Q1 2022 SpartanNash Co Earnings Call
Okay.
Good morning, and welcome to the Spartan Dash first quarter 2022 earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to U K Lee Campbell head of Investor Relations. Please go ahead.
Good morning, and welcome to the Spark Nash Company first quarter 2022 earnings conference call on the call today from the company are President and Chief Executive Officer, Tony start them Executive Vice President and Chief Financial Officer, Jason moniker.
By now everyone should have access to the earnings release, which was issued this morning at approximately seven am eastern time.
Copy of the earnings release as well as the company's supplemental earnings presentation. Please visit <unk> website at Www Dot Burton Nash Dotcom Backslash investor.
Call is being recorded and a replay will be available on the company's website.
Before we begin the company would like to remind you that today's discussion will include a number of forward looking statements.
If you will refer to <unk> earnings release from this morning, as well as the company's most recent SEC filings you will see a discussion of factors that could cause the company's actual results to differ materially from these forward looking statements.
Please remember Burton Nash undertakes no obligation to update or revise these forward looking statements.
The company will also make a number of references to non-GAAP financial measures. The company believes these measures provide investors with useful perspective on the underlying growth trends of the business and has included in the earnings release, a full reconciliation of non-GAAP financial measure to the most comparable GAAP measure.
And now my pleasure to turn the call over to Tony.
Thank you Kelly and welcome to Spartan Nash, we're glad to have you on board as head of Investor Relations.
Morning, everyone. Thank you for joining us.
On May 12, we provided our preliminary earnings results and today I'm happy to walk you through additional highlights of the quarter.
As part of a winning recipe we're focused on transforming our supply chain.
And this past quarter showed that our efforts are taking hold we delivered an approximate 7% improvement in throughput year over year.
We also secured more than $15 million and run rate cost savings meeting our initial full year commitment of $15 million to $30 million in annual savings ahead of schedule. We reached the significant milestone by leveraging data and insights to create efficiencies throughout the distribution network. We now expect to achieve 25% to $35 million run rate.
Savings by the end of fiscal 2022.
These two impressive accomplishments are a direct result of our supply chain transformation initiative, which is a foundational element for expanding our profitability and we are just getting started I wanted to thank our supply chain leaders for their hard work and dedication in making this possible.
Moving to our retail segment, our team of frontline store associates continue to deliver quality service to shoppers, resulting in comparable store sales there were up seven 2% in the quarter.
We are building on strong momentum in our retail business and we saw our market share growth we.
We are focused on providing exceptional service and market competitive pricing. This is helping us retain our current customers and shoppers who have recently discovered our stores.
We remain committed to our mission of delivering the ingredients for a better life to drive gross margin and create more value, we're expanding our private label brand penetration overall, our private label sales increased 13, 7% year over year outpacing the company's overall sales growth that is really impressive.
Now turning to our military business I am proud to say sales increase over the prior year quarter for the first time since Q1 of 2020. Additionally, we achieved military adjusted EBITDA margins of one 6% exceeding our turnaround target of 1% we are strategically positioning military for <unk>.
Through a variety of initiatives and we continue to see opportunities to further increase the profitability of this business.
One of these opportunities around the recent extension of our private label contract with Deca.
Military distribution network gives us the unique ability to service 160 commentary and 400 exchanges worldwide.
We are proud to continue providing America's military heroes and their families with great value add taste from home.
And speaking of our unique global supply chain. We are currently leveraging our military network to provide critical food and supplies Ukraine refugees across eastern Europe .
Now turning to the impact of inflation had during the quarter.
While inflation was a tailwind for us our performance also reflects the continued execution of our winning recipe in our supply chain transformation initiative.
Looking ahead to the remainder of the year, we expect to continue operating in a volatile in an inflationary environment. Our teams are going above and beyond to effectively manage through these uncertainties. Additionally, the impact of inflation on our results should taper in the second half of the year.
Turning to the labor environment in order to attract and retain top talent in the labor market. We've taken several steps to enhance our associate experience. These include investments in wages additional benefit heightened focus on safety and training associated recognition and streamlines communication.
We are seeing the benefit from these initiatives over the past two years, including two three times higher than normal applicant flow and a 48% improvement in our safety incident rate.
Turning to strategic growth.
During the past couple of quarters, we introduced our winning recipe defining who we are and where we're going the formula is driven by our three core capabilities people operational excellence and insights that drive solutions.
If you visit the Investor Relations section of our corporate website, you can view the Q1 supplemental earnings presentation, which provides an overview of our winning recipe.
Now I'll get into some specifics illustrating how we are executing on our plan.
