Title

Presentation

SpartanNash Company beats earnings expectations. Reported EPS is $0.65, expectations were $0.63.

Operator: Welcome to the SpartanNash Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a 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 second quarter 2023 earnings conference call. On the call today from the Company are President and Chief Executive Officer, Tony Sarsam, and Executive Vice President and Chief Financial Officer, Jason Monaco. By now, everyone should have access to the earnings release, which was issued this morning at approximately 7:00 a.m. Eastern Time. For a copy of the earnings release as well as the Company’s supplemental earnings presentation, please visit SpartanNash’s website 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. If you will refer to SpartanNash’s earnings release from this morning, as well as the Company’s most recent SEC filings, you will see a discussion of factors that could cause the Company’s actual results to differ materially from these forward-looking statements. Please remember that all forward-looking statements made today reflect our current expectations only, and SpartanNash undertakes no obligation to update or revise these forward-looking statements. The Company will also make a number of references to non-GAAP financial measures. The Company believes these measures provide investors with useful perspective on the underlying growth trends of the business and it has included in the earnings release a full reconciliation of certain non-GAAP financial measures to the most comparable GAAP measures, which can be found on SpartanNash’s website at 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. First, I want to thank our independent grocery customers, suppliers and analysts who recently attended our largest ever Food Solutions Expo. More than 2,000 industry folks gathered for three days of networking, educational sessions, model store tours and auctions. Attendees got to sample our new fresh and finest upscale private label offerings. They saw a demonstration of our autonomous in-stock scanning robot powered by Simbe Robotics. And we instituted a new awards program for our top suppliers. Those 10 companies were presented with a SpartanNash Impact Award for the ways they partnered with us to create a terrific customer and shopper experience. We also celebrated our fastest-growing customers, and our customers who are going above and beyond to give back to their communities.

And we did so with our new Vision Awards program. Our vision of seeing a day when our customers say, “I can’t live without them”, really came to life at the expo. Speaking of customers, you may have seen in our earnings release this morning that we are refreshing our go-to-market strategy. This plan builds on our signature strength of being the most customer-focused, innovative food solutions company. Along with providing our customers with enhanced service, the plan is expected to contribute $20 million in run rate cost savings, starting later this year. I will get into the specifics of this program in a few minutes. Right now, I want to highlight the progress we are making on our strategic plan, which demonstrates our strong turnaround story.

We are energized about how the plan incorporates long-term value creation through our transformational initiatives and related margin expansion opportunities. These initiatives, our supply chain transformation, merchandising transformation and marketing innovation continue to gain momentum. In fact, we expect to realize more than 50% of the total gross benefits from our transformational initiatives by the end of this year. This progress gives us confidence in achieving our long-term target of more than 40% increase in adjusted EBITDA to over $300 million by fiscal 2025. Turning to the current year. I’m very proud of our team for delivering solid results in the first half of 2023. Jason will provide details on our full year guidance later. And I am proud to say that today we reiterated our bottom line expectations.

Now let’s pivot to highlights from our second quarter. Compared to prior year quarter, our net sales increased 1.7% to $2.31 billion, and our retail comparable sales remained strong with a 3.9% increase. We also improved our throughput rate by 3% since last quarter. And most notably, we increased our adjusted EBITDA by 7% to $66.1 million. Another highlight from the quarter relates to our retail banner consolidation work. As we announced last month, we consolidated three brands representing 8% of our store base. These stores were remodeled and rebannered as Family Fare, our flagship retail banner. Shoppers are embracing the enhanced store experience and new loyalty program. Our investments are accelerating growth and delivering bottom line benefits.

Overall, our rebanners and remodels continue to drive double-digit sales growth. And although a small sample of our total, the upmarket stores that were remodeled last year continue to experience an average sales lift of 17% year-over-year. Banner consolidation is part of our long-term strategic plan, which leverages the strength and equity of our brands for growth and operational efficiency. As part of the plan, we remain on target to remodel or refresh 25% of our stores. So, overall for the quarter, we were able to maintain profitability despite the macro pressures that our entire industry is experiencing. We credit this success, the transformational initiatives that our team continues to aggressively execute upon. In an environment like this, we are determined to provide solutions for our Wholesale customers and Retail shoppers.

