EX-99.1 2 sptnstex991_072810.htm SPARTAN STORES, INC. EXHIBIT 99.1 TO FORM 8-K Spartan Stores Exhibit 99.1 to Form 8-K - 07/28/10

EXHIBIT 99.1

For Immediate Release

 

 

 

Investor Contact: Dave Staples
Executive Vice President & CFO
(616) 878-8793

Media Contact: Jeanne Norcross
Vice President Corporate Affairs
(616) 878-2830

Spartan Stores Announces Fiscal 2011
First-Quarter Financial Results


GRAND RAPIDS, MICHIGAN-July 28, 2010-Spartan Stores, Inc., (Nasdaq:SPTN) today reported financial results for its 12-week first quarter ended June 19, 2010.

First Quarter Results

Consolidated net sales for the 12-week first quarter were $577.2 million compared with $596.0 million in the same period last year. The decline in net sales was due to lower retail and distribution sales driven by the prevailing economic and competitive conditions, retail price deflation and previously sold or closed stores, partially offset by higher fuel sales and new store openings.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) for the quarter were $23.0 million, or 4.0 percent of net sales, compared with $24.9 million, or 4.2 percent of net sales in the same period last year.

Excluding first-quarter net pretax charges of $0.8 million principally related to the Company's warehouse consolidation initiative and $0.6 million of pretax restructuring and asset impairment costs related to a store closing recorded in last year's first-quarter, adjusted first-quarter operating earnings were $14.1 million compared with $15.7 million last year. As reported, first-quarter operating earnings were $13.3 million compared with $15.1 million last year.

"Despite the continued economic and market challenges, our earnings were better than expected, and we were able to achieve Adjusted EBITDA that is among our highest first-quarter levels," stated Dennis Eidson, Spartan's President and Chief Executive Officer. "While consumer purchasing behavior seems to be stabilizing, consumers remain conservative relative to spending. This factor, along with continued retail price deflation, is causing us to remain cautious in the near term. During this uncertain economic period, we remain steadfast in our commitment to further improve operating efficiency and our value proposition with consumers."

Earnings from continuing operations for the quarter, excluding the previously mentioned net charge for restructuring and asset impairment costs each year, were $6.5 million, or $0.29 per



diluted share, compared with $7.2 million, or $0.32 per diluted share last year. As reported, first-quarter earnings from continuing operations were $6.1 million, or $0.27 per diluted share, compared with $6.8 million, or $0.31 per diluted share last year.

First-quarter gross profit margin decreased 10 basis points to 21.9 percent from 22.0 percent in the same period last year. The decline was due to lower supermarket margins and a higher mix of fuel sales in this year's first quarter compared with the prior year, which was mostly offset by a $1.8 million pretax benefit. This benefit consisted of a LIFO inventory valuation credit due to lower inventory levels subsequent to the warehouse consolidation initiative. This credit was partially offset by lower inventory purchase-related discounts.

Operating expenses totaled $113.3 million, or 19.6 percent of sales, compared with $115.9 million, or 19.5 percent of sales in the year-ago quarter. As a percentage of sales, the increase in operating expenses was due primarily to a first-quarter $2.6 million pretax provision for asset impairment and exit costs related to the warehouse consolidation initiative and an individual store impairment charge. Excluding the charge, operating expenses decreased to 19.2 percent of sales due to the higher mix of fuel sales, improved store labor productivity, cost containment initiatives and distribution operating efficiency improvements, which were partially offset by higher healthcare and debit/credit card expenses.

Operating Segments

Distribution Segment

Distribution segment net sales in the first quarter were $245.3 million compared with $253.4 million in the same period last year. The sales decline was primarily attributable to the prevailing economic conditions.

First-quarter adjusted distribution segment operating earnings, excluding the segment's share of the charge ($0.6 million), were $8.6 million compared with $7.8 million in the same period last year. As reported, first-quarter distribution segment operating earnings were $8.0 million. The improvement in operating earnings was due primarily to a better sales mix and operating efficiency improvements. The net pretax charges related to the warehouse consolidation initiative consist of a $1.8 million benefit discussed above, offset by $2.4 million of restructuring and asset impairment costs related to lease and other costs necessary to close the Company's Plymouth, Michigan distribution facility.

Retail Segment

Retail segment net sales in the first quarter were $332.0 million compared to $342.7 million in the same period last year. The sales decline was due primarily to lower comparable store sales and the loss of $6.4 million in sales related to the four stores that were closed or sold since last year's first quarter. The segment sales decline was partially offset by an increase in the number of fuel centers in operation, a higher average retail fuel price per gallon sold, one new D&W Fresh Market store that opened mid quarter and a replacement store that opened in last year's third quarter. Comparable store sales for the quarter, excluding fuel centers, declined 6.1 percent

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as a result of the current economic conditions, competitive market activity and retail price deflation.

