Spartan Stores Announces Second Quarter Fiscal 2013 Financial Results

  Spartan Stores Announces Second Quarter Fiscal 2013 Financial Results

Company Reports Second Quarter Earnings from Continuing Operations per Diluted
    Share of $0.47 Versus $0.45 per Diluted Share in the Prior Year Period

Business Wire

GRAND RAPIDS, Mich. -- October 24, 2012

Spartan Stores, Inc. (Nasdaq: SPTN), a leading regional grocery distributor
and retailer, today reported financial results for its 12-week second quarter
of fiscal 2013 ended September 15, 2012.

Second Quarter Results

Consolidated net sales for the 12-week second quarter increased 0.3 percent to
$621.6 million compared to $619.6 million in the same period last year.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
(Adjusted EBITDA) for the quarter was $29.0 million, or 4.7 percent of net
sales, compared to $31.1 million, or 5.0 percent of net sales last year.

Earnings from continuing operations for the second quarter of fiscal 2013 were
$10.4 million, or $0.47 per diluted share, including an after-tax asset
impairment charge of $0.2 million, or $0.01 per diluted share, and an
after-tax benefit from the sale of assets of $0.4 million, or $0.02 per
diluted share. For the second quarter of fiscal 2012, earnings from continuing
operations were $10.3 million, or $0.45 per diluted share, including an
after-tax charge for unusual corporate professional fees of $0.7 million, or
$0.03 per diluted share.

“We continue to invest in the initiatives that are helping us to best deliver
value and convenience to consumers in today's challenging economy,” stated
Dennis Eidson, Spartan’s President and Chief Executive Officer. “While the
cost of these investments has had an impact on retail margins, our second
quarter retail market share and volume results reflect the consumer’s
acceptance of these initiatives, as well as, the growing momentum of our YES
Rewards loyalty program.”

Gross profit margin for the second quarter of fiscal 2013 was 21.0 percent
versus 21.4 percent in the same period last year. The decline in gross profit
margin was due to reduced inflation-driven inventory gains in both the retail
and distribution segments, investments associated with the second phase of our
“Price Freeze” and “Yes Is Even More” promotional campaign in the retail
segment, as well as, a higher mix of lower margin distribution and fuel sales.

Second quarter operating expenses were $111.3 million, or 17.9 percent of net
sales, compared to $112.8 million, or 18.2 percent of net sales in the same
period last year due to continued productivity improvements in the
distribution segment, lower employee-related expenses compared to the prior
year period and the impact of unusual corporate professional fees in the
second quarter of the prior year. The Company’s expense leverage was partially
offset by a non-cash pre-tax asset impairment charge of $0.4 million in the
second quarter of fiscal 2013, compared to a restructuring benefit of $0.1
million recorded in the same period last year.

Distribution Segment

Net sales for the distribution segment increased to $259.2 million in the
second quarter of fiscal 2013 from $256.2 million in the same period last
year.

Second quarter fiscal 2013 operating earnings for the distribution segment
were $10.8 million compared to $8.8 million in the same period last year. The
increase in operating earnings is due mainly to the cycling of unusual
corporate professional fees in the prior year period, as well as continued
improvements in warehouse efficiency and lower employee-related expenses,
partially offset by a lower gross profit margin due primarily to a
continuation of reduced inflation-driven inventory gains.

Retail Segment

Net sales for the retail segment were $362.3 million in the second quarter of
fiscal 2013 compared to $363.4 million in the same period last year.
Comparable store sales, excluding fuel, were down 1.0 percent. As anticipated,
second quarter sales were negatively affected by a one week shift in the
quarter end date which resulted in less high volume summer sales days being
included in this year’s second quarter. The calendar shift impacted comparable
store sales by 70 basis points.

Second quarter fiscal 2013 operating earnings for the retail segment were $8.1
million compared to $11.2 million in the second quarter of fiscal 2012. The
decrease in operating earnings was primarily due to higher promotional
expenses, reduced inflation-driven inventory gains, lower fuel margins and the
aforementioned asset impairment charge.

During the second quarter, the Company remodeled two stores and opened one new
fuel center, ending the quarter with 97 stores and 29 fuel centers. The
Company plans to complete two major remodels and open three new Valu Land
locations during the second half of fiscal 2013.

Balance Sheet and Cash Flow

The Company generated cash flow provided by operating activities of $20.1
million for the second quarter ended September 15, 2012 compared to $35.7
million for the comparable period last year. The decrease was primarily due to
the timing of working capital requirements and tax pre-payments related to a
tax law change which will reverse over the remainder of fiscal 2013.

During the fiscal 2013 second quarter, the Company repurchased approximately
30,000 shares of its common stock for a total expenditure of $0.5 million. At
of the end of the second quarter, the Company had approximately 50 percent of
the authorized $50.0 million repurchase program available for future stock
repurchases.

