SpartanNash Co (SPTN) 2011 Q1 法說會逐字稿

Greetings, and welcome to the Spartan Stores Incorporated Fiscal 2011 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

Ladies and gentlemen, I must remind you that comments made by management during today's call will contain forward-looking statements. These forward-looking statements discuss plans, expectations, estimates and projections that involve significant risks and uncertainties. Actual results may differ materially from the results discussed in these forward-looking statements. Internal and external factors that might cause such a difference include among others, competitive pressures among food, retail, and distribution companies, the uncertainties inherent in implementing strategic plans and general economic and market conditions.

Additional information about risk factors and the uncertainties associated with our forward-looking statements can be found in the Company's earnings announcements, Annual Report on Form 10-K, and the Company's other filings with the SEC. Because of these risks and uncertainties, investors should not place undue reliance on forward-looking statements. Spartan Stores disclaims any intention or obligation to update or revise any forward-looking statements.

It is now my pleasure to introduce your host, Mr. Dennis Eidson, President and CEO for Spartan Stores Incorporated. Thank you Mr. Eidson, you may begin.

Good morning, everyone, and thank you for joining our fiscal 2011 first quarter earnings conference call. With me this morning are members of our team including EVP and CFO, Dave Staples; EVP of Merchandising and Marketing, Alan Hartline; our EVP of Retail Ops, Ted Adornato; our EVP of Wholesales Ops, Derek Jones; and EVP General Counsel, Alex DeYonker.

I'll begin by providing a brief overview of our first quarter business progress and financial results. And then Dave will give you more details about the quarterly financial results as well as an outlook for fiscal '11. I'll rejoin the call following Dave's comments and provide you with some concluding remarks.

I'll start it by saying, during the first quarter sales and earnings continue to be affected by the economy, unemployment, consumer confidence, competitive market factors and retail price deflation. As you may recall, our prior year first quarter was minimally affected by these factors. And it really wasn't until the third or the fourth quarter that we began to realize the full financial impact of those influences. But despite the economic and market challenges, our financial performance for the quarter remained among the highest first quarter levels that we have reported.

First quarter EBITDA was second only to the recent peak level that we achieved in the first quarter of fiscal '10. And during the quarter, we continue to make meaningful progress reducing our structural costs and improving our operational efficiencies. These fundamental operational changes have clearly helped us to sustain our financial performance, despite the sales growth challenges.

For the quarter, we reported adjusted EBITDA of $23 million and adjusted operating earnings of approximately $14 million. In addition we generated cash from operations in the quarter of over $11 million. Comp store sales are clearly not at satisfactory levels, nor are they -- we can achieve during more normal economic circumstances. But we did report a sequential quarterly improvement, which was in line with our guidance. Our trend line for this indicator is moving in the right direction and more importantly we continue to expect sequential quarter improvement during the remainder of the year.

Conditions in our operating environment appear to have stabilized a bit but they still remain challenging. Consumers remain cautious with their purchasing behavior and have a heavy focus on value. And the economic recovery seems to be on a bit slower pace than we originally anticipated. But, from a competitive perspective, we saw [Q2 of last year] Super Center openings during the quarter and had one new opening. We will continue to cycle the remaining competitive openings in the upcoming second and third quarters and anticipate only limited additional openings during the fiscal year. Our private brand products continue to be an important competitive advantage and despite a penetration rate decline that both we and the industry experienced in the first quarter.

Our plans for the year are to expand our private brand portfolio and our value offerings by focusing on the fresh food categories, where we still have significant opportunity to increase our penetration. We expect to introduce a total of over 300 new private brand items during the year with a 100 of these being in fresh food. During the quarter, we opened our newest flagship D&W Fresh Markets store in Grand Rapids. This store provides us with an excellent market filling opportunity and brings really one-of-a kind shopping experience to customers in the Grand Rapids market.

We are pleased with the store, as it provides an exciting shopping experience focused on high quality fresh foods. In addition, we were conscientious in designing the store to be highly energy efficient and although it's early, we continue to receive really outstanding feedback from customers about the experience.