Last month as part of our E Commerce strategy, we announced the partnership with door Dash. This partnership expands our grocery services and solutions across both our digital and physical platform.
It also enables us to empower our network of 2100 independent retail customers.
We're now providing them with additional tools and resources they need to grow their businesses and expand our digital footprint. Additionally, we will be offering on demand grocery delivery for more than 100 company owned stores.
Our customer centric innovation is a key priority for driving growth with this new Omnichannel partnership we will expand our customer base and capture more of the grocery retail market by rapidly scaling our digital offerings.
We also recently reached an agreement to acquire a three star, Michigan grocery chain sharpen safe food centers Easter.
These stores will be converted into our popular family fare banner.
Our focus right now is ensuring a smooth transition for our new team members and the customers they serve.
Also expanding shopper offerings through our robust loyalty program.
I'm also pleased to announce that the stock in California distribution Center has been integrated into our network through our partnership with the coastal Pacific food distributors. The 500000 square foot multi temperature facility is now fully servicing customers. After a phased in launch having a west coast presence allows us to provide faster fresher.
A more cost effective deliveries to our customers.
The arrangement will also save roughly 1 million gallons of diesel fuel annually, while helping us reduce our fleet mileage by 10% or more than 7 million miles. This agreement further advances our progressive work in ESG by reducing our carbon footprint, we anticipate lowering our greenhouse gas emissions by an estimated 10000 metric tons. This year.
And we're not done yet.
If you have not seen the document I highly encourage you to review our inaugural ESG report, which.
Which is available under the corporate responsibility section of our website at start Nash Dot com.
Now, let's talk about long term targets.
We have built a strong foundation based on our winning recipe.
And our momentum gives us confidence in the growth targets, we recently announced on May 12.
As a reminder, by 2025, we expect to grow net sales by at least 12% for fiscal 2021 to more than $10 billion.
We expect to increase adjusted EBITDA by at least 40% from fiscal year 2021 to more than $300 million and we expect to expand our adjusted EBITDA margin to 3% of net sales an increase of 25% from fiscal year 2021.
We are very pleased with the actions of the current executive leadership team has taken which is reflected in our performance. We believe our strategy provides a clear path for long term growth and increased shareholder value.
Before I turn the call over Jason I'd like to extend one more heartfelt. Thank you to our Spartan Nash associates, whose operational excellence and keen focus on winning is made these results possible. Your hard work and dedication is transforming our company on behalf of the spark Nash executive leadership team. Thank you for being our customer unsung heroes.
With that I'll now turn the call over to Jason to walk you through the first quarter financial performance in great detail.
Thanks, Tony and welcome to everyone joining us on today's call, let's jump into the detailed results.
Net sales for the first quarter increased 4% or about $106 million to $2 76 billion.
Compared to 2021 first quarter sales of $2 six 6 billion.
This growth can be attributed to positive sales in all three business segments.
Our GAAP EPS came in at 53 per diluted share in the quarter compared to <unk> 54 per share in the first quarter of 2021.
On an adjusted basis diluted EPS for the quarter was 83.
Paired with <unk> 59 in the first quarter of 2021.
On an adjusted basis the increase in profitability from the prior year quarter was due primarily to improvements in the gross profit rate, where we saw an increase to 16, 3% compared to 15, 7% in the prior year quarter.
Gross profit margin growth was driven by improvements within the food distribution and military segments.
Inflation during the first quarter led to higher LIFO expense, which increased $8 $5 million over the prior year's first quarter.
This incremental expense is included in gross margin, but is excluded from adjusted earnings.
The increase in gross margin was partially offset by higher SG&A costs.
<unk> higher cost and retail store and supply chain labor.
Increased fuel prices and higher incentive compensation related to strong company performance.
In addition, our reported GAAP results also include $3 5 million of costs related to shareholder activism.
The labor market conditions continue to drive higher wages additional use of overtime and reliance on costly third party contractors within our supply chain. Despite these headwinds we have made significant progress on our supply chain transformation initiative. During the quarter. This includes achieving more than $15 million and run rate cost savings.
Reaching the range of our original full year 2022 commitment ahead of schedule.
Turning to our segments net sales in food distribution increased by about $37 million or almost 3% to $1 $3 7 billion in the first quarter, driven primarily by the favorable impact of inflation on pricing.
We continued to see an upward trend in inflation as the quarter progressed.
In fact inflation exceeded 10% by the end of the quarter, while certain categories, including proteins and dairy continued to see the largest overall increases.
Looking forward our outlook assumes continued inflation for the remainder of 2022 with the impact on results tapering in the second half of the year.
