SpartanNash Company

Thank you for standing by. Welcome to the Spartanage first quarter fiscal 2025 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 now like to turn the call over to Kaylee Campbell, Spartanage 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. 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 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 a 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. 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 would first like to take a moment to welcome our summer 2025 intern cohort. This summer, we are hosting 89 students from 35 universities across the country. With a focus on developing talent and the next generation of leaders, our internship program is a key component of our People First culture. And we are proud to say that our award-winning internship program has now welcomed 300 students over the past three years. Thank you for spending the summer with us, interns. We look forward to learning and growing together. All right, let's shift gears to the first quarter results. We had a fantastic first quarter, beating our budget and delivering a record-breaking adjusted EBITDA of nearly $77 million. And building on last year's momentum, we posted another quarter of growth. In Q1, our sales increased 3.7% to over $2.9 billion. Our retail segment results were strong with a 1.6% increase in comparable store sales. This was despite inclement weather conditions in our core market. And on top of that, the stores we acquired in 2024 contributed to our strong sales results. Notably, retail performance was up against a tough backdrop. Following the historic ice storm in late March, nearly 10% of our stores were impacted for a few days in our core market. The total effect on our comp from these temporary closures was 80 basis points. I want to thank the team for jumping into action when our customers needed us. In addition to donating two truckloads of food and water, some of our Michigan stores provided additional relief to the communities we serve. This included hot meals, product donations, and discounted groceries. Thank you to the associates who stepped up to help our neighbors in a time of need. Now, on to the wholesale segment. Overall, we are pleased with wholesale's performance. Net sales for the segment were nearly $2 billion. Although there was expected softness in our national accounts channel, these volume pressures were partially offset by higher sales in the military channel. The military business has grown 13 consecutive quarters. Okay, pivoting back to the bottom line. Both adjusted performance metrics, EBITDA and EPS, were ahead of our expectations. Again, adjusted EBITDA came in at a record $77 million for the quarter. This was a 2.6% increase compared to the prior year first quarter. Overall, we had a very strong quarter. Sales were up, retail comps were positive, wholesale margins improved, and bottom line results delivered. And we were able to maintain strong margins while investing in our transformational initiatives. Congratulations to the team for a stellar quarter. Now, let's discuss the current environment we're operating in. Our recently launched cost leadership program is designed to improve our cost structure and add earnings certainty. The program is expected to deliver $50 million of annual benefits within your gains this year of approximately $20 million. The program enables us to invest in growth and expand margins, all while offsetting industry headwinds. Some examples include leveraging our scale to deliver more procurement benefits, implementing automated solutions in our DCs, and establishing new retail processes to ensure effective labor spend and time efficiencies. Speaking of our retail processes, this is a good segue into the discussion about the next phase of our strategic plans. Since 2021, our strategic plan has generated more than $130 million from our margin enhancing initiatives, including our supply chain and merchandising transformation. The next logical step of our strategic plan is to unlock the significant potential of our retail business. With new leadership in retail, associates have been relentless in their efforts to achieve operational excellence. Within the past few months, the team has implemented initiatives which are improving execution while enhancing the shopper experience. Although our shoppers are looking for low prices, they're really seeking overall value. And we're focused on providing the right balance in our retail stores, price and value with