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MarketScreener Homepage  >  Equities  >  Nasdaq  >  SpartanNash Company    SPTN

SPARTANNASH COMPANY

(SPTN)
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SPARTANNASH : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/12/2020 | 04:04pm EST
This Management's Discussion and Analysis of financial condition and results of
operations should be read in conjunction with the unaudited condensed
consolidated financial statements contained in this Quarterly Report on Form
10-Q, the information contained under the caption "Forward-Looking Statements,"
which appears at the beginning of this report, and the information in the
Company's Annual Report on Form 10-K for the fiscal year ended December 28,
2019.

                                       19

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Overview


SpartanNash, headquartered in Grand Rapids, Michigan, is a leading
multi-regional grocery distributor and grocery retailer whose core businesses
include distributing grocery products to a diverse group of independent and
chain retailers, its corporate owned retail stores, military commissaries and
exchanges in the United States, as well as operating a premier fresh produce
distribution network. The Company operates three reportable business segments:
Food Distribution, Retail and Military. The Company serves customers in all 50
states.

The Company's Food Distribution segment provides a wide variety of nationally
branded and private brand grocery products and perishable food products to
independent grocers, the Company's corporate owned retail stores, national
retailers, food service distributors, and other customers. The Food Distribution
segment primarily conducts business in the Midwest and Southeast regions of the
United States.

As of the end of the third quarter, the Company's Retail segment operated 155
corporate owned retail stores in the Midwest region primarily under the banners
of Family Fare, Martin's Super Markets, VG's Grocery, D&W Fresh Market and Dan's
Supermarket. The Company also offered pharmacy services in 97 of its corporate
owned retail stores and operated 37 fuel centers. The retail stores have a
"neighborhood market" focus to distinguish them from supercenters and limited
assortment stores. The Company's Customer First strategy is focused on meeting
changing customer needs and preferences through a data-based decision-making
process, while also increasing customer satisfaction through quality service and
convenience.

The Company's Military segment contracts with manufacturers to distribute a wide
variety of grocery products primarily to military commissaries and exchanges
located in the United States, the District of Columbia, Europe, Cuba, Puerto
Rico, Honduras, Bahrain, Djibouti and Egypt. The Company distributes grocery
products to 160 military commissaries and over 400 exchanges and, together with
its third-party partner, Coastal Pacific Food Distributors, represents the only
delivery solution to service the Defense Commissary Agency ("DeCA") worldwide.
The Company is the exclusive worldwide supplier of private brand products to
U.S. military commissaries and is continuing to partner with DeCA in the rollout
of private brand products to military commissaries, which began during the
second quarter of fiscal 2017.

All fiscal quarters are 12 weeks, except for the Company's first quarter, which
is 16 weeks and will generally include the Easter holiday. Fiscal 2020 will
contain 53 weeks; therefore, the fourth quarter of fiscal 2020 will contain 13
weeks. The fourth quarter includes the Thanksgiving and Christmas holidays, and
depending on the fiscal year end, may include the New Year's holiday.

In certain geographic areas, the Company's sales and operating performance may
vary with seasonality. Many stores are dependent on tourism and therefore, are
most affected by seasons and weather patterns, including, but not limited to,
the amount and timing of snowfall during the winter months and the range of
temperature during the summer months. Travel restrictions and other effects of
the COVID-19 pandemic may also impact the performance of these stores.

2020 Third Quarter and Year-to-Date Highlights


The Company's top priority continues to be the well-being and safety of its
family of associates, customers and communities during the COVID-19 pandemic.
SpartanNash continues to recognize its family of associates for their dedication
to serve customers and support local communities during this unprecedented time
of need. Collaboration across the organization and the strength and resiliency
of its people drives execution in a dynamic operating environment as SpartanNash
supports consumer demand related to the COVID-19 pandemic.

Key financial and operational highlights for the quarter and fiscal year-to-date include the following:

• Net sales growth of 3.1% to $2.06 billion from $2.00 billion in the prior

year quarter, representing the eighteenth consecutive quarter of growth.

• Retail comparable store sales of 10.6% in the third quarter were positive

for the fifth consecutive quarter, representing a continuation of trends

driven by impacts associated with the COVID-19 pandemic. During the quarter,

      the Company experienced growth in eCommerce of greater than 175% and
      realized continued growth in private label sales.

• Food Distribution segment sales growth was 7.8% for the quarter due to sales

      growth with existing customers as well as increased demand associated with
      the impact of COVID-19.

• Operating earnings were $29.0 million in the third quarter, compared to

$15.8 million in the prior year quarter, reflecting the significant increase

in demand associated with the COVID-19 pandemic.

