Spartan Stores Announces Third Quarter Fiscal 2013 Financial Results
Company Expands Distribution Customer Base in Ohio
GRAND RAPIDS, Mich.--(BUSINESS WIRE)--
Spartan Stores, Inc., (Nasdaq: SPTN) a leading regional grocery
distributor and retailer, today reported financial results for its
16-week third quarter of fiscal 2013 ended January 5, 2013.
Third Quarter Results
Consolidated net sales for the 16-week third quarter decreased 0.9
percent to $789.9 million compared to $797.2 million in the same period
last year as a result of lower distribution and supermarket sales,
partially offset by increased fuel sales.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
(Adjusted EBITDA) for the quarter was $25.1 million, or 3.2 percent of
net sales, compared to $26.0 million, or 3.3 percent of net sales last
year.
Adjusted earnings from continuing operations for the third quarter of
fiscal 2013 were $5.2 million, or $0.24 per diluted share, excluding an
after tax debt extinguishment charge of $1.4 million associated with the
early retirement of a portion of the Company's Convertible Senior Notes
due 2027 and an after tax charge for acquisition related professional
fees of $0.3 million. For the third quarter of fiscal 2012, adjusted
earnings from continuing operations were $5.1 million, or $0.22 per
diluted share, excluding an after tax gain on the sale of assets of $0.4
million and an after tax expense associated with the early termination
of the Company's interest rate swap agreement of $0.5 million. Reported
earnings from continuing operations for the third quarter of fiscal 2013
were $3.5 million, or $0.16 per diluted share, compared to $5.0 million,
or $0.22 per diluted share, in the third quarter of fiscal 2012.
“Despite ongoing macroeconomic challenges, we made continued progress in
the execution of our key strategic priorities during the third quarter,”
stated Dennis Eidson, Spartan’s President and Chief Executive Officer.
“We continued to invest in both our distribution and retail segments by
opening new stores, remodeling existing stores, refining our promotional
efforts and strengthening our private brand offerings. We acquired an
upscale, high-volume grocery store in West Michigan, further solidifying
our leading conventional supermarket share in this market and we
recently announced an expansion of our distribution customer base in
Ohio. In addition, we successfully refinanced a portion of our
Convertible Senior Notes, which enabled us to lengthen the maturity of
our debt obligations and reduce our overall interest expense.”
Gross profit margin for the third quarter of fiscal 2013 and fiscal 2012
was 20.4 percent. The gross profit margin reflects continued moderating
inflation resulting in lower inflation-driven inventory gains in the
distribution segment and a higher mix of fuel sales, offset by a
decrease in LIFO expense compared to the prior year quarter in both the
distribution and retail segments.
Third quarter operating expenses, excluding restructuring, asset
impairment and other gains or losses, were $149.1 million, or 18.9
percent of net sales, compared to $150.5 million, or 18.9 percent of net
sales in the same quarter last year. The decrease was due to lower
incentive compensation expense, a reduction in promotional expenses due
to the cycling of the rollout of the Yes loyalty program, and lower
property taxes, partially offset by higher health care costs.
Distribution Segment
Net sales for the distribution segment were $346.1 million in the third
quarter of fiscal 2013 compared to $353.8 million in the same period
last year.
Third quarter fiscal 2013 operating earnings for the distribution
segment were $9.5 million compared to $10.9 million in the same period
last year. The decrease in operating earnings is primarily due to a
continuation of lower inflation-driven inventory gains as the rate of
inflation continues to moderate, partially offset by a decrease in LIFO
expense. We also incurred a $0.3 million signing bonus associated with
the completion of our labor union contract in October.
Retail Segment
Net sales for the retail segment were $443.8 million in the third
quarter of fiscal 2013 compared to $443.5 million in the same period
last year. The slight increase in sales was due to increased fuel retail
selling prices and increased fuel volume, partially offset by a decline
in comparable store sales, excluding fuel, of 1.2 percent. Comparable
store sales were negatively impacted by minimal inflation, a calendar
shift due to the 53rd week in fiscal 2012 and the change in
mix of pharmacy sales away from branded medications to generics.
Third quarter fiscal 2013 adjusted operating earnings for the retail
segment were $2.5 million, excluding $0.4 million of professional fees
associated with the single store acquisition, compared to $1.6 million
last year, excluding $0.5 million from a gain on sale of assets. The
improvement in adjusted operating earnings was primarily due to a
decrease in incentive compensation expense, a reduction in promotional
expenses due to the cycling of the rollout of the Yes loyalty program,
lower LIFO expense, and higher fuel margins, partially offset by
significantly higher health care costs. Third quarter operating earnings
as reported were $2.1 million in both fiscal 2013 and fiscal 2012.
