SpartanNash Announces Fourth Quarter and Fiscal 2022 Results

Feb 23rd, 2023

Provides Fiscal Year 2023 Outlook

Raises Long-Term Net Sales Target and Reiterates Commitment to 2025 Strategic Plan

GRAND RAPIDS, Mich., Feb. 23, 2023 /PRNewswire/ -- Food solutions company SpartanNash (the "Company") (Nasdaq: SPTN) today reported financial results for its 12-week fourth quarter and 52-week fiscal year ended December 31, 2022.

Fourth Quarter and Fiscal 2022 Highlights

  • Net sales of $2.3 billion for the quarter, increased 10.3% compared to $2.1 billion in the prior year quarter. Net sales of $9.6 billion for the fiscal year, increased 8.0% compared to $8.9 billion in the prior fiscal year.
  • Retail comparable sales increased 9.1% for the quarter and 7.7% for the fiscal year.
  • Net earnings of $0.7 million for the quarter compared to $22.2 million in the prior year quarter. Net earnings of $34.5 million for the fiscal year compared to $73.8 million in the prior fiscal year.
  • Adjusted EBITDA(1) of $47.2 million for the quarter compared to $43.0 million in the prior year quarter. Adjusted EBITDA(1) of $242.9 million for the fiscal year compared to $213.7 million in the prior fiscal year.

"Our team continues to execute on Our Winning Recipe™, which led to solid fourth-quarter results and fiscal 2022 performance that exceeded expectations," said SpartanNash President and CEO Tony Sarsam. "Our strategy is driving sustainable growth, and I am proud that our supply chain and merchandising transformation initiatives will continue to generate significant benefits for our customers, store guests and suppliers in 2023 and beyond. Thank you to our dedicated Associates who consistently demonstrate operational excellence, giving us confidence we will reach our long-term growth and profitability targets."

Fourth Quarter Consolidated Financial Results

Net sales increased $215.6 million, or 10.3%, to $2.3 billion from $2.1 billion in the prior year quarter. The growth from prior year was driven by increases in both the Wholesale and Retail segments, which were favorably impacted by inflation as discussed within segment section below.

Gross profit was $341.4 million, or 14.8% of net sales, compared to $322.7 million, or 15.4% of net sales, in the prior year quarter. The gross profit increase was driven by higher sales, while the gross margin rate decline was driven by cycling of inflation-related price gains in the prior year and an increase in last-in-first-out (LIFO) expense of $5.7 million, or 21 basis points.

Reported operating expenses were $332.7 million, or 14.4% of net sales, compared to $289.4 million, or 13.8% of net sales, in the prior year quarter. The increase in expenses as a rate of sales was primarily due to cycling the transition impact of the paid time off ("PTO") policy change, which reduced prior year quarter expenses by $21.4 million. During the fourth quarter of the prior year, the Company elected to transition from a grant-based policy to an accrual-based policy, which resulted in a lower required accrual balance at the end of the prior fiscal year. Also contributing to the increase in expenses as a rate of sales were higher corporate administrative costs, which included upfront investments in the merchandising transformation initiative of $3.6 million. The increases in expenses were partially offset by a reduction in the supply chain expense rates as a result of efficiencies realized from the Company's supply chain transformation initiative, as well as lower health insurance costs.

The Company reported operating earnings of $8.8 million, a decrease of $24.6 million, compared to $33.4 million in the prior year quarter, due to the changes in net sales, gross profit, and operating expenses discussed above. Adjusted operating earnings(2) were $22.0 million, an increase of $1.5 million, compared to $20.6 million in the prior year quarter and were adjusted for the items detailed in Table 3.

Interest expense increased $5.1 million from the prior year quarter due to rising interest rates and an increase in borrowings. Other income for the fourth quarter included $0.8 million of income related to the partial settlement of a post-retirement benefit plan.

