SpartanNash Company (NASDAQ:SPTN) Q4 2022 Earnings Call Transcript

SpartanNash Company (NASDAQ:SPTN) Q4 2022 Earnings Call Transcript February 23, 2023

Operator: Good morning. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. I would now like to turn the call over to Kayleigh Campbell, Head of Investor Relations.

Kayleigh Campbell: Good morning and welcome to the SpartanNash company Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. On the call today from the company, our 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 07:00 a.m. Eastern Time. For copy of the earnings release, as well as the company’s supplemental earnings presentation, please visit SpartanNash’s website at www.spartannash.com/investors. This call is being recorded and a replay will be available on the company’s website. Before we begin, the company would like to remind you that today’s discussion will include a number of forward-looking statements.

These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. We will refer to SpartanNash’s earnings release from this morning, as well as the company’s most recent SEC filings. We’ll see a discussion of factors that could cause the company’s actual results to differ materially from those 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 believe that 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 website at www.spartannash.com/investors.

And now it is my pleasure to turn the call over to Tony.

Tony Sarsam: Thank you, Kayleigh. And good morning everyone. 2022 is a transformational year at SpartanNash. Our corporate identity, which we call our winning recipe, served to align our associates as they executed on our strategic plan. Our success in 2022 was made possible by our talented and hardworking associates who played a win. Speaking of our terrific associates. Before we dive into our 2022 results, I want to take a moment to recognize a group of associates who are Special Olympics Athletes. This month we’ve had a companywide fundraiser in our stores to support Special Olympics. We’ve enjoyed a 39-year relationship with Special Olympics and we are proud to support our 16 associates who are actively training to compete in the upcoming summer games.

We encourage anyone listening today to join us in supporting this great organization. All right. Turning to our performance, in a dynamic operating environment our teams have solid fourth quarter and fiscal 2022 results. Our full-year top-line results were squarely in line with our most recent guidance as to having raised our expectations throughout the year and adjusted EBITDA came in around the top end of our guidance. This has an increase of nearly 14% compared to last year. I want to call out three of the many highlights from a pivotal year. First, we secured cost savings in connection with our supply chain transformation. Part of this transformation involves optimizing our fleet mileage through the addition of a West Coast distribution solution.

Of course, taking miles other system also advanced our sustainability progress. Additionally, our sale rate continue to improve, while throughput increased by 7% for the full-year. And by the end of the year, we secured more than $25 million in run rate costing savings. Our successful supply chain helped enable us to gain share in our Wholesale segment. We expect our supply chain transformation to make even greater strides in 2023, which includes custom operational plans for each distribution center. There are more savings and efficiencies to come as we strive to reduce footsteps and fingerprints in our process. I want to extend my sincere thanks to all supply chain associates for their progress in improving operational metrics in 2022. Thank you team.

The second highlight in the year is that we created additional consumer offerings through digital partnerships with DoorDash, Uber Technologies, and ship. We also leverage insights from our marketing innovation work to further our progress and own brands to unlock opportunities within our retail segments. Our comparable store sales remained strong increasing 9.1% for the quarter, this is an increase of 110 basis points sequentially from Q3. We also continue to deliver a unit share growth year-over-year field in part by our strong own brands performance. We’re building on this momentum with investment in-store renovations. We plan to renovate about a quarter of our stores by the end of 2025. As a third highlight, we launched and made meaningful progress on our merchandising transformation.

We are focused on creating enhanced offerings and value for our customers and store guests in several ways. To start, we’re making significant strides making sales, profitability and customer loyalty drivers across our wholesale and retail segments. Secondly, we’re leveraging insights to enhance our category management capabilities. And we’re improving our customer offerings. We also remain focused on our cost quality capabilities, which protect customers from unjustified vendor cost increases based on underlying commodity markets. And we’re revamping our end-to-end fresh food offerings with an initial focus in produce. Finally, we’re investing in wholesale deals and new retail promotions to offer more value for our customers and store guests.

