Company Overview

SpartanNash Company (SPTN) is a leading food solutions company, serving a diverse customer base that includes independent and chain retailers, military commissaries, and e-commerce providers. With a rich history spanning over seven decades, the company has established itself as a reliable partner in the food distribution and retail landscape.

History

The company's origins can be traced back to 1920 when it was founded as the Sumner Wholesale Grocery Company in Sumner, Michigan. Over the next several decades, the company grew through acquisitions and mergers, eventually becoming one of the largest grocery distributors in the Midwest. In 1962, the company changed its name to Spartan Stores, Inc. and continued to expand its wholesale distribution business. During the 1980s and 1990s, Spartan Stores began transitioning into operating its own retail grocery stores under banners like Family Fare and Martins Super Markets, allowing the company to both distribute to and operate its own retail locations. A major milestone came in 2013 when Spartan Stores merged with Nash Finch Company, creating the combined SpartanNash Company and further expanding its wholesale and retail operations across the United States.

Business Segments

Today, SpartanNash operates two primary business segments: Wholesale and Retail.

Wholesale Segment

The Wholesale division distributes a wide range of nationally branded and private-label grocery products, as well as perishable items, to independent retailers, national accounts, food service distributors, and the company's own corporate-owned retail stores. This segment also distributes grocery products to 160 military commissaries and over 400 exchanges worldwide. SpartanNash is the primary supplier of private brand products to U.S. military commissaries, a partnership that began in fiscal 2017.

In the third quarter of fiscal 2024, the Wholesale segment reported net sales of $1.58 billion, down 1.6% year-over-year, primarily due to lower case volumes in both the national accounts and independent retailers customer channels. However, operating earnings increased by 16.0% to $21.05 million, and adjusted EBITDA rose by 14.9% to $44.77 million. The improved profitability was driven by an improvement in the gross profit rate, lower corporate administrative expenses, and benefits realized from the company's merchandising transformation initiative.

Retail Segment

The Retail segment operates 147 corporate-owned stores, primarily under the Family Fare, Martin's Super Markets, and D&W Fresh Market banners, offering pharmacy services and fuel centers. Specifically, the segment provides pharmacy services in 91 of its corporate-owned retail stores, operates two standalone pharmacy locations, and runs 36 fuel centers.

In the third quarter of fiscal 2024, the Retail segment reported net sales of $674.60 million, up 1.9% year-over-year. However, comparable store sales decreased 0.7%, primarily due to lower consumer demand trends. Operating earnings decreased by 21.4% to $3.87 million, and adjusted EBITDA fell by 28.2% to $15.72 million. The decrease in Retail profitability was due to increased healthcare costs, higher store labor, and lower unit volumes, partially offset by lower corporate administrative expenses and acquisition/integration charges.

Financial Performance

SpartanNash's financial performance has been a mixed bag in recent years. The company's net sales in fiscal 2023 reached $9.73 billion, up from $9.64 billion in the prior year. However, net income declined from $34.52 million in fiscal 2022 to $52.24 million in fiscal 2023. This drop in profitability can be attributed to various factors, including the ongoing industry-wide challenges posed by macroeconomic headwinds, changes in consumer demand, and elevated cost pressures.

In the most recent quarter, SpartanNash reported revenue of $2.25 billion, a slight decrease of 0.6% year-over-year. Net income for the quarter was $10.92 million. The company generated operating cash flow of $46.02 million and free cash flow of $46.02 million during this period.

Despite these headwinds, SpartanNash has remained resilient, focusing on strategic initiatives to enhance its operational efficiency and competitive positioning. The company's recent acquisitions of Fresh Encounter, a 49-store retail chain in the Midwest, and Markham Enterprises, a fuel center and convenience store operator in Michigan, are expected to contribute to its top-line growth and diversify its revenue streams. These acquisitions are anticipated to add over $350 million in annual retail sales and more than $10 million in adjusted EBITDA.

Moreover, SpartanNash has made significant investments in its merchandising transformation, digital capabilities, and supply chain optimization. These initiatives are aimed at improving the company's margins, better serving its customers, and driving long-term shareholder value.

Liquidity and Capital Resources

As of the most recent financial report, SpartanNash maintains a solid financial position with a debt-to-equity ratio of 1.05. The company had $17.51 million in cash and a current ratio of 1.62, indicating its ability to meet short-term obligations. The quick ratio stands at 0.75, suggesting a reasonable level of liquidity.

SpartanNash has access to a substantial credit facility, which provides financial flexibility for operations and strategic initiatives. The company has a senior secured credit facility with a borrowing capacity of $1.17 billion in Tranche A revolving loans and $40 million in Tranche A-1 revolving loans, for a total of $1.21 billion in available credit. Additionally, SpartanNash has the option to increase the credit facility by an additional $195 million, subject to certain conditions.

Recent Performance and Future Outlook

Looking ahead, SpartanNash has updated its fiscal 2024 guidance, narrowing the expected range for net sales to $9.5 billion to $9.7 billion and adjusted EBITDA to $252 million to $257 million, with the midpoint of the new guidance at the bottom of the prior range. The company also anticipates adjusted EPS of $1.85 to $1.95 per diluted share and has narrowed its CapEx guidance to $135 million to $140 million. Food inflation is expected to be about 1% for the fiscal year.

For fiscal 2025, SpartanNash projects low single-digit top-line growth and mid-single-digit adjusted EBITDA growth compared to the updated 2024 guidance. This would deliver a compound annual growth rate of approximately 7% versus 2019. These expectations include the benefits of the recent Fresh Encounter and Markham acquisitions, which are expected to contribute significantly to retail segment sales and adjusted EBITDA.

Despite the ongoing industry challenges, SpartanNash remains focused on executing its strategic initiatives, leveraging its diversified business model, and capitalizing on growth opportunities. The company's disciplined approach to mergers and acquisitions, combined with its commitment to operational excellence, positions it well to navigate the evolving food distribution and retail landscape.

Overall, SpartanNash's resilience, strategic vision, and dedication to serving its customers make it a food solutions provider worth monitoring in the years ahead. As the grocery industry has become increasingly competitive, SpartanNash has had to adapt to changing consumer preferences and the rise of discount chains and online grocery ordering. The company has responded by investing in its private label brands, enhancing its e-commerce capabilities, and pursuing strategic acquisitions to grow its retail footprint. Today, SpartanNash operates a network of wholesale distribution centers and over 150 corporate-owned retail stores across the Midwest and Southeast, establishing itself as a diversified food solutions company serving a wide range of customers from independent grocers to U.S. military commissaries.