Published: 2022-11-10 00:00:00 ET

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 8, 2022.

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 000-31127

 

 

SPARTANNASH COMPANY

(Exact Name of Registrant as Specified in Its Charter)

 

Michigan		38-0593940
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
850 76th Street, S.W. P.O. Box 8700 Grand Rapids, Michigan		49518
(Address of Principal Executive Offices)		(Zip Code)

(616) 878-2000

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, no par value		SPTN		NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 8, 2022, the registrant had 35,275,157 outstanding shares of common stock, no par value.

 

 

 

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FORWARD-LOOKING STATEMENTS

The matters discussed in this Quarterly Report on Form 10-Q, in the Company’s press releases, in the Company's website-accessible conference calls with analysts, and investor presentations include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), about the plans, strategies, objectives, goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or “the Company”). These forward-looking statements may be 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", "trend", "guidance" or "target" 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 contained in this Quarterly Report on Form 10-Q, SpartanNash’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022 and other periodic reports filed with the Securities and Exchange Commission (“SEC”), which speak only as of the date made. Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies may affect actual results and could cause actual results to differ materially. These risks and uncertainties include the Company's ability to compete in the highly competitive wholesale distribution and retail grocery industries; changes in economic or geopolitical conditions, including inflationary pressures and the Russia-Ukraine conflict; interest rate fluctuations; labor relations issues and rising labor costs; 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; disruptions associated with the COVID-19 pandemic; the Company's ability to implement its growth strategy and transformation initiatives; 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; the Company's ability to manage its private brand program for U.S. military commissaries; 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; 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 and in subsequent filings with the Securities and Exchange Commission.

This section and the discussions contained in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022 and in Part I, Item 2 “Critical Accounting Policies” of this Quarterly Report on Form 10-Q, are intended to provide meaningful cautionary statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash 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 Quarterly Report.

 

2

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TABLE OF CONTENTS

 

		Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Earnings	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statements of Shareholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II.	OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	31
	Signatures	32

 

 

3

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PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, Unaudited)

	October 8,					January 1,
	2022					2022
Assets
Current assets
Cash and cash equivalents	$		18,964			$		10,666
Accounts and notes receivable, net			430,150					361,686
Inventories, net			623,504					522,324
Prepaid expenses and other current assets			70,151					62,517
Property and equipment held for sale			3,707					—
Total current assets			1,146,476					957,193
Property and equipment, net			558,409					577,359
Goodwill			182,160					181,035
Intangible assets, net			107,415					110,960
Operating lease assets			261,697					283,040
Other assets, net			85,320					97,195
Total assets	$		2,341,477			$		2,206,782
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$		492,876			$		447,451
Accrued payroll and benefits			104,436					86,315
Other accrued expenses			52,834					67,893
Current portion of operating lease liabilities			45,717					47,845
Current portion of long-term debt and finance lease liabilities			6,759					6,334
Total current liabilities			702,622					655,838
Long-term liabilities
Deferred income taxes			70,557					63,692
Operating lease liabilities			243,957					266,701
Other long-term liabilities			31,227					38,292
Long-term debt and finance lease liabilities			512,704					399,390
Total long-term liabilities			858,445					768,075
Commitments and contingencies (Note 7)
Shareholders’ equity
Common stock, voting, no par value; 100,000 shares      authorized; 35,359 and 35,948 shares outstanding			475,136					493,783
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding			—					—
Accumulated other comprehensive income (loss)			3,527					(1,455	)
Retained earnings			301,747					290,541
Total shareholders’ equity			780,410					782,869
Total liabilities and shareholders’ equity	$		2,341,477			$		2,206,782

See accompanying notes to condensed consolidated financial statements.

4

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

	12 Weeks Ended										40 Weeks Ended
	October 8, 2022					October 9, 2021					October 8, 2022					October 9, 2021
Net sales	$		2,296,512			$		2,073,253			$		7,334,060			$		6,837,612
Cost of sales			1,945,302					1,743,769					6,178,024					5,756,471
Gross profit			351,210					329,484					1,156,036					1,081,141
Operating expenses
Selling, general and administrative			333,373					306,847					1,094,422					999,032
Acquisition and integration, net			(577	)				101					98					281
Restructuring and asset impairment, net			(886	)				(195	)				1,738					2,981
Total operating expenses			331,910					306,753					1,096,258					1,002,294
Operating earnings			19,300					22,731					59,778					78,847
Other expenses and (income)
Interest expense			6,051					3,020					14,764					10,877
Other, net			(768	)				(16	)				(384	)				(293	)
Total other expenses, net			5,283					3,004					14,380					10,584
Earnings before income taxes			14,017					19,727					45,398					68,263
Income tax expense			4,553					4,551					11,530					16,757
Net earnings	$		9,464			$		15,176			$		33,868			$		51,506
Basic net earnings per share:	$		0.27			$		0.43			$		0.96			$		1.44
Diluted net earnings per share:	$		0.26			$		0.42			$		0.93			$		1.44

See accompanying notes to condensed consolidated financial statements.

5

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, Unaudited)

	12 Weeks Ended										40 Weeks Ended
	October 8, 2022					October 9, 2021					October 8, 2022					October 9, 2021
Net earnings	$		9,464			$		15,176			$		33,868			$		51,506
Other comprehensive (loss) income, before tax
Postretirement liability adjustment			(687	)				57					6,601					190
Income tax benefit (expense) related to items of other comprehensive income			168					(14	)				(1,619	)				(46	)
Total other comprehensive (loss) income, after tax			(519	)				43					4,982					144
Comprehensive income	$		8,945			$		15,219			$		38,850			$		51,650

See accompanying notes to condensed consolidated financial statements.