We are also pleased to have made good progress with our warehouse consolidation project. The operational efficiency gains related to the project began to materialize during the first quarter, and contributed to the improvement of the segment's operating earnings. Although we did achieve a significant inventory reduction in the first quarter, we feel a little short of our original expectation, and we now expect to achieve additional reductions in the second quarter.

Additionally, the health of our balance sheet improved during the quarter, as we paid down outstanding borrowings and opportunistically repurchased more than $12 million in principal of our senior notes for less than $11 million.

And with that overview, I'm going to turn the call over to Dave. Dave?

Thanks, Dennis and good morning everyone. I'll now provide additional details about our first quarter financial results and some broad guidance for the remainder of fiscal 2011. Consolidated net sales for the 12-week first quarter were $577.2 million compared with $596 million in the year ago quarter. The decline related to lower retail and distribution sales caused by the prevailing economic and competitive market conditions, retail price deflation and stores that were closed or sold since the first quarter of last year, partially offset by higher fuel sales and sales from our new store and the re-opening of a store previously closed for re-modeling.

Distribution and fuel center sales represented approximately 43% and 5% respectively of consolidated sales compared with 43% and 3% respectively in last year's first quarter. The consolidated gross margin rate for the first quarter decreased 10 basis points to 21.9% from 22% in last year's quarter.

The change was due mainly to lower supermarket margins and a higher mix of fuel sales partially offset by the LIFO inventory valuation credit associated with the warehouse consolidation project. Also contributing to the gross margin rate change was lower purchase discounts due to the reduction of inventory levels as a result of the warehouse consolidation initiative. First quarter operating earnings were 19.6% of sales compared with 19.5% of sales in the same period last year. The rate increase was due to restructuring and asset impairment cost related to the warehouse consolidation project, and a single store impairments charge, which totaled $2.6 million. Excluding the charges, operating expenses as a percentage of sales declined to 19.2% of sales and declined by $4.6 million from the prior year. The higher mix of fuel sales, store labor, and productivity improvement, cost containment initiatives and distribution efficiency gains contributed to the improvement, but were partially offset by an increase in healthcare and debit and credit card transaction expenses.

Excluding net pre-tax restructuring and asset impairment cost of $800,000 this year related primarily to the warehouse consolidation and $600,000 last year related to a single store closing, adjusted operating earnings were $14.1 million compared with $15.7 million last year.

As reported, operating earning for the quarter were $13.3 million. The year-over-year change in adjusted operating earnings was due primarily to lower comparable store sales and higher healthcare and debit and credit card expenses. Adjusted EBITDA excluding the previously mentioned charges for both years, was 4% of net sales for fiscal 2011's first quarter, compared with 4.2% in the same period last year.

Adjusted earnings from continuing operations, which excludes the previously mentioned charges, were $6.5 million or $0.29 per diluted share, compared with $7.2 million or $0.32 per diluted share in last year's first quarter. As reported, earnings from continuing operations for the quarter were $6.1 million or $0.27 per diluted share.

First quarter net earnings adjusted for the charges were $6.4 million or $0.28 per diluted share, compared with $7.2 million or $0.32 per diluted share in the year ago quarter. As reported, net earnings were $6 million or $0.26 per diluted share, which includes a $0.01 per diluted share loss from discontinued operations.

Turning to our business segments, first quarter distribution sales were $245.3 million, compared with $253.4 million in the same period last year. The change in sales is due primarily to the existing economic conditions. Excluding the restructuring and asset impairment charge and the LIFO inventory credit related to the warehouse consolidation project, operating earnings improved 10% to $8.6 million, compared with $7.8 million in last year's first quarter. The improvement was due largely to an improved sales mix and operating efficiency gains from our warehouse consolidation project. As reported, distribution operating earnings were $8 million.