Reported operating earnings for food distribution in the first quarter totaled $26 7 million compared to $21 1 million in the prior year quarter.
The increase in reported operating earnings for the segment was driven by higher gross margins, partially offset by an increase in incentive compensation and higher supply chain wages.
Adjusted operating earnings totaled $34 $6 million in the quarter versus the prior year's first quarter adjusted operating earnings of $22 $3 million.
Military net sales of $612 million in the first quarter increased by four 7% compared to prior year sales of $584 million.
The increase was driven by inflationary pricing, partially offset by reduced case volumes.
Notably no military case volumes declined in the first quarter the rate of decline slowed compared to the trend experienced over the previous year.
The first quarter reported operating earnings in the military business of $1 4 million compared to a loss of $5 1 million in 2020 one's first quarter reflects improvements in the gross margin rate.
These benefits were partially offset by increased incentive compensation as well as increased supply chain labor expenses.
The segment's adjusted operating earnings of $4 $7 million for the quarter is up $9 $3 million from 2021 first quarter loss of $4 6 million.
Retail net sales came in at $781 million for the quarter compared to $739 million in the first quarter of 2021, an increase of five 7%.
Our comparable store sales momentum remained strong at seven 2% for the first quarter.
First quarter reported operating earnings in the retail segment, where 0.0 $3 million compared to $14 2 million in the prior year quarter.
The decrease was driven largely by market competitive pricing higher utility and supply costs investments in wages made throughout the course of 2021 and increased expenses.
Retail adjusted operating earnings were $4 million for the quarter compared to $14 8 million in 2021 first quarter.
Each of the segments adjusted operating results exclude the impact of LIFO expense in both years and.
And the costs related to shareholder activism in the current year.
Overall, we achieved a first quarter record adjusted EBITDA of $76 6 million compared.
Compared to $64 $8 million last year the.
The company's ratio of net long term debt to adjusted EBITDA increased slightly to one nine times compared to one eight times at prior year end.
The increase was due to strategic inventory purchases in the current quarter in anticipation of further product cost inflation and to maximize service to our customers.
For the quarter, we generated $10 million of cash from operating activities compared to using $31 $8 million of cash in operating activities in the prior year quarter.
The increase in cash from operating activities compared to the prior year is due primarily to these changes in inventory.
During the quarter the company declared $7 $7 million in cash dividend equal to <unk> 21 per common share the company did not repurchase shares during the quarter.
We currently have approximately $80 million remaining on our current share repurchase authorization and are committed to returning value to our shareholders through share repurchases as well as continued regular dividends.
As announced on May 12, we raised our fiscal 2022 guidance. The adjusted EBITDA range was increased by $10 million and is now expected to range from $224 million to $239 million.
<unk> EPS is now expected to range from $2 17 to $2 32 per diluted share.
These updates to our EBITDA and EPS ranges recognize the strong start to the year across our operating segments.
Improved gross margins in our food distribution and military segments and ahead of planned supply chain transformation results.
Should we tempered by economic headwinds gives us confidence in the improved outlook.
These headwinds include the impact of limited labor availability and rising wages as well as expectations of future interest rate increases.
We also raised our fiscal 2022 guidance as it relates to consolidated net sales with an updated range of 9% to $9 3 billion.
Our outlook now reflects improvements in all three reporting segments.
With the continuation of positive results in the military business. We now expect military full year sales will be negative 4% to flat as compared to the prior year we.
We also expect that food distribution sales will now be up 3% to 5% from the prior year and that retail comparable sales will range from positive 1% to 3%.
We are delivering on our turnaround goals and are executing on our winning recipe while being focused on managing through volatile conditions to create sustainable shareholder value.
And now I'd like to turn the call back over to Tony.
Thank you Jason we are very pleased with the continued momentum of our performance, which is a direct reflection on the actions we've taken across our business. We believe our strategy provides a clear path for long term growth and increase shareholder value now Kayla will make a brief statement before we open the lineup for Q&A.
Thank you Tony as a reminder, the purpose of today's call is to discuss our first quarter results and the progress we're making through the execution of our strategy. Please keep our conversation focused on these topics.
As it relates to matters involving our annual meeting we remain in dialogue with our shareholders and will continue to ensure our actions are in the best interest of all shareholders.
I encourage you to visit our Spartan Nash transformation Dot com website for more information and update.
Additionally, we have filed a definitive proxy statement, a white proxy card and other relevant documents with the SEC in connection with the solicitation of proxies for the annual meeting.
