(31
Balance at July 15, 2023
34,618
454,844
2,923
310,630
768,397
(7,475
2,348
319
348
11
(19
(29
Balance at October 7, 2023
34,629
457,830
5,155
314,282
777,267
8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash restructuring, asset impairment, and other charges
16,129
1,273
Depreciation and amortization
78,147
75,245
Non-cash rent
(2,437
(2,760
LIFO expense
5,046
22,445
Postretirement benefits income
(969
(1,990
9,634
11,388
Stock-based compensation expense
8,052
9,960
700
1,279
(Gain) loss on disposals of assets
(48
304
Other operating activities
1,388
1,308
Changes in operating assets and liabilities:
Accounts receivable
(66,080
(23,071
Inventories
16,634
(32,688
Prepaid expenses and other assets
(12,055
(3,558
55,136
37,517
(15,529
(34,960
Current income taxes
(7,893
(3,564
Other accrued expenses and other liabilities
2,020
(4,380
Net cash provided by operating activities
123,255
95,680
Cash flows from investing activities
Purchases of property and equipment
(97,867
(86,212
Net proceeds from the sale of assets
2,058
4,055
Acquisitions, net of cash acquired
(14,370
(780
Loans to customers
(1,305
Payments from customers on loans
1,372
1,097
Other investing activities
(540
(163
Net cash used in investing activities
(110,652
(82,003
Cash flows from financing activities
Proceeds from senior secured credit facility
1,011,564
1,044,242
Payments on senior secured credit facility
(974,969
(1,017,484
Repayment of other long-term debt and finance lease liabilities
(8,014
(6,279
(15,051
(18,527
Net payments related to stock-based award activities
(3,196
(3,977
Dividends paid
(22,635
(22,381
Other financing activities
(756
(803
Net cash used in financing activities
(13,057
(25,209
Net decrease in cash and cash equivalents
(454
(11,532
Cash and cash equivalents at beginning of period
29,086
Cash and cash equivalents at end of period
17,554
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 October 5, 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 third quarter and year-to-date periods of 2024 and 2023 include the results of operations of the Company for the 12- and 40-week periods ended October 5, 2024 and October 7, 2023, respectively.
Note 2 – Adoption of New Accounting Standards and Recently Issued Accounting Standards
As of October 5, 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:
12 Weeks Ended October 5, 2024
40 Weeks Ended October 5, 2024
(In thousands)
Wholesale
Retail
Type of products:
Center store (a)
594,135
255,386
849,521
1,931,664
815,441
2,747,105
Fresh (b)
479,988
250,385
730,373
1,577,915
806,556
2,384,471
Non-food (c)
482,449
131,474
613,923
1,565,241
401,928
1,967,169
Fuel
37,083
118,176
19,510
271
19,781
69,911
868
70,779
1,576,082
674,599
5,144,731
2,142,969
Type of customers:
Individuals
674,328
2,142,101
Independent retailers (d)
522,825
1,720,408
National accounts
495,558
1,624,403
Military (e)
548,833
1,770,272
8,866
9,137
29,648
30,516
12 Weeks Ended October 7, 2023
40 Weeks Ended October 7, 2023
623,273
256,550
879,823
2,054,415
832,202
2,886,617
488,929
243,198
732,127
1,651,191
811,825
2,463,016
465,473
120,149
585,622
1,535,880
386,993
1,922,873
42,114
131,167
24,325
237
24,562
79,562
801
80,363
1,602,000
662,248
5,321,048
2,162,988
662,011
2,162,188
548,656
1,814,874
504,971
1,741,407
538,790
1,729,221
9,583
9,820
35,546
800
36,346
(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.
