SpartanNash Co (SPTN) 2014 Q4 法說會逐字稿

Good morning, and welcome to the SpartanNash fourth-quarter and FY14 earnings conference call. All participants will be in a listen-only mode.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Katie Turner for opening remarks. Please go ahead.

Thank you. Good morning, and welcome to SpartanNash Company's fourth-quarter and FY14 earnings conference call. By now, everyone should have access to the earnings release for the fourth quarter ended January 3, 2015. For a copy of the release, please visit SpartanNash's website at www.SpartanNash.com under Investor Relations. This call is being recorded, and a replay will be available on the Company's website for approximately 10 days.

Before we begin, we'd like to remind everyone 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 might involve significant risks and uncertainties. Actual results may differ materially from the results discussed in these forward-looking statements. Internal and external factors that may cause such differences include among others competitive pressures among food and retail distribution companies, the uncertainties inherent in implementing strategic plans, and general economic and market conditions. Additional information about risk actors and the uncertainties associated with SpartanNash's forward-looking statement can be found in the Company's fourth quarter earnings release, fiscal annual report on Form 10-K, and in the Company's other filings with the SEC.

Because of these risks and uncertainties, investor should not place undue reliance on any forward-looking statement. SpartanNash disclaims any intention or obligation to update or revise any forward-looking statements. This presentation includes certain non-GAAP metrics and comparable period measures to provide investors with useful information about the Company's financial performance. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the other information required by Regulation G is included in the Company's earnings release, which was issued after market close yesterday.

It's now my pleasure to introduce Mr. Dennis Eidson, President and CEO of SpartanNash Company, for opening remarks.

Thank you, Katie. Good morning, and thank you for joining our fourth quarter and FY14 earnings conference call. With me this morning are Dave Staples, our EVP, Chief Operating Officer, as well as other members of our Executive team. Today I'll begin by providing you with a brief overview of our business and highlights of our financial performance for the fourth quarter and the fiscal year. Then Dave will share some additional details about the fourth quarter financial results as well as our outlook for FY15, and finally I'll provide some closing remarks. Then we'll open up the call to take some questions.

We're very pleased to report fourth quarter results that exceeded our expectations and guidance. November 19 marked the one-year anniversary of the SpartanNash merger, and thanks to the diligence and hard work of our Management team and associates, we've accomplished a great deal over the past year. We begun consolidating our retail distribution and back office operations which are leading to meaningful cost savings. Additionally, we invested capital in both our Michigan and Western division stores, while also fine-tuning our pricing and promotions, which helped to drive sales and returned our Michigan supermarkets to positive comp store sales for FY14.

For the fourth quarter, we achieved a 74% increase in net sales and an over 96% increase in adjusted earnings from continuing operations. Our results and benefits from the consolidated Company underscore the success and potential of our business model which together with the quality of our Management team and associates will enable us to grow our sales and earnings in FY15 and beyond. While reviewing our food distribution segment results, sales were up significantly in the fourth quarter primarily due to a full quarter of contributions from the merger compared to six weeks of contributions in the prior-year period.

We also continue to generate net new business. To help accelerate our long-term sales growth, we recently welcomed a new Vice President of National Accounts for our distribution segment, Pat Weslow. Pat comes to us from Acosta where he was Vice President of Retail Operations, and prior to this, spent 19 years in sales and distribution for Coca-Cola. Pat is focused on driving sales in alternative channels, and we're excited about the opportunities that we're seeing.

During the quarter, we continued rolling out a number of our most recent successful merchandising programs, including our Price Freeze savings program to more of our customer base. As of January, we have completed the rollout of the Price Freeze to all of our distribution centers, and we've been encouraged by the initial response from some of our larger customers. Our goal is to provide customers with retail programs and operational initiatives that help them to grow and optimize their businesses. As such, we also continue to look for opportunities to improve our operations.

During the first quarter of FY15 as previously disclosed, we will be consolidating our Rapid City warehouse into our Omaha and Fargo facilities which we expect will enhance the product freshness and selection in our facilities as well as the efficiency, thus improving the overall experience for our independent retailers. We continue to see positive growth in our organic offerings both in expanded SKU count and overall sales for distribution and retail, and we will continue to expand this product assortment as demand warrants.