During the third quarter, the Company remodeled two stores, opened two
Valu Land stores and acquired one store and one fuel center, ending the
quarter with 100 stores and 30 fuel centers. The Company plans to open
one new Valu Land location during the fourth quarter of fiscal 2013.
Balance Sheet and Cash Flow
Cash flow provided by operating activities for the third quarter ended
January 5, 2013 was $26.4 million compared to $8.7 million for the
comparable quarter last year, primarily due to the timing of working
capital requirements.
Net long-term debt (including current maturities and capital lease
obligations and subtracting cash) for the Company was $162.0 million as
of January 5, 2013 compared to $124.2 million as of December 31, 2011,
due primarily to funding share repurchases, tax payments and the
acquisition of one retail store and fuel center, including the
associated capital leases. The Company’s total net long-term
debt-to-capital ratio is 0.33-to-1.0 for the third quarter of fiscal
2013 and the net long-term debt-to-Adjusted EBITDA ratio is 1.58-to-1.0
on an annual Adjusted EBITDA basis.
During the third quarter, as previously announced, the Company completed
a private exchange and sale of $50.0 million aggregate principal amount
of newly issued, four year unsecured 6.625% Senior Notes due 2016 for
$40.3 million aggregate principal amount of the Company's existing
Convertible Senior Notes due 2027 ("Convertible Notes") and $9.7 million
in cash. Additionally, late in the third quarter, the Company called for
the redemption of the remaining outstanding $57.4 million aggregate
principal amount of Convertible Notes before March 30, 2013, the end of
its current fiscal year. The Company plans to fund this redemption with
available borrowings under its revolving credit facility. Pre-tax
charges of $2.3 million were recorded in the third quarter of fiscal
2013 for the early retirement of a portion of the Company's Convertible
Senior Notes and pre-tax charges of approximately $2.8 million are
expected to be recorded in the fourth quarter of fiscal 2013 related to
the planned redemption of the remaining Convertible Notes. The Company
extended the maturity of its debt and expects to save approximately $3.0
million in annual interest expense as a result of the private exchange
of a portion of the Convertible Notes and redemption of the remainder of
the Convertible Notes.
The Company believes that cash flow from operating activities and the
$163.4 million of availability under its revolving credit facility will
support the redemption of the Convertible Senior Notes and its capital
requirements for the remainder of fiscal 2013 and the coming year.
Outlook
Mr. Eidson continued, “While the Michigan economy has stabilized, we
continue to believe consumer discretionary spending will be pressured
and that the competitive environment will remain robust. We are
steadfastly committed to focusing our efforts on the initiatives that
will help drive our business forward in a tough operating environment.
We are encouraged by recent investments in our retail segment as,
contrary to industry trends, we experienced slightly positive volume in
our West Michigan stores when eliminating the impact of the calendar
shift. We will continue to refine our private label offerings, marketing
and loyalty programs, and Valu Land store format, while operating our
business as diligently and prudently as possible. On the distribution
side of the business, the contract recently signed with a significant
new customer in the strategically important Ohio market is a testament
to the strength of our operating model. Shipments to this customer are
expected to begin late in the fourth quarter.”
The Company anticipates that comparable store sales will be flat to
slightly positive in the fourth quarter as it continues to benefit from
the maturation of the YES Rewards loyalty program and a favorable Easter
calendar. Distribution sales are expected to return to flat to slightly
positive compared to the prior year as a result of new business gains
and the Easter calendar shift. The Company believesadjusted
earnings per diluted share from continuing operations, which excludes
the impact of the anticipated fourth quarter charge related to the
convertible debt redemption, will slightly exceed the prior year fourth
quarter when excluding the 53rd week and non-recurring benefits
previously disclosed last year. The net effect of the 53rd week and the
non-recurring items in the prior year’s fourth quarter was a benefit of
$0.11 to $0.12 per diluted share.
The Company currently expects capital expenditures for fiscal year 2013
to be in the range of $43.5 million to $44.5 million, with depreciation
and amortization in the range of $39.0 million to $40.0 million and
total interest expense in the range of $13.0 to $13.5 million, excluding
the debt extinguishment charges.
Conference Call
A telephone conference call to discuss the Company’s third quarter of
fiscal 2013 financial results is scheduled for 9:00 a.m. Eastern Time,
Thursday, February 14, 2013. A live webcast of this conference call will
be available on the Company’s website, www.spartanstores.com.
