Business Wire | Nov 11, 2020 04:05PM EST

SpartanNash Announces Third Quarter Fiscal 2020 Financial Results

Nov. 11, 2020

GRAND RAPIDS, Mich.--(BUSINESS WIRE)--Nov. 11, 2020--SpartanNash Company (the "Company") (Nasdaq: SPTN) today reported financial results for its 12-week third quarter ended October 3, 2020.

Third Quarter Fiscal 2020 Highlights

* Net sales growth of 3.1% to $2.06 billion from $2.00 billion in the prior year quarter, representing the eighteenth consecutive quarter of growth. * Retail comparable store sales of 10.6% were positive for the fifth consecutive quarter. * EPS of $0.56 per share, compared to a loss of $(0.01) per share in the prior year quarter; adjusted EPS of $0.70 per share, an increase of 133% over $0.30 per share in the prior year quarter. * Adjusted EBITDA increase of 37.2%, to $57.0 million from $41.6 million in the prior year quarter. * Subsequent to the end of the third quarter, the Company extended its commercial agreement with Amazon. In connection with this agreement, the Company issued stock warrants to a subsidiary of Amazon, subject to certain vesting conditions.

"In the past nine weeks since taking the CEO position I've visited a great number of our distribution centers and retail stores. The passion demonstrated by our associates is nothing short of inspirational," said Tony Sarsam, President and Chief Executive Officer. "I am energized and excited about the profitable growth opportunities that lie ahead for our business. As I immerse further into our business, I will continue to assess our long-term strategy, focus on motivating our associates and recognizing their accomplishments, identifying opportunities to make investments to improve the efficiency and effectiveness of our supply chain, and evaluating how to best position SpartanNash to deliver shareholder value for years to come."

Consolidated net sales for the third quarter increased $61.0 million, or 3.1%, to $2.06 billion from $2.00 billion in the prior year quarter. The increase in net sales was generated through higher sales attributable to increased consumer demand related to COVID-19 in the Company's Retail and Food Distribution segments, as well as continued growth with existing Food Distribution customers, partially offset by the continued impact of domestic base access and commissary shopping restrictions associated with COVID-19 in the Military segment.

Gross profit for the third quarter was $324.8 million, or 15.8% of net sales, compared to $290.4 million, or 14.5% of net sales, in the prior year quarter. The improvement in the gross profit rate was driven by improvements in margin rates at all three segments, as well as an increase in the proportion of Retail and Food Distribution segment sales, which generate higher margin rates than the Military segment.

Reported operating expenses for the third quarter were $295.8 million, or 14.4% of net sales, compared to $274.6 million, or 13.7% of net sales, in the prior year quarter. The increase in expenses as a rate of sales compared to the prior year quarter was due to increased incentive compensation related to improved Company performance, a higher mix of Retail segment sales which have higher operating expense rates, higher supply chain expenses in the Food Distribution segment, and a $5.2 million increase in restructuring and asset impairment charges, partially offset by increased leverage of retail store labor expenses and other fixed costs due to the higher sales volume in the quarter.

The Company reported operating earnings of $29.0 million compared to $15.8 million in the prior year quarter. The increase was attributable to increased sales volume, as well as the changes in rates of margin and operating expenses previously mentioned, partially offset by higher impairment charges. Adjusted operating earnings(1) were $35.8 million compared to $20.3 million in the prior year quarter and are adjusted for the items detailed in Table 3.

Interest expense decreased $3.9 million from the prior year quarter due to multiple rate cuts implemented by the Federal Reserve during 2019 and in early 2020, as well as the Company's pay down of the debt balance made possible by higher earnings and lower required investments in working capital. Postretirement benefit expense was favorable $10.1 million from cycling charges related to the termination of the Company's pension plan in the prior year quarter.

The Company reported earnings from continuing operations of $20.0 million, or $0.56 per diluted share, compared to a loss from continuing operations of $0.3 million, or $0.01 per diluted share, in the prior year quarter. The improvement reflects the operating earnings and non-operating expense changes noted above. Adjusted earnings from continuing operations(2) for the third quarter were $25.1 million, or $0.70 per diluted share. Adjusted earnings from continuing operations for the prior year quarter were $10.9 million, or $0.30 per diluted share. A reconciliation of reported earnings from continuing operations to adjusted earnings from continuing operations is included at Table 4.

Adjusted EBITDA(3) increased $15.4 million, or 37.2%, to $57.0 million compared to $41.6 million in the prior year quarter due to factors mentioned above.

Please see the financial tables at the end of this press release for a reconciliation of each non-GAAP financial measure to the most directly comparable measure, prepared and presented in accordance with GAAP.

Segment Financial Results

Food Distribution

Net sales for Food Distribution increased $73.2 million, or 7.8%, to $1.01 billion from $0.94 billion in the prior year quarter. The increase was due to sales growth with existing customers, as well as incremental volume associated with increased consumer demand related to COVID-19, partially offset by the impact of the Company's decision to exit its Fresh Production operations.

