Q4 2019 Earnings Call

Joining us today and today's call. I'll start with an overview of our operational progress and financial highlights and and Marco provide some additional detail on the fourth quarter and the full year financial review our 2020 Outlook finally will open up the call and take some questions. We were able to conclude 2019 with Consolidated Financial results in line with our guidance office light some ongoing challenges and cost pressures including elevated health care costs in the fourth quarter. Our team remains committed to improving our execution hand or long-term strategy. We're building bomb on our existing Foundation each day from our retail stores to our food and Military distribution businesses as we increasingly position the company to sustain profitable growth.

for the 4th

Quarter Consolidated net sales increased over 5% 2 billion dollars representing the 15th consecutive quarter of growth for the company.

Well for the year net sales increased nearly 6% to 8.5 billion dollars. We not only met our goal of sustaining mid single-digit sales growth for another quarter month. So we continued our management retail by closing the year with positive comps to our sales for the second consecutive quarter or fiscal year 2019 operating cash flow an increased $180 and free cash flow increased to $105 Million strengthened by your significant reductions in working capital this additional cash flow supported November of our net debt position for the year, which we were able to achieve while growing sales and executing the Martin's acquisition early in the year.

As we start 2020 we have achieved our initial goal of the 30 million dollar working capital reduction in our team is poised to drive further Improvement in this area.

moving on

Underwater segments and the food distribution segment net sales decreased slightly on a reported basis. However, increased two and half percent before the impact of the elimination of the inter-company sales team as I mentioned last quarter, we're continuously supporting initiatives to make improvements to our supply chain to increase efficiencies as well as reduce expenses as evidenced by the 4th quarter a significant component of our working Capital Improvements resulted from better inventory management or building on the tools. We discussed previously to better forecast demand and informed purchasing activities to also manage our assortment. Our transportation team is in the process of implementing new route management tools to reduce miles travels traveled which includes the installation of new on-board computers on all trucks to improve improve real planning efficiency and service levels.

We're encouraged by these new programs that will enable us to better.

leverage our Fleet across the distribution Network

We concluded the operations of fresh kitchen during the fourth quarter of fiscal 2019 and entered into an agreement to sell the facility and related equipment with an expected closing date off late in the first quarter of fiscal 2020.

And the retail segment sales sales growth growth was driven by contributions from the newly acquired Martin's business and the second consecutive quarter of positive, our sales. We continue to gain valuable insights from our partnership with dunnhumby, which will strengthen our assortment positioning and loyalty programs to deliver better experiences for our customers as we meet their shopping needs and fuel future growth in the military segment net sales decreased slightly is our growth from decas private. Grandpa was offset by declining, store sales at that operated locations.

We are committed to improving our operating results.

The future and to start twenty-twenty. We are pleased to welcome David as president of our military division. I've had the pleasure of knowing David for some time in believe. He'll be a great addition to the Spartan Nash family David's experience knowledge and passion for the military resale channel will be important as we continue to grow our relationship with Decca and our business partners month. We appreciate the contributions of Cathy Mahoney who has been the leader of the military segment for nearly three years while also serving as Chief legal officer. She's provided a strong foundation for David David to further build upon and following the completion of the transition Cathy will continue in her role as Chief legal officer. Additionally. I'd like to note that the board of directors has continued a comprehensive process to identify the next chief executive officer and as they progress in the search over the course of the last quarter.