And as I mentioned earlier, we announced changes to our go-to-market strategy. Our team has deliberately developed this plan, which improves both the efficiency and effectiveness of our organization. Our new go-to-market strategy involves: One, realigning all associates who have contact with customers into the sales function, and providing all customers with a single point of contact, so their support and service is highly coordinated; Two, focusing on operational excellence in our stores by expanding on training and brand standard; Three, executing on the value-added service we provide to our independent grocery customers to help them grow; and Four, completing integrations from prior M&A activities and setting up an organizational structure that enables easier integrations for the future.

These changes will help us to realize our signature strength to be the most customer-focused, innovative, food solutions company. We have the right strategy, teams and capabilities to execute on our long-term plan, and we are in a prime position to grow. I mean, I’ll turn things over to our CFO, Jason Monaco to share more details about our financials.

Jason Monaco: Thanks, Tony, and welcome to everyone joining us on today’s call. We are extremely pleased with the progress we are making. I want to highlight some of our key successes before jumping into the detailed results. One, our second quarter adjusted EBITDA increased 7% to $66.1 million from $61.8 million last year. Two, our reported net earnings were $19.5 million, an increase of 3.8 times compared to net earnings of $5.1 million in Q2 of last year. Three, we significantly improved operating leverage as a percentage of sales. Our reported operating expenses decreased 135 basis points. And four, our liquidity remains strong, giving us flexibility to support our strategic long-term plan, including both organic and inorganic investments.

Our plan is working. We are growing market share and we are driving results with years of growth ahead. Now, let’s jump into the quarterly results. Net sales for the second quarter increased $39 million or 1.7% to $2.31 billion, compared to 2022 second quarter. This increase can be attributed to positive sales in both the Wholesale and Retail segments which were favorably impacted by inflation trends. Gross profit for the quarter was $352 million or 15.2% of sales compared to $354 million or 15.6% of sales in the prior year’s second quarter. The gross profit rate decline was driven by cycling an elevated inflation related price change benefits in the Wholesale segment in the prior year quarter. This was partially offset by benefits as a result of the merchandising transformation initiative and higher overall margin rates in our Retail segment.

Additionally, LIFO expense decreased by $13 million or 58 basis points, compared to the prior year quarter. As a percentage of sales, our reported operating expenses improved 135 basis points from the prior year quarter, due primarily to: One, lower incentive compensation; Two, a reduction in the supply chain expense rates as a result of efficiencies realized from our supply chain transformation initiative; and Three lower restructuring and asset impairment charges. Interest expense increased $4.8 million to $9.3 million compared to the prior year quarter due to the higher rate environment. Turning to our segments. In the second quarter, net sales in Wholesale increased $32 million to more than $1.6 billion compared to the prior year period.

The 2% increase was due primarily to inflationary impacts on pricing. This was partially offset by demand changes from one national account. For a little more context, let’s talk about our Wholesale volume. We are pleased that we maintained core share during the quarter and all of our customer channels achieved expectations with the exception of Amazon Fresh, who addressed changes to its grocery business in its recent earnings update. We are working closely with them as they manage through format changes that resonate more with its customers. With that said, we believe its demand profile has leveled out at this time, and the bottom line impacts have already been built into our run rate expectations. We strive to support our customers as they grow profitably.

With the changes from our go-to-market strategy that Tony touched on earlier, we believe we have the right programs and teams in place to provide custom solutions for each customer, both now and into the future. And we remain extremely encouraged that new customers and organic business will help us continue to grow share. Moving to the bottom line. The Wholesale segment adjusted EBITDA totaled $40.7 million in the quarter versus 2022 second quarter adjusted EBITDA of $42.6 million. This was primarily due to lower gross profit related to cycling inflation-related price gains in the prior year quarter. These decreases were partially offset by better leverage of operating expenses which include the benefits of our supply chain transformation. Our team did a solid job managing through a challenging macro environment as we cycled expected inflation-related price gains from 2022.