The Company reported net earnings of $0.7 million, or $0.02 per diluted share, compared to $22.2 million, or $0.62 per diluted share in the prior year quarter. Adjusted earnings from continuing operations(3) for the fourth quarter were $10.2 million, or $0.28 per diluted share, compared to $12.4 million, or $0.34 per diluted share in the prior year quarter. A reconciliation of net earnings to adjusted earnings from continuing operations, as well as per diluted share, is included in Table 4.

Adjusted EBITDA(1) increased $4.1 million to $47.2 million, compared to $43.0 million in the prior year quarter, due to the factors mentioned above. A reconciliation of net earnings to adjusted EBITDA is included in Table 2.

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.

Fourth Quarter Segment Financial Results

Wholesale

Net sales for Wholesale increased $151.2 million, or 10.2%, to $1.63 billion from $1.48 billion in the prior year quarter. The increase in net sales was due primarily to the inflationary impact on pricing, which increased net sales by 11.8% compared to the prior year, while lower case volumes decreased net sales by 1.6% compared to the prior year.

Reported operating earnings for Wholesale were $0.3 million, compared to $10.1 million in the prior year quarter. As a rate to sales, the decrease in reported operating earnings was due to cycling the $10.1 million transition impact of the PTO policy change in the prior year, a lower gross profit rate, primarily driven by an increase in LIFO expense of $6.3 million, or 34 basis points, and increases in corporate administrative costs. The increase in the expenses above were partially offset by a reduced rate of supply chain expenses as a result of efficiencies realized from the Company's supply chain transformation initiative. Adjusted operating earnings(2) increased $6.6 million to $13.6 million from $7.0 million in the prior year quarter. Adjusted operating earnings exclude, among other items, the transition impact of the PTO policy in the prior year, as well as LIFO expense and restructuring and asset impairment activity in both years.

Retail

Net sales for Retail increased $64.4 million, or 10.5%, to $677.5 million from $613.1 million in the prior year quarter. Retail comparable store sales increased 9.1% for the quarter. Retail comparable store sales increased by 11.2% due to inflation, and decreased by 2.1% due to reduced item counts.

Reported operating earnings for Retail were $8.5 million, compared to $23.3 million in the prior year quarter. As a rate to sales, the decrease was due to cycling the $11.3 million transition impact of the PTO policy change in the prior year, a lower gross profit rate, and increased corporate administrative costs. Adjusted operating earnings(2) were $8.5 million, compared to $13.6 million in the prior year quarter. Adjusted operating earnings exclude, among other items, the transition impact of the PTO policy in the prior year, as well as LIFO expense and restructuring and asset impairment charges in both years.

Fiscal 2022 Consolidated Financial Results

Net sales for the fiscal year ended December 31, 2022 increased $712.1 million, or 8.0%, to $9.6 billion from $8.9 billion in the prior fiscal year. The increase from the prior year was due to net sales growth in both the Wholesale and Retail segments, which were favorably impacted by inflationary pricing of 10.4% and 9.6%, respectively. Partially offsetting these increases were case volume declines of 2.6% in the Wholesale segment and item declines of 1.9% in the Retail segment.

The Company reported net earnings for the fiscal year of $34.5 million, or $0.95 per diluted share, compared to $73.8 million, or $2.05 per diluted share, in the prior year. The decrease was primarily attributable to higher LIFO expense of $38.2 million, higher corporate administrative costs, including increased incentive compensation of $21.6 million, up-front investments in the merchandising transformation initiative of $10.6 million, and costs related to shareholder activism of $7.3 million, lower Retail margin rates, the transition impact of the new PTO policy in the prior year of $21.4 million, and increased interest expense of $8.9 million. These unfavorable variances were partially offset by increased sales, an improved Wholesale gross margin rate, and supply chain cost reductions as a result of efficiencies realized and lower fees associated with the Company's supply chain transformation initiative as well as lower health insurance costs. Adjusted earnings from continuing operations(3) for fiscal 2022 were $84.7 million, or $2.33 per diluted share, compared to $74.9 million, or $2.08 per diluted share, in the prior year. Fiscal 2022 adjusted earnings exclude, among other items, LIFO expense, costs related to shareholder activism, and restructuring and asset impairment charges. Fiscal 2021 adjusted earnings exclude, among other items, the accounting impact of transitioning to a new PTO policy, LIFO expense, and restructuring and asset impairment charges.