Customer-focused innovation is an important ingredient in our winning recipe. We expect our merchandising transformation will have a meaningful impact to our business for years to come. I want to pivot now to discuss our inorganic growth. The M&A framework we share it on our Investor Day is now deployed. We finished the year strong by adding Great Lakes Foods to our distribution network. We’re proud to welcome our newest associates in Menominee, Michigan, whom I had the pleasure of visiting recently. This acquisition brings 100 new customers to our portfolio and allows us to further optimize our supply chain network throughout the Midwest. We are excited about the opportunities this expansion provides. As we look ahead our team is energized by the progress we’ve made.

And we are united in our commitment to our winning recipe. It goes without saying that all businesses are evolving in this dynamic operating environment. So we must stay focused on delivering value to our customers and store guests alike to remain competitive. This morning, we provided our 2023 guidance and raised our 2025 long-term sales target to $10.5 billion. We remain committed to achieving adjusted EBITDA of more than $300 million, which is an increase of at least 40% since 2021. We are confident in our ability to achieve this aggressive target as we continue to firing on all cylinders to advance our mission of delivering the ingredients for a better life. All right. I’ll now turn the call over to Jason to walk you through the financials in greater detail.

Jason Monaco: Thanks, Tony, and welcome to everyone joining us on today’s call. Let’s jump into the detailed results. Net sales for the fourth quarter increased more than 10% to $2.3 billion versus 2021s fourth quarter sales of $2.1 billion. The growth versus prior year was driven by both the wholesale and retail segments each of which were favorably impacted by inflation. Gross profit for the fourth quarter was $341 million or 14.8% of net sales compared to $323 million or 15.4% of net sales in the prior year’s fourth quarter. The gross profit dollar increase was driven by higher sales, while the rate decline was driven by cycling the higher inflation related price gains in the prior year and an increase in LIFO expense up $5.7 million or 21 basis points.

As a percent of sales, our reported operating expenses increased 58 basis points from prior year. Primarily due to cycling the transition impact of the paid time off policy change in the prior year from a grant-based time off policy to an accrual based policy. The transition resulted in a $21.4 million reduction in our balance sheet accrual and a corresponding one-time gain in the prior year. Also contributing to the increase in expenses as a rate of sales were higher corporate administrative costs in the current year, which included upfront investments in the merchandising transformation initiatives. The increases in expenses were partially offset by a reduction in the supply chain expenses driven by our supply chain transformation initiatives, as well as lower healthcare insurance costs.

Our reported fourth quarter net earnings were $0.7 million representing a 97% decrease compared to net earnings of $22.2. million in the prior year’s fourth quarter. Net earnings reflected a steep increase in interest rates, which represented a $5.1 million increase in expense, a drag of $0.11 on both reported and adjusted EPS. Overall, we delivered $47.2 million in adjusted EBITDA for the quarter, representing a nearly 10% increase compared to $43 million in the prior year’s fourth quarter. Turning to our segments. In the fourth quarter, net sales and wholesale increased $151 million to $1.63 billion, an increase of 10.2% when compared to the prior year’s fourth quarter. This increase with due primarily to the inflationary impact on pricing, which increased net sales by 11.8% compared to the prior year.

Although sales volumes were down modestly by 1.6% for the segment compared to prior year. We were up in our military channel over 6% due to continued strong demand. The Wholesale segment adjusted operating earnings totaled $13.6 million in the quarter versus 2021s fourth quarter adjusted operating earnings were $7 million. Reported fourth quarter operating earnings of $0.3 million compared to operating earnings of $10.1 million in the prior year’s fourth quarter. The decrease in reported operating earnings was due to cycling a $10.1 million transition impact related to the PTO policy change in the prior year. A lower gross profit rate primarily driven by a $6.3 million increase in LIFO expense and increases in corporate administrative costs.

The increasing expenses were partially offset by reduced supply chain expenses. Retail sales came in at $678 million for the quarter compared to $613 million in the fourth quarter of 2021, an increase of 10.5%. Our comparable store sales momentum remained strong, increasing to 9.1% for the fourth quarter. Our comparable store sales increased by a 11.2% due to inflation, partially offset by a 2.1% decline in unit volumes. Our fourth quarter retail adjusted operating earnings were $8.5 million compared to $13.6 million in 2021s fourth quarter. Reported operating earnings in the retail segment were $8.5 million compared to $23.3 million in the prior year’s fourth quarter. The decrease was due to cycling and $11.3 million transition impact related to the PTO policy change in the prior year our lower gross profit rate and increased corporate administrative costs.

