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SpartanNash Announces Second Quarter Fiscal 2020 Financial Results

·17 mins read

Second Quarter Net Sales Increase 9.4% to $2.18 billion

Reports Second Quarter Retail Comparable Store Sales of 17.1%

Generates EPS of $0.80; Adjusted EPS Increases 115% to $0.73

Improves Leverage Through Pay Down of Over $40 Million in Long-Term Debt

Raises Fiscal Year 2020 Outlook

SpartanNash Company (the "Company") (Nasdaq: SPTN) today reported financial results for its 12-week second quarter ended July 11, 2020.

Second Quarter Fiscal 2020 Highlights

  • Net sales growth of 9.4% to $2.18 billion from $2.00 billion in the prior year quarter, representing the seventeenth consecutive quarter of growth.

  • Retail comparable store sales of 17.1% were positive for the fourth consecutive quarter, representing a continuation of trends driven by increased consumer demand related to the COVID-19 pandemic.

  • EPS of $0.80 per share, compared to a loss of $0.19 per share in the prior year quarter; adjusted EPS of $0.73 per share, an increase of 115% over the prior year quarter.

  • Adjusted EBITDA increase of 33.5%, to $59.2 million from $44.3 million in the prior year quarter.

  • Cash generated from operating activities of $69.0 million during the second quarter, leading to an over $40 million pay down of long-term debt.

  • Raised full year adjusted EPS outlook to a range of $2.40 to $2.60 per share, and full year reported EPS outlook to a range of $2.13 to $2.41 per share.

"The strength and resiliency of our team was demonstrated by their ability to continue to execute in a dynamic operating environment as they supported the surge in consumer demand related to the COVID-19 pandemic, which enabled us to exceed our financial expectations for the second quarter," said Dennis Eidson, Interim President and Chief Executive Officer. "We are pleased with the collaboration across our organization and our ability to respond to the challenges associated with this incremental demand, while remaining focused on our priority of ensuring the wellbeing and safety of our associates and customers. Based on our strong year-to-date results and expectations for the remainder of the fiscal year, we are raising our full year guidance."

Consolidated net sales for the second quarter increased $188.2 million, or 9.4%, to $2.18 billion from $2.00 billion in the prior year quarter. The increase in net sales was generated through higher sales attributable to increased consumer demand related to COVID-19 in the Retail and Food Distribution segments, as well as continued growth with existing Food Distribution customers.

Gross profit for the second quarter of fiscal 2020 was $338.4 million, or 15.5% of net sales, compared to $289.0 million, or 14.5% of net sales, in the prior year quarter. The improvement in gross profit rate was primarily driven by an increase in Retail segment sales, which traditionally generate higher margin rates, in proportion to total Company sales, as well as reduced levels of inventory shrink in the Retail segment.

Reported operating expenses for the second quarter were $304.4 million, or 13.9% of net sales, compared to $281.6 million, or 14.1% of net sales, in the prior year quarter. The decrease in expenses as a rate of sales compared to the prior year quarter was due to a decrease in restructuring charges, lower health insurance costs, and increased leverage of expenses from higher sales volume, particularly retail store labor and certain fixed costs. This decrease was partially offset by significant increases in incentive compensation due to improved overall Company performance, as well as increases in supply chain expenses as a rate to sales. The Company incurred direct costs associated with the COVID-19 pandemic, including additional compensation for frontline associates and increased cleaning and sanitation frequency within all operating locations. Incremental direct labor costs included appreciation bonuses and an additional $2 per hour for frontline workers for a portion of the quarter. Sanitation costs included additional cleaning of high-touch surfaces, fogging of distribution locations and providing masks and gloves to associates.

The Company reported operating earnings of $34.0 million compared to $7.4 million in the prior year quarter. The increase was attributable to the changes in margin and operating expenses mentioned above, primarily resulting from increased sales volume. Adjusted operating earnings (1) were $37.7 million compared to $23.5 million in the prior year quarter and are adjusted for the items detailed in Table 3.

Interest expense decreased $5.0 million from the prior year quarter due to multiple rate cuts implemented by the Federal Reserve during 2019 and in early 2020, as well as the Companys pay down of the debt balance made possible by higher earnings and lower investment in working capital.

