Published: 2022-08-18 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 July 16, 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 August 16, 2022, the registrant had 35,747,221 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" about the plans, strategies, objectives, goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or “the Company”). These forward-looking statements are identifiable by words or phrases indicating that the Company or management "expects," "anticipates," "plans," "believes," or "estimates," or that a particular occurrence or event "may," "could," "should," "will" or "will likely" result, occur or be pursued or "continue" in the future, that the "outlook", "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. There are many important factors that could cause actual results to differ materially. These risks and uncertainties include the Company's ability to compete in the highly competitive grocery distribution, retail grocery and military distribution industries; 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.



 

 

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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	30
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION	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)

	July 16,					January 1,
	2022					2022
Assets
Current assets
Cash and cash equivalents	$		21,217			$		10,666
Accounts and notes receivable, net			411,453					361,686
Inventories, net			591,609					522,324
Prepaid expenses and other current assets			72,258					62,517
Property and equipment held for sale			25,073					—
Total current assets			1,121,610					957,193
Property and equipment, net			557,754					577,359
Goodwill			182,160					181,035
Intangible assets, net			108,349					110,960
Operating lease assets			264,583					283,040
Other assets, net			87,863					97,195
Total assets	$		2,322,319			$		2,206,782
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$		503,711			$		447,451
Accrued payroll and benefits			88,075					86,315
Other accrued expenses			59,902					67,893
Current portion of operating lease liabilities			46,297					47,845
Current portion of long-term debt and finance lease liabilities			6,303					6,334
Total current liabilities			704,288					655,838
Long-term liabilities
Deferred income taxes			74,497					63,692
Operating lease liabilities			247,230					266,701
Other long-term liabilities			28,706					38,292
Long-term debt and finance lease liabilities			473,876					399,390
Total long-term liabilities			824,309					768,075
Commitments and contingencies (Note 7)
Shareholders’ equity
Common stock, voting, no par value; 100,000 shares      authorized; 35,913 and 35,948 shares outstanding			489,957					493,783
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding			—					—
Accumulated other comprehensive income (loss)			4,046					(1,455	)
Retained earnings			299,719					290,541
Total shareholders’ equity			793,722					782,869
Total liabilities and shareholders’ equity	$		2,322,319			$		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										28 Weeks Ended
	July 16, 2022					July 17, 2021					July 16, 2022					July 17, 2021
Net sales	$		2,273,890			$		2,106,560			$		5,037,548			$		4,764,359
Cost of sales			1,919,647					1,772,933					4,232,722					4,012,702
Gross profit			354,243					333,627					804,826					751,657
Operating expenses
Selling, general and administrative			338,867					304,248					761,049					692,185
Acquisition and integration			436					121					675					180
Restructuring and asset impairment, net			2,611					3,337					2,624					3,176
Total operating expenses			341,914					307,706					764,348					695,541
Operating earnings			12,329					25,921					40,478					56,116
Other expenses and (income)
Interest expense			4,528					3,267					8,713					7,856
Other, net			600					(10	)				384					(276	)
Total other expenses, net			5,128					3,257					9,097					7,580
Earnings before income taxes			7,201					22,664					31,381					48,536
Income tax expense			2,086					5,850					6,977					12,206
Net earnings	$		5,115			$		16,814			$		24,404			$		36,330
Basic net earnings per share:	$		0.14			$		0.47			$		0.69			$		1.02
Diluted net earnings per share:	$		0.14			$		0.47			$		0.67			$		1.01

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										28 Weeks Ended
	July 16, 2022					July 17, 2021					July 16, 2022					July 17, 2021
Net earnings	$		5,115			$		16,814			$		24,404			$		36,330
Other comprehensive income, before tax
Postretirement liability adjustment			7,258					57					7,288					133
Income tax expense related to items of other comprehensive income			(1,780	)				(13	)				(1,787	)				(32	)
Total other comprehensive income, after tax			5,478					44					5,501					101
Comprehensive income	$		10,593			$		16,858			$		29,905			$		36,431

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

See accompanying notes to condensed consolidated financial statements.

 

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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

See accompanying notes to condensed consolidated financial statements.