• The Company generated cash from operating activities of $223.8 million for

the year-to-date period, leading to a reduction in net long-term debt of

$145.0 million. These reductions, combined with increased profitability,

resulted in an improvement in net long-term debt to adjusted EBITDA from

3.7x at the end of 2019 to 2.3x at the end of the third quarter of 2020,

      calculated on a trailing thirteen period basis.


                                       20

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• The Company appointed a new President and Chief Executive Officer, Tony

Sarsam, in the third quarter. Tony brings to the Company an extensive

background of executive experience in the food industry. His core values,

history of visionary thinking and strategic execution are in alignment with

the Company's vision and strategies.

• During the first quarter, the Company made the decision to exit the Caito

Fresh Cut operations. Wind down of the operations began in March 2020 and

was complete as of the end of the first quarter. The Company incurred $9.5

million in asset impairment charges, severance costs and operating losses

during the wind down period.

• During the first quarter, the Company executed cost saving initiatives,

which included a voluntary early retirement program, as well as a

reduction-in-force. These actions are expected to result in longer-term cost

      savings, however resulted in $5.0 million in incremental expense in the
      year-to-date period.




For the 53-week fiscal year ending January 2, 2021, the Company continues to
expect to benefit from higher consumer food-at-home consumption related to the
effects of COVID-19. While the Company is not providing updated net sales
guidance due to uncertainty of the duration and magnitude of the impact of
COVID-19, it believes sales will materially exceed its initial 2020 guidance.
The Company is updating its annual outlook, from what was previously provided on
August 12, 2020, to reflect actual year-to-date financial results, its
expectations for the remainder of the fiscal year related to earnings trends and
the forecasted impact of the stock warrants granted early in the fourth quarter.

Results of Operations

The following table sets forth items from the condensed consolidated statements of operations as a percentage of net sales and the year-to-year percentage change in the dollar amounts:


                                           Percentage of Net Sales                          Percentage Change
                                 12 Weeks Ended              40 Weeks Ended           12 Weeks Ended       40 Weeks
                                                                                                            Ended
                              October       October       October       October      October 3, 2020      October 3,
                              3, 2020       5, 2019       3, 2020       5, 2019                              2020
Net sales                        100.0         100.0         100.0         100.0                  3.1            8.6
Gross profit                      15.8          14.5          15.3          14.6                 11.9           13.5
Selling, general and              14.0          13.7          13.8          13.8                  5.8            9.0
administrative
Merger/acquisition and             0.0             -           0.0           0.0                   **          (82.3 )
integration
Restructuring charges and                                                                       404.9
asset impairment                   0.3           0.1           0.3           0.2                               100.2
Operating earnings                 1.4           0.8           1.2           0.7                 83.8           87.4
Other expenses and income          0.2           0.9           0.2           0.7                (80.4 )        (70.9 )
Earnings (loss) before
income taxes and                                                                                   **             **
discontinued operations            1.2          (0.1 )         1.0          (0.0 )
Income tax expense (benefit)       0.3          (0.1 )         0.1          (0.0 )                 **             **
Earnings (loss) from               1.0          (0.0 )         0.9           0.0                   **             **
continuing operations
Loss from discontinued               -                           -          (0.0 )                 **             **
operations, net of taxes                        (0.0 )
Net earnings (loss)                1.0          (0.0 )         0.9           0.0                   **             **

Note: Certain totals do not sum due to rounding.

** Not meaningful


Net Sales - The following table presents net sales by segment and variances in
net sales:

                                               12 Weeks Ended                                                  40 Weeks Ended
(In thousands)             October 3, 2020         October 5, 2019        Variance         October 3, 2020         October 5, 2019        Variance
Food Distribution        $         1,012,204     $           939,047     $    73,157     $         3,471,561     $         3,043,668     $   427,893
Retail                               596,659                 561,605          35,054               2,010,483               1,833,347         177,136
Military                             451,953                 499,156         (47,203 )             1,619,329               1,661,097         (41,768 )
Total net sales          $         2,060,816     $         1,999,808     $    61,008     $         7,101,373     $         6,538,112     $   563,261


                                       21
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Net sales for the quarter ended October 3, 2020 (the "third quarter") increased
$61.0 million, or 3.1%, to $2.06 billion from $2.00 billion in the quarter ended
October 5, 2019 (the "prior year quarter"). Net sales for the year-to-date
period ended October 3, 2020 (the "year-to-date period") increased $563.3
million, or 8.6%, to $7.10 billion from $6.54 billion in the year-to-date period
ended October 5, 2019 (the "prior year-to-date period"). The increases were
driven primarily by increased consumer demand related to COVID-19 in the Retail
and Food Distribution segments, as well as continued growth with existing Food
Distribution customers, partially offset by lower comparable sales for the
Military segment at Defense Commissary Agency ("DeCA") operated locations prior
to the pandemic and the impact of domestic base access and commissary shopping
restrictions associated with COVID-19 in the second and third quarters.