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
(356
(394
(750
Write-offs charged against the allowance
(171
(350
(521
4,084
468
4,552
6,098
948
7,046
(1,314
439
(875
(448
4,336
1,387
5,723
Note 4 – Goodwill and Other Intangible Assets
The Company has two reporting units, Wholesale and Retail. Changes in the carrying amount of goodwill were as follows:
181,035
1,125
Acquisitions
7,863
8,988
The Company has indefinite-lived intangible assets that are not amortized, consisting primarily of indefinite-lived trade names. Changes in the carrying amount of indefinite-lived intangible assets were as follows:
Indefinite-lived
Intangible Assets
67,826
9,750
Impairment (Note 5)
(6,059
71,517
Within the Retail reporting unit, the Company acquired goodwill of $7.9 million and an indefinite-lived trade name of $9.8 million related to an immaterial acquisition during the second quarter of 2024.
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. Except for the impairment described in Note 5, 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.
12
Note 5 – Restructuring and Asset Impairment
The following table provides the activity of reserves for closed properties for the 40-week period ended October 5, 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
Provision for closing charges
5,356
Provision for severance
405
Lease termination adjustments
(1,489
Changes in estimates
Accretion expense
59
Payments
(390
(420
6,484
375
6,859
Restructuring and asset impairment, net in the condensed consolidated statements of earnings consisted of the following:
Asset impairment charges (a)
75
13,059
3,745
Loss (gain) on sales of assets related to closed facilities (b)
120
(34
(2,470
378
1
21
Other costs (income) associated with site closures (c)
1,024
(4
753
596
Lease termination adjustments (d)
(1,418
(2,238
(575
(a) Asset impairment charges in the current year were primarily incurred in the Retail segment related to long-lived assets and an indefinite-lived trade name as a result of changes in the competitive environment. In the prior year, asset impairment charges related 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.
(b) Gains on sales of assets in the prior year relate to the sale of a store within the Retail segment.
(c) Other costs net activity in the current year primarily relates to restructuring activity within the Wholesale segment, including the closure of a distribution center. In the prior year, activity primarily relates to Retail store closings.
(d) Lease termination adjustments in the current year relate to the gains recognized to terminate lease agreements, which included the write-off of lease liabilities totaling $0.6 million and the write-off of lease ancillary costs included in the reserve for closed properties totaling $1.5 million.
During the second quarter, the Company evaluated an indefinite-lived trade name within the Retail segment for potential impairment. The indefinite-lived trade name with a book value of $23.7 million was measured at a fair value of $17.6 million, resulting in an impairment charge of $6.1 million. Indefinite-lived intangible assets are measured at fair value using Level 3 inputs under the fair value hierarchy, as further described in Note 6. Fair value of indefinite-lived assets is determined by estimating the amount and timing of net future cash flows, 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 and, in the case of indefinite-lived trade name assets, estimated royalty rates.
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 $7.5 million were measured at a fair value of $0.5 million, resulting in impairment charges of $7.0 million. In the prior year, 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.
13
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 October 5, 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
630,353
593,061
Total book value of debt instruments
640,100
601,874
Fair value of debt instruments, excluding debt financing costs
641,503
603,117
Excess of fair value over book value
1,403
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.
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 (loss) 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.
14
The location and the fair value of the interest rate swap in the condensed consolidated balance sheets as of October 5, 2024 and December 30, 2023, respectively, are as follows:
Derivative Fair Value
Condensed Consolidated Balance Sheets Location
Cash Flow Hedge:
Interest rate swap
628
1,721
1,914
(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:
October 7, 2024
Total amounts of expense line items presented in the condensed consolidated statements of earnings in which the effects of cash flow hedges are recorded
Gain on cash flow hedging relationships:
Gain reclassified from comprehensive income into earnings
569
573
1,946
1,242
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.
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 40 week period ended October 5, 2024, the Company recognized net periodic postretirement benefit income of $1.4 million, related to the SpartanNash Retiree Medical Plan ("Retiree Medical Plan" or "Plan"). During the 12- and 40- week periods ended October 7, 2023 the Company recognized net periodic postretirement benefit income of $0.7 million and $2.2 million, respectively, related to the Retiree Medical Plan.