The Company had total net long-term debt (including current maturities and
capital lease obligations and subtracting cash) of $147.5 million as of
September 15, 2012 compared to $115.5 million as of September 10, 2011, due
primarily to funding share repurchases, the timing of working capital
requirements and tax pre-payments. As anticipated, the Company has lowered its
total net long-term debt from $154.6 million at the end of the first quarter
of fiscal 2013. The Company’s total net long-term debt-to-capital ratio is
0.31-to-1.0 for the second quarter of fiscal 2013 and the net long-term
debt-to-Adjusted EBITDA ratio on an annual Adjusted EBITDA basis is
1.40-to-1.0.

The Company continues to believe that cash flow from operations and the $165.3
million of availability under its revolving credit facility will be sufficient
to fund its operations and strategic growth initiatives for the remainder of
fiscal 2013.

Outlook

Mr. Eidson continued, “Although we are seeing signs of improvement in the
Michigan economic indices, the overall pace of recovery is slower than we had
originally anticipated and the majority of our consumers are still highly
price sensitive. We remain focused on all aspects of our business in order to
drive sales and are encouraged by the initial benefits of our recent pricing
and promotional efforts, as well as the new Valu Land store format. We will
continue to make strategic promotional and capital investments to drive higher
volumes, while focusing on improving profitability.”

For the remainder of fiscal 2013 comparable store sales are expected to trend
favorably compared to the second quarter due to the Company’s promotional
programs, store remodeling efforts and a shift in the calendar. Diluted
earnings per share from continuing operations for the remainder of the year
are expected to slightly exceed the prior year’s results, excluding the 53^rd
week last year and the previously disclosed items that are not expected to
recur in this year’s fourth quarter. The net effect of these items in the
prior year’s fourth quarter was a benefit of $0.05 to $0.06 per diluted share,
predominately related to a LIFO credit, favorable incentive compensation
expenses and occupancy costs.

The Company reiterates its previous guidance for capital expenditures for
fiscal year 2013 to be in the range of $42.0 million to $44.0 million, with
depreciation and amortization in the range of $39.0 million to $40.0 million
and total interest expense in the range of $13.0 to $14.0 million.

Conference Call

A telephone conference call to discuss the Company’s second quarter of fiscal
2013 financial results is scheduled for 9:00 a.m. Eastern Time, Thursday,
October 25, 2012. 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 tenth largest grocery distributor with 1.4 million square feet of
warehouse, distribution, and office space located in Grand Rapids, Michigan.
The Company distributes more than 40,000 private and national brand products
to approximately 375 independent grocery locations in Michigan, Indiana and
Ohio, and to our 97 corporate owned stores located in Michigan, including
Family Fare Supermarkets, Glen's Markets, D&W Fresh Markets, VG's Food and
Pharmacy, and Valu Land.

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking
statements are identifiable by words or phrases such as “initiatives”,
“guidance”, “priority”, “trend”, “outlook”, “position”, “momentum”, or
“strategy”; that an event or trend “could”, “will” or “should” occur “begin”
“remain” or “continue” or is “likely” or that Spartan Stores or its management
“anticipates”, “believes”, “expects” or “plans” a particular result.
Accounting estimates are inherently forward-looking. Our restructuring cost
provisions are estimates and actual costs may be more or less than these
estimates and differences may be material. These forward-looking statements
are subject to a number of factors that could cause actual results to differ
materially. Our ability to achieve the results stated in our “Outlook”
discussion; successfully realize growth opportunities; expand our customer
base; effectively implement and achieve the expected benefits of capital
investments, our new retail banner, our loyalty program, 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 efficiencies and earnings; implement plans, programs and
strategies; reduce debt; and, continue to pay dividends and repurchase shares
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.

 
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
 
                  12 Weeks Ended                 24 Weeks Ended
                  September 15,   September      September 15,   September 10,
                                  10,
                     2012            2011          2012            2011       
                                                                  
Net sales         $  621,559      $  619,647     $ 1,225,471     $ 1,222,211
Cost of sales        491,333         486,910       973,525         964,137    
Gross margin         130,226         132,737       251,946         258,074
                                                                  
Operating
expenses
Selling,
general and          102,117         104,483       203,454         207,457
administrative
Depreciation
and                  8,805           8,408         17,475          16,775
amortization
Restructuring,
asset                356             (135    )     356             (135      )
impairment and
other
Total operating      111,278         112,756       221,285         224,097
expenses
                                                                  
Operating            18,948          19,981        30,661          33,977
earnings
                                                                  
Non-operating
expense
(income)
Interest             2,150           2,530         4,387           4,876
expense
Non-cash
convertible          904             835           1,794           1,658
debt interest
Other, net           (664    )       5             (674      )     8          
Total
non-operating        2,390           3,370         5,498           6,542      
expense, net
                                                                  