First quarter retail sales were $332 million, compared with $342.7 million in the same period last year. The change in sales was due primarily to a 6.1% decline in comparable store sale, which excludes fuel centers, and the loss of $6.4 million in sales related to four stores that were closed or sold since the first quarter.

These items were partially offset by sales contributions from the additional fuel centers in operation this year, higher average per gallon retail fuel prices, the new D&W Fresh Market store that was opened during the quarter, and the store reopened in last year's third quarter that had been closed for extensive remodeling.

We estimate that retail price deflation impacted the quarter by approximately 90 basis points. In addition, we believe the competitive store openings and the cannibalization effect from our new and reopened stores contributed approximately 225 basis points to the sales decline.

First quarter retail operating earnings included a $200,000 pretax restructuring and asset impairment charge this year, and a $600,000 charge last year. Excluding these items, adjusted retail operating earnings were $5.5 million, compared with $7.9 million last year. As reported, retail operating earnings were $5.3 million, compared with $7.3 million last year. The change in operating earnings was due primarily to lower comparable store sales volume and higher healthcare expenses and debit and credit card transaction fees.

Start up costs associated with store openings were approximately $800,000 in both years. Our balance sheet and capital position improved during the quarter and cash flow generation remained strong. First quarter cash generated from operating activities was $11.4 million.

During the quarter, we repurchased $12.3 million in principal amount of our outstanding convertible senior notes for approximately $10.7 million. As stated in our press announcement, we expect a lower outstanding notes balance to reduce annual interest expense by approximately $700,000.

As of June 19, 2010, total long-term debt including current maturities, and capital lease obligations decreased $5.4 million to $179.9 million from the balance at the end of fiscal 2010, as the note repurchases were partially offset by dividend payments as well as capital expenditures related to the new D&W store.

Our balance sheet ratios remained strong during in the first quarter, with a long-term debt-to-capital ratio of 0.39 to 1, and a debt-to-EBITDA ratio based on trailing four quarter, EBITDA of 1.77 to 1. Today, we also have approximately $130 million of availability under our existing credit facility.

From a capital investment perspective, as Dennis mentioned, we completed the construction of a new D&W Fresh Market during the first quarter, and remain on schedule to open a new Family Fare store early in the third quarter, which is a store relocation project that will replace an existing Felpausch store.

I will now provide some broad guidance for the remainder of fiscal of 2011. We expect the near term economic and market conditions to remain challenging. We are encouraged by the lower rate of retail price deflation but are less confident about overall near-term inflationary trends. We continue to expect a more favorable operating environment to develop late in the second half of fiscal 2011, as we cycle the remaining competitive Super Center openings from last year as our loyalty card program gains more traction, and as we realize the additional benefits and operating efficiencies from our warehouse consolidation initiative.

We expect retail comparable store sales, excluding fuel centers to improve on a sequential quarter basis during the remainder of the fiscal year. We expect comparable store sales for fiscal 2011's second quarter to improve modestly compared with the first quarter. Our expectation is based on the assumption that price deflation will continue to moderate, the economy will continue its slow recovery and that we will cycle the remainder of last year's competitive store openings in the upcoming second and third quarters, while experiencing only a limited number of new openings this year.

In our distribution segment, we expect core distribution sales for the second quarter to decline relative to the same period last year at a slightly lower rate than reported in the first quarter. We also expect to realize a second quarter after-tax benefit of $300,000 to $500,000 related to a LIFO inventory credit due to revised estimates of the total inventory reduction, net of other warehouse consolidation related expenses.

From a net earnings standpoint, excluding the incremental LIFO benefits associated with the warehouse consolidation initiative, we expect the second quarter results will be slightly below the prior year level and gradually improve as the year progresses. For the full year, we expect net earnings to exceed the prior year as the deflationary and economic conditions improve and we benefit from our efficiency improvement initiatives.

Capital investment in fiscal 2011 will range from approximately $30 million to $35 million. We expect depreciation and amortization for the fiscal year to be approximately $36.5 million to $38 million with total interest expense of approximately $15 million to $15.5 million.