a differentiated offering. As one example, we acquired Metcalfe's Market last year, and they established the world's largest bratfest in Madison, Wisconsin. This summer, we are leveraging the spirit and branding from that event and highlighting what differentiates our retail stores. We're making Bratwurst fresh in-house daily with a unique flavor featured every week. This is a new in-store destination and summer grilling campaign available in all of our Family Fair, D&W Fresh Market, and Martin's Supermarkets. We're really enjoying some grill thrills with this one. giving shoppers a chance to relish in a variety of new flavors. And during the first week of the summer, Brat sales were up a sizzling 148%. All right. So as discussed last quarter, we plan to continue investing in our retail segment through three growth platforms. One, expanding our capital deployment into select conventional and upmarket store remodels. Two, leaning into the attractive convenience store sector. And three, in leveraging our capabilities in the Hispanic food markets by growing our ethnic store footprint. Speaking of growing our Hispanic food markets, I was honored to be part of the company's largest ever grand opening event. Our newest Supermercado Nuestra Familia in Omaha, Nebraska, expands access to culturally relevant products and services. Thank you to the retail team for introducing this store to the community in a memorable one-of-a-kind event. As I hope you can tell, we have a lot going on, and that's why our team is energized about the future of Spartan Ash. We continue to execute our strategic plan and deliver on our commitments. As you may have seen in this morning's earning release, we beat our internal expectations and we are reaffirming our yearly guidance despite the macro environment. Our results to date, as well as our expectations for growth programs, give us confidence that we will achieve the 2025 targets we laid out in February. 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. Before jumping into the detailed quarterly results, I'd like to touch on a few key successes from our strategic plan. Some of these highlights include, one, increasing net sales by over $1 billion since 2019. Two, making significant progress on our margin-enhancing initiatives including the supply chain transformation, merchandising transformation, marketing innovation work, and the go-to-market plan. Three, launching our newest transformational initiative, the cost leadership program. As Tony mentioned, we expect to deliver $20 million in savings this year alone. The benefits from the program are included in this year's guidance, and we expect to capture $50 million of savings annually in future years. And four, generating more than $130 million in total benefits from our margin-enhancing initiatives, achieving our multi-year plan target of $125 to $150 million a year early. And we still have plenty of runway ahead. Okay, jumping into our first quarter results. We started the year strong, delivering solid growth. Consolidated net sales in the quarter increased 3.7% to $2.9 billion versus first quarter 2024 sales of $2.8 billion. While we experienced lower case volumes in our wholesale segment, we more than offset those trends with incremental sales in our retail segment from both acquired stores and higher comparable store sales. Gross profit for the quarter increased to $481 million or 16.5% of net sales compared to $440 million or 15.7% of net sales in the prior year's first quarter. The 86 basis point margin improvement was driven by a sales mix shift towards the higher margin retail segment and an increase in the wholesale segment gross margin rate. Compared to the prior year quarter, interest expense increased $1.7 million to $15.2 million due primarily to an increase in borrowings related to our recent acquisitions. On a reported basis, our net earnings were $2.1 million, or 6 cents per diluted share. This is compared to net earnings of $13 million, or 37 cents per diluted share in Q1 of last year. Both adjusted EPS and adjusted EBITDA were ahead of our expectations during the quarter. On an adjusted basis, Net earnings were $12 million, or 35 cents per diluted share, compared to net earnings of 18.5 million, or 53 cents, in Q1 last year. Notably, we started the year strong with a record adjusted EBITDA in Q1 of $76.9 million. This was a 2.6% increase compared to Q1 2024's adjusted EBITDA of $74.9 million. The higher profitability from the quarter was due to several factors, including higher retail