Shareholders are strongly encouraged to read the proxy statement and all other documents filed with the SEC carefully and in their entirety, because they will contain important information shareholders may obtain a copy of any documents filed by the company with the SEC at no charge at the SEC's website or on our <unk>.
Nash transformation Dot com website.
Now I'd like to turn the call back over to the operator and open it up for your questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please.
Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Chuck Cerankosky with Northcoast Research. Please go ahead.
Good morning, everyone great quarter.
Could you talk about the retail sales a little bit.
With gas I'm not sure you excluded gas from the comps.
Could you give some commentary on what the numbers looked like with and without gas.
Now profitable gas was in the quarter and half gallons trended.
Yes. Good morning, Chuck This is Jason Monica and thanks for joining this morning.
On on fuel itself, we saw fuel dollars naturally raised significantly with the higher price points gallons.
<unk> were up marginally in the quarter and in profit margins themselves on a per gallon basis were about flat to last year.
And to your first question is is it in comps is excluded from our comps our comp sales of seven 2%.
And the continued momentum on that front.
Okay, that's great.
<unk> comps does that include.
Anything you can tell that's left over from the pandemic or is it mostly just inflation.
Because those are those are pretty strong numbers.
Yes, they are a great number of safe Chuck This is Tony.
The pandemic is.
Has waned, obviously and what we're what we look at now is that there are some habits from the pandemic that we think we're gonna be sticky for the longer for the long haul, but I don't think its temporary anymore at this point.
So so we have a.
With the inflation.
Driving we think we had about almost about 10% inflation during the quarter overall naturally with that with the natural elasticity. It followed with that there is a little bit of slight unit decline, but the team has done a great job overall.
We're kind of managing the price for the consumer it's difficult as you know in the retail space to find a way to make sure that you get pricing that the consumers can can manage in their budgets and we did I think a really good job of managing our key value items to that and as I mentioned a moment ago. The.
Our own brands have done really really well, we think with our own brand performance. We're seeing great growth. There. There are good quality products are there historically.
And currently at slightly lower price points of National brands and the availability has been good. So I think the thing. The fact, we have great partnerships and solid availability on the owned brands has also been a component of driving our comps.
Are you able to comment please on what you're seeing in terms of changes in product mix as a result of the acceleration in.
Inflation and how.
Fuel costs might be affecting in store purchasing habits.
Sure.
Chuck This is Jason again, so a couple of things I'd highlight an and.
If you step back and look at our business performance as I noted before fuel prices are up significantly and kind of the first order impact. We're seeing is as Tony mentioned the performance in owned brands our own brands and private label portfolio is growing at about twice the rate of all of our non private label portfolio. So were.
Seeing consumer shifts on that front secondarily.
Just as a reminder, our store footprint and the products and the offerings that we have in our retail business.
Really cater to these sorts of needs.
So for example.
We're winning with with those consumers that are loyal to our stores, but we're also winning on what we characterize as kind of fill in in smaller shops as well so as consumers have perhaps less money in their pocket and they need to they need to buy a smaller basket. The convenience that we offer with our our supermarket formats is really winning and we're seeing strong growth.
<unk> and performance on that front.
And then finally with this.
Coastal Pacific facility in Stockton, California, you say, it's been a fully phased in is there a <unk>.
Option for smart and to purchase that are you're leasing it in any way.
The mechanics of how it fits in with your logistics network.
Great question, So I would characterize it as a partnership.
Really from from start to finish and we've had a long partnership with coastal Pacific on the military side. The way that this arrangement works is.
Is that we are.
We are leveraging coastal's operations, they're operating the site.
We have a presence there to ensure we have quality and service to our consumers, but our to our customers out of that site, but but it's on a kind of a on a fee basis. If you will so if you think about this program what it's allowed us to do is to take about 10% of the miles out of our network by being located closer to our customers.
It's allowed us to have fresher deliveries to our customers on the west coast and in <unk>.
Last but not least is that it's allowed us allowed us to take over 1 million gallons of diesel fuel out of our consumption and 10000 10000 tons of <unk>.
<unk> out of our carbon footprint. So we're proud of the arrangement and other creative way that our teams have found it and access to the West coast, It's really been a win win for the environment for our customers and ourselves.
Thank you.
Yeah.
The next question comes from Greg <unk>.
Avion with Wolfe Research. Please go ahead.
Good morning. This is Spencer hanus on for Greg maybe if we can just take a step back for a minute could you talk about how youre thinking about the synergies between your three segments and then when we look at the military segments performance in the quarter January was $10 million of EBITDA.
What is driving the inflection in profitability there and is there an opportunity to spend that business now that we've seen sort of the improvement in profitability there.
