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SpartanNash Announces Strong Second Quarter Fiscal 2022 Results

SPTN

~ Net Sales Increased 7.9%; Raises Guidance for Full Year 2022 ~

~ Investing in New Merchandising Transformation ~

Food solutions company SpartanNash (the "Company") (Nasdaq: SPTN) today reported financial results for its 12-week second quarter ended July 16, 2022.

Second Quarter Fiscal 2022 Highlights

  • Net sales of $2.3 billion, increased 7.9%, compared to $2.1 billion in the prior year quarter.
  • Retail comparable sales increased 6.5% for the quarter.
  • Net earnings of $5.1 million, compared to $16.8 million in the prior year quarter.
  • Adjusted EBITDA(1) of $61.8 million, a significant increase of 13.7%, compared to $54.4 million in the prior year quarter.
  • The Company continued to make additional progress on its Supply Chain Transformation, concluding the quarter with a 9% improvement in throughput rate year-over-year.

"We are pleased with the significant momentum in our business as evidenced by our strong second quarter results, including impressive gains in sales and profits," said SpartanNash President and CEO Tony Sarsam. "These results were driven by our continued turnaround in the Military business and the margin improvements across our distribution businesses. With the launch of our Merchandising Transformation, we are doubling down on our efforts to maintain price competitiveness in this highly inflationary environment. We believe that when the end consumer wins, we all win."

Second Quarter Consolidated Financial Results

Consolidated net sales for the second quarter increased $167.3 million, or 7.9%, to $2.3 billion from $2.1 billion in the prior year quarter. The growth versus prior year was driven by net sales increases in all three segments, each of which were favorably impacted by inflation. Additionally, case volume increased 3.3% within the Military segment.

Gross profit for the second quarter was $354.2 million, or 15.6% of net sales, compared to $333.6 million, or 15.8% of net sales, in the prior year quarter. The gross profit increase was driven by higher sales, while the gross margin rate decline was driven by lower Retail margins. Approximately one third of the decline was due to lower Retail fuel margins compared to the prior year period. The gross profit rate decline was partially offset by improvements in gross profit rates within both the Food Distribution and Military segments. Additionally, LIFO expense increased $14.9 million, representing a headwind of 65 basis points compared to the prior year quarter.

Reported operating expenses for the second quarter were $341.9 million, or 15.0% of net sales, compared to $307.7 million, or 14.6% of net sales, in the prior year quarter. The increase in operating expenses as a percentage of sales was due to higher corporate administrative costs, including higher incentive compensation expense and costs related to shareholder activism, in addition to higher fuel costs. The increase in operating expenses was partially offset by efficiencies realized from the Supply Chain Transformation.

The Company reported operating earnings of $12.3 million, compared to $25.9 million in the prior year quarter, due to the changes in net sales, gross profit, and operating expenses discussed above. Adjusted operating earnings(2) were $38.0 million, an increase of 18%, compared to $32.2 million in the prior year quarter and were adjusted for the items detailed in Table 3.

Interest expense increased $1.3 million from the prior year quarter due to rising interest rates and an increase in borrowings. Other expenses for the current year include $0.6 million of costs related to the partial settlement of a post-retirement benefit plan. The income tax rate increased from the prior year quarter due to increases in state taxes and non-deductible expenses.

The Company reported net earnings of $5.1 million, or $0.14 per diluted share, compared to $16.8 million, or $0.47 per diluted share in the prior year quarter. Adjusted earnings from continuing operations(3) for the second quarter were $24.2 million, or $0.66 per diluted share, compared to $21.5 million, or $0.60 per diluted share in the prior year quarter. A reconciliation of net earnings to adjusted earnings from continuing operations is included in Table 4.

Adjusted EBITDA(1) increased $7.4 million to $61.8 million, compared to $54.4 million in the prior year quarter, due to the factors mentioned above.

Please see the financial tables at the end of this press release for a reconciliation of each non-GAAP financial measure to the most directly comparable measure, prepared and presented in accordance with GAAP.