In summary, we're pleased have delivered results consistent with consistent with our guidance for the second consecutive quarter and are optimistic about our future outlook. I'll turn the call over to them for the financial aid. Thanks, Dennis and good morning to everyone joining us on the conference call and webcast net sales for the fourth quarter of fiscal 2019 increased to two billion dollars an increase of a gap in 1 million dollars or 5.3% over 2018 Ford Escort of sales of 1.9 billion. Our sales increase was due to the acquisition of Martin's as well as higher sales within the food distribution system prior to the elimination of the inter-company sales for the acquired business adjusted EPS for the fourth quarter of fiscal 2019 came in at $0.23 per diluted share compared to adjusted EPS page thirty-two cents per diluted share in fiscal 2018. S fourth-quarter adjusted earnings for the fourth quarter of 2019 includes three point nine million dollars after taxes or 11 cents per share and costs associated.

do with the CEO transition and it's

Supplemental incentive program for eligible eligible Associates, which are referred to collectively as the transition cost elsewhere my discussion on a gaap basis. The company reported earnings of fifteen cents per diluted share in the quarter compared to a loss of $0.39 per diluted share in the fourth quarter of fiscal 2018. The year-over-year Improvement reflects lower asset impairment charges and the benefit of sales growth of the Martins acquisition as well as lower interest expense compared to Prior Year's fourth-quarter shifting to our business segments net sales and food distribution decreased 1.6% to nine hundred thousand dollars in the fourth quarter of 2019, excluding the elimination of intercompany sales to Martin's post-acquisition, net sales increased two and half percent primarily due to sales growth from our existing customers inflation showed inflation slowed to 139 basis points and food distribution during the quarter a decrease of 29 basis points from Q3, but an increase in wage,

67 basis points over the fourth quarter

For fiscal 2018 reported operating earnings for food distribution in the fourth quarter total 10.9 million dollars compared to a loss of 14.3 million dollars in the fourth quarter of 2018, primarily due to lower asset impairment charges partially offset by higher corporate administrative expenses, including the transition costs.

Adjusted operating income totaled fifteen point seven million dollars in the quarter versus the prior Year's fourth quarter adjusted operating income of 17.9 million dollars due to the higher corporate administrative assistance as I mentioned a moment ago and tire supply chain costs partially offset by the exclusion of losses related to the fresh kitchen operations, which were not adjusted in the prior-year quarter.

Our retail net sales increased 27.7% $548 million dollars for the quarter primarily due to the acquisition of Martin's comparable-store sales were positive and a half percent a sequential increase of 40 basis points in our second consecutive quarter with positive comp sales retail reported operating earnings of 4.2 million for the fourth quarter of 2019 compared to two point nine million dollars and the prior Year's fourth-quarter. The increase was primarily due to the contribution of the acquired Martin stores as well as lower restructuring and acquisition costs. These items are partially offset by higher health care costs, which were unusually high in the fourth quarter on an adjusted basis retail operating earnings were three million dollars for the fourth quarter of 2019 compared to operating earnings of four point seven million dollars in 2018, fourth-quarter and exclude restructuring and acquisition activity in both.

finally

Military net sales of $511 in the fourth quarter reflect a decrease of of half percent compared to Prior year sales of 513.3 million dollars. The decrease was due to lower sales & Decker operated locations partially offset by the continued expansion of deck is private-brand program.

Military reported an operating loss of 3 and 1/2 million dollars in the fourth quarter compared to a half million dollars in the fourth quarter of 2018 primarily due to higher supply chain costs partially offset by the movement in margin rates on an adjusted basis military's operating loss for 3 and 1/2 million dollars for the fourth quarter of 2019 compared to zero point four million dollars in 2018. S fourth-quarter month net sales for fiscal 2019 increased 5.8% to 8.54 billion from 8.06 billion in 2018. The increase was largely generated through the application of Martin's as well as sales growth within the food distribution segment prior to the elimination of the inter-company sales for the aquarium business.

adjusted eps

2019 came in at a dollar ten per diluted share compared to adjusted EPS of a dollar eighty cents per diluted share in Frisco 2018. The decrease in adjusted EPS is due to higher supply chain, higher administrative expenses administrative expenses within adjusted earnings for fiscal 2019 include 6.8 million dollars after taxes or $0.19 per diluted share in a position costs on a gaap basis the company reported earnings of $0.16 per diluted share in fiscal 2019 compared to ninety four cents per diluted share for fiscal 2018 volt line also reflects the impact of pension termination expenses and the impairment of a business trade name.