The Company reported earnings from continuing operations of $28.5 million, or $0.80 per diluted share, compared to a loss from continuing operations of $6.8 million, or $0.19 per diluted share, in the prior year quarter. The improvement reflects the operating earnings changes noted above and lower interest expense, as well as tax benefits associated with the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.

Adjusted earnings from continuing operations (2) for the second quarter were $26.1 million, or $0.73 per diluted share. Adjusted earnings from continuing operations for the prior year quarter were $12.2 million, or $0.34 per diluted share. In addition to the items noted above, adjusted earnings from continuing operations exclude tax benefits associated with the CARES Act. A reconciliation of reported earnings from continuing operations to adjusted earnings from continuing operations is included at Table 4.

Adjusted EBITDA (3) increased $14.9 million, or 33.5%, to $59.2 million compared to $44.3 million in the prior year quarter due to factors mentioned above.

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.

Segment Financial Results

Food Distribution

Net sales for Food Distribution increased $154.5 million, or 16.5%, to $1.09 billion from $0.94 billion in the prior year quarter. The increase was due to incremental volume associated with increased consumer demand related to COVID-19, as well as sales growth with existing customers.

Reported operating earnings for Food Distribution were $14.4 million compared to $0.3 million in the prior year quarter. The increase in reported operating earnings was due to asset impairment charges associated with changes to the Fresh Production business in the prior year quarter, a current year quarter increase in sales volume associated with the impacts of COVID-19, as well as cycling prior year operational losses in the Fresh Production business. These increases in operating earnings were largely offset by higher incentive compensation and a higher rate of supply chain expenses, including additional compensation for frontline workers and additional sanitation measures. Second quarter adjusted operating earnings (1) were $17.9 million compared to $16.8 million in the prior year quarter. Adjusted operating earnings exclude asset impairment charges in both years and the allocation of one-time costs associated with Project One Team in the prior year quarter.

Retail

Net sales for Retail increased $61.3 million, or 10.8%, to $631.3 million from $570.0 million in the prior year quarter primarily due to incremental sales volume associated with increased consumer demand related to COVID-19, as discussed above. Comparable store sales of 17.1% were partially offset by the impact of lower fuel prices and gallons sold, as well as store closures. During the quarter, the Company experienced more than 300% growth in eCommerce and realized growth of over 24% in private label sales.

Reported operating earnings for Retail were $24.5 million compared to $8.7 million in the prior year quarter. The increase in reported operating earnings was due to the increase in sales volume, improvements in margin rates, including inventory shrink, as well as favorable variances in both labor rates and health insurance costs. These favorable variances were partially offset by higher incentive compensation and incremental compensation for frontline workers. Adjusted operating earnings (1) were $24.7 million compared to $8.2 million in the prior year quarter and exclude restructuring costs in the current year and restructuring gains and merger/acquisition and integration expenses in the prior year quarter.

Military Distribution

Net sales for Military Distribution decreased $27.6 million, or 5.6%, to $463.0 million from $490.6 million in the prior year quarter. Growth in export sales were more than offset by the impact of domestic base access and commissary shopping restrictions associated with COVID-19, which led to an overall decline of over 10% for the Defense Commissary Agency as a whole.

The reported operating loss for Military Distribution was $4.9 million compared to $1.6 million in the prior year quarter. The change was driven by increases in the rate of supply chain expenses, including additional compensation for frontline workers and additional sanitation measures, partially offset by improved margin rates. Adjusted operating loss (1) was $4.9 million compared to a loss of $1.5 million in the prior year quarter. Adjusted operating loss excludes the allocation of one-time costs associated with Project One Team in the prior year quarter.

Balance Sheet and Cash Flow

Cash flows provided by operating activities for the first half of fiscal 2020 were $198.2 million compared to $103.8 million in the prior year. The increase was due to reductions in working capital and improved profitability. The Company generated $167.6 million in free cash flow (4) in the first half of fiscal 2020 compared to $72.1 million in the prior year. The Company reduced net long-term debt (5) by $141.3 million during the first half of fiscal 2020, including net payments of over $40 million in the second quarter. These reductions, combined with increased profitability, resulted in an improvement in the Companys net long-term debt to adjusted EBITDA ratio over this period from 3.7x to 2.5x, which is calculated on a trailing thirteen period basis.