Second Quarter Segment Financial Results

Food Distribution

Net sales for Food Distribution increased $61.8 million, or 5.9%, to $1.12 billion from $1.06 billion in the prior year quarter. The increase in net sales was due primarily to the inflationary impact on pricing.

Reported operating earnings for Food Distribution were $13.0 million, compared to $16.7 million in the prior year quarter. The decrease in reported operating earnings was due to increases in corporate administrative costs, partially offset by a higher gross profit rate. Adjusted operating earnings(2) increased more than 28% to $24.5 million from $19.1 million in the prior year quarter. Adjusted operating earnings exclude, among other items, LIFO expense in both years and costs related to shareholder activism in the current year.

Retail

Net sales for Retail increased $52.4 million, or 8.5%, to $672.4 million from $620.0 million in the prior year quarter, primarily due to inflationary pricing and share gains. Retail comparable store sales increased 6.5% for the quarter.

Reported operating loss for Retail was $0.4 million, compared to earnings of $12.7 million in the prior year quarter. The decrease was due to a lower gross profit rate, along with increased corporate administrative, utilities, and supplies costs. Adjusted operating earnings(2) were $8.4 million, compared to $15.8 million in the prior year quarter. Adjusted operating earnings exclude, among other items, LIFO expense, restructuring and asset impairment charges in both years and costs related to shareholder activism in the current year.

Military

Net sales for Military increased $53.1 million, or 12.4%, to $483.2 million from $430.1 million in the prior year quarter. The increase was primarily related to inflation and an increase in case volume.

Reported operating loss for Military was $0.3 million, compared to a $3.5 million loss in the prior year quarter. The improvement was due to higher gross profit rates and increased case volumes, partially offset by increased corporate administrative costs. Adjusted operating earnings(2) were $5.1 million, compared to a $2.7 million loss in the prior year quarter. Adjusted operating earnings for Military exclude, among other items, LIFO expense in both years and costs related to shareholder activism in the current year.

Balance Sheet and Cash Flow

Cash flows provided by operating activities for the first half of fiscal 2022 were $28.5 million compared to $73.6 million in the first half of the prior year. The decrease in cash flows compared to the prior year was due primarily to changes in working capital. Accordingly, long-term debt and finance lease liabilities increased $74.5 million during the first half of fiscal 2022, which resulted in a change in the Company’s net long-term debt(4) to adjusted EBITDA(1) ratio over this period from 1.8x to 2.0x.

Purchases of property and equipment were $46.4 million, while capital expenditures and IT capital(5) totaled $49.6 million in the first half of fiscal 2022 compared to $43.8 million in the first half of the prior year.

During the first half of fiscal 2022, the Company paid $15.2 million in cash dividends, equal to $0.42 per common share. During the second quarter, the Company also renewed its share repurchase program and repurchased 215,402 shares for a total of $6.6 million, with an average price of $30.49 per share. In total, the Company returned $21.8 million to shareholders in the first half of 2022.

Fiscal 2022 Outlook

"Due to our strong performance to-date and the success of our Supply Chain Transformation, we are raising our full-year outlook for the second time this year," Sarsam continued. "We remain steadfastly committed to delivering strong results and creating sustainable shareholder value through Our Winning Recipe™, which leverages our three Core Capabilities: People, Operational Excellence and Insights That Drive Solutions."

Based on year-to-date performance and expectations for the remainder of the year, the Company is updating its full year guidance for fiscal 2022, as noted in the table below. The Company expects a stable earnings pace for the back half of fiscal 2022, inclusive of the net incremental costs associated with the Merchandising Transformation initiative, currently estimated to be between $11.0 million to $14.0 million.

