SpartanNash Company

Welcome to the Spartan Nash First Quarter 2023 Earnings Conference Call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to Kaylee Campbell, Head of Investor Relations.

Good morning and welcome to the Spartan Nash Company First Quarter 2023 Earnings Conference Call. On the call today from the company, our President and Chief Executive Officer, Tony Sarsom, and Executive Vice President and Chief Financial Officer, Jason Monaco. By now, everyone should have access to the earnings release, which was issued this morning at approximately 7 a.m. Eastern Time. For a copy of the earnings release, as well as the company's supplemental earnings presentation, please visit Spartan Ash's website at www.spartannash.com forward slash investors. This call is being recorded and a replay will be available on the company's website. Before we begin, the company would like to remind you that today's discussion will include a number of forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statement. If you will refer to the Spartan Nash earnings release from this morning, 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 that all forward-looking statements made today reflect our current expectations only, and Spartan Ash 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 the earnings release a full reconciliation of certain non-GAAP financial measures to the most comparable GAAP measures, which can be found on Spartan Nash's website at www.spartannash.com forward slash investors. And now it is my pleasure to turn the call over to Tony.

Thank you, Kaylee, and good morning, everyone. I'd like to start by welcoming our new class of summer interns to the Spartan Ash family. This is our largest cohort yet and we're excited to continue growing our internship program. This pipeline of diverse young leaders brings fresh perspectives and creative problem solving to our business. These interns will receive meaningful assignments and mentorship to help them grow and hopefully stay at Spartan Ash. It is going to be a great summer. All right, let's pivot to our results and why we are excited about the future. First, we are proud to say that we are reiterating our full year guidance and 2025 long-term targets. We had a strong start to the year and our strategic transformational plans are working. This is an inflection point in our organization. We have the right team in place to execute on our strategic long-term plan. And we are one, advancing our synergies between wholesale and retail segments, two, rolling out a robust funnel of operational excellence initiatives and three, prudently managing our capital allocation. Our team also continues to do an outstanding job of managing through challenging macro dynamics. This last quarter, our team successfully cycled a significant retail wage increase. With that headwind behind us, we are confident about hitting our full-year and long-term targets. We believe the growth benefits from our two transformational initiatives, our merchandising transformation and our supply chain transformation, will continue driving value Notably, we expect to realize more than 50% of the total gross benefits from both initiatives by the end of this year. And we expect these actions will also contribute to margin expansion. This gives us confidence in our ability to grow adjusted EBITDA by at least 40% in fiscal 2025 compared to 2021. We have momentum behind our strategic plan and there is plenty of runway ahead. And our core capabilities, which are people, operational excellence, and insights that drive solutions have given us focus we need to win in this environment. Okay, I want to turn to the highlights from our first quarter results. This past quarter, we lapped our best quarterly adjusted EBITDA results from Q1 of last year and outperformed our internal expectations by delivering adjusted EBITDA of $76.8 million. The team accomplished these strong results despite significant headwinds which we anticipated would be the most impactful during the first quarter. This solid performance reflects our focus on executing our multi-pronged growth strategy, as well as the success of our merchandising and supply chain transformations to date. These transformational initiatives are expected to drive significant profitable growth for years to come. Okay, taking a step back. You may remember that our merchandising transformation was born from our focus on creating enhanced offerings and value for our wholesale customers and retail shoppers. We want to create more enhanced offerings and value for customers, especially when they are trying to stretch their dollars. Throughout this unprecedented food inflation, we have worked hard to mitigate these rising costs. As a food solutions company, we wholeheartedly believe that when families win, we all win. We are grateful to the CPG brands that have collaborated with us to ensure consumers maintain affordable access to groceries and essentials. We have processes in place to continuously monitor the impact of the macro environment on our business. Because of these processes, we are able to anticipate inflation-related price gains or forward buy headwinds, and we strategically timed the launch of our merchandising transformation last year. Along with offsetting some headwinds, the Merchandising Transformation is providing a strong foundation for years of growth through enhanced customer-led capabilities. The focus of the program involves filling as many shelves as possible with the right products at the right place at the right price. We started realizing the benefits from the Merchandising Transformation this past quarter, and we're gaining momentum. Significant additional benefits from the total program are also flowing through to our wholesale customers and retail shoppers this past quarter. And the transformation will help Spartan Ash and our wholesale customers attract new shoppers. Additionally, we have made significant progress since our investor day. We are now entering the next generation of the merchandising transformation. This includes the launch of, one, the next phase of enhanced category planning, and two, our assortment and compelling offering program. For more details about the progress we're making, please refer to slide 10 in the supplemental deck. In fiscal 2023, the gross benefits that the company expects to realize from the merchandise transformation are $25 to $35 million, consistent with our long-term plan. Turning to our supply chain transformation, which involves optimizing our network. We continue to find synergies and growth savings in our operations, and there are plenty of opportunities ahead. Compared to the prior year, during the first quarter, the team delivered the following. One, we drove a 99 basis point improvement in the reported operating expenses in our wholesale segment. Two, we increased our throughput rate by 6%. And three, we improved our fill rate to 77% compared to 61% in Q1 of 2022. I want to give a hearty congratulations to the Spartan Nash supply chain team. They were recently recognized with the 2023 top third party logistics and cold storage providers award, a distinguished accomplishment in our industry. Their steadfast commitment to our customers and operational excellence is truly inspiring. Okay. I want to provide a financial overview of our expectations for the transformational initiatives. In fiscal 2022, we realized $25 million of growth savings from the supply chain transformation. And this year, we expect another $20 to $30 million in benefits. To reiterate, we expect to realize more than 50% of the total gross benefits from both initiatives by the end of this year. This includes the expected gross benefits from the merchandising transformation and the gross savings from the supply chain transformation. This is remarkable progress, and the entire Spartan Ash team is proud of that. All right, turning to our retail segment, We are leveraging insights from our marketing innovation to unlock more opportunities within our scaled retail operations. Retail's market share increased during the quarter within the segment's $20 billion addressable market. And we have plenty of opportunities to grow share further. In an environment when consumers are time starved, we are providing solutions that offer value and convenience. We are enhancing the shopper experience by one, harmonizing banner brands and e-commerce sites to improve shoppers' omnichannel experience with an emphasis on digital promotions. Two, broadening local vendor relationships to deliver unique homegrown products. Three, creating personalized value experiences through loyalty offerings. And four, tailoring our own brand's product based on shopper preferences. We are also amplifying our indulgence and convenience offerings. I want to provide an example of why I am so excited about these programs. Our freshly prepared value added produce sales are up almost 50 percent year to date. This is an incredible accomplishment. Suffice to say we have a lot to be proud of and are building on this terrific momentum. I will now turn things over to our CFO Jason Monaco to share more details about our financials.