SpartanNash Q3 2023 Earnings Report

SpartanNash EPS Results

• Actual EPS: $0.54
• Consensus EPS: $0.60
• Beat/Miss: Missed by -$0.06
• One Year Ago EPS: N/A

SpartanNash Revenue Results

• Actual Revenue: $2.26 billion
• Expected Revenue: $2.31 billion
• Beat/Miss: Missed by -$45.24 million
• YoY Revenue Growth: N/A

SpartanNash Announcement Details

• Quarter: Q3 2023
• Date: 11/8/2023
• Time: N/A
• Conference Call Date: Wednesday, November 8, 2023
• Conference Call Time: 8:30AM ET

SpartanNash (NASDAQ:SPTN) operates as a food distributor and retailer providing integrated supply chain solutions to grocery stores, the U.S. military and related entities. Through a network of distribution centers, the company delivers fresh, frozen and shelf-stable products, as well as health and beauty items, to independent and chain supermarkets across the United States. SpartanNash also owns and operates grocery retail banners—such as Family Fare and Dan’s Supermarkets—offering pharmacy, fuel and in-store services to local communities.

The company was formed in 2013 by the merger of Spartan Stores, founded in 1917, and Nash Finch Company, which traced its origins to the late 19th century. This combination united two legacy businesses with complementary strengths in wholesale distribution and retail management, enabling SpartanNash to enhance procurement scale, logistics capabilities and merchandising expertise.

SpartanNash’s distribution footprint spans numerous states throughout the Midwest and beyond, supported by strategically located warehouses and transportation assets. In addition to servicing conventional grocery customers, the company maintains a longstanding partnership with the Defense Commissary Agency, supplying commissaries and exchanges on U.S. military installations worldwide and supporting specialty and seasonal programs for its retail clients.

Headquartered in Byron Center, Michigan, SpartanNash is led by President and Chief Executive Officer Tony Sarsam, who has focused on driving digital initiatives, expanding private-label offerings and strengthening retailer partnerships. Under his leadership, the company continues to invest in technology and supply chain innovation to support long-term growth.

SpartanNash Q3 2023 Earnings Call Transcript

Key Takeaways

• SpartanNash highlighted key ESG achievements, including a 12% reduction in fleet mileage, 59% decrease in DC ozone-depleting emissions, and diverting over 4 million pounds of food from landfills.
• Consolidated Q3 net sales fell 1.4% year-over-year to $2.3 billion, primarily driven by lower volume in the Amazon business despite positive wholesale trends.
• Adjusted EBITDA grew 6% to $60.9 million and reported net earnings rose 17.6% to $11.1 million, reflecting benefits from transformational initiatives and disciplined cost management.
• Own brands performance remained strong even as national brand volumes declined, with the merchandising transformation on track to deliver $25–35 million of annualized benefits.
• The company narrowed full-year net sales guidance to $9.65–9.85 billion and set adjusted EPS outlook at $2.20–2.28, reflecting ongoing elevated interest rates and market headwinds.

Presentation

[Operator]

Welcome to the SpartanNash Third Quarter 2023 Earnings Conference Call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to Kayleigh Campbell, Head of Investor Relations. Please go ahead.

[Kayleigh Campbell, Head of Investor Relations at SpartanNash]

Good morning, and welcome to the SpartanNash Company Third Quarter 2023 Earnings Conference Call. On the call today from the company are President and Chief Executive Officer, Tony Sarsam, and Executive Vice President and Chief Financial Officer, Jason Monaco. By now, everyone should have access to the earnings release, which was issued this morning at approximately 7 A.M. Eastern Time. For a copy of the earnings release, as well as the company's supplemental earnings presentation, please visit SpartanNash's website at www.spartannash.com/investors. This call is being recorded, and a replay will be available on the company's website. Before we begin, the company would like to remind you that today's discussion will include a number of forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.

[Kayleigh Campbell, Head of Investor Relations at SpartanNash]

If you will refer to SpartanNash's earnings release from this morning, as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements. Please remember that all forward-looking statements made today reflect our current expectations only, and SpartanNash undertakes no obligation to update or revise these forward-looking statements. The company will also make a number of references to non-GAAP financial measures. The company believes these measures provide investors with useful perspective on the underlying growth trends of the business, and it has included in the earnings release a full reconciliation of certain non-GAAP financial measures to the most comparable GAAP measures, which can be found on SpartanNash's website at www.spartannash.com/investors. Now it is my pleasure to turn the call over to Tony.

