SpartanNash Co (SPTN) 2015 Q1 法說會逐字稿

Good day, and welcome to the SpartanNash Company's first quarter 2015 earnings conference call and webcast.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Katie Turner, Managing Director. Please go ahead.

Thank you. Good morning, and welcome to SpartanNash Company's first quarter FY15 earnings conference call. By now everyone should have access to the earnings release for the first quarter ended April 25, 2015. For a copy of the release, please visit the SpartanNash website at www.spartannash.com under For Investors. This call is being recorded and a replay will be available on the Company's website for approximately 10 days.

Before we begin, we would 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 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 SpartanNash's forward-looking statements can be found in the Company's first 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, investors 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 their most directly comparable GAAP financial measures and other information required by Regulation G is included in the Company's earnings release which was issued after market close yesterday. It is now my pleasure to introduce Mr. Dennis Eidson, President and CEO of SpartanNash Company, for opening remarks.

Thanks, Katie. Good morning, and thank you for joining our first quarter FY15 earnings conference call. With me this morning are Dave Staples, our EVP and Chief Operating Officer, as well as other members our executive team. Today I will begin as usual by providing you a brief overview of our business and highlights of our financial performance for the quarter.

Dave will then share some additional details about the first quarter financial results, as well as our outlook for the remainder of FY15. Finally, I will provide some closing remarks and then we will open up the call and take some questions.

We continue to be encouraged by our financial performance for the first quarter, and despite some headwinds from several directions, including challenging weather comparisons versus the prior year and the addition of the Nash Finch stores to our comp store sales base, I'm pleased to report that our adjusted earnings from continuing operations exceeded our expectations as we benefited from the merger synergies and our ongoing efforts to lower expense levels.

During the first quarter, we generated a 50% increase in operating cash flow which we used to reduce our debt level by $35 million, pay our quarterly dividend, and repurchase shares which not only demonstrates our commitment to reduce leverage and ensure availability for our strategic initiatives, but also our commitment to return value to our shareholders.

Now reviewing our Food Distribution segment results, I'm pleased to report that net sales were up 1.6% in the first quarter, as we continue to look for ways to offset the headwinds being experienced by the industry. On the merchandising and marketing front, we continue to roll out new strategies to our western retail stores and are applying our go-to-market strategy across all of our independent customers.

For example, we completed the introduction of the price freeze program at all of our distribution centers, and we are working on rolling out the wall-of-values and basket-of-value programs. We have been encouraged by the initial response to the programs and are now focused on gaining even greater acceptance by our customers. We are also beginning to offer more value-added options such as digital coupons to help our independent customers drive both traffic and sales.

We continue to look for ways to improve our operational efficiencies and are targeting two main areas of opportunity, the areas are transportation network and warehouse optimization. As we previously disclosed, during the first quarter, we consolidated our Rapid City warehouse into our Omaha and Fargo facilities. By all accounts it was a successful transition and we are receiving positive feedback from our customer base due to the overall fresher products and improved selection that we can now offer.

This is the second facility that we've consolidated since the merger, which demonstrates our continued commitment to improving services to our customers. The other key efficiency driver is optimization of our transportation network for both our Military and Food Distribution channels as we see a number of opportunities to gain better economies of scale. This initiative is currently in its initial phase of planning, however, we believe there will be significant benefits attached to this effort.

Turning to our Retail segment, net sales in Retail decreased primarily due to a combination of the impact from our store rationalization plan and significantly lower retail fuel prices. With the number of remodels and resets completed in the prior year, and six more slated to be completed in the third quarter, we are doing a better job of merchandising our western stores and will be turning our attention to driving traffic through both traditional and digital media in the coming quarters.

We continue to invest more the digital space, and are focusing more of our overall marketing budget on digital, as we use targeted email, mobile coupons, and other individually-tailored promotions to drive traffic and help determine the optimal promotions. As we continue to learn more about our customers through our loyalty program, we are improving the quality of the highly-targeted mailings and are seeing meaningful increases in the engagement of our customers with these offers.

We are also preparing to introduce our Yes Rewards loyalty program in parts of our western market. We continue to make progress on executing our integration plan for the Retail segment. During the first quarter, we opened a new store in Dickinson, North Dakota. As expected, this store has impacted our existing store sales but we've seen a positive overall lift to the overall market.