Food Distribution net sales increased $73.2 million, or 7.8%, to $1.01 billion
in the third quarter from $0.94 billion in the prior year quarter. Net sales for
the year-to-date period increased $427.9 million, or 14.1%, to $3.47 billion in
the year-to-date period from $3.04 billion in the prior year-to-date period. The
increases were due to sales growth with existing customers, as well as
incremental volume associated with increased consumer demand related to
COVID-19, partially offset by the impact of the Company's decision to exit Fresh
Production operations, which accounted for a $29.1 million, or 3.1%, decline in
segment revenues in the quarter and $78.8 million, or 2.6%, for the year-to-date
period.

Retail net sales increased $35.1 million, or 6.2%, to $596.7 million in the
third quarter from $561.6 million in the prior year quarter. Net sales for the
year-to-date period increased $177.1 million, or 9.7%, from $1.83 billion in the
prior year-to-date period to $2.01 billion. The increases in net sales were
primarily due to incremental sales volume associated with increased consumer
demand related to COVID-19. Comparable store sales were 10.6% for the quarter
and 14.5% for the year-to-date period and were partially offset by the impact of
lower fuel prices and gallons sold, as well as store closures. The Company
defines a retail store as comparable when it is in operation for 14 accounting
periods (a period equals four weeks), regardless of remodels, expansions, or
relocated stores. Acquired stores are included in the comparable sales
calculation 13 periods after the acquisition date. Fuel is excluded from the
comparable sales calculation due to volatility in price. Comparable store sales
is a widely used metric among retailers, which is useful to management and
investors to assess performance. The Company's definition of comparable store
sales may differ from similarly titled measures at other companies.

Military net sales decreased $47.2 million, or 9.5%, to $452.0 million in the
third quarter from $499.2 million in the prior year quarter. Net sales for the
year-to-date period decreased $41.8 million, or 2.5%, from $1.66 billion in the
prior year-to-date period to $1.62 billion. For the quarter, growth in private
label and export sales was more than offset by the impact of domestic base
access and commissary shopping restrictions associated with COVID-19. The
decrease for the year-to-date period was due to the impact of lower comparable
sales at Defense Commissary Agency ("DeCA") operated locations prior to the
onset of the pandemic as well as commissary shopping restrictions and base
closures during the second and third quarters, partially offset by increased
volume resulting from the impact of the COVID-19 pandemic during the first
quarter prior to the onset of these restrictions.

Gross Profit - Gross profit represents net sales less cost of sales, which for
all non-production operations includes purchase costs, in-bound freight,
physical inventory adjustments, markdowns and promotional allowances and
excludes warehousing costs, depreciation and other administrative expenses. For
the Company's food processing operations, cost of sales includes direct product
and production costs, inbound freight, purchasing and receiving costs,
utilities, depreciation, and other indirect production costs and excludes
out-bound freight and other administrative expenses. The Company's gross profit
definition may not be identical to similarly titled measures reported by other
companies. Vendor allowances that relate to the buying and merchandising
activities consist primarily of promotional allowances, which are generally
allowances on purchased quantities and, to a lesser extent, slotting allowances,
which are billed to vendors for the Company's merchandising costs, such as
setting up warehouse infrastructure. Vendor allowances are recognized as a
reduction in cost of sales when the product is sold. Lump sum payments received
for multi-year contracts are amortized over the life of the contracts based on
contractual terms. The distribution segments include shipping and handling costs
in the Selling, general and administrative section of operating expenses in the
consolidated statements of operations.

Gross profit increased $34.5 million, or 11.9%, to $324.8 million in the third
quarter from $290.4 million in the prior year quarter. As a percent of net
sales, gross profit was 15.8% compared to 14.5% in the prior year quarter. Gross
profit for the year-to-date period increased $129.7 million, or 13.5%, from
$957.1 million in the prior year-to-date period to $1,086.8 million in the
current year. As a percent of net sales, gross profit for the year-to-date
period was 15.3% compared to 14.6% in the prior year-to-date period. The third
quarter and year-to-date changes in the gross profit rate were driven by
improvements in margin rates at all three segments, as well as increases in the
proportion of Retail and Food Distribution segment sales, which generate higher
margin rates than the Military segment.

