SpartanNash Q3 2024 Earnings Report

SpartanNash EPS Results

• Actual EPS: $0.48
• Consensus EPS: $0.47
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.54

SpartanNash Revenue Results

• Actual Revenue: $2.25 billion
• Expected Revenue: $2.24 billion
• Beat/Miss: Beat by +$6.57 million
• YoY Revenue Growth: -0.60%

SpartanNash Announcement Details

• Quarter: Q3 2024
• Date: 11/7/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, November 7, 2024
• 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 2024 Earnings Call Transcript

Key Takeaways

• Strategic acquisitions: The October deals for Fresh Encounter (49 grocery stores) and Markup Enterprises (3 fuel centers) broaden SpartanNash’s footprint in the Midwest and are expected to be accretive in 2025.
• Q3 sales decline: Consolidated net sales fell 0.6% to $2.25 billion, driven by a 1.6% wholesale volume drop (including a 2.9% Amazon-related headwind), partially offset by 1.9% retail growth.
• Updated 2024 guidance: Full-year net sales are now expected at $9.5 billion–$9.7 billion, adjusted EBITDA of $252 million–$257 million (midpoint lowered to the bottom of the prior range), and adjusted EPS of $1.85–$1.95.
• 2025 outlook: Management targets low-single-digit revenue growth and mid-single-digit adjusted EBITDA growth, backed by $20 million of run-rate savings and $10 million of EBITDA from recent tuck-in acquisitions.
• Culture and retention: Frontline recognition programs like the Circle of Excellence have boosted associate engagement, lifting total company retention by nearly 20% since the launch of the strategic plan.

Presentation

[Kayleigh Campbell, Head of Investor Relations at SpartanNash]

Thank you. Good morning. 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 7:00 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, www.spartanash.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 spartanash.com/investors. And 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. I want to start today's call with a focus on our people-first culture. We recently celebrated our frontline hourly associates with our annual Circle of Excellence Awards. These associates walked the SpartanNash green carpet while the company's senior leaders cheered them on. We have now inducted more than 200 associates into this highly coveted Circle of Excellence. The Circle of Excellence is one of several recognition programs we have implemented in the past few years that are helping us to move the needle with associate engagement and retention. In fact, our total company retention rate has improved by nearly 20% since we launched our strategic plan. Turning to other recent news, I wanted to speak for a moment about the acquisition announcements we made in October.

[Tony Sarsam, President and CEO at SpartanNash]

I'm pleased to say that we are on track to close a Fresh Encounter deal this month. The acquisition will add 49 stores to our retail portfolio, which expands our footprint in Ohio and Indiana and allows us to begin serving Kentucky. In addition to expanding our retail footprint, we are also winning in wholesale by capturing new sales from Fresh Encounter with other distributors. Additionally, last week we announced the acquisition of Markham Enterprises, which consists of three fuel centers and convenience stores in Michigan. We are energized by the opportunities within the C-store space, especially due to the channel's stable demand. This transaction is expected to close by the end of this year, and we look forward to welcoming the Markham team members into our family of associates.

[Tony Sarsam, President and CEO at SpartanNash]

Looking ahead, we are continuing to evaluate M&A opportunities based on our disciplined M&A framework, which is designed to maximize shareholder value. Before we jump into recent results, I wanted to provide some color on the grocery industry and provide an update on our outlook. According to syndicated data, the markets where we operate grew only 40 basis points during the past quarter compared to Q3 of 2023, while total U.S. grocery was up about 1.1%. The slower market growth in our other geographies has weighed on both the Retail and Wholesale segments. Okay, so what does this mean for SpartanNash? As we announced today in our earnings release, we are updating our 2024 guidance and also giving an early read into next year. Jason will dive into the details in a moment, but first I want to provide some context.