Adjusted EBITDA(1) for fiscal 2022 was $242.9 million, or 2.5% of net sales, compared to $213.7 million, or 2.4% of net sales, in fiscal 2021.

Balance Sheet and Cash Flow

Cash flows provided by operating activities for fiscal 2022 were $110.4 million compared to $161.2 million in the prior year. The decrease in cash flows compared to the prior year was due primarily to changes in working capital. Long-term debt and finance lease liabilities increased $97.9 million for the year due to funding changes in working capital and acquisitions during fiscal 2022 totaling $41.5 million. The Company's net long-term debt(4) to adjusted EBITDA(1) ratio increased over the current year period from 1.8x to 2.0x. A reconciliation of long-term debt and finance lease obligations to net long-term debt is included in Table 5.

Purchases of property and equipment were $97.3 million for fiscal 2022 compared to $79.4 million in the prior year, while capital expenditures and IT capital(5) totaled $102.1 million for fiscal 2022 compared to $85.8 million in the prior year. A reconciliation of purchases of property and equipment to capital expenditures and IT capital, a non-GAAP financial measure, is provided in Table 7.

During fiscal 2022, the Company paid $29.7 million in cash dividends, equal to $0.84 per common share. The Company also repurchased 1,046,538 shares of common stock for a total of $32.5 million during fiscal 2022, with an average price of $31.05 per share. In total, the Company returned $62.2 million to shareholders during fiscal 2022. As of December 31, 2022, $44.0 million remains available under the Company's share repurchase program, which expires on February 22, 2027.

On November 17, 2022, the Company entered into an amendment (the "Amendment") to its Amended and Restated Loan and Security Agreement. The principal changes of the Amendment included an extension of the maturity date of the loans from December 18, 2023 to November 17, 2027 and a reset of certain advance rates for the borrowing base.

Fiscal 2023 Outlook

The following table provides the Company's guidance for fiscal 2023:


Fiscal 2022



Fiscal 2023 Guidance



Actual



Low



High


Total net sales (millions)

$


9,643



$


9,900



$


10,200


Adjusted EBITDA(1) (millions)

$


243



$


248



$


263


Adjusted EPS(3)

$


2.33



$


2.20



$


2.35


Capital expenditures and IT capital(5) (thousands)

$


102,097



$


130,000



$


145,000


The Company expects Wholesale net sales to grow 4.0% to 7.0%, inclusive of the net sales from a recently acquired grocery wholesaler, Great Lakes Foods, and it expects Retail comparable sales to grow 2.0% to 5.0%. The Company expects its annual interest expense will range from $37 million to $42 million.

During the first quarter of 2023, the Company will cycle a significant inflation-related price change benefit of nearly $10 million, in addition to $4 million in Retail wage investments. The Company expects the benefits from its supply chain and merchandising transformation initiatives will not fully offset these headwinds in the first quarter of 2023.

Fiscal 2025 Long-Term Targets

Building on the success of its transformation, the Company has now pivoted to growth. By continuing to implement Our Winning Recipe, the Company expects its fiscal 2025 long-term financial targets will grow:

  • Net sales to more than $10.5 billion (previously $10 billion), an increase of at least 17% from fiscal 2021
  • Adjusted EBITDA to more than $300 million, an increase of at least 40% from fiscal 2021

These targets are expected to be achieved through several initiatives, including:

  • Increasing net sales by more than $1 billion through customer acquisition and continued expansion into value-add offerings
  • Realizing benefits of $125 million to $150 million during fiscal 2021 through fiscal 2025 from the supply chain and merchandising transformation initiatives, as well as the ongoing marketing innovation
  • Driving shareholder value through continued focus on return on capital

Conference Call & Supplemental Earnings Presentation

The Company will host a conference call to discuss its quarterly results with additional comments and details on Thursday, February 23, 2023, at 8:30 a.m. ET. There will also be a simultaneous, live webcast made available at SpartanNash's website at www.spartannash.com/webcasts under the "Investor Relations" section and will remain archived on the Company's website.