Organic product sales in our retail division have grown over 11% year-over-year. Net sales in our retail segment were also up significantly in the fourth quarter due to the merger, as well as sales growth due to new and remodeled stores. Comp store sales in our legacy Spartan retail operations, excluding fuel, increased 0.8% from the prior year. While we started off in the positive low-single digits for the quarter, same-store sales slowed in December as we began to cycle the favorable winter weather conditions of last year.

We made meaningful progress in executing our integration plan for the retail segment. During the fourth quarter, we completed the remodel and conversion of three stores in the greater Fargo market to the Family Fare banner making the completion of all six remodels and re-banners to Family Fare in both the greater Fargo and Dickinson market. We continue to be pleased with the improvements we're seeing on comp store sales and traffic trends at these locations as well as customer satisfaction, all of which reinforces our confidence in the strategy.

Following the close of the quarter, we opened a new store in Dickinson, North Dakota, and while we've seen some cannibalization of our existing store sales which we fully expected we're very encouraged by the first few weeks of sales and overall lift in that market. With regard to the loyalty program, I'm pleased with our progress in developing a more robust consumer relations platform and our ability to analyze our findings. We're getting better data out of our system with actual insights that are beginning to bear fruit. Our analytics testing has been completed in several categories, and we will be rolling out the program across all of our categories in the Michigan market in 2015.

In addition, we will be introducing Yes Rewards loyalty program to our North Dakota Family Fare, Family Fresh, and select Omaha stores in 2015. We also continue to leverage our pharmacy program as part of our health and wellness platform. Our Michigan pharmacies posted a 2.1% increase in comp script count for the quarter. That's the 16th consecutive quarter of positive script count growth, and a 1.7% increase for the full year. We also see opportunities to connect with customers via our fuel program, and we're currently negotiating with future partners to strengthen the program for our Western stores.

On the product side, we continue to expand our private brand program for both our distribution and our retail customers. During the fourth quarter, we launched over 40 net new private brand items for a total of more than 250 unique new items year-to-date. For the fourth quarter FY14, private brand unit penetration in our Michigan retail operations was 26.4% which continues to place us above the national average.

We ended FY14 with over 7,400 private brand offerings. For FY15, we expect to continue to build on our premier private brand programs and introduce approximately 300 unique new items. Sales in our military segment improved on a year-over-year basis, as we have a full 13 weeks of sales this year versus six weeks last year. While the commissary system remains challenged, we remain optimistic as we outperform industry trends and momentum picks up in our new business opportunities.

Moving on to our capital plan during FY15, we planned to completed a total of nine major remodels and store re-banners primarily in the Nebraska market as we continue to invest in our Western store base. We're excited about our retail expansion and remodeling activity in North Dakota and Nebraska, where we believe we can benefit from the region's economic activity and population growth. We remain focused on improving the efficiency and quality of our operations and as a result, intend to close up to 10 stores in FY15 that don't meet our vision for the retail offering.

Finally, we continue to move forward on our integration plans. In FY14 we completed the conversion to one general ledger and retail stock ledger and made meaningful progress on our retail and distribution systems. In FY15, we'll make significant progress in standardizing our point of sale system across the chain which will allow us to better manage our promotional and pricing programs. We remain optimistic that we will exceed our year three $52 million synergy target by the end of FY16.

Before I hand the call over to Dave, I'd like to comment on two promotions that we announced last night. As you may have noticed when I mentioned Dave earlier, we promoted him to the newly created position of Chief Operating Officer. With the size and scope of the new SpartanNash, we felt it critical to have a dedicated COO and are pleased to have had such a strong internal candidate. Dave's been instrumental in the merger and helping define our strategic direction. This is a well-deserved appointment, and I look forward to working with him more closely as we continue to grow the Company. Dave will continue to function as our CFO until his successor is determined.

Additionally, Derek Jones, Executive Vice President of Food Distribution, has been promoted to President of Wholesale and Distribution Operations, and will oversee the supply chain for the entire Company. This is a more streamlined approach and one that we believe will lead to improved operating efficiencies under Derek's leadership. Derek's been instrumental in the success of our distribution operation, and I look forward to his contributions in this new and expanded role.

With that I'll turn it over to Dave for more details on our financial results and an outlook for 2015. Dave?

Good morning, and thank you. As for your kind words, I'm excited about this new opportunity to oversee SpartanNash's day-to-day operations and look forward to working even more closely with our exceptional team.