I will now turn the call back to Dennis for his closing remarks. Dennis?

Thanks, Dave, in conclusion despite the softness in our top line, I am pleased with our overall financial performance. Although the prevailing economic and market conditions remain challenging, we do expect sales and earnings trends to improve as the year progresses. In addition, our previous expectations about the timing of product price inflation trends have changed to be a bit more cautious rather than optimistic. From a competitive perspective, as Dave mentioned, we will cycle the remaining competitive store openings from last year in second and third quarters and are expecting only a limited number of new competitive openings during the remainder of this fiscal year.

We will continue to strengthen our consumer value proposition in both business segments, work on operational efficiency improvements, invest in new store construction and expand our fuel center operations. Also, we will continue to seek prudent growth opportunities in our existing markets or adjacent states through new customer development or acquisitions.

I believe that our consumer value profile is improving with the implementation of our value based merchandising and marketing campaign that we launched in March. But we have more work to do and clearly more room for improvement. In addition, we are working to further refine our marketing and merchandising efforts by leveraging the data gathered to our Glen's Stores customer loyalty card program. The data has provided insight about consumer purchasing behavior that we simply didn't have before, and we're using the information to conduct much more efficient and targeted marketing strategies. The program continues to have much more development potential, and we do anticipate further geographic expansion during the second half of this fiscal year.

On the distribution side, we have already started to realize the efficiency improvements from our warehouse consolidation project, but expect to produce more benefits throughout the fiscal year. The project has further improved our highly efficient operations and created strong operating leverage that should and actually will benefit earnings as sales in the segment return to more normalized levels.

In addition, we are currently re-structuring our deli and bakery distribution program. During our second quarter, we will bring more products into our distribution center and enter into supply agreements for the slower turn items with new third parties. Following completion of this operational change for our corporate stores, we expect the program to provide additional benefits for our distribution customers and improve sales opportunities for our distribution segment.

I'll conclude my remarks again by thanking our associates for their extraordinary efforts as we have worked collectively through this very challenging period. They have and continue to make significant contributions toward our ongoing success and we are very grateful for their efforts.

We'll now open the call up for questions.

Thank you. We'll now be conducting a question and answer session. (Operator Instruction). One moment please while we poll for questions. Thank you. Our first question is coming from the line of Karen Short of BMO Capital Markets. Please proceed with your question.

Hey everyone.

Good morning.

Good quarter, I mean aside from the comp I guess. I am wondering if we could just talk a little bit about the comps, I mean I know the environment is tough but can you maybe break it out a little bit between traffic and basket and then maybe units per basket? And then maybe a couple of follow-ups after that.

Well, first of all it is a tough comp, but if we look at this on a continuum, we did make progress from the fourth quarter, about 80 points of improvement. And actually we called out here -- this morning that we think we are going to have a modest improvement in Q2, and sequentially through the balance of the year continue to see improvement. So, as much as the raw number is important I think more importantly is the trend. And we are feeling better about the trend.

Much is the case last quarter, Karen, when we talked about the make up of that numeric, it is primarily being driven by traffic. Having said that, nearly 100% of the improvement from Q4 to Q1 was in traffic. So that number continues to improve. And early in the second quarter that trend continues. And we are seeing some improvement in Q2 on comps and they are all coming from traffic, so --. Does that help you?

Yes. So, do you think that's a function of something you're doing and can you maybe describe what you think is driving that improvement?

I think it's a combination of the things, Karen. I wish this was -- it was far more scientific that I could pin point and say exactly why. We are getting some benefit by cycling, competitive openings, but I think more importantly, I think the work we are doing around the value piece and we did launch a new marketing and merchandising campaign at the beginning of the fiscal year is beginning to have some traction. We do customer sat like virtually everyone else in the industry and we are really quite heartened by the fact that two of the metrics that are -- the two metrics that are moving up the most in our scores are price paid and value. So, we think what we're doing is resonating with the consumer better than a year ago.