A supplemental quarterly earnings presentation will also be available on the Company's website at www.spartannash.com/investor-presentations.

About SpartanNash

SpartanNash (Nasdaq: SPTN) 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, in addition to distributing to the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar, Djibouti, Korea and Japan. To support its distribution business, the Company operates a strategically developed network of large-scale distribution facilities and a nationwide transportation fleet. In addition, the Company owns and operates 147 supermarkets - primarily under the banners of Family Fare, Martin's Super Markets and D&W Fresh Market - and shares its operational insights to drive innovative solutions for SpartanNash food retail customers. Committed to fostering a People First culture, the SpartanNash family of Associates is 17,500 strong and growing. For more information, visit spartannash.com.

Forward-Looking Statements

The matters discussed in this press release and in the Company's website-accessible conference calls with analysts and investor presentations include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), about the plans, strategies, objectives, goals or expectations of the Company. These forward-looking statements may be identifiable by words or phrases indicating that the Company or management "expects," "anticipates," "plans," "believes," "intends," 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, which speak only as of the date made. Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies may affect actual results and could cause actual results to differ materially. These risks and uncertainties include the Company's ability to compete in an extremely competitive industry; the Company's dependence on certain major customers; the Company's ability to implement its growth strategy and transformation initiatives; changes in relationships with the Company's vendor base and supply chain disruptions; vulnerability to decreases in the supply and increases in the price of raw materials and labor, manufacturing, distribution and other costs; macroeconomic uncertainty, including rising inflation, potential economic recession, and increasing interest rates; difficulty attracting and retaining well-qualified Associates and effectively managing increased labor costs; customers to whom the Company extends credit or for whom the Company guarantees loans or lease obligations may fail to repay the Company; not achieving the Company's strategy of growth through acquisitions and encountering difficulties successfully integrating acquired businesses that may not realize the anticipated benefits; the Company's ability to manage its private brand program for U.S. military commissaries, including the termination of the program or not achieving the desired results; disruptions to the Company's information security network, including security breaches and cyber-attacks; changes in the geopolitical conditions, including the Russia-Ukraine conflict; instances of security threats, severe weather conditions and natural disasters; climate change and an increased focus by stakeholders on environmental sustainability and corporate responsibility; impacts to the Company's business and reputation due to an increasing focus on environmental, social and governance matters; disruptions associated with disease outbreaks, such as the COVID-19 pandemic; impairment charges for goodwill or other long-lived assets; the Company's ability to successfully manage leadership transitions; interest rate fluctuations; the Company's ability to service its debt and to comply with debt covenants; the Company's level of indebtedness; changes in government regulations; 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; labor relations issues; cost increases related to multi-employer pension plans and other postretirement plans; 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. Additional risks and uncertainties not currently known to the Company or that the Company 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 press release.

Non-GAAP Financial Measures

This press release includes information regarding adjusted operating earnings, adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), net long-term debt, capital expenditures and IT capital, and adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. These 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. Certain of 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.

The Company is unable to provide a full reconciliation of the GAAP to non-GAAP measures used in the Fiscal 2023 Outlook and Fiscal 2025 Long-Term Targets sections of this press release without unreasonable effort because it is not possible to predict certain adjustment items with a reasonable degree of certainty since they are not yet known or quantifiable, and do not relate to the Company's routine activities. These adjustments may include, among other items, restructuring and asset impairment activity, acquisition and integration costs, severance, costs related to the postretirement plan amendment and settlement, and organizational realignment costs, and the impact of adjustments to the LIFO inventory reserve. This information is dependent upon future events, which may be outside of the Company's control and could have a significant impact on its GAAP financial results for fiscal 2023 or fiscal 2025, respectively.

(1)

A reconciliation of net earnings to adjusted EBITDA, a non-GAAP financial measure, is provided in Table 2 below.

(2)

A reconciliation of operating earnings to adjusted operating earnings, a non-GAAP financial measure, is provided in Table 3 below.

