SpartanNash Announces Third Quarter Fiscal 2018 Financial Results

Nov 7th, 2018

Net Sales Increase Driven by Continued Strong Growth in Food Distribution Segment of 4.6%

Reported Third Quarter EPS from Continuing Operations of $0.49 per Diluted Share; Adjusted Third Quarter EPS from Continuing Operations of $0.50 per Diluted Share

SpartanNash Company (the "Company") (Nasdaq: SPTN) today reported financial results for the 12-week third quarter and 40-week period ended October 6, 2018.

"We continued to make good progress on our strategic business objectives during the third quarter with particular strength in our food distribution segment sales where we benefited from retention in our core customer base and expanded business with key customers," said David Staples, President and Chief Executive Officer. "We continue to work diligently to address the industry challenges that face the company and are pleased to have generated new business wins across our food distribution and military segments that are expected to commence in the mid to late fourth quarter, with the majority of the benefits to be realized in 2019. In addition to these top line wins, I am excited to announce that we have partnered with a third party advisory firm to begin a company-wide initiative designed to transform our culture, empowering associates at all levels to drive substantial ongoing, sustainable improvements to our business processes and results. This initiative is intended to position the Company to take full advantage of the opportunities we expect to see over the next one to two years."

Strategic Business Objectives

In line with SpartanNash's long-term strategic objective to evolve into a growth company that is focused on developing a national, highly efficient distribution platform that services a diverse customer base, the Company has executed on key strategies in the current quarter. These strategies align the Company's highly complementary business units of food distribution, military distribution and retail.

The Company has continued to work to improve the core distribution network and has identified opportunities to further enhance its supply chain capabilities, including steps to better serve both the east and west coasts. Additionally, the Company is implementing plans to increase supply chain efficiency and mitigate cost pressures, including the development of additional outbound freight capabilities to offset rising freight costs. In the military segment, the Company is leveraging its distribution capabilities to fuel future growth. Late in the third quarter, the military business was awarded a significant new sales opportunity from an existing customer, which it expects to partially offset headwinds in future quarters from core DeCA sales declines. Within the food processing operations, the Company has seen year-over-year progress related to its efforts to improve efficiency. In addition, this business is beginning to see interest from new types of customers and its fresh offerings are expanding. The Company expects further progress in its results as it becomes more experienced at seamlessly on-boarding these new business opportunities and is able to continue to assemble an experienced workforce. In the retail segment, the Company remains committed to investments to support its brand repositioning initiative. The Company executed three store remodels in the third quarter and two remodels early in the fourth quarter. These investments are expected to help create a sequential improvement in fourth quarter fiscal 2018 comparable store sales, as well as to help improve customer satisfaction.

In December 2018, SpartanNash plans to commence a company-wide initiative to energize our culture around empowering associates to drive substantial and sustainable revenue and profit improvements. This initiative is expected to engage all associates, from those working in its retail stores and distribution centers to those in its corporate offices. Teams will work together to position SpartanNash to better and more efficiently serve a diverse customer and consumer base across its food distribution, military and retail business segments.

The Company also continues to pursue growth in adjacent categories and markets supported by its strong distribution network. In the third quarter, food processing operations began engaging with potential customers on new and innovative opportunities in value-add prepared product categories. Furthermore, the Company plans to pilot a test program to deliver fresh product to smaller format stores in the fourth quarter of 2018. As it moves forward, the Company will continue to leverage its core to expand its product, sales channel and distribution reach and will look for opportunities to expand its segments into highly efficient adjacent markets or to fill in existing markets.

Consolidated Financial Results

Consolidated net sales for the third quarter increased $18.3 million, or 1.0%, to $1.89 billion from $1.87 billion in the prior year quarter(1). The increase in net sales was driven by continued sales growth in the food distribution segment of 4.6%, partially offset by lower sales in the military and retail segments of 1.1% and 3.7%, respectively.

Gross profit for the third quarter of fiscal 2018 was $256.1 million, or 13.6% of net sales, compared to $261.7 million, or 14.0% of net sales, in the prior year quarter. As a percent of net sales, the change in gross margin was primarily due to lower gross margin within the retail and food distribution segments as described further below within the Segment Financial Results, and a greater mix of food distribution and military sales as a percentage of total sales.

