Executive Summary / Key Takeaways

• SpartanNash (SPTN) is executing a multi-year strategic transformation, building on over $130 million in benefits already achieved, with a new Cost Leadership Program targeting $50 million in annual savings to fund growth and enhance margins.
• The company's Retail segment is a key focus for future growth, bolstered by recent tuck-in acquisitions (Metcalfe, Fresh Encounter, Markham) and strategic initiatives targeting remodels, convenience stores, and the high-performing ethnic store format, which contributed to a 1.6% comparable store sales increase in Q1 2025 despite challenging conditions.
• While the Wholesale segment faces volume pressures in national accounts (partially due to the Amazon (AMZN) business), it is anchored by the consistently growing military business, which has delivered 13 consecutive quarters of sales growth and provides a stable, accretive revenue stream.
• SPTN reaffirmed its fiscal 2025 guidance, projecting net sales of $9.8 billion to $10.0 billion and adjusted EBITDA of $263 million to $278 million, reflecting confidence in strategic execution and acquisition contributions despite macroeconomic headwinds and a slightly higher expected inflation rate of 2%.
• Key factors for investors to monitor include the successful execution of retail growth initiatives, the realization of targeted cost savings, management of ongoing competitive pressures (including from larger players like Kroger and Sysco ), and the impact of macroeconomic uncertainty on consumer spending and input costs.

Setting the Scene: A Food Solutions Company in a Dynamic Market

SpartanNash Company operates as a vital link in the food supply chain, functioning as a diversified food solutions provider with operations spanning both wholesale distribution and grocery retail. This dual-segment structure, encompassing Wholesale and Retail, is fundamental to how the company manages its business and assesses performance, offering potential synergies and unique market insights. The Wholesale segment serves a broad base including independent grocers, national accounts, foodservice, e-commerce, and notably, the U.S. military commissaries and exchanges globally. The Retail segment operates a network of corporate-owned stores primarily in the Midwest, focusing on a convenience and community-oriented model.

The company's journey has been marked by strategic evolution. A significant milestone was the establishment of the partnership with the Defense Commissary Agency (DeCA) in fiscal 2017, positioning SpartanNash as a key supplier to the military channel – a business that has since become a consistent growth driver. Recognizing the need to adapt to a competitive and evolving industry landscape, SpartanNash launched a comprehensive strategic plan in 2021. This plan aimed at transforming core operations, enhancing margins, and building a robust foundation for sustainable growth.

The grocery industry is characterized by intense competition, with players ranging from national chains and mass merchandisers to deep discounters and specialized distributors. SpartanNash competes directly with large-scale distributors like Sysco Corporation (SYY) and United Natural Foods Inc. (UNFI) in the wholesale space, and major retailers such as Kroger Co. (KR) in the retail arena. While larger competitors often benefit from immense scale, potentially leading to greater operational efficiencies and sourcing power, SpartanNash seeks to differentiate itself through its integrated wholesale-retail model, its unique military distribution network, and its focus on providing value-added services and tailored solutions to its independent retail partners. The competitive environment is currently heightened by macroeconomic factors, including persistent inflation and consumers actively seeking value, leading to increased promotional activity across the market.

Strategic Transformation and Operational Enhancement

Since initiating its strategic plan in 2021, SpartanNash has made significant strides, generating over $130 million in benefits from initiatives focused on supply chain optimization, merchandising, marketing innovation, and its go-to-market strategy. This achievement surpassed the initial multi-year target ahead of schedule, demonstrating the effectiveness of these foundational programs in improving the company's cost structure and operational efficiency.

Building on this momentum, SpartanNash recently launched a new Cost Leadership Program. This initiative is designed to further improve the company's cost structure and add earnings certainty, with a target of delivering $50 million in annual benefits once fully implemented. For fiscal year 2025, the company anticipates realizing approximately $20 million in in-year gains from this program, primarily expected in the back half of the year. Examples of initiatives under this program include leveraging scale for procurement benefits, implementing automated solutions in distribution centers, and establishing new retail processes to optimize labor spend and improve time efficiencies. These efforts are crucial for offsetting industry headwinds and funding strategic growth initiatives.

Operational and Data-Driven Capabilities

Despite lacking proprietary, quantifiable technology differentiators, its operational effectiveness and strategic differentiation are increasingly supported by data-driven insights and targeted technology deployments. The company's strategic initiatives leverage analytics for enhanced category planning (ECP), informing pricing strategies and vendor negotiations to keep independent customers and retail stores price competitive.