6

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, Unaudited)

									Accumulated
									Other
	Shares				Common				Comprehensive				Retained
	Outstanding				Stock				(Loss) Income				Earnings				Total
Balance at January 1, 2022		35,948			$	493,783			$	(1,455	)		$	290,541			$	782,869
Net earnings		—				—				—				19,289				19,289
Other comprehensive income		—				—				23				—				23
Dividends - $0.21 per share		—				—				—				(7,665	)			(7,665	)
Stock-based employee compensation		—				4,295				—				—				4,295
Stock warrant		—				673				—				—				673
Issuances of common stock for associate stock purchase plan		3				108				—				—				108
Issuances of restricted stock		369				—				—				—				—
Cancellations of stock-based awards		(180	)			(4,288	)			—				—				(4,288	)
Balance at April 23, 2022		36,140			$	494,571			$	(1,432	)		$	302,165			$	795,304
Net earnings		—				—				—				5,115				5,115
Other comprehensive income		—				—				5,478				—				5,478
Dividends - $0.21 per share		—				—				—				(7,561	)			(7,561	)
Share repurchases		(215	)			(6,573	)			—				—				(6,573	)
Stock-based employee compensation		—				1,397				—				—				1,397
Stock warrant		—				481				—				—				481
Issuances of common stock for associate stock purchase plan		4				104				—				—				104
Issuances of restricted stock		14				—				—				—				—
Cancellations of stock-based awards		(30	)			(23	)			—				—				(23	)
Balance at July 16, 2022		35,913			$	489,957			$	4,046			$	299,719			$	793,722
Net earnings		—				—				—				9,464				9,464
Other comprehensive loss		—				—				(519	)			—				(519	)
Dividends - $0.21 per share		—				—				—				(7,436	)			(7,436	)
Share repurchases		(543	)			(16,716	)			—				—				(16,716	)
Stock-based employee compensation		—				1,280				—				—				1,280
Stock warrant		—				505				—				—				505
Issuances of common stock for associate stock purchase plan		5				121				—				—				121
Issuances of restricted stock		4				—				—				—				—
Cancellations of stock-based awards		(20	)			(11	)			—				—				(11	)
Balance at October 8, 2022		35,359				475,136				3,527				301,747				780,410

See accompanying notes to condensed consolidated financial statements.

 

7

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, CONTINUED

(In thousands, Unaudited)

 

									Accumulated
									Other
	Shares				Common				Comprehensive				Retained
	Outstanding				Stock				Loss				Earnings				Total
Balance at January 2, 2021		35,851			$	491,819			$	(2,276	)		$	245,506			$	735,049
Net earnings		—				—				—				19,516				19,516
Other comprehensive income		—				—				57				—				57
Dividends - $0.20 per share		—				—				—				(7,238	)			(7,238	)
Stock-based employee compensation		—				4,185				—				—				4,185
Stock warrant		—				645				—				—				645
Issuances of common stock for stock bonus plan   and associate stock purchase plan		21				385				—				—				385
Issuances of restricted stock		523				—				—				—				—
Cancellations of stock-based awards		(129	)			(2,079	)			—				—				(2,079	)
Balance at April 24, 2021		36,266			$	494,955			$	(2,219	)		$	257,784			$	750,520
Net earnings		—				—				—				16,814				16,814
Other comprehensive income		—				—				44				—				44
Dividends - $0.20 per share		—				—				—				(7,117	)			(7,117	)
Share repurchases		(265	)			(5,325	)			—				—				(5,325	)
Stock-based employee compensation		—				872				—				—				872
Stock warrant		—				430				—				—				430
Issuance of common stock for associate stock purchase plan		6				113				—				—				113
Issuances of restricted stock		27				—				—				—				—
Cancellations of stock-based awards		(91	)			(175	)			—				—				(175	)
Balance at July 17, 2021		35,943			$	490,870			$	(2,175	)		$	267,481			$	756,176
Net earnings		—				—				—				15,176				15,176
Other comprehensive income		—				—				43				—				43
Dividends - $0.20 per share		—				—				—				(7,265	)			(7,265	)
Stock-based employee compensation		—				920				—				—				920
Stock warrant		—				403				—				—				403
Issuances of common stock for associate stock purchase plan		5				113				—				—				113
Issuances of restricted stock		10				—				—				—				—
Cancellations of stock-based awards		(14	)			—				—				—				—
Balance at October 9, 2021		35,944				492,306				(2,132	)			275,392				765,566

See accompanying notes to condensed consolidated financial statements.

 

8

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, Unaudited)

	40 Weeks Ended
	October 8, 2022					October 9, 2021
Cash flows from operating activities
Net earnings	$		33,868			$		51,506
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash restructuring, asset impairment, and other charges			1,664					3,075
Depreciation and amortization			72,274					71,260
Non-cash rent			(3,428	)				(2,923	)
LIFO expense			42,916					10,444
Postretirement benefits (income) expense			(367	)				1,795
Deferred income taxes			5,299					7,970
Stock-based compensation expense			6,972					5,977
Stock warrant			1,659					1,478
Gain on disposals of assets			(68	)				(213	)
Other operating activities			1,501					946
Changes in operating assets and liabilities:
Accounts receivable			(68,142	)				(14,295	)
Inventories			(140,698	)				(19,268	)
Prepaid expenses and other assets			(2,043	)				(18,183	)
Accounts payable			54,682					37,939
Accrued payroll and benefits			16,348					(13,920	)
Current income taxes			(350	)				19,262
Other accrued expenses and other liabilities			(14,633	)				1,103
Net cash provided by operating activities			7,454					143,953
Cash flows from investing activities
Purchases of property and equipment			(66,282	)				(54,957	)
Net proceeds from the sale of assets			28,981					29,171
Acquisitions, net of cash acquired			(9,408	)				—
Loans to customers			—					(180	)
Payments from customers on loans			1,103					1,939
Other investing activities			(350	)				(24	)
Net cash used in investing activities			(45,956	)				(24,051	)
Cash flows from financing activities
Proceeds from senior secured credit facility			1,057,633					1,047,051
Payments on senior secured credit facility			(955,456	)				(1,128,522	)
Repayment of other long-term debt and finance lease liabilities			(5,116	)				(4,511	)
Share repurchases			(23,289	)				(5,325	)
Net payments related to stock-based award activities			(4,322	)				(2,253	)
Dividends paid			(22,458	)				(21,344	)
Other financing activities			(192	)				(256	)
Net cash provided by (used in) financing activities			46,800					(115,160	)
Net increase in cash and cash equivalents			8,298					4,742
Cash and cash equivalents at beginning of period			10,666					19,903
Cash and cash equivalents at end of period	$		18,964			$		24,645

See accompanying notes to condensed consolidated financial statements.