Our reported fiscal 2022 net earnings were $34.5 million, a decrease of over 50% compared to $73.8 million in the prior fiscal year. Overall, for the full-year our adjusted EBITDA was $243 million, compared to $214 million in the prior year. Turning to the balance sheet. Our leverage ratio remained strong, increasing slightly to 2x compared to 1.8x that the prior year end. This includes higher long-term debt and finance lease liabilities of $98 million for the year. The increase was due primarily to funding acquisitions during fiscal 2022 totaling $41.5 million, as well as changes to working capital. For the full-year we generated $110 million of cash from operating activities, compared to $161 million in the prior year. The decrease was due primarily to changes in working capital just mentioned.

In fiscal 2022, we paid $29.7 million in cash dividends equal to $0.84 per common share. We also bought back more than a million shares of the company’s stock for a total of $32.5 million. In total we’ve returned more than $62 million to shareholders during the fiscal year. To ensure strong ongoing liquidity, this past November, we entered into an amendment to our credit agreement. The principle changes of the amendment included an extension of the maturity date of our loans from December 18, 2023 to November 17, 2027. We have also reset certain advanced rates for the borrowing base. As covered in today’s press release, we’re providing our initial guidance for fiscal 2023, which incorporates both the elements of our long-term strategy and current expectations for the 2023 supply chain and grocery environment.

Overall, we expect the strong results from this past year to continue into 2023 with net sales expected to increase from fiscal 2022 within a range of $9.9 to $10.2 billion. In wholesale, we expect sales to grow between 4% and 7% inclusive of net sales from Great Lakes Foods. We’re projecting the trends in our independent customer base will be similar to that of our corporate retail segment. We’d also expect to see growth within other areas of our portfolio. In retail we believe sales will continue to increase, resulting and an expected comparable sales growth range of 2% to 5%. Our guidance includes an anticipated increase in our profitability over the prior year. We expect fiscal 2023 adjusted EBITDA to be in the range of $248 million to $263 million compared to 2022s adjusted EBITDA of $243 million.

Interest expense is expected to continue to increase significantly in fiscal 2023. And our expectations for the higher rate environment are fully incorporated into our results. We currently anticipate interest expense to range from $37 million to $42 million this year. Our fiscal 2023 guidance reflects total planned capital expenditures in the range of $130 million to $145 million for the fiscal year, which includes investments in both our core operations as well as our growth initiatives. We also wanted to give you some color on our expectations when looking at the cadence of our adjusted EBITDA throughout the year. In addition to our continued commitment to investing in our business to support future growth, we will be lapping a few notable impacts from Q1 of last year.

During the first quarter of 2023 we will cycle significant inflation-related price change benefits, also known as forward buy of nearly $10 million. In addition, we will also be cycling $4 million in retail wage investments that were implemented at the end of first quarter last year. We expect that our supply chain and merchandising transformation initiatives will offset some, but not all of these headwinds in the first quarter of 2023. We anticipate we will begin realizing benefits from our merchandising transformation in late Q1. These benefits along with continued cost savings from our supply chain transformation give us confidence that we will reach our adjusted EBITDA range this year and remain solidly on the path to achieving our long-term targets.

Looking ahead, we remain focused on our mission to deliver the ingredients for a better life. Despite uncertainties in the broader market, we’ve built a strong foundation and continue to execute on Our Winning Recipe. The actions were taken through our supply chain transformation, merchandising transformation, and other key initiatives are positioning us to effectively manage through this volatility. We look forward to building on our momentum in 2023 and beyond to further drive results and grow sustainable shareholder value. And now I’d like to turn the call back over to Tony.

