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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.10pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.06pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.25pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
negatively+4
failure+1
disadvantage+1
scrutiny+1
limitation+1
Positive rising
profitability+2
able+1
successfully+1
achieve+1
benefit+1
Risk Factors (Item 1A)
5,877 words
Item 1A. Risk Factors
The Company faces many risks. If any of the events or circumstances described in the following risk factors occur, the Company’s financial condition or profitability may suffer materially, and the trading price of the Company’s common stock could decline. We provide these risk factors for investors as permitted by and to obtain the rights and protections under the Private Securities Litigation Reform Act of 1995. It is not possible to predict or identify all such factors. Consequently, investors should not consider the following to be a complete discussion of all potential risks or uncertainties applicable to our business. This discussion of risk factors should be read in conjunction with the other information in this Annual Report on Form 10-K. All of these forward-looking statements are affected by the risk factors discussed in this item and this discussion of risk factors should be read in conjunction with the discussion of forward-looking statements, which appears at the beginning of this report.
Business and Operational Risks
The Company operates in an extremely competitive industry where many of the Company’s competitors are much larger and may be able to compete more effectively.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
loss+8
impairment+7
adverse+2
impairments+2
closed+2
Positive rising
benefit+2
improvement+2
profitability+1
favorable+1
gains+1
MD&A (Item 7)
8,279 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
About SpartanNash
SpartanNash, headquartered in Grand Rapids, Michigan, 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 retailers, e-commerce retailers, U.S. military commissaries and exchanges, and its corporate-owned retail stores, pharmacies and fuel centers. SpartanNash distributes grocery and household goods, including fresh produce and its Our Family private label brand, to locations in all 50 states. The Company's two reportable segments, Wholesale and Retail, are two distinct businesses, each with a different customer base, management structure, and basis for determining budgets, forecasts, and compensation.
Overview of 2024
The Company has continued to execute on Our Winning Recipe , which continued to support strong financial results in fiscal 2024. The plan continues to generate sustainable improvements in profitability as the Company further optimizes its supply chain network, improves value for its customers through vendor relationships, and captures additional benefits, while providing customer service and additional offerings. The Company’s 2024 highlights include:
The grocery industry is highly competitive. The Company’s Wholesale and Retail segments have many competitors, including regional and national grocery distributors, large chain stores that have integrated wholesale and retail operations, mass merchandisers, e-commerce providers, deep discount retailers, limited assortment stores and wholesale membership clubs. Many of the Company’s competitors have greater resources than the Company and may be able to compete more effectively. Additionally, rising headwinds, including reduced consumer demand and further industry consolidation, have intensified the competitive environment.
Alternative store formats and nontraditional competitors have contributed to market share losses for traditional grocery stores. The Company’s Wholesale and Retail segments are primarily focused on traditional retail grocery trade, which faces competition from faster growing alternative retail channels, such as dollar stores, discount supermarket chains, Internet-based retailers and meal-delivery services. The Company expects these trends to continue. If the Company is not successful in effectively competing with these alternative channels, or growing sales into such channels, its business or financial results may be adversely impacted.
The Company also faces competitive pressures from e-commerce activity, as consumers continue to adopt this format and do more of their shopping online. While the Company offers e-commerce services at many of its stores, some of its stores and many of its independent retailer customers do not. Other e-commerce providers may offer lower prices, superior online ordering or delivery service, or greater convenience than the Company. If the Company fails to compete successfully, it could face lower sales and may decide or be compelled to offer greater discounts to its customers, which could result in decreased profitability.
A significant portion of the Company’s sales are with major customers and the Company’s success is heavily dependent on retaining this business and on its customers’ ability to maintain and grow their business.
The Company depends heavily on its wholesale distribution customer base which includes certain large and growing customers, and its success is dependent on its customers’ ability to maintain and grow their own business. During the current year, the Company has observed sales volume declines across its wholesale distribution businesses, including to some of its major customers. To the extent that major customers decide to utilize alternative sources of products, whether through other distributors or self-distribution, or decide to discontinue offering certain products, the Company’s financial condition or profitability may be materially and adversely affected. Similarly, if major customers are not able to maintain or grow their business and honor the terms of its distribution agreements, the Company may be materially and adversely affected through a reduction in revenue and profitability.
Sales to the Company’s largest customer accounted for 18%, 16% and 16% of the Company’s net sales in 2024, 2023 and 2022, respectively. The Company’s ability to maintain a close, mutually beneficial relationship with major customers is an important determinant of the Company’s continued growth and profitability.
The Company may not be able to achieve its growth strategy through successful implementation of its transformation initiatives .
The Company’s long-term strategy includes a focus on revenue growth from new customers, market share gains, and continued expansion into value-add offerings, as well as driving incremental profitability through initiatives including supply chain transformation, merchandising transformation, changes to its go-to-market strategy, and other margin-enhancinginnovations, including OwnBrands execution, automation, and retail execution.
The successful implementation of these initiatives may present significant challenges, many of which are beyond the Company's control. In addition, the initiatives may not deliver financial results as expected. Events and circumstances, such as financial or strategic difficulties, delays, and unexpected costs may occur that could result in the Company not realizing all or any of the anticipated benefits or not realizing the anticipated benefits within the expected timetable. If the Company is unable to realize the anticipated financial performance of the initiatives, its ability to fund other initiatives may be adversely affected. Any failure to implement the initiatives in accordance with expectations could adversely affect the Company's ability to achieve its long-term revenue and profitability targets.
In addition, the complexity of the initiatives requires a substantial amount of management and operational resources. The Company's management team must successfully implement operational changes necessary to achieve the anticipated benefits of the initiatives.
These and related demands on its resources may divert the Company's attention from existing core businesses and could also have adverse effects on existing business relationships with suppliers and customers. As a result, the Company's financial condition, profitability, or cash flows may be adversely affected.
The Company may not be able to achieve its strategy of growth through acquisitions, may encounter difficultiessuccessfully integrating acquired businesses, and may not realize the anticipated benefits of business acquisitions .
The Company’s strategy includes growth through acquisitions within the Wholesale and Retail segments. Given the recent consolidation activity, which has resulted in a limited number of potential acquisition targets within the food industry, the Company may not be able to identify suitable targets for acquisition, may be required to make acquisitions which do not achieve the desired level of profitability or sales, or may encounter inflated valuations. Additionally, future acquisitions of retail grocery stores could result in the Company competing with its independent retailer customers which could adversely affect existing business relationships with those customers. As a result, the Company may not be able to actively identify or pursue suitable acquisition targets in the future, complete acquisitions or obtain the necessary financing all of which may adversely affect the Company’s ability to grow profitably. Furthermore, if the Company fails to successfully integrate business acquisitions and realize planned synergies, the business may not perform to expectations. The integration of acquired businesses may also cause us to incur unforeseen costs which may prevent the Company from realizing the anticipated economic, operational, and other benefits and synergies timely and efficiently, all of which may negatively impact sales and long-term growth plans. Also, increased regulatory and judicial scrutiny of industry consolidation activity could negatively impact the Company's ability to successfullyachieve its strategic growth initiatives.
Disruptions to the Company’s information technology systems, including security breaches and cyber-attacks, could negatively affect the Company’s business.
