By a News Reporter-Staff News Editor at Investment Weekly News -- SpartanNash Company (the "Company") (Nasdaq: SPTN) reported financial results for the 12-week second quarter ended July 12, 2014. Second Quarter Results Consolidated net sales for second quarter increased 178.0 percent to $1.8 billion compared to $651.1 million last year, primarily due to $1.2 billion in sales generated as a result of the November 2013 merger with Nash Finch Company ("Nash Finch").
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) for the quarter increased 97.8 percent to $58.3 million, or 3.2 percent of net sales, compared to $29.5 million, or 4.5 percent of net sales last year. Adjusted EBITDA is a non-Generally Accepted Accounting Principles (GAAP) financial measure. Please see the financial tables at the end of this press release for a reconciliation of Adjusted EBITDA to net earnings, and a reconciliation of each non-GAAP financial measure to the most directly comparable measure prepared and presented in accordance with GAAP.
Reported operating earnings increased 115.3 percent to $32.6 million compared to $15.2 million for the prior year quarter, primarily due to contributions from the merger with Nash Finch. These benefits were partially offset by the impact of low inflation, increased integration, restructuring and asset impairment charges, additional LIFO expense and a pension settlement accounting charge.
Adjusted earnings from continuing operations for the second quarter were $19.1 million, or $0.50 per diluted share on approximately 37.8 million shares outstanding, compared to $10.2 million, or $0.46 per diluted share on approximately 21.9 million shares outstanding last year. For the second quarter of fiscal 2014, adjusted earnings from continuing operations excludes net after-tax charges of $2.3 million, or $0.06 per diluted share, related to merger integration expenses and asset impairment and restructuring costs and also excludes a tax benefit of $0.6 million, or $0.02 per diluted share, related to the favorable settlement of an unrecognized tax liability established in the prior year. For the prior year second quarter, adjusted earnings from continuing operations excluded net after-tax charges of $2.1 million, or $0.09 per diluted share, related to merger expenses and asset impairment charges. Adjusted earnings from continuing operations is a non-GAAP operating financial measure. Reported earnings from continuing operations were $17.4 million, or $0.46 per diluted share, compared to $8.1 million, $0.37 per diluted share, in the prior year quarter, primarily due to the factors previously mentioned.
"We are pleased to have exceeded our adjusted earnings guidance for the second quarter," stated Dennis Eidson, SpartanNash's President and Chief Executive Officer. "The earnings upside was driven primarily by continued favorable synergy realization and our retail segment. While the quarter started off slowly due to the later timing of Easter, sales trends improved as the quarter progressed and the retail division achieved positive comparable store sales over the back half of the second quarter despite some softening in the consumer environment. We have also made significant progress with our merger integration efforts and remain committed to providing excellent service and value to all of our retail, food distribution and military customers."
Gross profit margin for the second quarter was 14.7 percent compared to 20.5 percent in the prior year. The change in gross profit margin rate primarily reflects the change in segment mix of our operations due to the merger and the impact of continued low inflation.
Second quarter operating expenses would have been $229.1 million, or 12.7 percent of net sales, compared to $114.9 million, or 17.6 percent of net sales, in the same quarter last year, if the charges related to the merger, integration, asset impairment and restructuring were excluded in both periods. The higher expenses were due to the inclusion of Nash Finch's operations and the decrease in the rate to sales was due primarily to the change in mix of the Company's segments. Reported operating expenses were $232.7 million, or 12.9 percent of sales, compared to $118.3 million, or 18.2 percent of sales, in the second quarter last year. Food Distribution Segment Net sales for the food distribution segment increased 182.4 percent to $767.9 million in the second quarter from $271.9 million for the second quarter last year. The increase in sales was due to $501.4 million in sales from Nash Finch, partially offset by the negative effect of the change in timing of the Easter holiday and the reduction to the Supplemental Nutrition Assistance Program (SNAP).