Reported operating expenses for the third quarter were $229.3 million, or 12.2% of net sales, compared to $455.6 million, or 24.4% of net sales, in the prior year's third quarter. The decrease in expenses as a rate of sales compared to the prior year quarter was primarily attributable to cycling a non-cash goodwill impairment charge and lower asset impairment and restructuring charges. Third quarter operating expenses would have been $228.3 million, or 12.1% of net sales, compared to $228.3 million, or 12.2% of net sales, in the prior year quarter, if the aforementioned adjustments related to the impairments were excluded.

The Company reported operating earnings of $26.8 million compared to an operating loss $193.9 million in the prior year quarter. The increase was primarily attributable to cycling the impairment charges and lower restructuring costs discussed previously. Non-GAAP adjusted operating earnings(2) were $27.8 million compared to $35.2 million in the prior year quarter, due to lower gross profit margins within the retail and food distribution segments, as well as ongoing labor and transportation challenges in the distribution segments, partially offset by lower administrative costs. Please see the financial tables at the end of this press release for a reconciliation of each non-GAAP financial measure to the most directly comparable measure, prepared and presented in accordance with GAAP.

Adjusted EBITDA(3) was $48.3 million compared to $55.9 million in the prior year quarter due to the factors related to margin and operating expenses, as mentioned above.

The Company reported third quarter earnings from continuing operations of $17.5 million, or $0.49 per diluted share, compared to a loss from continuing operations of $123.5 million, or $3.31 per diluted share, in the prior year quarter. The increase reflects the factors noted above related to the change in reported operating earnings in addition to lower income tax rates resulting from tax reform and associated tax planning, as well as the benefit from a favorable resolution of an uncertain tax liability. This increase was partially offset by higher interest expense associated with the Company's borrowings due to rising interest rates, as well as a higher average debt balance during the quarter. Adjusted earnings from continuing operations(4) for the third quarter were $17.9 million, or $0.50 per diluted share, compared to $20.1 million, or $0.54 per diluted share, in the prior year quarter. The decrease reflects the factors above related to the change in adjusted operating earnings, as well as an approximately $0.02 per diluted share estimated impact associated with the effects of Hurricane Florence within the food distribution and military segments. Adjusted earnings from continuing operations exclude net after-tax charges of $3.85 per diluted share in the prior year quarter primarily related to the non-cash goodwill and asset impairment charges mentioned previously, start-up costs associated with the Company's Fresh Kitchen operation, and acquisition and integration activities.

Segment Financial Results

Food Distribution Segment

Net sales for the food distribution segment increased $41.0 million, or 4.6%, to $940.2 million from $899.2 million in the prior year quarter, primarily due to sales growth from existing and new customer programs.

Reported operating earnings for the food distribution segment were $19.8 million compared to $20.3 million in the prior year quarter. The decrease in reported operating earnings was primarily attributable to lower gross margin and higher transportation costs associated with the continued roll-out of a significant new customer program, the effects of Hurricane Florence, and lower procurement gains, partially offset by lower administrative costs and an improvement in earnings from its food processing operations of $0.9 million. Third quarter adjusted operating earnings(5) were $20.4 million compared to $23.7 million in the prior year quarter. In addition to the above noted items, adjusted operating earnings were impacted by lower contribution from food processing operations. Third quarter adjusted operating earnings in the current year exclude $0.6 million of expenses primarily related to merger/acquisition and integration efforts. Adjusted operating earnings in the prior year quarter exclude $3.4 million of pre-tax charges primarily related to Fresh Kitchen start-up costs and integration expenses.

Military Segment

Net sales for the military segment decreased $5.4 million, or 1.1%, to $500.2 million from $505.6 million in the prior year quarter. The decrease was primarily due to lower comparable sales at Defense Commissary Agency ("DeCA") operated locations, partially offset by incremental volume from the private brand program and the commissary business in the Southwest obtained during last year's third quarter.