Vulnerabilities within the security of the Company’s information technology (“IT”) applications could create risk for the Company. The Company utilizes IT systems to conduct operations and to receive, transmit, and store many types of sensitive information, including consumers’ personal information, personal health information, information belonging to customers, vendors, business partners, and other third parties, and the Company’s proprietary, confidential, or sensitive information. Cyber threats evolve rapidly and are becoming more sophisticated, which may defeat the security programs and disaster recovery facilities and procedures implemented by the Company. As a result, the Company faces risks of security breaches, theft, espionage, inadvertent release of information, ransomware, and other technology-related disruptions. Associate error, faulty password management or other problems, including, without limitation, failure of backups or redundant systems, may compromise the security measures and result in a breach of the Company’s information systems, systems disruptions, data theft or other criminal activity. This could result in a loss of sales or profits or cause the Company to incur significant costs to restore its systems or to reimburse third parties for damages. Furthermore, if the Company is not able to leverage the use of AI effectively it may result in a material competitive disadvantage in the Wholesale and Retail segments.
Availability and performance of the Company’s IT systems are vital to the Company’s business. Failure to successfully execute IT projects and have IT systems available to the business would adversely impact the Company’s operations.
The Company has a complex IT infrastructure that is vital to its business operations. The effectiveness of these applications is relevant in supporting management’s effective financial reporting and forecasting on a regular basis. Failures in the operating effectiveness of these applications could create risk for the Company. If the Company is unable to successfully modernize legacy systems in a coordinated manner across internal and external stakeholders, the Company could be subject to increased costs, business interruption or reputational risk with its customers, suppliers or Associates. The failure of these systems could adversely impact the Company’s business plans and potentially impair the day-to-day business operations. In addition, the Company’s IT systems may be vulnerable to damage or interruption from circumstances beyond its control, including, power outages, computer and telecommunication failures, viruses, errors by Associates, and catastrophic events such as fires, earthquakes, tornados and hurricanes. Any debilitating failure of the Company’s critical IT systems, data centers and backup systems would require significant investments in resources to restore IT services and may cause seriousimpairment in the Company’s business operations including loss of business services, increased cost of moving merchandise and failure to provide service to its customers. Failure to modernize legacy systems efficiently and effectively could result in the loss of the Company’s competitive position and adversely impact its financial condition and results of operations.
Changes in relationships with the Company’s vendor base may adversely affect its business operations.
The Company sources the products it sells from a wide variety of vendors. The Company generally does not have long-term written contracts with its major suppliers that would require them to continue supplying merchandise. The Company depends on its vendors for appropriate allocation of merchandise, assortments of products, operation of vendor-focused shopping experiences within its stores, and funding for various forms of promotional allowances. Changes in relationships with suppliers could lead to decreased product availability, changes in the Company’s assortment, and decreased promotional funding, which could negatively impact the Company’s product offering and prices offered to customers, and lead to reduced consumer demand decreasing both revenue and profitability.
Changes in product availability and product pricing from vendors may adversely impact the Company’s business operations and profitability.
The Company’s suppliers purchase agricultural products, including vegetables, oils and spices and seasonings, meat, poultry, packaging materials and other raw materials from growers, commodity processors, other food companies and packaging manufacturers. These products are subject to increases in price attributable to a number of factors, including changes in crop size, federal and state agricultural programs, new or increased government tariffs, export demand, currency exchange rates, energy and fuel costs, water supply, weather conditions during the growing and harvesting seasons, insects, plant diseases and fungi, viral disease outbreaks and glass, metal and plastic prices. Further industry consolidation in the Company's vendor base may materially decrease the Company's negotiating power or impact competitive pricing. These increased prices, as well as other related expenses that they pass through to their customers, could result in higher costs for the products these vendors supply to the Company. Fluctuations in commodity prices can lead to retail price volatility and intensive price competition and can influence consumer buying patterns. The cost of labor, manufacturing, energy, fuel, packaging materials and other costs related to the production and distribution of the products the Company purchases from its vendors can from time to time increase significantly and unexpectedly. The Company has faced and could continue to face industry-wide cost inflation. To the extent it is unable to offset present and future cost increases, the Company's operating results could be materially and adversely affected.
Additionally, the Company faces vendor supply chain disruptions from labor availability, raw material shortages, and rising costs. These supply chain disruptions have placed and could continue to place constraints on the Company’s vendors resulting in reduced inbound fill rates and decreased product availability, which could negatively impact sales and profitability.
Changes in macroeconomic conditions may lead to reduced consumer demand and adversely affect the Company's performance.
Macroeconomic uncertainty, including rising inflation, potential economic recession, tariffs and increasing interest rates, among other negative macroeconomic conditions, could lead to reduced disposable income for the Company’s consumer base, resulting in less demand for the Company’s products and services. Reduced consumer demand could lead to lower sales and increased product shrink which could adversely affect the Company’s profitability and growth.
It may be difficult for the Company to attract and retain well-qualified Associates and effectively manage increased labor costs.
The Company has previously experienced, and may continue to experience, a shortage of qualified labor, particularly for retail store Associates, warehouse workers, and truck drivers. Such a shortage has caused upward pressure on wages. If the Company is unable to attract and retain quality Associates to meet its needs without significant changes to its compensation offering, the Company could be required to reduce staffing below optimal levels or rely more on higher-cost third-party providers, which could significantly reduce the Company’s profitability and growth.
The Company may not successfully retain or manage transitions with executive leaders and other key personnel.
The Company’s success depends upon the continued services of executive leaders and other key Associates, as well as its ability to effectively transition to their successors. The loss of such personnel may be disruptive to the Company, and if the Company is unable to execute an orderly transition and successfully integrate the new executives or personnel to successfully develop and implement strategic initiatives, the Company’s revenue, operating results and financial performance may be adversely affected. Any future changes to the executive leadership team, including hires or departures, could cause further disruption to the business and have a negative impact on operating performance, while these operational areas are in transition. The Company may not be able to timely find suitable successors to key roles as transitions occur or may not successfully integrate successors into its leadership team or the Company’s business operations. The Company’s inability to retain other key leaders or effectively transition to their successors, or any delay in filling any such critical positions, could harm its business and profitability.
Changes in geopolitical conditions may adversely affect the Company's operations.
Changes in geopolitical conditions, including known and/or developing conflicts, such as those in Eastern Europe, the Middle East, and the Asia-Pacific Region, could continue to disrupt supply and logistics operations and impact global margins due to increased commodity, energy, and input costs, which could negatively impact the Company's profitability. To the extent these conflictsadversely affect the Company's business, it may also have the effect of heightening other risks disclosed in this document and could further materially and adversely affect the Company's financial condition and profitability.
Impairment charges for goodwill or other long-lived assets could adversely affect the Company’s financial condition and profitability.
The Company performs its required annual impairment test for goodwill and other long-lived tangible and intangible assets in the fourth quarter of each year, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. Testing goodwill and other assets for impairment requires management to make significant estimates about the Company’s future performance, cash flows, and other assumptions that can be affected by potential changes in economic, industry or market conditions, business operations, competition, or – for goodwill – the Company’s stock price and market capitalization. Changes in these factors, or changes in actual performance compared with estimates of the Company’s future performance, may affect the fair value of goodwill or other assets. This could result in the Company recording a non-cash impairment charge for goodwill or other long-lived assets in the period the determination of impairment is made. The Company cannot accurately predict the amount or timing of potential impairments of assets. Should the value of goodwill or other assets become impaired, the Company’s financial position and profitability may be adversely affected.
The Company's business and reputation may be adversely impacted by the focus on environmental, social and governance matters.