We also continue to successfully leverage our pharmacy program to better connect with our customers. Our Michigan pharmacies posted a strong 3.7% increase in comp script count for the quarter, marking our 17th consecutive quarter of positive script count growth.

We will begin rolling out our pharmacy offerings, including our generic program, prenatal vitamins, and free diabetes medicine to the western store base in the second quarter and are looking forward to the results. We expect these programs will resonate as strongly in our western store base as they currently do with our Michigan customers.

We also continue to focus on realizing the opportunities to connect with customers via our fuel program. Our comp gallons for the first quarter were up over 4.9% compared to 2.9% for the industry. We continue to sign up new fuel partners to strengthen the program for our western stores. We are also testing some new reward strategies that focus on driving traffic and repeat business.

On the product side, we continue to expand our private brand program for both our distribution and retail customers. During the first quarter, we launched over 66 new private brand items and our private brand unit penetration in our retail operations was 22%, which continues to place us above the national average. We ended the quarter with approximately 7,000 private brand offerings, and for the full year we continue to expect to introduce approximately 300 new items.

Sales in our Military segment increased 2.2% from the prior year, as we are benefiting from the business wins in strong [export] sales. We continue to seek out new business and are encouraged by what we've been seeing in that area, as well as the improved operational efficiencies and benefits that we are receiving from the expanded warehouse facility that we opened last year.

Moving onto our capital plan, during the first quarter, we opened one new store and fuel center in Dickinson, North Dakota, and closed four supermarkets, three in Omaha and one in Lincoln as part of our store rationalization plan. This brings our store count to 159 supermarkets and 30 fuel centers at the end of the quarter.

During the quarter, we also began construction on six remodels and re-banners in the Nebraska market. All six of these stores will be converted to the Family Fare banner. We are excited about the expected benefits, as we're adding new features to select stores, such as expanded natural and organic sections and Starbucks. We are confident customers are going to appreciate. All six of these remodels are scheduled for completion in the third quarter.

In line with our strategy of opportunistically increasing our retail presence, I'm pleased to announce that we entered into an agreement to acquire Dan's Supermarkets. Dan's is a six-store chain serving Bismarck and Mandan, North Dakota. We purchased two stores from Dan's in Dickinson, North Dakota in 2013, and as I mentioned, opened a third store earlier this year in Dickinson.

We are excited about this addition to our retail network which strengthens our offering to this region, and look forward to the opportunity to provide the Bismarck area with the quality products, competitive pricing, exceptional customer service, and community support we brought to Dickinson. We expect the transaction to close in June 2015 and anticipate it will add approximately $100 million in sales to the Retail segment.

With that, I will turn the call over to Dave for more details on our financial results and the outlook for the remainder of 2015. Dave?

Thank you, Dennis, and good morning, everyone. Consolidated net sales in the first quarter decreased 0.9% to $2.31 billion compared to $2.33 billion in the year-ago quarter. Increases in the Food Distribution and Military segments were offset by the impact of stores closed under our store rationalization plan of $27.8 million, significantly lower retail fuel prices this year resulting in a reduction of $15.8 million, and a decrease in comparable store sales at locations obtained in the merger with Nash Finch.

Consolidated gross profit margin for the first quarter was 14.5% compared to 14.9% in the prior year, and primarily reflects the impact of higher sales from Food Distribution and Military segments which carry lower margins. First quarter operating expenses would have been $302.4 million, or 13.1% of net sales, compared to $315.5 million, or 13.5% of net sales last year, but the charges related to the merger integration expenses and asset impairment and restructuring charges were excluded in both periods.

On an absolute basis, the decrease was due to benefits from merger synergies, lower fuel and healthcare costs, as well as the impact of closed stores, and one closed warehouse. These results exclude $2.7 million in expenses related to merger integration and $7.3 million in asset impairment and restructuring. The prior year first quarter excludes $4.2 million in expenses related to the merger and $100,000 in asset impairment and restructuring charges.

Adjusted EBITDA for the first quarter increased 1.5% to $65.9 million, or 2.8% of net sales, compared to $64.9 million, or 2.8% of net sales last year. Adjusted earnings from continuing operations for the first quarter were $16.6 million, or $0.44 per diluted share, compared to $15.2 million, or $0.40 per diluted share last year. These results exclude asset impairment and restructuring charges of $0.12 per diluted share and merger integration and acquisition expenses of $0.04 per diluted share. For the prior year first quarter, adjusted earnings from continuing operations exclude merger and integration expenses of $0.07 per diluted share.