Capital expenditures and IT capital (6) totaled $35.6 million in the first half of fiscal 2020 compared to $31.8 million in the first half of the prior year.

During the first half of fiscal 2020, the Company declared $13.9 million in quarterly cash dividends equal to $0.1925 per common share. The Company also repurchased 860,752 shares for a total of $10.0 million in the first half of fiscal 2020, an average price of $11.62 per share.

Outlook

For the 53-week fiscal year ending January 2, 2021, the Company continues to expect to benefit from higher consumer food-at-home consumption related to the effects of COVID-19, however, the duration and magnitude of the impact remain uncertain. Given this uncertainty, the Company is unable to fully estimate the impact COVID-19 will have on sales for the remainder of 2020, although it believes sales will materially exceed its initial 2020 guidance. The Company is updating its annual outlook, from what was previously provided on May 27, 2020, to reflect actual year-to-date financial results, as well as expectations for the remainder of the fiscal year related to earnings trends. Specifically, these updates include incremental adjusted earnings per share from continuing operations for the COVID-19 impact experienced to-date, as well as an estimate of the impact for the remainder of fiscal 2020.

For fiscal year 2020, the Company now anticipates adjusted earnings per share from continuing operations (7) of approximately $2.40 to $2.60 compared to its prior projection of $1.85 to $2.00. Reported earnings per share from continuing operations are expected to range from $2.13 to $2.41 compared to its prior projection of $1.48 to $1.81.

The Company now expects fiscal 2020 adjusted EBITDA of $232 million to $242 million compared to its prior guidance of $205 million to $215 million, consistent with the Companys projected increases in operating earnings.

The Company's guidance continues to reflect capital expenditures and IT capital in the range of $80.0 million to $90.0 million for fiscal year 2020. Depreciation and amortization are expected to range from $88.0 million to $92.0 million for the fiscal year. Interest expense is now expected to range from $17.5 million to $18.5 million in fiscal 2020. The Companys guidance reflects an adjusted effective tax rate of 23.5% to 24.5% and a reported effective tax rate of 14.0% to 15.0%.

The Board of Directors continues to be engaged in a comprehensive process to identify the Companys next Chief Executive Officer. As previously disclosed, on August 4, 2020 the Company extended the term of the agreement with Mr. Eidson to serve as Interim President and CEO for up to an additional 90 days.

Conference Call

A telephone conference call to discuss the Companys first quarter 2020 financial results is scheduled for Thursday, August 13, 2020 at 8:00 a.m. ET. A live webcast of this conference call will be available on the Companys 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 Companys 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 operating a premier fresh produce distribution network. SpartanNash serves customer locations in all 50 states and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Bahrain, Djibouti and Egypt. SpartanNash currently operates 155 supermarkets, primarily under the banners of Family Fare , Martin's Super Markets , D&W Fresh Market , VG's Grocery and Dan's Supermarket . 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, disruption associated with the COVID-19 pandemic and 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 SpartanNashs 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) A reconciliation of operating earnings to adjusted operating earnings, a non-GAAP financial measure, is provided in Table 3 below.

(2) A reconciliation of earnings from continuing operations to adjusted earnings from continuing operations, a non-GAAP financial measure, is provided in Table 4 below.

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

(4) A reconciliation of net cash provided by operating activities to free cash flow, a non-GAAP financial measure, is provided in Table 6 below.

(5) 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.

(6) 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.

(7) 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 in Table 8 below.

SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

12 Weeks Ended

 

 

28 Weeks Ended

 

 

 

July 11,

 

 

July 13,

 

 

July 11,

 

 

July 13,

 

 

(In thousands, except per share amounts)

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Net sales

$

 

2,184,101

 

 

$

 

1,995,929

 

 

$

 

5,040,557

 

 

$

 

4,538,304

 

 

Cost of sales

 

 

1,845,727

 

 

 

 

1,706,922

 

 

 

 

4,278,616

 

 

 

 

3,871,568

 

 

Gross profit

 

 

338,374

 

 

 

 

289,007

 

 

 

 

761,941

 

 

 

 

666,736

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

300,727

 

 

 

 

266,474

 

 

 

 

692,027

 

 

 

 

626,874

 

 

Merger/acquisition and integration

 

 

 

 

 

 

582

 

 

 

 

 

 

 

 