9

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SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

10

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12

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17

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18

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” which appears at the beginning of this report, and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022.

Overview

SpartanNash, headquartered in Grand Rapids, Michigan, is a food solutions company that delivers the ingredients for a better life. As a distributor, wholesaler and retailer with a global supply chain network, SpartanNash customers span a diverse group of national accounts, independent and chain grocers, e-commerce retailers, U.S. military commissaries and exchanges, and the Company’s own brick-and-mortar grocery stores, pharmacies and fuel centers. SpartanNash distributes grocery and household goods, including fresh produce and its Our Family® portfolio of products, to locations in all 50 states.

At the beginning of the third quarter of 2022, the Company combined the previous Food Distribution and Military operating segments into one operating segment: Wholesale. The change in the operating segments was driven by both a change in the Company’s organizational structure, and in the reporting utilized by the Chief Operating Decision Maker to allocate the Company’s resources and assess operating performance. The combination of the two segments reflects the way the Company manages the distribution business as one comprehensive distribution network and furthers the Company’s efforts to streamline operations in connection with its Supply Chain Transformation and better serve customers. As a result, the Company now operates two reportable segments: Wholesale and Retail. Segment financial information for the comparative prior year periods within this quarterly report has been recast to reflect this update.

The Company’s Wholesale segment provides a wide variety of nationally branded and private brand grocery products and perishable food products to independent grocers, the Company’s corporate owned retail stores, national retailers, food service distributors, and other customers. The Company’s Wholesale segment also distributes grocery products to 160 military commissaries and over 400 exchanges worldwide. The Company is the exclusive supplier of private brand products to U.S. military commissaries, a partnership with DeCA which began in fiscal 2017.

As of the end of the third quarter, the Company’s Retail segment operated 147 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare, Martin’s Super Markets and D&W Fresh Market. The Company also offered pharmacy services in 91 of its corporate owned retail stores and operated 36 fuel centers. The Company’s neighborhood market strategy distinguishes its corporate owned retail stores from supercenters and limited assortment stores.

All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.

The majority of the Company’s revenues are not seasonal in nature. However, in certain geographic areas, corporate retail stores and independent retail customers are dependent on tourism, and therefore, are affected by seasons and weather patterns.

2022 Third Quarter Highlights

Key financial and operational highlights for the third quarter include the following:

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In November 2022, the Company increased fiscal 2022 guidance, including, among other items, net sales, adjusted EBITDA, adjusted EPS and interest expense. The change in the guidance is in line with known or anticipated trends related to additional benefits expected from the Company's Supply Chain Transformation initiative and continued inflation, which are tempered by labor investments in both the Wholesale and Retail segments and elevated interest rates. The Company now expects net sales to range from $9.5 billion to $9.7 billion, with Wholesale sales now expected to increase 6.5% to 8.0% and Retail comparable stores expected to increase 6% to 7.5%. Adjusted EBITDA is now expected to range from $237 million to $242 million and adjusted EPS is now expected to range from $2.27 per diluted share to $2.37 per diluted share. The interest expense is now expected to range from $21 million to $23 million.

The Company believes certain Company initiatives including the Supply Chain Transformation, initiatives relating to merchandising transformation and marketing innovation, and plans to gain market share in both the Retail and Wholesale segments will favorably impact the Company’s future results. The Company believes additional future investments in capital expenditures will be necessary to support these programs. Tempering the Company’s expectations of favorable future results are macroeconomic headwinds including a tight labor market, possibility of a recession, reduction in government food assistance programs, and inflationary pressures.

Results of Operations

The following table sets forth items from the condensed consolidated statements of earnings as a percentage of net sales and the year-to-year percentage change in the dollar amounts:

	Percentage of Net Sales																Percentage Change
	12 Weeks Ended								40 Weeks Ended								12 Weeks Ended				40 Weeks Ended
	October 8, 2022				October 9, 2021				October 8, 2022				October 9, 2021				October 8, 2022				October 8, 2022
Net sales		100.0				100.0				100.0				100.0				10.8				7.3
Gross profit		15.3				15.9				15.8				15.8				6.6				6.9
Selling, general and administrative		14.5				14.8				14.9				14.6				8.6				9.5
Acquisition and integration, net		(0.0	)			0.0				0.0				0.0			**				**
Restructuring charges and asset impairment, net		(0.0	)			(0.0	)			0.0				0.0			**				**
Operating earnings		0.8				1.1				0.8				1.2				(15.1	)			(24.2	)
Other expenses		0.2				0.1				0.2				0.2				75.9				35.9
Earnings before income taxes		0.6				1.0				0.6				1.0				(28.9	)			(33.5	)
Income tax expense		0.2				0.2				0.2				0.2				0.0				(31.2	)
Net earnings		0.4				0.7				0.5				0.8				(37.6	)			(34.2	)

Note: Certain totals do not sum due to rounding.