Great. Thank you Spencer this is Tony so the our business you can see you can go back to the winning recipe.
We shared our corporate identity and how we think about our business and the difference we make for our customers and our in our shoppers we have a unique way to leverage those are those are those business segments and.
We have where we're fundamentally a wholesaler groceries, so at 71% of our business. We have a segment of our business that is retail at 29% AD because those stores are full.
Full scale business they are larger on average than our than our customer stores. The 'twenty 100 independent grocers that we serve we have an opportunity to really.
Really understand what makes it different to those folks and we can model that and show them that and it allows us to provide services and generate those services everything from human resource services to it services to category management to how to think about pricing in different geographies all of that works together very nicely between the retail part of our business Andy again, the larger prior visit which is <unk>.
Moshe wholesale so we continue to leverage that we're getting great feedback as it is we're taking the next step on that and in mining the insights that can make a difference.
Five solutions for our customers and so we're delighted where we are right now we're getting really good feedback from our customers about how that is all working together.
We're also delighted about the performance of our military we had a great quarter, we've had a great a nice run.
Remember back to when I first got started here at his job one with the military to figure out how we can make it better and it would be a good operator and provide the.
The agreements for a better life to our military men and women all across the globe and we've done that we've had we've made operational changes we've made improvements to our facilities improvements to our network and work directly with Deca to improve the network efficiency. There. We have made improvements in our dray arrangements with our manufacturing suppliers all of that is coming together.
We have a we have some great growth there on the profitability as you've seen.
We are still focused.
Exclusive on making that a great business and.
The focus of the team that's a focus of the overall organization.
Really I think your question was are we in a better position to sell now it's certainly better to sell something that's making more profit.
Is that something that's not but that's not our focus at all our focus right now is actually continuing the path of improving the operations improving the service and we think that's going to be a fine business and we don't see any reason why it can't be the same profitability as the balance of our portfolio.
Got it that's really helpful. And then maybe we could pivot to the cost savings target you raise that 25% to $35 million for this year from $15 million, what's what's driving that change in outlook and then how much of those savings do you expect to contribute to the long term $200 million EBITDA target that you guys put out there.
Yes, so I'll start on the NATO decent pick up a little bit here too so.
We've had we've had really great success very proud of the work, we've done and the transformation of our supply chain and the <unk>.
Focus on operational excellence overall by supply chain team.
We have our throughput.
Progress has been terrific.
Head of schedule. There were ahead of schedule on some of the network changes that we've made and all of that has delivered savings and productivity is ahead of schedule. So we felt bullish on taking that number up for.
For the year and that number increase well will carryover.
The $25 million to $35 million that we quoted for this year well will.
And we'll continue to grow our team has the next wave of of ideas on how that said the supply chain gets transformed and there'll be a significant player within that within that 300 made I would say probably probably roughly.
Roughly in the range of a quarter of the of the overall profitability on the way to 300 will come from supply chain improvements.
Thanks, Tony and kind of building that out maybe maybe putting a little more detail on the performance, thus far and where we're headed just as a reminder, you may pick this up Spencer.
The notes, there's a 7% increase in throughput and that throughput.
Flex pretty pretty closely to our cost performance in the warehouse and warehouse operations.
But beyond that as you kind of step back and think about the supply chain transformation as we've talked about before you've got the warehouse operations. We also have network optimization, where we've executed the both the addition, and subtraction of sites over the last 12 months to 15 months to ensure we've got the right locations and the right inventory at the right place.
That together with transportation and route improvements.
And with improvements in the way that we manage our inventory of all have all delivered and frankly delivered ahead of schedule. So what we've done is taken that $15 million to $30 million run rate and we brought the bottom end of that forward by three quarters and raised the total guidance.
For the exit of this year to that 25% to $35 million range, we feel good about it and that's also playing a role in the raised guidance for the overall company performance the plus 10 EBITDA at both the bottom and top end of the range.
Got it really really helpful and nice job this quarter. Thanks.
The next question comes from Scott, Michigan with Arc five. Please go ahead.
Hey, guys. Thanks, Thanks for taking my questions.
Unpack here so one of the things I wanted you guys said this is more macro must start there that you expect and we've heard this from other companies and I, just I guess I would push back a little bit but inflation is going to somehow decrease as we move through the year.
Yeah.
I don't believe at least our research would say the Ukraine wars actually not even reflected in prices yet and of course diesel continues to move forward. So I was just or up so I'm. Just wondering what gives you that confidence and how much of your.
Your guidance is dependent on this idea that things will get better.
Yeah, so working backwards.
<unk> is not does not tied to things getting better.
