SpartanNash Company
Q1 2015 Earnings Call Transcript

Published: 28 May 2015

[Operator:]

Good day. And welcome to the SpartanNash Company’s First Quarter 2015 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Katie Turner, Managing Director. Please go ahead.

[Katie Turner:]

Thank you. Good morning. And welcome to the SpartanNash Company’s first quarter fiscal 2015 earnings conference call. By now everyone should have access to the earnings release for the first quarter ended April 25, 2015. For a copy of the release, please visit the SpartanNash website at www.spartannash.com under For Investor Relations. This call is being recorded and a replay will be available on the company’s website for approximately 10 days. Before I begin, we’d like to remind everyone that comments made by management during today’s call will contain forward-looking statements. These forward-looking statements discuss plans, expectations, estimates, and projections that might involve significant risks and uncertainties. Actual results may differ materially from the results discussed in these forward-looking statements. Internal and external factors that may cause such differences include, among others, competitive pressures among food and retail distribution companies, the uncertainties inherent in implementing strategic plans, and general economic and market conditions. Additional information about risk factors and the uncertainties associated with SpartanNash’s forward-looking statements can be found in the company’s first quarter earnings release, fiscal annual report on Form 10-K, and in the company’s other filings with the SEC. Because of these risks and uncertainties, investors should not place undue reliance on any forward-looking statements. SpartanNash disclaims any intention or obligation to update or revise any forward-looking statements. This presentation includes certain non-GAAP metrics and comparable period measures to provide investors with useful information about the company’s financial performance. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and the other information required by Regulation G is included in the company’s earnings release, which was issued after market close yesterday. And it’s now my pleasure to introduce Mr. Dennis Eidson, President and CEO of SpartanNash Company for opening remarks.

[Dennis Eidson:]