In recent years, there has been an increasing focus by various stakeholders on environmental, social and governance (“ESG”) matters. Implementation of ESG initiatives may have an adverse financial impact on the Company resulting from increased costs required to achievedesired results. Moreover, a partial or complete failure, whether real or perceived, to adequately address ESG priorities or to achieveprogress on the Company's reported ESG initiatives, could adversely affect the Company’s reputation and negatively impact the Company’s financial and business operations. Conversely, taking a position, whether real or perceived, on ESG, public policy, geopolitical or similar matters could also adversely impact the reputation of the Company and its financial condition stemming from increased operational and product costs, reputational damage, and shareholder activism.
The Company may not successfullyachieve its ESG-related goals, and any future investments that it makes in furtherance of achieving such goals may not produce the expected results or meet increasing stakeholder ESG expectations. Moreover, future events could lead the Company to prioritize other nearer-term interests over progressing toward current ESG-related goals based on business strategy, economic, regulatory, social or other factors. If the Company is unable to meet or properly report on the progress toward achieving the ESG-related goals, it could face adverse publicity and reactions from current or potential investors, activist groups or other stakeholders, which could result in reputational harm or other adverse effects to the Company.
Customers to whom the Company extends credit or for whom the Company guarantees loans may fail to repay the Company.
From time to time, the Company may advance funds, extend credit or lend money to certain independent retailers and guarantee loan obligations of certain customers. The Company seeks to obtain a security interest and other credit support in connection with these arrangements, but the collateral may not always be sufficient to cover the Company’s exposure. Greater than expected losses from existing or future credit extensions, loans, guarantee commitments or sublease arrangements could negatively and materially impact the Company’s operating results and financial condition.
Threats due to the occurrence of severe weather conditions, natural disasters or other unforeseen events, all of which could become more frequent and extreme due to climate change, could harm the Company’s business.
The Company’s business could be impacted by severe weather conditions, natural disasters, or other events, all of which could become more frequent and extreme due to climate change. These events could affect the warehouse and transportation infrastructure used by the Company and its vendors to supply the Company’s corporate owned retail stores, and wholesale customers. Insurance programs may not fully cover losses, contingency plans adopted by the Company may fail, and the damage or destruction of Company facilities could compromise its ability to distribute products and generate sales and could increase energy costs needed to operate impacted facilities. Additionally, risks associated with climate change also include the increased use of operational resources associated with complying with any new climate-related legal or regulatory requirements, including mandated use of alternative energy sources such as renewable energy or reduction of greenhouse emissions, all of which could disrupt and adversely affect the business and profitability, financial position or cash flows. Furthermore, unseasonable weather conditions that impact growing conditions and the availability of food could lead to increased product costs to the Company or decreased inventories, which could result in reduced profitability and revenue.
Disease outbreaks and associated responses, may disrupt the Company's business by increasing costs, negatively impacting our supply chain, driving change in consumer behavior, and having an adverse impact on the Company's operations.
Disease outbreaks, such as the COVID-19 and Avian flu pandemics or similar communicable diseases, and responses thereto could affect the Company's industry and business. Risks and uncertainties related to disease outbreaks, such as duration, concerns related to the health and safety of our Associates and related labor impacts, costs associated with changes in demand, adverse supply chain impacts and impacts to third parties in which the Company relies, increased labor costs, and increased or accelerated competition, or other effects, may materially increase costs, negatively impact sales and damage the Company’s financial condition, profitability, cash flows and its liquidity position. The significance and duration of any such impacts are not possible to predict due to the overall uncertainty associated with any future pandemic.
The private brand program for U.S. military commissaries may be terminated or not achieve the desired results .
In December 2016, the Defense Commissary Agency ("DeCA" or the "Agency"), which operates U.S. military commissaries worldwide, competitively awarded to the Company the contract to support and supply products for the Agency’s private brand product program. The current contract to provide DeCA with private branded products expires in December 2025. Private brand products had not previously been offered in the Agency’s commissaries. The Company has invested and plans to continue to invest significant resources as it partners with DeCA to expand this program. However, the program may not be successful, may be discontinued or DeCA may suspend, terminate, shorten the scope or change certain terms and conditions in its agreement with SpartanNash which could have a significant adverse impact on the Company’s profitability.
The Company expects that DeCA will face significant competition in each product category from national brands that are familiar to consumers. If the Agency is unable to drive traffic and business at the commissaries by offering one-stop shopping for military customers through a combination of both national and private brand offerings, then both DeCA and the Company may be unable to achieve expected returns from this program, which could have a material adverse effect on the Company’s business and may negatively impact DeCA's willingness to continue the program. The success of the program will depend, in part, on factors beyond the Company’s control, including the unilateral actions of DeCA.
Risks Related to the Company’s Indebtedness
The Company’s level of indebtedness could adversely affect its financial condition and its ability to raise additional capital or obtain financing in the future, respond to business opportunities, react to changes in its business, and make required payments on its debt.
As of December 28, 2024, the Company had outstanding indebtedness of $753.8 million (net of unamortized debt issuance costs), primarily related to its asset-based lending facility (the "Revolving Credit Facility"). Refer to Note 7 in the accompanying notes to the consolidated financial statements for further information. If the Company is not able to generate cash flow from operations sufficient to service its debt, it may need to refinance its debt, dispose of assets or issue equity to obtain necessary funds. The Company may not be able to take any of such actions on a timely basis, on satisfactory terms or at all.
Indebtedness could have significant consequences, including the following:
reduced ability to execute the Company’s growth strategy, including merger and acquisition opportunities;
reduced ability to invest in the Company, which may place it at a competitive disadvantage;
increased vulnerability to adverse economic and industry conditions;
exposure to interest rate increases;
reduced cash flow available for other purposes; or
limited ability to borrow additional funds for working capital, capital expenditures and other investments.
The Company’s level of indebtedness may further increase from time to time. Although the Company’s agreements governing indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness, including secured debt, that could be incurred in compliance with these restrictions could be substantial. Incurring substantial additional indebtedness could further exacerbate the risks associated with the Company’s level of indebtedness.
The Company is exposed to interest rate risk due to the variable rates on its indebtedness, which may increase debt service obligations if interest rates rise.
The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates and expose it to interest rate risk. The Company may not be able to accurately predict changes in interest rates or mitigate their impact. If interest rates increase, debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remains the same and the Company’s profitability would decrease. Before consideration of hedging instruments, a hypothetical 0.50% increase in rates applicable to borrowings under the Revolving Credit Facility as of December 28, 2024 would increase interest expense related to such debt by approximately $3.1 million per year.
Covenants in its debt agreements restrict the Company’s operational flexibility.
The agreements governing the Revolving Credit Facility contain usual and customary restrictive covenants relating to the management and operation of the Company, including restrictions on its ability to borrow, pay dividends, or consummate certain transactions. These covenants may prevent the Company from taking actions that it believes would be in the best interest of the business and may make it difficult for the Company to successfully execute its business strategy and transformation initiatives or effectively compete with companies that are not similarly restricted. The Company may also incur future debt obligations that might subject it to additional restrictive and financial covenants that could affect financial and operational flexibility. The Company may not be granted waivers of or amendments to these agreements if for any reason it is unable to comply with them, or the Company may not be able to refinance its debt on acceptable terms or at all. In addition, failure to comply with the covenants in the Company’s debt agreements could result in all of its indebtedness becoming immediately due and payable.