[Tony Sarsam, President and CEO at SpartanNash]

So while we are pleased to see that our transformational initiatives are outperforming our expectations, we expect these headwinds to persist into 2025, impacting our previously communicated targets and our long-range plan. We are taking a practical and methodical approach to mitigating macro pressures, and we are steadfast in our commitment to driving results and growing shareholder value. Okay, shifting gears to recap the third quarter. Our consolidated net sales decreased 60 basis points to $2.25 billion. Lower volume in the Wholesale segment was partially offset by higher volume in our Retail segment. On the Wholesale side, a 1.6% decrease was due to lower volumes, inclusive of a 2.9% headwind within the segment from our Amazon business. One of the continued bright spots within the Wholesale segment is our military business.

[Tony Sarsam, President and CEO at SpartanNash]

Compared to prior year quarters, the military channel has grown sales over the past 11 consecutive quarters and continues to bolster our growth. Now, turning to our Retail segment, our Retail business grew 1.9%, bolstered by incremental sales from the recently acquired Metcalfe's stores. From a comp standpoint, we are starting to see some positive trends. Although our comparable store sales were down 70 basis points, our same store sales improved sequentially each period during the past quarter, and we had the three best periods of the year so far in Q3. Turning to profitability, our Q3 adjusted EBITDA was $60.5 million, while adjusted EBITDA margin of 2.7% was flat compared to last year's third quarter, so as we previously discussed, our transformational initiatives have delivered benefits an entire year ahead of schedule.

[Tony Sarsam, President and CEO at SpartanNash]

All of these benefits are helping to partially offset the headwinds I discussed earlier, and we plan to capture more benefits from the 2024 investments by the end of this year. This includes our shrink reduction and non-product procurement initiatives expected to generate $20 million in run rate savings by year-end. Before I turn the call over to Jason, I want to thank our team for their steadfast commitment in executing our long-term strategic plan. Since its inception in 2021, we have made significant progress. This progress has improved associate safety and retention, helped us to win new business, expanded operating productivity, increased our margins and captured cost savings, enabled us to further collaborate with suppliers, delivered value-add products and outstanding service to our wholesale customers and retail shoppers, and allowed us to make increased investments in our people.

[Tony Sarsam, President and CEO at SpartanNash]

We expect these initiatives to continue generating benefits into 2025 and beyond. All of these elements have also built a solid foundation for organic and inorganic growth, supporting our effort to drive results and grow shareholder value. And with that, I'll now turn the call over to Jason to walk you through the quarterly financials in greater detail.

[Jason Monaco, EVP and CFO at SpartanNash]

Thanks, Tony, and welcome to everyone joining us on today's call. Turning to our quarterly results, net sales in the quarter decreased by 0.6% to $2.25 billion versus third quarter 2023 sales of $2.26 billion. As Tony mentioned, lower volume in the Wholesale segment was partially offset by higher volume in our Retail segment. Gross profit for the quarter increased to $355 million, or 15.8% of net sales, compared to $348 million, or 15.3% of net sales in the prior year's third quarter. Our gross profit dollar increase was somewhat offset by volume declines, while the 50 basis point margin increase was driven by an accretive sales mix, higher vendor funding, and a reduction in LIFO expense. As a percent of sales, our reported operating expenses increased 32 basis points from the prior year.

[Jason Monaco, EVP and CFO at SpartanNash]

Higher restructuring charges, as well as retail store labor and healthcare costs, led to higher SG&A in the third quarter. These increases were, however, partially offset by lower corporate administrative costs and benefits realized from the merchandising transformation. We expect returns from the investments we've made in 2024 to materialize by the end of this year. Compared to the prior year quarter, interest expense increased $600,000 to $9.9 million. Consolidated net earnings decreased by $200,000 to $10.9 million, while EPS was flat to last year at $0.32 per diluted share. Net margin of 0.49% was flat compared to the prior year quarter. On an adjusted basis, net earnings decreased $2.3 million to $16.5 million, or $0.48 per diluted share, compared to $0.54 last year. Adjusted EBITDA decreased by $400,000 compared to the prior year quarter to $60.5 million. Now, turning to our segments.