Before I get to the numbers, I want to remind everyone that FY14 was a 53-week year and that resulted in two extra weeks in the fourth quarter compared to the prior year, due to the change in our fiscal year and associated with the merger. As a result our fourth quarter this year was 13 weeks, and our fourth quarter last year was 11 weeks. In addition, the fourth quarter FY13 included only 6 weeks of contributions from Nash Finch compared to the full quarter this year. With that said, we'll get into the numbers.

Consolidated net sales for the fourth quarter increased 73.9% to $1.96 billion, compared to $1.13 billion in the year-ago quarter. The increase was primarily due to $0.7 billion in sales from the merger with Nash Finch, and the two extra weeks in this year's fourth quarter compared to last year, partially offset by $18 million in lost sales related to store closures. Consolidated gross profit margin for the fourth quarter was 14.4% compared to 16.3% in the prior year, and primarily reflects the change in segment mix due to the merger.

Fourth quarter operating expenses would've been $232.5 million or 12.7% of net sales compared to $164.6 million or 14.6% of net sales last year if the 53rd week and charges related to the merger and integration and asset impairment and restructuring, pension settlements, and other non-cash adjustments were excluded in both periods. On an absolute basis, the increase was due to the inclusion of the Nash Finch operations for the full quarter partially offset by the impact of closed stores and realization of merger synergies.

The decrease in rate was due primarily to the change in the segment sales mix as a result of the merger, store closures, and merger synergies. These results exclude $4.5 million in expenses related to merger integration, $6.2 million in asset impairment and restructuring, and $1.6 million in pension settlement accounting charges, and $0.9 million in other one-time charges in the current year's fourth quarter. The prior-year fourth quarter includes $14 million in expenses related to the merger, $14.7 million in asset impairment and restructuring charges, and $3.8 million in other net one-time and non-cash expenses and benefits.

Adjusted EBITDA for the fourth quarter increased 60.6% to $55.3 million or 2.8% of net sales, including the 53rd week, and 49.9% to $51.7 million or 2.8% of net sales excluding the 53rd week, compared to $34.5 million or 3.1% of net sales last year. Adjusted earnings from continuing operations for the fourth quarter were $18.5 million or $0.49 per diluted share on approximately 37.6 million shares outstanding, compared to $9.4 million or $0.31 per diluted share on approximately 30.1 million shares outstanding last year.

These results exclude expenses related to the merger integration of $0.08 per diluted share, asset impairment and restructuring charges of $0.10 per diluted share, and pension settlement accounting charges of $0.02 per diluted share, partially offset by a tax benefit of $0.03 per diluted share related to the favorable settlement of an unrecognized tax liability established in the prior year. The 53rd week contributed $0.05 to adjusted earnings from continuing operations.

For the prior-year fourth quarter adjusted earnings from continuing operations, excluding expenses related to the merger and integration of $0.36 per diluted share, asset impairment and restructuring charges of $0.30 per diluted share, other one-time and non-cash expenses of $0.10 per diluted share, and the net tax benefit of $0.06 per diluted share. These better than anticipated results were driven by our merger synergies including favorable healthcare and workers compensation expenses, partially offset by incremental LIFO expense.

Turning to our operating segment, fourth quarter net sales for the food distribution segment were $853.1 million compared to $473.9 million in the year-ago quarter. Fourth quarter operating earnings for the food distribution segment when adjusted to exclude $4.5 million in expenses related to the merger integration, asset impairment and restructuring, and other one-time and non-cash expenses increased 41% to $20.6 million including the 53rd week, and increased 33.3% to $19.5 million excluding the 53rd week, versus $14.6 million last year, excluding $18.7 million in merger and other one-time expenses.

In our retail segment, fourth quarter net sales were $544.1 million compared to $406 million last year. Retail segment operating earnings for the FY14 and FY13 fourth quarters were adjusted to exclude $8.5 million and $13.6 million, respectively, in merger integration expenses, asset impairment and structured charges, and other one-time and non-cash expenses increased 177.7% to $7.7 million including the 53rd week and increased 106.6% to $5.7 million when excluding the 53rd week, versus $2.8 million last year. The improvement was due primarily to the positive effect of merger synergies.