sales, improvements in wholesale margins, reduced shrink within our supply chain, and lower corporate administrative expenses. Now, turning to our segments. Net sales for our wholesale business, which includes independent grocery customers, national accounts, and military channels, were almost $2 billion. Higher sales in the military business partially offset volume pressures in national accounts and independents. Notably, sales now also reflect the intercompany elimination of revenue related to the recent Fresh Encounter acquisition. For reference, Fresh Encounter represented approximately 1.7% of the prior year sales. Full-sale adjusted EBITDA increased an impressive 7.2% to $61.8 million compared to last year's $57.6 million. The improved results were driven by a higher gross profit rate, benefits from our margin-enhancing initiatives, and lower corporate administrative expenses. Wholesale reported first quarter operating earnings were $33.2 million, a decrease of 7.6% compared to $36 million in the prior year's first quarter. Now, moving to retail. the segment sales grew 19.6% to $947.2 million versus the prior year quarters, $792.2 million. Along with the recent retail acquisitions, these results were also driven by a 1.6% increase in comparable store sales, another positive step change in our growth trajectory. Retail adjusted EBITDA was $15.1 million compared to $17.3 million in the prior year quarter. The decrease was due to higher store labor and occupancy costs, which were partially offset by increased sales volume and lower corporate administrative expenses. Retail reported an operating loss of $14.3 million compared to a loss of $5.4 million in the first quarter of 2024. With that, let's turn to our balance sheet. Our leverage ratio of net long-term debt to adjusted EBITDA slightly increased in the first quarter to 2.9 times compared to 2.8 times at the end of the fourth quarter. We generated $25.8 million of cash from operating activities during the quarter compared to $36.5 million in Q1 2024. This was mostly driven by changes in working capital and reported earnings. Our liquidity at the end of the quarter was about $270 million, giving us capacity to fund our strategic growth plan including M&A opportunities. As Tony mentioned, following a strong first quarter, we are reaffirming our guidance for fiscal 2025. The outlook has several considerations, including challenging market conditions within the grocery industry. These have been partially offset by our strong operating performance to date and the ongoing benefits we expect to realize from our transformational initiatives. To execute this plan, we continue to invest in our capabilities and initiatives that deliver long-term shareholder value. This year's investments began in Q1, and we expect them to continue throughout the year. We did more in the first half versus the back half of the year. To summarize the guidance ranges for our 53-week year, we continue to expect net sales to be $9.8 to $10 billion, with a midpoint of 3.7% growth. And... Adjusted EBITDA is expected to be $263 to $278 million, with a midpoint of 4.6% growth. For your models, non-cash expenses, primarily DNA, are expected to have about a $0.30 drag on EPS for the year, unchanged from our annual guidance. We continue to expect adjusted EPS to be $1.60 to $1.85 per diluted share. As a reminder, the DNA impact is driven by acquired assets and our capital investments we've made as part of our growth strategy. And lastly, our CapEx is still expected to be in the range of $150 to $165 million, inclusive of ongoing capital requirements for recently acquired assets. Notably, achieving our 2025 outlook would deliver an adjusted EBITDA compound annual growth rate of approximately 7% since 2019. Before turning the call over to Tony, I wanted to provide an update on food at home inflation. Since providing our guidance in February, we now expect inflation to be about 2% for the fiscal year versus our prior expectation of 1%. Higher food inflation is typically a short-term benefit for wholesalers. And although we are opportunistic with short-term forward buy opportunities, we continue to execute on our enhanced category planning program to ensure customers get the best cost. This merchandising initiative helps combat rising food costs by improving offerings and value for our wholesale customers and store guests. As a food solutions company, we strongly believe that when the shopper wins, we all win. And with that, I'd like to turn the call back over to Tony.