Previous Full Year 2022 Outlook

Updated Full Year 2022 Outlook

Low

High

Low

High

Total net sales (millions)

$

9,000

$

9,300

$

9,300

$

9,600

Segment sales % increase (decrease)

Retail comp sales

1.0%

3.0

%

4.0%

7.0

%

Food Distribution sales

3.0%

5.0

%

4.0%

7.0

%

Military sales

(4.0%)

0.0

%

5.0%

8.0

%

Adjusted EBITDA (millions)

$

224

$

239

$

227

$

240

Adjusted EPS

$

2.17

$

2.32

$

2.17

$

2.32

Capital expenditures and IT capital (thousands)

$

100,000

$

110,000

$

100,000

$

110,000

Depreciation and amortization (thousands)

$

90,000

$

100,000

$

90,000

$

100,000

Interest expense (thousands)

$

17,500

$

19,500

$

19,000

$

21,000

Income tax rate

24.0

%

25.5

%

24.5

%

25.5

%

Long-Term Financial Targets & Investor Day

The Company also reaffirms its 2025 long-term financial targets. These include growing:

  • Sales to more than $10 billion, an increase of 12% from fiscal 2021.
  • Adjusted EBITDA to more than $300 million, an increase of 40% from fiscal 2021.

The Company is currently in the process of planning an Investor Day, scheduled for Wednesday, November 2, 2022. The live webcast of the formal presentation will be made available at SpartanNash's website at www.spartannash.com/webcasts under the "Investor Relations" section and will remain archived on the Company's website.

Conference Call & Supplemental Earnings Presentation

The Company will host a conference call to discuss its quarterly results with additional comments and details on Thursday, August 18, 2022, at 8:30 a.m. ET. There will also be a simultaneous, live webcast made available at SpartanNash's website at www.spartannash.com/webcasts under the "Investor Relations" section and will remain archived on the Company's website.

A supplemental quarterly earnings presentation will also be available on the Company’s website at www.spartannash.com/investor-presentations.

About SpartanNash

SpartanNash (Nasdaq: SPTN) is a food solutions company that delivers the ingredients for a better life. As a distributor, wholesaler and retailer with a global supply chain network, SpartanNash customers span a diverse group of national accounts, independent and chain grocers, e-commerce retailers, U.S. military commissaries and exchanges, and the Company’s own brick-and-mortar grocery stores, pharmacies and fuel centers. SpartanNash distributes grocery and household goods, including fresh produce and its Our Family® portfolio of products, to locations in all 50 states, in addition to distributing to the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar, Djibouti, Korea and Japan. To support its distribution business, the Company operates a strategically developed network of large-scale distribution facilities and a nationwide transportation fleet. In addition, the Company owns and operates 147 supermarkets – primarily under the banners of Family Fare, Martin’s Super Markets and D&W Fresh Market – and shares its operational insights to drive innovative solutions for SpartanNash food retail customers. Committed to fostering a People First culture, the SpartanNash family of Associates is 17,500 strong and growing. For more information, visit spartannash.com.

Forward-Looking Statements

The matters discussed in this press release and in the Company's website-accessible conference calls with analysts and investor presentations include "forward-looking statements" about the plans, strategies, objectives, goals or expectations of the Company. These forward-looking statements are identifiable by words or phrases indicating that the Company or management "expects," "anticipates," "plans," "believes," or "estimates," or that a particular occurrence or event "may," "could," "should," "will" or "will likely" result, occur or be pursued or "continue" in the future, that the "outlook", "trend", "guidance" or "target" is toward a particular result or occurrence, that a development is an "opportunity," "priority," "strategy," "focus," that the Company is "positioned" for a particular result, or similarly stated expectations. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date made. There are many important factors that could cause actual results to differ materially. These risks and uncertainties include the Company's ability to compete in the highly competitive grocery distribution, retail grocery and military distribution industries; changes in economic or geopolitical conditions, including inflationary pressures and the Russia-Ukraine conflict; interest rate fluctuations; labor relations issues and rising labor costs; the ability of customers to fulfill their obligations to the Company; the Company's dependence on certain major customers, suppliers and vendors; disruptions to the Company's information security network; disruptions associated with the COVID-19 pandemic; the Company's ability to implement its growth strategy and transformation initiatives; instances of security threats, severe weather conditions and natural disasters; impairment charges for goodwill and other long-lived assets; the Company's ability to successfully manage leadership transitions; the Company's ability to service its debt and to comply with debt covenants; the Company's ability to manage its private brand program for U.S. military commissaries; changes in the military commissary system, including its supply chain, or in the level of governmental funding; product recalls and other product-related safety concerns; changes in government regulations; and other risks and uncertainties listed under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's most recent Annual Report on Form 10-K and in subsequent filings with the Securities and Exchange Commission. Additional risks and uncertainties not currently known to the Company or that the Company currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur or information obtained after the date of this press release.