Okay, and do you think -- I mean if you look at your banners is there a pattern in terms of specific banners that are more of a drag on comps or improving faster than others or maybe can you talk about that a little bit?

Yes, clearly there is, we are finding in our portfolio that the D&W Fresh Market brand is outperforming the balance of the portfolio. And I believe that that is primarily because of the demographic profile where those stores are located. They clearly cater to that more fully oriented up scale consumer that probably -- it definitely has a higher median income. Statistically that segment of the population had less unemployment struggles than the balance, and I think we're benefiting from that. In addition, we continue to work on the value equation in that brand as well. So, there is a stratification in play, and D&W Fresh Market is performing noticeably better than the other brands.

Wouldn't that also have been the case for VG's though, I guess (inaudible)?

Yes, you would. VG's has a bit of a dichotomy in the store base. There are some stores that fall into that, that strata, but frankly, Karen, as you're looking at what's going on in the state of Michigan around unemployment, the numbers are getting better, that's the good news. So, I do believe we've navigated through the toughest of waters. It's not going to be easy, but I think we have the toughest part of this thing behind us, Metro Detroit and the northern suburbs including Flint for the latest unemployment data available, which I believe is May, remain the two highest unemployment regions in the state. They are running at 14.7%.

If you look at the U6 it probably is closer to 20%. So I think that's a bit of a unique situation relative to the geography and you are seeing some retailers actually quantifying the correlation between unemployment and comp store sales and food. And I think we are feeling that in that business.

Okay. And then just wondering, one of your competitors, I guess is closing a distribution center in Michigan, can you just talk about whether that's an opportunity for you or what you see with that?

Yes. It's interesting and if you go back historically, the State of Michigan had so many full-service wholesalers in play 20, 25 years ago. And Spartan, as I think, always probably had the leading share, but with Nash leaving the market in Bridgeport, we really remain the only full-service food wholesaler left in our space. And I think that's a bit of a tribute to the value added go-to-market strategy that Spartan has had in place for years and we feel pretty good about our situation here in the region.

There was not a lot of volume left in that facility, in Bridgeport it had been dwindling for some time. There are customers that are represented in that base that we have relationships with. Prospecting for new businesses is not an event that really is a process. Hopefully, we'll be able to take advantage of that but it's a little bit early to tell.

Okay. And then just lastly can you maybe comment on the competitive environment a little bit, I mean there has been a lot of noise that is, Wal-Mart is or isn't doing. Just wondering if you could give some color on what you are seeing?

Yes, it's a -- I may want to get your perspective on that. I know you talk to a lot of folks, but we are -- I don't know that we are seeing a significant change in the competitive environment. It continues to be very competitive. Our business has always been competitive. The Wal-Mart rollback feels a little bit more high-low to us than it's a concentrated effort to take down everyday price for a substantial length of time. We have seen one week promotions, I think if we are reading it right and seeing it right, we have seen promotions that have gone for actually four days. So, they are acting a little bit more high-low I think than what we have been accustomed to them seeing. We are a high-low operator. I think that it doesn't change a lot what we do because our promotional programs on balance are better than what we are seeing from Wal-Mart.

Great. Thanks a lot for taking my questions.

You're welcome.

Our next question is from the line of Chuck Cerankosky of Northcoast Research Holdings. Please proceed with your question.

Good morning, gentlemen.

Good morning, Chuck.

When you talked to us about the inventory reductions coming out of the DC consolidation being finished up in this quarter, is some of that due to the pace of sales?

Clearly, yes Chuck, as you know we are a little slower than we had hoped to be on the topline and some of that moving of inventory out is hung up on slower moving items, right. So as the sales slow down, it's going to take us a little bit more time but we are feeling pretty confident that we are going to get that inventory out.

Alright. Talking about the loyalty card, it's very interesting that you are continuing to progress there. What are you learning and what elements are you definitely going to take to your other banners?