First-quarter adjusted retail operating earnings, excluding the pretax provision for asset impairment and exit costs charges of $0.2 million this year and $0.6 million last year, were $5.5 million compared with $7.9 million in the prior year period. As reported, first-quarter retail segment operating earnings were $5.3 million compared with $7.3 million in the same period last year. The decline in operating earnings was primarily the result of lower comparable store sales, higher healthcare expenses and debit/credit card transaction fees. Start-up costs related to store openings were approximately $0.8 million in both the first quarter of fiscal 2011 and the corresponding period last year.

Balance Sheet and Cash Flow

Net cash generated from operating activities for the first quarter was $11.4 million compared with $16.5 million during the same period last year. The change was due to the timing of payments for accounts payable, partially offset by a lower inventory investment.

During the quarter, the Company repurchased $12.3 million in principal amount of its outstanding convertible senior notes for approximately $10.7 million. The reduction in outstanding convertible senior notes is expected to lower annual interest expense by approximately $0.7 million.

As of June 19, 2010, total long-term debt (including current maturities and capital lease obligations) decreased $5.4 million to $179.9 million from $185.3 million at the end of the fourth quarter. The Company's financial position improved with a total long-term debt-to-capital ratio of 0.39 to 1.0 at the end of the first quarter and a debt-to-EBITDA ratio on an annual Adjusted EBITDA basis of 1.77 to 1.0.

Mr. Eidson continued, "During the first quarter, we were very pleased to open our newest D&W Fresh Market flagship store. Located in Grand Rapids, the 50,000 square foot store represents a state-of-the-art facility and a unique shopping experience. Time-strapped customers who appreciate high quality foods, services and a great shopping experience have been impressed with our store offerings and the attractive food and product presentations. This store represents a strong market fill-in opportunity and a one-of-a kind shopping experience in the Grand Rapids market. We also remain on track to open a new replacement store early in the third quarter.

"In addition, we began to realize the expected operational efficiency improvements and benefits of lower inventory levels from our warehouse consolidation initiative during the quarter. Although we drew down our warehouse inventory levels, we did not realize its full benefits, as the current sales environment extended the sell through period for these items. Consequently, we expect to realize additional benefits, which will be reflected as a LIFO credit, from the continued inventory draw down during the second quarter."



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Outlook

"We expect to continue generating strong cash flow, while strengthening our balance sheet and further improving operating efficiency and our consumer value proposition during the fiscal year," stated Mr. Eidson.

"The near-term economic and market conditions are likely to remain challenging as we progress through this period of heightened economic uncertainty and fragile consumer confidence. We remain encouraged by the lower rate of retail price deflation, but are somewhat less confident about overall near-term inflationary trends. Despite the near-term challenges, we expect a more favorable operating environment to develop late in the second half of fiscal 2011, as we continue to cycle the remaining competitive supercenter openings from last year, as our loyalty card program gains more traction, and as we realize the additional benefits and operating efficiencies from our warehouse consolidation initiative.

"We expect retail comparable store sales (excluding fuel centers) to improve on a sequential quarter basis during the remainder of the fiscal year," said Mr. Eidson. "We also expect comparable store sales for fiscal 2011's second quarter to improve modestly compared with the first quarter results. Core distribution sales for the second quarter are expected to decline relative to the same period last year at a slightly lower rate than that reported in the first quarter.

"From an earnings perspective, excluding any incremental LIFO benefit related to the warehouse consolidation initiative, we anticipate that the second quarter net earnings will be slightly below last year's performance and gradually improve as the year progresses and that fiscal 2011's full-year performance will exceed fiscal 2010's.

"As mentioned earlier, some of our anticipated LIFO inventory reduction benefit will move to the second quarter. We now expect to realize an approximate $0.3 million to $0.5 million after tax benefit in the second quarter due to the revised estimates of the total inventory reduction and final completion of the warehouse consolidation initiative.

"We expect capital expenditures for fiscal 2011 to range from $30 million to $35 million, with depreciation and amortization ranging from $36.5 million to $38.0 million and total interest expense to approximate $15.0 million to $15.5 million," concluded Mr. Eidson.

Conference Call

A telephone conference call to discuss the Company's first-quarter financial results is scheduled for 9:00 a.m. Eastern Time, Thursday, July 29, 2010. A live webcast of this conference call will be available on the Company's website, www.spartanstores.com. Simply click on "For Investors" and follow the links to the live webcast. The webcast will remain available for replay on the Company's website for approximately ten days.

About Spartan Stores

Grand Rapids, Michigan-based Spartan Stores, Inc., (Nasdaq:SPTN) is the nation's eleventh largest grocery distributor with warehouse facilities in Grand Rapids and Plymouth, Michigan.

