SpartanNash Company (SPTN) Q3 2024 Earnings Call Transcript
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Overview
The earnings call reflects a mixed sentiment. While there are positive developments such as acquisitions and increased liquidity, there are concerns over declining net sales, increased operating expenses, and a higher leverage ratio. The Q&A section reveals some uncertainty, particularly regarding Amazon Fresh. The absence of a share repurchase or dividend program further tempers enthusiasm. The strategic plan and guidance are neutral to slightly positive, but the lack of strong positive catalysts limits the stock's potential upside, suggesting a neutral stock price movement in the near term.
Key Financial Performance
Net Sales $2.25 billion, decreased by 0.6% year-over-year from $2.26 billion due to lower volume in the Wholesale segment, partially offset by higher volume in the Retail segment.
Gross Profit $355 million, increased from $348 million year-over-year, with a margin increase to 15.8% from 15.3% due to an accretive sales mix, higher vendor funding, and a reduction in LIFO expense.
Operating Expenses Increased by 32 basis points year-over-year, attributed to higher restructuring charges, retail store labor, and healthcare costs, partially offset by lower corporate administrative costs.
Interest Expense $9.9 million, increased by $600,000 compared to the prior year.
Net Earnings $10.9 million, decreased by $200,000 year-over-year, with EPS flat at $0.32 per diluted share.
Net Margin 0.49%, flat compared to the prior-year quarter.
Adjusted Net Earnings $16.5 million, decreased by $2.3 million year-over-year, with adjusted EPS at $0.48 compared to $0.54 last year.
Adjusted EBITDA $60.5 million, decreased by $400,000 compared to the prior year quarter.
Wholesale Net Sales Decreased by $25.9 million or 1.6% year-over-year, primarily due to reduced case volumes with independent retailers and one national account customer.
Wholesale Adjusted EBITDA $44.8 million, increased by 14.8% compared to last year's $39 million, driven by a higher gross profit rate and lower corporate administrative costs.
Retail Segment Sales $675 million, grew by 1.9% year-over-year due to contributions from Metcalfe's.
Retail Adjusted EBITDA $15.7 million, decreased compared to $21.9 million in the prior year's quarter, primarily due to higher healthcare costs and higher store wage rates.
Leverage Ratio Increased to 2.4 times compared to 2.2 times at the end of the second quarter.
Cash from Operating Activities $123.3 million, increased by more than 28% year-over-year due to ongoing earnings and improved working capital position.
Liquidity Approximately $500 million at the end of the third quarter.
Operating Highlights
Acquisition of Fresh Encounter: The acquisition will add 49 stores to SpartanNash's retail portfolio, expanding their footprint in Ohio and Indiana and allowing them to serve Kentucky.
Acquisition of Markham Enterprises: This acquisition consists of three fuel centers and convenience stores in Michigan, expected to close by the end of the year.
Retention Rate Improvement: Total company retention rate has improved by nearly 20% since the launch of the strategic plan.
Adjusted EBITDA: Q3 adjusted EBITDA was $60.5 million, with a margin of 2.7%, flat compared to last year's third quarter.
Cost Savings Initiatives: Shrink production and non-product procurement initiatives expected to generate $20 million in run-rate savings by year-end.
M&A Strategy: Continuing to evaluate M&A opportunities based on a disciplined framework designed to maximize shareholder value.
Leadership Change: Djouma Barry appointed as Senior Vice President and Chief Retail Officer, overseeing retail strategy and operations.
Risk or Challenges
Market Growth: The grocery markets where SpartanNash operates grew only 40 basis points during the past quarter compared to Q3 of 2023, while total U.S. Grocery was up about 1.1%. This slower market growth has negatively impacted both retail and wholesale segments.
Competitive Pressures: The company is facing competitive pressures as it navigates a dynamic environment with softer market conditions, which have manifested recently in its geographies.
Regulatory Issues: The company mentioned that forward-looking statements are subject to certain risks and uncertainties, which could include regulatory issues, although specific regulatory challenges were not detailed.
Supply Chain Challenges: The company is taking a practical approach to mitigate macro pressures, which may include supply chain challenges, although specific issues were not elaborated upon.
Economic Factors: The company expects headwinds from macroeconomic pressures to persist into 2025, impacting previously communicated targets in its long-range plan.