Thanks, Katie. Good morning. And thank you for joining our first quarter fiscal 2015 earnings conference call. With me this morning are Dave Staples, our EVP and Chief Operating Officer, as well as other members of our executive team. Today I’ll begin as usual by providing you a brief overview of our business and highlights of our financial performance for the quarter. Dave will then share some additional details about the first quarter financial results, as well as our outlook for the remainder of fiscal ’15. Finally, I’ll provide some closing remarks and then we’ll open up the call and take some questions. We are continued to be encouraged by our financial performance for the first quarter and despite some headwinds from summer directions and including challenging weather comparisons versus the prior year and the addition of the Nash Finch Boards to our comp store sales business, I am pleased to report our adjusted earnings from continuing operations exceeded our expectations as we benefited from the merger synergies and our ongoing efforts to lower expense levels. During the first quarter, we generated a 50% increase in operating cash flow, which we use to reduce our debt level by $35 million, pay our quarterly dividend and repurchase shares, which not only demonstrates our commitment to reduce leverage and ensure availability for our strategic initiatives, but also our commitment to return value to our shareholders. Now reviewing our Food Distribution segment results, I am pleased to report that net sales were up 1.6% in the first quarter, as we continue to look way -- for ways to offset the headwinds inexperience by the industry. On the merchandising and marketing front, we continued to rollout some strategies to our Western retail stores and are applying our core market strategy across all of our independent customers. For example, we completed the introduction of the Price Freeze program at all of our distribution centers and we are working on rolling out the wall of values and asset value programs. I am very encouraged by the initial response to the programs and are now focused on gaining even greater acceptance by our customers. We are also beginning to offer more value-added options, such as digital coupons to help our independent customers to drive both traffic and sales. We continue to look for ways to improve our operational efficiencies and are targeting two main areas of opportunity. The areas are transportation network and warehouse optimization. As we previously disclosed, during the first quarter we consolidated our Rapid City warehouse into our Omaha and Fargo facilities, by all accounts with this successful transition and we are receiving positive feedback from our customer base, including the overall special products and improved selection that we can now offer. This is the second facility that we have consolidated since the merger which demonstrates our continued commitment to improving services to our customers. Another key efficiency driver is optimization of our transportation network for both our military and food distribution channels as we see a number of opportunities to gain better economies of scale. This initiative is currently in its initial phase of planning. However, we believe there will be significant benefits attached to this effort. Turning to our Retail segment, net sales in retail decreased primarily to due to a combination of the impact from our store rationalization plan and significantly lower retail fuel prices. With the number of remodels and resets completed in the prior year, and six more later to be completed in the third quarter, we are doing a better job of merchandising our Western stores and we would be turning our attention to driving traffic through both traditional and digital media in the coming quarters. We continue to invest more in the digital space and are focusing more of our overall marketing budget on digital as we started email, mobile coupons and other individual retail promotions to drive traffic and help determine the optimal promotions. As we continue to learn more about our customers through our loyalty program we are improving quality of the highly targeted mailings and are seeing meaningful increases in the engagement of our customers with these offers. We are also preparing to introduce our Yes Rewards Loyalty program in parts of our Western market. We continue to make progress on executing our integration plan for the Retail segment. During the first quarter, we opened a new store in Dickinson, North Dakota. As expected, this quarter has impacted our existing store sales. Hope you’ve seen a positive overall lifts to the overall market. We also continue to successfully leverage our pharmacy program to better connect with our customers. Our Michigan pharmacies posted a strong 3.7% increase in comp script count for the quarter, marking our 17th consecutive quarter of positive script count growth. We will begin rolling all our pharmacy offerings including our generic program, prenatal vitamins and free diabetes medicine to the western store base in the second quarter and are looking forward to the results. We expect these programs will resonate strongly in our western store base as they currently deal with our Michigan customers. We also continue to focus on realizing the opportunities to connect with customers via our fuel program. Our comp tailwinds for the first quarter were up over 4.9% compared to 2.9% for the industry. We continue to sign up new fuel partners to strengthen the program for our western stores for also testing some new reward strategies that are focused on driving traffic and repeat business. On the product side, we continue to expand our private brand program for both our distribution and retail customers. During the first quarter, we launched over 66 new private brand items. In our private brand unit penetration, our retail operations was 22%, which continues to place us above the national average. We ended the quarter with approximately 7,000 private brand offerings and for the full year, we continue to expect to introduce approximately 300 new items. Sales in our Military segment increased 2.2% from the prior year and were benefiting from the business wins in strong export sales. We continue to seek out new business and are encouraged by what we’ve been seeing in that area as well as the improved operational efficiencies and benefits that we’re receiving from the extended warehouse facility that we opened last year. Moving onto our capital plan, during the first quarter, we opened one new store and fuel center in Dickinson, North Dakota and closed four supermarkets, three in Omaha and one in Lincoln as part of our store rationalization plan. This brings our store count to 159 supermarkets and 30 fuels centers at the end of the quarter. During the quarter, we also began construction on six remodels and re-banners in the Nebraska market. All six of these stores will be converted to the Family Fare banner. We are excited about the expected benefits as we’re adding new features to select stores such as expanded natural and organic sections and Starbucks. We have confident customers who are going to appreciate. All six of these remodels are scheduled for completion in the third quarter. In line with our strategy of opportunistically increasing our retail presence, I’m pleased to announce that we entered into agreement to acquire Dan's Supermarket. Dan’s is a six-store chain serving Bismarck and Mandan, North Dakota. We purchased two stores from Dan’s in Dickinson, North Dakota in 2013 and as I mentioned opened the third store earlier this year in Dickinson. We are excited about this addition to our retail network which strengthens our offering to this region and look forward to the opportunity to provide Bismarck area with the quality products, competitive pricing, exceptional customer service and community support we brought to Dickinson. We expect the transaction to close in June 2015 and anticipate it will add approximately $100 million in sales to the Retail segment. With that, I’ll turn the call over to Dave for more details on our financial results and the outlook for the remainder of 2015.