For the quarter, inflation eased faster than we previously expected, with the pace of price increases moderating. Wholesale reported second quarter operating earnings were $21.5 million compared to $12.7 million in the prior year period. Now turning to our Retail segment. Sales came in at $679 million for the quarter compared to $672 million in the second quarter of 2022, an increase of 1%. Our comparable store sales momentum remained solid at 3.9% in the second quarter, due primarily to inflation-related pricing. Partially offsetting the strong same-store sales were lower fuel prices in the quarter, reducing net sales by 2%. Retail adjusted EBITDA increased to $25.4 million from $19.2 million in the prior year quarter. The increase was due to: One, the success of our marketing innovation; Two, strong returns on our store remodels and banner conversions; Three, higher gross profit rate; and Four, lower wages and benefits.

This increase was partially offset by lower volumes, which are consistent with market trends and reduced pharmacy margins. Retail reported operating earnings of $14.2 million in the quarter compared to a reported operating loss of $0.4 million in 2022, second quarter. Moving to our balance sheet. Our ratio of net long-term debt to adjusted EBITDA improved sequentially by 10 basis points to 2.2 times, compared to the first quarter of this year. And our liquidity remains strong, giving us flexibility to support our strategic plan. In the first half of the year, we generated $49.7 million of cash from operating activities, compared to $28.5 million in the prior year period. In the second quarter, cash from operating activities was $52.4 million, driven by continued focus on delivering strong cash flow.

This increase was due primarily to earnings and inventory improvements. During the first half of the year, we paid more than $15 million in cash dividends, equal to $0.43 per common share. We also bought back over 765,000 shares for a total of $18.5 million. And as of the end of the second quarter, we have approximately $25 million remaining on our share repurchase authorization. In total, the Company returned $33.6 million to shareholders in the first half of 2023. As our earnings release mentioned, we reiterated our full year adjusted EBITDA and adjusted EPS guidance based on our operating performance to date, and our positive outlook from the benefits we continue to realize from our transformation initiatives. We continue to expect that our adjusted EBITDA will be in the range of $248 million to $263 million.

And we continue to expect adjusted EPS to be in the range of $2.20 to $2.35 per share. Today, we slightly lowered our full year net sales guidance to $9.65 billion to $9.95 billion to reflect the demand changes from the national account that I mentioned a few moments ago. However, despite this revision, we remain confident in our ability to maintain profitability. To echo Tony’s comments, we’ve launched and made significant progress on our transformational initiatives and we are advancing our long-term strategic plan with our go-to-market strategy. This step further bolsters our confidence in achieving our long-term goals. To see how the planned benefits are tracking, please refer to slide 8 in the supplemental deck, which is posted on our website.

And now, I’d like to turn the call back over to Tony.

Tony Sarsam: Thank you, Jason. I want to close with few thoughts about our turnaround story and the compelling growth ahead of us. In less than three years, we have built a people-first culture and recruited a talented team of leaders, developed and executed on a long-term strategic plan, and implemented key transformational initiatives. We’ve also grown share, we have won customers, and we’ve delivered record adjusted EBITDA. With this progress, we are accelerating our capability to grow. We have a highly scalable business model with a sustainable trajectory of profitable growth. And at the center of all this growth is a continued focus on driving results to increase value for our shareholders. I’m so confident in the path we are on, and I’m optimistic about the days ahead as we continue to execute on our winning recipe. With that, I’d like to turn the call back over to the operator to open it up for your questions.

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Operator: [Operator Instructions] And our first question today comes from Charles Cerankosky with Northcoast Research.