Reported operating earnings for the military segment increased to $1.5 million from $1.1 million in the prior year quarter. The increase was primarily attributable to a decrease in merger, integration and acquisition expenses, partially offset by higher transportation and warehousing costs as well as margin rates which were negatively affected by Hurricane Florence. Third quarter adjusted operating earnings(5) were $1.6 million compared to $3.1 million in the prior year quarter. Adjusted operating earnings in the prior year quarter exclude $1.5 million of pre-tax integration expenses and $0.5 million of asset impairment charges.

Retail Segment

Net sales for the retail segment were $446.3 million in the third quarter compared to $463.6 million in the prior year quarter. The decrease in net sales was primarily attributable to lower sales resulting from the closure and sale of retail stores of $15.1 million, as well as a 1.9 percent decrease in comparable store sales, which exclude fuel. These decreases were partially offset by higher fuel sales compared to the prior year quarter.

The Company reported operating earnings for the retail segment of $5.5 million compared to an operating loss of $215.3 million in the prior year quarter. The increase in reported operating earnings was primarily attributable to cycling a non-cash goodwill impairment charge, lower non-cash asset impairment and restructuring costs, and the closure of underperforming stores. Partially offsetting these items were lower comparable store sales and gross margin impacts, primarily related to higher fees paid to pharmacy benefit managers. Adjusted operating earnings(5) were $5.9 million compared to $8.4 million in the prior year quarter due to the factors mentioned previously. Third quarter adjusted operating earnings(5) in the current year exclude $0.4 million of pre-tax charges primarily related to restructuring activities. Adjusted operating earnings exclude $223.8 million of pre-tax charges associated with goodwill and asset impairment in the prior year's third quarter. The Company ended the quarter with 139 corporate owned retail stores, compared to 147 stores for the prior year quarter.

Balance Sheet and Cash Flow

Cash flow provided by operating activities for the fiscal 2018 year-to-date period ended October 6, 2018 was $142.5 million, compared to $71.6 million in operating activities in the prior year. The change was primarily due to the timing of working capital requirements, particularly improvements in inventory and accounts receivable, compared to the prior year.

In the year-to-date period ended October 6, 2018, the Company returned $39.5 million to shareholders, including $19.5 million in cash dividends and $20.0 million in share repurchases of its common stock. As of October 6, 2018, the Company had $45.0 million available for future repurchases.

Outlook

Mr. Staples continued, "We continue to expect strong food distribution sales growth in the fourth quarter and into 2019. We are pleased with the new business development in our food processing and military operations which we expect to continue to improve our operational performance. However, the improvement in our food processing operations is now expected to be slower than previously anticipated. Within our food and military distribution businesses, heightened transportation and labor costs represent ongoing headwinds as we respond to the pressures facing the industry and continue to experience significant growth in certain regions being disproportionately impacted by these matters. We remain focused on increasing the penetration of our private brand offerings in both our Michigan market and at DeCA. The successful execution of our strategies will include improving our supply chain capabilities, from identifying and capitalizing on freight efficiencies, to managing through tight labor markets in certain geographies, while increasing the acceptance of our private brand products. As we execute the strategies within each of our business segments, we look forward to engaging our associates in our company-wide sales enhancement and cost efficiency initiative, which will commence in the fourth quarter. We remain confident in our ability to execute upon these strategic initiatives and that they will position us to succeed against the current and future demands of our industry as we move through fiscal 2019."

The Company is updating its guidance for the remainder of fiscal 2018 primarily due to the headwinds previously noted. From a sales perspective, food distribution is expected to continue to grow its top line during the fourth quarter with military sales showing slightly negative comparisons to the prior year, as the Company has now cycled the new business obtained in the prior year's third quarter. The Company does not expect that the new business within the military segment will completely offset the negative DeCA comparable store sales trend. The Company also expects a sequential improvement in the retail segment comparable sales trend, benefiting from current year store remodels and the Company's brand repositioning, although it now expects to end the quarter negative in its same store sales comparisons.

For fiscal 2018, the Company anticipates adjusted earnings per share from continuing operations(6) of approximately $1.89 to $1.97, excluding merger/acquisition and integration expenses, restructuring charges and other adjusted items of $8.0 million to $8.5 million after tax. The Company anticipates that reported earnings from continuing operations will be in the range of approximately $1.66 to $1.75 per diluted share, compared to a loss from continuing operations of $1.41 per diluted share in the prior year. The adjusted guidance reflects an effective tax rate of 22.0% to 23.0% for fiscal 2018 and the reported guidance reflects an effective tax rate of 21.0% to 22.0%.