The Company amended the Retiree Medical Plan on June 30, 2022. In connection with the amendment, the Company was to 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 was amortized to net periodic postretirement benefit income over the remaining period until the final payment was made on June 28, 2024. During the 40 week period ended October 5, 2024, the Company recognized $1.7 million in net periodic postretirement benefit income related to the amortization of the prior service credit from AOCI. During the 12- and 40- week periods ended October 7, 2023, the Company recognized $0.8 million and $2.5 million, respectively, in net periodic postretirement benefit income related to the amortization of the prior service credit from AOCI.
On June 28, 2024, the Company made a lump sum payment of $1.3 million to all remaining active or retired participants, which constituted a final settlement of the Plan. On July 1, 2023, the Company made a lump sum payment to retired participants totaling $1.3 million, which constituted a partial settlement of the Plan. The payments resulted in the recognition within net periodic postretirement expense of $0.1 million and $0.3 million on June 28, 2024 and July 1, 2023, respectively, related to the net actuarial loss within AOCI.
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 12- week periods ended October 5, 2024 and October 7, 2023 were each $2.3 million. The Company's contributions during the 40-week periods ended October 5, 2024 and October 7, 2023 were $10.2 million and $9.8 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 28.3% and 23.7% for the 12 weeks ended October 5, 2024 and October 7, 2023, respectively. The effective income tax rate was 28.6% and 24.4% for the 40 weeks ended October 5, 2024 and October 7, 2023, respectively.
Differences from the federal statutory rate for all periods presented were due to state taxes and non-deductible expenses, partially offset by benefits associated with federal tax credits. The prior year also included discrete tax benefits from a change in 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.
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
1,082
1,771
4,343
8,468
Restricted stock unit expense
845
4,509
Performance share unit expense (benefit)
549
577
(800
1,492
Income tax benefit
(686
(593
(2,129
(3,502
Stock-based compensation expense, net of tax
1,790
1,755
5,923
6,458
The following table summarizes activity in the stock incentive plans for the 40 weeks ended October 5, 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
594,321
20.30
418,008
20.55
Vested
(466,544
23.14
(15,490
20.41
Cancelled/Forfeited
(23,104
27.11
(27,960
(28,274
23.30
Outstanding at October 5, 2024
329,809
27.29
550,871
680,044
23.19
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 October 5, 2024:
16
Unrecognized
Compensation
Recognition
Cost
Period
(in years)
Restricted stock awards
4,169
1.2
Restricted stock units
7,017
2.2
Performance share units
7,006
18,192
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
(17
(43
(72
(138
Warrant expense, net of tax
167
276
1,141
The following table summarizes stock warrant activity for the 40 weeks ended October 5, 2024:
Warrant
Outstanding and nonvested at December 30, 2023
3,262,357
(217,492
Outstanding and nonvested at October 5, 2024
3,044,865
As of October 5, 2024, total unrecognized cost related to nonvested warrant shares was $16.3 million, which may be expensed as vesting conditions are satisfied over the remaining term of the agreement, or 3 years. Warrants representing 2,392,407 shares are vested and exercisable. As of October 5, 2024, nonvested warrant shares had an intrinsic value of $10.9 million, and vested warrant shares had an intrinsic value of $8.5 million.