1,364

 

 

Restructuring charges and asset impairment

 

 

3,675

 

 

 

 

14,581

 

 

 

 

13,912

 

 

 

 

8,919

 

 

Total operating expenses

 

 

304,402

 

 

 

 

281,637

 

 

 

 

705,939

 

 

 

 

637,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

 

 

33,972

 

 

 

 

7,370

 

 

 

 

56,002

 

 

 

 

29,579

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses and (income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

3,650

 

 

 

 

8,696

 

 

 

 

11,288

 

 

 

 

20,577

 

 

Postretirement benefit expense (income)

 

 

101

 

 

 

 

8,821

 

 

 

 

(698

)

 

 

 

9,456

 

 

Other, net

 

 

(164

)

 

 

 

(439

)

 

 

 

(406

)

 

 

 

(891

)

 

Total other expenses, net

 

 

3,587

 

 

 

 

17,078

 

 

 

 

10,184

 

 

 

 

29,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes and discontinued operations

 

 

30,385

 

 

 

 

(9,708

)

 

 

 

45,818

 

 

 

 

437

 

 

Income tax expense (benefit)

 

 

1,918

 

 

 

 

(2,941

)

 

 

 

1,949

 

 

 

 

(317

)

 

Earnings (loss) from continuing operations

 

 

28,467

 

 

 

 

(6,767

)

 

 

 

43,869

 

 

 

 

754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

 

 

 

 

 

(47

)

 

 

 

 

 

 

 

(99

)

 

Net earnings (loss)

$

 

28,467

 

 

$

 

(6,814

)

 

$

 

43,869

 

 

$

 

655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

$

 

0.80

 

 

$

 

(0.19

)

 

$

 

1.22

 

 

$

 

0.02

 

 

Loss from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

$

 

0.80

 

 

$

 

(0.19

)

 

$

 

1.22

 

 

$

 

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

35,706

 

 

 

 

36,323

 

 

 

 

35,972

 

 

 

 

36,208

 

 

Diluted

 

 

35,707

 

 

 

 

36,323

 

 

 

 

35,973

 

 

 

 

36,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

July 11,

 

 

December 28,

 

(In thousands)

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

 

34,645

 

 

$

 

24,172

 

Accounts and notes receivable, net

 

 

374,394

 

 

 

 

345,320

 

Inventories, net

 

 

552,379

 

 

 

 

537,212

 

Prepaid expenses and other current assets

 

 

75,219

 

 

 

 

58,775

 

Property and equipment held for sale

 

 

22,038

 

 

 

 

31,203

 

Total current assets

 

 

1,058,675

 

 

 

 

996,682

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

562,806

 

 

 

 

615,816

 

Goodwill

 

 

181,035

 

 

 

 

181,035

 

Intangible assets, net

 

 

127,320

 

 

 

 

130,434

 

Operating lease assets

 

 

266,765

 

 

 

 

268,982

 

Other assets, net

 

 

99,948

 

 

 

 

82,660

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

 

2,296,549

 

 

$

 

2,275,609

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders Equity

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Accounts payable

$

 

489,412

 

 

$

 

405,370

 

Accrued payroll and benefits

 

 

84,444

 

 

 

 

59,680

 

Other accrued expenses

 

 

54,629

 

 

 

 

51,295

 

Current portion of operating lease liabilities

 

 

43,398

 

 

 

 

42,440

 

Current portion of long-term debt and finance lease liabilities

 

 

5,489

 

 

 

 

6,349

 

Total current liabilities

 

 

677,372

 

 

 

 

565,134

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

57,681

 

 

 

 

43,111

 

Operating lease liabilities

 

 

260,770

 

 

 

 

267,350

 

Other long-term liabilities

 

 

39,269

 

 

 

 

30,272

 

Long-term debt and finance lease liabilities

 

 

552,206

 

 

 

 

682,204

 

Total long-term liabilities

 

 

909,926

 

 

 

 

1,022,937

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders equity

 

 

 

 

 

 

 

 

 

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

authorized; 35,842 and 36,351 shares outstanding

 

 

483,484

 

 

 

 

490,233

 

Preferred stock, no par value, 10,000 shares

authorized; no shares outstanding

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

(1,500

)

 

 

 

(1,600...