Legal, Regulatory and Legislative Risks
Changes in government regulations may have a material adverse effect on financial results.
The Company operates in highly regulated environments. The products it distributes and sells through retail stores are subject to inspection and regulatory action by the United States Food and Drug Administration and the Drug Enforcement Agency for the Company's pharmacy business. Our warehouses and distribution centers are subject to inspection by the United States Department of Agriculture, the United States Department of Labor Occupational and Health Administration, and various state health and workplace safety authorities, and our logistics operations are subject to regulation by the United States Department of Transportation and the United States Federal Highway Administration. The Company is also subject to the international regulations of the European Union’s Import Control System for export shipments that are ultimately made to non-domestic commissaries. To date, as a federal contractor, the Company has been required to develop and maintain Affirmative Action Programs under the Rehabilitation Act, as enforced by the Office of Federal Contract and Compliance Programs, which may cause the Company to incur significant reputational and monetary damages for alleged discrimination in employment practices. The Company will continue to monitor and adhere to its obligations pursuant to law, regulation, and/or executive orders and the impact thereof. In addition, there are various other international, U.S. federal, state and local laws, regulations and administrative practices to which the Company is subject, which require us to comply with numerous provisions regulating areas such as environmental, health and sanitation standards, food safety, marketing of natural or organically produced food, facilities, pharmacies, equal employment opportunity, public accessibility, employee benefits, wages and hours worked and licensing for the sale of food, drugs, tobacco and alcoholic beverages, among others. Changes in federal, state or local minimum wages and overtime laws, federal tax laws, or employee paid leave laws could result in the Company incurring significant labor costs which could have material adverse effects on the Company’s financial position and profitability. The Company employs many hourly Associates who are compensated at an hourly rate lower than $17.00. If minimum wage rates increase, the Company would have to increase the wages of Associates who fall below the new minimum and may need to increase the wages of Associates in close proximity above the new minimum to address wage compression. In addition, changes in federal tax regulations may result in significant increases in the Company’s current and deferred tax liabilities, and may include changes in federal tax rates and the deductibility of certain costs. Failure to comply with existing or new laws or regulations could result in significant damages, penalties and/or litigation costs for the Company.
A number of consumers who shop at the Company’s owned retail stores, as well as consumers who shop at the Company’s independent wholesale grocery customers, receive benefits from government assistance programs such as the Supplemental Nutrition Assistance Program, the Special Supplemental Nutrition Program for Women, Infants, and Children or similar programs. A material reduction in benefit amounts offered through these programs could negatively impact the Company’s revenue and profitability.
Products supplied by the Company’s vendors may be sourced outside the United States or may contain inputs which are sourced outside the United States. The costs for these products could be negatively impacted by increased or new taxes or tariffs on imported goods or new import regulations. These changes could materially impact demand for these products and correspondingly the Company’s revenue and profitability.
A number of the Company’s Associates are covered by collective bargaining agreements, and unions may attempt to organize additional Associates.
Approximately 9% of the Company’s Associates are covered by collective bargaining agreements (“CBAs”) which expire between April 2025 and February 2030. The Company expects that rising healthcare, pension and other employee benefit costs, among other issues, will continue to be important topics of negotiation with the labor unions. Upon the expiration of the Company’s CBAs, work stoppages by the affected workers could occur if the Company is unable to negotiate an acceptable contract with the labor unions. This could significantly disrupt the Company’s operations.
Further, if the Company is unable to control healthcare and pension costs provided for in the CBAs, the Company may experience increased operating costs and an adverse impact on future profitability.
The Company may continue to see additional union organizing campaigns. The potential for unionization could increase as any new related legislation or regulations are passed. The Company respects its Associates’ right to unionize or not to unionize. However, the unionization of a significant portion of the Company’s workforce could increase the Company’s overall costs at the affected locations and adversely affect its flexibility to run its business in the most efficient manner to remain competitive or acquire new businesses and could adversely affect its profitability by increasing its labor costs or otherwise restricting its ability to maximize the efficiency of its operations.
The Company’s Wholesale segment is dependent upon domestic and international military operations. A change in the military commissary system, including its supply chain, or a change in the level of governmental funding, could negatively impact the Company’s business.
Because the Company’s Wholesale segment sells and distributes grocery products to military commissaries and exchanges in the United States and overseas, any material changes in the commissary system, the level of governmental funding to DeCA, military staffing levels, locations of bases, or DeCA’s supply chain may have a corresponding impact on the sales and operating performance of this segment. These changes could include privatization of some or all of the military commissary system, relocation or consolidation of commissaries and exchanges, base closings, troop redeployments or consolidations in the geographic areas containing commissaries and exchanges served by the Company, a change by DeCA to a self-distribution model, or a reduction in the number of persons having access to the commissaries and exchanges. Mandated reductions in the government expenditures, including those imposed as a result of a sequestration, may impact the level of funding to DeCA and could have a material impact on the Company’s operations. If DeCA were to make material changes to its supply chain model, for example by limiting distribution authorization, then the Company’s Wholesale segment could be affected.
Product recalls or other safety concerns regarding the Company’s products could harm the Company’s reputation as well as increase its costs.
The Company faces risks related to the safety of the food products that it distributes or sells. It may need to recall such products for actual or alleged contamination, adulteration, mislabeling, or other safety concerns. The Company distributes fresh fruits and vegetables, as well as other fresh prepared foods. These products, and other food products that the Company sells, are at risk of contamination by disease-causing organisms such as Salmonella , E. coli , and others. These pathogens are generally found in nature, and as a result, there is a risk that they could be present in the products distributed or sold by the Company. The Company typically has little control over proper food handling before the Company’s receipt of the product or once the product has been delivered to the Company's retail customers. Recall costs can be material. A widespread product recall could result in significant losses due to the administrative costs of a recall, the destruction of inventory, and lost sales. Recalls and other food safety concerns can also result in adverse publicity, damage to the Company’s reputation, and a loss of confidence in the safety and quality of its products. Customers may avoid purchasing certain products from the Company, or may seek alternative sources of supply for some or all of their food needs, even if the basis for concern is outside of the Company’s control. Any loss of confidence on the part of the Company’s customers would be difficult and costly to overcome. Any real or perceived issue regarding the safety of any food or drug items sold by the Company, regardless of the cause, could have a substantial and adverse effect on the Company’s business.
Costs related to multi-employer pension plans could increase.
The Company contributes to the Central States Southeast and Southwest Pension Fund (the “Central States Plan” or the “Plan”), a multi-employer pension plan, based on obligations arising from its CBAs with Teamsters locals 406 and 908. SpartanNash does not administer or control this Plan, and the Company does not have control over the level of contributions the Company is required to make. Benefit levels and related issues may continue to create collective bargaining challenges. The amount of any increase or decrease in its required contributions to this Plan will depend upon the outcome of collective bargaining, the actions taken by the trustees who manage the Plan, governmental regulations, actual return on investment of Plan assets, the continued viability and contributions of other contributing employers, and the potential payment of withdrawal liability should the Company choose to exit a geographic area, among other factors. Costs related to multi-employer pension plans could increase and adversely affect the Company’s financial conditions and results of operation.
Refer to Note 10 in the accompanying notes to the consolidated financial statements for further information.
stronger
exceptional
Wholesale
Wholesale segment net sales decreased $209.9 million compared to the prior year due primarily to lower case volumes in both the national accounts and independent retailers customer channels, partially offset by growth in the military customer channel.