Turning to our operating segments, first quarter net sales for the Food Distribution segment were $986.4 million compared to $971 million in the year-ago quarter. First quarter operating earnings for the Food Distribution segment, when adjusted to exclude $1.9 million in expenses related to the merger integration, asset impairment and restructuring, and gains on sale of assets, increased 16% to $22.2 million versus $19.1 million last year, excluding $4.9 million in merger expenses and restructuring charges. The increase was primarily due to merger synergies and lower healthcare and labor-related expenses, as well the impact of lower net fuel prices.

In our Retail segment, first quarter net sales were $626.9 million compared to $678.6 million last year. Comparable store sales, excluding fuel, decreased 1.2% from the prior year, as we cycled the favorable winter weather conditions last year and included the stores acquired in the merger with Nash Finch.

While we do not intend to disclose sales by market on an ongoing basis, I do want to point out that despite the weather, comparable store sales in our Michigan retail operations were slightly positive for the quarter. Retail segment operating earnings for the quarter when adjusted to exclude $8.1 million in asset impairment and restructuring charges and acquisition costs decreased to $5.6 million versus $8.4 million last year, when adjusted to exclude $0.6 million of net pre-tax gains on asset sales and asset impairment charges. The decrease was due primarily to the impact of newly opened stores and lower comp store sales, partially offset by favorable fuel center performance, healthcare expenses and the impact of store closures.

In our Military segment, first quarter net sales were $699.4 million compared to $684.2 million last year. Operating earnings were $6.2 million compared to $4.4 million last year primarily due to increased volume, improved operational efficiencies, as Dennis mentioned earlier, and lower net fuel costs.

From a cash flow perspective, our operating cash flow for the first quarter was $48.9 million compared to $32.6 million last year. The increase was due to improvements in working capital.

As a result of our continued strong cash flow generation, during the first quarter, we repurchased 79,400 shares of our common stock for a total of approximately $2.5 million. As of the end of the first quarter, we had $18.8 million available for share repurchases under our $50 million repurchase program, which expires in May of 2016.

Total net long-term debt was $526.8 million as of April 25, 2015 versus $563.8 million at the end of last year. We remain committed to reducing our leverage towards the 2.0 times multiple of EBITDA and ended up the quarter at 2.24 times. With approximately $250 million of strategic availability under our credit facility as of April 25, 2015, our capital structure comfortably supports our continued operational and strategic initiatives including potential acquisitions.

As we look to the remainder of the year, we are cautiously optimistic about our outlook given the increasingly competitive retail food environment, particularly in our western markets. While we expect modest pressure on sales, we continue to take steps to drive our top and bottom line including merchandising, pricing, promotional, and store improvement efforts, as well as careful expense management.

As a result, we anticipate second quarter adjusted earnings from continuing operations will slightly exceed last year's comparable results of $0.50 per diluted share, excluding merger integration costs and other one-time expenses and gains. Based on our outlook for the remainder of the year, we are maintaining our previously issued FY15 guidance of 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, the Company's similarly adjusted earnings per share were $1.80 in FY14 when adjusted to a 52-week basis. Our FY15 guidance is based on sales growth in both the Food Distribution and Military segments and that comparable store sales at retail will be in the range of slightly negative to slightly positive.

We expect that capital expenditures for FY15 will be in the range of $75 million to $80 million, with depreciation and amortization now in the range of $83 million to $85 million, and total interest expense now in the range of $23 million to $24 million. This concludes our financial discussion, and I will now turn the call back to Dennis for his closing remarks. Dennis?

Thanks, Dave. Well, in conclusion, we really are encouraged by performance in the first quarter, which reflects growth in our Food Distribution and our Military segments, as well as our legacy retail operations and the benefits of merger synergies and operating efficiencies.

We have a number of initiatives underway, including the rollout of merchandising, pricing, and promotional strategies across our western store base, additional store remodels, plans to further optimize our supply chain that we believe will drive sales and earnings growth over the remainder of the year and beyond. We continue to be in a very strong financial position and intend to leverage our scale of financial flexibility to opportunistically grow our retail presence and to expand our independent distribution network. With that, we will now open the call up and take some questions.

(Operator Instructions)

Mark Wiltamuth of Jefferies.