In fiscal 2019. We generated Consolidated operating cash flows of 180.2 million compared to a hundred seventy one point seven million in the prior year. The increase was due to a month and working capital partially offset by lower earnings from continuing operations. We generated a hundred five point four million dollars of free cash in 2019 and increase from 100.2 million in fiscal 2015 and reduce net debt Levels by 15.1 million dollars in 2019 despite funding the Acquisitions of Martin's and during to that during fiscal 2019. We declared cash dividends of twenty seven point six million dollars.

Covered in yesterday's press release. We are issuing guidance for fiscal 2020 which will be a 53-week year with the 53rd week falling in the fourth quarter overall who we anticipate low single-digit percentage sales growth over 2019, including the 53rd week and food distribution, we expect to achieve mid single-digit percentage sales growth on a 52-week basis driven by growth of existing customers and the addition of new business partially offset by attrition in the independent retail base and lower sales due to the closure of the fresh kitchen operations during the fourth quarter of 2019 in retail wage, but the continuation of positive comp sales ranging from 0.1 to 0.7% for the fiscal year within our military business. We expect to continue decline in to dekha comparable sales Trend wage, which will be partially offset by gross and deck is private Brands resulting in mid resulting in a mid single-digit percentage decline on a 52-week basis.

We expect the company's profitability to increase over the prior-year with fiscal 2020 adjusted earnings per share from continuing operations to range from a dollar 12 to a dollar twenty per diluted Chef compared to a dollar ten in 2019, excluding restructuring charges merger acquisition and integration expenses and other adjusted items.

We

Expect fiscal 2020 adjusted ebitda to be in the range of 180 million to $190 compared to 2019 adjusted ebitda of 177.9 million dollars consistent with the cup is projected increase in operating earnings from a gap perspective. We expect that reported earnings from continuing operations. We in the range of 93 cents to a dollar for per diluted share in compared to earnings from continuing operations of $0.16 in fiscal 2019. Our adjusted and reported diluted earnings per share guidance from continuing operations includes a benefit of approximately $0.02 a week in fiscal 2020.

The continued favorable contributions associated with the company's project one team initiative are expected to be partially offset by the increase in cost to achieve normalized incentive compensation levels in fiscal 2020. We expect our Capital expenditures to be in the range of eighty million dollars to ninety million dollars and depreciation and amortization will range from approximately 88 million to $94 off the approximately twelve million dollars of incremental Capital expenditures mentioned in the press release that were not paid in fiscal 2019 are included within our Capital expenditures guidance wage. Also, we expect interest expense will be in the range of 27 to 28 million dollars.

finally we

A reported and adjusted effective tax rates to range from twenty 3.5% to twenty four and half percent and now I'd like to turn the call back over to Dennis. Thanks Mark wage, and closing. We are pleased with the progress we made and the second half of the year and will continue to focus on our execution. We remain confident in the strength of our platform and and our futures and with that. I'll turn the call back over to listen, and we can open it up for some questions. Thank you. We will now begin the question-and-answer session to ask you a question. You may press * then 1 on your touchtone phone. If you were using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble the roster.

The first question today comes from Karen short of Barclays, please. Go ahead. Hi. Thanks for taking the question a couple of things just want to talk a little, in terms of the traffic versus basket and also, you know inflation in the quarter relative to inflation expectations for next year 1920.

Okay. So the the camp for the quarter is it retail is made up of more Improvement in the s p t and I'm like rotation and the transactions and I would say both of those narrowed from the previous couple of quarters. So we've gotten a little more faith in the s p t a little less than the s p t so that's that's kind of the makeup Karen for the for the queue and inflation and we talked about, you know hundred and thirty-three points at retail and 139 that distribution, you know, we're looking for it to be in that nearly 1% range for next year's which know based on where we've is directly been the last several years, you know, two years ago retail inflation was -2 and then we went to 4 a.m.

You're two years ago when?

2.9 last year or so at least we're out of the doldrums of you know, zero inflation and a little bit of inflation's always been good for the space.

