SpartanNash Company

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 Bart Gnash's website, www.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 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 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 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 focus on our people-first culture. We recently celebrated our frontline hourly associates with our annual Circle of Excellence Awards. These associates walked the Spartan ash green carpet while the company's senior leaders cheered them on. We have now inducted more than 200 associates into this highly coveted Circle of Excellence. The Circle of Excellence is one of several recognition programs we have implemented in the past few years that are helping us to move the needle with associate engagement and retention. In fact, our total company retention rate has improved by nearly 20% since we launched our strategic plan. Turning to other recent news, I wanted to speak for a moment about the acquisition announcements we made in October. I'm pleased to say that we are on track to close the Fresh Encounter deal this month. The acquisition will add 49 stores to our retail portfolio, which expands our footprint in Ohio and Indiana and allows us to begin serving Kentucky. In addition to expanding our retail footprint, we are also winning in wholesale by capturing new sales from Fresh Encounters' other distributors. Additionally, last week we announced the acquisition of Markham Enterprises, which consists of three fuel centers and convenience stores in Michigan. We are energized by the opportunities within the C-Store space, especially due to the channel's stable demand. This transaction is expected to close by the end of this year, and we look forward to welcoming the Markham team members into our family of associates. Looking ahead, we are continuing to evaluate M&A opportunities based on our disciplined M&A framework, which is designed to maximize shareholder value. Before we jump into recent results, I wanted to provide some color on the grocery industry and provide an update on our outlook. According to syndicated data, the markets where we operate grew only 40 basis points during the past quarter compared to Q3 of 2023, while total U.S. grocery was up about 1.1%. The slower market growth in our other geographies has weighed on both the retail and wholesale segments. Okay, so what does this mean for SART and ASH? As we announced today in our earnings release, we are updating our 2024 guidance and also giving an early read into next year. Jason will dive into the details in a moment, but first I want to provide some context. So, while we are pleased to see that our transformational initiatives are outperforming our expectations, We expect these headwinds to persist into 2025, impacting our previously communicated targets in our long-range plan. We are taking a practical and methodical approach to mitigating the macro pressures, and we are steadfast in our commitment to driving results and growing shareholder value. Okay, shifting gears to recap the third quarter. Our consolidated net sales decreased 60 basis points to $2.25 billion. Lower volume in the wholesale segment was partially offset by higher volume in our retail segment. On the wholesale side, a 1.6% decrease was due to lower volumes, inclusive of a 2.9% headwind within the segment from our Amazon business. One of the continued bright spots within the wholesale segment is our military business. Compared to prior year quarters, the military channel has grown sales over the past 11 consecutive quarters and continues to bolster our growth. Now, turning to our retail segment, our retail business grew 1.9% bolstered by incremental sales from the recently acquired Metcalf stores. From a comp standpoint, we are starting to see some positive trends. Although our comparable store sales were down 70 basis points, our same store sales improved sequentially each period during the past quarter, and we had the three best periods of the year so far in Q3. Turning to profitability, Our Q3 adjusted EBITDA was $60.5 million, while adjusted EBITDA margin of 2.7% was flat compared to last year's third quarter. So, as we previously discussed, our transformational initiatives have delivered benefits an entire year ahead of schedule. All of these benefits are helping to partially offset the headwinds I discussed earlier. And we plan to capture more benefits from the 2024 investments by the end of this year. This includes our shrink reduction and non-product procurement initiatives expected to generate $20 million in run rate savings by year end. Before I turn the call over to Jason, I want to thank our team for their steadfast commitment in executing our long-term strategic plan. Since its inception in 2021, we have made significant progress. This progress has improved associate safety and retention, helped us to win new business, expanded operating productivity, increased our margins and captured cost savings, enabled us to further collaborate with suppliers, delivered value-add products and outstanding service to our wholesale customers and retail shoppers, and allowed us to make increased investments in our people. We expect these initiatives to continue generating benefits into 2025 and beyond. All of these elements have also built a solid foundation for organic and inorganic growth supporting our effort to drive results and grow shareholder value. And with that, I'll now turn the call over to Jason to walk you through the quarterly financials in greater detail.