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 Spartan Stores
Grand Rapids, Michigan-based Spartan Stores, Inc. (Nasdaq:SPTN) is the
nation's tenth largest grocery distributor with 1.4 million square feet
of warehouse, distribution, and office space located in Grand Rapids,
Michigan. The Company distributes more than 40,000 private and national
brand products to approximately 375 independent grocery locations in
Michigan, Indiana and Ohio, and to the Company’s 100 corporate owned
stores located in Michigan, including Family Fare Supermarkets, Glen's
Markets, D&W Fresh Markets, VG's Food and Pharmacy, and Valu Land.
Forward-Looking Statements
This press release contains forward-looking statements. Forward-looking
statements are identifiable by words or phrases such as “initiatives”,
“guidance”, “priority”, “trend”, “outlook”, “position”, “momentum”, or
“strategy”; that an event or trend “could”, “will” or “should” occur
“begin” “remain” or “continue” or is “likely” or that Spartan Stores or
its management “anticipates”, “believes”, “expects” or “plans” a
particular result. Accounting estimates are inherently forward-looking.
Our restructuring cost provisions are estimates and actual costs may be
more or less than these estimates and differences may be material. These
forward-looking statements are subject to a number of factors that could
cause actual results to differ materially. Our ability to achieve the
results stated in our “Outlook” discussion, successfully realize growth
opportunities, expand our customer base, effectively implement and
achieve the expected benefits of capital investments, our new retail
banner and model store, our loyalty program, warehouse consolidation and
store openings, successfully respond to the weak economic environment
and changing consumer behavior, anticipate and successfully respond to
openings of competitors’ stores, successfully integrate acquired store
or new distribution customer business, achieve expected sales, cash
flows, operating efficiencies and earnings, implement plans, programs
and strategies, reduce debt, and continue to pay dividends and
repurchase shares is not certain and depends on many factors, not all of
which are in our control. Additional information about the risk factors
to which Spartan Stores is exposed and other factors that may adversely
affect these forward-looking statements is contained in Spartan Stores’
reports and filings with the Securities and Exchange Commission. Other
risk factors exist and new risk factors may emerge at any time. Given
these risks and uncertainties, investors should not place undue reliance
on forward-looking statements as predictions of future results. Spartan
Stores undertakes no obligation to update or revise any forward-looking
statements to reflect developments or information obtained after the
date of this press release.
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
16 Weeks Ended
40 Weeks Ended
January 5,
2013
December 31,
2011
January 5,
2013
December 31,
2011
Net sales
$
789,880
$
797,242
$
2,015,351
$
2,019,453
Cost of sales
628,925
634,292
1,602,450
1,598,429
Gross margin
160,955
162,950
412,901
421,024
Operating expenses
Selling, general and administrative
137,085
139,089
340,503
346,479
Depreciation and amortization
12,024
11,416
29,499
28,191
Restructuring, asset impairment and other
-
(2
)
356
(137
)
(Gain) loss on disposal of assets
299
(545
)
335
(478
)
Total operating expenses
149,408
149,958
370,693
374,055
Operating earnings
11,547
12,992
42,208
46,969
Non-operating expense (income)
Interest expense, net
3,054
4,101
7,432
8,977
Non-cash convertible debt interest
1,109
1,136
2,903
2,794
Debt extinguishment
2,285
2,285
-
Other, net
7
3
(667
)
11
Total non-operating expense, net
6,455
5,240
11,953
11,782
Earnings before income taxes and discontinued operations
5,092
7,752
30,255
35,187
Income taxes
1,620
2,764
10,352
13,794
Earnings from continuing operations
3,472
4,988
19,903
21,393
Loss from discontinued operations, net of taxes
(72
)
(11
)
(195
)
(135
)
Net earnings
$
3,400
$
4,977
$
19,708
$
21,258
Basic earnings per share:
Earnings from continuing operations
$
0.16
$
0.22
$
0.91
$
0.94
Loss from discontinued operations
-
-
(0.01
)
(0.01
)
Net earnings
$
0.16
$
0.22
$
0.90
$
0.93
Diluted earnings per share:
Earnings from continuing operations
$
0.16
$
0.22
$
0.91
$
0.93
Loss from discontinued operations
-
-
(0.01
)
(0.01
)
Net earnings
$
0.16
$
0.22
$
0.90
$
0.92
Weighted average shares outstanding:
Basic
21,750
22,866
21,780
22,812
Diluted
21,816
23,080
21,855
22,995
SPARTAN STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Assets
January 5, 2013
December 31, 2011
Current assets
Cash and cash equivalents
$
8,960
$
55,059
Accounts receivable, net
50,267
56,764
Inventories, net