** Not meaningful

Net Sales – The following table presents net sales by segment and variances in net sales:

	12 Weeks Ended															40 Weeks Ended
(In thousands)	October 8, 2022					October 9, 2021					Variance					October 8, 2022					October 9, 2021					Variance
Wholesale	$		1,629,869			$		1,464,516			$		165,353			$		5,213,733			$		4,869,454			$		344,279
Retail			666,643					608,737					57,906					2,120,327					1,968,158					152,169
Total net sales	$		2,296,512			$		2,073,253			$		223,259			$		7,334,060			$		6,837,612			$		496,448

Net sales for the quarter ended October 8, 2022 (the “third quarter”) increased $223.3 million, or 10.8%, to $2.30 billion from $2.07 billion in the quarter ended October 9, 2021 (the “prior year quarter”). Net sales for the year-to-date period ended October 8, 2022 (the “year-to-date period”) increased $496.4 million, or 7.3%, to $7.33 billion from $6.84 billion in the year-to-date period ended October 9, 2021 (the “prior-year-to-date period”). The increases were attributable to increases in net sales in both the Wholesale and Retail segments, which were favorably impacted by inflation.

Wholesale net sales increased $165.4 million, or 11.3%, to $1.63 billion in the third quarter from $1.46 billion in the prior year quarter. Net sales for the year-to-date period increased $344.3 million, or 7.1%, to $5.21 billion from $4.87 billion in the prior year-to-date period. The increases in net sales were due primarily to the inflationary impact on pricing.

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Retail net sales increased $57.9 million, or 9.5%, to $666.6 million in the third quarter from $608.7 million in the prior year quarter. Net sales for the year-to-date period increased $152.2 million, or 7.7%, from $1.97 billion in the prior year-to-date period to $2.12 billion. The increases were primarily due to inflationary pricing. Comparable store sales increased 8.0% and 7.2% for the current quarter and the year-to-date period, respectively. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions, or relocated stores. Acquired stores are included in the comparable sales calculation 13 periods after the acquisition date. Sales are compared to the same store’s operations from the prior year period for purposes of calculation of comparable store sales. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.

Gross Profit – Gross profit represents net sales less cost of sales, which for all non-production operations includes purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional allowances and excludes warehousing costs, depreciation and other administrative expenses. The Company’s gross profit definition may not be identical to similarly titled measures reported by other companies. Vendor allowances that relate to the buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for the Company’s merchandising costs, such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of sales when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The Wholesale segment includes shipping and handling costs in the Selling, general and administrative section of operating expenses in the consolidated statements of earnings.

Gross profit increased $21.7 million, or 6.6%, to $351.2 million in the third quarter from $329.5 million in the prior year quarter. As a percent of net sales, gross profit was 15.3% compared to 15.9% in the prior year quarter. Gross profit for the year-to-date period increased $74.9 million, or 6.9%, from $1.08 billion in the prior year-to-date period to $1.16 billion in the current year. As a percent of net sales, gross profit for both the year-to-date and prior year-to-date periods was 15.8%. The gross profit rate decline in the current quarter was driven by an increase in LIFO expense of $9.0 million, or 36 basis points. After considering the impact of LIFO, lower Retail margin rates were partially offset by improvements in margin rates within the Wholesale segment. Gross profit rate in the year-to-date period remained flat when compared to the prior year as the improvements in the Wholesale margin rates were offset by a total company increase in LIFO expense of $32.5 million, as well as a lower gross profit rate within Retail.

Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of operating costs related to retail and supply chain operations, including salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation, and out-bound freight, in addition to corporate administrative expenses.

SG&A expenses for the third quarter increased $26.5 million, or 8.6%, to $333.4 million from $306.8 million in the prior year quarter, representing 14.5% of net sales in the third quarter compared to 14.8% in the prior year quarter. SG&A expense for the year-to-date period increased $95.4 million, or 9.5% to $1.1 billion from $1.0 billion in the prior year-to-date, representing 14.9% in the current year-to-date period compared to 14.6% as a percentage of net sales in the prior year-to-date period. The decrease in operating expenses as a percentage of sales in the current quarter was due to a reduction in the supply chain expense rates as a result of efficiencies realized from the Company’s Supply Chain Transformation initiative. These efficiencies were partially offset by an increase in corporate administrative costs, which included higher incentive compensation expense and up-front investments in the Merchandising Transformation initiative. The increase in operating expenses as a percentage of sales in the year-to-date period was due to higher corporate administrative costs, which included an increase in incentive compensation expense, costs related to shareholder activism, and up-front investments in the Merchandising transformation initiative. The increase in operating expenses was partially offset by efficiencies realized from the Supply Chain Transformation initiative.

Acquisition and Integration, net – Third quarter and prior year quarter results included net gains of $0.6 million and charges of $0.1 million, respectively. Acquisition and integration expenses for the year-to-date periods ended October 8, 2022 and October 9, 2021 were $0.1 million and $0.3 million, respectively. The current quarter activity primarily consists of a gain from the reversal of a litigation accrual which was initially established at the time of the Martin's Super Markets acquisition. In the current quarter, the Company successfully appealed the litigation and released the corresponding accrual. Current year-to-date expense is primarily related to an acquisition within the Retail segment, partially offset by the reversal of the litigation accrual in the current quarter. Prior year expense was associated with the integration of Martin's Super Markets.

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Restructuring and Asset Impairment, net – Third quarter and prior year quarter results included net gains of $0.9 million and $0.2 million, respectively. The year-to-date period and the prior year-to-date period included net charges of $1.7 million and $3.0 million, respectively. The current quarter income was primarily due to gains on sales of real property of previously closed locations within both segments, partially offset by Retail store closing charges and asset impairment charges related to the restructuring of the Retail segment's e-commerce delivery model. Current year expense primarily consists of asset impairment charges related to restructuring of the Retail segment's ecommerce delivery model and Retail store closing charges, partially offset by a gain on sales of assets related to the sale of real property of previously closed locations in both segments. The prior year quarter and prior year-to-date amounts consist primarily of retail store closing and asset impairment charges, partially offset by gains on the sale of pharmacy customer lists, equipment, and real estate associated with store closings, as well as the termination of a lease and the sale of real estate within the Wholesale segment.