The Company continues to expect capital expenditures for fiscal year 2018 to be in the range of $67.0 million to $71.0 million, with depreciation and amortization of approximately $82.0 million to $83.5 million, and total interest expense of approximately $29.0 million to $29.5 million.

Conference Call

A telephone conference call to discuss the Company's third quarter of fiscal 2018 financial results is scheduled for Thursday, November 8, 2018 at 8:00 a.m. ET. A live webcast of this conference call will be available on the Company's website, www.spartannash.com/webcasts. Simply click on "For Investors" and follow the links to the live webcast. The webcast will remain available for replay on the Company's website for approximately ten days.

About SpartanNash

SpartanNash (Nasdaq: SPTN) is a Fortune 400 company whose core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate-owned retail stores and U.S. military commissaries and exchanges; as well as premier fresh produce distribution and fresh food processing. SpartanNash serves customer locations in all 50 states and the District of Columbia, Europe, Cuba, Puerto Rico, Bahrain, Djibouti and Egypt. SpartanNash currently operates 139 supermarkets, primarily under the banners of Family Fare Supermarkets, D&W Fresh Market, VG's Grocery, Dan's Supermarket and Family Fresh Market. Through its MDV military division, SpartanNash is a leading distributor of grocery products to U.S. military commissaries.

Forward-Looking Statements

This press release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These include statements preceded by, followed by or that otherwise include the words "outlook," "believe," "anticipates," "continue," "expects," "guidance," "trend," "on track," "encouraged" or "plan" or similar expressions. The statements in the "Outlook" section of this press release are inherently forward looking. Forward-looking statements relating to expectations about future results or events are based upon information available to SpartanNash as of today's date, and are not guarantees of the future performance of the Company, and actual results may vary materially from the results and expectations discussed. Additional risks and uncertainties include, but are not limited to, the Company's ability to compete in the highly competitive grocery distribution, retail grocery, and military distribution industries. Additional information concerning these and other risks is contained in SpartanNash's most recently filed Annual Report on Form 10-K, recent Current Reports on Form 8-K and other SEC filings. All subsequent written and oral forward-looking statements concerning SpartanNash, or other matters and attributable to SpartanNash or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. SpartanNash does not undertake any obligation to publicly update any of these forward-looking statements to reflect events or circumstances that may arise after the date hereof.

(1) Net sales reflect the adoption of the new revenue recognition standard on the first day of the first quarter, December 31, 2017. Under the new accounting standard, certain contracts in the food distribution segment are reported on a net basis compared to previously being reported on a gross basis. As the new accounting standard was adopted on a full retrospective basis, the aforementioned amounts refer to the prior period's results as if the new revenue recognition standard was in effect in both periods. The decreases to net sales and cost of sales were $38.2 million and $125.6 million, respectively, for the 12 and 40 weeks ended October 7, 2017.
(2) A reconciliation of operating earnings to adjusted operating earnings, a non-GAAP financial measure, is provided below.
(3) A reconciliation of net earnings to Adjusted EBITDA, a non-GAAP financial measure, is provided below.
(4) A reconciliation of earnings from continuing operations to adjusted earnings from continuing operations, a non-GAAP financial measure, is provided below.
(5) A reconciliation of operating earnings to adjusted operating earnings by segment, a non-GAAP financial measure, is provided below.
(6) A reconciliation of projected earnings per share from continuing operations to adjusted earnings per share from continuing operations, a non-GAAP financial measure, is provided below.

