SpartanNash Company

Please signal conference specialists 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 would now like to turn the conference over to Chris Mandeville, Managing Director of Investor Relations at ICR. Please go ahead.

Good morning, and welcome to the Spartan Nash Company third quarter 2021 earnings conference call. On the call today from the company, our President and Chief Executive Officer, Tarni Sarsom, and Executive Vice President and Chief Financial Officer, Jason Monaco. 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.spartanash.com forward slash investors. This call is being recorded, and 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 filing, 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.

Thank you, Chris, and good morning, everyone. Before I begin, I'd like to wish our veterans a happy Veterans Day. It is our privilege to say thank you to all of America's veterans, including 750 veteran associates who work at Spartan Nash. Thank you for keeping this nation the land of the free and the home of the brave. I'd also like to say thank you to all of our associates for their incredible hustle during Q3. It was a particularly busy summer for Spartan Nash and was made even more challenging by the supply chain and labor issues our industry is facing. Despite this, our team stepped up to take care of our customers and deliver strong results. At the end of the quarter, I was able to personally recognize several dozen frontline associates at our inaugural Circle of Excellence event. leaders from across the company, nominated associates who have gone above and beyond the call of duty this year to achieve results. This event sparked a great excitement and passion across the company, and I'm looking forward to this new tradition. All right, turning to our third quarter financial performance, I'd like to make a few comments. Overall, we're pleased with our results. We were up against steep prior year comparisons, but we managed to grow our top line and meet our profitability objectives. We've had solid performance year-to-date, so we feel confident in once again improving our full-year earnings guidance. Looking to our segments, we saw retail top-line growth on both a one-year and two-year basis. Our fresh and pharmacy department's performance was particularly strong. On a two-year basis, our comps improved sequentially from 12.1% to 13.5% in the third quarter. This improvement is a result of in-start execution efforts, increased traffic, and continued demand for food at home. In addition, we've made a select net price increases that, so far, have had minimal impact on consumption. In spite of our investments in wages, we manage our expenses carefully in a tight labor market. Our retail segment labor rate improved by 30 basis points compared to the prior year quarter. In our food and military distribution segments, where labor and supply chain pressures are most acute, we are seeing some favorable tailwinds. Inflation increases have supported our gross profit improvement and partially offset the difficult headwinds. However, we must do more to mitigate the unprecedented pressures that we and the industry face today. I'll touch on them shortly, but we've already taken several steps during the quarter to address these cost pressures. In addition, we're making upfront investments in our Supply Chain Transformation Initiative, which we are confident will position the company for improved profitability and long-term success. Now, back to the industry pressures. The global supply chain is under unprecedented pressure from the pandemic. Current labor conditions and inflationary pressures are straining suppliers that are already operating in survival mode throughout this pandemic. In addition to the challenges posed by vendors not fulfilling orders, We're also facing increased disruptions from vendors not showing up timely. We've seen the inbound service from our vendors decline by over 10% since the start of the year, with some top suppliers declining by more than 20%. These types of disruptions are being seen across the entire food distribution industry. As we navigate this new normal, we are focused on three core capabilities, people, operational excellence, and insights that drive solutions. Starting with people first, Our associate hiring and retention rates are still not where we want them to be. We have been primarily focused on improving wages and benefits to attract top talent. I mentioned our Circle of Excellence event earlier, which is one of several programs we're implementing to foster a culture of recognition. We will continue to make investments in competitive wages, essential training, and tools that will make us a preferred employer of choice over the long term. Also tying into our people-first culture is safety. We are performing well ahead of our internal year-to-date expectations. I'd like to credit the entire organization for embracing process improvements, which provide us with a foundation to advance our pursuit of operational excellence. And speaking of operational excellence, our supply chain transformation efforts are well underway, and we've made notable progress. If you recall, our transformation initiative is broken down into the following five work streams. warehouse operations, sales and operations planning, inventory optimization, network strategy, and procurement. While all work streams will be executed in harmony, some recent updates pertain to our network strategy, warehouse operations, and sales and operations planning. Beginning with our network strategy, we've already taken steps to optimize our operations. During the third quarter, we elected to close two warehouses and transition product to other locations better equipped to service our customers. We also launched chill operations in our Severn, Maryland distribution center. This center will be better positioned to provide enhanced customer service while reducing transfer miles previously coming from other shipping points. With these network optimizations, we've made progress on the $15 to $30 million savings goal we shared previously. It's worth noting that the execution of these programs started a little ahead of our expectations. On the warehouse operations front, we focus on productivity improvements. We are piloting new core processes and tools in one of our distribution centers. The initial pilot results have been encouraging, so we've begun to deploy these tools and processes to several other warehouses in the network. Additionally, we continue to build capabilities that allow us to improve operational efficiency and better control labor costs. We look forward to incorporating these best practices across our network. As for sales and operations planning, we're currently revising our forecasting process to ensure it aligns operations with customer demand and product availability. We're making progress to improve our supply chain planning and inventory management processes. These efforts will allow us to reduce excess inventory and improve warehouse capacity in our network. Turning to our third core capability, insights that drive solutions. We are experiencing a very dynamic pricing environment and are seeing severe swings in costs for select products. Again, this inflation can be greatly attributed to the current labor market. In spite of this, we are encouraged by what we are seeing in our overall gross margins. The current inflationary backdrop has proven favorable to our distribution business. However, there has been a significant headwind from the labor standpoint, as noted earlier. We are leveraging our customer and industry insights to negotiate with suppliers so that we can continue to maximize value for the retailers we serve. In our retail segment, we are managing costs quite well. We are striking a nice balance between capitalizing on the resilient food-at-home consumption trend. and continuing to deliver great value to our loyal shoppers. As part of our efforts to remain competitively priced in our stores, we continue to lean in on our own brand's offering. Shoppers are attracted to our own brands due to product quality, availability, and competitive pricing. We are tracking with our year-to-date penetration goal and saw nice sequential improvements in penetration compared to the second quarter. We remain focused on optimizing our own brand's marketing and fostering innovation. which we believe will pay dividends down the road. Before I hand it off to Jason, I'd like to provide an update on our planned investor day. As I shared during our second quarter call, we plan to host the event in New York this December. Our goal is to provide investors with the opportunity to participate in a more in-depth conversation on our strategy, including the Supply Chain Transformation Initiative. However, due to the challenges associated with COVID, we've made the decision to postpone our investor day until sometime during the first half of 2022. While we're disappointed to postpone the event, we look forward to gathering safely and discussing our progress in person this spring. With that, I'll now turn over to Jason, who will walk you through our financial performance in greater detail and provide you with an update on our full-year outlook. Jason?