 

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SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, Unaudited)

	28 Weeks Ended
	July 16, 2022					July 17, 2021
Cash flows from operating activities
Net earnings	$		24,404			$		36,330
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash restructuring, asset impairment, and other charges			2,570					3,363
Depreciation and amortization			50,441					49,497
Non-cash rent			(2,462	)				(1,756	)
LIFO expense			28,032					4,557
Postretirement benefits expense			392					863
Deferred income taxes			9,071					8,714
Stock-based compensation expense			5,692					5,057
Stock warrant			1,154					1,075
Gain on disposals of assets			(131	)				(262	)
Other operating activities			1,051					508
Changes in operating assets and liabilities:
Accounts receivable			(49,528	)				(12,622	)
Inventories			(93,919	)				(1,537	)
Prepaid expenses and other assets			(128	)				(9,354	)
Accounts payable			67,874					(10,305	)
Accrued payroll and benefits			(369	)				(22,781	)
Current income taxes			(7,501	)				15,123
Other accrued expenses and other liabilities			(8,124	)				7,112
Net cash provided by operating activities			28,519					73,582
Cash flows from investing activities
Purchases of property and equipment			(46,431	)				(39,838	)
Net proceeds from the sale of assets			4,422					28,406
Acquisitions, net of cash acquired			(9,408	)				—
Loans to customers			—					(180	)
Payments from customers on loans			849					1,590
Other investing activities			(139	)				(16	)
Net cash used in investing activities			(50,707	)				(10,038	)
Cash flows from financing activities
Proceeds from senior secured credit facility			720,800					753,619
Payments on senior secured credit facility			(658,197	)				(787,996	)
Repayment of other long-term debt and finance lease liabilities			(3,771	)				(3,232	)
Share repurchases			(6,573	)				(5,325	)
Net payments related to stock-based award activities			(4,311	)				(2,254	)
Dividends paid			(15,165	)				(14,274	)
Other financing activities			(44	)				151
Net cash provided by (used in) financing activities			32,739					(59,311	)
Net increase in cash and cash equivalents			10,551					4,233
Cash and cash equivalents at beginning of period			10,666					19,903
Cash and cash equivalents at end of period	$		21,217			$		24,136

See accompanying notes to condensed consolidated financial statements.

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SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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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. The Company operates three reportable business segments: Food Distribution, Retail and Military.

The Company’s Food Distribution 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.

As of the end of the second quarter, the Company’s Retail segment operated 148 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.

The Company’s Military segment contracts with manufacturers to distribute a wide variety of grocery products primarily to military commissaries and exchanges located in the United States, in addition to the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar, Djibouti, Korea and Japan. The Company distributes grocery products to 160 military commissaries and over 400 exchanges and, together with its third-party partner, Coastal Pacific Food Distributors, represents the only delivery solution to service the Defense Commissary Agency (“DeCA”) worldwide. The Company is the exclusive worldwide supplier of private brand products to U.S. military commissaries, a partnership with DeCA which began in fiscal 2017.

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 Second Quarter Highlights

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

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During August 2022, the Company increased fiscal 2022 guidance, including net sales, adjusted EBITDA, and interest expense ranges. Adjusted EBITDA is now expected to range from $227 million to $240 million, which is inclusive of the net incremental costs associated with the Merchandising Transformation initiative, currently estimated to be between $11.0 million to $14.0 million. The Company also now expects net sales to range from $9.3 billion to $9.6 billion, with Military sales expected to range from 5.0% to 8.0%. Food Distribution sales are now expected to increase 4.0% to 7.0%, while Retail comparable sales are now expected to range from 4.0% to 7.0% for 2022. The interest expense is now expected to range from $19 million to $21 million.

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								28 Weeks Ended								12 Weeks Ended				28 Weeks Ended
	July 16, 2022				July 17, 2021				July 16, 2022				July 17, 2021				July 16, 2022				July 16, 2022
Net sales		100.0				100.0				100.0				100.0				7.9				5.7
Gross profit		15.6				15.8				16.0				15.8				6.2				7.1
Selling, general and administrative		14.9				14.4				15.1				14.5				11.4				9.9
Acquisition and integration		0.0				0.0				0.0				0.0			**				**
Restructuring charges and asset impairment, net		0.1				0.2				0.1				0.1				(21.8	)			(17.4	)
Operating earnings		0.5				1.2				0.8				1.2				(52.4	)			(27.9	)
Other expenses		0.2				0.2				0.2				0.2				57.4				20.0
Earnings before income taxes		0.3				1.1				0.6				1.0				(68.2	)			(35.3	)
Income tax expense		0.1				0.3				0.1				0.3				(64.3	)			(42.8	)
Net earnings		0.2				0.8				0.5				0.8				(69.6	)			(32.8	)