Tony Sarsam: Thank you, Jason. In addition to reporting earnings today, we’re also wrapping up a successful virtual customer expo. We look forward to seeing our customers and vendors during our upcoming in-person expo this summer in Grand Rapids. And this year, we’re inviting our sell side analysts to the event. Here, we can provide your teams with more details. Before we open the call to questions, I want to take a moment to recognize an impactful cultural shift. As the people first company, we prioritize our associates safety. Our recent access remote safety include more accountability, and executive level review of all lot and additional safety training. We want each associates to return home safely to their loved ones every day.

I’m proud to report that the investments we have made in this critical initiatives have decreased our lost time incidents by 72%, since 2020. Associate safety will continue to be a main area of focus and we have plans to roll out more additions in 2023. I want to take one more opportunity to thank our associates with in and execute with operational excellence. As part of our people first culture, we believe in meaningful recognition for their hard work. Over the past two years, we have implemented programs that recognize our associates and their achievement. Again, thank you to all of our associates and congratulations for an outstanding year. With that, I’d like to turn the call back over to the operator and open up for your questions.

Q&A Session

Operator: . And our first question comes from Spencer Hanus from Wolfe Research. Your line is open.

Spencer Hanus: Good morning. Thanks for taking the question. Really helpful disclosure on the unit performance during the quarter, but can you talk about how that trended versus 3Q results. And then as we looked at 2023, how are you thinking about the contribution from both units, and then also inflation?

Jason Monaco: Hey, Spencer. Good morning. This is Jason. Thanks for joining and for the question. Thinking about unit volumes themselves and the trends, in the last couple of quarters we’ve seen similar trends in unit volumes in the business. But when I think about the go-forward, and you maybe pick this up a little bit in the cadence commentary in the earlier remarks. Yes, we’re coming off of a record Q1 last year that Q1 included some of the kind of continued COVID bump from last year, as well as significant price change and inventory related benefits or oftentimes what we call forward buy. So we’re projecting that we — that our Q1 will be down kind of high single-digits from an EBITDA standpoint. And that’s really reflective of the broader environment coming off of a record year and frankly, some of the uncertainty in the market.

At the same time, we feel really good about our long-term plans. We feel good about where we’re headed this year and this year is a great stepping stone as we talked about in our Investor Day towards that $300 million EBITDA growth.

Spencer Hanus: Okay. So do you expect units to be down next year and then most of the growth could be driven by inflation or just how are you thinking about sort of those things next year?

Jason Monaco: Yes, in 2023, our guidance reflects continued inflation albeit moderating through the year and continued weakness in unit volume. Importantly, our unit volume has outperformed the market, and we’ve grown share in that space. Throughout the year we’ve had some nice share performance and we expect that similar trend of slightly down volumes and stronger revenues to continue to play out. However, at the same time, when you think about the consumer and consumer sentiment, we see this as an uncertain time, and we want to plan accordingly.

SpencerHanus: Yes, got it. And then just one more on the long-term guide. You raised the top line by about 5%, but you reiterated the EBITDA target. So just curious sort of what led to that decision around EBITDA and reiteration there? Thanks.

Jason Monaco: Sure. Great question. So on the top line, we want to be respectful that inflation has frankly played a role in the revenue profile and that we’re still committed to driving organic growth in the business. We took the range of revenue up as a result of that. And as a result of our successes thus far and our expectations for growth going forward. When you think about the margin profile or the EBITDA piece, what we’ve seen is really strong margin per unit increases but not necessarily margin percent increases because the nature of this business doesn’t necessarily show or doesn’t necessarily drive margin percent in a highly inflationary environment. So we continue to drive dollar growth, which we think creates long-term shareholder value and performance for our investors.

Operator: Our next question comes from Andrew Wolf of C.L. King. Your line is open.

Andrew Wolf: Hi, good morning. Congratulations on ending such a year so solidly. So I wanted to ask about the acquisition of Great Lakes Foods. I might have missed this, but I’m trying to get a sense of the sales contribution, sort of if I did a pro rata based on the 100 customers they have versus the wholesale ex-militaries, somewhat over 2,000 customers. And I thought the sales were about the same would be something over $200 million. Is that roughly close to the contribution or did you actually have an 8-K filing or something that I maybe missed?