Earnings before
income taxes
and                  16,558          16,611        25,163          27,435
discontinued
operations
Income taxes         6,203           6,341         8,732           11,030     
Earnings from
continuing           10,355          10,270        16,431          16,405
operations
                                                                  
Loss from
discontinued         (50     )       (18     )     (123      )     (124      )
operations, net
of taxes
Net earnings      $  10,305       $  10,252      $ 16,308        $ 16,281     
                                                                  
Basic earnings
per share:
Earnings from
continuing        $  0.48         $  0.45        $ 0.75          $ 0.72
operations
Loss from
discontinued         (0.01   )*      -             -         *     (0.01     )
operations
Net earnings      $  0.47         $  0.45        $ 0.75          $ 0.71       
                                                                  
Diluted
earnings per
share:
Earnings from
continuing        $  0.47         $  0.45        $ 0.75          $ 0.72
operations
Loss from
discontinued         -               -             -         *     (0.01     )
operations
Net earnings      $  0.47         $  0.45        $ 0.75          $ 0.71       
                                                                  
Weighted
average shares
outstanding:
Basic                21,747          22,862        21,800          22,777
Diluted              21,824          22,962        21,880          22,872
 
*Includes Rounding

 
SPARTAN STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
                                                 September 15,   September 10,
Assets                                           2012            2011
                                                                  
Current assets
Cash and cash equivalents                        $  7,491        $  62,080
Accounts receivable, net                            59,719          60,026
Inventories, net                                    136,032         121,287
Prepaid expenses                                    10,606          8,466
Other current assets                                10,896          1,537
Property held for sale                              710             1,708     
Total current assets                                225,454         255,104
                                                                  
Goodwill                                            239,834         240,704
                                                                  
Property and equipment, net                         261,552         243,545
                                                                  
Other, net                                          57,173          56,773    
                                                                  
Total assets                                     $  784,013      $  796,126   
                                                                  
Liabilities and Shareholders’ Equity
                                                                  
Current liabilities
Accounts payable                                 $  128,803      $  129,185
Accrued payroll and benefits                        30,089          32,384
Other accrued expenses                              17,611          14,580
Current portion of restructuring costs              3,271           4,101
Current maturities of long-term debt and            4,185           4,249     
capital lease obligations
Total current liabilities                           183,959         184,499
                                                                  
Long-term liabilities
Deferred taxes on income                            87,805          76,585
Postretirement benefits                             13,521          14,321
Other long-term liabilities                         14,975          17,118
Restructuring costs                                 6,313           8,908
Long-term debt and capital lease obligations        150,789         173,282   
Total long-term liabilities                         273,403         290,214
                                                                  
Commitments and contingencies
                                                                  
Shareholders’ equity
Common stock, voting, no par value; 50,000
shares authorized; 21,754 and 22,215 shares         145,289         164,648
outstanding
Preferred stock, no par value, 10,000 shares        -               -
authorized; no shares outstanding
Accumulated other comprehensive loss                (13,793  )      (12,981  )
Retained earnings                                   195,155         169,746   
Total shareholders’ equity                          326,651         321,413   
                                                                  
Total liabilities and shareholders’ equity       $  784,013      $  796,126   

 
SPARTAN STORES, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
 
                                                 12 Weeks Ended
                                                 September 15,   September 10,
                                                    2012            2011      
Cash flows from operating activities
Net cash provided by operating activities        $  20,083       $  35,741
Net cash (used in) investing activities             (11,758  )      (11,055  )
Net cash (used in) financing activities             (7,026   )      (211     )
Net cash provided by (used in) discontinued         99              (108     )
operations
Net increase in cash and cash equivalents           1,398           24,367
Cash and cash equivalents at beginning of           6,093           37,713    
period
Cash and cash equivalents at end of period       $  7,491        $  62,080    

 
SPARTAN STORES, INC. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL DATA
(In thousands)
(Unaudited)
 
                     12 Weeks Ended                  24 Weeks Ended
                     September 15,   September 10,   September     September
                                                     15,           10,
                     2012            2011            2012          2011
                                                                    
Retail Segment:
Net sales            $   362,317     $   363,421     $  707,881    $  708,856
Operating Earnings   $   8,099       $   11,217      $  11,990     $  17,811
                                                                    
Distribution
Segment:
Net sales            $   259,242     $   256,226     $  517,590    $  513,355
Operating Earnings   $   10,849      $   8,764       $  18,671     $  16,166

 
SPARTAN STORES, INC. AND SUBSIDIARIES
RECONCILIATION OF NET EARNINGS TO ADJUSTED EARNINGS BEFORE INTEREST,
TAXES, DEPRECIATION AND AMORTIZATION (Adjusted EBITDA)
(Unaudited)
(In thousands)
 