[Jason Monaco, EVP and CFO at SpartanNash]

Compared to the prior year quarter, net sales and wholesale decreased $25.9 million, or 1.6%, primarily due to reduced case volumes with independent retailers and one national account customer, partially offset by growth in other national account customers and the military channel. Wholesale adjusted EBITDA was $44.8 million, an increase of 14.8% compared to last year's $39 million. The improved results were driven by a higher gross profit rate, lower corporate administrative costs, and benefits from the merchandising transformation initiative, which more than offset the sales declines. Wholesale reported third quarter operating earnings were $21.1 million compared to $18.2 million in the prior year's third quarter. The favorability was partially offset by higher restructuring charges in the current quarter. Now, moving to the Retail segment.

[Jason Monaco, EVP and CFO at SpartanNash]

While our comp store sales were off 0.7% for the quarter, we saw segment sales grow 1.9% to $675 million versus the prior year quarter due to contributions from Metcalfe's, as Tony mentioned earlier, and our supermarkets ex-fuel centers were up 2.9% compared to the prior year quarter. Retail adjusted EBITDA was $15.7 million compared to $21.9 million in the prior year's quarter. About half of the change was due to higher healthcare costs, with the remainder driven by higher store wage rates and a lower gross profit rate. These increases were partially offset by higher sales volume and lower corporate administrative expenses. Retail reported operating earnings were $3.9 million compared to $4.9 million in the third quarter of 2023.

[Jason Monaco, EVP and CFO at SpartanNash]

Now, turning to our balance sheet, our leverage ratio of net long-term debt to adjusted EBITDA increased in the third quarter to 2.4 times compared to 2.2 times at the end of the second quarter. Year to date, we generated $123.3 million of cash from operating activities, an increase of more than 28% compared to the same period last year. The increase was due largely to ongoing earnings and our efforts to improve our working capital position. Our liquidity at the end of the third quarter is about $500 million, giving us capacity to fund our strategic plan and M&A. As reported in our earnings release, we updated and narrowed our full year guidance based on current market conditions, which have been partially offset by our operating performance to date and the ongoing benefits we expect to realize from our transformational initiatives.

[Jason Monaco, EVP and CFO at SpartanNash]

Turning to the guidance ranges, we still expect net sales to be $9.5 billion-$9.7 billion. Adjusted EBITDA is now expected to be $252 million-$257 million, with the midpoint of the new guidance about the bottom of the prior range, and adjusted EPS is now expected to be $1.85-$1.95 per diluted share within the previous guidance range. Based on our spending to date, we also narrowed our CapEx guidance and expect it to be in the range of $135 million-$140 million. We also continue to expect food inflation to be about 1% for the fiscal year. As a reminder, our full year guidance includes the benefits of tuck-in acquisitions. Before I turn the call back over to Tony, I wanted to provide more color on his comments about next year.

[Jason Monaco, EVP and CFO at SpartanNash]

For your reference, we still plan to give our typical full year guidance during our next earnings report for Q4. As Tony mentioned earlier, the industry has been operating in a dynamic environment. When we met with many of you in late 2022 at our investor day, our team set long-term targets based on the market conditions and trends at that time, resulting in our growth to $10 billion in revenue and $300 million in adjusted EBITDA. Since 2022, the market conditions have been more volatile than the industry expected. While softer market conditions have manifested recently in our geographies, we remain focused on the controllables. This includes the execution of our margin-enhancing transformational initiatives, which are outperforming our expectations. Circling back around, in fiscal 2025, we expect low single-digit top-line growth and mid-single-digit adjusted EBITDA growth compared to the updated 2024 guidance ranges.

[Jason Monaco, EVP and CFO at SpartanNash]

Achieving this outlook would deliver a compound annual growth rate of approximately 7% versus 2019. Included in our 2025 expectations are the benefits of two tuck-in acquisitions. First, Fresh Encounter is expected to contribute more than $350 million in Retail segment sales, or about $225 million on a total company basis after wholesale eliminations. As Tony mentioned, our Wholesale business is also benefiting from this transaction since we will be picking up volume from other distributors, which contributes to the return for this investment. We are making progress on the deal and expect Fresh Encounter to close this month. The second acquisition that we announced, Markham, is expected to add more than $20 million in net sales on an annual basis. This deal is on track to close by the end of this year.