Non-GAAP Financial Measures

This press release includes information regarding adjusted operating earnings, adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), and adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. These measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company's performance against its peers. Certain of these measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.

The Company is unable to provide a full reconciliation of the GAAP to non-GAAP measures used in the fiscal 2022 outlook and long-term targets disclosed in this press release without unreasonable effort because it is not possible to predict certain adjustment items with a reasonable degree of certainty since they are not yet known or quantifiable, and do not relate to the Company's routine activities. These adjustments may include, among other items, restructuring and asset impairment activity, acquisition and integration costs, severance, costs related to the postretirement plan amendment and settlement, and organizational realignment costs, and the impact of adjustments to the last-in-first-out (LIFO) inventory reserve. This information is dependent upon future events, which may be outside of the Company's control and could have a significant impact on its GAAP financial results for fiscal 2022 or fiscal 2025, respectively.

(1) A reconciliation of net earnings to Adjusted EBITDA, a non-GAAP financial measure, is provided in Table 2 below.

(2) A reconciliation of operating earnings to adjusted operating earnings, a non-GAAP financial measure, is provided in Table 3 below.

(3) A reconciliation of net earnings to adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), a non-GAAP financial measure, is provided in Table 4 below.

(4) A reconciliation of long-term debt and finance lease obligations to net long-term debt, a non-GAAP financial measure, is provided in Table 5 below.

(5) A reconciliation of purchases of property and equipment to capital expenditures and IT capital, a non-GAAP financial measure, is provided in Table 7 below.

SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

12 Weeks Ended

28 Weeks Ended

July 16,

July 17,

July 16,

July 17,

(In thousands, except per share amounts)

2022

2021

2022

2021

Net sales

$

2,273,890

$

2,106,560

$

5,037,548

$

4,764,359

Cost of sales

1,919,647

1,772,933

4,232,722

4,012,702

Gross profit

354,243

333,627

804,826

751,657

Operating expenses

Selling, general and administrative

338,867

304,248

761,049

692,185

Acquisition and integration

436

121

675

180

Restructuring and asset impairment, net

2,611

3,337

2,624

3,176

Total operating expenses

341,914

307,706

764,348

695,541

Operating earnings

12,329

25,921

40,478

56,116

Other expenses and (income)

Interest expense

4,528

3,267

8,713

7,856

Other, net

600

(10

)

384

(276

)

Total other expenses, net

5,128

3,257

9,097

7,580

Earnings before income taxes

7,201

22,664

31,381

48,536

Income tax expense

2,086

5,850

6,977

12,206

Net earnings

$

5,115

$

16,814

$

24,404

$

36,330

Basic net earnings per share:

$

0.14

$

0.47

$

0.69

$

1.02

Diluted net earnings per share:

$

0.14

$

0.47

$

0.67

$

1.01

Weighted average shares outstanding:

Basic

35,564

35,693

35,565

35,734

Diluted

36,528

35,890

36,470

35,890

SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

July 16,

January 1,

(In thousands)