Second quarter adjusted operating earnings for the distribution segment were $14.0 million, excluding $2.9 million of pre-tax merger integration expenses and restructuring charges, compared to adjusted operating earnings of $9.1 million, excluding $2.4 million of pre-tax merger expenses, in the same period last year. The benefit from the sales volume of Nash Finch's distribution operations was partially offset by the step-up in depreciation expense resulting from the revaluation of assets acquired in the merger, higher LIFO expense and lower inflation-related gains. Adjusted operating earnings is a non-GAAP operating financial measure. Reported operating earnings were $11.1 million compared to operating earnings of $6.8 million in the prior year second quarter. Retail Segment Net sales for the retail segment increased 42.4 percent to $539.8 million in the second quarter from $379.2 million for the second quarter last year, primarily due to $184.9 million in sales generated as a result of the merger and new and remodeled stores. Comparable store sales, excluding fuel, were flat to the prior year, primarily due to the later timing of Easter, which adversely affected the results by approximately 80 basis points and the impact of the cutbacks in SNAP benefits. In addition, retail sales reflect $17.1 million in fewer sales due to the store closures.
Second quarter adjusted operating earnings for the retail segment were $15.5 million, excluding $0.7 million of the non-cash pre-tax restructuring charges related to closed stores, compared to adjusted operating earnings of $9.4 million in the same period last year, excluding non-cash, pre-tax asset impairment charges of $1.0 million. The improvement in adjusted operating earnings was primarily due to the merger with Nash Finch's retail operations. Reported operating earnings in the retail segment were $14.8 million compared to $8.4 million in the prior year quarter.
During the second quarter, the Company completed three major remodels and began construction on two new stores. Additionally, two supermarkets were sold to distribution customers and one underperforming supermarket was closed. SpartanNash ended the quarter with 166 corporate owned stores and 30 fuel centers. Military Segment Net sales for the Company's military segment were $502.4 million and operating earnings were $6.7 million for the second quarter of fiscal 2014. Balance Sheet and Cash Flow Cash flow provided by operating activities for the year to date period was $64.0 million compared to $47.4 million for the comparable period last year. The increase in cash provided was primarily the result of contributions from the merger.
Net long-term debt (including current maturities and capital lease obligations and subtracting cash) for the Company was $577.2 million as of July 12, 2014 compared to $142.2 million at the end of the second quarter last year, due primarily to the incurrence of $436.1 million in debt as a result of the Nash Finch merger. Net long term debt decreased $19.2 million from $596.4 million at December 28, 2013. The Company's total net long-term debt-to-capital ratio is 0.44-to-1.0 as of July 12, 2014. Net long-term debt is a non-GAAP financial measure. Long-term debt and capital lease obligations, including current maturities, were $583.7 million at July 12, 2014 compared to $145.9 million at July 20, 2013. Outlook Mr. Eidson continued, "As we look to the second half of the year, we remain optimistic that we are in a position to deliver our sales and earnings outlook for fiscal 2014, despite the lack of non-perishable inflation, negative impact of the reduction in SNAP benefits and competitive openings. We will continue to invest in the consumer experience by completing five major remodels and re-banners and opening one new store in West Lafayette, Indiana. Additionally, we are taking steps to roll out pricing and promotional plans to stores acquired in the merger with Nash Finch and to leverage our distribution competencies and platform to increase business with existing customers and to drive new business. We are focused on enhancing efficiencies across all segments of the company and are beginning to realize significant synergies in sourcing, distribution and back-office functions. We continue to be confident in our ability to achieve, and likely exceed, our $52 million synergy target and to identify new opportunities to deliver value to our shareholders."
For the third quarter of fiscal 2014, the Company anticipates that net earnings from continuing operations per diluted share will be at, or slightly below, last year's comparable third quarter results of $0.43 per diluted share, excluding merger integration costs and any other one-time expenses. For fiscal 2014, the Company is maintaining its previously issued guidance of consolidated net sales in the range of $7.90 billion to $8.04 billion, Adjusted EBITDA in the range of $230.0 million to $239.0 million and is narrowing the range of earnings per share from continuing operations to approximately $1.70 to $1.75, excluding integration costs of approximately $7.4 million after tax and any other one-time expenses.
Keywords for this news article include: Mergers, Acquisitions, SpartanNash Company, Finance and Investment.
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