In its distribution network, the company is implementing automated solutions, such as an inventory selecting system using robots in its largest distribution center. This type of operational technology is aimed at streamlining processes, removing manual labor hours, and improving efficiency within the supply chain.

On the customer-facing side, SpartanNash is investing in digital capabilities for both its retail stores and wholesale customers. This includes exploring electronic shelf labels for independent retailers and enhancing digital media space. These initiatives aim to improve the customer experience, provide better tools for independent grocers to manage their businesses, and potentially drive sales through more dynamic pricing and targeted promotions.

The Customer Value Proposition (CVP) pilot program in retail is a prime example of leveraging data and insights to inform strategy. This program, which is expected to guide future retail renovations, focuses on enhancing freshness, value, and convenience based on extensive shopper data. Initial pilot stores are lowering prices on over 6,000 items and are expected to deliver double-digit growth with a sales mix shift towards higher-margin fresh items. This data-informed approach to retail modernization is a key operational strategy to improve performance and capture market share.

The "so what" for investors is that these operational and data-driven capabilities, while not a single disruptive technology, are critical enablers of SpartanNash's strategic plan. They contribute to the competitive moat by improving efficiency, informing pricing and merchandising decisions, enhancing the customer experience, and supporting the shift towards higher-margin product categories like fresh. The success of the Cost Leadership Program and the CVP pilot, underpinned by these capabilities, will directly impact the company's ability to achieve its financial targets and compete effectively against larger, more technologically advanced rivals.

Segment Performance and Drivers

In the first quarter of fiscal 2025, SpartanNash demonstrated growth at the consolidated level, with net sales increasing 3.7% to $2.91 billion, up from $2.81 billion in the prior year quarter. This growth was primarily fueled by strong performance in the Retail segment, which saw net sales surge by 19.6% to $947.2 million. This significant increase was driven by a combination of incremental sales from the stores acquired in late 2024 (Metcalfe, Fresh Encounter, Markham) and a positive 1.6% increase in comparable store sales. The comparable store sales growth was largely attributable to the inflationary impact on pricing, although unit volumes experienced a 2.9% decline. Pharmacy sales were noted as a contributor to the comparable store sales increase.

Despite the top-line growth, the Retail segment reported an operating loss of $14.3 million in Q1 2025, an increase from the $5.4 million loss in the prior year quarter. Adjusted EBITDA for Retail also decreased to $15.1 million from $17.3 million. This decline in profitability was attributed to increased store labor rates, higher depreciation and amortization expense (partially due to acquired assets), and organizational realignment expenses, partially offset by reduced corporate administrative costs. The segment's performance was also impacted by specific events, including an ice storm in the core market that caused an estimated $1 million to $2 million bottom-line impact and a significant ~$3 million headwind from pharmacy profitability pressures due to PBMs.

Conversely, the Wholesale segment experienced a 2.6% decrease in net sales, falling to $1.96 billion in Q1 2025 from $2.01 billion. This decline was primarily due to reduced case volumes in the national accounts channel, including the impact of eliminating intercompany sales to the newly acquired Fresh Encounter stores (which were previously wholesale customers). Overall segment case volumes were down 3.3%. However, this softness was partially offset by continued strength in the military customer channel, which has now achieved 13 consecutive quarters of sales growth. Wholesale operating earnings decreased by 7.6% to $33.2 million, impacted by increased supply chain costs, organizational realignment, and depreciation/amortization. Despite this, Wholesale adjusted EBITDA saw a healthy 7.2% increase to $61.8 million, driven by a higher gross margin rate and benefits from margin-enhancing initiatives and lower corporate administrative expenses.

Consolidated gross profit increased by $41.2 million to $481.5 million, with the gross profit rate improving to 16.5% from 15.7%. This margin expansion was primarily driven by the sales mix shift towards the higher-margin Retail segment and an increase in the Wholesale segment's gross margin rate, partially offset by higher LIFO expense. Selling, general, and administrative expenses increased by 13.7% to $459.1 million, representing 15.8% of net sales, up from 14.4% in the prior year, mainly due to higher Retail labor, organizational realignment, and D&A. Consolidated operating earnings decreased by 38.1% to $19.0 million.

The "so what" for investors is that while the Retail segment is driving top-line growth, particularly through acquisitions and improving comps, it faces profitability pressures from labor costs and investments. The Wholesale segment, despite volume challenges in certain areas, is demonstrating margin resilience and benefits from the stable, growing military business. The shift in sales mix towards Retail is currently accretive to the overall gross margin rate. The ability to manage Retail operating costs and continue driving Wholesale margin improvements will be key to translating top-line growth into bottom-line expansion.