Thank you, excellent pronunciation. First, I wanted to ask a little bit about the Military segment. I think you've turned the corner there. If you could really give us a little more detail on what drove the new account wins? And if you could also give us a little tone on what's going on in the broader Military segment in terms of demand growth? What is the DeCA sales growth trend right now?

Yes, thanks, Mark, and thanks for joining us this morning. I think the Military piece on the revenue stream is really attributed to just a ton of hard work by our MDV leadership team led by Ed Brunot. We've been working very, very hard with the customers in the space to put, really, our story in front of them. And, as you know, we enjoy a significant share of that business, and we believe we absolutely have the best model in the industry to optimize the service to DeCA.

So with that, we've been getting some attention to that. Dave and myself have been pretty active, as well as our merchant group, with the customers in that space and it is paying off. We got big win from Kraft that manifested itself in the quarter, somewhere between $35 million and $40 million of annualized volume as we won that RFP.

We're also optimizing the operation. I mentioned the Landover facility we expanded a year ago and we are now starting to see some of the benefits from a logistics perspective and some of that dropping to the bottom line. As we indicated, our sales were positive, 2.2%, and DeCA continues to run somewhat negative, I think, in the same quarter. They are running approximately 3% negative, so clearly, we are doing better than DeCA in general. Although I would say to you that it feels a little bit better on the DeCA side than it did a year ago at this very time. So maybe the trend is improving a bit.

Okay. And then, to flip over to the Retail side, you mentioned there in you're closing remarks that you're still expecting some pressure in the western markets. If you could talk about the competitive pressures a little more that would help?

In the west, we are reporting comps now for (inaudible) legacy Nash retail, which I hate that term, but I think it describes what I'm talking about. Omaha has been a particularly difficult marketplace, lots of competitive incursion, primarily led by Walmart and Hy-Vee, so we are fighting that back. And the big investment in Omaha, we believe, is just what the doctor ordered to begin to turning that around.

There is also going to be some competitive openings in the North Dakota marketplace, both by Coborn's and Super Valu with the corporate stores, so we're prepared for that. But that was the reference to the headwinds part.

Okay, and how long do you think it will take really for the turnaround process to take here, as you go through the remodels and you put in your Michigan best practices into the western markets, how long do you think before that market is where you want it to be?

First of all, it is not just Michigan best practices, I want to make that clear. The west retail portfolio is not all in Omaha. We have some great stores performing very well, and there are some initiatives they have in place that really have helped that business, and we're going to utilize those, as well.

I would say we're sitting there with six stores in Omaha, we've got 21, I think, stores in the market, Dave, 21 in the market. So, obviously, this is a small percentage, although a meaningful percentage. It will take some time. If things go well, next year, you could see us bite off another six or more depending on how we perform.

Okay, thank you very much.

Karen Short of Deutsche Bank.

Yes, good morning, it's actually Shane Higgins on for Karen. Thanks for taking the questions, guys. I was just looking at the operating margins in the Retail segment. They did come in a little bit lower than we were modeling.

Was this primarily a function of cycling that the more difficult weather-related compares? And if you guys could specifically speak to the gross margin in the segment for the quarter that would be great.

I think in general, Shane, certainly the weather has an impact on that, right, as it changes the volumes. Additionally, we had a new store opening in our North Dakota market which, as Dennis alluded to in his comments, significantly impacted that market, and so it takes time to adjust. That, and I think the general competitive environment, I think, would explain what's going on in the western side of things.

And how would you -- how should we think about the operating margins over the next couple of quarters for the Retail segment?

I think they will continue to feel little bit of pressure as we go through this year, and, hopefully, as we complete the remodeling efforts and get the volume trends moving the way we want you will see that start to flip around.

Okay, great. And then on the -- and just looking at the comps in the Michigan segment, you guys mentioned that they were positive in the quarter, are those still positive 2Q to date, and do you guys anticipate that that's where those stores will end up for the year?

Yes. You are speaking specifically on Michigan, sure. We're pretty pleased with how the western Michigan market and that is performing. We feel good about the cadence in that group and we -- that's where we have a lot of our consumer-centric information available.

We have the loyalty program. We have our AIMIA project. It's really the breeding ground or the central area that we are able to deploy a lot of our new thinking. And so as we do more in the west, and as we're able to deploy the loyalty card and get some of that data, hopefully, we can begin to export some of that knowledge throughout the operations.