SPARTANNASH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 
  12 Weeks Ended   40 Weeks Ended
October 6,   October 7,October 6,   October 7,

(In thousands, except per share amounts)

  2018     2017     2018     2017  
Net sales $ 1,886,730 $ 1,868,398 $ 6,167,756 $ 6,078,299
Cost of sales   1,630,588     1,606,706     5,302,740     5,188,205  
Gross profit 256,142 261,692 865,016 890,094
 
Operating expenses
Selling, general and administrative 228,583 228,545 773,844 782,856
Merger/acquisition and integration 521 2,392 3,531 7,031
Goodwill impairment - 189,027 - 189,027
Restructuring charges and asset impairment   232     35,626     5,269     36,633  
Total operating expenses   229,336     455,590     782,644     1,015,547  
 
Operating earnings (loss) 26,806 (193,898 ) 82,372 (125,453 )
 
Other expenses and (income)
Interest expense 7,082 6,130 22,828 19,128
Other, net   (195 )   (131 )   (655 )   (445 )
Total other expenses, net   6,887     5,999     22,173     18,683  
 
Earnings (loss) before income taxes and discontinued operations 19,919 (199,897 ) 60,199 (144,136 )
Income tax expense (benefit)   2,374     (76,445 )   12,381     (56,809 )
Earnings (loss) from continuing operations 17,545 (123,452 ) 47,818 (87,327 )
 
Loss from discontinued operations, net of taxes   (80 )   (54 )   (238 )   (125 )
Net earnings (loss) $ 17,465   $ (123,506 ) $ 47,580   $ (87,452 )
 
Basic earnings (loss) per share:
Earnings (loss) from continuing operations $ 0.49 $ (3.31 ) $ 1.33 $ (2.32 )
Loss from discontinued operations   -     (0.01 ) *   (0.01 )   (0.01 ) *
Net earnings (loss) $ 0.49   $ (3.32 ) $ 1.32   $ (2.33 )
 
Diluted earnings (loss) per share:
Earnings (loss) from continuing operations $ 0.49 $ (3.31 ) $ 1.33 $ (2.32 )
Loss from discontinued operations   -     (0.01 ) *   (0.01 )   (0.01 ) *
Net earnings (loss) $ 0.49   $ (3.32 ) $ 1.32   $ (2.33 )
 
Weighted average shares outstanding:
Basic 35,934 37,254 36,033 37,596
Diluted 35,946 37,254 36,045 37,596
 
* Includes rounding
 
SPARTANNASH COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(Unaudited)

 
  October 6,   December 30,

(In thousands)

  2018     2017  

Assets

Current assets
Cash and cash equivalents $ 20,673 $ 15,667
Accounts and notes receivable, net 363,951 344,057
Inventories, net 592,152 597,162
Prepaid expenses and other current assets 43,333 47,400
Property and equipment held for sale   8,654     -  
Total current assets 1,028,763 1,004,286
 
Property and equipment, net 577,285 600,240
Goodwill 178,648 178,648
Intangible assets, net 130,227 134,430
Other assets, net   139,118     138,193  
 
Total assets $ 2,054,041   $ 2,055,797  
 

Liabilities and Shareholders' Equity

Current liabilities
Accounts payable $ 411,399 $ 376,977
Accrued payroll and benefits 60,086 65,156
Other accrued expenses 38,498 43,252
Current maturities of long-term debt and capital lease obligations   8,135     9,196  
Total current liabilities 518,118 494,581
 
Long-term liabilities
Deferred income taxes 51,634 42,050
Postretirement benefits 16,337 15,687
Other long-term liabilities 36,693 40,774
Long-term debt and capital lease obligations   694,889     740,755  
Total long-term liabilities 799,553 839,266
 
Commitments and contingencies
 
Shareholders' equity

Common stock, voting, no par value; 100,000 shares authorized; 35,938 and 37,536 shares outstanding

483,175 497,093

Preferred stock, no par value, 10,000 shares authorized; no shares outstanding

- -
Accumulated other comprehensive loss (14,926 ) (15,136 )
Retained earnings   268,121     239,993  
Total shareholders' equity   736,370     721,950  
 
Total liabilities and shareholders' equity $ 2,054,041   $ 2,055,797  
 
SPARTANNASH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
  40 Weeks Ended

(In thousands)

October 6, 2018   October 7, 2017
Cash flow activities
Net cash provided by operating activities $ 142,546 $ 71,563
Net cash used in investing activities (45,533 ) (277,156 )
Net cash (used in) provided by financing activities (91,773 ) 194,444
Net cash (used in) provided by discontinued operations   (234 )   (48 )
Net increase (decrease) in cash and cash equivalents 5,006 (11,197 )
Cash and cash equivalents at beginning of the period   15,667     24,351  
Cash and cash equivalents at end of the period $ 20,673   $ 13,154  
 
