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

GRAND RAPIDS, Mich.--(BUSINESS WIRE)-- Spartan Stores, Inc. (NAS: 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 53rd 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. (NAS: 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 10,

September 15,

September 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 administrative

102,117

104,483

203,454

207,457

Depreciation and amortization

8,805

8,408

17,475

16,775

Restructuring, asset impairment and other

356

(135

)

356

(135

)

Total operating expenses

111,278

112,756

221,285

224,097

Operating earnings

18,948

19,981

30,661

33,977

Non-operating expense (income)

Interest expense

2,150

2,530

4,387

4,876

Non-cash convertible debt interest

904

835

1,794

1,658

Other, net

(664

)

5

(674

)

8

Total non-operating expense, net

2,390

3,370

5,498

6,542

Earnings before income taxes and discontinued operations

16,558

16,611

25,163

27,435

Income taxes

6,203

6,341

8,732

11,030

Earnings from continuing operations

10,355

10,270

16,431

16,405

Loss from discontinued operations, net of taxes

(50

)

(18

)

(123

)

(124

)

Net earnings

$

10,305

$

10,252

$

16,308

$

16,281

Basic earnings per share:

Earnings from continuing operations

$

0.48

$

0.45

$

0.75

$

0.72

Loss from discontinued operations

(0.01

)*

-

-

*

(0.01

)

Net earnings

$

0.47

$

0.45

$

0.75

$

0.71

Diluted earnings per share:

Earnings from continuing operations

$

0.47

$

0.45

$

0.75

$

0.72

Loss from discontinued operations

-

-

-

*

(0.01

)

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 capital lease obligations

4,185

4,249

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 outstanding

145,289

164,648

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