[Tony Sarsam, President and CEO at SpartanNash]

Thank you, Kayleigh, and good morning, everyone. Glad to be here. To kick us off, I want to call out some highlights from our most recent ESG report that we published last month. We are still early in our sustainability journey and are making strides that I am happy to share with you all today. From 2021-2022, we reduced fleet mileage by 12%, exceeding our 10% goal. We decreased DC ozone-depleting emissions by a whopping 59%. We converted 85% of our retail stores and DCs to LED lighting, and we diverted more than 4 million pounds of food from landfills. On the governance side, we demonstrated our ongoing commitment to board refreshment, exemplified by the addition of three new directors in 2022 and one new director this past August.

[Tony Sarsam, President and CEO at SpartanNash]

As a people-first company, I'm incredibly proud of the team's continued focus on safety. Since 2020, one of our biggest accomplishments has been an improved safety record, including a 72% decrease in lost time incidents. Over the past year, our ESG committee and subcommittees have strategically embedded our 2025 ESG goals into our Master Action Plan. We are committed to creating solutions that improve the lives of our associates and the communities we serve. We encourage all stakeholders to read the 2022 ESG report, which is available on the company website. We have the privilege of serving the U.S. military. As a grocery wholesaler, we bring the taste of home to the men, women, and families of the U.S. military around the world. This Veterans Day weekend, we honor those who have served the United States of America. Now, turning to our Q3 results.

[Tony Sarsam, President and CEO at SpartanNash]

Consolidated net sales came in at $2.3 billion, a decrease of 1.4% from a year ago. Similar to last quarter, we continued to experience a decrease in sales on our Amazon business. Outside of this impact, we observed positive sales trends in our wholesale segment as well as for the consolidated company. We continue to work closely with Amazon as they manage through changes in their grocery format. Adjusted EBITDA increased 6%, improving 19 basis points compared to the prior year quarter. Our solid bottom line performance, amid a challenging environment, is attributable to the benefits from our transformational initiatives. Even in an environment where national brands volumes declined, our Own Brands portfolio held strong. Our new and refreshed Own Brands products are helping consumers across all income levels further stretch their dollars.

[Tony Sarsam, President and CEO at SpartanNash]

Speaking of solutions to help our customers and retail shoppers, we have made huge strides since launching our Merchandising Transformation last year. As a food solutions company, we have been relentless on combating food inflation. For more than a year, our enhanced category planning has leveraged data from commodity markets and other industrial benchmarks to address rising input costs. Our methodical cost management has helped us capture, share, and provide additive value to our wholesale customers and retail shoppers. We continue to appreciate and grow with vendors who are collaborating with us to find creative solutions. We are now in the process of launching the next phase of our Merchandising Transformation through our compelling offer. This program is accelerating our customer-led capabilities in the following areas: One; simplifying the assortment using advanced analytics. Two; showcasing the power of our Own Brands....

[Tony Sarsam, President and CEO at SpartanNash]

Three; reducing cost to serve in our warehouses and stores. Four: improving in-stocks for shoppers. And five; creating an easier to navigate planogram. All these actions lead to a better overall shopping experience. There is significant unlocked potential within our retail stores, and based on our learnings, we also plan to scale the program to independent customers to help them drive their business. Turning to our recently remodeled Up Market stores, we are growing at double the rate of the rest of our retail portfolio due to these stores' innovative offerings. We continue to reinvest in our stores and are on target to renovate or refresh 25% of the base during the planned period from 2021 through 2025. Our retail team continues to find solutions. For example, we are currently implementing a cash and deposit automation program.

[Tony Sarsam, President and CEO at SpartanNash]

By significantly reducing administrative hours, the program enables our store associates to provide better customer service while optimizing our shopper experience. Our signature strength is to be the most customer-focused, innovative food solutions company. Now that we are executing on our Winning Recipe, we're even attracting former customers. They have seen our momentum and are boomeranging back to SpartanNash. We are eagerly welcoming them back into our family. They see us as a long-term strategic partner as they focus on their next phase of growth. This is a true testament to the progress we have made over the past three years. We are winning with these customers because of our reliable service, made possible through our optimized supply chain network.