Note 12 – Earnings Per Share
Outstanding nonvested restricted stock awards granted to retirement-eligible Associates contain nonforfeitable rights to 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. 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 7,170 and 288,041 for the 12- weeks ended October 5, 2024 and October 7, 2023, respectively, and were 189,062 and 18,340 for the 40- weeks ended October 5, 2024 and October 7, 2023, respectively. 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
(57
(81
(202
(333
Net earnings used in calculating earnings per share
10,863
11,046
35,178
41,599
Denominator:
Weighted average shares outstanding, including participating securities
Adjustment for participating securities
(174
(247
(193
(272
Shares used in calculating basic earnings per share
33,406
33,773
33,654
33,990
Effect of dilutive stock warrant
380
432
332
614
Effect of dilutive stock-based employee compensation
143
72
87
91
Shares used in calculating diluted earnings per share
33,929
34,277
34,073
34,695
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 and other long-term liabilities
12,763
Operating lease asset additions
54,377
34,815
Finance lease asset additions
9,374
13,492
Non-cash financing activities:
Recognition of operating lease liabilities
Recognition of finance lease liabilities
Other supplemental cash flow information:
Cash paid for interest
35,406
30,930
Note 14 – Segment Information
The following tables set forth information about the Company by reportable segment:
Net sales to external customers
Inter-segment sales
279,426
402
279,828
71
201
6,824
(1,427
12,747
11,412
24,159
21,054
3,865
Capital expenditures
13,006
17,787
30,793
274,540
434
274,974
65
2,065
(293
(165
12,151
10,891
23,042
18,153
4,918
16,287
9,101
25,388
896,023
1,493
897,516
2,048
1,164
6,792
10,480
41,126
37,021
79,123
2,538
49,680
48,187
97,867
902,720
1,086
903,806
189
2,070
688
683
39,165
36,080
66,020
17,150
54,512
31,700
86,212
1,630,441
1,576,182
836,992
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 third quarter, the Company’s Retail segment operated 147 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 two 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 Third Quarter Highlights
Key financial and operational highlights for the third 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, higher labor rates 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
12 WeeksEnded
40 WeeksEnded
October 5,2024
October 7,2023
100.0
(0.6
(2.6
15.8
15.3
2.0
0.1
14.4
14.3
14.2
0.4
(1.3
0.0
(87.2
42.2
Restructuring charges and asset impairment, net
0.2
(0.0
**
1.1
1.0
8.0
(1.8
Other expenses
16.0
0.7
0.6
4.4
(10.7
24.6
4.6
0.5
(1.9
(15.6
Note: Certain totals do not sum due to rounding.
** Not meaningful
Net Sales – The following table presents net sales by segment and variances in net sales:
Variance
(25,918
(176,317
12,351
(20,019
Total net sales
(13,567
(196,336
Net sales for the quarter ended October 5, 2024 (the “third quarter”) decreased $13.6 million, or 0.6%, to $2.25 billion from $2.26 billion in the quarter ended October 7, 2023 (the “prior year quarter”). Net sales for the year-to-date period ended October 5, 2024 (the "year-to-date period") decreased $196.3 million, or 2.6%, to $7.29 billion from $7.48 billion in the year-to-date period ended October 7, 2023 (the "prior year-to-date-period").
Wholesale net sales decreased $25.9 million, or 1.6% to $1.58 billion in the third quarter from $1.60 billion in the prior year quarter. Wholesale net sales for the year-to-date period decreased $176.3 million, or 3.3%, to $5.14 billion from $5.32 billion in the prior year-to-date period. The decreases were due primarily to lower case volumes in both the national accounts and independent retailers customer channels. Overall case volumes for the segment were down in the current quarter and current year-to-date period by 3.2% and 5.6%, respectively.
Retail net sales increased $12.4 million, or 1.9%, to $674.6 million in the third quarter from $662.2 million in the prior year quarter. Net sales for the year-to-date period decreased $20.0 million, or 0.9%, to $2.14 billion from $2.16 billion in the prior year-to-date period. Comparable store sales decreased 0.7% and 1.9% in the current quarter and current year-to-date periods, respectively.
The comparable store sales declines were due primarily to lower consumer demand trends, which included a 4.0% and 4.5% decline in unit volumes in the current quarter and current year-to-date periods, respectively. The decreases in comparable store sales in both the current quarter and current year-to-date periods included offsetting increases in pharmacy sales. Retail's comparable store sales decreases were more than offset by incremental sales from newly acquired stores in the current quarter and partially offset by incremental sales from newly acquired stores in the current year. Additionally, lower fuel sales reduced Retail's reported net sales by 0.8% and 0.6% in the current quarter and current year-to-date periods, respectively.
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.