Sure, and just real quick on the inflation side, I know it's been a challenge, especially for you guys and center store, any thoughts on specifically where [proteins] might be headed given that we've, obviously, seen a sharp reduction in poultry supply? Are you guys hearing anything from your suppliers as to how that might impact poultry or proteins in general?

The avian flu is pretty significant, right, and so that will have an impact we believe. And so on the meat side, I think you mentioned produce, as well, they are very different performers, right. On the meat side, while still very inflationary, on the distribution side of the business, we saw a nice decline in that heightened rate. So it is still inflationary and not to the level it was, produce is a different animal, right, or a different product, I should say.

And so on the produce side, that is a roller coaster, right. Produce, you can have high inflation, you can have deflation, and so much depends on the growing conditions and the weather. That has certainly flipped from inflationary to deflationary in the last quarter, and I think that will just be somewhat dependent on what you see going forward in the growing season.

Okay, good, thanks for that color. And just one last one. Did you guys expect the Dan's acquisition to be accretive this year?

Certainly, yes.

All right, guys, thanks.

Chuck Cerankosky of Northcoast Research.

Good morning, guys. This is Kara on the phone for Chuck. I was wondering if maybe you could give us some color on how gasoline profitability is tracking second quarter to date compared to the first quarter?

What profitability?

Gasoline.

Gas profitability. Yes, first quarter was actually a very good quarter for us from a profit standpoint. Cents per gallon was even better than the fourth quarter where I think we were little bit contrary to maybe what the industry saw. Early in the second quarter, the cents per gallon profit on fuel would be less than the first quarter.

Okay, great, thanks. And how many fuel stations are you guys planning on opening this year, and how many of those will be outside of Michigan?

We have one on the docket.

One opened already in Q1. And then, what we're really doing outside of Michigan at this point is we're working on some significant partnerships with existing suppliers. So in the quarter -- well actually slightly after the quarter, we inked an agreement for a partner in the Omaha market, which we are really excited about, and we continue to look for other partnerships throughout the west retail operation.

In Michigan, we're getting pretty close to saturated. There's probably a handful at most that we would like to open and we continue to work on that. At this point, we have a couple of opportunities, not sure that we will get those actually opened this year.

Okay, great thanks.

James Fronda of Sidoti & Company.

Hey, guys, how are you?

Good, James.

Just on the acquisition strategy going forward, whether it's retail or distribution, is there any fear of potential FTC involvement going forward, or are you guys too small to think about that?

The type of acquisition we just did here with Dan's is pretty small. It is a fill-in --

Right.

It's a market. Frankly, we weren't (inaudible) more in markets either to the East or West. I think whenever you are talking about acquisition it's always perspective, and if the deal is big enough you could get into some FTC territory. But we're always mindful of that.

Okay, all right, thanks, guys.

Scott Mushkin of Wolfe Research.

Hey, guys, thanks for taking my questions. I've got two areas I wanted to poke at a little bit, on the distribution side, just trying to understand the way the business works. Is everyone on cost-plus or are there contracts that aren't that way?

I'm sorry (inaudible.)

Cost-plus.

Yes, cost-plus. In other words, that you're having to pass the price decreases on right away, or is there wiggle room in your distribution business not to necessarily do that?

Generally the answer is yes. We are on a cost-plus platform.

Okay. I guess what I'm getting at is, I was a little surprised that the distribution -- hats off to you guys, did well -- and I was just trying to understand with some of the environment we've seen with deflation, particularly in produce, and some of the competitive environment, that we've been hearing some of the stuff is hitting quite quickly.

And we had some fears on the distribution side that you guys would have a hard time dealing with that. So can maybe you walk us through like how that works inside your business, and is deflation bad or is it manageable?

Deflation is never a good thing. We would rather not live in a deflationary world. So to answer your question generally, we are in a cost-plus.

When you get into the fresh produce and meat it's a little bit of what the market will bear. We are on the street competing really every day with distributors that are attempting to gain some of that independent volume. But in center store it is a bit of a different scenario. But I think it is, as you would anticipate, if the costs are going down and we own inventory and we have to reduce our sell costs we have a negative impact to our P&L. And deflation in produce is not a good thing.