Selling, General and Administrative Expenses - Selling, general and administrative ("SG&A") expenses consist primarily of salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation (to the extent not included in cost of sales), out-bound freight and other administrative expenses.

                                       22

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SG&A expenses for the third quarter increased $15.8 million, or 5.8%, to $289.0
million in the third quarter from $273.3 million in the prior year quarter,
representing 14.0% of net sales in the third quarter compared to 13.7% in the
prior year quarter. SG&A expenses for the year-to-date period increased $80.9
million, or 9.0%, from $900.2 million in the prior year-to-date period to $981.1
million, and was 13.8% as a percentage of net sales in both year-to-date
periods. The increase in expenses as a rate of sales compared to the prior year
quarter was due to increases in incentive compensation due to improved overall
Company performance, a greater proportion of Retail segment sales which drive a
higher rate of expense, and increases in supply chain expenses, partially offset
by the increased leverage of expenses from higher sales volume, particularly
related to retail store labor and certain fixed costs. Expenses as a rate of
sales for the year-to-date period were in line with the prior year as a greater
rate of expenses for the items mentioned previously were offset by improved
operating leverage related to retail store labor and other operating expenses as
well as lower healthcare costs.

Merger/Acquisition and Integration - Merger/acquisition and integration expenses
for the third quarter were $0.2 million. Merger/acquisition and integration
expenses for the year-to-date period were $1.4 million in the prior year-to-date
period and $0.2 million in the current year-to-date period. The expenses in both
years are mainly associated with the acquisition and integration of Martin's
Super Markets ("Martin's").

Restructuring Charges and Asset Impairment - Third quarter and prior year
quarter results included charges of $6.5 million and $1.3 million, respectively,
of restructuring and asset impairment activity. The year-to-date period and the
prior year-to-date period included charges of $20.5 million and $10.2 million,
respectively, of restructuring and asset impairment activity. The current
quarter and year-to-date activity consists primarily of asset impairment charges
and severance costs related to the restructuring of the Company's Fresh
Production business, and an asset impairment charge related to the decision to
abandon a tradename within the Food Distribution segment, as well as store
closing charges. The prior year quarter amount consists primarily of asset
impairment charges to adjust non-operating real estate to its fair value, which
was classified as held-for-sale. The prior year-to-date period included asset
impairment charges associated with the decision to reposition Fresh Production
operations, which was partially offset by gains on the sale of a previously
closed distribution center.

Operating Earnings - The following table presents operating earnings (loss) by segment and variances in operating earnings (loss):


                                        12 Weeks Ended                                   40 Weeks Ended
(In thousands)            October 3,       October 5,       Variance       

October 3, October 5, Variance

                             2020             2019                            2020             2019
Food Distribution        $      9,191$     11,699$   (2,508 )$     34,990$     36,564$   (1,574 )
Retail                         22,318            6,726         15,592           59,416           14,600         44,816
Military                       (2,511 )         (2,646 )          135           (9,406 )         (5,806 )       (3,600 )
Total operating earnings $     28,998$     15,779$   13,219$     85,000$     45,358$   39,642


Operating earnings increased $13.2 million, or 83.8% to $29.0 million in the
third quarter from $15.8 million in the prior year quarter. Operating earnings
for the year-to-date period increased $39.6 million, or 87.4%, to $85.0 million
from $45.4 million in the prior year-to-date period. The third quarter and
year-to-date increases were attributable to increased sales volume and improved
margin rates, partially offset by an increase in incentive compensation due to
improved overall Company performance, restructuring and asset impairment
charges, and supply chain expenses.

Food Distribution operating earnings decreased $2.5 million, or 21.4%, to $9.2
million in the third quarter from $11.7 million in the prior year quarter.
Operating earnings for the year-to-date period decreased $1.6 million, or 4.3%,
to $35.0 million from $36.6 million in the prior year-to-date period. During the
third quarter, the Company made the decision to abandon a tradename within the
Food Distribution segment to better integrate with the Company's overall
transportation operations, which resulted in a charge of $7.0 million. The
decrease in operating earnings for Food Distribution was due to this asset
impairment charge, as well as an increase in the rate of warehousing expenses
and higher corporate administrative expenses, partially offset by higher
earnings due to the increase in sales volume. For the year-to-date period higher
incentive compensation, warehousing, and asset impairment charges were partially
offset by an increase in sales volume and cycling of prior year operational
losses in the Fresh Production business.

