January 2012 - SPTN | Spartan Stores News - Investors Relations ...

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January 2012 - SPTN | Spartan Stores News - Investors Relations ...

January 2012


FORWARD LOOKING STATEMENTS

This presentation contains forward-looking statements. These forward-looking statements are subject to

a number of factors that could cause actual results to differ materially. Forward looking statements,

which are based on management’s beliefs and assumptions and describe the company’s future plans,

strategies and expectations, are generally identifiable by the use of terms such as “continued,”

“initiative,” “planned,” “poised,” “positioned,” “potential,” “strategy,” “will,” or similar expressions.

The company’s ability to successfully implement and realize the expected benefits of strategic initiatives

and investments is not assured. Additional information about the factors that may adversely affect these

forward-looking statements is contained in Spartan Stores’ reports and filings with the Securities and

Exchange Commission. Other risk factors exist and new risk factors may emerge at any time. Given

these risks and uncertainties, investors should not place undue reliance on forward-looking statements as

predictions of future results. Spartan Stores undertakes no obligation to update or revise any forwardlooking

statements to reflect developments or information obtained after the date of this presentation.

2


WHO WE ARE


COMPANY HIGHLIGHTS

Consumer-centric Retailer and Distributor

• #

1 regional supermarket chain and distributor in Michigan

• #

1 or # 2 market share in core markets

• Experienced management team that averages 30 years of retail/distribution experience

Strong Financial Position Leaves Company Poised for Growth

• FY 2011 revenues of $2.5 billion and FY 2011 Adjusted EBITDA of $104 million – second highest

amount in company history (1)

o $130 million available under revolving credit facility

o Low leverage with a net debt to Adjusted EBITDA ratio of 1.1x

(1), (2)

Return of Capital to Shareholders

• Free cash flow yield of 13.2% (3)

• Dividend yield of 1.5% (as of most recent dividend record date)

• May 2011: Announced 30% increase in the quarterly dividend rate and five year share repurchase

program for up to $50 million

Company is Well Positioned to Take Advantage of Improving Economy

(1) Please see Adjusted EBITDA note on page 27

(2) Please see Net Debt and Capital Lease Obligations note on Page 28

(3) Please see Free Cash Flow Yield definition at bottom of Page 24

4


DISTRIBUTION SEGMENT

FY 2011

Segment Revenues

Positioned as a Value Added Supplier

• Full service distributor of choice

Strong Position in Michigan with

a Growing Presence in Northern Indiana

Grand Rapids, MI Facility

• 1.4 million sq ft

• Supplies 375 independent locations

5


RETAIL SEGMENT

FY 2011

Segment Revenues

Distributio

n

43%

Retail

57%

Differentiated Alternative to Supercenters and

Other Low Cost Competitors

Go to market strategy:

- Convenient well maintained locations

- Emphasis on fresh and local products

- Highly promotional

- Easy to shop and relevant to current trends

Fuel centers on pad in 27 locations

Pharmacies in 66 locations

Wellness focus with nutritional labeling

97 Retail Supermarkets

- Average size of 42,000 sq ft

- Average sales of $14MM per year

6


FAMILY FARE/GLEN’S EXPERIENCE

Focus on Value

7


FAMILY FARE/GLEN’S EXPERIENCE

In-store Pharmacies

Designed for Convenience

Promotional End-caps

Full Assortment of Perishables

8


D&W FRESH MARKET EXPERIENCE

Extensive Produce Selection

9


D&W FRESH MARKET EXPERIENCE

Starbucks Coffee Shops

Wide Assortment of Fresh Prepared Foods

Premier Wine Selection

Destination for Seafood

10


STRATEGIC INITIATIVES


DISTRIBUTION STRATEGIC INITIATIVES

• Actively seeking to increase

wholesale accounts in contiguous

areas

• Potential acquisition of distribution

business

• Continued focus on increasing

private brand penetration and

overall purchase concentration

• IT initiatives

- Delivery tracking system

- Hand-held scanner upgrade for

distribution customers

12


DISTRIBUTION STRATEGIC INITIATIVES

Distribution

Purchase Concentration

100%

Customer Retail Sales

50

Retail Margin,

DSD and Other

Purchases

45%

Opportunity 15%

Spartan

Penetration

40%

Potential Volume > $100 million

• Fresh Foods Initiatives

• Private Brand Offerings

• Natural/Organic/Specialty Foods

• Category Management

Retail Margin,

DSD and Other

Purchases

45%

Spartan

Penetration

55%

0

Current

• Value Added Retail Services

Target

13


RETAIL STRATEGIC INITIATIVES

Driving Value Through Expanding Consumer Relationships

Loyalty Card

• Innovative points based system designed to reward most

loyal customers

• Expansion of loyalty card program

o Increased targeting and more impactful promotions

– Free poinsettia was provided to best customers at check out

o Rolled out to Family Fare and D&W banners in September 2011

• Loyalty card program activity provides unique insight into

our customer base

o Distributing 450,000 e-mails per week

o 845,000 cards active in last 26 weeks

o Over 80% of supermarket transactions on loyalty card

o Over 90% of supermarket sales $’s on loyalty card

14


RETAIL STRATEGIC INITIATIVES

Driving Value Through Expanding Consumer Relationships

Loyalty Card (continued)

• Customers are Earning and Redeeming their Points

o Free eggs with 100 points

o Free 2 liter of pop with 100 points

o Free holiday ham with points

15


RETAIL STRATEGIC INITIATIVES

Driving Value Through Expanding Consumer Relationships

Increasing Convenience – Pharmacy and Fuel Offerings

• Best pharmacy program in market

o $4/$10 Generics Program

o Free Medications

• Solid pharmacy growth

o FY 2011 comp script count growth of 1.2%

o FY 2012 Q2 YTD comp script count growth of 2.6%

16 16


RETAIL STRATEGIC INITIATIVES

Driving Value Through Expanding Consumer Relationships

Increasing Convenience – Pharmacy and Fuel Offerings (continued)

• Quick Stop Fuel/Convenience Centers

o Leveraging fuel rewards

o 55 supermarkets have a Quick Stop within

reasonable proximity

o Additional coverage from the recently

expanded Speedway partnership

- 30 supermarkets have a Speedway

within reasonable proximity

• Technology Investment

• Promotional programs

o

Fuel discounts tied to in-store purchases

- Everyday discount of $.05 per gallon

- Hot promotions of up to $.50 per gallon

17


RETAIL STRATEGIC INITIATIVES

• Acquisition of Retail Stores

o March 2006: D&W Fresh Market = Increased Spartan’s annual sales by $200 million

o June 2007: Felpausch = Increased consolidated sales by $100 million on an

annualized basis

o December 2008: VG’s = Increased consolidated sales by $140 million on an

annualized basis

o Further roll up opportunities exist

18


RETAIL STRATEGIC INITIATIVES

Capital Plan: Investment in the Business

Recent activity includes:

• 16 major remodels completed in FY 2009 – FY 2011

• 4 store new/relocations completed in FY 2009 – FY 2011

• 9 new Fuel Centers completed in FY 2009 – FY 2011

FY 2012 includes:

• 8 major remodels

• 2 new fuel centers

FY 2013 and FY 2014 activity to include:

• 10-13 major remodels

• 2 new/replacement stores

• 4-6 new fuel centers

19


FINANCIAL HIGHLIGHTS


CONSOLIDATED NET SALES

Stable sales, despite a 34% increase in MI supercenters and doubling of the

unemployment rate

(In Millions)

Sales

MI Supercenter Count

$3,000.0

200

$2,500.0

$2,000.0

$2,206

$2,477

$2,577 $2,552 $2,533

175

150

$1,500.0

125

$1,000.0

$1,179 $1,222

100

$500.0

$0.0

R $968

D $1,238

R $1,193

D $1,284

R $1,328

D $1,249

R $1,461

D $1,091

R $1,443

D $1,090

R $685

D $494

FY07 FY08 FY09 FY10 FY11 Q2 YTD

FY11

R $709

D $513

Q2 YTD

FY12

75

50

(1)

FY08 and FY09 sales do not include a full year of Felpausch or VG’s respectively.