On the distribution side of the business, we went from inflationary in produce in Q4 to deflationary 1.7% in Q1. Well, that does not feel good. And we have similar situations with meat, where meat was double-digit inflationary in Q4 and we are less than 5% inflationary in Q1. So those do put pressure on our margins at distribution.

Okay. So it's on margin. So it doesn't necessarily act like gasoline where the prices is falling really rapidly, maybe you can take a little bit more -- like the cents per gallon widens out but produce doesn't really, it sounds, like act like that. So is that correct?

Yes. I think that's generally correct. Even with the fuel, it is -- and we just talked about it, right -- we had a better margin in Q1 than we had in Q4, and I think we are now higher there. So much of that is what the market will bear. I don't think those are easy one-size-fits-all answer to that, Scott. I'm not trying to be vague, I just -- it's complex.

No, you guys are very humble. I think you probably did a masterful job running distribution this quarter. I think it was probably very difficult, so from my perspective I think you are probably being too humble. I think it's probably pretty hard to put up the results you did out of distribution. My two cents.

I appreciate that. We made, and I know it's last quarter, we made some changes to the leadership in that group, and Derek Jones has been appointed President of the wholesale business, and he has got the full distribution platform for the entire Company, and Derek has really made a difference in our business.

And we've talked about some other initiatives around the supply chain, we think are going to help drive value, and so I appreciate your compliment, but it really doesn't belong to me. It really belongs with that management team and Derek.

Second thing, about the small acquisition, it's accretive, you guys going to give us any kind of flavor on how accretive it's going to be?

From the top line it should drive somewhere around $100 million in sales.

Okay. And what kind of margin -- just assume kind of a retail margin on that? But you were already were making some money on it, right, because they were a client?

They were not a client. They were actually --

They were not a client.

They were a client of Super Valu.

Okay. So it's all fresh new business?

Exactly. Yes, that makes it even better, right. That's a win-win-win-win.

The deal up there in Bismarck, we bought two stores from Dan's in Dickinson at the end of 2013, and I think it is fair to say that the ownership there at Dan's appreciated the way the Company handled itself with regard to the acquisition of those two stores, and also was very pleased with the kind of changes we made to the stores in Dickinson and went back into the market to see how we launched them.

We did quite a bit of work there remodeling them, re-bannering them. And I think it just left a good feeling with him, and when he was looking for an exit strategy it seemed obvious to him that we would be the right place to go. So we are delighted to welcome the new stores and store associates and we're delighted to have a Super Valu customer now in the SpartanNash portfolio.

So it's $100 million for a year, so it would be about $50 million for this year, is that right?

It's in the ballpark, depending on we finally close.

Okay, so, again, ballpark, about $2.5 million to EBIT or is that way off?

If I told you if I'd have to shoot you. (laughter) You can do the math, Scott. I think it's going to generally perform with our retail group.

Okay, that's perfect. That's great. So then final, final question, I swear, is the -- where do you -- as you look at acquisitions, you said you had plenty of room on your balance sheet, and with the capital structure, is this the type of thing -- this is what you guys used to do, right, like, is this what you prefer to do, or is it the distribution side? Walk us through, since you said, it's part of your strategy going forward, where is your preference?

I don't know that we have a preference. I think we are looking for the opportunities that will add the most long-term profitable growth perspective to the business. And so we have been a little bit more opportunistic, I would say, on the retail side. I think will probably continue to be that way.

On the distribution side, those are -- tend to be bigger transactions. Obviously, the one we're adjusting now, and we're really only half way through our three-year integration plan, maybe are a little more purposeful and maybe a little, I wouldn't characterize them as opportunistic. But we have our eyes wide open on what is going on in the space, and as we indicated when we completed the merger, that we felt that this really provided a foundation for future growth and allowed us to be a player in the consolidation of the Distribution segment, which we continue to believe is going to be a reality. So I think that would be the context that I would give you around our acquisitive strategy.

Okay, that's perfect. Housekeeping, the guidance now includes Dan's, right?

It does not.

It does not.

Not fully.

Okay, I'm glad I asked that last question. Okay, thanks, guys.

(Operator Instructions)

Showing no further questions, I would like to turn the conference back over to Dennis Eidson for any closing remarks.

Thanks, Dan, and I want to thank everybody for participating today and that really concludes our remarks for the first quarter of FY15. And we look forward to speaking with all of you again at the end of the second quarter. Thank you.

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