2022

2022

Assets

Current assets

Cash and cash equivalents

$

21,217

$

10,666

Accounts and notes receivable, net

411,453

361,686

Inventories, net

591,609

522,324

Prepaid expenses and other current assets

72,258

62,517

Property and equipment held for sale

25,073

Total current assets

1,121,610

957,193

Property and equipment, net

557,754

577,359

Goodwill

182,160

181,035

Intangible assets, net

108,349

110,960

Operating lease assets

264,583

283,040

Other assets, net

87,863

97,195

Total assets

$

2,322,319

$

2,206,782

Liabilities and Shareholders’ Equity

Current liabilities

Accounts payable

$

503,711

$

447,451

Accrued payroll and benefits

88,075

86,315

Other accrued expenses

59,902

67,893

Current portion of operating lease liabilities

46,297

47,845

Current portion of long-term debt and finance lease liabilities

6,303

6,334

Total current liabilities

704,288

655,838

Long-term liabilities

Deferred income taxes

74,497

63,692

Operating lease liabilities

247,230

266,701

Other long-term liabilities

28,706

38,292

Long-term debt and finance lease liabilities

473,876

399,390

Total long-term liabilities

824,309

768,075

Commitments and contingencies

Shareholders’ equity

Common stock, voting, no par value; 100,000 shares

authorized; 35,913 and 35,948 shares outstanding

489,957

493,783

Preferred stock, no par value, 10,000 shares

authorized; no shares outstanding

Accumulated other comprehensive income (loss)

4,046

(1,455

)

Retained earnings

299,719

290,541

Total shareholders’ equity

793,722

782,869

Total liabilities and shareholders’ equity

$

2,322,319

$

2,206,782

SPARTANNASH COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

28 Weeks Ended

(In thousands)

July 16, 2022

July 17, 2021

Cash flow activities

Net cash provided by operating activities

$

28,519

$

73,582

Net cash used in investing activities

(50,707

)

(10,038

)

Net cash provided by (used in) financing activities

32,739

(59,311

)

Net increase in cash and cash equivalents

10,551

4,233

Cash and cash equivalents at beginning of the period

10,666

19,903

Cash and cash equivalents at end of the period

$

21,217

$

24,136

SPARTANNASH COMPANY AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA

Table 1: Sales and Operating Earnings (Loss) by Segment

(Unaudited)

12 Weeks Ended

28 Weeks Ended

(In thousands)

July 16, 2022

July 17, 2021

July 16, 2022

July 17, 2021

Food Distribution Segment:

Net sales

$

1,118,305

49.2

%

$

1,056,526

50.2

%

$

2,489,162

49.4

%

$

2,390,608

50.2

%

Operating earnings

12,961

16,678

39,645

37,824

Retail Segment:

Net sales

672,405

29.6

%

619,977

29.4

%

1,453,684

28.9

%

1,359,421

28.5

%

Operating (loss) earnings

(368

)

12,711

(341

)

26,903

Military Segment:

Net sales

483,180

21.2

%

430,057

20.4

%

1,094,702

21.7

%

1,014,330

21.3

%

Operating (loss) earnings

(264

)

(3,468

)

1,174

(8,611

)

Total:

Net sales

$

2,273,890

100.0

%

$

2,106,560

100.0

%

$

5,037,548

100.0

%

$

4,764,359

100.0

%

Operating earnings

12,329

25,921

40,478

56,116

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), net long-term debt, capital expenditures and IT capital, and adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.

At the beginning of 2022, the Company made a change to the adjusted operating earnings and adjusted earnings from continuing operations measures to exclude the impact of LIFO expense or benefit. The Company believes the change reduces volatility associated with temporary fluctuations in inflation, enabling investors to best establish a basis for expected performance and the ability to evaluate actual results against that expectation and the industry in which the Company operates. Prior year adjusted operating earnings and adjusted earnings from continuing operations figures have been restated to align with this change in presentation. Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other items, LIFO expense, costs related to shareholder activism, operating and non-operating costs associated with the postretirement plan amendment and settlement, organizational realignment and severance associated with cost reduction initiatives. Costs related to shareholder activism include consulting, legal, and other expenses incurred in relation to shareholder activism activities. Costs related to the postretirement plan amendment and settlement include non-operating expenses associated with recognition of plan settlement losses and amortization of the prior service credit related to the amendment of the retiree medical plan, which are adjusted out of adjusted earnings from continuing operations. Postretirement plan amendment and settlement costs also include operating expenses related to payroll taxes which are adjusted out of all non-GAAP financial measures. Organizational realignment includes benefits for associates terminated as part of leadership transition plans, which do not meet the definition of a reduction-in-force. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other things, LIFO expense, organizational realignment and severance associated with cost reduction initiatives.