Reported operating earnings for Food Distribution were $9.2 million compared to $11.7 million in the prior year quarter. During the quarter, the Company made the decision to abandon a tradename within this segment to better align with the Company's overall transportation operations and to provide a more integrated solution to its customers, resulting in a $7.0 million impairment of the associated indefinite-lived tradename asset. The decrease in reported operating earnings for Food Distribution was due to this asset impairment charge, as well as an increase in supply chain and corporate administrative expenses, partially offset by increased earnings due to the higher sales volume. Third quarter adjusted operating earnings(1) were $15.7 million compared to $15.5 million in the prior year quarter. Adjusted operating earnings exclude asset impairment and restructuring charges in both years and losses associated with the Fresh Kitchen operations in the prior year quarter.

Retail

Net sales for Retail increased $35.1 million, or 6.2%, to $596.7 million from $561.6 million in the prior year quarter primarily due to increased consumer demand related to COVID-19, as discussed above. Comparable store sales of 10.6% were partially offset by the impact of lower fuel sales, as well as store closures. During the quarter, the Company experienced more than 175% growth in its eCommerce business.

Reported operating earnings for Retail were $22.3 million compared to $6.7 million in the prior year quarter. The increase in reported operating earnings was due to the increase in sales volume, improvements in margin rates, including inventory shrink, and improved leverage of store labor. These favorable variances were partially offset by higher incentive compensation due to the improved segment performance. Adjusted operating earnings(1) were $22.6 million compared to $7.3 million in the prior year quarter and exclude merger/acquisition and integration expenses in the current year and restructuring charges in the prior year quarter.

Military Distribution

Net sales for Military Distribution decreased $47.2 million, or 9.5%, to $452.0 million from $499.2 million in the prior year quarter. Growth in private label and export sales were more than offset by the impact of domestic base access and commissary shopping restrictions associated with COVID-19, which have led to significant declines in Defense Commissary Agency sales as a whole.

The reported operating loss for Military Distribution was $2.5 million compared to $2.6 million in the prior year quarter. The change was driven by improved margin rates, partially offset by higher corporate administrative expenses, the impact of lower sales volumes and, to a lesser extent, increases in the rate of warehousing expenses. Adjusted operating loss(1) was $2.5 million for the quarter in both years.

Balance Sheet and Cash Flow

Cash flows provided by operating activities for the year-to-date period of fiscal 2020 were $223.8 million compared to $140.0 million in the prior year, driven by increased profitability and reductions in working capital. In 2020, the Company has generated $178.0 million in free cash flow(4) year-to-date, compared to $93.1 million in the prior year. The Company reduced net long-term debt(5) by $145.0 million year-to-date in fiscal 2020. The reduction in net long-term debt, combined with increased profitability, resulted in an improvement in the Company's net long-term debt to adjusted EBITDA ratio over this period of time from 3.7x to 2.3x, calculated on a trailing thirteen periods basis.

Capital expenditures and IT capital(6) totaled $53.5 million in the year-to-date period compared to $46.9 million in the prior year.

Through the third quarter of fiscal 2020, the Company has declared $20.8 million in quarterly cash dividends equal to $0.1925 per common share. The Company also repurchased 860,752 shares for a total of $10.0 million in the first quarter of fiscal 2020, at an average price of $11.62 per share.

Outlook

For the 53-week fiscal year ending January 2, 2021, the Company is updating its annual outlook from what was previously provided on August 12, 2020 to reflect actual financial results, its expectations for the remainder of the fiscal year, and the forecasted impact of stock warrants, which were granted early in the fourth quarter.

For fiscal year 2020, the Company now anticipates adjusted earnings per share from continuing operations(7) of approximately $2.42 to $2.50 compared to its prior projection of $2.40 to $2.60. The Company's updated guidance reflects the continued benefits of sales trends associated with COVID-19 and the related increase in consumer demand, offset by estimated non-cash stock warrant expense of $6.0 million to $7.0 million, or $0.13 to $0.15 per diluted share. Reported earnings per share from continuing operations are expected to range from $2.09 to $2.17 compared to its prior projection of $2.13 to $2.41.

The Company now expects fiscal 2020 adjusted EBITDA to range from $237.0 million to $242.0 million compared to its prior guidance of $232.0 million to $242.0 million.

The Company's updated guidance now reflects capital expenditures and IT capital in the range of $80.0 million to $85.0 million for the fiscal year. Depreciation and amortization have been updated to a range of $88.0 million to $90.0 million. Interest expense is now expected to range from $18.0 million to $18.5 million. The Company's updated guidance now reflects an adjusted effective tax rate of 23.5% to 24.0% and a reported effective tax rate of 13.0% to 13.5%.

Conference Call

A telephone conference call to discuss the Company's third quarter 2020 financial results is scheduled for Thursday, November 12, 2020 at 8:00 a.m. ET. A live webcast of this conference call will be available on the Company's website, www.spartannash.com/webcasts. Simply click on "For Investors" and follow the links to the live webcast. The webcast will remain available for replay on the Company's website for approximately ten days.

About SpartanNash

SpartanNash (Nasdaq: SPTN) is a Fortune 400 company whose core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate-owned retail stores and U.S. military commissaries and exchanges; as well as operating a premier fresh produce distribution network. SpartanNash serves customer locations in all 50 states and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Bahrain, Djibouti and Egypt. SpartanNash currently operates 156 supermarkets, primarily under the banners of Family Fare, Martin's Super Markets, D&W Fresh Market, VG's Grocery and Dan's Supermarket. Through its MDV military division, SpartanNash is a leading distributor of grocery products to U.S. military commissaries.