[Tony Sarsam, President and CEO at SpartanNash]

The benefits our Merchandising Transformation provides to our wholesale customers and an aligned team of associates who are focused on helping our customers take their grocery business to the next level. In addition, we are winning new wholesale customers. This is due to our differentiated services and execution of our Winning Recipe. We look forward to growing our businesses together. Overall, we are seeing the labor market and applicant flow stabilize. Since last November, we reduced our turnover rate by nearly 12%. With more mature onboarding and training and development investments, we are focused on hiring the right people, training them to do a great job, and retaining them for the long term. I love recognizing associates for their hard work. Our leadership team recently honored our frontline associates throughout our supply chain retail through our Circle of Excellence program. Congrats to all those winners.

[Tony Sarsam, President and CEO at SpartanNash]

Thank you for all you do to deliver the ingredients for a better life. This past quarter, we hosted our annual leadership summit, and the theme was Flying in Formation. I'm already seeing the impact of that inspiring messaging throughout our company. Our team has fully embraced cross-functional work. We are aligned, we are focused, and we are relentless in our pursuit of providing food solutions. Thank you again to our associates who are Flying in Formation. I will now turn things over to our CFO, Jason Monaco, to share more details about our financials.

[Jason Monaco, EVP and CFO at SpartanNash]

Thanks, Tony, and welcome to everyone joining us on today's call. I want to highlight some of our key successes from this past quarter before jumping into the detailed results. First, our Adjusted EBITDA increased more than 6% to $60.9 million, from $57.3 million last year. Our reported net earnings increased 17.6% to $11.1 million, compared to net earnings of $9.5 million in Q3 of last year. And our cash flow and liquidity remain strong, giving us flexibility to support our strategic long-term plans, including both organic and inorganic investments. Year to date, we've generated nearly $96 million of cash from operating activities and returned almost $41 million to shareholders through share repurchases and dividends. Now, turning to our quarterly results.

[Jason Monaco, EVP and CFO at SpartanNash]

Net sales for the third quarter decreased $32 million, or 1.4%, to $2.26 billion, compared to 2022's third quarter. Consistent with industry pressures, both segments were unfavorably impacted by volume headwinds. Gross profit for the quarter was $348 million, compared to $351 million in the prior year's third quarter. While the rate was relatively flat, the dollar decline was driven by lower unit volumes in both segments. On a sequential basis, the gross profit rate grew 11 basis points to 15.35% of net sales. I'll discuss additional segment variances momentarily. LIFO expense decreased $8 million, or 36 basis points, compared to the prior year quarter as inflation eased, as we've expected.

[Jason Monaco, EVP and CFO at SpartanNash]

As a percentage of sales, our reported operating expenses improved 12 basis points from the prior year quarter. During the quarter, efficiencies realized from our supply chain transformation helped to offset industry-wide headwinds. The decrease in expenses was also due to lower incentive compensation compared to the prior year quarter. These expense reductions were partially offset by an increase in acquisition and integration charges and severance costs related to the previously announced organizational realignment. Interest expense increased $3.2 million compared to the prior year quarter, to $9.3 million, due primarily to the higher rate environment. Other income for the third quarter included an $800,000 dollar gain related to a previously terminated post-retirement plan. Now, turning to our segments.

[Jason Monaco, EVP and CFO at SpartanNash]

Net sales in wholesale decreased $28 million to $1.6 billion compared to the prior year quarter. The 1.7% decrease was due primarily to demand changes within the Amazon business. Moving to the bottom line, the wholesale segment's quarterly Adjusted EBITDA was $39 million, compared to $38.3 million during the same period last year. Despite cycling inflation-related price gains of over $8 million in the prior year quarter, the segment's bottom line increased due to benefits realized from the Merchandising Transformation, better leverage of operating expenses, which include the benefits of our Supply Chain Transformation and lower incentive compensation. Wholesale reported third quarter operating earnings were $18.2 million, compared to $14 million in the prior year period. Now, turning to our retail segment.

[Jason Monaco, EVP and CFO at SpartanNash]

Sales came in at $662 million for the quarter, compared to $667 million in the third quarter of 2022. Our comparable store sales grew 1.2%. Continued reductions in EBT benefits offered to consumers in our retail geography adversely impacted same-store sales by approximately 3% this past quarter, a trend that has accelerated in the last six months. As Tony mentioned, our new and refreshed Own Brands products are helping consumers across all income levels further stretch their dollars. Retail Adjusted EBITDA increased $2.9 million-$21.9 million, from $19 million in the prior year quarter. This increase was due to the ongoing success of our marketing innovation work, reduced incentive compensation, and a decrease in health benefits expense. The increase was partially offset by industry-wide volume pressure and lower pharmacy margins.