133,879
120,908
Prepaid expenses
10,583
10,428
Other current assets
8,334
1,392
Deferred taxes on income
269
Property held for sale
710
1,708
Total current assets
213,002
246,259
Goodwill
246,925
240,589
Property and equipment, net
272,368
245,265
Other, net
62,266
56,375
Total assets
$
794,561
$
788,488
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable
$
116,207
$
111,273
Accrued payroll and benefits
33,782
35,312
Other accrued expenses
19,696
16,377
Current portion of restructuring costs
3,297
3,596
Current maturities of long-term debt and capital lease obligations
4,104
49,313
Total current liabilities
177,086
215,871
Long-term liabilities
Deferred taxes on income
86,689
78,739
Postretirement benefits
13,548
12,446
Other long-term liabilities
15,625
16,257
Restructuring costs
5,427
8,359
Long-term debt and capital lease obligations
166,843
129,916
Total long-term liabilities
288,132
245,717
Commitments and contingencies
Shareholders’ equity
Common stock, voting, no par value; 50,000 shares authorized;
21,750 and 22,868 shares outstanding
146,320
166,015
Preferred stock, no par value, 10,000 shares authorized; no
shares outstanding
-
-
Accumulated other comprehensive loss
(13,793
)
(12,351
)
Retained earnings
196,816
173,236
Total shareholders’ equity
329,343
326,900
Total liabilities and shareholders’ equity
$
794,561
$
788,488
SPARTAN STORES, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
16 Weeks Ended
January 5, 2013
December 31, 2011
Cash flows from operating activities
Net cash provided by operating activities
$
26,401
$
8,718
Net cash used in investing activities
(26,519
)
(11,539
)
Net cash provided by (used in) financing activities
1,973
(4,222
)
Net cash (used in) provided by discontinued operations
(386)
22
Net increase (decrease) in cash and cash equivalents
1,469
(7,021)
Cash and cash equivalents at beginning of period
7,491
62,080
Cash and cash equivalents at end of period
$
8,960
$
55,059
SPARTAN STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL
DATA
(In thousands)
(Unaudited)
16 Weeks Ended
40 Weeks Ended
January 5, 2013
December 31, 2011
January 5, 2013
December 31, 2011
Retail Segment:
Net sales
$
443,752
$
443,487
$
1,151,633
$
1,152,343
Operating Earnings
$
2,054
$
2,129
$
14,044
$
19,940
Distribution Segment:
Net sales
$
346,128
$
353,755
$
863,718
$
867,110
Operating Earnings
$
9,493
$
10,863
$
28,164
$
27,029
SPARTAN STORES, INC. AND SUBSIDIARIES
RECONCILIATION OF EARNINGS FROM CONTINUING OPERATIONS TO
ADJUSTED EARNINGS FROM
CONTINUING OPERATIONS
(Unaudited)
(In thousands, except per share data)
Third Quarter
January 5, 2013
December 31, 2011
Earnings per diluted share
Earnings per diluted share
Earnings from continuing operations
$
3,472
$
0.16
$
4,988
$
0.22
Adjustments, net of taxes:
Acquisition related professional fees
250
0.01
Gain on sale of assets
(351
)
(0.02
)
Interest rate swap termination
499
0.02
Debt extinguishment
1,443
0.07
-
Adjusted earnings from continuing operations
$
5,165
$
0.24
$
5,136
$
0.22
Year-to-date
January 5, 2013
December 31, 2011
Earnings per diluted share
Earnings per diluted share
Earnings from continuing operations
$
19,903
$
0.91
$
21,393
$
0.93
Adjustments, net of taxes:
Acquisition related professional fees
250
0.01
Non-recurring professional fees
744
0.03
Asset impairment and restructuring charge
225
0.01
Gain on sale of assets
(422
)
(0.02
)
(351
)
(0.01
)
Interest rate swap termination
499
0.02
Debt extinguishment
1,443
0.07
-
Impact of state tax law changes
(623
)
(0.03
)
518
0.02
Adjusted earnings from continuing operations
$
20,776
$
0.95
$
22,803
$
0.99
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.
The Company believes that Adjusted earnings from continuing operations
provide a meaningful representation of its operating performance for the
Company. The Company considers Adjusted earnings from continuing
operations as an additional way to measure operating performance on an
ongoing basis. Adjusted earnings from continuing operations is meant to
reflect the ongoing operating performance of all of its retail stores
and wholesale operations; consequently, it excludes the impact of items
that could be considered “non-operating” or “non-core” in nature, and
also excludes the contributions of activities classified as discontinued
operations. Because Adjusted earnings from continuing operations is a
performance measure that management uses to allocate resources, assess
performance against its peers and evaluate overall performance, the
Company believes it provides useful information for investors. In
addition, securities analysts, fund managers and other shareholders and
stakeholders that communicate with the Company request its operating
financial results in Adjusted earnings from continuing operations format.