Forward-Looking Statements

This press release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These include statements preceded by, followed by or that otherwise include the words "outlook," "believe," "anticipates," "continue," "expects," "guidance," "trend," "on track," "encouraged" or "plan" or similar expressions. The statements in the "Outlook" section of this press release are inherently forward looking. Forward-looking statements relating to expectations about future results or events are based upon information available to SpartanNash as of today's date, and are not guarantees of the future performance of the Company, and actual results may vary materially from the results and expectations discussed. Additional risks and uncertainties include, but are not limited to, disruption associated with the COVID-19 pandemic and the Company's ability to compete in the highly competitive grocery distribution, retail grocery, and military distribution industries. Additional information concerning these and other risks is contained in SpartanNash's most recently filed Annual Report on Form 10-K, recent Current Reports on Form 8-K and other SEC filings. All subsequent written and oral forward-looking statements concerning SpartanNash, or other matters and attributable to SpartanNash or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. SpartanNash does not undertake any obligation to publicly update any of these forward-looking statements to reflect events or circumstances that may arise after the date hereof.

(1) A reconciliation of operating earnings to adjusted operating earnings, a non-GAAP financial measure, is provided in Table 3 below. (2) A reconciliation of earnings from continuing operations to adjusted earnings from continuing operations, a non-GAAP financial measure, is provided in Table 4 below. (3) A reconciliation of net earnings to Adjusted EBITDA, a non-GAAP financial measure, is provided in Table 2 below. (4) A reconciliation of net cash provided by operating activities to free cash flow, a non-GAAP financial measure, is provided in Table 6 below. (5) A reconciliation of long-term debt and finance lease obligations to net long-term debt, a non-GAAP financial measure, is provided in Table 5 below. (6) A reconciliation of purchases of property and equipment to capital expenditures and IT capital, a non-GAAP financial measure, is provided in Table 7 below. (7) A reconciliation of projected earnings per share from continuing operations to adjusted earnings per share from continuing operations, a non-GAAP financial measure, is provided in Table 8 below.

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

12 Weeks Ended 40 Weeks Ended

October 3, October 5, October 3, October 5,

(In thousands,except per 2020 2019 2020 2019 share amounts)

Net sales $ 2,060,816 $ 1,999,808 $ 7,101,373 $ 6,538,112

Cost of sales 1,735,994 1,709,447 6,014,610 5,581,015

Gross profit 324,822 290,361 1,086,763 957,097



Operating expenses

Selling,general and 289,039 273,286 981,066 900,160 administrative

Merger/acquisition 242 - 242 1,364 andintegration

Restructuringcharges and 6,543 1,296 20,455 10,215 assetimpairment

Totaloperating 295,824 274,582 1,001,763 911,739 expenses



Operating 28,998 15,779 85,000 45,358 earnings



Other expenses and (income)

Interest 3,522 7,375 14,810 27,952 expense

Loss on debt - 329 - 329 extinguishment

Postretirementbenefit 101 10,221 (597 ) 19,677 expense(income)

Other, net (141 ) (180 ) (547 ) (1,071 )

Total other 3,482 17,745 13,666 46,887 expenses, net



Earnings(loss) beforeincome taxes 25,516 (1,966 ) 71,334 (1,529 ) anddiscontinuedoperations

Income taxexpense 5,564 (1,656 ) 7,513 (1,973 ) (benefit)

Earnings(loss) from 19,952 (310 ) 63,821 444 continuingoperations



Loss fromdiscontinued - (27 ) - (126 ) operations,net of taxes

Net earnings $ 19,952 $ (337 ) $ 63,821 $ 318 (loss)



Basic earnings(loss) per share:

Earnings(loss) from $ 0.56 $ (0.01 ) $ 1.78 $ 0.01 continuingoperations

Loss fromdiscontinued - - - - operations

Net earnings $ 0.56 $ (0.01 ) $ 1.78 $ 0.01 (loss)



Dilutedearnings (loss) pershare:

Earnings(loss) from $ 0.56 $ (0.01 ) $ 1.78 $ 0.01 continuingoperations

Loss fromdiscontinued - - - - operations

Net earnings $ 0.56 $ (0.01 ) $ 1.78 $ 0.01 (loss)





Weightedaverage shares outstanding:

Basic 35,730 36,340 35,900 36,248

Diluted 35,732 36,340 35,900 36,248

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

October 3,

December 28,

(In thousands)