[Jason Monaco, EVP and CFO at SpartanNash]

In aggregate, on an annual basis, we expect these acquisitions to add more than $10 million in adjusted EBITDA. We're funding both of these acquisitions through our existing credit line and expect them to be accretive in 2025. And with that, I'd like to turn the call back over to Tony.

[Tony Sarsam, President and CEO at SpartanNash]

Thank you, Jason. We are really pleased with the progress we are making. Our strategic initiatives are providing a strong foundation for growth. Furthermore, we are leveraging that progress and our core capabilities to pursue deals that fit into our M&A criteria. One key area of growth is within our Retail business, and I'm pleased to announce that we recently welcomed Djouma Barry as our new Senior Vice President and Chief Retail Officer.

[Tony Sarsam, President and CEO at SpartanNash]

Djouma is stepping into this position preceded by our Executive Vice President, Corporate Retail, Tom Swanson, as Tom will depart the organization and work to support the company through a smooth transition. Djouma will oversee retail strategy and operations across SpartanNash's growing retail footprint. I'd like to offer Djouma a warm welcome to SpartanNash and offer our thanks to Tom for his contributions to the company throughout the years. All right. Before we open the call for Q&A, I would like to take a moment to thank our veterans. SpartanNash has the privilege of serving active military members and veterans by distributing groceries to more than 160 commissaries and 400 exchanges worldwide. This Monday on Veterans Day, we honor veterans and their families who sacrificed so much so we can live freely.

[Tony Sarsam, President and CEO at SpartanNash]

With gratitude, I want to extend my heartfelt thanks to all of our veterans, including the hundreds of SpartanNash associates who are veterans. With that, I'd like to turn the call back over to the operator and open it up for your questions.

[Operator]

Thank you. 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 Chuck Cerankosky from Northcoast Research. Please ask your question.

[Chuck Cerankosky, Managing Director and Principal at Northcoast Research]

Good morning, everyone. Looking at the Markham acquisition and the fuel side of it, can you talk about what you're doing there, the strategic importance of being in the fuel distribution business, and how much kind of cost savings does that bring to SpartanNash?

[Tony Sarsam, President and CEO at SpartanNash]

All right. Good morning, Chuck. So yeah, sure. As I mentioned on the call, we run right now, or previously, we ran about 36 of those fuel centers, and we find that the stability of that product for shoppers and for folks fueling up is actually something that's really attractive. The margins are good, and the overall revenue is consistent and good as well. So we think that's a place where, as we're looking for opportunities to change and grow our footprint, we'll have an eye toward those types of things. This one came up and looked like a really attractive deal for us. So we jumped in, and we think that's possible. We'll actually do more of those as we look for ways to expand what we do and what we do well.

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah. Yeah, Chuck, this is Jason. The only thing I'd add here is these are three kind of traditional fuel stations and convenience stores. They're relatively co-located to existing supermarkets that we have in the market here in Michigan. And we see not just opportunities in the C-store space, which is huge, but we also see opportunities in the synergy between our supermarkets, the loyalty programs that exist, and those stores based on their location. So we're excited about the Markham acquisition. We're excited about fuel and convenience stores, and you should expect to see us continue to invest both organically and inorganically in that space.

[Chuck Cerankosky, Managing Director and Principal at Northcoast Research]

And switching to another subject, private label, how did that do in the quarter, and what might you be doing there that's different from your competitors?

[Jason Monaco, EVP and CFO at SpartanNash]

Hey, Chuck, it's Jason again. We had a stable quarter, this quarter. Our penetration on own brands has remained very strong in the high 20%, and we continue to see strength in not just our primary private label offering of Our Family or our primary brand of Our Family, but also we've seen really nice progress in our Finest Reserve brand extension that we launched about a year ago now, and we're excited about the prospects going forward. So to me, it's a continuation of meeting consumers where they're at, giving them an opportunity, whether they're looking for a premium offering with Finest Reserve or looking for a discounted offering in today's environment where we want to make sure groceries aren't breaking the bank. We want to make sure that we give consumers what they need.