                           Second Quarter              Year-to-Date
                           Sept. 15,    Sept. 10,      Sept. 15,    Sept. 10,
                             2012         2011           2012         2011    
Net earnings               $ 10,305     $ 10,252       $ 16,308     $ 16,281
Add:
Discontinued operations      50           18             123          124
Income taxes                 6,203        6,341          8,732        11,030
Interest expense, net        3,071        3,412          6,227        6,654
Non-operating expense        (681   )     (42    )       (729   )     (112   )
Operating earnings           18,948       19,981         30,661       33,977
Add:
Depreciation and             8,805        8,408          17,475       16,775
amortization
LIFO expense                 590          869            1,380        1,527
Restructuring and asset      356          (135   )       356          (135   )
impairment costs
Other unusual items          -            1,194          -            1,194
Non-cash stock
compensation and other       292          810            1,761        2,360   
charges
Adjusted EBITDA            $ 28,991     $ 31,127       $ 51,633     $ 55,698  
                                                                     
Reconciliation of
operating earnings to
adjusted EBITDA by
segment:
                                                                     
Retail:
Operating earnings         $ 8,099      $ 11,217       $ 11,990     $ 17,811
Add:
Depreciation and             6,833        6,432          13,544       12,886
amortization
LIFO expense                 424          526            848          964
Restructuring and asset      356          (98    )       356          (98    )
impairment costs
Non-cash stock
compensation and other       687          365            1,457        1,137   
charges
Adjusted EBITDA            $ 16,399     $ 18,442       $ 28,195     $ 32,700  
                                                                     
Distribution:
Operating earnings         $ 10,849     $ 8,764        $ 18,671     $ 16,166
Add:
Depreciation and             1,972        1,976          3,931        3,889
amortization
LIFO expense                 166          343            532          563
Restructuring and asset      -            (37    )       -            (37    )
impairment costs
Other unusual items          -            1,194          -            1,194
Non-cash stock
compensation and other       (395   )     445            304          1,223   
charges
Adjusted EBITDA            $ 12,592     $ 12,685       $ 23,438     $ 22,998  

Notes: Consolidated Adjusted EBITDA is a non-GAAP operating financial measure
that we define as net earnings from continuing operations plus depreciation
and amortization, and other non-cash items including imputed interest,
deferred (stock) compensation, the LIFO provision, as well as adjustments for
unusual items that do not reflect the ongoing operating activities of the
Company and costs associated with the closing of operational locations,
interest expense and the provision for income taxes to the extent deducted in
the computation of Net Earnings.

We believe that Adjusted EBITDA provides a meaningful representation of our
operating performance for the Company as a whole and for our operating
segments. We consider Adjusted EBITDA as an additional way to measure
operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect
the ongoing operating performance of all of our retail stores and wholesale
operations; consequently, it excludes the impact of items that could be
considered “non-operating” or “non-core” in nature, and also excludes the
contributions of activities classified as discontinued operations. Because
Adjusted EBITDA is a performance measure that management uses to allocate
resources, assess performance against its peers and evaluate overall
performance, we believe it provides useful information for our investors. In
addition, securities analysts, fund managers and other shareholders and
stakeholders that communicate with us request our operating financial results
in Adjusted EBITDA format.

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. Our definition of
Adjusted EBITDA may not be identical to similarly titled measures reported by
other companies.

 
SPARTAN STORES, INC. AND SUBSIDIARIES RECONCILIATION OF LONG-TERM
DEBT AND CAPITAL LEASE OBLIGATIONS TO TOTAL NET LONG TERM DEBT AND
CAPITAL LEASE OBLIGATIONS
(A NON-GAAP FINANCIAL MEASURE)
(In thousands)
(Unaudited)
 
                                   September 15,   March 31,     September 10,
                                   2012            2012          2011
                                                                  
Current maturities of long-term
debt and capital lease             $  4,185        $ 4,449       $  4,249
obligations
Long-term debt and capital lease      150,789        133,565        173,282   
obligations
Total Debt                            154,974        138,014        177,531
Cash and cash equivalents             (7,491   )     (26,476 )      (62,080  )
Total net long-term debt           $  147,483      $ 111,538     $  115,451   

Notes: Total net long-term debt is a non-GAAP financial measure that is
defined as long-term debt and capital lease obligations plus current
maturities of long-term debt and capital lease obligations less cash and cash
equivalents. The Company believes investors find the information useful
because it reflects the amount of long-term debt obligations that are not
covered by available cash and temporary investments.

Contact:

Spartan Stores, Inc.
Investor Contact:
Dave Staples
Executive Vice President & CFO
616-878-8793
or
Media Contact:
Jeanne Norcross
Vice President Corporate Affairs
616-878-2830