SpartanNash Announces Fourth Quarter and Fiscal 2021 Financial Results

Reports Fourth Quarter Acceleration of Retail Comparable Store Sales to 7.3%

Achieves Consolidated Sales and Profitability Guidance for Fiscal 2021

Provides Fiscal Year 2022 Outlook

SpartanNash Company (the “Company”) (Nasdaq: SPTN) today reported financial results for its 12-week fourth quarter and 52-week fiscal year ended January 1, 2022.

Fourth Quarter and Fiscal 2021 Highlights

• Retail comparable store sales increased 7.3% for the fourth quarter and declined 0.5% for the fiscal year. On a two-year basis, retail comparable store sales increased by 16.9% for the fourth quarter, representing sequential improvement on a quarterly basis, and increased 12.7% for the fiscal year.
• Net sales were $2.09 billion for the quarter and $2.25 billion in the prior year quarter. After consideration of the 53^rd week of net sales in 2020 of $158.9 million, net sales increased $5.2 million. Net sales were $8.93 billion for the fiscal year and $9.35 billion in the prior fiscal year. After consideration of the 53^rd week, net sales declined 2.8% from the prior fiscal year.
• Net earnings were $22.2 million for the quarter and $75.9 million for the fiscal year.
• Adjusted EBITDA⁽³⁾ was $43.0 million for the quarter and was $213.7 million for the fiscal year.
• Cash generated from operating activities was $161.2 million for the fiscal year, leading to a $86.2 million net paydown of long-term debt and an improvement in the Company’s net long-term debt⁽⁴⁾ to adjusted EBITDA ratio from 2.0x to 1.8x.

“We are pleased to report strong results for our fourth quarter and are incredibly grateful to our Associates who showed extraordinary resilience throughout 2021 as they navigated industry-wide labor, inflation and supply chain challenges,” said SpartanNash President and CEO Tony Sarsam. “Our team stepped up to deliver solid results in 2021 while remaining focused on our pursuit of operational excellence. We have great confidence heading into 2022 that we are positioned for creating sustainable growth and long-term shareholder value.”

Fourth Quarter Consolidated Financial Results

Consolidated net sales for the fourth quarter were $2.09 billion compared to $2.25 billion in the prior year quarter, with the 53^rd week of 2020 contributing $158.9 million of net sales to the prior year quarter. After consideration of the 53^rd week impact, the increase in net sales was generated through higher comparable store sales within the Retail segment, continued growth among existing Food Distribution customers, and the impact of inflationary pricing across all segments, partially offset by lower sales within the Military segment.

Gross profit for the fourth quarter was $322.7 million, or 15.4% of net sales, compared to $338.2 million, or 15.1% of net sales, in the prior year quarter. The improvement in the gross profit rate was driven by improvements in margin rates within the Food Distribution and Military segments, as well as an increase in the proportion of margin accretive Retail segment sales, partially offset by an increase in LIFO expense of $9.2 million.

Reported operating expenses for the fourth quarter were $289.4 million, or 13.8% of net sales, compared to $320.8 million, or 14.3% of net sales, in the prior year quarter. The decrease in expenses as a rate of sales was primarily due to the transition impact of a new paid time off (“PTO”) plan of $21.4 million. During the fourth quarter, the Company elected to transition from a grant-based policy to an accrual-based policy, which resulted in a lower required accrual balance at the end of the fiscal year. Also contributing to the decrease in expenses as a rate of sales were lower restructuring and asset impairment charges compared to the prior year quarter, partially offset by higher labor and transportation costs across the supply chain network, and higher corporate administrative costs, including incentive compensation.

The Company reported operating earnings of $33.4 million compared to $17.4 million in the prior year quarter due to the changes in net sales, gross profit and operating expenses discussed above. Adjusted operating earnings⁽¹⁾ were $12.4 million compared to $22.0 million in the prior year quarter and were adjusted for the items detailed in Table 3.

Interest expense decreased $0.6 million from the prior year quarter due to the Company’s continued paydown of long-term debt. The income tax rate increased from the prior year quarter due to discrete tax benefits realized in the prior year quarter.

The Company reported net earnings of $22.2 million, or $0.62 per diluted share, compared to $12.1 million, or $0.34 per diluted share in the prior year quarter. Adjusted earnings from continuing operations⁽²⁾ for the fourth quarter were $6.4 million, or $0.18 per diluted share, compared to $15.5 million, or $0.43 per diluted share in the prior year quarter. A reconciliation of reported earnings from continuing operations to adjusted earnings from continuing operations is included in Table 4.

Adjusted EBITDA⁽³⁾ was $43.0 million compared to $48.9 million in the prior year quarter. After consideration of the 53^rd week impact of $4.2 million, adjusted EBITDA decreased due to factors mentioned above. In addition, the increase in LIFO expense impacted the relationship between adjusted operating earnings and adjusted EBITDA⁽³⁾ for the quarter.

Please see the financial tables at the end of this press release for a reconciliation of each non-GAAP financial measure to the most directly comparable measure, prepared and presented in accordance with GAAP.