[Jason Monaco, EVP and CFO at SpartanNash]

We’ve been pleased with Our Family and our brand’s offering as it’s helped us improve the flow of traffic into our stores. We still have work to do on traffic, but we’ve seen sequential improvement in foot traffic, and we attribute that to continuing to be competitive in our entire value offering, which includes private label.

[Chuck Cerankosky, Managing Director and Principal at Northcoast Research]

Thank you.

[Operator]

Our next question comes from Alex Slagle from Jefferies. Please ask your question.

[Alex Slagle, Equity Research Analyst at Jefferies]

All right. Thanks. Good morning. I guess high-level, just two acquisitions in a fairly short period. I'm wondering what changed, whether it was specific opportunities that became available or maybe the valuations are better, or really you kind of reached that ideal time for Spartan to make this kind of move? Just high-level thoughts on that and the timing.

[Tony Sarsam, President and CEO at SpartanNash]

Yeah. You bet. This is Tony again, so like you said, it's sort of all of what you said. As we've mentioned a number of times in these calls, we're always going to be sort of vigilant for opportunities to grow through M&A in ways that actually support our overall growth strategy, and what you said is precisely correct. These were two opportunities that the time was right for the previous owners, and they're folks that we know well. In particular, in the case of Fresh Encounter, we have served them for, I believe, 58 years, so we have a very deep relationship with that organization, with those stores, and if you link the sort of what I said earlier about the overall growth that is sort of at the baseline in this industry, I think you have to be looking for ways to expand.

[Tony Sarsam, President and CEO at SpartanNash]

And we're going to be looking for ways to expand geographically, if that makes sense, and look for ways to expand even within the density of our current geography. So we're always going to be vigilant, and I think we'll be looking for these types of opportunities on an ongoing basis.

[Alex Slagle, Equity Research Analyst at Jefferies]

Great. And the Amazon Fresh business, any sense we're closer to getting back on track there with the formatting changes and start to re-accelerate that as we look ahead? And I'm not sure if you assume any of that in the initial 2025 outlook or how you're setting the stage on that.

[Tony Sarsam, President and CEO at SpartanNash]

Yeah. I think we're getting to a place of greater stability there. It's been a couple of years of declines that we've talked about quite a bit on these calls as well. And we're working with Amazon on the current realities of that business and finding ways to grow and be more in a productive way for both us and for our customer. We're not counting on a lot of growth there candidly in the future, but we're counting on having a great relationship with Amazon and moving our businesses forward together in the partnership we've talked about over the years.

[Alex Slagle, Equity Research Analyst at Jefferies]

All right. Thanks for the update.

[Operator]

Our next question comes from Ben Wood from BMO Capital Markets. Please go ahead.

[Ben Wood, VP of Equity Research at BMO Capital Markets]

Hi. Good morning. This is Ben on for Kelly here. Can you talk us through the cadence of the quarter and maybe any update on quarter to date as far as sales volumes? It seems like maybe you got some volume improvement on the retail side. Inflation and promotional perspective, anything incremental you're seeing happening with consumer behavior?

[Tony Sarsam, President and CEO at SpartanNash]

Sure. I think one is a big one, though, kind of working backwards, and we can talk more about this. I may have more questions about what we're doing in stores on our customer value proposition. One of those things you mentioned just a minute ago is finding the price points and sort of the overall price value that makes sense for shoppers, and so as we're thinking about that and testing ideas, we are testing both doing more deals and doing a little bit more stuff sold on deals, as well as looking for the depth that actually speaks to our shoppers, so in this last quarter, we did some work in some of our geographies on going to more depth and looking for, again, what is something that resonates with shoppers and that type of deals that they're looking for.

[Tony Sarsam, President and CEO at SpartanNash]

We'll certainly be looking at that as a tool for how we grow our business organically.