Operating Earnings – The following table presents operating earnings by segment and variances in operating earnings.

	12 Weeks Ended															40 Weeks Ended
(In thousands)	October 8, 2022					October 9, 2021					Variance					October 8, 2022					October 9, 2021					Variance
Wholesale	$		14,015			$		5,929			$		8,086			$		54,834			$		35,142			$		19,692
Retail			5,285					16,802					(11,517	)				4,944					43,705					(38,761	)
Total operating earnings	$		19,300			$		22,731			$		(3,431	)		$		59,778			$		78,847			$		(19,069	)

Operating earnings decreased $3.4 million, or 15.1% to $19.3 million in the third quarter from $22.7 million in the prior year quarter. Operating earnings for the year-to-date period decreased $19.1 million, or 24.2%, to $59.8 million from $78.8 million in the prior year-to-date period. The decreases in operating earnings were due to the changes in net sales, gross profit and operating expenses discussed above.

Wholesale operating earnings increased $8.1 million, or 136.4%, to $14.0 million in the third quarter from $5.9 million in the prior year quarter. Operating earnings for the year-to-date period increased $19.7 million, or 56.0%, to $54.8 million from $35.1 million in the prior year-to-date period. The increase in operating earnings for Wholesale in the third quarter was due to increased sales and a reduced rate of supply chain expenses, partially offset by increases in corporate administrative costs and LIFO expense. The increase in the operating earnings for Wholesale in the year-to-date period was due to increased sales, a higher gross margin rate and a reduced rate of supply chain expenses, partially offset by an increase in corporate administrative costs.

Retail operating earnings decreased $11.5 million, or 68.5% to $5.3 million in the third quarter from $16.8 million in operating earnings in the prior year quarter. Operating earnings for the year-to-date period decreased $38.8 million, or 88.7%, to $4.9 million from $43.7 million in operating earnings in the prior year-to-date period. The decrease in operating earnings was due to a lower gross profit rate, investments in store wage rates, and increased corporate administrative, utilities and supplies costs.

Interest Expense – Interest expense increased $3.0 million, or 100.4%, to $6.1 million in the third quarter from $3.0 million in the prior year quarter. Interest expense for the year-to-date period increased $3.9 million, or 35.7%, from $10.9 million in the prior year-to-date period to $14.8 million. The increase in interest expense was due to rising interest rates and an increase in borrowings due to inflationary increases in working capital.

Income Taxes – The effective income tax rates were 32.5% and 23.1% for the third quarter and prior year quarter, respectively. For the year-to-date period and prior year-to-date period, the effective tax rates were 25.4% and 24.5%, respectively. The difference from the federal statutory rate in current quarter was primarily due to state taxes, limitations on the deductibility of executive compensation and other non-deductible expenses, partially offset by tax benefits associated with federal tax credits. The difference in the federal statutory rate in the current year was primarily due to state taxes, limitations on the deductibility of executive compensation and non-deductible expenses, partially offset by tax benefits associated with federal tax credits and discrete tax benefits related to stock compensation. In the prior year, the differences from the federal statutory rate was primarily due to state taxes and the limitations on the deductibility of executive compensation, partially offset by federal tax credits.

On March 27, 2020, the U.S. government enacted tax legislation to provide economic stimulus and support businesses and individuals during the COVID-19 pandemic, referred to as the CARES Act. In connection with the CARES Act, the Company recorded net discrete income tax benefits of $9.3 million in 2020 associated with the additional deductibility of certain expenses combined with provisions which enable companies to carry back tax losses to years prior to the enactment of the Tax Cuts and Jobs Act (“Tax Reform”), when the federal statutory income tax rate was 35%. In the first quarter of 2021, the Company received tax refunds totaling $25.7 million related to the amended prior year returns.

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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, as well as per diluted share (“adjusted EPS”), net long-term debt, capital expenditures and IT capital, 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.

At the beginning of 2022, the Company made a change to the adjusted operating earnings and adjusted earnings from continuing operations measures to exclude the impact of LIFO expense or benefit. The Company believes the change reduces volatility associated with temporary fluctuations in inflation, enabling investors to best establish a basis for expected performance and the ability to evaluate actual results against that expectation and the industry in which the Company operates. Prior year adjusted operating earnings and adjusted earnings from continuing operations figures have been restated to align with this change in presentation. Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other items, LIFO expense, costs related to shareholder activism, operating and non-operating costs associated with the postretirement plan amendment and settlement, organizational realignment and severance associated with cost reduction initiatives. Costs related to shareholder activism include consulting, legal, and other expenses incurred in relation to shareholder activism activities. Costs related to the postretirement plan amendment and settlement include non-operating expenses associated with recognition of plan settlement losses and amortization of the prior service credit related to the amendment of the retiree medical plan, which are adjusted out of adjusted earnings from continuing operations. Postretirement plan amendment and settlement costs also include operating expenses related to payroll taxes which are adjusted out of all non-GAAP financial measures. Organizational realignment includes benefits for associates terminated as part of leadership transition plans, 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 things, LIFO expense, organizational realignment and severance associated with cost reduction initiatives.

Each of these items are considered “non-operational” or “non-core” in nature.

Adjusted Operating Earnings

Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company as a whole and for its operating segments. The Company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature and also excludes the contributions of activities classified as discontinued operations. Because adjusted operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in an adjusted operating earnings format.

Adjusted operating earnings is not a measure of performance under GAAP and should not be considered as a substitute for operating earnings, and other income statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.