Charles Cerankosky: Good morning, everyone. With the inflation rate abating, do you anticipate a return to more normal forward buying opportunities in the wholesale business?

Tony Sarsam: Yes. Chuck, this is Tony. We — certainly, as we leveled out here, we have obviously the flurry of activity from last year with the extraordinary number of price requests. Those have been leveling off and coming down. I believe that we’ll find ourselves back in the situation where we might have been a couple of years ago in a more normal — more normal situation in terms of the number of price requests and the pacing of those price requests. And I think we’re on our way to that place.

Charles Cerankosky: And what does that mean directly for the gross profit benefit in the wholesale due to forward buying?

Jason Monaco: Yes. Hey Chuck, this is Jason. So the way I think about it is that we’ve got a wind down of the lapping of prior year inflation-related price gains, which we talked about last quarter. We continue to face that headwind on a benefit from last year. And as the vendor community continues to ramp up promotional spending or promotional investments with weaker volumes across the entire industry, we expect that we’ll continue to capitalize or have the ability to capitalize on those forward buy opportunities buying into promotions, as we did prior to COVID in a more normalized environment. So, we see it as a piece of the margin-enhancing programs going forward. But if you think about it in total, we’ll have a wind down of the price change benefits from last year and a wind up of the promo activities. It won’t necessarily be a one-for-one, but we look at the business in its entirety and look for opportunities to continue to drive profitable growth.

Charles Cerankosky: So, sort of a normalization. And could you comment on what you’re seeing in store brand sales, both in your Retail segment as well as in Wholesale?

Tony Sarsam: For our own brands? Yes, our own brands outpaced national brands again for the quarter. We saw that — a nice change and we grew net positive because national brands collectively were EBIT negative on a net basis. So, we continue to grow there, which is a nice vote of confidence for our own brands of products as we see that continued growth even after the really significant growth we had last year. So, we feel great about where our own brands and again, we’re seeing decent growth there versus the national brands.

Operator: Your next question will come from Andrew Wolf with CL King.

Andrew Wolf: I wanted to start asking on the Wholesale sector, the volume decline and whether that was — I understand you — you maintain core market share. So, should we — the implication be that that was more driven by the national account, demand change at the national account, or is the rest of the portfolio sort of down with the market? I’m just trying to see if sort of on the margin or sequentially, if there’s any improvement in the core portfolio of customers on the volume side, even if it’s down, it’s down less for example.

Jason Monaco: Good morning, Andrew. This is Jason. Yes, you’ve drawn the right conclusion that the primary driver of the — kind of the miss versus what we thought we would see was that national account. Outside of that national account, our Wholesale business units were down marginally, call it, less than 1%, which compares quite favorably to an industry-wide decline in unit volume of kind of mid-single digits. So, when we think about it, we grew share in the Wholesale segment in our core space, in our military space, and we were challenged with one national account customer.

Andrew Wolf: Okay, great. So the 1% — less than 1% down and the outperformance, I think in previous quarters coming into this quarter, you could say a lot of that was the military still doing better than the grocery side? Is that still the case, or is the core grocery side in any way kind of improving sequentially?

Jason Monaco: Yes, I’d characterize it as similar trends to what we’ve seen in the past. With our military business, we saw a slight deceleration in the growth profile, particularly related to the export portion of that business as the demand is repositioned globally. And then on the rest of the Wholesale business, we’ve seen a stabilization of our independents. And we’ve continued to work from our standpoint, we see ourselves as a food solutions company, and we work closely with our customers to leverage the strength of our own retail experiences to drive growth through that channel and to work together with those customers to help them win. And we’ve seen that start to pay off along the way.

Andrew Wolf: Okay. Just one more on the Wholesale business. And I might have missed this, so — but did — are you — is this the toughest quarter for year ago comparisons, or are we in that period? Like when does that sort of begin to cycle off with the holding gains from a year ago when inflation was still accelerating?

