SpartanNash Company

Welcome to the Spartan Ash second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would like to turn now the call over to Kaylee Campbell, Spartan Ash's Head of Investor Relations. Kaylee?

Thank you and good morning. 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, 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 Spartan Ash'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 undergoes 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 Ash's website at 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. I want to start today's call with a recent highlight from the year. Last month, we welcomed more than 1,500 suppliers and independent grocer customers at our annual Food Solutions Expo in Grand Rapids, Michigan. The event featured suppliers and customers award ceremonies, retail discussion groups, and educational sessions. Of course, the food expo wouldn't be complete without a bunch of samples, special deals, and some live auctions. Leading into customer trends, our team introduced 400 new own-brand products at the event. These compelling offers are value-oriented and really appeal to consumers who are tightly managing their food budget. Our team also showcased 14 support services for independent grocers, including digital media, marketing, and technology. Popular trends on the exhibit floor included dill-flavored products, ready-to-eat meal solutions, indulgent macaroni and cheese, grab-and-go fried sandwiches, and non-alcoholic beverages. After an incredible few days, we ended the expo with a donation of 30,000 meals to Feeding America here in West Michigan. All in all, it was a great event and brought together industry leaders who are passionate about elevating the grocery shopping experience. Thank you to all who attended, and a huge thank you to the associates and vendors whose hard work made this year's expo one of the best yet. Before we jump into our recent results, I wanted to not just provide color on industry trends, but also share what we are doing to win during challenging market dynamics. Food at home inflation and total U.S. grocery sales have decelerated compared to 2023. The overall market growth was flat in Q2, and consumers have heightened their search for value. According to our research, More than 50% of shoppers indicate they are seeking sales, and 21% are shopping multiple retailers in search of deals. Notably, 63% of lower-income households are extremely concerned about perceived price increases over last year. So those are the market dynamics we're facing. Although the headwinds are greater than the entire industry anticipated these last few years, Spartan Nash has remained focused on our controllables. Our transformational initiatives are delivering the benefits we expected ahead of schedule. These programs are helping offset the macro pressures, building a foundation for growth, and creating long-term value. Specifically, we expect the larger investments we've made over the past two quarters to deliver $20 million in run rate benefits by the end of this year, with more flowing through in 2025. Our merchandising transformation is helping us capture margin and create a platform for future growth. I'll now expand on three key programs within the merchandising transformation. The first program is Enhanced Category Planning, or ECP. We've been relentless in our efforts to help make grocery bills more affordable. One of several components of ECP leverages data from commodity markets and other industrial benchmarks to require justification for rising input costs. This cost policy continues to help our independent customers and retail stores remain price competitive. The second program I want to touch on is our own brands. Shoppers continue to seek our private label products, which deliver the value they are seeking without compromising quality. We are very pleased with the early results of our newest premium line, Finest Reserve. Finest Reserve has seen both dollar and unit penetration growth in every category. The ongoing success of our own brands gives us reason to believe that potential unit penetration will grow up to 300 basis The third program I want to touch on in our merchandising transformation is our Customer Value Proposition, or CVP. This store modernization program leverages the learnings from the success of our enhanced category planning, our remodeling program, and our recent retail acquisitions. CVP is differentiating us in competitive markets by blending innovation with the familiar neighborhood feel shoppers love about our stores. This transformation is informed by extensive shopper data and insights aimed at enhancing freshness, value, and convenience. Along with a refreshed decor and market-style environment, the CVP pilot stores have expanded deli options with fresh grab-and-go meal solutions, $20 healthy and quick meal kits designed to feed a family of four, an open bakery that fills the store with aromas of fresh baked pastries, along with artisan breads and desserts, market fresh buys at new lower prices with fresh cut produce, a dedicated value wall showcasing market-disruptive promotions, and improved competitive pricing based on analytics. In fact, the initial stores are lowering prices on more than 6,000 items. This provides more value that our shoppers are seeking today. Although we are early in the process, We're excited about the initial results of the CDP project. Consistent with other remodeled stores, CDP is expected to deliver double-digit growth, but doing so at lower prices, more volume, and greater emphasis on fresh, which has a higher profit margin. Going forward, CDP will inform our retail renovation program, and we look forward to providing updates once we start a broader rollout. To recap, we are focused on what we can control and not standing still in this environment. While the headwinds are greater than expected, our long-term strategic initiatives are helping us offset the challenging market conditions. Okay, shifting gears to recap the second quarter. Our net sales decreased 3.5% to $2.23 billion. Our national accounts channel was the biggest driver of this decrease, which was largely impacted by Amazon. Conversely, the military channel has grown over the past 10 quarters when compared to prior year. This growth helped offset some of the pressure within the wholesale segment. On the retail side, our comparable store sales were down 2.5%. Despite the macro pressures we face, we are pleased with the performance of our Michigan upmarket stores. In addition, the newly acquired Metcalfe's business, which consists of premium banner high-volume stores, is expected to add $100 million in annual revenue. As an added benefit, the Metcalf stores were previously serviced by another distributor and are now serviced by Spartan Ash. This successful acquisition gives us confidence that our M&A framework is working, and we are seeing a more active pipeline of inorganic opportunities in both our wholesale and retail segments. Turning to profitability, our Q2 adjusted EBITDA decreased slightly from prior year to $64.5 million. We expect that we will capture the benefit from investments made in the first half of the year to support our transformational initiatives by the end of 2024. Notably, we grew adjusted EBITDA margin for the first half of the year, while others in the industry were maintaining or declining. Before I turn the call over to Jason, I want to extend our heartfelt thanks to our associates. Their ingenuity and dedication are driving results in creating shareholder value. I want to thank them for their steadfast commitment to advancing our mission of delivering the ingredients for a better life. It is an honor to lead this talented team. Thank you all. With that, I'll now turn the call over to Jason, who will walk through the quarterly financials in greater detail.