SPARTANNASH COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
 
Table 1: Sales and Operating Earnings (Loss) by Segment

(Unaudited)

 
  12 Weeks Ended   40 Weeks Ended

(In thousands)

October 6, 2018   October 7, 2017October 6, 2018   October 7, 2017

Food Distribution Segment:

       
Net sales $ 940,183 49.8% $ 899,151 48.1% $ 3,037,096 49.3% $ 2,916,425 47.9%
Operating earnings 19,815 20,322 63,060 68,769

Military Segment:

Net sales 500,222 26.5% 505,631 27.1% 1,653,496 26.8% 1,620,021 26.7%
Operating earnings 1,508 1,111 6,120 4,492

Retail Segment:

Net sales 446,325 23.7% 463,616 24.8% 1,477,164 23.9% 1,541,853 25.4%
Operating earnings (loss) 5,483 (215,331 ) 13,192 (198,714 )

Total:

Net sales $ 1,886,730 100.0% $ 1,868,398 100.0% $ 6,167,756 100.0% $ 6,078,299 100.0%
Operating earnings (loss) 26,806 (193,898 ) 82,372 (125,453 )

Non-GAAP Financial Measures

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

Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude start-up costs associated with the new Fresh Kitchen operation through the start-up period, which concluded during the first quarter. The Fresh Kitchen is a newly constructed facility that provides the Company with the ability to process, cook, and package fresh protein-based foods and complete meal solutions. Given the Fresh Kitchen represents a new line of business for the Company, the start-up activities associated with testing, training, and preparing the Fresh Kitchen for production, as well as incorporating the related operations into the business, are considered "non-operational" or "non-core" in nature. The retirement stock compensation award represents incremental compensation expense in connection with an executive retirement that is also considered "non-operational" or "non-core" in nature.

Table 2: Reconciliation of Net Earnings (Loss) to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)

(A Non-GAAP Financial Measure)

(Unaudited)

 
  12 Weeks Ended   40 Weeks Ended

(In thousands)

October 6, 2018   October 7, 2017October 6, 2018   October 7, 2017
Net earnings (loss) $ 17,465 $ (123,506 ) $ 47,580 $ (87,452 )
Loss from discontinued operations, net of tax 80 54 238 125
Income tax expense 2,374 (76,445 ) 12,381 (56,809 )
Other expenses, net   6,887     5,999     22,173     18,683  
Operating earnings (loss) 26,806 (193,898 ) 82,372 (125,453 )
Adjustments:
LIFO expense 654 192 2,349 2,474
Depreciation and amortization 19,247 19,455 63,272 63,553
Merger/acquisition and integration 521 2,392 3,531 7,031
Restructuring charges and goodwill/asset impairment 232 224,653 5,269 225,660

Fresh Kitchen start-up costs (1)

- 2,086 1,366 6,688
Stock-based compensation 773 1,102 7,040 8,593
Other non-cash charges (gains)   71     (139 )   (33 )   (661 )
Adjusted EBITDA $ 48,304   $ 55,843   $ 165,166   $ 187,885  
Reconciliation of operating earnings (loss) to adjusted EBITDA by segment:
Food Distribution:
Operating earnings $ 19,815 $ 20,322 $ 63,060 $ 68,769
Adjustments:
LIFO expense 245 98 929 1,361
Depreciation and amortization 7,540 6,862 24,179 22,291
Merger/acquisition and integration 479 939 3,419 5,254
Restructuring (gains) charges and asset impairment (68 ) 379 1,292 1,280

Fresh Kitchen start-up costs (1)