[Jason Monaco, EVP and CFO at SpartanNash]

Retail reported operating earnings were $4.9 million, compared to $5.3 million in 2022's third quarter. Moving to our balance sheet. Our leverage ratio of net long-term debt to Adjusted EBITDA improved sequentially by 10 basis points to 2.1 times, compared to the second quarter of this year. Year-to-date, cash flow remained strong at nearly $96 million. Over the same period, we've paid more than $22 million in cash dividends, equal to $0.645 per common share. We also bought back 765,000 shares for a total of $18.5 million. And as of the end of the third quarter, we have approximately $25 million remaining on our share repurchase authorizations. In total, the company has returned nearly $41 million to shareholders year-to-date.

[Jason Monaco, EVP and CFO at SpartanNash]

As our earnings release mentioned, we updated our full year guidance based on the current trends and market conditions we are observing. We lowered the top end of our full year net sales guidance to $9.65-$9.85 billion. We narrowed the range while affirming the same midpoint for our Adjusted EBITDA, which we now expect will be between $253 million and $258 million. We updated our Adjusted EPS to be in the range of $2.20-$2.28 per share, which reflects the ongoing elevated interest rate environment. Since 2021, we have made huge strides on our strategic plan. We have a highly scalable business model with a sustainable trajectory of profitable growth.

[Jason Monaco, EVP and CFO at SpartanNash]

Our Winning Recipe and the benefits from our transformational initiatives continue to enhance value for our shareholders. And now I'd like to turn the call back over to Tony.

[Tony Sarsam, President and CEO at SpartanNash]

Thank you, Jason. To echo Jason's last comment, we have made huge progress on our long-term plan. Since 2021, we have been building a people-first culture, recruiting a talented team of leaders, developing and executing on a long-term strategic plan, and implementing key transformational initiatives. We continue to be energized about how the plan incorporates long-term value creation through our transformational initiatives and related margin expansion opportunities. It's no secret that our industry is facing substantial headwinds. Instead of seeing a mountain to climb, we see the ample opportunities this dynamic environment has created. With a strong foundation from the execution against our long-term strategic plan, we are well positioned to actively pursue opportunities to further grow share, drive improved results, and maximize shareholder value.

[Tony Sarsam, President and CEO at SpartanNash]

With the holiday season ahead of us, I want to express my gratitude to our entire team, many of them serving on the front lines, who are helping ensure we are delivering the ingredients for a better life. With that, I'd like to turn the call back over to the operator to open it up for your questions.

[Operator]

If you would like to ask a question, please press star one on your telephone keypad now. You will be placed into the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star one on your phone now. Our first question comes from Andrew Wolf of CL King. Your line is open.

[Andrew Wolf, Senior Equity Analyst at C.L. King & Associates]

Thank you. Good morning. Just had a couple questions. First is on market share. What is your sense, you know, of your adjusted volume if we take out the Amazon business, how it's trending and, you know, how you think you're trending versus versus the market?

[Jason Monaco, EVP and CFO at SpartanNash]

Hey, Andrew, this is Jason. Good morning. Thanks for the question. If you strip out the Amazon business, we would have seen net growth. And from a market share standpoint, we've seen growth in our retail business and solid growth in wholesale. Overall, the Amazon is the primary driver of the negative revenue profile for the business.

[Andrew Wolf, Senior Equity Analyst at C.L. King & Associates]

Kind of related, as a follow-up, is the same-store sales number, you know, that your retail division produced, is that similar to what you're seeing from your on average, obviously, I'm sure there's a range, but on average, is that similar to what you're seeing from the wholesale customers?

[Jason Monaco, EVP and CFO at SpartanNash]

Yes. So it's a similar profile, excluding the impact of our pharmacy business, which obviously has different mix profiles between our independent customers and our own retail stores.

[Andrew Wolf, Senior Equity Analyst at C.L. King & Associates]

Okay, got it. And just, if you could just sort of dive into maybe a little more on your outlook. Not really a guidance question, I don't think as much as just something that's topical. Just on inflation and deflation, and/or deflation and, you know, how you think that could impact, you know, your two segments as we kind of look out a little longer term.

[Tony Sarsam, President and CEO at SpartanNash]

Yeah. So this is Tony. The inflation is coming down as we've all seen, particularly in food. It's been kind of each month is down a little bit more than it was the previous month. We expect that trend to continue. We're not actually breaking out the crystal ball and saying we're gonna have deflation, but we see a pretty steady trend of inflation coming back down to sort of normal levels for food right now.

