SpartanNash (SPTN) Q2 Earnings Top, View Up on Higher Demand

Zacks Equity Research

August 13, 2020 at 12:56 PM·6 min read

SpartanNash Company SPTN posted a sturdy second-quarter fiscal 2020. Both top and bottom lines beat the Zacks Consensus Estimate and improved year over year, thanks to higher coronavirus-induced consumer demand. In fact, the company’s efforts to address this unexpected demand in a dynamic operating landscape were impressive. As a result, management raised bottom-line projections for fiscal 2020.

Impressively, shares of this grocery retailer have surged 32.9% over the past three months and outperformed the industry’s 24.2% rally.

Quarter in Detail

This Zacks Rank #1 (Strong Buy) company posted adjusted earnings of 73 cents a share that outshone the Zacks Consensus Estimate of 62 cents and surged a whopping 115% year over year. Higher sales and margins fueled the bottom line. Notably, this marked the company’s third-consecutive beat.

Consolidated net sales of $2,184.1 million grew 9.4%, higher sales being attributable to pandemic-led elevated demand in the Retail and Food Distribution segments, and persistent growth with existing Food Distribution customers. However, the top line lagged the Zacks Consensus Estimate of $2,313 million in the quarter.

Gross profit rose 17.1% year over year to $338.4 million, with margin expansion of 100 basis points (bps) to 15.5%. Gross margin expansion was mainly driven by higher Retail segment sales coupled with minimized levels of inventory shrink in the Retail unit.

Moreover, adjusted operating earnings came in at $37.7 million, increasing significantly from $23.5 million reported in the year-ago quarter. Furthermore, adjusted EBITDA jumped 33.5% to $59.2 million in fiscal second quarter, with margin expansion of 50 bps to 2.7%.

Segmental Analysis

Net sales at Food Distribution climbed 16.5% to $1,089.9 million owing to higher volumes stemming from increased consumer demand and higher sales from existing customers. The segment accounted for 49.9% of the company’s consolidated sales in the second quarter of fiscal 2020.

Retail’s net sales grew 10.8% to $631.3 million in the reported quarter on incremental sales volume from higher coronavirus-led demand. Further, comparable-store sales increased 17.1%, somewhat offset by the effect of lower fuel prices and gallons sold, and store closures. Additionally, the company registered e-commerce growth of over 300% and witnessed improvement of more than 24% in private-label sales. The retail segment represented about 28.9% of total sales in the quarter.

However, net sales at Military Distribution, which constituted for about 21.2% of overall quarterly sales, fell 5.6% to $463.0 million. Higher export sales were more than offset by the impact of domestic-base access and commissary shopping restrictions related to the pandemic. This resulted in an overall decrease of more than 10% for the Defense Commissary Agency as a whole.

Other Financials

SpartanNash ended the quarter with cash and cash equivalents of $34.6 million, net long-term debt of $523.1 million and total shareholders’ equity of $709.3 million. The company lowered its net long-term debt by $141.3 million in the first half of fiscal 2020, with net payments of more than $40 million in the reported quarter.

Furthermore, cash provided by operating activities was $198.2 million during the first six months of fiscal 2020. The company also generated free cash flow of $167.6 million in the same period. Moreover, capital expenditures and IT capital totaled $35.6 million in the first half. For fiscal 2020, management continues to project capital expenditures and IT capital in the band of $80-$90 million.

Additionally, management declared cash dividends of 19.25 cents a share for a total of $13.9 million in the first half of the fiscal year. It also repurchased 860,752 shares worth $10 million in the aforementioned period.

Guidance

SpartanNash still anticipates to gain from higher consumer food-at-home consumption with respect to the pandemic during fiscal 2020. However, the duration and magnitude of the effect remain volatile, due to which the company is unable to exactly project its impact on sales for the rest of the fiscal year.

Nonetheless, management believes sales will significantly surpass its original projection for the fiscal year. Moreover, adjusted EBITDA for fiscal 2020 is likely to fall in the range of $232-$242 million, up from the prior-guided view of $205-$215 million. Depreciation and amortization are likely to be $88-$92 million, while interest expense is now forecast in the band of $17.5 million-$18.5 million for the 53-week fiscal year ending Jan 2, 2021. Adjusted effective tax rate is expected to be 23.5%-24.5%.

The company estimates reported earnings per share from continuing operations between $2.13 and $2.41 versus the earlier projection of $1.48-$1.81. Adjusted earnings per share from continuing operations are now envisioned to be $2.40-$2.60, higher than the previous estimate of $1.85-$2.00 and $1.10 earned last fiscal year. The Zacks Consensus Estimate is currently pegged at $2.01 for fiscal 2020 and is likely to witness upward revisions in the coming days.

More Solid Food Stocks

Sprouts Farmers Market SFM long-term earnings growth rate of 9.2% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nomad Foods Limited NOMD has a trailing four-quarter average earnings surprise of 9.6% and displays a Zacks Rank of 2 (Buy).

Flowers Foods FLO has a Zacks Rank #2 stock with a trailing four-quarter average earnings surprise of 8.2%.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, inves tors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

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