In our military segment, fourth quarter net sales were $565.4 million compared to $248.6 million last year. Operating earnings excluding merger and integration expenses and other one-time expenses of $0.1 million were $5.9 million including the 53rd week and $5.3 million excluding the 53rd week compared to $1.9 million last year.

From a cash flow perspective, our FY14 operating cash flow was $139.1 million compared to $97.1 million last year. The increase was the result of contributions from the merger and favorable expense reductions. As a result of our continued strong cash flow generation, during the fourth quarter we repurchased 125,000 shares of our common stock for a total of approximately $2.5 million. As of the end of FY14, we have $21.3 million available for share repurchases under our $50 million repurchase program which expires in May 2016.

Total net long-term debt was $563.8 million as of January 3, 2015, versus $596.4 million last year. We remain committed to reducing our leverage towards the 2 times multiple of EBITDA, and end FY14 at 2.4 times. We expect to continue the deleverage our balance sheet in FY15 barring any new acquisition opportunities. With approximately $407 million of availability under our credit facility as of January 3, 2015, our capital structure comfortably supports our continued growth initiatives, excluding potential acquisitions.

Now to briefly review the FY14 annual results, consolidated net sales increase 148.2% to $7.9 billion, compared to $3.2 billion last year. Comparable store sales excluding fuel increased 0.9% in FY14. Adjusted EBITDA for the year was $234.4 million when including the 53rd week and $230.8 million when excluding the 53rd week, compared to $126.9 million last year.

When looking forward to FY15, we are cautiously optimistic about the economy and the consumer, given signs of improved unemployment rates and the reduction in energy prices. We expect to continue to grow our business as we upgrade our retail systems and facilities. However, we anticipate headwinds on our comparable store sales as we fold the Western stores into the comps store base.

Additionally, we expect our first quarter operational results will be challenged by low center store inflation and our cycling of the very favorable winter weather conditions that we experienced last year. As a result, we expect first quarter adjusted earnings from continuing operations to approximate last year. As the year progresses, we expect the headwinds will ease, and we'll begin to realize the benefit from the remodels completed in FY14 and the first half of FY15, and gain further traction from the rollout of merchandising price and promotional programs to more of our own stores as well as our independent customers.

For FY15, we anticipate sales growth in both the food distribution and military segments, and that comparable store sales will be in the range of lightly negative to slightly positive, with adjusted earnings per share from continuing operations of approximately $1.89 to $1.98, excluding merger integration costs and other one-time expenses and gains. For purposes of comparison, similarly adjusted earnings per share were $1.80 in FY14 on a 52-week basis. The 53rd week in the current year contributed $135.2 million in consolidated net sales and $0.05 in adjusted earnings per share.

We expect the capital expenditures for FY15 will be in the range of $75 million to $80 million, with depreciation and amortization in the range of $86 million to $90 million, and total interest expense in the range of $23.5 million to $25 million. This concludes our financial discussion, and I will now turn the call back to Dennis for his closing remarks. Dennis?

Thanks, Dave. In conclusion, we really had a winning FY14, meeting many of our important milestones over the course of the year and setting a strong foundation for success in 2015 and well beyond. While we still have a lot of work to do, the actions we're taking are driving greater levels of performance and delivering benefits for our consumers, independent retailers, suppliers, and shareholders. We're confident that we have the right team and plan built on this momentum to realize the potential of our retail and distribution businesses.

Within every level of SpartanNash, teams have pulled together to identify and build upon best practices, expanding successful operations and services, and positioning the Company to take advantage of new opportunities. In FY15, we plan to continue to rollout our merchandising pricing and promotional plans across our Western store base and will augment these programs with additional store remodels. We will continue our integration and remain focused on improving the efficiency of our operations. We're confident that our long-term strategic plan will enable us to continue to expand our market share and deliver shareholder value.

With that, we'll now open the call for your questions.

(Operator Instructions)

Mark Wiltamuth of Jefferies.

Congrats on the quarter.

Thank you.

First, Dennis, on the military segment you said the system remains challenged there. Could you give us some idea on how the broader military commissary system is trending on sales right now?

Yes, actually as we turn the calendar quarter (inaudible) performance seems to have improved. We don't have numbers yet for January, but our numbers are showing growth through the first eight weeks of the year which is different than what we experienced all of last year. I suspect DeCA's probably showing some growth as well. It's modest growth, but it is growth.