Well, we did say that there would be a geographic expansion and we are pleased with the learnings we are getting. I guess I don't want to get into a whole lot of detail on what we are learning and how we are applying it. I would just say to you, Chuck, that I have experienced with a card in my background, the other members of the management team here do as well and we knew we were operating a little bit in the blind on our consumer's behavior. What we have been trying to do is work out some of the kinks in the card, how to deploy it more effectively. And one of the areas where I think we've benefited, I'll say this is, as we have seen a competitive incursion, being able to identify changes in shopping behavior with our customers and react in a very targeted way to be able to respond to that. That's clearly been helpful to us, as we've gone through the last year.

Okay. So, you see some competitive advantages here that you probably don't want to share.

Yes.

Okay. You said something towards the end of the call that I didn't completely catch about, the relationships with your wholesale customers. Can you elaborate on that some, please?

Our relationships with our wholesale --.

Distribution contracts and distribution --.

(multiple speakers) the deli/bakery program probably.

Yes.

We have not historically been a full-service deli/bakery supplier. We've had some pretty significant relationships with a secondary provider for that product category. Those product categories we have made the decision that we will be a full-service deli/bakery supplier and we have transitioned all of our corporate stores to our proprietary deli/bakery variety assortment here in the DC and have now a very limited third party relationship for specialty products. So, we are transitioning through that as we speak with our corporate stores, and it's in place today. Once we get that refined we believe that it will be an opportunity to engage our distribution customers with that same product assortment and add to the distribution segment sales, the wholesale distribution segment sales.

I forget the name of the meat supplier for your delis, that specialty shop that you have in some of your stores. It's not, I don't think it's -- Boar's Head, are you still going to be involved with them?

Boar's Head is a core part of the Fresh Market offer we have in all of our stores and we will still be engaged with them, yes.

Thank you.

Our next question is from the line Ajay Jain with Hapoalim Securities. Please proceed with your question.

Yeah, hi. Thanks for taking my question. Maybe I'll address this to Dave. I was actually interested in the re-purchase on the convertible during the quarter. Obviously the convertible would seem to provide you guys with a very low cost source of financing. So, with the thought behind the buyback was that the convertible was just priced below par and you guys were being opportunistic based on market conditions? And then I am also wondering if you would consider buying back more of the convertible going forward?

Yes, I would say, you nailed it. It was just an opportunistic position that we took and we took advantage of that. Whether we'll buy more in the future or not, I guess I don't want to rope us in either way, but I don't know that that's a high priority?

Okay. And then as far as the store development plans, you opened the one D&W location last quarter, can you just confirm what you have in the pipeline for the rest of the year?

Sure. So we have a relocation project that will open in the beginning of the third quarter that will relocate a Felpausch acquired Felpausch store into a new prototypical Family Fare. We have hopefully one new fuel center. We've got a lot of progress going on that, so we believe we'll get a new fuel center in place and then we have a handful of nice remodels.

Okay. And then just one final question. I noticed in the press release, it said that you guys are encouraged by the lower rate of retail deflation, but less optimistic about near term inflation. Can you just sort of clarify the latter part of that statement? Does that mean that the [past] environment from higher wholesale inflation is challenging right now for your retailing operations.

No, I think more of what we were getting at is that we do believe that the deflation in retail whatever the cause of that is appears to be mitigating, so that obviously is a positive. I think we had hoped for overall inflation maybe to poke through a little sooner than we think it will now. It feels to us like the inflationary environment is going to be maybe a little slower than we thought and maybe a little later than we thought. So we had nothing to do with the pass through, it was just really more about those tends.

Got it. Thank you very much.

Thank you. (Operator Instructions). Our next question is from the line of Bakley Smith with Jefferies & Company. Please proceed with your question.

Hey guys, thanks for taking my call. Two questions, I just -- I wanted to ask, what -- we've heard from some of our supplier contact that there has been some change in dynamics as it relates to some of the larger customers and support behind promotional activity and what have you. And I wanted to get your take on that and see what things you may be doing to try and wrestle, I guess, brand support and what have you from those suppliers?

Alan you want to --.