Tony Sarsam: Yes, it’s wee bit high. This is Tony. So we picked up that business in the Upper Peninsula and sort of Eastern Wisconsin. Great business for us, great folks overall, roughly 100 customers and roughly kind of $90 million to $100 million. So they’re going to be smaller customers on average versus kind of the broader portfolio.

Andrew Wolf: Got it, okay. Great, thank you. Very helpful. Similar on the — if I took out military from the case count, just on the traditional nonmilitary business, mainly independent supermarkets, it seems that would obviously be down somewhat more, is it more close to what the market — sort of the grocery market at large is down sort of low to mid or mid-single digits in cases?

Tony Sarsam: Yes, ex-military channel, unit volumes are down kind of mid-single digits in the — in that space. Our military business, I’d be remiss if I didn’t highlight, continues to perform very well. We delivered single-digit, mid-single-digit growth, unit volume growth in that business. That’s coming off of mid-single-digit growth in the prior-quarter and low-single-digit in the second quarter. We’ve seen a really nice momentum change there as we’ve turned the business around, but also really focused on getting the right solutions for patrons, working together with DeCA and ensuring that those solutions are in place to drive performance. So we’re really pleased with the trajectory there and really energized to continue to serve our veterans, active-duty military and all of our patrons.

Andrew Wolf: Got it. If I could ask maybe one or two more on Labor inflation was trending up for you last quarter at least, and I’m sure it’s still up. Do you have a sense of — do you have a — like how are you feeling about normalization in wage rates in particular. Is there some normalization on the horizon or is it sort of too soon to call that?

Tony Sarsam: Yes. I think — I don’t think it’s too soon to call some normal. This is Tony again. So we’re seeing a better applicant flow right now based on the wage actions in ’21 and ’22. Our turnover rate is still not where we’d like it to be, but stabilizing is getting better. We actually hit our glide path of our turnover goals for most of the second half of last year. So we see good positive trends there. And I think there’s going to be some spot adjustments we’ll have to make where there’s some more difficult — still some more difficult hotspots like drivers, for example. But I see it moderating this year and coming back maybe closer to what we would have seen in the three, four year-ago time frame.

Andrew Wolf: Thank you very much. I’ll get back in the queue.

Tony Sarsam: Thank you.

Operator: Our next question comes from Kelly Bania of BMO Capital Markets. Your line is open.

Benjamin Wood: Hi, good morning. This is Ben Wood on for Kelly. Thank you for taking our questions. First, can you just walk us through any consumer behavior you’re seeing in your stores or hearing from customers, and any incremental trading down or increase in private label penetration or share shifts that may have happened over the quarter? And then kind of related on the supplier side of that is any new learnings from the merchandise initiative, do price increases appear to be abating, any insights there would be helpful.

Tony Sarsam: Great. This is Tony. I’ll take a crack at that. So a couple of things. So for the quarter, we had — overall basket size is up about 8.5%. It was in dollars, a little better than it was the previous couple of quarters. We saw our traffic continue to be better than a year-ago, about 1.5% for the quarter. And items that were also just a wee bit better than they were in Q2 and Q3. So the overall, trips are of, units are down, of course, as Jason mentioned a moment ago. And overall, people are looking for that mix and value that I talked about in our last earnings call where you see a lot of folks are looking for getting a great deal or getting great cost on like items. And then once in a while splurging on something unique.

So I’ll give you a couple of examples. So we’re seeing — still seeing a movement in the meat, for example, to more grind and chicken, which is sort of expected. So our pounds are strong, but the overall the cost per pound, people are looking for ways to get to reasonable deals on protein. And so we saw more growth on hamburger and chicken during the quarter again. We’re also seeing really strong growth on our own brands. Our own brands had a great quarter, overall, grew by 18.5%. Penetration of our own brands is up. It was up for the year and up in the quarter. That growth rate is about roughly 2.5x the growth rate of the national brands. So we see people who are finding own brands as a solid replacement, a good quality product at a lower price.

And we saw that in every quarter of last year, and it was particularly strong in the fourth quarter.