[Dave Staples:]

Thank you, Dennis and good morning everyone. Consolidated net sales for the first quarter decreased 29% to $2.31 billion compared to $2.33 billion in the year ago quarter. Increases in the Food Distribution and Military segments were offset by the impact of stores closed under our store rationalization plan of $27.8 million, significantly lower retail fuel prices this year resulting in a reduction of $15.8 million and a decrease in comparable store sales at locations obtained in the merger with Nash Finch. Consolidated gross profit margin for the first quarter was 14.5%, compared to 14.9% in the prior year and primarily reflects the impact of higher sales from Food Distribution and Military segments which carry lower margins. First quarter operating expenses would have been $302.4 million, or 13.1% of net sales, compared to $315.5 million, or 13.5% of net sales last year, if the charges related to the merger integration expenses and asset impairment and restructuring charges were excluded in both periods. On an absolute basis, the decrease was due to benefits from merger synergies, lower fuel and healthcare costs, as well as the impact of closed stores and one closed warehouse. These results exclude $2.7 million in expenses related to merger integration and $7.3 million in asset impairment and restructuring. The prior year first quarter excludes $4.2 million in expenses related to the merger and $100,000 in asset impairment and restructuring charges. Adjusted EBITDA for the first quarter increased 1.5% to $65.9 million, or 2.8% of net sales, compared to $64.9 million, or 2.8% of net sales last year. Adjusted earnings from continuing operations for the first quarter were $16.6 million, or $0.44 per diluted share, compared to $15.2 million, or $0.40 per diluted share last year. These results exclude asset impairment and restructuring charges of $0.12 per diluted share and merger integration and acquisition expenses of $0.04 per diluted share. For the prior year first quarter, adjusted earnings from continuing operations exclude merger and integration expenses of $0.07 per diluted share. Turning to our operating segments. First quarter net sales for the Food Distribution segment were $986.4 million, compared to $971 million in the year ago quarter. First quarter operating earnings for the Food Distribution segment when adjusted to exclude $1.9 million in expenses related to the merger integration, asset impairment and restructuring and gains on sales of assets increased 16% to $22.2 million versus $19.1 million last year, excluding $4.9 million in merger expenses and restructuring charges. The increase was primarily due to merger synergies and lower healthcare and labor related expenses as well as the impact of lower net fuel prices. In our Retail segment, first quarter net sales were $626.9 million compared to $678.6 million last year. Comparable store sales excluding fuel decreased 1.2% from the prior year as we cycled the favorable winter weather condition last year and included the stores acquired in the merger with Nash Finch. While we do not intended to disclose sales by market on an ongoing basis, I do want to point out that despite the weather, comparable store sales in our Michigan retail operations were slightly positive for the quarter. Retail segment operating earnings for the quarter when adjusted to exclude $8.1 million in asset impairment and restructuring charges and acquisition costs decreased to $5.6 million versus $8.4 million last year when adjusted to exclude $0.6 million of net pre-tax gains on asset sales and asset impairment charges. The decrease was due primarily to the impact of newly opened stores and lower comp store sales, partially offset by favorable fuel center performance, healthcare expenses and the impact of store closures. In our Military segment, first quarter net sales were $699.4 million compared to $684.2 million last year. Operating earnings were $6.2 million compared to $4.4 million last year, primarily due to increased volume, improve operational efficiencies as Dennis mentioned earlier and lower net fuel costs. From a cash flow perspective, our operating cash flow for the first quarter was $48.9 million compared to $32.6 million last year. The increase was due to improvements in working capital. As a result of our continued strong cash flow generation during the first quarter, we repurchased 79,400 shares of our common stock for a total of approximately $2.5 million. As of the end of the first quarter, we had $18.8 million available for share repurchases under our $50 million repurchase program which expires in May of 2016. Total net long-term debt was $526.8 million as of April 25, 2015 versus $563.8 million at the end of last year. We remain committed to reducing our leverage towards the 2 times multiple of EBITDA and ended up the quarter at 2.24 times. With approximately $250 million of strategic availability under our credit facility as of April 25, 2015, our capital structure comfortably supports our continued operational and strategic initiatives, including potential acquisitions. As we look to the remainder of the year, we are cautiously optimistic about our outlook given the increasingly competitive retail food environment, particularly in our western markets. While we expect modest pressure on sales, we continue to take steps to drive our top and bottomline including merchandising, pricing, promotional and store improvement efforts, as well as careful expense management. As a result, we anticipate second quarter adjusted earnings from continuing operations will slightly exceed last year’s comparable results of $0.50 per diluted share, excluding merger integration costs and other one-time expenses and gains. Based on our outlook for the remainder of the year, we are maintaining our previously issued fiscal 2015 guidance of adjusted earnings per share from continuing operations of approximately $1.89 to $1.98, excluding merger integration costs and other one-time expenses and gains. For purposes of comparison, the company's similarly adjusted earnings per share were $1.80 in fiscal 2014 when adjusted to a 52-week basis. Our fiscal 2015 guidance is based on sales growth in both the food distribution and Military segments and that comparable store sales at retail will be in the range of slightly negative to slightly positive. We expect the capital expenditures for fiscal year 2015 will be in the range of $75 million to $80 million, with depreciation and amortization now in the range of $83 million to $85 million and total interest expense now in the range of $23 million to $24 million. This concludes our financial discussion. And I will now turn the call back to Dennis for his closing remarks. Dennis?