(3)

A reconciliation of net earnings to adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), a non-GAAP financial measure, is provided in Table 4 below.

(4)

A reconciliation of long-term debt and finance lease obligations to net long-term debt, a non-GAAP financial measure, is provided in Table 5 below.

(5)

A reconciliation of purchases of property and equipment to capital expenditures and IT capital, a non-GAAP financial measure, is provided in Table 7 below.

CONTACT:
Investor Relations:
Kayleigh Campbell
Head of Investor Relations
[email protected]
[email protected]

Media:
Adrienne Chance
SVP, Communications
[email protected]

SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)



12 Weeks Ended



52 Weeks Ended




December 31,



January 1,



December 31,



January 1,



(In thousands, except per share amounts)

2022



2022



2022



2022



Net sales

$


2,309,040



$


2,093,427



$


9,643,100



$


8,931,039



Cost of sales



1,967,601





1,770,689





8,145,625





7,527,160



Gross profit



341,439





322,738





1,497,475





1,403,879
























Operating expenses





















Selling, general and administrative



333,361





310,424





1,427,783





1,309,456



Paid time off transition adjustment



-





(21,371)





-





(21,371)



Acquisition and integration, net



245





427





343





708



Restructuring and asset impairment, net



(933)





(95)





805





2,886



Total operating expenses



332,673





289,385





1,428,931





1,291,679
























Operating earnings



8,766





33,353





68,544





112,200
























Other expenses and (income)





















Interest expense



8,027





2,974





22,791





13,851



Other, net



(778)





(15)





(1,162)





(308)



Total other expenses, net



7,249





2,959





21,629





13,543
























Earnings before income taxes



1,517





30,394





46,915





98,657



Income tax expense



867





8,149





12,397





24,906



Net earnings

$


650



$


22,245



$


34,518



$


73,751
























Net earnings per basic common share

$


0.02



$


0.63



$


0.98



$


2.07
























Net earnings per diluted common share

$


0.02



$


0.62



$


0.95



$


2.05













































Weighted average shares outstanding:





















Basic



34,732





35,531





35,279





35,639



Diluted



35,866





36,110





36,313





35,943
























SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)



December 31,



January 1,


(In thousands)

2022



2022


Assets










Current assets










Cash and cash equivalents

$


29,086



$


10,666


Accounts and notes receivable, net



404,016





361,686


Inventories, net



571,065





522,324


Prepaid expenses and other current assets



62,244





62,517


Total current assets



1,066,411





957,193












Property and equipment, net



610,220





577,359


Goodwill



182,160





181,035


Intangible assets, net



106,341





110,960


Operating lease assets



257,047





283,040


Other assets, net



84,382





97,195












Total assets

$


2,306,561



$


2,206,782












Liabilities and Shareholders' Equity










Current liabilities










Accounts payable

$


487,215



$


447,451


Accrued payroll and benefits



103,048





86,315


Other accrued expenses



62,465





67,893


Current portion of operating lease liabilities



45,453





47,845


Current portion of long-term debt and finance lease liabilities



6,789





6,334


Total current liabilities



704,970





655,838












Long-term liabilities










Deferred income taxes



66,293





63,692


Operating lease liabilities



239,062





266,701


Other long-term liabilities



33,376





38,292


Long-term debt and finance lease liabilities



496,792





399,390


Total long-term liabilities



835,523





768,075












Commitments and contingencies




















Shareholders' equity










Common stock, voting, no par value; 100,000 shares

authorized; 35,079 and 35,948 shares outstanding



468,061





493,783


Preferred stock, no par value, 10,000 shares

authorized; no shares outstanding



-





-


Accumulated other comprehensive income (loss)



2,979





(1,455)


Retained earnings



295,028





290,541


Total shareholders' equity



766,068





782,869












Total liabilities and shareholders' equity

$


2,306,561



$


2,206,782












SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)






52 Weeks Ended


(In thousands)




December 31, 2022



January 1, 2022


Cash flow activities













Net cash provided by operating activities




$


110,350



$


161,155


Net cash used in investing activities






(100,948)