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah, Ben, this is Jason. I think Tony alluded to the cadence earlier in the call. We had sequential improvement throughout the quarter, finished the comps at -0.7%. Overall, our growth in Retail was just under 2%. Our supermarkets were a little north of 2%. And I don't want to lose sight of the Wholesale business. We talked a little bit earlier about Amazon and its impact. In our Wholesale business, we were up nearly 3% ex-Amazon. So we've been pleased with elements of our growth and pleased that we're continuing to drive performance. Obviously, we've got some headwinds we've been working through in the past with Amazon, and that's starting to stabilize. And we're looking forward to really building on the growth thus far.

[Jason Monaco, EVP and CFO at SpartanNash]

And that's why you see us focusing on programs like CVP, where we've had some really nice early successes, and we're learning and building on that growth, particularly in our Fresh space. And that gave us the confidence to come out and say, "We see next year kind of low single-digit growth despite our markets growing at 0.4%." And we see bottom-line growth continuing to drive operating leverage with mid-single-digit EBITDA growth. So together, we feel good about where we're at, and we want to continue to drive the margin-enhancing programs, the growth initiatives that we've got underway to continue to build on the success despite the recent challenges in the marketplace. So we control what we can control and then focus on delivering bottom-line value for shareholders.

[Ben Wood, VP of Equity Research at BMO Capital Markets]

Okay. Great. That's helpful. And then just wanted to switch gears here and talk about maybe kind of the value-added services and then, in particular, kind of digital and where your independent customers stand with digital. I think in the space, we've seen tremendous digital growth from some of the national peers. So wanted to know what you're hearing from that. Are you hearing that there's a demand for more of that, that the customers are looking for more of that omnichannel? Just any commentary or learnings that you're seeing, anything you're digging in on the digital front?

[Tony Sarsam, President and CEO at SpartanNash]

We have a team that is doing great work on growing our overall digital capability for our stores and then what we can offer to our wholesale customers as well. I think some of the stuff that we see anywhere folks are really exploiting digital are either the, well, most of it's a combination of general merchandise and grocery. Our stores are going to be typically, our customer stores are typically smaller, typically more rural. They probably will not be given to the types of growth we've seen for some of the big metro folks and combine that with soft goods and general merchandise. But there's a desire for that, and we're growing it. We're growing it in our stores, and we are providing some of those services to our customers as well.

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah. Great question. Maybe I'll take a half a step back, Ben. Our value proposition with our customers includes an entire suite of services, and that suite of services is something where we bring value not just because they individually create value, but as a package. And the skills and capabilities we have as a retailer can come to bear and help our independent customers grow and develop and make them win in their business spaces. Now, specifically, as it relates to the digital space more broadly, maybe a couple of things I'll call out. We've had a lot more interest from our customers in electronic shelf labels, and we've been rolling those out, beginning to roll those out with certain customers. We've had some work around enhanced media and the digital media space.

[Jason Monaco, EVP and CFO at SpartanNash]

So more broadly, when you think about digital— I think you were alluding to kind of just digital or online ordering, but more broadly, the ecosystem that we play in, and we're providing services and offering those to our customers in a way that helps build an entire package of value. So kind of early phases, but enhanced media, electronic shelf tags, and helping our customers reach people in new digital ways.

[Ben Wood, VP of Equity Research at BMO Capital Markets]

Okay. Great. Thank you very much.

[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 next question comes from Scott Mushkin from R5 Capital. Please ask your question.

[Scott Mushkin, CEO at R5 Capital]

Hey, Tony. Hey, Jason. Thanks for taking my questions. So I kind of had two. I guess the first thing is you look at the industry, there's definitely some trends emerging where one is just growth in the broad-line companies, Walmart, Amazon outside the Amazon Fresh. And then two is kind of organic and specialty. So I guess my question is, how do you combat or address these trends with your business as it currently sits? And then how do you think about these trends with M&A, future M&A?