On the inflation front.
We say that we expect it to the inflation to the way we were.
Looking at things like what we saw in the last month, where legislation may go from 11% to 10%, we're not talking about.
A quick retreat there.
We agree we agreed as we think inflation to be around for a long time.
You are right I think the disturbances in the Ukraine and not fully it yet there is a whole another wave of a missed agricultural cycle, there's going to be very significant for the war in Ukraine.
There are a number of other things on the horizon in our own country around labor contracts, and then shipping ports and railroads and all kinds of other things that we may have we may be looking at more supply chain disruptions and we may be looking at inflation rates that are more extended now.
And art, so that when we talk about them declining we're talking about we don't think it can be double digit the balance of the year.
And debate and we May see some you know.
Some contraction on that rate as we hit some of the overlaps in the end of last year. We we tend to agree and we've been we've been we were early on this on this dialogue that inflation is not at all transitory, it's going to be here for a while we're in a cycle now that the underlying causes of the inflation are not quick fixes and theyre going to be around for a couple of years being at least.
That's great color.
Really great color. So so then the other question I had you guys went into this.
You're kind of monologue, but I do want to push a little bit on the idea that it does seem maybe a kind of naysayers say, hey, gosh, its military business and the distribution business almost looks like it turned on a dime from a profitability perspective.
What would you say to that someone pushing back that way.
They're pushing back to get turned on a dime yeah that it turns so fast that it's got to be more temporary than permanent.
I see so.
I would argue that we should be slower.
Look I think there is a.
Saying that as a yes.
<unk> got a team here of seasoned operators because I've brought in and there are some things that they saw that we could do very quickly.
So there were some things that came fast but.
The things that we have done and the changes, we're making right now in our in our <unk>.
Our house in our network.
<unk> changed or changing the delivery schedules to our to our commentaries in a way that is more profitable for us and maintains great effectiveness for the for the commentaries we are working with our manufacturing suppliers to re.
Re look there are agreements with them and those are those are changes that are that are baked into contracts and there'll be around so.
We acted quickly because we had that quickly we had a business that was not doing so well when I first got here and we had to make very quick changes and we found some really good productive wants to make.
Okay and my final one before I yield and this is real quick fill rates from manufacturers to you guys and then your fill rates to your customers.
Great Great question. So if the rates for manufacturers as I had mentioned in the last couple of calls remain disappointing.
The manufacturers are suffering from the same types of problems that they're all a lot of it is around staffing.
And another and disruptions that come from the staffing issues.
Our fill rates have been sort of just kind of staggered improving modestly from.
From our from our suppliers, we're making a better headway candidly internally in terms of that the gap between what we received and will get shipped out. So we are now right now we are performing internally.
Other than we were pre pandemic in terms of here's the here's a portfolio of goods. We <unk>. We ordered here is we're going to fulfill on the way out of our business that gap.
Historically, it's been about eight or nine points of studies, it's around 6% to seven points right now for us. So we feel great about our performance.
Instilled in the.
In a circumstance, where we're still receiving.
It really tough numbers from our manufacturing community.
Alright, guys. Thank you, obviously a lot of heavy lifting done during the quarter. So congratulations to the team on that good work guys. Thanks, so much.
The next question comes from Peter <unk> with <unk>.
Ahead.
Yeah.
Great Thanks, and congrats on the quarter.
Tony I think you mentioned that inflation was up about 10% in the quarter I was hoping you could give us a little bit more color on.
The retail comps you know really strong seven 2% number in the quarter.
Can you break down a little bit how much of that was.
Actual pricing our basket increases versus maybe your transaction growth just trying to understand how the consumer trended in the quarter.
Yes.
Great question. So what we're seeing right now we're seeing an increase in trips to our stores.
And I think theres a little bit.
This is my opinion theres little bit of an oddity going on here, we have a scenario where people are getting out more.
Is it getting more comfortable after the pandemic at a time when you might expect them to be making fewer trips while gas prices are increasing so you have these kind of things competing effect, but we saw a pretty significant uptick in our trips. The basket size is smaller the net of that was modestly negative roughly close to zero.
But we're seeing more trips a slight decline in units and of course, then we have a higher higher rings overall because of the inflation. So that's a little bit of a mix of what's going on so we're encouraged by the fact that people are coming in we're also seeing the mix of our customer and more more more shoppers that we're adopting more shoppers into loyalty category and more of them.
And we're seeing more of them come in for routinely for their fill in trips. So we're seeing some really good things around the visits to the stores and what.
We're seeing on the on the overall basket. We think is sort of what you would expect a slightly lower units.