[Dennis Eidson:]

Thanks, Dave. In conclusion, we really are encouraged by performance in the first quarter, which reflects growth in our food distribution and the Military segments, as well as our legacy retail operations and the benefits of merger synergies and operating efficiencies. We have a number of initiatives underway, including the rollout of our merchandising, pricing and promotional strategies across our western store base, additional store remodels, and to further optimize our supply chain that we believe will drive sales and earnings growth over the remainder of the year and beyond. We continue to be under strong financial position and intend to leverage our sale and financial flexibility to opportunistically grow our retail presence and to expand our independent distribution network. With that, we will now open the call up and take some questions.

[Operator:]

[Operator Instructions] And our first question comes from Mark Wiltamuth of Jefferies. Please go ahead.

[Mark Wiltamuth:]

Thank you. Excellent pronunciation. First, I want to ask a little bit about the Military segment. I think you turned the corner there. If you could really give us a little more detail on what drove the new account wins. And if you could also give us a little tone on what’s going on in the broader Military segment in terms of demand growth. What’s the DeCA sales growth trend right now?

[Dennis Eidson:]

Yes. Thanks, Mark. And thanks for joining us this morning. I think the military piece on the revenue stream is really attributed to just a ton of hard work by MDV leadership team led by Ed Brunot. We have been working very, very hard with the customers in the space to put really our story in front of them. And we enjoy a significant share of their business. And we believe we absolutely have the best model in the industry to optimize the service to DeCA. So with that, we’ve been giving some attention to that. Dave and myself have been pretty active as well as our merchant group with the customers in that space, it’s paying off. We got a big win from Kraft that manifested itself in the quarter, fell somewhere between $35 million and $40 million of annualized volume as we won that RPF. We have also optimizing the operation, I mentioned, the Landover facility, we expanded a year ago and we’re now starting to see some of the benefits from a logistics perspective and some of that dropping to the bottomline. I indicated that our sales were positive 2.2% and DeCA continues to run somewhat negative, I think in the same quarter, running approximately 3% negative, so clearly we’re doing better than DeCA in general. Overall, I would say to you that it feels a little bit better on the DeCA side than it did a year ago at this very time, so maybe the trend is improving a bit.

[Mark Wiltamuth:]

Okay. And then the flip over to the retail side, you mentioned there on your closing remarks that you’re still expecting some pressure in the Western markets. If you could talk about the competitive pressures a little more that would help?

[Dennis Eidson:]

Yeah. In the West, we’re reporting comps now for in the legacy Nash retail, which I hate that term, but I think it describes what I’m talking about. Omaha has been a particularly difficult marketplace, lots of competitive incursion, primarily lead by Wal-Mart in Hyde, so we’re framing that back. And all the big investment in Omaha we believe is just look at that [Indiscernible] around -- turning that around. There is also going to be some competitive openings in the North Dakota marketplace, both by Coborns and SuperValu with a corporate store. So we’re prepared for that, but that that was the reference to the headwinds, Mark.

[Mark Wiltamuth:]

Okay. And how long you think it will take really for the turnaround process to take your -- as you go through the remodels and you put in your Michigan best practices into the Western markets, how long you think before that market is where you wanted to be?