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The Company distributes more than 40,000 private-label and national brand products to approximately 365 independent grocery stores in Michigan, Indiana and Ohio. Spartan Stores also owns and operates 97 retail supermarkets in Michigan, including Family Fare Supermarkets, Glen's Markets, D&W Fresh Markets, Felpausch Food Centers and VG's Food and Pharmacy.

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements are identifiable by words or phrases such as "guidance", "initiative", "opportunities", "potential trends", "outlook", "schedule", or "strategy"; that an event or trend "will" or "should" occur or "continue" or is "likely" or that Spartan Stores or its management "anticipates", "believes", "expects", "looks for", is "working" to, "plans" or is "confident" of a particular result. These forward-looking statements are subject to a number of factors that could cause actual results to differ materially. Our ability to successfully realize growth opportunities, expand our customer base, effectively implement and achieve the expected benefits of capital investments, warehouse consolidation and store openings, successfully respond to the weak economic environment and changing consumer behavior, anticipate and successfully respond to openings of competitors' stores, achieve expected sales, cash flows, operating effectiveness and earnings, implement plans, programs and strategies, reduce debt, and continue to pay dividends is not certain and depends on many factors, not all of which are in our control. Additional information about the risk factors to which Spartan Stores is exposed and other factors that may adversely affect these forward-looking statements is contained in Spartan Stores' reports and filings with the Securities and Exchange Commission. Other risk factors exist and new risk factors may emerge at any time. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of future results. Spartan Stores undertakes no obligation to update or revise any forward-looking statements to reflect developments or information obtained after the date of this press release.


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SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(Unaudited)

 

First Quarter Ended


 

 

(12 weeks)

 

(12 weeks)

 

 

June 19,
2010


 

June 20,
2009


 

 

 

 

 

 

Net sales

$

577,237

 

$

596,027

 

Cost of sales

450,548


 

465,013


 

Gross margin

126,689

 

131,014

 

 

 

 

 

 

Operating expenses

 

 

 

 

   Selling, general and administrative

102,845

 

107,186

 

   Restructuring and asset impairment costs

2,582

 

601

 

   Depreciation and amortization

7,835

 

8,012

 

   Loss on disposal of assets

80


 

124


 

Total operating expenses

113,342


 

115,923


 

 

 

 

 

 

Operating earnings

13,347

 

15,091

 

 

 

 

 

 

Non-operating expense (income)

 

 

 

 

   Interest expense

3,429

 

3,663

 

   Other, net

(50


)


(23


)


Total non-operating expense, net

3,379


 

3,640


 

 

 

 

 

 

Earnings before income taxes and discontinued
  operations


9,968

 


11,451

 

Income taxes

3,893


 

4,607


 

 

 

 

 

 

Earnings from continuing operations

6,075

 

6,844

 

 

 

 

 

 

(Loss) earnings from discontinued operations, net of taxes

(88


)


15


 

 

 

 

 

 

Net earnings

$


5,987


 

$


6,859


 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

   Earnings from continuing operations

$

0.27

 

$

0.31

 

   (Loss) earnings from discontinued operations

-


 

-


 

   Net earnings

$


0.27


 

$


0.31


 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

   Earnings from continuing operations

$

0.27

 

$

0.31

 

    (Loss) earnings from discontinued operations

(0.01


)


-


 

   Net earnings

$


0.26


 

$


0.31


 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

   Basic

22,528

 

22,296

 

   Diluted

22,607

 

22,375

 



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SPARTAN STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)

 

June 19,
2010


 

Mar. 27,
2010


 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

   Cash and cash equivalents

$

6,441

 

$

9,170

 

   Accounts receivable, net

 

53,639

 

 

54,529

 

   Inventories

 

127,545

 

 

117,514

 

   Other current assets

 


14,241


 

 


14,982


 

      Total current assets

 

201,866

 

 

196,195

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

   Goodwill, net

 

247,826

 

 

247,916

 

   Other, net

 


61,070


 

 


61,409


 

      Total other assets

 

308,896

 

 

309,325

 

Property and equipment, net

 


245,568


 

 


247,961


 

Total assets

$


756,330


 

$


753,481


 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

   Accounts payable

$

121,864

 

$

114,549

 

   Accrued payroll and benefits

 

28,582

 

 

31,983

 

   Other accrued expenses

 

18,107

 

 

20,838

 

   Current portion of restructuring costs

 

8,383

 

 

8,877

 

   Current maturities of long-term debt and capital lease obligations

 


4,191


 

 


4,209


 

      Total current liabilities

 


181,127


 

 


180,456


 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

   Other long-term liabilities

 

94,753

 

 

90,993

 

   Restructuring costs

 

26,459

 

 

27,061

 

   Long-term debt and capital lease obligations

 


175,714


 

 


181,066


 

