SpartanNash(SPTN) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q2 2021 decreased by 3.6% or $77.5 million to $2.11 billion compared to Q2 2020 sales of $2.18 billion [23] - GAAP EPS for the quarter was $0.47 per diluted share, down from $0.80 per share in Q2 2020 [23] - Adjusted EPS for the quarter was $0.54 compared to $0.73 in the prior year [24] - Adjusted EBITDA was $54.4 million, compared to $59.2 million in the prior year quarter [31] Business Line Data and Key Metrics Changes - Food distribution net sales decreased by $33.3 million or 3.1% to $1.06 billion, with operating earnings of $16.7 million compared to $14.4 million in the prior year [25] - Retail net sales were $620 million, down 1.8% from $631.3 million in Q2 2020, with comparable store sales down 2.7% but up 12.1% on a two-year basis [27] - Military segment net sales were $430 million, a decrease of about $33 million compared to prior year revenues of $463 million, with operating losses of $3.5 million [29][30] Market Data and Key Metrics Changes - The company experienced a decline in domestic traffic across the DeCA channel, with overall transaction count down over 12% from the prior year at domestic commissaries [29] - Inflation in the food distribution business was running around 3% by the end of the quarter, with significant movements between categories [50] Company Strategy and Development Direction - The company is focused on a supply chain transformation initiative aimed at improving operational efficiency and reducing costs, with expected benefits of 15 to 30 basis points on a run rate basis [21] - The company plans to hold an Investor Day in December to update on strategic enhancements and supply chain transformation progress [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about momentum heading into the second half of the year, leading to an improved full-year guidance [7] - The company is facing challenges with labor shortages and rising costs but is taking proactive measures to attract and retain talent [15][16] - Management noted that inflationary pressures are being felt across the supply chain, but they expect to pass some of these costs onto consumers [55] Other Important Information - The company strategically reduced inventory by over $60 million during the quarter, which is expected to help maintain working capital levels [8][44] - The company declared $7.1 million in cash dividends and repurchased 265,000 shares during the quarter [31] Q&A Session Summary Question: Can you elaborate on the supply chain transformation and expected margin benefits? - Management indicated that improvements from the supply chain transformation program are expected to begin late this year or early next year, with a small benefit included in current guidance [41] Question: Will the $60 million inventory reduction continue into the back end of the year? - Management stated that the inventory reduction was strategically targeted and they expect levels to remain relatively stable, with some variability based on buying opportunities [44] Question: How is the company addressing inflation and labor shortages? - Management noted that inflation is being monitored closely, with expectations to pass through costs to consumers, while also addressing labor shortages through wage increases and improved hiring practices [55][72] Question: What are the expectations for military sales recovery? - Management acknowledged the challenges faced by the DeCA channel and emphasized their commitment to working with them to regain customer loyalty and improve profitability [64] Question: How is the product mix in the Food Distribution segment changing post-pandemic? - Management highlighted a shift back towards fresh categories and value-added products, with expectations for continued growth in these areas [78][81]