Acquisition Risks: While the company is pursuing acquisitions, there are inherent risks associated with integrating new businesses and ensuring they meet performance expectations.
Cost Increases: Higher restructuring charges, retail store labor, and healthcare costs have led to increased operating expenses, which could impact profitability.
Debt Levels: The leverage ratio of net long-term debt to adjusted EBITDA increased to 2.4 times, indicating a potential risk in managing debt levels.
Guidance & Outlook
Acquisitions: SpartanNash is on track to close the Fresh Encounter deal this month, adding 49 stores to its retail portfolio and expanding its footprint in Ohio, Indiana, and Kentucky. Additionally, the acquisition of Markham Enterprises, consisting of three fuel centers and convenience stores in Michigan, is expected to close by the end of the year.
Transformational Initiatives: The company’s transformational initiatives are outperforming expectations, with benefits expected to continue into 2025. These initiatives have improved associate safety, retention, operating productivity, and margins.
M&A Framework: SpartanNash is evaluating M&A opportunities based on a disciplined framework designed to maximize shareholder value.
Leadership Change: Djouma Barry has been appointed as the new Senior Vice President and Chief Retail Officer, overseeing retail strategy and operations.
2024 Guidance: Net sales are expected to be between $9.5 billion and $9.7 billion. Adjusted EBITDA is projected to be between $252 million and $257 million, with adjusted EPS expected to be between $1.85 and $1.95 per diluted share.
CapEx Guidance: CapEx is narrowed to a range of $135 million to $140 million.
2025 Outlook: For fiscal 2025, low single-digit top-line growth and mid-single-digit adjusted EBITDA growth are expected. Fresh Encounter is anticipated to contribute over $350 million in retail segment sales, while Markham is expected to add over $20 million in net sales.
Food Inflation: Food inflation is expected to be about 1% for the fiscal year.
Shareholder Return Plan
Shareholder Return Plan: SpartanNash is committed to driving shareholder value through strategic initiatives and acquisitions. The company is on track to close the Fresh Encounter deal, which is expected to contribute over $350 million in retail segment sales and more than $10 million in adjusted EBITDA annually. Additionally, the acquisition of Markham Enterprises is anticipated to add over $20 million in net sales and is also expected to be accretive in 2025.
Share Repurchase Program: None
Dividend Program: None
Key Q&A
Earnings Word Cloud
SPTN Transcript
The earnings call shows mixed signals: steady growth in net sales and EBITDA, but declining net earnings and EPS due to increased costs. The Q&A highlights positive performance in Hispanic stores and remodels but also indicates cautious economic outlook and some management evasiveness. The lack of shareholder return plans (no buybacks or dividends) and increased debt levels add to the neutral sentiment. Overall, while there are positive aspects, the challenges and cautious guidance balance them out, leading to a neutral stock price prediction.
The earnings call reveals mixed results: a decline in net earnings and cash from operations, yet a rise in retail sales and wholesale adjusted EBITDA. The Q&A highlights successful Hispanic store performance and cost leadership plans, but uncertainty remains around food stamps and market trends. Overall, the sentiment is balanced, lacking strong positive or negative catalysts, suggesting a neutral stock price movement in the near term.
The earnings call reflects a mixed sentiment. While there are positive developments such as acquisitions and increased liquidity, there are concerns over declining net sales, increased operating expenses, and a higher leverage ratio. The Q&A section reveals some uncertainty, particularly regarding Amazon Fresh. The absence of a share repurchase or dividend program further tempers enthusiasm. The strategic plan and guidance are neutral to slightly positive, but the lack of strong positive catalysts limits the stock's potential upside, suggesting a neutral stock price movement in the near term.
Basic Financial Performance: 3 - Stable performance with some growth expectations but lowered sales guidance. Product Development and Business Update: 4 - Positive pilot results and acquisition of Metcalfe's Market. Market Strategy: 3 - Mixed insights from Q&A, with potential in retail and wholesale but unclear growth drivers. Expenses and Financial Health: 3 - Stable promotional environment, but concerns about sales growth drivers. Shareholder Return Plan: 3 - No significant updates on returns. Overall, the sentiment is neutral with potential for improvement if growth drivers are clarified.
SPTN Report
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