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
Spartan Stores Announces Second Quarter Fiscal 2013 Financial Results
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