2020

2019

Assets

Current assets

Cash and cash equivalents

$

26,903

$

24,172

Accounts and notes receivable, net

387,114

345,320

Inventories, net

586,351

537,212

Prepaid expenses and other current assets

73,192

58,775

Property and equipment held for sale

21,942

31,203

Total current assets

1,095,502

996,682

Property and equipment, net

562,326

615,816

Goodwill

181,035

181,035

Intangible assets, net

119,039

130,434

Operating lease assets

269,025

268,982

Other assets, net

94,632

82,660

Total assets

$

2,321,559

$

2,275,609

Liabilities and Shareholders' Equity

Current liabilities

Accounts payable

$

501,099

$

405,370

Accrued payroll and benefits

91,001

59,680

Other accrued expenses

53,439

51,295

Current portion of operating lease liabilities

43,705

42,440

Current portion of long-term debt and finance lease liabilities

5,338

6,349

Total current liabilities

694,582

565,134

Long-term liabilities

Deferred income taxes

52,952

43,111

Operating lease liabilities

261,621

267,350

Other long-term liabilities

48,033

30,272

Long-term debt and finance lease liabilities

540,920

682,204

Total long-term liabilities

903,526

1,022,937

Commitments and contingencies

Shareholders' equity

Common stock, voting, no par value; 100,000 shares authorized; 35,871 and 36,351 shares outstanding

484,612

490,233

Preferred stock, no par value, 10,000 shares authorized; no shares outstanding

-

-

Accumulated other comprehensive loss

(1,479

)

(1,600

)

Retained earnings

240,318

198,905

Total shareholders' equity

723,451

687,538

Total liabilities and shareholders' equity

$

2,321,559

$

2,275,609

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

October 3, December 28,

(In thousands) 2020 2019

Assets

Current assets

Cash and cash equivalents $ 26,903 $ 24,172

Accounts and notes receivable, net 387,114 345,320

Inventories, net 586,351 537,212

Prepaid expenses and other current assets 73,192 58,775

Property and equipment held for sale 21,942 31,203

Total current assets 1,095,502 996,682



Property and equipment, net 562,326 615,816

Goodwill 181,035 181,035

Intangible assets, net 119,039 130,434

Operating lease assets 269,025 268,982

Other assets, net 94,632 82,660



Total assets $ 2,321,559 $ 2,275,609



Liabilities and Shareholders' Equity

Current liabilities

Accounts payable $ 501,099 $ 405,370

Accrued payroll and benefits 91,001 59,680

Other accrued expenses 53,439 51,295

Current portion of operating lease 43,705 42,440 liabilities

Current portion of long-term debt and finance 5,338 6,349 lease liabilities

Total current liabilities 694,582 565,134



Long-term liabilities

Deferred income taxes 52,952 43,111

Operating lease liabilities 261,621 267,350

Other long-term liabilities 48,033 30,272

Long-term debt and finance lease liabilities 540,920 682,204

Total long-term liabilities 903,526 1,022,937



Commitments and contingencies



Shareholders' equity

Common stock, voting, no par value; 100,000shares authorized; 35,871 and 36,351 shares 484,612 490,233 outstanding

Preferred stock, no par value, 10,000 shares - - authorized; no shares outstanding

Accumulated other comprehensive loss (1,479 ) (1,600 )

Retained earnings 240,318 198,905

Total shareholders' equity 723,451 687,538



Total liabilities and shareholders' equity $ 2,321,559 $ 2,275,609

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

40 Weeks Ended

(In thousands)

October 3, 2020

October 5, 2019

Cash flow activities

Net cash provided by operating activities

$

223,832

$

140,034

Net cash used in investing activities

(35,536

)

(117,645

)

Net cash used in financing activities

(185,565

)

(17,385

)

Net cash used in discontinued operations

-

(153

)

Net increase in cash and cash equivalents

2,731

4,851

Cash and cash equivalents at beginning of the period

24,172

18,585

Cash and cash equivalents at end of the period

$

26,903

$

23,436

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

40 Weeks Ended

(In thousands) October 3, October 5, 2020 2019

Cash flow activities

Net cash provided by operating activities $ 223,832 $ 140,034

Net cash used in investing activities (35,536 ) (117,645 )

Net cash used in financing activities (185,565 ) (17,385 )

Net cash used in discontinued operations - (153 )

Net increase in cash and cash equivalents 2,731 4,851

Cash and cash equivalents at beginning of the 24,172 18,585 period

Cash and cash equivalents at end of the $ 26,903 $ 23,436 period

SPARTANNASH COMPANY AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA

Table 1: Net Sales and Operating Earnings (Loss) by Segment

(Unaudited)

12 Weeks Ended

40 Weeks Ended

(In thousands)

October 3, 2020

October 5, 2019

October 3, 2020

October 5, 2019

Food Distribution Segment:

Net sales

$

1,012,204

49.1

%

$

939,047

47.0

%

$

3,471,561

48.9

%

$

3,043,668

46.6

%

Operating earnings

9,191

11,699

34,990

36,564

Retail Segment:

Net sales

596,659

29.0

%

561,605

28.1

%

2,010,483

28.3

%

1,833,347

28.0

%

Operating earnings

22,318

6,726

59,416

14,600

Military Segment:

Net sales

451,953

21.9

%

499,156

24.9

%

1,619,329

22.8

%

1,661,097

25.4

%

Operating loss

(2,511

)

(2,646

)

(9,406

)

(5,806

)

Total:

Net sales

$

2,060,816

100.0

%

$

1,999,808

100.0

%

$

7,101,373

100.0

%

$

6,538,112

100.0

%

Operating earnings

28,998

15,779

85,000

45,358

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("adjusted EBITDA"), adjusted operating earnings, adjusted earnings from continuing operations, total net long-term debt, free cash flow and projected adjusted earnings per diluted share from continuing operations. 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 "Fresh Cut operating losses" subsequent to the decision to exit these operations during the first quarter, severance associated with cost reduction initiatives, and fees paid to a third-party advisory firm associated with Project One Team, the Company's initiative to drive growth while increasing efficiency and reducing costs. Pension termination income related to a refund from the annuity provider associated with the final reconciliation of participant data is excluded from adjusted earnings from continuing operations. These items are considered "non-operational" or "non-core" in nature. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude "Fresh Kitchen operating losses" subsequent to the decision to exit these operations at the beginning of the third quarter, costs associated with organizational realignment, which include significant changes to the Company's management team, and fees paid to a third-party advisory firm associated with Project One Team, the Company's initiative to drive growth while increasing efficiency and reducing costs. Pension termination costs, primarily related to non-operating settlement expense associated with the distribution of pension assets, are excluded from adjusted earnings from continuing operations, and to a lesser extent adjusted operating earnings.

SPARTANNASH COMPANY AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL DATA Table 1: Net Sales and Operating Earnings (Loss) by Segment

(Unaudited)

12 Weeks Ended 40 Weeks Ended

(In thousands) October 3, 2020 October 5, 2019 October 3, 2020 October 5, 2019

Food Distribution Segment:

Net sales $ 1,012,204 49.1 % $ 939,047 47.0 % $ 3,471,561 48.9 % $ 3,043,668 46.6 %

Operating earnings 9,191 11,699 34,990 36,564

Retail Segment:

Net sales 596,659 29.0 % 561,605 28.1 % 2,010,483 28.3 % 1,833,347 28.0 %

Operating earnings 22,318 6,726 59,416 14,600

Military Segment:

Net sales 451,953 21.9 % 499,156 24.9 % 1,619,329 22.8 % 1,661,097 25.4 %

Operating loss (2,511 ) (2,646 ) (9,406 ) (5,806 )

Total:

Net sales $ 2,060,816 100.0 % $ 1,999,808 100.0 % $ 7,101,373 100.0 % $ 6,538,112 100.0 %

Operating earnings 28,998 15,779 85,000 45,358

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("adjusted EBITDA"), adjusted operating earnings, adjusted earnings from continuing operations, total net long-term debt, free cash flow and projected adjusted earnings per diluted share from continuing operations. 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 "Fresh Cut operating losses" subsequent to the decision to exit these operations during the first quarter, severance associated with cost reduction initiatives, and fees paid to a third-party advisory firm associated with Project One Team, the Company's initiative to drive growth while increasing efficiency and reducing costs. Pension termination income related to a refund from the annuity provider associated with the final reconciliation of participant data is excluded from adjusted earnings from continuing operations. These items are considered "non-operational" or "non-core" in nature. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude "Fresh Kitchen operating losses" subsequent to the decision to exit these operations at the beginning of the third quarter, costs associated with organizational realignment, which include significant changes to the Company's management team, and fees paid to a third-party advisory firm associated with Project One Team, the Company's initiative to drive growth while increasing efficiency and reducing costs. Pension termination costs, primarily related to non-operating settlement expense associated with the distribution of pension assets, are excluded from adjusted earnings from continuing operations, and to a lesser extent adjusted operating earnings.

Table 2: Reconciliation of Net Earnings to Adjusted Earnings Before Interest,Taxes, Depreciation and Amortization

(Adjusted EBITDA) (A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended 40 Weeks Ended

(In thousands) October 3, October 5, October 3, October 5, 2020 2019 2020 2019

Net earnings (loss) $ 19,952 $ (337 ) $ 63,821 $ 318

Loss fromdiscontinued - 27 - 126 operations, net oftax

Income tax expense 5,564 (1,656 ) 7,513 (1,973 )(benefit)

Other expenses, net 3,482 17,745 13,666 46,887

Operating earnings 28,998 15,779 85,000 45,358

Adjustments:

LIFO expense 387 1,268 3,158 3,761

Depreciation and 20,858 20,351 68,611 67,513 amortization

Merger/acquisition 242 - 242 1,364 and integration

Restructuring,asset impairment 6,543 1,296 20,455 10,215 and other charges

Fresh Cut operating - - 2,262 - losses

Fresh Kitchen - 2,204 - 2,204 operating losses

Stock-based 1,033 638 5,181 6,735 compensation

Non-cash rent (1,188 ) (1,082 ) (3,981 ) (4,542 )

Costs associatedwith Project One - - 493 5,428 Team

Organizational - 935 - 1,812 realignment costs

Severanceassociated with 40 - 5,121 - cost reductioninitiatives

Loss on disposal of 35 - 3,462 - assets

Other non-cash 94 187 193 710 charges

Adjusted EBITDA $ 57,042 $ 41,576 $ 190,197 $ 140,558

Table 2: Reconciliation of Net Earnings to Adjusted Earnings Before Interest, Taxes, Depreciation

and Amortization, continued

(Adjusted EBITDA)

(A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended

40 Weeks Ended

(In thousands)