(47,978)


Net cash provided by (used in) financing activities






9,018





(122,414)


Net increase (decrease) in cash and cash equivalents






18,420





(9,237)


Cash and cash equivalents at beginning of the period






10,666





19,903


Cash and cash equivalents at end of the period




$


29,086



$


10,666


SPARTANNASH COMPANY AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA


Table 1: Sales and Operating Earnings by Segment

(Unaudited)



12 Weeks Ended



52 Weeks Ended


(In thousands)

December 31, 2022



January 1, 2022



December 31, 2022



January 1, 2022


Wholesale Segment:
































Net sales

$


1,631,503



70.7

%


$


1,480,299



70.7

%


$


6,845,236



71.0

%


$


6,349,753



71.1

%

Operating earnings



303








10,087








55,137








45,229





Retail Segment:
































Net sales



677,537



29.3

%




613,128



29.3

%




2,797,864



29.0

%




2,581,286



28.9

%

Operating earnings



8,463








23,266








13,407








66,971





Total:
































Net sales

$


2,309,040



100.0

%


$


2,093,427



100.0

%


$


9,643,100



100.0

%


$


8,931,039



100.0

%

Operating earnings



8,766








33,353








68,544








112,200





Non-GAAP Financial Measures

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

At the beginning of 2022, the Company made a change to the adjusted operating earnings and adjusted earnings from continuing operations, and adjusted EPS 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, non-operating costs associated with the write off of certain unamortized deferred financing costs related to the debt modification, 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, severance associated with cost reduction initiatives and the transition impact of a new paid time off plan.

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

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

(Adjusted EBITDA)

(A Non-GAAP Financial Measure)

(Unaudited)



12 Weeks Ended



52 Weeks Ended


(In thousands)

December 31, 2022



January 1, 2022



December 31, 2022



January 1, 2022


Net earnings

$


650



$


22,245



$


34,518



$


73,751


Income tax expense



867





8,149





12,397





24,906


Other expenses, net



7,249





2,959





21,629





13,543


Operating earnings



8,766





33,353





68,544





112,200


Adjustments:




















LIFO expense



13,907





8,208





56,823





18,652


Depreciation and amortization



21,906





21,451





94,180





92,711


Acquisition and integration, net



245





427





343





708


Restructuring and asset impairment, net



(933)





(95)





805





2,886


Cloud computing amortization



956





612





3,650





2,140


Organizational realignment, net



-





-





1,859





589


Severance associated with cost reduction initiatives



36





46





831





423


Stock-based compensation



1,381





891





8,589





6,975


Stock warrant



499





480





2,158





1,958


Non-cash rent



(753)





(1,079)





(3,444)





(4,059)


Loss (gain) on disposal of assets



1,141





107





1,073





(106)


Postretirement plan amendment and settlement



-





-





133





-


Costs related to shareholder activism



-





-





7,335





-


Paid time off transition adjustment



-





(21,371)





-





(21,371)


Adjusted EBITDA

$


47,151



$


43,030



$


242,879



$


213,706


Table 2: Reconciliation of Net Earnings to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, continued

(Adjusted EBITDA)

(A Non-GAAP Financial Measure)

(Unaudited)



12 Weeks Ended



52 Weeks Ended


(In thousands)

December 31, 2022



January 1, 2022



December 31, 2022



January 1, 2022


Wholesale:




















Operating earnings

$


303



$


10,087



$


55,137



$


45,229


Adjustments:




















LIFO expense



13,144





6,893





48,282





15,755


Depreciation and amortization



10,999





10,786





47,601





46,487


Acquisition and integration, net



239





-





239





-


Restructuring and asset impairment, net



(147)





(4)





(2,363)





427


Cloud computing amortization



664





450





2,537





1,517


Organizational realignment, net



-





-





1,160





374


Severance associated with cost reduction initiatives



27





31





689





310


Stock-based compensation



903





530





5,646





4,373


Stock warrant



499





480





2,158





1,958


Non-cash rent



(94)