[Tony Sarsam, President and CEO at SpartanNash]

Great question. And I think I'll just offer a couple of thoughts here. So as we think about both our consumer value proposition as well as the acquisition, we have a hard eye toward or keen eye toward looking for those types of products that our shoppers are looking for. Particularly, local is a big thing in our market. So as we think about how these stores, again, which are going to be skewed toward more suburban/rural, we're bringing in more and more local products and those that have that same kind of specialty impact, if you will. They're specialized for that market and often very unique products. So we're seeing more and more take on that. If you think about what we did with the Metcalfe's, for example, that acquisition has a very significant focus on the local and sort of specialty type items that community really wants.

[Tony Sarsam, President and CEO at SpartanNash]

So we think that's actually going to be a really important part of our future as we think about the overall customer value proposition in our stores and making sure those kind of fresh, healthy, and local options and exploring those boundaries more and more because we're seeing the same thing that you just articulated around that desire. And it'll be something we'll have an eye toward as we think about acquisitions as well and think about how we actually get more learnings and more types of elements of our overall portfolio that speak to that.

[Scott Mushkin, CEO at R5 Capital]

Okay. Thanks. My second question, our research would say that there's probably a lot more further step-up in promotions coming from CPG. I don't know if that's what you're thinking as we look at 2025, and how should we, if you agree with me, how should we think of it in relation to your business as we get into 2025?

[Tony Sarsam, President and CEO at SpartanNash]

Yeah, so as I mentioned a little bit ago, we are looking at ideas around having more and more differentiated items as well as differentiated price points, and we have the same types of desire for growth as our suppliers do. So we're actually working in lockstep with them to find ways to find those deals, find the right way to merchandise them, and find those price points that speak to consumers, so we're looking at more ideas around bundling, around multiple items, around the kind of buy one, get one, buy three, get two, those kinds of things, and we're seeing that actually starting to resonate with some of our shoppers and some of our communities, so I think what you—I would say likely see what you see from us anyway, you're going to see us doing more of that.

[Tony Sarsam, President and CEO at SpartanNash]

And we've had sequentially more depth over the course of this year as we're exploring those ideas and trying to get the right value for the people coming to our stores. And of course, as you said, it's precisely right. The food manufacturers are also keenly desirous of finding those right price points as well. So I think you'll see more of that.

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah. Scott, this is right up our alley with the merch. Hey, Scott. Sorry about that. This is right up our alley with the merch transformation. We've been focused on this for the last few years, building out capabilities with respect to our engagement and our vendor relationships and really building on those relationships. And you've heard us say this before, but we think when our consumers win, our customers will win, and our vendors will win. And that's the way we think about it across the entire supply chain. We want to make sure we bring the best value to our shoppers, and along the way, our suppliers will win as well. In this tighter volume environment across the United States, and particularly in our geographies, I'd expect continued promotional activity and investments from the vendors along the way so that we all continue to win together.

[Scott Mushkin, CEO at R5 Capital]

Hey, Jason. Is that your thoughts in 2025, part of why you think EBITDA growth will be there? Is it the vendor funding will continue to accelerate as they try to get their volumes back on track?

[Jason Monaco, EVP and CFO at SpartanNash]

Yeah. Scott, we're counting on our programs, particularly around the margin-enhancing activities, continuing to deliver value. We also recognize it's on the backdrop of an environment where in our geographies, the market growth is less than the national market growth. And that's why we wanted to come out and be transparent now with kind of the latest or most recent changes in market conditions and say, "We believe that our programs work. We believe they create long-term value. We're just building it off a lower base with the starting point coming out of 2024.

[Scott Mushkin, CEO at R5 Capital]

All right. Perfect. Thanks, guys.

[Operator]

There are no other questions at this time. I will now turn the call back over to Tony Sarsam for closing remarks.

[Tony Sarsam, President and CEO at SpartanNash]

All right. Well, thank you. And thank you all for your participation in 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 good day.

Participants

Executives

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

Analysts

• Alex Slagle, Equity Research Analyst at Jefferies
• Ben Wood, VP of Equity Research at BMO Capital Markets
• Scott Mushkin, CEO at R5 Capital
• Chuck Cerankosky, Managing Director and Principal at Northcoast Research