Release Date: May 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SpartanNash Co (SPTN, Financial) reported an increase in EBITDA margin for the first quarter.
- The company remains on target to achieve $125 million to $150 million in gross benefits from its strategic plan by the end of 2024, a year earlier than initially communicated.
- SpartanNash Co (SPTN) realized $7 million in incremental merchandising transformation benefits compared to the prior year.
- The company reported a 2% increase in its military business over the prior year.
- SpartanNash Co (SPTN) generated more than $36 million in cash from operating activities and returned nearly $11 million to shareholders through share repurchases and dividends.
Negative Points
- Total wholesale sales decreased by 3.4% compared to the prior year, primarily due to lower Amazon volume.
- Net sales for the quarter decreased by 3.5% to $2.81 billion versus the first quarter of 2023.
- Retail segment sales declined by 3.6%, with comparable store sales down 2.5% for the first quarter.
- Adjusted net earnings decreased to $18.5 million or $0.53 per diluted share compared to $0.64 last year.
- Adjusted EBITDA decreased by $1.8 million compared to the prior year quarter to $74.9 million.
Q & A Highlights
Q: If I'm looking at the Amazon business, how does it affect the gross profit margin in percentage terms, does the margin go up as the revenues drop and vice versa, while the absolute dollars, of course, go up as business recovers there?
A: Hey, Chuck. This is Jason. Thanks for the question. Good morning. Our Amazon business, of course, helps us build scale and what it does from a margin standpoint because we don't disclose the margin by customer but the way to think about it is that typically our larger customers will have a lower margin profile, and our smaller customers will have a larger profile. So with this customer, in particular, what we do is we work together to optimize the end-to-end supply chain between ourselves and them and in doing so, taking cost out of the system but to do that, what that does is it builds scale for us, and it helps build a framework out where we can both make money along the way.
Q: I wanted ask on the guidance and just sort of reconcile some things with the sales being tougher and that guidance coming down, but then reiterating the EBITDA and EPS, is there some degree of upside you're seeing just from the cost saving initiatives already? Or are there external dynamics that make the profitability picture look a bit easier than you previously expected?
A: Yes. Good morning. And maybe the way to characterize this is that we feel really good about the way that we're executing against our gross margin expansion programs. If you think about our long-term strategic plan. One of the real bedrock elements of that was operational excellence and delivering against that operational excellence, which drives both gross margin and operating expense improvements through our P&L. And what we're doing is really building on that momentum that we've achieved thus far. We delivered our gross savings benefits or expect to deliver our gross savings benefits a year early recognizing that we've got headwinds in the marketplace, but we're kind of doubling down on that and investing further right now in indirect procurement and in waste because of the confidence we've built around executing thus far. So I wouldn't characterize it as it's easier than we thought, but rather that we're investing to continue driving performance in a space where we're building muscle organizationally and we've had success delivering and we expect to continue going forward.
Q: I wanted to ask about the investing this quarter in the indirect procurement and waste. I assume that's a signal that the profitability will be impacted by that meaningfully enough in the quarter that you called it out and then the benefits will come later. On the follow-up, I just sort of wanted to reconfirm that. But also the question fundamentally is, are these -- the process of generating savings in direct procurement is pretty much analogous to the same process as or similar enough to for-sale procurement that is highly visible whatever you got budgeted, you feel that it's kind of the same process just to the non-saleable side of the business.
A: Thanks, Andrew. This is Tony. Yes, you're correct about the investment and the split that we will be investing particularly in the first and second quarter of this year, and we'll have benefits coming in the second half of the year and into next year for those investments in those programs you mentioned. And the indirect procurements, it's slightly different because it's a little different relationship and the things that we purchase and procure to run our business as opposed to the ongoing supplies in the COGS business. So it's a little bit different process and it doesn't involve the same merchants, right, because it's a little bit different approach overall. And there's a terrific opportunity for us to kind of think through that and look for those opportunities, both in that and the waste program. There's always opportunities to sharpen your saw on those components, and we're excited about the work we're doing there. So that will be an ongoing process this year. But as I mentioned, the big investment first half of the year sort of benefit the second half of the year.
Q: And could you just elaborate a little on waste reduction processes? It's a pretty wide swath. It could be anything from less spoilage in retail and wholesale? Or is it something more is it a lot different than typical shrink reduction?
A: Yes. This process is mostly about the entirety of shrink, and it includes the entire supply chain, looking everything from original contact with how we buy through our supply chain into our retail stores and pulling a thread through all that. So it's a very comprehensive view, but it is largely about waste that occurs from shrink type of activities.
Q: I just wanted to touch more broadly, can you talk us through how volume trended during the quarter or maybe quarter-to-date? And then what you're seeing on the promotional and competitive environment seems like major grocers and major customers are announcing price investments. So any change to what you're seeing there and any impact to your outlook for the rest of the year?
A: Yes. Good morning, Ben. Great question. And maybe shed a little light on some of the dynamics within the quarter that were at play here. When you think about the comp situation, comps finished the quarter, they were down about 2.5%. We've talked in the past about the wind down of EBT, the SNAP programs that had an impact, an adverse impact of 1.9% on our comps. And I think we've talked before about the timing, particularly in Michigan with the unwind of what were pretty heavy SNAP benefits that ended in March of 2023, so we've been lapping that. So from an intra order phasing standpoint, as SNAP benefit lapping ended in March, we saw an improvement in comps as we kind of exited the quarter. Now the other overlay here is weather. And I probably don't need to remind you all our stores are in the Upper Midwest. We live in the snowbelt, but this winter didn't have the same snowfall that we've had in the past. In fact, we had quite a dry and relatively warm winter, and snowfall drives retail revenue in our business. So roughly speaking, it's not perfectly scientific, but roughly speaking, the impact of weather this quarter was probably about one point, maybe a little more than 1-point drag on our comps. So you kind of have you've got the EBT drag of 1.9 and the snow of 1. And the reason I share that is that gives a little bit of color on the phasing within the quarter and when you're trying to get to what the steady-state comp looks like. So our outlook for the year isn't really changed from the standpoint of what our programs and initiatives look like. But we also recognize we've got externalities at play, whether it be weather, obviously, we're clear that past that this winter but whether it's weather or government supplemental programs. Looking forward, still obviously a challenging retail environment. We talked about pricing and price optimization and what we're doing is making sure we meet consumers where they're at. But what I mean when I say that is not just pricing and promotion, but private label, our own brand offering improved penetration by 50 basis points this
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