Each of these items are considered "non-operational" or "non-core" in nature.

Table 2: Reconciliation of Net Earnings to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization

(Adjusted EBITDA)

(A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended

28 Weeks Ended

(In thousands)

July 16, 2022

July 17, 2021

July 16, 2022

July 17, 2021

Net earnings

$

5,115

$

16,814

$

24,404

$

36,330

Income tax expense

2,086

5,850

6,977

12,206

Other expenses, net

5,128

3,257

9,097

7,580

Operating earnings

12,329

25,921

40,478

56,116

Adjustments:

LIFO expense

17,845

2,902

28,032

4,557

Depreciation and amortization

21,968

21,406

50,441

49,497

Acquisition and integration

436

121

675

180

Restructuring and asset impairment, net

2,611

3,337

2,624

3,176

Cloud computing amortization

869

478

1,769

958

Organizational realignment, net

252

(52

)

1,271

589

Severance associated with cost reduction initiatives

495

13

741

138

Stock-based compensation

1,397

974

5,838

5,164

Stock warrant

481

430

1,154

1,075

Non-cash rent

(839

)

(1,091

)

(1,927

)

(1,986

)

Gain on disposal of assets

(54

)

(80

)

(131

)

(262

)

Postretirement plan amendment and settlement

133

133

Costs related to shareholder activism

3,864

7,335

Adjusted EBITDA

$

61,787

$

54,359

$

138,433

$

119,202

Table 2: Reconciliation of Net Earnings to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, continued

(Adjusted EBITDA)

(A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended

28 Weeks Ended

(In thousands)

July 16, 2022

July 17, 2021

July 16, 2022

July 17, 2021

Food Distribution:

Operating earnings

$

12,961

$

16,678

$

39,645

$

37,824

Adjustments:

LIFO expense

9,640

1,626

15,368

2,420

Depreciation and amortization

7,866

7,604

17,958

17,394

Restructuring and asset impairment, net

(139

)

781

(128

)

763

Cloud computing amortization

483

283

1,033

517

Organizational realignment, net

118

(26

)

601

287

Severance associated with cost reduction initiatives

39

4

130

103

Stock-based compensation

658

436

2,781

2,365

Stock warrant

481

430

1,154

1,075

Non-cash rent

7

143

32

917

Loss (gain) on disposal of assets

1

(62

)

(77

)

(99

)

Postretirement plan amendment and settlement

63

63

Costs related to shareholder activism

1,829

3,471

Adjusted EBITDA

$

34,007

$

27,897

$

82,031

$

63,566

Retail:

Operating (loss) earnings

$

(368

)

$

12,711

$

(341

)

$

26,903

Adjustments:

LIFO expense

3,941

477

5,853

892

Depreciation and amortization

10,740

10,685

24,929

24,926

Acquisition and integration

436

121

675

180

Restructuring and asset impairment, net

2,750

2,556

2,752

2,413

Cloud computing amortization

290

139

541

314

Organizational realignment, net

96

(19

)

478

215

Severance associated with cost reduction initiatives

122

29

Stock-based compensation

494

390

1,989

1,870

Non-cash rent

(746

)

(1,145

)

(1,731

)

(2,697

)

Loss (gain) on disposal of assets

18

(2

)

27

(125

)

Postretirement plan amendment and settlement

50

50

Costs related to shareholder activism

1,453

2,758

Adjusted EBITDA

$

19,154

$

25,913

$

38,102

$

54,920

Military:

Operating (loss) earnings

$

(264

)

$

(3,468

)

$

1,174

$

(8,611

)

Adjustments:

LIFO expense

4,264

799

6,811

1,245

Depreciation and amortization

3,362

3,117

7,554

7,177

Cloud computing amortization

96

56

195

127

Organizational realignment, net

38

(7

)