[Dennis Eidson:]

Yeah. First of all, its not just Michigan best practices, I want to make that clear. It will be the West retail portfolio is not all in Omaha and we have some great stores performing very well and there are some initiative they have replaced that really have helped that business and we’re going to utilize those as well. And I would say, we’re sitting there with six stores in Omaha. We have 21, I think, stores in the market, Dave, you said, exactly, 21 in the market. So, obviously, this is a small percentage, although a meaningful percentage. It will take some time, things go well, next year you could see us laid us another six or more. It will depend on how we perform.

[Mark Wiltamuth:]

Okay. Thank you very much.

[Operator:]

Our next question comes from Karen Short of Deutsche Bank. Please go ahead.

[Shane Higgins:]

Yes. Good morning. It’s actually Shane Higgins on for Karen. Thanks for taking the question guys. Just looking at the operating margins in the Retail segment, did it come in a little bit lower than we were modeling, was this primarily a function cycling that the more difficult weather-related compares and if you guys could specifically speak to the gross margin in the segment for the quarter, that would be great.

[Dave Staples:]

Yeah. I think, in general Shane, certainly, the weather has an impact on that, right, as it changes the volumes. Additionally, we had a new store opening in our North Dakota market, which as Dennis alluded through his comments, significantly impacted that market and so it takes time to adjust. That and I think the general competitive environment I think would explain what’s going on in the Western side of thing.

[Shane Higgins:]

And how would, I mean, how should we think about the operating margins over the next couple of quarters for the Retail segment?

[Dave Staples:]

I think they will continue to feel little bit of pressure as we go through this year. And hopefully, as we completer the remodeling efforts and get the volume trends moving the way we want, you’ll see that start to flip around.

[Shane Higgins:]

Okay. Great. And on the -- and just look at the comps in the Michigan segment, you guys mentioned that they were positive in the quarter. Are those still positive 2Q to-date and do you guys anticipate that that’s where those stores will end up for the year?

[Dave Staples:]

Yeah. Just speaking to compare Michigan, sure, yeah, we’re pretty pleased with how the Western Michigan market in that is performing. We feel good about the cadence in that group and we have -- that’s where we have a lot of our consumer centric information available, we have the loyalty program. We have our EMEA project. It’s really the breeding ground or the central area that we are able to deploy lot of our new thinking. So as we do more in the west and as we’re able to deploy the loyalty card and get some of that data. Hopefully we can begin those export some of that knowledge throughout the operations.

[Shane Higgins:]

Sure. And just a real quick on the inflation side, I mean I know it’s been a challenge especially for you guys in center store. Any thoughts on specifically we’re approaching you might be headed given that, we’ve obviously seen a sharp reduction in poultry supply. Are you guys hearing anything from your suppliers as to how that might impact poultry or proteins in general?

[Dennis Eidson:]

I mean, the avian flu pretty significant, right, and so that will have an impact we believe. And so on the meat side, I think you mentioned poultry producers. Well, they are very different performers, right. On the meat side, well still very inflationary. On the distribution side of the business, we saw a nice decline in that heightened rate. So it’s still inflationary and not to the level it was. Our produce are different animal, right or different product I should say. And so on the poultry side that’s a rollercoaster, right. I mean produce you can have high inflation, you can have deflation and so much depends on the growing conditions and the weather. That has certainly flipped from the inflationary to deflationary in the last quarter. And I think that will just be somewhat dependent on what you see going forward in the growing season.

[Shane Higgins:]

Okay. Good. Thanks for that color. And just one last one, did you guys expect the Dan’s -- the Dan’s acquisition to be accretive this year?

[Dennis Eidson:]

Certainly, yeah.

[Shane Higgins:]

All right guys. Thanks.

[Operator:]

And our next question comes from Chuck Cerankosky of Northcoast Research. Please go ahead. Good morning, guys. This is [Caron] [ph] on for Chuck. I was wondering, if maybe you could give us some color on how gasoline profitability is tracking second quarter-to-date compared to the first quarter?

[Dave Staples:]

What profitability?

[Dennis Eidson:]

Gasoline.

[Dave Staples:]

Yeah. First quarter was actually a very good for us from a profit standpoint. Cents per gallon was even better than the fourth quarter, right. I think we are a little bit transitory to maybe what the industry saw. Early in the second quarter, the cents per gallon profit on fuel would be less than the first quarter. Okay. Great. Thanks. And how many fuels stations are you guys plan on opening this year and how many of those will be outside of Michigan?