Gross profit increased $7.1 million to $354.6 million in the third quarter from $347.5 million in the prior year quarter. As a percent of net sales, gross profit for the current quarter was 15.8% compared to 15.3% in the prior year quarter. Gross profit for the year-to-date period increased $1.4 million from $1.147 billion in the prior year-to-date period to $1.148 billion in the current year. As a percent of net sales, gross profit for the year-to-date period was 15.8% compared to 15.3% in the prior year-to-date period. The gross profit variances in both the current quarter and current year were unfavorably impacted by lower volumes. The gross profit rate increases in the current quarter and current year were driven by lower last-in-first-out ("LIFO") expense of $5.1 million, or 22 basis points and $17.4 million, or 23 basis points, respectively, and favorable segment sales mix. Additionally, the increases in both the current quarter and current year were driven by benefits realized from the merchandising transformation initiative, 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 third quarter increased $1.3 million to $324.1 million from $322.8 million in the prior year quarter, representing 14.4% of net sales in the third quarter compared to 14.3% in the prior year quarter. SG&A expense for the year-to-date period decreased $13.9 million to $1.05 billion, from $1.06 billion in the prior year-to-date period, representing 14.4% in the current year-to-date period compared to 14.2% as a percentage of net sales in the prior year-to-date period. The increase in selling, general and administrative expenses as a rate of sales in the current quarter was due primarily to increased Retail store labor and healthcare costs, partially offset by lower corporate administrative costs and benefits realized from the merchandising transformation. The increase in selling, general and administrative expenses as a rate of sales in the year-to-date period was due primarily to increased Retail store labor and depreciation and amortization expense, partially offset by lower incentive compensation and benefits realized from both the merchandising transformation and go-to-market strategy changes.
Acquisition and Integration, net – Third quarter and prior year quarter results included net charges of $0.3 million and $2.1 million, respectively. The year-to-date period and prior year-to-date period included charges of $3.2 million and $2.3 million, respectively. Current year activity consists of expenses associated with the Company's acquisition efforts within both segments while the prior year activity relates primarily to the Retail segment.
Restructuring and Asset Impairment, net – Third quarter and prior year quarter results included net charges of $5.4 million and a net gain of $0.5 million, respectively. The year-to-date period and prior year-to-date period included charges of $17.3 million and $1.4 million, respectively. The charges in the current quarter were primarily incurred within the Wholesale segment related to the closure of a distribution center, partially offset by gains within the Retail segment recognized from the early termination of lease agreements for two previously closed locations. The year-to-date charges also include impairment losses within the Retail segment related to an indefinite-lived trade name and long-lived assets due to changes in the competitive environment. The prior year quarter gain primarily relates to a $0.3 million gain for additional insurance proceeds related to a distribution location that sustained significant storm damage within the Wholesale segment, in addition to revised estimates for turnover and other lease ancillary costs associated with previously closed locations. 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, partially offset by the sale of a store within the Retail segment.
Operating Earnings – The following table presents operating earnings by segment and variances in operating earnings.
2,901
13,103
(1,053
(14,612
Total operating earnings
1,848
(1,509
Operating earnings increased $1.8 million, or 8.0% to $24.9 million in the third quarter from $23.1 million in the prior year quarter. Operating earnings for the year-to-date period decreased $1.5 million, or 1.8%, to $81.7 million from $83.2 million in the prior year-to-date period. The changes in operating earnings was due to the changes in net sales, gross profit and operating expenses discussed above.
22
Wholesale operating earnings increased $2.9 million, or 16.0%, to $21.1 million in the third quarter from $18.2 million in the prior year quarter. Operating earnings for the year-to-date period increased $13.1 million, or 19.8%, to $79.1 million from $66.0 million in the prior year-to-date period. The increase in operating earnings in the current quarter was due to an improvement in the gross profit rate, lower corporate administrative expenses, and benefits realized from the merchandising transformation initiative, partially offset by lower unit volumes and higher restructuring charges. The increase in operating earnings in the year-to-date period was due to an improvement in the gross profit rate, lower incentive compensation, and benefits realized from the merchandising transformation initiative, partially offset by lower unit volumes and higher restructuring charges.