Total long-term liabilities

 

296,926

 

 

299,120

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

   Common stock, voting, no par value; 50,000 shares authorized;
     22,625 and 22,450 shares outstanding

 


168,683

 

 


166,577

 

   Preferred stock, no par value, 10,000 shares authorized; no
     shares outstanding

 


-

 

 


-

 

   Deferred stock-based compensation

 

(10,617

)

 

(8,352

)

   Accumulated other comprehensive loss

 

(13,299

)

 

(12,973

)

   Retained earnings

 


133,510


 

 


128,653


 

      Total shareholders' equity

 


278,277


 

 


273,905


 

Total liabilities and shareholders' equity

$


756,330


 

$


753,481


 


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SPARTAN STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)


 

Year-to-Date


 

 

(12 weeks)
June 19,
2010


 

(12 weeks)
June 20,
2009


 

 

 

 

 

 

Net cash provided by operating activities

$

11,447

 

$

16,491

 

 

 

 

 

 

Net cash used in investing activities

(6,226

)

(10,507

)

 

 

 

 

 

Net cash used in financing activities

(7,442

)

(3,863

)

 

 

 

 

 

Net cash used in discontinued operations

(508


)


(838


)


 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

(2,729

)

1,283

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

9,170


 

6,519


 

 

 

 

 

 

Cash and cash equivalents at end of period

$


6,441


 

$


7,802


 











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SPARTAN STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
(in thousands)
(Unaudited)

 

First Quarter Ended


 

 

(12 weeks)
June 19,
2010


 

(12 weeks)
June 20,
2009


 

Retail Segment:

 

 

 

 

 

 

 

 

 

Net Sales

$

331,962

 

$

342,660

 

Operating Earnings

$

5,362

 

$

7,326

 

 

 

 

 

 

Distribution Segment:

 

 

 

 

 

 

 

 

 

Net Sales

$

245,275

 

$

253,367

 

Operating Earnings

$

7,985

 

$

7,765

 
















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SPARTAN STORES, INC. AND SUBSIDIARIES
RECONCILIATION OF NET EARNINGS TO ADJUSTED EARNINGS BEFORE INTEREST,
TAXES, DEPRECIATION AND AMORTIZATION (A NON-GAAP FINANCIAL MEASURE)
(in thousands)
(unaudited)

 

First Quarter Ended
(12 weeks)


 

 

June 19,
2010



 


June. 20,
2009


 

Consolidated:

 

 

 

 

Net earnings

$

5,987

 

$

6,859

 

Plus:

 

 

 

 

   Discontinued operations

88

 

(15

)

   Income taxes

3,893

 

4,607

 

   Total other income and expenses

3,379


 


3,640


 

Operating earnings

$

13,347

 

$

15,091

 

Plus:

 

 

 

 

   Depreciation and amortization

7,835

 

8,012

 

   LIFO (income)

(1,808

)

(90

)

   Restructuring and asset impairment costs

2,582

 

601

 

   Non-cash stock compensation and other charges

1,078


 


1,311


 

Adjusted EBITDA

$


23,034


 


$


24,925


 

 

 

 

 

 

Retail Segment:

 

 

Operating earnings

$

5,362

 

$

7,326

 

Plus:

 

 

 

 

   Depreciation and amortization

5,964

 

5,858

 

   LIFO expense

100

 

110

 

   Restructuring and asset impairment costs

150

 

601

 

   Non-cash stock compensation and other charges

70


 


(32


)


Adjusted EBITDA

$


11,646


 


$


13,863


 

 

 

 

 

 

Distribution Segment:

 

 

 

 

Operating earnings

$

7,985

 

$

7,765

 

Plus:

 

 

 

 

   Depreciation and amortization

1,871

 

2,154

 

   LIFO (income)

(1,908

)

(200

)

   Restructuring and asset impairment costs

2,432

 

-

 

   Non-cash stock compensation and other charges

1,008


 


1,343


 

Adjusted EBITDA

$


11,388


 


$


11,062


 


Notes: Consolidated Adjusted EBITDA is a non-GAAP financial measure that is defined under the terms of our credit facility as Net earnings from continuing operations plus depreciation and amortization, and other non-cash charges including imputed interest, deferred (stock) compensation, LIFO expense and costs associated with the closing of operational locations, plus interest expense and the provision for income taxes to the extent deducted in the computation of Net Earnings.

Adjusted EBITDA is not a measure of performance under accounting principles generally accepted in the United States of America, and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Adjusted EBITDA information has been included as one measure of the Company's operating performance and historical ability to service debt. The Company believes investors find the information useful because it reflects the resources available for strategic investments including, for example, capital needs of the business, strategic acquisitions and debt service. Our definition of Adjusted EBITDA may not be identical to similarly titled measures reported by other companies.


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