[Andrew Wolf, Senior Equity Analyst at C.L. King & Associates]

Just to follow up, do you think you've sort of moved beyond the sort of big swings and holding games? Did that impact this quarter, or is it already sort of cycled out?

[Tony Sarsam, President and CEO at SpartanNash]

Yeah, Andrew, definitely, we're moving past the heaviest part of that, those gains. Last year versus last year, we lapped about $8 million of benefits from last year versus this year. Inflation on the whole, in our wholesale segment, finished the quarter in the kind of low single digits, think about it, around 3%. And we're seeing that benefit fade as we expected.

[Andrew Wolf, Senior Equity Analyst at C.L. King & Associates]

Great. Thank you.

[Operator]

Thank you. Our next question comes from Rob Dickerson from Jefferies. Your line is open.

[Rob Dickerson, Managing Director of Consumer Staples Equity Research at Jefferies]

Great. Thanks so much. I just wanted to ask kind of about the vendor side. I know historically, you know, you've spoken to, you know, potentially seeing some or the expectation of, some increased vendor promotional activity. So I'm just curious, kind of how that's playing out so far, kind of what the perspective is as, you know, we move into 2024. And then just secondly, I don't—I may have missed it, but I don't think I heard, kind of how the private label kind of part of the business, you know, is trending relative to kind of the overall business. Thanks.

[Tony Sarsam, President and CEO at SpartanNash]

Great. Great questions. So first of all, our own brand's performance has been very strong. We've grown both our penetration as well as our overall performance versus national brands. Units are up substantially versus the national brands, and even the sales are also up even in light of the fact that we've done some pretty significant discounting to try to bring people in and give them better price points, as a lot of our shoppers, of course, are seeking deals in the broader inflationary times. So your first question was... Can you repeat that one real quick?

[Rob Dickerson, Managing Director of Consumer Staples Equity Research at Jefferies]

Yeah, it was more around the promotional activity and kind of visibility as we-

[Tony Sarsam, President and CEO at SpartanNash]

Oh, yeah. Perfect. So, yeah, so that's, that's sort of core to the overall ECP and the merchandising work that our team has done. So we've had a really, really great run and great participation with our key suppliers. And we've seen a really nice turnaround in terms of getting some great price points out there, getting some great promotional deals. And we're roughly on track to deliver what we had forecasted earlier in the year in terms of the overall benefit to our shoppers and to our customers.

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah, Rob, it's Jason. On the merch trans-- On the Merchandising Transformation, we committed to $25 million-$35 million of benefit annually. We're tracking well to that. We're right around $20 million year to date, and we expect to be right in the strike zone of that target by year-end.

[Rob Dickerson, Managing Director of Consumer Staples Equity Research at Jefferies]

All right, super. And then maybe just quickly, on kind of channel dynamics, right? We've heard now for a number of months, there seems to be, fairly well documented, you know, shift into, let's say, certain kind of, you know, more mass or clubs and dollar, shopping occasions. I'm just curious, kind of in your regions and kind of, on the wholesale part of the business, have you kind of felt that to a certain extent, or do you feel like maybe so far you've been a bit more insulated, just maybe given geographic, locale? Thanks. That's all.

[Tony Sarsam, President and CEO at SpartanNash]

Yeah, we're seeing some of that. It's the numbers in our area don't quite match perfectly against the national numbers. We're seeing. I can give you an example. So foot traffic overall is down. It's down across the board. Our foot traffic is down, you know, kind of 1-1.5% overall, and that's roughly half of the foot traffic decline we're seeing in most of our competitors at the same time. We are seeing shifts to deep discounters, as you've hinted at there. So some of the deep discounters are actually getting both better foot traffic and better sales in our area.

[Tony Sarsam, President and CEO at SpartanNash]

I think that's strictly a function of people are settling in now and trying to find the best deals, and are set, again, settling into the place where they know they can find them. I also would mention that one element that has colored the overall performance of our business is the pretty dramatic decline in EBT benefits for folks. EBT was down, you know, in the 40% range for us in the quarter versus last year. Getting down kind of close to the pre-pandemic, again, for in our mix, and that's had a big impact on our overall business.

[Rob Dickerson, Managing Director of Consumer Staples Equity Research at Jefferies]

... All right, super. Thanks so much.