Thank you, Jason. We hit the ground running in 2025. and the momentum continues to prove that our strategic plan is working. We remain diligent in our execution of that plan to further drive results, capture market share, and maximize shareholder value. Before we open up the call to Q&A, I wanted to share that our team is thrilled to welcome 2,000 suppliers, independent grocery customers, and associates at our upcoming annual Food Solutions Expo. This summer's event will feature award ceremonies for suppliers and customers, retail discussion groups, educational sessions, product introductions, special deals, live auctions, and more. We look forward to meeting with industry leaders who are passionate about elevating the grocery shopping experience. See you all in July.

With that, I'd like to turn the call back over to the operator and open it up for your questions.

Thank you. If you would like to ask a question, simply press the star followed by the number one on your telephone keypad. You will be placed into the queue in the order received. Please be prepared to ask your questions when prompted. Once again, if you have a question, please press star one on phone now. One moment, please, for your first question. And your first question comes from the line of Chuck Surakuski with North Coast Research. Please go ahead.

Good morning, everyone. Regarding the Hispanic store format, Is that largely concentrated in the Omaha market, I think, where it began? Do you see it moving into other markets? And maybe give us an idea what kind of store count we have now and where you think it will be in two or three years, please.

Great, great, great question. So appreciate that. So right now we have, as you know, we had three of the Super Mercado Nuestra Familias in Omaha. We opened a fourth one in Omaha just this past month. And we are looking to be more aggressive in opening new stores there. So what you'll see is going forward, we will open two or three more stores in the Midwest during the balance this year, and then at least one or two in the first quarter of next year as well. So we're looking to expand that footprint and open new stores. And it'll be a combination of converting, not necessarily our stores, just one we did in Omaha was a conversion of one of our stores, but most of the conversions of other stores that are either fallow or out of business, but in the neighborhood where we can best serve that community. So very, very excited about the future with the growth with those Hispanic stores.

Tony, do you see those moving into Michigan at all?

Yes. Great. Thanks.

And your next question comes from the line of Alex Slagle with Jack Felicis. Please go ahead.

Thanks. Congrats on the progress. Yeah, the ethnic store expansion, that was interesting in one of my questions as well. I was kind of curious how that works out, opening up and sort of doing a conversion in a market and sort of the consumer response. And then just some thoughts on recent performance of the newly acquired stores overall, just any new learnings you've seen there or incremental opportunities you're thinking about as you look ahead with these stores or plans for acquisitions in the future?

Sure. Our Hispanic stores have performed very well the whole time I've been here. We got out of the gates this year. They have led our store portfolio in both top line and bottom line performance. And so we remain very bullish on that channel. And those stores, as you know, are established stores in communities. We've had those stores for over a decade. So they continue to grow. They continue to grow and grow profitably. The new store conversion we did, It's awfully new right now, but we converted that store over, and right now we are up double digits from where it was before the conversion. And that's, again, those early days. So we feel very strongly about how that store will perform, and that's why our continued enthusiasm to open more stores.

Yeah, maybe building on that, Alex, this is Jason. Tony's talked about our excitement about these stores. We're energized in the strategy and the thinking of how we deployed these. is that we've got a market where we've got strength and a brand awareness in Omaha. We began with a conversion of a former family fair into a supermercado. And then we'll be expanding, as Tony said, outside of the Omaha market into new geographies, some of them where we operate today and some new geographies where we don't have retail operations based on the attractiveness of those markets. But think about this in the context of you've got a You've got to crawl, then walk, then run as we build out this strategy, make sure that what we're deploying is working, we learn from those activities, and we execute it well. We've got a real hidden gem in the portfolio here. We want to deploy that across our marketplace, and early returns are quite positive. As we've said before, generally on remodels, we get double-digit revenue growth. And this store is no different. We would expect similar performance in new store conversions and new builds going forward. On the acquisition front, pretty early days on Fresh Encounter and Markham since those came in late in the year, late last year. But thus far, they've been delivering largely according to plan. We've been happy with the results and we've been working together with those teams to integrate them into the Spartan Nash family. and ensuring that not only are we delivering the business case, but we're delivering the employee and associate promise that we've made to those folks.

Got it. Thanks.

And your next question comes from the line of Benjamin Wood with BMO Capital Markets. Please go ahead.

Hey, good morning. This is Ben on behalf of Calibania. Thanks for taking our questions. I wanted to start to see if you could provide some more color on the cadence of that 40 million in cost leadership this year. I believe you said it would be more first half weighted, but how much of that program would have impacted one queue? And then just which segments should we see that popping up in?

Hey, Ben, this is Jason. Thanks for the question. The bias towards the first half is more towards the expenses we're investing in the programs, and we expect to deliver $20 million of benefit this year from our new cost leadership programs. That $20 million on an annual basis is expected to be around $50 million, and we'd see the full 50 in 2026. With respect to the segments that 20 million in-year represents, I expect most of that to be in the back half of this year. There'll be a little bit in Q2, but it's largely in the back half of the year. And you should expect to see it impact both segments as we're deploying benefits against our retail operations, where we've got changes in our supply chain operations, and we have changes in the way that we're buying from a procurement standpoint. So both segments will be impacted. largely by those three levers. In addition to that, to get to the 40 that you see in the supplemental materials on the investor relations website, what you've got is $20 million of run rate in indirect procurement and shrink benefits that we talked about last year. So we were investing last year to deliver 20 million of run rate benefits coming into 25. That $20 million is in our plan. It's in our guidance. And you should expect to see that largely ratably throughout the year. And that's been in the Q1 run rate thus far. So think about this as two blocks of the 40. There's 20 that we worked on last year and kind of entered the year with 20 million a run rate. And that's ratable. There's another 20 that we're investing in at the first half of this year. And that's why you see earnings a little bit suppressed in the first half, with the benefits largely in the back half of this year and ramping up to an annualized $50 million or so of benefits in 26.