Jason Monaco: Yes. Great question. So, they’re all — naturally, they’re all tough quarters because we had a record performance last year, and we expect to continue to build on that record going forward. So generally speaking, as we think about the price-related — inflation-related price change benefits from prior year, we had the biggest headwinds in Q1, and we expected a wind-down through the middle part of this year and winding down further in the fourth quarter. If I kind of step back and look at what we expected for inflation and how it’s played out, inflation rates have declined faster than we expected. We’ve seen what we thought would be coming probably in the later third quarter coming in through the second quarter. And so, from a comparable standpoint, we’re still facing significant headwinds in the second quarter. I expect more in the third and a wind-down in the fourth.

Andrew Wolf: One more question, if I could, it’s a follow-up on your answer on inflation. Is there any — if you look at Wholesale versus Retail since you’re in both segments. Is the disinflation in some items and deflation in commodities for chicken and other things, poultry, dairy, is that more helpful to retail because of sticky pricing? They might get a little better unit contribution in that transition phase, or could you give us a little sense of whether there’s the impact of slowing inflation and/or deflation has a different impact on your two segments?

Jason Monaco: Yes. From a demand standpoint, it hasn’t really changed. There isn’t really a big differential between the two segments from an inflationary standpoint. And inflation in general, as I look across both of our segments was pretty close. It was in the kind of high-7s, low-8s as we exited the quarter, and we’ve seen what you’ve seen in the public filings and public data, a wind down of inflation rates from the beginning of this year where we were sitting in the kind of low to mid-teens to the end of this quarter — at the end of last quarter where we were in the mid to high single digits. So, we’re seeing the pace of price increases slow, and we’re seeing that price pass through to our customers as we provide as compelling an offer to our shoppers and our customers as possible to help drive volume and performance in our stores and our customer stores.

Operator: And our next question will come from Scott Mushkin with R5 Capital.

Scott Mushkin: Hey guys. Thanks for taking my questions. And thanks for having us out there two weeks ago. It was a great event. So, I want to talk a little bit about the climate that you guys are facing. A fairly large supermarket company, I think, shocked us by actually uttering the D word, deflation, or someone on the call did and they didn’t knock it down. Remind us how your business would perform if we get to a place where there’s just no price increases.

Jason Monaco: Yes. Hey Scott, great to have you out a couple of weeks ago. Thank you. And I appreciate having you here in our Expo. So, how does our business perform? We see ourselves as resilient in both up and down market environments. We’ve seen in the current environment, this notion of disinflation and even deflation on some commodity goods. And as you know, being around the industry a long time, deflationary cycles aren’t particularly unusual in fresh products and in the perimeter areas of the store. And in fact, they move quite quickly. So, we’re quite accustomed to managing through those ups and downs, ensuring that we have the right price points and the right value equation for our shoppers and consumers and getting the right value for our customers who buy through our Wholesale segment.

Scott Mushkin: And I think that was Jason answering that. What are you seeing in the climate? We’re seeing more pockets of competition kind of in certain parts of the country. Certainly, promo is coming back from CPG, but also it looks like some retailers are putting their own P&L at risk or investing. What are you guys seeing?

Tony Sarsam: So, I think what you’re seeing — this is Tony. So definitely, we’re seeing there’s more promotional activity. We took more promotional activity in the quarter as well and had more promotions in the second quarter than we did in the first, and that there’s been continued growth as we look for ways to get our consumers excited about our offering as well as offering them some keen opportunities to stretch their dollar a little bit more. So, we see those as really important ways to drive foot traffic and get folks into the store and then get them into all the other items obviously that aren’t promoted. And that worked for us reasonably well last quarter. We saw with the asset promotions, we actually saw it has a little bit better unit pickup versus the previous quarter.

So, we think that’s working. It wasn’t a landslide of more promotions, it was definitely more. And the work we’ve done with our digital marketing and other tools to get people informed and involved in those promotions is also working really well. And I think we’re seeing that similar — but it appears to have similar activity going on with our competition. So, I guess that’s a natural outcome of where we are right now in the overall environment.