Retail operating earnings increased $15.6 million, or 231.8% to $22.3 million in
the third quarter from $6.7 million in the prior year quarter. Operating
earnings for the year-to-date period increased $44.8 million, or 307.0%, to
$59.4 million from $14.6 million in the prior year-to-date period. The increases
in operating earnings were primarily attributable to the increase in sales
volume, improvements in margin rates, including inventory shrink, and labor
rates. These favorable variances were partially offset by higher incentive
compensation due to improved segment performance.

Military operating loss decreased $0.1 million, or 5.1% to $2.5 million in the
third quarter from $2.6 million in the prior year quarter. Operating loss for
the year-to-date period increased $3.6 million, or 62.0%, to $9.4 million from
$5.8 million in the prior year-to-date period. The improvement for the quarter
was driven by improved margin rates, partially offset by the allocation of
corporate administrative expenses, the impact of lower sales volumes and, to a
lesser extent, increases in the rate of warehousing expenses. The year-to-date
increase was primarily attributable to increases in the rate of supply chain
expenses, including additional compensation for frontline workers and additional
sanitation measures, partially offset by improved margin rates.

                                       23

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Interest Expense - Interest expense decreased $3.9 million, or 52.3%, to $3.5
million in the third quarter from $7.4 million in the prior year
quarter. Interest expense for the year-to-date period decreased $13.1 million,
or 47.0% from $28.0 million in the prior year-to-date period to $14.8 million in
the year-to-date period. The decreases in interest expense were due to rate
decreases executed by the Federal Reserve during 2019 and the first quarter of
fiscal 2020, as well as significant decreases in the average debt balance.

Income Taxes - The effective income tax rates were 21.8% and 84.2% for the third
quarter and prior year quarter, respectively. For the year-to-date period and
prior year-to-date period, the effective income tax rates were 10.5% and 129.0%,
respectively. The differences from the federal statutory rate in the current
year were primarily the result of the Coronavirus Aid, Relief and Economic
Security ("CARES") Act and related tax planning in the 40-week period, as well
as federal tax credits, partially offset by state taxes, limitations on the
deductibility of executive compensation, and the impacts of stock-based
compensation in both the 12- and 40-week periods. In the prior year, the
difference from the federal statutory rate was primarily due to state tax
benefits resulting from losses in certain tax jurisdictions as well as tax
credits.

On March 27, 2020, the U.S. government enacted tax legislation to provide
economic stimulus and support businesses and individuals during the COVID-19
pandemic, referred to as the CARES Act. In connection with the CARES Act, the
Company recorded net discrete income tax benefits of $9.3 million in 2020,
associated with the additional deductibility of certain expenses combined with
provisions which enable companies to carry back tax losses to years prior to the
enactment of the Tax Cuts and Jobs Act ("Tax Reform"), when the federal
statutory income tax rate was 35%.

Non-GAAP Financial Measures


In addition to reporting financial results in accordance with GAAP, the Company
also provides information regarding adjusted operating earnings, adjusted
earnings from continuing operations, and Adjusted Earnings Before Interest,
Taxes, Depreciation and Amortization ("adjusted EBITDA"). These are non-GAAP
financial measures, as defined below, and are used by management to allocate
resources, assess performance against its peers and evaluate overall
performance. The Company believes these measures provide useful information for
both management and its investors. The Company believes these non-GAAP measures
are useful to investors because they provide additional understanding of the
trends and special circumstances that affect its business. These measures
provide useful supplemental information that helps investors to establish a
basis for expected performance and the ability to evaluate actual results
against that expectation. The measures, when considered in connection with GAAP
results, can be used to assess the overall performance of the Company as well as
assess the Company's performance against its peers. These measures are also used
as a basis for certain compensation programs sponsored by the Company. In
addition, securities analysts, fund managers and other shareholders and
stakeholders that communicate with the Company request its financial results in
these adjusted formats.

Current year adjusted operating earnings, adjusted earnings from continuing
operations, and adjusted EBITDA exclude "Fresh Cut operating losses" subsequent
to the decision to exit these operations during the first quarter, severance
associated with cost reduction initiatives, and fees paid to a third-party
advisory firm associated with Project One Team, the Company's initiative to
drive growth while increasing efficiency and reducing costs. Pension termination
income related to a refund from the annuity provider associated with the final
reconciliation of participant data is excluded from adjusted earnings from
continuing operations. These items are considered "non-operational" or
"non-core" in nature. Prior year adjusted operating earnings, adjusted earnings
from continuing operations, and adjusted EBITDA exclude "Fresh Kitchen operating
losses" subsequent to the decision to exit these operations at the beginning of
the third quarter, costs associated with organizational realignment, which
include significant changes to the Company's management team, and fees paid to a
third-party advisory firm associated with Project One Team, the Company's
initiative to drive growth while increasing efficiency and reducing costs.
Pension termination costs, primarily related to non-operating settlement expense
associated with the distribution of pension assets, are excluded from adjusted
earnings from continuing operations, and to a lesser extent adjusted operating
earnings.

