SpartanNash Company

Welcome to the Spartan Ash fourth quarter and fiscal year 2023 earnings 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 Ash Company fourth quarter and fiscal year 2023 earnings conference call. On the call today from the company are 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.spartanash.com. spartanash.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 statements. If you will refer to Spartanash's 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 perspectives 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 Ash's website at www.spartanash.com forward slash investors. And now it is my pleasure to turn the call over to Tony.

Thank you, Kaylee, and good morning, everyone. Glad to be here. To start, I'm incredibly proud of our talented team of Spartan Nash Associates. We made huge strides in our long-term strategic plan in 2023. We delivered record profitability and consistently performed in line with our guidance despite a challenging macroeconomic environment. I want to extend a heartfelt thanks to each of our associates who contributed to our success. The investments we've made in our People First culture are paying off. Before I dive into the financials, I want to highlight the progress we've made with our people. In 2023, we improved our turnover rate by more than 9%, and the momentum continued to build with sequential improvement in the second half of the year. Our associate satisfaction helped us earn the prestigious Great Place to Work certification and a spot on Newsweek's America's Greatest Workplaces for Diversity in 2024. In addition, our overall rating on Glassdoor increased to 3.9 out of 5 in 2023 versus 3.4 in 2020. This puts our score at the top of our peer group and other major national retailers. We've also become a safety leader in our space, which is one of our proudest accomplishments. Since 2020, we have reached the top quartile for OSHA safety performance by reducing our lost time incidents by 78%. This includes a 20% improvement in the last year alone, and as a byproduct of our genuine effort to protect our people, we've reduced workers' compensation losses by nearly 30% since 2020. Together, these improvements in turnover and safety have resulted in improved associate engagement and increased productivity. Now, turning to financial highlights for the year. Starting with our top line, our 2023 net sales increased nearly 1% to $9.73 billion. The impact of our Amazon business reduced our sales by 2% over this period. This change in demand impacted our total company sales expectations for the year. However, we have continued to grow the top line, and importantly, the bottom line, despite the Amazon volume pressures. Speaking of the bottom line, we grew profitability in 2023, while others in the industry were simply maintaining or declining. Our main performance metric adjusted EBITDA was up 6% in 2023 and our adjusted EBITDA margin expanded 13 basis points compared to the prior year. Notably, with the exception of 2020, the last two years have seen the best EBITDA margin expansion in the 10 years since our merger. The success of our supply chain and merchandising transformations contributed to these results. In 2023, we realized $55 million in benefits from these initiatives. Since launching our transformation work, we have improved our throughput rate by double digits, passed along benefits to our customers through the enhanced category planning program, and captured $80 million in total gross benefits. We continue to build momentum in other parts of our business as well. Over the past year, we, one, continued renovating, rebannering, and refreshing our stores, which represents 19% of our store base since 2021. Two, We grew our retail market share by 27 basis points. And three, we increased our own brand's retail unit penetration rate by 30 basis points. As we look ahead to 2024, our team is focused on growing top line, capturing additional benefits from our transformational initiatives and launching new cost savings programs. Regarding top-line growth, our new Chief Customer Officer, Amy McClellan, is now at the helm. Her team has identified organic opportunities that include expanding our national account service models, leveraging our existing network for new opportunities through capital-light business development, and accelerating market expansion opportunities as a result of last year's Great Lakes Foods acquisition. Amy has served on the executive team for two years and has leadership experience in retail, merchandising, and marketing. Prior to Spartan Ash, she was actually one of our wholesale customers. She understands the independent grocery business model and will be a great advocate for helping our customers grow with Spartan Ash. Other things we're excited about in 2024 include our continued transformation work. We expect to capture an additional $50 million to $60 million in benefits from our supply chain and merchandising transformations, as well as our go-to-market plans. This puts us on target to hit our gross benefits range of $125 to $150 million a whole year earlier than initially communicated. We're also in the process of launching several cost savings initiatives. These include automation and AI programs, such as the expanded use of Tally, our in-stock robot, which will appear in 75 stores this year. We're also implementing an automated workforce planning tool and inventory validation warehouse drones. As part of our ESG work, we're introducing operational shrink initiatives to help us reduce food waste across our total value chain. These are all capital light projects that will add value for years to come. We look forward to providing updates as the benefits of these programs materialize. Okay, so we have talked about our 2024 plans to grow to the top line, capture additional benefits from our transformation initiatives, and new cost savings programs. We're also actively evaluating inorganic growth opportunities. Over the past couple of years, we have refined our organizational structure to enable efficient and effective acquisition integrations. And we've demonstrated our ability to integrate new assets into our existing network through the retail and wholesale acquisitions we made in 2022. During the same two-year timeframe, more opportunities have presented themselves in both of our segments. We continuously evaluate these opportunities using a disciplined approach. We will remain good stewards of capital and will only pursue those opportunities that we believe will enhance long-term shareholder value. Before turning the call over to Jason, I want to provide some context on what has changed in our industry over the past couple of years. Volume headwinds are higher than the industry initially anticipated following the unprecedented food inflation spike of 2022. We experienced a drop in demand within our Amazon business as they developed a store format that better resonates with their customers, and we're seeing more inorganic growth opportunities. While our long-term strategic plan has consistently captured benefits, we will continue to reassess and adapt our strategy in response to industry headwinds and opportunities. To summarize our overall view of the business, there are many opportunities to win in any dynamic environment. I'm excited about the progress we'll make in 2024 and the value that our transformation work continues to create. All right, I'll now turn the call over to Jason to walk through the quarterly financials and 2024 outlook in greater detail.