)

Retained earnings

227,267

198,905

Total shareholders’ equity

709,251

687,538

Total liabilities and shareholders’ equity

$

2,296,549

$

2,275,609

SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

28 Weeks Ended

(In thousands)

July 11, 2020

July 13, 2019

Cash flow activities

Net cash provided by operating activities

$

198,248

$

103,836

Net cash used in investing activities

(21,844

)

(102,609

)

Net cash (used in) provided by financing activities

(165,931

)

267

Net cash used in discontinued operations

(130

)

Net increase in cash and cash equivalents

10,473

1,364

Cash and cash equivalents at beginning of the period

24,172

18,585

Cash and cash equivalents at end of the period

$

34,645

$

19,949

SPARTANNASH COMPANY AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA

Table 1: Sales and Operating Earnings (Loss) by Segment

(Unaudited)

12 Weeks Ended

28 Weeks Ended

(In thousands)

July 11, 2020

July 13, 2019

July 11, 2020

July 13, 2019

Food Distribution Segment:

Net sales

$

1,089,861

49.9

%

$

935,383

46.9

%

$

2,459,357

48.8

%

$

2,104,621

46.4

%

Operating earnings

14,409

272

25,799

24,864

Retail Segment:

Net sales

631,257

28.9

%

569,975

28.6

%

1,413,824

28.0

%

1,271,742

28.0

%

Operating earnings (loss)

24,453

8,701

37,098

7,875

Military Segment:

Net sales

462,983

21.2

%

490,571

24.5

%

1,167,376

23.2

%

1,161,941

25.6

%

Operating loss

(4,890

)

(1,603

)

(6,895

)

(3,160

)

Total:

Net sales

$

2,184,101

100.0

%

$

1,995,929

100.0

%

$

5,040,557

100.0

%

$

4,538,304

100.0

%

Operating earnings

33,972

7,370

56,002

29,579

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, total net long-term debt, free cash flow and projected adjusted earnings per diluted share from continuing operations. 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 "Fresh Cut operating losses" subsequent to the decision to exit these operations during the first quarter, severance associated with cost reduction initiatives , and fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Pension termination income related to a refund from the annuity provider associated with the final reconciliation of participant data is excluded from adjusted earnings from continuing operations. These items are considered "non-operational" or "non-core" in nature. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude costs associated with organizational realignment, which include significant changes to the Company’s management team. Also excluded are the fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Pension termination costs, primarily related to non-operating settlement expense associated with the distribution of pension assets, are excluded from adjusted earnings from continuing operations, and to a lesser extent adjusted operating earnings.

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

28 Weeks Ended

(In thousands)

July 11, 2020

July 13, 2019

July 11, 2020

July 13, 2019

Net earnings (loss)

$

28,467

$

(6,814

)

$

43,869

$

655

Loss from discontinued operations, net of tax

47

99

Income tax expense (benefit)

1,918

(2,941

)

1,949

(317

)

Other expenses, net

3,587

17,078

10,184

29,142

Operating earnings

33,972

7,370

56,002

29,579

Adjustments:

LIFO expense

1,187

1,068

2,771

2,493

Depreciation and amortization

20,097

20,529

47,753

47,161

Merger/acquisition and integration

582

1,364

Restructuring, asset impairment and other charges

3,675

14,581

13,912

8,919

Fresh Cut operating losses

2,262

Stock-based compensation

1,905

715

4,148

6,098

Non-cash rent

(1,199

)

(1,516

)

(2,793

)

(3,434

)

Costs associated with Project One Team

810

493

5,428

Organizational realignment costs

19

877

Severance associated with cost reduction initiatives

(75

)

80

5,081

442

(Gain) loss on disposal of assets

(484

)

63

3,427

61

Other non-cash charges (gains)

99

11

99

(7

)

Adjusted EBITDA

$

59,177

$

44,312

$

133,155

$

98,981

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

28 Weeks Ended

(In thousands)

July 11, 2020

July 13, 2019

July 11, 2020

July 13, 2019

Food Distribution:

Operating earnings

$

14,409

$

272

$

25,799

$

24,864

Adjustments:

LIFO expense

594

527

1,389

1,230

Depreciation and amortization

6,965

7,744

17,148

17,977

Merger/acquisition and integration

(130

)