(22)





(382)





811


Loss (gain) on disposal of assets



696





70





512





(42)


Postretirement plan amendment and settlement



-





-





83





-


Costs related to shareholder activism



-





-





4,577





-


Paid time off transition adjustment



-





(10,041)





-





(10,041)


Adjusted EBITDA

$


27,233



$


19,260



$


165,876



$


107,158


Retail:




















Operating earnings

$


8,463



$


23,266



$


13,407



$


66,971


Adjustments:




















LIFO expense



763





1,315





8,541





2,897


Depreciation and amortization



10,907





10,665





46,579





46,224


Acquisition and integration, net



6





427





104





708


Restructuring and asset impairment, net



(786)





(91)





3,168





2,459


Cloud computing amortization



292





162





1,113





623


Organizational realignment, net



-





-





699





215


Severance associated with cost reduction initiatives



9





15





142





113


Stock-based compensation



478





361





2,943





2,602


Non-cash rent



(659)





(1,057)





(3,062)





(4,870)


Loss (gain) on disposal of assets



445





37





561





(64)


Postretirement plan amendment and settlement



-





-





50





-


Costs related to shareholder activism



-





-





2,758





-


Paid time off transition adjustment



-





(11,330)





-





(11,330)


Adjusted EBITDA

$


19,918



$


23,770



$


77,003



$


106,548


Notes: 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.

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 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 to Adjusted Operating Earnings

(A Non-GAAP Financial Measure)

(Unaudited)



12 Weeks Ended



52 Weeks Ended


(In thousands)

December 31, 2022



January 1, 2022



December 31, 2022



January 1, 2022


Operating earnings

$


8,766



$


33,353



$


68,544



$


112,200


Adjustments:




















LIFO expense



13,907





8,208





56,823





18,652


Acquisition and integration, net



245





427





343





708


Restructuring and asset impairment, net



(933)





(95)





805





2,886


Organizational realignment, net



-





-





1,859





589


Severance associated with cost reduction initiatives



36





46





831





423


Postretirement plan amendment and settlement



-





-





133





-


Costs related to shareholder activism



-





-





7,335





-


Paid time off transition adjustment



-





(21,371)





-





(21,371)


Adjusted operating earnings

$


22,021



$


20,568



$


136,673



$


114,087


Wholesale:




















Operating earnings

$


303



$


10,087



$


55,137



$


45,229


Adjustments:




















LIFO expense



13,144





6,893





48,282





15,755


Acquisition and integration, net



239





-





239





-


Restructuring and asset impairment, net



(147)





(4)





(2,363)





427


Organizational realignment, net



-





-





1,160





374


Severance associated with cost reduction initiatives



27





31





689





310


Postretirement plan amendment and settlement



-





-





83





-


Costs related to shareholder activism



-





-





4,577





-


Paid time off transition adjustment



-





(10,041)





-





(10,041)


Adjusted operating earnings

$


13,566



$


6,966



$


107,804



$


52,054


Retail:




















Operating earnings

$


8,463



$


23,266



$


13,407



$


66,971


Adjustments:




















LIFO expense



763





1,315





8,541





2,897


Acquisition and integration, net



6





427





104





708


Restructuring and asset impairment, net



(786)





(91)





3,168





2,459


Organizational realignment, net



-





-





699





215


Severance associated with cost reduction initiatives



9





15





142





113


Postretirement plan amendment and settlement



-





-





50





-


Costs related to shareholder activism



-





-





2,758





-


Paid time off transition adjustment



-





(11,330)





-





(11,330)


Adjusted operating earnings

$


8,455



$


13,602



$


28,869



$


62,033


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 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.

