SpartanNash Company

morning and welcome to the Spartan Nash Company first quarter 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Chris Mandeville, Managing Director of Investor Relations. Please go ahead.

Good morning, and welcome to the Spartan Nash Company first quarter 2021 earnings conference call. On the call today from the company are Tony Sarsom, President and Chief Executive Officer, and Jason Monaco, Executive Vice President and Chief Financial Officer. By now, everyone should have access to the earnings release, which was issued yesterday at approximately 4.30 p.m. Eastern Time. For a copy of the earnings release, please visit Spartan Nash's website at www.spartannash.com forward slash news. This call being recorded in a replay will be available on the company's website for approximately 10 days. Before we begin, the company would like to remind you that today's discussion will include a number of forward-looking statements. If you will refer to Spartan Nash's earnings release from yesterday, as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements. Please remember Spartan Nash undertakes no obligation to update or revise these forward-looking statements. The company will also make a number of references to non-GAAP financial measures. The company believes these measures provide investors with useful perspective on the underlying growth trends of the business, and it has included in yesterday's earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. It is now my pleasure to turn the call over to Tony.

Well, thank you, Chris, and good morning, everyone. Q1 was an exciting and transitional quarter for Spartan Ash. Our frontline associates continue to perform heroically in spite of the challenges associated with the COVID-19 pandemic, and we are taking steps to recognize that performance. As part of this, we raised the starting pay rate for our new retail associates by over 10%. We are doing a similar compensation review with our supply chain associates this summer. These increases represent the first of many steps we are taking to build upon our people-first culture and improve the retention and combat the challenges of the current labor market. Also during the quarter, we welcome several new key leaders, who I'll tell you a little bit more about shortly. All right, turning to a couple of highlights on our financial performance. As I mentioned, this is a transitional quarter for Spartan Ash. Our overall profitability is on track with our expectations at the start of the year, although the results across the business segments were somewhat mixed. We knew this was going to be a challenging quarter on the top line as we cycled last year's pandemic surge that our industry experienced in March and April of 2020. Despite this significant headwind, our retail segment performed particularly well. Comparable store sales were down 7%, but they're up significantly on a two-year basis at 9.3%. We were happy to see this trend continue, consistent with how we ended 2020. In addition, we delivered gross margin expansion of 90 basis points for our total company, which included improvements in each of our business segments. Our team continues to seek and win new business within the food distribution segment, which will continue our company's growth in both the short and long term. While the performance of our military segment is trailing a bit behind our expectations due to the challenges in the top line, our team has been working through significant initiatives to grow margins and operate more efficiently. In addition to these financial highlights, we made progress on our 2021 key performance indicators, which I introduced in our last earnings call. As a reminder, these initiatives include investing in our associate experience through programs related to safety and retention, improving distribution service levels, improving our private label brand presentation, and taking action to sustain improvements in gross margin levels. Regarding associate safety risks and retention, this quarter we achieved improvements in both reportable safety incident rates and associate turnover. We placed a renewed emphasis on hiring, onboarding, and training of new associates. In addition, we've implemented new safety measures to raise awareness of the best practices and identify potential safety issues. These actions, combined with investments in processes and people, are driving results on these people-first initiatives. While on the topic of making investments in people, I want to touch on hiring. Like many other companies, we have been incredibly challenged with hiring due to the labor shortage. Just as an example, in Petoskey, Michigan, one of our Spartan Ash markets, there was a job fair held in May with 60 employers looking to fill 500 jobs. Only four candidates showed up. It is our intention to win in this war for talent, and Spartan Nash is continuously renewing our compensation and benefits offerings to help us attract new hires. Despite these challenges, we have still been fortunate to make several key additions to our leadership team this year, including three executive leaders, six vice presidents, and 11 directors. These talented hires bring outstanding new capabilities to Spartan Nash. You'll hear from our new CFO, Jason Monaco, shortly. But first, I want to offer some background on the other two new members of the executive team. Dave Petko has joined as our Chief Supply Chain Officer. Dave brings 25 years of supply chain and distribution experience. He most recently served as Senior Vice President of Supply Chain for CNS Wholesale Grocers, among the largest grocery distributors in the country. There, he was integral to many of the initiatives that drove both sales growth and operational efficiencies. Maziar Tayabi also recently joined as Chief Strategy Officer, which is a new position for the company. Maziar previously served as the Head of Global Strategy and Business Development at Whirlpool Corporation, where he was responsible for acquisitions. Prior to Whirlpool, Maziar was Executive Director at UBS, focusing on strategy, mergers and acquisitions, technology, and transformational change. Dave Maziar and our new CFO Jason will work closely with the rest of the leadership team to identify, analyze, and resolve business challenges while capitalizing on new business development opportunities. As a people-first organization, improving our business results begins with having the right talent. These new team members, together with our existing leadership, are essential to building a high-performance culture. Collectively, our strength and executive team will work to improve our performance, particularly in our supply chain. While we have seen favorable trends in fill rates, throughput, and other key metrics, we have work to do to realize these improvements on the bottom line and to meet our longer-term expectations. We've already begun certain initiatives to standardize processes, streamline operations, and drive costs out of the system. As noted in yesterday's press release, we will be making additional investments for the remainder of this year to deliver further improvements in this area of our operations. Although our plan is currently in the blueprint phase, we expect these results to be transformative. Key areas of focus within this initiative will include enhancements to our network strategy, procurement, transportation efficiencies, and improvements in our warehouse operations. Our team is energized to get started with this transformation and we expect to provide you with updates along the way. Shifting to our goal on private brands, we have continued to make progress on our assortment and penetration. Our own brands help us to win in the marketplace by driving consumer loyalty and improving margins. I am personally delighted with the work that our team has done to develop new products and packaging. There is growing consumer excitement for our own brands And we look forward to expanding these offerings throughout our retail footprint and among our independent customers. Finally, as I mentioned earlier, we're continuing to see improvements in our gross margin rates with contributions across the segments. We are eager to carry on this momentum even as we navigate inflation, challenging labor markets, and cycling pandemic trends in the balance of this year. Next, I want to introduce Jason Monaco, who joined us as CFO in March. Jason brings valuable distribution expertise from his leadership positions at Borden Dairy and Kimberly Clark. Jason, we are pleased to have you on board, and I will now turn it over to you to review our first quarter performance and discuss our expectations for the remainder of the year.