Adjusted Operating Earnings

Adjusted operating earnings is a non-GAAP operating financial measure that the
Company defines as operating earnings plus or minus adjustments for items that
do not reflect the ongoing operating activities of the Company and costs
associated with the closing of operational locations.

The Company believes that adjusted operating earnings provide a meaningful
representation of its operating performance for the Company as a whole and for
its operating segments. The Company considers adjusted operating earnings as an
additional way to measure operating performance on an ongoing basis. Adjusted
operating earnings is meant to reflect the ongoing operating performance of all
of its distribution and retail 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 operating earnings and adjusted operating earnings
by segment are performance measures that management uses to allocate resources,
assess performance against its peers and evaluate overall performance, the
Company believes it provides useful information for both management and its
investors. In addition, securities analysts, fund managers and other
shareholders and stakeholders that communicate with the Company request its
operating financial results in adjusted operating earnings format.

                                       24

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

Following is a reconciliation of operating earnings (loss) to adjusted operating
earnings (loss) for the 12 and 40 weeks ended October 3, 2020 and October 5,
2019.

                                                12 Weeks Ended                       40 Weeks Ended
(In thousands)                            October 3,       October 5,       October 3, 2020        October 5,
                                             2020             2019                                    2019
Operating earnings                       $     28,998$     15,779     $           85,000     $     45,358
Adjustments:
Merger/acquisition and integration                242                -                    242            1,364
Restructuring, asset impairment and
other                                           6,543            1,296                 20,455           10,215
Fresh Cut operating losses                          -                -                  2,262                -
Fresh Kitchen operating losses                      -            2,204                      -            2,204
Costs associated with Project One Team              -                -                    493            5,428
Organizational realignment costs                    -              935                      -            1,812
Expenses associated with tax planning             (15 )              -                     82                -
Pension termination                                 -               28                      -               48
Severance associated with cost reduction
initiatives                                        40               43                  5,121              484
Adjusted operating earnings              $     35,808$     20,285     $          113,655     $     66,913
Reconciliation of operating earnings (loss) to adjusted operating earnings (loss) by segment:
Food Distribution:
Operating earnings                       $      9,191$     11,699     $           34,990     $     36,564
Adjustments:
Merger/acquisition and integration                  -                -                      -             (130 )
Restructuring, asset impairment and
other                                           6,538            1,043                 19,222           10,724
Fresh Cut operating losses                          -                -                  2,262                -
Fresh Kitchen operating losses                      -            2,204                      -            2,204
Costs associated with Project One Team              -                -                    265            2,877
Organizational realignment costs                    -              495                      -              960
Expenses associated with tax planning              (8 )              -                     44                -
Pension termination                                 -               15                      -               26
Severance associated with cost reduction
initiatives                                         -               31                  3,143              392
Adjusted operating earnings              $     15,721$     15,487     $           59,926     $     53,617
Retail:
Operating earnings                       $     22,318$      6,726     $           59,416     $     14,600
Adjustments:
Merger/acquisition and integration                242                -                    242            1,494
Restructuring charges (gains) and asset
impairment                                          5              253                  1,233             (509 )
Costs associated with Project One Team              -                -                    164            1,845
Organizational realignment costs                    -              318                      -              616
Expenses associated with tax planning              (5 )              -                     27                -
Pension termination                                 -               10                      -               17
Severance associated with cost reduction
initiatives                                         9               12                  1,441               83
Adjusted operating earnings              $     22,569$      7,319     $           62,523     $     18,146
Military:
Operating loss                           $     (2,511 )$     (2,646 )   $           (9,406 )   $     (5,806 )
Adjustments:
Costs associated with Project One Team              -                -                     64              706
Organizational realignment costs                    -              122                      -              236
Expenses associated with tax planning              (2 )              -                     11                -
Pension termination                                 -                3                      -                5
Severance associated with cost reduction
initiatives                                        31                -                    537                9
Adjusted operating loss                  $     (2,482 )$     (2,521 )   $           (8,794 )   $     (4,850 )



                                       25
--------------------------------------------------------------------------------

Adjusted Earnings from Continuing Operations


Adjusted earnings from continuing operations is a non-GAAP operating financial
measure that the Company defines as earnings from continuing operations plus or
minus adjustments for items that do not reflect the ongoing operating activities
of the Company and costs associated with the closing of operational locations.