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															28 Weeks Ended
(In thousands)	July 16, 2022					July 17, 2021					Variance					July 16, 2022					July 17, 2021					Variance
Food Distribution	$		1,118,305			$		1,056,526			$		61,779			$		2,489,162			$		2,390,608			$		98,554
Retail			672,405					619,977					52,428					1,453,684					1,359,421					94,263
Military			483,180					430,057					53,123					1,094,702					1,014,330					80,372
Total net sales	$		2,273,890			$		2,106,560			$		167,330			$		5,037,548			$		4,764,359			$		273,189

Net sales for the quarter ended July 16, 2022 (the “second quarter”) increased $167.3 million, or 7.9%, to $2.27 billion from $2.11 billion in the quarter ended July 17, 2021 (the “prior year quarter”). Net sales for the year-to-date period ended July 16, 2022 (the “year-to-date period”) increased $273.2 million, or 5.7%, to $5.04 billion from $4.76 billion in the year-to-date period ended July 17, 2021 (the “prior-year-to-date period”). The increase was attributable to increases in net sales in all three segments that were favorably impacted by inflation. Additionally, the second quarter increase compared to the prior year quarter was also impacted by an increase in case volume of 3.3% within the Military segment.

Food Distribution net sales increased $61.8 million, or 5.8%, to $1.12 billion in the second quarter from $1.06 billion in the prior year quarter. Net sales for the year-to-date period increased $98.6 million, or 4.1%, to $2.49 billion from $2.39 billion in the prior year-to-date period. The increases in net sales were due primarily to the inflationary impact on pricing.

Retail net sales increased $52.4 million, or 8.5%, to $672.4 million in the second quarter from $620.0 million in the prior year quarter. Net sales for the year-to-date period increased $94.3 million, or 6.9%, from $1.36 billion in the prior year-to-date period to $1.45 billion. The increases were primarily due to inflationary pricing and share gains. Comparable store sales increased 6.5% for the quarter. 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.

20

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Military net sales increased $53.1 million, or 12.4%, to $483.2 million in the second quarter from $430.1 million in the prior year quarter. Net sales for the year-to-date period increased $80.4 million, or 7.9%, from $1.01 billion in the prior year-to-date period to $1.09 billion. The second quarter increase was primarily related to inflation as well as an increase in case volume. The year-to-date increase was primarily due to inflation.

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 distribution segments include shipping and handling costs in the Selling, general and administrative section of operating expenses in the consolidated statements of earnings.

Gross profit increased $20.6 million, or 6.2%, to $354.2 million in the second quarter from $333.6 million in the prior year quarter. As a percent of net sales, gross profit was 15.6% compared to 15.8% in the prior year quarter. Gross profit for the year-to-date period increased $53.2 million, or 7.1%, from $751.7 billion in the prior year-to-date period to $804.8 billion in the current year. As a percent of net sales, gross profit for the year-to-date period was 16.0% compared to 15.8% in the prior year-to-date period. The gross profit rate decline in the current quarter was driven by lower Retail margins. Approximately one third of the decline in the current quarter was due to lower Retail fuel margins compared to the prior year quarter. The gross profit rate decline was partially offset by improvements in gross profit rates within both the Food Distribution and Military segments. Additionally, LIFO expense increased $14.9 million, or 65 basis points compared to the prior year quarter. Gross profit rate growth in the year-to-date period was driven by improvements in margin rates in the Food Distribution and Military segments, partially offset by an increase in LIFO expense of $23.5 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 second quarter increased $34.6 million, or 11.4%, to $338.9 million from $304.2 million in the prior year quarter, representing 14.9% of net sales in the second quarter compared to 14.4% in the prior year quarter. SG&A expense for the year-to-date period increased $68.9 million, or 9.9% to $761.0 million from $692.2 million in the prior year-to-date, representing 15.1% in the current year-to-date period compared to 14.5% as a percentage of net sales in the prior year-to-date period. The increase in operating expenses as a percentage of sales was due to higher corporate administrative costs, including higher incentive compensation expense and costs related to shareholder activism, in addition to higher fuel costs. The increase in operating expenses was partially offset by efficiencies realized from the Supply Chain Transformation initiative.