[Jason Monaco, EVP and CFO at SpartanNash]

Building on Tony's comments, Rob, I think there's-

[Rob Dickerson, Managing Director of Consumer Staples Equity Research at Jefferies]

Go ahead.

[Jason Monaco, EVP and CFO at SpartanNash]

One other thing I'd mention that I think is important to know is when you think about foot traffic, taking that foot traffic and transforming it into revenue growth is really important. So can I give you some color on our retail stores and our retail operations? As we've started to build out and transform our retail execution, some of the things we're seeing are significant improvements in consumers pointing as SpartanNash's as having, you know, the best meat, the best produce, the best local offerings. Those are all part of our retail strategy, and we're seeing it play out in our results.

[Jason Monaco, EVP and CFO at SpartanNash]

So despite the challenges with the channel headwinds, our performance, and as Tony alluded to, is outperforming the market in foot traffic, and then the work we're doing in the store is beginning to transform the consumer's experience and our profile performance.

[Rob Dickerson, Managing Director of Consumer Staples Equity Research at Jefferies]

All right, great. Thank you. That's all.

[Operator]

Our next question comes from Kelly Bania, from BMO Capital Markets. Your line is open.

[Ben Pharm, Managing Director and Infrastructure and Utilities Analyst at BMO Capital Markets]

Hi, good morning, guys. This is Ben on for Kelly. Thank you for taking our questions. So to start, would you guys provide the inflation at wholesale and retail for the, the quarter? And then can you provide just any color on the, you know, monthly cadence of sales, inflation, volume? Just trying to get a sense of how volume is reacting to lower inflation, and if you guys are seeing any improvements there, either on the, the retail side or the wholesale side.

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah. Hey, Ben, this is Jason. From a volume standpoint, as pricing and inflation has decelerated, we've seen unit volumes improve or the impact on unit volumes improve. That from a cadence standpoint, we've seen inflation step downs throughout the quarter. And we ended, I think I mentioned earlier, we ended around 3% on the wholesale side for from an inbound cost standpoint, both to our stores and to our wholesale customers.

[Ben Pharm, Managing Director and Infrastructure and Utilities Analyst at BMO Capital Markets]

Great. Thank you. And then just kind of following up on the EBT conversation. I think you said it accelerated, the headwinds accelerated in the last six months. You know, wondering why you guys think that is, and how should we think about that going forward? And then just somewhat related, you also mentioned ex pharmacy. You're seeing consistent trends between wholesale and retail comps. Just wondering what your estimated pharmacy impact was.

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah, great question, Ben. So broadly, the benefits from pharmacy, particularly GLP-1s, are offsetting or close to offsetting the headwinds from EBT. It's actually a net, slight net negative carry right now. Our core comp in the high single, high ones is a pretty clean number when you strip out EBT and pharmacy between the two of them. So overall, a solid result. From an EBT phasing standpoint, I think you'd asked about the timing. You know, some of it is the jurisdictions we operate in. In Michigan, in particular, there was a decline in EBT funding that started about six months ago, and we're seeing that in the portion of our business that operates in Michigan. There's less of an impact outside of that geography.

[Ben Pharm, Managing Director and Infrastructure and Utilities Analyst at BMO Capital Markets]

Great. Thank you. And then just one more, if I may, on kind of the operating expenses. Just wondering how 3Q operating expenses tracked relative to your internal plan, you know, how are labor rates and hours looking, especially kind of post your realignment?

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah. So, maybe I'll start with the labor and hours, and kind of before we get into the realignment. So the labor and hours, we saw a 4% improvement or drove a 4% improvement in throughput on our supply chain. That's a great result, especially in the context or the backdrop of some of the volume declines we mentioned earlier in our national accounts business. As far as the go-to-market changes, we've deployed those changes here in the third quarter, and we're off and running and our expense load is consistent with what we expected.

[Ben Pharm, Managing Director and Infrastructure and Utilities Analyst at BMO Capital Markets]

Okay. Thank you, guys.

[Operator]

As a reminder, if you do have a question, please press star one on your touch tone keypad now. Our next question comes from Scott Mushkin, from R5 Capital. Your line is open.

[Scott Mushkin, Founder and Managing Partner at R5 Capital]

Thanks. Hey, guys, sorry about the voice. I'm a little hoarse right now. Pay increases next year, I know you said labor is a little bit easier to get or stabilized, at least. How should we look at labor rates as we move into 2024?