Adjusted earnings from continuing operations is not a measure of
performance under accounting principles generally accepted in the United
States of America, and should not be considered as a substitute for net
earnings, cash flows from operating activities and other income or cash
flow statement data. The Company’s definition of Adjusted earnings from
continuing operations may not be identical to similarly titled measures
reported by other companies.
SPARTAN STORES, INC. AND SUBSIDIARIES
RECONCILIATION OF NET EARNINGS TO ADJUSTED EARNINGS BEFORE
INTEREST,
TAXES, DEPRECIATION AND AMORTIZATION (Adjusted EBITDA)
(Unaudited)
(In thousands)
Third Quarter
Year-to-Date
January 5, 2013
December 31, 2011
January 5, 2013
December 31, 2011
Net earnings
$
3,400
$
4,977
$
19,708
$
21,258
Add:
Discontinued operations
72
11
195
135
Income taxes
1,620
2,764
10,352
13,794
Interest expense, net
4,163
5,237
10,335
11,771
Debt extinguishment
2,285
2,285
Non-operating expense
7
3
(667
)
11
Operating earnings
11,547
12,992
42,208
46,969
Add:
Depreciation and amortization
12,024
11,416
29,499
28,191
LIFO (income) expense
(396)
1,134
984
2,661
Restructuring and asset impairment costs
-
(2
)
356
(137
)
Other unusual items
396
-
396
1,194
Non-cash stock compensation and other charges
1,487
448
3,249
2,808
Adjusted EBITDA
$
25,058
$
25,988
$
76,692
$
81,686
Reconciliation of operating earnings to adjusted EBITDA by
segment:
Retail:
Operating earnings
$
2,054
$
2,129
$
14,044
$
19,940
Add:
Depreciation and amortization
9,358
8,806
22,902
21,692
LIFO expense
216
785
1,064
1,749
Restructuring and asset impairment costs
-
(2
)
356
(100
)
Other unusual items
396
396
Non-cash stock compensation and other charges
557
(155
)
2,014
982
Adjusted EBITDA
$
12,581
$
11,563
$
40,776
$
44,263
Distribution:
Operating earnings
$
9,493
$
10,863
$
28,164
$
27,029
Add:
Depreciation and amortization
2,666
2,610
6,597
6,499
LIFO expense
(612)
349
(80)
912
Restructuring and asset impairment costs
-
-
-
(37
)
Other unusual items
-
-
-
1,194
Non-cash stock compensation and other charges
930
603
1,235
1,826
Adjusted EBITDA
$
12,477
$
14,425
$
35,916
$
37,423
Notes: Consolidated Adjusted EBITDA is a non-GAAP operating financial
measure that the Company defines as net earnings from continuing
operations plus depreciation and amortization, and other non-cash items
including imputed interest, 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, interest expense and the provision
for income taxes to the extent deducted in the computation of Net
Earnings.
The Company believes that Adjusted EBITDA provides a meaningful
representation of the operating performance for the Company as a whole
and for its operating segments. The Company considers Adjusted EBITDA as
an additional way to measure operating performance on an ongoing basis.
Adjusted EBITDA is meant to reflect the ongoing operating performance of
all of its retail stores and wholesale operations; consequently, it
excludes the impact of items that could be considered “non-operating” or
“non-core” in nature, and also excludes the contributions of activities
classified as discontinued operations. Because Adjusted EBITDA is a
performance measure that management uses to allocate resources, assess
performance against its peers and evaluate overall performance, the
Company believes it provides useful information for its investors. In
addition, securities analysts, fund managers and other shareholders and
stakeholders that communicate with the Company request its operating
financial results in Adjusted EBITDA format.
Adjusted EBITDA 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 EBITDA may not be identical to
similarly titled measures reported by other companies.
SPARTAN STORES, INC. AND SUBSIDIARIES RECONCILIATION OF LONG-TERM
DEBT AND CAPITAL LEASE OBLIGATIONS TO TOTAL NET LONG TERM DEBT AND
CAPITAL LEASE OBLIGATIONS
(A NON-GAAP FINANCIAL MEASURE)
(In thousands)
(Unaudited)
January 5, 2013
March 31, 2012
December 31, 2011
Current maturities of long-term debt and capital lease obligations
$
4,104
$
4,449
$
49,313
Long-term debt and capital lease obligations
166,843
133,565
129,916
Total debt
170,947
138,014
179,229
Cash and cash equivalents
(8,960
)
(26,476
)
(55,059
)
Total net long-term debt
$
161,987
$
111,538
$
124,170
Notes: Total net long-term 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 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.