That's great. Thank you for all the additional color there. And then just beyond the weather that you guys called out, any more details you could give on the cadence of the quarter in terms of sales, volume, inflation, promotions, and then just as the underlying strength in the retail comps, has that continued quarter to date?

Yeah, good question. So cadence in the quarter from a retail comp standpoint was, I would say, pretty solid. There was some variability in part due to timing of holidays. I know you all have a food industry tracker, so you see that as well. But with Easter landing much later this year, we had some variability both in our retail and our wholesale segment, as you saw changes to the supply chain with Easter being out a few weeks later. Otherwise, we've seen, I would say, relatively stable performance throughout the quarter and overall delivering a 1.6% comp that's with an 80 basis point headwind from weather from an ice storm in Michigan. So on a pro forma basis, I think about this as more like a 2.4 run rate all in across the entire business. From an inflation standpoint, not a lot of variability either. Think about that as kind of 2-ish percent through the quarter. Again, there's some variability within certain product categories. I know eggs were quite popular in the news early in the year, and so you saw that coming a little bit up and down in the kind of dairy inflation, but broadly relatively stable inflationary environment.

That's great. If I could just sneak in one more just on the retail profitability pressures in 1Q that you called out. Any one time or things isolated to 1Q in that? How should we think about it going forward? And then just I think last quarter you guys highlighted some potential footprint rationalization that you might do at retail. Any update on that?

Yeah, I'll start with the profitability. There's a handful of puts and takes in the overall profit versus last year's Q1. Among them, as you mentioned earlier, the ice storm was no small amount. That was almost the difference maker by itself, but we also had a pretty significant impact call out on pharmacy. We had an impact there of right around 3 million bucks. And it's a little bit of the same story about the pressures that are coming on to pharmacies from the PBMs. And as you probably also know, there's a great deal of legislation going on right now that we're also helping to champion to help get that stabilized so that consumers have good choices on pharmacies, particularly the folks we serve, and small pharmacies can continue to thrive. But that's been an ongoing pressure for the last five or six years, and it was part of the story again in Q1 for us.

Yeah, Ben, the only other thing I'd add kind of on a one-time basis is that same ice storm that impacted comps by 80 basis points impacted the bottom line. You think about the food spoilage generators and the like. We, of course, scrambled to get our stores back up and running, but a good portion of the network was out due to power, and as a consequence, we had some losses. Think about that as kind of in the $1 million to $2 million impact range. in the quarter, and I don't see that as a continuing impact.

That's great. Thank you very much.

And your next question comes from the line of Andrew Wolfe with CL King. Please go ahead.

Hi, good morning. I just wanted to ask with respect to the competitive environment, if you could discuss major kind of operational differences um, you know, pricing volume types, things or anything else. Um, differences between the wholesale, what you're seeing in the wholesale as you go to market versus, you know, the retail, which I think you've been a little more specific on the retail.

Yeah. As far as the, um, uh, You know, pricing and go to market for the independent grocers that we serve. I would say it's pretty similar to what we're doing. We obviously are very tight in terms of what the split is between promoted and kind of full revenue and what's going on in the marketplace there. So I think it's largely the same. As Jason mentioned earlier, our promotional activity has been up again. And we see that as being sort of a market-wide effect. We see that with our competition as well, that they are promoting and doing more deals to try to get more shoppers. So we see that as being an ongoing trend now for a couple of years of kind of incrementally more promotions, more deals, trying to drive more excitement when we go into the stores. And for us, being a wholesale grocer, we see that behavior similar to our retail. So I think that's a big story. And of course, the balance of our wholesale is not quite as given there, but our military business, I mentioned earlier, is continuing to be very strong. The military has done, I believe, is also doing more promotable activity, but that has been a really strong business for us on the wholesale side and pretty stable overall in pricing.