We've done a lot of hard work in this segment. We've got a great leadership team in place. We won some new business over the past six months, and we expect that will show up in the revenue stream. As such, Dave indicated we're forecasting positive sales in that segment this year.

I know you personally have been spending some time in the segment. Give us an update on your longer-term thoughts, and maybe expanding beyond just commissary business as you get into thinking about troop feeding or base exchanges. Is any of that moving forward, or are you still in the early stages of planning for that?

We very much believe that the entire system would benefit from a more efficient distribution platform. Frankly, we believe we're that solution. We are a worldwide solution to the commissaries. We also believe that the platform is perfectly suited to do far more business, both in regard to troop feeding and a lot of that goes overseas. We're the preeminent supplier to Europe and Asia with our partner Coastal Pacific. We know that, I think, plan very well. We think exchange opportunity is a significant one, and we continue to mine it in there as well. I think there's plenty of upside to organically grow this business by getting to those additional segments.

Then on the back end of that business, on the supply side and efficiencies there, especially as you combine your wholesaling management as well as the military sourcing, maybe talk about the opportunities on the back end?

I think we have in the past year actually done a very nice job bringing the core SpartanNash merchandising and procurement team into a tighter working relationship with the MDV supply chain. We've already begun to see some benefits of that, and part of that is just in the way we go to market, as we talked to our customers in the space which as you know, Mark, are really the CPGs. I think we're well on the way to using the full width and breadth of our offer to grow the military business.

Okay, thanks. I'll get back in the line.

Karen Short of Deutsche Bank.

It's Shane Higgins on for Karen. Thanks for taking the questions. Just looking at that retail EBITDA margins year-over-year, and I know they're not exactly comparable, I see that they're up about 20 basis points. Was this primarily due to the merger synergies and the store closures?

It's a little bit of both, Shane. It's also probably a little bit of how we're working the segment numbers. When you look at how we've treated the profitability of retail in the past, we had it pretty much as a stand-alone entity where we treated distribution as a whole profit center.

This year, and we've adjusted the history last year so it's not much of a factor. We've changed that now to where we put a lot of the profitability into the retail segment versus the distribution segment, and so we've equal that out.

That shouldn't change a lot over year-over-year, but just so you understanding how we're doing it. I think the store closures certainly helped that EBITDA margin as well.

Great. Thanks for that color. What about the margins, just looking at the legacy Spartan Stores? I know you guys talked a bit about some of the initiatives that you've been rolling out there and you hope to roll out, out West. How do margins really look year-over-year just within the legacy Spartan segment?

Shane, we're really not breaking that out anymore, as the business continues to morph together and become one. Breaking out the segments isn't something we're really going to do going forward.

Okay. That's fair. As we look at modeling the segment for next year, are you guys thinking about margins improving a bit? I know you're closing some stores and obviously continue to benefit from the synergies. How should we think about margins for the segment in 2015?

Maybe some slight improvement, but overall margins will be relatively consistent, but a little bit upside across the Company on margins.

Great, thanks. Then just switching over to CapEx, the $75 million to $80 million guidance, is that mostly for the remodels and re-bannering that you're doing? Could you just give us a little bit more color on that? Thanks.

If you look at how we do that, it's slightly more than half typically goes, probably in that $45 million or so range goes into the retail group. The rest is spread out between distribution and systems and corporate. Then when you look at the majority of that $45 million, certainly a very component of that would go into the remodeling efforts.

Great. Then just one final one, just to clarify, you guys are looking for year-over-year sales growth in the food distribution and military segments. Is that on a 52-week comparable basis, or does that include cycling the 53rd week?

Certainly on the 52-week base, this is how we're looking at that for the most part.

That was 52 week?

Yes.

Okay. Thanks so much.

Ajay Jain of Cantor Fitzgerald.

Hello. Good morning, and let me offer my congratulations on your organizational announcements. The weather headwinds that you mentioned had a lot of impact in December. I think you guys mentioned, but I just want to confirm, do those weather comparisons improve since December, or not necessarily?

First of all, I should have said this before. I took the first question. I want to thank all the analyst for bearing with us, going through this first year, and all these adjustments and merger-related. You read the script and it's hard to follow, and I appreciate that. We're looking forward here to getting to a clean 2015 and having these numbers be a little easier to digest.