[Dennis Eidson:]

We have one that is active.

[Dave Staples:]

One, we think is already in Q1. What we are really doing outside of Michigan at this point is, we are working on some significant partnerships with existing suppliers. So in the quarter, we are actually, straight after the quarter we inked an agreement for a partner in Omaha market, which really excited about and we continue to look for other partnerships throughout the west retail operations. In Michigan, we’re getting pretty close to saturated. There is probably a handful of most that we’d like to open and we continue to work on that. At this point, we have a couple of opportunities. Not sure that we will get those actually opened this year. Okay. Great. Thanks.

[Operator:]

And our next question comes from James Fronda of Sidoti & Company. Please go ahead.

[James Fronda:]

Hey, guys. How are you?

[Dennis Eidson:]

Hi, James.

[James Fronda:]

Just on the -- I guess acquisition strategy going forward whether it’s retailer distribution, is there any -- I guess fear of potential FTC involvement going forward or are you guys too small to think about that?

[Dennis Eidson:]

With the type of acquisition we just sit here with Dan’s pretty small to fill in.

[James Fronda:]

Right.

[Dennis Eidson:]

It’s a market. Frankly, we looked in where markets are on the east or west. I think whenever you are talking about acquisitions, it’s always perspective and if a deal is big enough you could get into some FTC territory but we are always mindful of that.

[James Fronda:]

Okay. All right. Thanks guys.

[Operator:]

And our next question comes from Scott Mushkin of Wolfe Research. Please go ahead.

[Scott Mushkin:]

Hey, guys. Thanks for taking my questions. So two areas, I want to poke out a little bit. I guess on the distribution side, just trying to understand the way the kind of business works. Is everyone on cost plus or are there contracts that aren’t that way?

[Dennis Eidson:]

I’m sorry, you are talking about what cost plus.

[Scott Mushkin:]

Yeah. Cost plus, in other words, that you are having to pass the price decreases right away or is it vigor from your distribution business not necessarily do that.

[Dennis Eidson:]

Generally, the answer is yes. We are at cost plus platform.

[Scott Mushkin:]

Okay. I mean, I guess, I’m getting as I was a little surprised that the distribution, I mean, hats off to you guys, did well. And I was just trying to understand with some of the environment we’ve seen with deflation particular in produce and some of the competitive environment that we’ve been hearing some of the stuff hitting quite quickly and we have some fears from the distribution side that you guys have a hard time dealing with that. So maybe can you walk us through like how that works inside your business and is deflation bad or is it manageable?

[Dennis Eidson:]

So deflation is never a good thing. I mean, we would not rather not live in a deflationary world. So the answer to your question, generally we are on a cost plus, look at to the fresh produce and meat, it’s a little bit of what the market will bear. We’re on the street competing everyday with distributors that are attempting to gain some of that independent volume. But in center stores, it’s a bit of different scenario. I think it is as you would anticipate, if the costs are going down and we own inventory and we have to reduce our total cost. We have a negative impact to our P&L and deflation in produce is not a good thing. On the distribution side of the business, we went from inflationary in produce in Q4 to deflationary, 1.7% in Q1. That doesn’t feel good. And we had similar situations with meat where meat was double digit inflationary in Q4 and we’re less than 5% inflationary in Q1. So those two put pressure on our margins at distribution.

[Scott Mushkin:]

Okay. So it’s margin, so it doesn’t necessarily act like gasoline where the prices fall and really rapidly maybe you can take, take a little bit more like the cents per gallon widens out but produces really. It sounds like it can act like that, so is that correct?

[Dennis Eidson:]

Yeah. I think is generally correct. Even with the fuel it is -- why don’t we just talk about it, right? We have better margin in Q1 than we had in Q4 and I think we are an outlier there. So much has happened with the market we’ve been. I don’t think those are easy one-size-fits-all answer that, Scott. I’m not trying to debate just….

[Scott Mushkin:]

No. I mean you guys are very humble. I think you probably did a masterful job running distribution this quarter. I think it was probably very difficult. So from my perspective, I think you are probably being too humble. I think it’s probably pretty hard to put up the results you did at distribution of about $0.02.