(2) Pharm operations have been eliminated from all periods presented.

21


COMPARABLE STORE SALES

Supermarkets (without Fuel Centers)

SPTN Peer Avg MI Unemployment Rate

20.0%

15.0%

10.0%

5.0%

0.0%

-5.0%

-10.0%

Q3

FY07

Q4

FY07

Q1

FY08

Q2

FY08

Q3

FY08

Q4

FY08

Q1

FY09

Q2

FY09

Q3

FY09

Q4

FY09

Q1

FY10

Q2

FY10

Q3

FY10

Q4

FY10

Q1

FY11

Q2

FY11

Q3

FY11

Q4

FY11

Q1

FY12

Q2

FY12

*Q4 FY07 excluding impact of 53 rd week.

Q4 FY08, Q4 FY09, Q1 FY09 and Q1 FY10 adjusted for Easter shift.

Peer Avg. includes latest quarters of comp store sales or ID sales as released by Kroger, Nash Finch, Safeway, Supervalu and Winn Dixie.

22


ADJUSTED EBITDA AND CAPITAL EXPENDITURES

$120

(In Millions)

$100

$108

$103

$104

$80

$77

$92

$60

$40

$40

$57

$50

$53

$56

$20

$0

R $38

D $39

$27

R $44

D $48

R $52

D $56

R $48

D $55

R $48

D $56

FY07 FY08 FY09 FY10 FY11 Q2 YTD

FY11

$33

R $30

D $23

$15

R $33

D $23

$21

Q2 YTD

FY12

Adjusted EBITDA

Capital Expenditures

Note: Adjusted EBITDA is a non-GAAP financial measure, please see Adjusted EBITDA note on page 27.

(1)

Full Year FY07 Adjusted EBITDA includes a $3.1MM EBITDA benefit from the 53 rd week.

(2) Pharm operations have been eliminated from all periods presented.

23


STRONG METRICS

Relative to Peers

SPTN KR NAFC SWY SVU WINN

(Spartan) Peer Avg (Kroger) (Nash Finch) (Safeway) (Supervalu) (Winn Dixie)

Retail Sales as a % of Total Sales 57% 77% 100% 10% 100% 77% 100%

Net Debt/Capital 26% 58% 53% 44% 52% 81% negative

Total Net Debt to Adjusted EBITDA (1), (2), (3) 1.1x 2.2x 1.3x 2.5x 1.7x 3.1x negative

ROIC (4) 6.6% 6.4% 10.5% 8.0% 6.5% 6.3% 0.8%

Free Cash Flow Yield (5) 13.2% 15.4% 10.0% 11.9% 12.3% 27.6% 15.0%

R $38

D $39

R $44

D $48

R $52

D $56

R $48

D $55

R $48

D $56

Notes:

Reflects SPTN as of 2 nd Qtr ended 9/10/11, KR as of 2 nd Qtr ended 8/13/11, NAFC as of 3 rd Qtr ended 10/8/11, SWY as of 3 rd Qtr ended 9/10/11,

SVU as of 2 nd Qtr ended 9/10/11, and WINN as of 1 st Qtr ended 9/2111.

(1) Adjusted EBITDA reflects rolling 12 months (13 periods) of Adjusted EBITDA.

(2) Please see Adjusted EBITDA note on page 27.

(3) Net Debt represents long-term debt and capital lease obligations plus current maturities of long-term debt less cash and cash equivalents.

Please see Net Debt and Capital Lease Obligations note on page 28.

(4) ROIC excludes the asset impairment charge for Kroger, Nash Finch, Safeway, Spartan, Supervalu and Winn Dixie.

(5) Free Cash Flow Yield represents TTM Net Cash Provided by Operating Activities Less Purchases of Property and

Equipment divided by Shares Outstanding divided by share price as of most recent publicly reported period end date.