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah, great question, Scott. So, as we mentioned on the call, on the opening here that we've seen a good stabilization overall on the flow of applicants and turnover, which has been improved for us as well. And so I think some of the larger course corrections that we had to make in terms of compensation are behind us. But we are in a normal phase right now. We're looking at data for this year, kind of in the back half of this year, that says that in our competitive set, you know, pay increases are still, you know, kind of around 4, a little bit north of 4%. So that would be a wee bit higher than would have been the sort of pre-pandemic.

[Jason Monaco, EVP and CFO at SpartanNash]

So we're seeing something between kind of a normal range of pay and maybe even a slightly elevated pay, pay increases as we move forward, from this year into 2024.

[Scott Mushkin, Founder and Managing Partner at R5 Capital]

... Perfect. Then as we think about 2024, obviously inflation continues to step down, promotional activity continues to step up. Some of it's CPG sponsored, but not all of it. So as we frame this into 2024, you know, there has been talk of flat inflation or maybe outright deflation. How should we think about your guys' business as we potentially move into that environment? And is that something you guys are contemplating?

[Jason Monaco, EVP and CFO at SpartanNash]

Hey, Scott, this is Jason. Yeah, we'll give guidance on 2024 next quarter. Broadly, on the promotional environment, we have seen an uptick in promotions, and as you said, it's been largely funded by the vendor community. So as inflation has eased or disinflation has occurred, what we've seen is an easing of the impact on unit volumes. And we'll continue to evaluate that and optimize our business going forward. We'll share more about what we think 2024 looks like next time around.

[Scott Mushkin, Founder and Managing Partner at R5 Capital]

All right. That's actually a good segue into my last question. You guys have talked about volume getting a little bit better. Our data is not necessarily hugely supportive of that. Do you think you're tracking a little bit different than the industry, or are we talking, you know, volume is getting a little bit better on the margins, but really isn't the elasticities aren't really reacting as much as maybe you would think at this juncture?

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah, our revenue growth would have been 1.6% ex Amazon. So we feel like we're in a solid spot from a revenue growth standpoint. And obviously it's a dynamic environment out there with inflation. You know, we saw 40-year high inflation. We saw it for 18-24 months, and now that's winding back. But the consumer is still paying for two years of double-digit inflation back-to-back. And so what we're doing is leveraging the insights that we bring to bear and bring to the market, both in our retail and our wholesale businesses, so that we can ensure that we've got the right solution for our consumers and our customers along the way.

[Jason Monaco, EVP and CFO at SpartanNash]

And we're, as we've said before, a bit of a test and learn organization. We're gonna try this out, test it, see what works, and make sure we've got winning propositions for consumers, and so that we can meet them where they are with their budget.

[Scott Mushkin, Founder and Managing Partner at R5 Capital]

Any thoughts on the volume, volumes? Any elasticities on-

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah, we're. I think it's probably too early to call the specific elasticities, but we're seeing as inflation is declining or disinflating, we're seeing units respond. I think one of the most important things to highlight is our own brand's performance. You know, we've invested in Own Brands and began that investment journey a couple of years ago. We talked about the work that we were putting in, and that we were building a portfolio of products that were gonna win. Now, we didn't necessarily expect to have two years of double-digit inflation, but consumers are responding very favorably to our Own Brands portfolio, and it's helping to drive unit volume performance in our business and with our customers.

[Jason Monaco, EVP and CFO at SpartanNash]

Our Family brands are performing well and consistently outperforming the national brands.

[Scott Mushkin, Founder and Managing Partner at R5 Capital]

All right, perfect. Thanks, guys.

[Operator]

Our next question comes from Krisztina Katai from Deutsche Bank.

[Jessica Taylor, Research Associate at Deutsche Bank]

Good morning.

[Operator]

Your line is-

[Jessica Taylor, Research Associate at Deutsche Bank]

This is Jessica Taylor. Good morning, this is Jessica Taylor on for Krisztina. Thanks for taking our question. I just wanted to go back to the reductions with the Amazon account and just get your thoughts on, like, how you're planning for that go forward. Do you think that that business is gone for good, or are you looking to drive other accounts in order to replace that volume? Or is that something that you see coming back in 2024? Thank you.

