SpartanNash(SPTN) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated net sales increased by 5.3% to $2 billion, marking the 13th consecutive quarter of growth [17][29] - Adjusted EPS for Q2 2019 was $0.34 per diluted share, down from $0.50 per diluted share in Q2 2018 [29] - GAAP loss reported at $0.19 per diluted share compared to earnings of $0.50 per share in Q2 2018 [29][30] - Total net long-term debt decreased by $12.4 million to $682.3 million compared to $694.7 million at the end of Q2 2018 [42] Business Segment Data and Key Metrics Changes - Food Distribution segment net sales decreased by $6.3 million or 0.7% to $935.4 million; excluding intercompany sales elimination, sales increased by 3% [30] - Military segment net sales increased by 0.2% to $490.6 million, driven by new business and DeCA's private brand program [34] - Retail segment net sales increased by 22.6% to $570 million, primarily due to the Martin's acquisition; excluding this acquisition, sales decreased by 3.3% [36] Market Data and Key Metrics Changes - Inflation in Food Distribution accelerated to 115 basis points, an increase of 33 basis points from Q1 2019 [31] - Military Distribution reported an operating loss of $1.6 million, compared to earnings of $3.1 million in Q2 2018, primarily due to higher supply chain costs [35] Company Strategy and Development Direction - The company plans to exit the Fresh Kitchen operations and focus on produce distribution and fresh-cut operations [15][16] - The Project One Team initiative aims to drive growth and profitability, with expectations of achieving over $20 million in annual run rate savings by the end of fiscal 2020 [21] - The company is focused on improving working capital and reducing debt levels, having paid down over $90 million in debt since the second quarter of last year [25][26] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in translating sales growth into improved profitability, citing both industry pressures and executional issues [64][65] - The company reiterated its full-year 2019 net sales guidance of mid-single-digit sales growth [43] - Management expects adjusted EBITDA to range from $183 million to $195 million for the full year [45] Other Important Information - The company recognized pension termination costs of $9 million in Q2 2019, with additional non-cash expenses expected in Q3 [41] - Interest expense increased by $1.7 million to $8.7 million due to higher interest rates [40] Q&A Session Summary Question: Can you walk us through the learnings from your assessment of the Fresh Kitchen business? - Management stated that the decision to exit the Fresh Kitchen business was strategic due to lower-than-expected sales growth and operational challenges [52][54] Question: How do you view the performance as self-inflicted versus industry-wide issues? - Management indicated that both macro challenges and executional issues contributed to performance shortfalls, emphasizing the need for improvements [64][65] Question: Can you provide updates on customer wins or losses? - Management noted typical customer wins in the low- to mid-teens for the quarter, with no significant losses reported [68][69] Question: What is the direction of the industry regarding pricing and inflation? - Management acknowledged inflation pressures but noted that their markets have not experienced the same pricing declines as reported by larger competitors like Walmart [76][86] Question: What are the plans for improving execution in wholesale and sales productivity in retail? - Management highlighted a focus on supply chain improvements and inventory management as key areas for enhancing profitability [89][90]