Retail Growth Platforms and Strategic Positioning

SpartanNash's strategic focus on unlocking the potential of its Retail segment is centered around three key growth platforms:

1. Expanding Capital Deployment into Remodels: Investing in select conventional and upmarket store remodels, informed by learnings from the CVP pilot, to enhance the shopper experience and drive sales growth. Remodels have historically delivered double-digit revenue growth.
2. Leaning into the Convenience Store Sector: Recognizing the stable demand and attractive margins in the C-store space, the company is actively pursuing opportunities, exemplified by the Markham Enterprises acquisition (3 fuel centers/convenience stores). This expands the retail footprint and offers potential synergies with existing supermarkets.
3. Growing the Ethnic Store Footprint: Leveraging capabilities in Hispanic food markets through the expansion of the Supermercado Nuestra Familia banner. Following the successful opening of a new store in Omaha, Nebraska, the company plans to open two to three more Hispanic stores in the Midwest in 2025 and further expand in 2026. These stores have historically outperformed the portfolio in both top-line and bottom-line performance.

These initiatives are designed to differentiate SpartanNash's retail offering in competitive markets by focusing on value, freshness, and convenience. The CVP pilot, with its emphasis on expanded fresh offerings, meal solutions, and competitive pricing on key items, is central to this strategy. The goal is to attract and retain shoppers by providing a differentiated experience that competes effectively against both traditional grocers and deep discounters.

In the broader competitive landscape, SpartanNash's Retail segment, with its 192 stores, is significantly smaller than national chains like Kroger (over 2,700 stores). Kroger's scale provides advantages in purchasing power and supply chain efficiency, leading to higher gross margins (Kroger ~22-24% vs. SPTN Retail mix contributing to ~16.5% consolidated gross margin). However, SpartanNash aims to compete by being more agile and tailored to local communities, offering a higher-touch service and unique local products. The success of the ethnic store format highlights the potential for targeted strategies in specific demographics. The ongoing process of closing underperforming legacy stores is also critical to improving the overall health and profitability of the retail portfolio.

Financial Health and Liquidity

SpartanNash maintains a solid financial position to support its strategic initiatives. As of April 19, 2025, total assets stood at $2.58 billion. The company's principal sources of liquidity are cash flows from operations and its senior secured credit facility, which provides significant borrowing capacity.

In the first 16 weeks of fiscal 2025, net cash provided by operating activities was $25.8 million, a decrease from $36.5 million in the prior year period, primarily due to changes in working capital and lower reported earnings. Net cash used in investing activities was $36.9 million, mainly driven by capital expenditures of $31.6 million (allocated 43.5% to Wholesale and 56.5% to Retail), partially offset by proceeds from asset sales. Net cash provided by financing activities was $9.5 million, reflecting increased net proceeds from the senior credit facility.

Total debt, including finance lease liabilities, increased to $777.0 million at April 19, 2025, from $753.8 million at December 28, 2024, primarily to fund acquisitions. The leverage ratio of net long-term debt to adjusted EBITDA (on a rolling 52-week basis) increased slightly to 2.9x at April 19, 2025, from 2.8x at December 28, 2024. This is within a manageable range for the industry.

The company had $19.97 million in cash and cash equivalents at the end of Q1 2025. Excess availability under the senior secured credit facility was $270.4 million, providing ample liquidity to meet anticipated requirements for working capital, capital expenditures, dividend payments, and debt service. The company believes additional borrowings may be required to fund future organic and inorganic growth initiatives.

SpartanNash continues to return value to shareholders. The quarterly cash dividend was increased by 1.1% to $0.22 per share in March 2025. The company also has $10.3 million remaining under its share repurchase program as of April 19, 2025.

The "so what" is that SpartanNash has the financial flexibility and access to capital necessary to execute its strategic plan, including funding acquisitions and investing in retail remodels and operational improvements. While debt levels have increased to support growth, the leverage ratio remains reasonable, and strong liquidity provides a buffer against potential market volatility.

Outlook and Guidance

SpartanNash reaffirmed its fiscal year 2025 guidance, signaling confidence in its strategic trajectory and expected performance despite the prevailing market conditions. For the 53-week fiscal year 2025, the company expects:

• Net Sales: $9.8 billion to $10.0 billion (midpoint representing 3.7% growth)
• Adjusted EBITDA: $263 million to $278 million (midpoint representing 4.6% growth)
• Adjusted EPS: $1.60 to $1.85 per diluted share
• Capital Expenditures: $150 million to $165 million

Achieving the midpoint of the adjusted EBITDA guidance would represent a compound annual growth rate of approximately 7% since 2019, highlighting the impact of the company's transformation efforts over recent years.