- 2,086 1,366 6,688
Stock-based compensation 351 488 3,318 3,999
Other non-cash charges (gains)   160     (57 )   581     (11 )
Adjusted EBITDA $ 28,522   $ 31,117   $ 98,144   $ 109,631  
Military:
Operating earnings $ 1,508 $ 1,111 $ 6,120 $ 4,492
Adjustments:
LIFO expense (benefit) 146 (63 ) 544 329
Depreciation and amortization 2,816 2,786 9,257 8,832
Merger/acquisition and integration - 1,453 4 1,453
Restructuring charges (gains) 29 500 (801 ) 500
Stock-based compensation 155 186 1,181 1,313
Other non-cash (gains) charges   (43 )   1     (192 )   (15 )
Adjusted EBITDA $ 4,611   $ 5,974   $ 16,113   $ 16,904  
Retail:
Operating earnings (loss) $ 5,483 $ (215,331 ) $ 13,192 $ (198,714 )
Adjustments:
LIFO expense 263 157 876 784
Depreciation and amortization 8,891 9,807 29,836 32,430
Merger/acquisition and integration 42 - 108 324
Restructuring charges and goodwill/asset impairment 271 223,774 4,778 223,880
Stock-based compensation 267 428 2,541 3,281
Other non-cash gains   (46 )   (83 )   (422 )   (635 )
Adjusted EBITDA $ 15,171   $ 18,752   $ 50,909   $ 61,350  
 

(1) Fresh Kitchen operations were no longer treated as start-up midway through the first quarter of fiscal 2018.

Notes: 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 deferred (stock) compensation, the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, 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.

Table 3: Reconciliation of Operating Earnings (Loss) to Adjusted Operating Earnings
(A Non-GAAP Financial Measure)

(Unaudited)

 
  12 Weeks Ended   40 Weeks Ended

(In thousands)

October 6, 2018   October 7, 2017October 6, 2018   October 7, 2017
Operating earnings (loss) $ 26,806 $ (193,898 ) $ 82,372 $ (125,453 )
Adjustments:
Merger/acquisition and integration 521 2,392 3,531 7,031
Restructuring charges and goodwill/asset impairment 232 224,653 5,269 225,660

Fresh Kitchen start-up costs (1)

- 2,086 1,366 6,688
Stock compensation associated with executive retirement - - - 1,172
Expenses associated with tax planning strategies 225 - 225 -
Severance associated with cost reduction initiatives   50     4     668     27  
Adjusted operating earnings $ 27,834   $ 35,237   $ 93,431   $ 115,125  
Reconciliation of operating earnings (loss) to adjusted operating earnings by segment:
Food Distribution:
Operating earnings $ 19,815 $ 20,322 $ 63,060 $ 68,769
Adjustments:
Merger/acquisition and integration 479 939 3,419 5,254
Restructuring (gains) charges and asset impairment (68 ) 379 1,292 1,280

Fresh Kitchen start-up costs (1)

- 2,086 1,366 6,688
Stock compensation associated with executive retirement - - - 591
Expenses associated with tax planning strategies 116 116
Severance associated with cost reduction initiatives   66     4     517     25  
Adjusted operating earnings $ 20,408   $ 23,730   $ 69,770   $ 82,607  
Military:
Operating earnings $ 1,508 $ 1,111 $ 6,120 $ 4,492
Adjustments:
Merger/acquisition and integration - 1,453 4 1,453
Restructuring charges (gains) 29 500 (801 ) 500
Stock compensation associated with executive retirement - - - 147
Expenses associated with tax planning strategies 28 28
Severance associated with cost reduction initiatives   (1 )   -     69     1  
Adjusted operating earnings $ 1,564   $ 3,064   $ 5,420   $ 6,593  
Retail:
Operating earnings (loss) $ 5,483 $ (215,331 ) $ 13,192 $ (198,714 )
Adjustments:
Merger/acquisition and integration 42 - 108 324
Restructuring charges and goodwill/asset impairment 271 223,774 4,778 223,880
Stock compensation associated with executive retirement - - - 434
Expenses associated with tax planning strategies 81 81
Severance associated with cost reduction initiatives   (15 )   -     82     1  
Adjusted operating earnings $ 5,862   $ 8,443   $ 18,241   $ 25,925  
 

(1) Fresh Kitchen operations were no longer treated as start-up midway through the first quarter of fiscal 2018.

Notes: 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.

Adjusted operating earnings 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 operating earnings, cash flows from operating activities and other income or cash flow statement data. The Company's definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.