Scott Mushkin: And then, I just had one last one. I think you guys both talked about lower incentive comp but also lower wages and benefits in retail. And I was just wondering what’s driving that and how repeatable that is? And obviously, wage rates continue to climb overall across retail?

Jason Monaco: Yes. Scott, the way I’d think about it, this is a variable comp. So last year, that — when you look at the year-over-year, last year, variable comp was running above plan this year, it’s not. And as a result, you’re seeing some positive comps in those figures. Even the labor and wage component that we referred to in retail relates to the variable comp component that we cascade through our organization.

Scott Mushkin: Does that mean you’re a little bit below your plan, or is it — what’s the reason for it to be coming in better on the variable?

Jason Monaco: Yes. It’s both a combination of last year being above and this year being a little bit below plan.

Operator: Our next question comes from Kelly Bania with BMO Capital Markets.

Benjamin Wood: This is Ben on for Kelly. Thank you for taking our questions. Just hoping you could provide a little more clarity around a couple of comments to start. The demand changes from Amazon, what generally is your visibility or lead time to those changes? And then how does Amazon fit into your long-term sales guide? Trying to determine how you’re thinking about the risk going forward, or is there upside to fresh agreement.

Tony Sarsam: Yes. So, the — as far as lead time goes, we work pretty closely with Amazon to get a forecast of their business. They are as — the best we can determine, they’re learning about what — what’s going on with them, what plans they have to make. So it’s not an extraordinary lead time. So, we have — but we have great tools in place to make sure that between us that we get the product right with them, and we have a way of servicing them and getting the fill rate right and not obviously getting in a situation where you have too much inventory. So, I think all those things work well between us and Amazon as we’re sort of learning together on their business. They’re — Amazon is a great customer. And so we’re going to continue to work with them to make sure their business can — that we could be a productive part of their business and their business plans.

As they’ve announced recently, their business plan is a little bit in flux. So they’ve also doubled down and so they want to make sure that they are going to be a player in grocery, and we’re going to be a great partner for them in their journey.

Benjamin Wood: Okay. That’s helpful. And then on the refreshed go-to-market strategy, what drove the decision behind that? And where should we expect to see that kind of in the P&L? And then just a clarity on that $20 million of cost savings. Was that in the previous plan or is that incremental to the $20 million to $30 million of supply chain benefits that I think you guys outlined maybe last quarter?

Tony Sarsam: Yes. So, I’ll have a question. So first of all, the overall strategy we’ve been working for quite a while, and it’s a combination, as mentioned earlier, of taking a look at some of the ways we were structured in the wake of some M&A activity where from the past where we had an opportunity to sort of combine forces and some functions and make them more efficient and more effective. And largely with an exercise in getting our organization streamlined so that we could be really laser-focused on serving our customers. And that’s why the focus, as we mentioned earlier, was so heavily on go-to-market. We want to make sure that with the folks who are serving our customers in all ways, are part of that customer team, our sales organization.

And so, we have simplified the points of contact with our customers. And we think that’s going to really, really work well for us as we get information passed along more efficiently, and we get — again, we find ways to actually serve and provide great innovation for our customers moving forward. So, it was both an element of sort of rightsizing with some of — from previous M&A as well as really thinking through the entirety of the go-to-market team between sales and merchandising and marketing and retail, make sure that’s right for the kind of growth we expect to get from that — from the overall organization. And as far as the savings, it was fully contemplated in the previous long-range plan that we talked about. So, it wasn’t discretely part of the supply chain, a necessarily a transformation, but it was part of the overall build for our 2025 plan to $300 million.

Benjamin Wood: Great. That’s helpful. And then, just one more, if I may. Just Retail profitability was strong, and you called out higher gross margins. Wondering what drove that? Kind of help us understand the strategy at Retail and the sustainability of the progress maybe beyond some of those real estate remodels you guys have outlined? And then, kind of following up on just the promotional commentary earlier, how is the promotional environment tracking relative to your expectations? And what was your expectations — or what’s in the plan going forward?