The 2025 outlook is underpinned by several key assumptions. It incorporates the full-year impact of the tuck-in acquisitions completed in 2024, which are expected to contribute incrementally to sales and EBITDA. It also includes the anticipated $20 million in in-year benefits from the new Cost Leadership Program. Management expects challenging market conditions, including slower market growth in their geographies and volume pressures in certain wholesale channels, to persist but believes these will be partially offset by their operating performance and strategic initiative benefits. An updated assumption for fiscal 2025 is a food-at-home inflation rate of about 2%, slightly higher than the previous 1% expectation.

The guidance reflects a weighting of investments towards the first half of the year, with the benefits from these investments, particularly from the Cost Leadership Program, expected to materialize more significantly in the back half.

The "so what" for investors is that management is projecting continued growth in both top-line and profitability in 2025, driven by a combination of strategic execution, cost savings, and acquisitions. The reaffirmed guidance, despite acknowledging macroeconomic headwinds and slightly higher inflation, suggests management believes the controllable factors related to their strategic plan are sufficient to deliver results within the projected range. The expected increase in capital expenditures signals continued investment in the business, particularly in the Retail segment's growth platforms.

Risks and Challenges

While SpartanNash has demonstrated progress in its transformation, several risks and challenges could impact its ability to achieve its strategic objectives and financial targets.

• Macroeconomic Uncertainty: Rising inflation, potential recession, and increasing interest rates can impact consumer spending behavior, potentially leading to reduced unit volumes, increased demand for lower-margin promotional items, and higher operating costs (utilities, insurance, occupancy).
• Intense Competition: The food distribution and retail industries are highly competitive. Larger competitors with greater scale and resources can exert pressure on pricing and margins. The migration of some consumers to deep discounters poses a challenge to retaining market share and maintaining profitability.
• Execution Risk: Successful execution of strategic initiatives, including the Cost Leadership Program, retail remodels, and integration of acquisitions, is critical. Failure to realize anticipated benefits or encountering unexpected costs could negatively impact financial performance.
• Customer Concentration: While the military business provides stability, reliance on a few major customers or channels could pose a risk if those relationships or funding levels change.
• Pharmacy Pressures: The retail pharmacy business faces ongoing profitability pressures from Pharmacy Benefit Managers (PBMs), which has already shown a notable impact on Retail segment profitability.
• Supply Chain Disruptions: Changes in vendor relationships, product availability, and pricing, as well as disruptions from severe weather or other events, can impact costs and the ability to serve customers effectively.
• Multi-Employer Pension Plans: Contributions to multi-employer pension plans, such as the Central States Plan, represent a potential contingency. Despite receiving Special Financial Assistance, the Plan's critical zone status and uncertainty regarding future factors could lead to increased funding obligations or withdrawal liabilities.

The "so what" for investors is that while SpartanNash has a clear strategy and has demonstrated execution capability, it operates in a challenging environment. Macroeconomic factors and competitive intensity are significant external risks. Internally, the successful realization of planned cost savings and the ability to drive profitable growth in the Retail segment are key execution risks to monitor. The pension liability represents a longer-term financial risk.

Conclusion

SpartanNash is actively transforming its business to drive sustainable growth and enhance shareholder value in a competitive and dynamic grocery landscape. The company's strategic plan, already yielding significant benefits, is now entering a new phase focused on cost leadership and unlocking the potential of its Retail segment through targeted investments in remodels, convenience stores, and ethnic formats. While the Wholesale segment faces headwinds in certain areas, the strength of the military business provides a crucial foundation.

The reaffirmed 2025 guidance reflects management's confidence in the trajectory, underpinned by expected contributions from recent acquisitions and ongoing strategic initiatives. However, the path forward is not without challenges, including macroeconomic uncertainty, intense competition from larger players, and specific operational pressures like pharmacy profitability.

For investors, the core thesis hinges on SpartanNash's ability to successfully execute its retail growth strategy, realize the targeted savings from the Cost Leadership Program, and leverage its unique assets like the military distribution network and private brands to navigate competitive pressures. The company's financial health and liquidity appear sufficient to support these efforts. Monitoring progress on retail comparable sales (particularly unit volumes), the realization of cost savings, and the impact of external macroeconomic factors will be key to assessing the company's ability to deliver on its reaffirmed outlook and continue its transformation journey.