Table 4: Reconciliation of Earnings (Loss) from Continuing Operations to Adjusted Earnings from Continuing Operations

(A Non-GAAP Financial Measure)

(Unaudited)

 
  12 Weeks Ended
October 6, 2018   October 7, 2017
  per diluted   per diluted

(In thousands, except per share amounts)

EarningsshareEarningsshare
Earnings (loss) from continuing operations $ 17,545 $ 0.49 $ (123,452 ) $ (3.31 )
Adjustments:
Merger/acquisition and integration 521 2,392
Restructuring charges and goodwill/asset impairment 232 224,653
Fresh Kitchen start-up costs - 2,086
Expenses associated with tax planning strategies 225 -
Severance associated with cost reduction initiatives   50     4  
Total adjustments 1,028 229,135

Income tax effect on adjustments (1)

(176 ) (85,546 )

Impact of Tax Cuts and Jobs Act (2)

  (494 )   -  
Total adjustments, net of taxes   358     0.01   143,589     3.85  
Adjusted earnings from continuing operations $ 17,903   $ 0.50 $ 20,137   $ 0.54  
 
 
40 Weeks Ended
October 6, 2018October 7, 2017
per dilutedper diluted

(In thousands, except per share amounts)

EarningsshareEarningsshare
Earnings (loss) from continuing operations $ 47,818 $ 1.33 $ (87,327 ) $ (2.32 )
Adjustments:
Merger/acquisition and integration 3,531 7,031
Restructuring charges and goodwill/asset impairment 5,269 225,660
Fresh Kitchen start-up costs 1,366 6,688
Expenses associated with tax planning strategies 225 -
Severance associated with cost reduction initiatives 668 27
Stock compensation associated with executive retirement   -     1,172  
Total adjustments 11,059 240,578

Income tax effect on adjustments (1)

(2,564 ) (89,840 )

Impact of Tax Cuts and Jobs Act (2)

  (494 )   -  
Total adjustments, net of taxes   8,001     0.22   150,738     4.01  
Adjusted earnings from continuing operations $ 55,819   $ 1.55 $ 63,411   $ 1.69  
 

(1) The income tax effect on adjustments is computed by applying the applicable tax rate to the adjustments.

(2) Includes a $1.1 million tax benefit attributable to tax planning strategies related to the Tax Cuts and Jobs Act.

Notes: Adjusted earnings from continuing operations is a non-GAAP operating financial measure that the Company defines as earnings from continuing operations 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.

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.

Table 5: Reconciliation of Long-Term Debt and Capital Lease Obligations to Total Net Long-Term Debt and Capital Lease Obligations

(A Non-GAAP Financial Measure)

(Unaudited)

 
  October 6,   December 30,

(In thousands)

  2018     2017  
Current maturities of long-term debt and capital lease obligations $ 8,135 $ 9,196
Long-term debt and capital lease obligations   694,889     740,755  
Total debt 703,024 749,951
Cash and cash equivalents   (20,673 )   (15,667 )
Total net long-term debt $ 682,351   $ 734,284  

Notes: Total net debt is a non-GAAP financial measure that is defined as long-term debt and capital lease obligations plus current maturities of long-term debt and capital lease obligations less cash and cash equivalents. 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 debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

Table 6: Reconciliation of Projected Earnings per Diluted Share from Continuing Operations to Projected Adjusted Earnings per Diluted Share from Continuing Operations
(A Non-GAAP Financial Measure)

(Unaudited)

 
 

52 Weeks Ending

December 29, 2018

Low   High
Earnings from continuing operations $ 1.66 $ 1.75
Adjustments, net of taxes:
Merger/acquisition and integration expenses 0.09 0.08
Restructuring and asset impairment 0.11 0.11
Fresh Kitchen start-up costs 0.03 0.03
Severance associated with cost reduction initiatives 0.02 0.02
Tax planning initiatives   (0.02 )   (0.02 )
Adjusted earnings from continuing operations $ 1.89   $ 1.97  

Investor Contacts:
SpartanNash Company
Mark Shamber
Chief Financial Officer and Executive Vice President
(616) 878-8023
or
ICR
Katie Turner
Partner
(646) 277-1228
or
Media Contact:
SpartanNash Company
Meredith Gremel
Vice President Corporate Affairs and Communications
(616) 878-2830