Fourth Quarter Segment Financial Results

Food Distribution

Net sales for Food Distribution were $1.03 billion compared to $1.11 billion in the prior year quarter. After consideration of the impact of 53^rd week net sales of $76.4 million, net sales increased due to the impact of inflation and non-cash warrant expense of $5.9 million associated with the issuance of warrant shares to Amazon early in the fourth quarter of the prior year.

Reported operating earnings for Food Distribution were $11.7 million compared to $11.0 million in the prior year quarter. The increase in reported operating earnings for Food Distribution was due to the transition impact of the new PTO policy in the current year, lower restructuring and asset impairment charges, and cycling prior year’s non-cash warrant impact. These favorable variances were largely offset by a higher rate of supply chain labor and transportation costs and unfavorable inventory shrink. Adjusted operating earnings⁽¹⁾ were $4.8 million compared to $13.1 million in the prior year quarter. Adjusted operating earnings exclude asset impairment and restructuring charges in both years and the transition impact of the PTO policy in the current year.

Retail

Net sales for Retail were $613.1 million compared to $627.4 million in the prior year quarter. After consideration of the impact of 53^rd week net sales of $49.1 million, net sales increased due to higher comparable store and fuel sales in the current year quarter, partially offset by store closures. Retail comparable store sales were 7.3% for the quarter and 16.9% on a two-year comparable basis, driven by both increased store traffic and the impact of inflation.

Reported operating earnings for Retail were $23.3 million compared to $6.9 million in the prior year quarter. The increase in reported operating earnings was due to the transition impact of the new PTO policy in the current year and lower restructuring and asset impairment charges. Adjusted operating earnings⁽¹⁾ were $12.3 million compared to $9.4 million in the prior year quarter. Adjusted operating earnings exclude asset impairment and restructuring charges in both years and the transition impact of the PTO policy in the current year.

Military

Net sales for Military were $445.4 million compared to $514.1 million in the prior year quarter. In addition to the impact of 53^rd week net sales of $33.4 million, net sales decreased due to the continuation of lower volumes at domestic bases, and a reduction in export sales as a result of supply chain challenges at international shipping ports in the current year quarter. These decreases were partially offset by the impact of inflation in the current year quarter.

The reported operating loss for Military was $1.6 million compared to $0.5 million in the prior year quarter. The increase in the reported operating loss was due to the decrease in net sales and higher rate of supply chain labor and transportation expense, primarily offset by the transition impact of the new PTO policy in the current year, as well as improvements in gross margin rates. The adjusted operating loss⁽¹⁾ in the Military segment was $4.7 million compared to a $0.4 million loss in the prior year. Adjusted operating loss excludes the transition impact of the PTO policy in the current year.

Fiscal 2021 Consolidated Financial Results

Consolidated net sales for the fiscal year ended January 1, 2022 decreased $417.4 million, or 4.5%, to $8.93 billion from $9.35 billion in the prior fiscal year, with the prior year’s 53^rd week accounting for $158.9 million of the decrease. The remaining decrease in net sales was due to lower comparable sales for the Military segment as foot traffic at commissaries within the Military segment has yet to return to pre-pandemic levels following domestic base access restrictions and favorable prior year sales, attributable to increased consumer demand related to the COVID-19 pandemic in the Retail and Food Distribution segments, partially offset by the impact of inflation and continued growth among certain existing Food Distribution customers.

The Company reported earnings from continuing operations for fiscal 2021 of $73.8 million, or $2.05 per diluted share, compared to $75.9 million, or $2.12 per diluted share, in the prior year. The decrease was primarily attributable to decreased sales volume, a higher rate of supply chain labor and transportation expenses, and increased corporate administrative and health insurance costs. These unfavorable variances were partially offset by improved gross margin rates, reduced restructuring and asset impairment charges, decreased incentive compensation, and the transition impact of the new PTO policy. Adjusted earnings from continuing operations⁽²⁾ for fiscal 2021 were $61.0 million, or $1.70 per diluted share, compared to $90.8 million, or $2.53 per diluted share, in the prior year. Fiscal 2021 adjusted earnings exclude the accounting impact of transitioning to a new paid time off policy and restructuring and asset impairment charges. Fiscal 2020 adjusted earnings exclude $14.9 million of net after-tax charges related to restructuring and asset impairments, integration costs, severance, and tax benefits associated with the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

Adjusted EBITDA⁽³⁾ for fiscal 2021 was $213.7 million, or 2.4% of net sales, compared to $239.1 million, or 2.6% of net sales, in fiscal 2020.

Balance Sheet and Cash Flow

Cash flows provided by operating activities for fiscal 2021 were $161.2 million compared to $306.7 million in the prior year. In the prior year, significant increases in sales volume related to the COVID-19 pandemic resulted in a reduction in working capital and incremental earnings, which benefited operating cash flows. The Company reduced net long-term debt⁽⁴⁾ by $71.5 million for fiscal 2021, which resulted in an improvement in the Company’s net long-term debt to adjusted EBITDA ratio over this period from 2.0x to 1.8x.

Capital expenditures and IT capital⁽⁵⁾ totaled $85.8 million for fiscal 2021 compared to $78.9 million in the prior year.