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Following is a reconciliation of operating earnings to adjusted operating earnings for the 12 and 40 weeks ended October 8, 2022 and October 9, 2021.

	12 Weeks Ended										40 Weeks Ended
(In thousands)	October 8, 2022					October 9, 2021					October 8, 2022					October 9, 2021
Operating earnings	$		19,300			$		22,731			$		59,778			$		78,847
Adjustments:
LIFO expense			14,884					5,887					42,916					10,444
Acquisition and integration, net			(577	)				101					98					281
Restructuring and asset impairment, net			(886	)				(195	)				1,738					2,981
Organizational realignment, net			588					—					1,859					589
Severance associated with cost reduction initiatives			54					239					795					377
Postretirement plan amendment and settlement			—					—					133					—
Costs related to shareholder activism			—					—					7,335					—
Adjusted operating earnings	$		33,363			$		28,763			$		114,652			$		93,519
Wholesale:
Operating earnings	$		14,015			$		5,929			$		54,834			$		35,142
Adjustments:
LIFO expense			12,959					5,197					35,138					8,862
Restructuring and asset impairment, net			(2,088	)				(332	)				(2,216	)				431
Organizational realignment, net			367					—					1,160					374
Severance associated with cost reduction initiatives			43					170					662					279
Postretirement plan amendment and settlement			—					—					83					—
Costs related to shareholder activism			—					—					4,577					—
Adjusted operating earnings	$		25,296			$		10,964			$		94,238			$		45,088
Retail:
Operating earnings	$		5,285			$		16,802			$		4,944			$		43,705
Adjustments:
LIFO expense			1,925					690					7,778					1,582
Acquisition and integration, net			(577	)				101					98					281
Restructuring and asset impairment, net			1,202					137					3,954					2,550
Organizational realignment, net			221					—					699					215
Severance associated with cost reduction initiatives			11					69					133					98
Postretirement plan amendment and settlement			—					—					50					—
Costs related to shareholder activism			—					—					2,758					—
Adjusted operating earnings	$		8,067			$		17,799			$		20,414			$		48,431

 

Adjusted Earnings from Continuing Operations

Adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), is a non-GAAP operating financial measure that the Company defines as net earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

The Company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the Company. The Company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and excludes the contributions of activities classified as discontinued operations. Because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted earnings from continuing operations format.

Adjusted earnings from continuing operations is not a measure of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies.

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Following is a reconciliation of net earnings to adjusted earnings from continuing operations for the 12 and 40 weeks ended October 8, 2022 and October 9, 2021.

	12 Weeks Ended
	October 8, 2022										October 9, 2021
						per diluted										per diluted
(In thousands, except per share amounts)	Earnings					share					Earnings					share
Net earnings	$		9,464			$		0.26			$		15,176			$		0.42
Adjustments:
LIFO expense			14,884										5,887
Acquisition and integration, net			(577	)									101
Restructuring and asset impairment, net			(886	)									(195	)
Organizational realignment, net			588										—
Severance associated with cost reduction initiatives			54										239
Postretirement plan amendment and settlement			(763	)									—
Total adjustments			13,300										6,032
Income tax effect on adjustments (a)			(2,725	)									(1,511	)
Total adjustments, net of taxes			10,575					0.29					4,521					0.13
Adjusted earnings from continuing operations	$		20,039			$		0.55			$		19,697			$		0.55
	40 Weeks Ended
	October 8, 2022										October 9, 2021
						per diluted										per diluted
(In thousands, except per share amounts)	Earnings					share					Earnings					share
Net earnings	$		33,868			$		0.93			$		51,506			$		1.44
Adjustments:
LIFO expense			42,916										10,444
Acquisition and integration, net			98										281
Restructuring and asset impairment, net			1,738										2,981
Organizational realignment, net			1,859										589
Severance associated with cost reduction initiatives			795										377
Pension refund from annuity provider			(200	)									—
Postretirement plan amendment and settlement			(18	)									—
Costs related to shareholder activism			7,335										—
Total adjustments			54,523										14,672
Income tax effect on adjustments (a)			(13,870	)									(3,677	)
Total adjustments, net of taxes			40,653					1.12					10,995					0.30
Adjusted earnings from continuing operations	$		74,521			$		2.05			$		62,501			$		1.74

Adjusted EBITDA

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.

The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company and for its operating segments. The Company considers adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted EBITDA and adjusted EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted EBITDA format.

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Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under GAAP and should not be considered as a substitute for net earnings, cash flows from operating activities 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.

Following is a reconciliation of net earnings to adjusted EBITDA for the 12 and 40 weeks ended October 8, 2022 and October 9, 2021.

	12 Weeks Ended										40 Weeks Ended
(In thousands)	October 8, 2022					October 9, 2021					October 8, 2022					October 9, 2021
Net earnings	$		9,464			$		15,176			$		33,868			$		51,506
Income tax expense			4,553					4,551					11,530					16,757
Other expenses, net			5,283					3,004					14,380					10,584
Operating earnings			19,300					22,731					59,778					78,847
Adjustments:
LIFO expense			14,884					5,887					42,916					10,444
Depreciation and amortization			21,833					21,763					72,274					71,260
Acquisition and integration, net			(577	)				101					98					281
Restructuring and asset impairment, net			(886	)				(195	)				1,738					2,981
Cloud computing amortization			925					570					2,694					1,528
Organizational realignment, net			588					—					1,859					589
Severance associated with cost reduction initiatives			54					239					795					377
Stock-based compensation			1,370					920					7,208					6,084
Stock warrant			505					403					1,659					1,478
Non-cash rent			(764	)				(994	)				(2,691	)				(2,980	)
Loss (gain) on disposal of assets			63					49					(68	)				(213	)
Postretirement plan amendment and settlement			—					—					133					—
Costs related to shareholder activism			—					—					7,335					—
Adjusted EBITDA	$		57,295			$		51,474			$		195,728			$		170,676

 

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Following is a reconciliation of operating earnings to adjusted EBITDA by segment for the 12 and 40 weeks ended October 8, 2022 and October 9, 2021.