Winter weather, we're talking about, Ajay, really was about last year. The state of Michigan had I think it was number two all-time snowfall. We got plenty of snowstorms and a lot of snow. Western Michigan got 107 inches of snow. We normally get in the 70s range. When we started to cycle that in December, we started to see the comps fall off a little bit. We just couldn't get that [pantry] loading replaced with this year's weather.

In fact in December, we had 31 inches less snow than we had the prior year December. Through the middle of February, December, January, February, we've gotten actually 61 inches less snow than a year ago which almost is like the annual season snowfall. We've had like the opposite of Boston. They're getting it this year. We got it last year. I hate talking about the weather as it relates to the sales, but when it's that significant it was clearly a contributor, and we are seeing it moderate a little bit as we move through January and now into late February and early March.

Would you be able to confirm your quarter-to-date comps? I also wanted to confirm how long the Price Freeze that you mentioned, how long that been in effect for your wholesale business?

I don't think we'd [be accustomed to giving] the comps, but I think as Dave pointed out in his remarks that we feel these headwinds in the quarter. You would expect to see that, and we also guided to flat EPS versus a year ago for Q1 with regard to headwinds.

The Price Freeze program is a program that we put in place several years ago, and it continually gets refreshed. We typically do it on a seasonal basis, so we'll have a winter group, and then a spring group, and a summer group. The weeks could sometimes change, but think of it almost on a quarterly basis. We change up the items in the Price Freeze program, although some items have been in the Price Freeze program for the full three years. It's a little bit of a blend and a mix, and we think it's helped us do a better job with price perception and our value score as we track that from consumer feedback.

On the store closures that you talked about, do those stores fall in a particular region, or is it more broad-based? Also, can you comment on whether they're more specific to the legacy Nash business, or are they more in Michigan?

Yes. We obviously (inaudible) the locations, but the store closures will be primarily domiciled in the Western store base.

Okay. If I could just ask one final question, I know you've had a lot of super center exposure over the years in Michigan, but in terms of the recent square footage growth with neighborhood markets, are you seeing any kind of incremental impact, both from the standpoint of your wholesale customers, and with your own retailing operations? It seems like there's been a lot of growth in that format very recently, and I think they're also comping in the high-single digits. Thanks.

Yes. We're seeing those numbers being reported. We don't have any neighborhood markets in the Michigan marketplace. We have experienced the neighborhood market activity in the Nebraska marketplace, and they actually recently expanded with neighborhood markets in the past couple of years. The total number of neighborhood markets in I think the Omaha market is up to seven or eight right now, and they're all relatively new.

Great. Thank you.

Scott Mushkin of Wolfe Research.

This is actually Mike Otway in for Scott. Thanks for taking the question. Dennis, so you guys are now I guess 15 plus months past the close of the deal with Nash. As you guys think about the last year or so, what the team has learned, some of the positive surprises, some of the hurdles, are you more excited about certain opportunities now than you maybe were a year ago? On the flip side, are the things that are taking a bit longer to play out than you may have originally anticipated? Any color there would be helpful.

I think we are really on plan with regards to 15 months in. I'll start off by saying that. As you may recall, a year ago at this call we laid out some guideposts for the business for this year. We said we going to expect sales between $7.9 billion and $8.04 billion, and we delivered on that number.

We said we're expecting synergies of $20 million. We told you consistently we beat the synergy number. We said we expected EBITDA between $230 million and $239 million. The number here today is $234 million plus in EBITDA, right there in the middle of that range. We actually guided EPS at $1.65 to $1.75, and yet we're reporting $1.85.

When you think about beating that number and being in the range I think you can understand why we feel pretty good about being able to call where we were going to come out, despite the fact that's not an easy modeling exercise to do. Then you take the $1.85, on a 52-week basis it's a $1.80, as we pointed out, and you look at the guidance next year, we're seeing we're going to go 5% to 10% more than that already accelerated number from the original expectation. I think you might glean from that that we're feeling pretty optimistic about where things are today and where we can go.

It is only 15 months in, and there is a full three years' worth of work in the integration. There's a lot left to do, but I think we have fundamentally transformed the Company. I think we've built the foundation as truly a platform for growth, and as I look at the space I don't feel any differently than I did a year ago with regard to there will be continue to be opportunities to consolidate the space as scale and size become more and more important. Maybe a long-winded answer, but I'm feeling good about the outlook.