Retail operating earnings decreased $1.1 million, or 21.4%, to $3.9 million in the third quarter from $4.9 million in the prior year quarter. Operating earnings for the year-to-date period decreased $14.6 million, or 85.2%, to $2.5 million from $17.2 million in the prior year-to-date period. The decrease in operating earnings in the current quarter was due to increased healthcare costs and higher store labor, partially offset by higher sales volume, lower corporate administrative expenses and lower acquisition and integration charges. The decrease in operating earnings in the year-to-date period was due to lower unit volumes, increased restructuring and asset impairment charges, and higher store labor as a percent of net sales, partially offset by lower incentive compensation.
Interest Expense – Interest expense increased $0.6 million, or 6.8%, to $9.9 million in the third quarter from $9.3 million in the prior year quarter. Interest expense for the year-to-date period increased $3.7 million, or 12.3%, to $33.9 million from $30.2 million in the prior year-to-date period. Higher average debt balances on the Company's credit facility accounted for $0.8 million and $3.1 million of the increase in interest expense in the current quarter and current year, respectively.
Income Taxes – The effective income tax rates were 28.3% and 23.7% for the third quarter and prior year quarter, respectively. For the year-to-date period and prior year-to-date period, the effective tax rates were 28.6% and 24.4%, respectively. Differences from the federal statutory rate for all periods presented were due to state taxes and non-deductible expenses, partially offset by benefits associated with federal tax credits. The prior year also included discrete tax benefits from a change in contingencies, as well as stock compensation.
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, operating and non-operating costs associated with the postretirement plan amendment and settlement and a non-operating benefit associated with a pension refund from an annuity provider. 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. Postretirement plan amendment and settlement costs also include operating expenses related to payroll taxes which are adjusted out of all non-GAAP financial measures. The pension refund from an annuity provider is related to a terminated pension plan and is a non-operating benefit which is 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, organizational realignment, 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 prior year and operating and non-operating costs associated with the postretirement plan amendment and settlement.
Each of these items are considered “non-operational” or “non-core” in nature.
23
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.
Following is a reconciliation of operating earnings to adjusted operating earnings for the 12- and 40- weeks ended October 5, 2024 and October 7, 2023.
Adjustments:
1,517
6,606
Organizational realignment, net
240
2,681
1,915
4,710
Severance associated with cost reduction initiatives
279
39
420
311
Legal settlement
900
Postretirement plan amendment and settlement
99
94
Adjusted operating earnings
32,624
34,069
109,625
115,260
Wholesale:
1,153
4,411
3,861
16,734
148
1,673
1,194
2,939
131
230
296
62
29,381
24,048
93,310
87,825
Retail:
364
2,195
1,185
5,711
92
1,008
721
37
35
3,243
10,021
16,315
27,435
24
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 12- and 40- weeks ended October 5, 2024 and October 7, 2023.
per diluted
share
(762
Pension refund from annuity provider
(239
Total adjustments
7,466
10,236
Income tax effect on adjustments (a)
(1,895
(2,600
Total adjustments, net of taxes
5,571
0.16
7,636
0.22
Adjusted earnings from continuing operations
16,491
0.48
18,763
0.54
(1,458
(2,411
26,168
29,585
(6,698
(7,525
19,470
0.57
22,060
0.63
54,850
1.60
63,992
1.83
(a) The income tax effect on adjustments is computed by applying the effective tax rate, before discrete tax items, to the total
adjustments for the period.
25
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.
26
Following is a reconciliation of net earnings to adjusted EBITDA for the 12- and 40- weeks ended October 5, 2024 and October 7, 2023.
Other expenses, net
Cloud computing amortization
1,748
1,259
5,606
3,685
2,519
2,461
8,139
10,073
(655
(531
(2,281
(2,094
(Gain) loss on disposal of assets
(92
258
60,487
60,877
199,888
203,752
1,098
834
3,622
2,499
1,711
1,621
5,572
6,615
(246
(789
(108
(127
(11
44,767
38,997
143,414
137,234
650
1,984
1,186
808
840
2,567
3,458
(409
(1,492
(1,956
Loss on disposal of assets
234
79
315
15,720
21,880
56,474
66,518
27
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 operating activities. Net cash provided by operating activities increased $27.6 million in the current year-to-date period compared to the prior year-to-date period, due primarily to ongoing working capital initiatives, as well as timing.