Benjamin Wood: And I think

Tony Sarsam: The second question about the suppliers also, I’ll address that quickly. So we saw an — obviously an extraordinary amount of pricing all throughout 2022. That wasn’t any different, as matter of it was the strongest in the fourth quarter. We are — I would say we’re seeing a reduction in the price request as we finished up the year. But still it was still significantly higher than what we would have seen maybe two, three years ago. So while the pricing requests and the absolute pricing isn’t at its peak level, it’s still higher than we prefer. The reason why as we talked in the last call about this merchandising transformation and really holding our suppliers accountable for, they obviously have a right to take pricing.

We want to make sure that the — that we’re protective of our customers and our shoppers at the same time. And we’re not seeing extraordinary pricing that may be out of line or justified versus the cost inputs that they’re seeing. And we’re looking for partnerships that can allow us to win with those suppliers and win for our customers. And we’re getting really, really good response overall. So I think we’re finding folks who want to win and want to look for opportunities to provide more deals and sort of stabilize the really extraordinary inflation that our shoppers and customers have seen in the last year or so.

Jason Monaco: Yes. And collectively — this is Jason. Collectively, I think it’s — we can’t reinforce enough the momentum that we’re building in our own brand portfolio, and Tony alluded to this before earlier in the comments. In the quarter, our sales and our own brand and our retail operations were more than double the growth that we saw across all of our retail business, and that included not just dollars but unit growth. So we feel like we’re bringing a terrific offering, bringing it to consumers and meeting them where they are with respect to their pocketbooks, providing the right value and ensuring that we build as much stickiness as possible so they continue shopping our stores.

Benjamin Wood: Great, thank you. And then just one question longer-term. You guys called out in your Analyst Day and your long-term targets, kind of looking at a $250 million to $100 — or $125 million to $150 million in supply chain and merchandising transformation initiative benefits. And then you did — it sounds like you did 25 this year. Are there any explicit targets you have for the year ahead or how do we think about the breakdown of that remaining supply chain and merchandise transformation initiative benefits in the long-term guide?

Jason Monaco: Yes, Ben, we’re — we continue to progress both the supply chain and merchandising transformation work. They’re both tracking consistent with our plan that we shared at the Investor Day, and we expect the merchandising transformation begin driving performance here by the end of the first quarter, and we expect continued momentum and additional savings in the — in supply chain. Both of those — both of those are in this year’s guidance and reflective of the long-term plan. And you mentioned the supply chain performance thus far. We exited the year with $25 million plus of performance on that. We expect that to be a strong base to next year or to this year’s plan.

Benjamin Wood: Great, thank you.

Operator: . And our next question comes from Chuck Cerankosky of Northcoast Research. Your line is open.

Chuck Cerankosky: Good morning everyone. Can you comment, please, on the store remodeling objectives? I think you said 25% of the store base by 2025. What are sort of the priorities there, are there any geographic areas or banners that especially need like renovation. And how much of this is going to be a significant remodeling versus just to paint the stores sort of thing and what level of relocations might be involved in that, please?

Tony Sarsam: Okay, great. Great question, Chuck. This is Tony. A couple of — a couple of points. So as far as the relocation right at the moment, we don’t have any relocations that are planned in that mix. So — and the remodels will be — it won’t be — there’ll be — won’t be just paint the store type of stuff. We would — we do some of that, but those are sort of low-end sort of maintenance type of remodels or just kind of housekeeping. So these would be more substantial than just the simple refresh. But they’ll run the gamut. We know some of them will be — some of them will be in the high hundreds of thousands of dollars, some of will be multimillion-dollar remodels as well. So it depends on the needs of the store and as we assess what the value of that remodel can be that will run the gamut.

So we have — we did a handful of B&W’s here in the Grand Rapids area this past year. And the performance has been really strong. So we had — the four remodels you did here are growing at about twice the rate of the balance of our stores in the summer markets, so about 17% plus growth in those stores. We’re seeing a good return in terms of the customers embrace of what we’ve done with the remodel, which is a little bit of a hint about where we’re going to be focused probably a little bit more on the upmarket stores early on. So there’s — those are higher-volume stores and greater opportunity for return from those stores. But we also see that we have a need to make sure that all of our stores stay current and relevant with the shopper base.