Spartan Stores, Inc. Investor Contact: Dave Staples Executive
Vice President & CFO (616) 878-8793 or Media Contact: Jeanne
Norcross Vice President Corporate Affairs (616) 878-2830
Press Release $SPTN Spartan Stores Inc.
Company Expands Distribution Customer Base in Ohio
GRAND RAPIDS, Mich.--(BUSINESS WIRE)-- Spartan Stores, Inc., (Nasdaq: SPTN) a leading regional grocery distributor and retailer, today reported financial results for its 16-week third quarter of fiscal 2013 ended January 5, 2013.
Third Quarter Results
Consolidated net sales for the 16-week third quarter decreased 0.9 percent to $789.9 million compared to $797.2 million in the same period last year as a result of lower distribution and supermarket sales, partially offset by increased fuel sales.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) for the quarter was $25.1 million, or 3.2 percent of net sales, compared to $26.0 million, or 3.3 percent of net sales last year.
Adjusted earnings from continuing operations for the third quarter of fiscal 2013 were $5.2 million, or $0.24 per diluted share, excluding an after tax debt extinguishment charge of $1.4 million associated with the early retirement of a portion of the Company's Convertible Senior Notes due 2027 and an after tax charge for acquisition related professional fees of $0.3 million. For the third quarter of fiscal 2012, adjusted earnings from continuing operations were $5.1 million, or $0.22 per diluted share, excluding an after tax gain on the sale of assets of $0.4 million and an after tax expense associated with the early termination of the Company's interest rate swap agreement of $0.5 million. Reported earnings from continuing operations for the third quarter of fiscal 2013 were $3.5 million, or $0.16 per diluted share, compared to $5.0 million, or $0.22 per diluted share, in the third quarter of fiscal 2012.
“Despite ongoing macroeconomic challenges, we made continued progress in the execution of our key strategic priorities during the third quarter,” stated Dennis Eidson, Spartan’s President and Chief Executive Officer. “We continued to invest in both our distribution and retail segments by opening new stores, remodeling existing stores, refining our promotional efforts and strengthening our private brand offerings. We acquired an upscale, high-volume grocery store in West Michigan, further solidifying our leading conventional supermarket share in this market and we recently announced an expansion of our distribution customer base in Ohio. In addition, we successfully refinanced a portion of our Convertible Senior Notes, which enabled us to lengthen the maturity of our debt obligations and reduce our overall interest expense.”
Gross profit margin for the third quarter of fiscal 2013 and fiscal 2012 was 20.4 percent. The gross profit margin reflects continued moderating inflation resulting in lower inflation-driven inventory gains in the distribution segment and a higher mix of fuel sales, offset by a decrease in LIFO expense compared to the prior year quarter in both the distribution and retail segments.
Third quarter operating expenses, excluding restructuring, asset impairment and other gains or losses, were $149.1 million, or 18.9 percent of net sales, compared to $150.5 million, or 18.9 percent of net sales in the same quarter last year. The decrease was due to lower incentive compensation expense, a reduction in promotional expenses due to the cycling of the rollout of the Yes loyalty program, and lower property taxes, partially offset by higher health care costs.
Distribution Segment
Net sales for the distribution segment were $346.1 million in the third quarter of fiscal 2013 compared to $353.8 million in the same period last year.
Third quarter fiscal 2013 operating earnings for the distribution segment were $9.5 million compared to $10.9 million in the same period last year. The decrease in operating earnings is primarily due to a continuation of lower inflation-driven inventory gains as the rate of inflation continues to moderate, partially offset by a decrease in LIFO expense. We also incurred a $0.3 million signing bonus associated with the completion of our labor union contract in October.
Retail Segment
Net sales for the retail segment were $443.8 million in the third quarter of fiscal 2013 compared to $443.5 million in the same period last year. The slight increase in sales was due to increased fuel retail selling prices and increased fuel volume, partially offset by a decline in comparable store sales, excluding fuel, of 1.2 percent. Comparable store sales were negatively impacted by minimal inflation, a calendar shift due to the 53rd week in fiscal 2012 and the change in mix of pharmacy sales away from branded medications to generics.