192

87

Severance associated with cost reduction initiatives

456

9

489

6

Stock-based compensation

245

148

1,068

929

Non-cash rent

(100

)

(89

)

(228

)

(206

)

Gain on disposal of assets

(73

)

(16

)

(81

)

(38

)

Postretirement plan amendment and settlement

20

20

Costs related to shareholder activism

582

1,106

Adjusted EBITDA

$

8,626

$

549

$

18,300

$

716

Notes: Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("adjusted EBITDA") is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items including share-based payments (equity awards measured in accordance with ASC 718, Stock Compensation, which include both stock-based compensation to employees and stock warrants issued to non-employees) and the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings and other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.

Table 3: Reconciliation of Operating Earnings to Adjusted Operating Earnings

(A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended

28 Weeks Ended

(In thousands)

July 16, 2022

July 17, 2021

July 16, 2022

July 17, 2021

Operating earnings

$

12,329

$

25,921

$

40,478

$

56,116

Adjustments:

LIFO expense

17,845

2,902

28,032

4,557

Acquisition and integration

436

121

675

180

Restructuring and asset impairment, net

2,611

3,337

2,624

3,176

Organizational realignment, net

252

(52

)

1,271

589

Severance associated with cost reduction initiatives

495

13

741

138

Postretirement plan amendment and settlement

133

133

Costs related to shareholder activism

3,864

7,335

Adjusted operating earnings

$

37,965

$

32,242

$

81,289

$

64,756

Table 3: Reconciliation of Operating Earnings to Adjusted Operating Earnings, continued

(A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended

28 Weeks Ended

(In thousands)

July 16, 2022

July 17, 2021

July 16, 2022

July 17, 2021

Food Distribution:

Operating earnings

$

12,961

$

16,678

$

39,645

$

37,824

Adjustments:

LIFO expense

9,640

1,626

15,368

2,420

Restructuring and asset impairment, net

(139

)

781

(128

)

763

Organizational realignment, net

118

(26

)

601

287

Severance associated with cost reduction initiatives

39

4

130

103

Postretirement plan amendment and settlement

63

63

Costs related to shareholder activism

1,829

3,471

Adjusted operating earnings

$

24,511

$

19,063

$

59,150

$

41,397

Retail:

Operating (loss) earnings

$

(368

)

$

12,711

$

(341

)

$

26,903

Adjustments:

LIFO expense

3,941

477

5,853

892

Acquisition and integration

436

121

675

180

Restructuring and asset impairment, net

2,750

2,556

2,752

2,413

Organizational realignment, net

96

(19

)

478

215

Severance associated with cost reduction initiatives

122

29

Postretirement plan amendment and settlement

50

50

Costs related to shareholder activism

1,453

2,758

Adjusted operating earnings

$

8,358

$

15,846

$

12,347

$

30,632

Military:

Operating (loss) earnings

$

(264

)

$

(3,468

)

$

1,174

$

(8,611

)

Adjustments:

LIFO expense

4,264

799

6,811

1,245

Organizational realignment, net

38

(7

)

192

87

Severance associated with cost reduction initiatives

456

9

489

6

Postretirement plan amendment and settlement

20

20

Costs related to shareholder activism

582

1,106

Adjusted operating earnings (loss)

$

5,096

$

(2,667

)

$

9,792

$

(7,273

)

Notes: Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

Adjusted operating earnings is not a measure of performance under GAAP and should not be considered as a substitute for operating earnings, and other income statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.