And then just on this quarter in particular any color you could give on gas margins as it might have related to benefiting you cuz I mean it does seem gas margin in there. Yeah, her gas margins were actually favorable for the for the quarter compared to Prior year actually in a sense. It was nearly 10% better on the the margins. We're a little short on gallons, but you know, we're more profitable on the fuel business because of the favorable Cent per gallon.

And then in terms of I can collect, you know, obviously you are getting a lot of traction on that any thoughts on like a further roll-out or ongoing rollout and maybe just a little color on that business generally off. Yeah, you know, we we don't talk a lot about the click and collect and and you know, I I think maybe our ceiling by virtue of the kind of make-up of our store base, you know in a more rural rural and many places maybe a little more limited limited than other retailers, but we have a team that's working incredibly hard on that click like business out of our hundred and fifty six stores. We currently have that in place and 68 of them and we are we track Lots numerics around that that's a fun part about this business. If you like numbers that are a lot of them. One of the things we do is we ask customers about their overall satisfaction with with the the program and we a Thursday.

You're ranked one through five five being the best. We have a t

Percent of the customers give us a five on that business. It's growing nicely. We've added some stores in the year and that helped with the we've also recently added onto our mobile app. If you want to sign on for what we're calling fly by if you give us your permission will track your Yugioh coding to our location so we can get that order ready quicker. So we're really focused on reducing the wage time. We actually were pleased to see incisive did a study of Haiti retailers in North America and Europe, but we probably were one of the smallest and we took we got pranked number five across the US and Europe in fulfillment and our click and collect model and actually number 11 overall in in maturity so long

Lots of good things going on there in that space.

And we're hoping to make it even better as we move forward. Okay, and then last question for me and I'll get back to you but any puts and takes to think about as it relates to next year, I mean, obviously I appreciate their feast or there's the Easter shift and there's obviously they also the 53rd week but anything else just to think about and call out as we model the various. I think you know, we may have laid out the sales by the business units. And in that regard, I think that's probably the you know, just the other component is, you know, looking at the individual business units and how they faring profitability is to you know, who's growing mid-single-digit who's declining mid single-digits, you know, that sort of speaks a little bit for itself, but nothing unique within their

Okay. Thanks. I'll get back to meet you.

The next question today comes from Chuck's of North Coast research.

Good morning, everyone. I think you've got three or four distribution centers that are serving both food distribution customers and and Military. Can you give us an update on where that program is add to have more of those, uh, DCS on such a footing and and how it contributes to margins in both of the segments.

Well, we actually only have a couple of days that are kind of being used for more than pure military truck so that you know, it's a little less Limited in scope and I'm not you know, we see with you know, kind of the strategy the company of you know, building out a network that'll be able to solve maybe more difficult logistic problems with the shipping food stops stuff's primarily, you know, then network is critical and the first two that we've kind of commingled we're getting some benefit from so those are important parts of the network.

What types of customers or excuse me what types of logistics Solutions are you referring to?

Well, I don't know that we want to get into a lot of specifics about the customer base and we're serving out of each DC specifically, but I think it's fair to say Thursday. Look at the the trends of our business and the fact that we've now put 15 consecutive quarters of growth on the table and that we're calling for Thursday the distribution space, you know, mid single-digit sales growth again next year. I think it's fair to say we're we're finding ways to if not, I'm not getting close to optimize that that Network and I mean just a little Logistics side Chuck come in anytime that you can get closer to the customer and reduce stem miles. I mean you're going to have wage costs and so hopefully increase profitability in that regard. So I mean if we're able to leverage certain locations to be closer to the customer, I mean that's always going to be a wind from us as well as for the customer because it leads to later.

Cut off times and later.

Best time so that they can get a better reflection of what they're selling through before their order to get submitted.

Got it. Thank you.

The next question comes from Kelley Benya of BMO capital.