That's really helpful, and I appreciate that. Then maybe switch gears, in terms of the Nash Finch stores and the focus on getting those comps in that business to a desired level, are they underpenetrated in terms of private label, organics? Is there some low-hanging fruit that as you guys roll some of these initiatives through that's -- there are some things that you can see relatively quickly, or quickly maybe in the next year or so? Then how are you thinking about pricing in those stores?

I think the story on the Nash legacy retail is a combination of things. I might start with undercapitalized. In Spartan, I've been here 13 years. When I came, the store base was in need of a lot of investing, and we got through that and turned this fleet of stores into a meaningful chain. I think in the case of Nash Finch there just has not been that amount of capital redeployed into the stores over the course of the past decade, and so we need to catch up.

Some of the stores are just not going to fit, and we outlined 10 store closings in FY15. Some of the merchandising I would say probably was not as robust as we would've seen in the historical Spartan legacy, but that isn't to say that everything is broken. I think they've got a great private brand program in place, and that private brand business continues to perform well.

It over-indexes the national average. It's a little bit softer than the Spartan numbers. We think there's opportunities there with regard to the fresh perimeter where Spartan had put a lot of emphasis on produce and meat private brand items. We think we can get some low-hanging fruit there as we move forward.

Many of the stores haven't been re-merchandised in a while. We think we'll get benefits from reflows and re-merchandising. The Dickinson and Fargo markets that we talked about earlier, we're getting very nice top line sales increases as we've remodeled and re-bannered those stores.

So I don't think there's a ton of quick hits. There are some that we'll get, but it's really more blocking and tackling. I think we have the right team to do it, and we're anxious to make some real progress this year.

Thank you very much.

Mark Wiltamuth of Jefferies.

Dennis, just another question on that difficult year-ago comparison from the snowstorms last year, do you think the Michigan retail comp could be positive in the first quarter?

We really haven't guided that. On the comp, I'll maybe a little bit maybe with modeling. We indicated that Michigan was 0.9% for the year, so that was the comps. We've also said that our comps are going to be slightly negative to slightly positive for the full year for the total retail enterprise.

I would tell you that our expectation is Michigan overperforms that 0.9% comps in FY15. We think we can get a better performance in the Michigan retail than last year's 0.9%, yet we're cautious about guiding anything different than slightly negative to slightly positive for the entire retail base. Does that help you little bit?

That makes sense because also the first quarter will be the weakest. I think that gets us where we need to be. Then also on the acquisitions front, you talk about the merger being a new platform for acquisition driven growth. I think when you originally announced the deal you said maybe 18 months after the acquisition you can start thinking about doing acquisitions. We're kind of getting close to that milestone. Where do you see the opportunities? Is it more on wholesale or retail?

Then maybe if Dave could comment on where you'd be comfortable moving the financial leverage if a deal came up? Right now you're at 2.4 times debt-to-EBITDA. Where could that move up to if you saw something sizable?

I'll take the last part first. We're actually 0.4 times. We started the year at about 2.9 times. Dave, correct me if I'm wrong. We've got net leverage down. We've discussed in here trying to get this down to that 2 times leverage which we feel very comfortable at. If you watch Spartan and really under Dave's leadership over the years, we've levered up and we've been very diligent about paying down that debt.

I think the answer is really (inaudible), it depends. It depends on the kinds of transaction that we're looking at. Could we get into the high 3s, and feel somewhat comfortable? I think yes, we could for the right opportunity, for the right strategic opportunity to grow the business. I don't think that kind of leverage would concern us whatsoever. Dave, you can chime in if you're feeling any differently about that.

On the opportunities, I think they continue to exist, and here we are getting closer to the 18 months. We're always opportunistically looking for the right acquisitions, and we think that with 18 months or so behind us we will be better equipped to do it, but we're not going to do an acquisition for the sake of doing one. We're going to find the right ones, and they're going to be out there. We're going to take advantage of them as they come up.

At this point, do you think they're more smaller regional, platform-enhancing spots, or are you thinking more bigger transactions?

I think it could be either.

Okay. Thank you very much.

This concludes our question-and-answer section. I would like to turn the conference back over to management for any closing remarks.

Thanks, Emily. I want to thank all of you for participating today, and that concludes our fourth quarter FY14 conference call, and we look forward to speaking with everybody again next quarter. Thanks.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.