The Company believes that adjusted earnings from continuing operations provide a
meaningful representation of its operating performance for the Company. The
Company considers adjusted earnings from continuing operations as an additional
way to measure operating performance on an ongoing basis. Adjusted earnings from
continuing operations is meant to reflect the ongoing operating performance of
all of its distribution and retail operations; consequently, it excludes the
impact of items that could be considered "non-operating" or "non-core" in
nature, and excludes the contributions of activities classified as discontinued
operations. Because adjusted earnings from continuing operations is a
performance measure that management uses to allocate resources, assess
performance against its peers and evaluate overall performance, the Company
believes it provides useful information for both management and its investors.
In addition, securities analysts, fund managers and other shareholders and
stakeholders that communicate with the Company request its operating financial
results in adjusted earnings from continuing operations format.

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


                                       26

--------------------------------------------------------------------------------

Following is a reconciliation of earnings (loss) from continuing operations to adjusted earnings from continuing operations for the 12 and 40 weeks ended October 3, 2020 and October 5, 2019.

                                                                  12 Weeks Ended
                                                October 3, 2020October 5, 2019
                                                         per diluted                        per diluted

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

           share
Earnings (loss) from continuing          $              $                  $               $
operations                                   19,952               0.56            (310 )            (0.01 )

Adjustments:

Merger/acquisition and integration              242                         

-

Restructuring, asset impairment and
other                                         6,543                         

1,296

Fresh Kitchen operating losses                    -                         

2,204

Organizational realignment costs                  -                         

935

Loss on debt extinguishment                       -                         

329

Severance associated with cost reduction
initiatives                                      40                         

43

Expenses associated with tax planning           (15 )                                -
Pension termination                               -                             10,159
Total adjustments                             6,810                             14,966
Income tax effect on adjustments (a)         (1,830 )                           (3,751 )
Impact of CARES Act (b)                         212                         

-

Total adjustments, net of taxes               5,192               0.14   *      11,215               0.31
Adjusted earnings from continuing
operations                               $   25,144     $         0.70     $    10,905     $         0.30



                                                                  40 Weeks Ended
                                                October 3, 2020                   October 5, 2019
                                                         per diluted                        per diluted

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

           share
Earnings from continuing operations      $   63,821     $         1.78     $       444     $         0.01
Adjustments:
Merger/acquisition and integration              242                         

1,364

Restructuring, asset impairment and
other                                        20,455                         

10,215

Fresh Cut operating losses                    2,262                         

-

Fresh Kitchen operating losses                    -                         

2,204

Costs associated with Project One Team          493                         

5,428

Organizational realignment costs                  -                         

1,812

Loss on debt extinguishment                       -                         

329

Severance associated with cost reduction
initiatives                                   5,121                         

484

Expenses associated with tax planning            82                                  -
Pension termination                          (1,004 )                           19,510
Total adjustments                            27,651                             41,346
Income tax effect on adjustments (a)         (6,827 )                          (10,166 )
Impact of CARES Act (b)                      (9,298 )                       

-

Total adjustments, net of taxes              11,526               0.32          31,180               0.86
Adjusted earnings from continuing
operations                               $   75,347     $         2.10     $    31,624     $         0.87
* Includes rounding



(a) The income tax effect on adjustments is computed by applying the effective

       tax rate, before discrete tax items, to the total adjustments for the
       period.

(b) Represents tax impacts attributable to the Coronavirus Aid, Relief and

Economic Security ("CARES") Act, and related tax planning, primarily

related to additional deductions and the utilization of net operating loss

       carryback.


                                       27

--------------------------------------------------------------------------------

Adjusted EBITDA


Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("adjusted EBITDA") is a non-GAAP operating financial measure that the Company
defines as net earnings plus interest, discontinued operations, depreciation and
amortization, and other non-cash items including deferred (stock) compensation,
the LIFO provision, as well as adjustments for items that do not reflect the
ongoing operating activities of the Company and costs associated with the
closing of operational locations.

The Company believes that adjusted EBITDA provides a meaningful representation
of its operating performance for the Company and for its operating segments. The
Company considers 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 its distribution and retail 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 and
adjusted EBITDA by segment are performance measures that management uses to
allocate resources, assess performance against its peers and evaluate overall
performance, the Company believes it provides useful information for both
management and its investors. In addition, securities analysts, fund managers
and other shareholders and stakeholders that communicate with the Company
request its operating financial results in adjusted EBITDA format.

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

Following is a reconciliation of net earnings (loss) to adjusted EBITDA for the 12 and 40 weeks ended October 3, 2020 and October 5, 2019.