So by 2025, we do quarter of the stores, we’ll keep marching after that. We want to make sure we have a predictable cadence of remodels that allow us to present the shopper what they want, they need as those needs change. So you’ll see more of them even after 2025.

Jason Monaco: Yes, and Chuck, I’d add to that, in addition to the major remodels, we’re doing — and we talked about this at the Investor Day, we’re going through banner consolidations. And included in those banner consolidations are not simply a change of the name on the front of the store or just some paint on the walls, but we’re reintroducing loyalty programs, doing the 360 marketing program at those stores and reinvigorating the surrounding markets around those locales. So I think for us, it’s not just reconstruct the store for the sake of doing it or just simply putting a new badge on it but ensuring that we’ve got the right brand promise to our shoppers and our consumers. And then we bring that brand and that brand promise to those consumers through loyalty and other means. And you’ll also see those as part of the capital plan and even in 2023.

Chuck Cerankosky: Thank you.

Jason Monaco: Thanks, Chuck.

Operator: Our next question comes from Krisztina Katai from Deutsche Bank. Your line is open.

Jessica Taylor: Good morning. This is Jessica Taylor on for Krisztina. Thanks for taking our question. Just wanted to ask about your fill rates and whether they’re at a level that you would have seen pre-pandemic or a place where you’re happy with them. And to follow along with that, are you seeing that like the promotional environment remains rational or are you seeing that there’s a pickup in promotion, are you able to pick up promotion based on better fill rates? Thank you.

Tony Sarsam: Yes, great question. So a couple of things. So the fill rates are nowhere near what they were pre-pandemic. They are much better than they were last year, but to give you some perspective. As we finished up 2021, for example, and into the early 2022, we were seeing fill rates in the high 50s, 55%, 56%, 57%. We’re now seeing fill rates that are in the low 70s. And they are — and by the way, those fill rates from a year-ago were the lowest fill rates we had in the pandemic area, lower than they were when people got the original shocks right after the shutdown. So they can — they spent between the Spring of 2020 and the early part of 2022, the fill rates from food suppliers continue to go down. They picked up — they picked up in the back half of the year.

We had — Q4 was a pretty big improvement over the previous Q4. And so we’re now — as I mentioned earlier, we’re sort of in the low to mid-70% fill rates, but those fill rates would have been in the mid-90s pre-pandemic, like the week before the pandemic. And so we’re seeing — we are seeing more reliability. We’re seeing some food suppliers are still really struggling and then dragging the number down. But the overall, we’re seeing improvement there. My — what we believe and the work we’re doing right now with the combination of the merger transformation, and then as folks see the realities of the limits to which they can continue to take pricing, that the next adventure for the food — the broader community is going to be how do we get back on track and how do we get back and for the CPG companies, how do you go back and growing share.

So our belief is that we’re seeing some early signs of that now, and we’re seeing that they are opening up and running longer, doing the changeovers required to make sure they can meet supply needs that we have and our shoppers expect. And I think we’ll see this year a very significant improvement on fill rates as the — as that CPG community decided to go chase share again. And it will come with — I believe it will come with more promotions too, and those are some of the discussions we’re having with folks right now.

Jessica Taylor: Thank you.

Jason Monaco: Maybe pivoting to promotional landscape, just to kind of close out that piece. Overall, on the — kind of on the year, we saw promotional product count pick up early in the fourth quarter, but then it eased by the end of the quarter. So I’m not sure there’s a whole lot to read into that yet. More kind of — if you kind of take a look at the whole year, the number of products that were promoted was more limited and not surprisingly, given the comments Tony described with respect to the supply chain, so more — kind of more focused promotional products. And when we think about the environment itself and how we participated and played, SpartanNash has aligned from the standpoint of frequency and depth with our primary competitors, and we continue to do so.

Jessica Taylor: Thank you.

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: All right. Well, thank you, and thank you all for your participation in today’s call. We look forward to updating you on our continued progress throughout the year. And with that, from our family to yours, we’d like to wish you all a very pleasant good morning.

Operator: That concludes today’s conference call. Thank you for joining and have a pleasant day.