Okay, thanks. A quick follow-up related to that. You did mention there's some changes, obviously, in the value-seeking behavior of customers. you know, between price promotion and, you know, you've been investing in service and some value added offerings, uh, with your remodels is, are you still getting, you know, what you hope for from those remodels in terms of, you know, takeaway of value added product, because, you know, it's, um, you know, it's still, it offers them something or, or is there a budgetary, um, part of it, uh, that is impacting anything?

Yeah, the remodels have performed very well. We see, and we're learning our way into it, we see that the shoppers have responded well to the expanded fresh offerings. They've responded well to some of the services and the new deli items and some of the new offerings there. So we're very excited about those remodels as they come. It's time consuming to do the conversions and costly as well. So we have to pace ourselves and we learn something new with each one we do. But so far, The headlight is the remodels have performed well. Those stores continue to be amongst our better-performing stores once those remodels are completed and we change that mix of the offerings. And that's why we feel very confident that our differentiated offering is going to be those types of things. It's going to be service. It's going to be the unique things we can offer in fresh, like our great bratwurst. And those are things that will bring people into our stores ultimately, so we're working hard to make sure we can offer those in pieces where it makes sense, like the brat shop did at all of our stores. And then as we do the remodels, we learn what works best and incorporate that into the new remodels as well.

Yeah, Andrew, this is Jason. Maybe two things to think about in the competitive dynamic. One is we continue to expand our own brand's portfolio, and it's a winning proposition with our shoppers. We're pleased, but of course not satisfied. We think there's more that we can do from a private label standpoint. And maybe the second thing to think about from a consumer behavior standpoint, and we've seen this now for a couple, two, three quarters in a row probably, is despite the tightening wallet, in many instances, we're seeing some consumers that are spending or investing in relatively high revenue, high cost items. So think about things like gut health products, Those products are performing at double-digit growth levels, sometimes significant double-digit growth levels. High-protein products that are complementary to a GLP-1 for a GLP-1 user. Healthy snacking. All of those things are going on concurrent to consumers that are seeking promotions and deals. So though the promo activity environment is rising both in the wholesale and in the retail space, the product portfolio is also rising. is also such that we're able to access, reach, and grow with both the consumer seeking the discounted product and the upmarket consumer or the consumer with a few dollars in their pocket that's pursuing things like gut health, high protein, healthy snacking. And that's really part of our broader service offering and what makes both our wholesale and our retail business unique. And because we think when our When our consumers are winning, whether they're buying gut health products or they're buying a discounted can of beans or peas on the shelf, we're all winning through the supply chain.

Got it.

Thank you. Appreciate it.

And your next question comes from the line of Peter Salih with BTIG. Please go ahead.

Good morning and thanks for taking the question. Just one quick one on my end. Jason, I'm just hoping you can elaborate a little bit on the change in the food at home inflation expectations, the 2% from 1% prior. Can you just give us a sense of what's driving that currently, and do you feel like 2% is probably the right number for this year, or it just feels like we continue to hear inflation moving a little bit higher? Just any thoughts on the inflation outlook for this year would be helpful. Thanks.

Sure, Pete. Thanks. And thanks for the question. Yeah, the step up in our assumption was largely reflective of what we're seeing in the marketplace. So in both wholesale and the retail space, we're seeing a migration of inflation upwards. We haven't seen it as a steep incline. I think I mentioned earlier, it's still a relatively stable inflationary environment. So we're talking about a full year assumption previously of one and now a full year assumption of of 2%. The categories that are impacted are largely across the board. There are a handful that you'd see go backwards. Some of those are more commodity-style products. But there's no smoking gun, if you will, here. What you're seeing is a slow move in inflation upwards. And at the same time, the promo environment is rising. So The net impact is blunted a bit by rising promotional costs or promotional investments, if you will, but the underlying business is running at a slightly higher inflation rate.

Thank you very much.

Our next question comes from the line of Scott Mushkin with R5 Capital. Please go ahead.