                                                12 Weeks Ended                          40 Weeks Ended
(In thousands)                            October 3,       October 5,       

October 3, 2020October 5, 2019

                                             2020             2019
Net earnings (loss)                      $     19,952$       (337 )   $           63,821     $              318
Loss from discontinued operations, net
of tax                                              -               27                      -                    126
Income tax expense (benefit)                    5,564           (1,656 )                7,513                 (1,973 )
Other expenses, net                             3,482           17,745                 13,666                 46,887
Operating earnings                             28,998           15,779                 85,000                 45,358
Adjustments:
LIFO expense                                      387            1,268                  3,158                  3,761
Depreciation and amortization                  20,858           20,351                 68,611                 67,513
Merger/acquisition and integration                242                -                    242                  1,364
Restructuring, asset impairment and
other charges                                   6,543            1,296                 20,455                 10,215
Fresh Cut operating losses                          -                -                  2,262                      -
Fresh Kitchen operating losses                      -            2,204                      -                  2,204
Stock-based compensation                        1,033              638                  5,181                  6,735
Non-cash rent                                  (1,188 )         (1,082 )               (3,981 )               (4,542 )
Costs associated with Project One Team              -                -                    493                  5,428
Organizational realignment costs                    -              935                      -                  1,812
Severance associated with cost reduction
initiatives                                        40                -                  5,121                      -
Loss on disposal of assets                         35                -                  3,462                      -
Other non-cash charges                             94              187                    193                    710
Adjusted EBITDA                          $     57,042$     41,576     $          190,197     $          140,558


                                       28

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Following is a reconciliation of operating earnings (loss) to adjusted EBITDA by segment for the 12 and 40 weeks ended October 3, 2020 and October 5, 2019.

                                                12 Weeks Ended                    40 Weeks Ended
(In thousands)                            October 3,       October 5,       October 3,       October 5,
                                             2020             2019             2020             2019
Food Distribution:
Operating earnings                       $      9,191$     11,699$     34,990$     36,564
Adjustments:
LIFO expense                                      295              639            1,684            1,869
Depreciation and amortization                   7,413            7,390           24,561           25,368
Merger/acquisition and integration                  -                -                -             (130 )
Restructuring, asset impairment and
other charges                                   6,538            1,043           19,222           10,724
Fresh Cut operating losses                          -                -            2,262                -
Fresh Kitchen operating losses                      -            2,204                -            2,204
Stock-based compensation                          522              302            2,524            3,319
Non-cash rent                                      31              147              125              353
Costs associated with Project One Team              -                -              265            2,877
Organizational realignment costs                    -              495                -              960
Severance associated with cost reduction
initiatives                                         -                -            3,143                -
(Gain) loss on disposal of assets                  (6 )              -            1,613                -
Other non-cash charges                             52               14              103              391
Adjusted EBITDA                          $     24,036$     23,933$     90,492$     84,499
Retail:
Operating earnings                       $     22,318$      6,726$     59,416$     14,600
Adjustments:
LIFO (gain) expense                               (15 )            257              586              858
Depreciation and amortization                  10,489           10,197           34,570           33,048
Merger/acquisition and integration                242                -              242            1,494
Restructuring charges (gains) and asset
impairment                                          5              253            1,233             (509 )
Stock-based compensation                          364              222            1,756            2,325
Non-cash rent                                  (1,134 )         (1,149 )         (3,818 )         (4,612 )
Costs associated with Project One Team              -                -              164            1,845
Organizational realignment costs                    -              318                -              616
Severance associated with cost reduction
initiatives                                         9                -            1,441                -
Loss on disposal of assets                         34                -            1,905                -
Other non-cash charges                             30              243               64              410
Adjusted EBITDA                          $     32,342$     17,067$     97,559$     50,075
Military:
Operating loss                           $     (2,511 )$     (2,646 )$     (9,406 )$     (5,806 )
Adjustments:
LIFO expense                                      107              372              888            1,034
Depreciation and amortization                   2,956            2,764            9,480            9,097
Stock-based compensation                          147              114              901            1,091
Non-cash rent                                     (85 )            (80 )           (288 )           (283 )
Costs associated with Project One Team              -                -               64              706
Organizational realignment costs                    -              122                -              236
Severance associated with cost reduction
initiatives                                        31                -              537                -
Loss (gain) on disposal of assets                   7                -              (56 )              -
Other non-cash charges (gains)                     12              (70 )             26              (91 )
Adjusted EBITDA                          $        664$        576$      2,146$      5,984



                                       29

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