Hi, good morning. Thanks for taking our questions. Wondering if you could just help us kind of step back and look at the year in 2019 and some of the big buckets of suspense has clearly supply chain was a headwind just maybe help us understand how much that impacted ebitda, you know in 2019 and what you think you can get back in 2020 and then transition costs and how that came out relative to your expectation. And what if any we should think about in 2020 and then home healthcare seem to jump in the quarter and just you know, seem kind of question. Yeah, so maybe I'll maybe take take them in the reverse order and then if I if I miss a portion of it off so I would say in the healthcare. Yes. I mean I I would tell you that as we were entering into the fourth quarter and you know, you obviously update the guidance as you go along for for both the positives and the name.

You know, I would tell you.

The with some of the changes we had made to the program and some of the updates that we had. We felt on the health insurance side that we were going to run favorable to the prior-year going into the fourth quarter. That's the way the trends were were leading us and the way the quarter played out not only did we not decline. We had a, you know, a reasonable increase on a year-over-year basis and health care and you know, I don't want to say bad luck, but you just had a disproportionate amount of large claims during that fourth-quarter, you know, you always have the different claims, and and that's part of the challenge being self-insured. But in the fourth quarter, I would tell you that we had a disproportionate amount both versus any quarter we had this year anytime we had in the last three years. This was the highest number of claims and so that led to the 4 and 1/2 million dollar exception. So I mean, I think from our standpoint, you know, you you can't because you can't control

Can't predict it. You know, I think we've got some element of that increase as being a new Baseline.

And built-in for 20 20 and you know, you'll you'll see how that goes and we'll update during the course of the year as health insurance plays out in that regard as it relates to the transitions Kelly. I would say that they came in smack dab in the middle of the range. I mean, we had a relatively tight range, you know, we were saying eighteen to twenty cents and I think we came in at $0.19 and I would say that those costs, you know came in right where we expected part of that is that you know, the company and its associates achieved, you know, the the incentive program that we had put in place with the back half of the year had we not off it will lead to a significantly different result for those costs. And those are baked into the number for fiscal 2020 because you know as we highlighted when we put a we talked about the incentive program that we put in place company was not on track to achieve, you know, it's normal incentive program. And this was this was an a program that was put in place Thursday.

Before the back half having said that for twenty twenty, you know, we're we're showing the Top Line growth that we are but we do have an incentive bucket to fill and talked about getting to normalized and sense jobs. I mean, we probably have an incentive bucket to fill that's in excess of ten million dollars for fiscal 2020. And so as we look at the improvements that we're going to make in supply chain and other elements of the whole business, you know were dropping, you know, you know anywhere from a to to a 9% increase in in EPs and a two to 7% increase in ebitda, but with some of the improvements that were making some of the growth that were getting in fiscal 2020 are being used to refill, you know, the incentive Compaq too a historical level.

So, I don't know if that answers all your questions. I mean cuz it kind of wraps in the supply chain piece of it, but I don't know if I covered everything you were asking in the response. Yeah. Yeah, no just was just was trying to think about Supply change a little bit more in detail. And how much how much do you think you can improve on that in terms of just even dollars next year? Yeah. I don't know. I'm going to call them on specifically because we've got I would tell you that it will be it will be one of the major drivers of our Improvement you over a year and Walton his team have identified a number of initiatives underway. And you know, we've we've seen the success we had in the back half of the year and reducing the inventory which helps improve doc turns but also helps improve the operating efficiency of the warehouses off both from a put away in a replenishment standpoint. So I'm not going to necessarily try to quantify it. But I mean, I would tell you that the improvements in supply chain are some of the larger drivers from the year-over-year. Yep.

Call Improvement between refilling the E and and the overall bottom line.

Okay, that's that's helpful just says we also look back at the year in terms of Martin's. Can you help us understand? Just how much that added to sales and ebitda for the year how that came in relative to your expectation how those Banners are performing relative to the Legacy retail business and guessing that that gets folded into the comps this year. So just is there any impact from that to to the to the Outlook across retail and 2020 a lot of questions in there? So the the page the last part is Martin's will be in our comp even though there is only a one-day or two-day a one or two-day portion of the first week. That's that's not, I will be in four fifty two of the fifty three weeks and and I would say that I think our retail folks would like it to be fifty-three of the 53 as we we had a really strong start to the year for Martin's but they will be in, Georgia.