Acquisition and Integration – Acquisition and integration expenses for the second quarter ended July 16, 2022 and July 17, 2021 were $0.4 million and $0.1 million, respectively. Acquisition and integration expenses for the year-to-date periods ended July 16, 2022 and July 17, 2021 were $0.7 million and $0.2 million, respectively. Current year expense is primarily related to an acquisition within the Retail segment. Prior year expense was associated with the integration of Martin's Super Markets.

Restructuring and Asset Impairment, net – Second quarter and prior year quarter results included charges of $2.6 million and $3.3 million, respectively. The year-to-date period and the prior year-to-date period included charges of $2.6 million and $3.2 million, respectively. The current quarter and current year amounts primarily consist of asset impairment charges related to restructuring of the Retail segment's ecommerce delivery model, partially offset by a gain on sales of assets related to the sale of real property of previously closed locations in the Retail segment. 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.

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

	12 Weeks Ended															28 Weeks Ended
(In thousands)	July 16, 2022					July 17, 2021					Variance					July 16, 2022					July 17, 2021					Variance
Food Distribution	$		12,961			$		16,678			$		(3,717	)		$		39,645			$		37,824			$		1,821
Retail			(368	)				12,711					(13,079	)				(341	)				26,903					(27,244	)
Military			(264	)				(3,468	)				3,204					1,174					(8,611	)				9,785
Total operating earnings	$		12,329			$		25,921			$		(13,592	)		$		40,478			$		56,116			$		(15,638	)

Operating earnings decreased $13.6 million, or 52.4% to $12.3 million in the second quarter from $25.9 million in the prior year quarter. Operating earnings for the year-to-date period decreased $15.6 million, or 27.9%, to $40.5 million from $56.1 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.

21

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Food Distribution operating earnings decreased $3.7 million, or 22.3%, to $13.0 million in the second quarter from $16.7 million in the prior year quarter. Operating earnings for the year-to-date period increased $1.8 million, or 4.8%, to $39.6 million from $37.8 million in the prior year-to-date period. The decrease in operating earnings for Food Distribution in the second quarter was due to increases in corporate administrative costs, partially offset by a higher gross margin rate. The increase in the operating earnings for Food Distribution in the year-to-date period was due to a higher gross margin rate, partially offset by an increase in corporate administrative costs.

Retail operating earnings decreased $13.1 million, or 102.9% to a $0.4 million operating loss in the second quarter from $12.7 million in operating earnings in the prior year quarter. Operating earnings for the year-to-date period decreased $27.2 million, or 101.3%, to a $0.3 million operating loss from $26.9 million in operating earnings in the prior year-to-date period. The decrease in operating earnings was due to a lower gross profit rate, along with increased corporate administrative, utilities and supplies costs.

Military operating loss decreased $3.2 million, or 92%, to $0.3 million in the second quarter from a loss of $3.5 million in the prior year quarter. Operating earnings for the year-to-date period increased $9.8 million, or 113.6%, to $1.2 million from a $8.6 million operating loss in the prior year-to-date period. The second quarter increase in operating earnings was due to a higher margin rate and increased case volumes, partially offset by increased corporate administrative costs. The year-to-date increase in operating earnings was due a higher gross margin rate, partially offset by an increase in corporate administrative costs and higher supply chain wages.

Interest Expense – Interest expense increased $1.3 million, or 38.6%, to $4.5 million in the second quarter from $3.3 million in the prior year quarter. Interest expense for the year-to-date period increased $0.9 million, or 10.9%, from $7.9 million in the prior year-to-date period to $8.7 million. The increase in interest expense was due to increases in the federal funds rate and the average debt balance.

Income Taxes – The effective income tax rates were 29.0% and 25.8% for the second quarter and prior year quarter, respectively. For the year-to-date period and prior year-to-date period, the effective tax rates were 22.2% and 25.1%, respectively. The difference from the federal statutory rate in current quarter was primarily due to state taxes and 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 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 difference from the federal statutory rate was primarily due to state taxes, 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 a net discrete income tax benefit 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, 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.

