SpartanNash(SPTN) - 2018 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q4 2018 increased to $1.90 billion, a rise of $11.3 million or approximately 1% compared to Q4 2017 sales of $1.89 billion [20] - Adjusted EPS for Q4 2018 was $0.32 per diluted share, down from $0.41 per diluted share in Q4 2017 [20] - GAAP loss was $0.39 per diluted share in Q4 2018 compared to earnings of $0.94 per share in Q4 2017 [21] - Consolidated operating cash flows for fiscal 2018 were $171.7 million, up from $52.8 million in fiscal 2017 [27] - Total net long-term debt decreased by $54.8 million to $679.5 million at the end of fiscal 2018 [28] Business Segment Data and Key Metrics Changes - Food Distribution segment net sales increased by $43 million or 4.7% to $954.4 million in Q4 2018, driven by new and existing customer programs [22] - Military segment net sales decreased by $10.7 million or 2% to $513.3 million in Q4 2018, primarily due to lower comparable sales at DeCA-operated locations [24] - Retail segment net sales were $429.1 million, down from $450 million in the prior year, with a comparable store sales decrease of 1.9% [25] Market Data and Key Metrics Changes - Inflation in Food Distribution accelerated to 72 basis points in Q4 2018, up from nearly flat in Q3 [22] - Retail inflation was approximately 52 basis points in Q4 2018, about 20 basis points lower than the food distribution side [44] Company Strategy and Development Direction - The company aims to become a growth-oriented entity with a national distribution platform serving a diverse customer base [7] - Project One Team is a company-wide initiative to identify revenue growth opportunities while enhancing efficiencies and reducing costs [8] - The company plans to continue strategic investments in senior leadership, systems, and supply chain throughout 2019 [9] Management's Comments on Operating Environment and Future Outlook - The operating environment is expected to remain challenging, but the company will take decisive actions to move forward [34] - The company anticipates low to mid-single-digit sales growth in Food Distribution for 2019, partially offset by attrition in the independent retail base [28] - Adjusted EPS for 2019 is expected to be approximately $1.70 to $1.80 per diluted share, excluding certain charges [29] Other Important Information - The company closed the acquisition of Martin's Super Markets, which is expected to contribute approximately $475 million to $500 million in retail segment net sales [18][29] - The company is focused on improving supply chain efficiency and addressing industry-wide cost pressures [16] Q&A Session Summary Question: Can you walk us through the top line outlook for Food Distribution? - Management expects a low to mid-single-digit top line outlook, with annual attrition of 1% to 3% and plans to attract new customers [42][43] Question: What is the outlook for inflation in 2019? - Management anticipates inflation in distribution to be around 50 to 100 basis points, with retail inflation expected to be lower [44] Question: How is turnover trending across the organization? - Management has seen a decline in turnover in retail and manufacturing operations, with a stable turnover in distribution [45] Question: Can you provide an update on the synergies from the Martin's acquisition? - It is still early to quantify synergies, but management is pleased with the operations and sales trends since the acquisition [56][59] Question: How does the competitive environment look for the upcoming year? - Management does not expect irrational pricing behavior in the market and believes competitors will find ways to pass through inflation [64] Question: What is the company's comfort level with debt and potential acquisitions? - Management aims to maintain a long-term leverage ratio of 2x to 3x but is open to temporarily exceeding that for the right acquisition opportunity [66][67] Question: What is the company's approach to omni-channel services for distribution customers? - The company is providing solutions for Click and Collect services and has vetted top-notch service providers for its customers [69]