Restructuring, asset impairment and other charges

3,462

16,024

12,684

9,681

Fresh Cut operating losses

2,262

Stock-based compensation

997

341

2,002

3,017

Non-cash rent

36

149

94

206

Costs associated with Project One Team

429

265

2,877

Organizational realignment costs

10

465

Severance associated with cost reduction initiatives

(37

)

37

3,143

361

(Gain) loss on disposal of assets

(521

)

11

1,619

6

Other non-cash charges

53

11

51

11

Adjusted EBITDA

$

25,958

$

25,555

$

66,456

$

60,565

Retail:

Operating earnings

$

24,453

$

8,701

$

37,098

$

7,875

Adjustments:

LIFO expense

258

257

601

601

Depreciation and amortization

10,325

10,049

24,081

22,851

Merger/acquisition and integration

582

1,494

Restructuring charges (gains) and asset impairment

213

(1,443

)

1,228

(762

)

Stock-based compensation

642

250

1,392

2,103

Non-cash rent

(1,150

)

(1,573

)

(2,684

)

(3,426

)

Costs associated with Project One Team

275

164

1,845

Organizational realignment costs

6

298

Severance associated with cost reduction initiatives

(19

)

43

1,432

72

Loss on disposal of assets

66

51

1,871

88

Other non-cash charges (gains)

34

(8

)

34

(31

)

Adjusted EBITDA

$

34,822

$

17,190

$

65,217

$

33,008

Military:

Operating loss

$

(4,890

)

$

(1,603

)

$

(6,895

)

$

(3,160

)

Adjustments:

LIFO expense

335

284

781

662

Depreciation and amortization

2,807

2,736

6,524

6,333

Stock-based compensation

266

124

754

978

Non-cash rent

(85

)

(92

)

(203

)

(214

)

Costs associated with Project One Team

106

64

706

Organizational realignment costs

3

114

Severance associated with cost reduction initiatives

(19

)

506

9

(Gain) loss on disposal of assets

(29

)

1

(63

)

(33

)

Other non-cash charges

12

8

14

13

Adjusted EBITDA

$

(1,603

)

$

1,567

$

1,482

$

5,408

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 to Adjusted Operating Earnings

(A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended

28 Weeks Ended

(In thousands)

July 11, 2020

July 13, 2019

July 11, 2020

July 13, 2019

Operating earnings

$

33,972

$

7,370

$

56,002

$

29,579

Adjustments:

Merger/acquisition and integration

582

1,364

Restructuring, asset impairment and other

3,675

14,581

13,912

8,919

Fresh Cut operating losses

2,262

Costs associated with Project One Team

810

493

5,428

Organizational realignment costs

19

877

Expenses associated with tax planning

97

97

Pension termination

20

20

Severance associated with cost reduction initiatives

(75

)

80

5,081

442

Adjusted operating earnings

$

37,669

$

23,462

$

77,847

$

46,629

Reconciliation of operating earnings (loss) to adjusted operating earnings (loss) by segment:

Food Distribution:

Operating earnings

$

14,409

$

272

$

25,799

$

24,864

Adjustments:

Merger/acquisition and integration

(130

)

Restructuring, asset impairment and other

3,462

16,024

12,684

9,681

Fresh Cut operating losses

2,262

Costs associated with Project One Team

429

265

2,877

Organizational realignment costs

10

465

Expenses associated with tax planning

52

52

Pension termination

11

11

Severance associated with cost reduction initiatives

(37

)

37

3,143

361

Adjusted operating earnings

$

17,886

$

16,783

$

44,205

$

38,129

Retail:

Operating earnings

$

24,453

$

8,701

$

37,098

$

7,875

Adjustments:

Merger/acquisition and integration

582

1,494

Restructuring charges (gains) and asset impairment

213

(1,443

)

1,228

(762

)

Costs associated with Project One Team

275

164

1,845

Organizational realignment costs

6

298

Expenses associated with tax planning

32

32

Pension termination

7

7

Severance associated with cost reduction initiatives

(19

)

43

1,432

72

Adjusted operating earnings

$

24,679

$

8,171

$

39,954

$

10,829

Military:

Operating loss

$

(4,890

)

$

(1,603

)

$

(6,895

)

$

(3,160

)

Adjustments:

Costs associated with Project One Team

106

64

706

Organizational realignment costs

3

114

Expenses associated with tax planning

13

13

Pension termination

2

2

Severance associated with cost reduction initiatives

(19

)

506

9

Adjusted operating loss

$

(4,896

)

$

(1,492

)

$

(6,312

)

$

(2,329

)

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 from Continuing Operations to

Adjusted Earnings from Continuing Operations

(A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended

July 11, 2020

July 13, 2019

per diluted

per diluted

(In thousands, except per share amounts)

Earnings

share

Earnings

share

Earnings (loss) from continuing operations

$

28,467

$

0.80

$

(6,767

)

$

(0.19

)

Adjustments:

Merger/acquisition and integration

582

Restructuring, asset impairment and other

3,675

14,581

Costs associated with Project One Team

810

Organizational realignment costs

19

Severance associated with cost reduction initiatives

(75

)

80

Expenses associated with tax planning

97

Pension termination

8,998

Total adjustments

3,697

25,070

Income tax effect on adjustments (a)

(903

)

(6,112

)

Impact of CARES Act (b)

(5,165

)

Total adjustments, net of taxes

(2,371

)

(0.07

)

18,958

0.53

*

Adjusted earnings from continuing operations

$

26,096

$

0.73

$

12,191

$

0.34

28 Weeks Ended

July 11, 2020

July 13, 2019

per diluted

per diluted

(In thousands, except per share amounts)

Earnings

share

Earnings

share

Earnings from continuing operations

$

43,869

$

1.22

$

754

$

0.02

Adjustments:

Merger/acquisition and integration

1,364

Restructuring, asset impairment and other

13,912

8,919

Fresh Cut operating losses

2,262

Costs associated with Project One Team

493

5,428

Organizational realignment costs

877

Severance associated with cost reduction initiatives

5,081

442

Expenses associated with tax planning

97

Pension termination

(1,004

)

9,351

Total adjustments

20,841

26,381

Income tax effect on adjustments (a)

(4,997

)

(6,416

)

Impact of CARES Act (b)

(9,510

)

Total adjustments, net of taxes

6,334

0.18

19,965

0.55

Adjusted earnings from continuing operations

$

50,203

$

1.40

$

20,719

$

0.57

* Includes rounding

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

  2. Represents tax impacts attributable to the Coronavirus Aid, Relief and Economic Security ("CARES") Act and related tax planning, primarily related to additional deductions and the utilization of net operating loss carrybacks.

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.

July 11,

December 28,

(In thousands)

2020

2019

Current portion of long-term debt and finance lease liabilities

$

5,489

$

6,349

Long-term debt and finance lease liabilities

552,206

682,204

Total debt

557,695

688,553

Cash and cash equivalents

(34,645

)

(24,172

)

Net long-term debt

$

523,050

$

664,381

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)

28 Weeks Ended

(In thousands)

July 11, 2020

July 13, 2019

Net cash provided by operating activities

$

198,248

$

103,836

Less:

Purchases of property and equipment

30,609

31,771

Free cash flow

$

167,639

$

72,065

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)

28 Weeks Ended

(In thousands)

July 11, 2020

July 13, 2019

Purchases of property and equipment

$

30,609

$

31,771

Plus:

Cloud computing spend

4,970

Capital expenditures and IT capital

$

35,579

$

31,771

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.

Table 8: 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)

53 Weeks Ending

January 2, 2021

Low

High

Earnings from continuing operations

$

2.13

$

2.41

Adjustments, net of taxes:

Merger/acquisition and integration expenses

0.06

0.01

Costs associated with Project One Team

0.01

0.01

Pension termination

(0.02

)

(0.02

)

Restructuring and asset impairment

0.32

0.29

Severance associated with cost reduction initiatives

0.11

0.11

Fresh Cut operating losses

0.05

0.05

Impact of CARES Act

(0.26

)

(0.26

)

Adjusted earnings from continuing operations

$

2.40

$

2.60

View source version on businesswire.com: https://www.businesswire.com/news/home/20200812005655/en/

Contacts

Investors:
Mark Shamber
Chief Financial Officer and Executive Vice President
(616) 878-8023

Katie Turner
Partner, ICR
(646) 277-1228

Media:
Meredith Gremel
Vice President Corporate Affairs and Communications
(616) 878-2830