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”), 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.

22

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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.

Following is a reconciliation of operating earnings to adjusted operating earnings for the 12 and 28 weeks ended July 16, 2022 and July 17, 2021.

	12 Weeks Ended										28 Weeks Ended
(In thousands)	July 16, 2022					July 17, 2021					July 16, 2022					July 17, 2021
Operating earnings	$		12,329			$		25,921			$		40,478			$		56,116
Adjustments:
LIFO expense			17,845					2,902					28,032					4,557
Acquisition and integration			436					121					675					180
Restructuring and asset impairment, net			2,611					3,337					2,624					3,176
Organizational realignment, net			252					(52	)				1,271					589
Severance associated with cost reduction initiatives			495					13					741					138
Postretirement plan amendment and settlement			133					—					133					—
Costs related to shareholder activism			3,864					—					7,335					—
Adjusted operating earnings	$		37,965			$		32,242			$		81,289			$		64,756

 

23

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Following is a reconciliation of operating earnings (loss) by segment for the 12 and 28 weeks ended July 16, 2022 and July 17, 2021.

 

	12 Weeks Ended										28 Weeks Ended
(In thousands)	July 16, 2022					July 17, 2021					July 16, 2022					July 17, 2021
Food Distribution:
Operating earnings	$		12,961			$		16,678			$		39,645			$		37,824
Adjustments:
LIFO expense			9,640					1,626					15,368					2,420
Restructuring and asset impairment, net			(139	)				781					(128	)				763
Organizational realignment, net			118					(26	)				601					287
Severance associated with cost reduction initiatives			39					4					130					103
Postretirement plan amendment and settlement			63					—					63					—
Costs related to shareholder activism			1,829					—					3,471					—
Adjusted operating earnings	$		24,511			$		19,063			$		59,150			$		41,397
Retail:
Operating (loss) earnings	$		(368	)		$		12,711			$		(341	)		$		26,903
Adjustments:
LIFO expense			3,941					477					5,853					892
Acquisition and integration			436					121					675					180
Restructuring and asset impairment, net			2,750					2,556					2,752					2,413
Organizational realignment, net			96					(19	)				478					215
Severance associated with cost reduction initiatives			—					—					122					29
Postretirement plan amendment and settlement			50					—					50					—
Costs related to shareholder activism			1,453					—					2,758					—
Adjusted operating earnings	$		8,358			$		15,846			$		12,347			$		30,632
Military:
Operating (loss) earnings	$		(264	)		$		(3,468	)		$		1,174			$		(8,611	)
Adjustments:
LIFO expense			4,264					799					6,811					1,245
Organizational realignment, net			38					(7	)				192					87
Severance associated with cost reduction initiatives			456					9					489					6
Postretirement plan amendment and settlement			20					—					20					—
Costs related to shareholder activism			582					—					1,106					—
Adjusted operating earnings (loss)	$		5,096			$		(2,667	)		$		9,792			$		(7,273	)

 

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.

24

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Following is a reconciliation of net earnings to adjusted earnings from continuing operations for the 12 and 28 weeks ended July 16, 2022 and July 17, 2021.

	12 Weeks Ended
	July 16, 2022										July 17, 2021
						per diluted										per diluted
(In thousands, except per share amounts)	Earnings					share					Earnings					share
Net earnings	$		5,115			$		0.14			$		16,814			$		0.47
Adjustments:
LIFO expense			17,845										2,902
Acquisition and integration			436										121
Restructuring and asset impairment, net			2,611										3,337
Organizational realignment, net			252										(52	)
Severance associated with cost reduction initiatives			495										13
Postretirement plan amendment and settlement			745										—
Costs related to shareholder activism			3,864										—
Total adjustments			26,248										6,321
Income tax effect on adjustments (a)			(7,211	)									(1,600	)
Total adjustments, net of taxes			19,037					0.52					4,721					0.13
Adjusted earnings from continuing operations	$		24,152			$		0.66			$		21,535			$		0.60
	28 Weeks Ended
	July 16, 2022										July 17, 2021
						per diluted										per diluted
(In thousands, except per share amounts)	Earnings					share					Earnings					share
Net earnings	$		24,404			$		0.67			$		36,330			$		1.01
Adjustments:
LIFO expense			28,032										4,557
Acquisition and integration			675										180
Restructuring and asset impairment, net			2,624										3,176
Organizational realignment, net			1,271										589
Severance associated with cost reduction initiatives			741										138
Pension refund from annuity provider			(200	)									—
Postretirement plan amendment and settlement			745										—
Costs related to shareholder activism			7,335										—
Total adjustments			41,223										8,640
Income tax effect on adjustments (a)			(11,145	)									(2,166	)
Total adjustments, net of taxes			30,078					0.82					6,474					0.18
Adjusted earnings from continuing operations			54,482					1.49					42,804					1.19