October 3, 2020

October 5, 2019

October 3, 2020

October 5, 2019

Food Distribution:

Operating earnings

$

9,191

$

11,699

$

34,990

$

36,564

Adjustments:

LIFO expense

295

639

1,684

1,869

Depreciation and amortization

7,413

7,390

24,561

25,368

Merger/acquisition and integration

-

-

-

(130

)

Restructuring, asset impairment and other charges

6,538

1,043

19,222

10,724

Fresh Cut operating losses

-

-

2,262

-

Fresh Kitchen operating losses

-

2,204

-

2,204

Stock-based compensation

522

302

2,524

3,319

Non-cash rent

31

147

125

353

Costs associated with Project One Team

-

-

265

2,877

Organizational realignment costs

-

495

-

960

Severance associated with cost reduction initiatives

-

-

3,143

-

(Gain) loss on disposal of assets

(6

)

-

1,613

-

Other non-cash charges

52

14

103

391

Adjusted EBITDA

$

24,036

$

23,933

$

90,492

$

84,499

Retail:

Operating earnings

$

22,318

$

6,726

$

59,416

$

14,600

Adjustments:

LIFO (gain) expense

(15

)

257

586

858

Depreciation and amortization

10,489

10,197

34,570

33,048

Merger/acquisition and integration

242

-

242

1,494

Restructuring charges (gains) and asset impairment

5

253

1,233

(509

)

Stock-based compensation

364

222

1,756

2,325

Non-cash rent

(1,134

)

(1,149

)

(3,818

)

(4,612

)

Costs associated with Project One Team

-

-

164

1,845

Organizational realignment costs

-

318

-

616

Severance associated with cost reduction initiatives

9

-

1,441

-

Loss on disposal of assets

34

-

1,905

-

Other non-cash charges

30

243

64

410

Adjusted EBITDA

$

32,342

$

17,067

$

97,559

$

50,075

Military:

Operating loss

$

(2,511

)

$

(2,646

)

$

(9,406

)

$

(5,806

)

Adjustments:

LIFO expense

107

372

888

1,034

Depreciation and amortization

2,956

2,764

9,480

9,097

Stock-based compensation

147

114

901

1,091

Non-cash rent

(85

)

(80

)

(288

)

(283

)

Costs associated with Project One Team

-

-

64

706

Organizational realignment costs

-

122

-

236

Severance associated with cost reduction initiatives

31

-

537

-

Loss (gain) on disposal of assets

7

-

(56

)

-

Other non-cash charges (gains)

12

(70

)

26

(91

)

Adjusted EBITDA

$

664

$

576

$

2,146

$

5,984

Notes: 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 deferred (stock) compensation, the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted in the United States of America 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.

Table 2: Reconciliation of Net Earnings to Adjusted Earnings Before Interest,Taxes, Depreciation

and Amortization, continued

(Adjusted EBITDA)

(A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended 40 Weeks Ended

(In thousands) October 3, October 5, October 3, October 5, 2020 2019 2020 2019

Food Distribution:

Operating earnings $ 9,191 $ 11,699 $ 34,990 $ 36,564

Adjustments:

LIFO expense 295 639 1,684 1,869

Depreciation and 7,413 7,390 24,561 25,368 amortization

Merger/acquisition and - - - (130 )integration

Restructuring, asset 6,538 1,043 19,222 10,724 impairment and other charges

Fresh Cut operating losses - - 2,262 -

Fresh Kitchen operating - 2,204 - 2,204 losses

Stock-based compensation 522 302 2,524 3,319

Non-cash rent 31 147 125 353

Costs associated with - - 265 2,877 Project One Team

Organizational realignment - 495 - 960 costs

Severance associated with - - 3,143 - cost reduction initiatives

(Gain) loss on disposal of (6 ) - 1,613 - assets

Other non-cash charges 52 14 103 391

Adjusted EBITDA $ 24,036 $ 23,933 $ 90,492 $ 84,499

Retail:

Operating earnings $ 22,318 $ 6,726 $ 59,416 $ 14,600

Adjustments:

LIFO (gain) expense (15 ) 257 586 858

Depreciation and 10,489 10,197 34,570 33,048 amortization

Merger/acquisition and 242 - 242 1,494 integration

Restructuring charges 5 253 1,233 (509 )(gains) and asset impairment

Stock-based compensation 364 222 1,756 2,325

Non-cash rent (1,134 ) (1,149 ) (3,818 ) (4,612 )

Costs associated with - - 164 1,845 Project One Team

Organizational realignment - 318 - 616 costs

Severance associated with 9 - 1,441 - cost reduction initiatives

Loss on disposal of assets 34 - 1,905 -

Other non-cash charges 30 243 64 410

Adjusted EBITDA $ 32,342 $ 17,067 $ 97,559 $ 50,075

Military:

Operating loss $ (2,511 ) $ (2,646 ) $ (9,406 ) $ (5,806 )

Adjustments:

LIFO expense 107 372 888 1,034

Depreciation and 2,956 2,764 9,480 9,097 amortization

Stock-based compensation 147 114 901 1,091

Non-cash rent (85 ) (80 ) (288 ) (283 )

Costs associated with - - 64 706 Project One Team

Organizational realignment - 122 - 236 costs

Severance associated with 31 - 537 - cost reduction initiatives

Loss (gain) on disposal of 7 - (56 ) - assets

Other non-cash charges 12 (70 ) 26 (91 )(gains)

Adjusted EBITDA $ 664 $ 576 $ 2,146 $ 5,984

Notes: 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 deferred (stock) compensation, the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted in the United States of America 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.