Wholesale segment operating earnings of $97.4 million increased $9.7 million compared to $87.7 million in the prior year. Adjusted EBITDA of $187.2 million increased $9.3 million compared to $177.9 million in the prior year.
Retail
Retail segment net sales increased $30.0 million compared to the prior year due primarily to incremental sales from stores acquired in fiscal 2024. Retail comparable store sales decreased 1.7% compared to the prior year due primarily to lower consumer demand trends, partially offset by increases in pharmacy sales.
Retail segment operating loss of $43.5 million decreased $62.5 million compared to operating earnings of $19.0 million in the prior year. Adjusted EBITDA of $71.3 million decreased $8.2 million compared to $79.5 million in the prior year.
Other Highlights
The supply chain transformation, merchandising transformation, marketing innovation, and go-to-market plan drove approximately $50 million in incremental benefits in 2024. Since launching the transformation work and beginning to realize benefits in 2022, the Company has improved its throughput (1) rate, passed along significant benefits to its customers through the Enhanced Category Planning program, and captured almost $130 million in total gross benefits. These benefits helped to offset broader industry headwinds which impacted volume and profitability throughout the year.
During 2024, the Company returned $45.0 million to shareholders through $29.9 million in cash dividends, or $0.87 per common share, and $15.1 million in share repurchases. In addition, the Company generated net cash from operating activities of $205.9 million in 2024.
The Company reported earnings from continuing operations for the fiscal year of $0.3 million, compared to $52.2 million in the prior year. The Company reported adjusted EBITDA for the fiscal year of $258.5 million, compared to $257.4 million in the prior year.
As a means of evaluating warehouse efficiency, the Company calculates the throughput rate as cases shipped divided by warehouse labor hours worked, excluding salaried hours
Results of Operations
The current year results of operations are presented in comparison to the prior year within the section below. For a discussion of the results of fiscal 2023 operations in comparison to fiscal 2022, refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations within the prior year Annual Report on Form 10-K.
The Company believes that certain known or anticipated trends may cause future results to vary from historical results. The Company believes certain growth and cost-saving initiatives may favorably impact future results. The Company anticipates that additional operating and capital investments will be necessary to support these and other programs. Offsetting the Company’s expectations of favorable future results are macroeconomic headwinds including changes in consumer demand and input costs such as utilities, insurance and occupancy costs.
The following table sets forth items from the Company’s consolidated statements of earnings as a percentage of net sales and the percentage change from the preceding year:
Percentage of Net Sales
Percentage
Change
Net sales
Gross profit
Selling, general and administrative
Acquisition and integration, net
Goodwill impairment
Restructuring and asset impairment, net
Operating earnings
Other expenses, net
Earnings before income taxes
Income tax expense
Net earnings
Note: Certain totals do not sum due to rounding.
** Not meaningful
Net Sales – The following table presents net sales by segment and variances in net sales between fiscal 2024 and fiscal 2023:
Percentage of
Percentage of
Total
Total
Percentage
(In thousands)
Net Sales
Net Sales
Variance
Change
Wholesale
Retail
Net sales
Net sales decreased $179.9 million, or 1.8%, to $9.55 billion in 2024 compared to $9.73 billion in 2023. The decrease was attributable to decreased volume in the Wholesale segment, partially offset by higher sales volume in the Retail segment.
Wholesale net sales decreased $209.9 million, or 3.0%, to $6.71 billion in 2024 compared to $6.92 billion in the prior year. The decrease in net sales was due primarily to lower case volumes in both the national accounts and independent retailers customer channels, partially offset by higher sales in the military customer channel. Overall case volumes for the segment were down by 5.0% in the current year.
Retail net sales increased $30.0 million, or 1.1% to $2.84 billion in 2024 compared to $2.81 billion in the prior year, while comparable store sales decreased 1.7% in the current year. The comparable store sales decline was due primarily to lower consumer demand trends, which resulted in a 4.5% decline in unit volume. The decrease in comparable store sales in the current year included offsetting increases in pharmacy sales. Retail's comparable store sales decrease was more than offset by incremental sales from newly acquired stores in the current year.
The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions, or relocated stores. Sales are compared to the same store’s operations from the prior year period for purposes of calculation of comparable store sales. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.
Gross Profit – Gross profit represents net sales less cost of sales, which is described in further detail within Note 1, in the notes to the consolidated financial statements. Gross profit increased $26.9 million, or 1.8%, to $1.51 billion in the current year compared to $1.49 billion in the prior year. As a percent of net sales, gross profit increased from 15.3% to 15.8%. The gross profit rate increase in the current year was driven by favorable segment sales mix, lower last-in-first-out ("LIFO") expense of $10.9 million, or 11 basis points, and benefits realized from the merchandising transformation initiative. These increases were partially offset by unfavorable changes in customer mix within the Wholesale segment.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of operating costs related to retail and supply chain operations, including salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation, and out-bound freight, in addition to corporate administrative expenses. SG&A expenses increased $15.1 million, or 1.1%, to $1.38 billion in the current year from $1.37 billion in the prior year. As a percent of net sales, SG&A expenses increased from 14.0% to 14.5% primarily due to increased Retail store labor and depreciation and amortization expense, partially offset by benefits realized from both the merchandising transformation and go-to-market strategy changes and lower incentive compensation.
Acquisition and Integration, net – Acquisition and integration, net was $3.1 million in the current year compared to $3.4 million in the prior year. Current year activity includes fees associated with due diligence activities, purchase agreement negotiations and strategic advice within both segments, as well as costs of integration activities related to three acquired businesses in the Retail segment. Costs in the current year were partially offset by a gain associated with a reduction in the expected contingent consideration payment. Prior year activity includes fees associated with due diligence activities, purchase agreement negotiation and strategic advice within the Retail segment, as well as costs of integration related to an acquired business in the Wholesale segment.
Goodwill Impairment – In the current year, $45.7 million of goodwill impairment charges were incurred within the Retail segment. The impairment was driven by an increasingly competitive grocery retail environment that steadily and negatively impacted cash flow trends within the Retail reporting unit. These competitive factors led to increased pressure on pricing and promotions that have had an adverse impact, and are anticipated to continue to have an adverse impact, on volume, gross profit rates and other costs within the Retail reporting unit.
Restructuring and Asset Impairment, net – In the current year, $28.4 million of net restructuring and asset impairment charges were incurred. The charges in the current year include $20.9 million of asset impairment charges related to impairments of indefinite-lived trade names and long-lived assets within both the Wholesale and Retail segments as a result of changes in the competitive environment. Restructuring charges include $5.4 million of provisions for closing charges associated with lease ancillary costs and $2.5 million of other costs associated with site closures, primarily related to the closure of a distribution center within the Wholesale segment, and $1.6 million of losses on sales of real and personal property of previously closed locations within both the Wholesale and Retail segments. These charges in the current year were partially offset by $2.2 million of gains within the Retail segment recognized from the early termination of lease agreements for previously closed locations. Prior year results included $9.2 million of net restructuring and asset impairment charges, which were largely composed of $8.0 million of asset impairment charges in the Wholesale segment related to initiatives associated with continued supply chain network optimization in response to customer demand changes. Additional asset impairment charges of $3.7 million in the prior year were related to two store closures in the Retail segment and impairmentlosses related to a distribution location that sustained storm damage in the Wholesale segment. These charges were partially offset by $2.6 million of gains on sales of assets in the prior year primarily related to the sale of a store within the Retail segment.