Third quarter fiscal 2013 adjusted operating earnings for the retail segment were $2.5 million, excluding $0.4 million of professional fees associated with the single store acquisition, compared to $1.6 million last year, excluding $0.5 million from a gain on sale of assets. The improvement in adjusted operating earnings was primarily due to a decrease in incentive compensation expense, a reduction in promotional expenses due to the cycling of the rollout of the Yes loyalty program, lower LIFO expense, and higher fuel margins, partially offset by significantly higher health care costs. Third quarter operating earnings as reported were $2.1 million in both fiscal 2013 and fiscal 2012.
During the third quarter, the Company remodeled two stores, opened two Valu Land stores and acquired one store and one fuel center, ending the quarter with 100 stores and 30 fuel centers. The Company plans to open one new Valu Land location during the fourth quarter of fiscal 2013.
Balance Sheet and Cash Flow
Cash flow provided by operating activities for the third quarter ended January 5, 2013 was $26.4 million compared to $8.7 million for the comparable quarter last year, primarily due to the timing of working capital requirements.
Net long-term debt (including current maturities and capital lease obligations and subtracting cash) for the Company was $162.0 million as of January 5, 2013 compared to $124.2 million as of December 31, 2011, due primarily to funding share repurchases, tax payments and the acquisition of one retail store and fuel center, including the associated capital leases. The Company’s total net long-term debt-to-capital ratio is 0.33-to-1.0 for the third quarter of fiscal 2013 and the net long-term debt-to-Adjusted EBITDA ratio is 1.58-to-1.0 on an annual Adjusted EBITDA basis.
During the third quarter, as previously announced, the Company completed a private exchange and sale of $50.0 million aggregate principal amount of newly issued, four year unsecured 6.625% Senior Notes due 2016 for $40.3 million aggregate principal amount of the Company's existing Convertible Senior Notes due 2027 ("Convertible Notes") and $9.7 million in cash. Additionally, late in the third quarter, the Company called for the redemption of the remaining outstanding $57.4 million aggregate principal amount of Convertible Notes before March 30, 2013, the end of its current fiscal year. The Company plans to fund this redemption with available borrowings under its revolving credit facility. Pre-tax charges of $2.3 million were recorded in the third quarter of fiscal 2013 for the early retirement of a portion of the Company's Convertible Senior Notes and pre-tax charges of approximately $2.8 million are expected to be recorded in the fourth quarter of fiscal 2013 related to the planned redemption of the remaining Convertible Notes. The Company extended the maturity of its debt and expects to save approximately $3.0 million in annual interest expense as a result of the private exchange of a portion of the Convertible Notes and redemption of the remainder of the Convertible Notes.
The Company believes that cash flow from operating activities and the $163.4 million of availability under its revolving credit facility will support the redemption of the Convertible Senior Notes and its capital requirements for the remainder of fiscal 2013 and the coming year.
Outlook
Mr. Eidson continued, “While the Michigan economy has stabilized, we continue to believe consumer discretionary spending will be pressured and that the competitive environment will remain robust. We are steadfastly committed to focusing our efforts on the initiatives that will help drive our business forward in a tough operating environment. We are encouraged by recent investments in our retail segment as, contrary to industry trends, we experienced slightly positive volume in our West Michigan stores when eliminating the impact of the calendar shift. We will continue to refine our private label offerings, marketing and loyalty programs, and Valu Land store format, while operating our business as diligently and prudently as possible. On the distribution side of the business, the contract recently signed with a significant new customer in the strategically important Ohio market is a testament to the strength of our operating model. Shipments to this customer are expected to begin late in the fourth quarter.”
The Company anticipates that comparable store sales will be flat to slightly positive in the fourth quarter as it continues to benefit from the maturation of the YES Rewards loyalty program and a favorable Easter calendar. Distribution sales are expected to return to flat to slightly positive compared to the prior year as a result of new business gains and the Easter calendar shift. The Company believes adjusted earnings per diluted share from continuing operations, which excludes the impact of the anticipated fourth quarter charge related to the convertible debt redemption, will slightly exceed the prior year fourth quarter when excluding the 53rd week and non-recurring benefits previously disclosed last year. The net effect of the 53rd week and the non-recurring items in the prior year’s fourth quarter was a benefit of $0.11 to $0.12 per diluted share.
The Company currently expects capital expenditures for fiscal year 2013 to be in the range of $43.5 million to $44.5 million, with depreciation and amortization in the range of $39.0 million to $40.0 million and total interest expense in the range of $13.0 to $13.5 million, excluding the debt extinguishment charges.