Table 3: Reconciliation of Operating Earnings to Adjusted Operating Earnings

(A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended 40 Weeks Ended

(In thousands) October 3, October 5, October 3, October 5, 2020 2019 2020 2019

Operating earnings $ 28,998 $ 15,779 $ 85,000 $ 45,358

Adjustments:

Merger/acquisition 242 - 242 1,364 and integration

Restructuring, asset 6,543 1,296 20,455 10,215 impairment and other

Fresh Cut operating - - 2,262 - losses

Fresh Kitchen - 2,204 - 2,204 operating losses

Costs associatedwith Project One - - 493 5,428 Team

Organizational - 935 - 1,812 realignment costs

Expenses associated (15 ) - 82 - with tax planning

Pension termination - 28 - 48

Severance associatedwith cost reduction 40 43 5,121 484 initiatives

Adjusted operating $ 35,808 $ 20,285 $ 113,655 $ 66,913 earnings

Reconciliation of operating earnings (loss) to adjusted operating earnings (loss) by segment:

Food Distribution:

Operating earnings $ 9,191 $ 11,699 $ 34,990 $ 36,564

Adjustments:

Merger/acquisition - - - (130 )and integration

Restructuring, asset 6,538 1,043 19,222 10,724 impairment and other

Fresh Cut operating - - 2,262 - losses

Fresh Kitchen - 2,204 - 2,204 operating losses

Costs associatedwith Project One - - 265 2,877 Team

Organizational - 495 - 960 realignment costs

Expenses associated (8 ) - 44 - with tax planning

Pension termination - 15 - 26

Severance associatedwith cost reduction - 31 3,143 392 initiatives

Adjusted operating $ 15,721 $ 15,487 $ 59,926 $ 53,617 earnings

Retail:

Operating earnings $ 22,318 $ 6,726 $ 59,416 $ 14,600

Adjustments:

Merger/acquisition 242 - 242 1,494 and integration

Restructuringcharges (gains) and 5 253 1,233 (509 )asset impairment

Costs associatedwith Project One - - 164 1,845 Team

Organizational - 318 - 616 realignment costs

Expenses associated (5 ) - 27 - with tax planning

Pension termination - 10 - 17

Severance associatedwith cost reduction 9 12 1,441 83 initiatives

Adjusted operating $ 22,569 $ 7,319 $ 62,523 $ 18,146 earnings

Military:

Operating loss $ (2,511 ) $ (2,646 ) $ (9,406 ) $ (5,806 )

Adjustments:

Costs associatedwith Project One - - 64 706 Team

Organizational - 122 - 236 realignment costs

Expenses associated (2 ) - 11 - with tax planning

Pension termination - 3 - 5

Severance associatedwith cost reduction 31 - 537 9 initiatives

Adjusted operating $ (2,482 ) $ (2,521 ) $ (8,794 ) $ (4,850 )loss

Notes: 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.

Adjusted operating earnings is not a measure of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for operating earnings, cash flows from operating activities and other income or cash flow statement data. The Company's definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.

Table 4: Reconciliation of Earnings (loss) from Continuing Operations to

Adjusted Earnings from Continuing Operations (A Non-GAAP Financial Measure)

(Unaudited)

12 Weeks Ended

October 3, 2020 October 5, 2019

per per diluted diluted

(In thousands,except per share Earnings share Earnings share amounts)

Earnings (loss) fromcontinuing $ 19,952 $ 0.56 $ (310 ) $ (0.01 ) operations

Adjustments:

Merger/acquisition 242 - and integration

Restructuring, asset 6,543 1,296 impairment and other

Fresh Kitchen - 2,204 operating losses

Organizational - 935 realignment costs

Loss on debt - 329 extinguishment

Severance associatedwith cost reduction 40 43 initiatives

Expenses associated (15 ) - with tax planning

Pension termination - 10,159

Total adjustments 6,810 14,966

Income tax effect on (1,830 ) (3,751 ) adjustments (a)

Impact of CARES Act 212 - (b)

Total adjustments, 5,192 0.14 * 11,215 0.31 net of taxes

Adjusted earningsfrom continuing $ 25,144 $ 0.70 $ 10,905 $ 0.30 operations



40 Weeks Ended

October 3, 2020 October 5, 2019

per per diluted diluted

(In thousands,except per share Earnings share Earnings share amounts)

Earnings fromcontinuing $ 63,821 $ 1.78 $ 444 $ 0.01 operations

Adjustments:

Merger/acquisition 242 1,364 and integration

Restructuring, asset 20,455 10,215 impairment and other

Fresh Cut operating 2,262 - losses

Fresh Kitchen - 2,204 operating losses

Costs associatedwith Project One 493 5,428 Team

Organizational - 1,812 realignment costs

Loss on debt - 329 extinguishment

Severance associatedwith cost reduction 5,121 484 initiatives

Expenses associated 82 - with tax planning

Pension termination (1,004 ) 19,510

Total adjustments 27,651 41,346

Income tax effect on (6,827 ) (10,166 ) adjustments (a)

Impact of CARES Act (9,298 ) - (b)

Total adjustments, 11,526 0.32 31,180 0.86 net of taxes

Adjusted earningsfrom continuing $ 75,347 $ 2.10 $ 31,624 $ 0.87 operations

* Includes rounding

(a)

The income tax effect on adjustments is computed by applying the applicable tax rate to the adjustments.