[Dennis Eidson:]

No, I appreciate that. We made and I know as far as the quarter, we made some changes to the leadership and Derek Jones has been appointed President of the wholesale business and he is got a full distribution platform for the entire company and Derek has really made a difference in our business and we talked about some other initiatives as well as the supply chain. We think are going to help drive value and so I appreciate your complement but it really doesn’t belong to me. It really belongs with that management team and Derek.

[Scott Mushkin:]

Second thing about the small acquisition that’s accretive. You guys are going to give us any kind of flavor of how accretive it’s going to be?

[Dennis Eidson:]

Well, the topline is to drive somewhere on $100 million in sales.

[Scott Mushkin:]

Okay. And what kind of margins you just kind of assume, kind of a retail margin on that but you already were making some money on it, right, because they were client.

[Dennis Eidson:]

They were not a client.

[Scott Mushkin:]

Not a client?

[Dennis Eidson:]

Buying SuperValu.

[Scott Mushkin:]

Okay. Okay. So it’s all fresh new business?

[Dave Staples:]

Exactly. That will make that win better, right. That’s a win-win-win.

[Dennis Eidson:]

This is it. Deal out there in Bismarck, we bought two stores from Dan’s and Dickinson at the end of ’13 and I think it is fair to say that the ownership there at Dan’s appreciated the way the company handled itself with regard to the acquisition of those two stores. And also, we’re very pleased with the kind of changes we made to the stores in Dickinson and went back into the market to see how we launched them. We did quite a bit of work there remodeling them, rebannering them. And I think it’s just let the good feeling with him. And when he was looking for an exit strategy, it seemed obvious to him that we would be the right place to go. So we are delighted to welcome the new stores, the new store associates and we are delighted to have a super value customer now in the SpartanNash portfolio.

[Scott Mushkin:]

So it’s a $100 million for a year, so about $50 million for this year, is that right?

[Dennis Eidson:]

In the ballpark [Brian] [ph] I mean depending on when we finally close.

[Scott Mushkin:]

Okay. So again ballparking about $2.5 million of EBIT or is that way off?

[Dennis Eidson:]

I told you if I would have to shoot you.

[Dave Staples:]

You can do the math. I mean, I think it’s kind of generally performed with our retail group.

[Scott Mushkin:]

Okay. That’s perfect. That’s great. So the final question I swear is the -- where do you -- I mean, as you look at acquisitions, you said you had plenty of room on your balance sheet. And with the capital structure, is this the type of thing? This is what you guys used to do, right. Like, is this what you preferred to do, or is the distribution side, kind of walk us through? Since you kind of said it’s part of your strategy going forward, where is your preference?

[Dennis Eidson:]

I don’t know that we handle preference. I think we are looking for the opportunities that will add the most long-term profitable growth perspective to the business. And so we’ve been a little bit more opportunistic I would say on the retail side. I think we will probably continue to be that way. On the distribution side, those tend to be bigger transactions, obviously the one we’re adjusting now. We are really only halfway through our three-year integration plan, maybe our little more purposeful and maybe a little that I wouldn’t characterize them as opportunistic. But we have our eyes wide open on what’s going on in the space. And as we indicated when we completed the merger that we felt that this really provided a foundation for future growth and allowed us to be a player in the consolidation of the Distribution segment which we continue believe is going to be reality. So I think that would be the context that I would give you around our acquisitive strategy.

[Scott Mushkin:]

Okay. That’s perfect. Housekeeping, the guidance now includes Dan’s, right?

[Dennis Eidson:]

It does not.

[Scott Mushkin:]

It does not.

[Dennis Eidson:]

Not fully included.

[Scott Mushkin:]

Okay. That’s -- I am glad I asked that last question. Okay. Thanks, guys.

[Operator:]

[Operator Instructions] Showing no further questions, I would like to turn the conference back over to Dennis Eidson for any closing remarks.

[Dennis Eidson:]

Thanks, Dan. And I want to thank everybody for participating today. And that concludes our remarks for first quarter fiscal '15. And we look forward to speaking with all of you again at the end of second quarter. Thank you.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.