Conference Call
A telephone conference call to discuss the Company’s third quarter of fiscal 2013 financial results is scheduled for 9:00 a.m. Eastern Time, Thursday, February 14, 2013. A live webcast of this conference call will be available on the Company’s website, www.spartanstores.com. 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 Spartan Stores
Grand Rapids, Michigan-based Spartan Stores, Inc. (Nasdaq:SPTN) is the nation's tenth largest grocery distributor with 1.4 million square feet of warehouse, distribution, and office space located in Grand Rapids, Michigan. The Company distributes more than 40,000 private and national brand products to approximately 375 independent grocery locations in Michigan, Indiana and Ohio, and to the Company’s 100 corporate owned stores located in Michigan, including Family Fare Supermarkets, Glen's Markets, D&W Fresh Markets, VG's Food and Pharmacy, and Valu Land.
Forward-Looking Statements
This press release contains forward-looking statements. Forward-looking statements are identifiable by words or phrases such as “initiatives”, “guidance”, “priority”, “trend”, “outlook”, “position”, “momentum”, or “strategy”; that an event or trend “could”, “will” or “should” occur “begin” “remain” or “continue” or is “likely” or that Spartan Stores or its management “anticipates”, “believes”, “expects” or “plans” a particular result. Accounting estimates are inherently forward-looking. Our restructuring cost provisions are estimates and actual costs may be more or less than these estimates and differences may be material. These forward-looking statements are subject to a number of factors that could cause actual results to differ materially. Our ability to achieve the results stated in our “Outlook” discussion, successfully realize growth opportunities, expand our customer base, effectively implement and achieve the expected benefits of capital investments, our new retail banner and model store, our loyalty program, warehouse consolidation and store openings, successfully respond to the weak economic environment and changing consumer behavior, anticipate and successfully respond to openings of competitors’ stores, successfully integrate acquired store or new distribution customer business, achieve expected sales, cash flows, operating efficiencies and earnings, implement plans, programs and strategies, reduce debt, and continue to pay dividends and repurchase shares is not certain and depends on many factors, not all of which are in our control. Additional information about the risk factors to which Spartan Stores is exposed and other factors that may adversely affect these forward-looking statements is contained in Spartan Stores’ reports and filings with the Securities and Exchange Commission. Other risk factors exist and new risk factors may emerge at any time. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of future results. Spartan Stores undertakes no obligation to update or revise any forward-looking statements to reflect developments or information obtained after the date of this press release.
2013
2011
2013
2011
(545
)
(0.01
)
(0.01
)
Assets
January 5,
2013
December 31,
2011
Liabilities and Shareholders’ Equity
authorized; 21,750 and 22,868 shares outstanding
146,320
shares authorized; no shares outstanding
-
16 Weeks Ended
January 5,
2013
December 31,
2011
Net cash provided by operating activities
$
26,401
$
8,718
SPARTAN STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL DATA
January 5,
2013
December 31,
2011
January 5,
2013
December 31,
2011
Retail Segment:
Distribution Segment:
RECONCILIATION OF EARNINGS FROM CONTINUING OPERATIONS TO ADJUSTED EARNINGS FROM
CONTINUING OPERATIONS
Earnings per
diluted share
Earnings per
diluted share
Earnings per
diluted share
Earnings per
diluted share
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.
The Company believes that Adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the Company. The Company considers Adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its retail stores and wholesale operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because Adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in Adjusted earnings from continuing operations format.
Adjusted earnings from continuing operations is not a measure of performance under accounting principles generally accepted in the United States of America, and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of Adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies.
January 5,
2013
December 31,
2011
January 5,
2013
December 31,
2011
Notes: Consolidated Adjusted EBITDA is a non-GAAP operating financial measure that the Company defines as net earnings from continuing operations plus depreciation and amortization, and other non-cash items including imputed interest, 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, interest expense and the provision for income taxes to the extent deducted in the computation of Net Earnings.
The Company believes that Adjusted EBITDA provides a meaningful representation of the operating performance for the Company as a whole and for its operating segments. The Company considers Adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of its retail stores and wholesale operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because Adjusted EBITDA is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in Adjusted EBITDA format.
Adjusted EBITDA 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 EBITDA may not be identical to similarly titled measures reported by other companies.
January 5,
2013
2012
December 31,
2011
Notes: Total net long-term 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 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.
Spartan Stores, Inc.
Investor Contact:
Dave Staples
Executive Vice President & CFO
(616) 878-8793
or
Media Contact:
Jeanne Norcross
Vice President Corporate Affairs
(616) 878-2830
Source: Spartan Stores, Inc.