	12 Weeks Ended										40 Weeks Ended
(In thousands)	October 8, 2022					October 9, 2021					October 8, 2022					October 9, 2021
Wholesale:
Operating earnings	$		14,015			$		5,929			$		54,834			$		35,142
Adjustments:
LIFO expense			12,959					5,197					35,138					8,862
Depreciation and amortization			11,090					11,130					36,602					35,701
Restructuring and asset impairment, net			(2,088	)				(332	)				(2,216	)				431
Cloud computing amortization			645					423					1,873					1,067
Organizational realignment, net			367					—					1,160					374
Severance associated with cost reduction initiatives			43					170					662					279
Stock-based compensation			894					549					4,743					3,843
Stock warrant			505					403					1,659					1,478
Non-cash rent			(92	)				122					(288	)				833
(Gain) loss on disposal of assets			(26	)				25					(184	)				(112	)
Postretirement plan amendment and settlement			—					—					83					—
Costs related to shareholder activism			—					—					4,577					—
Adjusted EBITDA	$		38,312			$		23,616			$		138,643			$		87,898
Retail:
Operating earnings	$		5,285			$		16,802			$		4,944			$		43,705
Adjustments:
LIFO expense			1,925					690					7,778					1,582
Depreciation and amortization			10,743					10,633					35,672					35,559
Acquisition and integration, net			(577	)				101					98					281
Restructuring and asset impairment, net			1,202					137					3,954					2,550
Cloud computing amortization			280					147					821					461
Organizational realignment, net			221					—					699					215
Severance associated with cost reduction initiatives			11					69					133					98
Stock-based compensation			476					371					2,465					2,241
Non-cash rent			(672	)				(1,116	)				(2,403	)				(3,813	)
Loss (gain) on disposal of assets			89					24					116					(101	)
Postretirement plan amendment and settlement			—					—					50					—
Costs related to shareholder activism			—					—					2,758					—
Adjusted EBITDA	$		18,983			$		27,858			$		57,085			$		82,778

Liquidity and Capital Resources

Cash Flow Information

The following table summarizes the Company’s consolidated statements of cash flows:

				40 Weeks Ended
(In thousands)				October 8, 2022					October 9, 2021
Cash flow activities
Net cash provided by operating activities				$		7,454			$		143,953
Net cash used in investing activities						(45,956	)				(24,051	)
Net cash provided by (used in) financing activities						46,800					(115,160	)
Net increase in cash and cash equivalents						8,298					4,742
Cash and cash equivalents at beginning of the period						10,666					19,903
Cash and cash equivalents at end of the period				$		18,964			$		24,645

Net cash provided by operating activities. Net cash provided by operating activities decreased $136.5 million in the current year-to-date period compared to the prior year-to-date period, primarily due to changes in working capital, including the impact of inflation, inventory buying patterns and expansion of the distribution network in the current year.

Net cash used in investing activities. Net cash used in investing activities increased $21.9 million in the current year compared to the prior year primarily due to an increase in capital expenditures in the current year and an acquisition within the Retail segment in the current year.

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Capital expenditures were $66.3 million in the current year and cloud computing application development spend, which is included in operating activities, was $3.2 million, compared to capital expenditures of $55.0 million and cloud computing application development spend of $7.0 million in the prior year. The Company expects fiscal year 2022 capital expenditures and cloud computing application development spend to range from $100.0 million to $110.0 million. The Wholesale and Retail segments utilized 52.6% and 47.4% of capital expenditures, respectively, in the current year.

Net cash provided by (used in) financing activities. Net cash provided by financing activities increased $162.0 million in the current year compared to the prior year, primarily due to increased net borrowings on the senior credit facility in the current year, partially offset by an increase in share repurchases in the current year.

Debt Management

Total debt, including finance lease liabilities, was $519.5 million and $405.7 million as of October 8, 2022 and January 1, 2022, respectively. The increase in total debt was due to additional net borrowings on the senior credit facility to fund working capital changes, purchases of property, plant and equipment and share repurchases.

Liquidity

The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility. As of October 8, 2022, the senior secured credit facility had outstanding borrowings of $461.8 million. Additional available borrowings under the Company’s credit facility are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintain excess availability of 10% of the borrowing base, as such term is defined in the Credit Agreement. The Company had excess availability after the 10% covenant of $434.1 million at October 8, 2022. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The credit facility provides for the issuance of letters of credit, of which $17.7 million were outstanding as of October 8, 2022. The credit facility matures December 18, 2023 and is secured by substantially all of the Company’s assets.

The Company believes that cash generated from operating activities and available borrowings under the credit facility will be sufficient to meet anticipated requirements for working capital, capital expenditures, dividend payments, and debt service obligations for the foreseeable future. However, there can be no assurance that the business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the Credit Agreement.

The Company’s current ratio (current assets to current liabilities) was 1.63-to-1 at October 8, 2022 compared to 1.46-to-1 at January 1, 2022, and its investment in working capital was $443.9 million at October 8, 2022 compared to $301.4 million at January 1, 2022. The net long-term debt to total capital ratio was 0.39-to-1 at October 8, 2022 compared to 0.34-to-1 at January 1, 2022.

Net long-term debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current portion of long-term debt and finance lease liabilities, less cash and cash equivalents. The ratio of net long-term debt to total capital is a non-GAAP financial measure that is calculated by dividing net long-term debt, as defined previously, by total capital (net long-term debt plus total shareholders’ equity). The Company believes both management and its investors find the information useful because it reflects the amount of long-term debt obligations that are not covered by available cash and temporary investments. Total net long-term debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

Following is a reconciliation of “Long-term debt and finance lease liabilities” to Net long-term debt as of October 8, 2022 and January 1, 2022.