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.

25

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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 28 weeks ended July 16, 2022 and July 17, 2021.

	12 Weeks Ended										28 Weeks Ended
(In thousands)	July 16, 2022					July 17, 2021					July 16, 2022					July 17, 2021
Net earnings	$		5,115			$		16,814			$		24,404			$		36,330
Income tax expense			2,086					5,850					6,977					12,206
Other expenses, net			5,128					3,257					9,097					7,580
Operating earnings			12,329					25,921					40,478					56,116
Adjustments:
LIFO expense			17,845					2,902					28,032					4,557
Depreciation and amortization			21,968					21,406					50,441					49,497
Acquisition and integration			436					121					675					180
Restructuring and asset impairment, net			2,611					3,337					2,624					3,176
Cloud computing amortization			869					478					1,769					958
Organizational realignment, net			252					(52	)				1,271					589
Severance associated with cost reduction initiatives			495					13					741					138
Stock-based compensation			1,397					974					5,838					5,164
Stock warrant			481					430					1,154					1,075
Non-cash rent			(839	)				(1,091	)				(1,927	)				(1,986	)
Gain on disposal of assets			(54	)				(80	)				(131	)				(262	)
Postretirement plan amendment and settlement			133					—					133					—
Costs related to shareholder activism			3,864					—					7,335					—
Adjusted EBITDA	$		61,787			$		54,359			$		138,433			$		119,202

 

26

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Following is a reconciliation of operating earnings (loss) to adjusted EBITDA by segment for the 12 and 28 weeks ended July 16, 2022 and July 17, 2021.

	12 Weeks Ended										28 Weeks Ended
(In thousands)	July 16, 2022					July 17, 2021					July 16, 2022					July 17, 2021
Food Distribution:
Operating earnings	$		12,961			$		16,678			$		39,645			$		37,824
Adjustments:
LIFO expense			9,640					1,626					15,368					2,420
Depreciation and amortization			7,866					7,604					17,958					17,394
Restructuring and asset impairment, net			(139	)				781					(128	)				763
Cloud computing amortization			483					283					1,033					517
Organizational realignment, net			118					(26	)				601					287
Severance associated with cost reduction initiatives			39					4					130					103
Stock-based compensation			658					436					2,781					2,365
Stock warrant			481					430					1,154					1,075
Non-cash rent			7					143					32					917
Loss (gain) on disposal of assets			1					(62	)				(77	)				(99	)
Postretirement plan amendment and settlement			63					—					63					—
Costs related to shareholder activism			1,829					—					3,471					—
Adjusted EBITDA	$		34,007			$		27,897			$		82,031			$		63,566
Retail:
Operating (loss) earnings	$		(368	)		$		12,711			$		(341	)		$		26,903
Adjustments:
LIFO expense			3,941					477					5,853					892
Depreciation and amortization			10,740					10,685					24,929					24,926
Acquisition and integration			436					121					675					180
Restructuring and asset impairment, net			2,750					2,556					2,752					2,413
Cloud computing amortization			290					139					541					314
Organizational realignment, net			96					(19	)				478					215
Severance associated with cost reduction initiatives			—					—					122					29
Stock-based compensation			494					390					1,989					1,870
Non-cash rent			(746	)				(1,145	)				(1,731	)				(2,697	)
Loss (gain) on disposal of assets			18					(2	)				27					(125	)
Postretirement plan amendment and settlement			50					—					50					—
Costs related to shareholder activism			1,453					—					2,758					—
Adjusted EBITDA	$		19,154			$		25,913			$		38,102			$		54,920
Military:
Operating (loss) earnings	$		(264	)		$		(3,468	)		$		1,174			$		(8,611	)
Adjustments:
LIFO expense			4,264					799					6,811					1,245
Depreciation and amortization			3,362					3,117					7,554					7,177
Cloud computing amortization			96					56					195					127
Organizational realignment, net			38					(7	)				192					87
Severance associated with cost reduction initiatives			456					9					489					6
Stock-based compensation			245					148					1,068					929
Non-cash rent			(100	)				(89	)				(228	)				(206	)
Gain on disposal of assets			(73	)				(16	)				(81	)				(38	)
Postretirement plan amendment and settlement			20					—					20					—
Costs related to shareholder activism			582					—					1,106					—
Adjusted EBITDA	$		8,626			$		549			$		18,300			$		716