Hey, guys. Thanks for taking my question. I apologize. I actually jumped on late because there were a lot of calls, so if these have been He's been covered. It's more long-term first up is make America healthy, changes to food stamps, a lot of profitability, not just you guys, and the industry is driven by money from CPG. If we continue to be negative volumes there and maybe even accelerate, how do you guys think about your business in that environment?

In an environment where the CPGs are chasing volume with promotion, I'm trying to understand the question.

We're just in a permanent or semi-permanent decline in volume and CPG and maybe actually tripping into sales. How do you think your business works in that scenario with big center? It's not just yours, the whole industry. Conceptually, how does it flow?

Yeah, we certainly wouldn't suggest that there's a permanent flat line or declining from the CPG. I think there's a shift in consumer trends that we always have to be aware of. And I think amongst those, you know, Jason mentioned a great medium right now. There's a little bit more focus on health right now. We're responding to that. And we will find that even if there is If people's response to health is they're going to eat less, then there's an opportunity to actually sell them things that will help support their diet, and there's good margin in those products. So these things float back and forth. And the macro trends that we've talked about over time about the consumer's focus on health, on price value, on indulgence and convenience. Those things have been sort of stable for probably 30 or 40 years, but they just float in between. There's a little bit more focus on health in one period of time. In a recessionary period, there'll be more focus on more price sensitivity. But things can go back and forth, and we need to be vigilant on that. Our country's population is growing, and people are eating. And so So we see that the trends are going to be stable in terms of the total calorie consumption, but the opportunity to delight shoppers with what they need from a convenience standpoint or indulgence or health or price value, it's a fascinating business in that regard. We see there's growth in that even in a situation where the population growth may not be wildly aggressive. So we don't see that as a big threat. We see that as a real challenge, and we're up for it.

Yes, Scott, it's actually even an opportunity. Yeah, I mean, it's even an opportunity. I mean, as you think about this, our stores offer, provide unique offerings for our shoppers. We've proven thus far that we've been, we've got the flexibility to deliver when things change. You know, the GLP-1 movement has changed the way some consumers eat. Not all of them, in fact, not even a majority of them. and yet we've been able to provide an assortment that meets the needs of those consumers, and we've done quite well in that space. And we expect we'd continue to work together and partner with the vendor community, the supplier community, to ensure that we've got the right products on the shelf at the right time and count on their innovation models and innovation platforms to have the right product and right assortment for those consumers. So I hear the question, and it's something we're, of course, thinking about But we want to make sure we've got a flexible enough model to meet those consumers' needs, and we've got a track record of doing that thus far.

And the food stamp changes? I don't know if you guys touched on that.

We have not spoken about that today. The impact to us was slightly negative in the first quarter, but it's certainly at a pace that's slower than we saw, I don't know, 12, 18 months ago as the tail end of the COVID investments. in the SNAP program are coming out, particularly in Michigan. So we're down in SNAP versus what we've seen in the rest of our business, but it's not a particularly amplified level because we don't have a large proportion of our shoppers that are using SNAP to begin with.

All right. I was actually thinking like big, beautiful bill in 27, but that's good color on the immediate. And then my final one was on M&A. Don't know if you touched on that. I know you guys have been somewhat active. Where's your head that way, both being acquisitive or maybe the other way? Thank you.

Great. We are always open, and this is about maximizing our business and maximizing shareholder value. So we have a pretty active team that is looking at all the opportunities that we've talked about some today that we did here recently, the really productive sort of smaller tuck-in acquisitions, and we're looking for those, and we're looking for ones that are larger. And so when there's something to talk about there, we will make it well-known, but just know that we're very active and always looking at ways we can improve our business.

Perfect, guys. Hey, thanks for taking all my questions. Bye.

And there are no further questions at this time. I would like to turn it back to Tony Sarsour for closing remarks.

All right. Well, thank you again for your participation today.

We really appreciate the opportunity to share our business and appreciate your interest in Spartan Ash. And so from our family to yours, we'd like to wish you all a very pleasant good day.

Thank you, presenters. And this concludes today's conference call. Thank you for attending. You may now disconnect.