For fiscal 2021, the Company declared $28.7 million in quarterly cash dividends equal to $0.80 per common share. The Company also repurchased 265,000 shares for a total of $5.3 million during fiscal 2021 at an average price of $20.07 per share.

Outlook

The following table provides the Company’s guidance for fiscal 2022:

The Company expects that Retail comparable sales will range from flat to 2.0% in fiscal 2022. Food Distribution sales are expected to increase 2.0% to 4.0% in fiscal 2022, while Military Distribution sales are expected to decline 3.0% to 7.0% in 2022.

Due to the Company’s improved leverage, the Board of Directors recently authorized the repurchase of common shares in connection with a new $50 million program, increasing the total availability for share repurchases to approximately $80 million. The Company plans to return value to shareholders through share repurchases under this program, as well as continuing regular dividends.

Conference Call

A telephone conference call to discuss the Company’s fourth quarter and fiscal 2021 financial results is scheduled for Thursday, February 24, 2022 at 8:30 a.m. ET. A live webcast of this conference call will be available on the Company’s website at www.spartannash.com/webcasts. The webcast will remain available for replay on the Company’s website for approximately ten days. A supplemental earnings presentation is available at the Company’s website at www.spartannash.com/investor-presentations.

About SpartanNash

SpartanNash (Nasdaq: SPTN) is a food solutions company that delivers the ingredients for a better life through customer-focused innovation. Its core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate-owned retail stores, and U.S. military commissaries and exchanges; as well as operating a premier fresh produce distribution network and the Our Family^® brand. SpartanNash serves customer locations in all 50 states and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar and Djibouti. The Company owns 145 supermarkets — primarily under the banners of Family Fare, Martin’s Super Markets, D&W Fresh Market, VG’s Grocery and Dan’s Supermarket — and shares its operational insights to drive solutions for SpartanNash food retail customers. Committed to fostering a People First culture, the SpartanNash family of Associates is 19,000 strong and growing. For more information, visit spartannash.com.

Forward-Looking Statements

The matters discussed in this press release and in the Company’s website-accessible conference calls with analysts and investor presentations include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of the Company. These forward-looking statements are identifiable by words or phrases indicating that the Company or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or that a particular occurrence or event “may,” “could,” “should,” “will” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that the Company is “positioned” for a particular result, or similarly stated expectations. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date made.

There are many important factors that could cause actual results to differ materially. These risks and uncertainties include the Company’s ability to compete in the highly competitive grocery distribution, retail grocery and military distribution industries; disruptions associated with the COVID-19 pandemic; the Company’s ability to manage its private brand program for U.S. military commissaries; the Company’s ability to implement its growth strategy; the ability of customers to fulfill their obligations to the Company; the Company’s dependence on certain major customers, suppliers and vendors; disruptions to the Company’s information security network; instances of security threats, severe weather conditions and natural disasters; impairment charges for goodwill and other long-lived assets; the Company’s ability to successfully manage leadership transitions; the Company’s ability to service its debt and to comply with debt covenants; interest rate fluctuations; changes in the military commissary system, including its supply chain, or in the level of governmental funding; product recalls and other product-related safety concerns; labor relations issues and rising labor costs; changes in government regulations; and other risks and uncertainties listed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s most recent Annual Report on Form 10-K subsequent filings with the Securities and Exchange Commission.

Additional risks and uncertainties not currently known to the Company or that the Company currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur or information obtained after the date of this press release.

⁽¹⁾ A reconciliation of operating earnings to adjusted operating earnings, a non-GAAP financial measure, is provided in Table 3 below.

⁽²⁾ A reconciliation of net earnings to adjusted earnings from continuing operations, a non-GAAP financial measure, is provided in Table 4 below.

⁽³⁾ A reconciliation of net earnings to Adjusted EBITDA, a non-GAAP financial measure, is provided in Table 2 below.

⁽⁴⁾ A reconciliation of long-term debt and finance lease obligations to net long-term debt, a non-GAAP financial measure, is provided in Table 5 below.

⁽⁵⁾ A reconciliation of purchases of property and equipment to capital expenditures and IT capital, a non-GAAP financial measure, is provided in Table 7 below.

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, and adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.

Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other items, organizational realignment, severance associated with cost reduction initiatives and the transition impact of a new paid time off plan. Organizational realignment includes benefits for associates terminated as part of a leadership transition plan which do not meet the definition of a reduction-in-force. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other items, “Fresh Cut operating losses” subsequent to the decision to exit these operations, severance associated with cost reduction initiatives, organizational alignment costs, and fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Prior year adjusted earnings from continuing operations exclude pension termination income related to refunds from the annuity provider associated with the final reconciliation of participant data, as well as net tax benefits associated with the CARES Act. Each of these items are considered “non-operational” or “non-core” in nature. These measures were adjusted for the impact of the 53rd week in 2020 to provide better comparability to 2021.

Notes: Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items including share-based payments (equity awards measured in accordance with ASC 718, Stock Compensation, which include both stock-based compensation to employees and stock warrants issued to non-employees) and the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings and other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.