Of course higher prices.
Okay.
Absolutely Pete this is Jason I would just add modestly to that discussion, but just if you kind of back up and look at the.
At the same store comps of seven 2%.
As Tony said, it's largely inflation driven but there's there's some moving parts beneath the surface as you pull back the cover with trips and basket size.
The other thing I would point you to is that there's this retail business is performing what I would characterize as kind of at or better than the median.
The general retail grocery space and and so there is there's a lot of a lot of moving parts, but but we think we comp well relative to the many of the other players in the space.
Thank you for that.
Maybe one more on the retail segment.
Can you just talk about what youre seeing on wages and the impact there it sounded like youre starting to see some more applicant flow, but yet maybe we just took another leg up just trying to understand your comments on that this morning.
Yeah, great. So we are seeing better app inflow about by about almost two 5% times sort of the normal applicant flow that we saw in sort of right around.
Pre pandemic and during the pandemic we are.
We believe that the combination of effects, we've taken our entry level wages up as you know we took another just almost 11% in 2021, we will probably take them up close to that same number here in 2022. So there is a so it's a big it's a big.
Big changes with entry level wages.
The combination of wage improvements benefit improvements and what we've done with our overall the overall culture of the organization has gone around training around communications all of those things woven together, we think of what has led to not just better asking flow with better stick ability once people get here as well if they find a home that they can stay it. So we're not out of the woods, yet we think that.
Overall, there is a real tough shortage of good quality talent for for all businesses and so so we have to compete we know we know that we have to compete on all those fronts. The opening offer has to be a solid entry level pay and that's what we that's why we've made those big changes.
Great and then just lastly.
Nice improvement in the military segment in terms of the the margins there.
Should we expect this going forward or is there any seasonality that we should be aware of or anything that would.
Exclude you from kind of hitting these targets on a go forward basis.
Yes, great question.
We see ourselves as being passed and in the 1% EBITDA margin range going forward. So as Tony said when you first got here there was a challenge in that business. We've applied our operational performance improvements, we've applied enhanced customer engagement and practices and we've reached 1% goal and I.
Going forward, we're going to be continuing to run at or above that 1% level.
Great Thanks and congratulations.
Thank you.
The next question comes from Andrew Wolf with C. L. King. Please go ahead.
Thanks, Good morning.
So on the distribution side, you know, you're just sort of went through on retail.
Kind of a.
Real sales growth exercise. So if your sales were up almost 3% two 8% versus 10% inflation.
Simple math says cases.
Not not make suggested but cases would be down around seven.
You know if there was something else going on like mix or something maybe you can help us understand that.
But also.
Why is that is there some big customer that you know.
I left the business, we don't know about or is it just the.
Typical independent customers is not ordering as much.
At this juncture.
Hey, Good morning. This is this is Jason Monica good to hear from Andy.
I think the one thing I'd call out here and we've mentioned this on some of the prior calls.
We're still in the process of lapping the in sourcing of some of the business that we used to do with D. G and we expected that to to carryover through into the third quarter. So we're on a kind of a phased down it's all it's all out of the out of the network, but youre seeing the.
Positive or the negative comps in this case from prior year.
Okay. So thats the DG fresh.
Can you just how much of that is so we can.
Ourselves get a sense of how much isn't not going to go away how much better you are.
Cases will again.
On options.
What I'd suggest is that our I would characterize the rest of our business looks a lot like the retail business.
In our wholesale kind of core independent space.
Okay. That's helpful.
Back to retail you did mentioned competitive pricing.
I assume for you guys. It was a response to something in the market.
So was that response be your customers just naturally seeing inflation going to discounters or are there other supermarket chains already starting to.
Do something with their pricing like what is what is the dynamic there.
That caused you guys to get more sharp on your pricing.
Yeah, and I would characterize it kind of step back and think about the context that we're operating in we're in a.
<unk> had been in an accelerating inflationary environment. So when you think about competitive pricing. It doesn't necessarily mean that we are taking prices down. It may mean, the pace at which prices are going up to match the inflationary pressures on the backend and as we think about understanding what our what our consumers need and managing through those.
Rice changes.
What we wanted to do is ensure that we are sensitive to those consumer needs where pricing properly. We're focused on the key value items in the stores and we feel good about the outcome and that we we drove the 7% comps the flattish volumes in a in a rising price environment and maintained or grew share in many instances.
Okay.
And lastly, Jason just.
When you were answering one or two times on the.
The cost savings in the supply chain and.
I think you referenced productivity.
Our throughput.
Is that the main driver I mean product throughput being up 7%. It seems like quite an improvement at this juncture is that the main driver of whats.