R $30

D $23

R $33

D $23

24


SUMMARY

Data Suggests Michigan’s Economy has Stabilized

Financial strength and strategic positioning will enable Spartan to pursue strategic growth

and take advantage of economic recovery when it occurs

Distribution:

• Seek to increase our wholesale accounts in contiguous areas

• Evaluate acquisition of distribution business in contiguous areas

• Increase sales penetration

Retail:

• Pursue acquisition of retail stores in contiguous markets

• Open new, fill-in and replacement supermarkets and add new fuel centers

• Make major upgrades to select existing stores

• Continue to tailor offerings and promotional programs to changing consumer preferences

25


Appendix


ADJUSTED EBITDA NOTE (000)

Fiscal Year Ending

24 Weeks Ending

3/31/07 3/29/08 3/28/09 3/27/10 3/26/11 9/11/10 9/10/11

Consolidated:

Net earnings 25,160 32,646 36,871 25,558 32,307 17,226 16,281

Plus:

Discontinued operations (992) (1,795) (1,838) 375 232 194 124

Income taxes 13,013 17,216 23,914 16,475 20,420 11,137 11,030

Non-operating expense 11,485 13,555 13,797 16,256 15,007 6,879 6,542

Operating earnings 48,666 61,622 72,744 58,664 67,966 35,436 33,977

Plus:

Depreciation and amortization 20,446 23,781 28,133 34,640 35,158 15,906 16,775

LIFO expense (income) 311 2,578 2,531 (176) (4,185) (3,208) 1,527

Provision for asset impairments and exit costs 4,464 0 0 6,154 532 2,765 (135)

Other unusual items 0 0 0 0 0 0 1,194

Non-cash stock compensation & other charges 3,278 3,993 4,495 3,996 4,793 2,123 2,360

Adjusted EBITDA 77,165 91,974 107,903 103,278 104,264 53,022 55,698

Note: Consolidated Adjusted EBITDA is a non-GAAP operating financial measure that we define as net earnings from continuing operations plus depreciation and

amortization, and other non-cash items including imputed interest, deferred (stock) compensation, the LIFO provision, as well as adjustments for unusual items that do

not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations, interest expense and the provision for income

taxes to the extent deducted in the computation of Net Earnings.

We believe that Adjusted EBITDA provides a meaningful representation of our operating performance for the Company as a whole and for our operating segments. We

consider Adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating

performance of all of our retail stores and wholesale operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in

nature, and also excludes the contributions of activities classified as discontinued operations. Because Adjusted EBITDA is a performance measure that management

uses to allocate resources, assess performance against its peers and evaluate overall performance, we believe it provides useful information for our investors. In addition,

securities analysts, fund managers and other shareholders and stakeholders that communicate with us request our operating financial results in Adjusted EBITDA

format.

Adjusted EBITDA 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. Our definition of Adjusted EBITDA may not be identical

to similarly titled measures reported by other companies.

(1) 53 weeks ended March 31, 2007 Adjusted EBITDA includes a $3.1MM EBITDA benefit from the 53 rd wk of Fiscal 2007.

(2) Pharm results have been removed from all periods presented.

27


NET DEBT AND CAPITAL LEASE OBLIGATIONS NOTE (000)

Spartan Stores, Inc and Subsidiaries

Reconciliation of Total Debt and Capital Lease Obligations to Net Debt

and Capital Lease Obligations (A Non-GAAP Financial Measure)

3/26/11 9/11/10 9/10/11

Current maturities of long-term debt and capital lease obligations $ 4,205 $ 4,167 $ 4,249

Long-term debt and capital lease obligations 170,711 170,188 173,282

Total debt and capital lease obligations 174,916 174,355 177,531

Cash and cash equivalents (43,824) (25,124) (62,080)

Net debt and capital lease obligations $ 131,092 $ 149,231 $ 115,451

Note: Net debt and capital lease obligations is a non-GAAP financial measure that is defined as current maturities of long-term debt and capital lease

obligations plus long-term debt and capital lease obligations less cash and cash equivalents. The Company believes 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.

28

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