Jason Monaco: Hey Ben, this is Jason. Thanks for the question. So, what’s driving performance in our Retail segment, a number of things, and I’ll start with the work we’ve done on the remodels, but I’d be remiss if I didn’t also highlight the banner conversions. We converted seven stores in the Omaha market, and we’ve seen just terrific results. The team did a fantastic job of building a 360 marketing plan, establishing improved loyalty and engagement with our customers and our shoppers, and it’s driving double-digit growth. We feel really good about the banner conversions and the investments we’ve made in those stores and in those communities. In addition to that, we’ve worked hard to ensure that we have the right assortment, the right price points, the right promotional activities, in our stores and, of course, balanced it from a margin standpoint.

You heard margin improved. Margin improved because we have a winning proposition, and we’re delivering the right service in our stores, the right assortment, the right price points, which collectively has led us to see improved or better than market shopper traffic. So, in our markets, we see our shopper traffic significantly outperforming the rest of the market and getting those shoppers in the store, filling their baskets and being very pleased with the experience they have is creating a winning proposition for us. You pair that together with the capital investments, the rebanners, the store remodels, all of that is contributing to improved margin structures and, frankly, solid performance from a growth standpoint in what’s a tough market.

Operator: And we’ll move next to Peter Saleh with BTIG.

Peter Saleh: I want to come back to operating expenses, which were much better than what we were anticipating this quarter. I think you guys outlined three buckets in terms of lower incentive comp and supply chain initiatives and the restructuring. Can you just help us unpack that and how much really was in each bucket on a year-over-year basis in terms of the savings? And how should we be thinking about that going forward in the second half of the year?

Jason Monaco: Yes. Pete, thanks for the question. So, the — as you start to unpack that, we have a commitment, and we’re standing behind that commitment on supply chain transformation. We expect to deliver $20 million to $30 million of annualized benefit this year from supply chain transformation, and we’re well on our way on that front. We’re run rating at that level, and that’s playing a significant role in our improvement in OpEx. The second piece is the variable comp that we mentioned earlier in the call. And together, we see those things as playing a significant role in our overhead expense management. Last but not least, on the go-forward basis, Tony talked a little bit about our go-to-market strategy and the changes that we’ve made there. Collectively, that run rate of $20 million will be there by the end of the year, but we expect to see a little bit of a pickup in OpEx as we roll into the fourth quarter.

Peter Saleh: Understood. Okay. And then I just wanted to take your pulse on the long-term guidance by 2025. I think you guys reiterated that this morning of $300 million of EBITDA. Just wanted to get your sense and your confidence there, given the more modest top line, I mean if we get another step down in the top line, can you still get to that EBITDA number? How are you guys thinking about that? Thank you.

Tony Sarsam: Well, it’s certainly, as you pointed out, these are challenging times in terms of the overall environment, but we still feel great about our overall plan. We have — our plan was not built on just the macro environment movement, but a lot of really important work in these transformations. And all the ones we talked about, the transformation we’ve done in the supply chain that Jason just mentioned, the merchandising transformation work, the innovation work we’re doing in marketing as well as these other moves and go to market. So we see all those as being supportive elements that help us to be more resilient even in tough macro times. So, we said we’re going to be there, and we feel really good about that.

Operator: And your next question will come from Krisztina Katai with Deutsche Bank Securities.

Jessica Taylor: This is Jessica Taylor on for Krisztina. I wanted to ask about your units per transaction for your retail business. Just wondering, as you see inflation falling, if you’re seeing a corresponding increase in units in the basket?

Jason Monaco: What we’ve seen is improvement in both foot traffic and in performance and the size of the basket from a dollar standpoint. As I look back to the second quarter, baskets continue to grow together with inflation, and we’ve been pleased with the results.