 

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Liquidity and Capital Resources

Cash Flow Information

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

				28 Weeks Ended
(In thousands)				July 16, 2022					July 17, 2021
Cash flow activities
Net cash provided by operating activities				$		28,519			$		73,582
Net cash used in investing activities						(50,707	)				(10,038	)
Net cash provided by (used in) financing activities						32,739					(59,311	)
Net increase in cash and cash equivalents						10,551					4,233
Cash and cash equivalents at beginning of the period						10,666					19,903
Cash and cash equivalents at end of the period				$		21,217			$		24,136

Net cash provided by operating activities. Net cash provided by operating activities decreased $45.1 million in the current year-to-date period compared to the prior year-to-date period, primarily due to changes in working capital in the current year.

Net cash used in investing activities. Net cash used in investing activities increased $40.7 million in the current year compared to the prior year primarily due to significant proceeds from the sale of fixed assets in the prior year and an acquisition within the Retail segment in the current year.

Capital expenditures were $46.4 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 $39.8 million and cloud computing application development spend of $4.0 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 Food Distribution, Retail and Military segments utilized 37.6%, 45.7% and 16.7% of capital expenditures, respectively, in the current year.

Net cash provided by financing activities. Net cash provided by financing activities increased $92.1 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.

Debt Management

Total debt, including finance lease liabilities, was $480.2 million and $405.7 million as of July 16, 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.

Liquidity

The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility. As of July 16, 2022, the senior secured credit facility had outstanding borrowings of $422.2 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 $469.2 million at July 16, 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 July 16, 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 1.59-to-1 at July 16, 2022 compared to 1.46-to-1 at January 1, 2022, and its investment in working capital was $417.3 million at July 16, 2022 compared to $301.4 million at January 1, 2022. The net long-term debt to total capital ratio was 0.37-to-1 at July 16, 2022 compared to 0.34-to-1 at January 1, 2022.

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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 debt to 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 July 16, 2022 and January 1, 2022.

	July 16,					January 1
(In thousands)	2022					2022
Current portion of long-term debt and finance lease liabilities	$		6,303			$		6,334
Long-term debt and finance lease liabilities			473,876					399,390
Total debt			480,179					405,724
Cash and cash equivalents			(21,217	)				(10,666	)
Net long-term debt	$		458,962			$		395,058

For information on contractual obligations, see the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022. At July 16, 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 July 16, 2022, the Company declared $7.6 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 July 16, 2022. These commitments consist primarily of purchase commitments, standby letters of credit of $17.7 million as of July 16, 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.

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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 Securities Exchange Act of 1934) was performed as of July 16, 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 second 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.

 

PART II

OTHER INFORMATION

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 $6.6 million of common stock share repurchases made under this program during the second quarter of 2022. At July 16, 2022, $23.1 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 $73 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
April 23 - May 21, 2022
Employee Transactions		—			$		—
Repurchase Program		—			$		—
May 22 - June 18, 2022
Employee Transactions		666			$		33.81
Repurchase Program		30,000			$		31.58
June 19 - July 16, 2022
Employee Transactions		—			$		—
Repurchase Program		185,402			$		30.34
Total for quarter ended July 16, 2022
Employee Transactions		666			$		33.81
Repurchase Program		215,402			$		30.51

 

 

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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.
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 July 16, 2022, has been formatted in Inline XBRL.

 

 

 

 

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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: August 18, 2022		By		/s/ Jason Monaco
				Jason Monaco Executive Vice President and Chief Financial Officer (Principal Financial Officer)

 

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