BYRON CENTER — People eating at home during the pandemic has been a boon for sales at grocery retailer and distributor SpartanNash Co.
The Byron Center-based SpartanNash (Nasdaq: SPTN) reported that “unprecedented consumer demand” led to significantly higher sales and earnings for the first quarter, which ended April 18. The stronger sales were particularly driven by activity in the last six weeks of the period, as people stocked up on food and stayed home to eat because of various shelter-in-place orders across its footprint.
In a call with brokerage analysts, Chairman and interim President and CEO Dennis Eidson described how the company reacted to meet the “meaningful change in customer behavior” brought on by the pandemic for its grocery distribution and retail businesses.
The company’s distribution business, its largest segment with nearly $1.4 billion in quarterly sales, “experienced a significant shift to food at home in connection with the state mandated business shutdowns including restaurants, as well as stay-at-home orders,” Eidson said in the call.
Meanwhile, sales in the retail business, which includes the Family Fare, Martin’s Super Markets, D&W Fresh Market, VG’s Grocery and Dan’s Supermarket brands, soared 42 percent in the final six weeks of the quarter.
“Our position in the marketplace as a local, convenient and trusted grocer helped us to gain market share during the pandemic,” Eidson said. “In our largest market, our proactive approach allowed us to be first in market to install plexiglass face guards, implement one way aisles, launch free pharmacy delivery and actually mandate masks for associates and customers.”
For the quarter, SpartanNash’s overall sales increased 12.4 percent to $2.86 billion, driven by growth of 17.1 percent in its distribution business, 15.6 percent for retail and 4.9 percent in its military segment. Net earnings were $15.4 million, or 43 cents per share, more than double a year ago.
The company also capitalized on the higher cash flow to pay down more than $90 million in long-term debt, improving its leverage ratio to the point where it has started to “think about M&A a little bit differently,” according to Eidson.
“We’ve been pretty consistently discussing our being opportunistic around the retail side for M&A,” he said when asked if the company would consider additional deals in the months ahead.
Eidson cited the January 2019 acquisition of Martin’s Super Markets as “a great example” of a deal that “made good sense” with an existing customer in an adjacent marketplace.
“On the distribution side, I think, obviously, (we’re) always looking for the right opportunity to add scale and to expand our network to allow us to be even more efficient as we continue to grow the business,” Eidson said.
However, SpartanNash in March opted to wind down the Fresh Cut portion of the Caito Foods business that it previously acquired in 2017, citing the loss of a major corporate customer. The move resulted in 330 layoffs in the Indianapolis area, according to a report in The Packer.
Eidson said the company closed the business because it “did not see a path to profitable operations.” SpartanNash also previously exited Caito’s Fresh Kitchen business, but continues to operate the distribution business.
Former SpartanNash CEO David Staples resigned as the acquired business faced a range of operational challenges.
Eidson, who previously served as CEO from October 2008 to May 2017, said the board’s search for a new top executive is “ongoing” but it was making progress throughout the quarter.
Citing the market uncertainty because of the pandemic, SpartanNash also withdrew its sales guidance for 2020, although CFO Mark Shamber told analysts the company expects to “materially exceed” its initial forecast.
The company expects earnings per share to range from $1.48 to $1.81, up from the range of 93 cents to $1.04 it issued in February.
“As consumer behavior continues to evolve in this uncertain environment, we believe our strong e-commerce platform, data insights and understanding of consumer preferences, as well as the systems and infrastructure we have in place, will position us well to capitalize on these changes in our industry,” Eidson said.