Operating Earnings (Loss) – The following table presents operating earnings (loss) by segment and variances in operating earnings (loss):
Change in
Percentage of
Percentage of
Percentage of
(In thousands)
Net Sales
Net Sales
Variance
Net Sales
Wholesale
Retail
Operating earnings
The Company reported operating earnings of $54.0 million in the current year compared to $106.7 million in the prior year. The decrease of $52.8 million, or 49.4%, was attributable to changes in net sales, gross profit and operating expenses discussed above.
Wholesale operating earnings increased $9.7 million, or 11.1%, to $97.4 million in the current year from $87.7 million in the prior year. The increase was due to an improvement in the gross profit rate and benefits realized from the merchandising transformation initiative, partially offset by lower unit volumes and higher restructuring charges.
Retail operating earnings decreased $62.5 million, or 328.6%, to an operating loss of $43.5 million in the current year compared to earnings of $19.0 million in the prior year. The decrease in operating earnings was due to goodwill impairment charges, higher restructuring and asset impairment charges, and increased store labor as a percent of net sales, partially offset by an improvement in the gross profit rate and lower incentive compensation.
Interest Expense – Interest expense increased $4.9 million, or 12.4%, to $44.8 million in the current year from $39.9 million in the prior year, driven by a higher average debt balance on the Company's credit facility. The weighted average interest rate for all borrowings, including loan fee amortization was 7.03% in both 2024 and 2023. During 2024, the total debt balance increased $156.3 million to $753.8 million, compared to $597.5 million at the end of 2023. The increase in the debt balance was due to incremental investments in business combinations and capital expenditures.
Income Taxes – The Company’s effective income tax rates were 97.3% and 25.5% for 2024 and 2023, respectively. The differences from the federal statutory rate in the current year were primarily due to non-deductible goodwill impairment, state taxes and non-deductible expenses, partially offset by benefits associated with federal tax credits and contingent consideration. In the prior year, the differences from the federal statutory rate were primarily due to state taxes and non-deductible expenses, partially offset by benefits associated with federal tax credits, discrete benefits due to changes in tax contingencies, and discrete benefits related to stock compensation.
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with accounting principles generally accepted in the United States of America (“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 to total 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.
Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other items, LIFO expense, organizational realignment, severance associated with cost reduction initiatives, a non-routine settlement gain with an insurance company related to a legal matter from a previously closed operation, operating and non-operating costs associated with the postretirement plan amendment and settlement and a non-operating benefit associated with a pension refund from an annuity provider. Current year organizational realignment includes consulting and severance costs associated with the Company's change in its go-to-market strategy as part of its long-term plan, which relates to the reorganization of certain functions. Costs related to the postretirement plan amendment and settlement include operating and 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. Each of the adjusted items are considered “non-operational” or “non-core” in nature. The pension refund from an annuity provider is related to a terminated pension plan and is a non-operating benefit which is adjusted out of adjusted earnings from continuing operations. Each of the adjusted items are considered “non-operational” or “non-core” in nature.
Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other items, LIFO expense, organizational realignment, severance associated with cost reduction initiatives, a non-routine settlement related to a legal matter resulting from a previously closed operation and operating and non-operating costs associated with the postretirement plan amendment and settlement.
In 2022, adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA also exclude costs related to shareholder activism, and non-operating costs associated with the write off of certain unamortized deferred financing costs related to the debt modification. Costs related to shareholder activism include consulting, legal and other expenses incurred in relation to shareholder activism activities. Organizational realignment in 2022 includes benefits for associates terminated as part of leadership transition plans, which do not meet the definition of a reduction-in-force. Each of the adjusted items are considered “non-operational” or “non-core” in nature.
Adjusted Operating Earnings
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.
The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company as a whole and for its operating segments. The Company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail 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 operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in an adjusted operating earnings format.
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.
Following is a reconciliation of operating earnings (loss) to adjusted operating earnings for 2024, 2023 and 2022.
(In thousands)
Operating earnings
Adjustments:
LIFO expense
Acquisition and integration, net
Restructuring and goodwill / asset impairment, net
Organizational realignment, net
Severance associated with cost reduction initiatives
Legal settlement
Postretirement plan amendment and settlement
Costs related to shareholder activism
Adjusted operating earnings
Wholesale:
Operating earnings
Adjustments:
LIFO expense
Acquisition and integration, net
Restructuring and asset impairment, net
Organizational realignment, net
Severance associated with cost reduction initiatives
Legal settlement
Postretirement plan amendment and settlement
Costs related to shareholder activism
Adjusted operating earnings
Retail:
Operating (loss) earnings
Adjustments:
LIFO expense
Acquisition and integration, net
Restructuring and goodwill / asset impairment, net
Organizational realignment, net
Severance associated with cost reduction initiatives
Postretirement plan amendment and settlement
Costs related to shareholder activism
Adjusted operating earnings
Adjusted Earnings from Continuing Operations
Adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), is a non-GAAP operating financial measure that the Company defines as net 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.
The Company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the Company. The Company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and excludes the contributions of activities classified as discontinued operations. Because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted earnings from continuing operations format.
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.
Following is a reconciliation of net earnings to adjusted earnings from continuing operations for 2024, 2023 and 2022.
per diluted
per diluted
per diluted
(In thousands, except per share data)
Earnings
share
Earnings
share
Earnings
share
Net earnings
Adjustments:
LIFO expense
Acquisition and integration, net
Restructuring and goodwill / asset impairment, net
Organizational realignment, net
Severance associated with cost reduction initiatives
Pension refund from annuity provider
Legal settlement
Postretirement plan amendment and settlement
Costs related to shareholder activism
Write off of deferred financing costs
Total adjustments
Income tax effect on adjustments (a)
Total adjustments, net of taxes
Adjusted earnings from continuing operations
The income tax effect on adjustments is computed by applying the applicable tax rate to the adjustments.
Adjusted EBITDA
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.
The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company and for its operating segments. The Company considers 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 its distribution and retail 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 and adjusted EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted EBITDA format.
Adjusted EBITDA and adjusted EBITDA by segment are not measures 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 definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.
Following is a reconciliation of net earnings to adjusted EBITDA for 2024, 2023 and 2022.
(In thousands)
Net earnings
Income tax expense
Other expenses, net
Operating earnings
Adjustments:
LIFO expense
Depreciation and amortization
Acquisition and integration, net
Restructuring and goodwill / asset impairment, net
Cloud computing amortization
Organizational realignment, net
Severance associated with cost reduction initiatives
Stock-based compensation
Stock warrant
Non-cash rent
(Gain) loss on disposal of assets
Legal settlement
Postretirement plan amendment and settlement
Costs related to shareholder activism
Adjusted EBITDA
Wholesale:
Operating earnings
Adjustments:
LIFO expense
Depreciation and amortization
Acquisition and integration, net
Restructuring and asset impairment, net
Cloud computing amortization
Organizational realignment, net
Severance associated with cost reduction initiatives
Stock-based compensation
Stock warrant
Non-cash rent
(Gain) loss on disposal of assets
Legal settlement
Postretirement plan amendment and settlement
Costs related to shareholder activism
Adjusted EBITDA
Retail:
Operating (loss) earnings
Adjustments:
LIFO expense
Depreciation and amortization
Acquisition and integration, net
Restructuring and goodwill / asset impairment, net
Cloud computing amortization
Organizational realignment, net
Severance associated with cost reduction initiatives
Stock-based compensation
Non-cash rent
Loss on disposal of assets
Postretirement plan amendment and settlement
Costs related to shareholder activism
Adjusted EBITDA
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Based on the Company’s ongoing review, the Company makes adjustments it considers appropriate under the facts and circumstances. The Company believes these accounting policies, and others set forth in Note 1, in the notes to the consolidated financial statements, should be reviewed as they are integral to understanding the Company’s financial condition and results of operations. The Company has discussed the development, selection and disclosure of these accounting policies with the Audit Committee of the Board of Directors.