Yeah, be happy to. We think we are a good place to invest with the incremental monies that are being layered on top and depending on the particular CPG company, we have been able to garner additional investment. I think one of the big trends we are seeing is in couponing. Our FSI activities across all our stores is up 15% and that's double-digit compounding year-over-year. So, clearly there is additional investment there that's resonating with our customers.

Great, and how about -- I mean I guess the (inaudible), but in terms of -- [I guess also wondering] are the consumers then also picking up on the -- I am sure you'd like to think of Spartan as a great place to go because you can run deal and push volume out the door. I don't know its price point, and what have you I mean how are consumers responding to what you are doing?

Well, if I understand your question there, are you asking about our percentage of sales done on promotion or maybe give me a better flavor for what you're looking for?

Yes. I don't mean to be confusing. I guess I am wondering, as they come in, is there some metric that you look at? This is like a hey, like where we -- last time we worked together, we were able to move this many units or what have you and is that something that you could discuss, like is it --?

Sure. Absolutely. I think the customer is still showing a propensity to stock up on a deal and when we are putting the right propositions out there [10 for 10 are] resonating some mega events we have done with like Kraft Foods. I think those were impactful promotions. So I think we are doing a lot of macro things around fuel and other things that are driving traffic and additional [basking out our] stores that continue to resonate and will continue to use going forward as part of our value proposition.

Okay, great, thanks. And last question, this one's a little bit, I guess it's called high level but how you -- I know that we are sensing this on sort of the -- with our investors. There is some degree of malaise, it's been a long time that we have been in this slump, and how are you keeping the folks motivated within the organization, what are you doing? I mean this is like whatever and this is going into like essentially the third year of very difficult times and I'm sure that there is some degree of fatigue out there. How are you keeping folks on board?

That's really a great question, but I'll kind of remind you what we talked about in the script. Last year in our first quarter, the quarter we are cycling was the first quarter we went negative, and we were just slightly negative. I think it was 0.9, Dave, right?

Right.

So really this experience for us is really only, really four quarters old and we have kind of been on a straight up trajectory before that. So we are, I'd say maybe pretty resilient to dealing with economic malaise in our geography, and I would say that we worked hard and we can always do better at this, but we worked hard at communicating with our associates. And they know what's going on with the competitive set, they know what's going on with competitive openings. They understand the strategy that we have got deployed. We do a strategic dashboard every year and we monitor the results and it's has got some very -- it has the most very important elements about our business attached to it, numerically. So I think people knowing what's going on with the business, understanding it, having a flavor for what we are doing in order to change the trend works in our favor. So, it's actually one of the things I'm probably been most heartened by as we have gone through what really has been a tough year that I think the culture here is held up spectacularly well.

Good. Thanks very much.

Our next question is a follow up from the line of Chuck Cerankosky, with Northcoast Research. Please proceed with your question.

Yes, a couple of follow-ups but I want to clarify something on the FSI activity up 15%, is that measuring coupon redemptions?

You're exactly right.

Okay. How is gasoline profitability in the quarter, Dennis?

Profitability on a cents per gallon was up pretty significantly. It felt good because last year it was so soft. I think for the quarter, Chuck, it probably -- it rounded up to nearly a penny, I think, in our cent per share versus a year ago. So it was a bit of a help.

All right. And Dave, I'm guessing you booked a gain on the notes you re-purchased below par, where is that on the income statement?

It's pretty de minimis, it's in other, it was like $80,000.

Okay.

It's because of that crazy accounting that you like so much, Chuck, remember -- the whole bunch of that went to equity, but that was bifurcated between equity and debt and so most all of the benefit didn't go through the income statement, it went through the equity section.

So equity went up, okay, as you pay down debt. All right, I'll take a look at that and remain perplexed with the accounting.

As will most, everybody.

Thank you.

Thank you. Mr. Eidson there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

Okay. Well on behalf of Dave and everyone here on the Spartan team, I want to thank you for joining our call today and we look forward to discussing our second quarter results during our next call. Thank you.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.