(b)

Represents tax impacts attributable to the Coronavirus Aid, Relief and Economic Security ("CARES") Act, primarily related to additional deductions and the utilization of net operating loss carrybacks.

Notes: Adjusted earnings from continuing operations is a non-GAAP operating financial measure that the Company defines as earnings from continuing operations 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.

Adjusted earnings from continuing operations is not a measure of performance under accounting principles generally accepted in the United States of America 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.

(a) The income tax effect on adjustments is computed by applying the applicable tax rate to the adjustments.

Represents tax impacts attributable to the Coronavirus Aid, Relief and(b) Economic Security ("CARES") Act, primarily related to additional deductions and the utilization of net operating loss carrybacks.

Notes: Adjusted earnings from continuing operations is a non-GAAP operating financial measure that the Company defines as earnings from continuing operations 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.

Adjusted earnings from continuing operations is not a measure of performance under accounting principles generally accepted in the United States of America 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.

Table 5: Reconciliation of Long-Term Debt and Finance Lease Obligations toNet Long-Term Debt

(A Non-GAAP Financial Measure)

(Unaudited)

October 3, December 28,

(In thousands) 2020 2019

Current portion of long-term debt and finance $ 5,338 $ 6,349 lease liabilities

Long-term debt and finance lease liabilities 540,920 682,204

Total debt 546,258 688,553

Cash and cash equivalents (26,903 ) (24,172 )

Net long-term debt $ 519,355 $ 664,381

Notes: Net long-term debt is a non-GAAP financial measure that is defined as long-term debt and finance lease obligations plus current maturities of long-term debt and finance lease obligations 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. Net long-term debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

Table 6: Reconciliation of Net Cash Provided by Operating Activities to FreeCash Flow

(A Non-GAAP Financial Measure)

(Unaudited)

40 Weeks Ended

(In thousands) October 3, October 5, 2020 2019

Net cash provided by operating activities $ 223,832 $ 140,034

Less:

Purchases of property and equipment 45,880 46,905

Free cash flow $ 177,952 $ 93,129

Notes: Free cash flow is a non-GAAP financial measure calculated by subtracting capital expenditures from cash flows provided by operating activities, the most directly comparable GAAP measure. The Company believes it is a useful indicator of liquidity that provides information to both management and investors about the amount of cash generated from operations that, after capital expenditures, can be used for strategic business objectives, including the repayment of long-term debt. Free cash flow is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

Table 7: Reconciliation of Purchases of Property and Equipment to CapitalExpenditures and IT Capital

(A Non-GAAP Financial Measure)

(Unaudited)

40 Weeks Ended

(In thousands) October 3, October 5, 2020 2019

Purchases of property and equipment $ 45,880 $ 46,905

Plus:

Cloud computing spend 7,658 -

Capital expenditures and IT capital $ 53,538 $ 46,905

Notes: Capital expenditures and IT capital is a non-GAAP financial measure calculated by adding spending related to the development of cloud computing applications spend to capital expenditures, the most directly comparable GAAP measure. Cloud computing spend only includes costs incurred during the application development phase and does not include ongoing costs of hosting or maintenance associated with these applications, which are expensed as incurred. The Company believes it is a useful indicator of the Company's investment in its facilities and systems as it transitions to more cloud-based IT systems. Capital expenditures and IT capital is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

Table 8: Reconciliation of Projected Earnings per Diluted Share fromContinuing Operations to

Projected Adjusted Earnings per Diluted Share from Continuing Operations (A Non-GAAP Financial Measure)

(Unaudited)

53 Weeks Ending January 2, 2021

Low High

Earnings from continuing operations $ 2.09 $ 2.17

Adjustments, net of taxes:

Merger/acquisition and integration expenses 0.01 0.01

Costs associated with Project One Team 0.01 0.01

Pension termination (0.02 ) (0.02 )

Restructuring and asset impairment 0.43 0.43

Severance associated with cost reduction initiatives 0.11 0.11

Fresh Cut operating losses 0.05 0.05

Impact of CARES Act (0.26 ) (0.26 )

Adjusted earnings from continuing operations $ 2.42 $ 2.50

View source version on businesswire.com: https://www.businesswire.com/news/home/20201111005748/en/

CONTACT: Investors: Mark Shamber Chief Financial Officer and Executive Vice President (616) 878-8023

CONTACT: Chris Mandeville ICR (203) 682-8304

CONTACT: Jeff Sonnek ICR (646) 277-1263

CONTACT: Media: Meredith Gremel Vice President Corporate Affairs and Communications (616) 878-2830