Jessica Taylor: Okay. And then, just another question on your fill rates. Can you talk a little bit about where your inbound and outbound fill rates are right now, and are they hitting what you expected, and are they back to the levels that you saw pre-COVID?

Tony Sarsam: All right. So, fill rates are performing better than our expectations right now, both in terms of where we are — right now, we’re probably running 400 or 500 basis points ahead of our — what our plan was what we believe to be the fill rates we get from our inbound from our suppliers. To be clear, they’re still not great. And your question about when do we see them coming back to where they were before the pandemic. It’s — they’re ahead of where we thought they’d be right now, but they’re way behind. So — and those fill rates are running in the in the mid-80s right now. We were getting fill rates that were in 2019, for example, we have been in the high 90s, 97, 98, 99. So it’s been a slow road back for the supply group.

Our team here has done a terrific job of sort of mitigating that and making sure that our customers as best we can or shield it from that experience. So we see in the stores is great fill rate on the shelves are outbound. One of my favorite stats are outbound delivery in terms of on-time delivery. Our inbound on-time delivery is still coming in at 60%, 70% from our suppliers, what we ship out is in the high 90s. So, our team does what they’re supposed to do, they shield some of those effects from our customers. So we feel good about that progress. We feel good about the fact that we’re ahead on the fill rate where we expected to be at this point. Still a long way to go to get back to where we were in 2019.

Jessica Taylor: Thank you. And then just finally, on — in terms of promotions, are you seeing that the CPGs that you work with are funding more promotions these days, or are you seeing any changes there that you can speak to?

Tony Sarsam: That was a — central element of our merchandising transformation is to get the right price and the right kind of exciting price points for our customers and for our shoppers. And so, our supplier community stepped up big on that. So we are seeing a lot of enthusiasm, we’re getting those right price points out in the marketplace. I’d say they are — as I mentioned a moment ago, they are — they’ve been stronger this quarter than they were last quarter and stronger last quarter than we were the quarter before that. So, it’s been a natural movement, we believe. But, we’ve got great partnership with our suppliers on that. And I think we’ll continue to see that and see that as we try to get more and more energy into the grocery store.

Operator: We’ll now take a follow-up question from Charles Cerankosky with Northcoast Research.

Charles Cerankosky: My follow-up involves your independent retailers. How would you gauge their health as some of the bigger competitors have gained market shares, such as the club channel and Walmart? And how do you view them in terms of M&A opportunities to expand Spartan’s Retail segment?

Tony Sarsam: So, as far as their overall health, our 2,100 independent grocers are a very resilient group, and they’ve done tremendous work in these last few years. They continue to perform well. I was just with one of them yesterday. They — really is inspiring how they have really — they really understand their communities and they understand what matters to those communities, and they’re going to do fine. They continue to do fine. As far as — Chuck, what was the second part of your question? I’m trying to unpack that a little bit. You said something about how that impacts our retail. Can you go a little further on that?

Charles Cerankosky: As part of Spartan’s strategy still to be the acquirer in case they want to sell out? Are you still looking to grow Spartan’s Retail segment through M&A?

Tony Sarsam: Got it. Yes. So if you think about our overall growth, we are very focused on the growth of the business and are going to be much more aggressive in that pursuit. That includes growing more customers in terms of growing share of our Wholesale business. It includes growing more with our current business, meaning growing our current stores faster and taking share there, growing and providing great solutions for our current customer base that they can grow and we can grow together, and will include M&A. And so all those things have to work together for us to grow and grow the way we plan. So, you’ll see all those things working, including the M&A that you just mentioned.

Operator: And there are no other questions at this time. I’ll now turn the call back to Tony Sarsam for closing remarks.

Tony Sarsam: Great. So, that wraps up our call for today overall. So, thank you, everybody. Thank you all for your interest and your great questions. I want to thank everyone for the participation today. And from our family to yours, we like to offer you a very pleasant rest of your day.

Operator: This concludes today’s conference call. Thank you for attending.