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Published in Food/Agribusiness
New SpartanNash CEO outlines operational improvements, acquisition strategy in first earnings call COURTESY PHOTO

New SpartanNash CEO outlines operational improvements, acquisition strategy in first earnings call

BY Joe Boomgaard and Jayson Bussa Thursday, November 12, 2020 10:37pm

BYRON CENTER — In his first quarterly earnings call with SpartanNash Co., newly appointed CEO Tony Sarsam began to outline his vision for the food distribution and grocery retail company.

Just six and a half weeks into the job, Sarsam told brokerage analysts that he hopes to build on the company’s track record, but noted he’s currently “knee deep” into a process of identifying ways to improve the company’s productivity and drive stronger financial results, which have “underwhelmed” in recent years.

“My immediate goal is to ensure that we’re leveraging our existing competencies to have improvements in our operating performance,” Sarsam said in the quarterly earnings call. “I believe that we need to act with a certain level of urgency to make meaningful improvements in our supply chain. We’ll make investments in human capital, in our facilities and other resources to ensure our supply chain has the support it needs to operate with efficiency and a high level of execution.”

While his efforts will focus on improvements across the company, Sarsam noted results from SpartanNash’s legacy military business “are not acceptable.”

In the third quarter that ended Oct. 3, net sales for the company’s military segment were off 9.5 percent to $452 million, which executives attributed to limited access to domestic military bases and commissary shopping restrictions brought on by the pandemic.

“It has to change,” Sarsam said of the military business, noting he planned to address operational efficiency and other areas of the business segment.

“My broad commitment here is to grow SpartanNash’s top line and bottom line, and military has to play and it hasn’t,” Sarsam said. “There will be changes there, for certain.”

Overall, SpartanNash (Nasdaq: SPTN) generated $2.06 billion in net sales for the 12-week period that ended Oct. 3, a 3.1-percent increase from the same quarter last year. The company reported quarterly earnings of nearly $20 million, or 56 cents per share, which compares to a net loss of 1 cent per share in the third quarter of 2019.

Of SpartanNash’s three business segments, food distribution led the way with net sales of $1.01 billion, an increase of $73.2 million, or 7.8 percent, from a year ago, largely because of growth with existing customers in addition to incremental volume associated with demand that has accompanied the COVID-19 pandemic.

On the retail side of the business, SpartanNash generated net sales of $569.7 million, which was up 6.2 percent from the same quarter last year. Within the quarter, SpartanNash saw 175 percent growth in its e-commerce business. Comparable store sales were up 10.6 percent, partially offset by lower fuel sales and store closures.

SpartanNash experienced higher sales in the early days of the COVID-19 pandemic as restaurants closed and people shifted to eating more meals at home. Despite the surge in cases nationwide, Sarsam said sales have continued to moderate in what he described as a “choppy” environment for both retail and food distribution in the current fourth quarter.

“With some of the COVID cases rising back up, I don’t know that we’ve seen anything really measurable that we could call out through the last few weeks,” Sarsam said in the call.

He attributed that difference between activity in the initial surge and the second wave of COVID-19 cases to the lack of strict government-mandated shutdowns currently and the fact that many children are still attending school in person and eating meals there instead of at home.

Sarsam described news this week about a possible vaccine candidate from Pfizer as a “positive,” but noted it likely will not be widely available for another six to nine months, meaning “folks are not going to be going out to dinner as much as they were before because they’ll need to be indoors.”

“That should help our numbers going to 2021,” Sarsam said.

For the remainder of the 2020 fiscal year, SpartanNash lowered its earnings guidance to $2.09 to $2.17 per share, compared to a previous projection of $2.13 to $2.41. The updated projection factors in $80 million to $85 million in capital expenditures and I.T. capital investments needed to update what Sarsam described as the company’s “aging I.T. systems.”

When asked in the earnings call about his approach to acquisitions, Sarsam noted SpartanNash will continue to be “opportunistic if we have opportunity to grow in retail” but would focus its deal making strategy more aggressively on the distribution side of the business.

“The big thrust of our growth will be in distribution and we’ll look for ways to expand that, and expand it with new customers and growing some old ones and then look to set up new beachheads for growth,” Sarsam said. “We have, of course, great opportunities geographically to do that.”

Sarsam also addressed SpartanNash’s deal last month to offer a significant stake in the company to e-commerce giant Amazon.com Inc.

As MiBiz previously reported, if Amazon subsidiary NV Investment Holdings LLC purchases all of the shares it can via stock warrants available until Oct. 7, 2027, it would become the largest shareholder in SpartanNash with a 12.5 percent stake in the corporation.

“We hope they do that over that timeframe, and if they’d like to get that done even sooner, that would be a welcome benefit on our end,” Sarsam said, largely deferring questions to Amazon citing the confidentiality of the agreement. “We’ve worked with them for a number of years and continue to work with them. They’ve been a great customer and we look forward to continuing the partnership.”

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