Net cash used in investing activities. Net cash used in investing activities increased $28.6 million in the current year compared to the prior year due to an acquisition within the Retail segment in the current year, as well as higher capital expenditures.
Capital expenditures were $97.9 million in the current year and cloud computing application development spend, which is included in operating activities, was $8.4 million, compared to capital expenditures of $86.2 million and cloud computing application development spend of $4.1 million in the prior year. The increase in capital expenditures in the current year compared to the prior year is in line with investments connected to the Company's long-term plan. The Wholesale and Retail segments utilized 50.8% and 49.2% of capital expenditures, respectively, in the current year.
Net cash used in financing activities. Net cash used in financing activities decreased $12.2 million in the current year compared to the prior year, primarily due to increased net proceeds from the senior credit facility in the current year compared to the prior year.
Debt Management
Total debt, including finance lease liabilities, was $636.7 million and $597.5 million as of October 5, 2024 and December 30, 2023, respectively.
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 October 5, 2024, the senior secured credit facility had outstanding borrowings of $559.1 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 $384.7 million at October 5, 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 $18.0 million were outstanding as of October 5, 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 1.62-to-1 at October 5, 2024 compared to 1.63-to-1 at December 30, 2023, and its investment in working capital was $438.1 million at October 5, 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 October 5, 2024 compared to 0.43-to-1 at December 30, 2023.
28
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 adjusted EBITDA is a non-GAAP financial measure that is calculated by dividing adjusted EBITDA, on a rolling 52-week basis, by net long-term debt, as defined previously. 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 and adjusted EBITDA are not substitutes 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 October 5, 2024 and December 30, 2023 and "Net earnings" to Adjusted EBITDA on the rolling 52- week basis ended October 5, 2024 and December 30, 2023.
Total debt
636,704
597,480
(17,510
(17,964
Net long-term debt
619,194
579,516
Rolling 52- Weeks Ended
(In thousands, except for ratio)
45,685
52,237
18,510
17,888
41,008
36,587
105,203
106,712
LIFO (benefit) expense
(1,295
16,104
101,541
98,639
4,369
3,416
25,091
9,190
6,955
5,034
2,444
5,239
427
318
10,602
12,536
980
1,559
(2,786
(2,599
(93
259
253,537
257,401
Net long-term debt to adjusted EBITDA ratio
2.4
2.3
Following is a reconciliation of "Net long-term debt" and "Total shareholders' equity" to Total capital as of October 5, 2024 and December 30, 2023.
Total shareholders' equity
Total capital
1,400,502
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 October 5, 2024, there have been no significant changes to the Company’s material cash requirements outside the ordinary course of business.
29
Cash Dividends
During the quarter ended October 5, 2024, the Company declared $7.6 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 October 5, 2024. These commitments consist primarily of purchase commitments, standby letters of credit of $18.0 million as of October 5, 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.
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 October 5, 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 third 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 not any share repurchases of common stock made under this program during the third quarter of 2024. At October 5, 2024, $10.4 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)
July 14 - August 10, 2024
Employee Transactions
N/A
Repurchase Program
10,401
August 11 - September 7, 2024
21.19
September 8 - October 5, 2024
246
22.13
Total for quarter ended October 5, 2024
655
21.54
Item 5. Other Information
Rule 10b5-1 Plan Elections
The directors and officers of the Company (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended) ("Exchange Act") may from time to time enter into plans or other arrangements for the purchase or sale of our shares that are intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. During the quarter ended October 5, 2024, no 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).
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
Restated Bylaws of SpartanNash Company, as amended. Previously filed as an exhibit to the Company's Current Report of Form 8-K filed on September 13, 2024.
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.
32.1
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 October 5, 2024, has been formatted in Inline XBRL.
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: November 7, 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)