[Jason Monaco, EVP and CFO at SpartanNash]

Great. Thanks, Jessica. So a couple things to think about. One, I guess there's probably not a lot of additional information out there other than what Amazon has shared directly. Amazon is very committed to this business. They're committed to food, they're committed to their grocery business and their fresh business, and they're working through some changes right now, and those changes have manifested in our volume being down. But we think they're, they've got a plan that they're putting together to get on track and get that business growing again. We've met with them a handful of times recently to kind of work through our strategy with them.

[Jason Monaco, EVP and CFO at SpartanNash]

We have a lot of confidence in the Amazon team and that they'll get this business in the right place, and we're gonna be there partnering with them all the way. So in terms of your question about are we looking for other business, we're always looking for other business. So we have such a growth mentality here, both in our retail stores as well as wholesale, and we think we have a lot to offer. So we have a lot of great irons in the fire in terms of the types of business that we can bring back in.

[Jason Monaco, EVP and CFO at SpartanNash]

I mentioned in my opening comments that we've had a number of customers who may have left quite some time ago, who are now coming back and taking advantage of the great services we can provide. So we're very optimistic about growth in the future, both for Amazon as well as for our broader business.

[Jessica Taylor, Research Associate at Deutsche Bank]

Great. Thank you for that. And just as a follow-up, can you talk a little bit about the drivers for your operating margin on the retail side, and how we should think about the puts and takes of that into the fourth quarter?

[Jason Monaco, EVP and CFO at SpartanNash]

Hey, Jessica, this is Jason. Yeah, we've seen solid performance. And I mentioned before the mix between pricing or disinflation and unit volume. So as we've built our retail business operating plan, we've been focusing on not just the near term of securing that the volumes coming out of that price elasticity of disinflation, but also really focusing on the long-term value-creating opportunities that we have in retail. And I mentioned before that consumers are voting with their feet. Tony talked about the foot traffic outperforming the market, significantly outperforming the market and outperforming, you know, significant major mass market players in our marketplaces. And so we're getting shoppers in our store.

[Jason Monaco, EVP and CFO at SpartanNash]

And not only are we putting shoppers in our store, but we're outperforming in really key areas where we focused our strategic efforts around execution, whether it's meat, produce, local bakeries, and service in the stores with high-service, helpful employees. So we're winning in those spaces, and we're proud of that, and that's helped drive both mix, paired together with our own brand offerings and service to deliver a really nice package of performance where we're at or above the kind of the market norm from a comp standpoint.

[Scott Mushkin, Founder and Managing Partner at R5 Capital]

Great. Thanks for that. Best of luck.

[Operator]

Our next question is from Peter Saleh, from BTIG. Your line is open.

[Peter Saleh, Managing Director, Restaurants and Food Distributors Analyst at BTIG]

Great, thanks. Jason, you mentioned the GLP-1s and the benefit there. Can you quantify how big that benefit was on the pharmacy? And then are you also, I'm assuming you're seeing some correlation between folks that are buying these GLP-1s and lower calorie consumption. Just any color around that would be helpful. Thank you.

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah, so, GLP-1 was the majority of growth in our pharmacies overall. Pharmacies were net overall up about 20, I think about 27, 20, 25%-27%, and the majority of that growth came from GLP-1. Pete, we haven't seen a step down in consumption as a result of that. I know there have been some other players who've mentioned that. We haven't seen it explicitly in our stores. So yeah, something we're monitoring, of course, but I wouldn't call it out as a driver.

[Peter Saleh, Managing Director, Restaurants and Food Distributors Analyst at BTIG]

Great. Thank you very much.

[Operator]

Seeing no further questions, I'll turn the call back over to our hosts.

[Tony Sarsam, President and CEO at SpartanNash]

All right. Well, thank you all for your participation on today's call. We certainly appreciate your interest in SpartanNash. And from our family to yours, we'd like to wish you all a very pleasant Thanksgiving holiday season.

[Operator]

The meeting has now concluded. Thank you for joining, and have a pleasant day.

Participants

Executives

• Jason Monaco, EVP and CFO
• Kayleigh Campbell, Head of Investor Relations
• Tony Sarsam, President and CEO

Analysts

• Andrew Wolf, Senior Equity Analyst at C.L. King & Associates
• Ben Pharm, Managing Director and Infrastructure and Utilities Analyst at BMO Capital Markets
• Jessica Taylor, Research Associate at Deutsche Bank
• Peter Saleh, Managing Director, Restaurants and Food Distributors Analyst at BTIG
• Rob Dickerson, Managing Director of Consumer Staples Equity Research at Jefferies
• Scott Mushkin, Founder and Managing Partner at R5 Capital