Thanks, Tony, and welcome to everyone joining us on today's call. Turning to our quarterly results. Net sales in the quarter decreased by 0.6% to $2.25 billion versus third quarter 2023 sales of $2.26 billion. As Tony mentioned, Lower volume in the wholesale segment was partially offset by higher volume in our retail segment. Gross profit for the quarter increased to $355 million or 15.8% of net sales compared to $348 million or 15.3% of net sales in the prior year's third quarter. Our gross profit dollar increase was somewhat offset by volume declines, while the 50 basis point margin increase was driven by an accretive sales mix, higher vendor funding, and a reduction in LIFO expense. As a percent of sales, our reported operating expenses increased 32 basis points from the prior year. Higher restructuring charges, as well as retail store labor and healthcare costs, led to higher SG&A in the third quarter. These increases were, however, partially offset by lower corporate administrative costs and benefits realized from the merchandising transformation. We expect returns from the investments we've made in 2024 to materialize by the end of this year. Compared to the prior year quarter, interest expense increased $600,000 to $9.9 million. Consolidated net earnings decreased by $200,000 to $10.9 million, while EPS was flat to last year at 32 cents per diluted share. Net margin of 0.49% was flat compared to the prior year quarter. On an adjusted basis, Net earnings decreased $2.3 million to $16.5 million, or 48 cents per diluted share, compared to 54 cents last year. Adjusted EBITDA decreased by $400,000 compared to the prior year quarter to $60.5 million. Now, turning to our segments. Compared to the prior year quarter, net sales and wholesale decreased $25.9 million, or 1.6%. primarily due to reduced case volumes with independent retailers and one national account customer, partially offset by growth in other national account customers and the military channel. Wholesale adjusted EBITDA was $44.8 million, an increase of 14.8% compared to last year's $39 million. The approved results were driven by a higher gross profit rate, lower corporate administrative costs, and benefits from the Merchandising Transformation Initiative, which more than offset the sales declines. Wholesale reported third quarter operating earnings were $21.1 million compared to $18.2 million in the prior year's third quarter. The favorability was partially offset by higher restructuring charges in the current quarter. Now, moving to the retail segment. While our comp store sales were off 0.7% for the quarter, we saw segment sales grow 1.9% to $675 million versus the prior year quarter due to contributions from Metcalf's, as Tony mentioned earlier. And our supermarkets, ex-fuel centers, were up 2.9% compared to the prior year quarter. Retail adjusted EBITDA was $15.7 million compared to $21.9 million in the prior year's quarter. About half of the change was due to higher healthcare costs, with the remainder driven by higher store wage rates and a lower gross profit rate. These increases were partially offset by higher sales volume and lower corporate administrative expenses. Retail reported operating earnings were $3.9 million, compared to $4.9 million in the third quarter of 2023. Now, turning to our balance sheet, our leverage ratio of net long-term debt to adjusted EBITDA increased in the third quarter to 2.4 times, compared to 2.2 times at the end of the second quarter. Year to date, we generated $123.3 million of cash from operating activities, an increase of more than 28% compared to the same period last year. The increase was due largely to ongoing earnings and our efforts to improve our working capital position. Our liquidity at the end of the third quarter is about $500 million, giving us capacity to fund our strategic plan and M&A. As reported in our earnings release, we updated and narrowed our full year guidance based on current market conditions, which have been partially offset by our operating performance to date and the ongoing benefits we expect to realize from our transformational initiatives. Turning to the guidance ranges, we still expect net sales to be $9.5 to $9.7 billion. Adjusted EBITDA is now expected to be $252 to $257 million. with the midpoint of the new guidance about the bottom of the prior range. And adjusted EPS is now expected to be $1.85 to $1.95 per diluted share within the previous guidance range. Based on our spending to date, we also narrowed our CapEx guidance and expect it to be in the range of $135 to $140 million. We also continue to expect food inflation to be about 1% for the fiscal year. As a reminder, our full year guidance includes the benefits of tuck-in acquisitions. Before I turn the call back over to Tony, I wanted to provide more color on his comments about next year. For your reference, we still plan to give our typical full year guidance during our next earnings report for Q4. As Tony mentioned earlier, the industry has been operating in a dynamic environment. When we met with many of you in late 2022 at our investor day, Our team set long-term targets based on the market conditions and trends at that time, resulting in our growth to $10 billion in revenue and $300 million in adjusted EBITDA. Since 2022, the market conditions have been more volatile than the industry expected. While softer market conditions have manifested recently in our geographies, we remain focused on the controllables. This includes the execution of our margin-enhancing transformational initiatives which are outperforming our expectations. Circling back around, in fiscal 2025, we expect low single-digit top-line growth and mid-single-digit adjusted EBITDA growth compared to the updated 2024 guidance ranges. Achieving this outlook would deliver a compound annual growth rate of approximately 7% versus 2019. Included in our 2025 expectations are the benefits of two tuck-in acquisitions. First, Fresh Encounter is expected to contribute more than $350 million in retail segment sales, or about $225 million on a total company basis after wholesale eliminations. As Tony mentioned, our wholesale business is also benefiting from this transaction since we will be picking up volume from other distributors, which contributes to the return for this investment. We are making progress on the deal and expect Fresh Encounter to close this month. The second acquisition that we announced, Markham, is expected to add more than $20 million in net sales on an annual basis. This deal is on track to close by the end of this year. In aggregate, on an annual basis, we expect these acquisitions to add more than $10 million in adjusted EBITDA. We're funding both of these acquisitions through our existing credit line and expect them to be accretive in 2025. And with that, I'd like to turn the call back over to Tony.