Table 4: Reconciliation of Net Earnings to Adjusted Earnings from

Continuing Operations, as well as per diluted share ("adjusted EPS")

(A Non-GAAP Financial Measure)

(Unaudited)



12 Weeks Ended




December 31, 2022



January 1, 2022







per diluted






per diluted



(In thousands, except per share amounts)

Earnings



share



Earnings



share



Net earnings

$


650



$


0.02



$


22,245



$


0.62



Adjustments:





















LIFO expense



13,907










8,208








Acquisition and integration, net



245










427








Restructuring and asset impairment, net



(933)










(95)








Organizational realignment, net



-










-








Severance associated with cost reduction initiatives



36










46








Postretirement plan amendment and settlement



(758)










-








Paid time off transition adjustment



-










(21,371)








Write off of deferred financing costs



236










-








Total adjustments



12,733










(12,786)








Income tax effect on adjustments (a)



(3,213)










2,940








Total adjustments, net of taxes



9,520





0.26*





(9,846)





(0.28)*



Adjusted earnings from continuing operations

$


10,170



$


0.28



$


12,399



$


0.34



* Includes rounding



































52 Weeks Ended




December 31, 2022



January 1, 2022







per diluted






per diluted



(In thousands, except per share amounts)

Earnings



share



Earnings



share



Net earnings

$


34,518



$


0.95



$


73,751



$


2.05



Adjustments:





















LIFO expense



56,823










18,652








Acquisition and integration, net



343










708








Restructuring and asset impairment, net



805










2,886








Organizational realignment, net



1,859










589








Severance associated with cost reduction initiatives



831










423








Pension refund from annuity provider



(200)










-








Postretirement plan amendment and settlement



(776)










-








Costs related to shareholder activism



7,335










-








Paid time off transition adjustment



-










(21,371)








Write off of deferred financing costs



236










-








Total adjustments



67,256










1,887








Income tax effect on adjustments (a)



(17,083)










(737)








Total adjustments, net of taxes



50,173





1.38





1,150





0.03



Adjusted earnings from continuing operations

$


84,691



$


2.33



$


74,901



$


2.08
























(a)

The income tax effect on adjustments is computed by applying the effective tax rate, before discrete tax items, to the total adjustments for the period.

Notes: 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.

Adjusted earnings from continuing operations is not a measure 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 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 Finance Lease Obligations to Net Long-Term Debt

(A Non-GAAP Financial Measure)

(Unaudited)


(In thousands)

December 31, 2022



January 1, 2022


Current portion of long-term debt and finance lease liabilities

$


6,789



$


6,334


Long-term debt and finance lease liabilities



496,792





399,390


Total debt



503,581





405,724


Cash and cash equivalents



(29,086)





(10,666)


Net long-term debt

$


474,495



$


395,058


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

Table 6: Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

(A Non-GAAP Financial Measure)

(Unaudited)






52 Weeks Ended


(In thousands)




December 31, 2022



January 1, 2022


Net cash provided by operating activities




$


110,350



$


161,155


Less:













Purchases of property and equipment






97,280





79,427


Free cash flow




$


13,070



$


81,728


Notes: Free cash flow is a non-GAAP financial measure calculated by subtracting capital expenditures from cash flows provided by operating activities, the most directly comparable GAAP measure. The Company believes it is a useful indicator of liquidity that provides information to both management and investors about the amount of cash generated from operations that, after capital expenditures, can be used for strategic business objectives, including the repayment of long-term debt. Free cash flow is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

Table 7: Reconciliation of Purchases of Property and Equipment to Capital Expenditures and IT Capital

(A Non-GAAP Financial Measure)

(Unaudited)






52 Weeks Ended


(In thousands)




December 31, 2022



January 1, 2022


Purchases of property and equipment




$


97,280



$


79,427


Plus:













Cloud computing spend






4,817





6,364


Capital expenditures and IT capital




$


102,097



$


85,791


Notes: Capital expenditures and IT capital is a non-GAAP financial measure calculated by adding spending related to the development of cloud computing applications spend to capital expenditures, the most directly comparable GAAP measure. Cloud computing spend only includes costs incurred during the application development phase and does not include ongoing costs of hosting or maintenance associated with these applications, which are expensed as incurred. The Company believes it is a useful indicator of the Company's investment in its facilities and systems as it transitions to more cloud-based IT systems. Capital expenditures and IT capital is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

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SOURCE SpartanNash


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