15 of the 16 weeks in the first quarter and then the remainder of the Year, they'll be in the cam for all the all those numbers as it relates to the sales part time you that you know, we were pleasantly surprised with where their sales were. I mean, they probably fell probably sell less than a percent or so from our expectations. Probably Thursday. We guided a little conservatively when we took the business on because you you do worry about a loss of some volume when an acquisition and customers maybe go elsewhere about you know, I would say is that from a top-line price point we were able to maintain or retain the vast amount of the sales volume there. So we were pleased on that and from Annie but I'm not necessarily going to try to break that down and out. But I mean, I would say that, you know, we had we had that they were in line. They probably must like the rest of our business they fell a little bit short versus the budget wage.

I would say that they were.

Relatively close on a full year basis to what we had projected in modeled when we made the acquisition and then I know there were more questions there, but I missed I I lost track of them know that does it and I guess just one more for me in terms of free cash flow so big improvements in working capital this year. I think you may have said another thirty million improvements so far this year may have misheard that but just maybe what is your outlook for free cash flow in 2020, if you can help us all there and took how much debt you're planning to pay down because your interest expense was a little lower than I would have thought. Yeah, so, you know in the interest expense side of things. I mean, we you know, we we generated I guess I would say we made more improvements in working capital.

More quickly than we had projected. So the interest I think did come in a little bit lighter and then I think from our standpoint when we were setting Guidance the last the last rate cut that the FED had put in place was not one that we had originally modelled. So I think you know, I think we got the benefit of one more rate cut in the fourth quarter that wasn't in our expectations when we were setting the guidance. And so that's that's probably where we got some benefit in addition to The Debt Pay down, you know, I think from our standpoint as we look at 2020, you know, I think we've I don't know that we put a 30 million dollar Target out there. I know that we've got some Targets on the inventory side that would probably be in that range. But then when you factor in the corresponding offset from a from an accounts payable standpoint because you've got less, you know, the so you're purchasing any given point in time. It's sort of minimise it not minimizes it it reduces that wage.

Greece oh, you know, I I'd feel comfortable saying that it's probably in excess of fifty.

And but I don't know that I'd go so high as to say Thirty million dollar Improvement it working capital for fiscal twenty and then as it relates to The Debt Pay down, I mean between the free cash that we generate as well as you know, the expected sale of the fresh kitchen and some other underutilized assets. I mean, I would expect that our leverage would get down to the low threes. I don't want to get too specific because I don't want people trying to back into my budget even where we think for even with the Debt Pay down and and kind of make assumptions there, but I would say low threes between the expansion of re-birth during the year as well as the actual pay down debt that we'd finish leverage in the low threes.

Okay. Thank you.

The next question comes from Paul Trussell of Deutsche Bank.

Good morning. This is Damon policy known for Paul. Thanks for joining questions. Just back on the retail, for this upcoming year. It's going to be in you know, expect to be in with the territory what gives you confidence in this whether it be macro drivers or specifically SpartanNash initiatives. Yeah, I'll I'll take a shot at that, you know, first off, you know, we ended the year with two consecutive quarters of positive comments. And you know, I think that gives us a a lot of conviction about the things we're doing our our delivering wage, you know, we don't spend a lot of time or want to really talking about, you know, region-by-region, but you know, Michigan is are by far our largest market and we actually were off for the full gear in Michigan, even though we we we only had three and four positive for the company, you know, we're doing some I think really good stuff with dunnhumby, you know dead.

We're already seeing some some winds in that. I think they're helping us with some price perception.