And in Europe , what Youre realizing in your results.
Characterize it.
I would characterize it as about half of the benefit.
The remainder coming from transportation efficiencies route efficiencies network optimization inventory management practices and the like but it's the it's a significant portion and that throughput flows right to the bottom line.
Alright, that's it for me thank you.
Okay.
The next question comes from Kristina.
With Deutsche Bank.
Go ahead.
Great Good morning, and congrats on a very nice quarter.
I wanted to go back to inflation I mean, you did mention sort of 10% or higher exiting the quarter food inflation perspective can you just talk about what you are seeing specifically in retail stores regarding consumer behavior. I know you said that private label is growing at double the rate, which I would imagine means that there is some <unk>.
Don happening, but are you seeing any resistance to these higher prices do you think we have reached the ceiling and how best to think if inflation remains high floor. After a long period of time.
Yes, it's great question. So we are the first and foremost we remain very vigilant in the study of this because there's not a.
Theres not a playbook there.
<unk> for the last 40 years on how consumers will behave we haven't had the advent of prolonged double digit food inflation in this country since the 19 seventies and the world is quite different back then so.
So we're learning along the way as well, we're seeing some things that look like stuff, we might expect though we're seeing I mentioned earlier the.
You know a little bit of a flight to the private the private label and in and looking for ways to get a great a great experience at a lower price to those to those vehicles. So we obviously you had mentioned that you mentioned a second ago.
But we're also seeing really strong growth in fresh and fresh is a higher.
It's typically higher cost higher margin part of the store. So we think that what we'll see is that people will look for ways to save money on on key value items that are sort of everyday items for them and look for ways to actually maintain some element of indulgence and and find their way to.
Explore the continue joys of living through through food at home and so we think there'll be a little bit of a bifurcation and we've certainly seen that as an example, we say no inflationary market.
Flowers might not be seen as a really important staple, but our floral business is up and we're doing quite well.
Laurel.
We're doing well with our.
Our deli business is doing well so it's a prepared meals that are people still are seeking convenience and an easy way to get a solution.
And our Deli business is doing quite well in that regard so and I should note that it also this is these are complicated analysis.
A business might be doing well because people are not going to not go into the restaurant. We don't we don't we don't know the precise reason why people are making those choices, but we're seeing good we're seeing really strong growth in fresh strong growth on a lot of those higher cost higher margin items at the same time people being very aggressive in center store trying to find their way to lower priced items.
Yeah, Kristina does that at all.
Right.
Just adding to that the demand for demand for food at home trend is likely to continue as this this food inflation place consumers in and we're here to bring solutions to those consumers with whether it's prepared meals or private label offering to ease.
He's the budget.
But we believe price sensitive behaviors are going to continue to strengthen as we continue to work through this inflationary cycle, which as Tony said is I won't characterize is unprecedented but unprecedented and are in the business lives of probably everybody on the phone today.
Yeah that makes sense. Thank you for that and I guess, just one question on the supply chain, which obviously remains very challenging.
I think you mentioned the ongoing tightness in the labor market, although it sounds like it is improving can you just talk a bit more about some of the improvements that you are seeing especially from our logistics operations perspective to really overcome some of these challenges as we think about supply chain essentially remaining dislocated.
Longer than we initially thought.
Yes, so we have certainly dialed up.
Our focus on improving the overall logistics part of our visitors transportation. Prior business you always mentioned that piece about co subsidy that was a big big hit that we've talked about already today.
But additionally that we're looking at ways that we can actually a repositioning to get closer to.
Two hour.
Two our shopper to our consumers our customers.
Through our network D C and there's a lot of great tools and a new science that allows you to be more efficient in that regard. So we are just are just wrapping up a transportation management system. That's going to that went live here just just recently and it's giving us some great insight about how we can maintain overall effectiveness in the network and be more efficient so.
So that will continue to be a big focus for us its cost its cost and in a in an area that's escalating faster because of the fuel pricing and diesel pricing. So so.
So we've seen as Jason mentioned earlier, we've seen you've seen some of that here in this last quarter. Some of those improvements in productivity came from that area. It's a significant part of our future growth in that in that pathway to the 2025 as well so it'll continue to be a focus for us.
Alright. Thank you so much and congrats again on a good quarter.
<unk>.
This concludes our question and answer session I would like to turn the conference back over to Tony <unk> for any closing remarks.
All right well I'd like to start by just thanking everyone for their participation in today's call.
Look forward to speaking with you again, when we report our second quarter 2022 results, so with that I wish everybody a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
[music].
Okay.