	October 8,					January 1,
(In thousands)	2022					2022
Current portion of long-term debt and finance lease liabilities	$		6,759			$		6,334
Long-term debt and finance lease liabilities			512,704					399,390
Total debt			519,463					405,724
Cash and cash equivalents			(18,964	)				(10,666	)
Net long-term debt	$		500,499			$		395,058

Following is a reconciliation of "Net long-term debt" and "Total shareholders' equity" to Total capital as of October 8, 2022 and January 1, 2022.

	October 8,					January 1,
(In thousands)	2022					2022
Net long-term debt	$		500,499			$		395,058
Total shareholders' equity			780,410					782,869
Total capital	$		1,280,909			$		1,177,927

 

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For information on contractual obligations, see the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022. At October 8, 2022, there have been no material changes to the Company’s significant contractual obligations outside the ordinary course of business.

Cash Dividends

During the quarter ended October 8, 2022, the Company declared $7.4 million in dividends. A 5.0% increase in the quarterly dividend rate from $0.20 per share to $0.21 per share was approved by the Board of Directors and announced on March 2, 2022. Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. Whether the Board of Directors continues to declare dividends depends on a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows and compliance with the terms of its credit facilities.

Under the senior revolving credit facility, the Company is generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends and repurchase shares in excess of $35.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility, is in excess of 10% of the Total Borrowing Base, as defined in the senior revolving credit facility, before and after giving effect to the repurchases and dividends.

Off-Balance Sheet Arrangements

The Company has also made certain commercial commitments that extend beyond October 8, 2022. These commitments consist primarily of purchase commitments, standby letters of credit of $17.7 million as of October 8, 2022, and interest on long-term debt and finance lease liabilities.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Based on the Company’s ongoing review, the Company makes adjustments it considers appropriate under the facts and circumstances. This discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements. The Company believes these accounting policies and others set forth in Item 7 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022 should be reviewed as they are integral to understanding the Company’s financial condition and results of operations. The Company has discussed the development, selection and disclosure of these accounting policies with the Audit Committee of the Board of Directors. The accompanying financial statements are prepared using the same critical accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022.

Recently Issued Accounting Standards

Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

There have been no material changes in market risk of SpartanNash from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk,” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022.

ITEM 4. Controls and Procedures

An evaluation of the effectiveness of the design and operation of SpartanNash Company’s disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Exchange Act) was performed as of October 8, 2022 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). As of the Evaluation Date, SpartanNash Company’s management, including the CEO and CFO, concluded that SpartanNash’s disclosure controls and procedures were effective as of the Evaluation Date to ensure that material information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including its principal executive and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. During the third quarter of 2022 there were no changes in SpartanNash’s internal control over financial reporting that materially affected, or were reasonably likely to materially affect, SpartanNash’s internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. Legal Proceedings

The information required by this Part II, Item 1 is incorporated by reference to the information set forth under the caption “Commitments and Contingencies” in Note 7 in the notes to condensed consolidated financial statements included in this report.

ITEM 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K (2021 10-K) for the year ended January 1, 2022 filed with Securities and Exchange Commission. You should carefully consider the risks included in our 2021 10-K, together with all the other information in the Quarterly Reports on Form 10-Q for the quarters ended April 23, 2022 and July 16, 2022 and this Quarterly Report on Form 10-Q, including the forward-looking statements which appear at the beginning of this report.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the fourth quarter of 2017, the Board authorized a publicly announced $50 million share repurchase program, expiring in 2022. There were $16.7 million of common stock share repurchases made under this program during the third quarter of 2022. At October 8, 2022, $6.4 million remains available under the program. Repurchases of common stock may include: (1) shares of SpartanNash common stock delivered in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The value of the shares delivered or withheld is determined by the applicable stock compensation plan.

On February 22, 2022, the Board of Directors authorized the repurchase of common shares in connection with a new $50 million program, increasing the total availability for share repurchases to approximately $56 million. The Company plans to return value to shareholders through share repurchases under this program as well as continuing regular dividends.

					Average
	Total Number				Price Paid
Fiscal Period	of Shares Purchased				per Share
July 17 - August 13, 2022
Employee Transactions		—			$		—
Repurchase Program		149,995			$		31.84
August 14 - September 10, 2022
Employee Transactions		409			$		31.07
Repurchase Program		158,200			$		31.28
September 11 - October 8, 2022
Employee Transactions		—			$		—
Repurchase Program		234,331			$		29.84
Total for quarter ended October 8, 2022
Employee Transactions		409			$		31.07
Repurchase Program		542,526			$		30.81

 

 

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ITEM 6. Exhibits

The following documents are filed as exhibits to this Quarterly Report on Form 10-Q:

 

Exhibit Number		Document
3.1		Restated Articles of Incorporation of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 15, 2017. Incorporated herein by reference.
3.2		Bylaws of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Incorporated herein by reference.
10.1*		Executive Separation Agreement between SpartanNash Company and Yvonne Trupiano.**
10.2*		Executive Separation Agreement between SpartanNash Company and Arif Dar.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 8, 2022, has been formatted in Inline XBRL.

* Indicates management contract or compensatory plan.

** Refiled to correct the inadvertent filing of an earlier draft of the Executive Separation Agreement between SpartanNash Company and Yvonne Trupiano, previously included as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on June 2, 2022.

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		SPARTANNASH COMPANY (Registrant)
Date: November 10, 2022		By		/s/ Jason Monaco
				Jason Monaco Executive Vice President and Chief Financial Officer (Principal Financial Officer)

 

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