Table 4: Reconciliation of Earnings from Continuing Operations to

Adjusted Earnings from Continuing Operations

(A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended

July 16, 2022

July 17, 2021

per diluted

per diluted

(In thousands, except per share amounts)

Earnings

share

Earnings

share

Net earnings

$

5,115

$

0.14

$

16,814

$

0.47

Adjustments:

LIFO expense

17,845

2,902

Acquisition and integration

436

121

Restructuring and asset impairment, net

2,611

3,337

Organizational realignment, net

252

(52

)

Severance associated with cost reduction initiatives

495

13

Postretirement plan amendment and settlement

745

Costs related to shareholder activism

3,864

Total adjustments

26,248

6,321

Income tax effect on adjustments (a)

(7,211

)

(1,600

)

Total adjustments, net of taxes

19,037

0.52

4,721

0.13

Adjusted earnings from continuing operations

$

24,152

$

0.66

$

21,535

$

0.60

28 Weeks Ended

July 16, 2022

July 17, 2021

per diluted

per diluted

(In thousands, except per share amounts)

Earnings

share

Earnings

share

Net earnings

$

24,404

$

0.67

$

36,330

$

1.01

Adjustments:

LIFO expense

28,032

4,557

Acquisition and integration

675

180

Restructuring and asset impairment, net

2,624

3,176

Organizational realignment, net

1,271

589

Severance associated with cost reduction initiatives

741

138

Pension refund from annuity provider

(200

)

Postretirement plan amendment and settlement

745

Costs related to shareholder activism

7,335

Total adjustments

41,223

8,640

Income tax effect on adjustments (a)

(11,145

)

(2,166

)

Total adjustments, net of taxes

30,078

0.82

6,474

0.18

Adjusted earnings from continuing operations

54,482

1.49

42,804

1.19

(a) The income tax effect on adjustments is computed by applying the effective tax rate, before discrete tax items, to the total adjustments for the period

Notes: Adjusted earnings from continuing operations is a non-GAAP operating financial measure that the Company defines as earnings from continuing operations plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

Adjusted earnings from continuing operations is not a measure of performance under GAAP 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 Company’s definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies.

Table 5: Reconciliation of Long-Term Debt and Finance Lease Obligations to Net Long-Term Debt

(A Non-GAAP Financial Measure)

(Unaudited)

July 16,

January 1

(In thousands)

2022

2022

Current portion of long-term debt and finance lease liabilities

$

6,303

$

6,334

Long-term debt and finance lease liabilities

473,876

399,390

Total debt

480,179

405,724

Cash and cash equivalents

(21,217

)

(10,666

)

Net long-term debt

$

458,962

$

395,058

Notes: Net long-term debt is a non-GAAP financial measure that is defined as long-term debt and finance lease obligations plus current maturities of long-term debt and finance lease obligations less cash and cash equivalents. The Company believes both management and its 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. Net long-term debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

Table 6: Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

(A Non-GAAP Financial Measure)

(Unaudited)

28 Weeks Ended

(In thousands)

July 16, 2022

July 17, 2021

Net cash provided by operating activities

$

28,519

$

73,582

Less:

Purchases of property and equipment

46,431

39,838

Free cash flow

$

(17,912

)

$

33,744

Notes: Free cash flow is a non-GAAP financial measure calculated by subtracting capital expenditures from cash flows provided by operating activities, the most directly comparable GAAP measure. The Company believes it is a useful indicator of liquidity that provides information to both management and investors about the amount of cash generated from operations that, after capital expenditures, can be used for strategic business objectives, including the repayment of long-term debt. Free cash flow is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

Table 7: Reconciliation of Purchases of Property and Equipment to Capital Expenditures and IT Capital

(A Non-GAAP Financial Measure)

(Unaudited)

28 Weeks Ended

(In thousands)

July 16, 2022

July 17, 2021

Purchases of property and equipment

$

46,431

$

39,838

Plus:

Cloud computing spend

3,153

3,971

Capital expenditures and IT capital

$

49,584

$

43,809

Notes: Capital expenditures and IT capital is a non-GAAP financial measure calculated by adding spending related to the development of cloud computing applications spend to capital expenditures, the most directly comparable GAAP measure. Cloud computing spend only includes costs incurred during the application development phase and does not include ongoing costs of hosting or maintenance associated with these applications, which are expensed as incurred. The Company believes it is a useful indicator of the Company’s investment in its facilities and systems as it transitions to more cloud-based IT systems. Capital expenditures and IT capital is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.