And information they're also been very effective helping us with better understanding efficient promotions and drivers of traffic. So that's Thursday element. I'd also say that, you know, we the the click and collect pieces meaningful in terms of how that's performing. You know, we have a newer senior Merchant Lori Reyes. She's not been here quite a year yet. She's made a big difference along with Tom Swenson that's running that business. So, you know, there's no reason for us not feel like we can sustain the cops for the year and it you know, the Martins business will go into the comp that'll help. We did call out in q1 because we have an Easter shift Easter Sunday and the Post Easter week now fall into Cube one and that's a very slow week. So that's about a 30 to 40.

Point headwind in q1, so we called it approximately.

We're going to be around flat but the balance of the year, we we see as positive.

Thanks, and then on on the military segment with the down mid-single digits for this upcoming year. Could you just talk about the Dynamics there and kind of any opportunities to kind of improve that going into the the next year what any initiatives in place there? Yeah. We're we're working really hard on that. I mentioned David's who's our new President Bush TV and David Scott long tenure with P&G and ran the military business for PNG. He's really passionate about the space. There's a trade group that works with the military retail system and David has chaired that in the past. So I think he's going to bring some New Perspective and fresh ideas. I would say is you look at that. Same store sales running -4 to 5% That's clearly a big a big headwind for us over the past the club.

a couple of years

Maybe team under Cathy's leadership is found ways to kind of plug that volume Gap and you know, we don't have a ready solution at this moment for twenty years, but I would say and the military because side this Advent of new customers eligible to shop in the commissaries could be a potential driver. We have not seen published numbers public numbers from Deca and how that's going starting January first. There are several million folks that are now eligible to shop there. I think the forecast was maybe, you know eight hundred thousand or so. So of those people were located in geography time with generally take advantage. We know when January there was an increase in new Shoppers at Becca. So that's a good sign and also, yep.

as it relates to our own performance in the

Channel we talked about supply chain, you know kind of being a bit of a headwind all the last year and particular particularly. So at Military Highway these we believe we've made significant Improvement on that and that we will improve our bottom-line next year in the military business. Even though Off The Top Line could be -80 to a hundred and twenty million dollars. So I guess that's saying something right? That's a lot of Revenue that could be falling off, but we still think we're going to improve the bottom line.

Thank you.

The next question today comes from Chris Manville of do I do think?

Hey, good morning, Mark. I think I heard you referenced that the year on your ebitda improvement. It's probably gonna be driven by supply chain improvements this coming year. I heard that correctly just been thinking about retail profitability for the full year. Is there an opportunity or or maybe even an expectation internally to begin showing some margin stability or should we be thinking about kind of a certain level of investment to sustain the positive comps that you're looking forward to? Well? Yes. Let me on the first part. I think that you know, obviously with

supply chain affecting

75% of the business between military and and food distribution. I mean when we were saying, you know 2019 we had some of the higher supply chain costs. I mean it is supply chain in twenty-twenty but I don't get a discount that the Top Line growth that will get from the Food Distribution business in and of itself will help Drive some incremental profit. They're so I I would say supply chain improvements are our large driver, but then the top growth will certainly contribute. I you know, I think on the retail side of things, I mean we've you know, we've made some Investments and in certain areas that where we felt that, you know, we would get the return page that's been one of the contributors to us moving towards positive comps is Dennis was alluding to so, I'm not sure as we sit here that we feel that there need to be substantial investments in in retail or in their margins in order to drive comps but you know selectively within categories within markets. I mean, you know, that's where we're leveraging our data and leveraging the partnership wage.

dunnhumby to try to identify

Where to get the greatest return as we go forward, but I I think it's going to be selective and and maybe we're price perception wise we may be able to get a better return not so much that we need to make a blanket investment across, you know, the retail store base.