An accounting estimate is considered critical if: a) it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and b) different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the Company’s consolidated financial statements. The Company considers the following accounting policies to represent the more critical estimates and assumptions used in the preparation of its consolidated financial statements:
Customer Exposure and Credit Risk
Allowance for Credit Losses. The Company evaluates the collectability of its accounts and notes receivable based on a combination of factors. The Company estimates losses using an expected loss model, by considering both historical data and future expectations, including collection experience, expectations for current credit risks, accounts receivable payment status, the customer’s financial health, as well as the Company’s collateral and creditor position. The Company pools similar assets based on their credit risk characteristics, whereby many of its trade receivables are pooled based on certain customer or aging characteristics. After assets are pooled, an appropriate loss factor is applied based on management’s expectations. Based on the estimated loss, the Company records an allowance to reduce the receivable to an amount the Company reasonably expects to collect. It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the collectability based on information considered and further deterioration of accounts. If circumstances change (e.g., further evidence of material adverse creditworthiness, additional accounts become credit risks, store closures), the Company’s estimates of the recoverability of amounts due could be reduced by a material amount, including to zero.
Funds Advanced to Independent Retailers. From time to time, the Company may advance funds to independent retailers which are earned by the retailers primarily through achieving specified purchase volume requirements, as outlined in their supply agreements with the Company, or in limited instances, for remaining a SpartanNash customer for a specified time period. These advances must be repaid if the purchase volume requirements are not met or if the retailer does not remain a customer for the specified time period. In the event these retailers are unable to repay these advances or otherwise experience an event of default, the Company may be unable to recover the unearned portion of the funds advanced to these independent retailers. The Company evaluates the recoverability of these advances based on a number of factors, including anticipated and historical purchase volume, the value of any collateral, customer financial health and other economic and industry factors, and establishes a reserve for the advances as necessary.
Guarantees of Debt Obligations of Others. The Company may guarantee debt and lease obligations of independent retailers. In the event these retailers are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for the outstanding balance of their debt, which would be due in accordance with the underlying agreements. The Company evaluates the likelihood that funding will occur and the expected credit losses on commitments to be funded using an expected loss model.
The Company also subleases and assigns various leases to third parties. In circumstances when the Company becomes aware of factors that indicate deterioration in a third party’s ability to meet its financial obligations guaranteed or assigned by SpartanNash, the Company records a specific reserve in the amount the Company reasonably believes it will be obligated to pay on the third party’s behalf, net of any anticipated recoveries from the third party. It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the obligations based on information considered and further deterioration of accounts, with the potential for a corresponding adverse effect on operating results and cash flows. Triggering these guarantees or obligations under assigned leases would not, however, result in cross default of the Company’s debt, but could restrict resources available for general business initiatives.
Business Combinations
The Company accounts for acquired businesses using the purchase method of accounting, which requires that the assets acquired and liabilities assumed be recorded at their estimated fair values as of the acquisition date, with any excess purchase price over the estimated fair values of the net assets acquired being recorded as goodwill.
Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by the Company but are inherently uncertain. Also, determining the estimated useful life of an intangible asset requires judgment based on the Company’s expected use of the asset, as different types of intangible assets will have different useful lives and certain assets may be considered to have indefinite useful lives. The Company primarily utilizes an income approach method to estimate the fair value of intangible assets, which discounts the projected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuation reflect a consideration of other marketplace competition and include the amount and timing of future cash flows, including expected growth rates and profitability, and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets are tested for impairment on an annual basis, as of the first day of the fourth quarter of each year, and more frequently if circumstances indicate impairment is more likely than not to have occurred. The quantitative impairment evaluation of these assets involves the comparison of their fair value to their carrying values.
Goodwill. The Company has two reporting units, which are the same as the Company’s reportable segments. Fair values are determined based on the discounted cash flows and comparable market values of each reportable segment. If a reporting unit’s fair value is less than its carrying value, an impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company’s goodwill impairment analysis also includes a comparison of the estimated fair value of the enterprise as a whole to the Company’s total market capitalization. Therefore, a significant and sustained decline in the Company’s stock price could result in goodwill impairment charges. During times of financial market volatility, significant judgment is given to determine the underlying cause of the decline and whether stock price declines are short-term in nature or indicative of an event or change in circumstances.
The Company estimates the fair value of the Wholesale and Retail reporting units based on the income approach using a discounted cash flow model and also incorporates the market approach using observable comparable company information. Key assumptions used by the Company in preparing the fair value estimate under the discounted cash flow method include:
Weighted average cost of capital (“WACC”): The determination of the WACC incorporates current interest rates, equity risk premiums, and other market-based expectations regarding expected investment returns. The development of the WACC requires estimates of an equity rate of return and a debt rate of return, which are specific to the industry in which the reporting unit operates.
Revenue growth rates: The Company develops its forecasts based on recent sales data for existing operations and other factors, including management’s future expectations.
Operating profits: The Company uses historical operating margins as a basis for its projections within the discounted cash flow model. Margins within the forecast may vary due to future expectations related to both product and administrative costs.
The Company compares the results of the discounted cash flow model to observable comparable company market multiples to support the appropriateness of the fair value estimates. The Company concludes whether the implied multiple is reasonable with respect to the comparable company range, and whether the assumptions used in the fair value estimate are supportable.
In 2024, the Company recorded non-cash goodwill impairment charges of $45.7 million related to the Retail reporting unit. Refer to Note 5, Goodwill and Other Intangible Assets, in the notes to the consolidated financial statements for additional information related to the full impairment of Retail goodwill. As of the date of the most recent goodwill impairment test, which utilized data and assumptions as of October 6, 2024, the Wholesale reporting unit had a fair value that was substantially in excess of its carrying value. The Company has sufficient available information, both current and historical, to support its assumptions, judgments and estimates used in the goodwill impairment test; however, if actual results for the Wholesale reporting unit are not consistent with the Company’s estimates, it could result in the Company recording a non-cash impairment charge.
Other Indefinite-Lived Intangible Assets. The estimated fair value of these assets is computed by using a discounted cash flow method, such as the relief-from-royalty methodology. The Company determines future cash flows generated from the use of the asset, generally using estimated revenue growth rates and profitability rates and, in the case of the relief-from-royalty methodology, royalty rates. Discount rates are determined based on the WACC of the reporting unit in which the asset resides, consistent with the discussion above. Impairments of these assets were $12.7 million for 2024. There were no impairments of these assets in 2023 or 2022.
Impairment of Long-Lived Assets
Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted future cash flows are not sufficient to recover an asset’s carrying amount, the fair value is compared to the carrying value to determine the impairmentloss to be recorded. Long-lived assets are evaluated at the asset-group level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Impairments of long-lived assets were $8.2 million, $11.7 million and $5.1 million for 2024, 2023 and 2022, respectively.
Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of operations. These estimates project cash flows several years into the future and are affected by changes in the economy, the competitive environment, real estate market conditions and inflation. If the book value of assets is determined to not be recoverable, future cash flows for the expected useful life of the asset group are discounted using a rate based on the WACC of the reportable segment in which the asset resides, consistent with the discussion above.
Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less cost to sell. Management determines fair values using independent appraisals, quotes or expected sales prices developed by internal real estate professionals. Estimates of expected sales prices are judgments based upon the Company’s experience, knowledge of market conditions and current offers received. Changes in market conditions, the economic environment and other factors, including the Company’s ability to effectively compete and react to competitor openings, can significantly impact these estimates. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in a different outcome.
Insurance Reserves
SpartanNash is self-insured through self-insurance retentions or high deductible programs. Refer to Note 1, in the notes to the consolidated financial statements for additional information related to self-insurance reserves.
Any projection of losses concerning insurance reserves is subject to a degree of variability. Among the causes of variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, changing regulations, legal interpretations, benefit level changes and claim settlement patterns. Although the Company’s estimates of liabilities incurred do not anticipate significant changes in historical trends for these variables, such changes could have a material impact on future claim costs and currently recorded liabilities. The impact of many of these variables may be difficult to estimate.
Income Taxes
The Company reviews deferred tax assets for recoverability and evaluates whether it is more likely than not that they will be realized. In making this evaluation, the Company considers positive and negative evidence associated with several factors, including the statutory recovery periods for the assets, along with available sources of future taxable income, including reversals of existing taxable temporary differences, tax planning strategies, history of taxable income or losses, and projections of future income or losses. A valuation allowance is provided when the Company concludes, based on all available evidence, that it is more likely than not that the deferred tax assets will not be realized during the applicable recovery period.
SpartanNash is subject to periodic audits by the Internal Revenue Service and other state and local taxing authorities. These audits may challenge certain of the Company’s tax positions, such as the timing and amount of income credits and deductions and the allocation of taxable income to various tax jurisdictions. The Company evaluates its tax positions and establishes liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. These tax uncertainties are reviewed as facts and circumstances change and are adjusted accordingly. This requires significant management judgment in estimating final outcomes. Actual results could materially differ from these estimates and could significantly affect the Company’s effective income tax rate and cash flows in future years.
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows for 2024, 2023 and 2022:
(In thousands)
Cash flow activities
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Net cash provided by operating activities. Net cash provided by operating activities in the current year increased compared to the prior year by $116.6 million, due primarily to changes in working capital, including the Company's efforts to streamline inventory balances.
Net cash used in investing activities. Net cash used in investing activities increased $130.5 million in 2024 compared to 2023 primarily due to acquisitions in the Retail segment and an increase in capital expenditures in the current year in line with the Company's long-term plan.
The Wholesale and Retail segments utilized 50.0% and 50.0% of capital expenditures, respectively, for the current year. Capital expenditures for 2024 primarily related to investments in supply chain infrastructure, store remodels, information technology upgrades and implementations, and equipment upgrades. Capital expenditures were $132.4 million in the current year and cloud computing application development spend, which is included in operating activities, was $12.0 million, compared to capital expenditures of $120.3 million and cloud computing application development spend of $7.0 million in the prior year.
Net cash provided by financing activities. Net cash provided by financing activities increased $28.7 million in 2024 compared to 2023 primarily due to increased borrowings in the current year on the Company's senior credit facility.
Debt Management
Long-term debt and finance lease liabilities, including the current portion, increased $156.3 million to $753.8 million as of December 28, 2024 from $597.5 million at December 30, 2023. The increase in total debt was driven by additional borrowings on the senior credit facility to fund three acquisitions within the Retail segment and capital expenditures in both segments. The Company's Amended and Restated Loan and Security Agreement (the "Credit Agreement") matures on November 17, 2027. In 2023, the Company entered into amendments (the "Amendments") to the Company's Amended and Restated Loan and Security Agreement (the "Credit Agreement"). The principal terms of the Amendments included increasing the size of the Tranche A portion of the Company's revolving credit facility by $130 million in 2023. The Credit Agreement provides for a Tranche A revolving loan of up to $1.17 billion and a Tranche A-1 revolving loan with $40 million of capacity. The Company has the ability to increase the amount borrowed under the Credit Agreement by an additional $195 million, subject to certain conditions. The Company’s obligations under the Credit Agreement are secured by substantially all of the Company’s personal and real property. The Company may repay all loans in whole or in part at any time without penalty.
Liquidity
The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility. As of December 28, 2024, the senior secured credit facility had outstanding borrowings of $627.2 million. Additional available borrowings under the Company’s Credit Agreement are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintain Excess Availability of 10% of the borrowing base, as defined in the Credit Agreement. The Company had excess availability after the 10% requirement of $339.3 million at December 28, 2024. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The Credit Agreement provides for the issuance of letters of credit, of which $17.9 million were outstanding as of December 28, 2024. The Company anticipates that additional borrowings may be required to fund increased investments in expenditures related to both organic and inorganic initiatives included in the long-term strategic plan. The Company believes that cash generated from operating activities and available borrowings under the Credit Agreement will be sufficient to meet anticipated requirements for working capital, capital expenditures, dividend payments, and debt service obligations for the foreseeable future. However, there can be no assurance that the business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the Credit Agreement.
The Company’s current ratio (current assets over current liabilities) was 1.57:1 at December 28, 2024 compared to 1.63:1 at December 30, 2023, and its investment in working capital was $396.6 million at December 28, 2024 compared to $417.6 million at December 30, 2023. The net long-term debt to total capital ratio was 0.50:1 at December 28, 2024, compared to 0.43:1 at December 30, 2023. Total net long-term debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current portion of long-term debt and finance lease liabilities, 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. Total net long-term debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.
Following is a reconciliation of “Long-term debt and finance lease liabilities” to net long-term debt, a non-GAAP measure, as of December 28, 2024 and December 30, 2023.
December 28,
December 30,
(In thousands)
Current portion of long-term debt and finance lease liabilities
Long-term debt and finance lease liabilities
Total debt
Cash and cash equivalents
Net long-term debt
The Company’s material cash requirements as of December 28, 2024 primarily include long-term debt, including the estimated interest on the long-term debt, operating and finance lease liabilities, purchase obligations, and capital expenditure commitments. For additional information related to long-term debt and lease obligations, refer to Notes 7 and 11, respectively, in the notes to the consolidated financial statements. Purchase obligations include the amount of product the Company is contractually obligated to purchase in order to earn advanced contract monies that are receivable under the contracts, the majority of which are due in the next 12 months.
Cash Dividends
The Company declared a quarterly cash dividend of $0.2175, $0.215 and $0.21 per common share in each quarter of 2024, 2023, and 2022, respectively. Under the Credit Agreement, the Company is generally permitted to pay dividends in any year up to an amount such that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends in excess of $35.0 million in any year so long as its Excess Availability, as defined in the Credit Agreement, is in excess of 10% of the Total Borrowing Base, as defined in the Credit Agreement, before and after giving effect to the repurchases and dividends. Although the Company currently expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors (the “Board”) to declare future dividends. Each future dividend will be considered and declared by the Board at its discretion. Whether the Board continues to declare dividends depends on a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows and compliance with the terms of its credit facilities.
Recently Adopted Accounting Standards
Refer to Note 1, in the notes to the consolidated financial statements for additional information related to recently adopted accounting standards, as well as the anticipated effect of any impending accounting standards.