Okay, maybe I can ask them a little bit differently and few for being down. Roughly fifty five basis points on adjusted ebit. How much is that was the the health care increases versus Summer Global Investments that you made almost all I mean, I would say almost all if not more than all. I mean if I if I broke it down, I mean the, you know, the the retail business has the largest portion of our Associates and they obviously then represent the largest portion of the Associates on health care. And so when we allocate out they receive the largest charge I would tell you that the fact that if not the whole portion the overwhelming portion of because you can always play it. However you want with some of the other puts and takes but I would say that if not, all of it the vast majority of it was associated with the increments are in Q4. Okay, that's helpful. And then just thinking about the distribution business. I guess it's you know, no hidden secret that obviously there's been quite a bit of challenged on the independence.

specialty grocery front of the wait

You just talk about maybe the General Health of the conventional independent versus some of your your larger retailers and filmer to what guaranteed asked a little bit earlier. Is there a way of thinking about the Cadence wage distribution sales growth throughout the year on a 52-week basis. So I would just say that as you start characterizing independent retailers. It's just not a monolithic thing, you know, we serve a couple of thousand locations and there's a wide disparity in size and the volume and the health club Independence basis, but I am honestly shrinking space for some time, you know one 2% and I don't think that's in in a macro sense going to change much money, but from perspective of looking at the Cadence of the

To distribution segment on the top line. I think you know we're we're guiding this mid single-digits You know, despite last quarter being only two and half percent. I think that would suggest to you. We have some confidence in that number and we're seven weeks into the year and it's probably pretty radical. So we're feeling good about the volume off and that segment. I think just kind of stepping back a little bit about kind of the the trends of the business and you ask a question about retail profitability Etc. You know, I think we've probably given more specific guidance here on the years and we've given in any year that I can recall, you know, so if you kind of reflect back on, you know, kind of where we were it was tough year for us and I think we're coming out of this year with what I would say a significant amount of momentum. I mean, I think the Outlook looks very good. You know, we're still forecasting here for you dead.

mid single-digit

Both on the distribution segment and continued positive concept retail and as I just discussed the you know, the military segment is going to be negative or top-line but we're going to improve the bottom line when you roll that all up into you know, low single-digit growth in this environment and improved earnings as Mark was off discussing, you know, you know to to 9% on EPs and ebit a growing at the same time, you know deleveraging our our balance sheet took from my perspective. I think we've we've taken a big turn here and I want to make sure that everybody understands that the turn is comprehensive. It's not just took one little slice of the pie and I think the team here is worked incredibly hard in the back half of the year and and I'm proud of what they've accomplished.

Okay, and then just one last Quick one for me, like I know it's really early in the year. But nonetheless, I believe Intermodal Freight rates are actually down year-on-year if that truck is that an opportunity for some potential savings for the full year. Yeah. I mean, I think I I think that our volume of Intermodal isn't that heavy but I mean it certainly represents an opportunity afraid stay that way where you'd have to you know, you'd have to look at our Network and how we're bringing things in Bound and try to capitalize on that. We're certainly may well situated in some of our to be able to capitalize on that.

Great. Thanks again.

Welcome here. Thanks.

Again, if you have a question, please press * then 1 the next question is a follow-up from Chuck of North Coast. Thanks. Just bought a question about the mild winter weather how it impacted the fourth quarter, especially in your Northern Michigan stores, and and and what it's looking like thus far in the first quarter month. We actually had in the fourth quarter a more typical kind of winter experience. So it was like year-over-year. I don't think we felt it had any kind of material impact on the on the volume. But as we are now in two weeks 7 of the new fiscal year, it clearly has had an impact on the volume. We had a really nice snowy January February last year. We've got virtually we've had a couple of bouts of snow, but nothing sustainable the temperature

been very

It is having a negative impact to be sure and you know, so I'm a little concerned. I think we talked about we're guiding flat. I think we'll probably get approximately flat in the first quarter. But if there's a if there's going to be a hiccup in it, it's that this weather is materially different than a year ago.

All right. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Dennis Hudson for any closing remarks Alyssa, and I want to thank everybody for participating on the call today. We look forward to speaking with everybody again. When we report our first quarter 2020 results everybody. Have a great day. Thank you is now concluded. Thank you for attending today's presentation. You may now disconnect.